j
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
b
For the quarterly period ended September 30, 2017March 31, 2024
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 001-37869
Cars.com Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware | 81-3693660 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
300 S. Riverside Plaza, Suite 1000
Chicago, 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 | ☐ | |||
|
|
|
| |||
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,May 2, 2024, the registrant had 71,625,61066,116,556 shares of common stock, $0.01 par value per share, outstanding.
Page | ||
PART I. | 2 | |
Item 1. | 2 | |
2 | ||
3 | ||
| 4 | |
5 | ||
| ||
Notes to the Consolidated |
| |
Item 2. |
|
|
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
Item 3. |
| |
Item 4. |
| |
PART II. |
| |
Item 1. |
| |
Item 1A. |
| |
Item |
|
|
Item 3. | 23 | |
Item 4. | 23 | |
Item 5. | 23 | |
Item 6. | 25 | |
| ||
26 |
1
i
PART I—FINANCIALFINANCIAL INFORMATION
Cars.com Inc.
CONDENSED CONSOLIDATED AND COMBINED BALANCE SHEETSConsolidated Balance Sheets
(In thousands, (exceptexcept 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 |
|
|
| March 31, 2024 |
|
| December 31, 2023 |
| ||
|
| (unaudited) |
|
|
|
| ||
Assets: |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 31,363 |
|
| $ | 39,198 |
|
Accounts receivable, net |
|
| 125,670 |
|
|
| 125,373 |
|
Prepaid expenses |
|
| 12,494 |
|
|
| 12,553 |
|
Other current assets |
|
| 7,644 |
|
|
| 1,314 |
|
Total current assets |
|
| 177,171 |
|
|
| 178,438 |
|
Property and equipment, net |
|
| 43,379 |
|
|
| 43,853 |
|
Goodwill |
|
| 146,104 |
|
|
| 147,058 |
|
Intangible assets, net |
|
| 647,302 |
|
|
| 669,167 |
|
Deferred tax assets, net |
|
| 108,647 |
|
|
| 112,953 |
|
Investments and other assets, net |
|
| 20,528 |
|
|
| 20,980 |
|
Total assets |
| $ | 1,143,131 |
|
| $ | 1,172,449 |
|
Liabilities and stockholders' equity: |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 25,583 |
|
| $ | 22,259 |
|
Accrued compensation |
|
| 17,996 |
|
|
| 31,669 |
|
Current portion of long-term debt, net |
|
| — |
|
|
| 23,129 |
|
Other accrued liabilities |
|
| 65,785 |
|
|
| 68,691 |
|
Total current liabilities |
|
| 109,364 |
|
|
| 145,748 |
|
Noncurrent liabilities: |
|
|
|
|
|
| ||
Long-term debt, net |
|
| 473,755 |
|
|
| 460,119 |
|
Deferred tax liabilities |
|
| 8,687 |
|
|
| 8,757 |
|
Other noncurrent liabilities |
|
| 69,875 |
|
|
| 65,717 |
|
Total noncurrent liabilities |
|
| 552,317 |
|
|
| 534,593 |
|
Total liabilities |
|
| 661,681 |
|
|
| 680,341 |
|
Commitments and contingencies |
|
|
|
|
|
| ||
Stockholders' equity: |
|
|
|
|
|
| ||
Preferred Stock at par, $0.01 par value; 5,000 shares authorized; no shares |
|
| — |
|
|
| — |
|
Common Stock at par, $0.01 par value; 300,000 shares authorized; 66,228 and |
|
| 662 |
|
|
| 659 |
|
Additional paid-in capital |
|
| 1,489,525 |
|
|
| 1,500,232 |
|
Accumulated deficit |
|
| (1,008,950 | ) |
|
| (1,009,734 | ) |
Accumulated other comprehensive income |
|
| 213 |
|
|
| 951 |
|
Total stockholders' equity |
|
| 481,450 |
|
|
| 492,108 |
|
Total liabilities and stockholders' equity |
| $ | 1,143,131 |
|
| $ | 1,172,449 |
|
The accompanying notes are an integral part of these condensed consolidated and combined financial statements.the Consolidated Financial Statements.
2
Cars.com Inc.
CONSOLIDATED AND COMBINED STATEMENTS OF INCOMEConsolidated Statements of Income
Unaudited, in(In thousands, (exceptexcept 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 March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Revenue: |
|
|
|
|
|
| ||
Dealer |
| $ | 161,815 |
|
| $ | 149,843 |
|
OEM and National |
|
| 15,307 |
|
|
| 13,543 |
|
Other |
|
| 3,054 |
|
|
| 3,682 |
|
Total revenue |
|
| 180,176 |
|
|
| 167,068 |
|
Operating expenses: |
|
|
|
|
|
| ||
Cost of revenue and operations |
|
| 29,962 |
|
|
| 29,795 |
|
Product and technology |
|
| 28,085 |
|
|
| 24,101 |
|
Marketing and sales |
|
| 59,163 |
|
|
| 58,297 |
|
General and administrative |
|
| 22,857 |
|
|
| 18,304 |
|
Depreciation and amortization |
|
| 27,365 |
|
|
| 24,042 |
|
Total operating expenses |
|
| 167,432 |
|
|
| 154,539 |
|
Operating income |
|
| 12,744 |
|
|
| 12,529 |
|
Nonoperating expense: |
|
|
|
|
|
| ||
Interest expense, net |
|
| (8,321 | ) |
|
| (8,244 | ) |
Other (expense) income, net |
|
| (3,603 | ) |
|
| 8,239 |
|
Total nonoperating expense, net |
|
| (11,924 | ) |
|
| (5 | ) |
Income before income taxes |
|
| 820 |
|
|
| 12,524 |
|
Income tax expense |
|
| 36 |
|
|
| 1,045 |
|
Net income |
| $ | 784 |
|
| $ | 11,479 |
|
Weighted-average common shares outstanding: |
|
|
|
|
|
| ||
Basic |
|
| 66,318 |
|
|
| 66,530 |
|
Diluted |
|
| 67,291 |
|
|
| 67,747 |
|
Earnings per share: |
|
|
|
|
|
| ||
Basic | $ | 0.01 |
|
| $ | 0.17 |
| |
Diluted |
| 0.01 |
|
|
| 0.17 |
|
The accompanying notes are an integral part of these condensed consolidated and combined financial statements.the Consolidated Financial Statements.
3 |
|
Cars.com Inc.
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWSConsolidated Statements of Comprehensive 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 March 31, |
| |||||
| 2024 |
|
| 2023 |
| ||
Net income | $ | 784 |
|
| $ | 11,479 |
|
Other comprehensive loss, net of tax: |
|
|
|
|
| ||
Foreign currency translation adjustments |
| (738 | ) |
|
| — |
|
Total other comprehensive loss, net of tax |
| (738 | ) |
|
| — |
|
Comprehensive income | $ | 46 |
|
| $ | 11,479 |
|
The accompanying notes are an integral part of these condensed consolidated and combined financial statements.
the Consolidated Financial Statements.
4
Cars.com Inc.
CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS’ EQUITYConsolidated Statements of Stockholders’ Equity
Unaudited, in thousands(In thousands)
(Unaudited)
| Preferred Stock |
|
| Common Stock |
|
| Additional |
|
| Accumulated |
|
| Accumulated |
|
| Stockholders' |
| ||||||||||||||
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Income |
|
| Equity |
| ||||||||
Balance at December 31, 2023 |
| — |
|
| $ | — |
|
|
| 65,929 |
|
| $ | 659 |
|
| $ | 1,500,232 |
|
| $ | (1,009,734 | ) |
| $ | 951 |
|
| $ | 492,108 |
|
Net income |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 784 |
|
|
| — |
|
|
| 784 |
|
Other comprehensive loss, net of tax |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (738 | ) |
|
| (738 | ) |
Repurchases of common stock |
| — |
|
|
| — |
|
|
| (533 | ) |
|
| (5 | ) |
|
| (9,490 | ) |
|
| — |
|
|
| — |
|
|
| (9,495 | ) |
Shares issued in connection with |
| — |
|
|
| — |
|
|
| 832 |
|
|
| 8 |
|
|
| (8,365 | ) |
|
| — |
|
|
| — |
|
|
| (8,357 | ) |
Stock-based compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,148 |
|
|
| — |
|
|
| — |
|
|
| 7,148 |
|
Balance at March 31, 2024 |
| — |
|
| $ | — |
|
|
| 66,228 |
|
| $ | 662 |
|
| $ | 1,489,525 |
|
| $ | (1,008,950 | ) |
| $ | 213 |
|
| $ | 481,450 |
|
| Preferred Stock |
|
| Common Stock |
|
| Additional |
|
| Accumulated |
|
| Accumulated |
|
| Stockholders' |
| ||||||||||||||
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Income |
|
| Equity |
| ||||||||
Balance at December 31, 2022 |
| — |
|
| $ | — |
|
|
| 66,287 |
|
| $ | 662 |
|
| $ | 1,511,944 |
|
| $ | (1,128,176 | ) |
| $ | — |
|
| $ | 384,430 |
|
Net income |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,479 |
|
|
| — |
|
|
| 11,479 |
|
Repurchases of common stock |
| — |
|
|
| — |
|
|
| (413 | ) |
|
| (4 | ) |
|
| (7,170 | ) |
|
| — |
|
|
| — |
|
|
| (7,174 | ) |
Shares issued in connection with |
| — |
|
|
| — |
|
|
| 976 |
|
|
| 10 |
|
|
| (9,807 | ) |
|
| — |
|
|
| — |
|
|
| (9,797 | ) |
Stock-based compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,049 |
|
|
| — |
|
|
| — |
|
|
| 6,049 |
|
Balance at March 31, 2023 |
| — |
|
| $ | — |
|
|
| 66,850 |
|
| $ | 668 |
|
| $ | 1,501,016 |
|
| $ | (1,116,697 | ) |
| $ | — |
|
| $ | 384,987 |
|
|
| 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 |
|
The accompanying notes are an integral part of these condensed consolidatedthe Consolidated Financial Statements.
