Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐☒ No ☒^*☐

Indicate by check mark whether the registrant has submitted electronically ~~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.

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,~~April 30, 2019, the registrant had ~~71,625,610~~66,626,608 shares of common stock, $0.01 par value per share, outstanding.

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

	September 30, 2017			December 31, 2016			March 31, 2019			December 31, 2018
	(unaudited)						(unaudited)
Assets
Current assets
Current assets:
Cash and cash equivalents	$	27,428		$	8,896		$	28,340		$	25,463
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
Accounts receivable, net								95,592			108,921
Prepaid expenses								7,417			9,264
Other current assets								9,523			10,289
Total current assets		138,803			119,541			140,872			153,937
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
Property and equipment, net								40,548			41,482
Goodwill		788,107			788,107			885,049			884,449
Intangible assets, less accumulated amortization of $224,053 and $165,651, respectively		1,548,967			1,607,369
Intangible assets, net								1,486,318			1,510,410
Investments and other assets		11,172			11,788			27,479			10,271
Total assets	$	2,527,924		$	2,547,266		$	2,580,266		$	2,600,549
Liabilities and equity
Current liabilities
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	6,787		$	7,844		$	12,131		$	11,631
Accrued compensation								12,746			16,821
Unfavorable contracts liability								12,585			18,885
Current portion of long-term debt		21,162			—			29,667			26,853
Accrued liabilities		69,137			64,140
Other accrued liabilities								52,827			36,520
Total current liabilities		97,086			71,984			119,956			110,710
Noncurrent liabilities
Deferred incentive plans		1,677			3,913
Unfavorable contracts liability		25,185			44,085
Noncurrent liabilities:
Long-term debt		597,468			—			652,178			665,306
Deferred tax liability		282,504			8,325			175,346			177,916
Other noncurrent liabilities		17,532			1,674			40,116			19,694
Total noncurrent liabilities		924,366			57,997			867,640			862,916
Total liabilities		1,021,452			129,981			987,596			973,626
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			—
Commitments and contingencies
Stockholders' equity:
Preferred Stock at par, $0.01 par value; 5,000 shares authorized; no shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively								—			—
Common Stock at par, $0.01 par value; 300,000 shares authorized; 67,455 and 68,262 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively								675			683
Additional paid-in capital		1,480,932			—			1,510,057			1,508,001
Retained earnings		24,824			—			89,217			118,239
Accumulated other comprehensive loss								(7,279	)		—
Total stockholders' equity		1,506,472			2,417,285			1,592,670			1,626,923
Total liabilities and stockholders' equity	$	2,527,924		$	2,547,266		$	2,580,266		$	2,600,549

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

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

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

	Three Months Ended March 31,
	2019			2018
Revenues:
Retail	$	139,338		$	132,343
Wholesale		14,860			27,614
Total revenues		154,198			159,957
Operating expenses:
Cost of revenues and operations		25,579			17,985
Product and technology		17,863			17,908
Marketing and sales		60,343			65,407
General and administrative		23,888			24,270
Affiliate revenue share		2,454			3,283
Depreciation and amortization		28,125			23,938
Total operating expenses		158,252			152,791
Operating (expense) income		(4,054	)		7,166
Nonoperating (expense) income:
Interest expense, net		(7,566	)		(5,957	)
Other income (expense), net		119			(16	)
Total nonoperating expense, net		(7,447	)		(5,973	)
(Loss) income before income taxes		(11,501	)		1,193
Income tax (benefit) expense		(2,470	)		264
Net (loss) income	$	(9,031	)	$	929
Weighted-average common shares outstanding:
Basic		67,584			71,952
Diluted		67,584			72,122
(Loss) earnings per share:
Basic	$	(0.13	)	$	0.01
Diluted		(0.13	)		0.01

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

	Preferred Stock				Common Stock						Additional Paid-In			Retained			Accumulated Other Comprehensive			Stockholders'
	Shares		Amount		Shares			Amount			Capital			Earnings			Loss			Equity

Balance at December 31, 2018		—	$	—		68,262		$	683		$	1,508,001		$	118,239		$	—		$	1,626,923
Net loss		—		—		—			—			—			(9,031	)		—			(9,031	)
Other comprehensive loss, net		—		—		—			—			—			—			(7,279	)		(7,279	)
Repurchases of common stock		—		—		(881	)		(9	)		—			(19,991	)		—			(20,000	)
Shares issued in connection with stock-based compensation plans, net		—		—		62			1			(744	)		—			—			(743	)
Stock-based compensation expense		—		—		—			—			2,981			—			—			2,981
Transactions with TEGNA, net ⁽¹⁾		—		—		12			—			(181	)		—			—			(181	)
Balance at March 31, 2019		—	$	—		67,455		$	675		$	1,510,057		$	89,217		$	(7,279	)	$	1,592,670

	Preferred Stock				Common Stock				Additional Paid-In			Retained		Stockholders'
	Shares		Amount		Shares		Amount		Capital			Earnings		Equity

Balance at December 31, 2017		—	$	—		71,628	$	716	$	1,501,830		$	176,582	$	1,679,128
Net income		—		—		—		—		—			929		929
Shares issued in connection with stock-based compensation plans, net		—		—		62		1		(618	)		—		(617	)
Stock-based compensation expense		—		—		—		—		1,600			—		1,600
Transactions with TEGNA, net ⁽¹⁾		—		—		175		2		(2,685	)		—		(2,683	)
Balance at March 31, 2018		—	$	—		71,865	$	719	$	1,500,127		$	177,511	$	1,678,357

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

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

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

$
—

	Three Months Ended March 31,
	2019			2018

Net (loss) income	$	(9,031	)	$	929	��
Other comprehensive loss, net of tax:
Interest rate swap		(7,279	)		—
Total other comprehensive loss		(7,279	)		—
Comprehensive (loss) income	$	(16,310	)	$	929

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

~~CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS’ EQUITY~~Consolidated Statements of Cash Flows

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

	Three Months Ended March 31,
	2019			2018
Cash flows from operating activities:
Net (loss) income	$	(9,031	)	$	929
Adjustments to reconcile Net (loss) income to Net cash provided by operating activities:
Depreciation		4,033			2,761
Amortization of intangible assets		24,092			21,177
Amortization of unfavorable contracts liability		(6,300	)		(6,300	)
Stock-based compensation expense		2,981			1,600
Deferred income taxes		(2,570	)		160
Provision for doubtful accounts		1,055			995
Amortization of debt issuance costs		311			317
Other, net		(9	)		129
Changes in operating assets and liabilities
Accounts receivable		12,274			3,208
Prepaid expenses		1,847			(5,691	)
Other current assets		886			(1,027	)
Other assets		(17,208	)		643
Accounts payable		574			518
Accrued compensation		(4,075	)		(5,148	)
Other accrued liabilities		14,087			13,839
Other noncurrent liabilities		15,442			(1,449	)
Net cash provided by operating activities		38,389			26,661
Cash flows from investing activities:
Purchase of property and equipment		(3,363	)		(2,513	)
Payment for Acquisition, net		—			(156,968	)
Other, net		(600	)		—
Net cash used in investing activities		(3,963	)		(159,481	)
Cash flows from financing activities:
Proceeds from issuance of long-term debt		—			165,000
Payments of long-term debt		(10,625	)		(40,625	)
Stock-based compensation plans, net		(743	)		(617	)
Repurchases of common stock		(20,000	)		—
Transactions with TEGNA, net		(181	)		—
Net cash (used in) provided by financing activities		(31,549	)		123,758
Net increase (decrease) in cash and cash equivalents		2,877			(9,062	)
Cash and cash equivalents at beginning of period		25,463			20,563
Cash and cash equivalents at end of period	$	28,340		$	11,501
Supplemental cash flow information:
Cash paid for income taxes, net of refunds	$	38		$	293
Cash paid for interest		7,413			5,552

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

~~NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS~~Notes to the Consolidated Financial Statements

NOTE 11. Description of Business, Company History and Summary of Significant Accounting Policies

Description of Business. Cars.com is a leading two-sided digital automotive marketplace that connects car shoppers with sellers and manufacturers (“OEM”s), empowering shoppers with the resources and information to make informed buying decisions. The Company’s portfolio of brands includes Cars.com, Dealer Inspire and DealerRater, in addition to Auto.com, PickupTrucks.com and NewCars.com. Dealer Inspire and DealerRater provide digital solutions for car dealers, including cutting-edge dealer websites, technology and reputation management solutions that improve automotive selling for local dealerships and national OEM brands. In a rapidly changing market, Cars.com enables dealerships and OEMs with innovative technical solutions and data-driven intelligence to better reach and influence ready-to-buy shoppers, increase inventory turn and gain market share.

