Growing Adoption of Buying and Selling Cars Online Plays to CARS’ Portfolio Strength
Q2 Financial Highlights
- Revenue of $102.0 million, down $46.2 million, or 31% year over year primarily due to the invoice credits of 50% in April 2020 and 30% in May and June 2020 that we provided to our marketplace customers
- GAAP Net Loss of $24.6 million, or $0.37 per diluted share, compared to GAAP Net Loss of $6.0 million, or $0.09 per diluted share in the prior year period
- Adjusted Net Income of $8.0 million, or $0.12 per diluted share, compared to Adjusted Net Income of $20.0 million, or $0.30 per diluted share in the prior year period
- Adjusted EBITDA of $23.2 million, or 23% of Revenue, down $20.3 million year over year
- Net cash provided by operating activities of $57.6 million for the six months ended June 30, 2020
- Free Cash Flow of $48.9 million for the six months ended June 30, 2020
- $56.9 million of cash and cash equivalents on the balance sheet and total liquidity of $232.2 million, including availability under our revolving credit facility, as of June 30, 2020
Q2 Key Metrics Highlights
- Average Monthly Unique Visitors of 22.8 million, up 6% year over year
- Traffic (visits) of 144.0 million, up 10% year over year
- Mobile Traffic was 75% of total Traffic, compared to 71% in the second quarter of 2019
- Dealer Customers declined from 18,938 at March 31, 2020, to 18,033 at June 30, 2020, primarily due to cancellations and lower sales of marketplace customers as a result of COVID-19, partially offset by growth in digital solutions customers
- Monthly average revenue per dealer (“ARPD”) was $1,442, down 33% year over year, primarily due to financial relief given to dealer customers in the second quarter as a result of COVID-19
- Brand strength, heightened consumer demand and efficiencies in marketing generated double digit year over year Traffic growth with substantially lower spending, demonstrating the value and durability of the CARS brand
- Leads increased 17% year over year in this pandemic-impacted quarter, providing greater value and ROI to dealers
- Conversion rates, from promotional to paid, on our digital solutions were strong; Online Shopper, our digital retail tool, saw over 50% conversion and our chat tool, Conversations, had a greater than 30% conversion rate
- Received website endorsements from Nissan and others; roll-out of GM websites began in Q2
- Continued successful traction of FUELTM In-Market Video product, positively contributing to both revenue and ARPD
- Named retail and technology industry financial veteran Sonia Jain as CFO; elevated seasoned executive Marita Thomas to Chief Communications Officer
“We executed extremely well in a difficult period by continuing to deliver efficient vehicle sales, industry-leading digital solutions, high-value organic traffic, and an essential online marketplace as consumers and dealers gravitate online. This quarter’s results also benefited from swift management actions taken to reduce operating expenses and strengthen our liquidity, while still providing our dealers meaningful financial support, aligned with our longstanding dealer advocacy,” said Alex Vetter, President and Chief Executive Officer of CARS.
“Although business conditions remain uncertain, we are confident in the demand for cars as a preferred mode of transport, with new and used car sales bouncing back sequentially during the quarter. This trend is likely to continue with the Centers for Disease Control’s recent advisory recommending private car use as a healthier alternative to ride sharing and mass transit. The continued traction of CARS’ solutions strategy, including our progress in launching committed GM websites, the contractual uplift from the end of affiliate conversion payments, our liquidity and the flexibility afforded by our recently amended credit agreement, enable us to enter the second half of the year from a position of relative strength.”
CARS Commitment to Equality, Diversity, Inclusion and Belonging
CARS has long embraced diversity and inclusion in its core mission and business strategy. We have further committed to making a more profound difference with tangible and sustainable actions in our company, our industry and local communities. We are focused on driving more diverse representation in our industry by partnering with the National Association of Minority Automobile Dealers (NAMAD) to advance its mission in helping Black-owned dealerships thrive through technology and retail solution-based education sessions and training; prioritizing our very important work around diversity, inclusion and belonging by creating a more diverse pipeline of talent and continuing our laser-focus on equitable hiring practices and salary structure at every level. We have also launched CARS Action, which provides volunteer resources and connections to assist our employees in helping to rebuild and revitalize under-resourced communities.
