Cars.com Inc. (NYSE:CARS) Q2 2023 Earnings Conference Call August 3, 2023 9:00 AM ET Company Participants Robbin Moore-Randolph - Director, IR Alex Vetter - CEO Sonia Jain - CFO Conference Call Participants Tom White - D.A. Davidson Marvin Fong - BTIG Rajat Gupta - JPMorgan Gary Prestopino - Barrington Research Operator Good morning, and welcome to the Cars Second Quarter 2023 Earnings Conference Call. This call is being recorded, and a live webcast and the accompanying slides can be found at investor.cars. ...

[PART I. FINANCIAL INFORMATION](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) This section presents Cars.com Inc.'s unaudited interim consolidated financial statements, prepared in conformity with U.S. GAAP and SEC rules for interim reporting [Consolidated Balance Sheets](index=2&type=section&id=Consolidated%20Balance%20Sheets) The Consolidated Balance Sheets present the company's financial position as of June 30, 2023, compared to December 31, 2022 | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------- | :--------------------------- | :------------------------------- | | Total Assets | $1,085,543 | $1,024,870 | | Total Liabilities | $608,086 | $640,440 | | Total Current Assets | $157,309 | $148,627 | | Total Current Liabilities | $120,563 | $106,012 | - Total assets increased by **$60.7 million**, primarily driven by a significant increase in deferred tax assets from **$48 thousand** to **$91.3 million**[44](index=44&type=chunk) - Total liabilities decreased by **$32.3 million**, mainly due to a reduction in long-term debt and other noncurrent liabilities[44](index=44&type=chunk) [Consolidated Statements of Income](index=3&type=section&id=Consolidated%20Statements%20of%20Income) The Consolidated Statements of Income detail the company's revenues, operating expenses, and net income for the three and six months ended June 30, 2023 and 2022 | Metric (in thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | | :-------------------------- | :------------------------------- | :------------------------------- | | Total Revenue | $168,176 | $162,873 | | Total Operating Expenses | $155,842 | $147,488 | | Operating Income | $12,334 | $15,385 | | Income Before Income Taxes | $1,051 | $6,284 | | Income Tax (Benefit) Expense| $(93,075) | $739 | | Net Income | $94,126 | $5,545 | | Basic EPS | $1.41 | $0.08 | | Diluted EPS | $1.37 | $0.08 | | Metric (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------- | :----------------------------- | :----------------------------- | | Total Revenue | $335,244 | $321,080 | | Total Operating Expenses | $310,381 | $294,754 | | Operating Income | $24,863 | $26,326 | | Income Before Income Taxes | $13,575 | $8,103 | | Income Tax (Benefit) Expense| $(92,030) | $(1,782) | | Net Income | $105,605 | $9,885 | | Basic EPS | $1.58 | $0.14 | | Diluted EPS | $1.55 | $0.14 | - Net income for the three and six months ended June 30, 2023, significantly increased primarily due to the release of a substantial portion of the valuation allowance for deferred tax assets[48](index=48&type=chunk)[101](index=101&type=chunk)[121](index=121&type=chunk) [Consolidated Statements of Comprehensive Income](index=4&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) This statement presents net income and other comprehensive income components, leading to total comprehensive income for the periods ended June 30, 2023 and 2022 | Metric (in thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | | :---------------------------------------------------------------------------------- | :------------------------------- | :------------------------------- | | Net income | $94,126 | $5,545 | | Reclassification of Accumulated other comprehensive loss on interest rate swap into Net income | — | $800 | | Total other comprehensive income | — | $800 | | Comprehensive income | $94,126 | $6,345 | | Metric (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :---------------------------------------------------------------------------------- | :----------------------------- | :----------------------------- | | Net income | $105,605 | $9,885 | | Reclassification of Accumulated other comprehensive loss on interest rate swap into Net income | — | $2,002 | | Total other comprehensive income | — | $2,002 | | Comprehensive income | $105,605 | $11,887 | - The reclassification of Accumulated other comprehensive loss on interest rate swap into Net income ceased in 2023 as the swap expired on May 31, 2022[73](index=73&type=chunk) [Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) This statement outlines changes in stockholders' equity for the six months ended June 30, 2023 and 2022 | Metric (in thousands) | Balance at Dec 31, 2022 | Balance at June 30, 2023 | | :-------------------------------------------------- | :---------------------- | :----------------------- | | Stockholders' Equity | $384,430 | $477,457 | | Net income (Q1 2023) | $11,479 | - | | Repurchases of common stock (Q1 2023) | $(7,174) | - | | Stock-based compensation (Q1 2023) | $6,049 | - | | Net income (Q2 2023) | - | $94,126 | | Repurchases of common stock (Q2 2023) | - | $(9,992) | | Stock-based compensation (Q2 2023) | - | $7,608 | - Stockholders' equity increased from **$384.4 million** at December 31, 2022, to **$477.5 million** at June 30, 2023, primarily driven by net income[35](index=35&type=chunk) - The company repurchased **0.9 million shares** for **$17.2 million** during the six months ended June 30, 2023, as part of its share repurchase program[49](index=49&type=chunk)[76](index=76&type=chunk) [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This statement details cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2023 and 2022 | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $56,182 | $42,280 | | Net cash used in investing activities | $(10,569) | $(73,325) | | Net cash (used in) provided by financing activities | $(48,723) | $10,110 | | Net decrease in cash and cash equivalents | $(3,110) | $(20,935) | | Cash and cash equivalents at end of period | $28,605 | $18,134 | - Net cash provided by operating activities increased by **$13.9 million**, primarily due to changes in operating assets and liabilities[154](index=154&type=chunk) - Net cash used in investing activities significantly decreased by **$62.8 million**, mainly due to the payment for the Accu-Trade Acquisition in 2022 not recurring in 2023[50](index=50&type=chunk)[154](index=154&type=chunk) - Net cash used in financing activities was **$48.7 million** in 2023, compared to cash provided of **$10.1 million** in 2022, primarily due to debt repayments and common stock repurchases in 2023, versus Revolving Loan borrowings in 2022[155](index=155&type=chunk) [Notes to the Consolidated Financial Statements (Unaudited)](index=7&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements%20(Unaudited)) These notes provide essential additional information and disclosures for understanding the unaudited interim consolidated financial statements [NOTE 1. Description of Business and Summary of Significant Accounting Policies](index=8&type=section&id=NOTE%201.%20Description%20of%20Business%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note describes Cars.com Inc.'s business, brands, and significant accounting policies applied in preparing the consolidated financial statements - Cars.com Inc. is a leading automotive marketplace platform connecting car shoppers with sellers through digital solutions[12](index=12&type=chunk) - The company's brand portfolio includes Cars.com™, Dealer Inspire®, FUEL™, DealerRater®, CreditIQ®, Accu-Trade™, and NewCars.com®[13](index=13&type=chunk) - The unaudited interim consolidated financial statements are prepared in conformity with U.S. GAAP and SEC rules for interim financial statements, with certain information condensed or omitted[14](index=14&type=chunk) [NOTE 2. Revenue](index=8&type=section&id=NOTE%202.%20Revenue) This note disaggregates revenue by major products and services for the three and six months ended June 30, 2023 and 2022 | Major products and services (in thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | | :----------------------------------------- | :------------------------------- | :------------------------------- | | Subscription advertising and digital solutions | $139,935 | $135,432 | | Display advertising | $23,621 | $20,859 | | Pay per lead | $2,236 | $2,129 | | Other | $2,384 | $4,453 | | Total revenue | $168,176 | $162,873 | | Major products and services (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------------- | :----------------------------- | :----------------------------- | | Subscription advertising and digital solutions | $277,269 | $267,679 | | Display advertising | $47,478 | $41,908 | | Pay per lead | $4,511 | $4,546 | | Other | $5,986 | $6,947 | | Total revenue | $335,244 | $321,080 | - Subscription advertising and digital solutions remain the largest revenue stream, showing consistent growth[19](index=19&type=chunk) [NOTE 3. Business Combinations](index=9&type=section&id=NOTE%203.%20Business%20Combinations) This note details the Accu-Trade Acquisition, including purchase price allocation, identified intangible assets, and goodwill recognized - On March 1, 2022, the Company acquired Accu-Trade, which provides VIN-specific vehicle valuation and appraisal data, instant offer capabilities, and logistics technology[22](index=22&type=chunk) | Purchase Consideration (in thousands) | Fair Value | | :------------------------------------ | :--------- | | Cash consideration | $64,663 | | Other consideration | $5,300 | | Contingent consideration | $23,936 | | Total purchase consideration | $93,899 | | Identified Intangible Assets Acquired (in thousands) | Acquisition-Date Fair Value | Weighted-Average Amortization Period (in years) | | :--------------------------------------------------- | :-------------------------- | :---------------------------------------------- | | Acquired software | $12,926 | 5 | | Trade name | $1,446 | 10 | | Customer relationships | $1,307 | 7 | | Total | $15,679 | | - Goodwill of **$76.9 million** was recorded, primarily attributed to sales growth from existing and future technology, product offerings, customers, and the value of the acquired assembled workforce[6](index=6&type=chunk) [NOTE 4. Fair Value Measurements](index=10&type=section&id=NOTE%204.