Company History. In May 2017, the Company separated from ~~TEGNA, description of business and basis of presentation~~

~~Separation from TEGNA. On September 7, 2016,~~its former parent company, 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. ~~(“Cars.com,” the “Company,” “our,” “us” or “we”)~~, which now owns ~~the~~TEGNA’s former digital automotive marketplace ~~business. We filed a Registration Statement on Form 10 relating to the Separation with the U.S. Securities and Exchange Commission~~business (the ~~“SEC”) on May 5, 2017, that was declared effective by the SEC on May 15, 2017 (the “Registration Statement on Form 10”~~“Separation”). On May 31, 2017, wethe Company made a ~~$650~~$650.0 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~~the Company’s common stock. ~~Our~~The Company’s 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~~February 2018, 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 TEGNACompany acquired all of the ~~assets, employees, liabilities~~outstanding stock of Dealer Inspire Inc., an innovative technology leader providing progressive dealer websites, digital retailing and ~~obligations (including investments, property, employee benefits~~messaging platform products, 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 completionsubstantially all of the ~~Separation. A summary~~net assets of ~~these agreements can be found in our Registration Statement on Form 10.~~

~~In connection with~~Launch Digital Marketing LLC, a provider of digital marketing services, including paid, organic, social and creative services (collectively, 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”~~“Acquisition”). ~~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~~The post-Acquisition business related to Dealer Inspire, Inc. and Launch Digital Marketing LLC is referred to collectively 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.“Dealer Inspire”.

~~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~~These accompanying unaudited interim Consolidated Financial Statements (“Consolidated Financial Statements”) have been prepared in conformity with accounting principles generally accepted in the ~~distribution to Cars.com as part~~United States of America (“U.S. GAAP”) and the rules and regulations 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 all~~certain information and ~~footnotes~~footnote 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 indicative~~rules 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.

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 Combined~~Financial Statements ~~of Cash Flows as financing activities.~~

~~These interim financial statements~~ should be read in conjunction with the audited ~~annual financial statements,~~Consolidated and Combined Financial Statements and the notes thereto ~~as of and~~ for the year ended December 31, ~~2016~~2018, which are included in ~~our Registration Statement~~the Company's Annual Report on Form ~~10. These interim financial statements follow the same~~10-K dated February 28, 2019 (the “December 31, 2018 Financial Statements”).

The significant accounting policies ~~and methods~~used in ~~their application as~~preparing these Consolidated Financial Statements were applied on a basis consistent with those reflected in the ~~most recent audited financial statements.~~December 31, 2018 Financial Statements. In the opinion of management, the ~~interim financial statements reflect~~Consolidated 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.~~periods indicated. The unaudited results of operations for the three months ended March 31, 2019 are not necessarily indicative of results that may be expected for the year ending December 31, 2019.

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

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.

Reclassifications. Historically, certain costs related to severance, transformation and other exit costs; costs associated with the stockholder activist campaign; transaction-related costs and the write-off of long-lived assets were reflected in various operating expense line items in the Consolidated Statements of (Loss) Income. Beginning on January 1, 2019, these costs are reflected within General and administrative expenses. Therefore, certain prior year balances have been reclassified to conform to the current year presentation and are summarized as follows (in thousands):

~~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.~~

~~The Financial~~Cloud Computing Arrangements. In August 2018, the FASB issued Accounting Standards ~~Board (the “FASB”~~Update (“ASU”) ~~amended~~2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, aligning the ~~FASB Accounting Standards Codification and created~~requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs for internal-use software. The new ~~Topic 606,~~ ~~Revenue from Contracts with Customers.~~ ~~Under~~guidance is effective for 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 isCompany on January 1, ~~2018.~~2020 and early adoption is permitted. The ~~two permitted transition methods are the full retrospective method, in which case the standard would be applied to each prior reporting period presented~~Company is currently evaluating this new guidance 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 dodoes not expect ~~the standard~~it 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,~~ its Consolidated 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 statementsStatements and related disclosures.

~~In February 2016, the FASB amended the FASB Accounting Standards Codification and created a new Topic 842,~~ Financial Instruments – Credit Losses.~~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.~~ASU 2016-13, Financial Instruments—Credit Losses ~~(Topic 326).~~ ~~This guidance related to the measurement of credit losses on financial instruments. The new guidance changes~~ changing 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~~this new guidance, wethe Company 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~~Company on January 1, 2020 and will be adopted using a modified retrospective approach. ~~We are~~The Company is currently evaluating ~~the effect~~ this new guidance ~~will~~and does not expect it to have a material impact on ~~our financial statements~~its Consolidated Financial Statements and related disclosures.

Leases.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,~~February 2016, the FASB issued ASU ~~No. 2017-09,~~ 2016-02, ~~Compensation—Stock Compensation (Topic 718).~~Leases ~~This guidance clarifies when changes~~(ASU 2016-02) in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the ~~terms or conditions of a share-based payment award must be accounted~~balance sheet for those leases classified as ~~modifications.~~operating leases under current U.S. GAAP. The new guidance ~~will allow the Company~~requires a lessee to recognize a liability to make ~~certain changes~~lease payments (the “lease liability”) and a right-of-use asset representing its right to ~~awards without accounting~~use the underlying asset for ~~them as modifications and does not change~~ the ~~accounting for modifications.~~lease term on the balance sheet. The ~~new guidance should be applied prospectively and is effective for us beginning~~Company adopted ASU 2016-02 in the first quarter of ~~2018. We~~2019 utilizing the modified retrospective transition approach for leases existing at, or entered into after, the beginning of the first quarter of 2019 and did not recast the comparative periods presented in the Consolidated Financial Statements upon adoption. The Company elected the ‘package of practical expedients’ and did not reassess its prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected the short-term lease recognition exemption for all leases that qualify and did not recognize right-of-use assets or lease liabilities for those leases. The Company’s lease agreements are ~~currently evaluating~~principally related to real estate. The adoption of ASU 2016-02 resulted in the ~~effect~~recognition of operating lease assets of $18.2 million and $35.0 million in operating lease liabilities on its Consolidated Balance Sheets. The difference between the operating lease assets and the operating lease liabilities is primarily due to a lease incentive received in 2017 related to the 300 South Riverside Lease in Chicago, Illinois. There was no material impact to its Consolidated Statements of (Loss) Income and Consolidated Statements of Cash Flows. For further information, see Note 11 (Leases).

