What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2022-02-25 compared with 2021-02-25 · 1259 added, 37 removed, 11 unchanged (99% of the section changed)

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is listed on the NYSE under the symbol “CARS.” Based on reports by our transfer agent for our common stock, as of February 18, 2021, there were 4,914 holders of record of our common stock.

Market for Registrant’s Common Equity, Related Stock holder Matters and Issuer Purchases of Equity Securities.

Our common stock is listed on the NYSE under the symbol “CARS.”

Based on reports by our transfer agent for our common stock, as of February 18, 2022, there were 4,747 holders of record of our common stock.

Cumulative Stockholder Return Graph.

The following graph shows the cumulative total stockholder return for our common stock during the period from May 18, 2017 to December 31, 2021.

The graph also shows the cumulative returns of Standard and Poor’s (“S&P”) MidCap 400 Index and Research Data Group’s (“RDG”) Internet Composite Index.

The graph also shows the cumulative returns of Standard and Poor’s (“S&P”) SmallCap 600 Index, of which we are a member, and Research Data Group’s (“RDG”) Internet Composite Index.

The comparison assumes $100 was invested on May 18, 2017 in CARS common stock and each index.

1 unchanged sentence

We have never declared or paid any cash dividends on our capital stock, and we do not currently intend to pay any cash dividends for the foreseeable future.

We expect to retain future earnings, if any, to fund the development and growth of our business.

Any future determination to pay dividends on our common stock will be made by the Board of Directors and will depend upon, among other factors, our financial condition, operating results, current and anticipated cash needs, plans for expansion and other factors that the Board of Directors may deem relevant.

2 unchanged sentences

Use of Proceeds from Registered Securities.

Selected Financial Data.

We derived certain Statement of (Loss) Income Data and Balance Sheet Data from the Consolidated Statements of (Loss) Income data for the years ended December 31, 2020, 2019 and 2018 and the Consolidated Balance Sheet data as of December 31, 2020 and 2019 from our audited Consolidated Financial Statements, which are included elsewhere in this Annual Report on Form 10-K.

We derived certain Statement of (Loss) Income Data and Balance Sheet Data from the Consolidated and Combined Statement of (Loss) Income data for the years ended December 31, 2017 and 2016 and the Consolidated or Consolidated and Combined Balance Sheet data as of December 31, 2018, 2017 and 2016 from our audited Consolidated or Consolidated and Combined Financial Statements, which are not included in this Annual Report on Form 10-K.

The selected financial data is not necessarily indicative of the results of future operations and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and the related notes included elsewhere in this Annual Report on Form 10-K.

For and As of the Year Ended December 31,

(In thousands, except per share amounts)

Statement of (Loss) Income Data

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our business, financial condition, results of operations and quantitative and qualitative disclosures should be read in conjunction with our Consolidated Financial Statements and related notes included elsewhere in this Annual Report on Form 10-K.

This discussion and analysis also contains forward-looking statements and should also be read in conjunction with the disclosures and information contained in “Note About Forward-Looking Statements”

and “Risk Factors”

in this Annual Report on Form 10-K.

References in this discussion and analysis to “CARS”, “we,”

“us,”

“our”

and similar terms refer to Cars.com Inc.

and its subsidiaries, collectively, unless the context indicates otherwise.

Business Overview.

We are a leading digital marketplace and solutions provider for the automotive industry, connecting car shoppers with sellers.

Through our marketplace, dealer websites and other digital products, we showcase dealer inventory, elevate and amplify dealers’

and automotive manufacturers (“OEMs”) brands, connect sellers with our ready-to-buy audience and empower shoppers with the resources and information needed to make confident car buying decisions.

Our digital solutions strategy builds on the rich data and audience of our digital marketplace to offer media and solutions that drive growth and efficiency for the automotive industry.

Our portfolio of brands now includes Cars.com, Dealer Inspire®, DealerRater®, FUEL, Auto.com, PickupTrucks.com, CreditIQ and NewCars.com®.

Overview of Results.

Year Ended December 31,

(In thousands, except percentages)

Net income (loss) (1)

(1) The net loss for the year ended December 31, 2020 and 2019 is primarily attributed to goodwill and intangible asset impairments of $905.9 million and $461.5 million, respectively.

2021 Highlights and Recent Trends.

Dealer Customers.

In the fourth quarter of 2021, Dealer Customers increased by 150, or 1%, to 19,179 as of December 31, 2021, as compared with 19,029 as of September 30, 2021, continuing six consecutive quarters of growth in Dealer Customers.

Total Dealer Customers increased by 807, or 4%, as compared with December 31, 2020.

This increase was a result of sustained high retention rates and new sales to Dealer Customers.

Dealer Customers as of December 31, 2020 were lower due to higher cancellations of marketplace customers in 2020, principally due to the COVID-19 pandemic.

In November 2021, we acquired all the outstanding stock of CreditIQ, Inc.

(the "CIQ Acquisition"), a cutting edge automotive fintech platform that provides instant online loan screening and approvals to facilitate online car buying.

Through the CIQ Acquisition, we are now able to make advanced digital financing technology available to dealers across the CARS platform.

Using cash on hand, we paid $30.0 million at the closing excluding transaction fees and expenses.

As part of the transaction, we may be required to pay additional cash consideration of up to $50.0 million based on future performance over a three-year period with a mutually agreed upon option for a fourth year.

Technology Transformation.

In June 2021, we announced the completion of a transformed online platform and mobile app for our users.

Our new Cars.com site offers load times up to 80% faster and real-time inventory updates of over 50,000 cars added to the site daily, an especially important feature in today's inventory-starved environment.

The upgraded Cars.com site, built on cloud-based technology, now delivers a more streamlined and dynamic experience for both car shoppers and sellers.

Our updated site experience builds on a wealth of content and offers even more advanced tools, interactive features and personalized content combined with a vibrant, intuitive and accelerated path to purchase.

FordDirect Agreement.

In April 2021, we announced that we were selected by FordDirect as a preferred website and technology platform provider for its approximately 3,000 U.S.

Debt Repayments.

During the year ended December 31, 2021, we generated substantial cash flow enabling us to make $120.0 million of debt repayments, of which $110.0 million were voluntary prepayments.

Launched in early 2020, FUEL is a unique, high-ROI, targeted video advertising solution that generates superior returns compared to high-cost broadcast television advertising, on which the auto industry spends approximately $10 billion per year, in addition to what is spent on other expensive advertising mediums.

FUEL continues to be one of our fastest growing products.

dealerships and OEMs to target and reach in-market car shoppers by leveraging the power of Cars.com's exclusive first-party audience data.

Impact of COVID-19 on our business.

Beginning in March 2020, the COVID-19 pandemic spread throughout the United States and the rest of the world and resulted in governmental authorities around the country implementing numerous measures to contain the virus, such as quarantines, shelter-in-place orders and business shutdowns (the “related restrictions”).

As cases of COVID-19 persist in various regions around the globe and new COVID-19 variants emerge, these related restrictions may still be enforced or be renewed in certain markets.

During the year ended December 31, 2020, and to a lesser extent during the year ended December 31, 2021, our business, financial condition, liquidity and operating results were adversely affected by the COVID-19 pandemic, as a widespread increase in unemployment, reduced consumer spending and supply chain disruptions impacted the greater macroeconomic automotive industry.

Key Operating Metrics.

We regularly review a number of key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make operating and strategic decisions.

Information regarding Traffic, Average Monthly Unique Visitors and Monthly Average Revenue Per Dealer is as follows (in thousands, except for Monthly Average Revenue Per Dealer):

Year Ended December 31,

Average Monthly Unique Visitors

Monthly Average Revenue Per Dealer - Annual

Information regarding our Dealer Customers is as follows:

December 31, 2021

December 31, 2020

September 30, 2021

Dealer Customers

Monthly Average Revenue Per Dealer - Quarterly

Traffic ("Visits").

Traffic is fundamental to our business.

Traffic to the CARS 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 desktop and mobile properties (responsive sites and mobile apps), measured using Adobe Analytics.

Traffic does not include traffic to Dealer Inspire websites.

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 dealer customers and national advertisers.

Traffic for the twelve months ended December 31, 2021 was essentially flat compared to the prior year.

Average Monthly Unique Visitors (“UVs”).

Growth in unique visitors 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 property on an individual device/browser combination or installs one of our mobile apps on an individual device.

If a visitor 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 count toward the number of UVs.

UVs do not include Dealer Inspire UVs.

We measure UVs using Adobe Analytics.

UVs increased 5% from December 31, 2020.

We believe the growth in UVs was primarily related to heightened consumer demand resulting from an increase in consumer confidence due to the economic stimulus during the first half of 2021.

This was partially offset by certain short-term negative impacts in connection with the completion of the Technology Transformation.

Average Revenue Per Dealer (“ARPD”).

We believe that our ability to grow ARPD is an indicator of the value proposition of our platform.

We define ARPD as Dealer revenue, excluding digital advertising services, during the period divided by the monthly average number of Dealer Customers during the same period.

ARPD for the quarter remained essentially flat from September 30, 2021 and increased 3% from December 31, 2020, primarily driven by growth in FUEL revenue, as well as growth in digital solutions.

ARPD for the year increased 16% from December 31, 2020, primarily driven by the second quarter 2020 invoice credits provided to our customers as a result of the COVID-19 pandemic and related restrictions, as well as our dealer customers' further adoption of FUEL and digital solutions.

Dealer Customers .

Dealer Customers represent dealerships using our products as of the end of each reporting period.

Each physical or virtual 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.

Total Dealer Customers increased 1% from September 30, 2021.

Dealer Customers increased, as a result of growth in marketplace and solutions only dealer customers, reflecting improved retention rates.

Total Dealer Customers increased by 4%, from December 31, 2020.

This increase was a result of sustained high retention rates and new sales to Dealer Customers.

Dealer Customers as of December 31, 2020 we re lower due to higher cancellations of marketplace customers in 2020, principally due t o the COVID-19 pandemic.

Factors Affecting Our Performance.

Our business is impacted by the changes in the larger automotive ecosystem, including inventory supply and supply chain disruptions, semiconductor shortages, employee retention and changes related to automotive advertising, among other macroeconomic factors.

Changes in vehicle sales volumes in the United States also influence OEMs’

and dealerships’

willingness to increase investments in technology solutions and automotive marketplaces like Cars.com and could impact our pricing strategies and/or revenue mix.

Our long-term success will depend in part on our ability to continue to transform our business toward a multi-faceted suite of digital solutions that complement our online marketplace offerings.

We believe our core strategic strengths, including our powerful family of brands, growing high-quality audience and suite of digital solutions for advertisers, will assist us as we navigate a rapidly changing automotive environment.

Additionally, we are focused on equipping our customers with digital solutions to enable them to compete in an environment in which an increasing number of car-buying customers are shopping online.

These solutions include virtual showrooms, home delivery, online chat, vehicle financing and our FUEL pro duct that allows dealers to target in-market buyers on streaming platforms .

The foundation of our continued success is the value we deliver to customers, and we believe that our large audience of in-market, car shoppers and innovative solutions deliver significant value to our customers.

Although the future effects of the COVID-19 pandemic are unknown and depend on numerous factors outside of our control, we believe our marketplace, advertising and digital solutions remain critical in helping our customers navigate certain challenges of the pandemic and related restrictions.

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

Results of Operations.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

(In thousands, except percentages)

OEM and National

Total revenue

Operating (loss) income (1) (2) (3) (4)

Net (loss) income (5)

(Loss) Earnings per Common Share and Other Data

(Loss) earnings per share, basic (6)

(Loss) earnings per share, diluted (6)

Weighted average number of common

shares outstanding, basic

Weighted average number of common

shares outstanding, diluted

Dividends declared per share

Balance Sheet Data

Operating expenses:

Cost of revenue and operations

Product and technology

Marketing and sales

General and administrative

Affiliate revenue share

Depreciation and amortization

Goodwill and intangible asset impairment

Total operating expenses

Operating income (loss)

Nonoperating expense:

Interest expense, net

Other expense, net

Total nonoperating expense, net

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

*** Not meaningful

Dealer revenue .

Dealer revenue consists of marketplace and digital solutions sold to dealer customers.

Dealer revenue is our largest revenue stream, representing 88.2% and 84.6% of total revenue for the years ended December 31, 2021 and 2020, respectively, and increased by $86.9 million, or 19%, compared to the prior year.

We experienced continued growth in our FUEL and digital solutions products, as well as a 4% increase in Dealer Customers.

Dealer revenue in 2020 was also impacted significantly by our response to the COVID-19 pandemic.

In an effort to assist our dealer customers impacted by the COVID-19 pandemic and related restrictions, we provided, among other measures, approximately $38.2 million of financial relief in the form of certain invoice credits of 50% for April 2020 and 30% for May and June 2020.

OEM and National revenue .

OEM and National revenue consists of display advertising and other solutions sold to OEMs, certain advertising agencies, automotive dealer associations and auto adjacent businesses.

