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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 31, 2018,~~April 30, 2019, the registrant had ~~68,568,102~~66,626,608 shares of common stock, $0.01 par value per share, outstanding.

	September 30, 2018		December 31, 2017		March 31, 2019			December 31, 2018
	(unaudited)				(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	17,809	$	20,563	$	28,340		$	25,463
Accounts receivable, net		107,687		100,857		95,592			108,921
Prepaid expenses		11,662		11,408		7,417			9,264
Other current assets		9,558		9,811		9,523			10,289
Total current assets		146,716		142,639		140,872			153,937
Property and equipment, net		40,850		39,740		40,548			41,482
Goodwill		884,339		788,107		885,049			884,449
Intangible assets, net		1,533,442		1,529,500		1,486,318			1,510,410
Investments and other assets		10,451		11,053		27,479			10,271
Total assets	$	2,615,798	$	2,511,039	$	2,580,266		$	2,600,549
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	8,040	$	6,581	$	12,131		$	11,631
Accrued compensation		10,889		14,185		12,746			16,821
Unfavorable contracts liability		25,185		25,200		12,585			18,885
Current portion of long-term debt		24,022		21,158		29,667			26,853
Other accrued liabilities		45,736		23,025		52,827			36,520
Total current liabilities		113,872		90,149		119,956			110,710
Noncurrent liabilities:
Unfavorable contracts liability		—		18,885
Long-term debt		678,426		557,194		652,178			665,306
Deferred tax liability		168,360		146,482		175,346			177,916
Other noncurrent liabilities		20,297		19,201		40,116			19,694
Total noncurrent liabilities		867,083		741,762		867,640			862,916
Total liabilities		980,955		831,911		987,596			973,626
Commitments and contingencies
Stockholders' equity:
Preferred Stock at par, $0.01 par value; 5,000 shares authorized; no shares issued and outstanding as of September 30, 2018 and December 31, 2017		—		—
Common Stock at par, $0.01 par value; 300,000 shares authorized; 68,926 and 71,628 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively		689		716
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		1,505,279		1,501,830		1,510,057			1,508,001
Retained earnings		128,875		176,582		89,217			118,239
Accumulated other comprehensive loss						(7,279	)		—
Total stockholders' equity		1,634,843		1,679,128		1,592,670			1,626,923
Total liabilities and stockholders' equity	$	2,615,798	$	2,511,039	$	2,580,266		$	2,600,549

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

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
Revenues:
Retail	$	151,627		$	118,825		$	430,828		$	346,780		$	139,338		$	132,343
Wholesale⁽¹⁾		17,685			41,074			66,953			122,917			14,860			27,614
Total revenues		169,312			159,899			497,781			469,697			154,198			159,957
Operating expenses:
Cost of revenues and operations		24,034			18,176			65,924			49,618			25,579			17,985
Product and technology		15,918			18,422			56,202			56,861			17,863			17,908
Marketing and sales		56,083			50,733			181,645			160,246			60,343			65,407
General and administrative		14,345			9,180			45,609			34,364			23,888			24,270
Affiliate revenue share		4,097			2,121			11,193			6,837			2,454			3,283
Depreciation and amortization		26,504			21,893			77,154			66,343			28,125			23,938
Total operating expenses		140,981			120,525			437,727			374,269			158,252			152,791
Operating income		28,331			39,374			60,054			95,428
Operating (expense) income														(4,054	)		7,166
Nonoperating (expense) income:
Interest expense, net		(7,005	)		(5,431	)		(20,305	)		(7,160	)		(7,566	)		(5,957	)
Other income, net		65			64			76			199
Other income (expense), net														119			(16	)
Total nonoperating expense, net		(6,940	)		(5,367	)		(20,229	)		(6,961	)		(7,447	)		(5,973	)
Income before income taxes		21,391			34,007			39,825			88,467
Income tax expense		5,594			13,019			10,373			15,782
Net income	$	15,797		$	20,988		$	29,452		$	72,685
(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		69,652			71,699			70,900			71,693			67,584			71,952
Diluted		70,029			71,767			71,153			71,763			67,584			72,122
Earnings per share:
(Loss) earnings per share:
Basic	$	0.23		$	0.29		$	0.42		$	1.01		$	(0.13	)	$	0.01
Diluted		0.23			0.29			0.41			1.01			(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 the Consolidated ~~and Combined~~Financial Statements.

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

Preferred Stock

Common Stock

Additional

Shares

Amount

Shares

Amount

Paid-in
Capital

Retained Earnings

Stockholders' Equity

Balance at December 31, 2017

—

$
—

71,628

$
716

$
1,501,830

$
176,582

$
1,679,128

Net income

—

—

—

—

—

29,452

29,452

Transactions with TEGNA, net ⁽¹⁾

—

—

200

2

(3,568
)

—

(3,566
)
Repurchases of common stock

—

—

(2,986
)

(30
)

—

(77,159
)

(77,189
)
Shares issued in connection with stock-based
compensation plans, net

—

—

84

1

(478
)

—

(477
)
Stock-based compensation expense

—

—

—

—

7,495

—

7,495

Balance at September 30, 2018

—

$
—

68,926

$
689

$
1,505,279

$
128,875

$
1,634,843

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

	Nine Months Ended September 30,						Three Months Ended March 31,
	2018			2017			2019			2018
Cash flows from operating activities:
Net income	$	29,452		$	72,685
Adjustments to reconcile Net income to Net cash provided by operating activities:
Net (loss) income							$	(9,031	)	$	929
Adjustments to reconcile Net (loss) income to Net cash provided by operating activities:
Depreciation		9,195			7,941			4,033			2,761
Amortization of intangible assets		67,959			58,402			24,092			21,177
Amortization of unfavorable contracts liability		(18,900	)		(18,900	)		(6,300	)		(6,300	)
Stock-based compensation expense		7,495			1,493			2,981			1,600
Deferred income taxes		7,137			8,388			(2,570	)		160
Provision for doubtful accounts		3,451			2,561			1,055			995
Amortization of debt issuance costs		971			463			311			317
Other, net		762			1,247			(9	)		129
Changes in operating assets and liabilities, net of Acquisition:
Changes in operating assets and liabilities
Accounts receivable		1,119			2,665			12,274			3,208
Prepaid expenses		66			(238	)		1,847			(5,691	)
Other current assets		330			(5,519	)		886			(1,027	)
Other assets		602			616			(17,208	)		643
Accounts payable		(2,397	)		(209	)		574			518
Accrued compensation		(3,363	)		(8,451	)		(4,075	)		(5,148	)
Other accrued liabilities		18,306			10,430			14,087			13,839
Other noncurrent liabilities		(1,104	)		3,652			15,442			(1,449	)
Cash received from lessor for lease incentives		—			9,970
Net cash provided by operating activities		121,081			147,196			38,389			26,661
Cash flows from investing activities:
Purchase of property and equipment								(3,363	)		(2,513	)
Payment for Acquisition, net ⁽¹⁾		(157,153	)		—			—			(156,968	)
Purchase of property and equipment		(9,966	)		(27,631	)
Other, net								(600	)		—
Net cash used in investing activities		(167,119	)		(27,631	)		(3,963	)		(159,481	)
Cash flows from financing activities:
Proceeds from issuance of long-term debt		195,000			675,000			—			165,000
Payments of debt issuance costs and other fees		—			(6,208	)
Payments of long-term debt		(71,875	)		(50,625	)		(10,625	)		(40,625	)
Payments related to stock-based compensation plans, net		(477	)		—
Stock-based compensation plans, net								(743	)		(617	)
Repurchases of common stock		(76,681	)		—			(20,000	)		—
Cash distribution to TEGNA related to Separation		—			(650,000	)
Transactions with TEGNA, net		(2,683	)		(69,200	)		(181	)		—
Net cash provided by (used in) financing activities		43,284			(101,033	)
Net (decrease) increase in cash and cash equivalents		(2,754	)		18,532
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		20,563			8,896			25,463			20,563
Cash and cash equivalents at end of period	$	17,809		$	27,428		$	28,340		$	11,501

Supplemental cash flow information:
Cash paid for income taxes, net of refunds	$	500		$	5,726		$	38		$	293
Cash paid for interest		19,472			6,826			7,413			5,552

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

NOTE 1. Description of Business, Company History and Summary of Significant Accounting Policies

Description of ~~Business and Company History~~. Business. Cars.com ~~(“the Company”)~~ is a leading two-sided digital automotive marketplace that creates meaningful connections between consumers (individuals researching cars or looking to purchase a car) and partners, dealer customers and automotive original equipment manufacturers (“OEMs”). While connecting advertising partners with in-marketconnects car shoppers with sellers and ~~providing~~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, the Company empowers consumers with resources and information to assist them in making better informed buying decisions around The 4Ps of Automotive Marketing~~^TM: Product, Price, Place and Person. The Company has evolved into one of the largest digital automotive platforms, connecting tens of thousands of local dealers across the country with millions of consumers. Through trusted expert content, on-the-lot mobile features and intelligence, millions of new and used vehicle listings, a comprehensive set of pricing and research tools, and the largest database of consumer reviews in the industry, the Company believes Cars.com is transforming the car shopping experience.share.

Company History.In May 2017, the Company separated from its 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”). ~~The Company filed a Registration Statement on Form 10 relating to the Separation with the U.S. Securities and Exchange Commission (the “SEC”), which was declared effective on May 15, 2017.~~ On May 31, 2017, the Company made a $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 the Company’s common stock. Each holder of TEGNA common stock received one share of the Company’s 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. The Company’s common stock began trading “regular way” on the New York Stock Exchange on June 1, 2017.

In February 2018, the Company acquired all of the outstanding stock of Dealer Inspire Inc. ~~(“DI”)~~, an innovative technology leader providing progressive dealer websites, digital retailing and messaging platform products, and substantially all of the net assets of Launch Digital Marketing LLC, ~~(“LDM”~~a provider of digital marketing services, including paid, organic, social and creative services (collectively, the “Acquisition”). ~~For additional information, see Note 3 (Business Combination~~The post-Acquisition business related to Dealer Inspire, Inc. and ~~Goodwill)~~Launch Digital Marketing LLC is referred to collectively as “Dealer Inspire”.