5
Cars.com Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
| Three Months Ended |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net income |
| $ | 784 |
|
| $ | 11,479 |
|
Adjustments to reconcile Net income to Net cash provided by operating activities: |
|
|
|
|
|
| ||
Depreciation |
|
| 6,360 |
|
|
| 4,884 |
|
Amortization of intangible assets |
|
| 21,005 |
|
|
| 19,158 |
|
Changes in fair value of contingent consideration |
|
| 2,554 |
|
|
| (8,259 | ) |
Stock-based compensation |
|
| 7,074 |
|
|
| 5,982 |
|
Deferred income taxes |
|
| 4,426 |
|
|
| (228 | ) |
Provision for doubtful accounts |
|
| 741 |
|
|
| 447 |
|
Amortization of debt issuance costs |
|
| 738 |
|
|
| 781 |
|
Unrealized loss on foreign currency denominated transactions |
|
| 1,009 |
|
|
| — |
|
Amortization of deferred revenue related to AccuTrade acquisition |
|
| — |
|
|
| (883 | ) |
Other, net |
|
| 217 |
|
|
| 134 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Accounts receivable |
|
| (1,155 | ) |
|
| (6,552 | ) |
Prepaid expenses and other assets |
|
| (5,531 | ) |
|
| (3,039 | ) |
Accounts payable |
|
| 3,294 |
|
|
| (859 | ) |
Accrued compensation |
|
| (13,585 | ) |
|
| (6,904 | ) |
Other liabilities |
|
| 5,537 |
|
|
| 12,000 |
|
Net cash provided by operating activities |
|
| 33,468 |
|
|
| 28,141 |
|
Cash flows from investing activities: |
|
|
|
|
|
| ||
Capitalization of internally developed technology |
|
| (5,305 | ) |
|
| (5,172 | ) |
Purchase of property and equipment |
|
| (708 | ) |
|
| (199 | ) |
Net cash used in investing activities |
|
| (6,013 | ) |
|
| (5,371 | ) |
Cash flows from financing activities: |
|
|
|
|
|
| ||
Payments of Revolving Loan borrowings and long-term debt |
|
| (10,000 | ) |
|
| (18,750 | ) |
Payments for stock-based compensation plans, net |
|
| (8,357 | ) |
|
| (9,797 | ) |
Repurchases of common stock |
|
| (9,096 | ) |
|
| (7,100 | ) |
Payments of contingent consideration |
|
| (7,750 | ) |
|
| — |
|
Net cash used in financing activities |
|
| (35,203 | ) |
|
| (35,647 | ) |
Effect of exchange rate changes on Cash and cash equivalents |
|
| (87 | ) |
|
| — |
|
Net decrease in Cash and cash equivalents |
|
| (7,835 | ) |
|
| (12,877 | ) |
Cash and cash equivalents at beginning of period |
|
| 39,198 |
|
|
| 31,715 |
|
Cash and cash equivalents at end of period |
| $ | 31,363 |
|
| $ | 18,838 |
|
Supplemental cash flow information: |
|
|
|
|
|
| ||
Cash paid for income taxes |
| $ | 1,168 |
|
| $ | 96 |
|
Cash paid for interest |
|
| 2,566 |
|
|
| 1,486 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the Consolidated Financial Statements.
6
Cars.com Inc.
Notes to the Consolidated Financial Statements
(Unaudited)
NOTE 1. Description of Business and combined financial statements.
NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTSSummary of Significant Accounting Policies
NOTE 1
Separation from TEGNA, descriptionDescription of businessBusiness. Cars.com Inc., d/b/a Cars Commerce Inc. (the "Company" or "Cars Commerce") is an audience-driven technology company empowering the automotive industry. The Company simplifies everything about car buying and basis of presentation
Separation from TEGNA. On September 7, 2016, TEGNA Inc. (“TEGNA”), our former parent company, announced its plan to separate its digitalselling with powerful products, solutions and AI-driven technologies that span pretail, retail and post-sale activities – enabling more efficient and profitable retail operations. The Cars Commerce platform is organized around four industry-leading brands: the flagship automotive marketplace business, includingand dealer reputation site Cars.com, LLC,award-winning digital retail technology and marketing services from Dealer Inspire, essential trade-in and appraisal technology from AccuTrade, and exclusive in-market media solutions from the principal entity through which TEGNA’s digital automotive marketplace business has historicallyCars Commerce Media Network.
Basis of Presentation. The accompanying unaudited interim consolidated financial statements ("Consolidated Financial Statements") have been operated,prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") 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 meansthe rules and regulations of a spin-off 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”"SEC") for interim financial statements. Accordingly, the interim financial statements do not include allcertain information and footnotesfootnote disclosures 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,GAAP have been condensed 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. Our management believes that such allocations are reasonable. These allocated expenses relateomitted pursuant to the various services that have historically been provided to Cars.com, LLC by TEGNA. However, such expenses may not be indicativerules and regulations 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 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 CondensedSEC. These Consolidated and CombinedFinancial Statements of Cash Flows as financing activities.
These interim financial statements should be read in conjunction with the audited annualconsolidated financial statements and the notes thereto as of and for the year ended December 31, 20162023, which are included in our Registration Statementthe Company's Annual Report on Form 10. These interim financial statements follow10-K as filed with the sameSEC on February 22, 2024 (the "December 31, 2023 Financial Statements").
The significant accounting policies and methodsused in their application aspreparing these Consolidated Financial Statements were applied on a basis consistent with those reflected in the most recent audited financial statements.December 31, 2023 Financial Statements. In the opinion of management, the interim financial statements reflectConsolidated Financial Statements contain all adjustments (all of which are(consisting of a normal, and recurring nature), which are necessary to present fairly the Company's financial position, results of operations, and cash flows and changes in stockholders' equity as of the dates and for the interim periods.
NOTE 2
Summaryperiods indicated. The unaudited results 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 the Company to make certain changes to awards without accounting for them as modifications and does not change 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 liabilities
The following table displays goodwill, indefinite-lived intangibles and amortizable intangible assets at September 30, 2017 and December 31, 2016 (in thousands):
|
| 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 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 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
Investments
We have a 21% ownership interest in RepairPal, Inc. (“RepairPal”), an online marketplace offering consumers a price estimator for car repairs 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 the 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 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 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.
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 millionoperations for the three months ended September 30, 2017, comparedMarch 31, 2024 are not necessarily indicative of results that may be expected for the year ending December 31, 2024.
Use of Estimates. The preparation of the accompanying Consolidated Financial Statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported in the Consolidated Financial Statements and accompanying disclosures. Although these estimates are based on management’s knowledge of current events and actions that the Company may undertake in the future, actual results may differ from those estimates.
Reclassifications. Certain prior year balances have been reclassified to conform to the current year presentation.
Principles of Consolidation. The accompanying Consolidated Financial Statements include the accounts of Cars.com Inc. and its 100% owned subsidiaries. All intercompany transactions and accounts are eliminated in consolidation.
