Q4 2019 Earnings Call
Greetings and welcome to Cargos fourth quarter 2019 earnings results Conference call.
All participants are in listen only mode. A question, that's especially follow the formal presentation <unk> operators. That's just turn the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I would now let's 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 fourth 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 is Lamy, Steiner 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 will make statements regarding our business that maybe considered forward looking within a workable securities laws, including statements concerning our financial guidance for the first quarter and full year 2020.
Management's expectations for our future financial and operational performance, our business growth and international strategy and other statements regarding our plans prospects and expectations. These statements are not promises or guarantees and are subject to risks and uncertainties, which could cause them to differ materially from actual results information concerning those risks is available in.
Our earnings press release distributed today and then our most recent reports on forms 10-K, and 10-Q, which are on the Fccs website and the Investor Relations section of our website.
We undertake no obligation to update forward looking statements, except as required by law.
Further during the course of today's call, we will refer to certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our press release issued after market close to that the press release and our S. T. SEC filings can be found in the Investor Relations section of our website investors that Carter's dotcom and the Fccs website at <unk> Dot Gov.
Our fourth quarter Investor presentation can also be found on the Investor Relations section of our website.
With that I'll turn it over to language.
Thank you Robbie thanks to everyone for joining us today card news Carter's finished 2019 with a strong fourth quarter.
Our U.S. marketplace generated continued traffic and lead growth and for the full year 2019, we delivered over 65 million connections and over 38 million leads supporting what we believe is our industry, leading ROI for our paying dealers.
We're seeing consistent new product adoption as we ended 2019 with a multiproduct attach rate of 30% in the U.S. with over a thousand U.S.U.S. subscribing to at least three of our products. These trends are encouraging.
As multiple product penetration not only lift spend per dealer, but we see improved retention with multiproduct dealers as well. In addition, we continue to improve our consumer value proposition and completed the rollout of our second.
Consumer financing partner Westlake financial in the fourth quarter, what's the Westlake onboard we are enabling a wider variety of consumers to see loan Prequalification and now offer loan prequalification on roughly 85% of our U.S. used car listings, creating a richer experience for our industry, leading audience and bring.
And that's closer to a more complete online transaction.
We also began processing our first fully digital transactions and our peer to peer marketplace for the fourth quarter, bringing trusts and transparency to private party transactions. Finally, our international business continues to scale officially that's strong audience and lead growth is yielding healthy pain dealer addition in each <unk>.
Like markets.
Over the course of 2019, we invested significant resources to increase our brand recognition boost direct traffic improve the consumer experience and ultimately increase the quality and quantity of leads we deliver to dealers.
We made important progress against each of these initiatives throughout the year and that continues into the fourth quarter in the quarter. We attracted 34.2 million average monthly unique visitors to our U.S. site.
These users generated 91.2 million average monthly unique sessions, representing a two year compounded annual growth rate of 15%.
Our investments in brand.
Our key drivers behind growing brand awareness and direct.
Based and own channel traffic.
Traffic from these sources increased 16% year over year on the fourth quarter, representing a two year compounded annual growth rate of 20%. In addition efficiencies in our algorithmic traffic acquisition strategies strategies continue to yield declining cost per lead and our U.S. business.
We're also investing in improving the consumer experience in our marketplace.
Well, we are always making tweaks to deliver the best possible experience, we will often produce more substantial changes such as our mobile interface overhaul in early 2019, and the rollout of our consumer financing plasmart platform over the last several quarters.
These improvements are helping our audience not only find a great deal on the exact vehicle. They are looking for but they they are executing more elements of the purchase process with our loan Prequalification engine. The net result is there more educated consumer with a higher likely hot likely likelihood of conversion supporting strong lead growth.
And dealer ROI for the full year 2019, we grew leads to dealers, 14% year over year well leads to our pain deal is grew in the high teens over the last two years, we have grown leads at a compound annual growth rate of 22%, reflecting our optimization towards leads oversight over simply growing trough.
But to drive dealer ROI.
We invest in these improvements on the consumer side of our marketplace to provide a high quality customer acquisition channel for our dealers as a result of these initiatives. We continue to see solid net paying dealer additions and our U.S. business. Despite our elevated market share. We added 298 net new paying dealers chart.
Lets business in the fourth quarter, bringing our U.S. paying dealer base to an industry leading 28990.
In addition, our existing paying dealers are increasing their spend with us as we grow our audience and launch high ROI listings add ons and other digital marketing products and the fourth quarter U.S. ours. It grew 19% year over year, we generate our best ever our said growth contribution from new products in the quarter.
As we move into 2020, we're once again, establishing several strategic initiatives to which we will devote companywide attention and substantial resources.
While we will discuss our strategic initiatives in greater detail on our Q1 2020 earnings call I do want to highlight some of the projects will be focused on in the coming year.
As in past years were maintaining our focus on growing our audience proving the consumer experience, increasing visitor conversion and delivering high quality lead growth. This focus will spend several initiatives an impact both the consumer and dealer side of our marketplace on the consumer side, we will continue invest in building our brand to raise awareness.
And drive more direct traffic to our marketplace.
Well there with over 5.5 million Liftings from over 40000 dealers in the U.S. and unmatched transparency supported by features such as there are I envy.
Best deal first organic surface old and new features such as consumer financing, we believe consumers need only search partner is to find their next vehicle in 2020, we are investing it in an AD campaign that we believe will spell out our differentiated value proposition more clearly to consumers. In addition, we will have a renewed focus on consumer.