Basis of Presentation. These accompanying unaudited interim Consolidated ~~and Combined~~ Financial Statements (“Consolidated Financial Statements”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the SEC for interim financial statements. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. These Consolidated ~~and Combined~~ Financial Statements should be read in conjunction with the audited Consolidated and Combined Financial Statements and the notes thereto for the year ended December 31, ~~2017,~~2018, which are included in the Company's Annual Report on Form 10-K dated ~~March 6, 2018~~February 28, 2019 (the “December 31, ~~2017 Consolidated and Combined~~2018 Financial Statements”).

The significant accounting policies used in preparing these Consolidated ~~and Combined~~ Financial Statements were applied on a basis consistent with those reflected in the December 31, ~~2017 Consolidated and Combined~~2018 Financial Statements. In the opinion of management, the Consolidated ~~and Combined~~ Financial Statements contain all adjustments (consisting of a normal, recurring nature) necessary to present fairly the Company's financial position, results of operations, cash flows and changes in stockholders' equity as of the dates and for the periods indicated. The unaudited results of operations for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 are not necessarily indicative of results that may be expected for the year ~~ended~~ending December 31, ~~2018.~~2019.

Use of Estimates. The preparation of the accompanying ~~unaudited interim~~ Consolidated ~~and Combined~~ Financial Statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported in the Consolidated ~~and Combined~~ 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 ~~unaudited~~ Consolidated ~~and Combined~~ Financial Statements include the accounts of Cars.com Inc. and its 100% owned subsidiaries. All intercompany transactions and accounts are eliminated in consolidation. The accompanying unaudited Consolidated and Combined Financial Statements for the period prior to the Separation are derived from the historical accounting records of TEGNA and present its financial position, results of operations and cash flows as if the Company were a separate entity for the period prior to the Separation and include allocations of certain TEGNA corporate expenses, such as insurance and other general corporate overhead expenses. All significant intercompany transactions between either (i) the Company and TEGNA or (ii) the Company and TEGNA affiliates have been included within the Consolidated and Combined Financial Statements and are considered to be effectively settled through equity contributions or distributions at the time the transactions were recorded. The total net effect of these intercompany transactions is reflected in “Transactions with TEGNA, net” in the Consolidated and Combined Statements of Cash Flows as financing activities.

Reclassifications. ~~Certain~~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. Cost of revenues~~presentation and operations have been reclassified from the product support, technology and operations line item into a separate line item. Depreciation expense amounts have also been reclassified from the General and administrative line item into the amortization of intangible assets line item, which has been renamed Depreciation and amortization. There are ~~no changes to total Operating expenses, Operating income or Net income.~~summarized as follows (in thousands):

~~Revenue Recognition.~~Cloud Computing Arrangements. ~~The Financial Accounting Standards Board (the “FASB”) amended the FASB Accounting Standards Codification (“ASC”) and created Topic 606,~~ ~~Revenue from Contracts with Customers~~ (“ASC 606”). Under ASC 606, revenue recognition occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. In addition, ASC 606 requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company’s primary source of revenue is the sale of online subscription advertising products and services, which will continue to be recognized ratably over the contract term as the service is provided to the customer. Effective January 1,August 2018, the Company adopted ASC 606 using the modified retrospective method. The adoption did not have a material impact on its Consolidated and Combined Financial Statements. For further information, see Note 10 (Revenues).

~~Financial Instruments – Equity Investments.~~ ~~In January 2016,~~ the FASB issued Accounting Standards Update (“ASU”) ~~No. 2016-01,~~2018-15, ~~Financial Instruments—Overall~~Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, ~~amending several elements surrounding~~aligning the ~~recognition and measurement of financial instruments and requiring equity investments (except those accounted~~requirements for ~~under~~capitalizing implementation costs incurred in a hosting arrangement that is a service contract with 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. Effective~~requirements for capitalizing implementation costs for internal-use software. The new guidance is effective for the Company on January 1, ~~2018, the~~2020 and early adoption is permitted. The Company ~~adopted~~is currently evaluating this ~~ASU on a prospective basis. The adoption did~~new guidance and does not expect it to have a material impact on its Consolidated ~~and Combined~~ Financial Statements and related disclosures.

Financial Instruments – Credit Losses. In June 2016, the FASB issued ASU ~~No.~~ 2016-13, Financial Instruments—Credit Losses 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 this new guidance, the 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 the Company on January 1, 2020 and will be adopted using a modified retrospective approach. The Company is currently evaluating this new guidance and does not expect it to have a material impact on its Consolidated ~~and Combined Financial Statements and related disclosures.~~

~~Stock-Based Compensation.~~ ~~In May 2017, the FASB issued ASU No. 2017-09,~~ ~~Compensation—Stock Compensation,~~ clarifying when changes to the terms or conditions of a stock-based payment award must be accounted for as modifications and allowing for certain changes to awards without accounting for them as modifications. Effective January 1, 2018, the Company adopted the ASU on a prospective basis. The adoption did not have a material impact on its Consolidated and Combined Financial Statements and related disclosures.

~~Definition of a Business.~~ ~~In January 2017, the FASB issued ASU 2017-01,~~ ~~Business Combinations~~, clarifying the definition of a business with the objective of adding guidance to assist companies with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. Effective January 1, 2018, the Company adopted this ASU on a prospective basis. The adoption did not have a material impact on its Consolidated and Combined Financial Statements and related disclosures.

Leases. In February 2016, the FASB issued ASU 2016-02, Leases ~~(Topic 842)~~ ~~requiring lessees~~(ASU 2016-02) in order to ~~recognize~~increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the ~~Consolidated and Combined Balance Sheets~~balance sheet for those leases ~~with lease terms of more than 12 months and to disclose additional quantitative and qualitative information about leasing arrangements.~~classified as operating leases under current U.S. GAAP. The new guidance ~~is effective~~requires a lessee to recognize a liability to make lease payments (the “lease liability”) and a right-of-use asset representing its right to use the underlying asset for the ~~Company~~lease term on ~~January 1, 2019.~~the balance sheet. The Company ~~plans to utilize~~adopted ASU 2016-02 in the ~~package~~first quarter of 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~~expedients’ and ~~to initially apply Topic 842 as of January 1, 2019~~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 a cumulative-effect adjustment to the opening balance of retained earnings. Although the Company is currently evaluating the provisions of the ASU to determine its full impact on the Company’s Consolidated and Combined Financial Statements, the primary impact will be to recordright-of-use assets ~~and~~or lease liabilities for ~~current operating leases, which~~those leases. The Company’s lease agreements are principally related to real estate.

~~Cloud Computing Arrangements.~~ ~~In August 2018,~~ The adoption of ASU 2016-02 resulted in the ~~FASB issued ASU 2018-15,~~ ~~Customer’s Accounting for Implementation Costs Incurred~~recognition of operating lease assets of $18.2 million and $35.0 million in ~~a Cloud Computing Arrangement That Is a Service Contract~~, aligning the 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 guidance is effective for the Company on January 1, 2020 and early adoption is permitted. The

~~Company is currently evaluating this new guidance and does not expect it to have a material impact~~operating lease liabilities on its Consolidated Balance Sheets. The difference between the operating lease assets and ~~Combined Financial Statements and~~the operating lease liabilities is primarily due to a lease incentive received in 2017 related ~~disclosures.~~

~~On February 21, 2018,~~to the Company acquired all of the outstanding stock of DI, an innovative technology leader providing progressive dealer websites, digital retailing and messaging platform products, and substantially all of the net assets of LDM, a provider of digital marketing services, including paid, organic, social and creative services (collectively, the “Acquisition”). The Acquisition consists of proprietary solutions that are complementary extensions of the Company’s online marketplace platform and current suite of dealer solutions.

~~The Company expensed as incurred total acquisition costs of $4.9 million, of which $4.3 million~~300 South Riverside Lease in Chicago, Illinois. There was ~~recorded during the nine months ended September 30, 2018. These costs were recorded in General and administrative in the~~no material impact to its Consolidated ~~and Combined~~ Statements of ~~Income.~~ In connection with the Acquisition, DI’s unvested equity awards were cash settled for a total of $5.7 million. The fair value of these awards was based on the price paid per common share to the owners of the acquired businesses(Loss) Income and ~~recognized immediately after the Acquisition as compensation expense in the Company’s~~ Consolidated ~~and Combined~~ Statements of ~~Income.~~Cash Flows. For further information, see Note 11 (Leases).

~~Purchase Price Allocation.~~ The fair values assigned to the tangible and intangible assets acquired and liabilities assumed were determined based on management’s estimates and assumptions, as well as other information compiled by management, including third party valuations that utilize customary valuation procedures and techniques, such as the income approach. These preliminary fair values are subject to change within the one-year measurement period. The Acquisition purchase price allocation is as follows (in thousands):

In addition to the total consideration of $160.8 million, the Company granted stock-based compensation awards, worth up to $25.5 million, to certain employees. These awards require continued employee service and are based on ~~DI’s and LDM’s future performance related to certain revenue targets to be attained over a three-year performance period. For further information, see Note 9 (Stock-Based Compensation).~~

~~Goodwill.~~ In connection with the Acquisition, the Company recorded goodwill in the amount of $96.2 million, which is primarily attributable to sales growth from existing and future technology, product offerings and customers and the value of the acquired assembled workforce. Of the total goodwill recorded in connection with the Acquisition, approximately $15.0 million is deductible for income tax purposes. The Company’s goodwill activity for the nine months ended September 30, 2018 is as follows (in thousands):

~~Pro forma Financial Information (unaudited).~~ The unaudited pro forma information presented below summarizes the combined revenues and net income of the Company and DI and LDM, as if the Acquisition had been completed on January 1, 2017 and gives effect to pro forma events that are factually supportable and directly attributable to the transaction. The unaudited pro forma results reflect adjustments for incremental intangible asset amortization based on the fair values of each identifiable intangible asset, interest expense on the borrowings under the revolving loan to fund the Acquisition, certain other compensation related costs including stock-based compensation and retention bonuses, and integration costs. Pro forma adjustments were tax-affected at the Company’s corporate blended statutory tax rate applicable during the respective periods presented.

This unaudited pro forma information is presented for informational purposes only and may not be indicative of the historical results of operations that would have been obtained if the Acquisition had taken place on January 1, 2017, nor the results that may be obtained in the future. The unaudited pro forma information does not reflect future synergies or other such costs or savings.

