Cars.com Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed February 25, 2021. This is an annual report, not a standalone fourth-quarter filing. Cars.com operates a digital automotive marketplace and dealer solutions business; 85% of FY2020 revenue came from dealerships.
Financial results and key metrics
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $547.5 million | $606.7 million |
| Operating loss | $887.3 million | $446.1 million |
| Net loss | $817.1 million | $445.3 million |
| Diluted loss per share | $12.15 | $6.65 |
| Operating cash flow | $138.6 million | $101.5 million |
| Capital expenditures | $16.7 million | $21.3 million |
| Cash and equivalents at year-end | $67.7 million | $13.5 million |
| Total assets | $1,075.7 million | $2,028.0 million |
The FY2020 operating and net losses included a $905.9 million noncash goodwill and intangible-asset impairment. Approximate reported operating and net margins were negative 162% and negative 149%, respectively, primarily reflecting that impairment; the filing does not provide a comparable adjusted margin measure.
FY2020 revenue fell 10% overall. Retail revenue declined 4% to $547.5 million; wholesale revenue was zero in 2020 versus $34.4 million in 2019 after all affiliate markets had converted to direct control. Direct revenue decreased 3%, national advertising revenue decreased 9%, and marketplace subscription advertising revenue decreased to $436.4 million from $476.0 million.
Audience metrics improved: traffic rose 8% to 599.8 million visits and average monthly unique visitors rose 5% to 23.8 million. Dealer customers ended the year at 18,372, down 2% year over year but up 1% from September 2020. Annual direct monthly average revenue per dealer declined 8% to $1,995, partly due to temporary customer invoice credits; fourth-quarter quarterly revenue per dealer increased 6% year over year to $2,264.
Fourth quarter: Revenue was $153.0 million versus $152.2 million in Q4 2019. Operating income was $15.9 million versus $4.7 million; net income was $7.2 million versus a $4.1 million net loss. Diluted EPS was $0.10 versus a loss of $0.06.
Cash, debt and liquidity
- Operating cash flow increased to $138.6 million. Investing activities used $16.7 million and financing activities used $67.7 million; cash increased $54.2 million during the year.
- Year-end principal debt was $597.5 million: $197.5 million under the Term Loan and $400.0 million of 6.375% senior unsecured notes due 2028. No revolving-credit borrowings were outstanding; $230.0 million was available under the revolver.
- Reported liquidity, including cash and revolver availability, was $297.7 million. The debt’s effective weighted rate was 5.2%. The company reported year-end senior secured leverage of 1.27x and interest coverage of 5.82x and stated it was in compliance with debt covenants.
- In October 2020, the company issued the notes and amended/refinanced its credit facility, extending its maturity to May 31, 2025. Scheduled principal payments include $140 million in 2025; the notes’ $400 million principal is due thereafter in 2028.
Material changes, outlook and risks
- The COVID-19 pandemic and related restrictions reduced dealer and OEM advertising demand and prompted 50% invoice credits for dealers in April and 30% credits in May and June 2020. Credits ended in June and pricing returned to normal. Dealer profitability and consumer demand strengthened in the second half, according to management, but future effects remained uncertain.
- The company cut costs through furloughs, workforce reductions, temporary salary reductions, reduced marketing and other spending controls. It reported restored some temporary measures. Management expected the Technology Transformation to be completed in 2021, with further efficiencies, although COVID-19 had extended its timeline.
- The company launched FUEL, a targeted digital-video offering, and continued expanding digital retailing tools. A General Motors preferred website-provider program offered access to more than 4,100 GM dealers; approximately half of the 800-plus websites secured under the endorsement were launched in 2020.
- Goodwill was fully impaired in 2020; the Cars.com trade name was impaired by $400.0 million and had a remaining carrying value of $390.0 million. Intangible assets totaled $835.2 million at year-end, about 78% of total assets.
- Other notable items included a $9.4 million impairment of a non-marketable investment and increased net interest expense to $37.9 million. The company’s interest-rate swap had a $12.1 million unrealized loss at year-end, and loss of hedge accounting affected reported interest and other expense.
- Key risks include continuing pandemic impacts, dealer cancellations or reduced spending, intense competition, reliance on search-engine traffic and third-party data/platforms, privacy and regulatory changes, technology and cybersecurity disruptions, and compliance with debt covenants. Management gave no specific FY2021 revenue or earnings guidance in the provided filing text.
- The company reported no material off-balance-sheet arrangements and stated it knew of no pending litigation expected to have a material adverse effect. Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether revenue, dealer retention and revenue per dealer recover after pandemic-related credits and cancellations, and how much growth comes from digital solutions and FUEL.
- Whether cash generation and covenant headroom remain adequate under the amended debt terms; confirm debt maturities, interest costs and revolver availability.
- Whether additional impairment charges or changes in assumptions affect the $390.0 million remaining trade-name asset and other intangible assets.
- Progress and costs of the Technology Transformation, and execution of the GM website program and other product initiatives.
- Potential effects of pandemic developments, dealer/OEM spending, competition, privacy rules, and changes to browser tracking and advertising measurement.