NOTE 2. Revenue
Revenue Summary. The Company's Consolidated Statements of Income provide disaggregated revenue information that reflects the nature, timing, amount and uncertainty of cash flows related to the Company's revenue. Substantially all revenue was generated and located within the U.S. The Company's disaggregated revenue information is as follows (in thousands):
|
| Three Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Dealer |
| $ | 161,815 |
|
| $ | 149,843 |
|
OEM and National |
|
| 15,307 |
|
|
| 13,543 |
|
Other |
|
| 3,054 |
|
|
| 3,682 |
|
Total revenue |
| $ | 180,176 |
|
| $ | 167,068 |
|
7
Cars.com Inc.
Notes to the Consolidated Financial Statements (continued)
(Unaudited)
NOTE 3. Business Combinations
D2C Acquisition. On November 1, 2023, the Company acquired all of the outstanding stock of D2C Media Inc. and EZResults Inc. (collectively, the "D2C Acquisition"), a leading provider of website and digital advertising solutions in Canada for $79.8 million total purchase consideration.
The Company expensed as incurred total acquisition costs of $0.1 million during the quarter ended March 31, 2024. These costs were recorded in General and administrative expenses in the Consolidated Statements of Income.
As part of the D2C Acquisition, the Company may be required to pay a cash earnout of up to an additional CAD$35.0 million (approximately USD$25.9 million as of March 31, 2024). The payment is not included in the total purchase consideration and is deemed compensation expense, as the potential cash compensation is to former equity holders who became employees and will be forfeited if employment is terminated prior to the end of the earnout period. The amount to be paid will be determined by the acquired business’ future achievement of certain revenue-related financial targets through December 31, 2025 and expensed over each performance period. The Company may expense up to CAD$15.0 million (approximately USD$11.1 million as of March 31, 2024) associated with the remaining portion of the earnout for each of the years ending December 31, 2024 and 2025.
Preliminary Purchase Price Allocation. The preliminary fair values assigned to the tangible and intangible assets acquired and liabilities assumed were determined based on management’s estimates and assumptions, as well as other information compiled by management, including third-party valuations that utilize customary valuation procedures and techniques, such as the multi-period excess earnings and the relief of royalty methods. The preliminary fair values of all assets acquired and liabilities assumed are subject to change within the one-year measurement period. The preliminary D2C Acquisition purchase price allocation is as follows (in thousands):
|
| Preliminary |
| |
Cash consideration |
| $ | 79,841 |
|
|
|
| ||
Cash and cash equivalents |
| $ | 3,673 |
|
Accounts receivable |
|
| 4,640 |
|
Other assets acquired (1) |
|
| 1,378 |
|
Identified intangible assets (2) |
|
| 38,967 |
|
Total assets acquired |
|
| 48,658 |
|
Accounts payable and accrued liabilities |
|
| (1,698 | ) |
Other liabilities assumed (3) |
|
| (815 | ) |
Deferred tax liabilities, net |
|
| (8,558 | ) |
Total liabilities assumed |
|
| (11,071 | ) |
Net identifiable assets |
|
| 37,587 |
|
Goodwill |
|
| 42,254 |
|
Total purchase consideration |
| $ | 79,841 |
|
(1) Other assets acquired primarily consists of property and equipment, operating lease right of use assets and other prepaid expenses.
(2) Preliminary information regarding the identifiable intangible assets acquired is as follows:
|
| Preliminary Acquisition-Date Fair Value |
|
| Amortization Period | |
Customer relationships |
| $ | 29,153 |
|
| 14 |
Acquired software |
|
| 9,092 |
|
| 5 |
Trade name |
|
| 722 |
|
| 5 |
Total |
| $ | 38,967 |
|
|
(3) Other liabilities assumed primarily consists of operating lease right of use liabilities and income taxes payable.
8
Cars.com Inc.
Notes to the Consolidated Financial Statements (continued)
(Unaudited)
A reconciliation of cash consideration to Payment for acquisitions, net of cash acquired related to the D2C Acquisition in the Consolidated Statements of Cash Flows as of December 31, 2023 is as follows (in thousands):
Cash consideration |
| $ | 79,841 |
|
Less: Cash acquired |
|
| (3,673 | ) |
Total payment for D2C Media, net |
| $ | 76,168 |
|
Goodwill. In connection with the D2C Acquisition, the Company recorded goodwill in the amount of $42.3 million, which is primarily attributable to expected sales growth from existing and future customers, product offerings, technology and the value of the acquired assembled workforce. All of the goodwill is considered non-deductible for income tax expense of $0.5 million forpurposes.
The D2C Acquisition would have had an immaterial impact on 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%Company’s Consolidated Financial Statements for the three months ended September 30, 2017 and differed from the U.S. federal statutory rate primarily due to state income taxes. March 31, 2023.
NOTE 4. Fair Value Measurements
Income tax expense was $15.8 million for the nine months ended September 30, 2017, based upon four months of Cars.com, LLC information and nine months of DealerRater information, 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 17.8% for 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 andCompany's liabilities for temporary differences between financial accounting and tax reporting. Accordingly, the Company recorded $267 million of net deferred tax liability associated with the outside basis difference in the Cars.com, LLC flow-through entity with the offset recorded in TEGNA’s investment net. Separately, the Company recorded $8 million of net deferred tax asset associated with the DealerRater corporate entity 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 million. The total amount contributed by us is marked to market quarterly and any unrealized gains (losses) are recognized in other income, net on the Consolidated and Combined Statements of Income. Management will not make any new contributions to the LTIP subsequent to the Separation.
Under this plan, deferred compensation expense was not material in the three months ended September 30, 2017and $0.3 million in the nine months ended September 30, 2017, and $0.2 million and $0.7 million in the three and nine months ended September 30, 2016, respectively. 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 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:
|
|
|
|
|
|
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 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Contingent consideration | $ | 56,212 |
|
| $ | — |
|
| $ | — |
|
| $ | 56,212 |
|
Total | $ | 56,212 |
|
| $ | — |
|
| $ | — |
|
| $ | 56,212 |
|
|
|
|
| Fair value measurement at reporting date |
| ||||||||||
| Total as of |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Contingent consideration | $ | 61,408 |
|
| $ | — |
|
| $ | — |
|
| $ | 61,408 |
|
Total | $ | 61,408 |
|
| $ | — |
|
| $ | — |
|
| $ | 61,408 |
|
The roll-forward of the Level 3 contingent consideration from December 31, 2023 is as follows (in thousands):
| As of |
|
| Payment of Contingent Consideration |
|
| Fair Value |
|
| As of |
| ||||
Contingent consideration | $ | 61,408 |
|
| $ | (7,750 | ) |
| $ | 2,554 |
|
| $ | 56,212 |
|
The following table presentsCompany reviews and reassesses the LTIP investments carried at fair value as of September 30, 2017 and December 31, 2016, by category on the Condensed Consolidated and Combined Balance Sheets in accordance with 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. Theestimated fair value of contingent consideration liabilities at each reporting period and the investment representsupdated fair value could differ materially from the net assetinitial estimates. The Company recorded a contingent consideration liability at its estimated fair value as provided byat the trustee.
In addition to the financial instruments listeddate of acquisition based on expected future payment. The Company measures contingent consideration recognized 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 measuredconnection with acquisitions at fair value on a nonrecurringrecurring basis using significant unobservable inputs classified as Level 3 inputs. The fair value measurement has one significant input of projected financial information. Significant increases or decreases to this input in isolation could result in a significantly higher or lower liability. Ultimately, the liability will be equivalent to the amount paid, 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 estimate of the fair value. We use an independent valuation specialist to assist in determiningdifference between the fair value estimate on the acquisition date and each reporting period and the amount paid will be recognized in earnings. Payments of contingent consideration reduce the identified intangible assets at acquisition. corresponding liability, which was recorded upon acquisition and measured on a recurring basis as discussed above.
The fair valueCompany's contingent consideration obligations arise from acquisitions that involve a potential future payment of consideration that is contingent upon the significant identified intangible assetsachievement of certain financial or operational metrics. The contingent consideration is generally estimated using a combinationclassified on the Consolidated Balance Sheets based on expected payment dates. As of an income approach usingMarch 31, 2024, $16.4 million and $39.8 million were included within Other accrued liabilities and Other noncurrent liabilities on the discounted cash flow analysisConsolidated Balance Sheets, respectively. As of December 31, 2023, $25.8 million and market approach using$35.6 million were included within Other accrued liabilities and Other noncurrent liabilities on the guideline public company analysis, 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. ExpenseConsolidated Balance Sheets, respectively. For information related to the SAR Plan has been recordedcontingent consideration agreements, see Note 3 (Business Combinations) in Part II, Item 8., "Financial Statements and Supplementary Data", of the Company's Annual Report on Form 10-K for the year ended
9
Cars.com Inc.