~~Selected unaudited pro forma information for the three months ended September 30, 2018 and 2017, respectively, is as follows (in thousands):~~

Revenue Summary. In the ~~date~~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 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 the interest rate in effect was 4.3%, including the impact of the ~~Acquisition,~~interest rate swap discussed in Note 5 (Interest Rate Swap). During the three months ended March 31, 2019, the Company ~~included DI’s~~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 ~~LDM’s financial results~~the interest rate in ~~its Consolidated and Combined Statements of Income for~~effect was 4.1%. During the three ~~and nine~~ months ended ~~September 30, 2018. A summary~~March 31, 2019, the Company made $5.0 million in voluntary Revolving Loan payments. As of DIMarch 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 ~~LDM contributed revenues and net loss is~~was 3.0 to 1.0 as ~~follows:~~ 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.

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.~~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 ~~and services~~ 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 ~~and Combined~~ Statements of (Loss) Income. The ~~unfavorable~~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, ~~over the annual contract period,~~ the Company recognized $25.2 million of Wholesale revenues with a corresponding reduction of the ~~unfavorable~~Unfavorable contracts ~~liability.~~liability on an annual basis. As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the ~~unfavorable~~Unfavorable contracts liability ~~on the Consolidated and Combined Balance Sheets~~ was ~~$25.2~~$12.6 million and ~~$44.1~~$18.9 million, ~~respectively. Of the total unfavorable contracts liability balances, $25.2 million was~~respectively, and is recorded in ~~current~~Current liabilities on the Consolidated ~~and Combined~~ Balance ~~Sheet as of September 30, 2018 and December 31, 2017.~~

In January 2018, the Company announced it amended its affiliate agreement with The McClatchy Company (“McClatchy”) to convert McClatchy’s 22 affiliate markets into the Company’s direct sales channel in phases, on or before October 2018, prior to the original October 2019 affiliate agreement expiration date. As of October 1, 2018, the Company has completed the McClatchy affiliate market conversions.

In January 2018, the Company amended its affiliate agreement with tronc, Inc. (“tronc”) to convert tronc’s eight affiliate markets into the Company’s direct sales channel, effective February 1, 2018.

In July 2018, the Company amended its affiliate agreement with the Washington Post and agreed to convert the Washington, DC market into the Company’s direct sales channel, effective August 1, 2018, which was prior to the October 2019 expiration of the original agreement.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 ~~the~~these dealer customers and recognizes the revenue associated with converted ~~markets~~dealers as Retail revenues, rather than Wholesale revenues, in the Consolidated ~~and Combined~~ Statements of (Loss) Income. In addition, as part of the recent changes in the structure of the affiliate agreements, ~~the Company engaged~~ 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 ~~and Combined~~ Statements of (Loss) Income.

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

Therefore, during the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019, the Company recorded ~~$5.4~~$5.8 million ~~and $12.9 million, respectively,~~ as a reduction to Affiliate revenue share expense, rather than Wholesale revenues, in the Consolidated ~~and Combined~~ 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~~Unfavorable contracts liability activity for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 is as follows (in thousands):

~~As of September 30, 2018, the Company is in compliance with the covenants under its various credit agreements.~~

~~Term Loan.~~ As of September 30, 2018, the outstanding principal amount under the term loan was $421.9 million and the interest rate in effect was 3.9%. During the nine months ended September 30, 2018, the Company made $16.9 million in quarterly term loan payments.

~~Revolving Loan.~~ As of September 30, 2018, the outstanding borrowings under the revolving loan was $285.0 million and the interest rate in effect was 3.8%. During the nine months ended September 30, 2018, the Company borrowed $165.0 million to fund the Acquisition and $30.0 million to fund share repurchases. The Company also made $55.0 million in voluntary revolving loan payments. As of September 30, 2018, the Company was permitted to borrow an additional $165.0 million under the revolving loan. The Company’s borrowings are limited by its net leverage ratio, which was 2.9 to 1.0 as of September 30, 2018.

~~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 September 30, 2018.

Prior to the Separation, Cars.com LLC was a multi-member LLC that was considered a partnership for U.S. income tax purposes. Multi-member LLCs are generally considered flow-through entities and therefore are 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.

On December 22, 2017, the Tax Cuts and Jobs Act was enacted into law. The new legislation contains several key tax provisions that impact the Company, including the reduction of the corporate income tax rate to 21% effective January 1, 2018. The Company continues to evaluate the impacts of the Tax Cuts and Jobs Act and will consider additional guidance from the U.S. Treasury Department, Internal Revenue Service or other standard-setting bodies. Further adjustments, if any, will be recorded by the Company during the measurement period in 2018 as permitted by SEC Staff Accounting Bulletin 118, ~~Income Tax Accounting Implications of the Tax Cuts and Jobs Act~~.

~~A summary of income tax expense (dollars in thousands) and the effective tax rate for the three and nine months ended September 30, 2018 and 2017, respectively, is as follows:~~

Income tax expense was $5.6 million and $10.4 million for the three and nine months ended September 30, 2018, respectively, compared to $13.0 million and $15.8 million for the three and nine months ended September 30, 2017, respectively. The current period income tax expense reflects the financial activity for Cars.com and DMR Holdings, Inc. (“DealerRater”), the Company’s only subsidiary prior to the Acquisition, and the financial results of DI and LDM for the post-acquisition period of February 21, 2018 through September 30, 2018. The prior period income tax expense represents the financial activity of DealerRater and corporate income tax for the Company upon its Separation from TEGNA on June 1, 2017. The effective income tax rate, expressed by calculating the income tax expense as a percentage of income before income taxes, was 26.2% and 26.0% for the three and nine months ended September 30, 2018, respectively, and differed from the U.S. federal statutory rate primarily due to state income taxes, nondeductible transaction costs and the impact of the Tax Cuts and Jobs Act, partially offset by certain tax credits and excess tax benefits from stock-based compensation.

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

In March 2018, the Company’s Board of Directors authorized a ~~share~~stock repurchase program to acquire up to $200 million of the Company’s common stock. The Company may repurchase ~~shares~~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 ~~share~~stock repurchase program will be based on market conditions and other factors including price. The repurchase program has a ~~two-year~~two-

year duration, does not require the purchase of any minimum number of shares and 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 ~~nine~~three months ended ~~September~~ March 31~~30, 2018,~~, 2019, the Company repurchased and subsequently retired ~~3.0~~0.9 million shares for ~~$77.2~~$20.0 million. There was no stock repurchase activity during the three months ended March 31, 2018.

Performance ~~Share~~Stock Units (“PSUs”). PSUs represent the right to receive unrestricted shares of the Company’s common stock at the time of vesting. The fair value of the PSUs is equal to the Company’s common stock price on the date of grant. During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, the Company granted ~~780,000~~207,000 PSUs at a weighted average grant date fair value of ~~$27.41~~$24.02 per unit. ~~Of the total~~These PSUs ~~granted, 632,000 PSUs were granted to certain employees in connection with the Acquisition and~~ require continued employee service. The percentage of PSUs that shall vest will range from 0% to 150% of the number of PSUs granted based on DI’s and LDM’s future performance related to certain revenue targets over a three-year performance period. These PSUs are subject to graded vesting over three years. The remaining PSUs granted during the nine months ended September 30, 2018 require continued employee service. The percentage of these PSUs that shall vest will range from 0% to 200% of the number of PSUs granted based on the Company’s future performance related to certain revenue and adjusted earnings before interest, income taxes, depreciation and amortization targets over a ~~two-year~~three-year performance period. These PSUs are subject to ~~graded~~cliff vesting ~~over three years.~~at the end of the three-year performance period.

Restricted ~~Share~~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 specified in the individual holder’s award agreement. These RSU’s are subject to graded vesting, generally ranging between one and ~~four~~three years and the fair value of the RSUs is equal to the Company’s common stock price on the

date of grant. During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, the Company granted ~~519,000~~477,000 RSUs at a weighted-average grant-date fair value of ~~$26.74~~$24.02 per unit.

~~Employee Stock Purchase Plan (“ESPP”).~~ During the nine months ended September 30, 2018, the Company issued 21,000 shares of the Company’s common stock in connection with the first ESPP offering period. In September 2018, the Company completed its second ESPP offering period and will issue 36,000 shares of the Company’s common stock during the fourth quarter of 2018.

The Company accounts for a customer arrangement when the Company and the customer have an approved contract that specifies the rights and obligations of each party and the payment terms, and the Company believes it is probable it will collect substantially all of the consideration to which it will be entitled in exchange for the services that will be provided to the customer. The Company allocates the contractual transaction price to each distinct performance obligation and recognizes revenue when it satisfies a performance obligation by providing a service to a customer. Revenue is generated through the Company’s direct sales force (Retail revenues) and affiliate sales channels (Wholesale revenues).

~~Online Subscription Advertising Products and Services Revenue.~~ The Company’s primary source of Retail and Wholesale revenues is through the sale of online subscription advertising products to dealer customers through varying levels of subscription packages. The Company’s subscription packages provide the dealer customer’s available new and used vehicle inventory to in-market shoppers on the Cars.com website. The subscription packages are generally a fixed price arrangement with a one-year contract term that is automatically renewed, typically on a month-to-month basis. The Company recognizes subscription package revenues ratably as the service is provided over the contract term. Online subscription advertising products and services revenue is recorded in Retail revenues and Wholesale revenues in the Consolidated and Combined Statements of Income.

The Company also offers its customers several add-on products to the subscription packages. Add-on products include premium advertising products that can be uniquely tailored to an individual dealer customer’s current needs. The Company does not sell add-on products separately from the subscription packages as the customer cannot benefit from add-on products on their own. Therefore, the subscription packages and add-on products are combined as a single performance obligation and the Company recognizes the related revenue ratably as the services are provided over the contract term.

As part of the acquisition of DI, the Company also provides services related to flexible, custom designed website platforms supporting highly personalized digital marketing campaigns, digital retailing and messaging platform products. The Company recognizes revenue related to these services ratably as the services are provided over the contract term. The related revenue is recorded in Retail revenues in the Consolidated and Combined Statements of Income.

