What changed in this filing

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Item 1A. Risk Factors

2022-02-25 compared with 2021-02-25 · 179 added, 206 removed, 168 unchanged (70% of the section changed)

Risk Factors.

The following risk factors should be considered carefully, together with all of the other information contained in this report, including “Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes, when evaluating our business and any forward-looking statements or other statements we or our representatives make from time to time.

The following risk factors should be considered carefully, together with all of the other information contained in this report, including “Selected Financial Data,”

“Management’s Discussion and Analysis of Financial Condition and Results of Operations”

and our financial statements and related notes, when evaluating our business and any forward-looking statements or other statements we or our representatives make from time to time.

Any of the following risks could materially and adversely affect our business, results of operations, financial condition and the actual outcome of matters as to which statements are made.

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The COVID-19 pandemic and related restrictions have materially and adversely affected, and could continue to materially and adversely affect, our business, financial condition, liquidity and results of operations.

The COVID-19 pandemic and the numerous measures implemented by governmental authorities around the country to contain the virus, such as quarantines, shelter-in-place orders and business shutdowns (“related restrictions”) have resulted in a widespread health crisis that has adversely affected businesses, economies and financial markets worldwide, and have caused significant volatility in U.S.

Since March 2020, the COVID-19 pandemic and the numerous measures implemented by governmental authorities around the country to contain the virus, such as quarantines, shelter-in-place orders and business shutdowns (“related restrictions”) have resulted in a widespread health crisis that has adversely affected businesses, economies and financial markets worldwide, and have caused significant volatility in U.S.

and international debt and equity markets.

While certain jurisdictions have relaxed or reversed some of these related restrictions, many have been subsequently reinstated, adding an additional layer of uncertainty.

Our business, financial condition, liquidity and operating results have been, and will continue to be, adversely affected by the COVID-19 pandemic and related restrictions, including any additional resurgences of the pandemic.

For example, the pandemic and related restrictions have caused a widespread increase in unemployment and have resulted in reduced consumer spending and an economic recession.

Substantially all of our revenue is generated from subscription services offered to automotive dealers and our national advertising offerings to OEMs and other advertisers in or adjacent to the automotive industry and our business may be negatively affected during times of low automobile sales and high unemployment.

To the extent that a weakened economy continues to impact our customers’ ability or willingness to pay for our services or our vendors’ ability to provide services to us, our operations, liquidity and financial condition could be negatively impacted.

Negative changes in the financial condition of dealers has resulted, and may continue to result in decreased subscription revenue and reduced demand for our services.

Moreover, the impact of the pandemic and related restrictions on dealers may materially reduce our number of dealer customers in the future.

Additionally, OEMs have reduced and may continue to reduce their advertising spend on our platforms due to the impact of the pandemic and related restrictions on the automotive industry.

All of these factors could adversely impact our profitability and financial results.

With respect to managing our expenses, primarily in the second quarter of 2020, we implemented multiple initiatives to adjust our expenses in response to changes in revenue.

These steps included:

an employee furlough, reduction in force, temporary salary reductions, freezes on hiring and temporary labor, deferral of merit and promotion increases, a reduction of our marketing expense, while carefully maintaining consumer engagement as evidenced by our strong organic traffic, partnering with vendors to reduce cost, and significant reductions of non-essential spending.

While we have restored certain expense reducing initiatives, we cannot accurately predict how these measures will affect the productivity of our workforce, consumer traffic to our websites or other operations.

We may be required to reimplement or implement additional expense-reduction measures or amend our debt instruments in the future if the pandemic and related restrictions continue to persist, which could further adversely impact our operations, liquidity and financial condition.

The extent to which the COVID-19 pandemic and responses to it impact our results will depend on future developments, which are highly uncertain and cannot be predicted, including the duration and scope of the pandemic, any additional resurgence or COVID-19 variants, actions that have been and continue to be taken in response to the pandemic, the ability to effectively and widely manufacture and distribute vaccines and broad acceptance of the vaccine by the general population, the availability and cost to access the capital markets, the effect on our dealer customers’ demand for and ability to pay for our services, the effect on consumer demand for our services, disruptions or restrictions on our employees’ ability to work and travel and impacts on employee health and responses to it.

To varying degrees and at different points over the past two years, our business, financial condition, liquidity and operating results have been, and may continue to be, adversely affected by the COVID-19 pandemic, additional resurgences and related restrictions.

For example, in the second quarter of 2020, the pandemic and related restrictions caused a widespread increase in unemployment and resulted in reduced consumer spending and an economic recession.

To the extent a weakened economy impacts our customers’

ability or willingness to pay for our services or our vendors’

ability to provide services to us, our operations, liquidity and financial condition could be negatively impacted.

As a result, in order to respond to changes in our revenue, we may be required to implement expense-reduction measures or amend our debt instruments in the future, which could further adversely impact our operations, liquidity and financial condition.

demand for and ability to pay for our services, the effect on consumer demand for our services, disruptions or restrictions on our employees’

ability to work and travel and impacts on employee health and responses to it.

