Q1 2020 Earnings Call

Greetings welcome to two Corp, first quarter 2020 earnings Conference call. Please note. This conference is being recorded I would now like turn the conference over to your host anything yet.

For some of the Investor relations. Thank you Sir you may begin.

Thank you operator, Hello, and welcome to Truecars first quarter 2020, <unk> earnings Conference call. Joining me today, it's Mike there out our president and Chief Executive Officer, and Noel Watson, our Chief Financial Officer.

As a reminder, we will be making forward looking statements on this call. These forward looking statements can be identified by the use of words, such as elite expect plan anticipate becoming toward well in 10 competent and similar expressions and our knowledge and should not be relied upon the guarantee of future performance or results.

Actual results could differ materially from Doug contemplated by forward looking statements. We caution you to review the risk factor section of our annual report on our form 10-K, our quarterly report on form 10-Q, and our other reports and filings with Securities and Exchange Commission for a discussion of the factors that could cause results to get permits.

Serially.

Forward looking statements we make on this call are based on information available to US as of today's date and we disclaim any obligation to update any forward looking statements, except as required by law.

In addition, we will discuss certain non-GAAP and non-GAAP financial measures reconciliations of all non-GAAP measures to the most directly comparable GAAP measures are set forth in the of Investor Relations section of our website at <unk> Dot com.

The non-GAAP financial measures <unk> not intended to be considered in isolation or as a substitute results prepared in accordance with GAAP now I'll turn the call over to Mike.

Thank you Danny good afternoon, everyone. We appreciate you taking time to join us today.

I want a first take a moment to acknowledge those directly affected by Kobin like GE pandemic ended disruption. It has brought to our society in economy.

Over the course of my through your career no other but comes close to rivaling the magnitude of speed by which this disease has reshaped our daily lives.

The entire industries have come to a sudden how well others are being forced to rapidly evolved to meet the needs of consumers from apart.

During this unprecedented time I'm continually amazed by the response of my true court colleagues to the needs of our community.

Whether it's serving those most vulnerable by partnering with meals on wheels to deliver food to the elderly.

Writing card for loved ones cooped up in nursing homes, we're selling mass for healthcare workers. The compassion about people is truly inspiring.

As we look to navigate what will most certainly be a volatile future.

The entire true car leadership team remains committed to the safety and well being up our employees retailers and their customers.

I'd like to now I'll touch on the actions we took your true cart rapidly respond to covert 19 and its impact on our business.

First and most importantly in the middle of March following the escalation of social distancing guidelines across the U.S.

We made proactive decisions to transition our entire workforce.

Including our remote sales and service team members to mandatory work from home status.

I'm extremely proud of the way our organizational responded to this decision and was impressed by the Seamlessness, which product development and business activity continued.

Within a matter of days all departments were functioning at a high level and innovation was full speed ahead.

In fact, the success of this transition has encouraged us to reconsider the way in which we leverage remote work going forward to reduce cost and sustained productivity.

Second recognizing the severe impact automotive retail caused by government mandated stay at home restrictions, we took quick action to financially support our dealer customers.

For dealers in paper sales states rates are automatically adjusted for the decline in unit volumes.

In states, where paper sell billing is not available we extended a 50% discount on April and May subscription rates.

All together these actions siebert dealer community more than $15 million and demonstrated our sincere commitment, helping our dealer partners navigate through these challenging circumstances.

Another action, we took in response to cobot 19, what's the rapidly launch and all nearby from home experience on our two core dot com and the majority of our site.

Wants in late March. This experience is designed to help consumers and dealers safely and remotely navigate body image strips social distance at Geismar.

To be eligible for the program dealers agreed to provide remote creep word processing.

Convenient test drives and home delivery and verified sanitation, all so customers can shop for a vehicle online and take delivery with little to no physical contact.

Your car continues to introduce consumers to participating dealer, who then guide to consumer through their online car buying process.

We were first amongst our peers walk you program in support of online retailing and the response has been incredible.

To date more than 6000 deal or roughly 40% of our dealer network have opted into the back from home program.

In April those deals completed more than 8000 remote transactions supported by this program and most importantly, our surveys of verified car buyers, 95% rate, thereby problem experience as good or excellent a clear signal of the demand for digital solutions.

We're very excited by the six that's a more by from home program.