The Company’s affiliates also sell online subscription advertising products to dealer customers and the Company earns Wholesale revenues through its affiliate agreements. Affiliates are assigned certain sales territories in which they sell the Company’s products. Under these agreements, the Company charges the affiliates 60% of the corresponding Cars.com retail rate for products sold to affiliate dealers. The Company recognizes Wholesale revenues ratably as the service is provided over the contract term. In situations where the Company’s direct sales force sells the Company’s products within an affiliate’s assigned territory, the Company pays the affiliate a revenue share which is classified as “Affiliate revenue share” in the Consolidated and Combined Statements of Income. Wholesale revenues also includes a portion of the amortization of the unfavorable contracts liability. For information related to the unfavorable contracts liability, see Note 4 (Unfavorable Contracts Liability).

~~Display Advertising Products and Services Revenue.~~ The Company also earns revenue through the sale of display advertising on the Company’s website to national advertisers, pursuant to transaction-based contracts, which are billed for impressions delivered or click-throughs on their advertisements. An impression is the display of an advertisement to an end-user on the website and is a measure of volume. A click-through occurs when an end-user clicks on an impression. The Company recognizes revenue as the impressions or click-throughs are delivered. If the impressions or click-throughs delivered are less than the amount invoiced to the customer, the difference is recorded as deferred revenue and recognized as revenue when earned. Display advertising products revenue is recorded in Retail revenues in the Consolidated and Combined Statements of Income.

As part of the acquisition of LDM, the Company also provides services related to customized digital marketing and customer acquisition services, including paid, organic, social and creative services. The Company recognizes revenue related to these services

~~primarily at the point in time the service is provided. The related revenue is recorded in Retail revenues in the Consolidated and Combined Statements of Income.~~

~~Pay~~(Loss) Earnings Per ~~Lead Revenue.~~ The Company also sells certain leads, which are connections from consumers to dealer customers in the form of phone calls, emails and text messages, to dealer customers, OEMs and third-party resellers. The Company recognizes pay per lead revenue primarily on a per-lead basis at the point in time in which the lead has been delivered. Revenue related to pay per leads is recorded in Retail revenues and Wholesale revenues in the Consolidated and Combined Statements of Income.

~~Other Revenue.~~ Other revenue primarily includes revenues related to vehicle listing data sold to third-parties and peer-to-peer vehicle advertising. The Company recognizes Other revenue either ratably as the services are provided or at the point in time the services have been performed. Other revenue is recorded in Retail revenues in the Consolidated and Combined Statements of Income.

~~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 time.

Three Months Ended September 30,

Nine Months Ended September 30,

Sales channel

2018

2017

2018

2017

Direct

$
119,510

$
82,504

$
336,521

$
249,412

National advertising

28,107

32,002

82,155

85,379

Other

4,010

4,319

12,152

11,989

Retail

151,627

118,825

430,828

346,780

Wholesale

17,685

41,074

66,953

122,917

Total revenues

$
169,312

$
159,899

$
497,781

$
469,697

Major products and services

Online subscription advertising

$
127,965

$
120,144

$
380,218

$
362,328

Display advertising

30,748

28,155

86,634

76,422

Pay per lead

7,933

9,141

22,968

23,952

Other

2,666

2,459

7,961

6,995

Total revenues

$
169,312

$
159,899

$
497,781

$
469,697

~~Practical Expedient and Exemption.~~ ~~The Company does not disclose~~ ~~the value of unsatisfied performance obligations for contracts with an original expected length of~~ ~~one~~ ~~year or less.~~

Basic (loss) earnings per share is calculated by dividing 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 stock-based compensation plans, unless the inclusion of such shares would have an anti-dilutive impact. The computation of (loss) earnings per share is as follows (in thousands, except per share data):

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2018		2017		2018		2017		2019			2018
Net income	$	15,797	$	20,988	$	29,452	$	72,685
Net (loss) income									$	(9,031	)	$	929
Basic weighted-average common shares outstanding		69,652		71,699		70,900		71,693		67,584			71,952
Effect of dilutive stock-based compensation awards(1)		377		68		253		70		—			170
Diluted weighted-average common shares outstanding		70,029		71,767		71,153		71,763		67,584			72,122
Earnings per share, basic	$	0.23	$	0.29	$	0.42	$	1.01
Earnings per share, diluted		0.23		0.29		0.41		1.01
(Loss) earnings per share, basic									$	(0.13	)	$	0.01
(Loss) earnings per share, diluted										(0.13	)		0.01

As a result of the Separation, certain stock-based awards previously granted by TEGNA to its employees were converted into stock of both TEGNA and Cars.com. The Company is responsible for any employee payroll taxes related to awards settled in Cars.com common stock for which stock was withheld for payroll tax purposes. During the nine months ended September 30, 2018, the

~~Company withheld $3.6 million, which is recorded as a reduction of Additional paid-in capital on the Consolidated and Combined Balance Sheets.~~NOTE 11. Leases

Leases.The Company is ~~party~~obligated as a lessee under certain non-cancelable operating leases for office space, and is also obligated to pay insurance, maintenance and other executory costs associated with the leases. As of 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 follows (in thousands):

As of March 31, 2019, the Company’s operating lease assets and liabilities were $17.9 million and $34.4 million, respectively. The difference between the operating lease assets and the operating lease liabilities is primarily due to a ~~commercial agreement with TEGNA, who was considered a~~lease incentive received in 2017 related ~~party through~~to the ~~Separation date of May 31, 2017. During~~300 South Riverside Lease in Chicago, Illinois. Other information related to the Company’s operating leases for the three ~~and nine~~ months ended ~~September 30, 2017, related party revenue generated with this agreement was zero and $3.4 million, respectively. Although TEGNA~~March 31, 2019 is ~~no longer a related party, the commercial agreement with TEGNA is still effective after the Separation.~~as follows (in thousands, except percentage):

This ~~Quarterly Report on Form 10-Q~~report contains “forward-looking statements” within the meaning of the federal securities laws. All statements other than statements of historical facts are forward-looking statements. Forward-looking statements include information concerning our 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.~~matters and involve known and unknown risks that are difficult to predict. As a result, our actual financial results, performance, achievements, strategic actions or prospects may differ materially from those 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 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 business and industry, are inherently uncertain. These statements are expressed in good faith and 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 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 our control.

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

Our ability to generate wholesale advertising revenues depends, in part, on the performance of third parties who sell our solutions pursuant to affiliation agreements.

•	~~Our ability to generate wholesale revenues depends, in part, on the performance of third parties who sell our solutions pursuant to affiliate agreements.~~

Uncertainty exists in the application of various laws and regulations to our business, including tax laws such as the Tax Cuts and Jobs Act. New laws or regulations applicable to our business, or the expansion or interpretation of existing laws and regulations to apply to our business, could subject us to licensing requirements, claims, judgments and remedies, including sales and use taxes, other monetary liabilities and limitations on our business practices, and could increase administrative costs.

Strategic acquisitions, investments and partnerships could pose various risks, increase our leverage, dilute existing stockholders and significantly impact our ability to expand our overall profitability. In addition, acquisitions may divert management’s attention from the operation of our core business and we may be unable to successfully implement effective cost controls or achieve expected synergies.

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

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

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

If we expand into new geographic markets, we may be prevented from using our brands in such markets.

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

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

Seasonality may cause fluctuations in our revenue and operating results.

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

~~We have a limited history of operating as an independent company.~~While we are exploring and evaluating strategic alternatives, we may not be successful in identifying or completing any strategic alternative and any such strategic alternative may not yield additional value for stockholders.

•	~~There could be significant liability if the spin-off of Cars.com Inc. from TEGNA, Inc. (the “Separation”) is determined to be a taxable transaction.~~

Our historical and pro forma financial information for periods prior to the Separation from our former parent may not be a reliable indicator of our future results.

There could be significant liability if the distribution is determined to be a taxable transaction.

We may be unable to engage in certain corporate transactions after the Separation because such transactions could jeopardize the intended tax-free status of the distribution.

~~We may not achieve some or all of the expected benefits of the Separation, and the Separation may materially and adversely affect our business.~~

•

Fulfilling our obligations incidental to being a public company, including with respect to the requirements of and related rules under the Sarbanes-Oxley Act, will place significant demands on our management, administrative and operational resources, including accounting and information technology resources.

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

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

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

Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2021 may adversely affect the market value of our current or future debt obligations, including our long-term debt instruments and our bank credit facilities.

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

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

We are an “emerging growth company,” and, as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our common stock may be less attractive to investors.

Certain provisions of our certificate of incorporation, by-laws, tax matters agreement, separation and distribution agreement, employee matters agreement, transition services agreement, and Delaware law may discourage takeovers and limit our ability to use, acquire, or develop certain competing businesses.

•

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

For a detailed discussion of many of these risks and uncertainties, see ~~Part~~“Part I, Item ~~1A— “Risk Factors,”~~1A., Risk Factors” and “Part II, Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, as filed with the Securities and Exchange Commission (“SEC”) on ~~March 6, 2018.~~February 28, 2019 All forward-looking statements ~~made~~contained in this ~~this Quarterly Report on Form 10-Q~~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 ~~herein~~in this report are based only on information currently available to us and speak only as of the date of this ~~this Quarterly Report on Form 10-Q.~~report. We undertake no obligation, other than as may be required by law, to update or revise any forward-looking 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 ~~Quarterly Report on Form 10-Q~~report are intended to be subject to the safe harbor protection provided by the ~~Federal~~federal securities laws.

Item 2. Management’s ~~Discussion~~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 ~~and Combined~~ 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 ~~also~~ 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 ~~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,” “we,” “us,” “our” and similar terms refer to Cars.com Inc. and its subsidiaries, collectively, unless the context indicates otherwise.

