Business description of Carscom-Inc from last 10-k form

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2017

Commission File Number 001-37869

Cars.com Inc.

(Exact name of Registrant as specified in its Charter)

Registrant’s telephone number, including area code: (312) 601-5000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class             Name of the Exchange on Which Registered

Common Stock, Par Value $0.01 Per Share                The New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). YES ☒ NO ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☒

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

At June 30, 2017, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of common stock held by non-affiliates was $1,906,400,272 based on the closing sale price of common stock on such date of $26.63 per share on the New York Stock Exchange.

The number of shares of Registrant’s Common Stock outstanding as of February 28, 2018 was 71,863,324.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Definitive Proxy Statement relating to the Annual Meeting of Stockholders, scheduled to be held on May 18, 2018, are incorporated by reference into Part III of this Report.

Table of Contents

Disclosure Regarding Forward-looking Statements

This report contains certain forward-looking statements regarding business strategies, market potential, future financial performance and other matters. The words “believe,” “expect,” “estimate,” “could,” “should,” “intend,” “may,” “plan,” “seek,” “anticipate,” “project” and similar expressions, among others, generally identify “forward-looking statements.” The matters discussed in these forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those projected, anticipated or implied in the forward-looking statements. Where, in any forward-looking statement, an expectation or belief as to future results or events is expressed, such expectation or belief is based on the current plans and expectations of our management and is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. 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, those set forth under “Part I, Item 1A., Risk Factors” of this report. There may be other factors, some of which are beyond Cars.com’s control, that may cause our actual results to differ materially from the forward-looking statements contained in this report. You should evaluate all forward-looking statements made in this report in the context of these risks and uncertainties. The forward-looking statements contained in this report speak only as of the date of this report. Except as may be required by law, Cars.com undertakes no obligation to modify or revise any forward-looking statement to reflect new information, events or circumstances occurring after the date of this report.

Item 1. Business.

Cars.com Inc., a Delaware corporation, and its consolidated subsidiaries are referred to here as “Cars.com™,” the “Company,” “our,” “us” or “we.” Cars.com conducts all of its operations through its wholly owned subsidiaries Cars.com, LLC and DealerRater.com, LLC.

Overview

Cars.com is a leading two-sided digital automotive marketplace that creates meaningful connections between consumers (individuals researching cars or looking to purchase a car) and partners or customers (car dealerships and automotive original equipment manufacturers (“OEMs”). While connecting advertising partners with in-market car shoppers and providing data-driven intelligence to increase inventory turn and gain market share, the Company empowers consumers with resources and information to assist them in making better informed buying decisions around The 4Ps of Automotive Marketing^TM: Product, Price, Place and Person. The Company has evolved into one of the largest digital automotive platforms, connecting tens of thousands of local dealers across the country with millions of consumers. Through trusted expert content, on-the-lot mobile features and intelligence, millions of new and used vehicle listings, a comprehensive set of pricing and research tools, and the largest database of consumer reviews in the industry, we believe Cars.com is transforming the car shopping experience.

We generate revenues primarily through the sale of online subscription advertising products targeting car dealerships through our own direct sales force, as well as through our affiliate sales channels. We host approximately 4.9 million new and used vehicle listings at any given time and serve over 20,000 franchise and independent car dealers throughout all 50 states. We also generate revenue through the sale of digital advertising products to national advertisers.

Cars.com was established in 1998 as a division of Classified Ventures, LLC, a joint venture formed by eight leading media companies, to provide nationally branded online services for classified advertising marketplaces. On October 1, 2014, TEGNA Inc. (“TEGNA”), our former parent company, purchased 73% of the equity interests in Classified Ventures, LLC it did not previously own for $1.8 billion in cash. In August 2016, we expanded our editorial presence through the acquisition of DMR Holdings, Inc. (“DealerRater”) which provided us with new solutions to help car dealerships and OEMs manage, measure and harness the power of social media. On May 31, 2017, we completed a spin-off from TEGNA and on June 1, 2017, our common stock began trading “regular way” on the New York Stock Exchange (the “NYSE”). In February 2018, we completed the acquisition of privately held Dealer Inspire Inc. (“DI”) and Launch Digital Marketing (“LDM”). DI is an innovative technology leader that has been rapidly increasing its market share by providing progressive dealer websites, digital retailing and messaging platform products. LDM is a provider of digital automotive marketing services, including paid, organic, social and creative services. These proprietary solutions are complementary extensions of the Company’s online marketplace platform and current suite of dealer solutions. We now have broader capabilities and even more data-driven tools to create deeper connections between car dealerships and in-market car shoppers. Cars.com, DI and LDM thrive on a culture of innovation, and are in pursuit of a common mission to enable the dealer retail system

with sophisticated digital tools that transform the car shopping experience for consumers. The 2017 financial results reported in this report do not include the impacts from the acquisitions of DI and LDM.

In 2005, we added a direct sales team to join our affiliate sales team, which was on board as a result of our media partners. To better serve our growing consumer audience and drive more traffic, we developed an editorial team made up of industry experts who launched robust, objective automotive information for car shoppers. By 2010, all major OEMs selling vehicles in the United States were advertising on Cars.com.