We are subject to certain financial and other covenants contained in the Credit Agreement, as amended, and the indenture governing the Notes (as defined below).

The impact of the COVID-19 pandemic and related restrictions may affect our ability to comply with such covenants.

We have taken steps to strengthen our financial position during this period of heightened uncertainty.

In October 2020, we sold $400.0 million aggregate principal amount of 6.375% senior unsecured notes due 2028 (“Notes”) and used the net proceeds, together with cash on hand, to repay $235.0 million of borrowings under our Revolving Credit Facility, repay $162.8 million of borrowings under our Term Loan and pay fees associated with the offering of the Notes.

Simultaneously, we amended our existing credit facility to, among other things, refinance the credit facility and provide for a $230.0 million undrawn Revolving Credit Facility and a $200.0 million Term Loan, extend the maturity date of the credit facility until May 31, 2025, update and modify certain covenants, modify pricing and eliminate certain requirements previously in effect.

We may further seek to amend the Credit Agreement to provide greater comfort that we will be able to remain in compliance with our obligations, but we may be unable to do so on terms that are acceptable or to the extent necessary to avoid a default, depending upon conditions in the credit markets, the length and depth of the market reaction to the pandemic and our ability to compete in this environment.

We may also seek to raise funds through debt or equity financing in the future to fund operations, significant investments or acquisitions that are consistent with our strategy.

Due to the risks created by the COVID-19 pandemic and related restrictions, the conditions of the capital markets may be more volatile and uncertain.

If we need to access the capital markets, there can be no assurance that financing may be available on attractive terms, if at all.

For information related to debt, see Note 7 (Debt) to the Consolidated Financial Statements included in Part II, Item 8.

“Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

We will continue to actively monitor the issues raised by the COVID-19 pandemic and related restrictions and may take further actions that alter our business operations, as may be required by federal, state or local authorities, or that we determine are in the best interests of our employees, customers, partners and stockholders.

It is not clear what the potential lasting effects any such alterations or modifications may have on our business, including the effects on our OEM and dealer customers, suppliers or vendors, consumers or on our financial results.

However, we believe our marketplace, advertising and digital solutions were critical in helping our customers navigate the challenges of the pandemic and related restrictions through December 31, 2020.

“Financial Statements and Supplementary Data”

of this Annual Report on Form 10-K.

While the duration of any adverse effects of the pandemic is uncertain, we believe our marketplace, advertising and digital solutions have been critical in helping our customers navigate the challenges of the pandemic and related restrictions through December 31, 2021.

We believe our solutions will continue to be important tools to our customers in the future and, in particular, any potential future impacts of the pandemic and related restrictions.

The impact of the pandemic and related restrictions may also heighten other risks discussed in this Annual Report on Form 10-K, which could adversely affect our business, financial condition, liquidity and results of operations.

Market acceptance of and influence ov er certain of our products and services is concentrated with a limited number of automobile OEMs and dealership associations, and we may not be able to maintain or grow these relationships.

Although the automotive retail industry is fragmented, a relatively small number of OEMs, dealership associations, and their program administrators exert significant influence over the market acceptance of certain automotive products and services due to their concentrated purchasing activity, the visibility of their endorsement or recommendation of specific products and services, their provision of co-operative advertising money to dealers, and their ability to define technical standards and certifications and marketing guidelines.

For example, many of our website solutions are provided pursuant to OEM-designated endorsements or preferred vendor programs.

While automotive dealers are generally free to purchase the solutions of their choosing, if an OEM has endorsed or certified a provider of products or services to its associated franchised dealers and if our solutions lack such certification or endorsement, adoption or retention of our products and services could be materially impaired.

Dealer closures or consolidation among dealers or OEMs could reduce demand for, and negatively affect the pricing of, our marketing and solutions offerings, thereby leading to decreased earnings.

When dealers consolidate, the services they previously purchased separately are often purchased by the combined entity in a lesser quantity than before, leading to volume compression and loss of revenue across the automotive marketplace sector.

In the past, dealers were more likely to close or consolidate when conditions in the automotive industry and/or general economic conditions were poor.

Despite our market position, consolidation or closures of automobile dealers could reduce the aggregate demand for our services in the future and limit the amounts we earn from our solutions.

In addition, advertising purchased by OEMs accounts for a meaningful portion of our revenue.

There are a limited number of OEMs, and financial difficulties or consolidation among OEMs could similarly lead to volume compression and loss of revenue.

Our business is subject to risks related to the larger automotive ecosystem, including consumer demand and other macroeconomic issues.

Decreases in consumer demand could adversely affect the market for automobile purchases and, as a result, reduce the number of consumers using our platform.

Consumer purchases of new and used automobiles generally decline during recessionary periods and other periods in which disposable income is adversely affected.

