Cars.com Inc. 10-K

Item 1. Business. Cars.com Inc., a Delaware corporation, and its consolidated subsidiaries are referred to here as “CARS,” the “Company,” “our,” “us” or “we,” unless the context indicates otherwise. CARS conducts all of its operations through its wholly owned subsidiaries. Overview. We are a leading automotive marketplace platform that provides a robust set of digital solutions that connect car shoppers with sellers. Our vision is to become the largest digital automotive marketplace platform, powering innovative solutions and frictionless omni-channel experiences supporting local buyers and sellers. We believe our vision will be realized through investing in three strategic priorities: investing in our people experience, our product experience and our customer experience. We will continue to build industry-leading shopping experiences to drive our audience, bring market-leading solutions to our customers and enable end-to-end transaction capabilities to support local automotive retailers across the country. Through our marketplace, dealer websites and other digital products, we showcase dealer inventory, elevate and amplify the brands of both dealers and automotive original equipment manufacturers (“OEMs”), 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. We launched in 1998 with the flagship marketplace Cars.com and on June 1, 2017, became a publicly traded company with our shares traded on The New York Stock Exchange (the “NYSE”). Our portfolio of brands now includes Cars.com™, Dealer Inspire®, DealerRater®, FUEL™, Auto.com™, PickupTrucks.com™, CreditIQ™ and NewCars.com®. Our Business Attracting ready-to-buy car shoppers to our marketplace is crucial to meeting the needs of our customers. Driven by the strength of the Cars.com brand name and our extensive trusted editorial content, we attract over 20 million unique visitors each month, the majority coming to us organically. Approximately 85% of consumers who visit Cars.com intend to purchase a vehicle within the next six months, and we believe Cars.com has some of our category’s strongest site engagement. 1 Our marketplace is core to our business, and we have built on this strength to increase our value to customers by providing additional digital solutions and technology. Through the acquisitions of DealerRater in 2016, Dealer Inspire in 2018 and CreditIQ in 2021, the 2020 launch of our FUEL in-market video product and our intent to purchase Accu-Trade in 2022, we have materially expanded our digital solutions and media offerings to improve the sales, operational efficiency and profitability of our automotive customers. For Customers. Our primary customers are car dealers, OEMs and other national advertisers. For the year ended December 31, 2021, 88.2% of our revenue was generated from car dealerships, 10.4% related to OEMs and other national advertisers and 1.4% was generated from other customers. • Dealer Customers. As of December 31, 2021, we served 19,179 dealer customers across all 50 states, including franchise dealers and independent dealers, with both digital and brick-and-mortar stores. The vast majority of our dealer customers utilize our marketplace subscription products. • Manufacturers. As of December 31, 2021, we served nearly all OEMs selling vehicles in the United States. For Shoppers. Our marketplace functions as a definitive resource for car buyers. We are known for our scale and depth with over 11 million consumer and expert editorial reviews and a significant news and research section that helps shoppers along their purchase journey. Our consumer experience is focused on reducing friction, improving speed and delivering powerful results through several pricing, comparison, research and communication tools that empower buyers. As a result of the ongoing COVID-19 pandemic, both buyers and sellers have accelerated their adoption of digital tools, products and solutions. Our Home Delivery and Virtual Appointment badges allow shoppers to easily identify which dealerships offer digital and contactless buying options, and our Virtual Test Drives enable shoppers to remotely experience the features and functionality of a vehicle. These new products complement our Conversations chat tool and our Online Shopper digital retailing tool to allow shoppers to communicate directly with dealers and confidently make purchase decisions, creating a frictionless shopping and selling experience. For Sellers. We offer local dealers, OEMs, dealer groups and auto-adjacent companies a variety of digital advertising products and solutions. We generate revenue primarily through the sale of our marketplace subscription products to car dealer customers which provide access to our audience of 25 million high-quality, in-market car shoppers. We complement our marketplace products with digital solutions offerings, which have become a key area of growth and are critical to our platform strategy. Through our November 2021 acquisition of the automotive fintech platform CreditIQ, we are now able to make advanced digital financing technology available to our dealer customers. This technology facilitates the completion of the finance process online across the CARS platform via Dealer Inspire's 5,300 websites, its digital retailing platform "Online Shopper" and the Cars.com marketplace. We believe dealers will benefit from improved efficiency, increased profits, greater lead conversion and deeper attribution data and insights as a result of using CreditIQ. We also believe consumers will