Notes to the Consolidated Financial Statements (continued)
(Unaudited)
December 31, 2023 as filed with the SEC on February 22, 2024. The Company expects to make the remaining payments on the contingent consideration in 2024 and 2025.
NOTE 5. Debt
As of March 31, 2024, the Company was in compliance with the covenants under its debt agreements. The Company’s borrowings are limited by its Senior Secured Leverage Ratio and Consolidated Interest Coverage Ratio, among other factors, which are calculated in accordance with the accounting standards for share-basedCompany's Credit Agreement, and were 0.4x and 6.3x, respectively, as of March 31, 2024.
Term Loan. As of March 31, 2024, the outstanding principal amount under the Term Loan was $45.0 million and the interest rate in effect was 7.4%. During the three months ended March 31, 2024, the Company made $10.0 million in Term Loan payments. Due
Revolving Loan. As of March 31, 2024, $195.0 million was available to borrow under the Revolving Loan. The Company had $35.0 million of outstanding borrowings as of March 31, 2024 and had no payments or drawdowns on the Revolving Loan during the three months ended March 31, 2024.
Fourth Amendment to the cash settlement atCredit Agreement. In the endsecond quarter of 2023, the Company entered into an amendment (the "Fourth Amendment") to the Credit Agreement. The Fourth Amendment, among other things, memorializes certain terms of the performance period,Credit Agreement to replace the awards wererelevant benchmark provisions from the London Interbank Offered Rate ("LIBOR") to the Secured Overnight Financing Rate ("SOFR") and makes certain other conforming and mechanical changes. This amendment also included a more favorable credit spread adjustment. Except as modified by the Fourth Amendment, the existing terms of the Credit Agreement remain in effect.
Fifth Amendment to the Credit Agreement. On May 6, 2024, the Company entered into an amendment to the Credit Agreement. For further information, see Note 11 (Subsequent Event) below.
Senior Unsecured Notes. In October 2020, the Company issued $400.0 million aggregate principal amount of 6.375% Senior Unsecured Notes due in 2028. Interest on the notes is due semi-annually on May 1 and November 1.
Fair Value. The Company's debt is classified as a liabilityLevel 2 in the fair value hierarchy and remeasured each reporting period atthe fair value. Cars.com recorded a liabilityvalue is measured based on comparable trading prices, ratings, sectors, coupons and maturities of $1.1 millionsimilar instruments. The approximate fair value and $10.8 million related to its SAR Plan on its Condensed Consolidated and Combined Balance Sheets at September 30, 2017carrying value of the Company's outstanding indebtedness, as of March 31, 2024 and December 31, 2016, respectively.2023 were as follows (in millions):
| March 31, 2024 |
|
| December 31, 2023 |
| ||
Fair value | $ | 467.0 |
|
| $ | 470.9 |
|
Carrying value |
| 480.0 |
|
|
| 490.0 |
|
NOTE 6. Commitments and Contingencies
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 to the Separation.
NOTE 9
Commitments, contingent liabilities 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 subsidiaries are parties fromFrom time to time, the Company and its subsidiaries may become involved in actions, claims, suits or other legal andor administrative proceedings involving matters incidental to ourarising in the ordinary course of business. These matters, whether pending, threatened or unasserted, if decided adversely to Cars.com or settled, may result in liabilities material to our consolidated financial position, results of operation or cash flows. We recordThe Company records a liability when we believeit 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 matterscommitments and contingencies that could affect the amount of liability that has been previously accrued and makemakes adjustments as appropriate. Significant judgment is required to determine both the probability and the estimated amount. In the opinion of management, the Company is not currently involved in any pending or threatened litigation or claim that if determined adversely against the Company, individually or in the aggregate, would have a material adverse impact on the Company’s financial position, results of operations or cash flows.
NOTE 7. Stockholders' Equity
NOTE 10
Debt – term loan and revolving credit facility
On May 31, 2017, we and certainFebruary 24, 2022, the Company announced that its Board of our domestic wholly-owned subsidiaries (the “Guarantors”) entered intoDirectors authorized a Credit Agreement (the “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 ofthree-year share repurchase program to acquire up to $450$200 million (of which upof the Company's common stock. The Company may repurchase shares from time to $25 milliontime in open market transactions or through privately negotiated transactions in accordance with applicable federal securities laws and other applicable legal requirements. 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 specific amount or number of shares. The Company funds the share repurchase program principally with cash from operations. During the three months ended March 31, 2024, the Company repurchased and subsequently retired 0.5 million shares for
10
Cars.com Inc.
Notes to the Consolidated Financial Statements (continued)
(Unaudited)
$9.5 million at an average price paid per share of $17.83. During the three months ended March 31, 2023, the Company repurchased and subsequently retired 0.4 million shares for $7.2 million at an average price paid per share of $17.38.
NOTE 8. Stock-Based Compensation
Restricted Share Units ("RSUs"). RSUs represent the right to receive unrestricted shares of the Company’s common stock at the time of vesting, subject to any restrictions as specified in the formindividual holder’s award agreement. RSUs are subject to graded vesting, generally ranging between one and three years and the fair value of letters of credit at our request) and (b) term loans in an aggregate principal amount of $450 million. Interestthe RSUs is equal to the Company's common stock price on the borrowings underdate of grant. RSU activity for the Credit Agreementthree months ended March 31, 2024 is payableas follows (in thousands, except for weighted-average grant date fair value):
|
| Number |
|
| Weighted-Average |
| ||
Outstanding as of December 31, 2023 (1) |
|
| 3,725 |
|
| $ | 15.67 |
|
Granted |
|
| 1,668 |
|
|
| 16.94 |
|
Vested and delivered |
|
| (1,283 | ) |
|
| 15.70 |
|
Forfeited |
|
| (85 | ) |
|
| 15.64 |
|
Outstanding as of March 31, 2024 (1) |
|
| 4,025 |
|
| $ | 16.19 |
|
Performance Share Units ("PSUs"). PSUs represent the right to receive unrestricted shares of the Company’s common stock at the time of vesting. The fair value of the PSUs is equal to the Company’s common stock price on the date of grant. Expense related to PSUs is recognized when the performance conditions are probable of being achieved. The percentage of PSUs that shall vest will range from 0% to 200% of the number of PSUs granted based on the London Interbank Offered Rate orCompany’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 after the alternate base rate,end of the respective performance period. PSU activity for the three months ended March 31, 2024 is as definedfollows (in thousands, except for weighted-average grant date fair value):
|
| Number |
|
| Weighted-Average |
| ||
Outstanding as of December 31, 2023 |
|
| 512 |
|
| $ | 15.66 |
|
Granted |
|
| 282 |
|
|
| 16.94 |
|
Vested and delivered |
|
| — |
|
|
| — |
|
Forfeited |
|
| — |
|
|
| — |
|
Outstanding as of March 31, 2024 |
|
| 794 |
|
| $ | 16.12 |
|
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 marginindividual holder’s award agreement. Stock options are subject to three-year cliff vesting and fees which, afterexpire 10 years from the second full fiscal quarter followinggrant date. Stock option activity for the closingthree months ended March 31, 2024 is as follows (in thousands, except for weighted-average grant 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 priorfair value and weighted-average remaining contractual term):
|
| Number of Options |
|
| Weighted-Average |
|
| Weighted-Average Remaining Contractual Term (in years) |
|
| Aggregate |
| ||||
Outstanding as of December 31, 2023 |
|
| 1,067 |
|
| $ | 6.28 |
|
|
| 6.98 |
|
| $ | 9,096 |
|
Granted |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Exercised |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Forfeited |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Outstanding as of March 31, 2024 |
|
| 1,067 |
|
| $ | 6.28 |
|
|
| 6.73 |
|
| $ | 7,186 |
|
Exercisable as of March 31, 2024 |
|
| 804 |
|
| $ | 5.27 |
|
|
| 6.33 |
|
| $ | 6,631 |
|
11
Cars.com Inc.
Notes to the distribution, to pay fees and expenses related to the Separation and to fund working capital. 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.Consolidated Financial Statements (continued)
(Unaudited)
On October 31, 2017, we voluntarily paid down an additional $25 million on the revolving loan.
NOTE 9. 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 netNet 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-basedstock-based compensation plans, unless the inclusion of such shares would have an anti-dilutive impact.