%20Fair%20Value%20Measurements) This note details the fair value measurement of contingent consideration liabilities, including changes and significant unobservable inputs | Contingent Consideration (in thousands) | As of December 31, 2022 | Adjustment | As of June 30, 2023 | | :-------------------------------------- | :---------------------- | :--------- | :------------------ | | Contingent consideration | $55,871 | $(5,182) | $50,689 | - The fair value of contingent consideration decreased by **$5.2 million** from December 31, 2022, to June 30, 2023[8](index=8&type=chunk) - Contingent consideration is classified as Level 3 in the fair value hierarchy and measured using a Monte Carlo simulation or scenario-based method, with volatility (**25% to 50%**) and projected financial information as significant inputs[26](index=26&type=chunk)[27](index=27&type=chunk) - The Company expects to make payments on contingent consideration in 2023, 2024, and 2025[30](index=30&type=chunk) [NOTE 5. Debt](index=11&type=section&id=NOTE%205.%20Debt) This note provides information on the company's debt instruments, including Term Loan, Revolving Loan, Senior Unsecured Notes, and debt covenant compliance - As of June 30, 2023, the outstanding principal amount under the Term Loan was **$58.8 million** with an interest rate of **7.3%**[70](index=70&type=chunk) - As of June 30, 2023, **$230.0 million** was available to borrow under the Revolving Loan, with the company paying down **$15.0 million** during the six months ended June 30, 2023[71](index=71&type=chunk) - The company issued **$400.0 million** aggregate principal amount of **6.375% Senior Unsecured Notes** due 2028[91](index=91&type=chunk) - In Q2 2023, the Credit Agreement was amended (Fourth Amendment) to replace LIBOR with SOFR as the benchmark provision and included a more favorable credit spread adjustment[90](index=90&type=chunk) - The company was in compliance with all debt covenants as of June 30, 2023[54](index=54&type=chunk) [NOTE 6. Interest Rate Swap](index=11&type=section&id=NOTE%206.%20Interest%20Rate%20Swap) This note discusses the expired interest rate swap, its use in managing interest rate risk, and its financial impact - The interest rate swap expired on May 31, 2022, and is no longer recorded on the Consolidated Balance Sheets[73](index=73&type=chunk) - During the six months ended June 30, 2022, **$2.4 million** was reclassified from Accumulated other comprehensive loss and recorded in Interest expense, net[73](index=73&type=chunk) [NOTE 7. Commitments and Contingencies](index=11&type=section&id=NOTE%207.%20Commitments%20and%20Contingencies) This note addresses the company's involvement in legal proceedings and other commitments and contingencies - The company is not currently involved in any pending or threatened litigation or claims that would have a material adverse impact on its financial position, results of operations, or cash flows[75](index=75&type=chunk) [NOTE 8. Stockholders' Equity](index=12&type=section&id=NOTE%208.%20Stockholders%27%20Equity) This note details the company's share repurchase program and its activity during the period - On February 24, 2022, the Board authorized a three-year share repurchase program to acquire up to **$200 million** of common stock[76](index=76&type=chunk) - During the six months ended June 30, 2023, the company repurchased and retired **0.9 million shares** for **$17.2 million** at an average price of **$18.17 per share**[76](index=76&type=chunk) - During the six months ended June 30, 2022, the company repurchased and retired **2.1 million shares** for **$23.3 million** at an average price of **$11.34 per share**[76](index=76&type=chunk) [NOTE 9. Stock-Based Compensation](index=12&type=section&id=NOTE%209.%20Stock-Based%20Compensation) This note provides information on Restricted Share Units, Performance Share Units, and Stock Options, including activity and valuation assumptions | RSU Activity (in thousands) | Number of RSUs | Weighted-Average Grant Date Value | | :-------------------------- | :------------- | :-------------------------------- | | Outstanding as of Dec 31, 2022 | 3,771 | $12.88 | | Granted | 1,804 | $16.66 | | Vested and delivered | (1,587) | $10.52 | | Forfeited | (107) | $15.59 | | Outstanding as of June 30, 2023 | 3,881 | $15.52 | | PSU Activity (in thousands) | Number of PSUs | Weighted-Average Grant Date Fair Value | | :-------------------------- | :------------- | :------------------------------------- | | Outstanding as of Dec 31, 2022 | 245 | $14.78 | | Granted | 267 | $16.47 | | Outstanding as of June 30, 2023 | 512 | $15.66 | | Stock Option Activity (in thousands) | Number of Options | Weighted-Average Grant Date Fair Value | Weighted-Average Remaining Contractual Term (in years) | | :----------------------------------- | :---------------- | :------------------------------------- | :----------------------------------------------------- | | Outstanding as of Dec 31, 2022 | 1,067 | $6.28 | 7.98 | | Outstanding as of June 30, 2023 | 1,067 | $6.28 | 7.48 | | Exercisable as of June 30, 2023 | 513 | $2.80 | 6.72 | - Stock options granted in 2022 were valued using the Black-Scholes model with a risk-free interest rate of **2.21%**, volatility of **65.22%**, **0% dividend yield**, and an expected exercise period of **6.5 years**[80](index=80&type=chunk) [NOTE 10. Earnings Per Share](index=13&type=section&id=NOTE%2010.%20Earnings%20Per%20Share) This note details the calculation of basic and diluted earnings per share and the impact of the deferred tax asset valuation allowance release | EPS Metric (in thousands, except per share data) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | | :----------------------------------------------- | :------------------------------- | :------------------------------- | | Net income | $94,126 | $5,545 | | Basic weighted-average common shares outstanding | 66,762 | 69,194 | | Diluted weighted-average common shares outstanding | 68,493 | 70,257 | | Earnings per share, basic | $1.41 | $0.08 | | Earnings per share, diluted | $1.37 | $0.08 | | EPS Metric (in thousands, except per share data) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------------------- | :----------------------------- | :----------------------------- | | Net income | $105,605 | $9,885 | | Basic weighted-average common shares outstanding | 66,646 | 69,329 | | Diluted weighted-average common shares outstanding | 68,118 | 70,505 | | Earnings per share, basic | $1.58 | $0.14 | | Earnings per share, diluted | $1.55 | $0.14 | - The significant increase in Net income and EPS for the three and six months ended June 30, 2023, is primarily due to the release of a substantial portion of the valuation allowance for deferred tax assets[101](index=101&type=chunk) [NOTE 11. Income Taxes](index=14&type=section&id=NOTE%2011.%20Income%20Taxes) This note explains the company's income tax benefit, deferred tax assets, and the release of a significant valuation allowance portion - The income tax benefit was **$92.0 million** for the six months ended June 30, 2023, primarily due to the release of a significant portion of the valuation allowance for deferred tax assets[48](index=48&type=chunk)[121](index=121&type=chunk) - The valuation allowance was previously recorded due to a history of recent losses, but recent performance and future projections enabled its release as of June 30, 2023[83](index=83&type=chunk)[125](index=125&type=chunk) - The effective income tax rate substantially differed from the statutory federal income tax rate of **21%** due to the **$103.3 million** valuation allowance release[84](index=84&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition, results of operations, cash flows, business overview, key operating metrics, and performance factors [Note About Forward-Looking Statements](index=15&type=section&id=Note%20About%20Forward-Looking%20Statements) This section provides a cautionary statement regarding forward-looking statements, emphasizing that actual results may differ materially due to various risks and uncertainties - The report contains forward-looking statements based on current expectations, beliefs, and assumptions, which are subject to inherent uncertainties[127](index=127&type=chunk) - Actual results, performance, or strategic actions could differ materially from those expressed or implied by these statements due to numerous risks and factors beyond the company's control[127](index=127&type=chunk) - Readers are advised not to rely on forward-looking statements for investment decisions and to evaluate them in the context of detailed risks outlined in the Annual Report on Form 10-K[106](index=106&type=chunk)[127](index=127&type=chunk) [Business Overview](index=17&type=section&id=Business%20Overview) This section reiterates the company's core business as a leading automotive marketplace platform connecting car shoppers with sellers through digital solutions - Cars.com Inc. is a leading automotive marketplace platform providing digital solutions to connect car shoppers with automotive retailers, OEMs, and other advertisers[130](index=130&type=chunk) - The company's brands include Cars.com™, Dealer Inspire®, FUEL™, DealerRater®, CreditIQ®, Accu-Trade™, and NewCars.com®[131](index=131&type=chunk) - The strategic focus is on transforming the