Revenue Summary. In the table below (in thousands), revenue is disaggregated by sales channel and major products and services. The Company only has one reportable segment; therefore, further disaggregation is not applicable at this ~~new guidance will have on our financial statements and related disclosures.~~time.

As of March 31, 2019, the Company is in compliance with the covenants under its credit agreement.

Term Loan. As of March 31, 2019, the outstanding principal amount under the Term Loan was $410.6 million and ~~other intangible assets~~the interest rate in effect was 4.3%, including the impact of the interest rate swap discussed in Note 5 (Interest Rate Swap). During the three months ended March 31, 2019, the Company made $5.6 million in mandatory quarterly Term Loan payments.

Revolving Loan. As of March 31, 2019, the outstanding borrowings under the Revolving Loan were $275.0 million and ~~liabilities~~the interest rate in effect was 4.1%. During the three months ended March 31, 2019, the Company made $5.0 million in voluntary Revolving Loan payments. As of March 31, 2019, $175.0 million was available to borrow under the Revolving Loan. The Company’s borrowings are limited by its net leverage ratio, which is calculated in accordance with the credit agreement and was 3.0 to 1.0 as of March 31, 2019.

Fair Value. The Company’s debt is classified as Level 2 in the fair value hierarchy and the fair value is measured based on comparable trading prices, ratings, sectors, coupons and maturities of similar instruments. The carrying amount of the Company’s debt approximated the fair value as of March 31, 2019.

The ~~following table displays goodwill, indefinite-lived intangibles~~interest rate on borrowings under the Company’s Term Loan is floating and, ~~amortizable intangible assets at September 30, 2017~~therefore, subject to fluctuations. In order to manage the risk associated with changes in interest rates on its borrowing under the Term Loan, the Company entered into an interest rate swap (the “Swap”) effective December 31, 2018. Under the terms of the Swap, the Company is locked into a fixed rate of interest of 2.96% plus an applicable margin, as defined in the Credit Agreement, on a notional amount of $300 million. The Swap is designated as a cash flow hedge of interest rate risk. As of March 31, 2019, the fair value of the Swap was an unrealized loss of $7.3 million, of which $2.3 million and $5.0 million is recorded in Other accrued liabilities and Other noncurrent liabilities, respectively, on the Consolidated Balance Sheets. During the three months ended March 31, 2019, $0.3 million was reclassified from Accumulated other comprehensive (loss) into Interest expense, net.

In connection with the October 2014 acquisition of Cars.com by TEGNA, the Company entered into affiliate agreements with the former owners of Cars.com (Belo Corporation (“Belo”), The McClatchy Company (“McClatchy”), tronc, inc. (“tronc”), and the Washington Post). Under the affiliate agreements, affiliates have the exclusive right to sell and price Cars.com’s products in their local territories, paying Cars.com a wholesale rate for the Cars.com product. The Company charges the affiliates 60% of the corresponding

Cars.com retail rate for products sold to affiliate dealers and recognizes revenue generated from these agreements as Wholesale revenues in the Consolidated Statements of (Loss) Income. The Unfavorable contracts liability was established as a result of these unfavorable affiliate agreements that the Company entered into as part of TEGNA’s acquisition of the Company in 2014. The Unfavorable contracts liability is being amortized on a straight-line basis over the five year contract period.

Prior to the affiliate conversions discussed below, the Company recognized $25.2 million of Wholesale revenues with a corresponding reduction of the Unfavorable contracts liability on an annual basis. As of March 31, 2019 and December 31, ~~2016~~2018, the Unfavorable contracts liability was $12.6 million and $18.9 million, respectively, and is recorded in Current liabilities on the Consolidated Balance Sheets.

The Company has amended three of its affiliate agreements (McClatchy, tronc, and the Washington Post) and as a result, now has a direct relationship with these dealer customers and recognizes the revenue associated with converted dealers as Retail revenues, rather than Wholesale revenues, in the Consolidated Statements of (Loss) Income. In addition, as part of the recent changes in the structure of the affiliate agreements, McClatchy, tronc and the Washington Post have agreed to perform certain marketing support and transition services through December 31, 2019, March 31, 2020 and October 1, 2019, respectively. The fees the Company pays associated with the amended affiliate agreements are recorded as Affiliate revenue share expense within Operating expenses in the Consolidated Statements of (Loss) Income.

The Company no longer records the amortization of the Unfavorable contracts liability associated with the converted markets to revenues as the Company now recognizes this direct revenue at retail rates. The amortization of the Unfavorable contracts liability is now recorded as a reduction of Affiliate revenue share expense within Operating expenses in the Consolidated Statements of (Loss) Income.

Therefore, during the three months ended March 31, 2019, the Company recorded $5.8 million as a reduction to Affiliate revenue share expense, rather than Wholesale revenues, in the Consolidated Statements of (Loss) Income. The reduction to Affiliate revenue share expense was partially offset by the fees associated with the marketing support and transition services.

The Company’s Unfavorable contracts liability activity for the three months ended March 31, 2019 is as follows (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

Balance at December 31, 2018	$	18,885
Amortization into Wholesale revenues ⁽¹⁾		(466	)
Amortization into Affiliate revenue share expense ⁽²⁾		(5,834	)
Balance at March 31, 2019	$	12,585

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.

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.

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

Income tax expense was $15.8 million for 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 and 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.

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, 2017~~and $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.

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 in the balance sheet consist of marketable securities held as LTIP investments.~~NOTE 7. Commitments and Contingencies

The ~~following table presents the LTIP investments carried at fair value as of September 30, 2017~~Company 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 for mutual funds is measured using Level 1 inputs and quoted market prices at the reporting date multiplied by the quantity held. Our fixed income fund investment consists of a commingled fund for which quoted market prices are not available. The fair value of the investment represents the net asset value as provided by the trustee.

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

Certain assets and liabilities are measured at fair value on a nonrecurring basis, and therefore, not included in the tables above. These assets include goodwill and intangible assets and result as acquisitions occur. The amounts assigned to intangible assets and goodwill as they relate to our acquisitions are based on our best estimate of the fair value. We use an independent valuation specialist to assist in determining the fair value of the identified intangible assets at acquisition. The fair value of the significant identified intangible assets is generally estimated using a combination of an income approach using the discounted cash flow analysis and market approach using the guideline public company analysis, 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.

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

~~No stock appreciation rights were granted to employees during the three and nine months ended September 30, 2017. Management does not expect to issue any new grants subsequent to the Separation.~~

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.

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

In March 2018, the Company’s Board of Directors authorized a stock repurchase program to acquire up to $200 million of the Company’s common stock. The Company may repurchase stock from time to time in open market transactions or through privately negotiated transactions in accordance with applicable federal securities laws. The timing and amounts of any purchases under the stock repurchase program will be based on market conditions and other factors including price. The repurchase program has a two-

year duration, does not require the purchase of any minimum number of shares and ~~revolving credit facility~~may be suspended, modified or discontinued at any time without prior notice. The Company intends to fund the share repurchase program principally with cash from operations. During the three months ended March 31, 2019, the Company repurchased and subsequently retired 0.9 million shares for $20.0 million. There was no stock repurchase activity during the three months ended March 31, 2018.