OEM and National revenue represents 10.4% and 13.4% of total revenue for the years ended December 31, 2021 and 2020, respectively.

OEM and National revenue declined 11%, primarily due to pullbacks in OEM spending associated with fewer new model releases and continued production shortages, both driven by supply-chain disruptions as a result of the COVID-19 pandemic.

Operating expenses.

For the year ended December 31, 2020, several of the financial statement line items described below were significantly lower as compared to the year ended December 31, 2021, due to our management of expenses in 2020 in response to the COVID-19 pandemic.

For example, beginning in the second quarter of 2020, we implemented multiple initiatives to align our expenses with the lower revenue resulting from our invoice credits.

The impact of lower spending in 2020 as a result of the COVID-19 pandemic primarily impacted the second quarter of 2020 and to a lesser extent, the latter half of 2020.

Cost of revenue and operations .

Cost of revenue and operations expense primarily consists of costs related to our pay per lead products, third-party costs for processing dealer vehicle inventory, product fulfillment and compensation costs for the product fulfillment and customer service teams.

Cost of revenue and operations expense represents 18.3% and 18.5% of total revenue for the years ended December 31, 2021 and 2020, respectively.

Cost of revenue and operations expense increased, primarily due to lower spending in the prior year as a result of the COVID-19 pandemic expense adjustments, as well as revenue growth from FUEL and digital solutions products, which have an inherently higher cost of revenue.

Product and technology.

The product team creates and manages consumer and dealer-facing innovation and user experience.

The technology team develops and supports our products and websites.

Product and technology expense includes compensation costs, hardware and software maintenance, software licenses, data center and other infrastructure costs.

Product and technology expense represents 12.4% and 11.1% of total revenue for the years ended December 31, 2021 and 2020, respectively.

Product and technology expense increased, primarily due to lower spending in the prior year as a result of the COVID-19 pandemic, as well as continued investment in the business.

Marketing and sales .

Marketing and sales expense primarily consists of traffic and lead acquisition costs (including search engine and other online marketing), TV and digital display/video advertising and creative production, market research, trade events and compensation costs for the marketing, sales and sales support teams, as well as bad debt expens e related to the allowance for doubtful accounts.

Marketing and sales expense represents 33.4% and 33.5% of total revenue for the years ended December 31, 2021 and 2020, respectively.

Marketing and sales expense increased, primarily due to lower spending in the prior year as a result of the COVID-19 pandemic that reduced our advertising and trade events spend.

General and administrative .

General and administrative expense primarily consists of compensation costs for certain of the executive, finance, legal, human resources, facilities and other administrative employees.

In addition, general and administrative expense includes office space rent, legal, accounting and other professional services, transaction-related costs, severance, transformation and other exit costs and c osts related to the write-off and loss on assets, excluding the goodwill and intangible asset impairment discussed below.

General and administrative expense represents 11.8% and 10.8% of total revenue for the years ended December 31, 2021 and 2020, respectively.

General and administrative expense increased, primarily due to $11.9 million in transaction related costs, including $9.6 million of compensation expense recognized as part of the $30.0 million upfront purchase consideration of CreditIQ recorded in the fourth quarter.

In addition, the increase includes the impact of lower spending in the prior year as a result of the COVID-19 pandemic, as well as increased compensation costs, including stock-based compensation.

Affiliate revenue share.

Affiliate revenue share expense ended in June 2020.

For information related to the affiliate market conversions, see Note 6 (Unfavorable Contracts Liability) to the accompanying Consolidated Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data”

of this Annual Report on Form 10-K.

Depreciation and amortization .

Depreciation and amortization expense decreased 10%, primarily due to certain assets being fully depreciated and amortized as compared to the prior year period, partially offset by depreciation and amortization on additional assets acquired.

Goodwill and intangible asset impairment .

As of March 31, 2020, we determined there was a triggering event, caused by the economic impacts of the COVID-19 pandemic.

We performed interim quantitative impairment tests as of March 31, 2020.

The results of the goodwill and indefinite-lived intangible asset impairment tests indicated that the carrying values exceeded the estimated fair values and thus, we recorded an impairment of $505.9 million and $400.0 million, respectively.

Interest expense, net .

Interest expense, net increased by $0.9 million compared to the prior year period, due to a higher overall interest rate on our outstanding debt, partially offset by lower debt outstanding.

For information related to our Term and Revolving Loans and interest rate swap, see Note 7 (Debt) and Note 8 (Interest Rate Swap) to the accompanying Consolidated Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data”

of this Annual Report on Form 10-K.

Other expense, net.

Other expense, net changed, primarily due to the $9.4 million impairment of a non-marketable investment, triggered by the COVID-19 pandemic during the first quarter of 2020.

For information related to the impairment, see Note 2 (Significant Accounting Policies) to the accompanying Consolidated Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data”

of this Annual Report on Form 10-K.

Income tax expense (benefit) .

The effective income tax rate, expressed by calculating the income tax expense (benefit) as a percentage of Income (loss) before income tax, was 19% for the year ended December 31, 2021 and differed from the U.S.

federal statutory rate of 21%, primarily due to the tax benefit realized from a partial release of the valuation allowance, stock-based compensation and tax credits, partially offset by an increase in our uncertain tax positions and the impact of nondeductible transaction expenses.

The effective income tax rate was 13% for the year ended December 31, 2020 and differed from the U.S.

federal statutory rate of 21%, primarily due to the goodwill and intangible asset impairments and the establishment of a valuation allowance recorded against the deferred tax assets.

For information related to income taxes, see Note 14 (Income Taxes) to the Consolidated Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data”

of this Annual Report on Form 10-K.

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

The comparison of the 2020 results with 2019 can be found under the heading “Year Ended December 31, 2020 Compared to Year Ended December 31, 2019”

in “Part II, Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations”

section of our 2020 Form 10-K, which comparison is incorporated by reference herein.

Liquidity and Capital Resources

Our primary sources of liquidity are cash flows from operations, available cash reserves and debt capacity available under our credit facilities.

Our positive operating cash flow, along with our Revolving Loan described below, provide adequate liquidity to meet our short and long-term business needs, including those for investments and strategic acquisitions.

However, our ability to maintain adequate liquidity for our operations in the future is dependent upon a number of factors, including our revenue, macroeconomic conditions, the duration and severity of the economic and operational impacts caused by the COVID-19 pandemic, our ability to manage costs, including capital expenditures, and to collect accounts receivable, and various other factors, many of which are beyond our direct control.

As discussed below, we are subject to certain financial and other covenants contained in our debt agreements, as amended, including by the third amendment to the Credit Agreement (the "Third Amendment").

For information related to the Credit Amendment, as amended, see Note 7 (Debt) in Part II, Item 8., “Financial Statements and Supplementary Data”, of this Annual Report on Form 10-K.

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

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

As of December 31, 2021, Cash and cash equivalents were $39.1 million and including our undrawn Revolving Loan our total liquidity was $269.1 million.

Indebtedness.

As of December 31, 2021, the outstanding aggregate principal amount of our indebtedness was $477.5 million, at an effective interest rate of 5.7%, including $77.5 million of outstanding principal under the Term Loan, which carries an interest rate of 2.5% and outstanding principal under the bonds of $400.0 million, at an interest rate of 6.375%.

During the year ended December 31, 2021, we made $120.0 million in Term Loan payments, of which $10.0 million were mandatory.

As of December 31, 2021, $230.0 million was available to borrow under the Revolving Loan.

Our borrowings are limited by our Senior Secured Leverage Ratio and Interest Coverage Ratio, calculated in accordance with our Credit Agreement, which were 0.41x and 5.72x as of December 31, 2021, respectively.

For further information, see Note 7 (Debt) to the accompanying Consolidated Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data”

of this Annual Report on Form 10-K.

On October 30, 2020, we issued $400.0 million aggregate principal amount of 6.375% senior unsecured notes due 2028 (the "Notes”).

We used the net proceeds from the offering, 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.

On October 30, 2020, we entered into the Third Amendment to our Credit Agreement in connection with a broader refinancing, in which we reduced the size of our outstanding borrowings under the Credit Agreement to an aggregate principal amount of $430.0 million, comprised of a $230.0 million Revolving Credit Facility and a $200.0 million Term Loan, and extended the maturity date to May 31, 2025.

The Third Amendment also included the following:

A maximum Senior Secured Leverage Ratio of 3.50x (as defined within the Credit Agreement, as amended), with a temporary step up for material permitted acquisitions;

A minimum Interest Coverage Ratio of 2.75x and 3.00x beginning June 30, 2023;

A revised interest rate grid updated to reflect a maximum ABR margin of 1.75% and a maximum Eurodollar margin of 2.75%;

Reduction of the LIBOR floor to 0.50%;

Certain modifications to negative covenants restricting additional indebtedness, investments, acquisitions, debt repayments and certain dividends and distribution;

Provisions to accommodate the replacement of the existing LIBOR Rate with a successor benchmark interest rate;

Ended the Covenant Adjustment Period and removed the related minimum liquidity requirement and anti-cash hoarding covenant that were implemented pursuant to the second amendment of our Credit Agreement (the "Second Amendment").

Interest Rate Swap.

The interest rate on borrowings under our Term Loan is floating and, therefore, subject to fluctuations.

In order to manage the risk associated with changes in interest rates on its borrowing under the Term Loan, we entered into an interest rate swap (the “Swap”) effective December 31, 2018.

Under the terms of the Swap, we are locked into a fixed rate of interest of 2.96% on a notional amount of $300 million.

The Swap was initially designated as a cash flow hedge of interest rate risk.

The Second Amendment triggered a quantitative hedge effectiveness test, which resulted in the loss of hedge accounting.

As a result, as of the date of the Second Amendment, the unrealized loss included within Accumulated other comprehensive loss was frozen and is now being ratably reclassified into Net income (loss) over the remaining life of the Swap through Interest expense, net and Income tax expense (benefit) on the Consolidated Statements of Income (Loss).

Subsequent to the Second Amendment, any changes in the fair value of the Swap are recorded within Other (expense) income, net on the Consolidated Statements of Income (Loss).

The Third Amendment triggered a partial extinguishment of the underlying Term Loan.

Due to the extinguishment, we wrote-off a proportional amount of the frozen Accumulated other comprehensive loss balance as of the date of the partial extinguishment proportional to the reduction in the underlying Term Loan.

As a result, we included $4.5 million in Interest expense, net on the Consolidated Statement of Income (Loss) during the year ended December 31, 2020.

As of December 31, 2021, the fair value of the Swap was an unrealized loss of $3.5 million, which is recorded in Other accrued liabilities on the Consolidated Balance Sheets.

As of December 31, 2020, the fair value of the Swap was an unrealized loss of $12.1 million, of which $8.5 million and $3.6 million was recorded in Other accrued liabilities and Other noncurrent liabilities, respectively, on the Consolidated Balance Sheets.

During the years ended December 31, 2021 and December 31, 2020, $5.7 million and $11.1 million was reclassified from Accumulated other comprehensive loss and recorded in Interest expense, net, respectively.

During the year ended December 31, 2021, we made payments of $8.6 million related to the Swap.

During the year ended December 31, 2021, $0.9 million was reclassified as a tax benefit from Accumulated other comprehensive loss into Income tax expense (benefit) on the Consolidated Statements of Income (Loss).

Affiliate Agreements.

As of October 2019, we successfully converted all affiliates to our direct control, as our last affiliate agreement terminated in October 2019.

Therefore, we have a direct relationship with all dealer customers and recognize the revenue associated with converted dealers as Dealer revenue, rather than Wholesale revenue, in the Consolidated Statements of Income (Loss).

During 2021 and, to a lesser extent in 2020, we realized incremental cash flow, as we are no longer required to make any further payments to the affiliates under these agreements.

Share Repurchase Program .

In March 2018, our Board of Directors authorized a share repurchase program to acquire up to $200 million of our common stock over a two-year period.

Under this program, we were able to repurchase shares from time to time in open market transactions or through privately negotiated transactions in accordance with applicable federal securities laws.

The timing and amounts of any purchases under the share repurchase program was based on market conditions and other factors including price.

The repurchase program did not require the purchase of any minimum number of shares and could have been suspended, modified or discontinued at any time without prior notice.

In March 2020, the repurchase program expired and there were no share repurchases during the year ended December 31, 2020.

We repurchased and subsequently retired 1.7 million shares for $40.0 million during the year ended December 31, 2019.

Details of our cash flows are as follows (in thousands):

Year Ended December 31,

Net cash provided by (used in):

Operating activities

Investing activities

Financing activities

Net change in cash and cash equivalents

Operating Activities.

Cash provided by operating activities was essentially flat compared to the prior period.

Investing Activities.

The change in cash used in investing activities is primarily due to payments related to the CIQ Acquisition in 2021, net of cash acquired.

Financing Activities.

During the year ended December 31, 2021, cash used in financing activities was primarily related to $120.0 million of debt repayments, of which $110.0 million were voluntary prepayments.

