Cars.com Inc. 10-K

Item 5. 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 16, 2023, there were 4,384 holders of record of our common stock. Cumulative Stockholder Return Graph. The following graph shows the cumulative total stockholder return for our common stock for each of the last five fiscal years ended December 31, 2022. The graph also shows the cumulative returns of Standard and Poor’s (“S&P”) SmallCap 600 Index and Research Data Group’s (“RDG”) Internet Composite Index, both of which we are a member. The comparison assumes $100 was invested on December 31, 2017 in CARS common stock and each index. Purchases of Equity Securities by Issuer. Our share repurchase activity for the three months ended December 31, 2022 is as follows: Period Total Number of Shares Purchased (1) Average Price Paid per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) (3) October 1 through October 31, 2022 431,028 $ 12.52 431,028 $ 154,615 November 1 through November 30, 2022 248,788 14.46 248,788 151,017 December 1 through December 31, 2022 — — — 151,017 679,816 679,816 (1) The total number of shares purchased and subsequently retired and the average price paid per share reflects shares purchased pursuant to the share repurchase program. Our stock repurchases may occur through open market purchases or through privately negotiated transactions. (2) In February 2022, our Board of Directors authorized a three-year share repurchase program to acquire up to $200 million of our common stock. We may repurchase shares from time to time in open market transactions or through privately negotiated transactions in accordance with applicable federal securities laws and other applicable legal requirements, and subject to our blackout periods. The timing and amounts of any purchases under the share repurchase program will be based on market conditions and other factors including price. The repurchase program may be suspended or discontinued at any time and does not obligate us to repurchase any dollar amount or particular amount of shares. (3) The amounts presented represent the remaining Board of Directors’ authorized value to be spent after each month's repurchases. Dividends. 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. 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 21 for expansion and other factors that the Board of Directors may deem relevant. In addition, the terms of our credit facilities contain restrictions on our ability to declare and pay cash dividends on our capital stock. Recent Sales of Unregistered Securities. None. Use of Proceeds from Registered Securities. None. Item 6. [Reserved] 22 Item 7. 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 automotive marketplace platform that provides a robust set of digital solutions that connect car shoppers with sellers. We empower shoppers with the data, resources and digital tools needed to make informed buying decisions and seamlessly connect with automotive retailers, automotive manufacturers (“OEMs”), other national advertisers and lenders. In a rapidly changing market, we enable dealers and OEMs with innovative technical solutions and data-driven intelligence, to better reach and influence ready-to-buy shoppers, increase inventory turn and operating efficiencies and gain market share. In addition to Cars.com™, our brands include Dealer Inspire®, a website and digital solutions provider enabling dealers to be more efficient through connected digital experiences; FUEL™, an advertising solution providing dealers and OEMs the benefit of leveraging targeted digital video and display marketing to Cars.com’s audience of in-market car shoppers; DealerRater®, a leading car dealer review and reputation management technology solution; CreditIQ®, a digital financing technology; and Accu-Trade™, vehicle valuation and appraisal technology. Our portfolio of brands also includes NewCars.com®. Overview of Results. Year Ended December 31, (In thousands) 2022 2021 2020 Revenue $ 653,876 $ 623,683 $ 547,503 Net income (loss) (1) 17,206 10,791 (789,106 ) (1) The net loss for the year ended December 31, 2020 is primarily attributed to goodwill and intangible asset impairments of $905.9 million. 2022 Highlights and Recent Trends. Accu-Trade Acquisition. In March 2022, we acquired certain assets and assumed certain liabilities of Accu-Trade, LLC; Accu-Trade Canada, LLC; Galves Market Data; and Headstart Logistics, LLC d/b/a MADE Logistics (collectively, “Accu-Trade”), which includes real-time, VIN-specific vehicle appraisal and valuation data, instant guaranteed offer capabilities and logistics technology (the “Accu-Trade Acquisition”). Consideration for the transaction was composed of $64.7 million of cash and $5.3 million in other consideration. As part of the transaction, upon achievement of certain financial targets, we may be required to pay additional cash and stock consideration to the former owners. Together with our marketplace and Dealer Inspire websites, we have packaged this technology into a product called Accu-Trade Connected which we began rolling out in mid-2022. We continue to sell and onboard dealers onto our Accu-Trade Connected product. CreditIQ Acquisition. In November 2021, we acquired all the outstanding stock of CreditIQ, Inc. (the "CIQ Acquisition"), an automotive fintech platform that provides instant online loan screening and approvals to facilitate online car buying. Through the CIQ Acquisition, we provide dealers and consumers with access to advanced digital financing technology 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 based on future performance over a three-year period. CreditIQ was rolled out nationwide to dealers in September 2022, and approximately 2,300 dealers are leveraging the technology. Share Repurchase Program. In February 2022, our Board of Directors authorized a three-year share repurchase program to acquire up to $200 million of the Company's common stock. We intend to fund the share repurchase program principally with cash from operations. During the year ended December 31, 2022, we repurchased and subsequently retired 4.2 million shares for $49.0 million at an average price paid per share of $11.75. 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. Annual information regarding Traffic, Average Monthly Unique Visitors and Monthly Average Revenue Per Dealer ("ARPD") is as follows (in thousands, except for ARPD and percentages): 23 Year Ended December 31, 2022 2021 % Change Traffic 587,388 591,499 (1 )% Average Monthly Unique Visitors 26,400 25,064 5 % ARPD - Annual $ 2,329 $ 2,309 1 % Information regarding our Dealer Customers and quarterly ARPD is as follows: December 31, 2022 December 31, 2021 YoY % Change September 30, 2022 QoQ % Change Dealer Customers 19,506 19,179 2 % 19,585 0 % ARPD - Quarterly $ 2,361 $ 2,333 1 % $ 2,334 1 % Average Monthly Unique Visitors (“UVs”) and Traffic ("Visits"). UVs and Traffic are fundamental to our business. They are indicative of our consumer reach and the level of engagement they have with our platform. Although our consumer engagement does not directly result in revenue, we believe our ability to reach in-market car shoppers is attractive to our dealers, OEMs and national advertisers and a primary reason they do business with us. We have achieved audience scale as measured by UVs and drive increased Traffic through a combination of continued growth in UVs and higher repeat visitation and engagement. Traffic increases can result in increased impressions, clicks and other lead events that we can ultimately monetize through our products and services. The growth in UVs for the year ended December 31, 2022 is driven by efficiencies gained and user acquisition strategy shifts in 2022. This growth may be affected by the recent changes in browser and data privacy policies which have made it more difficult to resolve users across multiple visits. The decrease in Traffic relative to the increase in UVs for the year ended December 31, 2022 was primarily due to continued lower vehicle inventory levels, which we believe are resulting in users purchasing cars with fewer visits. 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 counts toward the number of UVs. Traffic is defined as the number of visits to CARS desktop and mobile properties (responsive sites and mobile apps). We measure UVs and Traffic via Adobe Analytics. These metrics do not include traffic to Dealer Inspire websites. Monthly 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. Beginning with the three months ended June 30, 2022, Accu-Trade is included in our ARPD metric, which had an immaterial impact on ARPD for the annual and quarterly periods. No prior period has been recast as it would be impracticable to do so. ARPD for the fourth quarter of 2022 increased compared to the same period of the prior year and compared to the third quarter of 2022, primarily driven by growth in digital solutions, offset by a reduction in FUEL revenue. ARPD for the annual period increased compared to the same period of the prior year, primarily driven by growth in digital solutions, offset by a reduction in FUEL revenue. 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. Beginning June 30, 2022, this key operating metric includes Accu-Trade; however, no prior period has been recast as it would be impracticable to do so. Dealer Customers was essentially flat as compared to September 30, 2022. Dealer Customers increased 2% from December 31, 2021, driven by sustained high retention rates with traditional dealers, new sales to Dealer Customers, as well as the inclusion of Accu-Trade only dealers, partially offset by elevated cancellations from digital dealers. Factors Affecting Our Performance. Our business is impacted by changes in the larger automotive ecosystem, including inventory supply and supply chain disruptions, semiconductor shortages, vehicle acquisition cost, electric vehicle adoption, employee retention 24 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, online chat, vehicle financing, appraisal and valuation, instant guaranteed offer capabilities, logistics technology and our FUEL product, which 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. Results of Operations. Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 (In thousands, except percentages) 2022 2021 $ Change % Change Revenue: Dealer $ 579,222 $ 549,923 $ 29,299 5 % OEM and National 58,557 65,085 (6,528 ) (10 )% Other 16,097 8,675 7,422 86 % Total revenue 653,876 623,683 30,193 5 % Operating expenses: Cost of revenue and operations 114,959 114,200 759 1 % Product and technology 89,015 77,316 11,699 15 % Marketing and sales 221,879 208,335 13,544 7 % General and administrative 67,593 73,562 (5,969 ) (8 )% Depreciation and amortization 94,394 101,932 (7,538 ) (7 )% Total operating expenses 587,840 575,345 12,495 2 % Operating income 66,036 48,338 17,698 37 % Nonoperating expense: Interest expense, net (35,320 ) (38,729 ) 3,409 (9 )% Other expense, net (8,140 ) (126 ) (8,014 ) *** Total nonoperating expense, net (43,460 ) (38,855 ) (4,605 ) 12 % Income before income taxes 22,576 9,483 13,093 *** Income tax expense (benefit) 5,370 (1,308 ) 6,678 *** Net income $ 17,206 $ 10,791 $ 6,415 59 % *** Not meaningful Dealer revenue . Dealer revenue consists of marketplace, digital solutions including Accu-Trade and media products sold to dealer customers. Dealer revenue is our largest revenue stream, representing 88.6% and 88.2% of total revenue for the years ended December 31, 2022 and 2021, respectively, and increased by $29.3 million, or 5%, compared to the prior year, driven primarily by an increase in dealer customers, digital solutions and growth in digital advertising revenue from December 31, 2021. OEM and National revenue . OEM and National revenue consists of display advertising and other solutions sold to OEMs, advertising agencies, automotive dealer associations and auto adjacent businesses. OEM and National revenue represents 9.0% and 10.4% of total revenue for the years ended December 31, 2022 and 2021, respectively. OEM and National revenue decreased 10%, primarily due to pullbacks in certain OEM spending associated with production delays and shortages, both driven by supply-chain disruptions. Other revenue. Other revenue primarily consists of revenue related to the Accu-Trade license agreement and vehicle listing data sold to third parties, as well as pay per lead. Other revenue represents 2.4% and 1.4% of total revenue for the years ended December 31, 2022 and 2021, respectively. Other revenue increased $7.4 million or 86%, primarily due to the Accu-Trade license agreement, as well as other Accu-Trade revenue. For more information, see Note 3 (Business Combinations) 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. 25 Cost of revenue and operations . Cost of revenue and operations expense primarily consists of costs related to processing dealer vehicle inventory, product fulfillment, pay per lead products and compensation costs for the product fulfillment and customer service teams. Cost of revenue and operations expense represents 17.6% and 18.3% of total revenue for the years ended December 31, 2022 and 2021, respectively. Cost of revenue and operations expense increased at a slower pace than revenue, primarily due to higher compensation costs, partially offset by lower third-party costs associated with certain products driven by product mix. 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, websites and mobile apps. Product and technology expense includes compensation costs, consulting costs, hardware and software maintenance, software licenses, data center and other infrastructure costs. Product and technology expense represents 13.6% and 12.4% of total revenue for the years ended December 31, 2022 and 2021, respectively. Product and technology expense increased, primarily due to continued investment in the business through our recent acquisitions, talent acquisition and retention, and other licenses and fees. 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, creative production, market research, trade events, compensation costs and travel for the marketing, sales and sales support teams, as well as bad debt expense related to the allowance for doubtful accounts. Marketing and sales expense represents 33.9% and 33.4% of total revenue for the years ended December 31, 2022 and 2021, respectively. Marketing and sales expense increased, primarily due to continued investment in marketing in 2022, including a return to in-person industry events that had been curtailed due to COVID-19, as well as higher compensation costs. 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 costs related to the write-off and loss on assets. General and administrative expense represents 10.3% and 11.8% of total revenue for the years ended December 31, 2022 and 2021, respectively. General and administrative expense decreased, primarily due to $9.6 million of compensation expense recorded in 2021 recognized as part of the upfront purchase consideration associated with the CreditIQ Acquisition. This was partially offset by an increase in professional fees and other transaction costs. For more information related to the CreditIQ Acquisition, see Note 3 (Business Combinations) 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, 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. Interest expense, net . Interest expense, net decreased by $3.4 million compared to the prior year period, primarily due to the maturity of the interest rate swap. For information related to our Term and Revolving Loans, senior unsecured notes 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 increased primarily due to the change in the fair value of contingent consideration associated with the CreditIQ and Accu-Trade acquisitions. For more information related to contingent consideration, see Note 3 (Business Combinations) and Note 4 (Fair Value Measurements) 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 before income tax, was 23.8% for the year ended December 31, 2022 and differed from the U.S. federal statutory rate of 21%, primarily due to the impact of the return to provision adjustments and nondeductible executive compensation, partially offset by the tax benefits realized from a partial release of our uncertain tax positions and the impact of nondeductible transaction expenses. The effective income tax rate was (13.8)% 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 the impact of nondeductible transaction expenses, an increase in our uncertain tax positions and the impact of nondeductible executive compensation. 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. 26 Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 The comparison of the 2021 results with 2020 can be found under the heading “Year Ended December 31, 2021 Compared to Year Ended December 31, 2020” in “Part II, Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our 2021 Form 10-K, which comparison is incorporated by reference herein. During the first quarter of 2022, we identified a $30.8 million overstatement of the valuation allowance recorded against deferred tax assets that originated in 2020. In addition, we adjusted 2020 to reflect an immaterial income tax adjustment related to this same period. We have concluded that these items are not material to the previously issued Consolidated Financial Statements and have therefore corrected these prior period amounts as presented in the Consolidated Financial Statements for the year ended December 31, 2022. The line items impacted on the Consolidated Statements of Income (Loss) include Income tax expense (benefit), Net income (loss) and Earnings (loss) per share. We have not included a full updated commentary on the changes in the new Income tax expense (benefit) since the change is not material. See Note 2 (Significant Accounting Policies) and 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 for more information regarding the correction of certain amounts relating to previously issued financial statements and the corrected income tax provision reconciliation to the statutory federal income tax rate, respectively. Liquidity and Capital Resources Overview. Our primary sources of liquidity are cash flows from operations, available cash reserves and borrowing capacity available under our credit facilities. Our positive operating cash flow, along with our Revolving Loan described below, provide adequate liquidity to meet our business needs, including those for investments, debt service, share repurchases and strategic acquisitions. However, our ability to maintain adequate liquidity in the future is dependent upon a number of factors, including our revenue, our ability to contain costs, including capital expenditures, and to collect accounts receivable, and various other macroeconomic 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 operations, significant investments or acquisitions that are 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, 2022, Cash and cash equivalents were $31.7 million and including our undrawn Revolving Loan, our total liquidity was $246.7 million. Indebtedness. As of December 31, 2022, the outstanding aggregate principal amount of our indebtedness was $481.3 million, at an effective interest rate of 6.4%, including $400.0 million of outstanding principal under the bonds, which carries an interest rate of 6.375%, $66.3 million of outstanding principal under the Term Loan which had an interest rate of 6.7% at December 31, 2022, and $15.0 million of outstanding principal under the Revolving Loan which had an interest rate of 6.4% at December 31, 2022. During the year ended December 31, 2022, we made $11.3 million in mandatory Term Loan payments, we borrowed $45.0 million on our Revolving Loan and we repaid $30.0 million on our Revolving Loan. As of December 31, 2022, $215.0 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 0.4x and 5.7x as of December 31, 2022, 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. 