Performance Stock Units (“PSUs”). PSUs represent the right to receive unrestricted shares of ~~our domestic wholly-owned subsidiaries (the “Guarantors”) entered into a Credit Agreement (the “Credit Agreement”) with~~ the ~~lenders named therein.~~Company’s common stock at the time of vesting. The ~~Credit Agreement matures on May 31, 2022 and includes (a) revolving loan commitments in an aggregate principal amount~~fair value of upthe PSUs is equal to ~~$450 million (of which up to $25 million may be in~~ the ~~form of letters of credit at our request) and (b) term loans in an aggregate principal amount of $450 million. Interest~~Company’s common stock price on the ~~borrowings under~~date of grant. During the ~~Credit Agreement is payable~~three months ended March 31, 2019, the Company granted 207,000 PSUs at a weighted average grant date fair value of $24.02 per unit. These PSUs require continued employee service. 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 or~~Company’s future performance related to certain revenue and adjusted earnings before interest, income taxes, depreciation and amortization targets over a three-year performance period. These PSUs are subject to cliff vesting at the ~~alternate base rate,~~end of the three-year performance period.

Restricted Stock 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 ~~defined~~specified in the ~~Credit Agreement, in either case plus an applicable margin~~individual holder’s award agreement. These RSU’s are subject to graded vesting, generally ranging between one and ~~fees which, after~~three years and the ~~second full fiscal quarter following~~fair value of the ~~closing date,~~RSUs 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 prior~~equal 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 millionCompany’s common stock price on the ~~revolving loan. As~~date of ~~September 30, 2017,~~grant. During the three months ended March 31, 2019, the Company ~~had $624.4 million~~granted 477,000 RSUs at a weighted-average grant-date fair value 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.~~$24.02 per unit.

~~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 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.

Basic (loss) earnings per share is calculated by dividing ~~net~~Net (loss) income by the weighted-average number of shares of common stock outstanding. Diluted (Loss) earnings per share is similarly calculated, except that the calculation includes the dilutive effect of the assumed issuance of shares under ~~equity-based~~stock-based compensation plans, unless the inclusion of such shares would have an anti-dilutive impact.

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

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

In May 2017, the Cars.com Board of Directors approved the Omnibus Plan. The Omnibus Plan provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance shares and other equity-based and cash based awards of Cars.com.

Prior to 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 employees of the Cars.com business, were converted into an award denominated in shares of Cars.com common stock, with the number of shares subject to the award adjusted in a manner intended to preserve the aggregate intrinsic value of the original TEGNA RSUs award as measured immediately before and immediately after the Separation.

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

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

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

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

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

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

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

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

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

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.

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

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.

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.

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.

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.

~~Traffic (Visits).~~ Traffic (Visits) and our ability to generate traffic are key to our business. Tracking our traffic performance is a critical measure. Traffic to the Cars.com network of websites and mobile apps provides value to our advertisers in terms of audience, awareness, consideration and conversion. In addition to tracking traffic volume and sources, we monitor activity on our properties, allowing us to innovate and refine our consumer-facing offerings. Traffic is an internal metric representing the number of visits to Cars.com desktop and mobile properties (web browser and apps). Visits refer to the number of times visitors accessed Cars.com properties during the period, no matter how many visitors make up those visits. Traffic (Visits) numbers provide an indication of our consumer reach. Although our consumer reach does not directly result in revenue, we believe our ability to reach diverse demographic audiences is attractive to our dealers and national advertisers.

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

consumers to review. Dealer Customers represents the car dealerships using our products as of the end of each reporting period. Each dealership location is counted separately, whether it is a single-location proprietorship or part of a large consolidated dealer group. Multi-franchise dealerships at a single location are counted as one dealer.

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

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

Three Months Ended September 30,

Increase

In thousands (except % amounts)

2017

2016

(Decrease)

% Change

Revenues:

Direct revenue

$
82,504

$
84,651

$
(2,147
)

(3
)%
National advertising revenue

32,002

31,214

788

3
%
Other revenue

4,319

3,963

356

9
%
Retail revenue

118,825

119,828

(1,003
)

(1
)%
Wholesale revenue

41,074

42,467

(1,393
)

(3
)%
Total revenues

159,899

162,295

(2,396
)

(1
)%
Operating expenses:

Product support, technology and operations

36,598

32,469

4,129

13
%
Marketing and sales

50,733

48,670

2,063

4
%
General and administrative

11,606

7,738

3,868

50
%
Affiliate revenue share

2,121

2,162

(41
)

(2
)%
Amortization of intangible assets

19,467

19,088

379

2
%
Total operating expenses

120,525

110,127

10,398

9
%
Operating income

39,374

52,168

(12,794
)

(25
)%
Nonoperating (expense) income:

Interest (expense) income, net

(5,431
)

41

(5,472
)

***%

Other income, net

64

88

(24
)

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

(5,367
)

129

(5,496
)

***%

Income before income taxes

34,007

52,297

(18,290
)

(35
)%
Provision for income taxes

13,019

452

12,567

***%

Net income

$
20,988

$
51,845

$
(30,857
)

(60
)%

	Three Months Ended March 31,
	2019			2018
Net (loss) income	$	(9,031	)	$	929
Basic weighted-average common shares outstanding		67,584			71,952
Effect of dilutive stock-based compensation awards ⁽¹⁾		—			170
Diluted weighted-average common shares outstanding		67,584			72,122
(Loss) earnings per share, basic	$	(0.13	)	$	0.01
(Loss) earnings per share, diluted		(0.13	)		0.01

~~Retail Revenue—Direct. Direct revenue represents online subscription products sold by~~ 11

Notes to ~~our local automotive dealer customers~~the Consolidated Financial Statements (continued)

Leases. The Company is obligated as a lessee under certain non-cancelable operating leases for office space, and ~~includes DealerRater products which we acquired in August 2016. Automotive dealer customers purchase advertising packages~~is also obligated to ~~market their vehicle inventory~~pay insurance, maintenance and other ~~aspects~~executory costs associated with the leases. As of ~~the dealership, such~~March 31, 2019, Cars.com’s scheduled future minimum lease payments under operating leases having initial or remaining noncancelable lease terms of more than one year, were as the service department. Direct revenue is our largest revenue stream, representing 52% of total revenue for the third quarter of 2017. Direct revenue for the third quarter of 2017 decreased 3% as compared to the year-ago period reflecting a decline in average revenue per dealer, partially offset by an increase in average dealer count.follows (in thousands):

~~Retail Revenue—National Advertising. National advertising revenue consists~~

As of ~~display advertising sold to advertising agencies~~March 31, 2019, the Company’s operating lease assets and ~~OEMs as well as leads sold to OEMs. Banner display ads are placed throughout~~liabilities were $17.9 million and $34.4 million, respectively. The difference between the ~~Cars.com websites~~operating lease assets and ~~apps. National advertising revenue represented 20% of total revenue for~~ the ~~third quarter of 2017. National advertising revenue for the third quarter of 2017 rose 3% as compared to the year-ago period mainly~~operating lease liabilities is primarily due to ~~increased lead volume sold to OEMs.~~

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

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

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

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

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

~~General and administrative~~. General and administrative expenses primarily consist of salaries, benefits and incentive compensation for our executive, finance, legal, human resources, facilities and other administrative employees. In addition, depreciation, legal and accounting services, other professional services, share-based compensation for all other eligible Company employees, transaction related costs, restructuring costs, costs related to the ~~corporate headquarters office relocation and write-off and loss on assets are included~~300 South Riverside Lease in general and administrative expenses. General and administrative expenses increased $3.9 million, or 50%, in the third quarter of 2017 as compared to the year-ago period mainly due to $0.5 million in non-recurring items which is composed of $0.3 millionChicago, Illinois. Other information 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 expenseCompany’s operating leases for the three months ended ~~September 30, 2016.~~March 31, 2019 is as follows (in thousands, except percentage):

~~Provision for income taxes.~~ Note About Forward-Looking Information~~During~~

This report contains “forward-looking statements” within 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 subject to U.S. corporate income tax on a stand-alone basis post-Separation. The Company recorded $0.5 million of income tax expense for the three months ended September 30, 2016. See Note 5 to the financial statements included in Part I, Item 1 of this report for additional information related to income taxes.

