What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-25 compared with 2020-02-26 · 215 added, 268 removed, 187 unchanged (72% of the section changed)

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 and Combined Financial Statements and related notes included elsewhere in this Annual Report on Form 10-K.

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.

The financial information discussed below and included elsewhere in this Annual Report on Form 10-K may not necessarily reflect what our financial condition, results of operations and cash flows would have been had we been a stand-alone company during the applicable periods presented or what our financial condition, results of operations and cash flows may be in the future.

References in this discussion and analysis to “CARS”, “we,” “us,” “our” and similar terms refer to Cars.com Inc.

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Business Overview.

We are a leading digital marketplace and solutions provider for the automotive industry that connects car shoppers with sellers and original equipment manufacturers (“OEM”s).

Our marketplace empowers shoppers with the resources and information to make confident car buying decisions while our digital solutions and technology platform help sellers improve operational efficiency, profitability and sales.

Our portfolio of brands includes Cars.com, Dealer Inspire and DealerRater, in addition to Auto.com, PickupTrucks.com and NewCars.com.

In May 2017, we separated from our former parent company, TEGNA Inc.

(“TEGNA”) by means of a spin-off of a newly formed company, Cars.com Inc., which now owns TEGNA’s former digital automotive marketplace business (the “Separation”).

Our common stock began trading “regular way” on the New York Stock Exchange on June 1, 2017.

In February 2018, the Company acquired all of the outstanding stock of Dealer Inspire, Inc.

and substantially all of the net assets of Launch Digital Marketing LLC (the “DI Acquisition”).

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

Through our marketplace, dealer websites and other digital products, we showcase dealer inventory, elevate and amplify dealers’ and automotive manufacturers (“OEMs”) brands, connect sellers with our ready-to-buy audience and empower shoppers with the resources and information needed to make confident car buying decisions.

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

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

Overview of Results.

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Wholesale revenue as % of total revenue

The net loss for the year ended December 31, 2019 is primarily attributed to the $427.3 million (net of tax benefit of $34.2 million) goodwill and indefinite-lived intangible asset impairment.

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

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

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

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

These increases were partially offset by the prior year impacts of $5.6 million, primarily related to the Separation and $3.6 million related to the move to our new corporate headquarters location.

The year ended December 31, 2017 includes the impact of incremental costs of being a public company upon our separation from TEGNA.

2020 and Recent Highlights.

Fourth Quarter Dealer Count Growth.

In the fourth quarter of 2019, dealer customers grew by almost 200 to 18,834 as of December 31, 2019, as compared with 18,635 as of September 30, 2019.

This increase was a result of improved retention rates as well as growth in new dealer customers added during the fourth quarter.

We experienced growth in both local dealer customers and our solutions-only customers.

Increases in Traffic.

Traffic is critical to our business.

Traffic to the CARS network of websites and mobile apps provides value to our advertisers in terms of audience, awareness, consideration and conversion.

Traffic provides an indication of our consumer reach.

Although our consumer reach does not directly result in revenue, we believe our ability to reach in-market car shoppers is attractive to our dealers and national advertisers.

Although our consumer reach does not directly result in material revenue to our business, we believe our ability to reach in-market car shoppers is attractive to our dealers and national advertisers.

We have been diligently focused on growing our audience, the fundamental deliverable of any marketplace business.

In 2019, we had record SEO Traffic growth.

During this period, we achieved 24% growth in Traffic and 21% growth in Average Monthly Unique Visitors.

Driven by our product innovations and investments in and efficiencies gained in search engine optimization,

brand awareness and paid channels, we have experienced consistent year-over-year Traffic growth since January 2018, and in August 2019 we recorded the highest-trafficked month in our history and subsequently broke that record in January 2020.

In addition, we have been increasing our share of unique visitors throughout 2019.

New OEM Agreement.

In 2019, we were selected as a preferred website provider to General Motors (“GM”).

Driven by our brand strength, organic search rankings growth, paid media efficiencies, and a shift from in-person to virtual automobile research and shopping, Average Monthly Unique Visitors grew 5% and total traffic grew 8% in 2020 compared to the prior year.

Organic traffic was 73% of total traffic and grew 10% year-over-year.

This is a testament to the consistent, high-quality audience that we deliver to our dealer customers.

Although we experienced strong traffic in 2020, given the unknown duration and economic uncertainty related to the COVID-19 pandemic and related restrictions, competitive spending, and reduced consumer spending, the impact of these external factors on our traffic is uncertain in 2021.

Dealer Customers.

In the fourth quarter of 2020, Dealer Customers increased by 242, or 1%, to 18,372 as of December 31, 2020, as compared with 18,130 as of September 30, 2020.

This increase was a result of new sales of marketplace and digital solutions customers supported by continued strong retention rates.

Given the unknown duration and economic uncertainty related to the COVID-19 pandemic and related restrictions and reduced consumer spending, we are uncertain as to how this may impact our Dealer Customers for 2021 and beyond.

Launched in 2020, FUEL is a digital video solution that provides dealers and OEMs with the opportunity to reach our in-market car shopping audience of over 20 million monthly shoppers on their screen of choice via social media platforms and streaming

FUEL leverages our high-quality, in-market audience data to pinpoint serious ready-to-buy shoppers.

We believe this targeted approach drives high advertising efficiency for FUEL customers , which compares favorably to expensive or high-cost broadcast television.

We began generating FUEL revenue in the first quarter of 2020.

Digital solutions OEM agreement .

In 2019, we were selected as one of four preferred website providers to General Motors (“GM”).

This allowed us to begin selling our website solutions to more than 4,100 GM dealers.

This program is non-exclusive and provides GM dealers a choice in provider for the first time in 15 years.

Currently in the pilot phase, we expect to launch websites for GM customers in 2020.

This new agreement provides us with the opportunity to substantially increase our current website customer base, which was approximately 3,200 as of December 31, 2019.

