Cars.com Inc. 10-Q

Item 1. Financial Statements. Cars.com Inc. Consolidated Balance Sheets (In thousands, except per share data) March 31, 2021 December 31, 2020 (unaudited) Assets: Current assets: Cash and cash equivalents $ 53,724 $ 67,719 Accounts receivable, net 93,238 93,649 Prepaid expenses 9,952 6,491 Other current assets 1,324 10,222 Total current assets 158,238 178,081 Property and equipment, net 43,479 41,323 Intangible assets, net 813,507 835,166 Investments and other assets, net 20,582 21,142 Total assets $ 1,035,806 $ 1,075,712 Liabilities and stockholders' equity: Current liabilities: Accounts payable $ 22,891 $ 16,512 Accrued compensation 9,178 18,319 Current portion of long-term debt 7,733 7,756 Other accrued liabilities 58,620 47,781 Total current liabilities 98,422 90,368 Noncurrent liabilities: Long-term debt 524,260 576,143 Deferred tax liability 30,791 30,800 Other noncurrent liabilities 36,331 38,225 Total noncurrent liabilities 591,382 645,168 Total liabilities 689,804 735,536 Commitments and contingencies Stockholders' equity: Preferred Stock at par, $ 0.01 par value; 5,000 shares authorized; no shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively — — Common Stock at par, $ 0.01 par value; 300,000 shares authorized; 68,531 and 67,387 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively 685 674 Additional paid-in capital 1,529,830 1,530,493 Accumulated deficit ( 1,178,909 ) ( 1,184,187 ) Accumulated other comprehensive loss ( 5,604 ) ( 6,804 ) Total stockholders' equity 346,002 340,176 Total liabilities and stockholders' equity $ 1,035,806 $ 1,075,712 The accompanying notes are an integral part of the Consolidated Financial Statements. 2 Cars.com Inc. Consolidated Statements of Income (Loss) (In thousands, except per share data) (Unaudited) Three Months Ended March 31, 2021 2020 Revenue: Dealer $ 132,958 $ 125,361 OEM and National 18,069 19,393 Other 2,268 3,340 Total revenue 153,295 148,094 Operating expenses: Cost of revenue and operations 27,831 26,030 Product and technology 16,760 14,873 Marketing and sales 53,211 54,922 General and administrative 13,266 14,117 Affiliate revenue share — 6,369 Depreciation and amortization 25,680 30,961 Goodwill and intangible asset impairment — 905,885 Total operating expenses 136,748 1,053,157 Operating income (loss) 16,547 ( 905,063 ) Nonoperating expense: Interest expense, net ( 10,001 ) ( 7,526 ) Other income (expense), net 38 ( 9,501 ) Total nonoperating expense, net ( 9,963 ) ( 17,027 ) Income (loss) before income taxes 6,584 ( 922,090 ) Income tax expense (benefit) 1,306 ( 134,656 ) Net income (loss) $ 5,278 $ ( 787,434 ) Weighted-average common shares outstanding: Basic 67,787 66,938 Diluted 70,254 66,938 Earnings (loss) per share: Basic $ 0.08 $ ( 11.76 ) Diluted 0.08 ( 11.76 ) The accompanying notes are an integral part of the Consolidated Financial Statements. 3 Cars.com Inc. Consolidated Statements of Comprehensive Income (Loss) (In thousands) (Unaudited) Three Months Ended March 31, 2021 2020 Net income (loss) $ 5,278 $ ( 787,434 ) Other comprehensive income (loss), net of tax: Interest rate swap — ( 7,761 ) Reclassification of amortization of accumulated other comprehensive income (loss) on interest rate swap into net income (loss) 1,200 950 Total other comprehensive income (loss) 1,200 ( 6,811 ) Comprehensive income (loss) $ 6,478 $ ( 794,245 ) The accompanying notes are an integral part of the Consolidated Financial Statements. 4 Cars.com Inc. Consolidated Statements of Stockholders’ Equity (In thousands) (Unaudited) Preferred Stock Common Stock Additional Paid-In Accumulated Accumulated Other Comprehensive Stockholders' Shares Amount Shares Amount Capital Deficit Loss Equity Balance at December 31, 2020 — $ — 67,387 $ 674 $ 1,530,493 $ ( 1,184,187 ) $ ( 6,804 ) $ 340,176 Net income — — — — — 5,278 — 5,278 Other comprehensive income, net of tax — — — — — — 1,200 1,200 Shares issued in connection with stock-based compensation plans, net — — 1,144 11 ( 5,641 ) — — ( 5,630 ) Stock-based compensation — — — — 4,978 — — 4,978 Balance at March 31, 2021 — $ — 68,531 $ 685 $ 1,529,830 $ ( 1,178,909 ) $ ( 5,604 ) $ 346,002 Preferred Stock Common Stock Additional Paid-In Accumulated Accumulated Other Comprehensive Stockholders' Shares Amount Shares Amount Capital Deficit Loss Equity Balance at December 31, 2019 — $ — 66,764 $ 668 $ 1,515,109 $ ( 367,067 ) $ ( 7,642 ) $ 1,141,068 Net loss — — — — — ( 787,434 ) — ( 787,434 ) Other comprehensive loss, net of tax — — — — — — ( 6,811 ) ( 6,811 ) Shares issued in connection with stock-based compensation plans, net — — 197 2 ( 906 ) — — ( 904 ) Stock-based compensation — — — — 1,971 — — 1,971 Balance at March 31, 2020 — $ — 66,961 $ 670 $ 1,516,174 $ ( 1,154,501 ) $ ( 14,453 ) $ 347,890 The accompanying notes are an integral part of the Consolidated Financial Statements. 