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. We may repurchase shares from time to time in open market transactions or through privately negotiated transactions in accordance with applicable federal securities laws and other applicable legal requirements, and subject to our blackout periods. We intend to fund the share repurchase program with cash from operations. During the year ended December 31, 2022, we repurchased and subsequently retired 4.2 million shares for $49.0 million at an average price per share of $11.75. Contingent Consideration. The fair value as of December 31, 2022 for the contingent consideration related to the CIQ and Accu-Trade Acquisitions was $55.9 million. Within the next twelve months, we expect to pay $10.0 million of the potential contingent consideration amounts discussed below. As part of the Accu-Trade Acquisition, we may be required to pay additional consideration to the former owners based on achievement of an earnings-related metric. For the Accu-Trade contingent consideration, we have the option to pay consideration in cash or certain 27 amounts in stock, which may result in a variable number of shares being issued. The actual amount to be paid will be based on the acquired business’ future performance to be attained over a three-year performance period through February 2025. As part of the CIQ Acquisition, we may be required to pay additional 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’ future performance to be attained over a three-year performance period through December 2024. For information related to the contingent consideration, see Note 3 (Business Combination) and Note 4 (Fair Value Measurements) in Part II, Item 8., “Financial Statements and Supplementary Data”, of this Annual Report on Form 10-K. Cash Flows. Details of our cash flows are as follows (in thousands): Year Ended December 31, 2022 2021 Change Net cash provided by (used in): Operating activities $ 128,511 $ 138,003 $ (9,492 ) Investing activities (84,377 ) (39,450 ) (44,927 ) Financing activities (51,488 ) (127,203 ) 75,715 Net change in cash and cash equivalents $ (7,354 ) $ (28,650 ) $ 21,296 Operating Activities. The decrease in cash provided by operating activities was primarily related to changes in operating assets and liabilities, including fluctuations in working capital during the year ended December 31, 2022, principally the receipt of a $9.1 million tax refund related to the carryback of federal and state income tax net operating loss as a result of the CARES Act during the year ended December 31, 2021. Investing Activities. The cash used in investing activities in 2022 was primarily related to the Accu-Trade Acquisition and purchases of property and equipment. The cash used in investing activities in 2021 was primarily related to the CIQ Acquisition and purchases of property and equipment. Financing Activities. During the year ended December 31, 2022, cash used in financing activities was primarily related to repurchases of common stock and payments on our long-term debt, partially offset by $45.0 million of proceeds from Revolving Loan borrowings related to the Accu-Trade Acquisition. 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 pre-payments. For information related to our debt and repurchases of our common stock, see Note 7 (Debt) and Note 11 (Stockholders' Equity) 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, 2022, 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 Total 2023 2024 2025 2026 2027 Thereafter Long-term debt (1) $ 481,250 $ 16,250 $ 20,000 $ 45,000 $ — $ — $ 400,000 Interest on debt (2) 164,767 31,246 30,059 26,962 25,500 25,500 25,500 Operating leases 39,191 4,042 4,154 4,570 4,684 3,991 17,750 Other obligations (3) 26,619 13,952 10,780 1,887 — — — Total $ 711,827 $ 65,490 $ 64,993 $ 78,419 $ 30,184 $ 29,491 $ 443,250 (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, 2022 and factor in scheduled amortization payments on the Term Loan. (3) Other obligations represent commitments under certain vendors and other contracts. Excluded from the above table is the contingent consideration related to the CIQ and Accu-Trade Acquisitions 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. As part of the Accu-Trade Acquisition, we may be required to pay an additional $63.0 million, of which $15.0 million could be in stock, based on certain tiered performance metrics with additional upside for performance that exceeds the tiered 28 performance metrics. 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. 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. 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 primarily generated through our direct sales force. 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 and OEMs 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 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 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. In addition, we also provide dealers with vehicle valuation and appraisal services through Accu-Trade. 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). Display Advertising Products and Services Revenue. We also earn revenue through the sale of display advertising on our website to dealers, OEMs and other 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 and national advertisers 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 or Other 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. We recognize other revenue either ratably as the services are provided or at the point in time the services have been performed. In connection with the Accu-Trade 29 Acquisition, the Company entered into an agreement to provide one of the former owners with a one-year license to a certain product. The recognition of revenue associated with the license fee is recorded in Other revenue. Other revenue is recorded in Other revenue in the Consolidated Statements of Income (Loss). 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. CreditIQ 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. 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 and projected financial information. Accu-Trade Contingent Consideration. As part of the Accu-Trade Acquisition, we may be required to pay additional consideration to the former owners based on achievement of an earnings-related metric. We have the option to pay consideration in cash or certain amounts in stock, which would result in a variable number of shares being issued. The amount to be paid will be determined by the acquired business’ future performance to be attained over a three-year performance period; based on certain tiered performance metrics the maximum amount to be paid is $63.0 million, with additional upside for performance that exceeds the tiered performance metrics. 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. Significant inputs include volatility and projected financial information. Contingent Consideration. Our contingent consideration obligations are from arrangements resulting from acquisitions that involve potential future payment of consideration that is contingent upon the achievement of certain financial metrics or lender market share. Contingent consideration is recognized at its estimated fair value at the date of acquisition based on our expected future payment, discounted using accepted valuation methodologies. We review and re-assess the estimated fair value of contingent consideration liabilities at each reporting period and the updated fair value could differ materially from the initial estimates. We measure contingent consideration recognized in connection with acquisitions at fair value on a recurring basis using significant unobservable inputs classified as Level 3 inputs. The fair value is measured based on a Monte Carlo simulation or a scenario-based method, depending on the earnout objective. The fair value measurement includes the following significant inputs: volatility and projected financial information. Significant increases or decreases to any of these inputs in isolation could result in a significantly higher or lower liability. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate on the acquisition date and each reporting period and the amount paid will be recognized in earnings. Recent Accounting Pronouncements. There are no recent accounting pronouncements that materially impact our financial statements as of December 31, 2022. 30 Item 7A. 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. As of December 31, 2022, the outstanding aggregate principal amount of our indebtedness was $481.3 million, at an effective interest rate of 6.4%, including $400.0 million of outstanding principal under the bonds, which carries a fixed interest rate of 6.375%, $66.3 million of outstanding principal under the Term Loan which carried an interest rate of 6.7% at December 31, 2022, and $15.0 million of outstanding principal under the Revolving Loan which carried an interest rate of 6.4% at December 31, 2022. 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, Dealer Inspire in February 2018 and Accu-Trade in March 2022, we acquired a limited number of Canadian 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. Item 8. 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, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, 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, 2022, 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 23, 2023 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 31 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 the 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 Accu-Trade Description of the Matter As described in Note 3 to the Consolidated Financial Statements, in March 2022 the Company completed its acquisition of certain of the assets and assumed certain liabilities of Accu-Trade, LLC; Accu-Trade Canada, LLC; Galves Market Data; and Headstart Logistics, LLC d/b/a/ MADE Logistics (collectively “Accu-Trade”) for total purchase consideration of $94 million. The transaction was accounted for as a business combination. Auditing the Company's accounting for its acquisition of Accu-Trade was complex due to the significant estimation required by management to determine the fair value of contingent consideration and acquired software intangible assets of $23.9 million and $12.9 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 fair value of contingent consideration on date of acquisition. The significant assumptions used in the Monte Carlo simulation included volatility and projected financial information. The Company used a relief-from-royalty method to measure the fair value of acquired software intangible assets. The significant assumptions used to estimate the value of the acquired software intangible assets included the forecasted revenue projections, royalty rates and obsolescence factors. 