Cars.com Reports Second Quarter 2019 Results

CHICAGO, Aug. 5, 2019 /PRNewswire/ -- Cars.com Inc. (NYSE:CARS) ("Cars.com" or the "Company"), a leading digital marketplace and solutions provider for the automotive industry, today released its financial results for the quarter ended June 30, 2019.

Q2 Financial Highlights

• Revenue of $148.2 million, down $20.3 million, or 12%, year-over-year
• Net loss of ($6.0) million, or ($0.09) per diluted share, compared to net income of $12.7 million, or $0.18 per diluted share in the prior year
• Adjusted net income of $20.0 million, or $0.30 per diluted share, compared to adjusted net income of $34.3 million, or $0.48 per diluted share, in the prior year
• Adjusted EBITDA of $43.5 million, or 29% of revenue, down $13.8 million year-over-year
• Net cash provided by operating activities of $50.8 million for the six months ended June 30, 2019, with free cash flow of $41.4 million

Q2 Key Metrics and Highlights

• Average monthly unique visitors of 21.6 million, up 13% year-over-year
• Traffic (visits) of 130.6 million, up 16% year-over-year
• Continued strength in SEO, which was up 51% year-over-year
• Mobile traffic was 71% of total traffic, compared to 67% in the second quarter of 2018
• Dealer customers of 18,891 as of June 30, 2019, compared with 19,300 as of March 31, 2019, due to softness in April; direct marketplace dealer customers grew in May and June
• Direct monthly average revenue per dealer ("ARPD") was $2,052, down 2% year-over-year excluding revenue from dealer websites and related digital solutions from Dealer Inspire; when revenue from dealer websites and related digital solutions is included, ARPD was $2,163 for the second quarter of 2019.

Operational Highlights

• Negotiated agreements to fully convert affiliate markets one year ahead of schedule. All dealer customers served by the Cars.com direct sales force by the fourth quarter of 2019:
• Gannett, TEGNA and Belo markets convert by the start of the fourth quarter
• Approximately $9 million of revenue is anticipated from these conversions with a modestly negative impact on cash flow expected in 2019, due to the incremental sales positions and payments required to accelerate the conversions
• Execution of sales strategy generating positive results on dealer count:
• Direct dealers added in May were at their highest since June 2018
• Direct dealer cancellations improved sequentially throughout the second quarter with June representing the lowest of the previous 13 months
• Strong Dealer Inspire revenue growth of 31% year-over-year

"Our strategy is yielding results across multiple metrics including sustained growth in overall site traffic, SEO traffic, leads and important dealer metrics which reinforce confidence in our strategic priorities, execution and vision. While many trends are positive, continued reductions in OEM advertising and delayed OEM certifications that facilitate sales to thousands of franchise dealers on a preferred basis, have impacted our 2019 outlook," said Alex Vetter, President and Chief Executive Officer of Cars.com.  "We have taken action to convert the remaining affiliate markets one year ahead of schedule, which will benefit revenue in 2019. We are focused on executing our strategy to return to revenue growth and achieve double-digit Adjusted EBITDA growth in 2020."

Financial Results

Revenue for the second quarter of 2019 was $148.2 million, compared to $168.5 million in the prior year period. This reduction was primarily due to a decline in dealer count and a $7.9 million decline in National advertising resulting from a reduction in upfront commitments for 2019 and lower close rates from OEMs. These declines were offset in part by Dealer Inspire revenue growth, as well as the full quarter impact of uplift from affiliate conversions.

Total operating expenses for the second quarter of 2019 were $147.2 million, compared to $144.0 million for the prior year period. This increase was driven by a $6.1 million increase in non-recurring costs and a $3.0 million increase in depreciation and amortization, partially offset by operational efficiencies in product, technology and sales.

Net loss for the second quarter of 2019 was ($6.0) million, or ($0.09) per diluted share, compared to net income of $12.7 million, or $0.18 per diluted share, in the second quarter of 2018. Adjusted net income for the second quarter of 2019 was $20.0 million, or $0.30 per diluted share, compared to $34.3 million, or $0.48 per diluted share, in the second quarter of 2018.

Adjusted EBITDA for the second quarter of 2019 was $43.5 million, or 29% of revenue, compared to $57.3 million, or 34% of revenue, for the prior year period.

For the second quarter, average monthly unique visitor count grew 13% year-over-year, and total traffic grew 16% year-over-year supported by investments in product and marketing and sustained growth in SEO. Mobile traffic grew 23% year-over-year and accounted for 71% of total traffic compared to 67% in the prior year.

Dealer customers were 18,891 as of June 30, 2019, a decline of 2% compared to 19,300 dealer customers as of March 31, 2019. Direct dealer customers decreased by 307, primarily resulting from softness in April. Direct marketplace dealer customers grew modestly in May and June.

ARPD was $2,163 in the second quarter of 2019. ARPD excluding revenue from dealer websites and related digital solutions from Dealer Inspire was $2,052, down 2% year-over-year.

"We are on track to deliver more than $30 million of annualized cost efficiencies, driven largely by our sales and technology transformation initiatives," said Becky Sheehan, Chief Financial Officer of Cars.com. "Our team is focused on the launch and execution of several additional cost reduction actions and driving even further operational efficiencies."

Cash Flow and Balance Sheet

Net cash provided by operating activities for the six-month period ended June 30, 2019 was $50.8 million, compared to $70.6 million in the prior year. Free cash flow for the six-month period ended June 30, 2019 was $41.4 million, compared to $64.2 million in the same period last year. Cash flow was impacted in both periods by payments associated with the early conversion of affiliate markets.

Cash and cash equivalents was $9.5 million and debt outstanding was $680.0 million as of June 30, 2019. During the six-month period, the Company paid down $16.3 million of indebtedness. Net leverage at June 30, 2019 was 3.25x, calculated in accordance with the Company's credit agreement.

Outlook

The Company anticipates 2019 revenue declines between 6% and 9%, with Adjusted EBITDA margin between 27% and 29%. This outlook includes the conversion of all remaining affiliate markets by October 1, 2019.

2019 Annual Meeting of Stockholders

The Company's 2019 Annual Meeting of Stockholders will be held at 9:00 a.m. Central Time on October 30, 2019. The location of the 2019 Annual Meeting will be specified in the Company's proxy statement for the 2019 Annual Meeting. The nomination deadline and the deadline for submission of shareholder proposals for inclusion in the Company' proxy materials for the 2019 Annual Meeting have been set as 5:00 p.m. Central Time on August 15, 2019.

Q2 Earnings Call

As previously announced, management will hold a conference call and webcast today at 9:00 a.m. Central Time. This webcast may be accessed at investor.cars.com. A replay of the webcast and the slideshow will be available at this website following the conclusion of the call until August 19, 2019.

About Cars.com

Cars.com is a leading digital marketplace and solutions provider for the automotive industry that connects car shoppers with sellers. Launched in 1998 and headquartered in Chicago, the Company empowers shoppers with the data, resources and digital tools needed to make informed buying decisions and seamlessly connect with automotive retailers. In a rapidly changing market, Cars.com enables dealerships and OEMs with innovative technical solutions and data-driven intelligence to better reach and influence ready-to-buy shoppers, increase inventory turn and gain market share. In 2018, Cars.com acquired Dealer Inspire®, an innovative technology company building solutions that future-proof dealerships with more efficient operations, a faster and easier car buying process, and connected digital experiences that sell and service more vehicles.

Cars.com properties include DealerRater®, Dealer Inspire®, Auto.com™, PickupTrucks.com® and NewCars.com®. For more information, visit www.Cars.com. 

Non-GAAP Financial Measures

This earnings release discusses adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted share and free cash flow. These are not financial measures as defined by GAAP. These financial measures are presented as supplemental measures of operating performance because we believe they provide meaningful information regarding our performance and provide a basis to compare operating results between periods. In addition, we use adjusted EBITDA as a measure for determining incentive compensation targets. Adjusted EBITDA also is used as a performance measure under the Company's credit agreement and includes adjustments such as the items defined below and other further adjustments, which are defined in the credit agreement. These non-GAAP financial measures are frequently used by our lenders, securities analysts, investors and other interested parties to evaluate companies in our industry. For a reconciliation of the non-GAAP measures presented in this earnings release to their most directly comparable financial measure prepared in accordance with GAAP, see "Non-GAAP Reconciliations" below.

Other companies may define or calculate these measures differently, limiting their usefulness as comparative measures. Because of these limitations, these non-GAAP financial measures should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP. Definitions of these non-GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures are presented in the tables below.

The Company defines adjusted EBITDA as net income (loss) before (1) interest expense (income), net, (2) income tax expense (benefit), (3) depreciation, (4) amortization of intangible assets, (5) stock-based compensation expense, plus (6) certain other items, such as transaction-related costs, costs associated with the stockholder activist campaign, severance, transformation and other exit costs and write-off and impairments of goodwill, intangible assets and other long-lived assets. Amortization of unfavorable contracts liability is not adjusted out of adjusted EBITDA.

The Company defines adjusted net income as net income (loss) excluding the after-tax impact of (1) amortization of intangible assets, (2) stock-based compensation expense, and (3) certain other items, such as transaction-related costs, costs associated with the stockholder activist campaign, severance, transformation and other exit costs and write-off and impairments of goodwill, intangible assets and other long-lived assets. Amortization of unfavorable contracts liability is not adjusted out of adjusted net income.