Our retention through channels, such as E mail and by creating a richer mobile application experience that will allow us to build a more direct relationship with our consumer audience.
On the dealer side, we are focused on creating more incentives for becoming a pain deal or by growing the value, we provide our subscribing dealers and making us a critical input to a deal is growth and profitability. This includes building a deeper portfolio listings and digital marketing digital marketing products that unlocks more of the.
14 billion dollar dealer spend annualized digital marketing.
We continued to see strong adoption of do new listing crop programs, such as delivery, which now boasts over a thousand customers and our RPM sweet featuring new social ads products.
Which is now live in the U.S., we are only a few weeks into the launch of RPM, but were encouraged by the early performance we're seeing.
Our product and engineering teams have rolled out several exciting products over the last two years, we're always looking for new ways to ride value to our consumers and paying dealers.
As we contemplate long term business needs, we're increasingly lean on a three pronged approach a building buying or partnering to offer solutions that support our growth without in mine in January we announced our acquisition of auto list like harder is our list as a technology first automotive marketplace that features a best in.
Class mobile application, a talented product and engineering team and a large primarily organic audience of car shoppers that we believe will boost Carter is already leading position in the U.S. market.
Paying dealers on the Karger is network will have the opportunity to augment their exposure by gaining access to the auto less marketplace.
In addition, we will strategically acquired traffic across the two marketplaces in an effort to drive even better unit economics for our U.S. business.
We're excited by the opportunity odalis unlock to grow our already leading audience and help I spent time and even larger more critical partner to driving sales for our dealers on behalf of everyone at Cagrs I'd like to welcome the entire idle his team to our company.
Turning to our international business, we continue to efficiently scale, our audience across all our markets grading attractive high growth marketplaces for dealers to list their vehicles, including the impact of piston heads our international marketplaces attracted over 10 million average monthly unique visitors, who log 23.8 million average.
Monthly unique sessions in the fourth quarter, representing 75% and 83% year over year growth respectively.
Coming into 2019, we began investing in our brand in the UK. In addition to the brand investments we started in Canada in 2018.
While these investments are still in their relative infancy. When it continued to see an encouraging impact on our cost of consumer acquisition and the fourth quarter, our cost per lead fell 21% year over year in Canada, 39% year over year in our core you UK business.
These trends are allowing us to maintain an aggressive investment strategy, while demonstrating rapidly improving unit economics, we continued to deliver strong net dealer additions in our international business as we added 618 net new paying dealers in the fourth quarter and we now count 77125 total international.
Paying dealers.
Before Jason discusses our financial results and guidance I want to make up a few comments regarding our 2020 outlook.
First we continue to prioritize high ROI lead growth and our core marketplace businesses a theme you've heard from US several times over the last few quarters. This is evidenced in the spread between our U.S. lead in connection growth rates over the last two years. Furthermore, we may also make decisions about our site experience that.
Could reduce short term revenue, particularly within our advertising business in 2020, we're taking steps to improve site experience consumer engagement and user conversion that will create even more value for our paying dealers, but these steps will likely reduce AD load and impressions as a result, we expect de minimis growth from our appetite.
I think business this year.
Our management team prides itself on having a long term growth mindset and we believe these steps we're taking to drive marketplace subscription revenue growth invest in new products and focus on value creation for consumers and dealers are the right one for the business over the long term.
Second while we have always prioritize lead growth as it has the most direct relationship to listings revenue growth. We also fully expect to continue to grow our U.S. audience in 2020, though we generated modest U.S. traffic growth over the last three quarters. We are seeing improved first quarter traffic trends and our U.S. business and continue to.
See healthy lhi growth trends as well as I noted previously we will continue to invest in both brand and algorithmic traffic acquisition strategies to grow our audience as well as introduced new campaign messaging that we believe will further differentiate or a unique value proposition to consumers. In addition, we'll be committing resources.
To better retain our uses in the future to reduce our cost of consumer acquisition over time.
Third I'm very pleased with the operating leverage our core business is demonstrating a trend. We're confident we'll continue in 2020, Jason will provide more details, but our U.S. business continues to deliver operating leverage Pos sales and marketing as we progress towards our long term operating profit and adjusted EBITDA targets.
We are investing prudently aren't international market marketplaces, as our unit economics trends, improving give us confidence and the future profitability. In these markets. Finally, we will continue to invest in new products, such as RPM PDP consumer finance trade in another long term initiatives to unlock future growth opportunities.
In addition, we'll look to augment our business through M&A as we aim to become a multibillion dollar revenue business long term to wrap up I'd like to recognize all of our employees in North America in Europe. The delivered such tremendous results in 2019 Congress has nearly 2000 employees strong and our success would not be possible.
The contribution contributions from each one of you.
We have a lot of exciting work ahead of us in 2020, and I'm looking forward to working with all of you to grow our business and build the world's most trusted and transparent automotive marketplace with that I'll turn the call over to Jason.
Thank you Langley I'll provide a detailed overview of our fourth quarter performance, followed by our guidance for the first quarter and full year 2020.
Total fourth quarter revenue was 158.2 million up 25% year over year, and roughly 3 million ahead of the high end of our guidance range. Our marketplace subscription revenue grew 24% versus a year ago period to 140.6 million and advertising and other revenue grew 34% year over year to 17.
1.6 million.
Focusing on performance by geography, our U.S. business accounted for 94% of total revenue in the fourth quarter.
U.S. revenue grew 22% year over year to 148 million, while international revenue grew 104% year over year to 10.2 million.
