Cars.com Inc. 10-K

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 "we," "us," "our", "Cars Commerce" and similar terms refer to Cars.com Inc. and its subsidiaries, collectively, unless the context indicates otherwise. Business Overview. Cars Commerce is an audience-driven technology company empowering the automotive industry. We simplify everything about car buying and selling with powerful products, solutions and machine learning model-driven artificial intelligence technologies that span pretail, retail and post-sale activities – enabling more efficient and profitable retail operations. The Cars Commerce platform is organized around four industry-leading brands: our flagship automotive marketplace and dealer reputation site Cars.com, award-winning digital retail technology and marketing services from Dealer Inspire and D2C Media, essential trade-in and appraisal technology from AccuTrade, and exclusive in-market media solutions from the Cars Commerce Media Network. Overview of Results. Year Ended December 31, (In thousands) 2024 2023 2022 Revenue $ 719,152 $ 689,183 $ 653,876 Net income (1) 48,188 118,442 17,206 (1) Net income for the year ended December 31, 2023 is primarily related to the release of a significant portion of our valuation allowance for deferred tax assets that had been recorded as a result of the 2020 goodwill and indefinite-lived intangible asset impairments. For more information, see Note 14 (Income Taxes) 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. 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 ("UVs") and Monthly Average Revenue Per Dealer ("ARPD") is as follows (Traffic and Average Monthly Unique Visitors in thousands): Year Ended December 31, 2024 2023 % Change Average Monthly Unique Visitors 25,517 26,421 (3 )% Traffic 627,556 614,798 2 % Monthly Average Revenue Per Dealer - Annual $ 2,483 $ 2,486 (0 )% Quarterly information regarding our Dealer Customers and ARPD is as follows: December 31, 2024 December 31, 2023 YoY % Change September 30, 2024 QoQ % Change Dealer Customers 19,206 19,504 (2 )% 19,255 (0 )% Monthly Average Revenue Per Dealer - Quarterly $ 2,475 $ 2,523 (2 )% $ 2,478 (0 )% UVs and Traffic. UVs and Traffic are fundamental to our business. They are indicative of our consumer reach and the level of engagement consumers 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 customers and a primary reason they do business with us. We believe we have achieved audience scale as measured by UVs and Traffic. Traffic is driven by a combination of UVs visiting our properties and repeat visitation and engagement. We monetize impressions, clicks and other connections that result from traffic to our site via our products and services. 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.com 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.com desktop and mobile properties (responsive sites and mobile apps). We measured UVs and Traffic via Adobe Analytics through the year ended December 31, 2023. As of January 1, 2024, we began to measure UVs and Traffic via RudderStack, which we 25 believe better aligns to our product and technology platform and provides improved visibility into our UVs and Traffic. Prior period UVs and Traffic information has not been recast, as it is impracticable to do so. These metrics do not include traffic to Dealer Inspire or D2C Media websites. UVs decreased 3% year-over-year for the year ended December 31, 2024, primarily driven by normalizing demand from consumers due to increased vehicle inventory levels, continued elevated prices and higher interest rates, partially offset by shifts in our marketing mix. Additionally, UVs for the year ended December 31, 2023 benefited from Q1 2023 being our highest quarter ever for UVs. Traffic increased 2% year-over-year for the year ended December 31, 2024, primarily driven by the shift to RudderStack, higher repeat visitation and optimization of our user acquisition strategy, partially offset by shifts in our marketing mix. 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 December 31, 2023, this key operating metric includes D2C Media. ARPD for the annual period of 2024 remained flat compared to the annual period 2023. For the three months ended December 31, 2024, ARPD decreased 2% compared to the three months ended December 31, 2023, primarily due to the impact of one additional month of D2C Media. For the three months ended December 31, 2024, ARPD remained flat compared to the three months ended September 30, 2024. Dealer Customers . Dealer Customers represent dealerships subscribed to 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. Beginning December 31, 2023, this key operating metric includes D2C Media. Dealer Customers decreased 2% from December 31, 2023, primarily due to normalizing dealer profitability given increased inventory, which we believe to be influenced by higher flooring expense for our dealer customers. Dealer Customers remained flat from September 30, 2024. Factors Affecting Our Performance. Our business is impacted by changes in the larger automotive ecosystem, including supply and demand for new and used vehicle inventory, global supply chain and information systems disruptions, semiconductor and raw material shortages, vehicle acquisition cost, vehicle retail prices, the rate of electric vehicle adoption, employee retention and changes related to automotive advertising, among other macroeconomic factors including the political environment, inflationary pressures, tariffs and prevailing interest rates. Changes in vehicle sales volumes in the United States and Canada 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 execute our platform strategy including continuing to create the most engaged in-market audience, growing our dealer customers, expanding our relationship with dealers through greater adoption of our platform, unlocking the cross-sell, transforming our OEM relationships and creating platform advantages. We believe our core strategic strengths, including our powerful family of brands, growing high-quality audience and suite of digital solutions for advertisers, including machine learning model artificial intelligence, 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 online chat, vehicle financing, appraisal and valuation, instant guaranteed offer capabilities and logistics technology. 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. 26 Results of Operations. Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 (In thousands, except percentages) 2024 2023 $ Change % Change Revenue: Dealer $ 640,722 $ 621,661 $ 19,061 3 % OEM and National 65,894 55,904 9,990 18 % Other 12,536 11,618 918 8 % Total revenue 719,152 689,183 29,969 4 % Operating expenses: Cost of revenue and operations 124,332 122,205 2,127 2 % Product and technology 113,931 99,584 14,347 14 % Marketing and sales 231,502 235,471 (3,969 ) (2 )% General and administrative 88,707 76,807 11,900 15 % Depreciation and amortization 107,182 101,000 6,182 6 % Total operating expenses 665,654 635,067 30,587 5 % Operating income 53,498 54,116 (618 ) (1 )% Nonoperating expense: Interest expense, net (32,197 ) (32,425 ) 228 (1 )% Other income (expense), net 40,562 (3,586 ) 44,148 *** Total nonoperating income (expense), net 8,365 (36,011 ) 44,376 *** Income before income taxes 61,863 18,105 43,758 *** Income tax expense (benefit) 13,675 (100,337 ) 114,012 *** Net income $ 48,188 $ 118,442 $ (70,254 ) (59 )% *** Not meaningful Dealer revenue . Dealer revenue is typically subscription-oriented and consists of marketplace, digital experience, including website solutions and AccuTrade, and media products sold to dealer customers. Dealer revenue is our largest revenue stream, representing 89% and 90% of total revenue for the years ended December 31, 2024 and 2023, respectively. Dealer revenue increased $19.1 million or 3%, primarily driven by the incremental revenue related to the acquisition of the D2C Media business and growth in digital experience revenue, including our website creation and hosting. OEM and National revenue . OEM and National revenue largely consists of Cars Commerce Media Network products, including display advertising and other solutions sold to OEMs, advertising agencies, automotive dealer associations and auto adjacent businesses, including insurance companies. OEM and National revenue represented 9% and 8% of total revenue for the years ended December 31, 2024 and 2023, respectively. OEM and National revenue increased $10.0 million or 18%, primarily due to increased OEM spending to raise consumer awareness, as on-the lot inventory continues to increase. Other revenue. Other revenue primarily consists of revenue related to vehicle listing data sold to third parties and pay per lead products. Other revenue represented 2% of total revenue for each of the years ended December 31, 2024 and 2023. Other revenue increased $0.9 million or 8%, primarily due to the incremental revenue related to the acquisition of the D2C Media business, partially offset by the first quarter 2023 expiration of a license agreement entered into as part of the AccuTrade acquisition. 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 represented 17% and 18% of total revenue for the years ended December 31, 2024 and 2023, respectively. Cost of revenue and operations increased $2.1 million or 2%, but decreased as a percentage of revenue. The change is primarily due to the incremental costs related to the acquisition of the D2C Media business. Product and technology. The product team creates and manages consumer and customer-facing innovation and consumer and customer experience. The technology team develops and supports our products, websites and mobile apps. Product and technology expense includes compensation costs, consulting and contractor costs, hardware and software maintenance, software licenses and other infrastructure costs. Product and technology expense represented 16% and 14% of total revenue for the years ended December 31, 2024 and 2023, respectively. Product and technology expense increased $14.3 million or 14%, primarily due to higher compensation, including stock-based compensation and third-party costs, including licenses. 