Cars.com Reports Third Quarter 2017 Results
CHICAGO, Nov. 8, 2017 /PRNewswire/ -- Cars.com, Inc. (NYSE: CARS) ("Cars.com" or the "Company"), a leading online automotive marketplace, today released its financial results for the third quarter ended September 30, 2017.
Q3 Financial Highlights
-- Revenue of $159.9 million, down 1% year-over-year
-- Net income of $21.0 million, or $0.29 per diluted share
-- Adjusted net income of $34.3 million, or $0.48 per diluted share
-- Adjusted EBITDA of $63.1 million, or 39.5% of revenue
-- Net cash provided by operating activities of $147.2 million for the
first nine months of 2017 and free cash flow of $119.6 million
-- Expect full year revenue to be down approximately 1% with adjusted
EBITDA margin of approximately 38%
Q3 Key Metric Highlights
-- Average monthly unique visitors up 3% year-over-year
-- Traffic (Visits) of 101.7 million, down 1% year-over-year
-- Mobile traffic grew 8% year-over-year and accounted for 59% of total
traffic compared to 54% in the third quarter of 2016
-- Dealer customer count of 21,307, declined slightly compared to second
quarter 2017 dealer customers of 21,465
-- Average vehicle listings of 4.9 million, up 6% year-over-year
Q3 Operational Highlights
-- Completed search experience redesign with improved functionality, an
enhanced home page search widget and dynamic guided navigation that
makes it simpler and smoother for users to find the right car
-- Rolled out best match sorting, powered by a custom algorithm that
delivers search recommendations customized for each specific user
-- Launched Salesperson Connect(TM), a differentiated feature that allows
shoppers to connect directly with their salesperson of choice for a more
personalized shopping and buying experience
-- Expanded price transparency tools including price badging that uses
vehicle-specific market demand to indicate whether a car is a "Great
Deal," "Good Deal," "Fair Price" or "Well-Equipped"
-- Launched a national advertising campaign with new creative promoting
product features and building brand awareness, which aired during MLB
post season and Premier Week on key networks such as NBC, CBS and ABC
-- Key leaders added who reinforce current team with depth and breadth in
attribution, national sales and data science
-- Amendment to affiliate agreement allowing Cars.com direct sales force to
begin selling into select territories, beginning November 2017
"In our first full quarter as a standalone public company, we have made significant progress on our strategic initiatives to meet our long-term growth goals. Specifically, I am pleased with our rapid pace of innovation, demonstrated by the enhancement of our pricing tools, the launch of algorithmic search and Salesperson Connect, all of which are aimed not only to elevate the consumer experience but also to increase connections to our partners to support growth in their businesses as well as ours," said Alex Vetter, President and Chief Executive Officer of Cars.com.
Vetter continued, "With nearly all of these new product developments rolling out in late September and early October, we are looking forward to seeing the full benefit and uplift as we look ahead."
Q3 Financial Results
Revenue for the third quarter of 2017 was $159.9 million compared to $162.3 million in the prior year period. This decline was the result of a 3% decline in wholesale revenue and a 1% decline in retail revenue.
Total operating expenses for the third quarter of 2017 were $120.5 million compared to $110.1 million for the prior year period. This increase can be attributed to revenue mix, increased marketing spend and incremental public company costs.
Net income for the third quarter of 2017 was $21.0 million compared to $51.8 million in the third quarter of 2016. Adjusted net income for the third quarter of 2017 was $34.3 million compared to $70.6 million for the prior year period. These declines were driven by the increase in operating expenses described above and costs associated with the Company's new capital structure.
Adjusted EBITDA for the third quarter of 2017 was $63.1 million, or 39.5% of revenue, a decline from $73.3 million for the prior year period. See "Non-GAAP Financial Measures" below.
Cash Flow and Balance Sheet
Net cash provided by operating activities was $147.2 million for the first nine months of 2017 compared to $140.4 million for the prior year period. Free cash flow was $119.6 million for the first nine months of 2017 compared to $133.0 million for the prior year period. Note that the Company incurred incremental capital expenditures in 2017 of $19.8 million related to the cost of its new corporate office space. See "Non-GAAP Financial Measures" below.