Affiliate Conversions.

As of October 1, 2019, we have successfully converted all affiliates to our direct control.

We amended five of our affiliate agreements (Gannett, the McClatchy Company (“McClatchy”), TEGNA, tronc, Inc.

(“tronc”), and the Washington Post).

The Belo affiliate agreement expired on October 1, 2019.

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

Beginning July 2020, upon the expiration of the affiliate agreements, we will realize incremental Free Cash Flow, as we will no longer be required to make any further payments to the affiliates under these agreements.

Free Cash Flow is defined as net cash provided by operating activities less capital expenditures, including purchases of property and equipment and capitalization of internal-use software and website development costs.

For information related to the Unfavorable contracts liability, see Note 7 (Unfavorable Contracts Liability) to the accompanying Consolidated and Combined Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Credit Agreement Amendment.

In October 2019, we entered into an amendment to our Credit Agreement to increase the total net leverage covenant during the remaining term of the Credit Agreement while preserving the favorable pricing structure from the original agreement.

The amendment increases our maximum total net leverage ratio from 3.75x to 4.50x with incremental step downs through maturity on May 31, 2022.

Completion of Strategic Alternatives Review.

In August 2019, we announced the conclusion of the strategic alternatives review process first announced on January 16, 2019.

The strategic alternatives review process was public, comprehensive and deliberate, lasting ten months.

After extensive negotiations and discussions, no actionable proposals for a sale were available to us.

As a result, our Board of Directors unanimously concluded that the best interests of our stockholders are served by continuing to focus on the execution of our strategic plan and opportunities to drive growth and stockholder returns as an independent public company.

We remain open to all potential value-creating opportunities.

This program is semi-exclusive and provides GM dealers a choice in provider for the first time in 15 years.

We launched approximately half of the 800+ GM websites secured as part of this endorsement during 2020.

This agreement provides us with the opportunity to substantially increase our current website customer base, which was approximately 4,400 as of December 31, 2020.

Technology Transformation.

In February 2019, we announced a restructuring of the product and technology teams (the “Technology Transformation”).

This restructuring is primarily focused on shifting our technology spend towards innovation to improve our speed of product delivery, to enable integration across current and future systems, and to migrate our systems to the cloud.

In connection with the Technology Transformation, we have aligned our product and technology teams with our long-term growth strategy to expand beyond listings to a digital solutions marketplace.

As part of this process, we have streamlined the existing teams as we modernize our technology platform and invest in a more efficient cloud-based infrastructure focused on machine learning, product innovation and growth.

Further, we expect to achieve cost efficiencies upon completion of the Technology Transformation.

Sales Transformation.

In December 2018, we restructured the sales team (the “Sales Transformation”), with the primary goal of better serving our customers.

We reorganized the sales force into teams designed to provide the full range of enhanced services to current customers and a more tailored structure to win new customers.

These changes reflect the expansion of our business beyond car listings to include value-added digital solutions such as innovations from Dealer Inspire and DealerRater.

The Sales Transformation also reflects a realignment of territories following the conversion of the affiliate agreements.

In February 2019, we announced a restructuring of the product and technology teams, which primarily focused on shifting our technology spend towards innovation to improve our speed of product delivery, to enable integration across current and future systems, and to migrate our systems to the cloud (the “Technology Transformation”).

In connection with the Technology Transformation, we aligned our product and technology teams with our long-term growth strategy to expand beyond listings to a digital solutions marketplace.

As part of this process, we streamlined the existing teams as we modernize our technology platform and invest in a more efficient cloud-based infrastructure focused on machine learning, product innovation and growth.

Although the impact of the COVID-19 pandemic and related restrictions has elongated our timeline for the completion of the Technology Transformation, we have achieved cost efficiencies and expect to achieve further efficiencies upon completion in 2021.

Bond Offering and Credit Agreement Amendment.

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

We used the net proceeds from the offering, together with cash on hand, to repay $235.0 million of borrowings under our Revolving Credit Facility, repay $162.8 million of borrowings under our Term Loan and pay fees associated with the offering and refinancing.

In October 2020, we entered into an amendment (the “Third Amendment”) to the Credit Agreement, in which we refinanced an aggregate principal amount of $430.0 million, comprised of $230.0 million of a Revolving Credit Facility and $200.0 million of a Term Loan, with a revised maturity date of May 31, 2025.

The Third Amendment also includes the following:

A maximum senior secured leverage ratio of 3.50x, with a temporary step up for material permitted acquisitions;

A minimum interest coverage ratio of 2.75x, with a step up to 3.00x on June 30, 2023;

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

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

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

Ended the covenant adjustment period that was implemented pursuant to the amendment entered into in June 2020 (the “Second Amendment”) and removed the related minimum liquidity requirement and anti-cash hoarding covenant.

As of December 31, 2020, our liquidity was $297.7 million including cash and cash equivalents and availability under the Revolving Credit Facility .

Impact of COVID-19 on our business.

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

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

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

The pandemic has adversely affected our business, financial condition, liquidity and operating results for the year ended December 31, 2020.

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

In the second quarter of 2020, we took numerous significant actions to mitigate the expected impact to our business as a result of the COVID-19 pandemic and related restrictions.

These actions included providing, among other measures, financial relief in the form of certain invoice credits of 50% in April, 30% in May and 30% in June 2020 to our dealer customers.

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

Invoice credits ended at the end of June, and we have since returned to normalized pricing.

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

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

consumers are shopping from home and consider their car an extension of their home .

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

The future effects of the COVID-19 pandemic and related restrictions still remain relatively unknown and depend on factors outside of our control.

However, we believe our marketplace, advertising and digital solutions were critical in helping our customers navigate the challenges of the pandemic and related restrictions through December 31, 2020, and we believe our solutions will continue to be important tools to our customers in the future and, in particular, any potential future impacts of the pandemic and related restrictions.