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 net assets acquired and total consideration transferred (including contingent consideration), including the valuation models and underlying assumptions used to develop such estimates. To test the estimated fair value of the contingent consideration liability, 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 evaluated the assumptions and judgments considering observable industry and economic trends. We assessed the reasonableness of projected financial information in relation to the Company’s budget and forecasts. Our procedures included evaluating the data sources used by 32 management in determining its assumptions and, where necessary, included an evaluation of available information that either corroborated or contradicted management’s conclusions. We involved our valuation specialists to assist in our evaluation of the Company's use of a Monte Carlo simulation model, the volatility assumption used in the model and to perform corroborative fair value calculations. 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 relief-from-royalty 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 the Company’s use of a relief-from-royalty valuation model, as well as certain significant assumptions used in the model and to perform corroborative fair value calculations. Valuation of Contingent Consideration Description of the Matter As described in Note 2 and Note 4 to the Consolidated Financial Statement, the Company recognized contingent consideration liabilities at the estimated fair value on the acquisition date in connection with applying the acquisition method of accounting for business combinations. Subsequent changes to the fair value of the contingent consideration liabilities were recorded within the Consolidated Financial Statements in the period of change. At December 31, 2022, the Company had $55.9 million in contingent consideration liabilities, which represented a Level 3 fair value measurement in the fair value hierarchy due to the significant unobservable inputs used in determining the fair value and the use of management judgment about the assumptions market participants would use in pricing the liabilities. Auditing the Company's valuation of contingent consideration liabilities was complex and required significant auditor judgment due to the use of a Monte Carlo simulation model and the subjectivity in evaluating certain assumptions required to estimate the fair value of contingent consideration payments. The significant assumptions used in the Monte Carlo simulation included volatility and projected financial information. 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 valuation of contingent consideration liabilities. For example, we tested controls over management’s review of the significant assumptions and other inputs used in the determination of fair value. To test the estimated fair value of contingent consideration liabilities, 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 evaluated the assumptions and judgments considering observable industry and economic trends. We assessed the reasonableness of projected financial information in relation to Company’s budgets and forecasts. Our procedures included evaluating the data sources used by management in determining its assumptions and, where necessary, included an evaluation of available information that either corroborated or contradicted management’s conclusions. We involved our valuation specialists to assist in our evaluation of the Company’s use of a Monte Carlo simulation model, the volatility assumption used in the model and to perform corroborative fair value calculations. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2016. Chicago, Illinois February 23, 2023 33 Cars.com Inc. Consolidated Balance Sheets (In thousands, except per share data) December 31, 2022 2021 Assets: Current assets: Cash and cash equivalents $ 31,715 $ 39,069 Accounts receivable, net 107,930 98,893 Prepaid expenses 8,377 7,810 Other current assets 605 1,665 Total current assets 148,627 147,437 Property and equipment, net 45,218 43,005 Goodwill 102,856 26,227 Intangible assets, net 707,088 769,424 Investments and other assets, net 21,081 21,112 Total assets $ 1,024,870 $ 1,007,205 Liabilities and stockholders' equity: Current liabilities: Accounts payable $ 18,230 $ 15,420 Accrued compensation 19,316 23,612 Current portion of long-term debt, net 14,134 8,941 Other accrued liabilities 54,332 46,317 Total current liabilities 106,012 94,290 Noncurrent liabilities: Long-term debt, net 458,249 457,383 Other noncurrent liabilities 76,179 57,512 Total noncurrent liabilities 534,428 514,895 Total liabilities 640,440 609,185 Commitments and contingencies Stockholders' equity: Preferred Stock at par, $ 0.01 par value; 5,000 shares authorized; no shares issued and outstanding as of December 31, 2022 and 2021, respectively — — Common Stock at par, $ 0.01 par value; 300,000 shares authorized; 66,287 and 69,170 shares issued and outstanding as of December 31, 2022 and 2021, respectively 662 692 Additional paid-in capital 1,511,944 1,544,712 Accumulated deficit ( 1,128,176 ) ( 1,145,382 ) Accumulated other comprehensive loss — ( 2,002 ) Total stockholders' equity 384,430 398,020 Total liabilities and stockholders' equity $ 1,024,870 $ 1,007,205 The accompanying notes are an integral part of these Consolidated Financial Statements. 34 Cars.com Inc. Consolidated Statem ents of Income (Loss) (In thousands, except per share data) Year Ended December 31, 2022 2021 2020 Revenue: Dealer $ 579,222 $ 549,923 $ 463,018 OEM and National 58,557 65,085 73,176 Other 16,097 8,675 11,309 Total revenue 653,876 623,683 547,503 Operating expenses: Cost of revenue and operations 114,959 114,200 101,536 Product and technology 89,015 77,316 60,664 Marketing and sales 221,879 208,335 183,448 General and administrative 67,593 73,562 59,051 Affiliate revenue share — — 10,970 Depreciation and amortization 94,394 101,932 113,276 Goodwill and intangible asset impairment — — 905,885 Total operating expenses 587,840 575,345 1,434,830 Operating income (loss) 66,036 48,338 ( 887,327 ) Nonoperating expense: Interest expense, net ( 35,320 ) ( 38,729 ) ( 37,856 ) Other expense, net ( 8,140 ) ( 126 ) ( 11,226 ) Total nonoperating expense, net ( 43,460 ) ( 38,855 ) ( 49,082 ) Income (loss) before income taxes 22,576 9,483 ( 936,409 ) Income tax expense (benefit) 5,370 ( 1,308 ) ( 147,303 ) Net income (loss) $ 17,206 $ 10,791 $ ( 789,106 ) Weighted-average common shares outstanding: Basic 68,215 68,727 67,241 Diluted 69,649 71,337 67,241 Earnings (loss) per share: Basic $ 0.25 $ 0.16 $ ( 11.74 ) Diluted 0.25 0.15 ( 11.74 ) The accompanying notes are an integral part of these Consolidated Financial Statements. 35 Cars.com Inc. Consolidated Statements of Comprehensive Income (Loss) (In thousands) Year Ended December 31, 2022 2021 2020 Net income (loss) $ 17,206 $ 10,791 $ ( 789,106 ) Other comprehensive income (loss), net of tax: Interest rate swap — — ( 8,910 ) Reclassification of Accumulated other comprehensive loss on interest rate swap into Net income (loss) 2,002 4,802 9,748 Total other comprehensive income 2,002 4,802 838 Comprehensive income (loss) $ 19,208 $ 15,593 $ ( 788,268 ) The accompanying notes are an integral part of these Consolidated Financial Statements. 36 Cars.com Inc. Consolidated Statements o f Stockholders’ Equity (In thousands) Preferred Stock Common Stock Additional Paid-In Accumulated Accumulated Other Stockholders' Shares Amount Shares Amount Capital Deficit Comprehensive Loss Equity Balance at December 31, 2019 — $ — 66,764 $ 668 $ 1,515,109 $ ( 367,067 ) $ ( 7,642 ) $ 1,141,068 Net loss — — — — — ( 789,106 ) — ( 789,106 ) Other comprehensive income, net of tax — — — — — — 838 838 Shares issued in connection with stock-based compensation plans, net — — 623 6 229 — — 235 Stock-based compensation — — — — 15,155 — — 15,155 Balance at December 31, 2020 — $ — 67,387 $ 674 $ 1,530,493 $ ( 1,156,173 ) $ ( 6,804 ) $ 368,190 Net income — — — — — 10,791 — 10,791 Other comprehensive income, net of tax — — — — — — 4,802 4,802 Shares issued in connection with stock-based compensation plans, net — — 1,783 18 ( 7,212 ) — — ( 7,194 ) Stock-based compensation — — — — 21,431 — — 21,431 Balance at December 31, 2021 — $ — 69,170 $ 692 $ 1,544,712 $ ( 1,145,382 ) $ ( 2,002 ) $ 398,020 Net income — — — — — 17,206 — 17,206 Other comprehensive income, net of tax — — — — — — 2,002 2,002 Repurchases of common stock — — ( 4,168 ) ( 41 ) ( 48,941 ) — — ( 48,982 ) Shares issued in connection with stock-based compensation plans, net — — 1,285 11 ( 6,267 ) — — ( 6,256 ) Stock-based compensation — — — — 22,440 — — 22,440 Balance at December 31, 2022 — $ — 66,287 $ 662 $ 1,511,944 $ ( 1,128,176 ) $ — $ 384,430 The accompanying notes are an integral part of these Consolidated Financial Statements. 37 Cars.com Inc. Consolidated Stateme nts of Cash Flows (In thousands) Year Ended December 31, 2022 2021 2020 Cash flows from operating activities: Net income (loss) $ 17,206 $ 10,791 $ ( 789,106 ) Adjustments to reconcile Net income (loss) to Net cash provided by operating activities: Depreciation 16,380 16,290 18,943 Amortization of intangible assets 78,014 85,642 94,333 Goodwill and intangible asset impairment — — 905,885 Impairment of non-marketable security — — 9,447 Amortization of Accumulated other comprehensive loss on interest rate swap 2,362 5,670 8,623 Changes in fair value of contingent consideration 8,130 — — Stock-based compensation 22,342 21,431 15,155 Deferred income taxes 1,283 ( 2,927 ) ( 134,383 ) Provision for doubtful accounts 1,888 164 4,380 Amortization of debt issuance costs 3,235 3,360 5,108 Amortization of deferred revenue related to Accu-Trade Acquisition ( 4,417 ) — — Other, net 1,202 1,416 181 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable ( 9,337 ) ( 5,352 ) 3,733 Prepaid expenses and other assets ( 423 ) 6,141 ( 9,514 ) Accounts payable 2,611 ( 1,099 ) 3,993 Accrued compensation ( 4,296 ) 5,293 1,581 Other liabilities ( 7,669 ) ( 8,817 ) 257 Net cash provided by operating activities 128,511 138,003 138,616 Cash flows from investing activities: Payments for acquisitions, net of cash acquired ( 64,663 ) ( 20,258 ) — Purchase of property and equipment ( 19,714 ) ( 19,192 ) ( 16,712 ) Net cash used in investing activities ( 84,377 ) ( 39,450 ) ( 16,712 ) Cash flows from financing activities: Proceeds from Revolving Loan borrowings and issuance of long-term debt 45,000 — 565,000 Payments of long-term debt ( 41,250 ) ( 120,000 ) ( 615,625 ) Payments for stock-based compensation plans, net ( 6,256 ) ( 7,194 ) 235 Repurchases of common stock ( 48,982 ) — — Payments of debt issuance costs and other fees — ( 9 ) ( 17,344 ) Net cash used in financing activities ( 51,488 ) ( 127,203 ) ( 67,734 ) Net (decrease) increase in cash and cash equivalents ( 7,354 ) ( 28,650 ) 54,170 Cash and cash equivalents at beginning of period 39,069 67,719 13,549 Cash and cash equivalents at end of period $ 31,715 $ 39,069 $ 67,719 Supplemental cash flow information: Cash paid (received) for income taxes $ 545 $ ( 7,992 ) $ 805 Cash paid for interest and swap 33,370 38,342 26,433 The accompanying notes are an integral part of these Consolidated Financial Statements. 