Cars.com Inc. (Cars Commerce) — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. Cars.com operates an automotive marketplace and related dealer, digital retail, appraisal, and media technology businesses.
Financial and operating performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $180.2 million | $167.1 million | +8% |
| Operating income | $12.7 million | $12.5 million | +2% |
| Operating margin | 7.1% | 7.5% | Down 0.4 percentage points |
| Net income | $0.8 million | $11.5 million | −93% |
| Diluted EPS | $0.01 | $0.17 | −$0.16 |
| Cash from operations | $33.5 million | $28.1 million | +$5.3 million |
Dealer revenue rose 8% to $161.8 million, supported by the D2C Media acquisition, digital experience growth, and marketplace package adoption. OEM and National revenue increased 13% to $15.3 million; Other revenue declined 17% to $3.1 million. Operating expenses grew 8% to $167.4 million. Product and technology, general and administrative, and depreciation and amortization costs increased notably.
Net income fell chiefly as nonoperating results shifted from $8.2 million of other income in Q1 2023 to $3.6 million of other expense in Q1 2024. The filing attributes the change primarily to contingent-consideration fair-value changes and foreign exchange. Net interest expense was broadly flat at $8.3 million. The effective tax rate differed from the 21% statutory rate, principally due to stock-compensation tax benefits and tax credits, partly offset by nondeductible contingent consideration and earnouts.
Cash and cash equivalents were $31.4 million at quarter-end, down from $39.2 million at December 31, 2023. Investing activities used $6.0 million and financing activities used $35.2 million; cash declined by $7.8 million. Total liquidity, including undrawn revolving capacity, was $226.4 million. Gross debt principal was $480.0 million, comprising $400.0 million of 6.375% notes due 2028, a $45.0 million term loan, and $35.0 million of revolving borrowings. Average interest rate was 6.6%. The company reported compliance with debt covenants; leverage and interest coverage ratios were 0.4x and 6.3x.
Dealer customers increased 1% year over year to 19,381 but declined 1% from year-end. Monthly average revenue per dealer rose 5% year over year to $2,505 and fell 1% sequentially. Average monthly unique visitors were down 1% to 28.3 million; reported traffic rose 4%. The company changed its measurement provider from Adobe Analytics to RudderStack starting January 1, 2024 and did not recast prior-period metrics, limiting direct comparability.
Material changes, outlook, and risks
- The D2C Media acquisition, completed in November 2023 for $79.8 million, contributed to dealer revenue and expenses. Its potential employee earnout can reach CAD$35.0 million, subject to revenue targets through 2025.
- Management said operating cash flow and available revolving capacity provide adequate liquidity for business needs over the next 12 months and beyond. The filing gives no numerical revenue or earnings guidance.
- Management linked softer visitor and dealer trends to reduced urgency to buy amid higher vehicle inventory, elevated prices, and higher interest rates. Dealer cancellations were also attributed in part to higher inventory-flooring costs and interest rates.
- At March 31, contingent consideration related to prior acquisitions was valued at $56.2 million; the company expected to pay $19.8 million of contingent consideration and D2C earnout amounts within 12 months. These estimates depend on future performance and may change.
- Subsequent event: On May 6, 2024, the company amended and extended its credit agreement, establishing a $350 million revolving facility due 2029. It borrowed $80 million to repay the existing term and revolving balances; the amendment removed the SOFR floor and changed the leverage covenant test.
- Key risks include automotive demand and macroeconomic conditions, dealer/OEM concentration and consolidation, competition, search and traffic dependence, privacy and cybersecurity, technology execution, acquisition integration, impairment of goodwill and intangibles, and debt and interest-rate exposure. Management reported no material change in its previously disclosed risk factors and no litigation expected to materially affect the company.
Most important facts for investors to verify
- Whether revenue growth and higher dealer ARPD persist as marketplace repackaging and D2C Media contributions evolve, and whether dealer churn stabilizes.
- How much of the net-income decline reflects contingent-consideration remeasurement and foreign exchange, and how these items may affect future results.
- The cash cost, timing, and performance assumptions underlying acquisition contingent consideration and the D2C Media earnout.
- Post-amendment borrowing, interest costs, liquidity, and covenant headroom under the new credit facility.
- Comparability of traffic and unique-visitor metrics after the measurement-provider change.
- Ongoing cash allocation among debt service, acquisitions, contingent payments, and share repurchases; the company repurchased 0.5 million shares for $9.5 million in Q1.