business towards a multi-faceted suite of digital solutions that complement online marketplace offerings, enabling dealers to compete in an online car-buying environment[137](index=137&type=chunk) [Overview of Results](index=17&type=section&id=Overview%20of%20Results) This section provides a high-level summary of the company's financial performance for the three and six months ended June 30, 2023, compared to the prior year | Metric (in thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | | :-------------------- | :------------------------------- | :------------------------------- | | Revenue | $168,176 | $162,873 | | Net income | $94,126 | $5,545 | | Metric (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------- | :----------------------------- | :----------------------------- | | Revenue | $335,244 | $321,080 | | Net income | $105,605 | $9,885 | - Net income for both periods in 2023 saw a substantial increase, primarily driven by the release of a significant portion of the valuation allowance for deferred tax assets[108](index=108&type=chunk) [Key Operating Metrics](index=17&type=section&id=Key%20Operating%20Metrics) This section analyzes key operating metrics including Traffic, Unique Visitors, Dealer Customers, and Monthly Average Revenue Per Dealer, and their trends | Metric (in thousands, except percentages) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | % Change | | :---------------------------------------- | :------------------------------- | :------------------------------- | :------- | | Traffic | 155,957 | 148,010 | 5% | | Average Monthly Unique Visitors | 26,949 | 27,079 | —% | | Metric (in thousands, except percentages) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | % Change | | :---------------------------------------- | :----------------------------- | :----------------------------- | :------- | | Traffic | 320,739 | 296,500 | 8% | | Average Monthly Unique Visitors | 27,714 | 26,820 | 3% | - Traffic increased by **5% YoY** for the three months and **8% YoY** for the six months, driven by increased consumer demand, shifts in paid user acquisition strategy, and enhancements in app/website experiences[109](index=109&type=chunk)[134](index=134&type=chunk) | Metric (in thousands, except percentages) | June 30, 2023 | June 30, 2022 | % Change (YoY) | March 31, 2023 | QoQ % Change | | :---------------------------------------- | :------------ | :------------ | :------------- | :------------- | :----------- | | Dealer Customers | 18,785 | 19,517 | (4)% | 19,186 | (2)% | | Monthly Average Revenue Per Dealer (ARPD) | $2,472 | $2,326 | 6% | $2,386 | 4% | - Dealer Customers decreased by **4% YoY** and **2% QoQ**, attributed to anticipated churn from the 2023 marketplace repackaging initiative and a pullback by digital dealers[113](index=113&type=chunk) - ARPD increased by **6% YoY** and **4% QoQ**, primarily driven by the marketplace repackaging initiative, including the adoption of higher tier packages, and growth in digital solutions[136](index=136&type=chunk) [Factors Affecting Our Performance](index=18&type=section&id=Factors%20Affecting%20Our%20Performance) This section discusses various external and internal factors influencing the company's business performance, including macroeconomic conditions and industry challenges - Business performance is impacted by changes in the broader automotive ecosystem, such as inventory supply, supply chain disruptions, semiconductor shortages, vehicle acquisition costs, and electric vehicle adoption[114](index=114&type=chunk) - Changes in vehicle sales volumes in the United States influence OEMs' and dealerships' investment decisions in technology solutions and automotive marketplaces, potentially affecting pricing strategies and revenue mix[114](index=114&type=chunk) [Results of Operations](index=19&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's revenue and operating expenses for the three and six months ended June 30, 2023 and 2022 [Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022](index=19&type=section&id=Three%20Months%20Ended%20June%2030%2C%202023%20Compared%20to%20Three%20Months%20Ended%20June%2030%2C%202022) This sub-section provides a detailed comparison of revenue and operating expenses for the three months ended June 30, 2023 and 2022 | Revenue Source (in thousands) | 2023 | 2022 | $ Change | % Change | | :---------------------------- | :---------- | :---------- | :---------- | :------- | | Dealer | $153,309 | $143,987 | $9,322 | 6% | | OEM and National | $12,402 | $14,144 | $(1,742) | (12)% | | Other | $2,465 | $4,742 | $(2,277) | (48)% | | Total Revenue | $168,176 | $162,873 | $5,303 | 3% | - Dealer revenue, the largest stream, increased by **6%** due to growth in solutions revenue and marketplace repackaging initiatives, partially offset by a reduction from digital dealers[139](index=139&type=chunk) - OEM and National revenue decreased by **12%** due to pullbacks in spending from some OEM and insurance customers[140](index=140&type=chunk) - Other revenue decreased by **48%** primarily due to the anticipated expiration of the Accu-Trade license agreement[62](index=62&type=chunk) | Operating Expense (in thousands) | 2023 | 2022 | $ Change | % Change | | :------------------------------- | :---------- | :---------- | :---------- | :------- | | Cost of revenue and operations | $30,415 | $29,504 | $911 | 3% | | Product and technology | $24,956 | $23,117 | $1,839 | 8% | | Marketing and sales | $58,153 | $54,655 | $3,498 | 6% | | General and administrative | $17,649 | $17,211 | $438 | 3% | | Depreciation and amortization | $24,669 | $23,001 | $1,668 | 7% | | Total Operating Expenses | $155,842 | $147,488 | $8,354 | 6% | - Operating income decreased by **20%** to **$12.3 million**, while net income significantly increased to **$94.1 million** due to a large income tax benefit[121](index=121&type=chunk)[139](index=139&type=chunk) [Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022](index=20&type=section&id=Six%20Months%20Ended%20June%2030%2C%202023%20Compared%20to%20Six%20Months%20Ended%20June%2030%2C%202022) This sub-section provides a detailed comparison of revenue and operating expenses for the six months ended June 30, 2023 and 2022 | Revenue Source (in thousands) | 2023 | 2022 | $ Change | % Change | | :---------------------------- | :---------- | :---------- | :---------- | :------- | | Dealer | $303,152 | $284,403 | $18,749 | 7% | | OEM and National | $25,945 | $29,318 | $(3,373) | (12)% | | Other | $6,147 | $7,359 | $(1,212) | (16)% | | Total Revenue | $335,244 | $321,080 | $14,164 | 4% | - Dealer revenue increased by **7%**, driven by growth in solutions revenue and the marketplace repackaging initiative[145](index=145&type=chunk)[164](index=164&type=chunk) - OEM and National revenue decreased by **12%** due to reduced spending from OEM and insurance customers[146](index=146&type=chunk) - Other revenue decreased by **16%** due to the expiration of the Accu-Trade license agreement[165](index=165&type=chunk) | Operating Expense (in thousands) | 2023 | 2022 | $ Change | % Change | | :------------------------------- | :---------- | :---------- | :---------- | :------- | | Cost of revenue and operations | $60,210 | $57,256 | $2,954 | 5% | | Product and technology | $49,057 | $44,424 | $4,633 | 10% | | Marketing and sales | $116,450 | $111,749 | $4,701 | 4% | | General and administrative | $35,953 | $33,771 | $2,182 | 6% | | Depreciation and amortization | $48,711 | $47,554 | $1,157 | 2% | | Total Operating Expenses | $310,381 | $294,754 | $15,627 | 5% | - Net income for the six months ended June 30, 2023, was **$105.6 million**, a significant increase from **$9.9 million** in the prior year, primarily due to the income tax benefit from the valuation allowance release[48](index=48&type=chunk)[122](index=122&type=chunk) [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's primary liquidity sources, debt obligations, contingent consideration, cash flow activities, and share repurchase program - Primary liquidity sources include cash flows from operations, available cash reserves, and borrowing capacity under credit facilities[150](index=150&type=chunk) - As of June 30, 2023, cash and cash equivalents were **$28.6 million**, and total liquidity, including the undrawn Revolving Loan, was **$258.6 million**[64](index=64&type=chunk) - The outstanding aggregate principal amount of indebtedness was **$458.8 million** as of June 30, 2023, with an effective interest rate of **6.5%**[170](index=170&type=chunk) - The fair value of contingent consideration related to the CreditIQ and Accu-Trade acquisitions was **$50.7 million** as of June 30, 2023, with **$30.9 million** expected to be paid within the next twelve months[171](index=171&type=chunk) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :----- | | Operating activities | $56,182 | $42,280 | $13,902 | | Investing activities | $(10,569) | $(73,325) | $62,756 | | Financing activities | $(48,723) | $10,110 | $(58,833) | - During the six months ended June 30, 2023, the company made **$7.5 million** in Term Loan payments and repaid **$15.0 million** on its Revolving Loan[151](index=151&type=chunk) [Critical Accounting Policies](index=24&type=section&id=Critical%20Accounting%20Policies) This section refers to the company's critical accounting policies and any changes during the period - There have been no changes to the company's critical accounting policies during the six months ended June 30, 2023[157](index=157&type=chunk) [Recent Accounting Pronouncements](index=24&type=section&id=Recent%20Accounting%20Pronouncements) This section reports on any significant new accounting pronouncements applicable to the company - There were no significant new accounting pronouncements applicable to the company in the period[66](index=66&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section provides disclosures about the company's exposure to market risks - The company's exposures to market risk have not changed materially since December 31, 2022[158](index=158&type=chunk) [Item 4. Controls and Procedures](index=25&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details management's evaluation of the effectiveness of disclosure controls and procedures and internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[159](index=159&type=chunk) - There were no changes in internal control over financial reporting during the period that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[189](index=189&type=chunk) [PART II. OTHER INFORMATION](index=26&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=26&type=section&id=Item%201.