Q1 2020 Earnings Call
This call at this time all participants are in a listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you to press star one on your telephone if you require further assistance. Please press Star then zero I would now like turn the conference over to your hosts.
Ms., Julie Schleeter CDK global Inkster.
Okay begin.
You May end today's call I, CDK, CEO , Brian advantage and as CFO telecasts.
A few items before we get started.
Throughout today's call and we'd like to stress and made clear that we will be discussing our continuing operations only which do not include digital marketing business that continues to be held for sale and presented as discontinued operations.
This is consistent with our year end fiscal 2019 reporting.
Also consistent with our year end fiscal 2019 reporting.
Any year over year or sequential comparisons are presented in accordance with AMC six so six.
Beginning in the first quarter fiscal year 2020, we adapted AMC 842 for lease accounting on a prospective basis.
Finally, unless otherwise noted all references to financial amounts on a non-GAAP adjusted basis.
Reconciliations of adjusted amounts to the most directly comparable GAAP amounts are included in this afternoon's press release and are available in the Investor Relations section of our website.
Also available within the financial information section of our website is supplemental financial data, which contain quarterly data for the prior year in an excel format, including a breakdown of revenue by category.
I would like to remind everyone that remarks made during this conference call will contain forward looking statements. These statements involve risks and uncertainties, including the risks detailed in our filings with the FCC, which could cause actual results to differ materially from those set forth in the forward looking statements.
And finally, we anticipate that our Form 10-Q will be available tomorrow.
With that it's my pleasure to turn the call over to Brian .
Thanks Julie.
Good afternoon, everyone.
Excited report to you our first quarter results today.
Our results were very strong for revenue and profit for the quarter Thats really proved to me that we're doing the right things from a strategic perspective.
The team is quite focused on continuing to pivot CDK towards customer centric auctions and believe the benefits about to our dealers our partners and our Oems are clear at our performance.
I want to thank all of our employees for rallying around the math that message and delivering the outstanding results. They did this quarter.
The highlights of the quarter are as follows.
We had revenue of 495 million.
Which was an 11% increase over Q1 fiscal 2019.
We're able to grow North America auto sites year over year by 37.
Third quarter in a row with continued year over year site growth.
EBITDA growth was 3% and EPS was 79 cents up 5%.
Overall this was a very good quarter and I'm pleased with a tremendous progress we've made.
Joe will provide more details on the quarter results.
I would now like to stop back and reflect on the past years since I've joined CDK and share with you. Some observations about what we've accomplished and where I think we're headed.
There are many strengths that were quite clear to me about CDK before I joined.
The fact that was a solid global company with over 40 years of history and strong positions within this market.
During this last year I spent a lot of time with the CDK teams around the world as well as with our dealers to really understand the state of the business, where the opportunities were to better serve though.
What I found within CDK was such an incredible hidden value.
This is a company with great people longstanding customer relationship.
And sound technology.
But needed to be more customer and technology focused.
And so I rolled out three strategic initiatives that I believe are making an impact this year and will improve the company quite significantly into the future.
Now, let me get into these and tell you about all the work that we've done so far it's really quite exciting.
The three initiatives are centered around.
Improving how we serve our customers.
Modernizing our technology and architecture.
And making it easier to do business with CDK.
Let's start with the first one how we're transforming the company to become even more customer centric and focused on improving how we engage with our customers.
The very first thing we did to fix the customer support engagement model with simple.
Like answering the phone is on the weekends when dealers are open to doing business.
By increasing our support center ours, we're improving the way dealers engage with CDK each day as challenges arise in their dealerships.
We then went out and found the right team of customer advocates.
Formans managers, who really help our dealers maximize the value of their existing technology.
We needed to improve our support of customers. After they go live on our software to make a smoother transition.
So we added a post installation team.
Which arise at this critical time to ensure that dealers and their employees can start off on the right foot when utilizing our software.
In addition.
We made several improvements to our customer service channels to make it easier for dealers to get the assistance and support they need it.
We're finding new ideas everyday on how to improve serving our customers.
But let me tell you about the results so far.
Exceeded my expectations are what I thought we could accomplish when I first joined the company.
This is now our third consecutive quarter with growing North American auto sites.
Before we did all the sites had been declining year over year for nine quarters in a row.
This is phenomenal progress and the impact just come sooner than I thought it would.
We now have the highest base of North American auto and adjacent see sites over the recorded history of the company with a total of 14732 sites.
