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j

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

 

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

 

b

For the quarterly period ended March 31, 2024

OR

 

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

 

Commission File Number: 001-37869

 

 

Cars.com Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

81-3693660

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

 

 

300 S. Riverside Plaza, Suite 1000

Chicago, 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 May 2, 2024, the registrant had 66,116,556 shares of common stock, $0.01 par value per share, outstanding.

 

 


 

Table of Contents

Page

PART I.

FINANCIAL INFORMATION

2

Item 1.

Financial Statements:

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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

Item 4.

Controls and Procedures

22

PART II.

OTHER INFORMATION

23

Item 1.

Legal Proceedings

23

Item 1A.

Risk Factors

23

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

23

Item 3.

Defaults Upon Senior Securities

23

Item 4.

Mine Safety Disclosures

23

Item 5.

Other Information

23

Item 6.

Exhibits

25

Signatures

26

 

 

 

1


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Cars.com Inc.

Consolidated Balance Sheets

(In thousands, except per share data)

 

 

March 31, 2024

 

 

December 31, 2023

 

 

 

(unaudited)

 

 

 

 

Assets:

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

31,363

 

 

$

39,198

 

Accounts receivable, net

 

 

125,670

 

 

 

125,373

 

Prepaid expenses

 

 

12,494

 

 

 

12,553

 

Other current assets

 

 

7,644

 

 

 

1,314

 

Total current assets

 

 

177,171

 

 

 

178,438

 

Property and equipment, net

 

 

43,379

 

 

 

43,853

 

Goodwill

 

 

146,104

 

 

 

147,058

 

Intangible assets, net

 

 

647,302

 

 

 

669,167

 

Deferred tax assets, net

 

 

108,647

 

 

 

112,953

 

Investments and other assets, net

 

 

20,528

 

 

 

20,980

 

Total assets

 

$

1,143,131

 

 

$

1,172,449

 

Liabilities and stockholders' equity:

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

25,583

 

 

$

22,259

 

Accrued compensation

 

 

17,996

 

 

 

31,669

 

Current portion of long-term debt, net

 

 

 

 

 

23,129

 

Other accrued liabilities

 

 

65,785

 

 

 

68,691

 

Total current liabilities

 

 

109,364

 

 

 

145,748

 

Noncurrent liabilities:

 

 

 

 

 

 

Long-term debt, net

 

 

473,755

 

 

 

460,119

 

Deferred tax liabilities

 

 

8,687

 

 

 

8,757

 

Other noncurrent liabilities

 

 

69,875

 

 

 

65,717

 

Total noncurrent liabilities

 

 

552,317

 

 

 

534,593

 

Total liabilities

 

 

661,681

 

 

 

680,341

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Preferred Stock at par, $0.01 par value; 5,000 shares authorized; no shares
   issued and outstanding as of March 31, 2024 and December 31, 2023,
   respectively

 

 

 

 

 

 

Common Stock at par, $0.01 par value; 300,000 shares authorized; 66,228 and
   
65,929 shares issued and outstanding as of March 31, 2024 and
   December 31, 2023, respectively

 

 

662

 

 

 

659

 

Additional paid-in capital

 

 

1,489,525

 

 

 

1,500,232

 

Accumulated deficit

 

 

(1,008,950

)

 

 

(1,009,734

)

Accumulated other comprehensive income

 

 

213

 

 

 

951

 

Total stockholders' equity

 

 

481,450

 

 

 

492,108

 

Total liabilities and stockholders' equity

 

$

1,143,131

 

 

$

1,172,449

 

 

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

 

2


 

Cars.com Inc.

Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Revenue:

 

 

 

 

 

 

  Dealer

 

$

161,815

 

 

$

149,843

 

  OEM and National

 

 

15,307

 

 

 

13,543

 

  Other

 

 

3,054

 

 

 

3,682

 

     Total revenue

 

 

180,176

 

 

 

167,068

 

Operating expenses:

 

 

 

 

 

 

  Cost of revenue and operations

 

 

29,962

 

 

 

29,795

 

  Product and technology

 

 

28,085

 

 

 

24,101

 

  Marketing and sales

 

 

59,163

 

 

 

58,297

 

  General and administrative

 

 

22,857

 

 

 

18,304

 

  Depreciation and amortization

 

 

27,365

 

 

 

24,042

 

     Total operating expenses

 

 

167,432

 

 

 

154,539

 

         Operating income

 

 

12,744

 

 

 

12,529

 

Nonoperating expense:

 

 

 

 

 

 

  Interest expense, net

 

 

(8,321

)

 

 

(8,244

)

  Other (expense) income, net

 

 

(3,603

)

 

 

8,239

 

     Total nonoperating expense, net

 

 

(11,924

)

 

 

(5

)

       Income before income taxes

 

 

820

 

 

 

12,524

 

       Income tax expense

 

 

36

 

 

 

1,045

 

          Net income

 

$

784

 

 

$

11,479

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

Basic

 

 

66,318

 

 

 

66,530

 

Diluted

 

 

67,291

 

 

 

67,747

 

Earnings per share:

 

 

 

 

 

 

Basic

$

0.01

 

 

$

0.17

 

Diluted

 

0.01

 

 

 

0.17

 

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

 

3


 

Cars.com Inc.