Key Operating Metrics.

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Year Ended December 31,

Traffic (Visits)

Average Monthly Unique Visitors

Direct Monthly Average Revenue Per Dealer (1)

Beginning in the first quarter of 2019, this key operating metric includes revenue from dealer websites and related digital solutions.

Direct Monthly Average Revenue Per Dealer - Annual

Information regarding our Dealer Customers is as follows:

As of December 31,

December 31, 2020

December 31, 2019

September 30, 2020

Dealer Customers

Direct Monthly Average Revenue Per Dealer - Quarterly

Traffic (Visits).

Traffic is critical to our business.

Traffic is fundamental to our business.

Traffic to the CARS network of websites and mobile apps provides value to our advertisers in terms of audience, awareness, consideration and conversion.

In addition to tracking traffic volume and sources, we monitor activity on our properties, allowing us to innovate and refine our consumer-facing offerings.

Traffic is defined as the number of visits to CARS desktop and mobile properties (responsive sites and mobile apps), using Adobe Analytics.

Traffic is defined as the number of visits to CARS desktop and mobile properties (responsive sites and mobile apps), measured using Adobe Analytics.

Traffic does not include traffic to Dealer Inspire websites.

Visits refers to the number of times visitors accessed CARS properties during the period, no matter how many visitors make up those visits.

Traffic provides an indication of our consumer reach.

Although our consumer reach does not directly result in revenue, we believe our ability to reach in-market car shoppers is attractive to our dealer customers and national advertisers.

The growth in Traffic was driven by our product innovations and investments in and efficiencies gained in search engine optimization, brand awareness and paid channels.

We believe the growth in Traffic was driven by our brand strength, heightened consumer demand and a gravitation towards online marketplaces, particularly in the second and third quarter of 2020, and a focus on driving high quality organic traffic, all of which supported our traffic and lead growth.

For the years ended December 31, 2020 and December 31, 2019, mobile traffic accounted for 75% and 72% of total Traffic, respectively.

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We measure UVs using Adobe Analytics.

The growth in UVs was driven by the same factors as our traffic growth, our product innovations and investments in and efficiencies gained in search engine optimization, brand awareness and paid channels.

The growth in UVs was driven by the same factors as our traffic growth, our brand strength, heightened consumer demand and a gravitation towards online marketplaces, particularly in the second and third quarter of 2020, and a focus on driving high quality organic traffic, all of which supported our growth in UVs.

Average Revenue Per Dealer (“ARPD”).

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

We define ARPD as Direct retail revenue during the period divided by the average number of direct Dealer Customers during the same period.

Beginning the first quarter of 2019, this key operating metric includes revenue from dealer websites and related digital solutions.

ARPD prior to the first quarter of 2019 has not been recast to include Dealer Inspire as it would be impracticable to do so.

ARPD decreased 2% from September 30, 2019, primarily driven by upsell cancellations and dealer churn.

ARPD increased 4% from December 31, 2018, primarily driven by the addition of dealer websites and related digital solutions, as 2018 ARPD did not include these revenue sources.

ARPD excluding revenue from dealer websites and related digital solutions was $2,070, down 1% from the prior year.

We define ARPD as Direct retail revenue during the period divided by the monthly average number of direct Dealer Customers during the same period.

ARPD for the quarter increased 4% from September 30, 2020 and 6% from December 31, 2019, primarily driven by increases in FUEL revenue in the fourth quarter of 2020.

ARPD for the year decreased 8% from December 31, 2019, primarily due to the second quarter 2020 invoice credits provided to our customers as a result of the COVID-19 pandemic and related restrictions.

Dealer Customers .

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Total Dealer Customers increased 1% from September 30, 2020.

Dealer Customers increased, primarily due to growth in direct local dealer customers, reflecting improved retention rates and a s tabilization in cancel l ation rates.

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

Total Dealer Customers declined 2% from December 31, 2019.

Dealer Customers decreased, primarily due to higher cancellations of marketplace customers, in particular in the first half of 2019, partially offset by growth in digital solutions customers.

This decrease was primarily due to lower new dealer customer sales and higher cancellations of marketplace customers in the second quarter of 2020, principally due to the COVID-19 pandemic and related restrictions.

This decrease was partially offset by growth in the other three quarters of the year.

Factors Affecting Our Performance.

Our business is impacted by the ever-changing larger automotive environment, including consumer demand and other macroeconomic factors, and changes related to automotive digital advertising solutions.

We have observed softness in new car sales in the United States and reduced dealer profitability, which has impacted OEMs’ and dealerships’ willingness to increase spend with automotive marketplaces like Cars.com.

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

We are adapting our go-to-market sales and technology infrastructure, as described in the Sales and Technology Transformations discussions above, to support the execution of our strategy.

Our business is impacted by the changes in the larger automotive environment, including consumer demand and other macroeconomic factors, and changes related to automotive digital advertising.

Changes in vehicle sales volumes in the United States and reduced dealer profitability also influence OEMs’ and dealerships’ willingness to increase spend with automotive marketplaces like Cars.com.

Beginning in the later part of March 2020, with the onset of the COVID-19 pandemic and related restrictions, we observed decreased vehicle sales and dealer profitability.

However, in the second half of 2020, we observed a trend toward increased dealer profitability, driven by reduced inventory levels, due to manufacturer shutdowns caused by the COVID-19 pandemic and related restrictions, as well as accelerated dealer adoption of digital solutions and increased consumer demand.

Our success depends in part on our ability to continue to offer our customers a multi-faceted suite of digital solutions that complement our advertising offerings and our ability to navigate the impact of the COVID-19 pandemic and related restrictions.

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 consumers are shopping from home.

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

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

Results of Operations.

For both comparative tables below, the year ended December 31, 2018 has been reclassified to conform to the current year presentation.

There is no change to Operating (loss) income as a result of these reclassifications.

