Cars.com Reports Second Quarter 2017 Results

CHICAGO, Aug. 9, 2017 -- Cars.com, Inc. – today announced its financial results for the second quarter ended on June 30, 2017.

Financial Highlights – Second Quarter:

• Revenue of $156.6 million, in-line with expectations and flat to the prior year
• Net income of $24.8 million, or $0.35 per diluted share, in-line with expectations and down compared to prior year net income of $42.0 million
• Adjusted net income of $50.5 million, compared to prior year adjusted net income of $60.2 million
• Adjusted EBITDA of $62.1 million, or 39.7% of revenue, compared to prior year adjusted EBITDA of $62.2 million, or 39.7% of revenue, and in-line with expectations
• Net cash provided by operating activities of $96.7 million for the first half of 2017 with free cash flow of $77.8 million, compared to prior year net cash provided by operating activities of $72.3 million and free cash flow of $67.5 million
• Remain on track to reach full year 2017 revenue and adjusted EBITDA margin guidance

Key Metric Highlights – Second Quarter:

• Traffic (Visits) of 104.1 million, down 1% from the prior year period, and improved upon a 7% year over year decline in the first quarter of 2017
• Dealer Customers of 21,465, flat to first quarter 2017 dealer customers of 21,552
• Average Vehicle Listings of 5.0 million, up 6% from the prior year period
• Initial growth in traffic seen during June compared to the prior year
• Mobile traffic up 9% from the prior year period

Operational Highlights – Second Quarter:

• Completed spin-off from former parent company TEGNA, Inc. on May 31 and listing of Cars.com on NYSE
• Closed on a $900 million credit facility with borrowings at closing of $675 million
• Eclipsed 5 million reviews extending our lead as the industry's largest and broadest reaching platform for product, dealership and salesperson reviews
• Granted a patent for Lot Insights, a reporting tool providing unparalleled intelligence of where and when customers use the Cars.com mobile and improving overall understanding of customer behavior

"This quarter was transformational for us with the completion of our spin-off from TEGNA and the listing of Cars.com on the NYSE. I am proud of the efforts of our employees and the support of our partners through this period," said Alex Vetter, President and Chief Executive Officer of Cars.com.

"During this quarter, we executed on our strategic priorities to improve traffic and consumer acquisition and to innovate in product and technology," Vetter continued. "We remain confident in the differentiated value proposition that our two-sided marketplace delivers to both consumers and our partners. We are well positioned to leverage our operating flexibility and our stand alone capital structure to pursue growth initiatives."

Second Quarter Results

Revenue for the second quarter of 2017 was flat at $156.6 million compared to $156.7 million for the prior year period. Revenue for the first half of 2017 was $309.8 million compared to $309.1 million for the prior year period. Note that the current year period includes revenue from DealerRater, which was acquired August 1, 2016. Retail revenue comprised 74% of revenues, while wholesale comprised 26%, for the second quarter of 2017. We remain on track to meet our full year 2017 revenue guidance.

Total operating expenses for the second quarter of 2017 were $127.8 million compared to $114.8 million for the prior year period. This increase is primarily related to a $12.3 million increase in general and administrative expenses, $10.3 million of which is non-recurring (costs related to the spin-off transaction ($4.6 million), the move to our new corporate office ($2.7 million), restructuring charges ($1.7 million) and a write-off on assets ($1.4 million)). In addition, $1.7 million of the increase in general and administrative costs is related to the incremental cost of being a public company and $0.9 million is related to an increase in depreciation expense. Similarly, operating expenses for the first half of 2017 were $253.7 million, up $20.3 million, or 9%, from the prior year period.

Net income for the second quarter of 2017 was $24.8 million compared to $42.0 million for the prior year period. Adjusted net income for the second quarter of 2017 was $50.5 million compared to $60.2 million for the prior year period. These declines were driven by the increase in operating expenses described above and costs associated with the new capital structure of the Company. Adjusted EBITDA for the second quarter of 2017 was flat at $62.1 million, or 39.7% of revenue, compared to $62.2 million, or 39.7% of revenue, in the prior year period. Adjusted EBITDA for the first half of 2017 was $112.3 million, down 3% from the prior year period. We remain on track to meet our full year 2017 adjusted EBITDA margin guidance. See "Non-GAAP Financial Measures" below.

Cash Flow and Balance Sheet

Net cash provided by operating activities was $96.7 million for the first half of 2017, compared to $72.3 million for the prior year period. Free cash flow was $77.8 million for the first half of 2017 compared to $67.5 million for the prior year period. Note that the Company incurred incremental capital expenditures in 2017 of $13.9 million related to the cost of the new corporate office space. See "Non-GAAP Financial Measures" below.

Cash and cash equivalents increased to $36.6 million as of June 30, 2017 from $8.9 million as of December 31, 2016. Excluding debt issuance costs, debt outstanding as of June 30, 2017 was $675 million of which $450 million was term debt and $225 million was associated with the Company's revolving credit facility. $225 million was undrawn on the revolving credit facility as of June 30, 2017.

"In a fragmented market, our size and scale is a key differentiator, driving robust cash flow and maintaining our strong balance sheet," said Becky Sheehan, Chief Financial Officer of Cars.com. "Going forward we will continue to make investments in our technology platform and marketing initiatives while pursuing acquisitions to better serve our consumers and partners." 

2017 Outlook

We remain on track to reach full year 2017 revenue and adjusted EBITDA margin guidance provided earlier this year.

• Revenue growth of 0 – 2%
• Adjusted EBITDA margin between 38 – 40%

"Based on these second quarter results, we remain confident that we are on track to meet our 2017 guidance regarding adjusted EBITDA margins and revenue provided earlier in the year," Sheehan said.

Second Quarter Earnings call

About Cars.com

Cars.com is an online destination that helps car shoppers and owners navigate every turn of car ownership. A pioneer in automotive classifieds, the company has evolved into one of the largest digital automotive platforms, connecting consumers with local dealers across the country anytime, anywhere. Through trusted expert content, on-the-lot mobile app features, millions of new and used vehicle listings, a comprehensive set of research tools and the largest database of consumer reviews in the industry, Cars.com helps shoppers buy, sell and service their vehicles. Cars.com properties include DealerRater®, Auto.com™, PickupTrucks.com™ and NewCars.com®. The company was founded in 1998 and is headquartered in Chicago, Illinois. For more information, visit www.Cars.com.

Key Metrics Definitions

Traffic (Visits). Traffic (Visits) and our ability to generate traffic are key to our business. Tracking our traffic performance is a critical measure. 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 an internal metric representing the number of visits to Cars.com desktop and mobile properties (web browser and apps). Visits refer to the number of times visitors accessed Cars.com properties during the period, no matter how many visitors make up those visits. Traffic (Visits) numbers provide an indication of our consumer reach. Although our consumer reach does not directly result in revenue, we believe our ability to reach diverse demographic audiences is attractive to our dealers and national advertisers.

Dealer Customers. Our value to consumers tracks to our ability to showcase the inventory of our dealer and Original Equipment Manufacturer ("OEM") customers. The larger the advertiser base, the more inventory and options that are available for consumers to review. Dealer Customers represents the car 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.

Average Vehicle Listings. Our value to consumers tracks to our ability to showcase the inventory of our dealer and OEM customers. The more vehicle listings that are available for consumers to review, the more traffic we attract and the higher the consumer engagement. Average Vehicle Listings represents the daily average of vehicles listed for sale on Cars.com properties. The daily average is calculated on a monthly basis and averaged for the reporting period.