Turning to paying dealer count, we surpassed 36000 global paying dealers in the fourth quarter. We ended Q4 with 36115 total paying dealers representing an increase of 916 from Q3.
In the U.S., we finished with 28990 total paying dealers up 5% year over year and an increase of 298 from the end of the third quarter.
This compares to 261 U.S. Nat dealer additions in the third quarter and 406 net dealer additions in the year ago quarter.
As we've stated often quarter to quarter net dealer adds will likely remain gradual as our U.S. paid dealer market share increases.
In our international business, we added 618, net new paying dealers in the fourth quarter, we saw strong paying dealer additions across each of our commercialized markets, Canada, UK and Italy.
Further piston has delivered its best quarter of net dealer additions since we acquired it in Q1 2019.
We ended the year with 7125 international paying dealers up 81% versus the year ago period.
As we expected entering 2019 connection and lead volume was our largest driver of U.S., our said growth for the full year, but we also anticipated new products would play a larger role in our son growth than ever before.
In the fourth quarter, we generated our best ever US ours did contribution from new products and we saw roughly even contributions to our said growth from each of our three key levers connection and lead volume new products and unit pricing and packaging.
You Srs had grew 19% year over year in the fourth quarter to $17576.
Throughout 2019, we saw strong demand for new products, such as delivery and audience Retargeting and we're excited by the Q1 launch of our social ads product and RPM digital marketing suite.
In 2020, we expect contributions from new products to continue to grow that we once again expect connection and leads volume to be the primary driver of U.S., our said growth.
As we've stated often we will remain judicious in gradual with unit price increases to maintain what we believe is industry, leading ROI for our dealer customers.
International our said grew 13% year over year to $5399.
Similar to previous quarters, we excluded the impact of piston heads and our Italian marketplace from this metric. However, we will begin to layer in each business is performance into the our said calculation over the course of 2020 as we accrue for trailing quarters of operating performance for each marketplace.
As a result, we continue to expect lumpy international our said growth rates as we both include these businesses and generate high percentage growth in international paying dealer count.
I will discuss our expenses and profitability on a non-GAAP basis, which backs out our stock based compensation expense amortization of acquired intangible assets and acquisition related expenses.
Fourth quarter non-GAAP gross margin was 93.4% down roughly 120 basis points from the year ago quarter.
As we discussed last quarter two factors contributed to the year over year contraction in gross margin percentage first we recognize media costs associated with our audience retargeting 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 fourth quarter non-GAAP operating expenses were 124.5 million up 18% year over year.
Non-GAAP sales and marketing expense grew 16% year over year to 98 million in the fourth quarter and represented 62% of revenue down from 67.1% in the year ago period.
The improvement in sales and marketing leverage is the result of our brand investments driving more direct and own channel traffic. In addition to onsite conversion improvements yielding better customer acquisition economics for our business.
For example that we meaningfully increased our U.S. traffic acquisition spend in 2019, we continue to see mid single digit declines in cost per lead in our U.S. business.
Sufficiency is a testament to the growth of our brand the efficiency of our traffic acquisition team and the improvements we have made and onsite conversion.
Our fourth quarter, non-GAAP product technology, and development expenses grew 28% year over year to 14.4 million representing 9.1% of revenue.
For the full year 2019, non-GAAP product technology and development expenses grew 43% year over year to 54.3 million, reflecting the investments we've made to grow our product and engineering headcount.
As we've noted previously our product and engineering organization supports both our core business and emerging products, such as PDP consumer financing trade in and other initiatives that are generating de minimis revenue today.
However, we believe these initiatives will unlock new revenue streams, and large total addressable markets and represent future growth levers to our business.
As stated previously we will invest prudently yet aggressively in pursuit of these growth opportunities.
We generated non-GAAP operating income of 23.1 million in the fourth quarter, roughly 4 million ahead of the high end of our prior guidance range.
Our operating income outperformance was driven primarily by continued efficiency gains and traffic acquisition.
Non-GAAP diluted earnings per share or 17 cents for the quarter for the fourth quarter roughly four cents ahead of the high end of our prior guidance range.
On a GAAP basis, we generated fourth quarter gross margin of 93.3% and total operating expenses of 134 million of 19% versus year ago period.
The increase in operating expenses was primarily driven by sales and marketing expense growth.
Fourth quarter operating income was 13.6 million of 98% year over year.
Fourth quarter GAAP net income attributable to common shareholders totaled 13.2 million.
Geographically, our fourth quarter U.S. GAAP operating income was 22.4 million of 24% year over year.
We had a GAAP operating loss of 8.8 million in our international business compared to an 11.1 million loss in the year ago quarter.
Our improving operating performance in our international business is primarily driven by efficient scaling and our Canadian and core UK businesses.
As Langley mentioned, our cost per lead in Canada fell 21% year over year in the fourth quarter, while cost per lead in our core UK business declined 39% year over year.
As I noted on our third quarter call, we still have meaningful ground to cover to achieve profitability. In these markets. We continue to see encouraging unit economic trends in our international business and expect to reduce our operating losses in both Canada and the UK in 2020 relative to 2019.
We ended the fourth quarter with 171.6 million in cash and investments an increase of 7.3 million from the end of the third quarter.
We generated 20.6 million in cash from operations in the fourth quarter and 19.2 million in non-GAAP free cash flow, which includes capital expenditures and capitalize website development costs of one point fourmillion.
During the fourth quarter, we withheld and remitted 3.7 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 eminent.