Revenue for the second quarter of 2020 was $102.0 million, compared to $148.2 million in the prior year period. The decrease was primarily due to the invoice credits of 50% in April 2020 and 30% in May and June 2020 that we provided to our marketplace customers. National advertising revenue declined 17%, primarily due to higher cancellations principally due to the COVID-19 pandemic and related restrictions.
Total operating expenses for the second quarter of 2020 were $119.2 million compared to $147.2 million for the prior year period. This decrease was primarily due to our actions taken to align expenses with revenue in an uncertain COVID-19 environment driven by lower marketing spend and actions taken to reduce headcount related expenses, including temporary wage cuts, furloughing employees and a reduction in force.
Net loss for the second quarter of 2020 was $24.6 million, or $0.37 per diluted share, compared to Net loss of $6.0 million, or $0.09 per diluted share, in the second quarter of 2019. Adjusted Net Income for the second quarter of 2020 was $8.0 million, or $0.12 per diluted share, compared to $20.0 million, or $0.30 per diluted share, in the second quarter of 2019.
Adjusted EBITDA for the second quarter of 2020 was $23.2 million, or 23% of revenue, compared to $43.5 million, or 29% of revenue, for the prior year period. Lower revenue of $46.2 million was partially offset by cost control measures that resulted in $28.0 million decrease in operating expenses year over year. Additionally, the prior year period included a $6.3 million benefit from the non-cash amortization from the unfavorable contract liability associated with our Affiliate contracts.
For the second quarter, Average Monthly Unique Visitors grew 6% year over year and Traffic grew 10% year over year. Despite the reduced marketing spend, we continue to deliver strong traffic, and high-quality leads to our dealer and OEM customers due to greater efficiencies in performance marketing. Mobile traffic grew 16% year over year and accounted for 75% of total Traffic compared to 71% in the prior year.
Dealer customers were 18,033 as of June 30, 2020, a decrease of 5%, compared to 18,938 dealer customers at March 31, 2020, primarily due to COVID-related cancellations of marketplace customers and lower incremental sales partially offset by growth in digital solutions customers.
ARPD was $1,442 in the second quarter of 2020, down 33% from the prior year period. The decrease was primarily due to the invoice credits of 50% in April 2020 and 30% in May and June 2020 that we provided to our marketplace customers.
“We are pleased with how well we performed during this difficult period. Our performance demonstrates the value of our brand strength, organic traffic delivery and diversified revenue streams,” said Sonia Jain, Chief Financial Officer of CARS.
She continued, “We believe that the operating environment may remain uncertain given the continuing COVID-19 pandemic. We demonstrated a commitment to implementing cost efficiencies in Q2 and remain focused on maximizing free cash flow. However, we will reinvest in the business through increased marketing spend and selective hiring to drive growth in the second half.”
Cash Flow and Balance Sheet
Net cash provided by operating activities for the six-month period ended June 30, 2020 was $57.6 million, compared to $50.8 million in the prior year. Free Cash Flow for the six-month period ended June 30, 2020, was $48.9 million, compared to $41.4 million in the same period last year.
We also secured substantial liquidity and balance sheet flexibility through an amendment to our credit facility which waives our net leverage and interest coverage covenants for the remainder of 2020.
Cash and cash equivalents was $56.9 million and debt outstanding was $646.3 million as of June 30, 2020. Net leverage at June 30, 2020 was 4.1x. Under the terms of our amended credit facility, our net leverage and interest coverage ratios are waived for the balance of 2020.
The effects of the COVID-19 pandemic have and will continue to negatively impact our results of operations, cash flow and financial position; however, the extent of the impact remains highly uncertain and depends on the duration of the pandemic, any subsequent resurgence and severity of the measures taken to address the pandemic and the resulting economic consequences. Accordingly, on March 23, 2020, the Company suspended its 2020 guidance.
Q2 Earnings call
As previously announced, management will hold a conference call and webcast today at 9:00 a.m. Central Time. This webcast may be accessed at investor.cars.com. A replay of the webcast and the slideshow will be available at this website following the conclusion of the call until August 13, 2020.
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 Cars.com 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 2018, CARS acquired Dealer Inspire®, an innovative technology company building solutions that future-proof dealerships with more efficient operations, a faster and easier car buying process, and connected digital experiences that sell and service more vehicles.