In terms of dealership adoption and consumer engagement and we will build on this experience as we accelerate towards becoming the first automotive marketplace with a complete online car buying experience.

More on that.

Finally, anticipating a significant drop in automotive Dobrinja, we completed a thorough assessment of our entire cost structure to identify savings across the business.

We didn't sales and marketing, we suspended or deferred all non committed TV and radio spend it's significantly reduced our digital acquisition budget.

In addition, we were able to that's would re negotiate pricing what a number of large vendor and benefited from significant lower spend on employee travel costs.

Collectively are quick action help the produced nearly 10 million of adjusted EBITDA in Q1, and added to our 180 million cash and cash equivalents balance.

In summary, I'm very proud to cards immediately wants to go over 19.

Wants it carefully balancing the needs of our employee.

Others consumers and shareholders.

Next I'd like to comment on our expectation for the remainder of one point and I like the opportunities ahead of us.

Yeah, I'm certain times human nature to look to linger for guidance in direction.

Well the past nine years, we've had the privilege of owning a l. King I regard to thought leader within the automotive industry that has stepped up in recent weeks to help guide our community through these uncharted waters.

Well those are you familiar with LG simply what they'll do the leader in automotive residual value worked out.

As the benchmark for future values of vehicles.

Hey, LG works with most every OEM and captive lender, bringing invaluable insight for during and after the development of new model launches.

Having proven itself at the benchmark for residual value.

He worked out of the broader new car retail market is highly anticipated, especially during volatile times like.

At the start of the year Aoki predicted 16.9 million light vehicle sale in 2020, roughly flat to 2019 level.

Taking into account than direct and long term impact of cobot Nike.

He has revised.

Forecast to a range of 11.6 30.6 million vehicle sale now roughly 24% year over year at the midpoint.

The upside to the range assumes that stay at home restrictions are lifted in may.

Government stimulus measures supported generally smooth transition out of pandemic condition.

Downside of the range take them very few and it through the second less pronounced wave of movement restrictions in the fall and explore economic recovery driven by sustained unemployment levels above historic norms.

Regardless of the specific outcome bookcases point to a meaningful contraction of the automotive retail market.

This contraction will certainly impact through CCAR and our dealer partners. However for the best companies on the other side of it burst comes opportunity.

I'd like to spend the remainder of my time here highlighting existing opportunities ahead of us.

I think many of US what degree it cobot 19, well have a lasting impact on how consumers and retailers embrace digital shopping.

In a recent April survey up 2400 in market car shoppers.

Surge of responded they would be more likely transact with a dealership that offers components of truecars barred from home service, namely the ability to complete the entire purchase online and received the vehicle in their driveway.

Yeah. This change in sentiment is shared by retailers.

In particular, no longer need to be convinced that offering remote buying experiences is an absolute necessity.

In a recent any da survey, 91% of dealers said they would now incorporate digital retailing into their sales process.

Have you been around this industry for quite some time I'll be the first we acknowledge that change in our space could be slow. However, I believe what we're seeing now is different.

Since an inflection point in the adoption of digital retailing solutions within automotive.

I'm excited about what that means the two car.

Fortunately for us many of the changes we've made to our consumer experience over the past Walmart has positioned us well given the changing landscape.

As we announced in late January the introduction of an entirely new personalized youre connection experience.

And your consumers contact information is no longer automatically passed it three dealers marquee turning point in our commitment to empower consumers with more control over how and when they connect with our dealer.

In Q1, Wheeling Burger into this commitment by empowering consumers to connect with dealers when ready and on their terms through text messaging, rather conceiving unwanted phone calls.

We released this touching solution, 25% of true card Dot com newpark topic in late March.

Based on the positive initial response ramp this up 50% in early April.

There are on track for planned 100% roll out in the coming weeks.

As you might expect David we're seeing is very compelling.

85% of shoppers are choosing texting overblown called as their preferred method of communication with dealer.

Consumer response rate Youre text messaging is 45% well above industry averages about emails and phone call at 20% and 9% respectively.

And for the 45% of consumers respond to dealer to dealer tax.

65% do so within an hour.

Clear signal of consumer engagement.

Most importantly, we're beginning to see signs of a positive impact on our core Cape yacht, including positive net promoter scores and improved onsite conversion in close rates.

