Cars.com Reports Third Quarter 2019 Results

CHICAGO, Nov. 6, 2019 /PRNewswire/ -- Cars.com Inc. (NYSE: CARS) ("Cars.com" or the "Company"), a leading digital marketplace and solutions provider for the automotive industry, today released its financial results for the quarter ended September 30, 2019.

Q3 Financial Highlights

• Revenue of $152.1 million, down $17.2 million, or 10%, year-over-year, in line with expectations
• Non-cash goodwill and intangible asset impairment charge of $431.3 million, net of tax, triggered by a decline in share price following the completion of the strategic alternatives review, resulted in net loss of ($426.2) million, or ($6.38) per diluted share
• Adjusted Net Income of $21.3 million, or $0.32 per diluted share, compared to Adjusted Net Income of $38.4 million, or $0.55 per diluted share, in the prior year
• Adjusted EBITDA of $45.9 million, or 30% of revenue, down $16.3 million year-over-year, in line with expectations
• Net cash provided by operating activities of $80.6 million for the nine months ended September 30, 2019, with Free Cash Flow of $65.1 million
• Completed amendment to existing credit facility, which increases the maximum total net leverage to 4.50x from 3.75x, increasing flexibility and further strengthening liquidity position

Q3 Key Metrics and Highlights

• Average monthly unique visitors of 23.1 million, up 22% year-over-year
• Traffic (visits) of 144.4 million, up 27% year-over-year
• Mobile traffic was 73% of total traffic, compared to 68% in the third quarter of 2018
• Dealer customers of 18,635 as of September 30, 2019, down compared to 18,891 as of June 30, 2019, driven by affiliate conversions and a decline in direct marketplace customers, partially offset by growth in digital solutions customers
• Direct monthly average revenue per dealer ("ARPD") was $2,069, down 2% year-over-year, excluding revenue from dealer websites and related digital solutions from Dealer Inspire; when revenue from dealer websites and related digital solutions is included, ARPD was $2,174 for the third quarter of 2019

Operational Highlights

• Drove audience market share gains, enabled by record organic traffic and sector leadership in SEO; the third quarter of 2019 marked the strongest quarter for both SEO traffic and leads in 20 years
• Completed the final affiliate conversions, providing 100% control over go-to market capabilities for the first time, expected to unlock $50 million in incremental Free Cash Flow impact beginning in 2020
• Achieved OEM certifications from General Motors, Hyundai Motor America and Mitsubishi Motors North America endorsing Dealer Inspire as a website provider, providing opportunity to sell to over 5,000 dealers across North America
• Strong Dealer Inspire revenue continues, achieving 25% year-over-year growth in Q3

"With the affiliate conversions complete, our traffic and solutions strategy ramping, the tech transformation progressing on schedule, and our continued focus on operational efficiencies, we remain on track to deliver our 2019 outlook," said Alex Vetter, President and Chief Executive Officer of Cars.com.

Financial Results

Revenue for the third quarter of 2019 was $152.1 million, compared to $169.3 million in the prior year period. This decrease was primarily due to a decline in dealer customers and a $7.9 million decline in national advertising revenue, resulting from a reduction in upfront commitments for 2019 and lower close rates from OEMs. These declines were partially offset by growth in digital solutions revenue as well the uplift from affiliate conversions.

In the third quarter, the Company recorded a non-cash goodwill and intangible asset impairment charge of $461.5 million, based on an assessment triggered by a decline in share price following the completion of the strategic alternatives review. The Company does not expect the impairment charge to have any impact on future operations, affect its liquidity, affect cash flows from operating activities, or affect compliance with the financial covenants set forth in its credit agreement. The cash benefit from the deductible goodwill for tax purposes remains intact.

Total operating expenses for the third quarter of 2019 were $599.8 million, or $138.3 million excluding the impairment charge, compared to $141.0 million for the prior year period. This decrease in expense was primarily due to the Company's continued focus on operational efficiencies.

Net loss for the third quarter of 2019 was ($426.2) million, or ($6.38) per diluted share, compared to net income of $15.8 million, or $0.23 per diluted share, in the third quarter of 2018. Adjusted Net Income for the third quarter of 2019 was $21.3 million, or $0.32 per diluted share, compared to $38.4 million, or $0.55 per diluted share, in the third quarter of 2018.

Adjusted EBITDA for the third quarter of 2019 was $45.9 million, or 30% of revenue, compared to $62.2 million, or 37% of revenue, for the prior year period.

For the third quarter, average monthly unique visitors grew 22% year-over-year and total traffic grew 27% year-over-year, supported by product innovations and investments in and efficiencies gained in SEO, brand awareness and paid channels. Mobile traffic grew 37% year-over-year and accounted for 73% of total traffic compared to 68% in the prior year.

Dealer customers were 18,635 as of September 30, 2019, a decline of 1%, compared to 18,891 dealer customers as of June 30, 2019, primarily due to a decline of 198 affiliate customers, as well as a decline in direct marketplace dealer customers, partially offset by growth in digital solutions customers.

ARPD was $2,174 in the third quarter of 2019. ARPD excluding revenue from dealer websites and related digital solutions from Dealer Inspire was $2,069, down 2% year-over-year. 

"Our results were in line with expectations this quarter. We continue to generate significant Free Cash Flow, thanks to the strength of our business model and continued focus on operational efficiency. Additionally, the recent amendment to our credit facility provides flexibility to respond to marketplace changes, if and when they arise, and demonstrates the continuation of our strong financial position," said Becky Sheehan, Chief Financial Officer of Cars.com.

Cash Flow and Balance Sheet

Net cash provided by operating activities for the nine-month period ended September 30, 2019 was $80.6 million, compared to $121.1 million in the prior year. Free Cash Flow for the nine-month period ended September 30, 2019 was $65.1 million, compared to $111.1 million in the same period last year. Cash flow was impacted in both periods by payments associated with the early conversion of affiliate markets.

Cash and cash equivalents was $19.8 million and debt outstanding was $666.6 million as of September 30, 2019. During the nine-month period, the Company paid down $29.7 million of indebtedness, net of borrowings. Net leverage at September 30, 2019 was 3.4x, calculated in accordance with the Company's credit agreement.

In October, the Company amended its existing credit agreement to reset the total net leverage covenant during the remaining term of the credit agreement while preserving the favorable pricing structure from the original agreement. The amendment increased the Company's maximum total net leverage ratio from 3.75x to 4.50x with incremental step downs through the maturity of the term loan and the revolving loan on May 31, 2022.

Outlook

The Company reaffirms the previously communicated 2019 outlook of revenue declines between 6% and 9%, with Adjusted EBITDA margin between 27% and 29%.

Q3 Earnings Call

As previously announced, management will hold a conference call and webcast today at 9:00 a.m. CST. This webcast may be accessed at investor.cars.com. A replay of the webcast and the slideshow will be available at this website following the conclusion of the call until November 20, 2019.

About Cars.com

Cars.com is a leading digital marketplace and solutions provider for the automotive industry that connects car shoppers with sellers. Launched in 1998 with the flagship marketplace site Cars.com and headquartered in Chicago, the Company empowers shoppers with the data, resources and digital tools needed to make informed buying decisions and seamlessly connect with automotive retailers. In a rapidly changing market, Cars.com enables dealerships and OEMs with innovative technical solutions and data-driven intelligence to better reach and influence ready-to-buy shoppers, increase inventory turn and gain market share. In 2018, Cars.com acquired Dealer Inspire®, an innovative technology company building solutions that future-proof dealerships with more efficient operations, a faster and easier car buying process, and connected digital experiences that sell and service more vehicles.

Cars.com properties include DealerRater®, Dealer Inspire®, Auto.com™, PickupTrucks.com® and NewCars.com®. For more information, visit www.Cars.com. 

Non-GAAP Financial Measures

This earnings release discusses Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, Adjusted Net Income per diluted share and Free Cash Flow. These are not financial measures as defined by GAAP. These financial measures are presented as supplemental measures of operating performance because we believe they provide meaningful information regarding our performance and provide a basis to compare operating results between periods. In addition, we use Adjusted EBITDA as a measure for determining incentive compensation targets. Adjusted EBITDA also is used as a performance measure under our credit agreement and includes adjustments such as the items defined below and other further adjustments, which are defined in the credit agreement. These non-GAAP financial measures are frequently used by our lenders, securities analysts, investors and other interested parties to evaluate companies in our industry. For a reconciliation of the non-GAAP measures presented in this earnings release to their most directly comparable financial measure prepared in accordance with GAAP, see "Non-GAAP Reconciliations" below.

Other companies may define or calculate these measures differently, limiting their usefulness as comparative measures. Because of these limitations, these non-GAAP financial measures should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP. Definitions of these non-GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures are presented in the tables below.

We define Adjusted EBITDA as net income (loss) before (1) interest expense (income), net, (2) income tax expense (benefit), (3) depreciation, (4) amortization of intangible assets, (5) stock-based compensation expense, plus (6) certain other items, such as transaction-related costs, costs associated with the stockholder activist campaign, severance, transformation and other exit costs and write-off and impairments of goodwill, intangible assets and other long-lived assets. Amortization of unfavorable contracts liability is not adjusted out of Adjusted EBITDA.