Purchases of new and used automobiles are typically discretionary for

consumers and have been, and may continue to be, affected by negative trends in the economy, including increases in the cost of energy and gasoline, the availability and cost of credit, reductions in business and consumer confidence, stock market volatility, inflation, tariffs, health or similar issues, such as pandemic or epidemic, and increased unemployment.

In addition, the use of ride sharing and the development of autonomous vehicles could erode the demand for new and used automobiles.

A reduction in the number of automobiles purchased by consumers could adversely affect automobile dealers and car manufacturers and lead to a reduction in other spending by these constituents.

Further, production shortages, supply chain disruptions and inventory shortfalls could adversely impact automobile dealers.

Though our current customer bases, revenue sources and operations are substantially limited to the United States, our business may be negatively affected by challenges in the global automotive ecosystem and other macroeconomic issues.

Our business depends on our strong brand recognition, and any failure to maintain, protect and enhance our brands could hurt our ability to retain or expand our base of consumers, dealers and advertisers, and our ability to increase the frequency with which consumers, dealers and advertisers use our services.

We believe that maintaining and increasing the strong recognition of the CARS brand is critical to our future success.

Our brand drives traffic to our websites and applications.

Our brand is known for attracting a large base of in-market car shoppers by offering credible and easy-to-understand information from consumers and experts and an unrivaled set of new and used vehicle listings.

In addition, OEMs, dealers and other advertisers rely on our innovative digital marketing services and solution offerings to drive results in their businesses.

To grow our business, we must maintain, protect and enhance our brands.

Otherwise, we may be unable to expand our base of consumers, customers and advertisers, or increase the frequency with which such constituents use or purchase our solutions.

Expanding the business will depend, in part, on our ability to maintain the trust that consumers, customers and advertisers place in our solutions and services and the quality and integrity of the listings and other content found on the CARS sites and mobile applications.

In addition, any negative publicity about us, including our solutions, technologies, sales practices, personnel or customer service, could diminish confidence in and the use of our services.

If we experience persistent negative publicity, or if consumers otherwise perceive that content on the CARS sites or mobile applications is not reliable, our reputation, the value of our brands and traffic to our sites and mobile applications could decline.

We rely in part on Internet search engines and mobile application stores to drive traffic to the CARS sites and increase downloads of our mobile applications.

If the CARS sites and mobile applications fail to appear prominently in these search results, traffic to the CARS sites and mobile applications would decline and our business, results of operations or financial condition may be materially and adversely affected.

We depend, in part, on Internet search engines such as Google to drive traffic to the CARS sites.

For example, when a user searches for the make and model of a specific automobile or a generic phrase, such as “automobile prices,”

using an Internet search engine, we rely on a high organic search ranking of the CARS sites in these search results to drive consumer traffic.

However, our ability to maintain these high search result rankings is not fully within our control.

For example, our competitors’

search engine optimization efforts may result in their websites receiving a higher search result page ranking than us, or Internet search engines could revise their methodologies in a way that would adversely affect our search result rankings.

In addition, Internet search engines could provide automobile dealer and pricing information directly in search results or choose to align with our competitors or develop competing services.

The CARS sites have experienced both positive and negative fluctuations in search result rankings in the past, and it is anticipated that similar fluctuations will occur in the future.

Additionally, we depend in part on mobile application download stores such as the Apple App Store and Google Play to direct consumers to download CARS’

mobile applications.

When a mobile device user searches in a mobile application store for “car buying app”

or a similar phrase, we rely on both a high search ranking and consumer brand awareness to drive consumers to select and download CARS’

mobile applications instead of those of our competitors.

However, our ability to maintain high, non-paid search result rankings in mobile application stores is not fully within our control.

Our competitors’

mobile application store search optimization efforts may result in their mobile applications receiving a higher result ranking than that of Cars.com, or mobile application download stores could revise their methodologies in a way that would adversely affect our search result rankings.

If Internet search engines or mobile application download stores modify their search algorithms in ways that negatively impact traffic to the CARS sites or CARS mobile apps, or if the search engine or mobile application store optimization efforts of our competitors are more successful than our own efforts, overall growth in our user base could slow or the user base could decline.

We rely on in-house content creation and development to drive organic traffic to the CARS sites and mobile applications.

We rely on our in-house editorial content team to continually develop content that is useful and of interest to consumers in order to drive organic traffic to the CARS sites and mobile applications.

Our editorial content team tests, reviews and photographs a large number of different car makes and models every year to facilitate our creation of independent and unbiased coverage of the automotive landscape.

Our internally developed content focuses primarily on consumer purchasing and ownership advice and analysis of consumer automotive purchasing and ownership trends.

If we are unable to continue to develop our in-house content, we may be required to rely more heavily on third-party content providers, which could lead to less distinctive content on our sites and increased operating costs, including increased traffic acquisition costs.

Additionally, if we are unable to continue providing the same level of high-quality, unique consumer content, organic traffic across the CARS sites and mobile applications could decrease.

Such a decrease may lead to dealers receiving fewer indications of consumer interest through leads generated by the CARS sites and mobile applications, and recognizing less value for their digital advertising spend.