Looking forward the rollout of text of protecting platform in our Nucor experience is just the beginning of how we plan to a ball to meet the needs of the modern consumer.

In the months ahead, we plan to begin integrating additional tax driven interaction points throughout the car buying German.

Including drew out or used car experience to better facilitate consumer and dealer touch points.

You can imagine not too distant future being able to ask a dealer or question negotiate payment options or scheduled test drive all through a preferred communication method that is manageable in the fishing for both the consumer and the dealer.

Now taking a step back while we've made significant improvements to better facilitate consumer and dealer interaction we recognize the larger opportunity ahead of us.

Before I go with 19 has fundamentally altered modern day retail.

Forcing industries to adjust to new consumer demand in order to survive.

Automotive industry is no exception.

Looking for marketplaces, such as ourselves we their digital retailing extension.

Seamlessly integrating with their existing systems and processes and they help consumer navigate the very complex process or buying a car online.

Everything from vehicle discovery deal configuration driveway delivered.

Recognizing this growing need across our franchise network, we have read Reprioritize, our digital retailing effort as we look to quickly and aggressively innovate towards becoming the first online marketplace to support a fully remote car buying process.

We've broken this effort into three phases.

Phase one is already complete consumers can visit trocar dot com.

And the car they want compared pricing across dealers received upfront guaranteed cash offers on their trade in and most importantly connect with the dealer in older not black from home experience, who can help them complete the rest of the process online or otherwise without contest.

I'd like you Wonder score. We believe we are now the only digital marketplace with fully integrated new car trade and solution.

They used to.

Launch in a couple of weeks good one step further by creating a dynamic self service experience that enabled consumer can figure personalized lease and loan payment from participating dealer.

Just reviewing this experience in early April reaction from our dealer community has been strong nearly 3000 deal and have opted into big we expect the majority of them to be live on the launch date later this month.

And finally before the end of the year, we planned to launch phase three a complete checkout experience, where after receiving a guaranteed trade offer and customizing. The deal consumers can proceed through scheduling a test drive learning about in selecting the warranties and add ons completing any necessary credit applet.

Jason or document transfer and ultimately scheduling a pick up or home delivery of the vehicle.

Every step in the process Truecars communication platforms will be there to seamlessly facilitate consumer and dealer conversation.

The on phase three we will look to expand our payments infrastructure further up into the shopping cycle, allowing consumers to evaluate accurate payments customized to them across multiple vehicles as they narrowed their consideration set in land on the vehicle that is right for them.

Level of consistent apples to apples comparison shopping that short circuit much of the back and forth research across numerous sites required in today's typical car buying journey.

Let me be clear, creating an end to end car buying experience has always been the goal. We recognize the time to act quickly and aggressively is now we have increasingly prioritized around this effort and our product engineering and sales are endeavoring to achieve its goal what a renewed.

Sense of purpose.

Finally, I'd like to provide a brief update on our initiative to recapture segments of the military community App.

Okay.

And then with U.S.A. later this year.

As a reminder, we're leveraging or 13 years of experience during the military market, who are USA affinity partner channel branch out and offer a unique car buying service to an even larger audience more than 40 million opt in retired military professional and their immediate family.

Thanks to an incredible I read cross functional effort by the entire true Cartesian I'm pleased to report that a couple of days ago, We officially launched into court branded car buying experience for the military.

The experience called Truecars military provide service members and their families access to an appreciation pop it includes exclusive OEM incentives.

Two years of peace of mind benefit offering up to 4000 dollar value through auto repair and deductible reimbursement and exclusive access to a dedicated team of Truecar supports that short committed to providing a differentiated level of service care.

Wow, it's in its infancy, we ultimately see truecar military becoming the automotive buying experience for the military community and potentially even expanding to include other heroes in our community who dedicate their lives, helping others like Berkeley wander feature to name just the field.

We wanted to become a place where are we.

He partners in dealer owning and to provide or everyday.

With a differentiated.

Any unique perk any unique purchasing experience.

We will continue to report on the progress of this initiative in the coming quarters as we prudently invest to grow awareness of this new experience.

In the meantime, I would encourage everyone listening to visit true card Dot Com last military Jakafi amazing work is well underway.

And with that I'll turn the call over to Noel.

Thank you Mike.