38 Cars.com Inc. Notes to Consolidated Financial Statements Note 1. 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. The Company empowers shoppers with the data, resources and digital tools needed to make informed buying decisions and seamlessly connect with automotive retailers. In a rapidly changing market, CARS enables dealers and automotive manufacturers (“OEMs”), with innovative technical solutions and data-driven intelligence, to better reach and influence ready-to-buy shoppers, increase inventory turn and gain market share. In addition to Cars.com™, the Company’s brands include Dealer Inspire®, a website and digital solutions provider enabling dealers to be more efficient through connected digital experiences; FUEL™, an advertising solution providing dealers and OEMs the benefit of leveraging targeted digital video and display marketing to Cars.com’s audience of in-market car shoppers; DealerRater®, a leading car dealer review and reputation management technology solution; CreditIQ®, digital financing technology and Accu-Trade™, vehicle valuation and appraisal technology. The Company's portfolio of brands also includes PickupTrucks.com™. Note 2. 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. Correction of Certain Amounts Relating to Previously Issued Financial Statements. During the first quarter of 2022, the Company identified a $ 30.8 million overstatement of the valuation allowance recorded against deferred tax assets that originated in 2020. In addition, the Company adjusted 2020 to refl ect an immaterial income tax adjustment related to this same period. The Company has concluded that these items are not material to the previously issued Consolidated Financial Statements and has therefore corrected these prior period amounts as presented in the Consolidated Financial Statements for the year ended December 31, 2022. The impact of correcting the items on the related financial statement line items for the year ended December 31, 2021 is as follows (in thousands, except per share data): 39 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) Consolidated Balance Sheet and Consolidated Statement of Stockholders' Equity, as applicable As of December 31, 2021 Financial statement line item As reported Adjustment As adjusted Deferred tax liability $ 31,086 $ ( 31,086 ) $ — Total noncurrent liabilities 545,981 ( 31,086 ) 514,895 Total liabilities 640,271 ( 31,086 ) 609,185 Accumulated deficit ( 1,176,468 ) 31,086 ( 1,145,382 ) Total stockholders' equity 366,934 31,086 398,020 Consolidated Statements of Income (Loss), Comprehensive Income (Loss) and Consolidated Statement of Stockholders' Equity, as applicable Year ended December 31, 2021 Financial statement line item As reported Adjustment As adjusted Income tax expense (benefit) $ 1,764 $ ( 3,072 ) $ ( 1,308 ) Net income (loss) 7,719 3,072 10,791 Comprehensive income (loss) 12,521 3,072 15,593 Basic Earnings (loss) per share 0.11 0.05 0.16 Diluted Earnings (loss) per share 0.11 0.04 0.15 Consolidated Statements of Cash Flows Year ended December 31, 2021 Financial statement line item As reported Adjustment As adjusted Net income (loss) $ 7,719 $ 3,072 $ 10,791 Deferred income taxes ( 2,641 ) ( 286 ) ( 2,927 ) Other liabilities ( 6,031 ) ( 2,786 ) ( 8,817 ) The impact of correcting the misstatements on the related financial statement line items for the year ended December 31, 2020 is as follows (in thousands, except per share data): Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) Year ended December 31, 2020 Financial statement line item As reported Adjustment As adjusted Income tax expense (benefit) $ ( 119,289 ) $ ( 28,014 ) $ ( 147,303 ) Net income (loss) ( 817,120 ) 28,014 ( 789,106 ) Comprehensive income (loss) ( 816,282 ) 28,014 ( 788,268 ) Basic and Diluted Earnings (loss) per share ( 12.15 ) 0.41 ( 11.74 ) Consolidated Statement of Stockholders' Equity Year ended December 31, 2020 Financial statement line item As reported Adjustment As adjusted Net income (loss) $ ( 817,120 ) $ 28,014 $ ( 789,106 ) Accumulated deficit ( 1,184,187 ) 28,014 ( 1,156,173 ) Total stockholders' equity 340,176 28,014 368,190 Consolidated Statements of Cash Flows Year ended December 31, 2020 Financial statement line item As reported Adjustment As adjusted Net income (loss) $ ( 817,120 ) $ 28,014 $ ( 789,106 ) Deferred income taxes ( 103,582 ) ( 30,801 ) ( 134,383 ) Other liabilities ( 2,530 ) 2,787 257 Revenue. 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 party 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 primarily generated through the Company’s direct sales force. 40 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) 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 and OEMs 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 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 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. In addition, the Company also provides dealers with vehicle valuation and appraisal services through Accu-Trade. 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). Display Advertising Products and Services Revenue. The Company also earns revenue through the sale of display advertising on the Company’s website to dealers, OEMs and other 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 and other national advertisers 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. Revenue related to pay per lead is recorded in Dealer revenue, OEM and National revenue or Other 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. The Company recognizes other revenue either ratably as the services are provided or at the point in time the services have been performed. In connection with the Accu-Trade Acquisition, the Company entered into an agreement to provide one of the former owners with a one-year license to a certain product. The recognition of revenue associated with the license fee is recorded in Other revenue. 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 $ 1.9 million and $ 1.7 million as of December 31, 2022 and 2021, 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. 41 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) 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, 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, 2022 and 2021. For further information on the triggering event, see Note 6 (Goodwill and Other Intangible Assets, net). 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): December 31, Asset 2022 2021 Estimated Useful Life Computer software $ 79,682 $ 65,461 18 months - 5 years Computer hardware 12,550 11,998 3 years - 5 years Leasehold improvements 18,581 18,656 Lesser of useful life or lease term Furniture and fixtures 4,140 4,293 10 years Property and equipment, gross 114,953 100,408 Less: Accumulated depreciation ( 69,735 ) ( 57,403 ) Property and equipment, net $ 45,218 $ 43,005 Normal repairs and maintenance are expensed as incurred. Any resulting gain or loss from the disposition of fixed 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, 2022, 2021 and 2020 were $ 18.1 million, $ 17.9 million and $ 16.3 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, 2022 were $ 1.0 million and $ 4.7 million in Prepaid expenses and Investments and other assets, net on the Consolidated Balance Sheets, respectively. These capitalized costs as of December 31, 2021 were $ 0.6 million and $ 2.6 million in Prepaid expenses and Investments and other assets, net on the Consolidated Balance Sheets, respectively. Research and development costs are expensed as incurred. 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. A qualitative assessment considers events and circumstances such as macroeconomic conditions, 42 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) industry and market conditions, cost factors and overall financial performance, as well as company specifications. 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. If a quantitative test is performed, the Company estimates the fair value of the reporting unit with an income approach using the discounted cash flow (“DCF”) analysis and the Company also considers a market-based valuation methodology using comparable public company trading values and the Company’s 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 the Company’s 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 the Company’s 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. economy. 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 6 (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 2 - 7 years Customer relationships 3 - 14 years 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. 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 material impairment losses for long-lived assets 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; and 43 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) • Level 3—Valuations derived from valuation techniques in which one or more significant inputs are unobservable The Company’s financial instruments include the contingent consideration related to our acquisitions and, before the year ended December 31, 2022, the interest rate swap (the “Swap”), 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, 2022, the fair value of the outstanding indebtedness was approximately $ 435.4 million, compared to the carrying value of $ 481.3 million. 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. 