As a result, dealers may not continue to list their vehicles on the CARS sites and mobile applications.

Similarly, decreased organic traffic due to a reduction in unique content may cause national advertisers such as OEMs to shift their digital advertising spend to sites with higher traffic.

Further, decreased traffic from in-house content could result in increased spend in paid channels, which would result in higher sales and marketing expense.

Any of the foregoing could materially and adversely affect our business, results of operations or financial condition.

Strategic and Competitive Risks

We participate in a highly competitive market, and pressure from existing and new competitors may materially and adversely affect our business, results of operations or financial condition.

We face significant competition from companies that provide listings, information, lead generation, websites, marketing and car-buying services designed to reach consumers and enable dealers to reach these consumers.

Our competitors offer various products and services that compete with us including:

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Website platform and solution providers, such as Dealer.com, Sincro (formerly CDK Global) and DealerOn

Automotive fintech, such as AutoFi

Digital advertising providers

We compete with many of the above-mentioned companies and other companies for a share of a car dealer’s overall marketing budget.

To the extent that car dealers view alternative marketing and media strategies to be superior, we may not be able to maintain or grow the number of dealers in our network.

In addition, new competitors may enter the online automotive retail industry with competing products and services.

Our competitors could significantly impede our ability to expand our network of dealers and to reach consumers.

Our competitors could significantly impede our ability to expand our network of dealers and consumer reach.

Our competitors may also develop and market new technologies that render our existing or future products and services less competitive, unmarketable or obsolete.

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We compete with other consumer automotive websites and mobile applications and other digital content providers for share of automotive-related digital display advertising spending and may be unable to maintain or grow our base of advertising customers or increase our revenue from existing advertisers.

Although the shift in advertising spending away from traditional advertising methods to digital advertising methods provides greater opportunity for us, competition to capture share of the total digital automotive advertising spend has increased and may continue to increase due to the attractive projected growth of digital automotive advertising spend and low barriers to entry in the online automotive classifieds and related digital automotive advertising markets.

Although the shift in advertising spending away from traditional advertising methods to digital advertising methods provides greater opportunity for us, competition to capture share of the total digital automotive advertising spend has increased and may continue to increase due to the attractive projected growth of digital automotive advertising spend, low barriers to entry in the online automotive classifieds and related digital automotive advertising markets.

We may face significant challenges in convincing our advertising customers, including national advertisers and OEMs, to expand their advertising on our sites and mobile applications in the face of growing competition, which could hurt our ability to grow our third-party advertising revenue.

For example, there are a limited number of OEMs, most of which already advertise on our sites.

To grow our advertising revenue from these OEMs, we may need to increase the portion of the OEMs’ digital advertising budgets that we currently receive.

To grow our advertising revenue from these OEMs, we may need to capture a greater portion of such OEMs’

digital advertising budgets.

In addition, if we experience a significant decrease in advertising spending by OEMs or other national advertisers for any reason, our revenue will decrease and our business, results of operations or financial condition may be materially and adversely affected.

We believe that maintaining and increasing the strong recognition of the CARS brands is critical to our future success.

Our brand drives traffic to our websites and applications.

In addition, OEMs, dealers and other advertisers rely on our innovative digital marketing services to drive results in their businesses.

To grow our business, we must maintain, protect and enhance our brands.

Otherwise, we may be unable to expand our base of consumers, customers and advertisers, or increase the frequency with which such constituents use or purchase our services.

Expanding the business will depend, in part, on our ability to maintain the trust that consumers, customers and advertisers place in our services and the quality and integrity of the listings and other content found on the CARS sites and mobile applications.

In addition, any negative publicity about us, including about our solutions, technologies, sales practices, personnel or customer service, could diminish confidence in and the use of our services.

We rely in part on Internet search engines and mobile application stores to drive traffic to the CARS sites and increase downloads of our mobile applications.

We depend, in part, on Internet search engines such as Google to drive traffic to the CARS sites.

For example, when a user searches for the make and model of a specific automobile or a generic phrase, such as “automobile prices,” using an Internet search engine, we rely on a high organic search ranking of the CARS sites in these search results to drive consumer traffic.

However, our ability to maintain these high search result rankings is not fully within our control.

For example, our competitors’ search engine optimization efforts may result in their websites receiving a higher search result page ranking than us, or Internet search engines could revise their methodologies in a way that would adversely affect our search result rankings.

In addition, Internet search engines could provide automobile dealer and pricing information directly in search results or choose to align with our competitors or develop competing services.

The CARS sites have experienced both positive and negative fluctuations in search result rankings in the past, and it is anticipated that similar fluctuations will occur in the future.

Additionally, we depend in part on mobile application download stores such as the Apple App Store and Google Play to direct consumers to download CARS’ mobile applications.

When a mobile device user searches in a mobile application store for “car buying app” or a similar phrase, we rely on both a high search ranking and consumer brand awareness to drive consumers to select and download CARS ’ mobile applications instead of those of our competitors.