5 Cars.com Inc. Consolidated Statements of Cash Flows (In thousands) (Unaudited) Three Months Ended March 31, 2021 2020 Cash flows from operating activities: Net income (loss) $ 5,278 $ ( 787,434 ) Adjustments to reconcile Net income (loss) to Net cash provided by operating activities: Depreciation 4,021 5,683 Amortization of intangible assets 21,659 25,278 Goodwill and intangible asset impairment — 905,885 Impairment of non-marketable security — 9,447 Amortization of accumulated other comprehensive income on interest rate swap 1,417 — Stock-based compensation 4,978 1,971 Deferred income taxes ( 226 ) ( 133,064 ) Provision for doubtful accounts 129 1,606 Amortization of debt issuance costs 834 556 Other, net ( 34 ) 75 Changes in operating assets and liabilities: Accounts receivable 282 5,087 Prepaid expenses ( 3,461 ) ( 1,566 ) Other current assets 8,915 ( 218 ) Other assets 328 458 Accounts payable 6,438 5,133 Accrued compensation ( 9,141 ) ( 7,682 ) Other accrued liabilities 10,839 ( 1,661 ) Other noncurrent liabilities ( 1,894 ) ( 662 ) Net cash provided by operating activities 50,362 28,892 Cash flows from investing activities: Purchase of property and equipment ( 6,219 ) ( 5,755 ) Net cash used in investing activities ( 6,219 ) ( 5,755 ) Cash flows from financing activities: Proceeds from revolving loan borrowings — 165,000 Payments of long-term debt ( 52,500 ) ( 13,438 ) Stock-based compensation plans, net ( 5,630 ) ( 904 ) Payments of debt issuance costs and other fees ( 8 ) — Net cash (used in) provided by financing activities ( 58,138 ) 150,658 Net (decrease) increase in cash and cash equivalents ( 13,995 ) 173,795 Cash and cash equivalents at beginning of period 67,719 13,549 Cash and cash equivalents at end of period $ 53,724 $ 187,344 Supplemental cash flow information: Cash (received) paid for income taxes, net of refunds $ ( 9,045 ) $ 124 Cash paid for interest and interest rate swap 3,503 6,956 The accompanying notes are an integral part of the Consolidated Financial Statements. 6 Cars.com Inc. Notes to the Consolidated Financial Statements (Unaudited) NOTE 1. Description of Business, Company History and Summary of Significant Accounting Policies Description of Business. Cars.com Inc. (the “Company” or “CARS”) is a leading digital marketplace and solutions provider for the automotive industry, connecting car shoppers with sellers. Through the marketplace, dealer websites and other digital products, the Company showcases dealer inventory, elevates and amplifies dealers’ and automotive manufacturers’ (“OEMs”) brands, connects sellers with the Company’s ready-to-buy audience and empowers shoppers with the resources and information needed to make confident car buying decisions. The Company’s digital solutions strategy builds on the rich data and audience of its digital marketplace to offer media and solutions that drive growth and efficiency for the automotive industry. The Company’s portfolio of brands now includes Cars.com, Dealer Inspire, FUEL, DealerRater, Auto.com, PickupTrucks.com and NewCars.com. Basis of Presentation . These accompanying unaudited interim Consolidated Financial Statements (“Consolidated Financial Statements”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial statements. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. These Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the notes thereto for the year ended December 31, 2020, which are included in the Company's Annual Report on Form 10-K dated February 25, 2021 (the “December 31, 2020 Financial Statements”). The significant accounting policies used in preparing these Consolidated Financial Statements were applied on a basis consistent with those reflected in the December 31, 2020 Financial Statements. In the opinion of management, the Consolidated Financial Statements contain all adjustments (consisting of a normal, recurring nature) necessary to present fairly the Company's financial position, results of operations, cash flows and changes in stockholders' equity as of the dates and for the periods indicated. The unaudited results of operations for the three months ended March 31, 2021 are not necessarily indicative of results that may be expected for the year ending December 31, 2021. Use of Estimates. The preparation of the accompanying Consolidated Financial Statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported in the Consolidated Financial Statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may differ from those estimates. Reclassifications . Certain prior year balances have been reclassified to conform to the current year presentation. In addition, effective January 1, 2021, the Company renamed its revenue categories as follows: "Direct" revenue is now "Dealer" revenue and "National advertising" revenue is now "OEM and National" revenue. This naming convention change has no impact on the components or the historical amounts of the respective revenue categories. Dealer revenue consists of marketplace and digital solutions sold to dealer customers. OEM and National revenue consists of display advertising and