Before I provide our outlook for the first quarter and full year 2020, I want to provide some additional contacts for factors impacting our revenue and operating income guidance.
Please note the my commentary regarding our 2020 outlook and guidance reflects the impact of auto list, which we acquired on January 16th.
First we are expecting idled less to contribute mid single digit millions of dollars of revenue to the consolidated business in 2020.
While there are several similarities between the auto list and piston has businesses, we expect to shorter integration period for auto list and was required for piston heads.
We therefore expect to make material investments in idle as this year to drive traffic and lead growth feeling a high ROI value proposition for paying dealers that we expect will scale beginning in 2021 as dealers lap a year on the idle as platform.
As a result, our full year 2020 guidance includes a roughly 7.5 million dollar headwind to non-GAAP operating income stemming from these investments.
Second we are anticipating very little growth from our OEM and automotive partner advertising business in 2020, which represent the vast majority of revenue in our advertising and other line.
There are several factors impacting the OEM AD business, including the ongoing user mix shift from desktop to mobile which creates downward pressure on AD impressions and Cpms a better serves consumers on the devices they choose to use.
Additionally, and as Langley referenced we are making the conscious decision to reduce AD load on our site in an effort to improve the consumer experience increased conversion drive more leads to dealers and generate greater marketplace subscription revenue overtime.
While this decision certainly means for going short term transactional advertising revenue. We know this decision is in the best interest to both consumers and dealers and supports a healthier subscription business for Carter's over the long term.
This impact is most evident in our first quarter guidance as we expect muted advertising revenue will yield relatively flat sequential total revenue growth from Q4 2019 to Q1 2020.
Finally, we expect our non-GAAP effective tax rate to increase to roughly 27% for the full year 2020, as the impact of our equity compensation plan on our tax rate begins to normalize.
This compares to our full year 2019, effective non-GAAP tax rate of 20%.
With these factors in mind for the full year 2020, we expect to generate total revenue of 664 to 676 million, representing 15% year over year growth at the high end of the range.
We expect non-GAAP operating income in the range of 78 to 86 million.
This represents a 12.7% non-GAAP operating margin at the high end of the range roughly 90 basis points ahead of our full year 2019, non-GAAP operating margin.
As I noted earlier, our full year 2020, non-GAAP operating income guidance accounts for roughly 7.5 million headwind from the impact of auto list.
Excluding the impact of catalyst our non-GAAP GAAP operating income guidance range would have been 85.5 to 93.5 million, implying a 13.8% operating margin at the high end or nearly 200 basis points ahead of our full year 2019, non-GAAP operating margin.
We expect full year 2020, non-GAAP earnings per share of 50 to 55 cents, reflecting our expected effective tax rate of 27%.
Focusing on the first quarter, we expect total revenue of 156.5 to 159.5 million non-GAAP operating income of 10 to 12 million and non-GAAP earnings per share of seven to eight cents.
Much like 2019, we plan to align our consumer marketing spend during peak car shopping periods, which typically happen in the first half of the year.
Although we were taken steps that will place pressure on advertising revenue growth. In 2020, we are encouraged by the continued underlying strength in our core business that we believe is widening our leadership position among dealers.
We continue to deliver improving unit economics that are driving operating leverage and margin expansion in the U.S.
We are investing aggressively to grow our leading U.S. position and we're seeing solid traffic and lead trends early in 2020.
We are sowing seeds of growth via dealer products, such as delivering RPM as well as an emerging areas such as PDP consumer financing and trading.
Finally, we're efficiently scaling our international businesses and driving improving unit economics in our largest marketplaces in Canada in the UK.
I'd like to wrap up my prepared remarks by echoing language. Thanks to all of our employees in the U.S. and abroad for their tremendous work in 2019, and we're looking forward to building an even stronger cargo crews in 2020.
With that we'll open it up for Q and a.
At this time, we will be conducted a question and answer session. If you will access question. Please press star one on your telephone keypad a confirmation so indicate your line is and the question Q.
Chris start to feel like to remove your question from the Q.
For participants using speaker equipment it'd be necessary to pick up your handset before person to start keys. One moment. Please as we pull for questions.
Our first question comes a lot of Ralph Schackart with William Blair. Please state your question.
Good afternoon. Thanks for taking my question first just on the 2020 guide if we could revisit that first second I think Q1 contemplates about 17 or so percent revenue growth mid points for the full years about 14, and you're coming off about 30% or so 2019, so and on the call Jason Lang when you talked about advertising impact in 2020 outlet but.
Given how strong the business has been a continues to be just curious if that do you sell in 2020 is purely caused by the advertising or if there's something else also sort of slowing what appear that way, but just wanted to start with the first question. Thanks.
Sure Hey, Ralph as Jason Thanks for the question.
Yes, so as we said in the and the upfront remarks advertising is an area where.
We're expecting certainly muted growth versus historical trends.
But also in our listings business there as you look at quarterly annual annualized growth you've seen a downward trend there.
And so we Ics.
This guidance would assume that that would continue.
And it's his again the biggest drivers of growth there historically have been adding new dealers and then in growing our said and.
Our dealer adds we expect are going to be.
You know continued to be gradual each quarter and 20, and so we sort of taken away one of our biggest lever. So it's the combination of those to the continuation of the marketplace listings trend and then really a changing trend in advertising.
Okay, and then maybe just.
Kind of switching to the EBITDA Guide I think you called out about $75 million investment in all auto as Jason maybe first question. There is no seems like a relatively larger investment.