During the year ended December 31, 2020, cash used in financing activities is primarily related to $50.6 million of net debt repayments, inclusive of $615.6 million in debt repayments, partially offset by $565.0 million in proceeds related to the issuance of the bond and our draw on our Revolving Credit Facility during the first quarter of 2020.

Additionally, there was $17.3 million of debt issuance costs associated with the bond offering and the second and third amendments.

For information related to our debt, see Note 7 (Debt) to the accompanying Consolidated Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data”

of this Annual Report on Form 10-K.

Contractual Obligations.

As of December 31, 2021, we had the following obligations and commitments to make future payments under contracts, contractual obligations and commercial commitments (in thousands):

Payments due by Period

Contractual Obligations

Long-term debt (1)

Interest on debt and swap (2)

Operating leases

Other obligations (3)

(1) Long-term debt includes future principal payments on long-term borrowings through scheduled maturity dates.

Excluded from these amounts are the non-cash amortization of debt issuance and other costs related to indebtedness.

(2) Interest payments for variable rate debt were calculated using interest rates as of December 31, 2021 and factor in scheduled amortization payments primarily on the Term Loan and Swap.

(3) Other obligations represent commitments under certain vendor and other contracts.

Excluded from the above table is the contingent consideration related to the CIQ Acquisition as the amounts and timing are uncertain.

As part of the CIQ Acquisition, we may be required to pay up to an additional $50.0 million in cash consideration to the former owners based on two earn-out achievement objectives, including an earnings related metric and lender market share.

The actual amount to be paid will be based on the acquired business’s future performance to be attained over a three-year performance period with a mutually agreed upon option for a fourth year.

Commitments and Contingencies.

For further information, see Note 10 (Commitments and Contingencies) to the accompanying Consolidated Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data”

of this Annual Report on Form 10-K.

Subsequent Events.

Accu-Trade Acquisition.

I n February 2022, we signed a definitive agreement to acquire 100% of the assets of Accu-Trade , Galves Market Data and MADE Logistics ("Accu-Trade"), which includes real-time, VIN-specific appraisal and valuation data, instant guaranteed offer capabilities and logistics technology.

Consideration for the transaction will be $65 million in cash at closing.

There is also the potential for additional cash and stock consideration based on achievement of certain financial thresholds.

The transaction is expected to close in March 2022.

Share Repurchase Program.

In February 2022, our Board of Directors authorized a three-year share repurchase program to acquire up to $200 million of our common stock.

Critical Accounting Policies and Estimates.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes.

Actual results could differ significantly from those estimates.

We believe the following discussion addresses our most critical accounting policies, which are those that are important to the presentation of our financial condition and results of operations and require management’s most subjective and complex judgments.

Revenue Recognition.

We account for a customer arrangement when we and the customer have an approved contract that specifies the rights and obligations of each party and the payment terms, and we believe it is probable we will collect substantially all of the consideration to which we will be entitled in exchange for the services that will be provided to the customer.

We periodically enter into arrangements that include multiple promises that we evaluate to determine whether the promises are separate performance obligations.

We identify performance obligations based on services to be transferred to a customer that are distinct within the context of the contractual terms.

We allocate the contractual transaction price to each distinct performance obligation and recognize revenue when it satisfies a performance obligation by providing a service to a customer.

Revenue is generated through our direct sales force and prior to October 2019, through affiliate sales channels (Wholesale revenue).

Marketplace Subscription Advertising Revenue.

Our primary source of revenue is through the sale of marketplace subscription advertising packages to dealer customers.

Our subscription packages allow dealer customers to showcase their new and used vehicle inventory to in-market shoppers on the Cars.com website.

The subscription packages are generally a fixed price arrangement with varying contract terms, typically ranging from three to six months, that are automatically renewed, typically on a month-to-month basis.

We recognize subscription package revenue ratably as the service is provided over the contract term.

Marketplace subscription advertising revenue is recorded in Dealer revenue and, prior to October 2019, Wholesale revenue in the Consolidated Statements of Income (Loss).

We also offer our customers several add-on products to the subscription packages, as well as FUEL.

Add-on products include premium advertising products that can be uniquely tailored to an individual dealer customer’s current needs.

Substantially all of our add-on products, as well as FUEL, are sold from the subscription packages as the customer cannot benefit from add-on products on their own.

Therefore, the subscription packages and add-on products, as well as FUEL, are combined as a single performance obligation, and we recognize the related revenue ratably as the services are provided over the contract term.

We also provide services, including hosting flexible, custom designed website platforms supporting highly personalized digital marketing campaigns, digital retailing and messaging platform products.

We recognize revenue related to these services ratably as the service is provided over the contract term.

The related revenue is recorded in Dealer revenue in the Consolidated Statements of Income (Loss).

Prior to October 2019, our affiliates also sold marketplace subscription advertising to dealer customers, and we earned Wholesale revenue through our affiliate agreements.

Affiliates were assigned certain sales territories in which they sold our products.

Under these agreements, we charged the affiliates 60% of the corresponding Cars.com retail rate for products sold to affiliate dealer customers.

We recognized Wholesale revenue ratably as the service was provided over the contract term.

In situations where our direct sales force sold our products within an affiliate’s assigned territory, we paid the affiliate a revenue share which was classified as Affiliate revenue share in the Consolidated Statements of Income (Loss).

Wholesale revenue also included the amortization of the Unfavorable contracts liability.

For information related to the Unfavorable contracts liability, see Note 6 (Unfavorable Contracts Liability) to the accompanying Consolidated Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data”

of this Annual Report on Form 10-K.

Display Advertising Products and Services Revenue.

We also earn revenue through the sale of display advertising on our website to national advertisers, pursuant to transaction-based contracts, which are billed for impressions delivered or click-throughs on their advertisements.

An impression is the display of an advertisement to an end-user on the website and is a measure of volume.

A click-through occurs when an end-user clicks on an impression.

We recognize revenue as the impressions or click-throughs are delivered.

If the impressions or click-throughs delivered are less than the amount invoiced to the customer, the difference is recorded as deferred revenue and recognized as revenue when earned.

We recognize revenue related to these services at the point in time the service is provided.

Display advertising products revenue sold to OEMs is recorded in OEM and National revenue in the Consolidated Statements of Income (Loss).

We also provide services related to customized digital marketing and customer acquisition services, including paid, organic, social and creative services to dealer customers.

We recognize revenue related to these services at the point in time the service is provided.

Display advertising products revenue sold to dealers is recorded in Dealer revenue in the Consolidated Statements of Income (Loss).

Pay Per Lead Revenue.

We also sell leads, which are connections from consumers to dealer customers in the form of phone calls, emails and text messages, to dealer customers, OEMs and third-party resellers.

We recognize pay per lead revenue primarily on a per-lead basis at the point in time in which the lead has been delivered.

Revenue related to pay per lead is recorded in Dealer revenue, OEM and National revenue, Other revenue or, prior to October 2019, Wholesale revenue, depending on the customer who is purchasing this product, in the Consolidated Statements of Income (Loss).

Other Revenue.

Other revenue primarily includes revenue related to vehicle listing data sold to third parties and peer-to-peer vehicle advertising.

We recognize other revenue either ratably as the services are provided or at the point in time the services have been performed.

Other revenue is recorded in Other revenue in the Consolidated Statements of Income (Loss).

Goodwill represents the excess of acquisition cost over the fair value of assets acquired, including identifiable intangible assets, net of liabilities assumed.

Goodwill is tested for impairment on an annual basis or between annual tests if events occur or circumstances changed that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

Our goodwill is tested for impairment at a level referred to as the reporting unit.

The level at which we test goodwill for impairment requires us to determine whether the operations below the business segment level constitute a business for which discrete financial information is available and segment management regularly reviews the operating results.

We determined that we operated as a single reporting unit.

The process of estimating the fair value of goodwill is subjective and requires us to make estimates that may significantly impact the outcome of the analysis.

A qualitative assessment considers events and circumstances such as macroeconomic conditions, industry and market conditions, cost factors and overall financial performance, as well as company specifications.

If after performing this assessment, we concluded it is more likely than not that the fair value of the reporting unit is less than its carrying amount, then we would perform the quantitative test.

Under the quantitative test, a goodwill impairment is identified by comparing the fair value of the reporting unit to the carrying amount, including goodwill.

If the carrying amount of the reporting unit exceeds the fair value of the reporting unit, goodwill is considered

impaired and an impairment charge is recognized in an amount equal to the excess, not to exceed the carrying amount of goodwill.

We estimate the fair value of the reporting unit with an income approach using the discounted cash flow (“DCF”) analysis and we also considered a market-based valuation methodology using comparable public company trading values and our market capitalization.

Determining fair value requires the exercise of significant judgments, including the amount and timing of expected future cash flows, long-term growth rates, the discount rate and relevant comparable public company earnings multiples.

The cash flows employed in the DCF analysis are based on our best estimate of future sales, earnings and cash flows after considering factors such as general market conditions and recent operating performance.

The discount rate utilized in the DCF analysis is based on the reporting unit’s weighted-average cost of capital, which takes into account the relative weights of each component of capital structure (equity and debt) and represents the expected cost of new capital, adjusted as appropriate to consider the risk inherent in future cash flows of our reporting unit.

Impairment assessment inherently involves management judgments regarding a number of assumptions described above.

The reporting unit fair value also depends on the future strength of the U.S.

New and developing competition as well as technological change could also adversely affect future fair value estimates.

Due to the many variables inherent in the estimation of a reporting unit’s fair value and the relative size of our recorded goodwill, differences in assumptions could have a material effect on the estimated fair values.

For information related to the goodwill impairment recorded during the years ended December 31, 2020 and 2019, see Note 5 (Goodwill and Other Intangible Assets, net) to the accompanying Consolidated Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data”

of this Annual Report on Form 10-K.

Indefinite-Lived Intangibles .

In connection with TEGNA's acquisition of Cars.com, we recorded an intangible asset with an indefinite life associated with the Cars.com trade name.

The indefinite-lived intangible asset is tested annually, or more often if circumstances dictate, for impairment and is written down to fair value as required.

During the year ended December 31, 2021, we performed a qualitative test for impairment and noted no quantitative test or impairment was required.

For information related to the intangible asset impairment recorded during the years ended December 31, 2020 and 2019, see Note 5 (Goodwill and Other Intangible Assets, net) to the accompanying Consolidated Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data”

of this Annual Report on Form 10-K.

Business Combinations.

Intangible Assets.

Intangible assets are recorded at their estimated fair value at the date of acquisition.

The fair values assigned to the intangible assets acquired were determined based on management’s estimates and assumptions, as well as other information compiled by management, including third-party valuations that utilize customary valuation procedures and techniques, such as the multi-period excess earnings and the relief of royalty methods.

These preliminary fair values are subject to change within the one-year measurement period.

We amortize intangible assets over their estimated useful lives on a straight-line basis.

Amortization is recorded over the relevant estimated useful lives ranging from five to ten years.

We evaluate the useful lives of these assets on at least an annual basis and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

If the estimate of an intangible asset’s remaining useful life is changed, we amortize the remaining carrying value of the intangible asset prospectively over the revised remaining useful life.

If an impairment is identified, the asset is written down to fair value as required.

For the CIQ Acquisition, we did not identify any impairments or changes to the useful lives of the intangible assets during the year ended December 31, 2021.

Contingent Consideration.

As part of the CIQ Acquisition, we may be required to pay up to an additional $50.0 million in cash consideration to the former owners based on two different earn-out achievement objectives, including an earnings related metric and lender market share.

The actual amount to be paid will be based on the acquired business’s future performance to be attained over a three-year performance period with a mutual option for a fourth year.

The contingent consideration is classified as Level 3 in the fair value hierarchy and the fair value is measured based on a Monte Carlo simulation or a scenario-based method, depending on the earn-out achievement objective, utilizing projections about future performance.

Significant inputs include volatility, discount rate and projected financial information.

Recent Accounting Pronouncements.

There are no recent accounting pronouncements that materially impact our financial statements as of December 31, 2021.

Quantitative and Qualitat ive Disclosures About Market Risk.

Market risk represents the risk of loss that may affect our financial position due to adverse changes in financial market prices and rates.

We are exposed to market risks related to changes in interest rates and foreign currency exchange risk.

Interest Rate Risk.

The interest rate on borrowings under our Term Loan and Revolving Credit Facility is floating and, therefore, subject to fluctuations.

In order to manage the risk associated with changes in interest rates on our borrowing under the Term Loan, we entered into an interest rate swap (the “Swap”) effective December 31, 2018.

Under the terms of the Swap, we are locked into a fixed rate of interest of 2.96% on a notional amount of $300 million.

The Swap was initially designated as a cash flow hedge of interest rate risk.

The Second Amendment triggered a quantitative hedge effectiveness test, which resulted in the loss of hedge accounting.

Subsequent to the Second Amendment, any changes in the fair value of the Swap are recorded within Other (expense) income, net on the Consolidated Statements of Income (Loss).