As part of the AccuTrade acquisition, the Company may pay up to $15.0 million of the contingent consideration in shares of the Company's common stock at a future date. Those potential shares have been excluded from the computations below because they are contingently issuable shares, and the contingency to which the issuance relates was not met at the end of the reporting period. The total shares outstanding on May 31, 2017, the datecomputation 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 earningsEarnings 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 belowfollows (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 March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Net income |
| $ | 784 |
|
| $ | 11,479 |
|
Basic weighted-average common shares outstanding |
|
| 66,318 |
|
|
| 66,530 |
|
Effect of dilutive stock-based compensation awards (1) |
|
| 973 |
|
|
| 1,217 |
|
Diluted weighted-average common shares outstanding |
|
| 67,291 |
|
|
| 67,747 |
|
Earnings per share, basic |
| $ | 0.01 |
|
| $ | 0.17 |
|
Earnings per share, diluted |
|
| 0.01 |
|
|
| 0.17 |
|
NOTE 1210. Income Taxes
Share-based
Deferred Tax Asset and Valuation Allowance. Prior to June 30, 2023, the Company concluded a valuation allowance was required against its deferred tax assets. In reaching this conclusion, in accordance with U.S. GAAP, the Company evaluated all available evidence, both positive and negative, and determined that the Company’s history of recent losses, primarily due to the goodwill and indefinite-lived intangible asset impairments, was significant negative evidence to require a valuation allowance. Therefore, the Company recorded a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized in future periods. At each reporting date, the Company evaluates the realizability of its deferred tax assets to determine whether a valuation allowance is warranted.
As of June 30, 2023, the Company evaluated all available evidence and determined that the Company's recent performance and future projections enabled the Company to release a significant portion of the Company's valuation allowance that was previously recorded. There was no change to the Company’s position or valuation allowance balance during the three months ended March 31, 2024.
Effective Tax Rate. The effective income tax rate, expressed by calculating the Income tax expense as a percentage of income before income tax, differed from the statutory federal income tax rate of 21%, primarily due to the tax benefits realized on stock-based compensation, plansas well as tax credits, partially offset by the tax impact of non-deductible contingent consideration and earnouts.
NOTE 11. Subsequent Event
InOn May 2017,6, 2024, the Company amended and extended its existing Credit Agreement which resulted in a new $350.0 million Revolving Loan due in 2029. Upon closing, the Company borrowed $80.0 million on the new Revolving Loan to pay off and extinguish the existing Term Loan and Revolving Loan balances. Additionally, as part of this amendment, the SOFR floor was removed and the financial covenant leverage test changed to Net Senior Secured Leverage from Senior Secured Leverage, among other things, as defined in Exhibit 10.1, Fifth Amendment to Credit Agreement in Part II, Item 6., "Exhibits" of this Quarterly Report on Form 10-Q.
12
Note About Forward-Looking Statements
This report contains "forward-looking statements" within the meaning of the federal securities laws. All statements other than statements of historical facts are forward-looking statements. These statements often use words such as "believe," "expect," "project," "anticipate," "outlook," "intend," "strategy," "plan," "estimate," "target," "seek," "will," "may,' "would," "should," "could," "forecasts," "mission," "strive," "more," "goal" or similar expressions. Forward-looking statements are based on our current expectations, beliefs, strategies, estimates, projections and assumptions, experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments, global supply chain shortages, fluctuating fuel prices, rising interest rates, inflation and other factors we think are appropriate. Such forward-looking statements are based on estimates and assumptions that, while considered reasonable by the Company and its management based on their knowledge and understanding of the business and industry, are inherently uncertain. While the Company and its management make such statements in good faith and believe such judgments are reasonable, you should understand that these statements are not guarantees of future strategic action, performance or results. Our actual results, performance, achievements, strategic actions or prospects could differ materially from those expressed or implied by these forward-looking statements. Given these uncertainties, you should not rely on forward-looking statements in making investment decisions. When we make comparisons of results between current and prior periods, we do not intend to express any future trends, or indications of future performance, unless expressed as such, and you should only view such comparisons as historical data. Forward-looking statements are subject to a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results and strategic actions to differ materially from those expressed in the forward-looking statements contained in this report. Factors that might cause such differences include, but are not limited to:
13
Prior toIncorporation designates the Separation and distribution from TEGNA, certain Cars.com employees received TEGNA RSUs based on TEGNA common stock. Due to the spin-off from TEGNA, all outstanding TEGNA RSUs granted in 2016 or later held by certain Cars.com employees following the Separation or certain former employeesstate courts of the Cars.comState 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.
14
For a detailed discussion of Cars.com common stock,these risks and uncertainties, see "Part I, Item 1A., Risk Factors" and "Part II, Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the numberSEC on February 22, 2024 and our other filings filed with the SEC. Forward-looking statements speak only as of sharesthe date they are made, and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking statement. The forward-looking statements in this report are intended to be 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 fundingsafe harbor protection 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.federal securities laws.
15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.Operations
The following discussion and analysis of our business, financial condition, and results of operations and quantitative and qualitative disclosures should be read in conjunction with our unaudited condensed consolidatedConsolidated Financial Statements and combined financialrelated notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis also contains forward-looking statements and related notes.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 reportQuarterly Report on Form 10-Q 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.future.
References in this discussion and analysis to “Cars.com,” the “Company,” “we,” “us,” “our”"we," "us," "our," "Cars Commerce" and similar terms refer to Cars.com Inc. and its subsidiaries, collectively, unless the context indicates otherwise.
Business Overview
Cars Commerce is an audience-driven technology company empowering the automotive industry. We simplify everything about car buying and selling with powerful products, solutions and AI-driven technologies that span pretail, retail and post-sale activities – enabling more efficient and profitable retail operations. The Cars Commerce platform is organized around four industry-leading brands: our flagship automotive marketplace and dealer reputation site Cars.com, is a leading online destination that helps car shoppersaward-winning digital retail technology and owners navigate every turn of car ownership. A pioneer in automotive classifieds,marketing services from Dealer Inspire, essential trade-in and appraisal technology from AccuTrade, and exclusive in-market media solutions from 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.Cars Commerce Media Network.
Overview of Results
The following table presents some of the Company’s key financial metrics for each of the periods indicated:
|
| Three Months Ended March 31, |
| |||||
(in thousands) |
| 2024 |
|
| 2023 |
| ||
Revenue |
| $ | 180,176 |
|
| $ | 167,068 |
|
Net income |
|
| 784 |
|
|
| 11,479 |
|
|
| 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.Key Operating Metrics are as follows (in thousands, except for Dealer Customers, Monthly Average Revenue Per Dealer and percentages):
|
| 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 |
|
|
| Three Months Ended March 31, |
|
|
|
| ||||||
|
| 2024 |
|
| 2023 |
|
| % Change |
| |||
Traffic |
|
| 171,438 |
|
|
| 164,782 |
|
|
| 4 | % |
Average Monthly Unique Visitors |
|
| 28,332 |
|
|
| 28,478 |
|
|
| (1 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| March 31, 2024 |
|
| March 31, 2023 |
|
| % Change |
|
| December 31, 2023 |
|
| QoQ |
| |||||
Dealer Customers |
|
| 19,381 |
|
|
| 19,186 |
|
|
| 1 | % |
|
| 19,504 |
|
|
| (1 | )% |
Monthly Average Revenue Per Dealer |
| $ | 2,505 |
|
| $ | 2,386 |
|
|
| 5 | % |
| $ | 2,523 |
|
|
| (1 | )% |
Average Monthly Unique Visitors ("UVs") and Traffic (Visits)("Visits").UVs and Traffic (Visits) and our ability to generate traffic are keyfundamental 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 indicationThey are indicative of our consumer reach.reach and the level of engagement consumers have with our platform. Although our consumer reachengagement does not directly result in revenue, we believe our ability to reach diverse demographic audiencesin-market car shoppers is attractive to our dealers, OEMs and national advertisers. customers and a primary reason they do business with us. We believe we have achieved audience scale as measured by UVs and Traffic, and we drive increased Traffic through a combination of continued growth in UVs and higher repeat visitation and engagement. Traffic increases can result in increased impressions, clicks and other connections that we can ultimately monetize through our products and services.
Dealer Customers
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.com property on an individual device/browser combination or installs one of our mobile apps on an individual device. If a visitor accesses more than one of our web properties or apps or uses more than one device or browser, each of those unique property/browser/app/device combinations counts toward the number of UVs. Traffic is defined as the number of visits to Cars.com desktop and mobile properties (responsive sites and mobile apps). Our value to consumers tracksWe measured UVs and Traffic via Adobe Analytics through the year ended December 31, 2023. As of January 1, 2024, we now measure UVs and Traffic via RudderStack, which we believe better aligns to our abilityproduct and technology platform and provides improved visibility into our UVs and Traffic. Prior period UVs and
16
Traffic information has not been recast, as it is impracticable to showcasedo so. These metrics do not include traffic to Dealer Inspire or D2C Media websites.
