Q3 2019 Earnings Call
During the call. This morning is Alex Vetter, Chief Executive Officer, and Becky Sheehan Chief Financial Officer. This call is being recorded and a live webcast can be found at investor Dot cars Dot com a replay of the webcast will be available at this website until November 22019.
A copy of the accompanying slides can be found on the cars dot com IR website.
Following the presentation, there will be a question and answer session with Alex Mbeki I'd now like to turn the call over to Jandy Tomy Vice President of Investor Relations. Please go ahead.
Good morning, everyone and welcome to our third quarter 2019, earning.
Before I turn it over to Alex I'd like to draw your attention. We look forward looking statement and the description definition or non-GAAP financial measures. It can be found in our presentation.
I'll be discussing certain non-GAAP financial measure today, including adjusted EBITDA adjusted EBITDA margin adjusted net income and free cash flow reconciliations of these non-GAAP measures to the most directly comparable GAAP measure can be found in the financial tables included with our earnings press release and in the appendix of the presentation from.
More information please refer to the risk factors included in our VP filings, including those in our annual quarterly reports are dot com assumes no obligation to update any forward looking statements or information as of their respective Dave.
And at this time I'd now like to turn the call over to Alex.
Thank you again, good morning, everyone and welcome to our conference call for the third quarter 2019.
This morning's call be discussing our third quarter business performance, and then hand, the call over to Becky who will discuss our financial results.
Our third quarter results were in line with expectations that we laid out on our last fall.
There are few highlights what I'd like to discuss today.
First we completed our final affiliate market conversions, which gives us complete control over our entire customer network.
With our affiliate sales model now behind Us.
Our sales team is able to support dealers news markets directly and more effectively increase our sales and service and these territories.
Second we took over as the number one player in FCO, which reinforces the strength of our brand and demonstrates our technical sophistication and validates our product strategy deliver high quality content.
Third this quarter, we announced a partnership with general Motors, which opens the door growth to sell our website solutions to over 4000, new dealers across the country and this creates more opportunities to sell a broader set of products and solutions and lastly, we achieved these milestones while generating significant operational efficiencies.
Most notably our sales impact transformations.
As we discussed on our last earnings call. We're further along with dealer retention and cancellation rigs which have stabilized.
Our investments in product in audience are improving value delivery for our customers and we believe these investments will yield positive results moving forward.
Importantly, with the ability conversions now behind us our entire sales team is in control and focused on growth across all markets.
I'm pleased to report that we delivered a strong October with nearly 100 net new dealer subscription.
In fact, it was our second highest gross sales month in over two years.
Our dealer customer decline in Q3 was due to the declines in both direct and affiliate margin.
Cancellation rig in affiliate markets were higher than direct emphasizing the importance of early conversions to stop the heightened attrition experienced during periods when those markets were not under our control.
The decline from the third quarter were partially offset by the growth in solutions only customers.
The improvement a dealer count is more of a marathon than a sprint and the initiatives around traffic and lead growth product innovation sales effectiveness like our turnaround with FCO takes time, but ultimately it makes our subscriptions much stickier.
We are using the same playbook that was successful in reversing our traffic declines to the record growth. We are experiencing today through investments in quality audience technology and a cohesive go to market strategy.
The progress we continue to make on our attribution initiatives will also support our dealer retention strategy. We have several quarters of Roxane data, which showed that consumers who are cross shopping between cars that commented dealers on website are far more engaged unlikely to buy a car from that dealer.
These analytics and tools and solutions are unlike any offered by our competitors and put cars back on the new unique position.
Gaining complete control over affiliate markets has been a key tenant of our strategy to better address the need to dealer customers and unlock value of our solution strategy through dedicated experienced sellers.
Im proud to say than October marked the end of the affiliate network for cars and we have successfully converted the last of fluid dealers to our direct control. This is not only expected to drive 50 million an incremental free cash flow uplift beginning in 2020, but it also gives us complete control over our go to market capabilities in all markets for the first time.
In our history.
I spoke with one of our recently converted franchise dealers and he said to me and I quote where we were pitch by the newspaper cars that common dealerrater were being sold as part of the bundle of print products. So honestly, we didn't want or understand the value proposition.