Maybe what the trends you're seeing there sort of support that investment and then to you also talked about new AD campaigns investments for resources for retention and that new products can you give us a sense of scale within those three categories of the what you called out for auto list. Thanks.
Sure and I'm not sure if we're going to quantify relative to idle as some the other things, but I can speak to auto list.
I mean the.
So we're being credibly excited about auto list and even since the acquisition.
The integration has been going extremely well.
What we see there is an opportunity to drive high quality traffic same quality is on our site.
At very efficient volumes and so once we do have the integration complete we're going to invest.
Pretty significantly as we said.
Not only to keeping that that team in place and growing that team because they are innovating and some terrific ways that we can learn from but also to drive more traffic to that platform, which they.
Had not done as much as a standalone company, but we're confident we can do with really positive unit economics, the reality of our business or the nature of our businesses that we monetize those typically on a renewal and so we need to invest in the traffic ahead of when we are able to monetize it. Hence this year there is.
Loss of the magnitude that we talked about but we think that materializes in pretty significant traction.
The revenue side next year.
On your second question was around the efforts that we talked about with retention new products and what was the third rail.
You talked about a new brand campaign as well thanks.
Yes so.
I'll take a shot at that.
You know the retention efforts are largely in people resources and it's us developing features and products on our site that will allow us to build a deeper relationship with the consumer and so those channels by nature. Our free that's why there is so compelling so the investment there as with people.
In new products same.
We have had a steady stream of products that we've introduced built by our product and engineering teams and we're going to continue to do that.
Good portion of our engineering team is focused on.
What we call mid term new products. So these are not some of the longer term big opportunities that you hear us talk about but instead they are products that we can issue and then you know in the next six to 18 months.
And so thats a percentage of our engineers and then on brand.
We still expect.
Absolutely to get leverage next year on our sales and marketing and so it's not so much that we are dramatically changing our.
Our investment in brand, but instead that comment was referred to the messaging of it and the positioning of our company that we're going to do which we think better differentiates us in better explains how or a better ROI to dealers and how we're a better experience for consumers.
Okay. That's helpful. Thanks, Jason.
Our next question comes the line up maybe come with Suntrust. Please state your question.
Thanks. This is Robert on for David what inning would you guys say that you guys are in in terms of adding new products.
The platform and what inning are you and then.
In terms of the attach rates and are you guys seeing any strength in certain geo as there are certain dealers any other any color there would be appreciated. Thank you.
Hey, Robert Sam sales.
I love the baseball analogy, but I'm going to be careful there probably say very early innings.
The attach rates that were mentioned in the early remarks or 30%.
Multi product penetration, which is terrific a lot of that coming from a product that had been in the market for an extended period of time that was our first brand product branding dealer branding around their vehicle detail pages called focus.
Most of the other products that Jason just mentioned are very early stage, there may be bottom of the first inning.
And we are excited about those.
They are achieving strong growth in the early phase across all of our market segments.
Ill mentioned, a couple that I think you've heard about the delivery product, we think brings a tremendous consumer and dealer value proposition for consumers. It's more choice of both in market vehicles as well as those delivered across the country for dealers its exposure of their inventory to a broader set of consumers.
I think this is the first step in what we think of as digital transactions and we.
We're finding good uptick there.
For those dealers, who today are enabled.
To deliver a vehicle either in their local market or.
More further across the country.
And we'll get more of those dealers, both independent in and franchise to do that.
The other sets of products is this.
RPM, our digital marketing suite as I said the branding product was the first to go out the door a couple of years ago.
Now we have a prospecting product, which is what we call amplify and ability for a dealer to target a re target consumer the came in and look for a vehicle that they sell but did not look at that particular dealers' inventory re targeting them back from other sites to that dealer site that we launched its social product justice.
The beginning of this year, we're excited about it the uptake is good.
And we'll give you more information on that after first quarter. The goal here is to put our audience, the leading down funnel consumer audience in front of dealerships and drive those consumers to the dealerships website and we're really excited about that but we're in the very early innings on that front again, I'd say all segments from the.
All independent dealers to the more sophisticated franchise dealers interest and buying into those products price point difference obviously across those segments.
Great very helpful. Thank you.
Our next question comes on line of Tom White with D.A. Davidson. Please proceed with your question.
Thanks for taking my question.
One on traffic you know you guys have highlighted how youve diversified sources of traffic and you're very focused on direct channels.
Just curious sort of at a high level. If it's it's a strategic focus for you at all to maybe make your business overtime kind of less reliant on traffic and lead.
As a growth driver.
No maybe from more subscription base products for dealers that aren't audience dependent or its traffic kind of always going to be.
The life blood and then just secondarily Atlanta, you mentioned improving ways to retain customers as opposed to that's sort of reduced having to reacquire them. Just hoping you give a bit more color on on how you hope to achieve that thanks.
Yes, it's language. So we spent a lot of time in these last four quarters focused on.
Conversion so while traffic is always good.
Traffic per se is not necessarily the goal.
Traffic that converts to to leave that in turn leads to our paying dealers as opposed to our free dealers is always more of our focus.
And then the end of it all it's it's a sale a car this morning.
Most important thing so.
For instance in 2019 I believe our average.
Lee growth numbers in the 14% range. So you can see that traffic and leave don't always necessarily correlate.
