Cars.com Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Cars.com operates an automotive marketplace and related digital solutions for dealers, automakers, advertisers and shoppers. Unless otherwise noted, amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $167.1 million | $158.2 million | +6% |
| Operating income | $12.5 million | $10.9 million | +15% |
| Net income | $11.5 million | $4.3 million | +$7.1 million |
| Diluted EPS | $0.17 | $0.06 | +$0.11 |
| Operating cash flow | $28.1 million | $30.4 million | -$2.2 million |
- Dealer revenue rose 7% to $149.8 million, primarily from digital solutions. OEM and National revenue fell 11% to $13.5 million, primarily due to reduced spending by some insurance customers. Other revenue rose 41% to $3.7 million.
- Operating expenses increased 5% to $154.5 million, below revenue growth. Product and technology costs increased 13%; general and administrative costs increased 11%, including higher compensation and severance-related costs.
- Calculated operating margin was approximately 7.5%, versus 6.9% in Q1 2022; calculated net margin was approximately 6.9%, versus 2.7%. Net income benefited substantially from an $8.2 million gain in other income tied to lower fair value of acquisition-related contingent consideration; this is not solely an operating-performance measure.
- Interest expense was $8.2 million, down from $9.3 million. The 2023 effective tax rate was 8.3%, versus a tax benefit in the prior-year quarter, primarily reflecting tax benefits from vesting equity awards.
- Operating cash flow was $28.1 million. Investing activities used $5.4 million, while financing activities used $35.6 million, including $18.8 million of debt repayments, $9.8 million of net payments related to stock-based compensation plans and $7.1 million of share repurchases. Cash declined $12.9 million to $18.8 million.
Balance sheet, debt and liquidity
- At March 31, 2023, total assets were $1.002 billion, total liabilities were $617.2 million and stockholders’ equity was $385.0 million.
- Debt principal totaled $462.5 million: $400.0 million of 6.375% notes due 2028 and $62.5 million under the Term Loan at a 7.2% rate. The reported effective rate was 6.5%. Debt carrying value, net, was $454.2 million.
- The company had $18.8 million of cash and $230.0 million available under its revolving facility, for reported total liquidity of $248.8 million. Management stated liquidity was adequate for business needs for the next 12 months and beyond. The company reported compliance with debt covenants.
- Contingent consideration related to acquisitions had a $47.6 million fair value; management expected to pay $6.7 million of potential consideration within 12 months. The amount and timing depend on acquired businesses’ performance.
Operating trends, outlook and risks
- Traffic increased 11% to 164.8 million visits and average monthly unique visitors increased 7% to 28.5 million. Management attributed growth to consumer demand, changes in paid user acquisition strategy and improvements to app and website experiences.
- Dealer customers declined 2% year over year to 19,186, which management attributed to elevated cancellations among digital dealers. Monthly average revenue per dealer increased 4% year over year to $2,386, driven primarily by digital solutions growth, partly offset by lower FUEL revenue.
- The filing provides no specific financial guidance. Management described its liquidity as adequate and emphasized continued development of digital solutions. Results may be affected by automotive demand and inventory, dealer and OEM spending, competition, interest rates, inflation, privacy and data regulation, technology and cybersecurity risks, and acquisition performance.
- The filing reported no material changes to previously disclosed risk factors, no material pending or threatened litigation, and no material off-balance-sheet arrangements. Management concluded disclosure controls were effective and reported no materially impactful changes to internal control over financial reporting.
Important facts for investors to verify
- How much of the reported earnings improvement is sustainable operating growth versus the $8.2 million contingent-consideration fair-value gain.
- Whether dealer cancellations continue and whether higher revenue per dealer can offset a declining customer count.
- The drivers of lower OEM and National spending and whether that weakness persists.
- Debt repayment capacity, exposure to floating interest rates, covenant headroom and expected acquisition-related contingent payments.
- Cash conversion and the effect of share repurchases and other capital uses on liquidity.