Cars.com Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Cars.com operates a digital automotive marketplace and provides advertising and digital solutions to dealers, OEMs and other customers. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $155.5 | $102.0 | $308.8 | $250.1 |
| Operating income (loss) | $15.7 | $(17.2) | $32.2 | $(922.3) |
| Net income (loss) | $6.0 | $(24.6) | $11.2 | $(812.1) |
| Diluted EPS | $0.08 | $(0.37) | $0.16 | $(12.10) |
| Operating margin | 10.1% | (16.9%) | 10.4% | Not meaningful |
Q2 revenue rose 52% year over year, led by Dealer revenue, up 64% to $136.9 million. OEM and National revenue increased 2% to $16.3 million; Other revenue declined 15% to $2.3 million. Dealer revenue was 88% of Q2 revenue.
For the first half, revenue increased 23%; Dealer revenue rose 29% to $269.8 million, while OEM and National revenue fell 3% to $34.4 million and Other revenue fell 24% to $4.6 million. Prior-year comparisons are affected by approximately $38.2 million of dealer invoice credits issued in Q2 2020 in response to COVID-19. The 2020 first-half loss also included $905.9 million of goodwill and intangible-asset impairment and a $9.4 million non-marketable investment impairment.
Cash flow, debt and liquidity
- First-half operating cash flow was $79.6 million, versus $57.6 million a year earlier. Capital expenditures were $13.1 million; operating cash flow less capital expenditures was $66.5 million.
- Cash declined to $52.2 million from $67.7 million at year-end 2020. Investing activities used $13.1 million and financing activities used $82.1 million, including $75.0 million of debt repayments, of which $70.0 million were voluntary prepayments.
- Outstanding debt principal was $522.5 million: $122.5 million under the term loan and $400.0 million of 6.375% senior notes due 2028. The term loan rate was 2.5%, excluding the swap; the reported effective rate on total debt was 5.5%. Debt carrying value on the balance sheet was $510.1 million.
- The company had $230.0 million available under its revolving facility and reported total liquidity of $282.2 million, including cash. It was compliant with debt covenants. The interest-rate swap had a $7.9 million unrealized loss at quarter-end.
Operating trends, outlook and risks
- Dealer customers totaled 18,845, up 5% year over year and 22 from March 31, 2021. Monthly average revenue per dealer was $2,299, up 59% year over year, largely reflecting the prior-year invoice credits, and up 1% sequentially.
- Q2 traffic increased 10% and average monthly unique visitors increased 16% year over year. Management attributed audience growth to consumer demand, economic reopening, and investments in performance marketing and search optimization.
- Management highlighted continued growth in FUEL, selection by FordDirect as a preferred website and technology provider for about 3,000 U.S. dealerships, and completion of an upgraded Cars.com website and app. The company reported site load times up to 80% faster and more than 50,000 inventory updates daily.
- No specific financial guidance or quantified outlook is provided in the supplied filing text. Management said future results remain dependent on macroeconomic and automotive-market conditions, COVID-19 developments, revenue, cost control and collections. Semiconductor-related vehicle inventory constraints and OEM production slowdowns were noted; OEM and National revenue was affected by production slowdowns.
- Other disclosed risks include competition, dealer retention and demand, reliance on search engines and third parties, technology and cybersecurity, privacy regulation, interest-rate exposure and debt restrictions. The company reported no material off-balance-sheet arrangements; legal proceedings are described generally, with no clear quantified loss value in the filing text.
Important facts for investors to verify
- Separate underlying growth from the comparison benefit of $38.2 million in Q2 2020 dealer credits and from the exceptional 2020 impairment charges.
- Monitor dealer customer retention, revenue per dealer, FUEL and other digital-solutions growth, and the impact of vehicle inventory shortages on dealer and OEM spending.
- Confirm debt principal, scheduled repayments, facility availability, covenant headroom and the effects of variable rates and the interest-rate swap.
- Review the recoverability of deferred tax assets: the company maintained a valuation allowance, and its first-half effective tax rate was 9%.
- Assess future cash generation and capital spending against the company’s liquidity needs and any legal or other contingencies, whose potential amounts are not clearly quantified here.