In addition, North America sales were up strongly in the quarter.
Our best first quarter for Dms sales in the company history.
And I'm excited to report that our sales team on a 40 plus site dealer group in the quarter, our largest win in the past few years.
Now.
Let's move onto the second initiative on how CDK is bringing the best technology to the market.
We're focused on two areas modernizing architecture of the current technology.
And second building a technology ecosystem for the future.
Well modernizing the technology across our platforms, including improvements in our product management capabilities and main software applications to make that open and Apiay driven.
Which will enhance their functionality and be consistent with our investments in the for tell us Apiay platform.
We're working on a significant number of projects. This year that are focused on reducing the number of software versions streamlining the installations and improving the data access which will not only benefit the dealers experience and end to end work flows.
But will also improve our ability to quickly and easily innovate and maintain the software going forward.
One of the best examples of this is drive flex.
The most open and technologically advanced Dms platform in the market.
Are you may recall flex has a modern and modular design, which looks more like a phone app with dropdown menus auto fills and walk me, but.
And is fully in the cloud with AAMC.
We have finalized the certification process with our second OEM.
And in order to prepare for broader rollout, we're being very methodical throughout our implementation process and our learning a lot about how to improve the product capabilities.
And installation procedures.
Given the long term importance of this product we firmly believe that investing the time and effort now is the best approach. It will ultimately support a quicker ramp up as we head into the fiscal 2021 and beyond.
All of this modernization and focus on a pie driven architecture.
Is putting us in a good position to realize our long term vision.
For an open and gnostic technology environment.
And to grow our for tell us.
Sure.
I wondered stressed the importance of this platform to our industry.
We need to prepare for world beyond just auto sales.
Contemplate trends such as inter operability to allow cars dealers and manufacturers and consumers to connect and use the data driven decision engines built within our apps to drive insights and provide dealers with enhanced information.
More effectively run their business.
Building out and driving the adoption of our for tell us AI platform.
Ultimately result in our goal of providing dealers with access to data and analytics at a reasonable cost.
In order to prepare for these trends, we need an open architecture and technology stack.
For tell us is the only.
Ecosystem, and our vertical and as a market leader, we are uniquely positioned to champion its development.
And then in.
To benefit from its use as the industry standard.
We currently have over 28 CPI is in production or beta stage.
We are developed by both CDK.
And third parties.
For example.
Tailor, our ride sharing a pie with lift.
Is in full production and lie with several hundred dealers.
An example in the beta stage is our repair order.
Which is being tested with major partners and Oems.
Including our expanded relationship with Cox automotive.
We continue to open up more npis, including through the promotion of our developer days and events for building communities.
Our final initiative is about making CDK easier to do business with.
We're going to change the way we go to market that will simplify it standardize items such as quotes catalog list installation processes and invoices.
The business process modernization program is a multiyear effort that includes both internal changes that will improve our operating an implementation quality.
And customer facing external changes like our invoices, which include more user friendly layouts descriptions and content.
We've gone out to feel test the new invoice format and the dealer feedback was extremely positive.
The team plans a broader pilot of the new invoice starting in the next few months with a rollout to all dealers this year.
We're committed to moving forward with these priorities and maintaining our long term strategy.
Looking out to the rest of the fiscal year with our level of site growth in a continuation of our planned investments.
We are confident and reaffirming our full year guidance.
And finally, I'm very happy to report that we have settled another lawsuit.
This one with MBS C.
Joe will provide more details in his section, but im pleased to be able to put another lawsuit behind us and continue our focus on the future.
I also wanted to provide a little more clarity on the status at the digital marketing divestiture.
We have received a great deal of interest for the asset and are currently in the process of narrowing down the potential options for sale.
I hope to close the transaction by the end of the calendar year.
To conclude on very happy with the first quarter progress.
No that we have a lot of work to do in front of us.
The investments, we're making today, we'll clearly differentiate CDK and our critical component of our long term strategy.
I remain confident in his strategy and our ability to deliver value added solutions to our dealers our partners and Oems as well solid returns to our shareholders.
Before turning over to Joe I'd like to thank all of our employees one last time.
Their work is producing at standing results and I'm proud of what they've accomplished over the last quarter.
I look forward to sharing more of their progress with you in upcoming quarters.
So now I'll turn over the call to Joe for the financial results.
Thank you, Brian and good afternoon, everyone.
To reiterate bind sentiments, we're pleased with our Q1 results and in particular the progress we've made on accelerating revenue growth.