other solutions sold to OEMs, advertising agencies, automotive dealer associations and auto adjacent businesses. Principles of Consolidation . The accompanying Consolidated Financial Statements include the accounts of Cars.com Inc. and its 100 % owned subsidiaries. All intercompany transactions and accounts are eliminated in consolidation. NOTE 2. Revenue Revenue Summary . In the table below (in thousands), revenue is disaggregated by major products and services. The Company only has one reportable segment; therefore, further disaggregation is not applicable at this time. Three Months Ended March 31, Major products and services 2021 2020 Subscription advertising and digital solutions $ 125,446 $ 117,263 Display advertising 21,957 23,359 Pay per lead 3,760 5,743 Other 2,132 1,729 Total revenue $ 153,295 $ 148,094 7 Cars.com Inc. Notes to the Consolidated Financial Statements (continued) (Unaudited) NOTE 3. Goodwill and Indefinite-lived Intangible Asset In March 2020, the Company determined there was a triggering event, caused by the economic impacts of the novel coronavirus disease 2019 (“COVID-19”) pandemic and related restrictions. The Company performed interim quantitative impairment tests as of March 31, 2020. The results of the goodwill and indefinite-lived intangible asset impairment tests indicated at the time, due to the projected impacts of COVID-19, that the carrying values exceeded the estimated fair values and thus, the Company recorded an impairment of $ 505.9 million and $ 400.0 million related to its goodwill and indefinite-lived intangible asset, respectively. NOTE 4. Debt As of March 31, 2021, the Company was in compliance with the covenants under its debt agreements. Term Loan. As of March 31, 2021, the outstanding principal amount under the Term Loan was $ 145.0 million and the interest rate in effect was 2.8 %, not including the impact of the interest rate swap . During the three months ended March 31, 2021, the Company made $ 52.5 million in Term Loan payments, of which $ 50.0 million were voluntary. Revolving Loan. As of March 31, 2021, $ 230.0 million was available to borrow under the Revolving Loan. The Company had zero drawdowns on the Revolving Loan during the three months ended March 31, 2021. Senior Unsecured Notes. In October 2020, the Company issued $ 400.0 million aggregate principal amount of 6.375% senior unsecured notes due 2028. Interest on the notes is due semi-annually on May 1 and November 1. Fair Value. The Company's debt is classified as Level 2 in the fair value hierarchy and the fair value is measured based on comparable trading prices, ratings, sectors, coupons and maturities of similar instruments. As of March 31, 2021, the fair value of the outstanding indebtedness was approximately $ 560.6 million, compared to the carrying value of $ 545.0 million. As of December 31, 2020, the fair value approximated the carrying value. NOTE 5. Interest Rate Swap The interest rate on borrowings under the Company’s Term Loan is floating and, therefore, subject to fluctuations. In order to manage the risk associated with changes in interest rates on its borrowing under the Term Loan, the Company entered into an interest rate swap (the “Swap”) effective December 31, 2018. Under the terms of the Swap, the Company is locked into a fixed rate of interest of 2.96 % plus an applicable margin, as defined in the Company’s Credit Agreement, 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, the Company entered into the second amendment to the Credit Agreement, which triggered a quantitative hedge effectiveness test that resulted in the loss of hedge accounting. As a result, as of the date of the second amendment, the unrealized loss included within Accumulated other comprehensive loss was frozen and 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 are recorded within Other income (expense), net on the Consolidated Statements of Income (Loss). During the fourth quarter of 2020, the Company entered into the third amendment to the Credit Agreement, which triggered a partial debt extinguishment, including a partial extinguishment of the underlying Term Loan. Due to the reduction in the Term Loan as compared to the notional amount of the Swap, the Company wrote-off a proportional amount of the frozen Accumulated other comprehensive loss balance as of the date of the partial extinguishment proportional to the reduction in the underlying notional amount of Term Loan. The Company will continue to amortize the remaining Accumulated other comprehensive loss to Interest expense, net and Income tax expense (benefit) within the Consolidated Statements of Income (Loss) through the remainder of the term of the Swap. Any changes in the fair value of the Swap will continue to be recorded within Other 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 8 Cars.com Inc. Notes to the Consolidated Financial Statements (continued) (Unaudited) loss and recorded in Interest expense, net, respectively. During