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

 

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Net income

$

784

 

 

$

11,479

 

Other comprehensive loss, net of tax:

 

 

 

 

 

Foreign currency translation adjustments

 

(738

)

 

 

 

Total other comprehensive loss, net of tax

 

(738

)

 

 

 

Comprehensive income

$

46

 

 

$

11,479

 

 

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

4


 

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

 

 

Income

 

 

Equity

 

Balance at December 31, 2023

 

 

 

$

 

 

 

65,929

 

 

$

659

 

 

$

1,500,232

 

 

$

(1,009,734

)

 

$

951

 

 

$

492,108

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

784

 

 

 

 

 

 

784

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(738

)

 

 

(738

)

Repurchases of common stock

 

 

 

 

 

 

 

(533

)

 

 

(5

)

 

 

(9,490

)

 

 

 

 

 

 

 

 

(9,495

)

Shares issued in connection with
   stock-based compensation plans, net

 

 

 

 

 

 

 

832

 

 

 

8

 

 

 

(8,365

)

 

 

 

 

 

 

 

 

(8,357

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

7,148

 

 

 

 

 

 

 

 

 

7,148

 

Balance at March 31, 2024

 

 

 

$

 

 

 

66,228

 

 

$

662

 

 

$

1,489,525

 

 

$

(1,008,950

)

 

$

213

 

 

$

481,450

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Stockholders'

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Equity

 

Balance at December 31, 2022

 

 

 

$

 

 

 

66,287

 

 

$

662

 

 

$

1,511,944

 

 

$

(1,128,176

)

 

$

 

 

$

384,430

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,479

 

 

 

 

 

 

11,479

 

Repurchases of common stock

 

 

 

 

 

 

 

(413

)

 

 

(4

)

 

 

(7,170

)

 

 

 

 

 

 

 

 

(7,174

)

Shares issued in connection with
   stock-based compensation plans, net

 

 

 

 

 

 

 

976

 

 

 

10

 

 

 

(9,807

)

 

 

 

 

 

 

 

 

(9,797

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

6,049

 

 

 

 

 

 

 

 

 

6,049

 

Balance at March 31, 2023

 

 

 

$

 

 

 

66,850

 

 

$

668

 

 

$

1,501,016

 

 

$

(1,116,697

)

 

$

 

 

$

384,987

 

 

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

 

 

5


 

Cars.com Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

784

 

 

$

11,479

 

Adjustments to reconcile Net income to Net cash provided by operating activities:

 

 

 

 

 

 

Depreciation

 

 

6,360

 

 

 

4,884

 

Amortization of intangible assets

 

 

21,005

 

 

 

19,158

 

Changes in fair value of contingent consideration

 

 

2,554

 

 

 

(8,259

)

Stock-based compensation

 

 

7,074

 

 

 

5,982

 

Deferred income taxes

 

 

4,426

 

 

 

(228

)

Provision for doubtful accounts

 

 

741

 

 

 

447

 

Amortization of debt issuance costs

 

 

738

 

 

 

781

 

Unrealized loss on foreign currency denominated transactions

 

 

1,009

 

 

 

 

Amortization of deferred revenue related to AccuTrade acquisition

 

 

 

 

 

(883

)

Other, net

 

 

217

 

 

 

134

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(1,155

)

 

 

(6,552

)

Prepaid expenses and other assets

 

 

(5,531

)

 

 

(3,039

)

Accounts payable

 

 

3,294

 

 

 

(859

)

Accrued compensation

 

 

(13,585

)

 

 

(6,904

)

Other liabilities

 

 

5,537

 

 

 

12,000

 

Net cash provided by operating activities

 

 

33,468

 

 

 

28,141

 

Cash flows from investing activities:

 

 

 

 

 

 

     Capitalization of internally developed technology

 

 

(5,305

)

 

 

(5,172

)

     Purchase of property and equipment

 

 

(708

)

 

 

(199

)

Net cash used in investing activities

 

 

(6,013

)

 

 

(5,371

)

Cash flows from financing activities:

 

 

 

 

 

 

     Payments of Revolving Loan borrowings and long-term debt

 

 

(10,000

)

 

 

(18,750

)

     Payments for stock-based compensation plans, net

 

 

(8,357

)

 

 

(9,797

)

     Repurchases of common stock

 

 

(9,096

)

 

 

(7,100

)

     Payments of contingent consideration

 

 

(7,750

)

 

 

 

Net cash used in financing activities

 

 

(35,203

)

 

 

(35,647

)

Effect of exchange rate changes on Cash and cash equivalents

 

 

(87

)

 

 

 

Net decrease in Cash and cash equivalents

 

 

(7,835

)

 

 

(12,877

)

Cash and cash equivalents at beginning of period

 

 

39,198

 

 

 

31,715

 

Cash and cash equivalents at end of period

 

$

31,363

 

 

$

18,838

 

Supplemental cash flow information:

 

 

 

 

 

 

Cash paid for income taxes

 

$

1,168

 

 

$

96

 

Cash paid for interest

 

 

2,566

 

 

 

1,486

 

 

 

 

 

 

 

 

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

6


 

Cars.com Inc.

Notes to the Consolidated Financial Statements

(Unaudited)

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

 

Description of Business. Cars.com Inc., d/b/a Cars Commerce Inc. (the "Company" or "Cars Commerce") is an audience-driven technology company empowering the automotive industry. The Company simplifies everything about car buying and selling with powerful products, solutions and AI-driven technologies that span pretail, retail and post-sale activities – enabling more efficient and profitable retail operations. The Cars Commerce platform is organized around four industry-leading brands: the flagship automotive marketplace and dealer reputation site Cars.com, award-winning digital retail technology and marketing services from Dealer Inspire, essential trade-in and appraisal technology from AccuTrade, and exclusive in-market media solutions from the Cars Commerce Media Network.