Transaction-related costs are certain expense items resulting from actual or potential transactions such as business combinations, mergers, acquisitions, dispositions, spin-offs, financing transactions, and other strategic transactions, including, without limitation, (1) transaction-related bonuses and (2) expenses for advisors and representatives such as investment bankers, consultants, attorneys and accounting firms. Transaction-related costs may also include, without limitation, transition and integration costs such as retention bonuses and acquisition-related milestone payments to acquired employees, in addition to consulting, compensation and other incremental costs associated with integration projects.

The Company defines free cash flow as net cash provided by operating activities less capital expenditures, including purchases of property and equipment and capitalization of internal-use software and website development costs.

Key Metric Definitions

Traffic (Visits). Traffic is critical to our business. Traffic to the Cars.com network of websites and mobile apps provides value to our advertisers in terms of audience, awareness, consideration and conversion. In addition to tracking traffic volume and sources, we monitor activity on our properties, allowing us to innovate and refine our consumer-facing offerings. Traffic is defined as the number of visits to Cars.com desktop and mobile properties (responsive sites and mobile apps), using Adobe Analytics. Visits refers to the number of times visitors accessed Cars.com properties during the period, no matter how many visitors make up those visits. Traffic provides an indication of our consumer reach. Although our consumer reach does not directly result in revenue, we believe our ability to reach in-market car shoppers is attractive to our dealers and national advertisers.

Average Monthly Unique Visitors ("UVs"). Growth in unique visitors and consumer traffic to our network of websites and mobile apps increases the number of impressions, clicks, leads and other events we can monetize to generate revenue. We define UVs in a given month as the number of distinct visitors that engage with our platform during that month. Visitors are identified when a user first visits an individual Cars.com property on an individual device/browser combination or installs one of our mobile apps on an individual device. If an individual accesses more than one of our web properties or apps or uses more than one device or browser, each of those unique property/browser/app/device combinations counts towards the number of UVs. We measure UVs using Adobe Analytics.

Dealer Customers. Dealer Customers represent dealerships using our products as of the end of each reporting period. Each dealership location is counted separately, whether it is a single-location proprietorship or part of a large consolidated dealer group. Multi-franchise dealerships at a single location are counted as one dealer. Beginning June 30, 2018, this key operating metric includes Dealer Inspire customers.

Average Revenue Per Dealer ("ARPD"). We believe that our ability to grow ARPD is an indicator of the value proposition of our products. We define ARPD as Direct retail revenue during the period divided by the average number of direct Dealer Customers during the same period. Beginning the first quarter of 2019, this key operating metric includes dealer websites and related digital solutions. ARPD prior to the first quarter of 2019 has not been recast to include Dealer Inspire as it would be impracticable to do so.

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of the federal securities laws. All statements other than statements of historical facts are forward-looking statements. Forward-looking statements include information concerning our business strategies, strategic alternatives review process, plans and objectives, market potential, outlook, trends, future financial performance, planned operational and product improvements, potential strategic transactions, liquidity and other matters and involve known and unknown risks that are difficult to predict. As a result, our actual financial results, performance, achievements, strategic actions or prospects may differ materially from those expressed or implied by these forward-looking statements. These statements often include words such as "believe," "expect," "project," "anticipate," "intend," "strategy," "plan," "estimate," "target," "seek," "will," "may," "would," "should," "could," "forecasts," "mission," "strive," "more," "goal" or similar expressions. Forward-looking statements are based on our current expectations, beliefs, strategies, estimates, projections and assumptions, based on our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we think are appropriate. Such forward-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by the Company and its management based on their knowledge and understanding of the business and industry, are inherently uncertain. These statements are expressed in good faith and we believe these judgments are reasonable. However, you should understand that these statements are not guarantees of strategic action, performance or results. Our actual results and strategic actions could differ materially from those expressed in the forward-looking statements. Given these uncertainties, forward-looking statements should not be relied on in making investment decisions. Comparisons of results between current and prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data. Whether or not any such forward-looking statement is in fact achieved will depend on future events, some of which are beyond our control.

Forward-looking statements are subject to a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results and strategic actions to differ materially from those expressed in the forward-looking statements contained in this press release. For a detailed discussion of many of these and other risks and uncertainties, see "Part I, Item 1A., Risk Factors" and "Part II, Item 7., Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2018, our subsequent Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and our other filings with the Securities and Exchange Commission available on our website at investor.cars.com or via EDGAR at www.sec.gov. All forward-looking statements contained in this press release are qualified by these cautionary statements. You should evaluate all forward-looking statements made in this press release in the context of these risk and uncertainties. The forward-looking statements contained in this press release are based only on information currently available to us and speak only as of the date of this press release. We undertake no obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, or changes in future operating results over time or otherwise.

The forward-looking statements in this press release are intended to be subject to the safe harbor protection provided by the federal securities laws.

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SOURCE Cars.com Inc.