And the improvements in site counts as well as our team's focus on the area of investments that will allow us to continue on our path towards future revenue growth.
When you look at the business in aggregate the revenue we've seen has come from stabilization from our core Dms business.
And accelerated growth in our layered applications.
Our profitability is inline with the significant investments, we're making in the business in the areas of customer success.
Sales and marketing.
And improvements in implementation capabilities and technology.
We are happy to be seen improved results due to our focus on enhanced execution as well as our increased the level of investment and we are excited about the future opportunities.
As we look forward through the rest of the year, we remain confident that the business can continue to deliver growth inline with our guidance ranges and we are reaffirming our annual guidance for revenue EBITDA and EPS.
Now, let me turn to the detailed results starting with revenues.
Total company revenue was up 11% on a year over year basis, primarily due to growth in our North America, Dms and layered application business.
As well as from acquisition revenue from the purchase the lead business.
In addition revenues benefited from changes in accounting for hardware as a service under AMC 842.
Offset by the headwinds from the partner program transition that we discussed on the last earnings call.
During Q1, we passed the one year anniversary of our successful you lead acquisition and we're very pleased with the growth we have seen from the business. Since it was purchased in mid September of 2018.
Growth in North America came largely from subscription revenue, which was up 10% for the quarter as a result of gains from key applications like CRM.
Service and document management.
So both within our Dms sites and two non Dms dealers.
North America auto site growth increased for the third quarter in a row.
With auto sites at their highest level since December 2017.
The year over year increase was 37 or 8.4% due to growth in three plus site groups, partially offset by a decline in one to two site groups.
As Brian mentioned, we're seeing improvements and the one or two site group performance driven by increased sales of our drive platform as well as much better retention.
I'm, particularly proud of our overall retention performance of the team in light of the fact that we have been facing a larger than normal renal schedule. As a result of the two year renewal program executed in fiscal 2018.
The peak renewals from this program will occur and our second quarter and we are quite focused on continuing our retention progress.
Given our investments in sales and the customer experience. We're confident that we can grow North America auto sites by 1% this fiscal year.
North America transaction revenue was up 4%, mainly because of rate increases on certain pass through prices for credit checks modestly offset by lower volumes.
Other revenue in North America was up $16 million.
Partially as a result of the changes in accounting for hardware as a service under a FC 842.
Certain he lead business.
Revenue from our international segment was $77 million down 2%.
But up 2% on a constant currency basis.
Subscription revenue was up 2% driven by strong growth in revenue per site.
Partially offset by a decline in smaller dealers sites.
Revenue from onsite licenses installations was down by 3.5 million due in part to the timing of a certain point in time revenue that benefited the prior year period.
International sites were 12973 down 2% over last year attributable in part to the impact of site consolidations and losses on legacy products.
While we're not happy with these results, we're seeing some pockets of improvement.
Revenue per site saw strong increase of 10% year over year.
As a result of broadening solution sales to existing customers and higher mix of Dms revenue as a result of site consolidations.
Moving onto earnings performance EBITDA for the company was $188 million.
Up 3% over the prior year with a margin of 38.1% down 310 basis points.
Earnings were driven by underlying growth from our Dms and application businesses offset by incremental investments and headwinds from the partner program transition.
Margins were also negatively impacted by the lower margin profile of certainty lead business lines.
At a segment level North America pre tax earnings were $168 million up 3%, where the margin of 40.1%.
Down 430 basis points, primarily due to the same reasons.
For international pre tax earnings were $15 million.
Down 19%.
The margin of 19.9%.
Down 410 basis points, mainly because of timing of certain point in time revenue that benefited the prior period.
For the total company, our effective tax rate was 25% and diluted earnings per share with 79 cents up 5%.
EPS growth was driven by increases in EBITDA as well as lower share count.
Partially offset by higher interest expense.
Our cash balance on September 32019 was $313 million.
Of which 243 million was held outside of the United States.
Free cash flow was $50 million, which was negatively influenced primarily by a legal settlement payment made during the quarter.
As well as the timing of collection of receivables.
We ended the quarter with a leverage ratio of 3.4 times net debt to adjusted EBITDA.
We continue to be focused on delivering leverage within our targeted range of two and a half two three times.
With an expectation to return to the top of the range by the end of the fiscal year.
In the first quarter of fiscal 2020, we paid 18.2 million in dividends to shareholders.