As of December 31, 2021, the fair value of the Swap was an unrealized loss of $3.5 million, which is recorded in Other accrued liabilities on the Consolidated Balance Sheets.

As of December 31, 2020, the fair value of the Swap was an unrealized loss of $12.1 million, of which $8.5 million and $3.6 million is recorded in Other accrued liabilities and Other noncurrent liabilities, respectively, on the Consolidated Balance Sheets.

During the year ended December 31, 2021, we made payments of $8.6 million related to the Swap.

Foreign Currency Exchange Risk.

Historically, as our operations and sales have been primarily in the United States, we have not faced any significant foreign currency risk.

With the acquisitions of DealerRater in August 2016 and Dealer Inspire in February 2018, we acquired a limited number of Canadian dealer customers, some of which are billed in Canadian dollars.

Any foreign currency exchange rate fluctuations have been and are anticipated to be immaterial.

If we plan for additional international expansion, our risks associated with fluctuation in currency rates will become greater, and we will continue to reassess our approach to managing this risk.

Financial Statement s and Supplementary Data.

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Cars.com Inc.

Opinion on the Financial Statements

We have audited the accompanying Consolidated Balance Sheets of Cars.com Inc.

(the Company) as of December 31, 2021 and 2020, the related Consolidated Statements of Income (Loss), Comprehensive Income (Loss), Stockholders’

Equity and Cash Flows for each of the three years in the period ended December 31, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “Consolidated Financial Statements”).

In our opinion, the Consolidated Financial Statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control –

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 25, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the Consolidated Financial Statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the Consolidated Financial Statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the Consolidated Financial Statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition

Description of the matter

As described in Note 2 to the Consolidated Financial Statements, the Company recognizes revenue in accordance with Accounting Standard Codification Topic 606, Revenue from Contracts with Customers , upon transfer of control of promised services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those services.

The Company enters into contracts with customers that may include multiple service offerings.

The assessment of terms and conditions for the identification of performance obligations may involve judgment.

Auditing the Company’s accounting for revenue recognition was challenging given the significant audit effort to identify and determine the distinct performance obligations in customer contracts through the inspection of terms and conditions in the customer contracts.

How we addressed the matter in our audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s revenue recognition process, including management’s review of terms and conditions and the identification of distinct performance obligations in customer contracts.

To test the Company’s accounting for revenue recognition, we performed audit procedures that included, among others, an evaluation of management’s assessment of the distinct performance obligations within the arrangement based on its terms and conditions for a sample of customer contracts.

We tested the application of the revenue recognition accounting requirements for each of the significant service offerings to determine whether the performance obligations identified by the Company were distinct.

We also assessed the appropriateness of the related disclosures in the Consolidated Financial Statements.

Acquisition of CreditIQ, Inc.

Description of the matter

During 2021, the Company completed its acquisition of CreditIQ, Inc.

(“CreditIQ”) for total purchase consideration of $44.1 million, as disclosed in Note 3 to the Consolidated Financial Statements.

The transaction was accounted for as a business combination.

Auditing the Company's accounting for its acquisition of CreditIQ was complex due to the significant estimation required by management to determine the fair value of contingent consideration and acquired software intangible assets of $23.8 million and $19.0 million, respectively.

The significant estimation was primarily due to the complexity of the valuation models used by management to measure the fair value of the contingent consideration and acquired software intangible assets and the sensitivity of the respective fair values to the significant underlying assumptions.

The Company used a Monte Carlo simulation to measure the contingent consideration.

The significant assumptions used in the Monte Carlo simulation included volatility, discount rate and projected financial information.

The Company used a multi-period excess earnings method to measure the acquired software intangible assets.

The significant assumptions used to estimate the value of the acquired software included the discount rate and certain assumptions that form the basis of the forecasted results (e.g., revenue growth rates, technology replacement rate and EBITDA margin).

These significant assumptions are forward looking and could be affected by future economic and market conditions.

How we addressed the matter in our audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s accounting for its acquisition.

For example, we tested controls over the recognition and measurement of consideration transferred (including contingent consideration) and acquired software intangible assets, including the valuation models and underlying assumptions used to develop such estimates.

To test the fair value of the contingent consideration, we performed audit procedures that included, among others, assessing the terms of the arrangement, including the conditions that must be met for the contingent consideration to become payable.

We also involved our valuation specialists to assist in evaluating the Company's use of a Monte Carlo simulation and testing the significant assumptions used in the model, including the completeness and accuracy of the underlying data.

For example, we compared the significant assumptions to current industry, market and economic trends and to the Company's budgets and forecasts.

To test the estimated fair value of the acquired software intangible assets, we performed audit procedures that included, among others, evaluating the Company's use of the income approach (the multi-period excess earnings method) and testing the significant assumptions used in the model, including the completeness and accuracy of the underlying data.

For example, we compared the significant assumptions to current industry, market and economic trends, to the assumptions used to value similar assets in other acquisitions, to the historical results of the acquired business and to other guidelines used by companies within the same industry.

We involved our valuation specialists to assist in our evaluation of certain significant assumptions.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2016.

Chicago, Illinois

February 25, 2022

Cars.com Inc.

Consolidated Balance Sheets

(In thousands, except per share data)

Current assets:

Cash and cash equivalents

Total debt (7)

The operating loss for the year ended December 31, 2020 is primarily attributed to the $905.9 million goodwill and intangible asset impairment, as well as the impact of the COVID-19 pandemic and related restrictions.

The operating loss for the year ended December 31, 2019 is primarily attributed to the $461.5 million goodwill and indefinite-lived intangible asset impairment.

The year ended December 31, 2018 includes the impact of $ 9.8 million in consulting services and other costs incurred as part of our settlement agreement with our stockholder activist;

$13.2 million in transaction costs, primarily related to the acquisition of Dealer Inspire, Inc.

and Launch Digital Marketing LLC (referred to collectively as “Dealer Inspire”) and the process to explore strategic alternatives to enhance shareholder value ;

$4.4 million related to the sales transformation;

$6.8 million in incremental stock-based compensation;

the addition of Dealer Inspire’s business and the incremental costs of being a public company.

The year ended December 31, 2017 includes the impact of incremental costs of being a public company and $3.6 million related to the move to our new corporate headquarters location.

The year ended December 31, 2017 includes the tax benefit from the write-off of the permanent outside basis difference and the reduction in the corporate federal income tax rate under the Tax Cuts and Jobs Act.

The year ended December 31, 2016 only includes DealerRater tax expense for the post-acquisition period.

As of the separation date of May 31, 2017, the total shares outstanding was 71.6 million.

The total number of shares outstanding at that date is being utilized for the calculation of both basic and diluted earnings per share for the periods prior to the separation.

Balance is net of debt-issuance costs related to the Term Loan and Bond Offering.

Accounts receivable, net

Prepaid expenses

Other current assets

Total current assets

Property and equipment, net

Intangible assets, net

Investments and other assets, net

Liabilities and stockholders' equity:

Current liabilities:

Accounts payable

Accrued compensation

Current portion of long-term debt, net

Other accrued liabilities

Total current liabilities

Noncurrent liabilities:

Long-term debt, net

Deferred tax liability

Other noncurrent liabilities

Total noncurrent liabilities

Total liabilities

Commitments and contingencies

Stockholders' equity:

Preferred Stock at par, $ 0.01 par value;

5,000 shares authorized;

issued and outstanding as of December 31, 2021 and December 31, 2020,

Common Stock at par, $ 0.01 par value;

300,000 shares authorized;

67,387 shares issued and outstanding as of December 31, 2021 and

December 31, 2020, respectively

Additional paid-in capital

Accumulated deficit

Accumulated other comprehensive loss

Total stockholders' equity

Total liabilities and stockholders' equity

The accompanying notes are an integral part of these Consolidated Financial Statements.

Cars.com Inc.

Consolidated Statem ents of Income (Loss)

(In thousands, except per share data)

Year Ended December 31,

OEM and National

Total revenue

Operating expenses:

Cost of revenue and operations

Product and technology

Marketing and sales

General and administrative

Affiliate revenue share

Depreciation and amortization

Goodwill and intangible asset impairment

Total operating expenses

Operating income (loss)

Nonoperating expense:

Interest expense, net

Other (expense) income, net

Total nonoperating expense, net

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Weighted-average common shares outstanding:

Earnings (loss) per share:

The accompanying notes are an integral part of these Consolidated Financial Statements.

Cars.com Inc.

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

Year Ended December 31,

Net income (loss)

Other comprehensive income (loss), net of tax:

Interest rate swap

Reclassification of accumulated other comprehensive loss on interest rate swap into Net income (loss)

Total other comprehensive income (loss)

Comprehensive income (loss)

The accompanying notes are an integral part of these Consolidated Financial Statements.

Cars.com Inc.

Consolidated Statements o f Stockholders’

(In thousands)

Preferred Stock

Retained Earnings (Accumulated

Accumulated Other Comprehensive

Stockholders'

Income (Loss)

Balance at December 31, 2018

Other comprehensive loss, net of tax

Repurchases of common stock

Shares issued in connection with stock-based

compensation plans, net

Stock-based compensation

Balance at December 31, 2019

Other comprehensive income, net of tax

Shares issued in connection with

stock-based compensation plans, net

Stock-based compensation

Balance at December 31, 2020

Other comprehensive income, net of tax

Shares issued in connection with

stock-based compensation plans, net

Stock-based compensation

Balance at December 31, 2021

The accompanying notes are an integral part of these Consolidated Financial Statements.

Cars.com Inc.

Consolidated Stateme nts of Cash Flows

(In thousands)

Year Ended December 31,

Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile Net income (loss) to Net cash provided by

operating activities:

Amortization of intangible assets

Amortization of unfavorable contracts liability

Goodwill and intangible asset impairment

Impairment of non-marketable security

Amortization of accumulated other comprehensive loss on interest rate swap

Stock-based compensation

Deferred income taxes

Provision for doubtful accounts

Amortization of debt issuance costs

Changes in operating assets and liabilities, net of CIQ Acquisition:

Accounts receivable

Prepaid expenses and other assets

Accounts payable

Accrued compensation

Other liabilities

Net cash provided by operating activities

Cash flows from investing activities:

Payments for CIQ Acquisition, net of cash acquired

Purchase of property and equipment

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from revolving loan borrowings and issuance of long-term debt

Payments of debt issuance costs and other fees

Payments of long-term debt

Stock-based compensations plans, net

Repurchases of common stock

Net cash used in financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Supplemental cash flow information:

Cash (received) paid for income taxes

Cash paid for interest and swap

The accompanying notes are an integral part of these Consolidated Financial Statements.

Cars.com Inc.

Notes to Consolidated Financial Statements

Description of Business

Description of Business.

Cars.com Inc.

(the “Company”

or “CARS”) is a leading automotive marketplace platform that provides a robust set of digital solutions that connect car shoppers with sellers.

Through the Company's marketplace, dealer websites and other digital products, it showcases dealer inventory, elevate and amplify dealers’

and automotive original equipment manufacturers’

(“OEMs”) brands, connect sellers with our ready-to-buy audience and empower shoppers with the resources and information needed to make confident car buying decisions.

Our platform strategy builds on the rich data and audience of our digital marketplace to offer media and solutions that drive growth and efficiency for the automotive industry.

The Company's portfolio of brands now includes Cars.com, Dealer Inspire®, DealerRater®, FUEL, Auto.com, PickupTrucks.com, CreditIQ and NewCars.com®.

Significant Accounting Policies

Basis of Presentation .

These accompanying Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) and the rules and regulations of the SEC.

The Consolidated Financial Statements include the accounts of CARS and its 100 % owned subsidiaries.

All intercompany transactions and accounts have been eliminated in consolidation.

Use of Estimates.

The preparation of the accompanying Consolidated Financial Statements in accordance with U.S.

GAAP requires management to make estimates and assumptions that affect amounts reported in the Consolidated Financial Statements and accompanying disclosures.

Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may differ from those estimates.

Reclassifications .

Certain prior year balances have been reclassified to conform to the current year presentation.

In addition, effective January 1, 2021, the Company renamed its revenue categories as follows:

"Direct" revenue is now "Dealer" revenue and "National advertising" revenue is now "OEM and National" revenue.

This naming convention change has no impact on the components or the historical amounts of the respective revenue categories.

Dealer revenue consists of marketplace and digital solutions sold to dealer customers.

OEM and National revenue consists of display advertising and other solutions sold to OEMs, advertising agencies, automotive dealer associations and auto adjacent businesses.

The Company accounts for a customer arrangement when the Company and the customer have an approved contract that specifies the rights and obligations of each p arty and the payment terms, and the Company believes it is probable that the Company will collect substantially all of the consideration to which the Company will be entitled in exchange for the services that will be provided to the customer.

The Company periodically enters into arrangements that include multiple promises that the Company evaluates to determine whether the promises are separate performance obligations.

The Company identifies performance obligations based on services to be transferred to a customer that are distinct within the context of the contractual terms.