We were the first in our industry to launch a mobile application (“application” or “app”) in 2007 and we continue to outpace the industry in mobile today. The Cars.com app is rated #1 for both iOS and Android devices and our active app users are the highest in the competitive set. It is not uncommon that with media and technology businesses, user behavior and migration typically precedes advertiser rewards, and we are positioned well to win. Over half of all auto advertising is spent on traditional media where proof of impact is relatively scarce. Traditionally, dealers rely solely on lead-generation metrics where consumers provide their contact information. Today, consumers are using mobile devices to shop anonymously. Accordingly, we track traditional leads, which are connections from consumers to dealers in the form of phone calls, emails and text messages, traffic to dealers in OEM websites and, most recently, mobile walk-ins through our Lot Insights reporting tool, which is the first of its kind in the industry. Using geo-fencing technology, we are able to track Cars.com consumers on or near a dealer’s lot which delivers valuable insights and demonstrable value of the influence that we have on mobile shoppers to dealer advertisers. It will take time for us to educate the industry and transition forward to measuring consumer behavior in this manner.

As consumer demand for transparency spreads across nearly all industries, we became one of the first sites shoppers could go to for dealer reviews. Since launching the reviews feature in 2011, we own the largest platform for automotive reviews in the industry. In August 2016, we deepened our editorial presence through the acquisition of DealerRater. The acquisition provides us with new solutions to help dealers and OEMs manage, measure and harness the power of social media. In January 2017, Cars.com and DealerRater launched DealerRater Connections, a feature that connects dealership salespeople to motivated, in-market shoppers before they ever walk onto the lot. In September 2017, we launched Salesperson Connect, a feature upgrade that integrates DealerRater Connections data with the Cars.com Vehicle Details Page (“VDP”), creating a more personalized car shopping experience for consumers.

In 2012, we continued to expand our offerings and moved beyond our focus on car shopping by entering a new sector of the industry. We made a strategic investment in RepairPal, Inc. (“RepairPal”) and began developing new, innovative products for dealerships to promote and grow their service departments. Our first service features went live on the site in April 2014, with a dedicated Service & Repair tab to support dealership service departments and offer a platform for dealers to share information about their business, showcase their quality, be transparent with prices, and highlight customer reviews. In March 2016, we launched our Sell and Trade product, which captures the attention of individual consumers looking to dispose of their vehicles quickly and easily by promoting dealerships interested in buying used vehicles. The product also helps dealerships build their used vehicle inventories.

Industry, Landscape and Competition

The automotive industry is a massive market for the U.S. economy. The U.S Census Bureau estimates the industry to have been $1.2 trillion in 2017, with dealers accounting for at least 85% of all vehicles sold according to the Borrell Associates’ 2017 Automotive Outlook report. The automotive industry represents over 20% of the U.S. retail economy. In 2017, according to research conducted by the National Automobile Dealers Association (“NADA”), new vehicle sales were 17.1 million units. However, the core of the U.S. auto economy is the used vehicles market. In 2017, according to NADA and other industry research, used vehicle sales are projected to have exceeded 44 million units.

According to the Borrell Associates’ 2017 Automotive Outlook report, the U.S. auto advertising industry is a $37 billion market with approximately 56% of that spending online. In 2017, Cars.com captured approximately 2% of spending in the industry, while we believe that our influence and impact was and is far greater. Auto advertising has been a reliably growing market, and over the next five years, U.S. auto advertising is expected to grow to $41 billion, a 2% compound annual growth rate (“CAGR”), while the online category of spend is expected to grow by a 5% CAGR. Online category spend is expected to reach 66% of the overall market spend over the same period.

In 2017, there were approximately 43,000 automotive dealers in the United States, comprised of 16,000 franchised dealers and 27,000 independents. Ten years ago, the average consumer would visit five different dealerships when purchasing a vehicle, while today, the average consumer visits less than two dealerships. Further, while dealers and OEMs continue to increase their spend to drive consumers to their first party websites, consumer preference is to visit third-party website marketplaces, such as ours. We stand to benefit in this growing market, as consumers are making more decisions based on digital research.

We have significant competition from companies that provide car listings, information, lead generation and vehicle-buying services designed to reach consumers and enable dealers to reach these consumers, such as Internet search engines and online automotive sites, sites operated by automobile manufacturers and offline automotive classified listings, such as trade periodicals and local newspapers. We compete with many of these companies and other companies for a share of car dealers’ overall marketing budget.

Our Products and Services

We offer a suite of digital solutions targeting buyers and sellers of automobiles and automobile services. Our flagship product is our digital automotive marketplace that connects buyers and sellers on Cars.com™. Our automotive marketplace products provide a compelling destination for consumers through extensive inventory, intelligent pricing tools and credible user and expert automotive and dealer reviews, which further empower consumer decision-making. This unique content garners a highly-engaged audience that is open to influence from automotive advertisers. We also operate Auto.com™, DealerRater.com®, NewCars.com® and PickupTrucks.com™, which are specialized websites directed toward different consumer segments. With the acquisition of DI and LDM in February 2018, we now also have DealerInspire.com® and LaunchDigitalMarketing.com® as part of our portfolio.

We primarily generate revenues through the sale of online subscription advertising products to car dealerships by our own direct sales force (retail revenue), as well as through our affiliate sales channels (wholesale revenue). Additionally, we generate revenue through the sale of display advertising to national advertisers. See Note 14 to the consolidated and combined financial statements included in Part II, Item 8 of this report for additional information on our one operating and reportable segment and the two categories through which we generate revenue.

Consumer Value Propositions

Car buyers and car owners interface with us primarily through the Cars.com sites and mobile applications, where we strive to provide a best-in-class car search and shopping experience. Our real-time behavioral data, and insights from nearly 20 years of consumer data enable us to deliver an experience that is defined by relevance for the user. We are continually optimizing our platform to deliver intelligent search functionality and guided navigation that helps users find the right car faster. We also feature contextual, dynamic filters that help consumers better search inventory based on their needs. Powered by a custom algorithm, we offer “Best Match” sorting that weights multiple factors to arrive at search recommendations most relevant for each specific user.