Business Overview

~~We are~~Cars.com is a leading two-sided digital automotive marketplace that ~~creates meaningful connections between consumers (individuals researching cars or looking to purchase a car)~~connects car shoppers with sellers and ~~partners, dealer customers and automotive~~ original equipment manufacturers (“~~OEMs”). While connecting advertising partners~~OEM”s), empowering shoppers with ~~in-market~~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 ~~shoppers~~dealers, including cutting-edge dealer websites, technology and ~~providing~~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, we empower consumers with resources and information to assist them in making better- informed buying decisions around The 4Ps of Automotive Marketing~~^TM: Product, Price, Place and Person. We have evolved into one of the largest digital automotive platforms, connecting tens of thousands of local dealers across the country with millions of consumers. Through trusted expert content, on-the-lot mobile features and intelligence, millions of new and used vehicle listings, a comprehensive set of pricing and research tools, and the largest database of consumer reviews in the industry, we believe Cars.com is transforming the car shopping experience.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”). We filed a Registration Statement on Form 10 relating to the Separation with the U.S. Securities and Exchange Commission (the “SEC”), which was declared effective on May 15, 2017. On May 31, 2017, we made a $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 common stock. 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. 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, 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 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. ~~(“DI”)~~ and substantially all of the net assets of Launch Digital Marketing LLC ~~(“LDM”) (collectively, “the Acquisition”~~(the “Acquisition”). ~~For additional information, see Note 3 (Business Combination~~The post-Acquisition business related to Dealer Inspire, Inc. and ~~Goodwill)~~Launch Digital Marketing LLC is referred to collectively as “Dealer Inspire”. The results of operations for the ~~accompanying Consolidated and Combined Financial Statements included in Part I, Item 1 “Financial Statements”~~three months ended March 31, 2018 includes Dealer Inspire’s financial results for the post-Acquisition period of ~~this Quarterly Report on Form 10-Q.~~ February 21, 2018 through March 31, 2018.

Overview of Results

Three Months Ended September 30,

Nine Months Ended September 30,

In thousands (except percentages)

2018

2017

2018

2017

Revenues

$
169,312

$
159,899

$
497,781

$
469,697

Net income

15,797

20,988

29,452

72,685

Retail revenues as % of total revenues

90
%

74
%

87
%

74
%
Wholesale revenues as % of total revenues

10
%

26
%

13
%

26
%

~~2018 Highlights~~

~~Affiliate Conversions.~~ During the nine months ended September 30, 2018, we amended our affiliate agreements with McClatchy, tronc and the Washington Post to convert several markets prior to the expiration dates of the original affiliate agreements. In addition, on October 1, 2018, we converted the remaining McClatchy markets and currently serve 84% of our dealer customers through our direct sales force. As a result of these early conversions, we successfully migrated over 3,200 dealer customers from our affiliate sales channel into our direct sales channel. We will continue to focus on pursuing transactions to facilitate early conversions of the remaining affiliate markets. We now record the revenues associated with converted markets as Retail revenues, rather than Wholesale revenues in the Consolidated and Combined Statements of Income. For additional information on the affiliate market conversions, see Note 4 (Unfavorable Contracts Liability) to the accompanying Consolidated and Combined Financial Statements included in Part I, Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q.

	Three Months Ended March 31,
(In thousands, except percentages)	2019			2018
Revenues	$	154,198		$	159,957
Net (loss) income ^{(1) (2)}		(9,031	)		929
Retail revenues as % of total revenues		90	%		83	%
Wholesale revenues as % of total revenues		10	%		17	%

•

~~Acquisition of DI~~(1)

The net loss for the three months ended March 31, 2019 is primarily attributed to a decrease in national advertising revenues, higher depreciation and ~~LDM.~~ ~~In February 2018, we completed~~amortization expense due to the acquisition of privately-held DI and LDM. DI is an innovative technology leader that has been rapidly increasing its market share by providing progressive dealer websites, digital retailing and messaging platform products. LDM is a provider of digital marketing services, including paid, organic, social and creative services. Thefull quarter’s impact related to the Acquisition, ~~aligns with our strategy of integrating new capabilities~~ and additional ~~talent~~amortization resulting from the reduction of the useful lives of certain assets related to ~~accelerate organic growth, strengthen~~ the retail experience, deepen dealer connections and improve clarity of attribution while generating additional revenues and cash flow and ultimately, enhancing stockholder value. Our results of operations for the nine months ended September 30, 2018 include DI and LDM financial results for the post-acquisition period of February 21, 2018 through September 30, 2018.Technology Transformation.

(2)

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.

~~Share Repurchase Program.~~

2019 Highlights

Technology Transformation. In ~~March~~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 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 ~~our~~meeting, the Board of Directors authorized management and its external advisors to initiate such a ~~share repurchase program to acquire up to $200 million~~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 ~~common stock. We may repurchase shares from time to time in open market transactions or through privately negotiated transactions in accordance with applicable federal securities laws. We~~review of strategic alternatives, and we do not intend to ~~fund~~comment further unless and until the ~~share repurchase program principally with cash from operations. During the nine months ended September 30, 2018, the Company repurchased and subsequently retired 3.0 million shares for $77.2 million.~~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 ~~Vehicle Listings~~Monthly Unique Visitors is as follows:

	Three Months Ended September 30,							Nine Months Ended September 30,							Three Months Ended March 31,
	2018		2017		% Change			2018		2017		% Change			2019		2018		% Change
Traffic (Visits)		113,751,000		101,698,000		12	%		340,121,000		311,612,000		9	%		132,474,000		113,416,000		17	%
Average Vehicle Listings		4,655,000		4,869,000		(4	)%		4,785,000		4,956,000		(3	)%
Average Monthly Unique Visitors																22,408,000		19,352,000		16	%

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

Traffic (Visits). Traffic ~~and our ability to generate traffic are key~~is critical 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~~defined as the number of visits to Cars.com desktop and mobile properties ~~(web browser~~(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. ~~We measure traffic using Adobe Analytics.~~ Traffic provides 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~~in-market car shoppers is attractive to our dealers and national advertisers.

The growth in Traffic ~~increases were primarily~~was driven by ~~an increase~~increases in ~~search engine optimization~~both organic and ~~planned strategic marketing investments aimed at consumer acquisition, engagement and brand awareness amongst auto shopping audiences~~paid traffic. . Mobile traffic accounted for ~~68%~~71% and ~~66%~~65% of total Traffic for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, respectively.

Average ~~monthly~~Monthly Unique Visitors (“UVs”). Growth in unique visitors ~~increased 10%~~ and ~~9% for~~consumer traffic to our network of websites and mobile apps increases the ~~three~~number of impressions, clicks, leads and ~~nine months ended September 30, 2018, respectively.~~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. Our value to consumers tracks to our ability to showcase the inventory of our dealer and OEM customers. The larger the advertiser base, the more inventory and options that are available for consumers to review. Dealer Customers ~~represents the car~~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 ~~DI and LDM~~Dealer Inspire customers.

Total Dealer Customers declined 2%3% from ~~June 30,~~December 31, 2018. ~~Direct dealer customers increased 419, resulting from dealer customers converted from affiliate markets, partially offset by~~Dealer Customers decreased primarily due to higher cancellations of marketplace customers, offset in ~~previously converted affiliate markets and lower overall sales.~~part by growth in Dealer Inspire only customers.

Total Dealer Customers declined 4%6% from ~~September 30, 2017. Direct dealer~~March 31, 2018. Dealer Customers decreased primarily due to higher cancellations of marketplace customers, ~~increased 3,048, resulting from dealer customers converted from affiliate markets and the addition of~~offset in part by incremental customers from the Acquisition ~~partially offset by higher cancellations in previously converted affiliate markets~~ and ~~due to the sunsetting~~continued growth of ~~a lower priced, legacy DealerRater baseline product.~~Dealer Inspire only customers.

Average ~~Vehicle Listings.~~Revenue Per Dealer (“ARPD”). ~~Our value to consumers tracks to~~We believe that our ability to ~~showcase~~grow ARPD is an indicator of the ~~inventory~~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 ~~OEM customers. The more vehicle listings that are available for consumers~~related digital solutions. ARPD prior to ~~review,~~ the ~~more traffic we attract and the higher the consumer engagement. Average Vehicle Listings represents the daily average~~first quarter of ~~vehicles listed for sale on Cars.com properties. The daily average is calculated on a monthly basis and averaged for the reporting period.~~2019 has not been recast to include Dealer Inspire as it would be impracticable to do so.

~~Declines in Average Vehicle Listings for~~ARPD increased 4% from December 31, 2018, primarily driven by the ~~three and nine months ended September 30, 2018 were~~addition of Dealer Inspire revenues. Excluding the impact of Dealer Inspire revenues, ARPD would have decreased 2%, primarily due to ~~fewer new car listings,~~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 ~~to fewer dealer customers. For~~digital solutions from Dealer Inspire was $2,102, up 3% from the ~~three and nine months ended September 30, 2018, used car listings were flat and increased 3%, respectively.~~prior year.

Performance. Our ~~continued~~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 ~~address~~transform our business toward digital solutions that complement our media offerings, and ~~successfully manage challenges, both specific~~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 ~~business and~~customers in the ~~digital advertising marketplace generally. In the near term,~~form of highly qualified car shoppers, we ~~may experience compressed margins as a result~~plan to increase investments in product and marketing. The foundation of our transition from a wholly-owned subsidiary of TEGNA to an independent publicly traded company. Due to the transition, we have further developed our internal infrastructure and support functions through the recruiting and hiring of managers and employees required to strengthen our legal, treasury, finance, tax, investor relations and other similar functions. Similarly, we will incur 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 incurred in connection with the Separation from TEGNA in May 2017 and the Acquisition in February 2018, has reduced our free cash flow, which may limit our ability to make strategic acquisitions or other transactions that we believe to be in the best interests of our stockholders or that might increase the value of our business. We expect to manage these incremental costs and the associated increased risk by focusing on improving our operating efficiency and continued ~~growth in our business to drive operating margins and generate free cash flow. In addition, our business~~success is subject to risks related to the larger automotive ecosystem, including consumer demand and other macroeconomic factors. We have recently observed the beginning of a cyclical downturn in the United States auto market, which has impacted new car sales and thus OEMs’ and dealers’ spending. While our customers may weigh lower-priced and other options in the market, we believe that the value we deliver to customers, and we believe that our large and growing audience of car shoppers and innovative solutions will ~~provide continuity as they evaluate their spend.~~deliver value to our customers.

