Q3 2019 Earnings Call
Greetings and welcome to car Girls Inc. third quarter 2019 earnings results Conference call.
This time, all participants are no listen only mode. A question that just session will follow the formal presentation. If any what's required operator systems. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I would now like turn the conference over to your host Mr. Rodney Nelson head of Investor Relations. Thank you you may begin.
Thank you operator, good afternoon, and welcome to Carter's third quarter 2019 earnings call, we'll be discussing the results announced in our press release issued today after the market close and posted on our Investor Relations website.
With me on the call today's language diner, Carter's founder and Chief Executive Officer, Jason Travis and Chief Financial Officer, and Sam sales, President and Chief operating Officer.
During the call, we'll make statements related to our business that maybe considered forward looking including statements concerning our financial guidance for the fourth quarter and full year 2019 management's expectations for our future financial and operational performance our business in growth strategy and our plans to execute on our growth strategy, including our ability to expand our global audience and that new paying dealers.
Brand awareness and traffic acquisition efforts, including investments in growing our audience and brand building across our U.S. and international businesses as well as our ability to reduce customer acquisition costs over time, our ability to achieve our 2019 strategic initiatives the timing for at least from new products, our investments in an ability to drive adoption of new and existing products and features and there have been.
That's our expectations for our consumer finance offering and peer to peer marketplace, including our ability to expand through additional lenders and maximize market opportunities our expectations for our new digital marketing and social media products and the ability of these solutions to assist our dealers digital marketing efforts the value proposition of our products, including the ability of new products to drive our said growth.
The growth levers, we expect to drive our business, our ability to maintain existing and acquired new customers our expansion into international markets and our international growth strategy, our ability to successfully integrate and improve the person had website.
Our expected expenses, our ability to successfully grow our product and engineering organization and other statements regarding our plans prospects and expectations.
Forward looking statements May include words and phrases such as we expect we believe we intend we anticipate we plan may likely upcoming and similar terms.
These statements reflect our views only as of today it should not be considered our views as of any subsequent date.
We undertake no obligation to update or revise these forward looking statements except as required by law.
Forward looking statements are not promises or guarantees of future performance and are subject to a variety of risks and uncertainties that couldn't caused the actual results to differ materially from our expectations for.
For a discussion of material risks and other important factors that could affect our actual results. Please refer to those contained under the heading risk factors in our quarterly report on Form 10-Q filed after today's market close as maybe updated by or other SEC filings.
During the course of today's call, we will refer to certain non-GAAP financial measures reconciliation of GAAP to non-GAAP measures is included in our press release issued after market close today, the press release Investor presentation, and our FCC filings can be found in the Investor Relations section of our website and investors that Carter's dot com and the Fccs website at <unk> Dot Gov.
With that I'll turn it over to lately.
Thank you Rob me and thanks to everyone for joining us today.
There's delivered robust third quarter, featuring strong subscription revenue growth U.S. margin expansion at several important product developments.
We grew our industry, leading U.S. audience generating nearly three times as many visitors visits as our next closest competitor and we delivered year over year U.S. Lee growth of 13%, providing strong value to our dealers and eating growth and our core listings business.
Our business our brand investments are driving more traffic from direct app and on channels and year to date leads from these channels have grown 20% year over year.
Brand remains an important investment area for us and we launched our new my car might deal campaign in Q3.
Our emerging products business, we added a second lender to our consumer finance marketplace, expanding our dealer and consumer credit spectrum coverage, our international business delivered rapid growth evidenced by our our highest total international net dealer additions and triple digit audience growth.
Finally in October we held our first ever user conference navigate where we hosted hundreds of deal is unveiled new products and features.
Our core U.S. businesses, taking share as we earn more of the $14 billion dealer spend annually on digital marketing. These share gains start with our U.S. listings business, where we continue to see a long runway for growth our commitment to Transparence me allows us to track the largest audience and our industry.
Generating nearly three times the number of visits as our next closest competitor according to Comscore.
And that third quarter over 38 million average monthly unique visitors logged over 100, and Threemillion average monthly unique sessions on our U.S. site, representing a two year compounded annual growth rate of 24% and 21% respectively.
Yes, we have substantial opportunity to continue increasing our total audience and growing our brand.
Well, we have the largest audience already we also have a large opportunities to gain unique visitors share since we have roughly 40% share of total de duplicated visitors to all major U.S. auto listing sites as measured by Comscore, We're still quite early in our brand investment initiatives.
But the last two years of investments are bearing fruit as I mentioned year to date leads from direct App and owned channels are up 20% year over year, helping us create even more robust traffic mix and enabling greater efficiency in our traffic acquisition efforts in fact, our year to date costs to acquire a U.S. lead.
Lower in 2019 than it was sort of the first three quarters of 2018, our brand initiatives, our strategic imperative for our business and our recently launched my car My deal campaign highlights our platform to unique consumer value proposition.
Which we believe will fuel long term consumer attention, even better acquisition economics.
But it's not just the scale our audience that matters its the quality of the shoppers we attract that generates what we are confident it's the industry's leading return on investment for our dealer partners.
We have always focused I traffic acquisition efforts on down final consumers and in turn we provide users with a robust platform to conduct their car shopping process.
Premised on three tenants more inventory more information transparency sorted in a more consumer oriented way our U.S. audience can choose from an average of over 5.5 million listings from our more than 40000 dealers and experiences that they cannot find from any of our major comes.