No such adjustments were required for the year ended December 31, 2017.

For further information, see Note 2 (Significant Accounting Policies) to the accompanying Consolidated and Combined Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

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

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Total operating expenses

Operating (loss) income

Nonoperating (expense) income:

Operating loss

Nonoperating expense:

Interest expense, net

Other income, net

Other (expense) income, net

Total nonoperating expense, net

(Loss) income before income taxes

Income tax (benefit) expense

Net (loss) income

Loss before income taxes

Income tax benefit

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Retail Revenue—Direct .

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

Direct revenue is our largest revenue stream, representing 78.6% and 69.1% of total revenue for the years ended December 31, 2019 and 2018, respectively.

Direct revenue increased by $19.4 million, or 4%, compared to the prior year.

As of October 1, 2019, we have successfully converted all affiliates to our direct control, and will no longer have wholesale revenue.

We amended five of our affiliate agreements (Gannett,

McClatchy, TEGNA, tronc, and the Washington Post).

The Belo affiliate agreement expired on October 1, 2019.

We now have a direct relationship with all dealer customers and recognize the revenue associated with converted dealer customers as Retail revenue, rather than Wholesale revenue, in the Consolidated and Combined Statements of (Loss) Income.

During the year ended December 31, 2019, the affiliate market conversions contributed an incremental $52.5 million to Direct revenue measured at the month of each of the conversions, while reducing Wholesale revenue by $39.2 million (of which $5.1 million relates to the Unfavorable contracts liability amortization).

For information related to the affiliate market conversions, see Note 7 (Unfavorable Contracts Liability) to the accompanying Consolidated and Combined Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Also included in Retail Revenue – Direct is dealer websites and related digital solutions and digital marketing services, which grew 45% year over year or 25% on a pro forma basis, for the year ended December 31, 2019, as compared to the year ended December 31, 2018.

These increases were partially offset by a 5% decline in direct dealer customers from December 31, 2018.

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

Direct revenue is our largest revenue stream, representing 84.6% and 78.6% of total revenue for the years ended December 31, 2020 and 2019, respectively, and decreased by $14.1 million, or 3%, compared to the prior year.

As of October 2019, we have successfully converted all affiliates to our direct control, and no longer have wholesale revenue.

Excluding the fourth quarter for both periods, as the last affiliate market conversions occurred on October 1, 2019, the affiliate market conversions contributed an incremental $32.1 million to Direct revenue for the year ended December 31, 2020, as compared to the same period in the prior year.

For information related to the affiliate market conversions, see Note 7 (Unfavorable Contracts Liability) to the accompanying Consolidated Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

The overall decrease was primarily due to the second quarter impact of the COVID-19 pandemic and related restrictions, during which we provided invoice credits to our dealer customers and experienced a decline in dealer customers.

This was partially offset by an increase in revenue from the affiliate conversions and growth in digital solutions and FUEL.

Retail Revenue—National Advertising .

National advertising revenue consists of display advertising and other solutions sold to OEMs, advertising agencies and automotive adjacencies.

National advertising revenue consists of display advertising and other solutions sold to OEMs, advertising agencies and automotive dealer customers.

National advertising revenue represents 13.4% and 13.3% of total revenue for the years ended December 31, 2020 and 2019, respectively.

National advertising revenue declined 23%, as OEMs reduced their full year 2019 upfront commitments, reduced their advertising budgets and shifted their spending to programmatic.

Incremental sales to OEMs have been lower in volume and rate.

National advertising revenue declined 9%, primarily due to higher cancellations, principally due to the COVID-19 pandemic and related restrictions.

Wholesale Revenue .

Wholesale revenue represents the fees we charge for marketplace and digital solutions sold to dealer customers by affiliates.

The fees represent approximately 60% of the retail value for the same marketplace subscription advertising sold by our direct sales team.

Wholesale revenue represents 5.7% and 12.5% of total revenue for the years ended December 31, 2019 and 2018, respectively.

Wholesale revenue decreased 59%, primarily due to affiliate market conversions from Wholesale revenue ($39.2 million, which includes $5.1 million of Unfavorable contracts liability amortization) to Direct revenue ($52.5 million).

Excluding the affiliate market conversions, Wholesale revenue was impacted by a 17% decline in affiliate dealer customers.

As of October 1, 2019, we have successfully converted all affiliates to our direct control and going forward, we will no longer record Wholesale revenue.

Wholesale revenue represented the fees we charged for marketplace and digital solutions sold to dealer customers by affiliates.

The fees represented approximately 60% of the retail value for the same marketplace subscription advertising sold by our direct sales team.

As of October 2019, we successfully converted all affiliates to our direct control, and no longer record

Wholesale revenue.

Cost of revenue and operations .

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

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

Cost of revenue and operations expense represents 18.5% and 16.4% of total revenue for the years ended December 31, 2020 and 2019, respectively.

Cost of revenue and operations expense increased $9.1 million, primarily due to higher third-party costs and compensation, principally due to growth in dealer websites and related digital solutions and social product offerings, which have an inherently higher cost of revenue.

Cost of revenue and operations expense increased $2.0 million, primarily due to higher compensation costs related to the growth in dealer websites and costs related to growth in other digital solutions, which have an inherently higher cost of revenue.

Product and technology.

The product team creates and manages consumer and dealer-facing innovation, manages consumer user experience and includes the costs associated with our editorial, SEO and data strategy teams.

The product team creates and manages consumer and dealer-facing innovation, manages consumer user experience and includes the costs associated with our editorial, search engine optimization and data strategy teams.

The technology team develops and supports our products and websites.

Product and technology expense includes compensation costs, as well as license fees for vehicle specifications, search engine optimization, hardware/software maintenance, software licenses, data center and other infrastructure costs.

Product and technology expense represents 10.4% of total revenue for the years ended December 31, 2019 and 2018.