27 Marketing and sales . Marketing and sales expense primarily consists of traffic and lead acquisition costs, performance and brand marketing, 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 represented 32% and 34% of total revenue for the years ended December 31, 2024 and 2023, respectively. Marketing and sales expense decreased $4.0 million or 2%, primarily due to changes in our marketing investment and mix, partially offset by incremental costs related to the acquisition of the D2C Media business. 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 the cost of office space, legal, accounting and other professional services, transaction-related costs, severance, transformation and other exit costs and costs related to the write-off of assets. General and administrative expense represented 12% and 11% of total revenue for the years ended December 31, 2024 and 2023, respectively. General and administrative expense increased $11.9 million or 15%, the majority of which is due to incremental costs related to the acquisition of the D2C Media business, including compensation expense of $10.8 million related to the D2C Media earnout. Additionally, the change is impacted by higher compensation, including stock-based compensation. For information related to the D2C Media earnout, 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 increased $6.2 million or 6%, primarily due to depreciation and amortization on additional assets acquired and the amortization of intangible assets related to the D2C Media Acquisition, partially offset by certain assets being fully depreciated and amortized as compared to the prior-year period. Interest expense, net . Interest expense, net was essentially flat compared to the prior-year period. For information related to our debt, see Note 7 (Debt) to the accompanying Consolidated Financial Statements included in Part II, Item 8., "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. Other income (expense), net. Other income (expense), net changed primarily due to the change in the fair value of contingent consideration associated with the AccuTrade and CreditIQ acquisitions and the $10.8 million gain on the sale of our RepairPal, Inc. ("RepairPal") equity investment. For more information related to contingent consideration, see the Liquidity and Capital Resources section below, and 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. For more information on the sale of our RepairPal equity investment, see Note 2 (Significant Accounting Policies) to the accompanying Consolidated Financial Statements included in Part II, Item 8., "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. Income tax expense (benefit) . The effective income tax rate differed from the statutory federal income tax rate of 21%, primarily due to the impact of state income taxes, net of federal income tax expense, nondeductible transaction expenses and nondeductible executive compensation, partially offset by tax credits and the release of the remaining portion of our valuation allowance. The prior period income tax benefit was primarily due to the release of a significant portion of our valuation allowance for deferred tax assets that had been recorded as a result of the 2020 goodwill and indefinite-lived intangible asset impairments. For more information, see Note 14 (Income Taxes) to the Consolidated Financial Statements included in Part II, Item 8., "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 The comparison of the 2023 results with 2022 can be found under the heading "Year Ended December 31, 2023 Compared to Year Ended December 31, 2022" in "Part II, Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations" section of our 2023 Form 10-K, which comparison is incorporated by reference herein. 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 facility. Our positive operating cash flow, along with our Revolving Loan, provide adequate liquidity to meet our business needs for the next 12 months and beyond, including those for investments, debt service, share repurchases, contingent consideration payments 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. 28 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, 2024, Cash and cash equivalents were $50.7 million and including our undrawn Revolving Loan, our total liquidity was $340.7 million. Indebtedness. As of December 31, 2024, the outstanding aggregate principal amount of our indebtedness was $460.0 million, at an average interest rate of 6.4%, including $400.0 million of outstanding aggregate principal under the 6.375% Senior Unsecured Notes due in 2028 and $60.0 million of outstanding principal under the Revolving Loan which had an interest rate of 6.5%. On May 6, 2024, we amended and extended our existing Credit Agreement (the "Fifth Amendment") which resulted in a new $350.0 million Revolving Loan due in 2029. Upon closing, we borrowed $80.0 million under the new Revolving Loan to repay the outstanding $45.0 million in aggregate principal amount of existing Term Loan and $35.0 million in aggregate principal amount of existing Revolving Loan balances. During the year ended December 31, 2024, we made $10.0 million in mandatory Term Loan payments and repaid $20.0 million on our Revolving Loan. As of December 31, 2024, $290.0 million was available to borrow under the Revolving Loan. Our borrowings are limited by our Senior Secured Net Leverage Ratio and Consolidated Interest Coverage Ratio, in addition to other factors. Calculated in accordance with our Credit Agreement, these ratios were 0.04x and 6.5x, respectively, as of December 31, 2024. 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 . On February 21, 2022, our Board of Directors authorized a three-year share repurchase program to acquire up to $200.0 million of our common stock. During the year ended December 31, 2024, we repurchased and subsequently retired 2.8 million shares for $49.2 million at an average price per share of $17.72. The share repurchase authorization expired on February 21, 2025. As a result, on February 24, 2025, our Board of Directors authorized a new three-year share repurchase program to acquire up to $250.0 million of our common stock. The repurchase program may be suspended or discontinued at any time and does not obligate us to repurchase any specific amount or number of shares. 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 principally with cash from operations. Contingent Consideration and Earnout. The fair value as of December 31, 2024 for the contingent consideration related to the CreditIQ and AccuTrade acquisitions was $0.5 million. Within the next twelve months, we expect to pay $10.9 million of potential contingent consideration and D2C Media earnout discussed below. During the year ended December 31, 2024, we paid $30.4 million related to contingent consideration and earnout, which reduced the corresponding liability. The contingent consideration and earnout consists of the following: • The contingent consideration associated with the CreditIQ acquisition was based on two achievement objectives, including an earnings-related metric and lender market share. The actual amount to be paid was based on the future performance of the acquired business attained over a three-year performance period through December 2024. • The contingent consideration associated with the AccuTrade Acquisition is based on achievement of an earnings-related metric. For the AccuTrade contingent consideration, we have the option to pay consideration in cash or certain amounts in stock, which may result in a variable number of shares being issued in accordance with a calculation based on future share prices. The actual amount to be paid will be based on the future performance of the acquired business to be attained over a three-year performance period through February 2025. • As part of the D2C Media Acquisition, we may be required to pay additional cash consideration to certain former owners who are now employees of Cars Commerce based on the achievement of a revenue performance metric. The amount to be paid will be determined by the acquired business' future achievement of certain revenue-related financial targets through December 31, 2025 and expensed over each performance period. We may expense up to CAD$15.0 million (approximately US$10.4 million as of December 31, 2024) associated with the remaining portion of the earnout for the year ending December 31, 2025. For information related to the contingent consideration and earnout, see Note 3 (Business Combinations) and Note 4 (Fair Value Measurements) in Part II, Item 8., "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. Lease Amendment. In May 2016, we entered into a lease of office space in Chicago, Illinois. In November 2024, we amended the lease, which resulted in a reduction of our office space by 67%, extension of the lease term from June 2031 to June 2036 for the remaining portion, and paid a termination penalty of $10.5 million. The December 31, 2024 Consolidated Financial Statements and related notes to the Consolidated Financial Statements reflect the impact of the amendment and the related termination penalty. In 2025, as a result 29 of the amendment, we expect a $5.3 million decrease in lease related costs, primarily driven by an abatement of variable lease costs, as well as operating lease costs amortized over an extended lease term. We also expect to see significant savings over the original lease term ending in 2031. For more information, see Note 9 (Leases) 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, 2024 2023 Change Net cash provided by (used in): Operating activities $ 152,524 $ 136,720 $ 15,804 Investing activities (24,597 ) (97,050 ) 72,453 Financing activities (115,958 ) (31,748 ) (84,210 ) Effect of exchange rate changes on Cash and cash equivalents (494 ) (439 ) (55 ) Net change in Cash and cash equivalents $ 11,475 $ 7,483 $ 3,992 Operating Activities. C ash provided by operating activities for the year ended December 31, 2024 increased due to Net income after non-cash adjustments, partially offset by changes in working capital compared to the year ended December 31, 2023. Investing Activities. The decrease in cash used in investing activities was primarily related to the impact of the D2C Media Acquisition in the prior year, partially offset by increases in capitalization of internally developed software and