the three months ended March 31, 202 1 , the Company made payments of $ 2.1 million related to the Swap and $ 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). NOTE 6. Commitments and Contingencies The Company and its subsidiaries are parties from time to time in legal and administrative proceedings involving matters incidental to its business. These matters, whether pending, threatened or unasserted, if decided adversely to the Company or settled, may result in liabilities material to its financial position, results of operations or cash flows. The Company records a liability when it believes that it is both probable that a loss will be incurred and the amount of loss can be reasonably estimated. The Company evaluates, at least quarterly, developments in its legal matters that could affect the amount of liability that has been previously accrued and makes adjustments as appropriate. Significant judgment is required to determine both the probability and the estimated amount. NOTE 7. Stock-Based Compensation Restricted Stock Units (“RSUs”) and Restricted Stock. RSUs represent the right to receive unrestricted shares of the Company’s common stock at the time of vesting, subject to any restrictions as specified in the individual holder’s award agreement. RSUs are subject to graded vesting, generally ranging between one and four years and the fair value of RSUs is equal to the Company’s common stock price on the date of grant. Restricted Stock represents RSUs that have been delivered to certain non-employee directors who have elected to receive shares underlying RSUs before they vest. Restricted Stock is subject to vesting over one year and the fair value of the Restricted Stock is equal to the Company’s common stock price on the date of grant. RSU and Restricted Stock activity for the three months ended March 31, 2021 is as follows (in thousands, except for weighted-average grant date fair value): Number of RSUs and Restricted Stock Weighted-Average Grant Date Fair Value Outstanding as of December 31, 2020 4,061 $ 8.31 Granted 1,351 15.17 Vested and delivered ( 1,171 ) 8.20 Forfeited ( 37 ) 8.54 Outstanding as of March 31, 2021 (1)(2) 4,204 10.54 (1) Included in “Outstanding as of March 31, 2021” are 108 shares of Restricted Stock that were delivered, but not yet vested . (2) Included in “Outstanding as of March 31, 2021” are 91 RSUs that were vested, but not yet delivered . Performance Stock Units (“PSUs”). PSUs represent the right to receive unrestricted shares of the Company’s common stock at the time of vesting. The fair value of the PSUs is equal to the Company’s common stock price on the date of grant. Expense related to PSUs is recognized when the performance conditions are probable of being achieved. The percentage of PSUs that may vest ranges from 0 % to 200 % of the number of PSUs granted based on the Company’s future performance related to certain revenue targets and adjusted earnings before interest, income taxes, depreciation and amortization targets over a three-year performance period. PSUs are subject to cliff vesting at the end of the respective performance period. PSU activity for the three months ended March 31, 2021 is as follows (in thousands, except for weighted-average grant date fair value): Number of PSUs Weighted-Average Grant Date Fair Value Outstanding as of December 31, 2020 730 $ 9.28 Granted — — Vested and delivered ( 588 ) 5.74 Forfeited — — Outstanding as of March 31, 2021 142 23.98 Stock Options. Stock options represent the right to purchase shares of the Company’s common stock at the time of vesting, subject to any restrictions as specified in the individual holder’s award agreement. Stock options are subject to three-year cliff vesting and expire 10 years from the grant date. Stock option activity for the three months ended March 31, 2021 is as follows (in thousands, except for weighted-average grant date fair value and weighted-average remaining contractual term): 9 Cars.com Inc. Notes to the Consolidated Financial Statements (continued) (Unaudited) Number of Options Weighted-Average Grant Date Fair Value Weighted-Average Remaining Contractual Term (in years) Aggregate Intrinsic Value Outstanding as of December 31, 2020 513 $ 2.80 9.22 $ 3,028 Granted 291 9.63 — — Exercised — — — — Forfeited — — — — Outstanding as of March 31, 2021 804 5.27 9.33 3,880 Exercisable as of March 31, 2021 — — — — The fair value of the stock options granted during the three months ended March 31, 2021 and 2020 are estimated on the grant date using the Black-Scholes option pricing model, using the following assumptions: 2021 2020 Risk-free interest rate 1.15 % 1.01 % Weighted-average volatility 69.00 % 53.08 % Dividend yield 0 % 0 % Expected years until exercise 6.5 6.5 NOTE 8. Earnings (Loss) Per Share Basic earnings (loss) per share is calculated by dividing Net income (loss) by the weighted-average number of shares of common stock outstanding. Diluted earnings (loss) per share is similarly calculated, except that the calculation includes the dilutive effect of the assumed issuance of shares under stock-based compensation plans, unless the inclusion of such shares would have an anti-dilutive effect. The computation of Earnings (loss) per share is as follows (in thousands, except per share data): Three Months Ended March 31, 2021 2020 Net income (loss) $ 5,278 $ ( 787,434 ) Basic weighted-average common shares outstanding 67,787 66,938 Effect of dilutive stock-based compensation awards (1) 2,467 — Diluted weighted-average common shares outstanding 70,254 66,938 Earnings (loss) per share, basic $ 0.08 $ ( 11.76 ) Earnings (loss) per share, diluted 0.08 ( 11.76 ) (1) There were 1,815 and 4,516 potential common shares excluded from diluted weighted-average common shares outstanding for the three months ended March 31, 2021 and 2020, respectively, as their inclusion would have an anti-dilutive effect. NOTE 9. Other Income (Expense), net Included in Other income (expense), net in the three months ended March 31, 2020 was a full impairment of $ 9.4 million of a non-marketable investment, triggered by the COVID-19 pandemic and related restrictions. This investment had been recorded within Investments and other assets, net on the Consolidated Balance Sheets. NOTE 10. Income Taxes Deferred Tax Asset and Valuation Allowance. As a result of the goodwill and indefinite-lived intangible asset impairments recorded during the three months ended March 31, 2020, the Company has recorded a full valuation allowance against its deferred tax assets as of March 31, 2021, which represents the balance of deferred tax assets that the Company has concluded that it is not more likely than not to realize. In reaching this conclusion, in accordance with U.S. GAAP, the Company has evaluated all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized in future periods. As of March 31, 2021, the Company determined, based upon the evaluation of all available evidence, that there was sufficient significant negative evidence presented by the Company’s history of recent losses to conclude it was more likely than not that its deferred tax assets would not be realized. 10 Cars.com Inc. Notes to the Consolidated Financial Statements (continued) (Unaudited) Therefore, the Company has recorded a full valuation allowance against its deferred tax assets. At each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. Effective Tax Rate. The effective income tax rate, expressed by calculating the income tax expense as a percentage of Income before income tax, was 19.8 % for the three months ended March 31, 2021, which varied from 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 the Company’s net deferred tax asset position recorded during the three months ended March 31, 2021. The effective income tax rate was 14.6 % for the three months ended March 31, 2020. The effective tax rate differed from the statutory federal income tax rate of 21 %, primarily due to the tax impact of the goodwill and intangible asset impairments and the valuation allowance recorded during the three months ended March 31, 2020. (In thousands, except percentages) Three Months Ended March 31, 2021 Income tax provision at statutory rate $ 1,383 21.0 % State income taxes, net of federal income tax benefit 236 3.6 Stock-based compensation ( 2,679 ) ( 40.7 ) Uncertain tax positions 870 13.2 Valuation allowance 1,802 27.3 Other, net ( 306 ) ( 4.6 ) Income tax expense $ 1,306 19.8 % 11 Note About Forward-Looking Statements This report contains “forward-looking statements” within the meaning of the federal securities laws. All statements other than statements of historical facts are forward-looking statements. Forward-looking statements include information concerning the impact of the COVID-19 pandemic and related restrictions on our industry, our dealer customers and our results of operations, our business strategies, strategic alternatives, plans and objectives, market potential, outlook, trends, future financial performance, planned operational and product improvements, potential strategic transactions, liquidity, including draws from our revolving loan, expense management and other matters and involve known and unknown risks that are difficult to predict. As a result, our actual financial results, performance, achievements, strategic actions or prospects may differ materially from those expressed or implied by these forward-looking statements. These statements often include words such as “believe,” “expect,” “project,” “anticipate,” “outlook,” “intend,” “strategy,” “plan,” “estimate,” “target,” “seek,” “will,” “may,” “would,” “should,” “could,” “forecasts,” “mission,” “strive,” “more,” “goal” or similar expressions. Forward-looking statements are based on our current expectations, beliefs, strategies, estimates, projections and assumptions, based on our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments, current developments regarding the COVID-19 pandemic and other factors we think are appropriate. Such forward-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by us and our management based on our knowledge and understanding of the business and industry, are inherently uncertain. These statements are expressed in good faith and we believe these judgments are reasonable. However, you should understand that these statements are not guarantees of strategic action, performance or results. Our actual results and strategic actions could differ materially from those expressed in the forward-looking statements. Given these uncertainties, forward-looking statements should not be relied on in making investment decisions. Comparisons of results between current and prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data. Whether or not any such forward-looking statement is in fact achieved will depend on future events, some of which are beyond our control. Important factors that could cause actual results or events to differ materially from those anticipated include, among others: • The COVID-19 pandemic and related restrictions have materially and adversely affected, and could continue to materially and adversely affect, our business, financial condition, liquidity and results of operations. • We participate in a highly competitive market, and pressure from existing and new competitors may materially and adversely affect our business, results of operations or financial condition. • We compete with other consumer automotive websites and mobile applications and other digital content providers for share of automotive-related digital display advertising spending and may be unable to maintain or grow our base of advertising customers or increase our revenue from existing advertisers. • Our business depends on our strong brand recognition, and any failure to maintain, protect and enhance our brands could hurt our ability to retain or expand our base of consumers, dealers and advertisers, and our ability to increase the frequency with which consumers, dealers and advertisers use our services. • We rely in part on Internet search engines and mobile application stores to drive traffic to the CARS sites and increase downloads of our mobile applications. If the CARS sites and mobile applications fail to appear prominently in these search results, traffic to the CARS sites and mobile applications would decline and our business, results of operations or financial condition may be materially and adversely affected. • If we fail to maintain or increase our base of subscribing dealers that purchase our solutions or to increase our revenue from subscribing dealers, our business, results of operations or financial condition may be materially and adversely affected. • We may face difficulties in developing new solution offerings as a full-service solutions provider that help automotive brands and dealers create enduring customer relationships. • We cannot assure you that we will be able to continue to successfully develop and launch new products or grow our complementary product offerings. • The value of our assets or operations may be diminished if our information technology systems fail to perform adequately. • Our business is dependent on keeping pace with advances in technology. If we are unable to keep pace with advances in technology, consumers may stop using our services and our revenue may decrease. • We rely on technology systems’ availability and ability to prevent unauthorized access. If our security and resiliency measures fail to prevent incidents, it could result in damage to our reputation, incur costs and create liabilities. • Market acceptance of and influence over certain of our products and services is concentrated with a limited number of automobile OEMs and dealership associations, and we may not be able to maintain or grow these relationships. 12 • We rely on third-party service providers for many aspects of our business, including inventory information and sales of our product through social media and interruptions in the services or data they provide or any failure to maintain these relationships could harm our business. • We rely on in-house content creation and development to drive organic traffic to the CARS sites and mobile applications. • Our ability to attract and retain dealer customers depends on our ability to collect and use data and develop tools to enable us to effectively deliver and accurately measure advertisements on our platform. • We rely on third-party services to track and calculate certain of our key metrics, including unique visitors and traffic and any errors or interruptions in the services or data they provide or any failure to maintain these relationships could harm our business. • Our business is subject to risks related to the larger automotive ecosystem, including consumer demand and other macroeconomic issues. • If growth in the digital automotive advertising market or automotive digital solutions market stagnates or declines, our business, results of operations or financial condition could be materially and adversely affected. • Dealer closures or consolidation among dealers or OEMs could reduce demand for, and the pricing of, our marketing and solutions offerings, thereby leading to decreased earnings. • Uncertainty exists in the application and interpretation of various laws and regulations related to our business, including privacy laws such as the California Consumer Privacy Act and the upcoming California Privacy Rights Act. New privacy concerns or laws or regulations applicable to our business, or the expansion or interpretation of existing laws and regulations that apply to our business, could reduce the effectiveness of our offerings or subject us to use restrictions, licensing requirements, claims, judgments and remedies including sales and use taxes, other monetary liabilities and limitations on our business practices, and could increase administrative costs. • If we do not adapt to automated buying strategies quickly, our display advertising revenue could be adversely affected. • If our mobile applications do not continue to meet consumer demands or we are unable to successfully monetize our mobile advertising solutions, our business, results of operations or financial condition may be materially and adversely affected. • Our ability to operate effectively could be impaired if we fail to attract and retain our key employees. • Misappropriation or infringement of our intellectual property and proprietary rights, enforcement actions to protect our intellectual property and claims from third parties relating to intellectual property could materially and adversely affect our business, results of operations or financial condition. • Strategic acquisitions, investments and partnerships could pose various risks, increase our leverage, dilute existing stockholders and significantly impact our ability to expand our overall profitability. • Adverse results from litigation or governmental investigations could impact our business practices and operating results. • The value of our existing intangible assets may become impaired depending upon future operating results. • If we expand into new geographic markets, we may be prevented from using our brands in such markets. • Seasonality may cause fluctuations in our revenue and operating results. • We do not expect to pay any cash dividends for the foreseeable future. • Your percentage of ownership in the Company may be diluted in the future. • Certain provisions of our Amended and Restated Certificate of Incorporation, By-laws, and Delaware law may discourage takeovers and limit our ability to use, acquire, or develop certain competing businesses. • Our Amended and Restated Certificate of Incorporation designates the state courts of the State of Delaware, or, if no state court located in the State of Delaware has jurisdiction, the federal court for the District of Delaware, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could discourage lawsuits against us and our directors and officers. • Our business could be negatively affected as a result of actions of activist stockholders, and such activism could impact the trading value of our common stock. • Our debt agreements contain restrictions that may limit our flexibility in operating our business. • Increases in interest rates could increase interest payable under our variable rate indebtedness. 13 • Uncertainty relating to the London Interbank Offered Rate (“LIBOR”) calculation process, potential phasing out of LIBOR and any transition to the Secured Overnight Financing Rate may adversely affect the market value of our current or future debt obligations, including our long-term debt instruments and our bank credit facilities. For a detailed discussion of many of these risks and uncertainties, see “Part I, Item 1A., Risk Factors” and “Part II, Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the Securities and Exchange Commission (“SEC”) on February 25, 2021, our Current Reports on Form 8-K filed with the SEC and available on our website at investor.cars.com or via EDGAR at www.sec.gov. All forward-looking statements contained in this report are qualified by these cautionary statements. You should evaluate all forward-looking statements made in this report in the context of these risks and uncertainties. Moreover, you should interpret many of the risks identified in this report, as well as the risks set forth above, as being heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic and related restrictions. The forward-looking statements contained in this report are based only on information currently available to us and speak only as of the date of this report. We undertake no obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, or changes in future operating results over time or otherwise. The forward-looking statements in this report are intended to be subject to the safe harbor protection provided by the federal securities laws. 14