benefit from a new interactive online loan screening and approval marketplace, which enables a complete buying transaction from the comfort of home. CreditIQ was rolled out to select dealer customers on the CARS platform in the first quarter of 2022. History. Cars.com was established in 1998 as part of a joint venture formed by a number of leading newspaper and broadcast companies that realized their historic classified advertising businesses were being eroded as advertising began to move to the Internet. In 2014, one of the joint venturers, Gannett Co., Inc. (“Gannett”) acquired the interests of the other joint venturers, and we became a wholly owned subsidiary of Gannett. On May 31, 2017, Gannett, which had changed its name to TEGNA Inc. (“TEGNA”), effected a spin-off of Cars.com along with the DealerRater business that it had acquired in 2016 (the “Spin”), creating Cars.com Inc. and distributed 100% of our common stock to TEGNA’s shareholders. On June 1, 2017, our common stock began trading on the NYSE under the ticker symbol “CARS”. In February 2018, we acquired the stock of privately held Dealer Inspire Inc. which provides website and other technology solutions, and substantially all the assets of Launch Digital Marketing LLC, which provided the digital marketing services now offered by Dealer Inspire. In November 2021, we acquired the stock of CreditIQ, Inc., a privately held, cutting edge automotive fintech platform that provides instant online loan screening and approvals to facilitate online car buying. By investing in technology, organically and through acquisitions like CreditIQ, we strive to provide the best end-to-end car shopping experience for both buyers and sellers. Industry Dynamics. CARS operates in the large and growing automotive advertising and technology solutions market. According to recent Automotive Outlook Reports from Borrell Associates, approximately 75% of the $9.4 billion U.S. auto dealership advertising spend is projected to be spent on digital marketing in 2022. By 2023, advertising spend by U.S. auto dealerships is expected to grow 3.3% to $9.8 billion, with digital advertising expected to reach approximately 78% of the overall market spend. Furthermore, an average dealership is estimated to spend almost three times more on digital solutions than advertising, according to Borrell Associates. 2 Automotive dealers operate in a competitive market. Prior to the COVID-19 pandemic, dealers were experiencing margin compression, decreased OEM support and growing consumer expectations around service and support. As a result, dealers are investing more in technology solutions and their first-party platforms (their own websites), a trend which has accelerated in the current COVID-19 environment. Dealers are embracing technology solutions that help drive operational efficiency and allow them to support consumers through their preferred channels (online, offline or both). In part by leveraging technology solutions, many dealers are achieving record profitability. As the first truly integrated marketplace and solutions provider in the market today, we are well-positioned to support dealers with our comprehensive, multi-faceted sales-oriented suite of tools and solutions. For shoppers, buying a car is one of life’s most significant and researched decisions. According to Mintel’s 2020 car purchasing study, approximately 69% of car shoppers believe buying a vehicle is stressful. Numerous product options with opaque, negotiable prices and gaps in the online-to-offline shopping experience add complexity to an already overwhelming decision-making process. Shoppers want a streamlined, simplified automotive retail experience. Marketplaces like Cars.com help car shoppers cut through the clutter and support shoppers with tools designed to alleviate friction from search to signature. Dealers and OEMs value our marketplace for the chance to connect with our unique, extensive and valuable in-market audience, and to improve their marketing efficiency with our suite of solutions and tools. Products. Our core products for sellers include: Marketplace products. • Marketplace subscription advertising. We sell marketplace subscription advertising packages to dealer customers, which allow them to showcase their available new and used vehicle inventory to our extensive audience of in-market car shoppers. We also offer our customers several add-on products, which include premium on-platform advertising products that can be uniquely tailored to an individual dealer customer. Our marketplace subscription packages are our largest product by revenue and number of subscribing dealers. • Social selling. In 2018, we pioneered the use of social media platforms to sell cars by launching multiple solutions for both dealers and OEMs to target and connect with in-market car shoppers on social media platforms, expanding their opportunity to sell more cars. We offer Cars Social, for both dealers and OEMs, which targets and serves native advertisements displaying real-time inventory to in-market car shoppers on Facebook and Instagram by leveraging our valuable audience data. Digital Solutions. • Website creation and platform hosting. Our advanced Dealer Inspire website, platform hosting and related solutions make automotive retail faster, easier and smarter from search to signature. Built on a customizable platform and designed with user behavior data, our websites are set apart by the advanced technologies that drive modern consumers toward purchase decisions. Website