Cash and cash equivalents was $27.4 million and debt outstanding was $624.4 million as of September 30, 2017. On October 31, 2017 $25 million was voluntarily repaid on the revolver.
"We are delighted to announce progress toward the early transition of select affiliate territories prior to the original contract expiration dates. We will continue to execute on our strategy to grow our business, allocating our capital to create value for our shareholders," said Becky Sheehan, Chief Financial Officer of Cars.com. "In addition, the strong, consistent cash flow our business generates has allowed us to repay $75 million on our credit facility in just five months, and preserve $295 million of availability on our revolver. It is this strong cash flow and flexible balance sheet, that positions us to take advantage of opportunities in this highly fragmented market."
Non-Financial Metrics
Cars.com continues to be focused on gaining greater share of consumer audience, evident by a 3% growth in the unique visitor count during the third quarter of 2017. Total traffic declined 1% year-over-year, which was due in part to the lingering effects of the website re-platform, traffic declines in the Company's other properties, as well as the impact of the recent hurricanes on the auto industry.
Cars.com remains focused on mobile leadership and continues to grow in this area, reporting an 8% growth in mobile traffic year-over-year. Mobile traffic at the end of the third quarter of 2017 was 59% of total traffic compared to 54% in the year prior. Mobile app traffic was 24% of total traffic for the third quarter of 2017 compared to 22% in the same period of the year prior.
Dealer count declined slightly during the third quarter, with 21,307 total customers in the third quarter of 2017 compared to 21,465 at June 30, 2017. This was driven by declines in independent dealers, and declined more dramatically (as a percent of total) within affiliate markets versus the Cars.com direct markets.
2017 Outlook
We expect our 2017 annual revenue to be down approximately 1% with adjusted EBITDA margins of approximately 38%, reflecting our previously announced increased investment in product and technology and marketing.
Third Quarter Earnings Call
As previously announced, management will hold a conference call and webcast today at 7:30 a.m. CT. 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 Wednesday, November 22, 2017.
About Cars.com
Cars.com(TM) is a leading 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(TM), PickupTrucks.com(TM) and NewCars.com®. The company was founded in 1998 and is headquartered in Chicago, Illinois. For more information, visit www.Cars.com.
Non-GAAP Financial Measures
This earnings release discusses adjusted EBITDA, adjusted EBITDA margin, adjusted net income 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 compensation measure. These non-GAAP financial measures are frequently used by our lenders, securities analysts, investors and other interested parties to evaluate companies in our industry.
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.
We define adjusted EBITDA as net income before (1) interest expense, net, (2) provision for income taxes, (3) depreciation, (4) amortization of intangible assets, (5) stock-based compensation, (6) write-off and impairments of assets, plus (7) certain other one-time or non-cash charges including transaction related costs, restructuring costs and costs related to the headquarters move. Amortization of unfavorable contracts liability is not adjusted out of adjusted EBITDA.
We define adjusted net income as net income excluding the after-tax impact of (1) amortization of intangible assets, (2) stock-based compensation, (3) write-off and impairments of assets, and (4) certain other one-time or non-cash charges including transaction related costs, restructuring costs and costs related to the headquarters move. Amortization of unfavorable contracts liability is not adjusted out of adjusted net income.
We define free cash flow as net cash flow provided by operating activities less capital expenditures, including purchases of property and equipment and capitalization of internal-use software development costs.
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.
Forward-Looking Statements
This press release contains "forward-looking statements" within the meaning of the federal securities laws, including those statements under "Financial Objectives." All statements other than statements of historical facts are forward-looking statements. Forward-looking statements include information concerning our business strategies, plans and objectives, market potential, future financial performance, planned operational and product improvements, liquidity and other matters. These statements often include words such as "believe," "expect," "project," "anticipate," "intend," "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, 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. 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 performance or results. Our actual results 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.