We define Adjusted Net Income as net income (loss) excluding the after-tax impact of (1) amortization of intangible assets, (2) stock-based compensation expense, and (3) certain other items, such as transaction-related costs, costs associated with the stockholder activist campaign, severance, transformation and other exit costs and write-off and impairments of goodwill, intangible assets and other long-lived assets. Amortization of unfavorable contracts liability is not adjusted out of Adjusted Net Income.

Transaction-related costs are certain expense items resulting from actual or potential transactions such as business combinations, mergers, acquisitions, dispositions, spin-offs, financing transactions, and other strategic transactions, including, without limitation, (1) transaction-related bonuses and (2) expenses for advisors and representatives such as investment bankers, consultants, attorneys and accounting firms. Transaction-related costs may also include, without limitation, transition and integration costs such as retention bonuses and acquisition-related milestone payments to acquired employees, in addition to consulting, compensation and other incremental costs associated with integration projects.

We define Free Cash Flow as net cash provided by operating activities less capital expenditures, including purchases of property and equipment and capitalization of internal-use software and website development costs.

Key Metric Definitions

Traffic (Visits). Traffic is critical to our business. Traffic to the Cars.com network of websites and mobile apps provides value to our advertisers in terms of audience, awareness, consideration and conversion. In addition to tracking traffic volume and sources, we monitor activity on our properties, allowing us to innovate and refine our consumer-facing offerings. Traffic is defined as the number of visits to Cars.com desktop and mobile properties (responsive sites and mobile apps), using Adobe Analytics. Visits refers to the number of times visitors accessed Cars.com properties during the period, no matter how many visitors make up those visits. Traffic provides an indication of our consumer reach. Although our consumer reach does not directly result in revenue, we believe our ability to reach in-market car shoppers is attractive to our dealers and national advertisers.

Average Monthly Unique Visitors ("UVs"). Growth in unique visitors and consumer traffic to our network of websites and mobile apps increases the number of impressions, clicks, leads and other events we can monetize to generate revenue. We define UVs in a given month as the number of distinct visitors that engage with our platform during that month. Visitors are identified when a user first visits an individual Cars.com property on an individual device/browser combination or installs one of our mobile apps on an individual device. If an individual accesses more than one of our web properties or apps or uses more than one device or browser, each of those unique property/browser/app/device combinations counts towards the number of UVs. We measure UVs using Adobe Analytics.

Dealer Customers. Dealer Customers represent dealerships using our products as of the end of each reporting period. Each 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.

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

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of the federal securities laws. All statements other than statements of historical facts are forward-looking statements. Forward-looking statements include information concerning our business strategies, strategic alternatives review process, plans and objectives, market potential, outlook, trends, future financial performance, planned operational and product improvements, potential strategic transactions, liquidity and other matters and involve known and unknown risks that are difficult to predict. As a result, our actual financial results, performance, achievements, strategic actions or prospects may differ materially from those expressed or implied by these forward-looking statements. These statements often include words such as "believe," "expect," "project," "anticipate," "intend," "strategy," "plan," "estimate," "target," "seek," "will," "may," "would," "should," "could," "forecasts," "mission," "strive," "more," "goal" or similar expressions. Forward-looking statements are based on our current expectations, beliefs, strategies, estimates, projections and assumptions, based on our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we think are appropriate. Such forward-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by the Company and its management based on their knowledge and understanding of the business and industry, are inherently uncertain. These statements are expressed in good faith and we believe these judgments are reasonable. However, you should understand that these statements are not guarantees of strategic action, performance or results. Our actual results could differ materially from those expressed in the forward-looking statements. Given these uncertainties, forward-looking statements should not be relied on in making investment decisions. Comparisons of results between current and prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data. Whether or not any such forward-looking statement is in fact achieved will depend on future events, some of which are beyond our control.

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 to differ materially from those expressed in the forward-looking statements contained in this press release. For a detailed discussion of many of these and other risks and uncertainties, see our Annual Report on Form 10-K for the year ended December 31, 2018, our subsequent Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and our other filings with the Securities and Exchange Commission available on our website at investor.cars.com or via EDGAR at www.sec.gov. All forward-looking statements contained in this press release are qualified by these cautionary statements. You should evaluate all forward-looking statements made in this press release in the context of these risks and uncertainties. The forward-looking statements contained in this press release are based only on information currently available to us and speak only as of the date of this press release. We undertake no obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, or changes in future operating results over time or otherwise.

The forward-looking statements in this press release are intended to be subject to the safe harbor protection provided by the federal securities laws.

SOURCE Cars.com Inc.

Related Links

http://www.Cars.com