 

Basis of Presentation. The 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, 2023, which are included in the Company's Annual Report on Form 10-K as filed with the SEC on February 22, 2024 (the "December 31, 2023 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, 2023 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, 2024 are not necessarily indicative of results that may be expected for the year ending December 31, 2024.

 

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

 

Reclassifications. Certain prior year balances have been reclassified to conform to the current year presentation.

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

 

NOTE 2. Revenue

 

Revenue Summary. The Company's Consolidated Statements of Income provide disaggregated revenue information that reflects the nature, timing, amount and uncertainty of cash flows related to the Company's revenue. Substantially all revenue was generated and located within the U.S. The Company's disaggregated revenue information is as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Dealer

 

$

161,815

 

 

$

149,843

 

OEM and National

 

 

15,307

 

 

 

13,543

 

Other

 

 

3,054

 

 

 

3,682

 

Total revenue

 

$

180,176

 

 

$

167,068

 

 

7


Cars.com Inc.

Notes to the Consolidated Financial Statements (continued)

(Unaudited)

 

NOTE 3. Business Combinations

 

D2C Acquisition. On November 1, 2023, the Company acquired all of the outstanding stock of D2C Media Inc. and EZResults Inc. (collectively, the "D2C Acquisition"), a leading provider of website and digital advertising solutions in Canada for $79.8 million total purchase consideration.

 

The Company expensed as incurred total acquisition costs of $0.1 million during the quarter ended March 31, 2024. These costs were recorded in General and administrative expenses in the Consolidated Statements of Income.

 

As part of the D2C Acquisition, the Company may be required to pay a cash earnout of up to an additional CAD$35.0 million (approximately USD$25.9 million as of March 31, 2024). The payment is not included in the total purchase consideration and is deemed compensation expense, as the potential cash compensation is to former equity holders who became employees and will be forfeited if employment is terminated prior to the end of the earnout period. The amount to be paid will be determined by the acquired business’ future achievement of certain revenue-related financial targets through December 31, 2025 and expensed over each performance period. The Company may expense up to CAD$15.0 million (approximately USD$11.1 million as of March 31, 2024) associated with the remaining portion of the earnout for each of the years ending December 31, 2024 and 2025.

 

Preliminary Purchase Price Allocation. The preliminary fair values assigned to the tangible and intangible assets acquired and liabilities assumed were determined based on management’s estimates and assumptions, as well as other information compiled by management, including third-party valuations that utilize customary valuation procedures and techniques, such as the multi-period excess earnings and the relief of royalty methods. The preliminary fair values of all assets acquired and liabilities assumed are subject to change within the one-year measurement period. The preliminary D2C Acquisition purchase price allocation is as follows (in thousands):

 

 

 

Preliminary
Acquisition-date
Fair Value

 

Cash consideration

 

$

79,841

 

 

 

 

Cash and cash equivalents

 

$

3,673

 

Accounts receivable

 

 

4,640

 

Other assets acquired (1)

 

 

1,378

 

Identified intangible assets (2)

 

 

38,967

 

     Total assets acquired

 

 

48,658

 

Accounts payable and accrued liabilities

 

 

(1,698

)

Other liabilities assumed (3)

 

 

(815

)

Deferred tax liabilities, net

 

 

(8,558

)

     Total liabilities assumed

 

 

(11,071

)

Net identifiable assets

 

 

37,587

 

Goodwill

 

 

42,254

 

Total purchase consideration

 

$

79,841

 

 

(1) Other assets acquired primarily consists of property and equipment, operating lease right of use assets and other prepaid expenses.

 

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

 

 

Preliminary Acquisition-Date Fair Value
(in thousands)

 

 

Amortization Period
(in years)

Customer relationships

 

$

29,153

 

 

14

Acquired software

 

 

9,092

 

 

5

Trade name

 

 

722

 

 

5

Total

 

$

38,967

 

 

 

(3) Other liabilities assumed primarily consists of operating lease right of use liabilities and income taxes payable.

8


Cars.com Inc.

Notes to the Consolidated Financial Statements (continued)

(Unaudited)

 

A reconciliation of cash consideration to Payment for acquisitions, net of cash acquired related to the D2C Acquisition in the Consolidated Statements of Cash Flows as of December 31, 2023 is as follows (in thousands):

 

Cash consideration

 

$

79,841

 

Less: Cash acquired

 

 

(3,673

)

Total payment for D2C Media, net

 

$

76,168

 

Goodwill. In connection with the D2C Acquisition, the Company recorded goodwill in the amount of $42.3 million, which is primarily attributable to expected sales growth from existing and future customers, product offerings, technology and the value of the acquired assembled workforce. All of the goodwill is considered non-deductible for income tax purposes.

The D2C Acquisition would have had an immaterial impact on the Company’s Consolidated Financial Statements for the three months ended March 31, 2023.

 

NOTE 4. Fair Value Measurements

 

The Company's liabilities measured at fair value on a recurring basis consisted of the following (in thousands):

 

 

 

 

 

Fair value measurement at reporting date

 

 

Total as of
March 31, 2024

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Contingent consideration

$

56,212

 

 

$

 

 

$

 

 

$

56,212

 

Total

$

56,212

 

 

$

 

 

$

 

 

$

56,212

 

 

 

 

 

 

Fair value measurement at reporting date

 

 

Total as of
December 31, 2023

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Contingent consideration

$

61,408

 

 

$

 

 

$

 

 

$

61,408

 

Total

$

61,408

 

 

$

 

 

$

 

 

$

61,408

 

 

The roll-forward of the Level 3 contingent consideration from December 31, 2023 is as follows (in thousands):

 

 

As of
December 31, 2023

 

 

Payment of Contingent Consideration

 

 

Fair Value
Adjustment
(1)

 

 

As of
March 31, 2024

 

Contingent consideration

$

61,408

 

 

$

(7,750

)

 

$

2,554

 

 

$

56,212

 

 

(1)
Fair value adjustments on contingent considerations are reflected within Other (expense) income, net in the Consolidated Statements of Income.