The Company allocates the contractual transaction price to each distinct performance obligation based on the relative standalone selling price and recognizes revenue when it satisfies a performance obligation by providing a service to a customer.

Revenue is generated through the Company’s direct sales force and prior to October 2019, through affiliate sales channels (Wholesale revenue).

Marketplace Subscription Advertising Revenue.

The Company’s primary source of revenue is through the sale of marketplace subscription advertising packages to dealer customers.

Our subscription packages allow dealer customers to showcase their new and used vehicle inventory to in-market shoppers on the Cars.com website.

The subscription packages are generally a fixed price arrangement with varying contract terms, typically ranging from three to six months , that are automatically renewed, typically on a month-to-month basis.

The Company recognizes subscription package revenue ratably as the service is provided over the contract term.

Marketplace subscription advertising revenue is recorded in Dealer revenue and, prior to October 2019, Wholesale revenue in the Consolidated Statements of Income (Loss).

The Company also offers its customers several add-on products to the subscription packages, as well as FUEL.

Add-on products include premium advertising products that can be uniquely tailored to an individual dealer customer’s current needs.

Substantially all of the Company’s add-on products, as well as FUEL, are not sold separately from the subscription packages as the customer cannot benefit from add-on products on their own.

Therefore, the subscription packages and add-on products, as well as FUEL, are combined as a single performance obligation, and the Company recognizes the related revenue ratably as the services are provided over the contract term.

The Company also provides services, including hosting flexible, custom designed website platforms supporting highly personalized digital marketing campaigns, digital retailing and messaging platform products.

The Company recognizes revenue related to these services ratably as the service is provided over the contract term.

The related revenue is recorded in Dealer revenue in the Consolidated Statements of Income (Loss).

Cars.com Inc.

Notes to Consolidated Financial Statements (Continued)

Prior to October 2019, the Company’s affiliates also sold marketplace subscription advertising to dealer customers, and the Company earned Wholesale revenue through its affiliate agreements.

Affiliates were assigned certain sales territories in which they sold the Company’s products.

Under these agreements, the Company charged the affiliates 60 % of the corresponding Cars.com retail rate for products sold to affiliate dealer customers.

The Company recognized Wholesale revenue ratably as the service was provided over the contract term.

In situations where the Company’s direct sales force sold the Company’s products within an affiliate’s assigned territory, the Company paid the affiliate a revenue share which was classified as Affiliate revenue share in the Consolidated Statements of Income (Loss).

Wholesale revenue also included the amortization of the Unfavorable contracts liability.

For further information, see Note 6 (Unfavorable Contracts Liability).

Display Advertising Products and Services Revenue.

The Company also earns revenue through the sale of display advertising on the Company’s website to national advertisers, pursuant to transaction-based contracts, which are billed for impressions delivered or click-throughs on their advertisements.

An impression is the display of an advertisement to an end-user on the website and is a measure of volume.

A click-through occurs when an end-user clicks on an impression.

The Company recognizes revenue as the impressions or click-throughs are delivered.

If the impressions or click-throughs delivered are less than the amount invoiced to the customer, the difference is recorded as deferred revenue and recognized as revenue when earned.

The Company recognizes revenue related to these services at the point in time the service is provided.

Display advertising products revenue sold to OEMs is recorded in OEM and National revenue in the Consolidated Statements of Income (Loss).

The Company also provides services related to customized digital marketing and customer acquisition services, including paid, organic, social and creative services to dealer customers.

The Company recognizes revenue related to these services at the point in time the service is provided.

Display advertising products revenue sold to dealers is recorded in Dealer revenue in the Consolidated Statements of Income (Loss).

Pay Per Lead Revenue.

The Company also sells leads, which are connections from consumers to dealer customers in the form of phone calls, emails and text messages, to dealer customers, OEMs and third-party resellers.

The Company recognizes pay per lead revenue primarily on a per-lead basis at the point in time in which the lead has been delivered.

Other Revenue.

Other revenue primarily includes revenue related to vehicle listing data sold to third parties and peer-to-peer vehicle advertising.

The Company recognizes other revenue either ratably as the services are provided or at the point in time the services have been performed.

Other revenue is recorded in Other revenue in the Consolidated Statements of Income (Loss).

Cash and Cash Equivalents.

All cash balances and liquid investments with original maturities of three months or less on their acquisition date are classified as cash and cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts .

Accounts receivable are primarily derived from sales to customers and recorded at invoiced amounts.

The allowance for doubtful accounts reflects the Company’s estimate of credit exposure, determined principally on the basis of its collection experience, aging of its receivables, expected losses and any specific reserves needed for certain customers based on their credit risk.

Bad debt expense is included in Marketing and sales in the Consolidated Statements of Income (Loss).

The allowance for doubtful accounts was $ 1.7 million and $ 4.4 million as of December 31, 2021 and 2020, respectively.

Concentrations of Credit Risk.

The Company’s financial instruments, consisting primarily of cash and cash equivalents and customer receivables, are exposed to concentrations of credit risk.

The Company invests its cash and cash equivalents with highly-rated financial institutions.

Investments .

Investments in non-marketable equity securities are measured at fair value with changes in fair value recognized in Net income (loss).

The Company utilizes the measurement alternative for equity investments without readily determinable fair values and revalues these investments upon the occurrence of an observable price change for similar investments.

On at least an annual basis, the Company assesses its investments to determine whether any events have occurred, or circumstances have changed, which might have a significant adverse effect on their fair value and which may be indicative of impairment.

In the first quarter of 2020, the Company recorded a full impairment of $ 9.4 million, triggered by the novel coronavirus disease 2019 (“COVID-19”) pandemic and the related restrictions, for the year ended December 31, 2020.

The impairment was included in the Other (expense) income, net in the Consolidated Statements of Income (Loss).

The non-marketable investments recorded within Investments and other assets, net on the Consolidated Balance Sheets were zero as of December 31, 2021 and 2020.

For further information on the triggering event, see Note 5 (Goodwill and Other Intangible Assets, net).

Cars.com Inc.

Notes to Consolidated Financial Statements (Continued)

Property and Equipment .

Property and equipment are recorded at cost and depreciated on a straight-line basis over the estimated useful lives as follows (in thousands):

Estimated Useful Life

Computer software

18 months - 5 years

Computer hardware

Leasehold improvements

Lesser of useful life or lease term

Furniture and fixtures

Property and equipment, gross

Accumulated depreciation

Property and equipment, net

Normal repairs and maintenance are expensed as incurred.

Any resulting gain or loss from the disposition of those assets is included in General and administrative expense on the Consolidated Statements of Income (Loss).

Internally Developed Technology .

The Company capitalizes costs associated with customized internal-use software systems and website development that have reached the application development stage.

Such capitalized costs include external direct costs utilized in developing or obtaining the applications and payroll and payroll-related expenses for employees who are directly associated with the applications.

Capitalization of such costs begins when the preliminary project stage is complete and ceases at the point in which the project is substantially complete and ready for its intended purpose.

The Company reviews the carrying amount of internally developed technology for impairment and useful lives whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Capitalized software costs, excluding cloud computing arrangements, for the years ended December 31, 2021, 2020 and 2019 were $ 17.9 million, $ 16.3 million and $ 19.8 million, respectively.

Capitalized costs, excluding those for cloud computing arrangements, are included in Property and equipment, net on the Consolidated Balance Sheets.

Research and development costs are expensed as incurred.

Cloud Computing Arrangements.

The Company capitalizes costs associated with the development of cloud computing arrangements in a manner consistent with internally developed technology.

Any amortization is recorded in the same manner on the Consolidated Statements of Income (Loss) as the expense associated with the underlying host arrangement.

These capitalized costs as of December 31, 2021 were $ 0.6 million and $ 2.6 million and were included in Prepaid expenses and Investments and other assets, net on the Consolidated Balance Sheets, respectively.

These capitalized costs were immaterial as of December 31, 2020.

Goodwill and Other Intangible Assets .

Goodwill represents the excess of acquisition cost over the fair value of assets acquired, including identifiable intangible assets, net of liabilities assumed.

Goodwill is tested for impairment on an annual basis or between annual tests if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

The Company’s goodwill is tested for impairment at a level referred to as the reporting unit.

The level at which the Company tested goodwill for impairment requires the Company to determine whether the operations below the business segment level constitute a business for which discrete financial information is available and segment management regularly reviews the operating results.

The Company determined that it operated as a single reporting unit.

The process of estimating the fair value of goodwill is subjective and required the Company to make estimates that may significantly impact the outcome of the analysis.

If after performing this assessment, the Company concluded it is more likely than not that the fair value of the reporting unit is less than its carrying amount, then the Company performed the quantitative test.

Under the quantitative test, a goodwill impairment is identified by comparing the fair value of the reporting unit to the carrying amount, including goodwill.

If the carrying amount of the reporting unit exceeds the fair value of the reporting unit, goodwill is considered impaired and an impairment charge is recognized in an amount equal to the excess, not to exceed the carrying amount of goodwill.

The Company estimated the fair value of the reporting unit with an income approach using the discounted cash flow (“DCF”) analysis and the Company also considered a market-based valuation methodology using comparable public company trading values and the Company’s market capitalization.

The cash flows employed in the DCF analysis are based on the Company’s best estimate of future sales, earnings and cash flows after

Cars.com Inc.

Notes to Consolidated Financial Statements (Continued)

considering factors such as general market conditions and recent operating performance.

Impairment assessment inherently involves management judgments regarding a number of assumptions described above.

The reporting unit fair value also depends on the future strength of the U.S.

New and developing competition as well as technological change could also adversely affect future fair value estimates.

Due to the many variables inherent in the estimation of a reporting unit’s fair value and the relative size of the Company’s recorded goodwill, differences in assumptions could have a material effect on the estimated fair values.

For further information, see Note 5 (Goodwill and Other Intangible Assets, net).

The Company’s indefinite-lived intangible asset relates to the Cars.com trade name.

Intangible assets with indefinite lives are tested for impairment annually, or more often if circumstances dictate, and written down to fair value as required.

The estimates of fair value are determined using the “relief from royalty”

methodology, which is a variation of the income approach.

The discount rate assumption is based on an assessment of the risk inherent in the projected future cash flows generated by the trade name intangible asset.

Amortizable intangible assets are amortized on a straight-line basis over the estimated useful lives as follows:

Intangible Asset

Estimated Useful Life

Acquired software

Customer relationships

Other trade names

10 - 12 years

Valuation of Long-Lived Assets .

The Company reviews the carrying amount of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Once an indicator of potential impairment has occurred, the impairment test is based on whether the intent is to hold the asset for continued use or to hold the asset for sale.

If the intent is to hold the asset for continued use, the impairment test first requires a comparison of projected undiscounted future cash flows against the carrying amount of the asset group.

If the carrying value of the asset group exceeds the estimated undiscounted future cash flows, the asset group would be deemed to be potentially impaired.

The impairment, if any, would be measured based on the amount by which the carrying amount exceeds the fair value.

Fair value is determined primarily using the projected future undiscounted cash flows.

Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose.

No impairment losses were recognized for the periods presented in the Consolidated Statements of Income (Loss).

Fair Value of Financial Instruments .

Fair value is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability.

The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.

The three-level hierarchy of fair value measurements is based on whether the inputs to those measurements are observable or unobservable.

Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions.

The fair-value hierarchy requires the use of observable market data when available and consists of the following levels:

Level 1—Quoted prices for identical instruments in active markets;

Level 2—Quoted prices for similar instruments in active markets;

quoted prices for identical or similar instruments in markets that are not active;

and model-derived valuations in which all significant inputs are observable in active markets;

Level 3—Valuations derived from valuation techniques in which one or more significant inputs are unobservable

The Company’s financial instruments include the interest rate swap (the “Swap”) and the contingent consideration related to the CreditIQ acquisition, both recorded at fair value.

Financial instruments also include accounts receivable, accounts payable and other liabilities.

The carrying values of these instruments approximate their fair values.

The Company’s debt is classified as Level 2 in the fair value hierarchy and the fair value is measured based on comparable trading prices, ratings, sectors, coupons and maturities of similar instruments.

Level 2 assets and liabilities are based on observable inputs other than quoted prices, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

As of December 31, 2021, the fair value of the outstanding indebtedness was approximately $ 502.7 million, compared to the carrying value of $ 477.5 million.

As of December 31, 2020, the fair value approximated the carrying value.

Cars.com Inc.

Notes to Consolidated Financial Statements (Continued)

Significant inputs include volatility, discount rate and projected financial information.

Derivative Financial Instrument.

The interest rate on borrowings under the Company’s Term Loan is floating and, therefore, subject to fluctuations.

In order to manage the risk associated with changes in interest rates on its borrowing under the Term Loan, the Company entered into the Swap effective December 31, 2018.

Under the terms of the Swap, the Company is locked into a fixed rate of interest of 2.96 %, as defined in the Credit Agreement, on a notional amount of $ 300 million.