And as a company certainly in the U.S. as we think about more efficiency, it's really not always going to be about more traffic, it's going to be more about can we acquired traffic the converts and I think another kind of evidence of that is the fact that we were able to drive quite a bit of efficiencies in our cost per leads I think Jason talked a little bit out in his prepared remarks around and the U.S. where.
Able to drive our cost per lead down quite a bit.
Actually an all in all and both domestic and international markets. We are able to drive the cost currently down so again, it's not always about traffic it's about.
Leads to our paying dealers that in turn convert.
And so while we're always would always loved to have more traffic, it's really more about efficiency and selling cars.
In terms of retention yeah, that's certainly a focus of ours is.
Not having to reacquire customers there was a good thing obviously, it's a considered purchase that.
There's over typically a four year.
Span between repeated purchase is often and so we're spending a lot of time thinking about how we can.
Retain customers that we've already engaged with.
Certainly a big focus of ours.
Thank you.
Our next question comes the line of Dan Kurnos with the Benchmark Company. Please proceed with your question.
Thanks.
Just a couple from me I guess, maybe a high level Langley I I don't want to call. It a complete refresh I guess on the consumer facing side, but you know working on the app, reducing AD loads I guess why why now on that and I guess, maybe how you would view sort of order of magnitude to the changes, you're making and I'm assuming going.
Forward that you expect.
Kind of a return to OEM sequential growth over time, but just kind of how you view that you know sort of channel as it was I think you guys sort of viewed it as found money in the past.
Yeah, I mean, I, probably would just reiterate some of the comments Jason's made around.
We've we've made some conscious decisions going forward in this next couple of quarters to.
Reduce AD load improves site experience, which can often times lead to higher conversion rate for customers buying cars.
Yes, OEM advertising as is always nice to have but if we see the trade off being.
And improved experience for our dealers selling more cars generally.
Because it's a subscription business we will always.
Prefer our dealer subscription revenue over advertising revenue from Oems us because its.
It's stickier its recurring it's a repeatable business. So if push comes to shove were probably always going to err on the side of improving the customer experience.
And trying to drive more conversions to our dealer customers.
Which as you know as Jason said may lead to some short term.
Yes, lower overall revenue is going to given quarter, but we think in the long term. It's the right business decision for the brand for both our consumers and our dealers.
Sure I get that languages, just to be clear, though in terms of timing of this it's not like a massive overhaul, but you know it's not in response to anything on you know conversion challenges or anything else, it's just simply tweaks or optimization.
It's an ongoing process.
[laughter] Alright fair enough and then Jason just.
Maybe just some color is there any way I doubt will get specifics, but anyway to frame up how much you think a consumer finance and P to P.
Can be material this year, and obviously, you're investing I don't want to compare to the last time you guys did kind of a major brand campaign, but you're investing I guess for our Sid re excel next year I don't know if there's any way to kind of frame. How you think order of magnitude that turns out.
So.
The first question.
Yes, you've heard us say dozens of times that we don't break out product level revenue I would say that.
Consumer finance is.
I mean that is a material revenue stream for us today.
And it's it's got to.
Nice growth behind it from adding Westlake.
Without getting into the accounting specifics, it's when we sign these deals and bring on these lenders we sort of straight line the revenue and so it's an odd growth trajectory. Despite the fact that.
We're growing volumes and.
Growing units.
But that is a.
A not immaterial revenue stream that is growing nicely from 19% to we expected to grow up 19 to 20.
Your second I am sorry, I Didnt follow your second question on resources.
Well I just my first but the other piece of it was just P to P. If there was any color whether that becomes a material. This year and then then the question just on sort of the comparison between the last time, you guys rental large brand campaign and obviously your expectations. It sounds like for our said growth to Reaccelerate next year is that kind of flows through and lead volume just maybe order of magnitude.
Yes, sorry, I forgot to PDP and PDP.
We've made some great product.
Progress there and you heard about our fully digital transaction milestone.
That is still.
That revenue is still small I mean, it's.
The volumes are growing nicely, we're getting more people to list.
It's a very complex problem that weve started to crack the code on.
But.
The revenue for instance, there is not as near term or significant as consumer finance.
On our.
I apologize until I find the question you on terms of our Sid.
We don't guide to 2020 are said growth.
Think what we talked about in the remarks is that we still expect lead volume to be the key contributor there.
However, new products have been growing as a as a percent of total contribution to our said and we definitely expect that to continue next year. This year.
Yeah. Its final take it offline I was looking more for 21 sort of re excel, but that's final I'll get back in queue. Thanks.
Our next question comes the line of Daniel Paul Goldman Sachs. Please proceed with your question.
Great. Thanks for taking the questions two if I may on the first just curious to see what you've been hearing from dealers.
To start the new year to end last year, just curious how they're viewing your ROI has changed at all with some of the deselect you're seeing in your and your lead gross.
Just curious if theres any change in context, there and then the second question a bit more timing related around the brand campaign, you mentioned that it's definitely targeted at customer retention is there anything that you saw over the later part of the year that drove the decision to to launch. This brand campaign just curious if the why now around that initiative. Thanks.
Yes, Dan Langley I'll take the first one on dealer ROI I can assure you there's not another player in the marketplace of our scale, that's driving 14% year on year lead growth.
Okay, So I think dealers.
Very much value our scale. The fact that we have growth at that scale compared to our competitors who have practically no growth.
And I think the ROI on our pricing is very attractive so I think dealers.
If the proof is in the putting in a number of paying gives we have compared to all our competitors is substantially higher and I think that speaks to scale and ROI.
In terms of the other piece of the question I think I think you might be completing two things. So two things we talked about in the remarks were a brand campaign, which.
Better articulate our differentiation to consumers and.
How we offer a differentiated and in our opinions of superior value prop to the user to the car shopper separate from that we also are investing in.
Products features tools that retain customers better.
Our existing consumers better during their shopping journey, so two initiatives both related to consumers, but quite different in their execution.
Our next question comes the line of mid Jones with Citigroup. Please proceed with your question.
Hi, Thanks for taking my question one on I guess kind of the M. M&A pipeline, how do you guys feel about that you have other.
Targets out there and are there any opportunity to kind of more aggressively after some of the other.
Products like PDP.
And any color there would be great.
Yeah, Hey, Nick.
We feel really good about our M&A pipeline in fact, it's it's probably more robust now than it has been ever.
And.
The reason for that is.
We are.
Scale and I think we're now a very well known company in the industry and the industry has literally hundreds of businesses.
That many of whom have built great products, but have a hard time.
Cracking the code on going to market and to attached to our platform is very compelling to a lot of those a lot of those businesses.
We've talked about the different flavors of M&A.
The two that we've executed so far are really around scale and growing the scale of our sort of core listings product offering to dealers.
We've talked about two other flavors, one would be other ancillary products that we could sell to dealers for instance, and then the third is.
Technologies that would advance these emerging opportunities much more quickly, which is what you're describing with the PDP and yes. There are.
If not hundreds there are dozens of businesses out there that have built some really interesting.
Products, but these are really hard challenges to two cracked the code on and so.
Those who can't make it alone I think.
Our realizing the potential that their products may have when mapped against our close to 40 million unique some month.
So how do we feel great about M&A we have.
I think emphasized how that will be a critical component to our growth strategy.
Got it and one quick follow up a separate to that is.
Google announced ever but that's you're going to get rid of third party cookies in the next two years, how does that impact acquisition cost or your marketing strategy or do you have any kind of early thoughts on what the outcome of that might be.
Oh, we I mean were.
Keenly aware of the changes that are that have happened at Apple and Google has recently announced.
It's something that we in every other consumer Internet company are beginning to get our arms around and understand how to navigate.
With those new rules sort of on the field.
Yes.
It's for that and many other reasons why we emphasize the importance of building our brand in direct channels and the value of our audience because if you can't retarget.
Through other means then.
It's arguably an opportunity for us to have more leverage in the value of our own audience.
Great. Thanks for taking my question.
Our next question comes on line of Marvin phone with BTG. Please proceed with your question.
Great. Thank you for taking my question.
First question, let's start with is on the attach rate, 30% very good number.
I think it was.
Up for four point this year I think in 2009 2018, it was up seven point.
So could you just kinda talk about how the attach rate.
Evolving and how you think about it for the coming here.
Hi, Marvin Sam sales.
It's a bit of what I answered earlier on the call.
In the in the message that we really had one additional product beyond our listings business our core listings business for the last several years, so that growth rate.
From 17 to 18 and 18 to 19, mostly reflects that that branding product. The focus product allows a deal at a brand at the point of sale at on the vehicle detail page.
Was the only product that lifted up that rate over that early period in 17, 18, and the start of 18 to 19 early innings in all of those new products that really launched at the beginning of last year that would be the delivery product that we talked about and then the broader set of the RPM digital marketing suite.
Which was amplify the re targeting product, which launched at the beginning of last year and then.
The additional now the launch of the social product, which is just launched so.
Actually really excited the fact that we've made it to 30%.
On the penetration rate, but we look for that to continue to accelerate because of our new products just getting to market. So.
You'll hear more about this as we go forward, but I think the point being that big attach rate reflected focus now. These next set of products that are coming to market and really hitting their more mature phase will be the growth path on that going forward.
Great, Thanks, and as a follow up.
Digging into the change in the AD load just curious what point than the navigation experience did you find that consumers, where we're not converting as a result of I guess too many ads on the site.
But you guys don't really have a lot as well as compared to some of your peers.
Just curious.
What was that about the previous experience, it's one of the change.
Yes, so we may be task the whole bunch of things and no. It's probably not enough time in this call to get into the various parts of our site and where we find conversion.
Alright, great. Thank you.
Our next question comes a lot of Ron Josey with JMP Securities. Please proceed with your question.
Great. Thanks for taking the call and maybe I wanted to talk little more Jason and the focus on a P to P. Specifically now that fully digital I know you said revenues small just wanted to better understand now that is digital how you plan to market. This going forward and specifically you know market to consumers, but also how dealers might be more involved here.
As it could potentially do deliver and some price it to customers and I think you mentioned it as well maybe in your answer to financials, but does the guidance really include any contribution from PDP. Thank you.
Hey, Ron.
So we are.
Testing to.
A follow on to languages last comment we are always testing a number of ways to market.
Our peer to peer offering to consumers, it's very early days in that marketing.
We do feel confident now with fully digital.
Capability that we have a truly differentiated experience to market and so.
We are excited that Weve reached product differentiation and now were tinkering with marketing.
How that relates to.
To dealers, having an opportunity.
A lot of the the consumers who set out to sell their card to another consumer than the peer to peer.
Eventually just get tired of it.
And they don't want to go do test drives themselves and.
They don't want to deal with.
Other people sort of haggling with them and so that is very much an opportunity for.
That's a pool of cars that dealers would love access to and so you've heard us talk about trade in and that's an area where peer to peer and trade in a really nicely linked because a good portion of our peer to peer sellers.