The affiliate Rep couldn't explain to us how that will help our business.
And after a few calls with our dedicated Rep. We're now going to be customers of dealer inspire cars, dotcom and dealerrater and I feel much better about my investment and growth.
This feedback is very typical of what we hear we convert from market to direct.
Having direct control of all of our customer relationships going forward is a big step in our sales transformation and positions us for growth.
Another success, we had in executing our strategy is around audience growth, which continues to accelerate reaching our highest levels of unique visitors this past quarter.
In a marketplace such as ours audience is truly a key reflection of consumer preference and the data clearly illustrates that we're a leader in consumer acquisition.
Our growth continued in Q3 with unique visitors and traffic up 22, and 27% year over year, respectively.
Buying with a superior cars back on brand organic and acquired audience strength have resulted in notable market share gains at the expense of competitors throughout the year.
Furthermore, our investments in product and technology continue to pay off including a 30% year over year increase in FCO traffic.
Steady and persistent focus on as CEO has yielded market leading results, which is produced the highest number vescio visits and leads in 20 years.
Achieving market leadership takes time, but I'm pleased that our diligent SCS strategy is now on this the highest FCO performance in our category.
Translating these notable audience achievements in the market leading dealer count is the ultimate objective and to do this we have to drive high quality leads for our customers, which will improve their ROI from our platform and our organic sources of traffic are very valuable to our customers because they are getting quality traffic that they can only get from cars.
Dotcom.
We're also making strategic shifts in our marketing investments that are making as far more efficient for example, our traffic generated through paid channels nearly doubled in the third quarter. However, our media spend only grew 4%.
And we continue to generate the vast majority of our traffic from organic sources.
Now, let's talk about our national advertising business, which continues to face headwinds in the current environment.
However, as we've talked to Oems there is no shortage of demand to reach in market undecided car shoppers the very audience in which we are taking share.
Combined with traffic share gains, we continue to innovate and solutions and format that meet the evolving OEM needs.
To help drive this strategy forward, we welcome the new team member in September and is incredibly excited to welcome Julie stopped it hurts our term.
He leaves an experienced digital marketing leader, who will drive growth international advertising channel focusing on business driving media solutions for Oems.
One of the most exciting developments this quarter is our new opportunity work directly with GM dealers nationwide.
We also are excited about our new partnerships with Hyundai and Mitsubishi.
Our OEM relationships continue to grow across our portfolio, which reinforces our digital solutions strategy and our differentiation is an online marketplace and solutions provider.
Our portfolio now includes a total of 28 OEM partnerships for GM. We're one of only four certified providers and to now sell our leading edge digital web site services to more than 4100 GM dealers. We now have a choice of providers for the first time in 15 years.
The GM program is currently in the dealer enrollment phase with the first web sites expected to launch in Q1 2020.
We expect subscription based website development revenues to be an important growth driver for us for years to come.
Ultimately we believe this is much more than just websites. These new relationships that we are building with Oems like can create a halo effect cascading into longer term conversations both with our traditional and emerging data driven advertising and marketing solutions.
To that end as you may have seen we announced this morning as Dean Evans and accomplish auto industry innovative has joined cars as executive Vice President.
I mean is an important addition to our leadership team as he sees the bigger solution strategy that we're driving to help sellers the more effective with technology.
We have substantial automotive industry know, how and digital technology that can be further leverage for growth.
These expertise leadership and impressive track record for ramping auto sales is unprecedented.
Our vision is to create a competitive advantage for our customers and further evolve the business from a conditional marketplace to a full service marketing and technology solutions provider.
Before I turn the call over to bet. The let me just reinforce that our team is laser focused on execution.
With this strategic alternative review process now fully behind Us I am confident in our ability to devote our full attention to driving return to growth expected in 2000 form.
I'd now like to turn the call over the back to you to go through our financial results for the third quarter of 2019.
Thank you Alex.
Revenue for the third quarter 2019, once 152.1 million compared to 159.3 million in the prior year period. The decline was primarily driven by fewer dealer customers and lowering national advertising revenue offset in part by incremental revenue from the newly converted.