Product and technology expense decreased $5.9 million, primarily due to cost efficiencies as a result of the Technology Transformation.

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

Product and technology expense represents 11.1% and 10.4% of total revenue for the years ended December 31, 2020 and 2019, respectively.

Product and technology expense decreased $2.2 million, primarily driven by lower compensation costs as a result of the Technology Transformation and our management of expenses to adjust to changes in revenue primarily related to the second quarter discounts given to our dealers due to the COVID-19 pandemic and related restrictions.

Marketing and sales .

Marketing and sales expense primarily consists of traffic and lead acquisition costs (including search engine and other online marketing), TV and digital display/video advertising and creative production, market research, trade events and compensation costs for the marketing, sales and sales support teams.

Marketing and sales expense primarily consists of traffic and lead acquisition costs (including search engine marketing and other online marketing), TV and digital display/video advertising and creative production, market research, trade events and compensation costs for the marketing, sales and sales support teams.

Marketing and sales expense represents 33.5% and 35.8% of total revenue for the years ended December 31, 2020 and 2019, respectively.

Marketing and sales expense decreased $9.3 million, primarily due to lower personnel-related costs as a result of the Sales Transformation, partially offset by strategic marketing investments aimed at consumer acquisitions, consumer engagement and brand awareness.

Marketing and sales expense decreased $34.0 million, primarily driven by a reduction of marketing expense, which was achieved by focusing on customer acquisition and leveraging efficiencies gained, while carefully maintaining consumer engagement as evidenced by our strong organic traffic.

In addition, we benefited from an overall consumer trend from in-person to virtual automobile research and shopping, driven by the COVID-19 pandemic and related restrictions.

General and administrative .

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

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

General and administrative expense represents 12.2% and 11.0% of total revenue for the years ended December 31, 2019 and 2018, respectively.

General and administrative expenses increased

$0.8 million and 1% versus the prior year.

During the year s ended December 31, 2019 and 2018, General and administrative expense included the following costs (in thousands):

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

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

General and administrative expense represents 10.8% and 12.2% of total revenue for the years ended December 31, 2020 and 2019, respectively and decreased $14.7 million and 20% versus the prior year.

During the years ended December 31, 2020 and 2019, General and administrative expense included the following costs (in thousands):

Year Ended December 31,

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Transaction-related costs may also include, without limitation, transition and integration costs such as retention bonuses and acquisition-related milestone payments to acquired employees, in addition to consulting, compensation and other incremental costs associated with integration projects.

Excluding these costs, General and administrative expense increased $4.6 million or 10%, primarily due to compensation.

Excluding these costs, General and administrative expense increased by $1.9 million, primarily due to higher compensation costs.

Affiliate revenue share.

Affiliate revenue share expense represents payments made to affiliates pursuant to our affiliate agreements and amortization of the Unfavorable contracts liability related to the markets converted prior to the contractual date.

Affiliate revenue share expense increased $5.3 million, primarily due to an increase in payments to the affiliates due to an increase in the number of affiliate markets converted as well as a decrease in the amortization of the Unfavorable contract liability due to the liability becoming fully amortized on October 1, 2019.

This amortization is recorded as a reduction of Affiliate revenue share expense, rather than Wholesale revenue for the markets that were converted early.

Affiliate revenue share expense represents payments made to affiliates pursuant to our affiliate agreements offset in part by amortization of the Unfavorable contracts liability related to converted markets.

Affiliate revenue share expense ended in June 2020.

During the years ended December 31, 2020 and 2019, the impact of this amortization is the following (in thousands):

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Affiliate revenue share expense, as reported

Depreciation and amortization .

Depreciation and amortization expense increased 13%, primarily due to the reduction of the useful lives of certain assets related to the Technology Transformation and the full year impact of the DI Acquisition.

Depreciation and amortization expense decreased 3%, primarily due to certain assets being fully depreciated and amortized as compared to the prior year period, partially offset by depreciation and amortization on additional assets acquired.

Goodwill and intangible asset impairment .

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

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

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

As of September 1, 2019, we determined there was a triggering event, primarily caused by a sustained decrease in our stock price after the completion of the strategic alternatives review process and performed an interim quantitative impairment test.

For information related to the impairment, see Note 6 (Goodwill and Other Intangible Assets) to the accompanying Consolidated and Combined Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Interest expense, net .

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

Interest expense, net increased, primarily due to additional interest expense associated with the higher fixed rates and the full year impact of interest related to the borrowing utilized to fund the DI Acquisition.

For information related to our Term and Revolving Loans and interest rate swap, see Note 8 (Debt) to the accompanying Consolidated and Combined Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Income tax (benefit) expense .

The effective income tax rate, expressed by calculating the income tax (benefit) expense as a percentage of Income (Loss) before income tax, was 6% for the year ended December 31, 2019 and differed from the U.S.

Interest expense, net increased, primarily due to an increase in our interest rate paid and reclassifications from Accumulated other comprehensive loss as a result of the loss of hedge accounting from the Second Amendment.

For information related to our Term and Revolving Loans and interest rate swap, see Note 8 (Debt) and Note 9 (Interest Rate Swap) to the accompanying Consolidated Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Other (expense) income, net.

The decrease in Other (expense) income, net was primarily due to a $9.4 million non-marketable investment impairment, triggered by the COVID-19 pandemic and the related restrictions and was recorded in the first quarter of 2020.

Income tax benefit .

The effective income tax rate, expressed by calculating the income tax benefit as a percentage of Loss before income tax, was 13% for the year ended December 31, 2020 and differed from the U.S.

federal statutory rate of 21%, primarily due to the goodwill and intangible assets impairments and the establishment of valuation allowances recorded against the deferred tax assets, recorded during the year ended December 31, 2020.

The effective tax rate for the year ended December 31, 2019 w as 6% and differed from the U.S.

federal statutory rate of 21%, primarily due to the impairment of goodwill.