It has been in very different quarter than we were expecting when we last talk to you in early February.

Well, we've all seen transpire in the last two months has certainly been unprecedented.

Oh, we could not be more proud of our two car colleagues swept show incredible resilience during these challenging tops.

I'd like to compliment, Mike Mike's remarks, whether a particular focus on monthly trends in Q1, and what we're seeing across our core capabilities in early Q2, I'll start with Q1.

First quarter got off to a solid start in January and February results trending inline with expectations.

As a result, we entered the final month of the quarter with revenue up 2% year over year tracking slightly above the midpoint of our Q1 guidance range.

The trend lines held strong in early March will quickly reversed course as government officials began issuing mandatory stay at home restrictions and recommended social distancing guidelines midway through the month.

On the demand side of our marketplace. We ended March with monthly unique visitors down 10% year over year, well below the 20% year over year traffic growth, we had experienced in January and February.

As it relates to dealer count, we sorry drop off in the second half of March we ended the quarter with 15549 total dealers down 1400 11 from last year at.

Franchise dealers accounted for the majority of the loss with independent dealer count less impacted it is important to note. However that most of these dealers chose to suspend rather than cancel our services and we expect to see a number of them, we turn to our business as the economy begins to reopen.

Given covitz effect on the tail end of Q1, we ended the quarter with revenues of 83.5 million down 2% year over year.

Total units for the quarter and data approximately 197000 down 15% year over year inline with general industry trends.

<unk> dealer revenues, most directly tied to unit volumes for most impacted down 11% year over year.

Independent dealer revenues of 11 million remained a bright spot up 24% in the quarter and new dealer products contributed 4.2 million of revenue up slightly compared to Q4 19 levels.

Oh, Yeah, I'm revenue finished at 3.5 million for the quarter down 16% year over year in line with overall unit volume decline.

And finally began to realize the benefit of our transition services agreement with USA as forecast consulting and other revenues came in at 6.2 million up 36% year over year included in the 6.2 million is approximately 1.6 million a benefit from the U.S.A.H. yesterday.

Now turning to Q1 non-GAAP operating expenses.

As Mike mentioned the organization quickly responded to prudently manage costs in response to the major drop off in automotive demand for certain variable cost for naturally lower given the change of art.

First we saw significant leverage from our sales and marketing line, which declined from 58.6% of revenue in Q1 of 2019% to 53.1% in Q1 of this year.

We saw an improvement in our blended acquisition cost Purcell, which fell to $124 down 6% year over year as a result of our rapid response in the back half of March remove any non committed TV podcast radios bag and to significantly reduce traffic acquisition budget.

A portion of this improvement was also driven by a benefit from our transition services agreement with USA.

And finally as it relates to employee related costs, we saw lower travel and entertainment and office expenses as a result of over 19, and we also reduced discretionary compensation to reflect the underperformance in our topline.

While many of the benefits of our response will continue to impact future periods are quick out efforts helped produce 9.5 million a Q1 adjusted EBITDA more than twice the top end of our guidance range.

In summary, while covert 19, certainly impacted our Q1 revenue for pleased by our strong adjusted EBITDA performance and positive cash flows in the quarter, a clear demonstration of our commitment to stewarding shareholder capital.

And quickly looking at our GAAP expenses in the quarter.

We determined that a triggering event occurred in Q1 due to the decline in our market capitalization as a result at the Kobin 19 pandemic, depending departure of USA.

This required an interim quantitative impairment test as of March 30, Onest 2020, as a result of that test we recorded a non cash goodwill impairment charge of 10.2 million.

We do not expect this noncash impairment charge to have any impact on operations quickly or cash flows.

However, given this onetime impairment charge GAAP net loss in the first quarter 2020 was 10.7 million a 10 cents a share compared to a loss of 14.4 million or 14 cents a share in Q1 up 29 team.

Non-GAAP net income was 4.2 million a four cents a share in the quarter compared to a net loss <unk> point 4 billion or $0 a share this time last year.

I'd like to now provide some commentary on what we're seeing in April in May and our expectations for the remainder of the second quarter.

I'll start with the demand side.

Traffic for the sites that only recovery throughout April returning to pre kobin levels by early bad.

For April as a whole monthly unique visitors for only down 5% year over year. Despite the significant reduction in branded media bad.

You cut this one layer deeper a few important themes emerge for one all of the traffic growth was driven by our two car dot com branded channel on the direct response marketing side, we managed to remove 50% of our digital spend still jokes flat traffic year over year, a testament to the great work led by our marketing Kid.

Second we saw a rapid recovery of organic traffic with volumes exceeding pre kogan levels by the end of April.

As we've discussed before we are beginning to realize the returns from our multiyear investment in both the technical and experience will factors that drive googles ranking algorithm.

For instance, our new brand experience launched in late January continues to drive lower box rates and improved onsite engagement sustainable drivers of Google page right.

In light of the traffic recovery, we're optimistic about unit volume trends for the remainder of Q2.

As for kind of the per unit Monetizations, just given the string things you want and also just kind of the the mix dynamic between new and use based on the momentum in used in Q1, but a baseline assumption that perhaps Q2, probably skews more to new thanks.

Hey leave <unk>.

I had like.

Yeah, I was just going to say I'll take that kind of jumping to take the second one firstly, we've been looking at some of the mixed numbers that are coming in and we're certainly transitioning into a new car season of the year. We think the initial impacts a on coven was was a little heavier on a new car side, but the O.G.M.'s quickly responded, but aggressive incentives and got out there.

And and and supported their dealers with you know with very aggressive new car incentives that we think will stimulate any discretionary buyers that are out there.

In addition, you know our our work with a L.G. tells us that there was about nearly three quarters of a million lease units that were scheduled to come back to the marketplace over the past eight weeks.

And many of the <unk> extension programs in deferrals for those units. So you know as as those things kind of sort themselves out those folks come back into the marketplace. You know we will we we like the growth receive unused but we expect a new car market to come back later in May and certainly in June.

Yeah and leave it there's no I'll just on a good relates to my they so <unk> you know obviously, we are still married on certain times and there's a lot [noise], that's still need to an old as it relates to the.

The extent.

Timing of their recovery with that said I think they hire minor addition, you're seeing and Q1 is a bit into the anomaly given the the activity that we saw with deal air suspension kept cancellations towards the end of a cue one.

That will actually we should see bad actually come back down in the second quarter, especially given the the lower about the the lower unit volumes that where c., that's part of the quarter.

Got to think for taking my question.

Our next question comes on line of Marvin fun with P.T.I.G.P.C. with their question.

[noise] great. Thank you for taking my questions guys and.

<unk>.

I had a question I just wanted no well did I hear correctly April units were down 25%.

No units in April or down 45%.

45, Okay that makes more sense yeah. Okay.

And then.

Hmm.

If you could oh, what's the outlook <unk> changed any <unk> them incentives given that you know clearly the only and start going you know they they have put in some aggressive program or however, however, those conversations trending as we look the reopened.

And and hopefully more new car sales coming down the road.

Yeah. Thank you for the question, Marvin and and hopefully you're safe and and willing yourself. We we we've we've seen some success. We we take our military channel that we just launch earlier. This month is going to be a great area for O.G.M. partners to lean into we transition some of our.

Ongoing partners over from USAA over to that military channel is they you know we continue to try to broaden our reach into that segment. So you know <unk>, we'll look forward to aggressively picking up those O.M. conversations we've had some good initial conversations.

A lot of the external discussions we had in the marketplace slowed down a bit as companies became very internally focused in making sure. They were transitioning to a safe stay at home processing and making sure their own systems are under control, but you know <unk>, we're optimistic about R.O.U.M. opportunities going forward, we've gotten a real.

Good initial response to our military channel when we think will continue to see that grow.

[noise], great and hopefully I can get a an echo insist that personally took a housekeeping. So the <unk>, that's hurting a little higher and the French sites like versus independent side about double by my map and I think you said a lot of the suspension activity could you just maybe just drilled down into that then.

And help us understand why the trend rates or or we're different thanks.

Yeah, <unk> <unk>, what we've seen a very large portion of the numbers, we talked about in the dealer numbers were suspensions over 90% of that was a suspension dealers were quickly reacting to state regulations and things that were affecting their operation. So.

<unk>, we expect a lot of that business to come back the height of that was the middle of marched through about the middle of the April we saw that those numbers begin to plateau. As we you know got deeper into April and towards the end of April on the first part of me here, we've seen dealer start to come back to the system.

