Cars Commerce Q2 net income drops 88% with accounting adjustment

Cars.com Inc., doing business as Cars Commerce, reported a nearly 88 percent decrease in net income during the second quarter to $11.4 million because of an accounting adjustment related to acquisitions.

The company said net income in the second quarter of 2023 was higher because of a one-time release of "a significant portion" of its valuation allowance, a reserve typically used to offset a deferred tax asset.

Cars Commerce stressed that revenue growth was solid in the second quarter this year.

"We drove disciplined growth and strong profitability during the second quarter on top of returning to sequential expansion in our dealership customer base," Cars Commerce CEO Alex Vetter said in a statement.

The company, based in Chicago, lowered its guidance to 4.5 to 5.5 percent revenue growth for 2024 from the previous projection of 6 to 8 percent. The company said a number of factors played a role, including negative impact from delayed subscription revenues and product launches following the June 19 CDK Global cyberattacks.

The cyberattacks forced CDK to shut down its dealership management system for 15,000 customers across North America for two weeks, disrupting and slowing dealership operations as stores scrambled to implement workarounds.

"We have a high concentration of franchise dealerships who rely on CDK [that had] dealership operations interrupted," Vetter said during the company's Aug. 8 earnings call. "Many of our sales conversations and product launches were paused ... we also lost considerable sales momentum."

Vetter said the company's priority for the third quarter was to "re-ramp" those engagements.

"This was a frustrating event for both the industry and for us, and we believe it's ultimately a temporary impact as we continue to grow the business in 2024 and beyond," Vetter said.

Year-to-date performance and a slower-than-anticipated rate of subscriptions for its AccuTrade Connected product also played a role in the lower net income, Cars Commerce said.

Revenue for the quarter grew 6.4 percent to $178.9 million, a gain Cars Commerce said came partly from higher dealer subscription prices, its D2C Media acquisition in late 2023 and increased adoption of its digital experience and AccuTrade vehicle appraisal and valuation data and logistics products. Dealer subscriptions also started growing again.

Net income: $11.4 million, down 88 percent from a year earlier.

Revenue: $178.9 million, up 6.4 percent from the same period last year.

Dealership marketplace customers: 19,390 as of June 30 versus 19,381 in the first quarter and 18,785 a year earlier.

Average monthly unique visitors: 26.1 million, down from 26.9 million a year earlier. Total traffic visits increased 1 percent in the quarter to 158.1 million.

Average revenue per dealership: $2,474, essentially flat from a year earlier.

Dealer subscription revenue: Up 4 percent thanks in part to continued benefits from the D2C Media acquisition and increased adoption of digital experience and AccuTrade products.

Adjusted earnings before interest, taxes, depreciation and amortization for the quarter reached $50.4 million, or 28 percent of revenue, compared with $45 million, or 27 percent, of revenue a year earlier.

The company stock price was $16.60, a drop of 7 percent in early trading Aug. 8.