Affiliate market and growth in our dealer inspire solutions business.
Direct revenue was up 3.4 million year over year, driven by 14.2 million in revenue uplift from the affiliate market conversion and 25% routes from our dealer inspire solution sales.
Wholesale revenue up 5.4 million declined 12.3 million compared to the prior year of which 9.6 million was the result of the conversion of the affiliate markup.
Excluding the affiliate markets and Verizon wholesale revenue was down 2.7 million driven by a decline in affiliate dealer customers.
As a reminder, but the final conversion of the Bureau markets that took place on October 1st we no longer have a wholesale channel.
Despite the unfavorable contact liability is now fully amortized and that 6.3 million quarterly benefit from this amortization has anvil.
Our national advertising business was down 7.9 million or 28% in the third quarter compared to the prior year period as Alex mentioned, while traffic growth increases our advertising opportunities. We're also taking a number steps to improve our current product offering and introduce new so listen.
Now, let me move into a discussion of our operating expenses in the quarter.
Although our goodwill impairment analysis of normally performed in the fourth quarter, we determined there with a triggering event in the third quarter, primarily caused by a sustained decreased in the company stock price. After the completion of the strategic alternatives review process.
Therefore, we performed on term quantitative impairment tests during the third quarter.
As a result of that test, we recorded a non cash goodwill and intangible asset impairment charge of 461.5 million because the book value of our assets exceeded the estimated fair value.
We do not expect this non cash impairment charge you have any impact on our operation liquidity or cash flows or affect compliance with our financial covenants under our credit agreement.
Tax benefit from the deductible goodwill and intangible assets for tax purposes remain intact.
Excluding the impairment charge total operating expenses for the third quarter 2019 were 138.3 million compared to 141 million for the prior year period.
This reduction was primarily due to lower headcount related cost.
Net loss for the third quarter, 2019 was 426.2 million or $6.38 per diluted share.
Adjusted net income for the third quarter, 2019 was 21.3 million or 32 cents per diluted share compared to 38.4 million or 55 cents per diluted share in the third quarter 2018.
Adjusted EBITDA for the third quarter, 2019, with 45.9 million or 30% of revenue compared to 62.2 million for the prior year period.
As Alex mentioned, we continue to set new records in our audience growth with unique visits growing 22% and traffic growing 27% year over year.
RPD was up 1% sequentially from last quarter, driven by our successful conversion of the affiliate market.
Last year, we did not include revenue from our website products than a RPD and on that basis RPD declined 2%, primarily driven by dealer mix.
Dealer customers were 18635 at September Thirtyth, 2019, down 250 cents or 1% compared to June Thirtyth 2019.
This decline was primarily driven by a decline in direct marketplace dealer customers and dealer to cancel than the affiliate converted markel.
Digital solutions only customers grew in the quarter.
Net cash provided by operating activities for the nine month period, ending September Thirtyth 2019 was 80.6 million compared to 121.1 million in the prior year.
Free cash flow for the nine month period, ending September 32019 was 65.1 million compared to 111.1 million and the same period last year.
Keep in mind that in the nine month period, we incurred 23.6 million up costs associated with affiliate revenue share payment, which is 4.3 million higher than we incurred in the prior year period.
Cash and cash equivalents was 19.8 million on debt outstanding was 666.6 million as of September Thirtyth 2019.
During the nine month period, we've reduced our indebtedness by 29.7 million net leverage at September Thirtyth 2009 team was 3.4 times calculated in accordance with our credit agreement.
And Thats held our we announced an amendment to our existing credit agreement that we set our total net leverage covenant for the remaining term of the agreement.
This amendment increased our maximum total leverage ratio fell to 4.5 times with incremental step down in that ratio through maturity on may 31st 2000 in 2012.
The amendment provides increased financial flexibility and an ample capacity to respond to Michael changes.
We are reiterating the guidance, we communicated last quarter of revenue declined between six and 9% year over year with adjusted EBITDA margins between 27 and 29%.
At this time I'd like to turn the call back to Alex for some closing remarks.
Thank you Becky bar building blocks for the future remain unchanged. We are focused on four key priorities as we close out this year.
First we will continue to take share in traffic and improve our overall value delivery.
Second with the affiliate channel now complete we are fully focused on serving all of our customers directly.
Third we are focused on securing as many of the 4100 GM dealers as we can taking advantage of our semi exclusive opportunity.
And finally, we will continue to innovate new solutions that derive growth and customer success.
And with that I'd like to open the call up to your questions operator.
Thank you as a reminder to ask your question. Please press star one on your telephone to withdraw your question press the pound or hash key please standby, where we can highlight culinary roster.
And our first question comes from the line of Tom White from D.A. Davidson. Your line is often.
Thank you for taking my questions good morning, everyone.
Alex on dealer count.
It's like October spin.
Has been a strong start to the quarter I think you. Some nearly 100 net ads can we extrapolate that you guys are going to be able to grow dealers again.
Dealers for the full quarter now the given to fill the conversions are behind you. The traffic trends are very strong and then just on the traffic growth.
Obviously very impressive so any sense you can give us support downstream.
Volume growth is looking like or looks like in the quarter and then just lastly, the Dean Evans hiring announcement.
There are some discussion in their digital video was just hoping you can elaborate there are a bit.
About how that kind of fits into your your broader solution strategy in product portfolio. Thanks.
Sure Tom Thanks, well look we certainly are reassured on the dealer growth in October having them first four months, where we've had no.
Focus on affiliate conversions and have complete control of the dealer network. It's not lost to me that Thats. The first month, we hit our full stride and well also go say that Q4 typically is a tough season.
The auto industry is viewers try to make the short term decisions can be bottom line. So we don't want to declare victory yet on dealer growth in Q4, but certainly to your second point the traffic trends.
Our moving in all the right way this and I think your point is how does that translate to dealer value. Our leads are up for the quarter.
Obviously growing traffic translates to advertisers satisfaction. So we're pleased with what we're seeing in our dealer pull surveys as well in terms of their overall satisfaction.
Your final question was about Dean and I'll, just remind you that deal has been a client Dean has been on the other side of the dash buying media from everyone in the industry.
And as we approach.
Dean in about 2020, and using data as our as our superpower and helping them with their television advertising I think his eyes lit up and saw a bigger opportunity to not only do this for Oems, but for dealers and I think the that solution strategy.
One of the key reasons the Dean is here.
Tom you will recall that when we bought dealer inspire one of the hidden gems inside that business was a programatic.
Advertising platform called fuel and that allows us to run advertising.
Solutions that scale in a programmatic fashion in the biggest add then I've seen and technology in the past.
Year, it's been the advent of digital video and we think Theres, a massive opportunity to help dealers become more efficient and migrate traditional and linear TV budgets towards more effective and accountable digital channels and so deans here to help us realize that vision.
And Thomas Specie, just to add one more time anyone Alex had to your first question I'll I'll remind you that although dealer growth is certainly an important metric that that we have for ourselves.
It's not necessary for us to grow dealer count in Q4, two achieved the guidance that we've provided.
Got it thank you very much.
Our next question comes from the line of Gary Prestopino from Barrington Research. Your line is open.
Good morning, everyone.
We now expect Gary.
With these the ability to go after these website.
From the dealerships, how do those contracts shake out.
Are they.
Are they all up for grabs in the current year or is it a lot like the dms that they they renew every five years or something like that.
Thank you Gary first of all I think you're speaking specifically to GM in that new opportunity.
But also just point that both Hyundai Mitsubishi we're additions in the quarter and we've also guide agreements now Subaru in Lexington, and they all have some uniqueness.
But dealers tend to be free to move.
From from one website provider to another without much.
Contractual overhead the GM opportunity is a little bit slower role because.
There is multiple signup phases for dealerships.
Jim is doing a roadshow for dealers, where their educating them on the for partners that are available to them to choose from and so.
We're actively out meeting with all the GM dealers and showing them what we can do for them in the new year and so the dealer count gains we've seen there initially or pleasing. We know we're in the number one position is the most requested vendor in the in the semi exclusive bunch, but again, it's going to be slow rolling in.
Revenue really won't hit until 2020, because we're just in a sign up phase.
Okay.
And then can you wrap some metrics around us for us with just just selling pure technology solutions in the quarter.
What kind of revenues was that generating on and on and.
Recurring annual basis.
And what was the growth in that do you have those metrics Andy if the solutions growth was over 20% Gary Becky we'll have to give you the closer numbers, but but we continue to see increase pacing as we ramp that business specie entering if you have a point estimate for the quarter, our dealer inspire solutions business.
Plus almost $20 million of revenue.
Thats up 25% year over year, and importantly, within there is our website business, which is up 40% on a year over year basis. So we continue to see very strong gross.
Difference between the website crowson. The total growth is simply that the performance marketing solutions that we also bring to our dealers to help them drive their local business.
That has more ins and outs during any particular period of time, but we're certainly continuing to see this strong growth that we had earlier this year as well.
Okay, and then lastly, somebody asked us on the prior question did you give a number for how much do you leads were up this quarter you, making the public.
We didn't we didnt disclose it but leads our uplift in the quarter and and they are following a strong both Q2 as well. So Q2 in Q3 leads per dealer or up as all our total leads.
Okay. Thank you.
Thanks, Gary Our next question comes from the line of Lee Crawl from B. Riley FBR. Your line is often.
Hey, guys. Thanks for taking my question and good to see some of the trends are.
Turning up.
You know left for you guys kind of provided some guidance for 2020.
Noticed it wasn't kind of in the prepared remarks.
Just curious if there's any changes to the commentary from the last call as to you expect to return to revenue growth in 2020.
And double digit EBITDA growth.
I think obviously, the we're affirming our 2019 and then we're going to be on a regular cycle now.
And give guidance for 2020 at ours, but our typical time.
Okay.
And then just from the affiliate conversions.
Yes, certainly are exciting to see October off too good trend, but is there maybe a way of.
Had enough conversions to this point to maybe handicap.
Some anticipated churn or maybe quantify the anticipated turn of the affiliates.
Obviously, it seems like there's some natural attrition but.
Is there a way to kind of think about how.
As you get all these guys fully onboard and how that churn kind of trends out over the next couple of quarters.
Sure I think we do have a lot more experience I think we pointed to air PD in the quarter being a solid one what's important for investors to also realizes that the final Philly conversions.
We are from media markets that tend to be on the lower end of our rate card our pricing models skews by both market size in dealer size and most of the final affiliate conversions were to dealers in rural and smaller markets with a smaller.
Locks.
But I think going forward, what investors should be excited about it is our growing solution strategy that will emphasize RPD, an increase dealer spending as well.
So so we know we will continue to have some churn it's been pretty durable in our business and competitors as well.
And so.
I think but we've really cut the cancellation rate that's probably been the biggest achievement. This year is we brought cancellations down into a much more manageable volume and we're really focused now on total gross sales, we havent declared victory yet although October certainly points to a new muscle that we're getting much better.
Yet, but we still have some more work to do their candidly.
Got it and then last question for me.
Pretty exciting developments that you guys kind of highlighted with Roxanne.
Can you maybe just talk to kind of the the data privacy laws that are coming on and perhaps how rocks in the future proof from that and then also just kind of as this continued shift to mobile perhaps how that plays into the strategy around Roxanne as well.
Sure well.
From a data privacy standpoint, what's key about Roxanne is were largely using non PCI level data to validate our performance, but we see very vividly in the data is that users that go to a dealers website that originated on cars dot com are converting to a dealer metrics at four times the.
Rate of all of their other traffic sources combined.
So this is the data the dealers have needed to validate that.
Migrating website traffic from cars to their environment is perhaps the best money in.
Your second question, though beyond the privacy concerns I may have missed so if you could just run to pass me one more time.
Just you know the strategy with Roxanne in the context of the continued shift in your traffic to mobile.
Yeah actually I think it provides the same visibility in all environments and and there isn't any degradation in our inner visibility with mobile.
Got it thanks for taking my question guys.
Thank you. Our next question comes from the line of Daniel Powell from Goldman Sachs. Your line is open.
Great. Thank you appreciate the time two questions one just wanted to.
Your view on kind of the cadence of our bid as we go into the back part of this year and into next year, you called out mix as being a reason for some of the the pressure on the year over year growth in the quarter.
As you guys go out with your.
Reorder sales force are you expecting to.
Can you just see negative impacts from mix are you sort of further down the tale of dealers that you can you can add at this at this point in time.
And then the second question.
If I was reading the numbers correctly it looks like spend went from about 15% last quarter.
To about 4% this quarter.
But you saw nice acceleration and traffic.
Based on some of your strength just curious if.
The lead number did it accelerate from the up 9% last quarter like your traffic did or did decelerate from that up 9% last quarter like your spend it. Thanks.
Sure. Thank you well first of all on air PD mix, we're not projecting growth in that between now and your end, we'll give a better outlook on that for 2020 as we lay in our different solutions and we de dupe.
Dealerships by product type and so that will be data that will give you our 2020 outlook, but we are projecting or PD growth in Q4, I think as to.
Lead volume, we did see sequential quarter dropped which is I think more.
Reflective of the new car traffic, where we saw a stronger drop in the new car volume the news.
Which I think reflects the seasonal cycle that we experienced every year Q4 tends to drop down and then comes back in a in a stronger quarter in the first quarter.
And our marketing spend you noted right. It was we were able to drop the marketing spend considerably but the scaling of our SCR strategy is probably been the most exciting trend in our value delivery, which I think you know dealers know that traffic is the most valuable kind of traffic they can acquire because they're not competing for.
For it in search and they are actually tapping into a new source of incremental sales as opposed to an arbitrage player who's bidding up search.
Great. Thanks [laughter].
And our next question comes from the line of Marvin far from B T. G. Your line is open.
Great. Thank you for taking my questions I'm, a first one I guess, just revisiting something we talked about last quarter with dealers.
Total skittish because gross profits on the used car side were down and the Upsells of some of your ancillary products is getting a little tough could you just kind of update us on what the macro environment looks like with respect to dealers and how they're thinking about their ad spend thanks.
Sure I think Marvin Thanks, I think dealer profitability continues to be the headline theme in the industry as I traveled the country and meet with dealers that that is their primary focus which I think by the way sets us up great to introduce new alternatives to traditional advertising or video opportunity I think in can really.
Help dealers find a more profitable way to grow sales in 2020.
That said I think they also are recognizing that the year has turned out to be you know not a catastrophic is one would have thought probably two months ago and that there is still healthy used car market, that's growing and new car sales. While dipping are also still at very healthy levels. So I think the mood hedging.
Improved and dealers have started to focus more on what they can do differently heading into 2020.
Great. Thanks, Alex and two quick follow ups could each Becky perhaps you have this what was the listings in the quarter and then other question just on National advertising I think you had said before.
You've tried to.
Get more aggressive on the Upfronts could just kind of update us I remind me when the timing of that those up fronts, our and and how how you're thinking about capitalizing on that opportunity, but this coming year. Thanks.
Yeah sure. So on the listings front, we have 4.4 million listing on our marketplace.
So very strong number and as it relates to national advertising, we are in the midst of the upfront discussions and proposals with the calendar year OEM.
So that's happening literally as we speak well have more insights as to how that's progressing as we get closer to the yearend a and then of course, there era, the fiscal Oems, where that happened closer to year end timeframe and into the first quarter.
Okay, great. Thank you. Thank you Alex Thank you.
Thank you think are.
Our next question comes from the line of next Jones from Citi. Your line is often.
Hi, Thanks for taking the questions first of all kinda give an update on your capital allocation strategy given.
The increase in net leverage ratio.
And then secondly as traffic.
Continues to grow nicely and laser drawing on that.
I have the conversations with dealers changed at all are they looking for more.
Tool internally on on cars, our college platform. In addition to some of the new products I guess, it attribution, becoming more important or less.
As your traffic start to ramp back.
I'll start with the second question and turn it for Becky on on our capital strategy I think the conversation is definitely turn with franchise dealers I think independent dealers continue to hold the line and look for just you know.
Cost efficiency at the independent level, but franchise dealers absolutely are looking for technology solutions that can eliminate.
Vendor costs and or automate solutions for their dealerships to run more efficiently heading into next year and I'd also say just more broadly on our our sales team front I definitely feel like we've moved more to front foot in terms of our value delivery our data around attribution and the evidence that we have that were higher.
They are quality source of sales than other providers and that that has been a welcome shift in the conversation.
And then add on capital allocation in the near term our focus as and we think it's more prudent to pay down some of the DAT, you'll see we get a better that in the third quarter.
The credit environment has tightened and as we've talked with investors. We also have then I'm encouraged to prioritize some de leveraging which is what we're doing we do still have an active share repurchase program I think thats a permanent tool to have as a public company, but in the near term our focus is on taking.
Down some of the Jack.
Great. Thank you for taking my question.
And our next question comes from the line as Steve Dyer from Craig Hallum airline or something.
Thanks, Good morning, most might have been answered just one more kind of on on churn down 1% in the quarter much much better than it's been an Alex you noted kinda swung the positive in October can you give us sort of the cadence of.
Of how that trended throughout the quarter in other words would you see linear improvements throughout the quarter and then positive in October or no.
Yeah, I think we did see fairly consistent improvement, particularly going Q1 to Q2 Q3, the trend on the cancellation rate has continued to stabilize and improve and on the gross sales front.
Mostly you know I think we had one I'm looking at the data right now you know.
One month in the quarter that didn't didn't sequentially improved but overall if you look at the trend gross sales volume has been steadily improving and the cancellation rate has been much more dramatically improving.
Got it Okay and then.
In the release you talked about affiliate conversions are expected to generate an incremental 50 million to free cash flow in 2020 can you sort of deconstruct that provide a little bit more detail on what makes it a mono. Thanks.
Yeah, that's two components.
So the first component is the wholesale to retail revenue uplift that we realized wed be on what the conversions completed and we get the actual retail revenue that's being built to the dealers instead of collecting that 60 cents on the dollar which is wholesale revenues for that's the first component the second.
Component is the at the end of the payments that were making to the former affiliate partners.
You have a achieve the early conversion so you'll recall that we spend incurring extra payment should those former affiliate partners.
As part of our agreement to convert the markets early in the first half of next year, we still have some of those payments, particularly to the most recently converted affiliates but.
But by the midpoint of next year, those those payments will and and Ah, obviously there'll be more significant uplift once that happens.
Thank you.
And our next question comes from the line of Doug Arthur from Hoover Research. Your line is often.
[noise] yeah. Thanks.
Becchio I'm wondering if you can just sort of just aggregate direct.
Revenues in the quarter, you said dealer inspire I think was up 25%.
And you said I believe the incremental impact of the affiliate conversions was 14.2.
So that that's over a year ago I assume you can you can you speak to what that incremental impact was sequentially from Q2 for starters.
So so apologies I'll have to look I don't have Q2 in front of me, but you're right. The 14.2 is the.
I'll call it the the uplift in retail revenue.
HM a large portion of which of course comes out of the wholesale line. That's the first part that's an increment for Q3 on a year over year basis.
The dealer inspire grows on a year over year basis.
His 25% that equates to approximately $4 million and sell the offset of course to get to the 3.4 million that we grew on that direct line, which would be excluding national advertising is the is a lower revenue we achieved from the notion that the subs.
Scripts and business has less dealers today.
Then it did a year ago.
So those are the key components I don't have in front in the apologies what those year over year changes for for Q2, certainly weekend, we can get that in and and provide that is well national advertising in the quarter.
Is down 28%. So that's a 7.9 million decline on a year over year basis.
I think those are the those are the key elements of the revenue.
So so excluding to dealers fire, obviously very impressive growth and the affiliate conversions.
Does the baseline figure I was using for direct excluding all that last year in the third close 78 million.
So that would it I don't know is that's right or not but that's sort of rose using.
So the underlying direct numbers that I assume was down sort of high double digit said in the quarters out there.
Excluding the impact of because his conversions.
Yes.
Okay.
Terrific. Thank you very much.
[noise], we have no further questions in queue I'll turn the call back to Alex Vetter for closing remarks.
I simply want to say thanks for joining today.
We'll talk to you soon.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[noise].