For information related to income taxes, see Note 14 (Income Taxes) to the Consolidated and Combined Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

For information related to income taxes, see Note 15 (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, 2019 Compared to Year Ended December 31, 2018

(In thousands, except percentages)

National advertising

Total revenue

Operating expenses:

Cost of revenue and operations

Product and technology

Marketing and sales

General and administrative

Affiliate revenue share

Depreciation and amortization

Total operating expenses

Operating income

Nonoperating (expense) income:

Interest expense, net

Other income, net

Total nonoperating expense, net

Income before income taxes

Income tax expense (benefit)

*** Not meaningful

Retail Revenue—Direct .

Direct revenue grew by $124.4 million, or 37%, compared to the prior year.

The addition of Dealer Inspire’s business since the date of the DI Acquisition contributed $53.1 million to the Direct revenue increase.

Excluding Dealer Inspire, Direct revenue grew $71.3 million, or 21%, from 2017 to 2018 driven by an 11% increase in dealer customers and a 6% increase in ARPD.

The affiliate market conversions contributed $88.9 million to Direct revenue measured at the time of each of the conversions, while reducing Wholesale revenue by $78.8 million (of which $18.7 million relates to the Unfavorable contracts liability amortization).

Excluding Dealer Inspire and affiliate market conversions, Direct revenue declined $16.5 million, primarily due to a 10% decline in Dealer customers.

Retail Revenue—National Advertising.

National advertising revenue decreased 8% from 2017 to 2018, as OEMs reduced their spending mostly due to the cyclical nature of the auto industry.

The majority of the decline relates to reductions by three OEM customers.

Wholesale Revenue.

Wholesale revenue decreased primarily due to the affiliate market conversions from Wholesale revenue ($78.8 million, which includes $18.7 million of unfavorable contracts liability amortization) to Direct revenue ($88.9 million).

Excluding the affiliate market conversions, Wholesale revenue declined due to a 13% decline in Dealer customers.

Cost of revenue and operations.

Cost of revenue and operations expense represents 13.7% and 10.5% of total revenue for the years ended December 31, 2018 and 2017, respectively.

The addition of Dealer Inspire’s business contributed $22.2 million to the overall increase.

Excluding Dealer Inspire, Cost of revenue and operations expense increased $2.7 million, primarily due to higher third-party costs related to new product offerings, partially offset by reduced compensation costs associated with lower headcount.

Product and technology.

Product and technology expense represents 10.4% and 11.8% of total revenue for the years ended December 31, 2018 and 2017, respectively.

Product and technology expense decreased $5.4 million, primarily due to reduced compensation costs associated with lower headcount and lower third-party costs, partially offset by the addition of Dealer Inspire’s business.

Marketing and sales.

Marketing and sales expense represents 34.2% and 33.5% of total revenue for the years ended December 31, 2018 and 2017, respectively.

The addition of Dealer Inspire’s business contributed $13.6 million to the overall increase, as we expanded our salesforce to support our new product offerings and the additional affiliate markets.

Excluding Dealer Inspire,

M arketing and sales expense increased $3.3 million, primarily due to planned strategic marketing investments aimed at consumer acquisition, consumer engagement, brand awareness amongst auto shopping audiences and search engine optimization.

Sales compensation costs decreased despite serving approximately 3,500 incremental dealer customers from converted markets.

General and administrative.

General and administrative expense increased $28.0 million and 62%, primarily due to $9.8 million in consulting services and other costs incurred as part of our settlement agreement with our stockholder activist;

$7.6 million in incremental transaction costs, primarily related to the DI Acquisition and the process to explore strategic alternatives to enhance stockholder value;

$6.8 million in incremental stock-based compensation and $3.8 million in costs associated with the Separation of certain employees.

Affiliate revenue share.

Affiliate revenue share expense increased 73%, primarily due to an increase in costs associated with the early conversions of the McClatchy, tronc and Washington Post markets, partially offset by amortization of the Unfavorable contracts liability.

Depreciation and amortization .

Depreciation and amortization expense increased 17%, primarily due to the incremental amortization expense related to the DI Acquisition.

Interest expense, net.

Interest expense, net increased due to interest associated with the Credit Agreement principally utilized to fund the Separation and the DI Acquisition.

Prior to the Separation, the Company had no debt.

For additional information, see Note 8 (Debt) to the Consolidated and Combined 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).

Effective with the Separation in May 2017, we established a corporate legal entity structure that is subject to U.S.

federal corporate income tax on a stand-alone basis post-Separation.

The effective income tax rate, expressed by calculating the income tax expense as a percentage of Income before income taxes, was 31.8% for the year ended December 31, 2018 and differed from the U.S.

federal statutory rate of 21%, primarily due to changes in apportionment factors upon the finalization of the post-Spin 2017 state tax returns in the fourth quarter of 2018.

The income tax benefit for the year ended December 31, 2017 is based upon seven months of Cars.com, LLC information and twelve months of DealerRater information.

The comparison of the 2019 results with 2018 can be found under the heading “Year Ended December 31, 2019 Compared to Year Ended December 31, 2018” in “Part II, Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our 2019 Form 10-K , which comparison is incorporated by reference herein.

Liquidity and Capital Resources

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

Our operations have generated positive operating cash flows in 2019 and 2018 which, along with our Term and Revolving Loans described below, provides adequate liquidity to meet our business needs, including those for investments and strategic acquisitions.

In addition, we may raise additional funds through other public or private debt or equity financings.

See Part I, Item 1A., “Risk Factors” of this Annual Report on Form 10-K.

Our positive operating cash flow, along with the Term Loan, Revolving Credit Facility and Bond Offering described below, provides adequate liquidity to meet our business needs, including those for investments and strategic acquisitions.

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

As discussed below, we are subject to certain financial and other covenants contained in the Credit Agreement, as amended, including by the Third Amendment to the Credit Agreement (the “Third Amendment”).

