CARS Announces Strong Preliminary Third-Quarter 2020 Results

Solutions Strategy Drives Expected Quarter-Over-Quarter Growth in Dealer Customers and ARPD

CHICAGO, Oct. 14, 2020 /PRNewswire/ — Inc.[1] (NYSE: CARS) (“CARS”), a leading digital marketplace and solutions provider for the automotive industry, announced strong business momentum in its preliminary results for the third quarter of 2020.

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Based on preliminary information, CARS expects third quarter revenue of approximately $142 to $144 million and an Adjusted EBITDA margin between 33% and 34%. A measured approach to investment in the business helped drive a strong estimated quarterly Adjusted EBITDA margin and year-over-year growth in Adjusted EBITDA. CARS expects to continue to invest in the business through increased marketing and selective hiring to drive growth in the coming quarters. CARS continues to work to reduce leverage and optimize its capital structure.

CARS continued to see strong value delivery to its customers during the third quarter, capitalizing on consumers’ desire to connect with dealers digitally, leading to all-time low cancellation rates and net growth of nearly 100 dealer customers during the quarter.

“The digital car-buying market has strengthened and dealer customers are further leveraging our unique digital solutions to drive profitable sales. Our preliminary results show continued momentum in our business with all-time high retention rates, sequential growth in dealer customers and ARPD and year-over-year growth in traffic and Adjusted EBITDA,” said Alex Vetter, president and CEO of CARS.

Additionally, based on preliminary results, net loss for the third quarter is expected to be between $10 and $12 million, primarily due to an approximately $31 million noncash charge for the correction of an error related to the calculation of the valuation allowance for income taxes established in connection with an impairment recorded in the first quarter of 2020. The adjustment is not material in the context of CARS’ first quarter net loss of $787 million, which was primarily the result of a $906 million impairment charge, and thus is being recorded in the third quarter. This noncash adjustment will be recorded within the income tax line of the financial statements and has no impact on Adjusted EBITDA or Free Cash Flow. 

CARS ended the third quarter of 2020 with approximately $44 million of cash and cash equivalents and $598 million in debt outstanding after paying down approximately $48 million in debt during the quarter. 

The preliminary estimates for the quarter ended Sept. 30, 2020, set forth herein are not yet complete and are based on information available to our management team as of the date hereof. We have prepared the preliminary estimates disclosed in good faith based upon our internal reporting. These estimates are preliminary and unaudited, inherently uncertain and subject to change as we complete our financial statements as of and for the quarter ended Sept. 30, 2020. These preliminary estimates are not guarantees of actual performance, and are not guarantees of, or indicative of, future performance. Given the timing of these preliminary estimates, we have not completed our customary financial closing and review procedures, including full income tax calculations and management’s review of the results. We may identify other items that require material adjustments to these preliminary estimates as we finalize our financial statement close procedures for the quarter. Accordingly, these preliminary estimates should not be viewed as a substitute for full interim financial statements for the quarter prepared in accordance with GAAP. Final results for the third quarter of 2020 could differ materially from these preliminary estimates. You should exercise caution in relying on these preliminary estimates and should not place undue reliance on this information or draw any inferences from this information regarding financial or operating data not yet provided or available. These preliminary results are subject to the final review by our audit committee and review by our independent registered public accounting firm. Accordingly, our independent registered public accounting firm does not express an opinion or any other form of assurance with respect thereto. Important factors that could cause our actual results to differ from these preliminary estimates are set forth below under “Forward-Looking Statements.”

We have not included a GAAP reconciliation of our preliminary Adjusted EBITDA margin because we have not yet completed our financial closing procedures for the quarter ended September 30, 2020 and such reconciliation could not be produced without unreasonable effort. We will provide a full GAAP reconciliation of final Adjusted EBITDA when we report our full third quarter 2020 financial results.

About CARS

CARS is a leading digital marketplace and solutions provider for the automotive industry that connects car shoppers with sellers. Launched in 1998 with the flagship marketplace and headquartered in Chicago, the Company empowers shoppers with the data, resources and digital tools needed to make informed buying decisions and seamlessly connect with automotive retailers. In a rapidly changing market, CARS enables dealerships and OEMs with innovative technical solutions and data-driven intelligence to better reach and influence ready-to-buy shoppers, increase inventory turn and gain market share. 

In addition to, CARS companies include Dealer Inspire, a technology provider building solutions that future-proof dealerships with more efficient operations and connected digital experiences, FUEL, which gives dealers and OEMs the opportunity to harness the untapped power of digital video by leveraging’s pure audience of in-market car shoppers, and DealerRater, a leading car dealer review and reputation management platform. 

The full suite of CARS properties include[2]™, Dealer Inspire[3]®, DealerRater[4]®, FUEL[5]™,[6]™,[7]™ and[8]®. For more information, visit[9].

Non-GAAP Financial Measures

This press release discusses Adjusted EBITDA margin. This financial measure is not prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). This financial measure is presented as a supplemental measure of operating performance because we believe it provides meaningful information regarding our performance and provides a basis to compare operating results between periods. In addition, we use Adjusted EBITDA as a measure for determining incentive compensation targets. Adjusted EBITDA also is used as a performance measure under our credit agreement and includes adjustments such as the items defined below and other further adjustments, which are defined in the credit agreement. Non-GAAP financial measures are frequently used by our lenders, securities analysts, investors and other interested parties to evaluate companies in our industry.

Other companies may define or calculate non-GAAP financial measures differently, limiting their usefulness as comparative measures. Because of these limitations, non-GAAP financial measures should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP.

We define Adjusted EBITDA as net income (loss) before (1) interest expense (income), net, (2) income tax expense (benefit), (3) depreciation, (4) amortization of intangible assets, (5) stock-based compensation expense, (6) unrealized mark-to-market adjustments related to derivative instruments, and (7) certain other items, such as transaction-related costs, costs associated with the stockholder activist campaign, severance, transformation and other exit costs and write-off and impairments of goodwill, intangible assets and other long-lived assets. We define Adjusted EBITDA margin as Adjusted EBITDA expressed as a percentage of revenue. Amortization of unfavorable contracts liability is not adjusted out of Adjusted EBITDA.

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