UVs declined modestly for the three months ended March 31, 2024. We believe that though consumer demand remains strong, there is less urgency to purchase vehicles given rising new vehicle inventory of our dealerlevels, continued elevated prices and Original Equipment Manufacturer (“OEM”) customers. The largerhigher interest rates. During the advertiser base,three months ended March 31, 2024, Traffic increased 4%, primarily driven by the more inventoryshift to RudderStack and options that are available forhigher repeat visitation, partially offset by the reduced consumer urgency.
consumers to review.
Dealer Customers. Dealer Customers represents the carrepresent 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 with the quarter ended December 31, 2023, this key operating metric includes D2C Media.
Dealer Customers increased 1% from March 31, 2023. The changein year-over-year dealer customers was primarily due to the inclusion of 950 D2C Media customers as of December 31, 2023, offset by the anticipated churn from our 2023 marketplace repackaging initiative and a pull back by digital dealers in previous quarters.
Dealer Customers decreased 1% from December 31, 2023. The changefrom December 31, 2023 is primarily due to higher cancellations of marketplace customers which we believe is influenced by higher flooring expense for our dealer customers as well as the impact of continued higher interest rates.
Monthly Average Vehicle Listings. Our value to consumers tracks toRevenue Per Dealer ("ARPD"). We believe that our ability to showcasegrow ARPD is an indicator of the inventoryvalue proposition of our dealer and OEM customers.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 December 31, 2023, this key operating metric includes D2C Media.
For the three months ended March 31, 2024, ARPD increased 5% compared to the three months ended March 31, 2023. The more vehicle listings that are available for consumersincrease from March 31, 2023 was primarily driven by the marketplace repackaging initiative, including the adoption of higher tier packages, slightly offset by the inclusion of D2C Media customers, who have a lower ARPD.
For the three months ended March 31, 2024, ARPD decreased 1% compared to review, the more traffic we attract andthree months ended December 31, 2023. The decrease from December 31, 2023 was primarily driven by the higher the consumer engagement. Average Vehicle Listings represents the daily averageimpact of vehicles listed for sale on Cars.com properties. The daily average is calculated on a monthly basis and averagedone additional month of D2C Media for the reporting period.three months ended March 31, 2024.
Factors Affecting Our Performance. Our business is impacted by changes in the larger automotive ecosystem, including supply and demand for new and used vehicle inventory, supply chain disruptions, semiconductor shortages, vehicle acquisition cost, vehicle retail prices, electric vehicle adoption, employee retention and changes related to automotive advertising, among other macroeconomic factors including inflation and interest rates. Changes in vehicle sales volumes in the United States and Canada 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 execute our platform strategy including continuing to create the most engaged in-market audience, growing our dealer customers, expanding our relationship with dealers through greater adoption of our platform, unlocking the cross-sell, transforming our OEM relationships and creating platform advantages. We believe our core strategic strengths, including our powerful family of brands, growing high-quality audience and suite of digital solutions for advertisers, including AI-based tools, will assist us as we navigate a rapidly changing automotive environment. Additionally, we are focused on equipping our 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 online chat, vehicle financing, appraisal and valuation, instant guaranteed offer capabilities and logistics technology. 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.
17
Results of Operations
Third Quarter 2017
Three Months Ended March 31, 2024 Compared to Third Quarter 2016Three Months Ended March 31, 2023
The following table sets forth our selected statement
|
| Three Months Ended March 31, |
|
|
|
|
|
|
| |||||||
(In thousands, except percentages) |
| 2024 |
|
| 2023 |
|
| $ Change |
|
| % Change |
| ||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Dealer |
| $ | 161,815 |
|
| $ | 149,843 |
|
| $ | 11,972 |
|
|
| 8 | % |
OEM and National |
|
| 15,307 |
|
|
| 13,543 |
|
|
| 1,764 |
|
|
| 13 | % |
Other |
|
| 3,054 |
|
|
| 3,682 |
|
|
| (628 | ) |
|
| (17 | )% |
Total revenue |
|
| 180,176 |
|
|
| 167,068 |
|
|
| 13,108 |
|
|
| 8 | % |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of revenue and operations |
|
| 29,962 |
|
|
| 29,795 |
|
|
| 167 |
|
|
| 1 | % |
Product and technology |
|
| 28,085 |
|
|
| 24,101 |
|
|
| 3,984 |
|
|
| 17 | % |
Marketing and sales |
|
| 59,163 |
|
|
| 58,297 |
|
|
| 866 |
|
|
| 1 | % |
General and administrative |
|
| 22,857 |
|
|
| 18,304 |
|
|
| 4,553 |
|
|
| 25 | % |
Depreciation and amortization |
|
| 27,365 |
|
|
| 24,042 |
|
|
| 3,323 |
|
|
| 14 | % |
Total operating expenses |
|
| 167,432 |
|
|
| 154,539 |
|
|
| 12,893 |
|
|
| 8 | % |
Operating income |
|
| 12,744 |
|
|
| 12,529 |
|
|
| 215 |
|
|
| 2 | % |
Nonoperating expense: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense, net |
|
| (8,321 | ) |
|
| (8,244 | ) |
|
| (77 | ) |
|
| 1 | % |
Other (expense) income, net |
|
| (3,603 | ) |
|
| 8,239 |
|
|
| (11,842 | ) |
| ***% |
| |
Total nonoperating expense, net |
|
| (11,924 | ) |
|
| (5 | ) |
|
| (11,919 | ) |
| ***% |
| |
Income before income taxes |
|
| 820 |
|
|
| 12,524 |
|
|
| (11,704 | ) |
|
| (93 | )% |
Income tax expense |
|
| 36 |
|
|
| 1,045 |
|
|
| (1,009 | ) |
|
| (97 | )% |
Net income |
| $ | 784 |
|
| $ | 11,479 |
|
| $ | (10,695 | ) |
|
| (93 | )% |
*** Not meaningful
Dealer revenue. Dealer revenue is typically subscription-oriented and consists 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 | )% |
|
|
Revenues
Retail Revenue—Direct. Direct revenue represents online subscriptionmarketplace, digital solutions, including website solutions and AccuTrade and media 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. Directcustomers. Dealer revenue is our largest revenue stream, representing 52%90% of total revenue for the third quarter of 2017. Directthree months ended March 31, 2024 and 2023. Dealer revenue for the third quarter of 2017 decreased 3% asincreased $12.0 million or 8% compared to the year-ago period reflecting a declinethree months ended March 31, 2023, primarily driven by the incremental revenue related to the D2C Media acquisition, growth in averagedigital experience revenue, per dealer, partially offset by an increase in average dealer count.including our website creation and hosting, and our marketplace repackaging initiative.
Retail Revenue—
OEM and National Advertising.revenue. OEM and National advertising revenue largely consists of Cars Commerce Media Network products, including display advertising and other solutions sold to OEMs, advertising agencies, automotive dealer associations and OEMs as well as leads sold to OEMs. Banner display ads are placed throughout the Cars.com websitesauto adjacent businesses, including insurance companies. OEM and apps. National advertising revenue represented 20%represents 8% of total revenue for the third quarter of 2017.three months ended March 31, 2024 and 2023. OEM and National advertising revenue for the third quarter of 2017 rose 3%increased $1.8 million or 13%, driven by OEM spending to raise consumer awareness, as comparedon-the lot inventory continues to the year-ago period mainly due to increased lead volume sold to OEMs.increase.
Retail Revenue—
Other. revenue. Other revenue includesprimarily consists of revenue from (1)related to vehicle listing data sold to third-parties, (2) new-car leads sold to third-partiesthird parties and (3) products such as Sell It Yourself/For Sale By Owner.pay per lead products. Other revenue representedrepresents 2% of total revenue for
the thirdthree months ended March 31, 2024 and 2023. Other revenue decreased $0.6 million or 17%, primarily due to the expiration in the first quarter of 2017. Other2023 of the AccuTrade license agreement entered into as part of the acquisition.
Cost of revenue and operations. Cost of revenue and operations expense primarily consists of costs related to processing dealer vehicle inventory, product fulfillment, pay per lead products and compensation costs for the third quarterproduct fulfillment and customer service teams. Cost of 2017 increased 9% as compared to the year-ago period mainly due to an increase in volume of data salesrevenue and higher lead volume sold to third-party lead resellers.
Wholesale Revenue. Wholesale revenueoperations expense represents the wholesale fees paid to Cars.com for online subscription products sold by affiliates. Wholesale revenue represented 26%17% and 18% of total revenue for the third quarterthree months ended March 31, 2024 and 2023, respectively. Cost 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. was essentially flat.