The amendment entered into in June 2020 (the “Second Amendment”) resulted in the loss of hedge accounting.

For further information, see Note 8 (Interest Rate Swap).

As a result, as of the date of the Second Amendment, the unrealized loss included within Accumulated other comprehensive loss is ratably reclassified into Net income (loss) over the remaining life of the Swap.

Each period, a portion of the unrealized loss is recorded to Interest expense, net and Income tax expense (benefit) within the Consolidated Statements of Income (Loss).

Subsequent to the Second Amendment, any changes in the fair value of the Swap is recorded within Other (expense) income, net on the Consolidated Statements of Income (Loss).

As a result of the amendment entered into in October 2020 (the “Third Amendment”), the existing debt at the time of the amendment resulted in a partial debt extinguishment.

Due to the reduction in value of the underlying Term Loan upon the Third Amendment as compared to the notional amount of the Swap, a proportional amount of the frozen Accumulated other comprehensive loss balance was immediately reclassified into Interest expense, net.

The Swap is recognized on the Consolidated Balance Sheets at fair value and classified based on the instrument’s maturity date.

Income Taxes .

Income taxes are presented on the Consolidated Financial Statements using the asset and liability method, under which deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences that exist between the financial statement carrying amount of assets and liabilities and their respective tax basis, as well as from operating loss and tax credit carry-forwards.

Deferred income taxes reflect expected future tax benefits (i.e.

assets) and future tax costs (i.e.

liabilities).

The Company measures deferred tax assets and liabilities using the enacted tax rate expected to apply to taxable income in the years in which those temporary differences are expected to be recoverable or settled.

The Company recognizes the effect on deferred taxes of a change in tax rates in income in the period that includes the enactment date.

Valuation allowances are established if, based upon the weight of available evidence, management determines it is “more likely than not”

that some portion or all of the deferred tax asset will not be realized.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate resolution.

The Company’s uncertain tax position reserves are reviewed periodically and are adjusted as events occur that affect its estimates, such as the availability of new information, the lapsing of applicable statutes of limitation, the conclusion of tax audits, the measurement of additional estimated liability, the identification of new tax matters, the release of administrative tax guidance affecting its estimates of tax liabilities or the rendering of relevant court decisions.

The Company records penalties and interest relating to uncertain tax positions in Income tax expense (benefit) in the Consolidated Statements of Income (Loss).

For further information, see Note 14 (Income Taxes).

Stock-Based Compensation.

Stock-based compensation expense is recognized on a straight-line basis over the vesting period.

Forfeitures are recorded at the time the forfeiture event occurs.

For further information, see Note 12 (Stock-Based Compensation) .

Advertising Costs .

The Company expenses all advertising costs as they are incurred and are included in Marketing and sales in the Consolidated Statements of Income (Loss).

Advertising expense for the years ended December 31, 2021, 2020 and 2019 was $ 104.4 million, $ 80.4 million and $ 115.8 million, respectively.

Cost of Revenue and Operations.

Cost of revenue and operations consist of expenses related to the pay per lead products, third-party costs, such as processing of dealer vehicle inventory, product fulfillment, customer service, hosting for our digital solutions and related compensation costs.

Defined Contribution Plans.

The Company’s employees are eligible to participate in a defined contribution plan.

Participants are eligible on their date of hire and are allowed to make tax-deferred contributions up to 90 % of annual compensation, subject to limitations specified by the Internal Revenue Code of 1986, as amended.

Employer contributions consist of matching contributions and/or non-elective employer contributions.

The Company provides a maximum match for 4 % of the employee’s salary and contributions are

Cars.com Inc.

Notes to Consolidated Financial Statements (Continued)

immediately fully vested.

As part of the cost reduction efforts in response to the COVID-19 pandemic and related restrictions, beginning in the second quarter of 2020, the Company temporarily suspended the employer match of employees’

defined contribution plans for a portion of the year ended December 31, 2020.

As of December 31, 2020, the Company’s match was fully reinstated.

The Company’s contributions to its defined contribution plans for the years ended December 31, 2021, 2020 and 2019 were $ 5.0 million, $ 2.4 million and $ 4.3 million, respectively .

Business Combination

On November 5, 2021, the Company acquired all of the outstanding stock of CreditIQ, (the “CIQ Acquisition”) a cutting edge automotive fintech platform that provides instant online loan screening and approvals to facilitate online car buying.

Through the CIQ Acquisition, the Company now provides dealers with access to advanced digital financing technology across the CARS platform.

The Company expensed as incurred total acquisition costs of $ 1.2 million, all of which were recorded during the twelve months ended December 31, 2021.

These costs were recorded in General and administrative in the Consolidated Statements of Income (Loss).

In connection with the CIQ Acquisition, CreditIQ’s unvested equity awards were cash settled for a total of $ 9.6 million.

The fair value of these awards was based on the price paid per common share to the owners of the acquired business and recognized immediately after the CIQ Acquisition as compensation expense in the Company’s Consolidated Statements of Income (Loss).

Preliminary Purchase Price Allocation.

The fair values assigned to the tangible and intangible assets acquired and liabilities assumed were determined based on management’s estimates and assumptions, as well as other information compiled by management, including third-party valuations that utilize customary valuation procedures and techniques, such as the multi-period excess earnings and the relief of royalty methods.

The preliminary fair values of all assets acquired and liabilities assumed are subject to change within the one-year measurement period.

The Acquisition purchase price allocation is as follows (in thousands):

Acquisition-date

Cash consideration (1)

Contingent consideration (2)

Cash settlement of CIQ Acquisition's unvested equity awards (3)

Total purchase consideration

Assets acquired (4)

Identified intangible assets (5)

Total assets acquired

Total liabilities assumed (6)

Net identifiable assets

Total purchase consideration

(1) A reconciliation of cash consideration to Payments for the CIQ Acquisition, net of cash acquired in the Consolidated Statements of Cash Flows is as follows (in thousands):

Cash consideration

Cash settlement of CIQ Acquisition's unvested equity awards (3)

Cash acquired

Payments for CIQ Acquisition, net of cash acquired

(2) As part of the CIQ Acquisition, the Company may be required to pay up to an additional $ 50.0 million in cash consideration to the former owners based on two earn-out achievement objectives, including an earnings related metric and lender market share.

The actual amount to be paid will be based on the acquired business’s future performance to be attained over a three-year performance period with a mutually agreed upon option for a fourth year.

The fair value was estimated utilizing a Monte Carlo simulation or a scenario-based method, depending on the achievement objective.

(3) In connection with the Acquisition, CreditIQ’s unvested equity awards were cash settled.

The fair value of these awards was $ 9.6 million and was based on the price paid per common share to the owners of the acquired business and recognized immediately after the Acquisition as compensation expense in General and administrative expense on the Company’s Consolidated Statements of Income (Loss).

(4) Assets acquired includes cash and cash equivalents, accounts receivable and other identifiable assets acquired.

Cars.com Inc.

Notes to Consolidated Financial Statements (Continued)

(5) Information regarding the identifiable intangible assets acquired is as follows:

Acquisition-Date

(in thousands)

Weighted-Average

Amortization Period

Acquired software

(6) Total liabilities assumed includes accounts payable, deferred income tax liabilities, net and other liabilities assumed.

In connection with the CIQ Acquisition, the Company recorded goodwill in the amount of $ 26.2 million, which is primarily attributable to sales growth from existing and future technology, product offerings, customers and the value of the acquired assembled workforce.

All of the goodwill is considered non-deductible for income tax purposes.

Prior to the CIQ Acquisition for the years ended December 31, 2021, 2020 and 2019, the CIQ Acquisition would have had an immaterial impact on the Company’s Consolidated Statements of Income (Loss).

Revenue Summary .

In the table below (in thousands), revenue is disaggregated by major products and services.

The Company only has one reportable segment;

therefore, further disaggregation is not applicable at this time.

Prior to October 2019, the Company’s affiliates also sold marketplace subscription advertising to dealer customers, and the Company earned Wholesale revenue through its affiliate agreements.

For further information, see Note 6 (Unfavorable Contracts Liability).

Year Ended December 31,

Major products and services

Subscription advertising and digital solutions

Display advertising

Total revenue

Goodwill and Other Intangible Assets, net

Goodwill and Indefinite-Lived Intangible Assets Summary.

The changes in the carrying amount of goodwill and indefinite-lived intangible asset are as follows (in thousands):

December 31, 2019

December 31, 2020

Additions (1)

December 31, 2021

(1) In connection with the CreditIQ Acquisition, the Company recorded goodwill in the amount of $ 26.2 million.

No impairment was noted for the year ended December 31, 2021.

For more information on the Acquisition, see Note 3 (Business Combination).

Goodwill and Indefinite-Lived Intangible Asset Prior Year Impairments.

In September 2019, the Company determined there was a triggering event, primarily caused by a sustained decrease in the Company's stock price after the completion of the strategic alternatives review process and performed interim quantitative impairment tests.

The results of the goodwill and indefinite-lived intangible asset impairment tests indicated that the carrying values exceeded the estimated fair values.

Thus, during the third quarter of 2019, the Company recorded an impairment of $ 379.2 million and $ 82.3 million related to its goodwill and indefinite-lived intangible asset, respectively.

In the fourth quarter of 2019, the Company performed an updated quantitative impairment analysis of its goodwill and indefinite-lived intangible asset and the results of those tests indicated that the estimated fair value exceeded the carrying value as of December 31, 2019.

For further information, see Note 2 (Significant Accounting Polices).

Cars.com Inc.

Notes to Consolidated Financial Statements (Continued)

In March 2020, the Company determined there was a triggering event, caused by the economic impacts of the COVID-19 pandemic and related restrictions.

In March 2020, the World Health Organization categorized COVID-19 as a pandemic, and it has since spread throughout the United States and the rest of the world with different geographical locations impacted more than others.

The pandemic resulted in governmental authorities around the country implementing numerous measures to contain the virus, such as quarantines, shelter-in-place orders and business shutdowns (the “related restrictions”).

The related restrictions have had, and the Company expects they will continue to have, a negative impact on regional and national economies and the automotive industry for an uncertain duration.

While certain jurisdictions have relaxed or reversed some of these related restrictions, many have been subsequently reinstated.

The COVID-19 pandemic and related restrictions have caused a widespread increase in unemployment and have resulted in reduced consumer spending and an economic recession.

As a result of overall uncertainty related to the automotive industry, in the second half of March 2020, the Company’s customers began to adjust, reduce or suspend their operating and marketing activities.

This resulted and may continue to result in decreased subscription revenue and reduced demand for the Company’s services.

Moreover, depending upon the progress of the pandemic and the government and societal responses thereto, the Company’s customers may implement further cost-savings measures, including additional reductions of their advertising spend.

In an effort to assist its dealer customers impacted by the COVID-19 pandemic and related restrictions, the Company provided, among other measures, financial relief in the form of certain invoice credits of 50 % for April 2020 and 30 % for May and June 2020.

With respect to managing its expenses, the Company implemented several initiatives, including both permanent and temporary measures, to adjust expenses with changes in revenue.

The effects of the COVID-19 pandemic and related restrictions, particularly reduced consumer spending and the discounts that the Company provided its dealer customers in the second quarter of 2020, have negatively impacted its results of operations, cash flows and financial position.

In addition, the extent of the impact will vary depending on the duration and severity of the economic and operational impacts of the pandemic and related restrictions.

Thus, the amount and timing of future cash flows, used in the valuation models to estimate the fair value of the Company’s assets, were significantly and negatively impacted by the COVID-19 pandemic and related restrictions.

The Company performed interim quantitative impairment tests as of March 31, 2020.

The results of the goodwill and indefinite-lived intangible asset impairment tests indicated that the carrying values exceeded the estimated fair values and thus, the Company recorded an impairment of $ 505.9 million and $ 400.0 million related to its goodwill and indefinite-lived intangible asset, respectively.

This impairment charge reduced the goodwill balance to zero at March 31, 2020.

Definite Lived Intangible Assets .

The Company’s definite-lived intangible assets by major asset class are as follows (in thousands):

December 31, 2021

December 31, 2020

Customer relationships

Acquired software

Other trade names

Content library

As of December 31, 2021, projected annual amortization expense for amortizable intangible assets is as follows (in thousands):

Cars.com Inc.

Notes to Consolidated Financial Statements (Continued)

Unfavorable Contracts Liability

In connection with the October 2014 acquisition of CARS by the Company’s former parent, the Company entered into affiliate agreements with the former owners of CARS.

Under the affiliate agreements, affiliates had the exclusive right to sell and price the Company’s products and services in their local territories, paying the Company a wholesale rate for the Company’s products.

The Company charged the affiliates 60 % of the corresponding Cars.com’s retail rate for products sold to affiliate dealer customers and prior to October 2019, recognized revenue generated from these agreements as Wholesale revenue in the Consolidated Statements of Income (Loss).

The Unfavorable contracts liability was established as a result of these below market-rate unfavorable affiliate agreements that the Company entered into as part of TEGNA’s acquisition of the Company in 2014.