purchases of property and equipment. Financing Activities. During the year ended December 31, 2024, cash used in financing activities was primarily related to repurchases of common stock, debt repayments, payments of contingent consideration and tax payments made in connection with the vesting of certain equity awards. During the year ended December 31, 2023, cash used in financing activities was primarily related to debt repayments, repurchases of common stock and tax payments made in connection with the vesting of certain equity awards, offset by proceeds from Revolving Loan borrowings related to the D2C Media Acquisition. For information related to our debt, repurchases of common stock and contingent consideration, see Note 4 (Fair Value Measurements), 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, 2024, 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 2025 2026 2027 2028 2029 Thereafter Long-term debt (1) $ 460,000 $ — $ — $ — $ 400,000 $ 60,000 $ — Interest on debt (2) 119,078 29,428 29,428 29,428 29,417 1,377 — Operating leases 27,260 5,257 3,527 2,033 2,085 1,993 12,365 Other obligations (3) 30,367 26,514 3,853 — — — — Total $ 636,705 $ 61,199 $ 36,808 $ 31,461 $ 431,502 $ 63,370 $ 12,365 (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, 2024. (3) Other obligations represent commitments under certain vendors and other contracts. Excluded from the above table is the contingent consideration related to the CreditIQ and AccuTrade acquisitions and the earnout related to the D2C Media Acquisition as the amounts and timing are uncertain with the exception of the portion for D2C Media that was earned as of December 31, 2024. For more information related to the earnout and 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. Commitments and Contingencies. For information related to commitments and contingencies, see Note 10 (Commitments and Contingencies) to the accompanying Consolidated Financial Statements included in Part II, Item 8., "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. Subsequent Events. DealerClub Acquisition. In January 2025, we acquired all of the outstanding stock of DealerClub, Inc. ("DealerClub"), an emerging dealer-to-dealer digital wholesale auction platform that facilitates transparent and efficient transactions between automotive dealers. 30 Cash consideration for the transaction was approximately $25.3 million at closing paid with cash on hand. There is also the potential for additional performance-based consideration of up to $88.0 million through 2028, which may be paid in cash or stock. The amount to be paid will be based on achievement of certain financial thresholds. Share Repurchase Program. In February 2025, our Board of Directors authorized a share repurchase program to acquire up to $250.0 million of our common stock over a three-year period. The repurchase program may be suspended or discontinued at any time and does not obligate us to repurchase any specific amount or number of shares. 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 principally with cash from operations 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 that 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 a performance obligation is satisfied by providing a service to a customer. Revenue is primarily generated through our direct sales force. Dealer. Dealer revenue consists of marketplace, digital solutions, including website solutions and AccuTrade and media products sold to dealer customers, and is typically subscription-oriented in nature. Further information related to Dealer revenue in the Consolidated Statements of Income is as follows: • Marketplace . 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. • Digital Experience. We provide services, including hosting flexible, custom-designed website platforms supporting digital retailing and messaging platform products. We recognize this subscription revenue ratably as the service is provided over the contract term. • Trade & Appraisal. Leveraging wholesale and retail data sources, AccuTrade provides dealers with vehicle valuation and appraisal technology to efficiently identify, source and procure the exact vehicles they require. We recognize AccuTrade subscription revenue ratably as the service is provided over the contract term. • Cars Commerce Media Network. The Cars Commerce Media Network unifies our media products, including In-Market Display, Cars Social, In-Market Video and VIN Performance Media. o Add-on Marketplace and Digital Experience 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 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 we recognize the related revenue ratably as the services are provided over the contract term. o We also provide certain non-subscription digital advertising services to dealer customers. We recognize revenue related to these services at the point in time the service is provided. OEM and National revenue. OEM and National revenue largely consists of Cars Commerce Media Network products, including In-Market Display and other solutions sold to OEMs, advertising agencies, automotive dealer associations and auto adjacent businesses, including insurance companies. Revenue related to OEM and National customers are primarily 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 31 these services at the point in time the service is provided. In-Market Display products revenue sold to OEMs and national customers is recorded in OEM and National revenue in the Consolidated Statements of Income. 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 AccuTrade Acquisition, we 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. 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 two to 14 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 CreditIQ 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. AccuTrade Contingent Consideration. As part of the AccuTrade 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 AccuTrade's performance 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 fair value is measured based on a Monte Carlo simulation and is classified as Level 3 in the fair value hierarchy. 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 and timing. 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 within Other expense, net on the Consolidated Statements of Income. Income Taxes. We account for income taxes according to the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based on the estimated future tax effects of temporary differences between the financial statement carrying value and tax basis of assets and liabilities, as measured by current enacted tax rates. The effect of a tax rate change on deferred tax assets and liabilities is recognized in the Consolidated Statements of Income in the period that includes the enactment date of the change. We assess the recoverability of our deferred tax assets on a quarterly basis, considering all positive and negative evidence. A valuation allowance is recorded against deferred tax assets if it is more likely than not that some portion of the deferred tax assets will not be realized. Uncertain tax positions that relate to deferred tax assets are recorded against deferred tax assets; otherwise, uncertain tax 32 positions are recorded as either a current or noncurrent liability in the Consolidated Balance Sheets. 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. Recent Accounting Standards. For information related to recent accounting pronouncements, see Note 2 (Significant Accounting Policies) to the Consolidated Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. 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 Revolving Credit Facility is floating and, therefore, subject to fluctuations. As of December 31, 2024, the outstanding aggregate principal amount of our indebtedness was $460.0 million, at a weighted average interest rate of 6.4%, including $400.0 million of outstanding principal under the bonds, which carries a fixed interest rate of 6.375% and $60.0 million of outstanding principal under the Revolving Loan which carried an interest rate of 6.5% at December 31, 2024. Foreign Currency Exchange Risk. Historically, we have not faced any significant foreign currency risk as our operations and sales have been primarily in the United States. However, with the acquisition of D2C Media in November 2023, we have expanded our presence in Canada and therefore our risk related to changes in exchange rates between the U.S. dollar and Canadian dollar. D2C Media primarily bills its customers and incurs expenses in Canadian dollars. We also have intercompany debt between U.S. and Canadian entities that is subject to exchange rate fluctuations and will result in foreign exchange gains or losses depending on the currency movement during the respective time period. The effect of foreign currency exchange rate fluctuations during 2023 and 2024 is immaterial. As we continue to grow our Canadian operations, we expect to continue to be exposed to foreign exchange rate risk. We may determine to take certain foreign exchange rate risk management measures. Item 8. Financial Statement s and Supplementary Data. 33 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, 2024 and 2023, the related Consolidated Statements of Income, Comprehensive Income, Stockholders’ Equity and Cash Flows for each of the three years in the period ended December 31, 2024, and the related notes (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, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, 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, 2024, 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 27, 2025 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 included 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 Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 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. 34 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. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2016. Chicago, Illinois February 27, 2025 35 Cars.com Inc. Consolidated Balance Sheets (In thousands, except per share data) December 31, 2024 2023 Assets: Current assets: Cash and cash equivalents $ 50,673 $ 39,198 Accounts receivable, net 133,741 125,373 Prepaid expenses 13,782 12,553 Other current assets 16,134 1,314 Total current assets 214,330 178,438 Property and equipment, net 40,704 43,853 Goodwill 143,279 147,058 Intangible assets, net 585,690 669,167 Deferred tax assets, net 100,530 112,953 Investments and other assets, net 27,332 20,980 Total assets $ 1,111,865 $ 1,172,449 Liabilities and stockholders' equity: Current liabilities: Accounts payable $ 33,498 $ 22,259 Accrued compensation 36,295 31,669 Current portion of long-term debt, net — 23,129 Other accrued liabilities 47,092 68,691 Total current liabilities 116,885 145,748 Noncurrent liabilities: Long-term debt, net 455,288 460,119 Deferred tax liabilities, net 6,773 8,757 Other noncurrent liabilities 21,434 65,717 Total noncurrent liabilities 483,495 534,593 Total liabilities 600,380 680,341 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, 2024 and 2023, respectively — — Common Stock at par, $ 0.01 par value; 300,000 shares authorized; 64,391 and 65,929 shares issued and outstanding as of December 31, 2024 and 2023, respectively 643 659 Additional paid-in capital 1,473,986 1,500,232 Accumulated deficit ( 961,546 ) ( 1,009,734 ) Accumulated other comprehensive (loss) income ( 1,598 ) 951 Total stockholders' equity 511,485 492,108 Total liabilities and stockholders' equity $ 1,111,865 $ 1,172,449 The accompanying notes are an integral part of these Consolidated Financial Statements. 36 Cars.com Inc. Consolidated Statem ents of Income (In thousands, except per share data) Year Ended December 31, 2024 2023 2022 Revenue: Dealer $ 640,722 $ 621,661 $ 579,222 OEM and National 65,894 55,904 58,557 Other 12,536 11,618 16,097 Total revenue 719,152 689,183 653,876 Operating expenses: Cost of revenue and operations 124,332 122,205 114,959 Product and technology 113,931 99,584 89,015 Marketing and sales 231,502 235,471 221,879 General and administrative 88,707 76,807 67,593 Depreciation and amortization 107,182 101,000 94,394 Total operating expenses 665,654 635,067 587,840 Operating income 53,498 54,116 66,036 Nonoperating expenses: Interest expense, net ( 32,197 ) ( 32,425 ) ( 35,320 ) Other income (expense), net 40,562 ( 3,586 ) ( 8,140 ) Total nonoperating income (expense), net 8,365 ( 36,011 ) ( 43,460 ) Income before income taxes 61,863 18,105 22,576 Income tax expense (benefit) 13,675 ( 100,337 ) 5,370 Net income $ 48,188 $ 118,442 $ 17,206 Weighted-average common shares outstanding: Basic 66,006 66,742 68,215 Diluted 67,387 68,227 69,649 Earnings per share: Basic $ 0.73 $ 1.77 $ 0.25 Diluted 0.72 1.74 0.25 The accompanying notes are an integral part of these Consolidated Financial Statements. 37 Cars.com Inc. Consolidated Statements of Comprehensive Income (In thousands) Year Ended December 31, 2024 2023 2022 Net income $ 48,188 $ 118,442 $ 17,206 Other comprehensive (loss) income, net of tax: Foreign currency translation adjustments ( 2,549 ) 951 — Reclassification of Accumulated other comprehensive loss on interest rate swap into Net income — — 2,002 Total other comprehensive (loss) income, net of tax ( 2,549 ) 951 2,002 Comprehensive income $ 45,639 $ 119,393 $ 19,208 The accompanying notes are an integral part of these Consolidated Financial Statements. 38 Cars.com Inc. Consolidated Statements o f Stockholders’ Equity (In thousands) Preferred Stock Common Stock Additional Accumulated Other Shares Amount Shares Amount Paid-In Capital Accumulated Deficit Comprehensive (Loss) Income Stockholders' Equity 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 Net income — — — — — 118,442 — 118,442 Other comprehensive income, net of tax — — — — — — 951 951 Repurchases of common stock — — ( 1,698 ) ( 17 ) ( 31,276 ) — — ( 31,293 ) Shares issued in connection with stock-based compensation plans, net — — 1,340 14 ( 9,219 ) — — ( 9,205 ) Stock-based compensation — — — — 28,783 — — 28,783 Balance at December 31, 2023 — $ — 65,929 $ 659 $ 1,500,232 $ ( 1,009,734 ) $ 951 $ 492,108 Net income — — — — — 48,188 — 48,188 Other comprehensive loss, net of tax — — — — — — ( 2,549 ) ( 2,549 ) Repurchases of common stock — — ( 2,775 ) ( 27 ) ( 49,546 ) — — ( 49,573 ) Shares issued in connection with stock-based compensation plans, net — — 1,237 11 ( 7,486 ) — — ( 7,475 ) Stock-based compensation — — — — 30,786 — — 30,786 Balance at December 31, 2024 — $ — 64,391 $ 643 $ 1,473,986 $ ( 961,546 ) $ ( 1,598 ) $ 511,485 The accompanying notes are an integral part of these Consolidated Financial Statements. 39 Cars.com Inc. Consolidated Stateme nts of Cash Flows (In thousands) Year Ended December 31, 2024 2023 2022 Cash flows from operating activities: Net income $ 48,188 $ 118,442 $ 17,206 Adjustments to reconcile Net income to Net cash provided by operating activities: Depreciation 26,677 22,331 16,380 Amortization of intangible assets 80,505 78,669 78,014 Changes in fair value of contingent consideration ( 33,473 ) 5,537 8,130 Stock-based compensation 30,553 28,491 22,342 Deferred income taxes 11,894 ( 114,498 ) 1,283 Provision for doubtful accounts 3,389 2,986 1,888 Amortization of debt issuance costs 2,249 3,042 3,235 Unrealized loss (gain) on foreign currency denominated transactions 3,697 ( 2,072 ) — Gain on sale of equity investment ( 10,846 ) — — Amortization of deferred revenue related to AccuTrade Acquisition — ( 883 ) ( 4,417 ) Amortization of Accumulated other comprehensive loss on interest rate swap — — 2,362 Other, net 662 1,026 1,202 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable ( 12,321 ) ( 15,567 ) ( 9,337 ) Prepaid expenses and other assets ( 5,390 ) ( 5,101 ) ( 423 ) Accounts payable 11,104 3,722 2,611 Accrued compensation 5,313 11,638 ( 4,296 ) Other liabilities ( 9,677 ) ( 1,043 ) ( 7,669 ) Net cash provided by operating activities 152,524 136,720 128,511 Cash flows from investing activities: Payments for acquisitions, net of cash acquired ( 216 ) ( 76,168 ) ( 64,663 ) Capitalization of internally developed technology ( 21,381 ) ( 19,602 ) ( 17,886 ) Purchase of property and equipment ( 3,000 ) ( 1,280 ) ( 1,828 ) Net cash used in investing activities ( 24,597 ) ( 97,050 ) ( 84,377 ) Cash flows from financing activities: Proceeds from Revolving Loan borrowings — 45,000 45,000 Payments of Revolving Loan borrowings and long-term debt ( 30,000 ) ( 36,250 ) ( 41,250 ) Payments for stock-based compensation plans, net ( 7,475 ) ( 9,205 ) ( 6,256 ) Repurchases of common stock ( 49,179 ) ( 31,293 ) ( 48,982 ) Payments of contingent consideration ( 27,435 ) — — Payments of debt issuance costs and other fees ( 1,869 ) — — Net cash used in financing activities ( 115,958 ) ( 31,748 ) ( 51,488 ) Effect of exchange rate changes on Cash and cash equivalents ( 494 ) ( 439 ) — Net increase (decrease) in Cash and cash equivalents 11,475 7,483 ( 7,354 ) Cash and cash equivalents at beginning of period 39,198 31,715 39,069 Cash and cash equivalents at end of period $ 50,673 $ 39,198 $ 31,715 Supplemental cash flow information: Cash paid for income taxes $ 6,487 $ 17,636 $ 545 Cash paid for interest and swap 32,525 30,416 33,370 The accompanying notes are an integral part of these Consolidated Financial Statements. 40 Cars.com Inc. Notes to Consolidated Financial Statements Note 1. Description of Business Description of Business. Cars.com Inc., d/b/a Cars Commerce Inc. (the "Company" or "Cars Commerce") is an audience-driven technology company empowering the automotive industry. The Company simplifies everything about car buying and selling with powerful products, solutions and machine learning model-driven artificial intelligence technologies that span pretail, retail and post-sale activities – enabling more efficient and profitable retail operations. The Cars Commerce platform is organized around four industry-leading brands: the flagship automotive marketplace and dealer reputation site Cars.com, award-winning digital retail technology and marketing services from Dealer Inspire, essential trade-in and appraisal technology from AccuTrade, and exclusive in-market media solutions from the Cars Commerce Media Network. Note 2. Significant Accounting Policies Basis of Presentation . The 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 Commerce 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. These reclassifications were not material to the previously reported Consolidated Financial Statements. 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 and recognizes revenue when a performance obligation is satisfied by providing a service to a customer. Revenue is primarily generated through the Company’s direct sales force. Dealer. Dealer revenue consists of marketplace, digital solutions, including website solutions and AccuTrade and media products sold to dealer customers, and is typically subscription-oriented in nature. Further information related to Dealer revenue in the Consolidated Statements of Income is as follows: • Marketplace . The Company's primary source of revenue is through the sale of marketplace subscription advertising packages to dealer customers. The Company's 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. • Digital Experience. The Company provides services, including hosting flexible, custom-designed website platforms supporting digital retailing and messaging platform products. The Company recognizes this subscription revenue ratably as the service is provided over the contract term. • Trade & Appraisal. Leveraging wholesale and retail data sources, AccuTrade provides dealers with vehicle valuation and appraisal technology to efficiently identify, source and procure the exact vehicles they require. The Company recognizes AccuTrade subscription revenue ratably as the service is provided over the contract term. • Cars Commerce Media Network. The Cars Commerce Media Network unifies our media products, including In-Market Display, Cars Social, In-Market Video and VIN Performance Media. o Add-on Marketplace and Digital Experience 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 are not sold separately from the subscription packages as the customer cannot benefit from add-on products on their own. 41 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) 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. o The Company also provides certain non-subscription digital advertising services to dealer customers. The Company recognizes revenue related to these services at the point in time the service is provided. OEM and National revenue. OEM and National revenue largely consists of Cars Commerce Media Network products, including In-Market Display and other solutions sold to OEMs, advertising agencies, automotive dealer associations and auto adjacent businesses, including insurance companies. Revenue related to OEM and National customers are primarily 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. In-Market Display products revenue sold to OEMs and national customers is recorded in OEM and National revenue in the Consolidated Statements of Income. 