 

The Company reviews and reassesses the estimated fair value of contingent consideration liabilities at each reporting period and the updated fair value could differ materially from the initial estimates. The Company recorded a contingent consideration liability at its estimated fair value at the date of acquisition based on expected future payment. The Company measures contingent consideration recognized in connection with acquisitions at fair value on a recurring basis using significant unobservable inputs classified as Level 3 inputs. The fair value measurement has one significant input of projected financial information. Significant increases or decreases to this input in isolation could result in a significantly higher or lower liability. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate on the acquisition date and each reporting period and the amount paid will be recognized in earnings. Payments of contingent consideration reduce the corresponding liability, which was recorded upon acquisition and measured on a recurring basis as discussed above.

 

The Company's contingent consideration obligations arise from acquisitions that involve a potential future payment of consideration that is contingent upon the achievement of certain financial or operational metrics. The contingent consideration is classified on the Consolidated Balance Sheets based on expected payment dates. As of March 31, 2024, $16.4 million and $39.8 million were included within Other accrued liabilities and Other noncurrent liabilities on the Consolidated Balance Sheets, respectively. As of December 31, 2023, $25.8 million and $35.6 million were included within Other accrued liabilities and Other noncurrent liabilities on the Consolidated Balance Sheets, respectively. For information related to the contingent consideration agreements, see Note 3 (Business Combinations) in Part II, Item 8., "Financial Statements and Supplementary Data", of the Company's Annual Report on Form 10-K for the year ended

9


Cars.com Inc.

Notes to the Consolidated Financial Statements (continued)

(Unaudited)

 

December 31, 2023 as filed with the SEC on February 22, 2024. The Company expects to make the remaining payments on the contingent consideration in 2024 and 2025.

 

NOTE 5. Debt

 

As of March 31, 2024, the Company was in compliance with the covenants under its debt agreements. The Company’s borrowings are limited by its Senior Secured Leverage Ratio and Consolidated Interest Coverage Ratio, among other factors, which are calculated in accordance with the Company's Credit Agreement, and were 0.4x and 6.3x, respectively, as of March 31, 2024.

 

Term Loan. As of March 31, 2024, the outstanding principal amount under the Term Loan was $45.0 million and the interest rate in effect was 7.4%. During the three months ended March 31, 2024, the Company made $10.0 million in Term Loan payments.

 

Revolving Loan. As of March 31, 2024, $195.0 million was available to borrow under the Revolving Loan. The Company had $35.0 million of outstanding borrowings as of March 31, 2024 and had no payments or drawdowns on the Revolving Loan during the three months ended March 31, 2024.

 

Fourth Amendment to the Credit Agreement. In the second quarter of 2023, the Company entered into an amendment (the "Fourth Amendment") to the Credit Agreement. The Fourth Amendment, among other things, memorializes certain terms of the Credit Agreement to replace the relevant benchmark provisions from the London Interbank Offered Rate ("LIBOR") to the Secured Overnight Financing Rate ("SOFR") and makes certain other conforming and mechanical changes. This amendment also included a more favorable credit spread adjustment. Except as modified by the Fourth Amendment, the existing terms of the Credit Agreement remain in effect.

 

Fifth Amendment to the Credit Agreement. On May 6, 2024, the Company entered into an amendment to the Credit Agreement. For further information, see Note 11 (Subsequent Event) below.

 

Senior Unsecured Notes. In October 2020, the Company issued $400.0 million aggregate principal amount of 6.375% Senior Unsecured Notes due in 2028. Interest on the notes is due semi-annually on May 1 and November 1.

 

Fair Value. The Company's debt is classified as Level 2 in the fair value hierarchy and the fair value is measured based on comparable trading prices, ratings, sectors, coupons and maturities of similar instruments. The approximate fair value and related carrying value of the Company's outstanding indebtedness, as of March 31, 2024 and December 31, 2023 were as follows (in millions):

 

 

March 31, 2024

 

 

December 31, 2023

 

Fair value

$

467.0

 

 

$

470.9

 

Carrying value

 

480.0

 

 

 

490.0

 

 

NOTE 6. Commitments and Contingencies

 

From time to time, the Company and its subsidiaries may become involved in actions, claims, suits or other legal or administrative proceedings arising in the ordinary course of business. 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 commitments and contingencies 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 the opinion of management, the Company is not currently involved in any pending or threatened litigation or claim that if determined adversely against the Company, individually or in the aggregate, would have a material adverse impact on the Company’s financial position, results of operations or cash flows.

 

NOTE 7. Stockholders' Equity

 

On February 24, 2022, the Company announced that its Board of Directors authorized a three-year share repurchase program to acquire up to $200 million of the Company's common stock. The Company may repurchase shares from time to time in open market transactions or through privately negotiated transactions in accordance with applicable federal securities laws and other applicable legal requirements. The timing and amounts of any purchases under the share repurchase program will be based on market conditions and other factors, including price. The repurchase program may be suspended or discontinued at any time and does not obligate the Company to repurchase any specific amount or number of shares. The Company funds the share repurchase program principally with cash from operations. During the three months ended March 31, 2024, the Company repurchased and subsequently retired 0.5 million shares for

10


Cars.com Inc.