Three Months Ended ~~September 30, 2018~~March 31, 2019 Compared to Three Months Ended ~~September 30, 2017~~March 31, 2018

	Three Months Ended September 30,						Increase						Three Months Ended March 31,						Increase
In thousands (except percentages)	2018			2017			(Decrease)			% Change
(In thousands, except percentages)													2019			2018			(Decrease)			% Change
Revenues:
Direct	$	119,510		$	82,504		$	37,006			45	%	$	115,094		$	101,478		$	13,616			13	%
National advertising		28,107			32,002			(3,895	)		(12	)%		20,295			26,818			(6,523	)		(24	)%
Other		4,010			4,319			(309	)		(7	)%		3,949			4,047			(98	)		(2	)%
Retail		151,627			118,825			32,802			28	%		139,338			132,343			6,995			5	%
Wholesale		17,685			41,074			(23,389	)		(57	)%		14,860			27,614			(12,754	)		(46	)%
Total revenues		169,312			159,899			9,413			6	%		154,198			159,957			(5,759	)		(4	)%
Operating expenses:
Cost of revenues and operations		24,034			18,176			5,858			32	%		25,579			17,985			7,594			42	%
Product and technology		15,918			18,422			(2,504	)		(14	)%		17,863			17,908			(45	)		0	%
Marketing and sales		56,083			50,733			5,350			11	%		60,343			65,407			(5,064	)		(8	)%
General and administrative		14,345			9,180			5,165			56	%		23,888			24,270			(382	)		(2	)%
Affiliate revenue share		4,097			2,121			1,976			93	%		2,454			3,283			(829	)		(25	)%
Depreciation and amortization		26,504			21,893			4,611			21	%		28,125			23,938			4,187			17	%
Total operating expenses		140,981			120,525			20,456			17	%		158,252			152,791			5,461			4	%
Operating income		28,331			39,374			(11,043	)		(28	)%		(4,054	)		7,166			(11,220	)		(157	)%
Nonoperating (expense) income:
Interest expense, net		(7,005	)		(5,431	)		(1,574	)		29	%		(7,566	)		(5,957	)		(1,609	)		27	%
Other income, net		65			64			1			2	%
Other income (expense), net														119			(16	)		135		***%
Total nonoperating expense, net		(6,940	)		(5,367	)		(1,573	)		29	%		(7,447	)		(5,973	)		(1,474	)		25	%
Income before income taxes		21,391			34,007			(12,616	)		(37	)%
Income tax expense		5,594			13,019			(7,425	)		(57	)%
Net income	$	15,797		$	20,988		$	(5,191	)		(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 ~~primarily represent online subscription products~~consists of marketplace and digital solutions sold to ~~dealer customers who purchase advertising packages to market their vehicle inventory and other aspects of their dealership.~~Dealer Customers. Direct revenues is our largest revenue stream, representing ~~70.6%~~74.6% and 63.4% of total revenues for the three months ended ~~September 30, 2018. The addition of DI’s~~March 31, 2019 and ~~LDM’s business contributed $15.8~~2018, respectively. Direct revenues grew by $13.6 million, or 13%, compared to the ~~direct revenue increase.~~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 ~~$25.6~~an incremental $13.2 million to ~~direct revenue,~~Direct revenues measured at the month of each of the conversions, while reducing ~~wholesale~~Wholesale revenues ~~$22.6~~by $11.4 million ~~($5.4~~(of which $2.8 million relates to the ~~unfavorable~~Unfavorable contracts liability amortization). ~~Excluding the~~A full quarter’s impact of Dealer Inspire’s business contributed an incremental $11.5 million to Direct revenues. Excluding the ~~Acquisition and~~ affiliate market conversions ~~direct~~and Dealer Inspire, Direct revenues ~~declined $4.4~~decreased $11.1 million, or 14%, compared to the prior year, primarily due to a 7%12% decline in ~~dealer customers.~~ Direct ~~dealer customers~~Dealer Customers. Direct Dealer Customers decreased 2%3% from ~~June 30,~~December 31, 2018. For information related to the affiliate market conversions, see Note 46 (Unfavorable Contracts Liability) to the accompanying Consolidated ~~and Combined~~ Financial Statements included in Part I, Item 11., “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 and OEMs, as well as leads sold to OEMs. Display ads are placed throughout the Cars.com website and apps.~~agencies. National advertising revenues ~~represented 16.6%~~represent 13.2% and 16.8% of total revenues for the three months ended ~~September 30, 2018.~~March 31, 2019 and 2018, respectively. National advertising revenue declined ~~12%~~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 ~~on display ads mostly due to~~during the ~~cyclical nature of the auto industry.~~quarter.

Wholesale Revenues.Wholesale revenues represent the fees we charge for ~~online subscription products~~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 ~~represented 10.4%~~represent 9.6% and 17.3% of total revenues for the three months ended ~~September 30, 2018.~~March 31, 2019 and 2018, respectively. Wholesale revenues decreased 46% primarily due to ~~the~~ affiliate market conversions from ~~wholesale~~Wholesale revenues ($~~22.6~~11.4 million, which includes ~~$5.4~~$2.8 million of ~~unfavorable~~Unfavorable contracts liability amortization) to direct revenues ($~~25.6~~13.2 million). In addition,

excluding the affiliate market conversions, ~~wholesale~~Wholesale revenues was impacted by a 7%9% decline in ~~dealer customers.~~Dealer Customers. For information related to the affiliate market conversions, see Note 46 (Unfavorable Contracts Liability) to the accompanying Consolidated ~~and Combined~~ Financial Statements included in Part I, Item 11., “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 ~~related~~ compensation costs. Cost of revenues and operations represents ~~14.2%~~16.6% and ~~11.4%~~11.2% of total revenues for the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~

respectively. ~~The addition of DI’s and LDM’s business contributed $6.5 million to the overall increase. Excluding the impact of the Acquisition, cost~~Cost of revenues and operations ~~decreased $0.7 million and 4%,~~increased, primarily due to ~~reduced compensation.~~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 ~~9.4%~~11.6% and ~~11.5%~~11.2% of total revenues for the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively. Product and technology expenses ~~decreased 14%, primarily due to~~ r~~educed compensation costs associated with lower headcount, partially~~were flat, as the full quarter’s impact of Dealer Inspire’s business was offset by ~~the addition of DI’s and LDM’s business.~~cost efficiencies.

Marketing and sales. Marketing and sales expenses primarily consist of traffic and lead acquisition costs (including search engine ~~management~~marketing and other online marketing), TV and ~~online~~digital display/video advertising and creative production, ~~of ad creative,~~ market research, trade events and compensation costs for the marketing, sales support and sales teams. Marketing and sales expenses represent ~~33.1%~~39.1% and ~~31.7%~~40.9% of total revenues for the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively. The addition of DI’s and LDM’s business contributed $4.2 million to the overall increase, as we expanded the salesforce to support our new product offerings. Excluding the impact of the Acquisition, marketingMarketing and sales ~~expenses increased $1.2 million and 2%,~~decreased, primarily due to ~~planned strategic marketing investments aimed at consumer engagement, brand awareness amongst auto shopping audiences~~lower compensation costs as a result of the Sales Transformation and ~~search engine optimization,~~cost efficiencies associated with trade events. These costs were partially offset by ~~cost efficiencies related to investments aimed at~~ ~~consumer acquisition.~~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 ~~8.5%~~15.5% and ~~5.7%~~15.2% of total revenues for the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively. General and administrative expenses ~~increased $5.2~~decreased $0.4 million and ~~56%,~~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 ~~$2.9 million in costs related to consulting services incurred as part~~the full quarter’s impact of ~~our settlement agreement with our stockholder activist, $0.8 million in incremental stock-based compensation~~Dealer Inspire’s business and ~~the addition of DI’s and LDM’s business.~~increased stock based compensation.

Affiliate revenue share. Affiliate revenue share ~~expenses~~expense primarily ~~represent~~represents payments made to affiliates pursuant to our affiliate agreements. Affiliate revenue share ~~expenses increased 93%~~expense decreased 25%, ~~primarily due~~as the amortization of the Unfavorable contracts liability related to ~~increase in~~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, partially offset by amortization of the unfavorable contracts liability which was previously recorded in wholesale revenues.~~markets. For information related to the ~~unfavorable~~Unfavorable contracts liability, see Note 46 (Unfavorable Contracts Liability) to the accompanying Consolidated ~~and Combined~~ Financial Statements included in Part I, Item 11., “Financial Statements” of this Quarterly Report on Form 10-Q.

Depreciation and amortization. Depreciation and amortization expense increased ~~21%~~17%, primarily due to the ~~incremental~~full quarter’s impact of the Acquisition and additional amortization ~~expense~~resulting from the reduction of the useful lives of certain assets related to the ~~Acquisition.~~Technology Transformation.

Interest expense, net. Interest expense increased due to the full quarter’s interest ~~associated with~~related to the ~~Credit Agreement principally~~borrowing utilized to fund the ~~Separation and~~Acquisition, as well as additional interest expense associated with the ~~Acquisition.~~interest rate swap. For information related to our ~~term~~Term and ~~revolving loans,~~Revolving Loans and interest rate swap, see Note 4 (Debt) and Note 5 ~~(Debt)~~(Interest Rate Swap), respectively, to the accompanying Consolidated ~~and Combined~~ Financial Statements included in Part I, Item 11., “Financial Statements” of this Quarterly Report on Form 10-Q.

~~Income tax expense.~~ The effective income tax rate, expressed by calculating the income tax expense as a percentage of Income before income taxes, was 26.2% for the three months ended September 30, 2018 and differed from the U.S. federal statutory rate of 21%, primarily due to state income taxes, nondeductible transaction costs and the impact of the Tax Cuts and Jobs Act, partially offset by certain tax credits and excess tax benefits from stock-based compensation. For information related to income taxes, see Note 6 (Income Taxes) to the Consolidated and Combined Financial Statements included in Part I, Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q.