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 AccuTrade 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. 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. As of December 31, 2024, the Company's rollforward of the allowance for doubtful accounts is as follows (in thousands): Description Balance at Beginning of Period Additions Charged to Costs and Expenses Write-offs Recoveries Balance at End of Period Allowance for doubtful accounts: 2024 $ 2,473 $ 3,389 $ ( 4,306 ) $ 899 $ 2,455 2023 1,890 2,986 ( 3,056 ) 653 2,473 Concentrations of Credit Risk. The Company’s financial instruments, consisting primarily of cash and cash equivalents and customer receivables, are exposed to concentrations of credit risk. The Company invests its cash and cash equivalents with highly rated financial institutions. Investments . Investments in non-marketable equity securities are measured at fair value with changes in fair value recognized in Net income. 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 as applicable, may be indicative of impairment. The RepairPal, Inc. ("RepairPal") equity investment recorded within Investments and other assets, net on the Consolidated Balance Sheets was zero as of December 31, 2023. During the year ended December 31, 2024, the Company sold its RepairPal equity investment for $ 9.5 million in closing proceeds and up to $ 2.7 million of additional proceeds to be received, subject to the satisfaction of certain conditions. The related cash proceeds for the sale were not yet received as of December 31, 2024, and was therefore recorded as a non-cash transaction. As a result, the Company recorded the fair value of its expected proceeds as a gain of $ 10.8 million recorded in Other income (expense), net in the Consolidated Income Statements and Gain on sale of equity investment in the Consolidated Statements of Cash Flows. As of December 31, 2024, the Company recorded $ 9.5 million and $ 1.3 million in Other current assets and Investments and other assets, net, respectively, in the 42 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) Consolidated Balance Sheets, of which the $ 9.5 million was received in January 2025. Changes will be recognized in Other income (expense), net. Property and Equipment, net . 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 2024 2023 Estimated Useful Life Computer software $ 108,805 $ 98,139 18 months - 5 years Computer hardware 12,995 12,050 3 - 5 years Leasehold improvements 17,398 17,568 Lesser of useful life or lease term Furniture and fixtures 4,601 3,857 5 - 10 years Property and equipment, gross 143,799 131,614 Less: Accumulated depreciation ( 103,095 ) ( 87,761 ) Property and equipment, net $ 40,704 $ 43,853 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. 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, 2024, 2023 and 2022 were $ 21.8 million, $ 20.0 million and $ 18.1 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, net. 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 as the expense associated with the underlying host arrangement. Capitalized cloud computing arrangements are amortized on a straight-line basis over an estimated useful life of five years. Amortization expense for the years ended December 31, 2024, 2023 and 2022 was $ 1.8 million, $ 1.2 million and $ 0.6 million. Cost and accumulated amortization is as follows (in thousands): December 31, 2024 2023 Cloud computing arrangements, gross $ 11,681 $ 9,970 Less: Accumulated amortization ( 3,177 ) ( 2,121 ) Cloud computing arrangements, net $ 8,504 $ 7,849 These capitalized costs as of December 31, 2024 were $ 2.3 million and $ 6.2 million in Prepaid expenses and Investments and other assets, net on the Consolidated Balance Sheets, respectively. These capitalized costs as of December 31, 2023 were $ 1.3 million and $ 6.5 million in Prepaid expenses and Investments and other assets, net on the Consolidated Balance Sheets, respectively. 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. 43 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) 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, 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 will perform the quantitative test. Under the quantitative test, a goodwill impairment is identified by comparing the fair value of the reporting unit to the carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds the fair value of the reporting unit, goodwill is considered impaired and an impairment charge is recognized in an amount equal to the excess, not to exceed the carrying amount of goodwill. If a quantitative test is performed, the Company estimates the fair value of the reporting unit with an income approach using a 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 economies the Company operates in. 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. Similar factors to goodwill are considered in this evaluation. 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 5 - 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. 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 the Company's 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; 44 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) • 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 • 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 the Company's acquisitions which is recorded at fair value. Financial instruments also include accounts receivable, other receivables, 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. The approximate fair value and related carrying value of the Company's outstanding indebtedness, as of December 31, 2024 and December 31, 2023 were as follows (in millions): December 31, 2024 December 31, 2023 Fair Value $ 456.6 $ 470.9 Carrying Value 460.0 490.0 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 in the fair value hierarchy. The fair value measurement has one significant input of 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 or performance metrics. Contingent consideration was recognized at its estimated fair value at the date of acquisition based on 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 measurement has one significant input of projected financial information. Significant increases or decreases to the projected financial information 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 within Other expense, net on the Consolidated Statements of Income. Foreign Currency Translation. The reporting currency of the Company is the U.S. dollar. The functional currency of the Company’s foreign subsidiaries is the local currency of each subsidiary. All balances of entities whose functional currency is a currency other than the U.S. dollar are translated into U.S. dollar equivalents at exchange rates as follows: (i) asset and liability accounts at period‑end rates; (ii) income statement accounts at average exchange rates for the period; and (iii) stockholders’ equity accounts at historical exchange rates. The resulting translation adjustments are excluded from consolidated Net income and are recognized within Accumulated other comprehensive (loss) income in the Consolidated Balance Sheets. Foreign currency transaction gains and losses are included in Other income (expense), net in the Consolidated Statements of Income. Monetary assets and liabilities that are in a currency other than the Company's functional currency are translated to the functional currency at period-end, with changes in such amounts being reported as a component of Other income (expense), net in the Consolidated Statements of Income. 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 45 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) 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. 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 . Advertising costs are expensed as they are incurred and included in Marketing and sales in the Consolidated Statements of Income. Advertising expense for the years ended December 31, 2024, 2023 and 2022 was $ 105.3 million, $ 107.8 million and $ 107.1 million, respectively. Cost of Revenue and Operations. Cost of revenue and operations expense primarily consists of costs related to processing dealer vehicle inventory, product fulfillment, compensation costs for the product fulfillment and customer service teams and pay per lead products. 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. The Company’s contributions to its defined contribution plans for the years ended December 31, 2024, 2023 and 2022 were $ 6.4 million, $ 6.3 million and $ 5.5 million, respectively. Recently Issued Accounting Standards Not Yet Adopted . In November 2024, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2024-03, Income Statement Reporting Comprehensive Income Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses , which requires companies to provide more detailed and organized disclosures of their expenses in their income statements. The standard requires breaking down expenses into specific categories, such as employee compensation and costs related to depreciation and amortization. This amendment is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, on a prospective basis and early adoption and retrospective application is permitted. The Company is currently evaluating this new guidance and its impact on its Consolidated Financial Statements and related disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires presentation of specific categories of reconciling items, as well as reconciling items that meet a quantitative threshold, in the reconciliation between the income tax provision and the income tax provision using statutory tax rates. The standard also requires disclosure of income taxes paid disaggregated by jurisdiction with separate disclosure of income taxes paid to individual jurisdictions that meet a quantitative threshold. This amendment is effective for fiscal years beginning after December 15, 2024, on a prospective basis and early adoption and retrospective application are permitted. The Company is currently evaluating this new guidance and its impact on its Consolidated Financial Statements and related disclosures. Recently Adopted Accounting Standards. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"), which requires disclosure of significant segment expenses that are regularly reviewed by the chief operating decision maker and included within each reported measure of segment profit or loss. This amendment is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted. The Company adopted ASU 2023-07 retrospectively effective December 31, 2024. The adoption of this ASU affects only our disclosures, with no impacts to our financial condition or results of operations. For more information, see Note 15 (Segment Information). 46 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) Note 3. Business Combinations D2C Media Acquisition. On November 1, 2023, the Company acquired all of the outstanding stock of D2C Media Inc. and EZResults Inc. (collectively, the "D2C Media Acquisition"), a leading provider of website and digital advertising solutions in Canada for $ 80.1 million total purchase considera tion. The Company expensed as incurred total acquisition costs of $ 1.4 million during the year ended December 31, 2023. These costs were recorded in General and administrative expenses in the Consolidated Statements of Income. As part of the D2C Media Acquisition, the Company may be required to pay a cumulative cash earnout of up to an additional CAD$ 34.1 million (approximately US $ 23.8 million as of December 31, 2024 ), of which CAD $ 15.0 million (approximately US$ 10.8 million) and CAD$ 4.1 million (approximately US$ 3.0 million) was expensed during the years ending December 31, 2024 and 2023, respectively. The payment is not included in the total purchase consideration and is deemed compensation expense, as the potential cash compensation is to former equity holders who became employees and will be forfeited if employment is terminated prior to the end of the earnout period. The amount to be paid will be determined by the acquired business’ future achievement of certain revenue-related financial targets through December 31, 2025 and expensed over each performance period. The Company may expense up to CAD$ 15.0 million (approximately US$ 10.4 million as of December 31, 2024) associated with the remaining portion of the earnout for the year ending December 31, 2025. 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 D2C Media Acquisition purchase price allocation is as follows (in thousands): Acquisition-date Fair Value Total purchase consideration (1) $ 80,056 Cash and cash equivalents $ 3,673 Accounts receivable 4,640 Other assets acquired (2) 1,378 Identified intangible assets (3) 38,967 Total assets acquired 48,658 Accounts payable and accrued liabilities ( 1,698 ) Other liabilities assumed (1) (4) ( 628 ) Deferred tax liabilities, net (1) ( 8,230 ) Total liabilities assumed ( 10,556 ) Net identifiable assets 38,102 Goodwill (1) 41,954 Total purchase consideration $ 80,056 (1) During the year ended December 31, 2024, the Company recorded a $ 0.3 million purchase accounting adjustment, $ 0.2 million of which is reflected in Payments for acquisitions, net of cash acquired in the Consolidated Statements of Cash Flows. (2) Other assets acquired primarily consists of property and equipment, operating lease right of use assets and other prepaid expenses. (3) Information regarding the identifiable intangible assets acquired is as follows: Acquisition-Date Fair Value (in thousands) Amortization Period (in years) Customer relationships $ 29,153 14 Acquired software 9,092 5 Trade name 722 5 Total $ 38,967 (4) Other liabilities assumed primarily consists of operating lease right of use liabilities and income taxes payable. 47 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) A reconciliation of cash consideration to Payments for acquisitions, net of cash acquired related to the D2C Media Acquisition in the Consolidated Statements of Cash Flows as of December 31, 2023 is as follows (in thousands): Cash consideration $ 79,841 Less: Cash acquired ( 3,673 ) Total payment for D2C Media, net $ 76,168 Goodwill. In connection with the D2C Media Acquisition, the Company recorded goodwill in the amount of $ 42.0 million, which is primarily attributable to expected sales growth from existing and future customers, product offerings, technology and the value of the acquired assembled workforce. All of the goodwill is considered non-deductible for income tax purposes. The D2C Media Acquisition would have had an immaterial impact on the Company’s Consolidated Financial Statements for the year ended December 31, 2022. AccuTrade 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, "AccuTrade"), which provides dealers with VIN-specific vehicle valuation and appraisal data, instant offer capabilities and logistics technology (the "AccuTrade 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. 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 AccuTrade Acquisition purchase price allocation is as follows (in thousands): 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 AccuTrade Acquisition, the Company entered into an agreement to provide one of the former owners with a one-year license to a certain product. The 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 AccuTrade 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 was amortized into Other revenue on the Consolidated Statements of Income over the one-year contract term. The revenue related to the non-cash consideration of $ 0.9 million and $ 4.4 million for the years ended December 31, 2023 and 2022, respectively, is a non-cash reconciling item titled Amortization of deferred revenue related to AccuTrade Acquisition on the Consolidated Statements of Cash Flows. (2) As part of the AccuTrade 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 in accordance with a calculation based on future share prices. 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 48 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) 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 AccuTrade contingent consideration, see Note 4 (Fair Value Measurements). (3) Assets acquired primarily consist of accounts receivable. (4) 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 (5) Total liabilities assumed primarily consist of accounts payable. In connection with the AccuTrade 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. Note 4. Fair Value Measurements The Company's liabilities measured at fair value on a recurring basis consisted of the following (in thousands): Fair value measurement at reporting date As of December 31, 2024 Level 1 Level 2 Level 3 Contingent consideration $ 500 $ — $ — $ 500 Total $ 500 $ — $ — $ 500 Fair value measurement at reporting date As of December 31, 2023 Level 1 Level 2 Level 3 Contingent consideration $ 61,408 $ — $ — $ 61,408 Total $ 61,408 $ — $ — $ 61,408 The rollforward of the Level 3 contingent consideration from December 31, 2023 is as follows (in thousands): As of December 31, 2023 Payment of Contingent Consideration Fair Value Adjustment (1) As of December 31, 2024 Contingent consideration $ 61,408 $ ( 27,435 ) $ ( 33,473 ) $ 500 (1) Fair value adjustments on contingent considerations are reflected within Other income (expense), net in the Consolidated Statements of Income. The Company's contingent consideration obligations arise from acquisitions that involve a potential future payment of consideration that is contingent upon the achievement of certain financial or operational metrics. The contingent consideration is classified in the Consolidated Balance Sheets based on expected payment dates. As of December 31, 2024 , $ 0.5 million was included within Other accrued liabilities in the Consolidated Balance Sheets. As of December 31, 2023 , $ 25.8 million and $ 35.6 million were included within Other accrued liabilities and Other noncurrent liabilities, respectively, in the Consolidated Balance Sheets. For information related to the AccuTrade contingent consideration agreement, see Note 3 (Business Combinations). The Company expects to make the remaining payments on the contingent consideration in 2025. Note 5. Revenue 49 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) The Company's Consolidated Statements of Income provide disaggregated revenue information that reflects the nature, timing, amount and uncertainty of cash flows related to the Company's revenue. Substantially all revenue was generated and located within the U.S. The Company's disaggregated revenue information is as follows (in thousands): Year Ended December 31, 2024 2023 2022 Dealer $ 640,722 $ 621,661 $ 579,222 OEM and National 65,894 55,904 58,557 Other 12,536 11,618 16,097 Total revenue $ 719,152 $ 689,183 $ 653,876 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, 2022 $ 102,856 $ 390,020 Additions (1) 42,254 — Foreign currency translation adjustment 1,948 — December 31, 2023 $ 147,058 $ 390,020 Foreign currency translation adjustment ( 3,479 ) — Other adjustments (1) ( 300 ) — December 31, 2024 $ 143,279 $ 390,020 (1) In connection with the D2C Media Acquisition, the Company recorded goodwill in the amount of $ 42.0 million. The D2C Media Acquisition related goodwill was preliminary as of December 31, 2023, and was subject to an immaterial purchase accounting adjustment in 2024. For more information on the acquisitions, see Note 3 (Business Combinations). 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 specific facts and circumstances. 