However, our ability to maintain high, non - paid search result rankings in mobile application stores is not fully within our control.

Our competitors’ mobile application store search optimization efforts may result in their mobile applications receiving a higher result ranking than that of Cars.com, or mobile application download stores could revise their methodologies in a way that would adversely affect our search result rankings.

If we fail to maintain or increase our base of subscribing dealers that purchase our solutions or to increase our revenue from subscribing dealers, our business, results of operations or financial condition may be materially and adversely affected.

Our revenue model generally employs subscription fee packages with the opportunity for dealer customers to purchase product enhancements or short-term premium services.

Our ability to increase revenue from currently subscribing dealers depends, in part, on the ability of our sales team to demonstrate the value and benefits of the additional features of our product enhancements and short-term premium services to our subscribing dealers and to persuade them to purchase the higher-priced enhancements and services.

Subscribing dealers do not have long-term obligations to purchase or renew subscriptions or product enhancements and premium services.

Consequently, if subscribing dealers do not renew their subscriptions or continue to purchase product enhancements and premium services, or if we experience significant attrition of subscribing dealers or are unable to attract new dealers in numbers greater than the number of subscribing dealers that we lose, our revenue will decrease and our business, results of operations or financial condition may be materially and adversely affected.

We may face difficulties in developing new solution offerings as a full-service solutions provider that help automotive brands and dealers create enduring customer relationships.

We continue to expand the nature and scope of our offerings to our customers and have expanded our service offerings to incorporate digital solutions that use social, mobile and web-based technologies.

If we do not adapt to automated buying strategies quickly, our display advertising revenue could be adversely affected.

The majority of the display advertising purchased by our national, regional and related advertisers (e.g., insurance advertisers and finance advertisers) is still done manually via insertion orders.

Recently however, advertisers have been shifting away from buying media directly from premium publishers like us and increasingly buying their target audiences via the ad exchanges across the broader Internet.

While we have grown our programmatic revenue, are developing new programmatic ad products and are redesigning our ad delivery technology stack, we may not adapt quickly enough and may lose display advertising revenue as a result.

Due to the concentrated number of national advertisers, our National advertising business can be materially impacted by shifts in media strategy, marketing strategies, agency changes, and financial results of our clients.

These changes may occur independent of the products and value we are providing to those advertisers.

In addition, the increasing use of ad blockers may reduce the quantity or types of display ads and cookies collected to serve ads.

We may face difficulties in developing and launching new solution offerings or growing our complementary offerings that help automotive brands and dealers create enduring customer relationships.

We continue to expand, enhance and improve the nature and scope of our solution offerings and have expanded to incorporate digital solutions that use social, mobile and web-based technologies, and to enter into complementary markets.

Our ability to effectively offer a wide breadth of business solutions depends on our ability to attract existing or new clients to our new service offerings.

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Failure to retain strong management, implement operational and financial information systems and controls, or expand, train, manage or motivate our workforce, could lead to delays in developing and achieving expected operating results for these new offerings.

We cannot assure you that we will be able to continue to successfully develop and launch new products or grow our complementary product offerings.

Our future success will depend, in part, upon our ability to continue to enhance and improve the value of our products and services through the development of new products and services and new value-added features for existing products and services, as well as our ability to leverage our brand recognition and existing operations to enter into new complementary markets successfully.

Historically, we have been successful in increasing revenue through the launch of new products, services and value-added features and in entering complementary markets through the launch of new products and services.

However, such historical success does not assure that we will continue to be successful in developing or introducing new products, services and value-added features, or that these new products, services and features will achieve market acceptance, enhance the value of our brand or permit us to enter new, complementary markets successfully.

Further, the development of new products and services in response to evolving customer demands and competitive pressures requires significant time and resources and there can be no assurance that our development efforts will be effective in permitting us to maintain or grow our market share or to enter new markets in a cost-effective manner, or at all.

Strategic acquisitions, investments and partnerships could pose various risks, including integration risks, increase our leverage, dilute existing stockholders and significantly impact our ability to expand our overall profitability.

One of our key operating strategies is to pursue targeted acquisitions that enhance our platform strategy.

Acquisitions involve inherent risks, such as potentially increasing leverage and debt service requirements and combining company cultures and facilities, which could have a material and adverse effect on our business, results of operations or financial condition and could strain our human resources.

We may not be able to successfully integrate acquired businesses, which may result in an inability to realize the anticipated benefits of our acquisitions.

We may be unable to successfully implement effective cost controls or achieve expected synergies as a result of an acquisition.

Acquisitions may result in our assumption of unexpected liabilities, the integration of separate organizations, the unanticipated incompatibility of systems and operating methods, negative impacts on employee morale and performance as a result of

job changes and reassignments, unforeseen difficulties in operating businesses we have not operated before and the diversion of management’s attention from the operation of our core business.