%20Legal%20Proceedings) This section provides an update on any legal proceedings involving the company - The company is not currently involved in any material legal proceedings[67](index=67&type=chunk)[179](index=179&type=chunk) [Item 1A. Risk Factors](index=26&type=section&id=Item%201A.%20Risk%20Factors) This section refers to risk factors that could materially affect the company's business, financial condition, and results of operations - There have been no material changes from the risk factors described in the company's Annual Report on Form 10-K for the year ended December 31, 2022[180](index=180&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=26&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's stock repurchase activity during the quarter | Period | Total Number of Shares Purchased (1) | Average Price Paid per Share (1) | Maximum Dollar Value of Shares Yet to Be Purchased (in thousands) (3) | | :-------------------------- | :----------------------------------- | :------------------------------- | :-------------------------------------------------------------------- | | April 1 through April 30, 2023 | 154,193 | $19.36 | $140,858 | | May 1 through May 31, 2023 | 199,420 | $18.36 | $137,196 | | June 1 through June 30, 2023 | 178,602 | $18.73 | $133,852 | - The company's Board of Directors authorized a three-year share repurchase program on February 24, 2022, to acquire up to **$200 million** of common stock[161](index=161&type=chunk) - All shares purchased were part of the publicly announced share repurchase program and may occur through open market purchases or Rule 10b5-1 trading plans[161](index=161&type=chunk) [Item 3. Defaults Upon Senior Securities](index=27&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section reports on any defaults upon senior securities - The company reported no defaults upon senior securities[162](index=162&type=chunk) [Item 4. Mine Safety Disclosures](index=27&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section addresses mine safety disclosures - Mine safety disclosures are not applicable to the company[193](index=193&type=chunk) [Item 5. Other Information](index=27&type=section&id=Item%205.%20Other%20Information) This section includes other material information not covered elsewhere, such as executive trading plans and credit agreement amendments - On May 24, 2023, CEO Alex Vetter adopted a Rule 10b5-1 trading plan to sell up to **212,000 shares** of common stock between August 24, 2023, and August 26, 2024, for estate and family financial planning and asset diversification[51](index=51&type=chunk)[182](index=182&type=chunk) - On June 23, 2023, the company entered into the Fourth Amendment to the Credit Agreement, replacing LIBOR with SOFR as the benchmark provision and including a more favorable credit spread adjustment[183](index=183&type=chunk)[194](index=194&type=chunk) - J.P. Morgan Chase Bank, N.A. serves as a lender and administrative agent under the Credit Agreement and has various financial relationships with the company[68](index=68&type=chunk) [Item 6. Exhibits](index=28&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q | Exhibit Number | Description | | :------------- | :--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | | 3.1** | Amended and Restated Certificate of Incorporation of Cars.com Inc. | | 3.2** | Amended and Restated Bylaws of Cars.com Inc. | | 10.1* | Fourth Amendment to Credit Agreement dated as of June 23, 2023 | | 31.1* | Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) | | 31.2* | Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) | | 32.1* | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 | | 32.2* | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 | | 101.INS | Inline XBRL Instance Document | | 101.SCH | Inline XBRL Taxonomy Extension Schema Document | | 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | | 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | | 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | 104 | The cover page from this Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, formatted with Inline XBRL | [Signatures](index=29&type=section&id=Signatures) This section contains the required signatures of the company's authorized officers, certifying the report's accuracy - The report was signed by T. Alex Vetter, Chief Executive Officer, and Sonia Jain, Chief Financial Officer, on August 3, 2023[188](index=188&type=chunk)

Cars.com Inc. (NYSE:CARS) Q1 2023 Results Conference Call May 4, 2023 9:00 AM ET Company Participants Robbin Moore-Randolph - Director, IR Alex Vetter - CEO Sonia Jain - CFO Conference Call Participants Thomas White - D.A. Davidson Gary Prestopino - Barrington Research Marvin Fong - BTIG Doug Arthur - Huber Research Operator Good morning, and welcome to the Cars First Quarter 2023 Earnings Conference Call. This call is being recorded, and a live webcast and the accompanying slides can be found at investor.c ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for Cars.com Inc., including balance sheets, statements of income, comprehensive income, stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, business combinations, fair value measurements, debt, equity, and income taxes [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheets | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (vs. Dec 31, 2022) | | :----------------------------- | :---------------------------- | :----------------------------- | :------------------------ | | Cash and cash equivalents | $18,838 | $31,715 | -$12,877 | | Accounts receivable, net | $114,035 | $107,930 | +$6,105 | | Total current assets | $144,651 | $148,627 | -$3,976 | | Intangible assets, net | $687,930 | $707,088 | -$19,158 | | Total assets | $1,002,221 | $1,024,870 | -$22,649 | | Total current liabilities | $107,348 | $106,012 | +$1,336 | | Long-term debt, net | $438,739 | $458,249 | -$19,510 | | Total liabilities | $617,234 | $640,440 | -$23,206 | | Stockholders' equity | $384,987 | $384,430 | +$557 | [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Consolidated Statements of Income | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (YoY) | % Change (YoY) | | :----------------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | :------------- | | Total revenue | $167,068 | $158,207 | +$8,861 | 6% | | Operating income | $12,529 | $10,941 | +$1,588 | 15% | | Nonoperating expense, net | ($5) | ($9,122) | +$9,117 | ***% | | Income before income taxes | $12,524 | $1,819 | +$10,705 | ***% | | Net income | $11,479 | $4,340 | +$7,139 | ***% | | Basic EPS | $0.17 | $0.06 | +$0.11 | 183% | | Diluted EPS | $0.17 | $0.06 | +$0.11 | 183% | [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Consolidated Statements of Comprehensive Income | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (YoY) | | :----------------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Net income | $11,479 | $4,340 | +$7,139 | | Total other comprehensive income | — | $1,202 | -$1,202 | | Comprehensive income | $11,479 | $5,542 | +$5,937 | [Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) Consolidated Statements of Stockholders' Equity | Metric | Balance at Dec 31, 2022 (in thousands) | Net Income (in thousands) | Repurchases of common stock (in thousands) | Stock-based compensation (in thousands) | Balance at Mar 31, 2023 (in thousands) | | :--------------------- | :------------------------------------- | :------------------------ | :----------------------------------------- | :-------------------------------------- | :------------------------------------- | | Stockholders' Equity | $384,430 | $11,479 | ($7,174) | $6,049 | $384,987 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (YoY) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | | Net cash provided by operating activities | $28,141 | $30,358 | -$2,217 | | Net cash used in investing activities | ($5,371) | ($68,778) | +$63,407 | | Net cash (used in) provided by financing activities | ($35,647) | $29,804 | -$65,451 | | Net decrease in cash and cash equivalents | ($12,877) | ($8,616) | -$4,261 | | Cash and cash equivalents at end of period | $18,838 | $30,453 | -$11,615 | [Notes to the Consolidated Financial Statements (Unaudited)](index=8&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements%20(Unaudited)) [NOTE 1. Description of Business and Summary of Significant Accounting Policies](index=8&type=section&id=NOTE%201.%20Description%20of%20Business%20and%20Summary%20of%20Significant%20Accounting%20Policies) - Cars.com Inc. (CARS) is a leading automotive marketplace platform providing digital solutions connecting car shoppers with sellers, empowering shoppers with data and tools, and enabling dealers and OEMs with innovative technical solutions and data-driven intelligence[38](index=38&type=chunk)[103](index=103&type=chunk) - The Company's brands include Cars.com™, Dealer Inspire®, FUEL™, DealerRater®, CreditIQ®, Accu-Trade™, and NewCars.com®[15](index=15&type=chunk)[104](index=104&type=chunk) - Significant accounting policies are consistent with those in the December 31, 2022 Financial Statements, prepared in conformity with U.S. GAAP and SEC rules for interim financial statements[16](index=16&type=chunk)[39](index=39&type=chunk) [NOTE 2. Revenue](index=8&type=section&id=NOTE%202.