Cars.com Inc. [CARS] Filings

10-Q 1 cars-20220331.htm 10-Q 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-37869

Cars.com Inc.

(Exact Name of Registrant as Specified in its Charter)


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

300 S. Riverside Plaza, Suite 1000

Chicago, Illinois 60606

(Address of principal executive offices)

(312) 601-5000

Registrant’s telephone number, including area code


Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock	CARS	New York Stock Exchange

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

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

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


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 28, 2022, the registrant had 69,492,015 shares of common stock, $0.01 par value per share, outstanding.

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION	2
Item 1.	Financial Statements (unaudited):	2
	Consolidated Balance Sheets	2
	Consolidated Statements of Income	3
	Consolidated Statements of Comprehensive Income	4
	Consolidated Statements of Stockholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to the Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23
PART II.	OTHER INFORMATION	24
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	24
Item 4.	Mine Safety Disclosures	24
Item 5.	Other Information	24
Item 6.	Exhibits	25
Signatures		26

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited).

Cars.com Inc.

Consolidated Balance Sheets

(In thousands, except per share data)


	March 31, 2022			December 31, 2021
	(unaudited)
Assets:
Current assets:
Cash and cash equivalents	$	30,453		$	39,069
Accounts receivable, net		96,013			98,893
Prepaid expenses		8,509			7,810
Other current assets		3,428			1,665
Total current assets		138,403			147,437
Property and equipment, net		42,949			43,005
Goodwill		101,763			26,227
Intangible assets, net		764,564			769,424
Investments and other assets, net		21,538			21,112
Total assets	$	1,069,217		$	1,007,205
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable	$	16,810		$	15,420
Accrued compensation		10,124			23,612
Current portion of long-term debt, net		10,226			8,941
Other accrued liabilities		58,642			46,317
Total current liabilities		95,802			94,290
Noncurrent liabilities:
Long-term debt, net		499,182			457,383
Other noncurrent liabilities		78,146			57,512
Total noncurrent liabilities		577,328			514,895
Total liabilities		673,130			609,185
Commitments and contingencies
Stockholders' equity:
Preferred Stock at par, $0.01 par value; 5,000 shares authorized; no shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		—			—
Common Stock at par, $0.01 par value; 300,000 shares authorized; 69,803 and 69,170 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		698			692
Additional paid-in capital		1,537,231			1,544,712
Accumulated deficit		(1,141,042	)		(1,145,382	)
Accumulated other comprehensive loss		(800	)		(2,002	)
Total stockholders' equity		396,087			398,020
Total liabilities and stockholders' equity	$	1,069,217		$	1,007,205

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

Cars.com Inc.

Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)


	Three Months Ended March 31,
	2022			2021
Revenue:
Dealer	$	140,416		$	132,958
OEM and National		15,174			18,069
Other		2,617			2,268
Total revenue		158,207			153,295
Operating expenses:
Cost of revenue and operations		27,752			27,831
Product and technology		21,307			16,760
Marketing and sales		57,094			53,211
General and administrative		16,560			13,266
Depreciation and amortization		24,553			25,680
Total operating expenses		147,266			136,748
Operating income		10,941			16,547
Nonoperating expense:
Interest expense, net		(9,330	)		(10,001	)
Other income, net		208			38
Total nonoperating expense, net		(9,122	)		(9,963	)
Income before income taxes		1,819			6,584
Income tax (benefit) expense		(2,521	)		1,306
Net income	$	4,340		$	5,278
Weighted-average common shares outstanding:
Basic		69,463			67,787
Diluted		70,899			70,254
Earnings per share:
Basic	$	0.06		$	0.08
Diluted		0.06			0.08

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

Cars.com Inc.

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2022		2021
Net income	$	4,340	$	5,278
Other comprehensive income, net of tax:
Reclassification of accumulated other comprehensive loss on interest rate swap into Net income		1,202		1,200
Total other comprehensive income		1,202		1,200
Comprehensive income	$	5,542	$	6,478

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

Cars.com Inc.

Consolidated Statements of Stockholders’ Equity

(In thousands)

(Unaudited)


	Preferred Stock				Common Stock						Additional Paid-In			Accumulated			Accumulated Other Comprehensive			Stockholders'
	Shares		Amount		Shares			Amount			Capital			Deficit			Loss			Equity
Balance at December 31, 2021		—	$	—		69,170		$	692		$	1,544,712		$	(1,145,382	)	$	(2,002	)	$	398,020
Net income		—		—		—			—			—			4,340			—			4,340
Other comprehensive income, net of tax		—		—		—			—			—			—			1,202			1,202
Repurchases of common stock		—		—		(338	)		(3	)		(4,997	)		—			—			(5,000	)
Shares issued in connection with stock-based compensation plans, net		—		—		971			9			(7,705	)		—			—			(7,696	)
Stock-based compensation		—		—		—			—			5,221			—			—			5,221
Balance at March 31, 2022		—		—		69,803			698			1,537,231			(1,141,042	)		(800	)		396,087

	Preferred Stock				Common Stock						Additional Paid-In			Accumulated			Accumulated Other Comprehensive			Stockholders'
	Shares		Amount		Shares			Amount			Capital			Deficit			Loss			Equity
Balance at December 31, 2020		—	$	—		67,387		$	674		$	1,530,493		$	(1,156,173	)	$	(6,804	)	$	368,190
Net income		—		—		—			—			—			5,278			—			5,278
Other comprehensive income, net of tax		—		—		—			—			—			—			1,200			1,200
Shares issued in connection with stock-based compensation plans, net		—		—		1,144			11			(5,641	)		—			—			(5,630	)
Stock-based compensation		—		—		—			—			4,978			—			—			4,978
Balance at March 31, 2021		—		—		68,531			685			1,529,830			(1,150,895	)		(5,604	)		374,016

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

Cars.com Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2022			2021
Cash flows from operating activities:
Net income	$	4,340		$	5,278
Adjustments to reconcile Net income to Net cash provided by operating activities:
Depreciation		4,014			4,021
Amortization of intangible assets		20,539			21,659
Amortization of accumulated other comprehensive loss on interest rate swap		1,417			1,417
Stock-based compensation		5,221			4,978
Deferred income taxes		(374	)		(226	)
Provision for doubtful accounts		27			129
Amortization of debt issuance costs		816			834
Amortization of deferred revenue related to Accu-Trade Acquisition		(442	)		—
Other, net		87			(34	)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		4,442			282
Prepaid expenses and other assets		(3,073	)		5,782
Accounts payable		1,081			6,438
Accrued compensation		(13,488	)		(9,141	)
Other liabilities		5,751			8,945
Net cash provided by operating activities		30,358			50,362
Cash flows from investing activities:
Payments for acquisitions, net of cash acquired		(64,770	)		—
Purchase of property and equipment		(4,008	)		(6,219	)
Net cash used in investing activities		(68,778	)		(6,219	)
Cash flows from financing activities:
Proceeds from revolving loan borrowings		45,000			—
Payments of long-term debt		(2,500	)		(52,500	)
Payments for stock-based compensation plans, net		(7,696	)		(5,630	)
Repurchases of common stock		(5,000	)		—
Payments of debt issuance costs and other fees		—			(8	)
Net cash provided by (used in) financing activities		29,804			(58,138	)
Net decrease in cash and cash equivalents		(8,616	)		(13,995	)
Cash and cash equivalents at beginning of period		39,069			67,719
Cash and cash equivalents at end of period	$	30,453		$	53,724
Supplemental cash flow information:
Cash paid (received) for income taxes	$	17		$	(9,045	)
Cash paid for interest and swap		2,743			3,503

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

Cars.com Inc.

Notes to the Consolidated Financial Statements

(Unaudited)

NOTE 1. Description of Business and Summary of Significant Accounting Policies

Description of Business. Cars.com Inc. (the “Company” or “CARS”) is a leading automotive marketplace platform that provides a robust set of industry specific digital solutions. Through the marketplace, dealer websites and other digital products, the Company showcases dealer inventory, elevates and amplifies dealers’ and automotive manufacturers’ (“OEMs”) brands, connects sellers with the Company’s ready-to-buy audience and empowers shoppers with the resources and information needed to make confident car buying decisions. The Company’s digital solutions strategy builds on the rich data and audience of its digital marketplace to offer media and solutions that drive growth and efficiency for the automotive industry. The Company's portfolio of brands now includes Cars.com™, Dealer Inspire®, DealerRater®, FUEL™, Auto.com™, PickupTrucks.com™, CreditIQ™, Accu-Trade™ and NewCars.com®.

Basis of Presentation. These accompanying unaudited interim Consolidated Financial Statements (“Consolidated Financial Statements”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial statements. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. These Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the notes thereto for the year ended December 31, 2021, which are included in the Company's Annual Report on Form 10-K dated February 25, 2022 (the “December 31, 2021 Financial Statements”).

The significant accounting policies used in preparing these Consolidated Financial Statements were applied on a basis consistent with those reflected in the December 31, 2021 Financial Statements. In the opinion of management, the Consolidated Financial Statements contain all adjustments (consisting of a normal, recurring nature) necessary to present fairly the Company's financial position, results of operations, cash flows and changes in stockholders' equity as of the dates and for the periods indicated. The unaudited results of operations for the three months ended March 31, 2022 are not necessarily indicative of results that may be expected for the year ending December 31, 2022.

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

Principles of Consolidation. The accompanying Consolidated Financial Statements include the accounts of Cars.com Inc. and its 100% owned subsidiaries. All intercompany transactions and accounts are eliminated in consolidation.

Correction of Certain Amounts Relating to Previously Issued Financial Statements. During the three months ended March 31, 2022, the Company identified a $30.8 million overstatement of the valuation allowance recorded against deferred tax assets that originated in 2020. In addition, the Company adjusted 2020 to reflect an immaterial income tax adjustment related to this prior period. The Company has concluded that these items are not material to the previously issued Consolidated Financial Statements and has therefore corrected these prior period amounts as presented in the current period Consolidated Financial Statements. The impact of correcting the items on the related financial statement line items is as follows (in thousands):

Cars.com Inc.

Notes to the Consolidated Financial Statements (continued)

(Unaudited)


Consolidated Balance Sheet
	As of December 31, 2021
Financial statement line item	As reported			Adjustment			As adjusted
Deferred tax liability	$	31,086		$	(31,086	)	$	—
Total noncurrent liabilities		545,981			(31,086	)		514,895
Total liabilities		640,271			(31,086	)		609,185

Consolidated Balance Sheet and Statement of Stockholders' Equity
	As of December 31, 2021
Financial statement line item	As reported			Adjustment			As adjusted
Accumulated deficit	$	(1,176,468	)	$	31,086		$	(1,145,382	)
Total stockholders' equity		366,934			31,086			398,020

Consolidated Statement of Stockholders' Equity
	Three Months Ended March 31, 2021
Financial statement line item	As reported			Adjustment			As adjusted
Accumulated deficit balance at December 31, 2020	$	(1,184,187	)	$	28,014		$	(1,156,173	)
Total stockholders' equity balance at December 31, 2020		340,176			28,014			368,190
Accumulated deficit balance at March 31, 2021		(1,178,909	)		28,014			(1,150,895	)
Total stockholders' equity balance at March 31, 2021		346,002			28,014			374,016

These adjustments had no impact to Net cash provided by operating activities, Net cash used in investing activities or Net cash provided by (used in) financing activities on the Consolidated Statements of Cash Flows. In addition, these adjustments had no impact to the Consolidated Statements of Income and Earnings per share for the three months ended March 31, 2021.