Petters, which we believe obviates the need to use other car shopping sites.
We aid their process with tools, such as our instant market value dealer ratings and deal rating driven search results and we're helping them gain more transparency on the buying process with our consumer finance offering simply put we are delivering to dealers scale quality and value through our massive audience of him for.
Formed ready Dubai shoppers to that end, we grew leads to U.S. deal is 13% year over year in the third quarter.
Year to date leads have grown 16% year over year, compared with sessions and unique visitor growth of 10% and 9% respectively. Bottomline leads connections and quality mattered most to dealers our technology team. It's always folks focused on delivering high quality leads and connections through our traffic acquisition and onsite conversion efforts.
And we will always prioritize initiatives to do so this objective is our north star in each product decision, we make even if it means passing on short term revenue opportunities for instance, we may forego revenue in our OEM AD business. If instead, we can deliver a better consumer experience more quality of.
Tumor leads and connections walk in traffic strong dealer ROI incremental recurring subscription revenue down the road.
Well, we do not plan to provide lead level detail every quarter going forward. We believe this highlights our ability to grow our platforms value and our core listings business, even when traffic growth is muted.
Growth in platform value is reflected in our U.S. our solid performance.
U.S., our said eclipsed 20% growth for the fifth consecutive quarter rising 21% year over year connection and lead volume growth, what's the leading driver of ours to growth in the quarter. However, it's important to note.
New product that new product posted its best ever contribution to our seat growth. In addition, our U.S. panning paying dealer base continues to grow as we added 261 paying dealers in the third quarter, bringing our U.S., our total U.S. paying dealer count 28692.
Despite our high dealer market penetration our growth runway remains long and we are still bringing more dealers onto our our core U.S. listings platform upselling dealers to growing set of Liftings package levels and cross selling our portfolio digital marketing products.
In October we hosted hundreds of dealers and partners at navigate our inaugural user conference, which I'm pleased to say was a great success, our sales and marketing teams organize a terrific event with insightful speakers in content, including keynotes from cargos executives as well as thought leaders from around the industry dealers were led through product demos.
And received a sneak peek at our revamped dealer dashboard, featuring our pricing tool market insights and powerful audience engagement analytics, our product team also announced real time performance marketing or RPM, our multichannel digital marketing suite that will unify our dealer digital marketing products RPM will.
Also incorporate our new social product for Facebook campaigns, which we announced alongside RPM and navigate.
So she'll product allows dealers to target cargos users that are viewed vehicles similar to that dealers' inventory leveraging the power and industry, leading scale are very deep datasets and unlocking more engagement with our unique audience.
With the introduction social ads, we believe RPM will deliver optimize campaign performance through smart.
Budget allocations across multiple multiple channels, eliminating guesswork and delivering what we believe will be best in class return on investment.
In addition, we'll provide deal is with analytics from every channel on the on the metrics that matter most spend allocation and press impressions clicks.
RP NVP views leads and unit costs, all embedded in the dealer dashboard between our Liftings platform and RPM. We believe we're delivering unmatched marketing sophistication and value to our deal is unlocking long term growth opportunities on a $14 billion total addressable market. We plan to watch we plan to launch.
RPM in the U.S. and early 2020, and we'll keep you apprised of major milestones.
Our core U.S. business. This is Scott is scaling efficiently as we gain leverage on our sales and marketing investments beyond the core business. We remain committed to investing in long term emerging product areas to augment future growth earlier. This year, we've shared with you the launch of our consumer finance platform, providing consumers with instant prequalification.
One decisions on nearly 3 million cargos listings at lunch today I'm pleased to share that we've added Westlake financial services as our second platform second lender to our platform our partnership with Westlake launched in Q3, and we'll be rolling out to dealers over the course of the fourth quarter Westlake dramatically expand both deal.
Consumer credit spectrum coverage on our platform and we're excited to provide consumers with a multi lender plot marketplace that offers them transparency and choice.
In turn more dealers will be able to receive leads from down final consumers with the loan Prequalification, which we believe significantly increases conversion to sale.
In fact consumers that prequalify on our platform are submitting loan applications that at dealerships over 20% of the time, creating a high value lead source for dealers. We continue to pursue additional lending partners to build and even more robust offering and we're thrilled by both the progress we made and the opportunity ahead of us in consumer finance.
Yes.
Turning to our international business, we delivered strong growth on both sides on both sides of our marketplaces, our core international Cargos platform is reached.
New all time highs in transit both average monthly unique visitors and sessions in the third quarter.
Including the impact of piston heads, we attracted 10.2 million average monthly unique visitors and 26.2 million average monthly unique sessions, representing year over year growth of 129, and 151% respectively. The momentum in our international this business is creating a strong is creating a strong.
Dealer value proposition and we are rapidly growing our pain dealer base.
We added 671, net new paying dealers to our international business and the third quarter comprise comprised of strong contributions from each of our commercialized international markets and representing our best ever quarter of total international net dealer additions.
Most encouragingly unit economics, and our most developed markets are are improving I missed rapid lead growth and increasing efficiency in our traffic acquisition strategies, which we believe is leading in is a leading indicator of future profitability in those markets in the UK, our core cargos platform generated triple digit lhi growth.
For the fourth consecutive quarter, which leads to dealers rising 120% year over year in the third quarter as we integrate piston heads and our go to market strategy. We believe that we will have a scale unique platform, providing a differentiated value proposition to UK dealers.
In summary, we are delivering strong efficient growth in our core U.S. marketplace subscription business and investing prudently in new product.
Arena is to expand our total addressable market. We believe the combination of our listings platform and RPM will provide us steel is where the best in class multichannel digital marketing solution to efficiently acquire customers and our team is delivering consumer innovation in our emerging products as well our international team is is replicating.
Our domestic success abroad, and generating strong growth with healthy unit economics, we believe rent were in position to finish out the year strong and set ourselves up for continued success in 2020 with that I'll turn it over to Jason.
Thank you lately I'll provide a detailed overview of our third quarter performance, followed by our guidance for the fourth quarter and updated outlook for the full year 2019.
Total third quarter revenue was 150.5 million up 26% year over year and roughly $2 million ahead of the high end of our guidance range.
Our marketplace subscription revenue grew 28% versus a year ago period to 135.5 million and advertising and other revenue grew 13% year over year to 14.9 million.
Parsing performance by geography, the U.S. accounted for 94% of total revenue in the third quarter.
You ESS revenue rose, 24% versus a year ago period to 141.6 million, while international revenue grew 98% year over year to 8.8 million.
Turning to paying dealer count, we eclipse 35000 total paying dealers in the third quarter. We ended Q3 with 35199 total paying dealers representing an increase of 932 from Q2.
In the U.S., we finished the quarter with 28692 paying dealers up 6% year over year and an increase of 261 from the end of the second quarter.
This compares to 370 U.S. net dealer additions in the second quarter of this year and 257 net dealer additions in the year ago quarter. As we've stated often quarter to quarter net dealer adds will be variable, but over the long term U.S. net dealer adds will likely remain gradual as our paid dealer market share increases.
In our international business, we added 671, net new paying dealers in the third quarter.
We generated strong performances across each of our commercialized international markets, Canada, The UK, Italy contributing to this quarters net dealer addition, total.
We finished the third quarter with 6507 international paying dealers up 88% versus a year ago period.
As Larry mentioned U.S., our said growth exceeded 20% for the fifth consecutive quarter, driven primarily by increased connection in lead volumes to dealers.
U.S., our said grew 21% year over year in the third quarter to $16967.
We're seeing consistent adoption of our new products as delivery and our audience Retargeting product in particular generating strong demand in our us business.
Each of our dealer products are priced to subscriptions and our newer products will take time to build installed base of recurring revenue.
Still we're pleased with the adoption patterns were seeing across our portfolio, resulting in new products generating their strongest contribution to U.S., our said growth to date.
International our said grew 5% year over year to $5079. As a reminder, we excluded and we will continue to exclude the impact of piston heads in our Italian market place from this metric until we have four trailing quarters of operating results in each market to accurately render its contribution.
Keep in mind that this metric will be lumpy on a quarter to quarter basis, as we experienced high percentage growth in pain dealer count in our international business.
However, if were successful in continuing to grow leads per dealer launch new products and achieve significant penetration of our pain dealer opportunity individual country. Our said should begin to deliver more consistent year over year growth in time.
I will discuss our expenses and profitability on a non-GAAP basis, which backs out our stock based compensation expense and amortization of acquired intangible assets.
Third quarter non-GAAP gross margin was 93.8% down roughly 90 basis points versus the year ago period.
Two factors contributed to the year over year contraction in gross margin first we recognize media costs associated with our audience re targeting product in our cost of revenue as this product scales. It will create a modest headwind to gross margins.
Second technology investments in our datacenter and cloud hosting expenses also contributed to the year over year contraction.
However, these factors do not change our stated long term operating income or adjusted EBITDA margin targets outlined in our investor deck posted on our Investor Relations website.
Total third quarter operating expenses were 122.5 million up 21% year over year.
non-GAAP sales and marketing expense grew 20% year over year to 97.6 million and represented 64.9% of revenue down from 68.4% of revenue in the year ago period.
The improvement in sales and marketing leverage are the result of our brand investments driving more traffic from direct sources. In addition to efficiency gains in our traffic acquisition and onsite conversion improvements.
We will invest prudently yet aggressively along each of these fronts across our markets to grow audience, an increase connection and lead volumes to dealers.
Our non-GAAP product technology and development expenses grew 36% versus a year ago period to 13.8 million.
The investments, we're making it our technology team impact multiple initiatives, including supporting our core marketplace subscription revenue business in both our domestic and international businesses and projects in the emerging product arena.
We continue to allocate resources as needed to manage near term business needs and support longer term growth initiatives and growing our technology and product teams remains a top priority.
For instance, right now our investments in emerging products, such as PDP or consumer finance remain modest both on an absolute dollar basis and relative to investments supporting our core business.
However, if were successful in honing these products and see sufficiently attractive corresponding unit economics, we will undoubtedly increase our investments to support the high revenue growth potential of these products.
We generated non-GAAP operating income of 18.6 million roughly $6.1 million ahead of the high end of our guidance range.
Our operating income outperformance was driven by a combination of marketplace subscription revenue outperformance continued efficiency gains in traffic acquisition driving operating leverage and other expense favorability in the quarter.
non-GAAP diluted earnings per share were 14 cents for the third quarter four cents ahead of the high end of our guidance guidance range.
On a GAAP basis, we delivered third quarter gross margin of 93.8% and total operating expenses of 131.4 million up 23% year over year.
The increase in operating expenses is primarily the result of increased sales and marketing expenses.
Third quarter operating income increased 65% year over year to 9.7 million.
Third quarter GAAP net income attributable to common shareholders totaled 10.4 million.
Geographically, our third quarter U.S. GAAP operating income was $20 million and we had a GAAP operating loss of $10.3 million in our international business.
As Langley referenced we're seeing operating leverage materialize and our us business through our sales and marketing investments and our unit economics are improving and our most mature international markets.
In Canada, our cost per lead declined 21% year over year in the third quarter and is down 18% year to date.
In the UK, our cost per lead on our Coresite declined 44% year over year in the third quarter and is down 39% year to date.
We still have ground to cover to reach profitability in these markets, but given how quickly we have grown investments in these businesses. We're very pleased with these trends.
We ended the third quarter with 164.3 million in cash and investments an increase of 17.2 million from the end of the second quarter.
We generated 23.8 million in cash from operations in the third quarter and 21.1 million of non-GAAP free cash flow, which includes capital expenditures and capitalize website development costs of 2.7 million.
During the third quarter, we withheld unremitted 4.2 million in withholding payments from RSU share settlements stemming from our equity compensation plan.
We continue to evaluate this practice and may explore other avenues for managing tax withholding related to equity compensation going forward. So no change to this practice is imminent.
I'll close my prepared remarks, with our outlook for the fourth quarter and full year 2019.
We expect to deliver strong marketplace subscription growth in the fourth quarter, driven primarily by robust us our said growth and strengthen international net pain dealer additions.
We expect to deliver more modest year over year growth and our advertising business relative to our subscription business growth in Q4 as car shopping activity typically wayne's toward the end of year.
With these factors in mind, we are raising our full year revenue outlook to a range of 583 to 586 million, implying roughly 29% year over year growth at the midpoint.
This compares to our prior guidance of 576.5 to 582.5 million.
We are raising our non-GAAP operating income to a range of 63.6 to 65.6 million up from 54.5 to 58.5 million, implying an 11.1% operating margin at the midpoint of our operating income in revenue guidance ranges.
This is roughly 220 basis points ahead of our initial full year 2019 guidance set on our Q4 2018 call in February and 140 basis points ahead of our full year 2018, non-GAAP operating margin.
We're raising our full year non-GAAP earnings per share guidance to a range of 47 to 48 cents per share up from 42 to 45 cents previously.
Focusing on the fourth quarter, we expect total revenue to be in the range of 152.2 to 155.2 million non-GAAP operating income in the range of 17.1 million to 19.1 million and non-GAAP earnings per share in the range of 12 to 13 cents.
Overall, our business is poised to finished 2019 strong.
We are efficiently scaling, our leading us audience and delivering quality leads and connections to dealers, resulting in what we believe is industry leading return on investment.
The investments, we're making in our brand are yielding audience growth increased customer acquisition efficiency and operating leverage for our us business.
Our international business is delivering strong growth with unit economic trends that support long term profitability.
Our technology and product teams continue to deliver innovation not only in our core listings and digital marketing products, but also in setting us up for long term growth in areas, such as consumer finance and PDP.
We're looking forward to closing out 2019 strong and with momentum that will set us up nicely for some sustained success in 2020.
With that we'll open up the call for Q anyway.
At this time, we will be conducting a question and answer session. If you'd like to ask question. Please press star one on your telephone keypad.
Information so indicate your line is in the question Q.
You mean prestart too if you will let your move your question from the Q.
For participants who is the speaker equipment and may be necessary to pick up your handset before Parsons Starkey.
Our first question comes on line of Tom White with D.A. Davidson. Please proceed with your question.
Great. Thanks for taking my question.
Good evening guys just two on international if I could.
Was hoping maybe lately.
Help us.
I understand your your latest thinking about.
You know, adding more international markets over the next two to three years.
Versus focusing your international investments on I'm kind of its Scott scaling your existing.
Countries more quickly and maybe accelerating their path to profitability and then just sort of secondarily.
Can you maybe give us a sense of how UK is doing in terms of their sort of timeline or ramped profitability versus what you saw in the U.S. Thanks.
No.
Yes, So let me take the first question that actually how Sam handle that second one about UK.
I mean generally it's hard for us predict where we may or may not go and future internationally, but I think globally, it's probably safe to say that our focus will be more on.
Taking the investments we have in existing markets and trying to push them towards both scale and profitability. So.
That's probably the best best place to leave it.
And Tom I'll pick it up Sam sales on the UK, specifically I think comparing it to the US business is it's hard to do the U.S. business started a simmered for many years.
With a different business model and we aggressively went into these models knowing that in the UK.
This market and others the pain point exists that consumers do not have a transparent experience and dealers are.
Anxiously awaiting a high ROI.
Connection consumer connection growth partner to work with I think you heard from Langley his prepared remarks that.
We are growing lead volume in the UK by North of 100%, we've done that for quarters consecutively I think when you look at the business. We mentioned in our Investor Day that unit economics are moving all into right direction, which means how we look at the revenue.
Per connection versus the cost per connection.
All moving us on that path toward profitability the lead growth. The visitor growth has been tremendous and I think most importantly dealer adds and RC at all moving in the right direction. So.
The markers are all moving in the process. We wanted them to you just can't compare to the U.S.. So I hope that fair answer.
Okay. Thank you.
Our next question comes on line of the Khan with Suntrust. Please state your question.
Yes. Thanks, now just a couple of questions. So.
Lead growth of 13% that looks quite strong.
Relative to the to the growth in that unique visitors can you just let me.
Caught out some of the concluded as to how volume is exceeding.
Visitation and then I've a follow up question after that.
Sure, Nevada has chasing Travis.
We do a couple ways number one is we're always trying to attract a more down funnel customer in.
Both the brand efforts that we do as well as our what we call AJ algorithmic traffic acquisition and so I think that first point is that we're attracting people who are more likely to convert because we're getting smarter about that and as a result, a higher percentage of our of our users are converting the second is were.
You know, we're putting resources against conversion optimization and.
Putting features.
And you know design in our site that is conveying more information to users so that there.
More informed and more ready to convert or two to connect rather with dealers so as both the.
Intelligence in our spend and acquisition as well as the experience optimization on our site.
Understood. Okay Thats helpful and then.
On the advertising revenue I know.
Small line, but in terms of the OEM spending anything that you might be heading that about.
Propensity to spend on.
On advertising.
The holding back more on the taking longer to comment on what are what are you seeing.
I know that Sam sales.
We're working with all the Oems and we're proud of that I think we bring a unique value proposition in advertising, which is the largest audience in the marketplace and we are performing well for the Oems I do think that macro environment.
Yeah.
Some issues with union activity and other OEM.
Trends in the marketplace are challenging.
What we've seen.
Growth year over year, we said it would be slower growth in advertising I think the key thing for our business as Jason just said, we are prioritizing our business and language said it well we might even forego some ad revenue.
In the preference for leads and connections to our dealers our core business will always be a priority for us.
And I think as we continue to serve every one of the Oems in the market, we hope that that our audience in the differentiated value proposition will drive continued growth.
Thank you.
Our next question comes on line of Daniel Paul with Goldman Sachs. Please proceed with your question.
Great. Thanks.
Just two if I may 1st question is kind of focused on.
Growth first margin trade off you guys have seen your marketing spend decelerate here. The last couple of quarters, and obviously shown a lot of strong margin expansion just curious as as you look at your opportunities to invest particularly with that cost per lead coming down year over year, what's what's your sort of willingness or philosophy around.
Around driving growth through through putting more dollars toric and those channels.
And then secondly on some of the new products. Just curious if you could give us a sense in the quarter for what were some of the strongest contributors in that bucket that you highlighted as being.
Most pronounced this quarter than any other the path. Thanks.
Yes, Daniel Langley so.
Growth versus margin, obviously, we have.
Oh really to two main businesses domestic and international and we can look at marketing differently in the light in those two markets. Obviously, you asked is probably a certainly a little bit more of a little farther along.
And so we certainly take seriously our responsibility to to be.
The effective with our marketing Jason alluded to it earlier that it's really not just about driving unique since about driving.
Visitors that convert and so we spent a lot of time with our different channels to think about how we can drive the lowest funnel customer as possible and try to drive converting traffic. So it really isn't.
And really in all our markets. It's not just about traffic, it's about traffic that converts and that really turns into leads us what are our dealer partners looking for.
Obviously international we're probably in a different phase.
But even within international I mean, I think Sam alluded to it that we take each market individually and we look at our responsibility.
In a.
Certainly not in a one year horizon, but in a multi year horizon to try to bring those two lease breakeven and grow them grow them in that fashion. So.
You will see across all our markets, we take marketing responsibly and kind of try to focus on.
The best return on investment we can find.
And Dave I'll take part two with Sam sales to your question on new products.
As as mentioned in the remarks are said had.
Nice impact of new products growing that our sit number significantly.
The two that I'd say would stand out our delivery product that we mentioned a few quarters ago, giving dealer as an opportunity to.
Display their inventory in a broader segment of the national market. So for consumers, who have a limited search said getting the ability to see a vehicle from another part of the country that can be shift at either no price or a price point, according to the dealers requirements and giving them that opportunity to expand their.
Addressable universe has been a great success for our dealer partners audience re targeting is a second offering thats ad.
Real nice uptake remember, you're giving them the opportunity to dealers and opportunity to put their inventory in front of the largest automotive audience purchasing audience in the marketplace and re target those consumers back to the dealer website, where they're looking at only that.
That dealers' inventory, so thats had strong uptake as well.
Great. Thank you.
Our next question comes on line of Mark Mahaney with RBC capital markets. Please proceed with your question.
Two please.
Couple of comments about how you saw the lowest khaki you're seeing the lowest CAC now that you've seen and it sounds like a year or two any color just do a pullback that onion a little bit why do you think that isn't do you think thats sustainable and then.
Let me I know you talked about this RPM product could you just briefly summarize that again I'm, sorry, I jumped over I heard the very end of it inside an intriguing, but I didn't get the details would you. Please re spin it. Thank you.
Hey, Mark so on CAC.
Hey.
To two broad reactions or comments one is.
Yeah, it's it it's improving which we are.
Pleased with particularly in light of spend growth.
And it's improving because we it's all done internally, we have a lot of engineering resources in data science resources against it and.
We think we are one of the most sophisticated.
Acquirers of consumers out there and we are always improving our capabilities there.
And we think particularly in light of spend growth that is an accomplishment that a lot of companies aren't able to do the second thing I would say is.
It is a comment that touches on.
Some comments finally, just said which is the it's not just simply about.
Finding the cheapest.
Connection or the cheapest lead I mean, that's certainly a metric that we look at and we believe we're getting more efficient and that data would support that but it's really about getting high quality leads that and connections that we also measure based on how well they converted the dealer and so while we're proud.
Out of that and we highlighted it for everyone. We also want to make sure everybody knows that the quality is an important metric that doesn't always come through in the efficiency data itself.
Good markets Langley, So RPM just to summarize again.
Basically we take a cost a set of customers that have been on our site.
And may have looked at for instance.
Ford F 150, and the Boston Zip code.
And then we can compare that against.
A tough a dealer that subscribed for RPM product and re target that customer off site. So they may be either on.
The New York times, or Sps and or on Facebook.
Allow that deal or two in real time with a very targeted ads, we serve up on their behalf.
Which shows.
A piece of inventory from there from from there lot. So we think their inventory with that cook that cookie.
And deliver.
An ad for that dealers' inventory, which deep links into their website.
Highly highly segmented deep links to that inventory and we believe has.
Finally, the initial results have shown great great click through behavior and great ROI for the dealer.
I think the obviously there are many other people that can offer re targeting to a dealer, but I think what's unique about us is in fact our scale.
Not just the scale, but the segmentation that we can apply to that data no. One in the industry has the scale and the segmentation that we can apply to the dealer with regards to kind of Offsite retargeting.
Okay. Thank you Langley.
Thank you Jason.
Our next question comes from the line of Dan Kurnos with Benchmark Company. Please proceed with your question.
Great. Thanks.
Good evening, just blindly thanks for the additional color on lead growth and sort your high level runway expectations.
Not to be agree, but just can we push for a little more granularity around sort of the sustainability and since you guys had been really harping on the whole quality a conversation here. If we can just sort of think about how you view the runway in terms of let's say higher conversion leads versus generic audience growth like once we get past sort of the tougher.
Audience comps do things rebound more significantly or.
Stay kind of the same level just simply due to the playground that you guys are focusing on.
Yes, it's hard for me to predict the future.
And the lawyers will tell me I'm not allowed to so I won't but.
Let me guess suffice to say that.
I'd go back to what we said earlier, which is that.
I think too many people focus on unique growth.
Uniques our uniques.
We want people to convert so our marketing efforts are really focused on traffic that converts.
Be TV or search engine marketing, we may do or re targeting where our we're really focused on making sure we drive traffic that.
Can generate a lead for a dealer.
Yes, it's hard hard for me to predict but I think we've shown that at least in the last nine months.
That we're we're really focused on it.
Goal, which in turn speaks to I guess, two to your audience or to profitability and.
You asked market.
Trying to show.
Leverage to our business and expanded margins by being even more efficient with our marketing spend.
Got it and then maybe just one for Sam just on International I know you talked about just sort of improving metrics across the board on the to an earlier question just about maybe attraction you're seeing with the am 100, we know that obviously.
Do you guys pointed out the U.S. standard for a long time, but UK, there's still kind of the sort of test in weight mode are you seeing some of those guys start to.
Increase their spend any more rapid clip.
Or is there or is there any kind of movement on that front. That's a notable call. It at this point.
Yes, Thanks, Dan.
A couple of comments first I think in mature markets like the UK for International you know, we're in that phase and I've outlined before first we start with it.
Expanding inventory and acquiring that to make a consumer experience that has breadth of inventory choice. We then growing audience. We then sell dealers and then we continue to up sell them either at higher price points or add more products. There that market. Obviously is in that phase three to four range.
On we've seen I think as you see the success of our.
Paying dealer base grow substantially that May give you a hint at.
I am 100, and the broad base of dealers in the UK that are finding that when you have 100% plus lead growth year over year.
And it audience growth, it's growing faster than any in the market. They are subscribing at greater length to the.
To the paid subscriptions.
And then you're closing business for them and over time, we're doing the same thing we did here in the US which is when we see that kind of growth we.
Kindly request the renewal because we've invested in that connection growth of consumers the dealers should pay more for those programs. Those are all working to our satisfaction and they're doing sell because we're driving that really efficient.
Lead in connection growth and.
As as evidenced you heard about the navigate conference. We had here we can a half ago, we had a significant.
Attendance rate for those am 100.
Participants who are excited about what we're doing their here in person and coming across the pond to participate says a lot to us about.
Our significance now in a market that we only started three years ago or so hope that provide some clarity.
Great. Thank you outlined with thanks.
Our next question comes on line of rough factor with William Blair. Please proceed with your question.
Good evening, so maybe just staying with the navigate comments that you had in the previous question just curious how the conference perform relative to your expectations, perhaps a sense of how large the conference was purpose any customer feedback you could share just overall global platform products be really helpful. Thank you.
Yes, thanks Ralph.
It performed.
Better than expectations, but it's our first year doing it and I think we're learning a lot talking too.
Other market leaders online marketplaces, SaaS companies that have a industry conference.
The goals and objectives were one to provide thought leadership.
Two executives and.
Dealer management principles to provide both in market industry knowledge, but also topics of general management digital marketing innovation operations excellence.
So that it was general and industry specific and then the second goal was networking and allowing the broadest base of senior executives.
And Internet digital marketing principles that dealerships to share best practices with one another we latch that on top of our dealer executive councils, where we hear from some of the most influential people in the industry. So our attendance was in the hundreds.
And that's more than we might have expected in the first year Trinas remember, you're taking dealers out of an operations environment for a couple of days to come across country and in many cases, where dealers actually from Canada. The UK in Italy, all join us as well.
Internationally.
And I think the feedback we got was 100% interest in coming back again, which is a rare for a survey to come back that way, but most importantly, we fulfilled on that vision of having a single industry conference that they felt was the most unique in terms of thought leadership not just around industry activity.
But broader general management and digital marketing concepts to help them run their business and that's supposed to an industry that has other conferences that usually a vendor is selling their wears we weren't doing that but we think we accomplished the networking and the brand.
Response of Mister car groups that we would hope for us. So thank you for asking about it.
That's really helpful. Sam Thanks, a lot.
Our next question comes a lot of Ron Josey with JMP Securities. Please proceed with your question.
Great. Thanks for taking the question two please just on on the addition of Westlake in the consumer Finance you just talk about how many dealers now offer financing on the platform I think I think in the past you talked about capital one cover 10000 dealers and now you have two different providers just talk about how both providers can work with each other or or or otherwise and then as.
A follow up Jason and Langley talking about the efficiencies and CAC and whatnot. When you think longer term and if these CAC trends hold how do you think about your longer term view on sales and marketing.
I think your longer term guidance calls about 45% of revenue self CAC of cat trends continue to come down longer term, you're you're seeing sales and marketing 45% of revenue to think that could go would go lower thank you.
Sure Hey, Ron So on Westlake, Yes, with Westlake, we now have coverage of.
About 85% of our used inventory and that covers tens of thousands of dealers or.
Yes.
And so.
And Furthermore, though and I think equally as important as it gives us much better credit consumer credit spectrum coverage.
And so there's.
Those are the two key dimensions, and then where there's overlap. We're also giving consumers choice, which is sort of the third dimension of consumer value prop. So.
Well.
While Westlake may not be as as prominent a name as cap one from a consumer perspective, they have really compelling coverage and had been a great partner to us. So far so it's that second add is a really important one for our consumer financing business in terms of.
CAC and if I heard you it was sort of sustainability of it and how that leads to long term sales and marketing leverage.
Yeah, I would say there's.
There is another dimension to which we haven't raised yet, but which is going to be ongoing contributor to this which is features and products that we can build which help retain the consumer for longer than.
Just just the period when they're shopping with us.
And will allow us to develop.
Longer term relationship with them and not have to reacquire them. When they go to buy their next car appears down the road so between ongoing efficiency of our ATM a.
On say conversion and consumer attention, we think it's sustainable and I would say Furthermore.
If you look at Comscore data right now we have about 40% of de duped consumers that are using auto sites and so we think theres runway from a scale perspective as well in addition to efficiency what all that means is that.
Is maybe somewhat mundane punch line, but it's that we still believe in our long term margin targets that we've given.
And that that puts us south of where we are now in the.
Puts us down in the 40, so it's it's a long way to go but.
We want to keep delivering to the consumer and so we're not trying to get greedy long term.
And not deliver products and messaging to them, that's going to continue to build brand equity.
Makes less sense. Thank you.
Our next question comes on line of mid Jones with Citi. Please state your question.
Hi, Thanks for taking my question I guess.
If you could maybe touch on kind of the unaided brand awareness versus the amount of traffic you're able to get into us.
It's kind of piggybacking on that you guys are winning kind of the lion share of trying to compare to.
Competitors why is that not connecting maybe the unaided or aided awareness when I look back it kind of the analyst day slide deck.
What some of the competitor delaying and I guess, how do we think about that opportunity as far as you know what are the benefit commented it more traffic has it.
Lower CAC.
I guess, if you could just to add some color there.
Sure.
We think of brand building as.
Marathon, not a sprint and you got to build it up over time in.
I think what we've come to appreciate is it's not necessarily how much a company is spending in year, but it's the cumulative effect of how much they've spent over time and to state the obvious where the newest entrant among.
The large players in this in the U.S. and so.
Others had a lot more cumulative spend than we did and we're building ours now.
And we've seen a lot of progress in the two and a half now years two years that we've been doing it.
And what is it result in I mean, it results in all the things you said it results in traffic it results in brand affinity.
It results in we think trust with our site, which leads to higher quality and more trusting leads to dealers and so its goodness to our dealers as well.
And so.
It's we firmly believe and the value that it's driving us right now and the value that its accumulating overtime.
Thank you.
Our next question comes a lot of Brad Erickson with Needham and company. Please proceed with your question.
Thanks, So just a couple follow ups first when you talk about driving stronger conversion, which you mentioned several times on the call I guess in the context of attribution can you talk about what's your renewal discussions or sounding like with dealer customers and specifically I guess what are the tools that you aren't you going to sort of highlight that converge.
And to those customers as you look we get paid for this lead growth.
You're talking about and then second can you remind us what the portion of your traffic comes from either indirect channels overall or just.
Great. Thanks.
Sure It will start with the second one.
And we have not broken down specific channels in the Investor day deck, you see a breakout of.
Want to say 12 to 15 discrete channels that.
Our primary sources of.
Consumers, we did give some data on this call as you heard that are.
Lead growth from owned channels of App and direct.
Outpaced our overall growth. So that gained continues to gain more share, which as you would expect that certainly leads to increased efficiency.
And but I would say there a couple of size in the Investor day deck that you can sort of use the rule or go to the Y axis and estimate kind of different channel percentages.
And Brad ill that Sam sales I'll take the second one which is about renewals how how is that going for us I think.
In the in the our sit numbers you can see the continued growth and get the sense that we're we're having success.
The renewal calls I think I mentioned on on this.
This call before they are not easy for any dealer to say your prices increasing and by that.
It's an emotional reaction no matter what it is I think the two things we've talked about the call when leads and connections grow its not a price increase we're increasing our said based on the volume of.
Consumer connections that we're driving number two is we're pretty certain that we provide the highest return on investment marketing and customer acquisition program in our market.
And we are doing that as you said through attribution and doing that a number of ways. One is we partner with a number of CRM companies. So that dealers have an opportunity to see our connection volume comparative to our competitors. When we're the largest audience and we believe we are driving the largest connection volume, it's pretty easy to see a comparative and.
Make a decision for where I want to spend my marketing dollars number two is we're doing significant contribution testing with Dms status will pull data from back ends to look in aggregate at what close rates were seeing not just on our leads which our phone calls emails and text chat conversions, but it is.
Clicks to dealer web sites clicks on map and directions and in many cases, it's looking at walk in traffic. So we're now looking at DMV data third party cookie data to.
Provide information in aggregate level on our close rates, which demonstrate this return on investment and will be even looking at third party research studies to.
I understand where we compare to the market. So for all those reasons, we're seeing that our said growth and we're seeing the success of the renewal process.
That's great. Thanks.
Okay.
Our next question comes the line of Marvin fall with BTG. Please suit the question.
Good evening. Thanks for taking my question not just one for me I think everything has been answered just.
On the social ads products could you perhaps.
Elaborate a little more on how how you view of the the size of that market and how the product. Your go to market strategy, there, how the product might be price or or structure. Thanks.
Yes, Marvin's Langley.
So you had two questions the size of market.
You should do your own research, but I don't think there's a deal you could talk to that isn't that isn't top of mind.
I mean, I think dealer listen we all get that.
Fundamentally there's probably three places for a dealer to.
To get customers one is.
One or marketplaces like ourselves the other one to give a plug for Google as they certainly can go run their own AD words programs, which most of them do and then lastly, its social Facebook I mean, that's the biggest second because probably second because platform.
For these.
So then to be exploring outside of marketplaces.
I think what we find is a compelling value proposition for a deal. It is a with all due respect to Facebook Facebook has a great platform for for reach.
It's not particularly segmented.
Unlike Google.
So for Facebook to be truly effective you need to be able segment that that audience against make models Zip trim.
And for a dealer to be able to do that effectively they need to get their hands on data and were the biggest data source in the industry by.
Close to a factor of three.
So I'm not only do we have the biggest dataset, but our you know with all due respect to our competitors I believe we have probably the most sophisticated data analytics and segmentation capabilities. So.
We had the biggest audience, we have the most sophisticated segmentation and in the end of all we can drive a lot of.
And deep linking I mean these these ads are highly relevant to what the customer had previously been looking for in the deep link straight into the dealers' inventory.
So I think it's a very effective product and again you should do your own research, but there's probably not a dealer you could talk to that says that of the things that are excited interest about social is absolutely top of their list.
And.
The other things that you asked about how it can be price, it's going to be a subscription product. So again kind of inline with our.
Our thinking about revenue streams that we like subscription businesses.
Because they are typically if you do your job well there evergreen revenue sources, so it's going to subscription product.
Great Thanks, guys and congrats on the quarter.
Our final question comes a lot of Derek Glynn with consumer Edge Research. Please proceed with your question.
Hey, guys. Thanks for taking our questions just a follow up on the new brand advertising can you give us a sense of the size and scope of that campaign and how it compares to prior campaigns you've done just in terms of dollars invested.
Hey, Derek is Jason.
No we don't we don't breakout our spend.
By discrete channels like that or discrete campaigns I would say.
But little color I would give on it is that we're increasingly emphasizing to consumers Howard different and.
We think that were quite different as hopefully everyone. On this call understands from a business model perspective in a consumer experience and dealer experienced perspective, but we also recognize that.
That's not always obvious to.
People, who haven't shop for car in the last few years and so we're increasing the.
Putting that more into relief in our latest campaign.
Okay got it and then can you shed any more lay on the free cash flow performance during the quarter, just look like that as a nice step up.
From prior quarters, I'm wondering if theres any puts and takes there thats a good run rate to think about going forward. Thanks guys.
I would say rare rarely as a single quarter.
Especially from a cash flow perspective, good to use for run rate purposes.
Fair amount of it is timing with some of our.
Larger.
Accounts payable.
So I wouldn't look at it.
Over a number of quarters.
And.
Yes.
I would look at.
Margins.
You know you added segment margins as the better barometer for run rate and even that can be tough on a quarterly basis because of the timing of some of our marketing spend given shopping patterns.
You can expect consistency with.
The share and net share settling that we're doing and our capex is pretty predictable.
So I'd stop there.
Okay, Alright, great guys. Thanks for all counter.
We have reached the end of our question and answer session and I would like to turn the call over back to Langley Steiner for any closing remarks.
So thanks, everyone for dialing in this evening I appreciate your questions and thanks for your continued emphasis and carters good evening.
This concludes today's teleconference. You may now disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
Yes.