%20Revenue) Revenue by Major Products and Services | Major products and services | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (YoY) | % Change (YoY) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------- | :------------- | | Subscription advertising and digital solutions | $137,334 | $132,247 | +$5,087 | 4% | | Display advertising | $23,857 | $21,049 | +$2,808 | 13% | | Pay per lead | $2,275 | $2,417 | -$142 | (6%) | | Other | $3,602 | $2,494 | +$1,108 | 44% | | Total revenue | $167,068 | $158,207 | +$8,861 | 6% | [NOTE 3. Business Combinations](index=9&type=section&id=NOTE%203.%20Business%20Combinations) - On March 1, 2022, the Company acquired Accu-Trade, LLC and related entities, which provide VIN-specific vehicle valuation, appraisal data, instant offer capabilities, and logistics technology[63](index=63&type=chunk) Accu-Trade Acquisition Fair Value | Item | Fair Value (in thousands) | | :----------------------------- | :------------------------ | | Cash consideration | $64,663 | | Other consideration | $5,300 | | Contingent consideration | $23,936 | | **Total purchase consideration** | **$93,899** | | Assets acquired | $1,595 | | Identified intangible assets | $15,679 | | Liabilities assumed | ($235) | | **Net identifiable assets** | **$17,039** | | Goodwill | $76,860 | - Goodwill of **$76.9 million** was recorded, primarily attributable to sales growth from existing and future technology, product offerings, customers, and the value of the acquired assembled workforce[65](index=65&type=chunk) - The Company may pay up to **$63.0 million** in additional contingent consideration based on future performance over a three-year period, with a maximum of **$15.0 million** potentially in stock[64](index=64&type=chunk) [NOTE 4. Fair Value Measurements](index=10&type=section&id=NOTE%204.%20Fair%20Value%20Measurements) Contingent Consideration Fair Value | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :----------------------------- | :---------------------------- | :----------------------------- | | Contingent consideration | $47,612 | $55,871 | - A fair value adjustment of **($8.3 million)** was recorded for contingent consideration during the three months ended March 31, 2023, reflected in Other income, net[48](index=48&type=chunk)[66](index=66&type=chunk) - The Company expects to make payments on contingent consideration in 2023, 2024, and 2025, with **$6.2 million** classified as current and **$41.4 million** as noncurrent as of March 31, 2023[48](index=48&type=chunk)[49](index=49&type=chunk) [NOTE 5. Debt](index=10&type=section&id=NOTE%205.%20Debt) - As of March 31, 2023, the outstanding aggregate principal amount of indebtedness was **$462.5 million** at an effective interest rate of **6.5%**[124](index=124&type=chunk) - Debt components include **$400.0 million** of **6.375%** Senior Unsecured Notes due 2028 and **$62.5 million** outstanding under the Term Loan (**7.2%** interest rate at March 31, 2023)[70](index=70&type=chunk)[68](index=68&type=chunk)[124](index=124&type=chunk) - During Q1 2023, the Company made **$3.8 million** in Term Loan payments and repaid **$15.0 million** on the Revolving Loan[68](index=68&type=chunk)[52](index=52&type=chunk)[125](index=125&type=chunk) - **$230.0 million** was available to borrow under the Revolving Loan as of March 31, 2023[52](index=52&type=chunk)[125](index=125&type=chunk) - The Company was in compliance with debt covenants as of March 31, 2023, with a Senior Secured Leverage Ratio of **0.3x** and a Consolidated Interest Coverage Ratio of **5.7x**[50](index=50&type=chunk)[52](index=52&type=chunk)[125](index=125&type=chunk) [NOTE 6. Interest Rate Swap](index=11&type=section&id=NOTE%206.%20Interest%20Rate%20Swap) - The interest rate swap expired on May 31, 2022, and is no longer recorded on the Consolidated Balance Sheets[73](index=73&type=chunk) - Zero was reclassified from Accumulated other comprehensive loss to Interest expense, net in Q1 2023, compared to **$1.4 million** in Q1 2022[73](index=73&type=chunk) [NOTE 7. Commitments and Contingencies](index=11&type=section&id=NOTE%207.%20Commitments%20and%20Contingencies) - The Company is not currently involved in any pending or threatened litigation that would have a material adverse impact on its financial position, results of operations, or cash flows[74](index=74&type=chunk) - A liability is recorded when a loss is both probable and the amount can be reasonably estimated[74](index=74&type=chunk) [NOTE 8. Stockholders' Equity](index=11&type=section&id=NOTE%208.%20Stockholders'%20Equity) - A three-year share repurchase program of up to **$200 million** was authorized by the Board of Directors on February 24, 2022, funded principally by cash from operations[75](index=75&type=chunk)[126](index=126&type=chunk)[168](index=168&type=chunk) - During Q1 2023, the Company repurchased **0.4 million** shares for **$7.2 million** at an average price of **$17.38** per share[75](index=75&type=chunk)[126](index=126&type=chunk) - During Q1 2022, the Company repurchased **0.3 million** shares for **$5.0 million** at an average price of **$14.78** per share[76](index=76&type=chunk) [NOTE 9. Stock-Based Compensation](index=12&type=section&id=NOTE%209.%20Stock-Based%20Compensation) Restricted Stock Units (RSUs) Activity | Metric | Number of RSUs (in thousands) | Weighted-Average Grant Date Fair Value | | :----------------------------- | :---------------------------- | :------------------------------------- | | Outstanding as of Dec 31, 2022 | 3,771 | $12.88 | | Granted | 1,676 | $16.47 | | Vested and delivered | (1,496) | $10.53 | | Forfeited | (26) | $14.92 | | Outstanding as of Mar 31, 2023 | 3,925 | $15.29 | Performance Stock Units (PSUs) Activity | Metric | Number of PSUs (in thousands) | Weighted-Average Grant Date Fair Value | | :----------------------------- | :---------------------------- | :------------------------------------- | | Outstanding as of Dec 31, 2022 | 245 | $14.78 | | Granted | 267 | $16.47 | | Outstanding as of Mar 31, 2023 | 512 | $15.66 | - No stock options were granted during the three months ended March 31, 2023[92](index=92&type=chunk) [NOTE 10. Earnings Per Share](index=13&type=section&id=NOTE%2010.%20Earnings%20Per%20Share) Earnings Per Share Calculation | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income (in thousands) | $11,479 | $4,340 | | Basic weighted-average common shares outstanding (in thousands) | 66,530 | 69,463 | | Diluted weighted-average common shares outstanding (in thousands) | 67,747 | 70,899 | | Earnings per share, basic | $0.17 | $0.06 | | Earnings per share, diluted | $0.17 | $0.06 | - **554 thousand** potential common shares were excluded from diluted EPS in Q1 2023 due to their anti-dilutive effect, compared to **1,738 thousand** in Q1 2022[93](index=93&type=chunk) [NOTE 11. Income Taxes](index=13&type=section&id=NOTE%2011.%20Income%20Taxes) - The effective income tax rate for Q1 2023 was **8.3%**, primarily due to the incremental tax deduction from equity award vesting, compared to the statutory federal rate of **21%**[83](index=83&type=chunk)[147](index=147&type=chunk) - Income tax expense for Q1 2023 was **$1.0 million**[95](index=95&type=chunk) - A valuation allowance is required against deferred tax assets due to the Company's history of recent losses, primarily from goodwill and indefinite-lived intangible asset impairments[94](index=94&type=chunk) [Note About Forward-Looking Statements](index=14&type=section&id=Note%20About%20Forward-Looking%20Statements) This section provides a cautionary statement regarding forward-looking statements in the report, emphasizing that actual results may differ materially due to various risks and uncertainties beyond the company's control - All statements other than historical facts are forward-looking, using words such as "believe," "expect," "project," "anticipate," etc[85](index=85&type=chunk) - Forward-looking statements are based on current expectations, beliefs, strategies, estimates, and assumptions, but are inherently uncertain[85](index=85&type=chunk) - Actual results could differ materially due to various risks, including those related to the automotive ecosystem, market competition, technological advancements, data privacy, strategic acquisitions, and debt agreements[85](index=85&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk) - The company undertakes no obligation to update or revise any forward-looking statements, other than as may be required by law[98](index=98&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=17&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an in-depth analysis of Cars.com Inc.'s business, financial condition, and results of operations for the three months ended March 31, 2023, compared to the prior-year period [Business Overview](index=17&type=section&id=Business%20Overview) - Cars.com Inc. is a leading automotive marketplace platform providing digital solutions to connect car shoppers with sellers[103](index=103&type=chunk) - The platform empowers shoppers with data and tools for informed buying decisions and connects them with automotive retailers, OEMs, and lenders[103](index=103&type=chunk) - The Company's brand portfolio includes Cars.com™, Dealer Inspire®, FUEL™, DealerRater®, CreditIQ®, Accu-Trade™, and NewCars.com®[104](index=104&type=chunk) [Overview of Results](index=17&type=section&id=Overview%20of%20Results) Key Operating Metrics | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | % Change (YoY) | | :----------------------------- | :--------------------------------------- | :--------------------------------------- | :------------- | | Traffic | 164,782 | 148,491 | 11% | | Average Monthly Unique Visitors | 28,478 | 26,562 | 7% | | Dealer Customers (as of Mar 31) | 19,186 | 19,500 | (2%) | | Monthly Average Revenue Per Dealer (ARPD) | $2,386 | $2,291 | 4% | - Traffic and Average Monthly Unique Visitors (UVs) growth were driven by increased consumer demand, shifts in paid user acquisition strategy, and enhancements in App and Website experiences[136](index=136&type=chunk) - Dealer Customers decreased **2%** year-over-year and quarter-over-quarter due to elevated cancellations from digital dealers[115](index=115&type=chunk) - Monthly Average Revenue Per Dealer (ARPD) increased **4%** year-over-year, primarily driven by growth in digital solutions, offset by a reduction in FUEL revenue[138](index=138&type=chunk) - Business performance is impacted by changes in the larger automotive ecosystem, including inventory supply, supply chain disruptions, vehicle acquisition costs, and OEM/dealership investment in technology solutions[116](index=116&type=chunk) [Results of Operations](index=19&type=section&id=Results%20of%20Operations) Revenue by Segment | Revenue Segment | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (YoY) | % Change (YoY) | | :---------------------- | :--------------------- | :--------------------- | :----------- | :------------- | | Dealer | $149,843 | $140,416 | +$9,427 | 7% | | OEM and National | $13,543 | $15,174 | -$1,631 | (11%) | | Other | $3,682 | $2,617 | +$1,065 | 41% | | **Total Revenue** | **$167,068** | **$158,207** | **+$8,861** | **6%** | - Dealer revenue increased **7%** year-over-year, primarily driven by an increase in digital solutions revenue[109](index=109&type=chunk) - OEM and National revenue decreased **11%** year-over-year due to pullbacks in spending from some insurance customers[141](index=141&type=chunk) Operating Expenses by Category | Expense Category | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change (YoY) | % Change (YoY) | | :----------------------------- | :--------------------- | :--------------------- | :----------- | :------------- | | Cost of revenue and operations | $29,795 | $27,752 | +$2,043 | 7% | | Product and technology | $24,101 | $21,307 | +$2,794 | 13% | | Marketing and sales | $58,297 | $57,094 | +$1,203 | 2% | | General and administrative | $18,304 | $16,560 | +$1,744 | 11% | | Depreciation and amortization | $24,042 | $24,553 | -$511 | (2%) | | **Total Operating Expenses** | **$154,539** | **$147,266** | **+$7,273** | **5%** | - Net income significantly increased to **$11.5 million** in Q1 2023 from **$4.3 million** in Q1 2022[140](index=140&type=chunk) - Interest expense, net, decreased by **$1.1 million** year-over-year due to the maturity of the interest rate swap and reduced indebtedness, partially offset by higher interest rates[145](index=145&type=chunk) - Other income, net, increased significantly due to the change in fair value of contingent consideration associated with the CreditIQ and Accu-Trade acquisitions[146](index=146&type=chunk) [Liquidity and Capital Resources](index=21&type=section&id=Liquidity%20and%20Capital%20Resources) - Primary liquidity sources are cash flows from operations, available cash reserves, and borrowing capacity under credit facilities[149](index=149&type=chunk) - Total liquidity as of March 31, 2023, was **$248.8 million**, including **$18.8 million** in cash and cash equivalents and **$230.0 million** available under the Revolving Loan[123](index=123&type=chunk) - Outstanding aggregate principal amount of indebtedness was **$462.5 million** as of March 31, 2023[124](index=124&type=chunk) - During Q1 2023, the Company made **$3.8 million** in Term Loan payments and repaid **$15.0 million** on its Revolving Loan[125](index=125&type=chunk) - The Company repurchased **0.4 million** shares for **$7.2 million** in Q1 2023 as part of its share repurchase program[126](index=126&type=chunk) - The fair value of contingent consideration was **$47.6 million** as of March 31, 2023, with **$6.7 million** expected to be paid within the next twelve months[127](index=127&type=chunk) [Off-Balance Sheet Arrangements](index=22&type=section&id=Off-Balance%20Sheet%20Arrangements) - The Company does not have any material off-balance sheet arrangements[151](index=151&type=chunk) [Commitments and Contingencies](index=22&type=section&id=Commitments%20and%20Contingencies) - Information related to commitments and contingencies is detailed in Note 7 to the Consolidated Financial Statements[132](index=132&type=chunk)[165](index=165&type=chunk) [Critical Accounting Policies](index=22&type=section&id=Critical%20Accounting%20Policies) - There have been no changes to the Company's critical accounting policies during the three months ended March 31, 2023[159](index=159&type=chunk) [Recent Accounting Pronouncements](index=22&type=section&id=Recent%20Accounting%20Pronouncements) - There were no significant new accounting pronouncements applicable to the Company in the period[133](index=133&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=23&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that the company's exposures to market risk have not materially changed since December 31, 2022, with further details available in the Annual Report on Form 10-K - The Company's exposures to market risk have not materially changed since December 31, 2022[134](index=134&type=chunk) - Further quantitative and qualitative disclosures about market risk are available in Part II, Item 7A of the Annual Report on Form 10-K for the year ended December 31, 2022[134](index=134&type=chunk) [Item 4. Controls and Procedures](index=23&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2023, providing reasonable assurance for timely and accurate information reporting - Management, with the participation of the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2023[135](index=135&type=chunk) - Disclosure controls and procedures provide reasonable assurance that information required to be disclosed is recorded, processed, summarized, and reported within specified time periods[135](index=135&type=chunk)[161](index=161&type=chunk) - There were no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the period[162](index=162&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=24&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 7 (Commitments and Contingencies) in the Consolidated Financial Statements for information relating to legal proceedings - Information relating to legal proceedings is detailed in Note 7 (Commitments and Contingencies) to the Consolidated Financial Statements[165](index=165&type=chunk) [Item 1A. Risk Factors](index=24&type=section&id=Item%201A.%20Risk%20Factors) The company states that there have been no material changes from the risk factors previously described in its Annual Report on Form 10-K for the year ended December 31, 2022 - There have been no material changes from the risk factors described in Part I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2022[166](index=166&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=24&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities and repurchased 412,759 shares of common stock for $7.2 million during Q1 2023 as part of its share repurchase program - There were no unregistered sales of equity securities by the issuer[167](index=167&type=chunk) Common Stock Repurchases | Period | Total Number of Shares Purchased | Average Price Paid per Share | Maximum Dollar Value Remaining (in thousands) | | :-------------------------------- | :------------------------------- | :--------------------------- | :-------------------------------------------- | | January 1 - January 31, 2023 | 83,171 | $15.81 | $149,702 | | February 1 - February 28, 2023 | 111,934 | $17.80 | $147,710 | | March 1 - March 31, 2023 | 217,654 | $17.77 | $143,843 | | **Total for Q1 2023** | **412,759** | | | - The share repurchases were conducted under a three-year program authorized for up to **$200 million** on February 24, 2022[168](index=168&type=chunk) [Item 3. Defaults Upon Senior Securities](index=24&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - There were no defaults upon senior securities[169](index=169&type=chunk) [Item 4. Mine Safety Disclosures](index=24&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the Company[174](index=174&type=chunk) [Item 5. Other Information](index=24&type=section&id=Item%205.%20Other%20Information) This section indicates that no other information was reported - This section contains no additional information[170](index=170&type=chunk) [Item 6. Exhibits](index=25&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including various certifications, Inline XBRL documents, and corporate governance documents incorporated by reference - The exhibit list includes certifications (31.1, 31.2, 32.1, 32.2), Inline XBRL instance and taxonomy documents (101.INS, SCH, CAL, DEF, LAB, PRE), and the cover page (104)[176](index=176&type=chunk) - Amended and Restated Certificate of Incorporation and Bylaws are incorporated by reference[176](index=176&type=chunk) [Signatures](index=26&type=section&id=Signatures) - The report was signed on May 4, 2023, by T. Alex Vetter, Chief Executive Officer, and Sonia Jain, Chief Financial Officer[178](index=178&type=chunk)

Cars.com Inc. (NYSE:CARS) Q4 2022 Earnings Conference Call February 23, 2023 9:00 AM ET Company Participants Robbin Moore-Randolph - Director of Investor Relations. Alex Vetter - Chief Executive Officer Sonia Jain - Chief Financial Officer Conference Call Participants Tom White - D.A. Davidson Gary Prestopino - Barrington Research Marvin Fong - BTIG Doug Arthur - Huber Research Operator Good morning, and welcome to the CARS Fourth Quarter 2022 Earnings Conference Call. This call is being recorded, and a liv ...

Financial Performance - Full Year 2022 Revenue reached $653.9 million, a 5% year-over-year increase compared to $623.7 million in 2021[61] - Full Year 2022 Dealer Revenue was $579.2 million, up from $549.9 million in 2021[61] - Adjusted EBITDA for 2022 was $186.728 million, compared to $189.202 million in 2021[7] - Free Cash Flow for 2022 was $108.797 million, compared to $118.811 million in 2021[7] - The company anticipates Q1 2023 revenue between $166 million and $168 million, representing a 5% to 6% year-over-year growth[75] Key Metrics - Dealer Customers increased to 19,506 in Q4 2022, compared to 19,179 in Q4 2021[2, 49] - Website Customers reached 6,050 in Q4 2022, an increase of 700 customers year-over-year[39] - Monthly Average Revenue Per Dealer (ARPD) was $2,361 in Q4 2022[49] - Average Monthly Unique Visitors were 24.6 million in Q4 2022, compared to 23.6 million in Q4 2021[49] - Total Visits (Traffic) were 587 million for the full year 2022[37] Strategic Initiatives - The company has expanded its Total Addressable Market (TAM) to $50 billion[27] - Over 2,200 dealers have opted-in for CreditIQ instant financing since its nationwide launch in September 2022[53] - Accu-Trade has connected with over 500 customers, appraised over 600,000 vehicles, and generated over 80,000 instant offers for consumers[40]

[PART I](index=3&type=section&id=PART%20I) This section provides an overview of Cars.com Inc.'s business operations, strategic focus, and key risk factors impacting its performance and outlook [Business Overview](index=3&type=section&id=Item%201.%20Business) Cars.com Inc. (CARS) is a leading automotive marketplace platform connecting car shoppers with sellers, offering digital solutions through various brands - The company operates as a leading automotive marketplace and digital solutions provider, with a portfolio of brands including Cars.com, Dealer Inspire, FUEL, DealerRater, CreditIQ, and Accu-Trade[283](index=283&type=chunk)[284](index=284&type=chunk)[312](index=312&type=chunk) - In 2022, the company attracted an average of **26 million monthly unique visitors**, with approximately **85% of visitors** intending to purchase a vehicle within six months[285](index=285&type=chunk) - The primary customers are car dealers and OEMs; as of December 31, 2022, the company served **19,506 dealer customers** and nearly all OEMs in the United States[287](index=287&type=chunk)[315](index=315&type=chunk) - The company's growth strategy focuses on expanding its dealer network, increasing revenue per dealer by cross-selling solutions like Accu-Trade, enhancing shopper engagement, and innovating on its platform[304](index=304&type=chunk) - As of December 31, 2022, CARS had approximately **1,700 full-time employees**, none of whom are represented by a labor union[338](index=338&type=chunk) [Risk Factors](index=9&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks related to the automotive ecosystem, including economic downturns, supply chain disruptions, and changes in consumer demand - Business is subject to macroeconomic risks, including recession, inflation, and interest rate hikes, which can reduce consumer demand for automobiles and affect dealer spending on advertising[340](index=340&type=chunk)[370](index=370&type=chunk)[371](index=371&type=chunk) - The company faces intense competition from internet search engines, other online marketplaces (e.g., AutoTrader, CarGurus), and website solution providers; consolidation among dealers or OEMs could reduce demand for services[360](index=360&type=chunk)[374](index=374&type=chunk)[384](index=384&type=chunk) - Reliance on internet search engines (like Google) for traffic and the potential for algorithm changes pose a significant risk; a failure to appear prominently in search results could adversely affect traffic[348](index=348&type=chunk)[379](index=379&type=chunk) - Technology and data security are critical; the business is vulnerable to system failures, cyber-attacks, and data breaches, which could damage its reputation and result in financial liabilities; changes in data privacy laws (e.g., related to cookies) could also impact advertising effectiveness[419](index=419&type=chunk)[433](index=433&type=chunk)[435](index=435&type=chunk) - As of December 31, 2022, goodwill and other intangible assets were approximately **$809.9 million** (**79% of total assets**), which are subject to impairment risk[425](index=425&type=chunk) - Debt agreements contain restrictive covenants that limit operational flexibility, including restrictions on incurring additional debt, making distributions, and other corporate transactions[457](index=457&type=chunk)[487](index=487&type=chunk) [PART II](index=23&type=section&id=PART%20II) This section provides a detailed discussion and analysis of the company's financial condition, results of operations, market risks, and financial statements [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=25&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2022, Cars.com Inc. saw a 5% increase in total revenue to $653.9 million, driven by a 5% growth in Dealer revenue, with operating income rising 37% to $66.0 million [Overview of Results](index=25&type=section&id=Overview%20of%20Results) The company's performance in 2022 was marked by strategic acquisitions and steady growth in key metrics, including a 5% increase in average monthly unique visitors - In March 2022, the company acquired Accu-Trade for **$64.7 million in cash** and **$5.3 million in other consideration** to add vehicle appraisal, valuation, and logistics technology to its product suite[3](index=3&type=chunk) - In November 2021, the company acquired CreditIQ, an automotive fintech platform, for **$30.0 million in cash** at closing, with potential additional consideration based on future performance[469](index=469&type=chunk) - A three-year, **$200 million share repurchase program** was authorized in February 2022; during 2022, **4.2 million shares** were repurchased for **$49.0 million**[532](index=532&type=chunk)[544](index=544&type=chunk) Key Operating Metrics (2022 vs. 2021) | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Traffic (in thousands) | 587,388 | 591,499 | (1)% | | Average Monthly Unique Visitors (in thousands) | 26,400 | 25,064 | 5% | | Annual ARPD | $2,329 | $2,309 | 1% | Dealer Customer and Quarterly ARPD Trends | Metric | Dec 31, 2022 | Dec 31, 2021 | YoY % Change | Sep 30, 2022 | QoQ % Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Dealer Customers | 19,506 | 19,179 | 2% | 19,585 | 0% | | Quarterly ARPD | $2,361 | $2,333 | 1% | $2,334 | 1% | [Results of Operations (2022 vs 2021)](index=27&type=section&id=Results%20of%20Operations) For the year ended December 31, 2022, total revenue increased by 5% to $653.9 million, primarily due to a 5% rise in Dealer revenue, leading to a 37% increase in operating income Consolidated Results of Operations (in thousands) | Line Item | 2022 | 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | **Total revenue** | **$653,876** | **$623,683** | **$30,193** | **5%** | | Dealer | $579,222 | $549,923 | $29,299 | 5% | | OEM and National | $58,557 | $65,085 | ($6,528) | (10)% | | Other | $16,097 | $8,675 | $7,422 | 86% | | **Total operating expenses** | **$587,840** | **$575,345** | **$12,495** | **2%** | | **Operating income** | **$66,036** | **$48,338** | **$17,698** | **37%** | | Income before income taxes | $22,576 | $9,483 | $13,093 | *** | | **Net income** | **$17,206** | **$10,791** | **$6,415** | **59%** | - Dealer revenue, representing **88.6% of total revenue**, grew by **5%** due to an increase in dealer customers and growth in digital solutions and advertising[505](index=505&type=chunk) - OEM and National revenue decreased by **10%** primarily due to pullbacks in OEM spending associated with production delays and supply-chain disruptions[9](index=9&type=chunk) - Product and technology expenses increased by **15%** due to investments related to recent acquisitions, talent acquisition, and other fees[539](index=539&type=chunk) - General and administrative expenses decreased by **8%**, mainly because 2021 included **$9.6 million** in compensation expense related to the CreditIQ Acquisition[11](index=11&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) The company's primary liquidity sources are cash from operations and its credit facilities, with total liquidity of $246.7 million as of December 31, 2022 - As of December 31, 2022, the company had **$31.7 million** in cash and cash equivalents and **$215.0 million** available under its Revolving Loan, for a total liquidity of **$246.7 million**[15](index=15&type=chunk)[16](index=16&type=chunk) Cash Flow Summary (in thousands) | Activity | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $128,511 | $138,003 | ($9,492) | | Net cash used in investing activities | ($84,377) | ($39,450) | ($44,927) | | Net cash used in financing activities | ($51,488) | ($127,203) | $75,715 | - The decrease in operating cash flow was mainly due to changes in working capital and the non-recurrence of a **$9.1 million tax refund** received in 2021[19](index=19&type=chunk) - The company has potential future contingent consideration payments related to the CIQ and Accu-Trade acquisitions, with a maximum of **$50.0 million** for CIQ (cash) and **$63.0 million** for Accu-Trade (cash or stock)[17](index=17&type=chunk)[18](index=18&type=chunk)[517](index=517&type=chunk) [Critical Accounting Policies and Estimates](index=31&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The company's critical accounting policies involve significant management judgment and estimates, particularly in revenue recognition and business combinations - Revenue from marketplace subscription packages and add-on products is typically combined as a single performance obligation and recognized ratably over the contract term[22](index=22&type=chunk)[519](index=519&type=chunk) - Pay-per-lead revenue is recognized at the point in time the lead is delivered to the customer[23](index=23&type=chunk)[119](index=119&type=chunk) - Contingent consideration from acquisitions is measured at fair value using Level 3 inputs (e.g., Monte Carlo simulation) and is re-assessed at each reporting period, with changes recognized in earnings[54](index=54&type=chunk)[143](index=143&type=chunk)[553](index=553&type=chunk) - Intangible assets from acquisitions are recorded at fair value, determined using methods like multi-period excess earnings and relief-from-royalty, and are amortized over their useful lives (typically **5-10 years**)[53](index=53&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are related to changes in interest rates on its variable-rate debt and immaterial foreign currency exchange exposure - The company is exposed to interest rate risk on its variable-rate Term Loan and Revolving Loan; as of Dec 31, 2022, the Term Loan had an outstanding principal of **$66.3 million** at **6.7%** and the Revolving Loan had **$15.0 million** outstanding at **6.4%**[554](index=554&type=chunk) - Foreign currency exchange risk is currently immaterial, arising from a limited number of Canadian customers acquired through DealerRater, Dealer Inspire, and Accu-Trade[55](index=55&type=chunk) [Financial Statements and Supplementary Data](index=33&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) The consolidated financial statements, audited by Ernst & Young LLP, present the company's financial position, results of operations, and cash flows for the three years ended December 31, 2022 - The independent auditor, Ernst & Young LLP, issued an unqualified opinion, stating that the financial statements are presented fairly in conformity with U.S. GAAP[56](index=56&type=chunk) - The auditor also issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2022, based on the COSO 2013 framework[67](index=67&type=chunk)[525](index=525&type=chunk) Consolidated Balance Sheet Data (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $31,715 | $39,069 | | Goodwill | $102,856 | $26,227 | | Intangible assets, net | $707,088 | $769,424 | | **Total assets** | **$1,024,870** | **$1,007,205** | | Long-term debt, net | $458,249 | $457,383 | | **Total liabilities** | **$640,440** | **$609,185** | | **Total stockholders' equity** | **$384,430** | **$398,020** | Consolidated Income Statement Data (in thousands) | Account | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total revenue | $653,876 | $623,683 | $547,503 | | Operating income (loss) | $66,036 | $48,338 | ($887,327) | | Net income (loss) | $17,206 | $10,791 | ($789,106) | | Diluted EPS | $0.25 | $0.15 | ($11.74) | Consolidated Cash Flow Data (in thousands) | Account | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $128,511 | $138,003 | $138,616 | | Net cash used in investing activities | ($84,377) | ($39,450) | ($16,712) | | Net cash used in financing activities | ($51,488) | ($127,203) | ($67,734) | | Net (decrease) increase in cash | ($7,354) | ($28,650) | $54,170 | [Controls and Procedures](index=62&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[246](index=246&type=chunk) - Based on the COSO 2013 framework, management concluded that internal control over financial reporting was effective as of December 31, 2022[247](index=247&type=chunk) - The independent registered public accounting firm, Ernst & Young LLP, issued an unqualified audit report on the effectiveness of the company's internal control over financial reporting[219](index=219&type=chunk)[249](index=249&type=chunk) - There were no changes in internal control over financial reporting during the period that materially affected, or are reasonably likely to materially affect, these controls[248](index=248&type=chunk) [PART III](index=65&type=section&id=PART%20III) This section incorporates by reference information regarding directors, executive compensation, security ownership, and related party transactions from the company's proxy statement [Director and Executive Information, Compensation, and Corporate Governance](index=65&type=section&id=Items%2010-14) Information for Items 10 through 14 of the Form 10-K is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the Company's definitive proxy statement, to be filed within **120 days** of the fiscal year-end[40](index=40&type=chunk)[229](index=229&type=chunk)[255](index=255&type=chunk) [PART IV](index=66&type=section&id=PART%20IV) This section details the financial statements, schedules, and exhibits filed as part of the Form 10-K, including the Credit Agreement and compensation plans [Exhibits and Financial Statement Schedules](index=66&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K, with required statements in Item 8 - The financial statements required by this item are listed in Part II, Item 8 of the report[265](index=265&type=chunk) - The report includes Schedule II - Valuation and Qualifying Accounts, which details the allowance for doubtful accounts for 2020, 2021, and 2022[69](index=69&type=chunk)[613](index=613&type=chunk) - The Exhibit Index lists numerous documents filed with the report, including the Credit Agreement and its amendments, indentures, and various executive and employee compensation plans[266](index=266&type=chunk)[566](index=566&type=chunk)

Cars.com Inc. (NYSE:CARS) Q3 2022 Earnings Conference Call November 3, 2022 9:00 AM ET Company Participants Alex Vetter - CEO Sonia Jain - CFO Jandy Tomy - EVP, Finance & Treasurer Robbin Moore-Randolph - Director, IR Conference Call Participants Tom White - D.A. Davidson & Co. Naved Khan - Truist Securities Marvin Fong - BTIG Doug Arthur - Huber Research Partners Operator Good morning, and welcome to the CARS Third Quarter 2022 Earnings Conference Call. This call is being recorded, and a live webcast can b ...