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 and projected financial information. Contingent Consideration. The Company's contingent consideration obligations are from arrangements resulting from acquisitions that involve potential future payment of consideration that is contingent upon the achievement of certain financial metrics or lender market share. Contingent consideration was recognized at its estimated fair value at the date of acquisition based on our expected future payment, discounted using a weighted average cost of capital in accordance with accepted valuation methodologies. The Company reviews and reassesses the estimated fair value of contingent consideration liabilities at each reporting period and the updated fair value could differ materially from the initial estimates. The Company measures contingent consideration recognized in connection with acquisitions at fair value on a recurring basis using significant unobservable inputs classified as Level 3 inputs. The fair value is measured based on a Monte Carlo simulation or a scenario-based method, depending on the earnout objective. The fair value measurement includes the following significant inputs: volatility and projected financial information. Significant increases or decreases to any of these inputs in isolation could result in a significantly higher or lower liability. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate on the acquisition date and each reporting period and the amount paid will be recognized in earnings. 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 was ratably reclassified into Net income (loss) over the remaining life of the Swap. Each period, a portion of the unrealized loss was 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 were recorded within Other expense, net on the Consolidated Statements of Income (Loss). A third amendment was entered into in October 2020 (the “Third Amendment”), which resulted in the partial extinguishment of the existing debt at the time of the amendment. 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 expired on May 31, 2022 and, as such, is no longer recorded on the 44 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) Consolidated Balance Sheets. As of December 31, 2021 the Swap was recognized within Other accrued liabilities on the Consolidated Balance Sheets at fair value. 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 carryforwards. 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 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, 2022, 2021 and 2020 was $ 107.1 million, $ 104.4 million and $ 80.4 million, respectively. Cost of Revenue and Operations. Cost of revenue and operations expense primarily consists of costs related to processing dealer vehicle inventory, pay per lead products, product fulfillment and compensation costs for the product fulfillment and customer service teams. Affiliate Revenue Share Expense. 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. 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 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). A s of June 30, 2020, the Company no longer incurs affiliate revenue share expense. 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 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, 2022, 2021 and 2020 were $ 5.5 million, $ 5.0 million and $ 2.4 million, respectively . Note 3. Business Combinations Accu-Trade Acquisition. On March 1, 2022, the Company acquired certain of the assets and assumed certain liabilities of Accu-Trade, LLC; Accu-Trade Canada, LLC; Galves Market Data; and Headstart Logistics, LLC d/b/a/ MADE Logistics (collectively, 45 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) “Accu-Trade”), which provides dealers with VIN-specific vehicle valuation and appraisal data, instant offer capabilities and logistics technology (the “Accu-Trade Acquisition”). The Company expensed as incurred total acquisition costs of $ 2.0 million, of which $ 1.0 million were recorded during the year ended December 31, 2022. These costs were recorded in General and administrative expenses in the Consolidated Statements of Income (Loss). Preliminary Purchase Price Allocation. The preliminary 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. These preliminary fair values are subject to change within the one-year measurement period. The Accu-Trade Acquisition purchase price allocation is as follows (in thousands): Preliminary Acquisition-date Fair Value Cash consideration $ 64,663 Other consideration (1) 5,300 Contingent consideration (2) 23,936 Total purchase consideration $ 93,899 Assets acquired (3) $ 1,595 Identified intangible assets (4) 15,679 Total assets acquired 17,274 Total liabilities assumed (5) ( 235 ) Net identifiable assets 17,039 Goodwill 76,860 Total purchase consideration $ 93,899 (1) In connection with the Accu-Trade Acquisition, the Company entered into an agreement to provide one of the former owners with a one-year license to a certain product. The preliminary fair value of the license was determined to be $ 6.5 million, of which the Company received $ 1.2 million in cash upon the close of the Accu-Trade Acquisition. The $ 5.3 million difference between the fair value of $ 6.5 million and the $ 1.2 million in cash was recorded as non-cash consideration and the $ 6.5 million license fee was recorded in Other accrued liabilities as a contract liability on the Consolidated Balance Sheets and is being amortized into Other revenue on the Consolidated Statements of Income (Loss) over the one-year contract term. The current period revenue related to the non-cash consideration of $ 5.3 million is a non-cash reconciling item titled Amortization of deferred revenue related to Accu-Trade Acquisition on the Consolidated Statements of Cash Flows. (2) As part of the Accu-Trade Acquisition, the Company may be required to pay additional consideration to the former owners based on the achievement of certain financial targets. The Company has the option to pay consideration in cash or certain amounts in stock, which would result in a variable number of shares being issued. The amount to be paid will be determined by the acquired business’ future performance to be attained over a three-year performance period; based on certain tiered performance metrics the maximum amount to be paid is $ 63.0 million, of which a maximum of $ 15.0 million could be in stock, with additional upside for performance that exceeds the tiered performance metrics. The contingent consideration is classified as Level 3 in the fair value hierarchy. The fair value is measured based on a Monte Carlo simulation. This amount represents the estimated fair value at the time of the acquisition. For more information on the fair value of the Accu-Trade contingent consideration, see Note 4 (Fair Value Measurements). (3) Assets acquired primarily consist of accounts receivable. (4) Preliminary information regarding the identifiable intangible assets acquired is as follows: Acquisition-Date Fair Value (in thousands) Amortization Period (in years) Acquired software $ 12,926 5 Trade name 1,446 10 Customer relationships 1,307 7 Total $ 15,679 46 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) (5) Total liabilities assumed primarily consist of accounts payable. In connection with the Accu-Trade Acquisition, the Company recorded goodwill in the amount of $ 76.9 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 deductible for income tax purposes. The Accu-Trade Acquisition would have had an immaterial impact on the Company’s Consolidated financial statements for the year ended December 31, 2021 and 2020. CreditIQ Acquisition. On November 5, 2021, the Company acquired all of the outstanding stock of CreditIQ, (the “CIQ Acquisition”) an 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 $ 1.3 million during the year 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). Purchase Price Allocation. The fair values assigned to the tangible and intangible assets acquired and liabilities assumed were determined based on management’s final 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 CIQ Acquisition purchase price allocation is as follows (in thousands): Acquisition-date Fair Value Cash consideration (1) $ 29,965 Contingent consideration (2) 23,805 Cash settlement of CIQ Acquisition's unvested equity awards (3) ( 9,626 ) Total purchase consideration $ 44,144 Assets acquired (4) $ 193 Identified intangible assets (5) 19,900 Total assets acquired 20,093 Total liabilities assumed (6) (7) ( 1,945 ) Net identifiable assets 18,148 Goodwill (7) 25,996 Total purchase consideration $ 44,144 (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 $ 29,965 Less: Cash settlement of CIQ Acquisition's unvested equity awards (3) ( 9,626 ) Less: Cash acquired ( 81 ) Payments for CIQ Acquisition, net of cash acquired $ 20,258 (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. The fair value was estimated utilizing a Monte Carlo simulation or a scenario-based method, depending on the achievement objective. For more information on the fair value of the CIQ contingent consideration, see Note 4 (Fair Value Measurements). (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 47 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) 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. (5) Information regarding the identifiable intangible assets acquired is as follows: Acquisition-Date Fair Value (in thousands) Weighted-Average Amortization Period (in years) Trade name $ 900 10 Acquired software 19,000 5 Total $ 19,900 (6) Total liabilities assumed includes accounts payable, deferred income tax liabilities, net and other liabilities. (7) During the year ended December 31, 2022, the Company recorded a $ 0.2 million purchase accounting adjustment. In connection with the CIQ Acquisition, the Company recorded goodwill in the amount of $ 26.0 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. The CIQ Acquisition would have had an immaterial impact on the Company’s Consolidated financial statements for the year ended December 31, 2021 and 2020. Note 4. Fair Value Measurements The Company's contingent consideration measured at fair value on a recurring basis consisted of the following (in thousands): Fair value measurement at reporting date Total as of December 31, 2022 Level 1 Level 2 Level 3 Contingent consideration $ 55,871 $ — $ — $ 55,871 Total $ 55,871 $ — $ — $ 55,871 Fair value measurement at reporting date Total as of December 31, 2021 Level 1 Level 2 Level 3 Contingent consideration $ 23,805 $ — $ — $ 23,805 Total $ 23,805 $ — $ — $ 23,805 The rollforward of the Level 3 contingent consideration from December 31, 2021 is as follows (in thousands): As of December 31, 2021 Addition Related to Accu-Trade Acquisition Fair