Notes to the Consolidated Financial Statements (continued)

(Unaudited)

 

$9.5 million at an average price paid per share of $17.83. During the three months ended March 31, 2023, the Company repurchased and subsequently retired 0.4 million shares for $7.2 million at an average price paid per share of $17.38.

 

NOTE 8. Stock-Based Compensation

 

Restricted Share Units ("RSUs"). RSUs represent the right to receive unrestricted shares of the Company’s common stock at the time of vesting, subject to any restrictions as specified in the individual holder’s award agreement. RSUs are subject to graded vesting, generally ranging between one and three years and the fair value of the RSUs is equal to the Company's common stock price on the date of grant. RSU activity for the three months ended March 31, 2024 is as follows (in thousands, except for weighted-average grant date fair value):

 

 

 

Number
of RSUs

 

 

Weighted-Average
Grant Date
Fair Value

 

Outstanding as of December 31, 2023 (1)

 

 

3,725

 

 

$

15.67

 

Granted

 

 

1,668

 

 

 

16.94

 

Vested and delivered

 

 

(1,283

)

 

 

15.70

 

Forfeited

 

 

(85

)

 

 

15.64

 

Outstanding as of March 31, 2024 (1)

 

 

4,025

 

 

$

16.19

 

 

(1)
Includes 358 RSUs that were vested, but not yet delivered.

 

Performance Share Units ("PSUs"). PSUs represent the right to receive unrestricted shares of the Company’s common stock at the time of vesting. The fair value of the PSUs is equal to the Company’s common stock price on the date of grant. Expense related to PSUs is recognized when the performance conditions are probable of being achieved. The percentage of PSUs that shall vest 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 three-year performance period. These PSUs are subject to cliff vesting after the end of the respective performance period. PSU activity for the three months ended March 31, 2024 is as follows (in thousands, except for weighted-average grant date fair value):

 

 

 

Number
of PSUs

 

 

Weighted-Average
Grant Date
Fair Value

 

Outstanding as of December 31, 2023

 

 

512

 

 

$

15.66

 

Granted

 

 

282

 

 

 

16.94

 

Vested and delivered

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

Outstanding as of March 31, 2024

 

 

794

 

 

$

16.12

 

 

Stock Options. Stock options represent the right to purchase shares of the Company’s common stock at the time of vesting, subject to any restrictions as specified in the individual holder’s award agreement. Stock options are subject to three-year cliff vesting and expire 10 years from the grant date. Stock option activity for the three months ended March 31, 2024 is as follows (in thousands, except for weighted-average grant date fair value and weighted-average remaining contractual term):

 

 

 

Number of Options

 

 

Weighted-Average
Grant Date
Fair Value

 

 

Weighted-Average Remaining Contractual Term (in years)

 

 

Aggregate
Intrinsic Value

 

Outstanding as of December 31, 2023

 

 

1,067

 

 

$

6.28

 

 

 

6.98

 

 

$

9,096

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding as of March 31, 2024

 

 

1,067

 

 

$

6.28

 

 

 

6.73

 

 

$

7,186

 

Exercisable as of March 31, 2024

 

 

804

 

 

$

5.27

 

 

 

6.33

 

 

$

6,631

 

 

11


Cars.com Inc.

Notes to the Consolidated Financial Statements (continued)

(Unaudited)

 

NOTE 9. Earnings Per Share

 

Basic earnings per share is calculated by dividing Net income by the weighted-average number of shares of the Company's common stock outstanding. Diluted earnings per share is similarly calculated, except that the calculation includes the dilutive effect of the assumed issuance of shares under stock-based compensation plans, unless the inclusion of such shares would have an anti-dilutive impact. As part of the AccuTrade acquisition, the Company may pay up to $15.0 million of the contingent consideration in shares of the Company's common stock at a future date. Those potential shares have been excluded from the computations below because they are contingently issuable shares, and the contingency to which the issuance relates was not met at the end of the reporting period. The computation of Earnings per share is as follows (in thousands, except per share data):

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Net income

 

$

784

 

 

$

11,479

 

Basic weighted-average common shares outstanding

 

 

66,318

 

 

 

66,530

 

Effect of dilutive stock-based compensation awards (1)

 

 

973

 

 

 

1,217

 

Diluted weighted-average common shares outstanding

 

 

67,291

 

 

 

67,747

 

Earnings per share, basic

 

$

0.01

 

 

$

0.17

 

Earnings per share, diluted

 

 

0.01

 

 

 

0.17

 

 

(1)
There were 1,416 and 554 potential common shares excluded from diluted weighted-average common shares outstanding for the three months ended March 31, 2024 and 2023, respectively, as their inclusion would have had an anti-dilutive effect.

 

NOTE 10. Income Taxes

 

Deferred Tax Asset and Valuation Allowance. Prior to June 30, 2023, the Company concluded a valuation allowance was required against its deferred tax assets. In reaching this conclusion, in accordance with U.S. GAAP, the Company evaluated all available evidence, both positive and negative, and determined that the Company’s history of recent losses, primarily due to the goodwill and indefinite-lived intangible asset impairments, was significant negative evidence to require a valuation allowance. Therefore, the Company recorded a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized in future periods. At each reporting date, the Company evaluates the realizability of its deferred tax assets to determine whether a valuation allowance is warranted.