Third Quarter 2022 Earnings November 3, 2022 Forward-Looking Statements This presentation 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 the impact of the COVID-19 pandemic on our industry, our dealer customers and our results of operations, our business strategies, strategic alternatives, plans and objectives, market pot ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the unaudited consolidated financial statements and management's discussion and analysis [Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents the unaudited consolidated financial statements, including balance sheets, income statements, cash flows, and accompanying notes [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) As of September 30, 2022, total assets increased to $1.05 billion, primarily due to goodwill, while total liabilities grew to $673.6 million Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2022 (unaudited) | December 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **$1,050,168** | **$1,007,205** | | Cash and cash equivalents | $31,920 | $39,069 | | Goodwill | $102,477 | $26,227 | | Intangible assets, net | $726,247 | $769,424 | | **Total Liabilities** | **$673,641** | **$609,185** | | Long-term debt, net | $482,740 | $457,383 | | **Total Stockholders' Equity** | **$376,527** | **$398,020** | [Consolidated Statements of (Loss) Income](index=4&type=section&id=Consolidated%20Statements%20of%20(Loss)%20Income) The company reported a Q3 2022 net loss of $2.9 million, a shift from prior year net income, primarily due to a nonoperating expense Income Statement Summary (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenue** | **$164,595** | **$156,553** | **$485,675** | **$465,378** | | Operating Income | $19,899 | $12,074 | $46,225 | $44,276 | | **Net (Loss) Income** | **($2,941)** | **$2,431** | **$6,944** | **$13,675** | | Diluted (Loss) EPS | ($0.04) | $0.03 | $0.10 | $0.19 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2022, operating cash flow decreased to $91.3 million, while investing activities significantly increased due to an acquisition Cash Flow Summary for Nine Months Ended Sept 30 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $91,291 | $116,226 | | Net cash used in investing activities | ($79,169) | ($17,879) | | Net cash used in financing activities | ($19,271) | ($114,559) | | **Net decrease in cash** | **($7,149)** | **($16,212)** | [Notes to the Consolidated Financial Statements (Unaudited)](index=8&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements%20(Unaudited)) These notes detail revenue breakdown, significant acquisitions, debt structure, and the company's share repurchase program Revenue by Major Products and Services (in thousands) | Product/Service | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Subscription advertising and digital solutions | $135,433 | $131,293 | $403,112 | $385,472 | | Display advertising | $22,699 | $20,766 | $64,607 | $64,045 | | **Total Revenue** | **$164,595** | **$156,553** | **$485,675** | **$465,378** | - The company acquired Accu-Trade on March 1, 2022, for a total purchase consideration of **$94.0 million**, which included **$77.0 million in goodwill**[40](index=40&type=chunk)[42](index=42&type=chunk)[46](index=46&type=chunk) - In February 2022, the Board of Directors authorized a three-year, **$200 million** share repurchase program, with the company repurchasing **3.5 million shares** for **$40.0 million** during the first nine months of 2022[68](index=68&type=chunk)[70](index=70&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, key operating metrics, the impact of acquisitions, and reviews liquidity and capital resources [Key Operating Metrics](index=20&type=section&id=Key%20Operating%20Metrics) In Q3 2022, Average Monthly Unique Visitors grew 12% year-over-year, while Dealer Customers increased 3% and Monthly ARPD remained flat Key Operating Metrics Comparison | Metric | Q3 2022 | Q3 2021 | % Change YoY | Q2 2022 | % Change QoQ | | :--- | :--- | :--- | :--- | :--- | :--- | | Traffic (Visits, thousands) | 150,449 | 142,418 | 6% | N/A | N/A | | Average Monthly UVs (thousands) | 27,309 | 24,341 | 12% | N/A | N/A | | Dealer Customers | 19,585 | 19,029 | 3% | 19,517 | 0% | | Monthly ARPD | $2,334 | $2,332 | 0% | $2,326 | 0% | [Results of Operations](index=21&type=section&id=Results%20of%20Operations) Q3 2022 total revenue increased 5% year-over-year, but a net loss was recorded primarily due to contingent consideration remeasurement - Q3 2022 Dealer revenue increased by **$6.1 million (4%)** year-over-year, primarily due to a **3% increase in Dealer Customers**[113](index=113&type=chunk) - Q3 2022 OEM and National revenue decreased **2%** due to spending pullbacks by certain OEMs related to production delays and supply-chain disruptions[114](index=114&type=chunk) - The significant change in 'Other (expense) income, net' for both the three and nine-month periods was primarily due to the remeasurement of the fair value of contingent consideration from the CreditIQ and Accu-Trade acquisitions[122](index=122&type=chunk)[135](index=135&type=chunk) [Liquidity and Capital Resources](index=25&type=section&id=Liquidity%20and%20Capital%20Resources) As of September 30, 2022, total liquidity was $226.9 million, with outstanding debt of $505.0 million, and operating cash flow decreased year-over-year - Total liquidity as of September 30, 2022, was **$226.9 million**, including **$31.9 million** in cash and cash equivalents and **$195.0 million** available under the Revolving Loan[140](index=140&type=chunk) - Total outstanding debt principal was **$505.0 million** as of September 30, 2022, composed of a Term Loan, Revolving Loan borrowings, and Senior Unsecured Notes[141](index=141&type=chunk) - The decrease in operating cash flow for the nine months ended September 30, 2022, was primarily due to changes in working capital and the non-recurrence of a **$9.1 million** tax refund received in the prior-year period[145](index=145&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=27&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reports no material changes in its market risk exposures since December 31, 2021 - There have been no material changes in the company's market risk exposures since December 31, 2021[154](index=154&type=chunk) [Controls and Procedures](index=27&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[155](index=155&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls[157](index=157&type=chunk) [PART II. OTHER INFORMATION](index=28&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information on legal proceedings, risk factors, and equity security sales [Legal Proceedings](index=28&type=section&id=Item%201.%20Legal%20Proceedings) Information regarding legal proceedings is contained in Note 7 of the Consolidated Financial Statements, with no new material developments - Information regarding legal proceedings is contained in Note 7 (Commitments and Contingencies) of the Consolidated Financial Statements[160](index=160&type=chunk) [Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes from the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - There have been no material changes from the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021[161](index=161&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=28&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q3 2022, the company repurchased 1.43 million shares as part of its $200 million share repurchase program Issuer Purchases of Equity Securities (Q3 2022) | Period | Total Shares Purchased | Average Price Paid per Share | Remaining Authorization (in thousands) | | :--- | :--- | :--- | :--- | | July 2022 | 479,836 | $10.41 | $171,697 | | August 2022 | 432,819 | $13.09 | $166,033 | | September 2022 | 519,995 | $11.58 | $160,012 | | **Total** | **1,432,650** | **N/A** | **$160,012** | - In February 2022, the Board of Directors authorized a three-year share repurchase program for up to **$200 million** of the company's common stock[164](index=164&type=chunk)