I've seen you know several hundred dealers returning to the platform that we're in a suspension mode is as some of the regulations lighten up. So you know <unk>. We were encouraged by the fact that we did not get a lot of cancellations.

Most of the dealers were suspending services I think until they got a real good sense of.

What type of immediate impact they were going to be facing so we're we're encouraged <unk> and we seek we'll see a number of those dealers come back to our system you know in May.

Yeah, Marvin's with mentioned already reiterate what we send our comments no two things one is or you know many of our dealers are on a pay for performance model in so that automatically adjust the cost of our program to them to the level of sales that they can't actually achieve.

And then secondly, we proactively in support of our dealer network. During this time time offered a significant discount to ourselves subscription dealers 50 per cent on their products in April and they more recently extended that two may as well so both of those factors help to to mitigate turn and.

Mike said, you know have the large majority of the activity why suspensions and so that's a really strong signal that starting to play out in in late April early may with dealers coming back to to the platform.

Fantastic. Thanks, guys appreciate the color. Thanks.

Once again, if you like test question Keys for Star one on your telephone keypad, what's going to feel like test question. He's pushed star one on your telephone keypad. Our next question comes on line of steep time with Craig Helen Please see what's your question.

Oh, Thanks, good afternoon, guys, you've given some great color. So far so so thank you [noise] demonetization in the quarter was that just a function of the lower dealer count up Yonder was there anything sort of specific pushing that number.

Yeah, that's really the the the brunt of it Steve and you know that late corridor at a surgeon suspensions than any of that suspensions or cancel that came in our reflected in our at our March and number so that drove modernization abnormally high.

With the discounting that we provided to our dealers in April and May we obviously expect that modernization to to come down pretty significantly and then to Ah, yes, assuming a their recovery that we're starting to see continues and we don't have to do any.

<unk> discounting beyond cute here, we would you would see that mother invasion start to stabilize.

[noise]. It just you know as it relates to those discussions can you remind us what percentage of the business is a subscription and what is his paper transaction and and and the subscription piece does a true up at the end of the month in other words you have you know you have a soft months in that are sort of true true to upper true down and.

This case or or is there a look back there.

Yeah, so on our our our core 18 business subscriptions around two thirds of the business and paper sales around the third so today's the majority of our revenue and we we enjoy for our subscriptions and advanced for the month and there's a 30 day notice.

Period required on our on and tons of a cancellation, we did work with our dealers. During this time around that notification period and so in many cases wave debt, but generally there's a there's a 30 day tail on it.

So we did some impact in March from those cancellations, but they were largely late in the month. So <unk> you know a smaller impact in March and it starts to take heavier effect in the early part up to you too.

Okay, and then one more if I could just jump in your military channel I guess, where are you planning to sort of you'll reach a lot of those folks I think you know one of the the.

In a sense of U.S. area was your brand recognition tons of marketing collateral that they're putting out and then certainly a reputation amongst a service members and form former service member. So I guess in the absence of that endorsement you know how do you have your reach those folks on the same scale. Thanks.

Yes. The thing in thank you for the question you know, we we've got an extensive history of of servicing that military community. That's that's grounded in our in it was found in our business with USAA. We've got a lot of learning there we've over the years developed a number of grassroots initiatives.

To get involved with the military community. We're we're partners with the D.A.V., we're partnering with R.W.B., we haven't driven to drive program, where over the past four years, we don't we've awarded a wounded that with a retrofit vehicle to enable them to get back.

Into the community and and become mobile again and experience that freedom. So we've been active in the middle Terry community outside of USAID and the thing that encourages US is you know USAA membership was about 13 million. We think the total audience available there is about 40.

So you know we're excited about the opportunity to get at that expanded audience, we're going to work hard to to understand when we add value to these folks got one 800 number set up for for the military uses of our site to dialing and ask questions and we're going to make sure that we're delivering real value up to that.

Community. So we think overtime you know we could see materials significant grossed out of this channel we haven't put an early burden business burden on the channel because we want to make sure. We're doing the right thing for the members make sure it's authentic and continue to get out there and and and support the military community. So you know that.

The the connection with USAA did create a an opportunity for us, but we think stepping outside of that there's a bigger opportunities that we can get at and and really communicate with these folks and and deliver a lot of service. So we're excited we're just getting started you know we're gonna learn a lot as the year goes on but.

You know, we're we're real proud of what we were able to do.

Great. Thank you.

[noise]. Our next question comes on line of <unk> Cooped up with J.P. Morgan. Please see what the question.

Oh, Hey, thanks, Thanks for taking my question.

Had a a follow up to you know what to bring this question asked me a different way.

<unk> a lot of a log franchise <unk>.

Seem to be taking some aggressive cost reduction action you know no in light of the longer you, including.

Only I was like advertising and some of these expenses auctions are nearly 10 pretty in Europe to supporting them, but but once we are on the other side.

The goal that crisis I mean did you expect the data account.

How to be back to do two prior levels and even if they do a good demonetization level would be structured ignore what are the ones that happen and then related me or how does the you know the <unk> the digital experience awkward Bachman nations as well thanks.

Well I'll take a a pass that that person cheap in the beginning and and you know I think.

<unk>, what we've seen with our dealer community is you know, we're we're mid to lower funnel part of their marketing investment. We we we are highly attributable investment that they make in the marketing arena and there's no l. mentioned about 40% of art dealers are on on.

Pay for sale model, so those those adjust and dealers you know our our sure that they're going to get value based on on what we build them for so you know, we we think dealers when they come back to the system <unk>. We honestly believed that the largest portion of the suspensions, which just uncertainty on the dealers part.

As to what type of operations, they were going to be able to run around the sales to <unk> part of their business.

And we you know if if we had seen a heavier per cent of cancels. It probably would have been more alarming to us but notifications. We got was from dealers were suspension of service and we're already seeing like I say, a large percentage of those come back to the network. So you know <unk> will will continue to monitor that close.

<unk>, we want to make sure that we're delivering value to our dealer partners either going to pay per sale model or subscription model.

And if there's you know future adjustments that have to be May you know going forward are around subscription services in that you know will be will certainly be prepared to make those but you know we we we fully believe the bulk of the dealers who went into a suspension mode will return.

And the <unk> and do this or the follow up you know in terms of the Outback Scott them Dirty are really good execution score.

You gave us some color on the S.N.M. side per second quarter, but but <unk> going be onto the court quarter quirk.

The work from home opportunity a good can you give us a sense of you know what degree of someone who's cost cuts could could be permanent the major you know some kind of qualification around that <unk>. Thanks.

Yes, thanks for that this as well so yeah. Thanks for pointing out the the the outperformance that adjusted EBITDA in Q1, we have focused on a fair amount of cost cutting you know some of that has been organic with a with a stay at home as you mentioned were sitting lower travel.

Entertaining costs.

Office expenses that are down and then there's there's a fair amount of are fixed costs will ring looked at yeah. It's kinda scoured, our our budget to ensure that anything that was non critical or discretionary we are either eliminating renegotiating or discounting and.

There's a fair amount a variable span that we also quickly adjusted given the impact the code it around our sales and marketing to pull that backing me seeing really significant efficiency that started towards the tail end of March but well into to April and now it today given the the.

The lower spend I think that's happening in the segment generally also some efficiency that there are growth marketing team continue to make improvements in to to find.

We also cut back on our our.

Brand span pretty significantly and so we're we're really scouring all of operation looking for cost efficiency. As we look out you know I think our performance in Q1 as an indication of where our mind set that in our prepared remarks. We've we've made it really clear that we're we're committed to being adjusted either positive.

We will we believe we have the levers that are available to us to to make that a reality given a a fairly wide range of rabbit or outcomes and we will make the challenging decisions or should we need in order to make sure. We we live up to that commitment.

Oh, great. Thanks, I'm good luck.

Thank you.

Ladies and gentlemen, we have reached the end of our question and answer session and I would like to turn the call back over to Mr. Mcdarrah <unk>.

Well, thanks, everyone for taking the time to join US today. The path ahead, certainly will be challenging I'm confident that on the other side of this diversity will come opportunity I hope you heard today reflects the conviction I had the car will emerge from this period stronger than we were before United in our pursuit of <unk>.

Dramatically changing the way people discover buy and sell cars.

Are you stay safe and healthy and thank you for your time.

Just conclusive there's teleconference. You may now disconnection onto this time. Thank you for your participation and have a wonderful day.

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