As of June 30, 2023, the Company evaluated all available evidence and determined that the Company's recent performance and future projections enabled the Company to release a significant portion of the Company's valuation allowance that was previously recorded. There was no change to the Company’s position or valuation allowance balance during the three months ended March 31, 2024.

 

Effective Tax Rate. The effective income tax rate, expressed by calculating the Income tax expense as a percentage of income before income tax, differed from the statutory federal income tax rate of 21%, primarily due to the tax benefits realized on stock-based compensation, as well as tax credits, partially offset by the tax impact of non-deductible contingent consideration and earnouts.

 

NOTE 11. Subsequent Event

 

On May 6, 2024, the Company amended and extended its existing Credit Agreement which resulted in a new $350.0 million Revolving Loan due in 2029. Upon closing, the Company borrowed $80.0 million on the new Revolving Loan to pay off and extinguish the existing Term Loan and Revolving Loan balances. Additionally, as part of this amendment, the SOFR floor was removed and the financial covenant leverage test changed to Net Senior Secured Leverage from Senior Secured Leverage, among other things, as defined in Exhibit 10.1, Fifth Amendment to Credit Agreement in Part II, Item 6., "Exhibits" of this Quarterly Report on Form 10-Q.

12


 

Note About Forward-Looking Statements

 

This report contains "forward-looking statements" within the meaning of the federal securities laws. All statements other than statements of historical facts are forward-looking statements. These statements often use words such as "believe," "expect," "project," "anticipate," "outlook," "intend," "strategy," "plan," "estimate," "target," "seek," "will," "may,' "would," "should," "could," "forecasts," "mission," "strive," "more," "goal" or similar expressions. Forward-looking statements are based on our current expectations, beliefs, strategies, estimates, projections and assumptions, experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments, global supply chain shortages, fluctuating fuel prices, rising interest rates, inflation and other factors we think are appropriate. Such forward-looking statements are based on estimates and assumptions that, while considered reasonable by the Company and its management based on their knowledge and understanding of the business and industry, are inherently uncertain. While the Company and its management make such statements in good faith and believe such judgments are reasonable, you should understand that these statements are not guarantees of future strategic action, performance or results. Our actual results, performance, achievements, strategic actions or prospects could differ materially from those expressed or implied by these forward-looking statements. Given these uncertainties, you should not rely on forward-looking statements in making investment decisions. When we make comparisons of results between current and prior periods, we do not intend to express any future trends, or indications of future performance, unless expressed as such, and you should only view such comparisons as historical data. Forward-looking statements are subject to a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results and strategic actions to differ materially from those expressed in the forward-looking statements contained in this report. Factors that might cause such differences include, but are not limited to:

 

Our business is subject to risks related to the larger automotive ecosystem, including consumer demand, direct-to-consumer sales models and other macroeconomic issues.
Market acceptance of and influence over certain of our products and services is concentrated with a limited number of automobile OEMs and dealership associations and we may not be able to maintain or grow these relationships.
Dealer closures or consolidation among dealers or OEMs could reduce demand for, and negatively affect the pricing of, our marketing and solutions offerings, thereby leading to decreased earnings.
Our business depends on our strong brand recognition, and any failure to maintain, protect and enhance our brands could hurt our ability to retain or expand our base of consumers, dealers and customers, and our ability to increase the frequency with which consumers, dealers and customers use our services.
Our increased operations in Canada involve risks that may differ from, or are in addition to, our domestic operational risks.
We rely in part on Internet search engines and mobile application stores to drive traffic to the Cars.com properties and increase downloads of our mobile applications. If the Cars.com properties and mobile applications fail to appear prominently in these search results, traffic to the Cars.com properties and mobile applications would decline and our business, results of operations or financial condition may be materially and adversely affected.
We rely on in-house content creation and development to drive organic traffic to the Cars.com properties and mobile applications.
Certain of our third-party service providers are highly regulated financial institutions, and the federal and state laws related to financial services could have a direct or indirect materially adverse effect on our business.
Our business may be affected by climate change, including physical risks and regulatory changes that may increase our operating costs and impact our ability to deliver services to our customers.
Expectations relating to environmental, social and governance considerations expose Cars Commerce to potential liabilities, increased costs, reputational harm and other adverse effects on the Company’s business.
We participate in a highly competitive market, and pressure from existing and new competitors may materially and adversely affect our business, results of operations or financial condition.
We compete with other consumer automotive websites and mobile applications and other digital content providers for share of automotive-related digital display advertising spending and may be unable to maintain or grow our base of advertising customers or increase our revenue from existing customers.
If we do not adapt to automated buying strategies, our display advertising revenue could be adversely affected.
We may face difficulties in developing and launching new solution offerings or growing our complementary offerings that help automotive brands and dealers create enduring customer relationships.

