Cars.com Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Cars.com operates an automotive marketplace and provides digital advertising and dealer solutions through brands including Cars.com and Dealer Inspire.
Financial performance and liquidity
- Revenue: Q3 revenue was $156.6 million, up 8% year over year. Dealer revenue rose 12% to $139.3 million; OEM and National revenue declined 14% to $15.3 million. Nine-month revenue was $465.4 million, up 18%.
- Profitability: Q3 operating income was $12.1 million versus $19.1 million a year earlier; operating margin was approximately 7.7% versus 13.2%. Net income was $2.4 million, or $0.04 per basic share and $0.03 diluted, compared with a $12.3 million net loss. Nine-month net income was $13.7 million, versus a $824.3 million loss in 2020.
- Cash flow: Nine-month operating cash flow was $116.2 million, compared with $96.9 million. Capital expenditures were $17.9 million; financing activities used $114.6 million, principally reflecting debt repayment. Cash declined $16.2 million to $51.5 million.
- Debt and liquidity: Principal debt was $490.0 million at September 30, including $90.0 million under the term loan and $400.0 million of notes. The company repaid $107.5 million of term debt, including $100.0 million in voluntary prepayments. It reported $230.0 million available on its revolver and total liquidity of $281.5 million. Debt covenants were met.
- Operating indicators: Dealer customers increased 5% year over year to 19,029; monthly average revenue per dealer rose 7% to $2,332. Q3 traffic fell 10% and average monthly unique visitors fell 4% year over year.
Material changes versus comparable periods
- Dealer revenue growth reflected higher dealer counts and average revenue per dealer, including growth in FUEL and digital solutions. Nine-month growth also benefited from comparison with 2020, when Cars.com issued approximately $38.2 million in COVID-related dealer invoice credits.
- OEM and National revenue declined amid fewer new-model releases and vehicle inventory shortages associated with supply-chain disruption.
- Q3 operating expenses increased 15% year over year, outpacing revenue growth; product and technology, marketing and sales, and general and administrative costs rose. Management cited prior-year COVID-related cost reductions and continued investment.
- The 2020 nine-month comparison included $905.9 million of goodwill and intangible-asset impairment charges and a $9.4 million impairment of a non-marketable investment. These unusual items substantially affected prior-year reported losses.
Outlook, risks and other notable items
- The filing provides no quantified financial guidance. Management described the marketplace and digital solutions as important to customers, while noting that future pandemic effects remain uncertain.
- Management cited semiconductor-related vehicle inventory constraints and broader supply-chain disruption as factors that may affect automotive activity and OEM/dealer spending. The company also attributed some Q3 traffic and unique-visitor weakness to the high prior-year comparison and temporary effects of its completed site and app technology transformation.
- Cars.com announced a November 2021 agreement to acquire CreditIQ, an online automotive financing platform, for $30 million cash at closing, plus potential performance-based consideration of up to $50 million over three years. Closing was expected in November 2021.
- A valuation allowance remained against deferred tax assets, reflecting management’s assessment of recent losses. The company received a $9.1 million tax refund during the first nine months of 2021.
- Risks include competition, reliance on dealer and OEM relationships, search and third-party platforms, technology and cybersecurity, privacy regulation, automotive market conditions, and interest-rate and debt-covenant exposure. Management reported no material change to the risk factors in its 2020 Form 10-K and stated disclosure controls were effective.
Important facts for investors to verify
- Whether dealer growth, retention and higher revenue per dealer can continue, and how much growth depends on FUEL and other higher-cost digital solutions.
- Whether traffic and unique visitors recover after the site transformation and the unusually strong Q3 2020 comparison.
- How continuing vehicle inventory and supply-chain constraints affect OEM advertising, dealer demand and revenue mix.
- The CreditIQ acquisition’s closing, cash impact, performance-based payments and contribution to results.
- Debt repayment capacity, cash levels and exposure as the interest-rate swap expires in May 2022.