Acquisitions may also result in our having greater exposure to the industry risks of the businesses underlying the acquisition and possible tax costs and inefficiencies.

Strategic investments and partnerships with other companies expose us to the risk that we may not be able to control the operations of our investee or partnership, which could decrease the amount of benefits we realize from a particular relationship.

We are also exposed to the risk that our partners in strategic investments and infrastructure may encounter financial difficulties that could lead to disruption of investee or partnership activities, or impairment of assets acquired, which could adversely affect future reported results of operations and stockholders’

Acquisitions may subject us to new or different regulations or tax consequences which could have an adverse effect on our operations.

In addition, we may be unable to obtain the financing necessary to complete acquisitions on attractive terms or at all.

If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock.

Future equity financings could also decrease our earnings per share and the benefits derived from such new ventures or acquisitions might not outweigh or exceed their dilutive effect.

Any additional debt financing we secure could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital or to pursue business opportunities.

Risks Related to Technology

The value of our assets or operations may be diminished if our information technology systems fail to perform adequately.

Our information technology systems are critically important to operating our business efficiently and effectively.

Our brand, reputation and ability to attract consumers and advertisers depend on the reliability of our technology platforms and the ability to

continuously deliver content.

Our brand, reputation and ability to attract consumers and advertisers depend on the reliability of our technology platforms and the ability to continuously deliver content.

Interruptions in our information technology systems, whether due to system failures, computer viruses, physical or digital break-ins, capacity constraints, power outages, local or widespread Internet outages, telecommunication breakdowns or other uncontrollable events, could affect the security or availability of products on our sites or our mobile applications or prevent or inhibit the ability of consumers to access our marketplace, websites or other products.

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The failure to complete an upgrade or enhancement as planned, or an unexpected result of a technology upgrade, could affect the security or availability of our products and services and could lead to loss of traffic, customers and revenue.

As we complete our Technology Transformation, as defined in Part II, Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations our business may be negatively impacted in areas such as SEO traffic, user engagement and experience, such as outdated URLs and site performance.

Our business is dependent on keeping pace with advances in technology.

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If we are unable to adapt to changing technologies, our business, results of operations or financial condition may be materially and adversely affected.

We rely on technology systems’ availability and ability to prevent unauthorized access.

We rely on third-party service providers for many aspects of our business, including inventory information and sales of our product through social media, and interruptions in the services or data they provide or any failure to maintain these relationships could harm our business.

Our business relies on the collection, use and analysis of third-party data, including large amounts of inventory, vehicle and consumer information, and integrations with third-party systems, such as inventory management systems, customer relationship management systems and dealer management systems, for the benefit of our car buying consumers, customers and advertisers.

We use information about automobiles, inventory, ownership history and pricing from third parties, including OEMs, dealers and others, in various aspects of our business.

We also partner with social media platforms, such as Facebook and Instagram, to leverage our valuable audience data to serve native advertisements and display real-time inventory for both dealers and OEMs to in-market car shoppers.

If the third parties on which we depend are unable or unwilling to provide data or services, restrict our use of data, experience difficulty meeting our requirements or standards, or revoke or fail to renew our licenses or partnerships, we could have difficulty operating key aspects of our business.

In addition, if these third-party service providers were to cease operations, temporarily or permanently, face financial distress

or other business disruption or increase their fees, or if our relationship with these providers were to deteriorate, we could suffer increased costs and delays in our ability to provide our products to consumers and customers until an equivalent provider could be found or until we develop replacement technology or operations.

We rely on third-party services to track and calculate certain of our key metrics, including unique visitors and traffic and any errors or interruptions in the services or data they provide or any failure to maintain these relationships could harm our business.

Certain of our key metrics, such as the number of our unique visitors and our traffic —

are measured with third-party tools.

While these numbers are based on what we believe to be reasonable calculations for the applicable periods of measurement, measurement methodologies exhibit a level of accuracy risk because of a variety of factors.

For example, we have discovered in the past, and expect to discover in the future, that portions of our traffic, have been attributable to non-human traffic.

Because this non-human traffic generally exhibits detectable anomalous patterns, our reported traffic metrics for impacted periods reflects an adjustment to remove non-human traffic.

We expect to continue to make similar adjustments in the future if we determine that our traffic metrics are materially impacted by invalid traffic.

There are also inherent challenges in measuring usage across our large user base.

For example, because these metrics are based on users with unique cookies, an individual who accesses our website from multiple devices with different cookies may be counted as multiple unique visitors, and multiple individuals who access our website from a shared device with a single cookie may be counted as a single unique visitor.

In addition, although we use technology designed to block low quality traffic, we may not be able to prevent all such traffic, and such technology may have the effect of blocking some valid traffic.

For these and other reasons, our traffic and unique visitor metrics may not accurately reflect the number of people actually using our platform.

Our measures of traffic and other key metrics may differ from estimates published by third parties (other than those whose data we use to calculate our key metrics) or from similar metrics of our competitors.

We continually seek to improve our ability to measure these key metrics, and regularly review our processes to assess potential improvements to their accuracy.

However, the improvement of our tools and methodologies could cause inconsistency between current data and previously reported data.

Additionally, as both the industry in which we operate and our business continue to evolve, so too might the metrics by which we evaluate our business.

We may revise or cease reporting metrics if we determine such metrics are no longer accurate or appropriate measures of our performance.

If our audience, customers and stockholders do not perceive our metrics to be accurate representations, or if we discover material inaccuracies in our metrics, our reputation may be harmed.

Risks Related to Data Privacy and Security

We rely on technology systems’

availability and ability to prevent unauthorized access.

If our security and resiliency measures fail to prevent incidents, it could result in damage to our reputation, incur costs and create liabilities.

Like other technology-based businesses, our solutions may be subject to attacks from computer viruses, break-ins, phishing attacks, unauthorized use, attempts to overload services with denial-of-service and other attacks.

Like other technology-based businesses, our solutions may be subject to attacks from computer viruses, break-ins, phishing attacks, ransomware attacks, unauthorized use, attempts to overload services with denial-of-service and other attacks.

Any attack or disruption could negatively impact our ability to attract new consumers, dealers or advertisers and could deter current consumers, dealers or advertisers from using our solutions, or subject us to lawsuits, regulatory fines or other action or liability.

Availability:

We rely on technology systems’ availability to deliver services to consumers, dealers, OEMs, employees and partners.

We rely on technology systems’

availability to deliver services to consumers, dealers, OEMs, employees and partners.

If we experience a disruption that results in performance or availability degradation, up to and including the complete shutdown of our sites or mobile applications, revenue could be impacted and consumers, dealers or advertisers may lose trust and confidence in us, decrease their use of our solutions or stop using our solutions entirely.

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We develop, create and acquire internal information that may be considered sensitive or valuable intellectual property in the normal operations of human resources, finance, legal, marketing, software development, product management, mergers and acquisitions and other business functions.

Failure to protect sensitive internal information or intellectual property may result in loss of competitive advantage, reputation damage, direct and indirect costs and other liabilities.

Failure to protect sensitive internal information

or intellectual property may result in loss of competitive advantage, reputation damage, direct and indirect costs and other liabilities.

Failure to protect material financial information including financial performance and merger and acquisition data could also subject us to liabilities imposed by U.S.

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We maintain cyber risk insurance but this insurance may not be sufficient to cover all losses from any future disruption, security incident or breach.

Market acceptance of and influence over certain of our products and services is concentrated with a limited number of automobile OEMs and dealership associations, and we may not be able to maintain or grow these relationships.

Although the automotive retail industry is fragmented, a relatively small number of OEMs, dealership associations, and their program administrators exert significant influence over the market acceptance of certain automotive products and services due to their concentrated purchasing activity, their endorsement or recommendation of specific products and services, their provision co-operative advertising money to dealers, and/or their ability to define technical standards and certifications or marketing guidelines.

For example, many of our website solutions are provided pursuant to OEM-designated endorsements or preferred vendor programs.

We rely on third-party service providers for many aspects of our business, including inventory information and sales of our product through social media and interruptions in the services or data they provide or any failure to maintain these relationships could harm our business.

We use information about automobiles, inventory, ownership history and pricing from third parties, including OEMs, dealers and others, in various aspects of our business.

In addition, if these third-party service providers were to cease operations, temporarily or permanently, face financial distress or other business disruption or increase their fees, or if our relationship with these providers were to deteriorate, we could suffer increased costs and delays in our ability to provide our products to consumers and dealer customers until an equivalent provider could be found or until we develop replacement technology or operations.

We rely on in-house content creation and development to drive organic traffic to the CARS sites and mobile applications.

We rely on our in-house editorial content team to continually develop content of use and interest to consumers in order to drive organic traffic to the CARS sites and mobile applications.

Our internally developed content focuses primarily on consumer purchasing and ownership advice and analysis of consumer automotive purchasing and ownership trends.

If we are unable to continue to develop our in-house content, we may be required to rely more heavily on third-party content providers, which would lead to less distinctive content on our sites and increased operating costs including increased traffic acquisition costs.

Additionally, if we are unable to continue providing the same level of high-quality, unique consumer content, organic traffic across the CARS sites and mobile applications could decrease.

As a result, dealers may not continue to list their vehicles on the CARS sites and mobile applications.

Similarly, decreased organic traffic due to a failure to continue developing unique content in-house may cause national advertisers such as OEMs to shift their digital advertising spend to sites with higher traffic.

Further, decreased traffic from in-house content could result in increased spend in paid channels, which would result in higher sales and marketing expense.

Any of the foregoing could materially and adversely affect our business, results of operations or financial condition.

Our ability to attract and retain dealer customers depends on our ability to collect and use data and develop tools to enable us to effectively deliver and accurately measure advertisements on our platform.

Most dealer customers rely on tools that measure the effectiveness of their ad campaigns in order to allocate their advertising spend among various formats and platforms.

If we are unable to measure the effectiveness of advertising on our platform or we are unable to convince dealer customers that our platform should be part of a larger advertising budget, our ability to increase the demand and pricing of our advertising products and maintain or scale our revenue may be limited.

Our ability to attract and retain customers depends on our ability to collect and use data and develop tools to enable us to effectively deliver and accurately measure advertisements on our platform.

Most customers rely on tools that measure the effectiveness of their ad campaigns in order to allocate their advertising spend among various formats and platforms.

If we are unable to measure the effectiveness of advertising on our platform or we are unable to convince customers that our platform should be part of a larger advertising budget, our ability to increase the demand and pricing of our advertising products and maintain or scale our revenue may be limited.

Our tools may be less developed than those of other platforms with which we compete for advertising spend.

Therefore, our ability to develop and offer tools that accurately measure the effectiveness of a campaign on our platform is critical to our ability to attract new dealer customers and retain, and increase spend from our existing dealer customers.

We are continually developing and improving these tools and such efforts have required and are likely to continue to require significant time and resources and additional investment, and in some cases we have relied on and may in the future rely on third parties to provide data and technology needed to provide certain measurement data to our dealer customers.

If we cannot continue to

develop and improve our advertising tools in a timely fashion, those tools are not reliable, or the measurement results are inconsistent with advertiser goals, our advertising revenue could be adversely affected.

Therefore, our ability to develop and offer tools that accurately measure the effectiveness of a campaign on our platform is critical to our ability to attract new customers and retain, and increase spend from our existing customers.

If we cannot continue to develop and improve our advertising tools in a timely fashion, those tools are not reliable, or the measurement results are inconsistent with advertiser goals, our advertising revenue could be adversely affected.

In addition, web and mobile browser developers, such as Apple, Microsoft or Google, have implemented and may continue to implement changes that include requiring additional user permissions, in their browser or device operating system that impair our ability to measure and improve the effectiveness of advertising on our platform.

Such changes include, limiting the use of first-party and third-party cookies and related tracking technologies, such as mobile advertising identifiers, and other changes that limit our ability to collect information which allows us to attribute user actions on dealer customers’ websites to the effectiveness of advertising campaigns that are run on our platform.

For example, Apple launched its Intelligent Tracking Prevention (“ITP”) feature in its Safari browser.

websites to the effectiveness of advertising campaigns that are run on our platform or may limit our ability to communicate with or understand the identity of our consumers.

For example, Apple launched its Intelligent Tracking Prevention (“ITP”) feature in its Safari browser.

ITP blocks some or all third-party cookies by default on mobile and desktop and ITP has become increasingly restrictive over time.

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Similarly, Google recently announced that it plans to stop supporting third-party cookies in its Google Chrome browser.

Further, Apple announced certain changes, including introducing an AppTrackingTransparency framework that will limit the ability of mobile applications to request an iOS device’s advertising identifier and may also affect our ability to track user actions off our platform and connect their interactions with on-platform advertising.

Further, Apple announced certain changes, including introducing an App Tracking Transparency framework that will limit the ability of mobile applications to request an iOS device’s advertising identifier and may also affect our ability to track user actions off our platform and connect their interactions with on-platform advertising.

In addition, third parties, such as Apple, Microsoft or Google, have implemented and may continue to implement changes and restrictions in browser or device functionality that limit the use of cookies, or that limit our ability to communicate with or understand the identity of our consumers.

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Developers may release additional technology that further inhibits our ability to collect data that allows us to measure the effectiveness of advertising on our platform.

Any other restriction, whether by law, regulation, policy (including third-party policies) or otherwise, on our ability to collect and share data which our dealer customers find useful, our ability to use or benefit from tracking and measurement technologies, including cookies, or that further reduce our ability to measure the effectiveness of advertising on our platform would impede our ability to attract, grow and retain dealer customers.

Dealer customers and other third parties who provide data that helps us deliver personalized, relevant advertising may restrict or stop sharing this data.

Any other restriction, whether by law, regulation, policy (including third-party policies) or otherwise, on our ability to collect and share data which our customers find useful, our ability to use or benefit from tracking and measurement technologies, including cookies, or that further reduce our ability to measure the effectiveness of advertising on our platform would impede our ability to attract, grow and retain customers.

Customers and other third parties who provide data that helps us deliver personalized, relevant advertising may restrict or stop sharing this data.

If they stop sharing this data with us, it may not be possible for us to collect this data within the product or from another source.

We rely heavily on our ability to collect and share data and metrics for our dealer customers to help new and existing dealer customers understand the performance of advertising campaigns.

If dealer customers do not perceive our metrics to be accurate representations of our user base and user engagement or if we discover inaccuracies in our metrics, they may be less willing to allocate their budgets or resources to our platform, which could harm our business, revenue and financial results.

Certain of our key metrics — the number of our unique visitors and our traffic — are measured with third-party tools.