Our interested if not initially than certainly after some time and they've gotten some PDP fatigue interested in hearing from a dealer and so.
It's early but we are working on having the ability for dealers to bid on.
Principally peer to peer cars today.
And.
2020.
For our guidance.
Includes very little revenue from.
Database.
But something got it thank you Jason.
Yes.
Our next question comes a lot of directly.
Hedge research. Please proceed with your question.
Yes. Thank you for taking the question just want to get more color on the strategic rationale behind acquiring auto list. It just seems like a smaller marketplace that you already have this leading scale. You mentioned you require investment. So is there anything from a technology or engineering talent standpoint, perhaps something else that was worse, bringing under your umbrella.
Jason again, it's certainly engineering talent they have.
Fantastic team in San Francisco.
Who.
Despite there.
At least to us relatively smaller scale have bill a lot of great innovation.
But the other thing it does is it gives us the ability to.
Get more scale for dealers and do it in a really cost efficient.
Accretive way, we believe when you look at the unit economics, and so we are always hopefully you glean. This from all of our comments today, we're always going to try.
To get more leads to deliver to dealers because we always want to give them more value and as Langley said give them more scale.
And so despite the fact that we're delivering really nice scale today market leading scale today, if we can do more and do more with attractive unit economics, we're absolutely going to go do that.
And so it's you know I would say its first and foremost.
It allows us to be bigger better stronger partner to our dealers. It allows us to do it cost effectively and we get the benefit of a super innovative team.
Got it thank you.
Our next question comes a lot of Jed Kelly with Oppenheimer. Please proceed with your question.
Great. Thanks for sneaking me and.
With your 30% attach rate higher ROI.
Your comment earlier of driving more leads dealers.
I guess, just how do you view of more dealers using you as their exclusive marketplace. There is there any incentives you can put any sort of drive an exclusive relationship.
Hey jet at Sam sales.
It's a really good question I don't think we are out in the marketplace selling against the competition I think Langley said it well if you've got the biggest scale in the marketplace and.
Information on close rates of the connections you're driving dealers they will come out with a return on investment that is really attractive I think any smart investor has any smart dealer, who is investing in customer acquisition marketing subscriptions would say that if it's making me the most.
Most money I'm going to keep spending more on it and we're going to keep collecting more of those dollars in the marketplace.
Probably at the cost of their spend of on any offline.
Marketing certainly and that's how we're moving to the digital marketing suite and taking over that $14 billion a span that dealers are making today on digital marketing.
But then also as you say looking at how they're spending on competitors and measuring that ROI is language said, we don't see any player in the marketplace is that our scale and growing connections and leads and were.
Excited about that what that means to that total spend the dealers were make it does not require us to continue looking at.
Third party research and our own data partnerships to take information on what the close rates are of those leads I've talked about this for the last couple of years that we have a lot of data sources that demonstrate a tremendous ROI from the direct connection of that lead into a close sale clicks from our website to dealer.
Sites and walk in traffic.
But you'll be hearing more from us in the future on what the value of those connections are from cargoes to those dealerships and how they closed that business and how that might compare to dealers putting their inventory on third party.
Competitor sites and how how much that leads to any change in that impact on that dealers closed sales were excited about what that research might look like to do just what you're saying, we're not going to go into an exclusive relationship with just expect to win more of the dealer spend because of that data work.
Okay.
Thank you.
Our final question comes the line of Aaron Kessler with Raymond James. Please proceed with your question.
Great. Thanks, guys Nice couple of questions first let me just back to the Arctic grip real quick I noticed your thoughts and kind of where you are in terms of ours to growth, especially in the kind of a core U.S. product in kind of where that could potentially go I know it has slowed a bit and then.
Additionally, just maybe overall just brand awareness, where you think you're at today kind of on your latest aided and unaided brand awareness. Thank you.
Aaron its Sam sales I'll start with the.
Our said growth at 19%, we'll take a solid I think.
We in the fourth quarter.
I think you saw the prepare hurt in the prepared remarks that we see each of the levers of our said growth being meaningful which is interesting and its lead growth Thats why we keep talking about the constant focus on conversion of audience to leads that's been the strongest element of that growth rate, we see that continuing.
New products became more important in the fourth quarter were very impressed impressed with that growth rate and new product adoption being more and more meaningful to our said growth and then we've always said will be careful about pricing growth through at a unit economic basis that has been a factor as we've grown our sit.
Over time, we're being deliberate about that we will continue to.
Ask for the growth from those other two factors, but will also find that the unit pricing.
Where appropriate for the deal is we're making the most money and return on our program will last for unit price increases as well so I feel good about those three levers as we go forward.
From a brand awareness perspective, I think we shared.
That we may have made it may not shared that we were the very high Seventys think 79%.
Good awareness statistic for the business, which is significant growth over where it was a year ago I think in the mid teens is that right guys grew teens.
Remember once before that 79% were.
Pleased with that but as Jason said before we're going to continue to invest in brand differentiation, how does our unique proposition that consumers seem to see when they come through our incredible experience play out as you develop that brand in the marketplace hopefully see that number continue to increase and our unaided awareness is still still.
As you normally subside.
Got great. Thank you.
We have reached the end of our question and answer session and I would like to turn the call back over to Mr., mainly Stein for any closing remarks.
I want to thank everyone for calling in today and as we said in our prepared remarks, why do especially thank all the Carter's employees for their hard work in 2019, and we're excited for 2020.
This concludes today's teleconference. You may now disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
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