Product and technology.The product support team creates and manages consumer and dealer-facing productscustomer-facing innovation and editorial content (i.e. vehicle reviews, “Best of Awards”consumer and video content pertinent to consumers). Primary costs include compensation and content license fees for third-party content such as vehicle specifications.customer experience. The technology team builds consumer and dealer productsdevelops and supports the Cars.com websiteour products, websites and mobile apps. Technology expenses includeProduct and technology expense includes compensation staff augmentationcosts, consulting and outsourced development, hardware/contractor costs, hardware and software maintenance, software licenses data center and other infrastructure costs. Operations includes product fulfillment, customer service, traffic acquisition costs relatedProduct and technology expense represents 16% and 14% of total revenue for the three months ended March 31, 2024 and 2023, respectively. Product and technology expense increased, primarily due to our pay-per-lead productshigher compensation, including stock-based compensation, 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.including licenses.
18
Marketing and sales. Marketing and sales expensesexpense primarily consistconsists of traffic and lead acquisition costs, (including search engine managementperformance and other online marketing), TV advertising and production of ad creative, market research, salesbrand marketing, trade events, and compensation costs and travel for ourthe marketing, sales support and sales teams. Marketing and sales expenses increased 4% in the third quarter of 2017support teams, as comparedwell as bad debt expense related to the year-ago period due to higher spend in brand marketing, partially offset by savings resulting from elimination of third-quarter sales meetings.allowance for doubtful accounts. Marketing and sales expense represents 32%33% and 35% of total revenue for the third quarterthree months ended March 31, 2024 and 2023, respectively. Marketing and sales expense slightly increased, primarily due to incremental costs related to the addition of 2017 compared with 30% for the third quarter of 2016.D2C Media business.
General and administrative. General and administrative expensesexpense primarily consistconsists of salaries, benefits and incentive compensation costs for ourcertain of the executive, finance, legal, human resources, facilities and other administrative employees. In addition, depreciation,general and administrative expense includes office space rent, legal, and accounting services,and other professional services, share-based compensation for alltransaction-related costs, severance, transformation and other eligible Company employees, transaction relatedexit costs restructuring costs,and costs related to the corporate headquarters office relocation and write-off and loss on assets are included in general and administrative expenses.of assets. General and administrative expenses increased $3.9 million, or 50%, in the third quarterexpense represents 13% and 11% 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 expensetotal revenue for the three months ended September 30, 2016.
Provision for income taxes. During the three months ended 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 subjectMarch 31, 2024 and 2023, respectively. General and administrative expense increased, primarily due 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 5incremental costs related to the financial statementsaddition of the D2C Media business, including the compensation expense related to the D2C Media earnout. For information related to the D2C Media earnout, see Note 3 (Business Combinations) to the accompanying Consolidated Financial Statements included in Part I, Item 11., "Financial Statements" of this report forQuarterly Report on Form 10-Q.
Depreciation and amortization. Depreciation and amortization expense increased, primarily due to depreciation and amortization on additional informationassets acquired and the amortization of intangible assets 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 | )% |
|
|
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 for the nine months ended September 30, 2017 was flatD2C Media acquisition, partially offset by certain assets being fully depreciated and amortized as compared to the year-ago period primarily reflecting an increase in average dealer count, partially offset by a decrease in average revenue per dealer.prior-year period.
Retail Revenues—National Advertising
Interest expense, net. National advertising revenue represented 18% of total revenue for the first nine months of 2017. National advertising revenue for the nine months ended September 30, 2017 increased 3% asInterest expense, net was essentially flat compared to 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.
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 nine months ended September 30, 2017, interest expense was $7.3 millionprior year period. For information 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. Seedebt, see Note 5 (Debt) to the financial statementsaccompanying Consolidated Financial Statements included in Part I, Item 11., "Financial Statements" of this report for additionalQuarterly 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 AccuTrade acquisitions and the impact of foreign exchange rates. For more information related to income taxes.
contingent consideration, see the Liquidity and Capital Resources
Prior section below and Note 4 (Fair Value Measurements) to the Separation, we had accessaccompanying Consolidated Financial Statements included in Part I, Item 1., "Financial Statements" of this Quarterly Report on Form 10-Q.
Income tax expense. The effective income tax rate differed from the statutory federal income tax rate of 21%, primarily due to TEGNA’s programthe tax benefits realized on stock-based compensation, as well as tax credits, partially offset by the tax impact of maintaining bank revolvingnon-deductible contingent consideration and earnouts.
19
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 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 futurefacilities. Our positive operating 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 believeRevolving Loan, provide adequate liquidity to meet our requirements,business needs for the next 12 months and beyond, including those for investments, debt service, share repurchases, contingent consideration payments and strategic acquisitions. However, our ability to maintain adequate liquidity in the future is dependent upon a number of factors, including our revenue, our ability to contain costs, including capital expenditures, and to collect accounts receivable and various other macroeconomic factors, many of which are beyond our direct control.
On MayWe 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 March 31, 2017, we2024, Cash and certaincash equivalents were $31.4 million and including our undrawn Revolving Loan, our total liquidity was $226.4 million.
Indebtedness. As of our domestic wholly-owned subsidiaries (the “Guarantors”) entered into a Credit Agreement withMarch 31, 2024, the lenders named therein. The Credit Agreement matures on May 31, 2022 and includes (a) revolving loan commitments in anoutstanding aggregate principal amount of our indebtedness was $480.0 million, at an average interest rate of 6.6%, including $400.0 million of outstanding principal under the bonds, which carries an interest rate of 6.375%, $45.0 million of outstanding principal under the Term Loan which had an interest rate of 7.4% and $35.0 million of outstanding principal under the Revolving Loan which had an interest rate of 7.4%.
During the three months ended March 31, 2024, we made $10.0 million in mandatory Term Loan payments. As of March 31, 2024, $195.0 million was available to borrow under the Revolving Loan. Our borrowings are limited by our Senior Secured Leverage Ratio and Consolidated Interest Coverage Ratio, in addition to other factors. Calculated in accordance with our Credit Agreement, these ratios were 0.4x and 6.3x as of March 31, 2024, respectively. For further information, see Note 5 (Debt) to the accompanying Consolidated Financial Statements included in Part I, Item 1., "Financial Statements" of this Quarterly Report on Form 10-Q.
In conjunction with the credit agreement amendment discussed in Subsequent Event below, all outstanding debt as of March 31, 2024 is now classified as noncurrent on the Consolidated Balance Sheet.
Share Repurchase Program.On February 24, 2022, we announced that our Board of Directors authorized a three-year share repurchase program to acquire up to $450$200.0 million (of which up to $25 millionof our common stock. The repurchase program may be suspended or discontinued at any time and does not obligate us to repurchase any specific amount or number of shares. 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 intend to fund the formshare repurchase program principally with cash from operations. During the three months ended March 31, 2024, we repurchased and subsequently retired 0.5 million shares for $9.5 million at an average price paid per share of letters$17.83.
Contingent Consideration and Earnout. The fair value as of credit atMarch 31, 2024 for the requestcontingent consideration related to the CreditIQ and AccuTrade acquisitions was $56.2 million.
Within the next twelve months, we expect to pay $19.8 million of the Company)potential contingent consideration and (b) term loans inD2C Media earnout amounts discussed below. During the three months ended March 31, 2024, we paid $7.8 million related to contingent consideration which reduced the corresponding liability.
The contingent consideration associated with the CreditIQ Acquisition is based on two achievement objectives, including an aggregate principalearnings-related metric and lender market share. The actual amount of $450 million. Interest on the borrowings under the Credit Agreement is payableto be paid will be based on the London Interbank Offered Rate (“LIBOR”) oracquired business’ future performance to be attained over a three-year performance period through December 2024.
The contingent consideration associated with 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,AccuTrade acquisition is based upon our total net leverage ratio. Borrowings underon achievement of an earnings-related metric. For the Credit Agreement were usedAccuTrade contingent consideration, we have the option to fundpay consideration in cash or certain amounts in stock, which may result in a variable number of shares being issued in accordance with a calculation based on future share prices. The actual amount to be paid will be based on the paymentacquired business’ future performance to be attained over a three-year performance period through February 2025.
As part of the D2C Media Acquisition, we may be required to pay additional cash consideration to certain former owners who are now employees of Cars Commerce based on the achievement of a cash paymentrevenue performance metric. The amount to TEGNA immediately priorbe paid will be determined by the acquired business’ future achievement of certain revenue-related financial targets through December 31, 2025 and expensed over each performance period. We may expense up to CAD$15.0 million (approximately USD$11.1 million as of March 31, 2024) associated with the distribution, to pay feesremaining portion of the earnout for each of the years ending December 31, 2024 and expenses2025.
20
For information related to the Separationcontingent consideration and distributionearnout, see Note 3 (Business Combination) and related transactions. The term loan requires quarterly amortization payments which commenced on September 30, 2017. InNote 4 (Fair Value Measurements) to 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 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 liensaccompanying Consolidated Financial Statements included 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 facilitiesPart I, Item 1., "Financial Statements" of this nature. A summary of the Credit Agreement can be found in our Registration StatementQuarterly Report on Form 10.
The tax matters agreement that TEGNA10-Q 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 beNote 3 (Business Combinations) 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”8., "Financial Statements and Supplementary Data", of this reportour Annual Report on Form 10-K for additional information.the year ended December 31, 2023 as filed with the SEC on February 22, 2024.
Cash Flows. Details of our cash flows are included in the table below:as follows (in thousands):
|
| 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 |
|
|
| Three Months Ended March 31, |
|
|
|
| ||||||
|
| 2024 |
|
| 2023 |
|
| Change |
| |||
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
| |||
Operating activities |
| $ | 33,468 |
|
| $ | 28,141 |
|
| $ | 5,327 |
|
Investing activities |
|
| (6,013 | ) |
|
| (5,371 | ) |
|
| (642 | ) |
Financing activities |
|
| (35,203 | ) |
|
| (35,647 | ) |
|
| 444 |
|
Effect of exchange rate changes on Cash and cash equivalents |
|
| (87 | ) |
|
| — |
|
|
| (87 | ) |
Net change in Cash and cash equivalents |
| $ | (7,835 | ) |
| $ | (12,877 | ) |
| $ | 5,042 |
|
Net cash flow fromOperating Activities. Cash provided by operating activities was $147.2 million infor the first ninethree months of 2017 as comparedended March 31, 2024 increased primarily due to the year-ago period of $140.4 million. This increase is due toNet income after non-cash adjustments, partially offset by changes in working capital primarily due to the timing of the settlement of costs in accrued liabilities and the collection 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.three months ended March 31, 2023.
Net
Investing Activities. The increase in cash used in investing activities was $27.6 million inprimarily due to increased purchases of property and equipment.
Financing Activities. During the first ninethree 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. Netended March 31, 2024, cash used in investing activities in 2016 were primarily due to $114.9 million of cash used to acquire DealerRater.
Net cash used for financing activities was $101.0 millionprimarily related to debt repayments, repurchases of common stock, tax payments made in connection with the first ninevesting of certain equity awards and payments of contingent consideration. During the three months of 2017 as compared to the year-ago period of $11.3 million. Prior to the Separation,ended March 31, 2023, cash used forin financing activities was related to transactionsdebt repayments, repurchases of common stock and tax payments made in connection with TEGNA. TEGNA utilized a centralized approachthe vesting of certain equity awards. For information related to cash managementour debt, repurchases of common stock and contingent consideration, see Note 4 (Fair Value Measurements), Note 5 (Debt) and Note 7 (Stockholders' Equity) to the financingaccompanying Consolidated Financial Statements included in Part I, Item 1., "Financial Statements" of its operations. Under this centralized cash management program, we provided fundsQuarterly Report on Form 10-Q.
Commitments and Contingencies. For information related to TEGNAcommitments and vice versa untilcontingencies, see Note 6 (Commitments and Contingencies) to the distribution. Accordingly, the net cash flow between us and TEGNA is presented as a financing activity and resultedaccompanying Consolidated Financial Statements included in a $69.2 million cash outflow in 2017. In the third quarterPart I, Item 1., "Financial Statements" 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.this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
Arrangements. We do not have any material off-balance sheet arrangements.
EffectsSubsequent Event. On May 6, 2024, we amended and extended our existing Credit Agreement which resulted in a new $350.0 million Revolving Loan due in 2029. Upon closing, we borrowed $80.0 million on the new Revolving Loan to pay off and extinguish the existing Term Loan and Revolving Loan balances. Additionally, as part of Inflationthis amendment, the SOFR floor was removed and Changing Prices and Other Mattersthe financial covenant leverage test changed to Net Senior Secured Leverage from Senior Secured Leverage, among other things, as defined in Exhibit 10.1, Fifth Amendment to the Credit Agreement in Part II, Item 6., "Exhibits" of this Quarterly Report on Form 10-Q.
Our results of operations and financial condition have not been significantly affected by inflation.
Critical Accounting Policies. For information related to critical accounting policies, see "Critical Accounting Policies
See and Estimates" in Part I,II, Item 1, “Management’s7., "Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates” inOperations", of our Registration StatementAnnual Report on Form 10.
10-K for the year ended December 31, 2023 as filed with the SEC on February 22, 2024 and see Note About Forward-Looking Information
This report contains certain forward-looking statements regarding business strategies, market potential, future financial performance1 (Description of Business and other matters. The words “believe,” “expect,” “estimate,” “could,” “should,” “intend,” “may,” “plan,” “seek,” “anticipate,” “project” and similar expressions, among others, generally identify “forward-looking statements.” The matters discussedSummary of Significant Accounting Policies) to the accompanying Consolidated Financial Statements included in these forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those projected, anticipated or implied in the 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 based on the current plans and expectations of Cars.com management and is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. 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 control.
Important factors that could cause actual results or events to differ materially from those anticipated include, among others, those set forth under Part I, Item 1A, Risk Factors,” and Part I, Item 2, “Management’s Discussion and Analysis1., "Financial Statements" of Financial Condition and Results of Operations,” andthis Quarterly Report on Form 10-Q. During the following: three months ended March 31, 2024, there have been no changes to our critical accounting policies.
competitive pressures
Recent Accounting Pronouncements. There were no significant new accounting pronouncements applicable to us in the markets in which Cars.com operates and innovation by Cars.com’s competitors;period.
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increased closures 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 markets 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 forward-looking statements contained in this report. 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 speak only as of the date of this report. Except as may be required by law, Cars.com undertakes no obligation to modify or revise any forward-looking statement to reflect new information, events or circumstances occurring after the date of this report.
Item 3. Quantitative and QualitativeQualitative Disclosures about Market Risk
For quantitative and qualitative disclosures about market risk, see "Quantitative and Qualitative Disclosures About Market risk representsRisk," 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 and rates. We are exposedyear ended December 31, 2023, as filed with the SEC on February 22, 2024. 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, werisk 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, 2023.
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 only 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).
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Item 1. Legal Proceedings
For a description of our material pendinginformation relating to legal proceedings, please refer tosee Note 9, “Commitments, contingent liabilities6 (Commitments and other matters” of the NotesContingencies) to the Unaudited Condensedaccompanying Consolidated and Combined Financial Statements included in Part I, Item 11., "Financial Statements" 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 which could materially affect our business, financial condition, results of operations and future results, including those described in Part I, Item 1A, “Risk Factors”1A., "Risk Factors" in our Registration StatementAnnual Report on Form 10, which could materially affect our business, results of operations, financial condition and future results.10-K for the year ended December 31, 2023 as filed with the SEC on February 22, 2024. There have been no material changes from the risk factors described in our Registration StatementAnnual 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 March 31, 2024 is as follows:
Period | Total Number of |
| Average Price Paid per Share (1) |
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) |
| Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) (3) |
| ||||
January 1 through January 31, 2024 |
| 135,250 |
| $ | 17.75 |
|
| 135,250 |
| $ | 117,324 |
|
February 1 through February 29, 2024 |
| 184,730 |
|
| 18.30 |
|
| 184,730 |
|
| 113,944 |
|
March 1 through March 31, 2024 |
| 212,655 |
|
| 17.47 |
|
| 212,655 |
|
| 110,229 |
|
|
| 532,635 |
|
|
|
| 532,635 |
|
|
|
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Insider Adoption or Termination of Trading Arrangements
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None of the Company’s directors or officers adopted, modified or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company’s fiscal quarter ended March 31, 2024, as such terms are defined under Item 408(a) of Regulation S-K.
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Exhibit Index
Exhibit Number | Description | |
3.1** | ||
| ||
10.1* | ||
31.1* | ||
31.2* | ||
32.1* | ||
32.2* | ||
101.INS | Inline XBRL Instance | |
101.SCH | Inline XBRL Taxonomy Extension Schema | |
| Cover page formatted as Inline XBRL | |
|
| |
|
| |
|
| |
* Filed herewith.
** Previously filed.
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|
|
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.
| ||||
Date: | By: | /s/ T. Alex Vetter | ||
T. Alex Vetter | ||||
| ||||
Date: | By: | /s/ | ||
| ||||
Chief Financial Officer |
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