13


 

Strategic acquisitions, investments and partnerships could pose various risks, including integration risks, increase our leverage, dilute existing stockholders and significantly impact our ability to expand our overall profitability.
The value of our assets or operations may be diminished if our information technology systems fail to perform adequately.
Our business is dependent on keeping pace with advances in technology. If we are unable to keep pace with advances in technology, consumers and customers may stop using our services and our revenue may decrease.
We rely on third-party service providers for many aspects of our business, including inventory information and sales of our product through social media, and interruptions in the services or data they provide or any failure to maintain these relationships could harm our business.
We rely on technology systems’ availability and ability to prevent unauthorized access. If our security and resiliency measures fail to prevent incidents, it could result in damage to our reputation, incur costs and create liabilities.
We rely on third-party services to track and calculate certain of our key metrics, including unique visitors and traffic and any errors or interruptions in the services or data they provide or any failure to maintain these relationships could harm our business.
If the use of third-party cookies or other tracking technologies is rejected by Internet browsers or service providers or users, restricted, blocked, or subject to unfavorable laws or regulations, the amount of Internet user information would decrease, which may harm our business and operating results.
Our ability to attract and retain customers depends on our ability to collect and use data and develop tools to enable us to effectively deliver and accurately measure advertisements on our platform.
Uncertainty exists in the application and interpretation of various laws and regulations related to our business, including privacy laws. New privacy concerns or laws or regulations applicable to our business, or the expansion or interpretation of existing laws and regulations that apply to our business, could reduce the effectiveness of our offerings or subject us to use restrictions, licensing requirements, claims, judgments and remedies including sales and use taxes, other monetary liabilities and limitations on our business practices, and could increase administrative costs.
Misappropriation or infringement of our intellectual property and proprietary rights, enforcement actions to protect our intellectual property and claims from third parties relating to intellectual property could materially and adversely affect our business, results of operations or financial condition.
We have a limited history of operating with a virtual first workforce and the long-term impact on our financial results and business operations is uncertain.
Our ability to operate effectively could be impaired if we fail to attract and retain our key employees.
Adverse results from litigation or governmental investigations could impact our business practices and operating results.
The value of our existing goodwill and intangible assets may become impaired depending upon future operating results.
We cannot assure our stockholders that our share repurchase program will enhance long-term stockholder value and stock repurchases, if any, could increase the volatility of the price of our common stock and will diminish our cash reserves.
We do not expect to pay any cash dividends for the foreseeable future.
Your percentage of ownership in the Company may be diluted in the future.
Certain provisions of our Amended and Restated Certificate of Incorporation, By-laws and Delaware law may discourage takeovers and limit our ability to use, acquire, or develop certain competing businesses.
Our Amended and Restated Certificate of Incorporation designates the state courts of the State of Delaware, or, if no state court located in the State of Delaware has jurisdiction, the federal court for the District of Delaware, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could discourage lawsuits against us and our directors and officers.
Our business could be negatively affected as a result of actions of activist stockholders, and such activism could impact the trading value of our common stock.
Our debt agreements contain restrictions that may limit our flexibility in operating our business.
Increases in interest rates could increase interest payable under our variable rate indebtedness.
Our debt levels could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, inhibit us from making beneficial acquisitions, adversely impact our ability to implement

14


 

our capital allocation strategy and prevent us from making debt service payments. In addition, changing or increasing interest rates, including the rates under our debt agreements, could adversely affect our business or financial condition.

 

For a detailed discussion of these risks and uncertainties, see "Part I, Item 1A., Risk Factors" and "Part II, Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 22, 2024 and our other filings filed with the SEC. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking statement. The forward-looking statements in this report are intended to be subject to the safe harbor protection provided by the federal securities laws.

 

 

15


 

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

 

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

 

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

 

Business Overview

 

Cars Commerce is an audience-driven technology company empowering the automotive industry. We simplify everything about car buying and selling with powerful products, solutions and AI-driven technologies that span pretail, retail and post-sale activities – enabling more efficient and profitable retail operations. The Cars Commerce platform is organized around four industry-leading brands: our flagship automotive marketplace and dealer reputation site Cars.com, award-winning digital retail technology and marketing services from Dealer Inspire, essential trade-in and appraisal technology from AccuTrade, and exclusive in-market media solutions from the Cars Commerce Media Network.

 

Overview of Results

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

Revenue

 

$

180,176

 

 

$

167,068

 

Net income

 

 

784

 

 

 

11,479

 

 

Key Operating Metrics

 

We regularly review a number of key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make operating and strategic decisions. Key Operating Metrics are as follows (in thousands, except for Dealer Customers, Monthly Average Revenue Per Dealer and percentages):

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

2024

 

 

2023

 

 

% Change

 

Traffic

 

 

171,438

 

 

 

164,782

 

 

 

4

%

Average Monthly Unique Visitors

 

 

28,332

 

 

 

28,478

 

 

 

(1

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2024

 

 

March 31, 2023

 

 

% Change

 

 

December 31, 2023

 

 

QoQ
% Change

 

Dealer Customers

 

 

19,381

 

 

 

19,186

 

 

 

1

%

 

 

19,504

 

 

 

(1

)%

Monthly Average Revenue Per Dealer

 

$

2,505

 

 

$

2,386

 

 

 

5

%

 

$

2,523

 

 

 

(1

)%

 

Average Monthly Unique Visitors ("UVs") and Traffic ("Visits"). UVs and Traffic are fundamental to our business. They are indicative of our consumer reach and the level of engagement consumers have with our platform. Although our consumer engagement does not directly result in revenue, we believe our ability to reach in-market car shoppers is attractive to our dealers, OEMs and national customers and a primary reason they do business with us. We believe we have achieved audience scale as measured by UVs and Traffic, and we drive increased Traffic through a combination of continued growth in UVs and higher repeat visitation and engagement. Traffic increases can result in increased impressions, clicks and other connections that we can ultimately monetize through our products and services.