We are reaffirming our guidance for fiscal 2020 as it relates to revenue EBITDA EPS.
Tax rate and shareholder returns.
It is worth noting that our guidance absorbs any negative effects of changes in foreign exchange rates.
We expect the level of revenue and profitability in Q2 to be similar to Q1.
And anticipate an acceleration in the second half based on normal seasonal factors and results from our investments.
As Brian mentioned, we're pleased with the recent legal settlement.
The claims bought by MFC were dismissed and a onetime settlement payment was made in October .
Which was covered by the 90 million dollar litigation liability recorded last year.
Regarding the status update on our digital marketing discontinued operations, we continue to work with Alan and company on the divestiture of the business and are in active discussions with potential buyers.
We remain committed to completing a sale by the end of the fiscal year.
Though we would hope to conclude earlier and our guidance continues to be based on the calendar 2019 year end sale.
In closing we're off to a good start to the fiscal year with much more work to come.
We are making the right investments to deliver on our guidance through continued revenue growth and improvements on sites.
The progress, we're making on several fronts, both operationally and financially is allowing us to continue to move forward with our growth strategies and is helping to fuel the spending needed for our planned investments and partner program transition.
We're pleased with this disciplined and focused execution of our strategy and I look forward updating you next quarter.
I'll now turn it back to the operator, and we'll be happy to take your questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone.
To withdraw your question press the pound key please standby, while we compile the Q1 a roster.
Okay.
No first question comes on line of Ian Zaffino with Oppenheimer. Your line is now open.
Great. Thank you very much.
Nice to see the.
The customers on site count increasing gives an idea of maybe.
We are you seeing increases that you could maybe didn't aggregate larger dealers from from the smaller dealers maybe tell us how you did in each area. Thanks.
Sure. So this is Brian I can start.
I think if you take a look at we typically talk about dealers that are like five in less than that.
Five sites in less than five.
Whenever 50, or so and in a really big ones that.
I tell you that really big ones I was just stayed very stable for us and not.
Not really.
We've seen an exit or anything.
Nor have we added any of them really really large ones like that a recent.
Use hernan ours prepared comments that we added 40 plus.
Dealership on our Dms this quarter those will start to be installed.
In Q1 timeframe, so you'll start to see those add to our site count in the second half of their fiscal year.
Where we're seeing a much better retention is in those five in the low.
Dealers sites.
Where we really put an effort thats, where we were seeing most of the retention loss before we put a real effort in retaining those that's where we'll be inserting drive flux first as well.
So we've we've had a retention process vendor service better support we've talked about that in the calls.
And then we've started to work with these dealerships on the beginnings of drive flex as well so when we look across that.
I'd say the biggest change and retention is in those five is below.
We've done pretty well in that mid range five to 50.
And you heard we added one and then and then it's been pretty stable in the southern Ivan and above or whatever you want to get as in a really big ones.
Also remember that's we're talking Dms layered apps.
That's just as important for us in growth in our revenue forecast and there were seeing across the board from.
Seeing more easily.
RM into all of the various levels of those dealerships.
Wasn't below 5% to 50% 50, an above.
And hey in its Joe just add the.
Some of the numbers to it so in the three plus dealers.
Consistent with our Weve disclosed in the past those the revenues in that group were up high single digit and the Bryan's point very consistent performance in the wins and retention and one of the twos.
The revenue was down slightly the best quarter, we've seen at least in the last couple of years, So and like Brian said, a lot of that from retention. So good performance and.
Improvements in particular, the ones that too.
Okay, Great and May engineering, a little bit picky here, but on the average revenue per site.
On the Dms side, we saw a little movement tick down nearly $27, but.
Hi, guys, yes.
Basically what drove that is that a mix thing is there.
Yes.
Yes.
So when you look at the revenue per site, the nice assume you're looking at it sequentially in.
Correct, yes, so when you look at it sequentially. It actually performed quite well if you recall, we said at our year end the call that we're going through transition of the partner program.
The reduction of those partner program fees came through effective July one at the started the quarter that put pressure on revenue per site continued to see that in our rate as we get into Q2 Q3 Q4, consistent with what you've seen in Q1 underlying rate in the business to grow in line with with.
What we expected, but again that was more than offset by the partner program transition.
Impact that we disclosed at year end.
Okay, great. Thank you very much thank you.
Thank you. Our next question comes from the line of Rayna Kumar with Evercore your.
Your line is now open.