Prior to the affiliate conversions discussed below, over the contract period, the Company recognized $ 25.2 million of Wholesale revenue per year with a corresponding reduction of the Unfavorable contracts liability.

The Unfavorable contracts liability was fully amortized as of September 30, 2019.

The Company amended five of its affiliate agreements (Gannett, McClatchy, TEGNA, tronc, and the Washington Post) and as a result, had a direct relationship with these dealer customers before the original contractual conversion date specified.

As a result, the Company recognized the revenue associated with converted dealer customers as Dealer revenue, rather than Wholesale revenue, in the Consolidated Statements of Income (Loss).

On October 2019, the Belo affiliate agreement expired.

As part of the amendments to the affiliate agreements, Gannett, McClatchy, TEGNA, tronc, and the Washington Post agreed to perform certain marketing support and transition services through varying dates, the latest of which was June 29, 2020.

The fees the Company incurred associated with the amended affiliate agreements were recorded as Affiliate revenue share expense within Operating expenses in the Consolidated Statements of Income (Loss).

The Company no longer records the amortization of the Unfavorable contracts liability associated with the converted markets to revenue as the Company is recognizing this Dealer revenue at retail rates.

The amortization of the Unfavorable contracts liability related to these converted markets was recorded as a reduction of Affiliate revenue share within Operating expenses in the Consolidated Statements of Income (Loss).

As of December 31, 2019, the Unfavorable contracts liability has been fully amortized.

During the years ended December 31, 2020 and 2019, the Company recorded zero and $ 17.5 million, respectively, as a reduction to Affiliate revenue share, rather than Wholesale revenue, in the Consolidated Statements of Income (Loss).

As of October 2019, the Company has direct relationships with all of its dealer customers.

In addition, as of June 30, 2020, the Company no longer incurs affiliate revenue share expense.

Credit Agreement.

On May 31, 2017, the Company and certain of its domestic wholly-owned subsidiaries (collectively, the “Guarantors”) entered into what was originally a $900 million Credit Agreement (the “Credit Agreement”) with the lenders named therein.

Subsequent to the initial Credit Agreement, the Company has entered into three amendments.

The Credit Agreement’s initial maturity was May 31, 2022 and originally included (a) revolving loan commitments in an aggregate principal amount of up to $ 450 million (of which up to $ 25 million may be in the form of letters of credit at its request) and (b) term loans in an aggregate principal amount of $ 450 million.

Interest on the borrowings under the Credit Agreement is payable based on either (i) the London Interbank Offered Rate (“LIBOR”) or (ii) the Alternate Base Rate (“ABR”), as defined in the Credit Agreement, in either case plus an applicable margin and fees which, after the second full fiscal quarter following the closing date, was based upon its Total Net Leverage Ratio.

The ABR is the greater of (a) the prime rate, (b) the New York Fed Bank Rate plus 50 basis points or (c) adjusted LIBOR, which is computed as the LIBOR Screen Rate at 11:00 AM on such day.

The applicable margin varied between 1.25 % to 2.0 % for LIBOR borrowings and 0.25 % to 1.0 % for ABR borrowings, depending on the Company’s Total Net Leverage Ratio.

The Credit Agreement required a maximum Total Net Leverage Ratio of 4.25 x with an incremental step down to 3.75 x on or after May 31, 2019 and a minimum Interest Coverage Ratio of 3.0 x (each as defined in the Credit Agreement).

The Credit Agreement allowed for with a temporary step up to the maximum Total Net Leverage Ratio for material permitted acquisitions.

First Amendment.

In October 2019, the Company entered into an amendment to its Credit Agreement to increase the maximum Total Net Leverage Ratio to 4.50 x for periods ending on or after December 31, 2019, with step downs through maturity, while preserving the favorable pricing structure from the original agreement.

Cars.com Inc.

Notes to Consolidated Financial Statements (Continued)

Second Amendment.

In June 2020, the Company entered into an amendment to provide flexibility during the uncertain COVID-19 period which provided for a waiver with respect to the Total Net Leverage Ratio and Consolidated Interest Coverage Ratio financial covenants for the covenant testing periods through December 31, 2020 (the “Covenant Adjustment Period”).

The Second Amendment also included the following:

A revised maximum permitted Total Net Leverage Ratio beginning March 31, 2021 (after the Covenant Adjustment Period) of 6.50 x, with step downs thereafter;

A revised minimum permitted Consolidated Interest Coverage Ratio beginning March 31, 2021 (after the Covenant Adjustment Period) of 2.75 x and 3.00 x beginning June 30, 2020;

A LIBOR floor of 0.75 %;

A minimum liquidity requirement of $ 75.0 million and the addition of an anti-cash hoarding covenant, which requires, during the Covenant Adjustment Period, mandatory prepayments of the Revolving Credit Facility with the amount of any unrestricted cash in excess of $ 75.0 million;

A revised interest rate grid updated to reflect a maximum ABR margin of 1.50 % and a maximum Eurodollar margin of 2.50 %;

during the Covenant Adjustment Period the applicable margins were increased by 0.50 %.

Third Amendment.

On October 30, 2020, the Company entered into the Third Amendment to its Credit Agreement in connection with a broader refinancing, in which the Company reduced the size of the outstanding borrowings under the Credit Agreement to an aggregate principal amount of $ 430.0 million, comprised of a $ 230.0 million Revolving Credit Facility and a $ 200.0 million Term Loan, and extended the maturity date to May 31, 2025 .

The Third Amendment also included the following:

A maximum Senior Secured Leverage Ratio of 3.50 x (as defined within the Credit Agreement, as amended), with a temporary step up for material permitted acquisitions;

A minimum Interest Coverage Ratio of 2.75 x and 3.00 x beginning June 30, 2023;

A revised interest rate grid updated to reflect a maximum ABR margin of 1.75 % and a maximum Eurodollar margin of 2.75 %;

Reduction of the LIBOR floor to 0.50 %;

Certain modifications to negative covenants restricting additional indebtedness, investments, acquisitions, debt repayments and certain dividends and distribution;

Provisions to accommodate the replacement of the existing LIBOR Rate with a successor benchmark interest rate;

Ended the Covenant Adjustment Period and removed the related minimum liquidity requirement and anti-cash hoarding covenant that were implemented pursuant to the Second Amendment.

As of December 31, 2021, the outstanding principal amount under the Term Loan was $ 77.5 million and the interest rate in effect was 2.5 %, not including the impact of the interest rate swap.

During the year ended December 31, 2021, the Company made $ 120.0 million in Term Loan payments, of which $ 110.0 million were voluntary prepayments.

Revolving Loan.

As of December 31, 2021, $ 230.0 million was available to borrow under the Revolving Loan.

The Company had zero drawdo wns on the Revolving Loan during the year ended December 31, 2021.

Senior Unsecured Notes.

In October 2020, the Company issued $ 400.0 million aggregate principal amount of 6.375% senior unsecured notes due 2028.

Interest on the notes is due semi-annually on May 1 and November 1.

Debt Issuance Costs.

Debt issuance costs related to the various amendments and issuances were $ 14.3 million and $ 17.7 million at December 31, 2021 and December 31, 2020, respectively.

Depending on the nature of the debt issuance costs and the underlying debt to which it relates, they are recorded as either a reduction of debt and accreted using the effective interest method or as a deferred asset and accreted using the straight-line method with the amortization recorded in Interest expense, net on the Consolidated Statements of Income (Loss).

Debt Extinguishment.

The Third Amendment resulted in a partial debt extinguishment of $ 1.8 million of the previously capitalized debt issuance costs and included in Other (expense) income, net in the Consolidated Statements of Income (Loss) for the year ended December 31, 2020.

Debt Guarantors, Collateral, Covenants and Restrictions.

The obligations under the debt agreements are guaranteed by the Guarantors and the Company.

The Guarantors secured their respective obligations under the debt agreements by granting liens in favor of the agent on substantially all of their assets.

The terms of the debt agreement include representations and warranties, affirmative and negative covenants (including certain financial covenants) and events of default that are customary for credit facilities of this nature.

The negative covenants place restrictions and limitations on the Company’s ability to incur additional indebtedness, make distributions or other

Cars.com Inc.

Notes to Consolidated Financial Statements (Continued)

restricted payments, create liens, make certain equity or debt investments, engage in mergers or consolidations and engage in certain transactions with affiliates.

As of December 31, 2021, the Company is in compliance with the covenants under its debt agreements.

Long-term Debt Maturities.

Long-term debt includes future principal payments on long-term borrowings through scheduled maturity dates.

Excluded from these amounts are the amortization of debt issuance and other costs related to indebtedness.

As of December 31, 2021, the Company’s contractual payments under then-outstanding long-term debt agreements in each of the next five calendar years and thereafter are as follows (in thousands):

Interest Rate Swap

The interest rate on borrowings under the Company’s Term Loan is floating and, therefore, subject to fluctuations.

In order to manage the risk associated with changes in interest rates on its borrowing under the initial Term Loan, the Company entered into an interest rate swap (the “Swap”) effective December 31, 2018.

Under the terms of the Swap, the Company is locked into a fixed rate of interest of 2.96 %, as defined in the Company’s Credit Agreement, on a notional amount of $ 300 million until May 31, 2022.

The Swap was initially designated as a cash flow hedge of interest rate risk.

During the second quarter of 2020, the Company entered into the second amendment to the Credit Agreement, which triggered a quantitative hedge effectiveness test that resulted in the loss of hedge accounting.

As a result, as of the date of the second amendment, the unrealized loss included within Accumulated other comprehensive loss was frozen and is now being ratably reclassified into Net income (loss) over the remaining life of the Swap through Interest expense, net and Income tax expense (benefit) within the Consolidated Statements of Income (Loss).

Subsequent to the second amendment, any changes in the fair value of the Swap are recorded within Other (expense) income, net on the Consolidated Statements of Income (Loss).

During the fourth quarter of 2020, the Company entered into the third amendment to the Credit Agreement, which triggered a partial debt extinguishment, including a partial extinguishment of the underlying Term Loan.

Due to the reduction in the Term Loan as compared to the notional amount of the Swap, the Company wrote-off a proportional amount of the frozen Accumulated other comprehensive loss balance as of the date of the partial extinguishment proportional to the reduction in the underlying notional amount of Term Loan.

The Company will continue to amortize the remaining Accumulated other comprehensive loss to Interest expense, net and Income tax expense (benefit) within the Consolidated Statements of Income (Loss) through the remainder of the term of the Swap.

Any changes in the fair value of the Swap will continue to be recorded within Other (expense) income, net on the Consolidated Statements of Income (Loss).

As of December 31, 2021, the fair value of the Swap was an unrealized loss of $ 3.5 million, which is recorded in Other accrued liabilities on the Consolidated Balance Sheets.

As of December 31, 2020, the fair value of the Swap was an unrealized loss of $ 12.1 million, of which $ 8.5 million and $ 3.6 million was recorded in Other accrued liabilities and Other noncurrent liabilities, respectively, on the Consolidated Balance Sheets.

During the years ended December 31, 2021 and December 31, 2020, $ 5.7 million and $ 11.1 million was reclassified from Accumulated other comprehensive loss and recorded in Interest expense, net, respectively.

During the year ended December 31, 2021, the Company made payments of $ 8.6 million related to the Swap.

During the year ended December 31, 2021, $ 0.9 million was reclassified as a tax benefit from Accumulated other comprehensive loss into Income tax expense (benefit) on the Consolidated Statements of Income (Loss).

Cars.com Inc.

Notes to Consolidated Financial Statements (Continued)

The Company is obligated as a lessee under certain non-cancelable operating leases for office space, and is also obligated to pay insurance, maintenance and other executory costs associated with the leases.

In May 2016, the Company entered into a lease of office space in Chicago, Illinois.

The lease extends through June 2031 and monthly rental payments under the lease escalate by 2.5 % each year throughout the lease.

As of December 31, 2021, the Company’s scheduled future minimum lease payments under operating leases having initial noncancelable lease terms of more than one year, is as follows (in thousands):

Total minimum lease payments

Imputed interest (1)

Present value of the minimum lease payments

Current maturities of lease obligations

Long-term lease obligations

(1) The Company’s lease agreements do not provide a readily determinable implicit rate nor is it available from the Company’s lessors.

Therefore, in order to discount lease payments to present value, the Company has estimated its incremental borrowing rate based on information available at either the lease transition date (for those leases that commenced prior to January 1, 2019) or the lease commencement date (for those leases that commenced after January 1, 2019).

As of December 31, 2021 and 2020, the Company’s operating lease assets, included in Investments and other assets , net, were $ 14.6 million and $ 16.0 million, respectively, and operating lease liabilities were $ 30.8 million and $ 33.3 million, respectively, the current maturities of which is included in Other accrued liabilities and the long-term portion of which is included in Other noncurrent liabilities .

The difference between the operating lease assets and the operating lease liabilities is primarily due to a lease incentive received in 2017 related to the 300 South Riverside Lease in Chicago, Illinois.