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 to differ materially from those expressed in the forward-looking statements contained in this press release. Such risks, uncertainties, and other important factors include, among others, risks related to our business, our separation from our parent company and our common stock. For a detailed discussion of many of these risks and uncertainties, see the section entitled "Risk Factors" in our Registration Statement on Form 10, which was filed with the Securities and Exchange Commission on May 4, 2017 (the "Registration Statement"). All forward-looking statements contained in this press release are qualified by these cautionary statements. The forward-looking statements contained in this press release 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. 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.
The forward-looking statements in this press release are intended to be subject to the safe harbor protection provided by the federal securities laws.
Cars.com Inc.
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
Unaudited and in thousands (except per share data)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2017 2016 2017 2016
---- ---- ---- ----
Revenues:
Retail:
Direct revenue $82,504 $84,651 $249,412 $248,579
National advertising revenue 32,002 31,214 85,379 83,221
Other revenue 4,319 3,963 11,989 11,213
----- ----- ------ ------
Total retail revenue 118,825 119,828 346,780 343,013
Wholesale 41,074 42,467 122,917 128,421
Total revenues 159,899 162,295 469,697 471,434
------- ------- ------- -------
Operating expenses:
Product support, technology
and operations 36,598 32,469 106,479 98,381
Marketing and sales 50,733 48,670 160,246 160,275
General and administrative 11,606 7,738 42,305 23,277
Affiliate revenue share 2,121 2,162 6,837 6,264
Amortization of intangible
assets 19,467 19,088 58,402 55,416
Total operating expenses 120,525 110,127 374,269 343,613
Operating income 39,374 52,168 95,428 127,821
------ ------ ------ -------
Nonoperating (expense)
income:
Interest (expense) income,
net (5,431) 41 (7,160) 53
Other income, net 64 88 199 142
--- --- --- ---
Total nonoperating (expense)
income, net (5,367) 129 (6,961) 195
Income before income taxes 34,007 52,297 88,467 128,016
Provision for income taxes 13,019 452 15,782 452
Net income $20,988 $51,845 $72,685 $127,564
======= ======= ======= ========
Earnings per share, basic $0.29 $0.72 $1.01 $1.78
===== ===== ===== =====
Weighted-average common
shares outstanding, basic 71,699 71,588 71,693 71,588
Earnings per share, diluted $0.29 $0.72 $1.01 $1.78
===== ===== ===== =====
Weighted-average common
shares outstanding, diluted 71,767 71,588 71,763 71,588
Cars.com Inc.
CONDENSED CONSOLIDATED AND COMBINED BALANCE SHEETS
In thousands (except share data)
September 30, 2017 December 31, 2016
------------------ -----------------
(unaudited)
Assets
Current assets
Cash and cash equivalents $27,428 $8,896
Accounts receivables, less
allowance of $3,437 and
$3,527, respectively 93,077 98,303
Prepaid expenses and other
current assets 18,298 12,342
Total current assets 138,803 119,541
------- -------
Property and equipment
Cost 61,783 37,190
Less accumulated
depreciation (20,908) (16,729)
Net property and equipment 40,875 20,461
------ ------
Intangible and other assets
Goodwill 788,107 788,107
Intangible assets, less
accumulated amortization
of $224,053 and $165,651,
respectively 1,548,967 1,607,369
Investments and other
assets 11,172 11,788
Total assets $2,527,924 $2,547,266
========== ==========
Liabilities and equity
Current liabilities
Accounts payable $6,787 $7,844
Current portion of long-
term debt 21,162 -
Accrued liabilities 69,137 64,140
Total current liabilities 97,086 71,984
------ ------
Noncurrent liabilities
Deferred incentive plans 1,677 3,913
Unfavorable contracts
liability 25,185 44,085
Long-term debt 597,468 -
Deferred tax liability 282,504 8,325
Other noncurrent
liabilities 17,532 1,674
Total noncurrent
liabilities 924,366 57,997
------- ------
Total liabilities 1,021,452 129,981
--------- -------
Commitments and contingent
liabilities
Stockholders' equity
TEGNA's investment, net - 2,417,285
Common Stock at par, $0.01
par value; authorized
300,000,000 shares; issued
and outstanding 71,625,405
shares at September 30,
2017, and no shares
authorized, issued and
outstanding at December
31, 2016 716 -
Additional paid-in capital 1,480,932 -
Retained earnings 24,824 -
------ ---
Total stockholders' equity 1,506,472 2,417,285
Total liabilities and
equity $2,527,924 $2,547,266
========== ==========
Cars.com Inc.
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
Unaudited and in thousands
Nine Months Ended September
30,
---------------------------
2017 2016
---- ----
Cash flows from operating
activities:
Net income $72,685 $127,564
Adjustments to reconcile net
income to operating cash flows:
Depreciation and amortization 66,343 61,549
Amortization of unfavorable
contract liability (18,900) (18,900)
Write-off and loss on assets 1,446 111
Gain on trading securities
related to deferred
compensation (199) (143)
Provision for doubtful accounts
receivable 2,561 2,177
Deferred income taxes 8,388 (34)
Share-based compensation 1,493 -
Amortization of debt issuance
costs 463 -
Increase (decrease) in operating
assets and liabilities 12,916 (31,888)
Net cash flow provided by
operating activities 147,196 140,436
------- -------
Cash flows from investing
activities:
Purchase of property and
equipment (27,631) (7,387)
Payment for acquisition, net of
cash acquired - (114,945)
Purchase of investments - (2,216)
Proceeds from sale of property
and equipment - 15
Net cash used in investing
activities (27,631) (124,533)
------- --------
Cash flows from financing
activities:
Proceeds from issuance of long-
term debt 675,000 -
Payments of debt issuance costs
and other fees (6,208) -
Payments of long-term debt (50,625) -
Cash distribution to TEGNA
related to spin-off (650,000) -
Transactions with TEGNA, net (69,200) (11,283)
Net cash used in financing
activities (101,033) (11,283)
-------- -------
(Decrease) increase in cash and
cash equivalents 18,532 4,620
------ -----
Cash and cash equivalents at
beginning of period 8,896 100
Cash and cash equivalents at end
of period $27,428 $4,720
======= ======
Supplemental non-cash
information:
Purchases of property and
equipment in accrued
liabilities and accounts
payables $3,050 $50
Supplemental cash flow
information:
Cash paid for income taxes, net
of refunds $5,726 $ -
Cash paid for interest $6,826 $ -
Cars.com Inc.
Non-GAAP Reconciliations
Unaudited and in thousands
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2017 2016 2017 2016
---- ---- ---- ----
Reconciliation of Net Income to Adjusted EBITDA
Net income $20,988 $51,845 $72,685 $127,564
Interest expense (income),
net 5,431 (41) 7,160 (53)
Provision for income taxes 13,019 452 15,782 452
Depreciation 2,426 2,002 7,941 6,133
Amortization of intangible
assets 19,467 19,088 58,402 55,416
Stock-based compensation 1,012 - 1,493 -
Transaction related costs and
other 317 - 4,981 -
Restructuring costs 280 - 1,951 -
Costs related to the
headquarters move 130 - 3,558 -
Write-off and loss on assets 63 - 1,446 -
Adjusted EBITDA* $63,133 $73,346 $175,399 $189,512
======= ======= ======== ========
Reconciliation of Net Income to Adjusted Net Income
Net income $20,988 $51,845 $72,685 $127,564
Amortization of intangible
assets 19,467 19,088 58,402 55,416
Stock-based compensation 1,012 - 1,493 -
Transaction related costs and
other 317 - 4,981 -
Restructuring costs 280 - 1,951 -
Costs related to the
headquarters move 130 - 3,558 -
Write-off and loss on assets 63 - 1,446 -
Tax impact of adjustments (7,981) (348) (13,060) (348)
Adjusted net income* $34,276 $70,585 $131,456 $182,632
======= ======= ======== ========
Reconciliation of Cash Flow Provided by Operating Activities to
Free Cash Flow
Net cash flow provided by
operating activities $50,464 $68,128 $147,196 $140,436
Purchase of property and
equipment (8,721) (2,592) (27,631) (7,387)
Free cash flow $41,743 $65,536 $119,565 $133,049
======= ======= ======== ========
* Amortization of unfavorable
contract liability is not
adjusted out of adjusted EBITDA
or adjusted net income.
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SOURCE Cars.com, Inc.