Hi, Thanks for taking my question.
Talk a little bit about the trend you're seeing in the international business and when you expect that to return to growth.
Sure. So some of the terms this is Bryan again start.
Some of the trends, we're seeing and returned to growth.
We we continue to a stabilized compared to what we saw last year, which was a decline.
And we think that we will or we could use forecast that will be growing back into the second half of the year.
Thats going to be largely on the back of continued growth in.
Partner program and some additional applications in the European segment.
On some growth in China as well this year.
And so we continue to see that start to materialize now as we went through the first quarter.
We continue to think that.
Half of this year, we'll we'll see us back into growth perspective.
Yes.
Rational.
Hey, rain as Joe just add a few comments so while on the topline it looks like then and grow that was currency related so the constant currency business to grow this quarter and.
We had talked about in my prepared remarks, the timing of revenue item that also affected some of the year over year comparisons. So I think as Brian said, we'll see the acceleration in growth as we had the Q2 and the second half of the year.
And.
The team has more work to do on on sites and they're focused on that but the rate as has been impressive and I think they've done a lot of the right thing is going.
That's very helpful. And then just digging a little more into the average revenue for Dms site.
Should we expect that continued to be up for the remainder of the areas, especially given your.
Increase renewal cycle.
Called out and maybe if you can just tell us a little bit about that 5% increase on North America, how much of that is mix versus actual pricing increases.
Yes, I'll take the one at a time when you look at rate per site and if you go look at the last several quarters and getting into Q2 I wouldn't.
Expect a rate expansion that we've seen in the first quarter. As you go Q2, Q3 Q4, principally because of again the partner program transitions that we've announced in so.
When you go look at the comparisons that revenue per site growth will be more muted if you will.
Q2 to Q4, and then once we get beyond that it will return more.
To the mid single digits as we've just discussed historically what was your second question.
Just to proceed with you guys have some high renewal cycle should we expect some actual price increases ex parte program impact.
I'd say, we're right now we have a good balance of selling it we're working with our customers to bring more solutions to market. When you look at the application opportunity we have.
The sales team has done a great job around bringing the more bundled package taken the transition of the partner program combined with more applications I'd say rate for US is more driven right now by bringing in selling more solutions.
The customers.
Great and just finally, if you can discuss your progress we try flaxseed, maybe this year migration timeline for onboarding customers to the new platform.
Sure I can start.
Despite so if you take a look at drive flux right now we.
No continued to do installs we've got.
We talked about behind our first OEM.
And.
2019, we added our second Oems certification working on a third Oems certification.
We continue to look at having all the OEM certifications towards the end of this year.
And so that portion thats really out of the rate limiting step you have to have all the Oems certifications done in order to really expand beyond a one or two top dealerships. These and many you'd be on one or two rooftops, we start to add multiple Oems and it just gets complex for us to not.
Have the right combination of OEM.
We are continuing on a pretty good rate and what we've really been focusing on right now as learning. So as we do each install each installed us going on with Dr. Flex is actually the combination of our normal install team and engineering team.
And I want the engineers in they're doing the installation in the startup of the dealership. So we really understand what is.
Working not working difficult on the install and our goal is and we've put a target towards the end of this calendar year. So the end of our second quarter fiscally.
To have a series of improvements that reduces the installation time and cost by significant portion. So the idea here is that drive flex will be much easier and cheaper for us to install into a dealer and has gone in and done some of the improvements that we're learning as dealers have actually started to use the software and.
Capacity.
So things like having a modify forms and how you get somebody accounting detail out and things like that so we're quite pleased with the progress.
And we're kind of going in parallel with learning and making some improvement while we finished the rest of the OEM integration and so I think you'll see our target is.
Somewhere sub 100 this year fiscal year.
You'll see a big ramp as we go into the next fiscal year, where we've got all the OEM integrations, and we're really able to take it into our larger set of dealers.
Got it thank you.
Thank you.
Thank you and our next question comes from the line of Matt Pfau with William Blair. Your line is now open.
Hey, guys. Thanks for taking my questions.
First wanted to start off with.
The one to two site.
Dealer segment, and it's great that you're seeing now.
Nice improvement in retention there what do you think needs to happen to flip the switch and get that segment the growth.
So I think there's a couple of things that needs to occur one we need to go out supportive. If you took a look.
Since some of the technologies that they were really critical to them, we're going to start to be losing support I don't think we had the right customer experience. Those are the guys. We really needed those extended hours of the call center. They needed the customer success advocates because they tend to have the staff and the experienced a really.
Manage the software.
As as well as some of the larger.
Operations. So those has been kicking in I think we'll see continued and as Joe mentioned there is a fairly large number of renewals that are coming up so it's a great opportunity for us to really up that numbers that over the next quarter or so so that will be one set the real answer though is something like drive flex drive flex.
Really gives them the ability it's much more like an iPhone.
It runs on a WMS if your network goes down.
Just pull out literally your I phone or tablet and you can run the software so you're not tied to network capabilities.
Yeah, the ability to modify forms to a certain extent.
So their training of.
Salesman and.
Workers within the organization is going to be much less.
So we think it'll be a real efficiency for the the one to two site dealerships and thats really going to be a game changer for though so as we go into next year, what we're really working on is hey, and while we're getting dressed bucks ready for you and finished out the OEM integrations.
Here is our new package of support and and.
Continued progress on existing technologies.
Here's your here's your better hours of call Center Here's your.
Better customer support and you'll be first also on to drive.
That story is going quite well into that portion of the market.
Yep.
Makes sense and the other thing I wanted to ask about is if theres any update on your initiative to target independent and used car dealers, what the dry flex platform.
Yes, so that's a space. So we continue to do some installs there and we continue to see the size of the markets to be.
Just 1000 2000, the number varies depending on how you want to size. It dealers that are probably equips to take on something like dry flex.
But what we really wanted to do is get the installation cost and time down before they really attack that market because.
That is a market that is going to be a more cost sensitive and we really got to get the initial cost as a technology to be a bit lower so the good thing is to me on dry flex, but just kind of sunrise is it's out there it's working and dealers.
We'll now in the point of refining we're finding that costs were finding the speed of installation. We're fighting the last few things we want to improve on the technology architecture itself.
We're making some improvements on the data architecture for example.
Yes, that's a very different spot then.
It's about to come out or is it is waiting for the next release.
And so for the independence, what I really want to do is I need to get that install time at cost down before we really attack that market. So I think you're looking at will start hitting that would hard in the second half this year.
Great. That's all I had thanks guys.
Thank you and our next question comes from the line, Tim Willi with Wells Fargo. Your line is now open.
Hi, Thank you all good afternoon, I had a handful of questions here, one if I could not with foretelling.
Is there a way to not projects. This is asked before sort of bouncing back and forth between calls but is there any way to think about the timing and your mind that foretell whats really begins to have an impact around revenue either is sort of the discrete line item or is just again.
The reason for deeper relationships with existing dealers are ultimately, obviously, bringing on new rooftops and new relationships.
So.
Hello.
So let's talk about for tell us and.
You know kind of where are we watch running and then we could tough tickets is really your question is okay.
Something that is revenue generating or is it.
Nothing that is more focused on.
You know the ecosystem and the tighter relationships.
The answer to that question by the way is it's a bit of bowls.
But let's take a look if I tell us there are about 28 CPI TMHF its continues to grow.
That are up and running or in development final stages of development on Vertellus.
And to really good examples we use our heyler application, which is.
Application tied to lift that allows them to fund the Dms.
All that vehicle for the customer.
Causing from maintenance or or you've come into look at a car something like that traded a car and.
That's running in several hundred dealers, we continue to sign up.
Lots of dealers every month and dot is a revenue generator and and you just before we hear that percentage of each lift thats call.
And it's starting to generate revenue so it doesn't cost anything to install the software. This is a good example of how these programs will work to some extent.
It has nothing to install the Heyler program.
Yes.
Added feature inside the Dms and it's our pay is based on a percentage of the U.S.
So the dealer hospice the benefits. So we continue to see that thats growing nicely. The other one is our repair order that one we've talked about Cox game to lead partner, there and that's really to build a deeper relationship to start.
Allowing our our dealers to have more choice and we think that will be up.
Differentiator for our Gms and CDK in general the opened agnostic look we're here to give you the best solution.
And.
We do get paid for repair order, but the real functionality. There is about building that deeper relationships, both with costs and with our dealers, allowing them to have more choice.
So both of those are good examples we are getting paid on those.
I don't think you'll see it changed the need all of our revenue.
Charge for a couple of years is at three years or four years I don't know yet, but it's not this year and it's probably not next year, that's going to be a big.
Shift in our revenue scheme, but what is what you're really seeing is much deeper relationships much more opportunity for the dealers. The dealers of several dealers are starting to look at moving some of their internal applications on deferred tell us and.
And so all of that ecosystem as Phil it's good for the industry.
It's good for our dealers and in the long run at all because for CDK.
Great and then I just had two two follow ups. The first one is just going back around the the low end of the market does one into.
Sort of dealer rooftops, where you said, there's still some I think you'd said they were still down.
A little bit that trends are improving and I guess im just curious that within that discussion of those customers being down.
Assuming that there are new customers coming on but just more leave and go your approving that trend is there anything to call out.
Around those new relationships at the low end and term products being purchased revenue characteristics. It just was sort of point to a the productivity and the future around the revenue growth and margin in that segment of the market as you continue to fix the retention issue.
And really build on the sales productivity side.
Okay. So I.
I think I understand your question, but.
He started and as I answered if Joe.
Things I missed the question or remote kind of looking at each other trying to make sure we understand the question but.
Well, let me rephrase that are our new customers at the low end that are coming on.
I'm, assuming that you're bringing on new customers customers at the low end, but you also have an attrition issue with customers, leaving and Thats still sort of outweighing, but it's getting better show are the new ones that you're bringing on in terms of of the revenue profile.
Product purchase profile relative to dose that you're losing is it a different characteristic one that we would consider to be encouraging as you continue to build.
And fixed the low end of the market.
Yes.
Don't know if we really got an absolute numbers for you, but let me give you kind of the general trends and what we're seeing.
This is a segment of the market that reset we.
We're not going to where we were.
Not providing them the right level of support both in the technology and architecture and just general business support.
So by going out now and saying okay.
Look we made a mistake view here to help we're going to move you a lot new technology curve, what we've gone out and done now is really said hey look.
Yes, we can provide you a solution today with Dr. weakens continued to make improvements in your existing architecture.
And we can move you first off to drive flex.
In addition, we've started going into several these dealers and showing them, even though they tend to be smaller applications like you lead CRM or our service applications are often times.
Very applicable to those dealerships and they've been under.
Poured in that area.
So in general and I think this is something that.
We're not talking enough on this call about is.
If you take a look what we're trying to do and Joe mentioned this in his.
Paired remarks, and we've tried to talk about this event is it's not just walking into a dealership, whether they're wanting to do dealer rooftop dealership or 50 with dot dealership.
You can't just sell them at Dms really you really need to sell them solutions and you need to bring them that this bundled package. The CRM. The Dms the service applications all of these things and our open agnostic KFC. Some other applications you need that fit your your specific business.
That solution that combination is going to be an improvement it's either going to provide you the ability to serve more customers with the same resources or reduce your resources, but we're going to show you and improvement in your business operation by doing these packages of products and solutions.
We really focus on that and that's with those wanting to dealers as well. So the ones were signing up are signing up more with these bundled packages that have more of our application not necessarily charging them more for the Dms, we're selling them more solutions and giving them more capability and they're able to.
Utilize it.
And improve their operations as a result.
So from a big picture, we're selling yes, more if you take a look at it.
More software per dealer in that space, whether it's typically the renewal or the.
The new ones that we're bringing on but it's not because we're charging more for the Dms in many cases, we may be.
Selling them a bundle.
Just is is the Dms price may be down up it doesn't it doesn't really matter because that combines bundle as what they are really looking at and it may be cheaper than what they're currently using or it's going to provide them opportunities that they currently don't huh.
Yes and.
You only thing I would add is I mean, when you look at the revenue of what Brian same way to translates into his revenue per site growth that is healthy from the bundling and listen to drive platform is a great platform and it's in when you bundle and all the other integrations can deliver success, we're doing I think we pivoted hard to this bundled stay.
Energy and that's showing up in the revenue per site.
Great perfect. That's exactly what I was looking for a commentary on thank you.
Okay. Thank you.
Our next question comes from the line of Gary Chris to Pony towards press the pound Pinto with Barrington Research. Your line is now open hey, guys, how you doing.
Hey.
Most of the questions have been answered, but I guess.
First of all I, just want to me trying to get something clear here.
This does drive flex is for one to two point dealerships and really is the initial rust here. Once you get all of the certifications is to go out and so to your existing base of one to two point dealers and we'll get not sell but really convert and thats going to have a big impact on retention.
Does that kind of a correct assumption.
You're thinking two small so.
So got flex is.
Really designed to be modular and.
And it has the ability to scale.
Bye bye both in its dataset at its ability to integrate.
Applications and Oems. So it's really designed for anywhere from a single rooftop so with thousands of dollars.
And so.
If you took if we are all sitting here in the call 10 years from now I would expect.
Jim do the majority of our dealers to beyond drive flex.
By that time.
So whether they're up 400 dealer rooftop or a single dealer.
We would have theyve on there what are you see it starting in the one and two rooftop dealers is because it is the ability oftentimes you know as we add.
Oems.
It becomes easier to fill the one and two they may all have just GM or they have GM and Ford for a town and we've got that combination. So we can go fill their needs quicker.
So it's more of an ability to quickly do that and then some of that.
Modules that we need to add because remember each OEM requires a different.
Reporting.
Algorithm set for how we the dealership reports.
Weve financials up to them.
But then the dealer wants to roll those up across all of those only up so we have to be able to provide each of those modules. We have to provide afford module for rolling up that Ford dealership into the OEM and GM Tonight.
CA and so on and then we need to provide a different module to aggregate the dealerships.
For the dealer group and so those modules are just modules that we develop a later state and oftentimes have to be kind of bank crafted based on the on the combinations or how those dealer groups wants to see thing.
And so you just see the multi site dealers and multi OEM dealers tend to be a little bit later in.
The ramp of the technology.
So.
So I wanted to make sure you're opening up your thoughts of what Dr. flex is going to go too.
And our approach right now is to actually as we go out.
Just to go I'd say equally in both converting our existing groups.
And going in acquiring new ones.
So our attention is not to just use flex too.
Convert the existing business and.
Number of sites, but we think it's a really competitive advantage in a differentiated technology that will allow us to go compete.
Against our competitors at a level that they are not going to be able to deliver and so we're going to go after additional sites as well.
The Ken can an OEM actually orphan a dealer actually sign up for this before and OEM certification is approved.
No they because the Oems that require like.
So we have people I guess I want to make sure I answer. Your question. We have people signed up in anticipation of an OEM integration being completed because we have schedules.
So for example, we may not have Toyota done, but we say we're going out to done in the first quarter next calendar year third quarter for fiscal year, and so we could sign you up for the end of.
Got quarter for example.
But we wouldn't install it and get you up and running prior because you wouldn't be able to report financials.
Officially up to that that OEM and that would be a big problem for you as a dealer.
Did I hear you right that you said all the Oems certifications will be done by the end of this calendar year.
I know you should probably more like the into the fiscal year. So you know the majority of the big ones will be done into the first quarter then.
There is remember there's the over 30 Oems right no I get that but I guess the question I would have done as you've got this 40 site when all right.
There's going to be an application of the dry flex going forward and if you know if it isn't.
And what was the competitive what was the competitive issues that allowed you to take this away what did they come back to you with that said you won this business.
So that will not be a dry flex.
No I don't forget it so it'll be drive for the most part we can run dry flexon drive in the same dealer group.
Once we get the OEM certification. So for example, we may at some point once we get some of the other integrations done you know the last few could be dry flex you can you can you don't have to be all or nothing.
As an example, so we have the ability to.
To really mix and match as we go alone.
What's what's winning is the same thing that we've talked about here in this discussion about why our retention is better why we've hit the highest number of sites in total and the company's history is it starts with customer support.
The call center hours that customer success advocates the.
The post install team it moves on then to the sales group, putting these bundles together and showing people real value and that we can actually provide them a package set of solutions that are.
Better performing.
With better support for a better cost and that's what's winning.
Right now both from a retention standpoint.
And these.
New acquisitions of sites as well.
Okay, you get Gary for the for the non package in the room.
Besides this thing that we've done a lot around just there's so much progress and good things happening in the core drive product.
Mindset across the value chain and how we engage with customers and so our focus is vast everyday with the sales team is driving what the installation with the customer support teams are driving in and we expect to see those benefits and we expect to see those benefits improving as the year goes on and we're doing the right things for the long term will drive flux and we're going to be.
Patient with and do it in a very good quality way and so.
It's a it's quite a good balance and yielding results we are looking for.
Thank you.
Thank you.
Showing no further questions I will now turn the call back over to CEO , Brian cores in its for closing remarks.
Thank you I just want to thank everyone for being on the call This evening and.
Once again say, we had a great quarter. Thank the employees for all the work that they've done.
Thank you all for your great questions and your time. This evening. So thank you very much good evening.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.