~~Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017~~

Nine Months Ended September 30,

Increase

In thousands (except percentages)

2018

2017

(Decrease)

% Change

Revenues:

  Direct

$
336,521

$
249,412

$
87,109

35
%
  National advertising

82,155

85,379

(3,224
)

(4
)%
  Other

12,152

11,989

163

1
%
    Retail

430,828

346,780

84,048

24
%
    Wholesale

66,953

122,917

(55,964
)

(46
)%
       Total revenues

497,781

469,697

28,084

6
%
Operating expenses:

  Cost of revenues and operations

65,924

49,618

16,306

33
%
  Product and technology

56,202

56,861

(659
)

(1
)%
  Marketing and sales

181,645

160,246

21,399

13
%
  General and administrative

45,609

34,364

11,245

33
%
  Affiliate revenue share

11,193

6,837

4,356

64
%
  Depreciation and amortization

77,154

66,343

10,811

16
%
       Total operating expenses

437,727

374,269

63,458

17
%
         Operating income

60,054

95,428

(35,374
)

(37
)%
Nonoperating (expense) income:

  Interest expense, net

(20,305
)

(7,160
)

(13,145
)

184
%
  Other income, net

76

199

(123
)

(62
)%
     Total nonoperating expense, net

(20,229
)

(6,961
)

(13,268
)

191
%
       Income before income taxes

39,825

88,467

(48,642
)

(55
)%
       Income tax expense

10,373

15,782

(5,409
)

(34
)%
          Net income

$
29,452

$
72,685

$
(43,233
)

(59
)%

~~Retail Revenues—Direct~~. Direct revenues is our largest revenue stream, representing 67.6% of total revenues for the nine months ended September 30, 2018. The addition of DI’s and LDM’s business since the date of the Acquisition contributed $36.0 million to the direct revenue increase. The affiliate market conversions contributed $61.3 million to direct revenue, while reducing wholesale revenues $54.5 million ($12.9 million relates to the unfavorable contracts liability amortization). Excluding the impact of the Acquisition and affiliate market conversions, direct revenues declined $10.2 million, primarily due to a 7% decline in dealer customers. Direct dealer customers decreased 2% from June 30, 2018. For information related to the affiliate market conversions, see Note 4 (Unfavorable Contracts Liability) to the accompanying Consolidated and Combined 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 represented 16.5% of total revenues for the nine months ended September 30, 2018. National advertising revenue decreased 4%, as OEMs reduced their spending on display ads mostly due to the cyclical nature of the auto industry.

~~Wholesale Revenues~~. Wholesale revenues represented 13.5% of total revenues for the nine months ended September 30, 2018. Wholesale revenues decreased primarily due to the affiliate market conversions from wholesale revenues ($54.5 million, which includes $12.9 million of unfavorable contracts liability amortization) to direct revenues ($61.3 million). In addition, excluding the affiliate market conversions, wholesale revenues was impacted by a 7% decline in dealer customers. For information related to the affiliate market conversions, see Note 4 (Unfavorable Contracts Liability) to the accompanying Consolidated and Combined 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 represents 13.2% and 10.6% of total revenues for the nine months ended September 30, 2018 and 2017, respectively. The addition of DI’s and LDM’s business contributed $16.5 million to the overall increase. Excluding the impact of the Acquisition, cost of revenues and operations was flat, primarily due to reduced compensation costs associated with lower headcount, offset by higher third-party costs related to new product offerings.

~~Product and technology.~~ Product and technology expenses represent 11.3% and 12.1% of total revenues for the nine months ended September 30, 2018 and 2017, respectively. Product and technology expenses decreased 1%, primarily due to r~~educed compensation costs associated with lower headcount and lower third-party costs, partially offset by the addition of DI’s and LDM’s business.~~

~~Marketing and sales~~. ~~Marketing and sales expenses represent 36.5% and 34.1% of total revenues for the nine months ended~~ ~~September~~ 30, 2018 and 2017, respectively. The addition of DI’s and LDM’s business contributed $11.0 million to the overall increase, as we expanded our salesforce to support our new product offerings. Excluding the impact of the Acquisition, marketing and sales expenses increased $10.4 million and 6%, primarily due to planned strategic marketing investments aimed at consumer acquisition, consumer engagement, brand awareness amongst auto shopping audiences and search engine optimization. Sales compensation costs were flat despite serving an incremental 3,400 dealer customers from converted markets.

~~General and administrative~~. General and administrative expenses represent 9.2% and 7.3% of total revenues for the nine months ended September 30, 2018 and 2017, respectively. General and administrative expenses increased $11.2 million and 33%, primarily due to $7.8 million in consulting services and other costs incurred as part of our settlement agreement with our stockholder activist, $5.0 million in costs related to the Acquisition, $3.1 million in incremental stock-based compensation, $2.8 million in incremental costs of being a public company and the addition of DI’s and LDM’s business since the date of the Acquisition. These increases were partially offset by $1.6 million in lower costs associated with the separation of certain employees and the prior year impacts of $5.0 million related to the Separation and $3.6 million related to the move to our new corporate headquarters location.

~~Affiliate revenue share.~~ Affiliate revenue share expenses increased 64%, primarily due to increase in costs associated with the early conversions of the McClatchy, tronc and Washington Post markets, partially offset by amortization of the unfavorable contracts liability. For information related to the unfavorable contracts liability, see Note 4 (Unfavorable Contracts Liability) to the accompanying Consolidated and Combined 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 16%, primarily due to the incremental amortization expense related to the Acquisition.~~

~~Interest expense, net~~. Interest expense increased due to interest associated with the Credit Agreement principally utilized to fund the Separation and the Acquisition. For information related to our term and revolving loans, see Note 5 (Debt) to the accompanying Consolidated and Combined Financial Statements included in Part I, Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q.

~~Income tax expense.~~ Effective with the Separation, we established a corporate legal entity structure that is subject to U.S. corporate income tax on a stand-alone basis post-Separation. The effective income tax rate, expressed by calculating the income tax expense as a percentage of Income before income taxes, was 26.0% for the nine months ended September 30, 2018 and differed from the U.S. federal statutory rate of 21%, primarily due to state income taxes, nondeductible transaction costs and the impact of the Tax Cuts and Jobs Act, partially offset by certain tax credits and excess tax benefits from stock-based compensation. We recorded $15.8 million of income tax expense for the same period 2017 related to DealerRater.com LLC and corporate income tax upon our Separation from TEGNA on June 1, 2017. For information related to income taxes, see Note 6 (Income Taxes) to the Consolidated and Combined 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 ~~2018~~2019 and ~~2017~~2018 which, along with our ~~term~~Term and ~~revolving loans~~Revolving Loans described below, provides adequate liquidity to meet our business needs, including those for investments and

strategic acquisitions. In addition, we ~~could~~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 ~~September 30, 2018,~~March 31, 2019, cash and cash equivalents were ~~$17.8~~$28.3 million.

Term Loan and Revolving Loan. As of ~~September 30, 2018,~~March 31, 2019, the outstanding principal amount under the ~~term loan~~Term Loan was ~~$421.9~~$410.6 million, with an interest rate of ~~3.9%~~4.3%, ~~and~~including the impact of the interest rate swap. The outstanding borrowings under the ~~revolving loan~~Revolving Loan were ~~$285.0~~$275.0 million, with an interest rate of ~~3.8%~~4.1%. During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, we ~~borrowed $165.0 million under the revolving loan to fund the Acquisition and $30.0 million to fund share repurchases. We also~~ made ~~$55.0~~$5.0 million in voluntary revolving loan payments and ~~$16.9~~$5.6 million in ~~quarterly term loan~~mandatory Term Loan payments. As of ~~September 30, 2018, we were permitted~~March 31, 2019, $175.0 million was available to borrow ~~an aggregate of $165.0 million~~ under the ~~revolving loan.~~Revolving Loan. Our borrowings are limited by our net leverage ratio, which is calculated in accordance with our credit agreement, and was ~~2.9~~3.0 to 1.0 as of ~~September 30, 2018.~~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.~~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 ~~has a two-year duration,~~ does not require the purchase of any minimum number of shares and may be suspended, modified or discontinued at any time without prior notice. We ~~intend to fund the share repurchase program principally with cash from operations.~~ During the ~~nine~~three months ended ~~September~~ ~~30, 2018, the Company~~March 31, 2019, we repurchased and subsequently retired ~~3.0~~0.9 million shares for ~~$77.2~~$20.0 million. There was no stock repurchase activity during the three months ended March 31, 2018.

	Nine Months Ended September 30,									Three Months Ended March 31,
	2018			2017			Change			2019			2018			Change
Net cash provided by (used in):
Operating activities	$	121,081		$	147,196		$	(26,115	)	$	38,389		$	26,661		$	11,728
Investing activities		(167,119	)		(27,631	)		(139,488	)		(3,963	)		(159,481	)		155,518
Financing activities		43,284			(101,033	)		144,317			(31,549	)		123,758			(155,307	)
Net change in cash and cash equivalents	$	(2,754	)	$	18,532		$	(21,286	)	$	2,877		$	(9,062	)	$	11,939

Operating Activities. ~~The decrease in cash~~Cash provided by operating activities ~~is primarily due to higher interest payments related to our term and revolving loans, costs associated with~~for the ~~stockholder activist campaign,~~three months ended March 31, 2018 was unfavorably impacted by the cash settlement of DI’s unvested equity ~~awards, costs related to~~awards. In addition, the ~~Acquisition and higher incremental costs of being a public company, partially offset~~increase in cash provided by ~~other~~operating activities for the three months ended March 31, 2019 benefited from changes in operating assets and liabilities, ~~and~~partially offset by lower ~~cash tax payments. During the nine months ended September30, 2017, we also received $10.0 million in cash from the lessor for lease incentives related to the move to our new corporate headquarters location.~~net income.

Investing Activities. The ~~increase~~decrease in cash used in investing activities is primarily due to the ~~Acquisition.~~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 ~~the Acquisition,~~our Term and Revolving Loans, see Note ~~3 (Business Combination and Goodwill)~~4 (Debt) to the accompanying Consolidated ~~and Combined~~ Financial Statements included in Part I, Item ~~1 “Financial Statements” of this Quarterly Report on Form 10-Q.~~

~~Financing Activities.~~ The increase in cash provided by financing activities is primarily driven by net revolving loan borrowings of $140.0 million to fund the Acquisition and share repurchases and $16.9 million in quarterly term loan payments. During the nine months ended September 30, 2017, cash used in financing activities was primarily driven by transactions with TEGNA. Prior to the Separation, TEGNA utilized a centralized approach to cash management and the financing of its operations. Under this approach, we provided funds to TEGNA and vice versa until the cash distribution to TEGNA at the time of the Separation. Thus, the net cash flow between TEGNA and us was presented as a financing activity. For information related to our term and revolving loans, see Note 5 (Debt) to the accompanying Consolidated and Combined Financial Statements included in Part I, Item 11., “Financial Statements” of this Quarterly Report on Form 10-Q.

Contingencies. For information related to commitments and contingencies, see Note 7 (Commitments and Contingencies) to the accompanying Consolidated ~~and Combined~~ Financial Statements included in Part I, Item 11., “Financial Statements” of this Quarterly Report on Form 10-Q.