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 during any of the three years ending December 31, 2024, 2023 and 2022. Definite Lived Intangible Assets . The Company’s definite-lived intangible assets by major asset class are as follows (in thousands): December 31, 2024 December 31, 2023 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships $ 857,733 $ ( 687,163 ) $ 170,570 $ 864,344 $ ( 624,204 ) $ 240,140 Acquired software 82,386 ( 63,102 ) 19,284 83,138 ( 54,990 ) 28,148 Other trade names 26,941 ( 21,125 ) 5,816 27,001 ( 16,142 ) 10,859 Content library 2,100 ( 2,100 ) — 2,100 ( 2,100 ) — Total $ 969,160 $ ( 773,490 ) $ 195,670 $ 976,583 $ ( 697,436 ) $ 279,147 50 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) As of December 31, 2024, projected annual amortization expense for amortizable intangible assets is as follows (in thousands): 2025 $ 62,215 2026 40,806 2027 34,550 2028 28,372 2029 13,698 Thereafter 16,029 Total $ 195,670 Note 7. Debt Fifth Amendment to the Credit Agreement. On May 6, 2024, the Company amended and extended its existing Credit Agreement (the "Fifth Amendment") which resulted in a new $ 350.0 million Revolving Loan due in 2029. Upon closing, the Company borrowed $ 80.0 million under the new Revolving Loan to pay off and extinguish the outstanding $ 45.0 million in aggregate principal amount of existing Term Loan and $ 35.0 million in aggregate principal amount of existing Revolving Loan balances. This was a non-cash transaction predominantly amongst existing lenders in the Credit Agreement and therefore is not reflected within the Consolidated Statements of Cash Flows. Additionally, the Fifth Amendment, among other things, removed the Secured Overnight Financing Rate (SOFR) floor and replaced the financial covenant leverage test to Senior Secured Net Leverage from Senior Secured Leverage. Except as modified by the Fifth Amendment, the existing terms of the Credit Agreement, as amended, remain in effect. Revolving Loan. As of December 31, 2024, $ 290.0 million was available to borrow under the Revolving Loan, and the Company had $ 60.0 million of outstanding borrowings. The Company made $ 20.0 million in cash payments on the Revolving Loan during the year ended December 31, 2024. There we re no cash drawdowns during the period. The interest rate in effect as of December 31, 2024 was 6.5 %. The Company’s borrowings are limited by its Senior Secured Net Leverage Ratio and Consolidated Interest Coverage Ratio, which were 0.04 x and 6.5 x, respectively, as of December 31, 2024 and calculated in accordance with the Company's Credit Agreement. Term Loan. During the year ended December 31, 2024 , the Company made $ 10.0 million in Term Loan payments. In connection with the Fifth Amendment in May 2024, the Company borrowed amounts under the new Revolving Loan to fully repay the remaining outstanding principal amount under the Term Loan in a non-cash transaction. Senior Unsecured Notes. In October 2020, the Company issued $ 400.0 million aggregate principal amount of 6.375 % Senior Unsecured Notes due in 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 $ 7.7 million and $ 8.1 million as of December 31, 2024 and 2023, 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. 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 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, 2024, 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, 51 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) 2024, 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): 2025 $ — 2026 — 2027 — 2028 400,000 2029 60,000 Thereafter — Total $ 460,000 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. The Swap expired on May 31, 2022 and, as such, is no longer recorded on the Consolidated Balance Sheets. During the year ended December 31, 2022, $ 2.4 million was reclassified from Accumulated other comprehensive (loss) income and recorded in Interest expense, net, respectively. During the year ended December 31, 2022, the Company made payments of $ 3.3 million related to the Swap. During the year ended December 31, 2022, $ 0.4 million was reclassified as a tax benefit from Accumulated other comprehensive (loss) income into Income tax expense (benefit) on the Consolidated Statements of Income. 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. In November 2024, the Company amended the lease, which resulted in a reduction of its office space by 67 %, extension of the lease term from June 2031 to June 2036 for the remaining portion, and paid a termination penalty of $ 10.5 million. This was accounted for as a lease modification. Monthly rental payments under the lease escalate by 2.5 % each year through June 2031 , then by 1.5 % each year through the remainder of the lease. As a result of this lease modification, and the commencement of a separate lease, the Company recognized $ 4.7 million of right of use assets obtained in exchange for lease obligations during the year ended December 31, 2024. As of December 31, 2024, 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): 2025 $ 5,257 2026 3,527 2027 2,033 2028 2,085 2029 1,993 Thereafter 12,365 Total minimum lease payments 27,260 Less: Imputed interest (1) ( 6,630 ) Present value of the minimum lease payments 20,630 Less: Current maturities of lease obligations ( 4,085 ) Long-term lease obligations $ 16,545 52 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) (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 the lease commencement, modification or acquisition date. As of December 31, 2024 and 2023 , the Company’s operating lease assets, included in Investments and other assets , net, were $ 16.8 million and $ 13.0 million, respectively, and operating lease liabilities were $ 20.6 million and $ 27.6 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 related to the lease in Chicago, Illinois. Other information related to the Company’s operating leases for the years ended December 31, 2024, 2023 and 2022 is as follows (in thousands, except months and percentages): Year Ended December 31, Income statement information: 2024 2023 2022 Operating lease cost $ 2,986 $ 3,035 $ 2,993 Short-term lease cost 66 79 137 Variable lease cost 4,443 3,461 3,443 Total lease cost $ 7,495 $ 6,575 $ 6,573 Other information: Cash paid for amounts included in the measurement of operating lease liabilities (1) $ 14,790 $ 3,672 $ 4,470 Weighted-average remaining lease term (in months) 130 89 101 Weighted-average discount rate as of December 31, 6.4 % 7.5 % 7.5 % (1) The year ended December 31, 2024 includes a termination penalty of $ 10.5 million related to the lease amendment. Note 10. Commitments and Contingencies From time to time, the Company and its subsidiaries may become involved in actions, claims, suits or other legal or administrative proceedings arising in the ordinary course of business. 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 commitments and contingencies 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 of liability, if any. It is not possible to predict the outcome of these proceedings or the range of reasonably possible loss. The Company does not expect, based on circumstances currently known, that the ultimate resolution of any of these proceedings will have, either individually or in the aggregate, a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. Note 11. Stockholders' Equity In February 2022, the Company's Board of Directors authorized a three-year share repurchase program to acquire up to $ 200.0 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. 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 specific amount or number of shares. The Company funds the share repurchase program principally with cash from operations. During the year ended December 31, 2024 , the Company repurchased and subsequently retired 2.8 million shares for $ 49.2 million at an average price paid per share of $ 17.72 . 53 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) 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, 2024 , there were 2.8 million common shares available for future grants. The Company issues new shares of 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, 2024 2023 2022 Stock-based compensation expense $ 30,553 $ 28,491 $ 22,342 Income tax benefit related to stock-based compensation expense 5,138 4,505 — Stock-based compensation expense by financial statement line item on the Company’s Consolidated Statements of Income is as follows (in thousands): Year Ended December 31, 2024 2023 2022 Cost of revenue and operations $ 871 $ 1,487 $ 955 Product and technology 10,684 8,814 6,647 Marketing and sales 5,381 5,740 4,921 General and administrative 13,617 12,450 9,819 Total $ 30,553 $ 28,491 $ 22,342 For each of the years ended December 31, 2024 and 2023 , $ 0.3 million of capitalized internally developed technology costs is excluded from stock-based compensation expense. Information related to outstanding stock-based compensation awards as of December 31, 2024 for restricted share units ("RSUs"), performance share units ("PSUs"), stock options and the Cars Commerce 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 $ 33,397 1.8 PSUs 6,939 2.3 Stock Options 137 0.2 ESPP 327 0.4 Total $ 40,800 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 year to three years and the fair value of the RSUs is equal to the Company's common stock price on the date of grant. RSU activity for the year ended December 31, 2024 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, 2023 3,725 $ 15.67 Granted 1,971 17.19 Vested and delivered ( 1,589 ) 15.41 Forfeited ( 470 ) 16.36 Outstanding as of December 31, 2024 (1) 3,637 $ 16.52 54 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) (1) Includes 376 RSUs that were vested, but not yet delivered. The weighted-average grant-date fair value of RSUs granted during the years ended December 31, 2023 and 2022 was $ 16.72 and $ 14.21 , respectively. The total grant-date fair value of RSUs that vested during the years ended December 31, 2024, 2023 and 2022 was $ 24.5 million, $ 19.1 million and $ 16.9 million, respectively. Performance Share Units ("PSUs"). 