~~The following table sets forth our selected statement of operations for each~~meaning 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
)%

~~Retail Revenues—Direct. Direct revenue is~~federal securities laws. All statements other than statements of historical facts are forward-looking statements. Forward-looking statements include information concerning 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 flat as compared~~business strategies, strategic alternatives review process, plans and objectives, market potential, outlook, trends, future financial performance, planned operational and product improvements, potential strategic transactions, liquidity and other matters and involve known and unknown risks that are difficult to ~~the year-ago period primarily reflecting an increase in average dealer count, partially offset by a decrease in average revenue per dealer.~~

~~Retail Revenues—National Advertising~~. 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% as 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.

~~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~~.predict. 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 million related to~~ our ~~new Credit Agreement entered into in connection with the Separation. The Company did not have any interest expense for the nine months ended September 30, 2016.~~

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

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

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

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

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

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

Net cash flow from operating activities was $147.2 million in the first nine months of 2017 as compared to the year-ago period of $140.4 million. This increase is due to changes in working capital, 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.

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

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

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

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

This report contains certain forward-looking statements regarding business strategies, market potential, future financial performance 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 discussed 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~~expressed or implied by these forward-looking statements. These statements often include words such as “believe,” “expect,” “project,” “anticipate,” “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, based on our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we think are appropriate. Such forward-looking ~~statements. Where, in any forward-looking statement, an expectation or belief as to future results or events is expressed, such expectation or belief is~~statements are necessarily based upon estimates and assumptions that, while considered reasonable by the Company and its management based on their knowledge and understanding of the ~~current plans~~business and ~~expectations of Cars.com management and is~~industry, are inherently uncertain. These statements are expressed in good faith and ~~believed to have a reasonable basis, but there can~~we believe these judgments are reasonable. However, you should understand that these statements are not guarantees of strategic action, performance or results. Our actual results could differ materially from those expressed in the forward-looking statements. Given these uncertainties, forward-looking statements should not be ~~no assurance that the expectation or belief will result or be achieved or accomplished.~~relied on in making investment decisions. Comparisons of results between current and prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data. Whether or not any such forward-looking statement is in fact achieved will depend on future events, some of which are beyond ~~Cars.com’s~~our control.

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

For a detailed discussion of many of these risks and uncertainties, see “Part I, Item ~~1A,~~1A., Risk ~~Factors,”~~Factors” and ~~Part I,~~“Part II, Item ~~2, “Management’s~~7., Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations,”~~Operations” in our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the Securities and ~~the following:~~

~~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~~February 28, 2019 All forward-looking statements contained in this ~~report.~~report are qualified by these cautionary statements. You should evaluate all forward-looking statements made in this report in the context of these risks and uncertainties. The forward-looking statements contained in this report are based only on information currently available to us and speak only as of the date of this report. ~~Except~~We undertake no obligation, other than as may be required by law, ~~Cars.com undertakes no obligation~~ to ~~modify~~update or revise any forward-looking ~~statement~~or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, or changes in future operating results over time or otherwise. The forward-looking statements in this report are intended to be subject to the safe harbor protection provided by the federal securities laws.

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

The following discussion and analysis of our business, financial condition, results of operations and quantitative and qualitative disclosures should be read in conjunction with our Consolidated Financial Statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis also contains forward-looking statements and should be read in conjunction with the disclosures and information contained in “Note About Forward-Looking Information” in this Quarterly Report on Form 10-Q. The financial information discussed below and included elsewhere in this Quarterly Report on Form 10-Q may not necessarily reflect what our financial condition, results of operations and cash flows may be in the future.

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

Cars.com is a leading two-sided digital automotive marketplace that connects car shoppers with sellers and original equipment manufacturers (“OEM”s), empowering shoppers with the resources and information to make informed buying decisions. Our portfolio of brands includes Cars.com, Dealer Inspire and DealerRater, in addition to Auto.com, PickupTrucks.com and NewCars.com. Dealer Inspire and DealerRater provide digital solutions for car dealers, including cutting-edge dealer websites, technology and reputation management solutions that improve automotive selling for local dealerships and national OEM brands. In a rapidly changing market, Cars.com enables dealerships and OEMs with innovative technical solutions and data-driven intelligence to better reach and influence ready-to-buy shoppers, increase inventory turn and gain market share.

In May 2017, we separated from our former parent company, TEGNA Inc. (“TEGNA”) by means of a spin-off of a newly formed company, Cars.com Inc., which now owns TEGNA’s former digital automotive marketplace business (the “Separation”). Our common stock began trading “regular way” on the New York Stock Exchange on June 1, 2017.

In the time since Cars.com became an independent company, we have developed and commenced a new, ~~information, events or circumstances occurring after~~ongoing multi-year business strategy to better support sustainable long-term growth and market leadership. We are making strides to transform from a listings business to an online media and digital solutions platform that is well-positioned to lead in the ~~date~~online automotive retail sector. In 2018 and 2019, we accomplished many product, technology, sales and go-to-market changes designed to underpin a strategy aimed at achieving sustainable market leadership during a dynamic period in the automobile and automotive-advertising sectors.

In conjunction with our digital solutions strategy, in February 2018, we acquired all of the outstanding stock of Dealer Inspire, Inc. and substantially all of the net assets of Launch Digital Marketing LLC (the “Acquisition”). The post-Acquisition business related to Dealer Inspire, Inc. and Launch Digital Marketing LLC is referred to collectively as “Dealer Inspire”. The results of operations for the three months ended March 31, 2018 includes Dealer Inspire’s financial results for the post-Acquisition period of February 21, 2018 through March 31, 2018.

Technology Transformation. In February 2019, we announced a restructuring of the product and technology teams (the “Technology Transformation”). This restructuring is primarily focused on shifting our technology spend towards innovation to improve our speed of product delivery, to enable integration across current and future systems, and to migrate our systems to the cloud. In connection

with the Technology Transformation, we have aligned our product and technology teams with our long-term growth strategy to expand beyond listings to a digital solutions marketplace. As part of this ~~report.~~process, we have streamlined the existing teams as we modernize our technology platform and invest in a more efficient cloud-based infrastructure focused on machine learning, product innovation and growth. Further, we expect to achieve cost efficiencies upon completion of the Technology Transformation.

Strategic Alternatives to Enhance Shareholder Value. In January 2019, we announced that we have been conducting a process to explore strategic alternatives to enhance shareholder value. At the September 28, 2018 meeting, the Board of Directors authorized management and its external advisors to initiate such a process and we have since been considering a broad range of strategic alternatives, including a potential sale of the Company. There can be no assurance that the strategic alternatives review process will result in a sale of the Company or other strategic change or outcome. We have not set a timetable for the conclusion of our review of strategic alternatives, and we do not intend to comment further unless and until the Board of Directors has approved a specific course of action or we otherwise determined that further disclosure is appropriate or required by law.

Sales Transformation. In December 2018, we restructured the sales team (the “Sales Transformation”), which reorganized the sales force into teams designed to provide the full range of enhanced services to current customers and a more tailored structure to win new customers. These changes reflect the expansion of our business beyond car listings to include value-added digital solutions such as innovations from Dealer Inspire and DealerRater. The Sales Transformation also reflects a realignment of territories following the conversion of the majority of the affiliate agreements.

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. We also review other key metrics including: unique visitors, average revenue per dealer and dealer customer and consumer satisfaction statistics.