Other information related to the Company’s operating leases for the years ended December 31, 2021, 2020 and 2019 is as follows (in thousands, except months and percentage):

Year Ended December 31,

Income statement information:

Operating lease cost

Short-term lease cost

Variable lease cost

Total lease cost

Other information:

Cash paid for operating leases

Weighted-average remaining lease term (in months)

Weighted-average discount rate as of December 31,

Commitments and Contingences

The Company and its subsidiaries are parties from time to time in legal and administrative proceedings involving matters incidental to its business.

These matters, whether pending, threatened or unasserted, if decided adversely to the Company or settled, may result in liabilities material to its financial position, results of operations or cash flows.

The Company records a liability when it believes that it is both probable that a loss will be incurred and the amount of loss can be reasonably estimated.

The Company evaluates, at least quarterly, developments in its legal matters that could affect the amount of liability that has been previously accrued and makes adjustments as appropriate.

Significant judgment is required to determine both the probability and the estimated amount.

Stockholders' Equity

Cars.com Inc.

Notes to Consolidated Financial Statements (Continued)

In March 2018, the Company’s Board of Directors authorized a two-year share repurchase program to acquire up to $ 200 million of the Company’s common stock.

The Company repurchased shares from time to time in open market transactions or through privately negotiated transactions in accordance with applicable federal securities laws.

The timing and amounts of any purchases under the share repurchase program were based on market conditions and other factors including price.

The repurchase program did not require the purchase of any minimum number of shares and the Company funded the share repurchase program principally with cash from operations.

In March 2020, the repurchase program expired and there were no share repurchases during the year ended December 31, 2020.

The Company repurchased and subsequently retired 1.7 million shares for $ 40.0 million during the year ended December 31, 2019.

Stock-Based Compensation

Omnibus Plan.

In May 2017, the Company’s Board of Directors approved the Cars.com Inc.

Omnibus Incentive Compensation Plan (the “Omnibus Plan”), which provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and other stock-based and cash-based awards.

A maximum of 18.0 million common stock shares may be issued under the Omnibus Plan.

As of December 31, 2021, there were 8.9 million common stock shares available for future grants.

The Company issues new shares of CARS common stock for shares delivered under the Omnibus Plan.

Information related to stock-based compensation expense is as follows (in thousands):

Year Ended December 31,

Stock-based compensation expense

Income tax benefit related to stock-based

compensation expense

The following table shows stock-based compensation expense by financial statement line item on the Company’s Consolidated Statements of Income (Loss) (in thousands).

Year Ended December 31,

Cost of revenue and operations

Product and technology

Marketing and sales

General and administrative

Information related to outstanding stock-based compensation awards as of December 31, 2021 for restricted share units (“RSUs”), restricted stock, performance share units (“PSUs”) and the Cars.com Employee Stock Purchase Plan (“ESPP”) is as follows (in thousands, except for weighted-average remaining period):

Weighted-Average

Remaining Period

RSUs and Restricted Stock

Stock Options

Restricted Share Units and Restricted Stock.

RSUs represent the right to receive unrestricted shares of the Company’s common stock at the time of vesting, subject to any restrictions a s specified in the individual holder’s award agreement.

RSUs are subject to graded vesting, generally ranging between one and four years and the fair value of the RSUs is equal to the Company's common stock price on the date of grant.

Restricted Stock represents RSUs that have been delivered to certain non-employee directors who have elected to receive shares underlying RSUs before they vest.

Restricted Stock is subject to graded vesting over one year and the fair value of the

Cars.com Inc.

Notes to Consolidated Financial Statements (Continued)

Restricted Stock is equal to the Company’s common stock price on the date of grant.

RSU and Restricted Stock activity for the year ended December 31, 2021 is as follows (in thousands, except for weighted-average grant date fair value):

Number of RSUs

and Restricted Stock

Weighted-Average

Outstanding as of December 31, 2020

Vested and delivered

Outstanding as of December 31, 2021 (1)

(1) The outstanding balance as of December 31, 2021 includes 63 RSUs that were vested, but not yet delivered.

The weighted-average grant-date fair value of RSUs granted during the years ended December 31, 2020 and 2019 was $ 5.87 and $ 23.51 , respectively.

The total grant-date fair value of RSUs that vested during the years ended December 31, 2021, 2020 and 2019 was $ 14.7 million, $ 8.9 million and $ 7.1 million, respectively.

Performance Share Units.

PSUs represent the right to receive unrestricted shares of the Company’s common stock at the time of vesting.

The fair value of the PSUs is equal to the Company’s common stock price on the date of grant.

Expense related to PSUs is recognized when the performance conditions are probable of being achieved.

The percentage of PSUs that shall vest will range from 0 % to 200 % of the number of PSUs granted based on the Company’s future performance related to certain revenue and adjusted earnings before interest, income taxes, depreciation and amortization targets over a three-year performance period.

These PSUs are subject to cliff vesting at the end of the respective performance period.

PSU activity for the year ended December 31, 2021 is as follows (in thousands, except for weighted-average grant date fair value):

Weighted-Average

Outstanding as of December 31, 2020

Vested and delivered

Forfeited or cancelled

Outstanding as of December 31, 2021

Stock Options.

Stock optio ns represent the right to purchase shares of the Company’s common stock at the time of vesting, subject to any restrictions as specified in the individual holder’s award agreement.

Stock options are subject to three-year cliff vesting and expire 10 years from the grant date.

The Company began issuing stock options during the year ended December 31, 2020.

Stock option activity for the year ended December 31, 2021 is as follows (in thousands, except for weighted-average grant date fair value and weighted-average remaining contractual term):

Weighted-Average

Weighted-Average Remaining Contractual Term (in years)

Intrinsic Value

Outstanding as of December 31, 2020

Vested and delivered

Outstanding as of December 31, 2021

Exercisable as of December 31, 2021

The fair value of the stock options granted during the years ended December 31, 2021 and 2020 are estimated on the grant date using the Black-Scholes option pricing model, using the following assumptions:

Risk-free interest rate

Weighted-average volatility

Dividend yield

Expected years until exercise

Cars.com Inc.

Notes to Consolidated Financial Statements (Continued)

Employee Stock Purchase Plan.

In September 2017, the Company’s Board of Directors approved the Cars.com Employee Stock Purchase Plan (the “ESPP”).

Eligible employees may authorize payroll deductions of up to 10 % of the employee’s base earnings with a maximum of $ 10,000 per every six-month offering period to purchase CARS common stock at a purchase price per share equal to 85 % of the lower of (i) the closing market price per share of CARS at the beginning of the offering period or (ii) the closing market price per share at the end of the offering period.

A maximum of three million shares are available for issuance under the ESPP.

As of December 31, 2021, 2.3 million shares were available for issuance under the ESPP.

The Company issued 0.2 million and 0.3 million shares related to the ESPP and recorded $ 0.7 million of stock-based compensation expense related to the ESPP for the years ended December 31, 2021 and 2020, respectively.

Earnings (Loss) Per Share

Basic earnings (loss) per share is calculated by dividing Net income (loss) by the weighted-average number of shares of common stock outstanding.

Diluted earnings (loss) per share is similarly calculated, except that the calculation includes the dilutive effect of the assumed issuance of shares under stock-based compensation plans, unless the inclusion of such shares would have an anti-dilutive impact.

The computations of the Company’s basic and diluted earnings (loss) per share is as follows (in thousands, except per share amounts):

Year Ended December 31,

Net income (loss)

Basic weighted-average common shares outstanding

Effect of dilutive stock-based compensation awards (1)

Diluted weighted-average common shares outstanding

Earnings (loss) per share, basic

Earnings (loss) per share, diluted

(1) There were 1,304, 2,727 and 809 potential common shares excluded from diluted weighted-average common shares outstanding for the years ended December 31, 2021, 2020 and 2019 respectively, as their inclusion would have had an anti-dilutive effect.

Selected Information Related to Income Taxes.

Significant components of Income (Loss) before income taxes are as follows (in thousands):

Year Ended December 31,

Income (loss) before income taxes

Year Ended December 31,

state and local

Total current income tax expense (benefit)

state and local

Total deferred income tax benefit

Income tax expense (benefit)

Cars.com Inc.

Notes to Consolidated Financial Statements (Continued)

The income tax provision differed from amounts computed at the statutory federal income tax rate, as follows (in thousands, except percentage):

Year Ended December 31,

Income tax provision (benefit) at statutory rate

State income taxes, net of federal income tax expense (benefit)

Nondeductible executive compensation

Nondeductible transaction expenses

Goodwill impairment

Effect of change in apportionment factors

NOL carrybacks rate differential

Stock-based compensation

Uncertain tax positions

Valuation allowance

Income tax expense (benefit)

Deferred Tax Assets and Liabilities.

The Company has recorded deferred tax assets related to federal and state income tax net operating loss (“NOL”) carryforwards of approximately $ 10.6 million and $ 2.1 million as of December 31, 2021 and 2020, respectively.

The federal NOL, and a small portion of the state NOLs, can be carried forward indefinitely, although certain jurisdictions, including federal and numerous states, limit NOL carryforwards to a percentage of current year taxable income.

The Company also has recorded deferred tax assets related to federal and state research and development (“R&D”) tax credit carryforwards of $ 4.2 million and $ 1.8 million, net of uncertain tax positions, as of December 31, 2021 and 2020, respectively.

The federal and state R&D tax credits generally may be carried forward 20 years and 5 years, respectively.

Significant components of the deferred tax assets and liabilities are as follows (in thousands):

Deferred income tax liabilities:

Indefinite lived intangible

Right of use assets

Total deferred tax liabilities

Deferred income tax assets:

Accrued compensation

Definite lived intangibles

Lease obligations

NOL and tax credit carryforwards

Total deferred tax assets

Valuation allowance

Net deferred tax liability

The deferred tax assets and liabilities recognized in the Company’s Consolidated Balance Sheets as of December 31, 2021 and 2020 were as follows (in thousands):

Investments and other assets, net

Deferred tax liability

Net deferred tax liabilities

Cars.com Inc.

Notes to Consolidated Financial Statements (Continued)

On March 27, 2020, the CARES Act was enacted into law.

The CARES Act is a tax and spending package intended to provide economic relief to address the impact of the COVID-19 pandemic.

The CARES Act includes several significant business tax provisions that, among other things, would allow businesses to carry back NOLs arising in 2018, 2019, and 2020 to the five prior tax years.

As a result of the CARES Act, during the year ended December 31, 2021, the Company received a $ 9.1 million refund from the carryback of NOLs to 2017 and 2018.

The Company's receivable was included in Other current assets on the Consolidated Balance Sheets as of December 31, 2020.

Uncertain Tax Positions.

A summary of the Company’s uncertain tax positions is as follows (in thousands):

Year Ended December 31,

Balance as of January 1

Additions based on tax positions related to the current year

Additions for tax positions of prior years

Reductions for tax positions of prior years

Balance as of December 31

The Company believes it is reasonably possible that within the next twelve months the amount of the Company's uncertain tax positions may be decreased by approximately $ 6.2 million.

The Company has recorded its best estimate of the potential exposure for these issues.

As of December 31, 2021, 2020 and 2019, the Company had $ 2.6 million, $ 1.6 million, and $ 1.6 million, respectively, of uncertain tax positions that if recognized, would affect the annual tax rate.

The Company files a consolidated U.S.

federal income tax return as well as income tax returns in various state and local jurisdictions.

The Company's tax returns are routinely audited by federal and state tax authorities and these tax audits are at various stages of completion at any given time.

Generally, the Company’s tax returns open to examination by a federal or state taxing authority are for years beginning on or after January 1, 2017.

Segment Information

Operating segments are components of an enterprise where separate financial information is available that is evaluated regularly by the chief operating decision maker (the “CODM”), or decision-making group, in deciding how to allocate resources and in assessing performance.

The Company’s CODM is the CARS Chief Executive Officer.

The CODM makes resource allocation decisions to maximize the Company’s consolidated financial results.

For the year ended December 31, 2021, the Company had one operating and reportable segment.

For the years ended December 31, 2021, 2020 and 2019, the Company did not have any one customer that generated greater than 10% of total revenue.

Substantially all revenue and long-lived assets were generated and located within the U.S.

Subsequent Events

Accu-Trade Acquisition.

In February 2022, the Company signed an agreement to acquire 100 % of the assets of Accu-Trade , Galves Market Data and MADE Logistics ("Accu-Trade"), which includes real-time, VIN-specific appraisal and valuation data, instant guaranteed offer capabilities, and logistics technology.

Consideration for the transaction will be $ 65 million in cash at closing.

There is also the potential for additional cash and stock consideration based on achievement of certain financial thresholds.

The transaction is expected to close in March 2022.

Share Repurchase Program.

In February 2022, the Company’s Board of Directors authorized a three-year share repurchase program to acquire up to $ 200 million of the Company’s common stock.

Changes in and Disagreements With Accou ntants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity