What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-06 compared with 2020-11-09 · 121 added, 322 removed, 92 unchanged (83% of the section changed)

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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 Quarterly Report on Form 10-Q.

This discussion and analysis also contains forward-looking statements and should be read in conjunction with the disclosures and information contained in “Note About Forward-Looking Information” in this Quarterly Report on Form 10-Q.

This discussion and analysis also contains forward-looking statements and should be read in conjunction with the disclosures and information contained in “Note About Forward-Looking Statements” in this Quarterly Report on Form 10-Q.

The financial information discussed below and included elsewhere in this Quarterly Report on Form 10-Q may not necessarily reflect what our financial condition, results of operations and cash flows may be in the future.

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Business Overview

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

Through our marketplace, dealer websites and other digital solutions, we showcase dealer inventory, elevate and amplify dealer and automobile original equipment manufacturer (“OEM”) brands, connect with our ready-to-buy audience and empower shoppers and sellers with the resources and information needed to make confident car-buying and selling decisions.

Our digital solutions strategy builds on the rich data and audience of our digital marketplace to offer solutions to 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.

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, FUEL, DealerRater, Auto.com, PickupTrucks.com and NewCars.com.

Overview of Results

(in thousands, except percentages)

Three Months Ended September 30,

Nine Months Ended September 30,

Retail revenue as % of total revenue

Wholesale revenue as % of total revenue

The decrease in revenue for the three and nine months ended September 30, 2020 was primarily attributed to the COVID-19 pandemic and related restrictions, including the impact of the discounts we provided to our dealer customers in the second quarter of 2020.

The net loss for the three months ended September 30, 2020 was primarily attributed to the recording of an additional $30.9 million income tax expense for the correction of an error related to the recording of the valuation allowance against the deferred tax assets in connection with an impairment recorded in the first quarter of 2020.

This was partially offset by a net $8.5 million tax benefit related to our ability to carryback 2019 and 2020 federal tax losses to prior years to claim refunds of federal income taxes paid in those years related to the Coronavirus Aid, Relief, and Economic Security Act and related regulations.

The net loss for the nine months ended September 30, 2020 was primarily attributed to the goodwill and intangible asset impairment of $905.9 million as well as the impact of the COVID-19 pandemic and related restrictions.

The net loss for the three and nine months ended September 30, 2019 is primarily attributed to the $431.3 million (net of tax of $30.2 million) goodwill and indefinite-lived intangible asset impairment.

The net loss in each period was also impacted by the following costs (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Severance, transformation and other exit costs

Costs associated with stockholder activist campaign

Transaction-related costs (1)

limitation, (a) transaction-related bonuses and (b) expenses for advisors and representatives such as investment bankers, consultants, attorneys and accounting firms.

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.

Three Months Ended March 31,

(in thousands)

Net income (loss) (1)

The net loss for the three months ended March 31, 2020 was primarily attributed to the goodwill and intangible asset impairment of $905.9 million.

2021 Highlights and Trends

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.

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

Driven by our product innovations and investments in and efficiencies gained in search engine optimization, brand awareness and paid channels and a shift from in-person to virtual automobile research and shopping , we have experienced consistent year-over-year quarterly traffic growth.

In the third quarter of 2020, we maintained strong organic Traffic growth and achieved 10% growth in Traffic and in Average Monthly Unique Visitors, compared to the prior year period.

Although we experienced strong traffic in the first three quarters of 2020, given the unknown duration and economic uncertainty related to the COVID-19 pandemic and related restrictions, competitive spending, and reduced consumer spending, among other factors, we are uncertain as to how this may impact our traffic for the rest of 2020 and beyond.

Dealer Customers.

In the third quarter of 2020, Dealer Customers increased by 97, or 1%, to 18,130 as of September 30, 2020, as compared with 18,033 as of June 30, 2020.

This increase was a result of new sales of marketplace and digital solutions customers supported by strength in 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 the rest of 2020 and beyond.

Launched in 2020, FUEL is a digital video solution that provides OEMs and dealers with the opportunity to reach our in-market car shopping audience data of 25 million monthly shoppers on their screen of choice via social media platforms and streaming apps.

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, which compares favorably to expensive or high-cost broadcast television solutions that dealers and OEMS on which they historically relied.

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

We remain on track to launch half of our 800+ GM websites by the end of the year.

This new agreement provides us with the opportunity to substantially increase our current website customer base, which was approximately 4,000 as of September 30, 2020.

In the first quarter of 2021, Dealer Customers increased by 451, or 2%, to 18,823 as of March 31, 2021, as compared with 18,372 as of December 31, 2020.

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

Launched in early 2020, FUEL is a unique, high ROI, targeted video advertising solution that generates higher returns than high-cost broadcast television, on which the auto industry spends approximately $10 billion per year, as well as spend on other expensive advertising mediums.

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

FordDirect Agreement.

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

Technology Transformation.

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 cost efficiencies upon completion of the Technology Transformation.

Bond Offering and Credit Agreement Amendment.

On October 30, 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 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 an amendment (the “Third Amendment”) to the Credit Agreement, in which we refinanced an aggregate principal amount of $430.0 million, comprised of a $230.0 million senior secured revolving credit facility and a $200.0 million senior secured term loan facility, 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 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.

As of September 30, 2020, our liquidity was $258.8 million including cash and cash equivalents and availability under the revolving credit facility.

For information related to debt, see Note 5 (Debt) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements” of this Quarterly Report on Form 10-Q.

In 2019, our product and technology teams prioritized 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”).

As part of this process, we continue to 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 has elongated our timeline for the completion of the Technology Transformation, we have achieved cost efficiencies and expect to achieve further cost efficiencies upon completion of the Technology Transformation.

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

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

While certain jurisdictions have relaxed some of these related restrictions, any resurgences of the pandemic may lead to a reimplementation of such restrictions.

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

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

This resulted and may continue to result in decreased subscription revenue and reduced demand for our services.

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

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

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.

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”).

During the year ended December 31, 2020 and to a lesser extent during the three months ended March 31, 2021, our business, financial condition, liquidity and operating results were adversely affected by the COVID-19 pandemic and related restrictions, which caused a widespread increase in unemployment and resulted in reduced consumer spending and an economic recession.

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 March 31, 2021.

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

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.

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

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

Therefore, our results for the nine months ended September 30, 2020, may not be indicative of the results for the year ending December 31, 2020.

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

Key Operating Metrics

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Three Months Ended

September 30,

Nine Months Ended

September 30,

Traffic (Visits)

Average Monthly Unique Visitors

Information regarding Dealer Customers and Direct Monthly Average Revenue Per Dealer is as follows:

September 30, 2020

September 30, 2019

June 30, 2020

Information regarding Dealer Customers and Monthly Average Revenue Per Dealer is as follows:

March 31, 2021

March 31, 2020

December 31, 2020

Dealer Customers

Direct Monthly Average Revenue Per Dealer

Traffic (Visits).

Monthly Average Revenue Per Dealer

Traffic is fundamental to our business.

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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.

We believe 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 and a shift from in-person to virtual automobile research and shopping, accelerated by the COVID-19 pandemic and related restrictions .

For the three and nine months ended September 30, 2020, mobile traffic accounted for 74% and 75% of total Traffic, respectively.

For the three and nine months ended September 30, 2019, mobile traffic accounted for 73% and 72% of total Traffic, respectively.

Although we experienced strong traffic in the first three quarters of 2020, the unknown duration and economic uncertainty related to the COVID-19 pandemic and related restrictions and reduced consumer spending have impacted and may continue to impact our traffic in 2020 and beyond.

Traffic was down slightly year-over-year.

For the three months ended March 31, 2021 and 2020, mobile traffic accounted for 75% and 76% of total Traffic, respectively.

Average Monthly Unique Visitors (“UVs”).

Growth in unique visitors and consumer traffic to our network of websites and mobile apps increases the number of impressions, clicks, leads and other events.

Growth in unique visitors and consumer traffic to our network of websites and mobile apps increases the number of impressions, clicks, leads and other events we can monetize to generate revenue.

We define UVs in a given month as the number of distinct visitors that engage with our platform during that month.

Visitors are identified when a user first visits an individual CARS property on an individual device/browser combination or installs one of our mobile apps on an individual device.

If a visitor accesses more than one of our web properties or apps or uses more than one device or browser, each of those unique property/browser/app/device combinations counts towards the number of UVs.

UVs do not include Dealer Inspire UVs.

We measure UVs using Adobe Analytics.

The growth in UVs was driven by our product innovations and investments in and efficiencies gained in search engine optimization, brand awareness and paid channels and a shift from in-person to virtual automobile research and shopping, accelerated by the COVID-19 pandemic and related restrictions .

The growth in UVs was driven by heightened consumer demand resulting from an increase in consumer confidence due to the recently passed economic stimulus and the further opening of the economy.

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

ARPD was flat compared to the three months ended December 31, 2020.

ARPD increased 8% from March 31, 2020, primarily driven by growth in FUEL revenue, which was launched in early 2020.

Dealer Customers .

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Multi-franchise dealerships at a single location are counted as one dealer.

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

This increase was a result of growth in both marketplace and digital solutions dealer customers, improved retention rates in local marketplace and dealer solutions customers and improved sales of our local marketplace product .

Total Dealer Customers declined 3% from September 30, 2019.

Total Dealer Customers increased 2% from December 31, 2020.

This increase was a result of continued strong retention rates and new sales to dealer customers.

Total Dealer Customers declined 1% from March 31, 2020.

This decrease was primarily driven by 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 digital solutions customers.

The unknown duration and economic uncertainty related to the COVID-19 pandemic and related restrictions and reduced consumer spending have impacted and may continue to impact our dealer customers in 2020 and beyond.

Average Revenue Per Dealer (“ARPD”).

We believe 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 monthly average number of direct dealer customers during the same period.

ARPD increased 51% from the ARPD of $1,442 for the three months ended June 30, 2020, primarily due to the impact of the invoice credits we provided to our marketplace customers during the second quarter of 2020 and in response to the COVID-19 pandemic and related restrictions.

ARPD was up slightly compared to September 30, 2019.

Factors Affecting Our Performance.

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 COVID-19, we observed decreased vehicle sales and dealer profitability.

However, COVID-19 has also accelerated certain dealers’ adoption of digital solutions.

In part by leveraging technology solutions, many dealers are achieving record profitability.

Our business is impacted by the changes in the larger automotive environment, including inventory supply, which is currently under pressure due to semiconductor shortages, as well as, other macroeconomic factors, and changes related to automotive advertising.

Changes in vehicle sales volumes in the United States also influence OEMs’ and dealerships’ willingness to increase investments with technology solutions and automotive marketplaces like Cars.com and could impact our pricing strategies and/or revenue mix.

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

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 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.

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

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

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

Results of Operations

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

Three Months Ended September 30,

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Three Months Ended March 31,

(In thousands, except percentages)

National advertising

OEM and National

Total revenue

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Interest expense, net

Other income, net

Other income (expense), net

Total nonoperating expense, net

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Income tax expense (benefit)

Net income (loss)

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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 85.8% and 80.8% of total revenue for the three months ended September 30, 2020 and 2019, respectively.

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

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 Statements of Loss.

During the three months ended September 30, 2020, the affiliate market conversions contributed an incremental $16.4 million to Direct revenue.

For information related to the affiliate market conversions, see Note 7 (Unfavorable Contracts Liability) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements” of this Quarterly Report on Form 10-Q.

The overall increase was $1.1 million or 1% compared to the three months ended September 30, 2019, driven by the conversion of affiliate dealers and growth in digital solutions revenue offset in part by a decline in dealer customers.

Retail Revenue—National Advertising .

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

National advertising revenue represents 12.3% and 13.3% of total revenue for the three months ended September 30, 2020 and 2019, respectively.

National advertising revenue declined 12%, primarily due to higher cancellations, principally due to the COVID-19 pandemic and related restrictions .

Wholesale Revenue .

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

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

Wholesale revenue represented 3.6% of total revenue for the three months ended September 30, 2019.

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

Dealer revenue.

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

Dealer revenue is our largest revenue stream, representing 86.7% and 84.6% of total revenue for the three months ended March 31, 2021 and 2020, respectively.

The overall increase was $7.6 million or 6% compared to the three months ended March 31, 2020, driven by an increase in ARPD as a result of growth in digital solutions and FUEL revenue, partially offset by a decline in dealer customers.

OEM and National revenue.

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

OEM and National revenue represents 11.8% and 13.1% of total revenue for the three months ended March 31, 2021 and 2020, respectively.

OEM and National revenue declined 7%, primarily due to less spending by the OEMs due to the COVID-19 pandemic and related restrictions.

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 processing dealer vehicle inventory, product fulfillment, customer service and compensation costs.

Cost of revenue and operations expense represents 17.6% and 16.5% of total revenue for the three months ended September 30, 2020 and 2019, respectively.

Cost of revenue and operations expense increased $0.3 million, primarily due to higher compensation costs and growth in dealer websites and related digital solutions, which have an inherently higher cost of revenue.

Cost of revenue and operations expense represents 18.2% and 17.6% of total revenue for the three months ended March 31, 2021 and 2020, respectively.

Cost of revenue and operations expense increased primarily due to growth in 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 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, data strategy and search engine optimization teams.

The technology team develops and supports our products and websites.

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

Product and technology expense represents 10.7% and 9.8% of total revenue for the three months ended September 30, 2020 and 2019, respectively.

Product and technology expense increased primarily due to higher compensation costs, primarily related to share-based compensation, partially offset by our management of expenses due to the COVID-19 pandemic and related restrictions and the Technology Transformation.

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 expenses represent 31.7% and 33.4% of total revenue for the three months ended September 30, 2020 and 2019, respectively.

Marketing and sales expense decreased due to a reduction of our marketing expense which was achieved by focusing on consumer acquisition and leveraging efficiencies gained, while carefully maintaining consumer engagement as evidenced by our strong organic traffic, and a shift from in-person to virtual automobile research and shopping.

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, 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 9.2% and 8.8% of total revenue for the three months ended September 30, 2020 and 2019, respectively.

During the three months ended September 30, 2020 and 2019, General and administrative expense included the following costs (in thousands):

Three Months Ended September 30,

Severance, transformation and other exit costs

Costs associated with stockholder activist campaign

Transaction-related costs (1)

Transaction-related costs are certain expense items resulting from actual or potential transactions such as business combinations, mergers, acquisitions, dispositions, spin-offs, financing transactions, and other strategic transactions, including, without limitation, (a) transaction-related bonuses and (b) expenses for advisors and representatives such as investment bankers, consultants, attorneys and accounting firms.

Excluding these costs, general and administrative expense increased 24.5% for the three months ended September 30, 2020, compared to the prior year period.

General and administrative expenses increased primarily due to higher compensation, primarily related to share-based compensation.

Affiliate revenue share.

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.

There was no affiliate revenue share expense in the current period due to the expiration of certain affiliate agreements.

A summary of Affiliate revenue share expense is as follows (in thousands):

Three Months Ended September 30,

Affiliate revenue share expense, gross

Amortization of the Unfavorable contracts liability

Affiliate revenue share expense, as reported

For information related to the Unfavorable contracts liability, see Note 7 (Unfavorable Contracts Liability) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements” of this Quarterly Report on Form 10-Q.

Depreciation and amortization .

Depreciation and amortization expense decreased primarily due to certain assets becoming fully depreciated and amortized, as compared to the prior year period.

Goodwill and intangible asset impairment .

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.

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 $379.2 million and $82.3 million, respectively in the third quarter of 2019.

Interest expense, net .

Interest expense, net increased by $3.1 million compared to the prior year period due to an increase in our interest rate paid as a result of the Second Amendment and the loss of hedge accounting on the Swap (as defined below).

For information related to the Swap, see Note 5 (Debt) and Note 6 (Interest Rate Swap) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements” of this Quarterly Report on Form 10-Q.

Other income, net .

Other income, net increased, primarily due to the unrealized gain on the mark-to-market adjustment related to the Swap.

For information related to the Swap, see Note 6 (Interest Rate Swap) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements” of this Quarterly Report on Form 10-Q.

Income tax expense (benefit) .

The effective income tax rate, expressed by calculating the income tax expense as a percentage of Income (loss) before income tax, was 220% for the three months ended September 30, 2020 which varied from the statutory federal income tax rate of 21%, primarily due to the recording of an additional $30.9 million income tax expense related to the correction of an error related to the recording of the valuation allowance against the deferred tax assets in connection with the impairment charges recorded in the first quarter of 2020.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

Nine Months Ended September 30,

(In thousands, except percentages)

National advertising

Total revenue

Operating expenses:

Cost of revenue and operations

Product and technology

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

Product and technology expense represents 10.9% and 10.0% of total revenue for the three months ended March 31, 2021 and 2020, respectively.

Product and technology expense increased, primarily due to higher compensation costs, including share-based compensation.

Marketing and sales .

Marketing and sales expense represents 34.7% and 37.1% of total revenue for the three months ended March 31, 2021 and 2020, respectively.

Marketing and sales expense decreased, primarily due to a $1.5 million reduction of our provision for doubtful accounts, which had increased in 2020 due to the uncertain impact of the COVID-19 pandemic and related restrictions.

General and administrative .

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

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

General and administrative expense represents 8.7% and 9.5% of total revenue for the three months ended March 31, 2021 and 2020, respectively.

General and administrative expense decreased, primarily due to lower severance costs compared to the three months ended March 31, 2020.

Affiliate revenue share.

Depreciation and amortization

Goodwill and intangible asset impairment

Total operating expenses

Operating loss

Nonoperating (expense) income:

Interest expense, net

Other (expense) income, net

Total nonoperating expense, net

Loss before income taxes

Income tax benefit

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Retail Revenue—Direct .

Direct revenue is our largest revenue stream, representing 84.3% and 76.8% of total revenue for the nine months ended September 30, 2020 and 2019, respectively.

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

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 Statements of Loss.

During the nine months ended September 30, 2020, the affiliate market conversions contributed an incremental $44.5 million to Direct revenue.

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.

Retail Revenue—National Advertising .

National advertising revenue represents 13.5% and 13.1% of total revenue for the nine months ended September 30, 2020 and 2019, respectively.

National advertising revenue declined 11%, primarily due to higher cancellations, principally due to the COVID-19 pandemic and related restrictions .

Wholesale Revenue .

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

Wholesale revenue represented 7.6% of total revenue for the nine months ended September 30, 2019.

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

Cost of revenue and operations .

Cost of revenue and operations expense represents 18.9% and 16.5% of total revenue for the nine months ended September 30, 2020 and 2019, respectively.

Cost of revenue and operations expense decreased primarily due to lower

third party costs, driven by our management of expenses to adjust to changes in revenue due to the COVID-19 pandemic and related restrictions, partially offset by an increase in compensation costs and growth in dealer websites and related digital solutions, which have an inherently higher cost of revenue .

Product and technology.

Product and technology expense represents 10.7% and 10.6% of total revenue for the nine months ended September 30, 2020 and 2019, respectively.

Product and technology expense decreased primarily due to lower compensation costs and cost efficiencies 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 expenses represent 33.6% and 36.3% of total revenue for the nine months ended September 30, 2020 and 2019, respectively.

Marketing and sales expense decreased due to a reduction of our 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, and a shift from in-person to virtual automobile research and shopping, driven by the COVID-19 pandemic.

General and administrative .

General and administrative expense represents 11.1% and 13.0% of total revenue for the nine months ended September 30, 2020 and 2019, respectively.

During the nine months ended September 30, 2020 and 2019, General and administrative expense included the following costs (in thousands):

Nine Months Ended September 30,

Severance, transformation and other exit costs

Costs associated with stockholder activist campaign

Transaction-related costs (1)

Excluding these costs, general and administrative expense increased 2.9% for the nine months ended September 30, 2020, compared to the prior year period.

General and administrative expenses increased primarily due to increased compensation costs, primarily related to share-based compensation.

Affiliate revenue share expense represented payments made to affiliates pursuant to our affiliate agreements.

Affiliate revenue share expense ended in June 2020.

For information related to affiliates, see Note 7 (Unfavorable Contracts Liability) in Part II, Item 8., “Financial Statements and Supplementary Data”, of the Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC on February 25, 2021.

Depreciation and amortization .

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

Affiliate revenue share.

Affiliate revenue share expense increased, primarily due to the full amortization of the Unfavorable contracts liability in 2019 which no longer provided a benefit in the current year period, partially offset by the expiration of certain affiliate agreements and the associated expense.

A summary of Affiliate revenue share expense is as follows (in thousands):

Nine Months Ended September 30,

Affiliate revenue share expense, gross

Amortization of the Unfavorable contracts liability

Affiliate revenue share expense, as reported

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

Goodwill and intangible asset impairment .

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For information related to the impairments, see Note 4 (Goodwill and Indefinite-lived Intangible Asset) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements” of this Quarterly Report on Form 10-Q.

Interest expense, net .

Interest expense, net increased by $3.2 million compared to the prior year period due to an increase in our interest rate paid as a result of the Second Amendment and the loss of hedge accounting on the Swap.

Other (expense) income, net .

Other (expense) income, net decreased, primarily due to an impairment of a $9.4 million of non-marketable investment, triggered by the COVID-19 pandemic and the related restrictions and was recorded in the three months ended March 31, 2020.

This investment had been recorded within Investments and other assets on the Consolidated Balance Sheets.

Income tax benefit .

The effective income tax rate was 12% for the nine months ended September 30, 2020, which varied from the statutory federal income tax rate of 21%, primarily due to the tax impact of the goodwill and intangible asset impairments and the full valuation allowance recorded against the deferred tax assets during the nine months ended September 30, 2020.

Interest expense, net increased by $2.5 million compared to the prior year period, due to a higher overall interest rate on our outstanding debt, partially offset by lower debt outstanding.

For information related to our debt, see Note 4 (Debt) and Note 5 (Interest Rate Swap) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements” of this Quarterly Report on Form 10-Q.

Other income (expense), net .

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

For information related to the impairment, see Note 9 (Other Income (Expense), net) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements” of this Quarterly Report on Form 10-Q.

Income tax expense (benefit) .

The effective income tax rate, expressed by calculating the income tax expense (benefit) as a percentage of Income (loss) before income taxes, was 19.8% for the three months ended March 31, 2021, lower than the statutory federal income tax rate of 21%, primarily due to the tax benefit realized on stock-based compensation, offset in part by the full valuation allowance on our net deferred tax asset position recorded during the three months ended March 31, 2021.

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 2020 and 2019 which, along with the Term Loan and the Revolving Credit Facility 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 operationa l 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.

We are subject to certain financial and other covenants contained in the Credit Agreement, as amended, including by the Third Amendment.

The impact of the COVID-19 pandemic and related restrictions may affect our ability to comply with such covenants.

In June 2020, we entered into an amendment (the “Second Amendment”) to the Credit Agreement, which included a covenant holiday with an exemption from the net leverage and interest coverage ratios through the end of 2020, and maximum net leverage of 6.50x effective March 31, 2021, with step downs thereafter.

The Second Amendment also includes a minimum liquidity requirement of $75.0 million and adds an anti-cash hoarding covenant, which requires, during the covenant adjustment period, mandatory prepayments of the revolving credit loans with the amount of any unrestricted cash located in our deposit accounts in excess of $75.0 million.

Our positive operating cash flow, along with the Term Loan, Revolving Loan and the Senior Unsecured Notes described below, provide 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 our debt agreements, as amended, including by the Third Amendment to the Credit Agreement.

For information related to the Credit Amendment, as amended, see Note 8 (Debt) in Part II, Item 8., “Financial Statements and Supplementary Data”, of the Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC on February 25, 2021.

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.

See Part II, Item 1A., “Risk Factors” of this Quarterly Report on Form 10-Q.

As of September 30, 2020, Cash and cash equivalents were $43.8 million.

Term Loan and Revolving Loan.

As of September 30, 2020, the outstanding principal amount under the Term Loan was $362.8 million, with an interest rate in effect of 5.5%, including the impact of the Swap.

The outstanding borrowings under the Revolving Loan were $235.0 million, with an interest rate in effect of 3.3%.

During the nine months ended September 30, 2020, we made $25.3 million in mandatory Term Loan payments and $190.0 million in Revolving Loan payments.

The debt repayments were primarily associated with the $165.0 million draw on our revolver during the first quarter of 2020 related to the uncertainty around the COVID-19 pandemic and related restrictions.

As of September 30, 2020, $215.0 million was available to borrow under the Revolving Loan.

In October 2019, we entered into an amendment (the “First 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 First Amendment increased our maximum total net leverage ratio from 3.75x to 4.50x with incremental step downs through the maturities of the Term Loan and the Revolving Loan on May 31, 2022.

In June 2020, we entered into an amendment to our Credit Agreement (the “Second Amendment”) that includes a covenant holiday with an exemption from the net leverage and interest coverage ratios that addresses the impact of COVID-19 through the end of 2020, and maximum net leverage of 6.50x effective March 31, 2021, with step downs thereafter.

During the covenant holiday period there is a minimum liquidity requirement of $75.0 million.

As of September 30, 2020, our liquidity was $258.8 million including cash and cash equivalents and availability under the revolving credit facility.

Bond Offering and Credit Agreement Amendment.

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

On October 30, 2020, we entered into an amendment (the “Third Amendment”) to the Credit Agreement, in which we refinanced with an aggregate principal amount of $430.0 million, comprised of a $230.0 million senior secured revolving credit facility and a $200.0 million senior secured term loan facility, 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 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.

As of March 31, 2021, Cash and cash equivalents were $53.7 million and including the undrawn Revolving Loan our total liquidity was $283.7 million.

Term Loan, Revolving Loan and Senior Unsecured Notes.

As of March 31, 2021, the outstanding aggregate principal amount of our debt was $545.0 million, at an effective interest rate of 5.4%, not including the impact of the interest rate swap, including $145.0 million of outstanding principal under the Term Loan, with an effective interest rate of 2.8% and outstanding senior unsecured notes of $400.0 million, at an effective interest rate of 6.375%.

During the three months ended March 31, 2021, we made $52.5 million in Term Loan payments, of which $50.0 million were voluntary.

As of March 31, 2021, we had $230.0 million available to borrow under the Revolving Loan.

Our borrowings are limited by our senior secured leverage ratio and consolidated interest coverage ratio, which are calculated in accordance with our Credit Agreement, and were 0.86x and 5.86x as of March 31, 2021, respectively.

Interest Rate Swap.

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

In order to manage the risk associated with changes in interest rates on our borrowing, we entered into an interest rate swap agreement (the “Swap”) effective December 31, 2018 through May 31, 2022.

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 $300.0 million.

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 amendment, the unrealized loss included within Accumulated other comprehensive loss will be ratably reclassified into Net loss over the remaining life of the Term Loan.

A portion of the unrealized loss shall be recorded to Interest expense, net and Income tax expense (benefit) within the Consolidated Statements of Loss.

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

As of September 30, 2020, the fair value of the Swap was an unrealized loss of $14.2 million, of which $8.5 million and $5.7 million is recorded in Other accrued liabilities and Other noncurrent liabilities, respectively, on the Consolidated Balance Sheets.

During the nine months ended September 30, 2020 and September 30, 2019, $7.4 million and $1.2 million was recorded in Interest expense, net, of which $2.5 million and zero was reclassified from Accumulated other comprehensive loss, respectively.

During the nine months ended September 30, 2020, $0.4 million was reclassified as a tax benefit from Accumulated other comprehensive loss into Income tax expense (benefit) on the Consolidated Statements of Loss.

Additionally, $2.5 million of income was included within Other income (expense), net on the Consolidated Statements of Loss related to the change in the fair value of the Swap from the date of the Second Amendment to September 30, 2020.

Share Repurchase Program.

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

We were allowed to repurchase stock 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 stock repurchase program will be based on market conditions and other factors including price.

The repurchase program did not require the purchase of any minimum number of shares and may be 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 nine months ended September 30, 2020.

The Company repurchased and subsequently retired 1.7 million shares for $40.0 million during the nine months ended September 30, 2019.

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

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

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

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

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

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

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

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

Due to the reduction in the Term Loan as compared to the notional amount of the Swap, 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 notional amount of Term Loan.

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

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

As of March 31, 2021, the fair value of the Swap was an unrealized loss of $10.0 million, of which $8.6 million and $1.4 million is recorded in Other accrued liabilities and Other noncurrent liabilities, respectively, on the Consolidated Balance Sheets.

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

During the three months ended March 31, 2021 and 2020, $1.4 million and $1.0 million was reclassified from Accumulated other comprehensive loss and recorded in Interest expense, net, respectively.

During the three months ended March 31, 2021, we made payments of $2.1 million related to the Swap as the result of London Interbank Offered Rate (“LIBOR”) rates falling below the swap rate of 2.96%.

During the three months ended March 31, 2021, $0.2

million was reclassified as a tax benefit from Accumulated other comprehensive loss into Income tax expense (benefit) on the Consolidated Statements of Income (Loss ) .

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

Nine Months Ended September 30,

Three Months Ended March 31,

Net cash provided by (used in):

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Operating Activities.

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 nine months ended September 30, 2020 and 2019 was impacted by the following costs (in thousands):

Nine Months Ended September 30,

Severance, transformation and other exit costs

Costs associated with stockholder activist campaign

Transaction-related costs (1)

The increase in cash provided by operating activities was primarily related to the increase of net income (loss), excluding the impact of non-cash items, as well as changes in operating assets and liabilities, primarily due to a decrease in taxes receivable related to the receipt of a $9.1 million tax refund from the carryback of federal and state income tax net operating loss as a result of the CARES Act and an increase in accrued interest related to the Senior Unsecured Notes.

Investing Activities.

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

The increase in cash used in investing activities is due to an increase in purchases of property and equipment.

Financing Activities.

During the nine months ended September 30, 2020, cash used in financing activities is primarily related to $50.3 million of net debt repayments, inclusive of $215.3 million in debt repayments, partially offset by $165.0 million in proceeds related to our draw on our revolver during the first quarter of 2020.

Additionally, there was $3.4 million of debt issuance costs.

For information related to our Term and Revolving Loans, see Note 5 (Debt) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements” of this Quarterly Report on Form 10-Q.

During the three months ended March 31, 2021, cash used in financing activities is primarily related to $52.5 million of debt repayments, of which $50.0 million were voluntary.

During the three months ended March 31, 2020, cash used in financing activities is primarily related to $165.0 million in proceeds related to the draw on our Revolving Loan, partially offset by $13.4 million in debt repayments, of which $5.0 million was voluntarily paid.

For information related to our debt, see Note 4 (Debt) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements” of this Quarterly Report on Form 10-Q.

Commitments and Contingencies.

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For information related to critical accounting policies, see “Critical Accounting Policies and Estimates” in Part II, Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, of the Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC on February 25, 2021 and see Note 1 (Description of Business, Company History and Summary of Significant Accounting Policies) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements” of this Quarterly Report on Form 10-Q.

During the nine months ended September 30, 2020, there have been no changes to our critical accounting policies.

During the three months ended March 31, 2021, there have been no changes to our critical accounting policies.

Recent Accounting Pronouncements.

For information related to recent accounting pronouncements, see Note 2 (New Accounting Pronouncements) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements” of this Quarterly Report on Form 10-Q.

There were no significant new accounting pronouncements applicable to us in the period.

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-Q

Item 2. Management’s Discussion and Analysis