 

We define UVs in a given month as the number of distinct visitors that engage with our platform during that month. Visitors are identified when a user first visits an individual Cars.com property on an individual device/browser combination or installs one of our mobile apps on an individual device. If a visitor accesses more than one of our web properties or apps or uses more than one device or browser, each of those unique property/browser/app/device combinations counts toward the number of UVs. Traffic is defined as the number of visits to Cars.com desktop and mobile properties (responsive sites and mobile apps). We measured UVs and Traffic via Adobe Analytics through the year ended December 31, 2023. As of January 1, 2024, we now measure UVs and Traffic via RudderStack, which we believe better aligns to our product and technology platform and provides improved visibility into our UVs and Traffic. Prior period UVs and

16


 

Traffic information has not been recast, as it is impracticable to do so. These metrics do not include traffic to Dealer Inspire or D2C Media websites.

 

UVs declined modestly for the three months ended March 31, 2024. We believe that though consumer demand remains strong, there is less urgency to purchase vehicles given rising new vehicle inventory levels, continued elevated prices and higher interest rates. During the three months ended March 31, 2024, Traffic increased 4%, primarily driven by the shift to RudderStack and higher repeat visitation, partially offset by the reduced consumer urgency.

 

Dealer Customers. Dealer Customers represent dealerships using our products as of the end of each reporting period. Each physical or virtual dealership location is counted separately, whether it is a single-location proprietorship or part of a large, consolidated dealer group. Multi-franchise dealerships at a single location are counted as one dealer. Beginning with the quarter ended December 31, 2023, this key operating metric includes D2C Media.

 

Dealer Customers increased 1% from March 31, 2023. The change in year-over-year dealer customers was primarily due to the inclusion of 950 D2C Media customers as of December 31, 2023, offset by the anticipated churn from our 2023 marketplace repackaging initiative and a pull back by digital dealers in previous quarters.

 

Dealer Customers decreased 1% from December 31, 2023. The change from December 31, 2023 is primarily due to higher cancellations of marketplace customers which we believe is influenced by higher flooring expense for our dealer customers as well as the impact of continued higher interest rates.

 

Monthly Average Revenue Per Dealer ("ARPD"). We believe that our ability to grow ARPD is an indicator of the value proposition of our platform. We define ARPD as Dealer revenue, excluding digital advertising services, during the period divided by the monthly average number of Dealer Customers during the same period. Beginning December 31, 2023, this key operating metric includes D2C Media.

 

For the three months ended March 31, 2024, ARPD increased 5% compared to the three months ended March 31, 2023. The increase from March 31, 2023 was primarily driven by the marketplace repackaging initiative, including the adoption of higher tier packages, slightly offset by the inclusion of D2C Media customers, who have a lower ARPD.

 

For the three months ended March 31, 2024, ARPD decreased 1% compared to the three months ended December 31, 2023. The decrease from December 31, 2023 was primarily driven by the impact of one additional month of D2C Media for the three months ended March 31, 2024.

 

Factors Affecting Our Performance. Our business is impacted by changes in the larger automotive ecosystem, including supply and demand for new and used vehicle inventory, supply chain disruptions, semiconductor shortages, vehicle acquisition cost, vehicle retail prices, electric vehicle adoption, employee retention and changes related to automotive advertising, among other macroeconomic factors including inflation and interest rates. Changes in vehicle sales volumes in the United States and Canada also influence OEMs’ and dealerships’ willingness to increase investments in technology solutions and automotive marketplaces like Cars.com and could impact our pricing strategies and/or revenue mix.

Our long-term success will depend in part on our ability to continue to execute our platform strategy including continuing to create the most engaged in-market audience, growing our dealer customers, expanding our relationship with dealers through greater adoption of our platform, unlocking the cross-sell, transforming our OEM relationships and creating platform advantages. We believe our core strategic strengths, including our powerful family of brands, growing high-quality audience and suite of digital solutions for advertisers, including AI-based tools, will assist us as we navigate a rapidly changing automotive environment. Additionally, we are focused on equipping our customers with digital solutions to enable them to compete in an environment in which an increasing number of car-buying customers are shopping online. These solutions include online chat, vehicle financing, appraisal and valuation, instant guaranteed offer capabilities and logistics technology. The foundation of our continued success is the value we deliver to customers, and we believe that our large audience of in-market car shoppers and innovative solutions deliver significant value to our customers.

 

17


 

Results of Operations

 

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

(In thousands, except percentages)

 

2024

 

 

2023

 

 

$ Change

 

 

% Change

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

  Dealer

 

$

161,815

 

 

$

149,843

 

 

$

11,972

 

 

 

8

%

  OEM and National

 

 

15,307

 

 

 

13,543

 

 

 

1,764

 

 

 

13

%

  Other

 

 

3,054

 

 

 

3,682

 

 

 

(628

)

 

 

(17

)%

       Total revenue

 

 

180,176

 

 

 

167,068

 

 

 

13,108

 

 

 

8

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

  Cost of revenue and operations

 

 

29,962

 

 

 

29,795

 

 

 

167

 

 

 

1

%

  Product and technology

 

 

28,085

 

 

 

24,101

 

 

 

3,984

 

 

 

17

%

  Marketing and sales

 

 

59,163

 

 

 

58,297

 

 

 

866

 

 

 

1

%

  General and administrative

 

 

22,857

 

 

 

18,304

 

 

 

4,553

 

 

 

25

%

  Depreciation and amortization

 

 

27,365

 

 

 

24,042

 

 

 

3,323

 

 

 

14

%

     Total operating expenses

 

 

167,432

 

 

 

154,539

 

 

 

12,893

 

 

 

8

%

        Operating income

 

 

12,744

 

 

 

12,529

 

 

 

215

 

 

 

2

%

Nonoperating expense:

 

 

 

 

 

 

 

 

 

 

 

 

  Interest expense, net

 

 

(8,321

)

 

 

(8,244

)