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” ~~in Part II, Item 7~~, of the Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 as filed with the SEC on ~~March 6, 2018~~February 28, 2019 and see Note ~~2 (Recent~~1 (Description of Business, Company History and Summary of Significant Accounting ~~Pronouncements)~~Polices) to the accompanying Consolidated ~~and Combined~~ Financial Statements included in Part I, Item 11., “Financial Statements” of this Quarterly Report on Form 10-Q. During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, there have been no changes to our critical accounting ~~policies, except for our revenue recognition policy, which reflects the adoption of the Financial Accounting Standards Oversight Board Accounting Standards Codification 606,~~ ~~Revenue from Contracts with Customers~~.

~~Revenue Recognition.~~ We account for a customer arrangement when we and the customer have an approved contract that specifies the rights and obligations of each party and the payment terms, and we believe it is probable we will collect substantially all of the consideration to which we will be entitled in exchange for the services that will be provided to the customer. We allocate the contractual transaction price to each distinct performance obligation and recognize revenue when it satisfies a performance obligation by providing a service to a customer. Revenue is generated through our direct sales force (Retail revenues) and affiliate sales channels (Wholesale revenues).policies.

~~Online Subscription Advertising Products and Services Revenue.~~ Our primary source of Retail and Wholesale revenues is through the sale of online subscription advertising products to dealer customers through varying levels of subscription packages. Our subscription packages provide the dealer customer’s available new and used vehicle inventory to in-market shoppers on the Cars.com website. The subscription packages are generally a fixed price arrangement with a one-year contract term that is automatically renewed, typically on a month-to month basis. We recognize subscription package revenues ratably as the service is provided over the contract term. Online subscription advertising products and services revenue is recorded in Retail revenues and Wholesale revenues in the Consolidated and Combined Statements of Income.

We also offer our customers several add-on products to the subscription packages. Add-on products include premium advertising products that can be uniquely tailored to an individual dealer customer’s current needs. We do not sell add-on products separately from the subscription packages as the customer cannot benefit from add-on products on their own. Therefore, the subscription packages and add-on products are combined as a single performance obligation and we recognize the related revenue ratably as the services are provided over the contract term.

As part of the acquisition of DI, we also provide services related to flexible, custom designed website platforms supporting highly personalized digital marketing campaigns, digital retailing and messaging platform products. We recognize revenue related to these services ratably as the service is provided over the contract term. The related revenue is recorded in Retail revenues in the Consolidated and Combined Statements of Income.

Our affiliates also sell online subscription advertising products to dealer customers and we earn wholesale revenues through our affiliate agreements. Affiliates are assigned certain sales territories in which they sell our products. Under these agreements, we charge the affiliates 60% of the corresponding Cars.com retail rate for products sold to affiliate dealers. We recognize wholesale revenue ratably as the service is provided over the contract term. In situations where our direct sales force sells our products within an affiliate’s assigned territory, we pay the affiliate a revenue share which is classified as “Affiliate revenue share” within Operating Expenses in the Consolidated and Combined Statements of Income. Wholesale revenues also includes the amortization of the unfavorable contracts liability. For information related to the unfavorable contracts liability, see Note 4 (Unfavorable Contracts Liability) to the accompanying Consolidated and Combined Financial Statements included in Part I, Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q.

~~Display Advertising Products and Services Revenue.~~ We also earn revenue through the sale of display advertising on our website to national advertisers, pursuant to transaction-based contracts, which are billed for impressions delivered or click-throughs on their advertisements. An impression is the display of an advertisement to an end-user on the website and is a measure of volume. A click-through occurs when an end-user clicks on an impression. We recognize revenue as the impressions or click-throughs are delivered. If the impressions or click-throughs delivered are less than the amount invoiced to the customer, the difference is recorded as deferred revenue and recognized as revenue when earned. Display advertising products revenue is recorded in Retail revenues in the Consolidated and Combined Statements of Income.

As part of the acquisition of LDM, we also provide services related to customized digital marketing and customer acquisition services, including paid, organic, social and creative services. We recognize revenue related to these services primarily at the point in time the service is provided. The related revenue is recorded in Retail revenues in the Consolidated and Combined Statements of Income.

~~Pay Per Lead Revenue.~~ We also sell leads, which are connections from consumers to dealer customers in the form of phone calls, emails and text messages, to dealer customers, OEMs and third-party resellers. We recognize pay per lead revenue primarily on a per-lead basis at the point in time in which the lead has been delivered. Revenue related to pay per leads is recorded in Retail revenues and Wholesale revenues in the Consolidated and Combined Statements of Income.

~~Other Revenue.~~ Other revenue primarily includes revenues related to vehicle listing data sold to third-parties and peer-to-peer vehicle advertising. We recognize other revenue either ratably as the services are provided or at the point in time the services have been performed. Other revenue is recorded in Retail revenues in the Consolidated and Combined Statements of Income.

Pronouncements. For information related to recent accounting pronouncements, see Note 2 (Recent Accounting Pronouncements) to the accompanying Consolidated ~~and Combined~~ Financial Statements included in Part I, Item 11., “Financial Statements” of this Quarterly Report on Form 10-Q.

For quantitative and qualitative disclosures about market risk, see ~~Item 7A~~ “Quantitative and Qualitative Disclosures About Market Risk,” in Part II, Item 7A., of the Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, as filed with the Securities and Exchange Commission (“SEC”) on ~~March 6, 2018.~~February 28, 2019. Our exposures to market risk have not changed materially since December 31, ~~2017.~~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 Quarterly ~~report~~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 Quarterly ~~report~~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 Exchange Act).

For information relating to legal proceedings, see Note 7 (Commitments and Contingencies) to the accompanying Consolidated ~~and Combined~~ Financial Statements included in Part I, Item 11., “Financial Statements” of this 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 1A1A., “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 as filed with the Securities and Exchange Commission (“SEC”) on ~~March 6, 2018,~~February 28, 2019, which could materially affect our business, financial condition, results of operations and future results. There have been no material changes from the risk factors described in our Annual Report on Form 10-K.

Our stock repurchase activity for the three months ended ~~September 30, 2018 was~~March 31, 2019 is as follows:

Period

Total Number
of Shares
Purchased ⁽¹⁾

Average
Price Paid
per Share ⁽¹⁾

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽²⁾

Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ⁽³⁾
(in thousands)

July 1 through July 31, 2018

192,574

$
30.06

192,574

$
144,211

August 1 through August 31, 2018

310,131

27.31

310,131

135,741

September 1 through September 30, 2018

489,339

26.43

489,339

122,810

Total

992,044

992,044

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

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
	~~Consolidated and Combined Balance Sheets~~	2
	Consolidated ~~and Combined Statements of Income~~Balance Sheets	32
	Consolidated ~~and Combined~~Statements of (Loss) Income	3
	Consolidated Statements of Stockholders’ Equity	4
	Consolidated ~~and Combined~~Statements of Comprehensive (Loss) Income	5
	Consolidated Statements of Cash Flows	56
	Notes to Unaudited Consolidated ~~and Combined~~ Financial Statements	67
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1916
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2822
Item 4.	Controls and Procedures	2822
PART II.	OTHER INFORMATION	2923
Item 1.	Legal Proceedings	2923
Item 1A.	Risk Factors	2923
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2923
Item 3.	Defaults Upon Senior Securities	3024
Item 4.	Mine Safety Disclosures	3024
Item 5.	Other Information	3024
Item 6.	Exhibits	3024
Signatures		3125


	Acquisition-date Fair Value
Cash consideration ⁽¹⁾	$	164,333
Contingent consideration ⁽²⁾		2,200
Cash settlement of DI's unvested equity awards ⁽³⁾		(5,700	)
Total consideration	$	160,833

Cash	$	1,480
Accounts receivable		11,400
Property and equipment		1,215
Other assets		320
Identified intangible assets ⁽⁴⁾		71,900
Total assets acquired		86,315
Accounts payable		(2,514	)
Deferred tax liability		(14,741	)
Other liabilities		(4,459	)
Total liabilities assumed		(21,714	)
Net identifiable assets		64,601
Goodwill		96,232
Total consideration	$	160,833

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

Balance at December 31, 2017		—	$	—		71,628		$	716		$	1,501,830		$	176,582		$	1,679,128
Net income		—		—		—			—			—			29,452			29,452
Transactions with TEGNA, net ⁽¹⁾		—		—		200			2			(3,568	)		—			(3,566	)
Repurchases of common stock		—		—		(2,986	)		(30	)		—			(77,159	)		(77,189	)
Shares issued in connection with stock-based compensation plans, net		—		—		84			1			(478	)		—			(477	)
Stock-based compensation expense		—		—		—			—			7,495			—			7,495
Balance at September 30, 2018		—	$	—		68,926		$	689		$	1,505,279		$	128,875		$	1,634,843

	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

Cash consideration	$	164,333
Less: Cash settlement of DI's unvested equity awards ⁽³⁾		(5,700	)
Less: Cash acquired		(1,480	)
Payment for Acquisition, net	$	157,153

	Acquisition-Date Fair Value (in thousands)		Weighted-Average Amortization Period (in years)
Acquired software	$	39,500	4
Customer relationships		18,300	4
Trade names		14,100	10
Total	$	71,900

December 31, 2017	$	788,107
Additions		96,232
September 30, 2018	$	884,339

	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

Balance at December 31, 2017	$	44,085
Amortization into Wholesale revenues ⁽¹⁾		(5,992	)
Amortization into Affiliate revenue share ⁽²⁾		(12,908	)
Balance at September 30, 2018	$	25,185

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	%


	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	%

	September 30, 2018		June 30, 2018		% Change			September 30, 2017		% Change
Direct		17,011		16,592		3	%		13,963		22	%
Affiliate		3,396		4,128		(18	)%		7,344		(54	)%
Total		20,407		20,720		(2	)%		21,307		(4	)%

Exhibit Number		Description
~~3.2~~10.1*^		~~Amended and Restated Bylaws of Cars.com Inc. (incorporated by reference to Exhibit 3.2 to the Company’s current Report on Form 8-K filed with the SEC on October 22, 2018, File No. 001-37869).~~ 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.

	Cars.com Inc.

Date: ~~November 7, 2018~~May 10, 2019	By:	/s/ T. Alex Vetter
		T. Alex Vetter
		President and Chief Executive Officer

Date: ~~November 7, 2018~~May 10, 2019	By:	/s/ Becky A. Sheehan
		Becky A. Sheehan
		Chief Financial Officer

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company