Information regarding Traffic and Average Monthly Unique Visitors is as follows:

Information regarding our Dealer Customers and Direct Monthly Average Revenue Per Dealer is as follows:

Traffic (Visits). Traffic is critical to our business. 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 defined as the number of visits to Cars.com desktop and mobile properties (responsive sites and mobile apps), using Adobe Analytics. Visits refers to the number of times visitors accessed Cars.com properties during the period, no matter how many visitors make up those visits. Traffic provides an indication of our consumer reach. Although our consumer reach does not directly result in revenue, we believe our ability to reach in-market car shoppers is attractive to our dealers and national advertisers.

The growth in Traffic was driven by increases in both organic and paid traffic. Mobile traffic accounted for 71% and 65% of total Traffic for the three months ended March 31, 2019 and 2018, respectively.

Average Monthly Unique Visitors (“UVs”). Growth in unique visitors and consumer traffic to our network of websites and mobile apps increases the number of impressions, clicks, leads and other events we can monetize to generate revenue. We define UVs in a given month as the number of distinct visitors that engage with our platform during that month. Visitors are identified when a user first visits an individual Cars.com property on an individual device/browser combination, or installs one of our mobile apps on an

individual device. If an individual 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 towards the number of UVs. We measure UVs using Adobe Analytics.

Dealer Customers. Dealer Customers represent dealerships using our products as of the end of each reporting period. Each dealership location is counted separately, whether it is a single-location proprietorship or part of a large consolidated dealer group. Multi-franchise dealerships at a single location are counted as one dealer. Beginning June 30, 2018, this key operating metric includes Dealer Inspire customers.

Total Dealer Customers declined 3% from December 31, 2018. Dealer Customers decreased primarily due to higher cancellations of marketplace customers, offset in part by growth in Dealer Inspire only customers.

Total Dealer Customers declined 6% from March 31, 2018. Dealer Customers decreased primarily due to higher cancellations of marketplace customers, offset in part by incremental customers from the Acquisition and continued growth of Dealer Inspire only customers.

Average Revenue Per Dealer (“ARPD”). We believe that our ability to grow ARPD is an indicator of the value proposition of our products. We define ARPD as Direct retail revenue during the period divided by the average number of direct Dealer Customers during the same period. Beginning the first quarter of 2019, this key operating metric includes revenue from dealer websites and related digital solutions. ARPD prior to the first quarter of 2019 has not been recast to include Dealer Inspire as it would be impracticable to do so.

ARPD increased 4% from December 31, 2018, primarily driven by the addition of Dealer Inspire revenues. Excluding the impact of Dealer Inspire revenues, ARPD would have decreased 2%, primarily due to higher cancellations and reduced spend from marketplace customers.

ARPD increased 9% from March 31, 2018, primarily driven by the addition of Dealer Inspire revenues and the favorable impact of the increase in large dealers in larger markets that we now control. Direct ARPD excluding revenues from dealer websites and related digital solutions from Dealer Inspire was $2,102, up 3% from the prior year.

Factors Affecting Our Performance. Our business is impacted by the larger automotive environment, including consumer demand and other macroeconomic factors, and changes related to automotive digital advertising solutions. We have recently observed softness in new car sales in the United States and reduced dealer profitability, which has impacted OEMs’ and dealerships’ willingness to shift and/or increase spend with automotive marketplaces like Cars.com. Our success will depend in part on our ability to transform our business toward digital solutions that complement our media offerings, and our continued integration of Dealer Inspire will be an important driver of our success. We are adapting our go-to-market sales and technology infrastructure, as described in the Sales and Technology Transformations discussions above, to support the execution of our strategy. To continue driving more value to our customers in the form of highly qualified car shoppers, we plan to increase investments in product and marketing. The foundation of our continued success is the value we deliver to customers, and we believe that our large and growing audience of car shoppers and innovative solutions will deliver value to our customers.

	Three Months Ended March 31,						Increase
(In thousands, except percentages)	2019			2018			(Decrease)			% Change
Revenues:
Direct	$	115,094		$	101,478		$	13,616			13	%
National advertising		20,295			26,818			(6,523	)		(24	)%
Other		3,949			4,047			(98	)		(2	)%
Retail		139,338			132,343			6,995			5	%
Wholesale		14,860			27,614			(12,754	)		(46	)%
Total revenues		154,198			159,957			(5,759	)		(4	)%
Operating expenses:
Cost of revenues and operations		25,579			17,985			7,594			42	%
Product and technology		17,863			17,908			(45	)		0	%
Marketing and sales		60,343			65,407			(5,064	)		(8	)%
General and administrative		23,888			24,270			(382	)		(2	)%
Affiliate revenue share		2,454			3,283			(829	)		(25	)%
Depreciation and amortization		28,125			23,938			4,187			17	%
Total operating expenses		158,252			152,791			5,461			4	%
Operating income		(4,054	)		7,166			(11,220	)		(157	)%
Nonoperating (expense) income:
Interest expense, net		(7,566	)		(5,957	)		(1,609	)		27	%
Other income (expense), net		119			(16	)		135		***%
Total nonoperating expense, net		(7,447	)		(5,973	)		(1,474	)		25	%
(Loss) income before income taxes		(11,501	)		1,193			(12,694	)	***%
Income tax (benefit) expense		(2,470	)		264			(2,734	)	***%
Net (loss) income	$	(9,031	)	$	929		$	(9,960	)	***%

Retail Revenues—Direct. Direct revenues consists of marketplace and digital solutions sold to Dealer Customers. Direct revenues is our largest revenue stream, representing 74.6% and 63.4% of total revenues for the three months ended March 31, 2019 and 2018, respectively. Direct revenues grew by $13.6 million, or 13%, compared to the prior year. During 2018, we amended our affiliate agreements with The McClatchy Company (“McClatchy”), tronc, Inc. (“tronc”) and the Washington Post to convert all of these affiliate markets prior to the expiration dates of the original affiliate agreements. During the three months ended March 31, 2019, the affiliate market conversions contributed an incremental $13.2 million to Direct revenues measured at the month of each of the conversions, while reducing Wholesale revenues by $11.4 million (of which $2.8 million relates to the Unfavorable contracts liability amortization). A full quarter’s impact of Dealer Inspire’s business contributed an incremental $11.5 million to Direct revenues. Excluding the affiliate market conversions and Dealer Inspire, Direct revenues decreased $11.1 million, or 14%, compared to the prior year, primarily due to a 12% decline in Direct Dealer Customers. Direct Dealer Customers decreased 3% from December 31, 2018. For information related to the affiliate market conversions, see Note 6 (Unfavorable Contracts Liability) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements” of this Quarterly Report on Form 10-Q.

Retail Revenues—National Advertising. National advertising revenues consists of display advertising and other solutions sold to OEMs and advertising agencies. National advertising revenues represent 13.2% and 16.8% of total revenues for the three months ended March 31, 2019 and 2018, respectively. National advertising revenue declined 24%, as OEMs reduced their upfront commitments and we experienced a lower close rate on new sales to these customers. These declines are occurring as OEMs have reduced or shifted their spending during the quarter.

Wholesale Revenues. Wholesale revenues represent the fees we charge for marketplace and digital solutions sold to dealers by affiliates. The fees represent approximately 60% of the retail value for the same online subscription products sold by our direct sales team. Wholesale revenues represent 9.6% and 17.3% of total revenues for the three months ended March 31, 2019 and 2018, respectively. Wholesale revenues decreased 46% primarily due to affiliate market conversions from Wholesale revenues ($11.4 million, which includes $2.8 million of Unfavorable contracts liability amortization) to direct revenues ($13.2 million). In addition,

excluding the affiliate market conversions, Wholesale revenues was impacted by a 9% decline in Dealer Customers. For information related to the affiliate market conversions, see Note 6 (Unfavorable Contracts Liability) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements” of this Quarterly Report on Form 10-Q.

Cost of revenues and operations. Cost of revenues and operations primarily consist of expenses related to our pay-per-lead products, third-party costs for processing dealer vehicle inventory, product fulfillment, customer service and compensation costs. Cost of revenues and operations represents 16.6% and 11.2% of total revenues for the three months ended March 31, 2019 and 2018, respectively. Cost of revenues and operations increased, primarily due to higher third-party costs, principally related to new product offerings, and incremental compensation costs associated with the full quarter’s impact of Dealer Inspire’s business.

Product and technology. The product team creates and manages consumer and dealer-facing innovation, manages consumer user experience and includes the costs associated with our editorial and data strategy teams. The technology team develops and supports the Cars.com products and website. Product and technology expenses include compensation costs, as well as license fees for vehicle specifications, search engine optimization, hardware/software maintenance, software licenses, data center and other infrastructure costs. Product and technology expenses represent 11.6% and 11.2% of total revenues for the three months ended March 31, 2019 and 2018, respectively. Product and technology expenses were flat, as the full quarter’s impact of Dealer Inspire’s business was offset by cost efficiencies.

Marketing and sales. Marketing and sales expenses primarily consist of traffic and lead acquisition costs (including search engine marketing and other online marketing), TV and digital display/video advertising and creative production, market research, trade events and compensation costs for the marketing, sales support and sales teams. Marketing and sales expenses represent 39.1% and 40.9% of total revenues for the three months ended March 31, 2019 and 2018, respectively. Marketing and sales decreased, primarily due to lower compensation costs as a result of the Sales Transformation and cost efficiencies associated with trade events. These costs were partially offset by the full quarter’s impact of Dealer Inspire’s business and an increase in performance marketing.

General and administrative. General and administrative expenses primarily consist of compensation costs for the finance, legal, human resources, facilities and other administrative employees. In addition, general and administrative expenses include office space rent, legal and accounting services, other professional services, transaction-related costs and costs related to the write-off and loss on assets. General and administrative expenses represent 15.5% and 15.2% of total revenues for the three months ended March 31, 2019 and 2018, respectively. General and administrative expenses decreased $0.4 million and 2% versus the prior year. During the three months ended March 31, 2019, we recognized $6.5 million related to severance, transformation and other exit costs; $2.7 million in costs associated with stockholder activist campaign and $2.0 million in transaction-related costs. During the three months ended March 31, 2018, we recognized $0.5 million related to severance, transformation and other exit costs; $3.8 million in costs associated with stockholder activist campaign; and $10.1 million in transaction-related costs. Excluding these costs, general and administrative expenses increased $2.8 million and 29% versus the prior year, primarily due to the full quarter’s impact of Dealer Inspire’s business and increased stock based compensation.

Affiliate revenue share. Affiliate revenue share expense primarily represents payments made to affiliates pursuant to our affiliate agreements. Affiliate revenue share expense decreased 25%, as the amortization of the Unfavorable contracts liability related to the converted affiliate markets is now recorded as a reduction of Affiliate revenue share expense, rather than Wholesale revenues. This decline was partially offset by higher costs associated with the early conversions of the McClatchy, tronc and Washington Post markets. For information related to the Unfavorable contracts liability, see Note 6 (Unfavorable Contracts Liability) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements” of this Quarterly Report on Form 10-Q.

Depreciation and amortization. Depreciation and amortization expense increased 17%, primarily due to the full quarter’s impact of the Acquisition and additional amortization resulting from the reduction of the useful lives of certain assets related to the Technology Transformation.

Interest expense, net. Interest expense increased due to the full quarter’s interest related to the borrowing utilized to fund the Acquisition, as well as additional interest expense associated with the interest rate swap. For information related to our Term and Revolving Loans and interest rate swap, see Note 4 (Debt) and Note 5 (Interest Rate Swap), respectively, to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements” of this Quarterly Report on Form 10-Q.

Overview. Our primary sources of liquidity are cash flows from operations, available cash reserves and debt capacity available under our credit facilities. Our operations have generated positive operating cash flows in 2019 and 2018 which, along with our Term and Revolving Loans described below, provides adequate liquidity to meet our business needs, including those for investments and

strategic acquisitions. In addition, we may raise additional funds through other public or private debt or equity financings. The tax matters agreement that we entered into with TEGNA priorto the Separation included restrictions that may limit our ability to pursue certain strategic transactions or other transactions that we may believe to be in the bestinterests of our stockholders, or that might increase the value of our business. See Part II, Item 1A., “Risk Factors” of this Quarterly Report on Form 10-Q.As of March 31, 2019, cash and cash equivalents were $28.3 million.

Term Loan and Revolving Loan. As of March 31, 2019, the outstanding principal amount under the Term Loan was $410.6 million, with an interest rate of 4.3%, including the impact of the interest rate swap. The outstanding borrowings under the Revolving Loan were $275.0 million, with an interest rate of 4.1%. During the three months ended March 31, 2019, we made $5.0 million in voluntary revolving loan payments and $5.6 million in mandatory Term Loan payments. As of March 31, 2019, $175.0 million was available to borrow under the Revolving Loan. Our borrowings are limited by our net leverage ratio, which is calculated in accordance with our credit agreement, and was 3.0 to 1.0 as of March 31, 2019.

Interest Rate Swap. The interest rate on borrowings under our Term Loan is floating and, therefore, subject to fluctuations. In order to manage the risk associated with changes in interest rates on our borrowing under our Term Loan, we entered into an interest rate swap agreement (the “Swap”) effective December 31, 2018. Under the terms of the Swap, we are locked into a fixed rate of interest of 2.96% plus an applicable margin, as defined in our Credit Agreement, on a notional amount of $300 million. As of March 31, 2019, the fair value of the Swap was an unrealized loss of $7.3 million. The Swap is designated as a cash flow hedge of interest rate risk and recorded at fair value in Other liabilities on the Consolidated Balance Sheets. Any gains or losses on the Swap will be reported as a component of Accumulated comprehensive (loss) income until reclassed to Interest expense, net in the same period the hedge transaction impacts earnings.

Share Repurchase Program. In March 2018, our Board of Directors authorized a share repurchase program to acquire up to $200 million of our common stock over a two year period. We may repurchase shares from time to time in open market transactions or through privately negotiated transactions in accordance with applicable federal securities laws. 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 does not require the purchase of any minimum number of shares and may be suspended, modified or discontinued at any time without prior notice. During the three months ended March 31, 2019, we repurchased and subsequently retired 0.9 million shares for $20.0 million. There was no stock repurchase activity during the three months ended March 31, 2018.

Operating Activities. Cash provided by operating activities for the three months ended March 31, 2018 was unfavorably impacted by the cash settlement of DI’s unvested equity awards. In addition, the increase in cash provided by operating activities for the three months ended March 31, 2019 benefited from changes in operating assets and liabilities, partially offset by lower net income.

Investing Activities. The decrease in cash used in investing activities is primarily due to the Acquisition in February 2018.

Financing Activities. During the three months ended March 31, 2018, cash provided by financing activities is primarily due to net revolving loan borrowings of $130.0 million related to the Acquisition in February 2018. During the three months ended March 31, 2019, financing activities primarily related to $20.0 million in share repurchases and $10.6 million of loan repayments, of which $5.0 million was voluntarily paid. For information related to our Term and Revolving Loans, see Note 4 (Debt) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements” of this Quarterly Report on Form 10-Q.

Commitments and Contingencies. For information related to commitments and contingencies, see Note 7 (Commitments and Contingencies) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements” of this Quarterly Report on Form 10-Q.

Off-Balance Sheet Arrangements. We do not have any material off-balance sheet arrangements.

Critical Accounting Policies. For information related to critical accounting policies, see “Critical Accounting Policies and Estimates” in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, of the Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the SEC on February 28, 2019 and see Note 1 (Description of Business, Company History and Summary of Significant Accounting Polices) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements” of this Quarterly Report on Form 10-Q. During the three months ended March 31, 2019, there have been no changes to our critical accounting policies.

Recent Accounting Pronouncements. For information related to recent accounting pronouncements, see Note 2 (Recent Accounting Pronouncements) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements” of this Quarterly Report on Form 10-Q.

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

For quantitative and qualitative disclosures about market risk, see “Quantitative and Qualitative Disclosures About Market ~~risk represents~~Risk,” in Part II, Item 7A., of the ~~risk of loss that may affect our financial position due to adverse changes in financial market prices~~Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the Securities and ~~rates. We are exposed~~Exchange Commission (“SEC”) on February 28, 2019. Our exposures to market ~~risks related to changes in interest rates.~~

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.

~~Historically, as our operations and sales have been primarily in the United States, we~~risk have not faced any significant foreign currency risk. With the acquisition of DealerRater in August 2016, Cars.com acquired a limited number of Canadian customers, some of which are billed in Canadian dollars. Any foreign currency exchange rate fluctuations have been and are anticipated to be immaterial. If we plan for additional international expansion, our risks associated with fluctuation in currency rates will become greater, and we will continue to reassess our approach to managing this risk.changed materially since December 31, 2018.

Procedures. Management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this ~~report.~~Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs.~~To assist management, we have established an internal audit function to verify and monitor our internal controls and procedures.~~ ~~Our internal control system is supported by written policies and procedures, contains self-monitoring mechanisms and is audited by the internal audit function.~~

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).

For ~~a description of our material pending~~information relating to legal proceedings, ~~please refer to~~see Note ~~9, “Commitments, contingent liabilities~~7 (Commitments and ~~other matters” of the Notes~~Contingencies) to the ~~Unaudited Condensed~~accompanying Consolidated ~~and Combined~~ Financial Statements included in Part I, Item 11., “Financial Statements” of this ~~report, which is incorporated herein by reference.~~Quarterly Report on Form 10-Q.

Our business and the ownership of our common stock are subject to a number of risks and uncertainties, including those described in Part I, Item ~~1A,~~1A., “Risk Factors” in our ~~Registration Statement~~Annual Report on Form ~~10,~~10-K for the year ended December 31, 2018 as filed with the Securities and Exchange Commission (“SEC”) on February 28, 2019, which could materially affect our business, financial condition, results of operations ~~financial condition~~ and future results. There have been no material changes from the risk factors described in our ~~Registration Statement~~Annual Report on Form ~~10.~~10-K.

Our stock repurchase activity for the three months ended March 31, 2019 is as follows:

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.

Delaware	81-3693660
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)


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

		Page
PART I.	FINANCIAL INFORMATION	2
Item 1.	Financial Statements (unaudited):	2
	~~Condensed Consolidated and Combined Balance Sheets~~	2
	Consolidated ~~and Combined Statements of Income~~Balance Sheets	3
2	~~Condensed Consolidated and Combined Statements of Cash Flows~~	4
	Consolidated ~~and Combined~~Statements of (Loss) Income	3
	Consolidated Statements of Stockholders’ Equity	4
	Consolidated Statements of Comprehensive (Loss) Income	5
	Consolidated Statements of Cash Flows	6
	Notes to Unaudited ~~Condensed~~ Consolidated ~~and Combined~~ Financial Statements	67
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1416
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2322
Item 4.	Controls and Procedures	2322
PART II.	OTHER INFORMATION	2423
Item 1.	Legal Proceedings	2423
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	24
Item 4.	Mine Safety Disclosures	24
Item 5.	Other Information	24
Item 6.	Exhibits	24
Signatures		25


~~Level 2—~~(2)	~~Inputs other than Level 1 inputs that are either directly or indirectly observable;~~Amount represents the amortization of the Unfavorable contracts liability related to the converted McClatchy, tronc and
Washington Post affiliate agreements into Affiliate revenue share expense in the Consolidated Statements of (Loss) Income.
~~Level 3—~~	~~Unobservable inputs developed using our own estimates and assumptions, which reflect those that a market participant would use.~~

	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

	Three Months Ended March 31, 2018
	As Reported		Adjustments			As Adjusted
Cost of revenues and operations	$	19,086	$	(1,101	)	$	17,985
Product and technology		22,333		(4,425	)		17,908
Marketing and sales		66,035		(628	)		65,407
General and administrative		18,116		6,154			24,270
Affiliate revenue share		3,283		—			3,283
Depreciation and amortization		23,938		—			23,938
Total operating expenses	$	152,791	$	—		$	152,791

	Three Months Ended March 31,
Sales channel	2019		2018
Direct	$	115,094	$	101,478
National advertising		20,295		26,818
Other		3,949		4,047
Retail		139,338		132,343
Wholesale		14,860		27,614
Total revenues	$	154,198	$	159,957

Major products and services
Subscription advertising and digital solutions	$	121,314	$	123,777
Display advertising		22,289		26,023
Pay per lead		7,934		7,556
Other		2,661		2,601
Total revenues	$	154,198	$	159,957

	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

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

	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	%

Remaining nine months of 2019	$	2,735
2020		4,368
2021		4,014
2022		3,751
2023		3,850
Thereafter		35,117
Total minimum lease payments		53,835
Less: Imputed interest ⁽¹⁾		(19,411	)
Present value of the minimum lease payments		34,424
Less: Current maturities of lease obligations		(1,494	)
Long-term lease obligations	$	32,930

Income statement information:
Operating lease cost	$	958
Short-term lease cost		381
Variable lease cost		994
Total lease cost	$	2,333

Other information:
Cash paid for operating leases	$	1,224
Weighted-average remaining lease term (in months)		139
Weighted-average discount rate		7.4	%

	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


	March 31, 2019		March 31, 2018		% Change			December 31, 2018		% Change
Dealer Customers ⁽¹⁾		19,300		20,474		(6	)%		19,921		(3	)%
Direct Monthly Average Revenue Per Dealer ⁽²⁾	$	2,225	$	2,036		9	%	$	2,139		4	%

Period	Total Number of Shares Purchased ⁽¹⁾		Average Price Paid per Share ⁽¹⁾		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽²⁾		Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ⁽³⁾ (in thousands)
January 1 through January 31, 2019		881,096	$	22.70		881,096	$	82,810
February 1 through February 28, 2019		—		—		—		82,810
March 1 through March 31, 2019		—		—		—		82,810
Total		881,096				881,096

Exhibit Number		Description
10.1*^		10.2*^
31.1*		Cars.com Inc. Executive Severance Plan Cars.com Inc. Change in Control Severance Plan Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document.
101.SCH		XBRL Taxonomy Extension Schema Document.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

	~~Company Name~~Cars.com Inc.

Date: ~~November 8, 2017~~May 10, 2019	By:	/s/ T. Alex Vetter
		T. Alex Vetter
		President and Chief Executive Officer

Date: ~~November 8, 2017~~May 10, 2019	By:	/s/ Becky A. Sheehan
		Becky A. Sheehan
		Chief Financial Officer

Large accelerated filer

Accelerated filer

Non-accelerated filer

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Smaller reporting company

Emerging growth company