Value Adjustment (1) As of December 31, 2022 Contingent consideration $ 23,805 $ 23,936 $ 8,130 $ 55,871 (1) Fair value adjustments on contingent considerations are reflected within Other expense, net in the Consolidated Statements of Income (Loss). The contingent consideration is classified on the Consolidated Balance Sheets based on expected payment dates. As of December 31, 2022, $ 9.4 million and $ 46.5 million were included within Other accrued liabilities and Other noncurrent liabilities on the Consolidated 48 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) Balance Sheets. As of December 31, 2021, $ 23.8 million was included within Other noncurrent liabilities on the Consolidated Balance Sheets. The significant inputs and assumptions that were used in the contingent consideration valuations as of December 31, 2022 related to volatility ranged from 25 % to 49 %. We expect to make payments on the contingent consideration in 2023, 2024 and 2025. For more information relating to contingent consideration, see Note 3 (Business Combinations ). Note 5. Revenue 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. Year Ended December 31, Major products and services 2022 2021 2020 Subscription advertising and digital solutions $ 540,829 $ 518,270 $ 436,441 Display advertising 88,397 85,169 84,630 Pay per lead 9,351 12,346 18,557 Other 15,299 7,898 7,875 Total revenue $ 653,876 $ 623,683 $ 547,503 Note 6. Goodwill and Other Intangible Assets, net Goodwill and Indefinite-Lived Intangible Asset Summary. The changes in the carrying amount of goodwill and indefinite-lived intangible asset are as follows (in thousands): Goodwill Cars.com Trade name December 31, 2020 $ — $ 390,020 Additions (1) 26,227 — December 31, 2021 $ 26,227 $ 390,020 Additions (1) 76,860 — Adjustments (2) ( 231 ) — December 31, 2022 $ 102,856 $ 390,020 (1) In connection with the CreditIQ and Accu-Trade acquisitions, the Company recorded preliminary goodwill in the amount of $ 26.2 million and $ 76.9 million, respectively. No impairment was noted for the years ended December 31, 2022 and 2021. For more information on the acquisition, see Note 3 (Business Combinations). (2) During the year ended December 31, 2022, the Company recorded a purchase accounting adjustment related to CreditIQ. Goodwill and Indefinite-Lived Intangible Asset 2020 Impairments. 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. During the first quarter of 2020, the COVID-19 pandemic and related restrictions caused a widespread increase in unemployment and 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 in decreased subscription revenue and reduced demand for the Company’s services. The effects of the COVID-19 pandemic, particularly reduced consumer spending and the discounts that the Company provided its dealer customers in the second quarter of 2020, negatively impacted its results of operations, cash flows and financial position. Thus, the amount and timing of future 49 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) 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. 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. 2021 and 2022 Goodwill and Indefinite-Lived Intangible Asset Impairment Test. The Company performed impairment tests for goodwill and the indefinite-lived intangible asset. The Company performed a qualitative assessment that considers events and circumstances such as macroeconomic conditions, industry and market conditions, cost factors and overall financial performance, as well as company specifications. After performing this assessment, the Company concluded there were no indicators of impairment and therefore, the Company did not perform a quantitative test and did not record an impairment to goodwill or the indefinite-lived intangible asset. Definite Lived Intangible Assets . The Company’s definite-lived intangible assets by major asset class are as follows (in thousands): December 31, 2022 December 31, 2021 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships $ 833,847 $ ( 556,053 ) $ 277,794 $ 832,540 $ ( 487,782 ) $ 344,758 Acquired software 73,626 ( 48,288 ) 25,338 60,700 ( 40,981 ) 19,719 Other trade names 26,246 ( 12,310 ) 13,936 24,800 ( 9,873 ) 14,927 Content library 2,100 ( 2,100 ) — 2,100 ( 2,100 ) — Total $ 935,819 $ ( 618,751 ) $ 317,068 $ 920,140 $ ( 540,736 ) $ 379,404 As of December 31, 2022, projected annual amortization expense for amortizable intangible assets is as follows (in thousands): 2023 $ 76,634 2024 74,028 2025 59,285 2026 37,876 2027 31,619 Thereafter 37,626 Total $ 317,068 Note 7. Debt 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 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. 50 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; and • 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; and • 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. Term Loan. As of December 31, 2022, the outstanding principal amount under the Term Loan was $ 66.3 million and the interest rate in effect was 6.7 %. During the year ended December 31, 2022, the Company made $ 11.3 million in Term Loan payments. Revolving Loan. As of December 31, 2022, the outstanding borrowings under the Revolving Loan were $ 15.0 million and the interest rate in effect was 6.4 %. During the twelve months ended December 31, 2022, the Company borrowed $ 45.0 million and made $ 30.0 million in Revolving Loan payments. As of December 31, 2022, $ 215.0 million was available to borrow under the Revolving Loan. The Company’s borrowings are limited by its Senior Secured Leverage Ratio and Consolidated Interest Coverage Ratio, which are calculated in accordance with our Credit Agreement, and were 0.4 x and 5.7 x as of December 31, 2022, respectively. 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 $ 11.1 million and $ 14.3 million as of December 31, 2022 and December 31, 2021, 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 extinguishment of $ 1.8 million of the previously capitalized debt issuance costs which is included in Other expense, 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 Company and its subsidiary guarantors. 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 51 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) 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 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, 2022, 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, 2022, 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): 2023 $ 16,250 2024 20,000 2025 45,000 2026 — 2027 — Thereafter 400,000 Total $ 481,250 Note 8. 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 %, 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 then was 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 were recorded within Other expense, 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, net on the Consolidated Statements of Income (Loss). The Swap expired on May 31, 2022 and, as such, is no longer recorded on the Consolidated Balance Sheets. 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. During the years ended December 31, 2022, 2021 and 2020, $ 2.4 million, $ 5.7 million and $ 11.1 million was reclassified from Accumulated other comprehensive loss and recorded in Interest expense, net, respectively. During the years ended December 31, 2022, 2021 and 2020 the Company made payments of $ 3.3 million, $ 8.6 million and $ 7.0 million related to the Swap. During the years ended December 31, 2022, 2021 and 2020, $ 0.4 million, $ 0.9 million and $ 1.3 million was reclassified as a tax benefit from Accumulated other comprehensive loss into Income tax expense (benefit) on the Consolidated Statements of Income (Loss). 52 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) Note 9. Leases Leases. 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, which is our most material lease. 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, 2022, 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): 2023 $ 4,042 2024 4,154 2025 4,570 2026 4,684 2027 3,991 Thereafter 17,750 Total minimum lease payments 39,191 Less: Imputed interest (1) ( 10,652 ) Present value of the minimum lease payments 28,539 Less: Current maturities of lease obligations ( 1,984 ) Long-term lease obligations $ 26,555 (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, 2022 and 2021, the Company’s operating lease assets, included in Investments and other assets , net, were $ 13.7 million and $ 14.6 million, respectively, and operating lease liabilities were $ 28.5 million and $ 30.8 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 lease in Chicago, Illinois. Other information related to the Company’s operating leases for the years ended December 31, 2022, 2021 and 2020 is as follows (in thousands, except months and percentages): Year Ended December 31, Income statement information: 2022 2021 2020 Operating lease cost $ 2,993 $ 3,541 $ 3,848 Short-term lease cost 137 600 856 Variable lease cost 3,443 3,034 2,834 Total lease cost $ 6,573 $ 7,175 $ 7,538 Other information: Cash paid for operating leases $ 4,470 $ 4,856 $ 3,320 Weighted-average remaining lease term (in months) 101 112 122 Weighted-average discount rate as of December 31, 7.5 % 7.4 % 7.4 % Note 10. Commitments and Contingencies From time to time, the Company and its subsidiaries are parties 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. Note 11. Stockholders' Equity 53 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) 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. The Company may repurchase shares from time to time in open market transactions or through privately negotiated transactions in accordance with applicable federal securities laws and other applicable legal requirements and subject to the Company's blackout periods. The timing and amounts of any purchases under the share repurchase program will be based on market conditions and other factors, including price. The repurchase program may be suspended or discontinued at any time and does not obligate the Company to repurchase any dollar amount or particular amount of shares. The Company funds the share repurchase program principally with cash from operations. During the year ended December 31, 2022, the Company repurchased and subsequently retired 4.2 million shares for $ 49.0 million at an average price per share of $ 11.75 . Note 12. 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 shares may be issued under the Omnibus Plan. As of December 31, 2022, there were 6.8 million common 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, 2022 2021 2020 Stock-based compensation expense $ 22,342 $ 21,431 $ 15,155 Income tax benefit related to stock-based compensation expense — — — S tock-based compensation expense by financial statement line item on the Company’s Consolidated Statements of Income (Loss) is as follows (in thousands): Year Ended December 31, 2022 2021 2020 Cost of revenue and operations $ 955 $ 876 $ 593 Product and technology 6,647 5,455 3,314 Marketing and sales 4,921 5,202 3,612 General and administrative 9,819 9,898 7,636 Total $ 22,342 $ 21,431 $ 15,155 For the years ended December 31, 2022 excluded from stock-based compensation expense is $ 0.1 million of capitalized internally developed technology costs. Information related to outstanding stock-based compensation awards as of December 31, 2022 for restricted share units (“RSUs”), performance share units (“PSUs”), stock options and the Cars.com Employee Stock Purchase Plan (“ESPP”) is as follows (in thousands, except for weighted-average remaining period): Unearned Compensation Weighted-Average Remaining Period (in years) RSUs $ 29,099 2.0 PSUs 533 2.2 Stock Options 2,993 1.7 ESPP 251 0.3 Total $ 32,876 Restricted Share Units ("RSUs"). RSUs represent the right to receive unrestricted 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. 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 54 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) of grant. RSU activity for the year ended December 31, 2022 is as follows (in thousands, except for weighted-average grant date fair value): Number of RSUs Weighted-Average Grant Date Fair Value Outstanding as of December 31, 2021 3,683 $ 10.95 Granted 2,526 14.21 Vested and delivered ( 1,598 ) 10.65 Forfeited ( 840 ) 12.68 Outstanding as of December 31, 2022 (1) 3,771 12.88 (1) 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, 2021 and 2020 was $ 14.94 and $ 5.87 , respectively. The total grant-date fair value of RSUs that vested during the years ended December 31, 2022, 2021 and 2020 was $ 16.9 million, $ 14.7 million and $ 8.9 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 after the end of the respective performance period. PSU activity for the year ended December 31, 2022 is as follows (in thousands, except for weighted-average grant date fair value): Number of PSUs Weighted-Average Grant Date Fair Value Outstanding as of December 31, 2021 142 $ 23.98 Granted 305 14.84 Vested and delivered ( 142 ) 23.98 Forfeited ( 60 ) 15.07 Outstanding as of December 31, 2022 245 14.78 Stock Options. Stock options 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. Stock option activity for the year ended December 31, 2022 is as follows (in thousands, except for weighted-average grant date fair value and weighted-average remaining contractual term): Number of Options Weighted-Average Grant Date Fair Value Weighted-Average Remaining Contractual Term (in years) Aggregate Intrinsic Value Outstanding as of December 31, 2021 804 $ 5.27 8.58 $ 5,754 Granted 263 9.39 — — Exercised — — — — Forfeited — — — — Outstanding as of December 31, 2022 1,067 6.28 7.98 4,296 Exercisable as of December 31, 2022 — — — — The fair value of the stock options granted during the years ended December 31, 2022, 2021 and 2020 are estimated on the grant date using the Black-Scholes option pricing model, using the following assumptions: 55 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) 2022 2021 2020 Risk-free interest rate 2.21 % 1.15 % 1.01 % Weighted-average volatility 65.22 % 69.00 % 53.08 % Dividend yield 0 % 0 % 0 % Expected years until exercise 6.5 6.5 6.5 Employee Stock Purchase Plan ("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, 2022, 2.1 million shares were available for issuance under the ESPP. The Company issued 0.2 million, 0.2 million and 0.3 million shares related to the ESPP and recorded $ 0.6 million, $ 0.7 million and $ 0.7 million of stock-based compensation expense related to the ESPP for the years ended December 31, 2022, 2021 and 2020, respectively. Note 13. 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. As part of the Accu-Trade Acquisition, the Company may pay up to $ 15.0 million of the contingent consideration in stock at a future date. Those potential shares have been excluded from the computations below because they are contingently issuable shares, and the contingency to which the issuance relates was not met at the end of the reporting period . 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, 2022 2021 2020 Net income (loss) $ 17,206 $ 10,791 $ ( 789,106 ) Basic weighted-average common shares outstanding 68,215 68,727 67,241 Effect of dilutive stock-based compensation awards (1) 1,434 2,610 — Diluted weighted-average common shares outstanding 69,649 71,337 67,241 Earnings (loss) per share, basic $ 0.25 $ 0.16 $ ( 11.74 ) Earnings (loss) per share, diluted 0.25 0.15 ( 11.74 ) (1) There were 2,033, 1,304 and 2,727 potential common shares excluded from diluted weighted-average common shares outstanding for the years ended December 31, 2022, 2021 and 2020 respectively, as their inclusion would have had an anti-dilutive effect. Note 14. Income Taxes Selected Information Related to Income Taxes. Significant components of Income (Loss) before income taxes are as follows (in thousands): Year Ended December 31, 2022 2021 2020 U.S. $ 22,533 $ 9,444 $ ( 938,248 ) Non-U.S. 43 39 1,839 Income (loss) before income taxes $ 22,576 $ 9,483 $ ( 936,409 ) 56 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) Year Ended December 31, 2022 2021 2020 Current: U.S. federal $ 2,991 $ 516 $ ( 13,799 ) U.S. state and local 1,122 1,267 715 Non-U.S. ( 26 ) ( 164 ) 164 Total current income tax expense (benefit) 4,087 1,619 ( 12,920 ) Deferred: U.S. federal 579 ( 2,599 ) ( 100,211 ) U.S. state and local 671 ( 332 ) ( 34,181 ) Non-U.S. 33 4 9 Total deferred income tax expense (benefit) 1,283 ( 2,927 ) ( 134,383 ) Income tax expense (benefit) $ 5,370 $ ( 1,308 ) $ ( 147,303 ) The income tax provision differed from amounts computed at the statutory federal income tax rate, as follows (in thousands, except percentages): Year Ended December 31, 2022 2021 2020 $ % $ % $ % Income tax provision (benefit) at statutory rate $ 4,743 21.0 % $ 1,994 21.0 % $ ( 196,646 ) 21.0 % State income taxes, net of federal income tax expense (benefit) 1,122 5.0 378 4.0 ( 37,566 ) 4.0 Nondeductible executive compensation 1,974 8.7 1,365 14.4 625 ( 0.1 ) Nondeductible transaction expenses ( 2,608 ) ( 11.6 ) 2,638 27.8 — — Tax credits ( 1,455 ) ( 6.4 ) ( 2,379 ) ( 25.1 ) ( 2,375 ) 0.3 Goodwill impairment — — — — ( 13,683 ) 1.5 Effect of change in apportionment factors — — — — ( 2,228 ) 0.2 NOL carrybacks rate differential — — — — ( 3,270 ) 0.3 Stock-based compensation ( 1,432 ) ( 6.3 ) ( 3,010 ) ( 31.7 ) 1,062 ( 0.1 ) Return to provision adjustments 4,627 20.5 ( 453 ) ( 4.8 ) ( 289 ) — Uncertain tax positions ( 4,042 ) ( 17.9 ) 1,551 16.4 1,317 ( 0.1 ) Valuation allowance 1,194 5.3 ( 3,943 ) ( 41.6 ) 106,042 ( 11.3 ) Other, net 1,247 5.5 551 5.8 ( 292 ) — Income tax expense (benefit) $ 5,370 23.8 % $ ( 1,308 ) ( 13.8 ) % $ ( 147,303 ) 15.7 % 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 $ 2.5 million and $ 10.6 million as of December 31, 2022, and 2021, 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 $ 1.2 million and $ 4.2 million, net of uncertain tax positions, as of December 31, 2022, and 2021, respectively. The federal and state R&D tax credits generally may be carried forward 20 years and 5 years, respectively. The Tax Cuts and Jobs Act enacted in December 2017, amended Internal Revenue Code Section 174 to require that specific research and experimental expenditures be capitalized and amortized over five years (15 years for non-U.S. R&D expenditures) beginning in the Company’s 2022 fiscal year. 57 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) Significant components of the deferred tax assets and liabilities are as follows (in thousands): December 31, 2022 2021 Deferred income tax liabilities: Definite lived intangibles $ — $ ( 16,973 ) Depreciation ( 5,787 ) ( 8,428 ) Indefinite lived intangibles ( 4,237 ) — Right of use assets ( 3,445 ) ( 3,687 ) Other ( 2,833 ) ( 1,708 ) Total deferred tax liabilities $ ( 16,302 ) $ ( 30,796 ) Deferred income tax assets: Accrued compensation $ 8,748 $ 10,613 Capitalized research and development costs 15,242 — Definite lived intangibles 239 — Goodwill 79,994 91,756 Indefinite lived intangibles — 5,734 Lease obligations 7,161 7,762 NOL and tax credit carryforwards 3,688 14,804 Other 3,171 2,286 Total deferred tax assets $ 118,243 $ 132,955 Less: Valuation allowance ( 103,294 ) ( 102,099 ) Net deferred tax (liability) asset $ ( 1,353 ) $ 60 The deferred tax assets and liabilities recognized in the Company’s Consolidated Balance Sheets as of December 31, 2022 and 2021 were as follows (in thousands): December 31, 2022 2021 Investments and other assets, net $ 48 $ 60 Other noncurrent liabilities ( 1,401 ) — Net deferred tax (liability) asset $ ( 1,353 ) $ 60 Uncertain Tax Positions. A summary of the Company’s uncertain tax positions is as follows (in thousands): Year Ended December 31, 2022 2021 Balance as of January 1 $ 9,851 $ 8,788 Additions based on tax positions related to the current year 382 550 Additions for tax positions of prior years 294 862 Reductions for tax positions of prior years ( 7,974 ) ( 349 ) Balance as of December 31 $ 2,553 $ 9,851 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 $ 0.4 million. The Company has recorded its best estimate of the potential exposure for these issues. As of December 31, 2022, 2021 and 2020, the Company had $ 0.3 million, $ 2.6 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. 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. Note 15. 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 58 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) 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 years ended December 31, 2022, 2021 and 2020, the Company had one operating and reportable segment. For the years ended December 31, 2022, 2021 and 2020, 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. 59 Item 9. Changes in and Disagreements With Accou ntants on Accounting and Financial Disclosure. None.