hosting is a product with high retention rates, supporting the reliability and stability of our revenue, and also diversifies our revenue streams. • AI chat tool. Our Conversations product turns chats into customers by leveraging AI technology, live video chat capabilities and 24/7 managed chat support to instantly respond to all incoming messages. Conversations is built to connect today’s car buyers with sellers — wherever, whenever and however they want to shop. • Digital retailing. Our Online Shopper solution enables e-commerce transactions for dealers. The “Garage” feature allows shoppers to save vehicles, customize and compare their payments side-by-side. This feature also allows shoppers to add finance and insurance products and aftermarket accessories, and to checkout, for delivery or pick-up in just three easy steps. • Instant loan screening and approvals. Our CreditIQ solution enables shoppers to digitally secure instant vehicle financing. Dealers are empowered with the ability to utilize the lenders of their choice at no cost to the dealer. Participating lenders on the CreditIQ platform pay a fixed fee per transaction completed. • Review and reputation management. Through our DealerRater brand, we are one of the leading dealer review platforms in the industry, with more than 11 million consumer reviews integrated on the CARS platform. Our reputation management solutions enable dealers to build, measure, monitor and manage their review programs to drive more leads that close faster. DealerRater reviews are syndicated across a variety of platforms (including Cars.com), reaching more than 20 million consumers, digitally, each month. Advertising. 3 • Display advertising. Our display advertising products help dealers and OEMs extend their reach and efficiently access our large audience of in-market car shoppers. The geographically targeted advertising served on our Cars.com website and mobile app enables our customers to increase brand awareness and promote inventory. According to Borrell’s 2021 Local Automotive Advertising Outlook, of 17 different types of media, targeted banners, which includes paid social media ads, will remain dealers’ largest single spending category, with OTT and other forms of streaming video advertising rising to the second largest spending category within two years. • Digital advertising services. To maximize a dealer’s ROI, their marketing and advertising campaigns need to seamlessly connect with the website experience to convert traffic into paying customers. We offer programs that manage dealer search engine optimization, as well as paid media spend beyond the Cars.com platform. Our data analytics and insights ensure dealers’ search investments are deployed in the most efficient manner possible. • In-market video. Launched in 2020, FUEL is a digital video solution that provides OEMs and dealers with the opportunity to reach Cars.com’s in-market car shopping audience of over 20 million monthly shoppers on their screen of choice via social media platforms and streaming apps. FUEL leverages Cars.com’s high-quality, in-market audience data to pinpoint serious ready-to-buy shoppers. This targeted approach drives high advertising efficiency for FUEL, which compares favorably to the high-cost broadcast television solutions that dealers and OEMs have historically relied on. Our strengths and competitive advantages. Our strategy is to drive growth and efficiency in the automotive industry by uniting media, solutions and data into a connected platform solution that car buyers and sellers cannot afford to be without. We believe our business has many competitive advantages, including: A powerful family of brands with industry-leading fundamentals at scale. Cars.com is synonymous with car shopping. Among our core competitors selling new and used vehicles, we rank No. 1 in brand awareness according to Qualtrics, a customer insights platform. We are trusted as a reliable partner for car buyers and sellers. Among marketplaces, we are a first mover in extending our focus to automotive solutions. Additionally, Dealer Inspire is widely recognized as an industry innovator that has helped to shape the future of automotive retail for sellers. DealerRater is one of the leading dealer review platforms in the industry. Our FUEL product further differentiates our business, as we leverage our powerful audience data to efficiently target in-market shoppers through digital video. CreditIQ is a cutting edge automotive fintech platform that provides instant online loan screening and approvals to facilitate online car buying . Together, we believe Cars.com, Dealer Inspire, DealerRater, FUEL and CreditIQ are a strong force delivering the first truly integrated platform and solutions provider in the market today. A high-quality audience, at scale, drives our leading marketplace . We have made strategic investments in technology and marketing to deliver what we believe is the industry’s most qualified car shopping audience. In 2021, we had nearly 600 million site visits and 25 million average monthly unique visitors. As the owner of a category website with a trusted consumer brand, we generate the majority of our traffic organically. Over the past 20 years, we have made more than half a billion connections between car shoppers and sellers. Further, approximately 85% of our audience is in-market to buy a car, compared to a fraction of the general population . The average time to purchase a car is less than 50 days, while approximately 51% of our audience plans to buy within 30 days. According to J.D. Power’s 2021 New Autoshopper study, as interest in environmentally-friendly transportation grows, our audience outpaces the industry with higher than average electric vehicle consideration and purchase rates. Thus, we offer unique reach for advertisers seeking digital platforms for impactful campaigns that lead to transactions with consumers. The quality of our in-market audience is validated by our increasingly strong customer retention rates. Internal research suggests that approximately 70% of consumers want to execute at least some portion of the automotive purchase online. Since the COVID-19 pandemic began, consumers’ interest in completing price negotiations online reached 50% at the height of the pandemic while those interested in conducting financing and credit applications online rose to 41%. Our marketplace plays an integral role in digitally connecting consumers and dealers to help facilitate these online transactions. Our platform strategy is fueled by our growing suite of end-to-end digital solutions for the automotive industry. Our robust solutions portfolio is an important component of our strategy and a key differentiator from our competitors. Our solutions and technology help sellers expand their influence and engagement with consumers across the entire purchasing journey, increasing sales, creating operational efficiency and improving profitability. Examples of these solutions include: • Dealer Inspire . Dealer Inspire has been endorsed by nearly all OEMs in the United States. As of December 31, 2021, Dealer Inspire powered the digital storefront of thousands of dealers, hosting approximately 5,300 websites. Our digital retailing and 4 selling solutions, such as Conversations and Online Shopper, further enhance our value proposition to dealers. These fully integrated, value-add solutions allow consumers to explore pricing and financing options and enable consumers and dealers to engage directly via chat, video and text. • DealerRater . DealerRater’s platform for collecting and publishing ratings and reviews, including reviews of dealership salespeople, is an important point of connection for many shoppers, who would like to connect with and select a salesperson to work with prior to stepping on the lot. According to a 2020 J.D. Power New Autoshopper Study, approximately 64% of car shoppers use consumer reviews to help narrow down their choices. • FUEL . Our FUEL solution allows car dealers and OEMs the opportunity to leverage our unique, first-party audience data to harness the power and efficiency of digital video. Car dealers and OEMs today rely on broadcast television and general audiences for advertising. Our in-market video strategy allows dealers to become hyper-efficient with marketing spend and target only those shoppers who are looking to purchase a vehicle by serving them custom, interactive video content on video platforms such as YouTube, Hulu and Facebook, a market that is predicted to grow by 47% by 2025. • CreditIQ. Our newly acquired automotive fintech platform facilitates CARS entry into the rapidly growing multi-billion dollar Auto Finance market. It provides instant online loan screening and approvals to facilitate online car buying. Dealers gain access to CreditIQ's advanced digital financing technology via Dealer Inspire's websites and digital retailing platform "Online Shopper," and the Cars.com marketplace, which can improve efficiency, increase profits Per Vehicle Retail (PVR) and lead conversion and provide access to deeper attribution data and insights. The tens of millions of high-intent, in-market car shoppers who visit the CARS platform each quarter may take advantage of the new interactive online loan screening and approval marketplace, which provides instant finance offers and enables a complete buying transaction from the comfort of home. Business Strategy. Our vision is to become the largest digital automotive marketplace and platform powering innovative solutions and frictionless omnichannel experiences for buyers and sellers. We are pursuing a product-first growth strategy, which includes targeted M&A to cement our position as the destination for car shoppers and sellers. We believe this strategy will ultimately deliver above market results including sustainable high growth revenue, earnings, and cash flow. Competition. We face competition to attract consumers and paying dealers to our marketplace and to attract advertisers to purchase our advertising products and services, including our website creation and hosting services. Our competitors offer various marketplaces, products, and services that compete with us. Some of these competitors include: • Internet search engines and online automotive sites, such as Google, Facebook, Craigslist, AutoTrader.com, eBay Motors, CARFAX, Edmunds.com, KBB.com, CarGurus.com and TrueCar.com • Sites operated by automobile sellers (traditional and digital) and by OEMs • Providers of offline, membership-based car-buying services, such as the Costco Auto Program • Website platform and solution providers, such as Dealer.com, Sincro (formerly CDK Global) and DealerOn • Automotive fintech, such as AutoFi • Digital advertising providers Competition for Consumers and Dealers. We compete for consumer visits with other online automotive marketplaces, OEM websites, free listing services, general search engines and dealer websites. We compete for shopper traffic primarily on the basis of the quality of our user experience. We believe our user experience compares favorably due to the scale of our vehicle listings, the unbiased transparency of the information we provide on vehicles, pricing and dealerships, as well as the intuitive nature of our user interface, sophisticated search tools and algorithms and our mobile user experience, among other factors. We compete for dealers’ marketing spend with offline customer acquisition channels, other online automotive marketplaces, dealers’ own customer acquisition efforts on search engines and other internet sites that attract consumers searching for vehicles. We compete primarily on the basis of the return on investment (“ROI”) to the customer that our marketplace provides. We believe we are in a favorable market position due to our highly-engaged, large, in-market consumer audience and the resulting volume and quality of connections we provide to dealers, resulting in an attractive ROI. Competition for Advertisers. We compete for a share of advertisers’ total marketing budgets against media sites, websites dedicated to helping consumers shop for cars, search engines and social media sites, among others. We also compete for a share of advertisers’ overall marketing budgets with traditional media, such as television, radio, magazines, newspapers, automotive guide publications, billboards and other offline advertising channels. We compete for advertising spend based on the marketing ROI that our products provide. We believe we are in a favorable market position due to our large in-market consumer audience, high consumer engagement and the effectiveness and relevance of our advertising products. 5 Intellectual Property . We protect our intellectual property and our brand using various intellectual property laws and through a combination of trademarks, trade dress, domain names, copyrights, trade secrets and patents, as well as contractual provisions and confidentiality procedures. We have registered and unregistered U.S. and international trademarks, service marks, domain names and copyrights. We have filed patent applications and acquired patents in the U.S. and foreign countries covering certain of our proprietary technology and intend to pursue additional patent protection to the extent we believe it will be beneficial and cost-effective. In addition to the protection provided by our intellectual property rights, we enter into confidentiality and proprietary rights agreements with our employees, consultants, contractors and business partners. Our employees and contractors are also subject to invention assignment provisions. In addition, we control the use of our proprietary technology and intellectual property through provisions in both our general and product-specific terms of use on our mobile applications and websites. Regulatory Matters. Various aspects of our business and the solutions we offer are or may be subject to a continually expanding and evolving range of local, state, federal and international regulation. In particular, the advertising and sale of new or used vehicles is highly regulated by the states in which we do business. Although we do not sell automobiles, the dealers from which we derive a significant portion of our revenue do sell them and are consequently subject to significant regulation. Moreover, state regulatory authorities or other third parties could take and, on some occasions, have taken the position that some of the regulations applicable to dealers or to the manner in which automobiles are advertised and sold generally are directly applicable to our business model. By providing a medium through which users can post content and communicate with one another using text messages and other mobile phone communications , our business is subject to laws, regulations, and standards covering marketing and advertising activities conducted by telephone, email, mobile devices, and the internet, such as the Telephone Consumer Protection Act, the CAN-SPAM Act, and similar state consumer protection laws. Our digital solutions products may be subject to laws governing accessibility, intellectual property ownership, obscenity, libel, and privacy, among other issues. In addition, we are subject to numerous federal, national, state, and local laws and regulations in the United States and internationally regarding privacy and the collection, processing, storage, sharing, disclosure, use, and protection of personal information and other data, such as the Gramm-Leach-Bliley Act or the California Consumer Privacy Act or the upcoming California Privacy Rights Act . While the scope of these laws and regulations is changing and remains subject to differing interpretations, we seek to comply with industry standards and all applicable laws, policies, legal obligations, and industry codes of conduct relating to privacy and data protection. We are also subject to the terms of our privacy policies and privacy-related obligations to third parties. To operate in this highly regulated environment, we have developed our products and services with a view toward appropriately managing the risk that our regulatory compliance or the regulatory compliance of our customers could be challenged. If, and to the extent that, our products and services fail to satisfy relevant regulatory requirements, we could be subject to significant civil and criminal penalties, including fines, or the award of significant damages in class action or other civil litigation, as well as orders interfering with our ability to continue providing our products and services in certain states. Human Capital. CARS is committed to the highest standards of integrity, inclusion and responsible business practices. Our commitment to build a culture and business that cares about our employees, customers, industry and communities is a part of who we are – it’s in our DNA. We believe our highly innovative and effective teams are one of the biggest differentiators and the most important investment we can make at CARS. We promote and foster an environment that encourages constant learning and curiosity, including offering all of our employees additional learning and development opportunities. We provide individual training and certifications, across thousands of topics and interests, to ensure our teams continue developing the needed skills to grow in their careers at CARS and deliver their very best every day. Leadership development programs are also available to provide in-depth training courses to help managers build successful teams focused on innovating in our business and the ever-changing automotive and technology industries. The courses develop skills of influence, time management, coaching, feedback, conflict management, empathy and overall leadership. At CARS, we believe we offer competitive and equitable compensation and benefits that include: • A leading Employee Stock Purchase Plan, under which all team members – including part-time and temporary employees – are eligible to participate; • Alternative work arrangements for eligible employees such as our flexible work program, including adoption of a hybrid work philosophy, which we believe improves work-life balance, productivity and overall employee satisfaction; and 6 • Family-friendly benefits such as paid parental leave, paid family medical leave, paid compassionate time, adoption assistance, subsidized back-up daycare, fitness programs and subsidies, legal support, tuition reimbursements, electric vehicle subsidies and volunteer opportunities. We also closely monitor employee satisfaction and engagement, conducting semi-annual, anonymous, company-wide surveys that are studied by our executive management team and shared with our Board of Directors. These surveys are an important way for us to identify areas where we can improve. We encourage employee participation in the surveys, with participation rates typically greater than 80%, which allows us to gather valuable insight into employee satisfaction. We believe that a diverse workforce enhances the value of the Company for all stakeholders. We undertake many initiatives to ensure that CARS is an inclusive place to work for people of all backgrounds, genders, nationalities, ethnicities, sexual orientations and beliefs. We incorporate diversity considerations into all aspects of our employment journey, from targeted recruitment to fostering diversity affinity groups through our Employee Resource Groups. We also offer regular Unconscious Bias training to encourage and uncover opportunities to create a more inclusive and open workplace. Our diversity initiatives are managed directly by our executive management team, underscoring our commitment to this important principle across all levels of the organization. At CARS we have solidified our commitment to diversity, equity, and inclusion by monitoring and measuring diversity in talent acquisition and retention. Beginning in 2021, each executive team member’s incentive compensation is impacted by their performance in this area. We have a variety of active Employee Resource Groups at CARS, focused on serving as enterprise-wide champions for diversity, equity, and inclusion, helping us to identify areas in which we can become even more inclusive. These groups also allow for the open sharing of ideas and cultural awareness among our teams while providing civic engagement within our communities, leadership development, and improving overall cultural competence. As of December 31, 2021, CARS had approximately 1,600 full-time employees. In total, 45% of the employees identify as female and 25% identify as having a racial and ethnic background other than white. The CARS executive management team consists of 10 members, of which 30% identify as female, 30% identify as having a racial and ethnic background other than white and 30% self-identify as LGBTQIA. In addition, our Board of Directors consists of 11 members, 27% who identify as female and 27% as having a racial and ethnic background other than white. We also engage contractors to support our diversity goals and our culture. None of our employees are represented by a labor union or are subject to a collective bargaining agreement. Available Information. We file periodic reports (Forms 10-Q and 10-K) and current reports (Form 8-K) and other information with the Securities and Exchange Commission (“SEC”). Our filings with the SEC are available to the public on the SEC’s website at www.sec.gov . Our filings are also available to the public on, or accessible through, our corporate website for free via the “Investor Relations” section at http://investor.cars.com as soon as reasonably practicable after they are filed electronically with the SEC. The information we file with the SEC or contained on, or accessible through, our corporate website or any other website that we may maintain is not incorporated by reference herein and is not part of this report. We may from time to time provide important disclosures to investors by posting them in the investor relations section of our website, as allowed by SEC rules.