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, 2020, Cash and cash equivalents were $67.7 million.

Affiliate Agreements.

As of October 1, 2019, we have successfully converted all affiliates to our direct control.

We amended five of our affiliate agreements (Gannett, the McClatchy Company (“McClatchy”), TEGNA, tronc, Inc.

(“tronc”), and the Washington Post).

The Belo affiliate agreement expired on October 1, 2019.

Term Loan and Revolving Loan.

As of December 31, 2019, the outstanding principal amount was $648.1 million, at an effective interest rate of 4.2%, including $388.1 million of outstanding principal under the Term Loan, with an effective interest rate of 4.5%, including the impact of the interest rate swap, and outstanding borrowings under the Revolving Loan of $260.0 million, at an effective interest rate of 3.7%.

During the year ended December 31, 2019, we made $28.1 million in mandatory Term Loan payments and $20.0 million in voluntary Revolving Loan payments, net of borrowings.

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

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

During 2021 , we will realize incremental cash flow, as we will no longer be required to make any further payments to the affiliates under these agreements.

Term Loan, Revolving Loan, Bond Offering and Credit Agreement.

As of December 31, 2020, the outstanding aggregate principal amount was $597.5 million, at an effective interest rate of 5.2%, including $197.5 million of outstanding principal under the Term Loan, with an effective interest rate of 2.8% and outstanding bonds of $400.0 million, at an effective interest rate of 6.375%.

During the year ended December 31, 2020, we made $190.6 million in Term Loan payments, of which $27.8 million were mandatory, and $260.0 million in Revolving Loan payments, net of borrowings.

As of December 31, 2020, $230.0 million was available to borrow under the Revolving Loan.

Our borrowings are limited by our total net leverage ratio, which is calculated in accordance with our Credit Agreement, and was 3.8x as of December 31, 2019.

The Credit Agreement requires a total maximum total net leverage of 4.5x with incremental step downs through the maturities of the Term Loan and the Revolving Loan on May 31, 2022.

For further information, see Note 8 (Debt) to the accompanying Consolidated and Combined Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Our borrowings are limited by our senior secured leverage ratio and interest coverage ratio, which is calculated in accordance with our Credit Agreement, and was 1.27x and 5.82x as of December 31, 2020, respectively.

For further information, see Note 8 (Debt) to the accompanying Consolidated Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

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

We used the net proceeds from the offering, together with cash on hand, to repay $235.0 million of borrowings under our Revolving Credit Facility , repay $162.8 million of borrowings under our Term Loan and pay fees associated with the offering.

On October 30, 2020, we entered into the Third Amendment to the Credit Agreement, in which we refinanced with an aggregate principal amount of $430.0 million, comprised of $230.0 million of the Revolving Credit Facility and $200.0 million of the Term Loan, with a revised maturity date of May 31, 2025.

The Third Amendment also includes the following:

A maximum senior secured leverage ratio of 3.50x, with a temporary step up for material permitted acquisitions;

A minimum interest coverage ratio of 2.75x, with a step up to 3.00x on June 30, 2023;

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

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

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

Ended the covenant adjustment period that was implemented pursuant to the Second Amendment and removed the related minimum liquidity requirement and anti-cash hoarding covenant.

Interest Rate Swap.

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

As a result, 53.7% of our interest rates are variable as of December 31, 2019.

Under the terms of the Swap, we are locked into a fixed rate of interest of 2.96% plus an applicable margin, as defined in our Credit Agreement, on a notional amount of $300

As of December 31, 2019, the fair value of the Swap was an unrealized loss of $10.2 million.

The Swap is designated as a cash flow hedge of interest rate risk and recorded at fair value in Other accrued liabilities and Other noncurrent liabilities on the Consolidated Balance Sheets.

Any gains or losses , net of tax on the Swap are reported as a component of Accumulated other comprehensive loss until reclassed to Interest expense, net in the same period the hedge transaction impacts earnings.

For further information, see “Derivative Financial Instrument” under Note 2 (Significant Accounting Polices) to the accompanying Consolidated and Combined Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

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

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

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

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

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

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

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

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

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

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

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

As of December 31, 2019, the fair value of the Swap was an unrealized loss of $10.2 million, of which $4.2 million and $6.0 million is

recorded in Other accrued liabilities and Other noncurrent liabilities, respectively, on the Consolidated Balance Sheets.

During the years ended December 31, 2020 and December 31, 2019, $11.1 million and $2.0 million was reclassified from Accumulated other comprehensive loss and recorded in Interest expense, net, respectively.

During the year ended December 31, 2020, we made payments of $7.0 million related to the Swap.

During the year ended December 31, 2020, $1.3 million was reclassified as a tax benefit from Accumulated other comprehensive loss into Income tax benefit on the Consolidated Statements of Loss.

Share Repurchase Program .

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

We may repurchase shares from time to time in open market transactions or through privately negotiated transactions in accordance with applicable federal securities laws.

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

The repurchase program does not require the purchase of any minimum number of shares and may be suspended, modified or discontinued at any time without prior notice.

During the years ended December 31, 2019 and 2018, we repurchased and subsequently retired 1.7 million shares for $40.0 million and 3.8 million shares for $97.2 million, respectively.

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

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

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

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

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

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

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Operating Activities.

The decrease in cash provided by operating activities was primarily related to the reduction of net income, excluding the impact of non-cash items, partially offset by changes in operating assets and liabilities.

In addition, the net loss for the year ended December 31, 2019 and the net income for the year ended December 31, 2018 was impacted by the following costs (in thousands):

The increase in cash provided by operating activities was primarily related to the reduction of net loss, excluding the impact of non-cash items, partially offset by changes in operating assets and liabilities.

In addition, the net loss for the years ended December 31, 2020 and 2019 was impacted by the following costs (in thousands):

Year Ended December 31,

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Investing Activities.