NOTE 2. Revenue

Revenue Summary. In the table below (in thousands), revenue is disaggregated by major products and services. The Company only has one reportable segment; therefore, further disaggregation is not applicable at this time.


	Three Months Ended March 31,
Major products and services	2022		2021
Subscription advertising and digital solutions	$	132,247	$	125,446
Display advertising		21,049		21,957
Pay per lead		2,417		3,760
Other		2,494		2,132
Total revenue	$	158,207	$	153,295

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

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


	December 31, 2021		Additions		Impairment		March 31, 2022
Goodwill	$	26,227	$	75,536	$	—	$	101,763
Indefinite-lived intangible asset		390,020		—		—		390,020

Business Combinations. The below transactions were accounted for as business combinations.

Accu-Trade Acquisition. On March 1, 2022, the Company acquired certain of the assets and assumed certain liabilities of Accu-Trade, LLC; Accu-Trade Canada, LLC; Galves Market Data; and Headstart Logistics, LLC d/b/a/ MADE Logistics (collectively, “Accu-Trade”), which provides dealers with vehicle VIN-specific valuation and appraisal data, instant guaranteed offer capabilities and logistics technology (the “Accu-Trade Acquisition”).

The Company expensed as incurred total acquisition costs of $1.9 million, of which $0.9 million were recorded during the three months ended March 31, 2022. These costs were recorded in General and administrative in the Consolidated Statements of Income.

Cars.com Inc.

Notes to the Consolidated Financial Statements (continued)

(Unaudited)

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


	Preliminary Acquisition-date Fair Value
Cash consideration	$	64,770
Other consideration (1)		5,300
Contingent consideration (2)		22,505
Total purchase consideration	$	92,575

Assets acquired (3)	$	1,595
Identified intangible assets (4)		15,679
Total assets acquired		17,274
Total liabilities assumed (5)		(235	)
Net identifiable assets		17,039
Goodwill		75,536
Total purchase consideration	$	92,575

(1)

In connection with the Accu-Trade Acquisition, the Company entered into an agreement to provide one of the former owners with a one-year license to a certain product. The preliminary fair value of the license was determined to be $6.5 million, of which the Company received $1.2 million in cash upon the close of the Accu-Trade Acquisition. The $5.3 million difference between the fair value of $6.5 million and the $1.2 million in cash was recorded as non-cash consideration and the $6.5 million license fee was recorded in Other accrued liabilities as a contract liability on the Consolidated Balance Sheets and will be amortized into Other revenue on the Consolidated Statements of Income over the one-year contract term. The current period revenue related to the non-cash consideration of $5.3 million is a non-cash reconciling item titled Amortization of deferred revenue related to Accu-Trade Acquisition on the Consolidated Statements of Cash Flows.

(2)

As part of the Accu-Trade Acquisition, the Company may be required to pay additional cash and stock consideration to the former owners based on achievement of certain financial targets, which would result in a variable number of shares being issued. The Company has the option to pay consideration in cash or stock. The actual amount to be paid will be based on the acquired business’ future performance to be attained over a three-year performance period. The contingent consideration is classified as Level 3 in the fair value hierarchy. The fair value is measured based on a Monte Carlo simulation based on the following significant inputs: volatility, discount rate and projected financial information.

(3)</

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10-K	[2021-02-25]
10-Q	[2020-11-09]
10-Q	[2020-07-30]
10-Q	[2020-05-06]
10-K	[2020-02-26]
10-Q	[2019-11-06]
10-Q	[2019-08-05]
10-Q	[2019-05-10]
10-K	[2019-02-28]
10-Q	[2018-11-07]
10-Q	[2018-08-08]
10-Q	[2018-05-09]
10-K	[2018-03-06]
10-Q	[2017-11-08]
10-Q	[2017-08-09]
10-Q	[2017-06-20]
S-1	[2017-05-12]