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, or cumulative adjusted net income per share targets over a two-year or 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, 2024 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, 2023 512 $ 15.66 Granted 419 17.23 Vested and delivered — — Forfeited — — Outstanding as of December 31, 2024 931 $ 16.37 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, 2024 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, 2023 1,067 $ 6.28 6.98 $ 9,096 Granted — — — — Exercised — — — — Forfeited — — — — Outstanding as of December 31, 2024 1,067 6.28 5.98 7,346 Exercisable as of December 31, 2024 804 5.27 5.57 6,751 There were no stock options granted during the years ending December 31, 2024 and 2023 . The fair value of the stock options granted during the year ended December 31, 2022 were estimated on the grant date using the Black-Scholes option pricing model, using the following assumptions: 2022 Risk-free interest rate 2.21 % Weighted-average volatility 65.22 % Dividend yield 0 % Expected years until exercise 6.5 55 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) 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 Commerce common stock at a purchase price per share equal to 85 % of the lower of (i) the closing market price per share of Cars Commerce 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, 2024 , 1.7 million shares were available for issuance under the ESPP. The Company issued 0.2 million, 0.2 million and 0.2 million shares related to the ESPP and recorded $ 0.7 million, $ 0.8 million and $ 0.6 million of stock-based compensation expense related to the ESPP for the years ended December 31, 2024, 2023 and 2022 , respectively. Note 13. Earnings Per Share Basic earnings per share is calculated by dividing Net income by the weighted-average number of shares of the Company's common stock outstanding. Diluted earnings 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 AccuTrade Acquisition, the Company may pay up to $ 15.0 million of the contingent consideration in shares of the Company's common 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 computation of Earnings per share is as follows (in thousands, except per share amounts): Year Ended December 31, 2024 2023 2022 Net income (1) $ 48,188 $ 118,442 $ 17,206 Basic weighted-average common shares outstanding 66,006 66,742 68,215 Effect of dilutive stock-based compensation awards (2) 1,381 1,485 1,434 Diluted weighted-average common shares outstanding 67,387 68,227 69,649 Earnings per share, basic (1) $ 0.73 $ 1.77 $ 0.25 Earnings per share, diluted (1) 0.72 1.74 0.25 (1) During the year ended December 31, 2023 the Company released a significant portion of its valuation allowance for deferred tax assets that had been recorded as a result of the 2020 goodwill and indefinite-lived intangible asset impairments. For more information, see Note 14 (Income Taxes). (2) There were 31 , 290 and 2,033 potential common shares excluded from diluted weighted-average common shares outstanding for the years ended December 31, 2024, 2023 and 2022 , 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 before income taxes are as follows (in thousands): Year Ended December 31, 2024 2023 2022 U.S. $ 71,659 $ 20,917 $ 22,533 Non-U.S. ( 9,796 ) ( 2,812 ) 43 Income before income taxes $ 61,863 $ 18,105 $ 22,576 56 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) Year Ended December 31, 2024 2023 2022 Current: U.S. federal $ ( 609 ) $ 11,603 $ 2,991 U.S. state and local 1,198 2,289 1,122 Non-U.S. 1,192 269 ( 26 ) Total current income tax expense 1,781 14,161 4,087 Deferred: U.S. federal 12,210 ( 95,298 ) 579 U.S. state and local 533 ( 19,034 ) 671 Non-U.S. ( 849 ) ( 166 ) 33 Total deferred income tax expense (benefit) 11,894 ( 114,498 ) 1,283 Income tax expense (benefit) $ 13,675 $ ( 100,337 ) $ 5,370 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, 2024 2023 2022 $ % $ % $ % Income tax provision at statutory rate $ 12,991 21.0 % $ 3,803 21.0 % $ 4,743 21.0 % State income taxes, net of federal income tax expense 2,182 3.5 148 0.8 1,122 5.0 Nondeductible transaction expenses 2,086 3.4 461 2.5 ( 2,608 ) ( 11.6 ) Nondeductible executive compensation 2,008 3.2 2,771 15.3 1,974 8.7 Uncertain tax positions 1,216 2.0 1,070 5.9 ( 4,042 ) ( 17.9 ) Stock-based compensation ( 638 ) ( 1.0 ) ( 2,859 ) ( 15.8 ) ( 1,432 ) ( 6.3 ) Return to provision adjustments ( 1,066 ) ( 1.7 ) ( 2,972 ) ( 16.4 ) 4,627 20.5 Valuation allowance ( 2,318 ) ( 3.7 ) ( 101,182 ) ( 558.9 ) 1,194 5.3 Tax credits ( 3,300 ) ( 5.3 ) ( 2,462 ) ( 13.6 ) ( 1,455 ) ( 6.4 ) Other, net 514 0.7 885 5.0 1,247 5.5 Income tax expense (benefit) $ 13,675 22.1 % $ ( 100,337 ) ( 554.2 ) % $ 5,370 23.8 % Deferred Tax Assets, Liabilities and Valuation Allowance. The Company has recorded deferred tax assets related to federal and state income tax net operating loss ("NOL") carryforwards of approximately $ 2.9 million and $ 2.4 million as of December 31, 2024 and 2023, respectively. These federal NOLs, and certain state NOLs, can be carried forward indefinitely. The Company has also recorded deferred tax assets related to federal and state research and development ("R&D") tax credit carryforwards of $ 1.9 million and $ 1.2 million as of December 31, 2024 and 2023 , 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. During 2023, the Company released a significant portion of the valuation allowance that had been previously recorded against its deferred tax assets. In connection with the sale of the Company’s RepairPal equity investment during 2024, the Company released its remaining portion of the valuation allowance. As a result, the Company has no valuation allowance recorded as of December 31, 2024. For more information on the sale, see Note 2 (Significant Accounting Policies). 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, 2024 2023 Deferred income tax liabilities: Indefinite lived intangibles $ ( 24,161 ) $ ( 14,203 ) Property and equipment ( 7,309 ) — Right of use assets ( 4,227 ) ( 3,274 ) Other ( 1,402 ) — Total deferred tax liabilities $ ( 37,099 ) $ ( 17,477 ) Deferred income tax assets: Goodwill $ 55,947 $ 73,172 Capitalized research and development costs 28,677 24,818 Definite lived intangibles 15,204 2,596 Accrued compensation 11,961 12,006 Lease obligations 7,812 6,941 Interest expense limitation carryforward 6,442 — NOL and tax credit carryforwards 4,813 3,603 Other — 855 Total deferred tax assets 130,856 123,991 Less: Valuation allowance — ( 2,318 ) Net deferred tax asset $ 93,757 $ 104,196 The deferred tax assets and liabilities recognized in the Company’s Consolidated Balance Sheets as of December 31, 2024 and 2023 were as follows (in thousands): December 31, 2024 2023 Investments and other assets, net $ 100,530 $ 112,953 Other noncurrent liabilities ( 6,773 ) ( 8,757 ) Net deferred tax asset $ 93,757 $ 104,196 Uncertain Tax Positions. A summary of the Company’s uncertain tax positions is as follows (in thousands): Year Ended December 31, 2024 2023 Balance as of January 1 $ 3,477 $ 2,553 Additions based on tax positions related to the current year 680 620 Additions for tax positions of prior years 408 304 Reductions for tax positions of prior years ( 264 ) — Balance as of December 31 $ 4,301 $ 3,477 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 an immaterial amount. The Company has recorded its best estimate of the potential exposure for these issues. As of December 31, 2024 and 2023 , the Company had $ 4.3 million and $ 2.4 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, 2018. Note 15. Segment Information 58 Cars.com Inc. Notes to Consolidated Financial Statements (Continued) Operating segments are components of an enterprise where separate financial information is available that is evaluated regularly by the chief operating decision maker (the "CODM"), or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s CODM is the Cars Commerce Chief Executive Officer . The CODM makes resource allocation decisions to maximize the Company’s consolidated financial results. No asset information is provided to the CODM. For the years ended December 31, 2024, 2023 and 2022 , the Company had one operating and reportable segment. The Company's significant segment expenses are as follows: Year Ended December 31, 2024 2023 2022 Revenue: Dealer $ 640,722 $ 621,661 $ 579,222 OEM and National 65,894 55,904 58,557 Other 12,536 11,618 16,097 Total revenue 719,152 689,183 653,876 Operating expenses: Employee expense (1) 237,943 227,047 204,080 Marketing and advertising 112,134 116,766 113,020 Direct costs 86,506 84,024 79,970 Hardware, software and supplies 30,949 26,002 23,605 Stock-based compensation 30,553 28,491 22,342 Depreciation and amortization 107,182 101,000 94,394 Other (2) 60,387 51,737 50,429 Total operating expenses 665,654 635,067 587,840 Operating income 53,498 54,116 66,036 Nonoperating income (expense), net 8,365 ( 36,011 ) ( 43,460 ) Income before income taxes 61,863 18,105 22,576 Income tax expense (benefit) 13,675 ( 100,337 ) 5,370 Net income $ 48,188 $ 118,442 $ 17,206 (1) Employee expense excludes stock-based compensation, which is shown separately, and earnout compensation related to the D2C Media Acquisition, which is included in Other. (2) Other primarily includes total lease cost, utilities, consulting and professional fees, earnout compensation related to the D2C Media Acquisition and travel and expense, training and conferences. For more information on the D2C Media earnout, see Note 3 (Business Combinations). For the years ended December 31, 2024, 2023 and 2022 , 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. Note 16. Subsequent Events DealerClub Acquisition. In January 2025, the Company acquired all of the outstanding stock of DealerClub, Inc. ("DealerClub"), an emerging dealer-to-dealer digital wholesale auction platform that facilitates transparent and efficient transactions between automotive dealers. Cash consideration for the transaction will be approximately $ 25.3 million at closing and funded with cash on hand. There is also the potential for additional performance-based consideration of up to $ 88.0 million through 2028, which may be paid in cash or stock. The amount to be paid will be based on achievement of certain financial thresholds. Share Repurchase Program. In February 2025, the Company's Board of Directors authorized a share repurchase program to acquire up to $ 250.0 million of the Company's common stock over a three-year period. The repurchase program may be suspended or discontinued at any time and does not obligate the Company to repurchase any specific amount or number of shares. 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 its blackout periods. The Company intends to fund the share repurchase program principally with cash from operations. 59 Item 9. Changes in and Disagreements With Accou ntants on Accounting and Financial Disclosure. None.