The decrease in cash used in investing activities is primarily due to the DI Acquisition in February 2018, partially offset by an increase in purchases of property and equipment.

The decrease in cash used in investing activities is primarily due to a decrease in purchases of property and equipment.

Financing Activities.

During the year ended December 31, 2019, cash used in financing activities is primarily related to $48.1 million of loan repayments, net of borrowings, of which $30.0 million was voluntarily paid and $40.0 million in share repurchase.

During the year ended December 31, 2018, cash provided by financing activities is primarily due to net revolving loan borrowings of $135.0 million, principally related to the DI Acquisition in February 2018, partially offset by $97.2 million in share repurchases.

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

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

In 2019, we made $48.1 million of net debt repayments and repurchased $40.0 million of common stock.

Contractual Obligations.

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Long-term debt (1)

Interest on debt (3)

Interest on debt and swap (2)

Other obligations (3)

In the first quarter of 2019, we adopted Accounting Standards Update 2016-02, Leases (ASU 2016-02).

As part of the adoption of ASU 2016-02, we recognized right-of-use assets and lease liabilities for operating leases, which are principally related to real estate on our Consolidated Balance Sheets, with no material impact to our Consolidated and Combined Statements of (Loss) Income and Consolidated and Combined Statements of Cash Flows.

For further information, see Note 3 (Recent Accounting Pronouncements) to the accompanying Consolidated and Combined Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

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.

Interest payments for variable rate debt were calculated using interest rates as of December 31, 2019 and considered scheduled amortization payments primarily on the Term and Revolving loans.

Interest payments for variable rate debt were calculated using interest rates as of December 31, 2020 and considered scheduled amortization payments primarily on the Term Loan and Swap.

Other obligations represent commitments under certain vendor and other contracts.

Commitments and Contingencies.

For further information, see Note 10 (Commitments and Contingencies) to the accompanying Consolidated and Combined Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

For further information, see Note 11 (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.

Off-Balance Sheet Arrangements.

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

Revenue is generated through our direct sales force (Retail revenue) and affiliate sales channels (Wholesale revenue).

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

Marketplace Subscription Advertising Revenue.

Our primary source of Retail revenue and Wholesale revenue are through the sale of marketplace subscription advertising to dealer customers through varying levels of subscription packages.

Our subscription packages provide the dealer customer’s available new and used vehicle inventory to in-market shoppers on the Cars.com website.

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

Our primary source of Retail revenue and, prior to October 2019, Wholesale revenue is through the sale of marketplace subscription advertising packages to dealer customers.

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

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

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

Marketplace subscription advertising and services revenue is recorded in Retail revenue and Wholesale revenue in the Consolidated and Combined Statements of (Loss) Income.

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

We also offer our customers several add-on products to the subscription packages.

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

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

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

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

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

The related revenue is recorded in Retail revenue in the Consolidated and Combined Statements of (Loss) Income.

The related revenue is recorded in Retail revenue in the Consolidated Statements of Loss.

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

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

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

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

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

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

In situations where our direct sales force sold our products within an affiliate’s assigned territory, we paid the affiliate a revenue share which was classified as Affiliate revenue

share in the Consolidated Statements of Loss.

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

For information related to the Unfavorable contracts liability, see Note 7 (Unfavorable Contracts Liability) to the accompanying Consolidated Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Display Advertising Products and Services Revenue.

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

Display advertising products revenue sold to dealer customers is recorded in Retail revenue in the Consolidated and Combined Statements of (Loss) Income.

Display advertising products revenue sold to dealer customers is recorded in Retail revenue in the Consolidated Statements of Loss.

Pay Per Lead Revenue.

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

Revenue related to pay per lead is recorded in Retail and Wholesale revenue, in the Consolidated and Combined Statements of (Loss) Income.

Revenue related to pay per lead is recorded in Retail and Wholesale revenue, in the Consolidated Statements of Loss.

Other Revenue.

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

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

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.

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

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

We have determined that CARS operates as a single reporting unit.

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

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

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

Other revenue is recorded in Retail revenue in the Consolidated Statements of Loss.

Prior to the first quarter of 2020, the period in which we fully impaired our goodwill, goodwill represented the excess of acquisition cost over the fair value of assets acquired, including identifiable intangible assets, net of liabilities assumed.

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

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

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

We determined that we operated as a single reporting unit.

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

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

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

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

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

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

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

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

The discount rate utilized in the DCF analysis is based on the reporting unit’s weighted-average cost of

capital, which takes into account the relative weights of each component of capital structure (equity and debt) and represents the expected cost of new capital, adjusted as appropriate to consider the risk inherent in future cash flows of our reporting unit.

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

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

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

For information related to the goodwill impairment recorded during the year ended December 31, 2019, see Note 6 (Goodwill and Other Intangible Assets) to the accompanying Consolidated and Combined Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

For information related to the goodwill impairment recorded during the years ended December 31, 2020 and 2019, see Note 6 (Goodwill and Other Intangible Assets) to the accompanying Consolidated Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Indefinite-Lived Intangible Asset .

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

In connection with our acquisition by our former parent, we recorded an intangible asset with an indefinite life associated with the Cars.com trade name.

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

1 unchanged sentence

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.

For information related to the intangible asset impairment recorded during the year ended December 31, 2019, see Note 6 (Goodwill and Other Intangible Assets) to the accompanying Consolidated and Combined Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

For information related to the intangible asset impairment recorded during the years ended December 31, 2020 and 2019, see Note 6 (Goodwill and Other Intangible Assets) 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.

Definite Lived Amortizable Intangible Assets .

5 unchanged sentences

Recent Accounting Pronouncements.

For information related to recent accounting pronouncements, see Note 3 (Recent Accounting Pronouncements) to the Consolidated and Combined Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

For information related to recent accounting pronouncements, see Note 3 (Recent Accounting Pronouncements) to the Consolidated Financial Statements included in Part II, Item 8., “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis