Q2 2020 Cars.com Inc Earnings Call
[music].
Good morning, and welcome to the cars Dot Com second quarter 2020 earnings conference call.
During the call. This morning, as Alex Vetter, Chief Executive Officer, and Sanya Jane cars newly appointed Chief Financial Officer.
Also joining us on today's call is Gandy told me.
Who served as Chief financial officer during the second quarter.
This call is being recorded and a live webcast can be found at investor Dot cars Dot com.
A replay of the webcast will be available until August 13th.
A copy of the accompanying slides can also be found on the company's investor site.
Following today's presentation, there will be a question and answer session with Alex Sanya, Ed you Andy.
I'd now like to turn the call over to come all helmet director of Investor Relations. Good morning, everyone and welcome to our second quarter 2020 conference call before I turn the call over to Alex I'd like to draw your attention to our forward looking statements and the description and definition of our non-GAAP financial measures, which can.
We found in our presentation.
We will be discussing certain non-GAAP financial measures today, including adjusted EBITDA adjusted EBITDA margin adjusted net income and free cash flow reconciliations of these non-GAAP measures to the most directly comparable GAAP measure can be found in the financial tables included with our earnings press release.
And in appendix the presentation.
For more information please refer to the risk factors included in our SEC filings, including those in our annual quarterly in current reports, we assume no obligation to update any forward looking statements or information as of their respective dates.
This time I would like to turn the call over to Alex.
Thank you come all good morning, everyone and welcome to our conference call for the second quarter for 2020.
Before I begin to discuss the quarter I want to take a moment to introduce Sonia Jane our new Chief Financial Officer, who joined cars on July six to hit the ground running moved to Chicago and worked with both financial and operating team members to quickly learn our business.
On his deep multi channel media distribution expertise and technology prowess have enabled her to have an abbreviated learning curve and she is poised to make an immediate impact that's an important business partner to me and a major contributor to our strategic goals.
Thank you Alex I'm very happy to join my first cars earnings call.
Short time since I joined card I mean first can you keep in mind me I'm focused on leveraging our portfolio a first party data completion further our inherent strength in the marketplace.
I think candy and the team for their efforts.
Clearly in light of obstacles to cold in 19 pandemic placed in their Pat and I look forward to working closely with the analysts and portfolio managers on today's call and meeting you soon at least virtually.
Thank you Sonia.
Now, let's discuss the quarter.
As we signaled last quarter, the pandemic impacted our customers and therefore, our business as well our decision to provide a three month financial stimulus to dealers in the form of 50% off in April and 30% off in May and June obviously led to substantially reduce second quarter revenue and adjusted EBITDA, but our form of stimulus also reinforced our commitment to.
Dealer advocacy.
When combined with all of her other proactive product and customer support we believe dealers will long remember that we stepped up in a challenging time for their business.
Our position as a leading marketplace was apparent with strong organic traffic and even stronger lead conversion in the quarter.
The retention rates improved as a quarter progress and it further strengthened in July.
We continue to drive new revenues with the release of new D. I web sites and additional Q2 fuel launches both of which demonstrates strategic and economic value of our diversified revenue platform.
From a more strategic perspective, we believe dealers now have an even greater appreciation of our brand and FCO strength than ever before.
We reliably deliver traffic and exceptional lead growth in the quarter, despite our reduced marketing spend.
Organic traffic continues to be an important distinction between cars that time and competitors and our diversified range of digital solutions, even further differentiates us from others.
While overall national car sales suffered in March and April recent trends in car sales have been encouraging.
Nevertheless, it is not yet prudent to make definitive predictions about how the pandemic will affect demand across the nation for cars and our business.
We're very pleased with how well our business model performed under the circumstances and how are unique strategy in core strengths position us to manage through a volatile auto environment and emerge poised to become the market leader.
To put the quarter and perspective, I should first highlight our industry volatility from April two today.
New car sales started the year with a projected Saar of 16.9 million units. This fell to 11.4 million in March and 8.7 million in April an extraordinary 48% dropped from the beginning of the year.
New car sales of since rebounded at a pace exceeding most expectations Saar in June increased to 13 million up 49% from the April bottom.
Bear in mind that june's level is well below beginning of the your expectations.
He used car sales averaged 3.3 million units per month in January and February of 2% year over year before dropping by 49% in March to one 7 million units.
Hi June use vehicle sales had rebounded by 102% to three 4 million units at the same time tight supply in high demand led to an 11% year over year increase in used car values.
Our entrepreneurial dealers have pivoted quickly and this uncertain and thus far lower volume environments plenty of partially are fully mitigated negative bottomline impact with a combination of reduce the recovering new and used car sales volumes rising sales prices and Ah reliance on more efficient digital sales.
Dealers have increase the Roy of their marketing spend by relying less on search engine marketing while at the same time, keeping reduced staffing levels and further driving profits from service operations.
Overall, the industry response has been both impressive and resilient.
And cue to our audience metrics increased by double digits year over year, reaching $144 million visits are up 10% during this period.
Unique visitors grew 6% year over year.
Keep in mind the quarter started out very soft with steep traffic declines in April followed by double digit growth in traffic and unique visitors in may and June year over year.
We also have treves strong SCO traffic and SCO lead generation with June marking our second consecutive month for record breaking SCO traffic with 31% growth compared to June of 2019.
I can't quarter 2020, FCO entries set a new quarterly record with 37 5 million entries into our website by clicking on search engine results.
Mobile traffic grew 75% of our total traffic up from 71% one year ago.
Notably, we perform well on quality measures as well as traffic to lead conversion increased 12% compared to the second quarter of 2019.
We deliver this performance despite reduced marketing spending which speaks to the strengthened and resilience of our consumer brand the core of our strong organic traffic momentum.
Unlike many of our competitors, we aren't solely dependent on paid marketing to build traffic instead are leading brand position and unmatched editorial content have shown to be powerful tools to attract a large car buying audience and all market conditions.
Our dealer count declined in the quarter weighted down by early locked down months cancel request had begun in mid March and peeked in may.
Took quick action to offset cancellations.
Prairie dealer pricing relief and a growing awareness about the value of digital solutions for selling cars and a virtual environment made a big difference and retaining many dealers that we're experiencing pain and facing early uncertainty <unk>.
Cancellation rates normalized in June and July in fact July for the highest retention rate of the prior four months and a higher rate than one year ago.
While new marketplace sales were slower than the first quarter. This was partially offset by growth and solutions only customers, resulting in a 5% decrease in dealer customers compared to the previous quarter.
Overall dealers increase the adoption of our digital selling tools after seeing how effective they were in meeting the needs of consumers, particularly those purchasing without visiting a showroom.
Our internal research shows approximately 70% of shoppers want to execute at least some parts of the auto purchase online.
And dealers are rapidly advancing to support home delivery.
We also helped our dealers remains safely open for business during the pandemic period by advocating to have them classified as an essential service, which had a critical impact on their business and further solidified cars actually true dealer advocate for.
Three months financial stimulus, we provided for dealers to help them sustained their business with communicated swiftly in March but only after consultation with our dealer network to ensure our support covered the quantum and period necessary under the circumstances.
Our financial backing was imperative to support and stabilize are dealers and demonstrate or long term commitment to the industry.
Standard subscription pricing resumed as of July one and thus far in July retention is at or above the rates experienced in the second half of 2019 and in 2020 prior to the pandemic.
With rising traffic limited vehicle sales and an increase reliance on virtual selling viewers are beginning to inquire about additional solutions and programs that can help them succeed digitally.
Our strategy to unite immediate digital solutions and data to drive efficiencies and profitability in the industry is becoming even more essential in a <unk> world and beyond.
This is true competitive differentiation.
Seamless integration of our portfolio of products and solutions support dealers speaking to adopt manageable digital strategy and consumers as a research their best vehicle match.
And the breath of our portfolio provide solutions for and loyalty from our customers.
We saw this firsthand steeler websites, where essential during covid and we experienced few cancellations and saw an increase in solution utilization.
At a time when dealers were slashing costs, they continue to leverage the cars product portfolio to operate digitally.
The most vivid example of this integrated strategy in action is our new offering fuel.
Fuel Leverages cars Dotcoms first party data you learned spires delivery technology, and our media production capabilities to power targeted videos and geographic zones.
This rapidly growing ARPG accreted solution targets, our audience rich within market car shoppers, while they engage with online content and streaming platforms.
Last quarter re featured Brian Benstock of Paragon, Honda and accurate as dealerships use only car solutions and he adopted fuel when Manhattan in the Bronx, we're under locked down but they were allowed to deliver cars to people's homes.
Brian Paragon Honda and Acura achieved number one status in sales nationales for both new cars and certified pre owned sales during the month of June.
We believe this is a powerful demonstration of our digital solutions effectiveness is paragon is leveraging fuel to grow sure and the city that was one theme the epicenter of Covid in the United States.
Brian told us last quarter Paragon is solid proof point that dealers gain market share by using the cars platform exclusively.
Brian told the Wall Street Journal business plummeted at the end of March and April the dealership. So 342 cars all online while in June it's sold 1130 cars, both online and through virtual dealer appointments.
We are seeing similar results at other dealers throughout the nation, including a recent testimonial from Toyota of Cedar Park, a dealership in the Austin market. They reported incredibly strong click through rates during the pin demick with a more than 200 per cent increase in direct traffic to their dealer website and the second quarter compared to the prior year period and at three.
Three fold increase in appointments at their dealership during the height of the pandemic in part driven by the use of the fuel platform.
Going forward, we continue to expect fuel to positively contribute to revenue and profitability with <unk> rates that are multiples higher than the cars overall average revenue per view.
Another success of our solutions strategies attraction, we saw with high conversion rates for online shopper or digital retail solution in conversations our online chat tool from 360 day promotions converting the page usage.
By the end of the quarter more than half of three users of online shopper had converted to paid and conversations converted more than one third of for users.
As we discuss last quarter, our online digital retail solutions home delivery in virtual appointment Badging continue to be in high demand from our dealers.
By the end of June thousands of dealers, we're offering home delivery and more than 2 million vehicles have been dads by some 8000 dealers nationwide.
Dealer inspired continues to deliver solid results with revenue flat year over year and impressive accomplishment and uncertain environment.
This demonstrates the persistent demand for best in market technology stickiness of our solutions offerings and the benefits of diversity in our portfolio of dealer revenue streams.
Along with the innovative solutions, we talked about earlier <unk> website solutions continue to be essential for OEM customers.
This quarter, we became the preferred provider to Nissan and others, bringing our total number of endorsements to 37, OEM brands, representing about 90% of the OEM brand selling cars in the United States.
Continue to take market share from incumbent selling legacy technology.
The semi exclusive GM partnership we previously announced continues to reflect our product superiority.
So far we've launched over 60 of the more than 800 contracted GM websites and expect to launch the majority of these contracted G. M website by the end of the year.
Is websites continue to launch the related subscription revenue for this program will build throughout the second half of 2020 and establish a strong starting point for 2021.
Turning to our national advertising business. It was down 17% year over year is oem's pulled back spending during cove. It. However demand has been building in recent weeks is Oems or rethinking social platforms and seeking trusted brand safe environments, two efficiently shell cars.
They've become wary of their ads being displayed alongside negative content and misinformation.
Leveraging are inherent reputation in high quality and market shopping audience to redirect industry add dollars to spending with cars.
This opportunity combined with a strong leadership team and are strong organic traffic and improve product performance physicians as well for future growth.
This past March we took swift actions to address in offset the revenue in cash flow impact of our significant dealer stimulus.
In total we reduced operating costs by $28 million compared to the prior year period majority of which was short term reductions in reaction to lower revenue in the second quarter.
Sonya will provide more color in a few minutes.
We also secured substantial liquidity and balance sheet flexibility throw an amendment to our credit facility waving are net leverage an interest coverage covenants for the remainder of 2020.
This combined with our positive cash flow gives us an ample cushion through the credit facilities exploration and 2022.
Our organization has been productive and agile operating in a leaner virtual environment.
Although as a difficult decision, we furloughed approximately 250 people and ultimately exited approximately 170 as a furlough group.
Hi, thank them for their contributions to cars.
We have sense brought back about 50, furloughed employees, and we expect to begin hiring and targeted areas of the business and the second half of the year to accelerate our path to market leadership, while being mindful of evolving market conditions when considering those decisions.
As a market conditions begin to steadily show signs of improvement, we will resume spending in key areas and she increased investment into our growth agenda.
Now I would like to address cars, continuing proactive approach to diversity and inclusion.
In recent months, our country has again faced many conspicuous examples of any quality and social and racial injustice.
<unk> inclusion and belonging have long been part of the cars mission and strategy.
And this quarter, we have taken it even further sustainable actions in our company our industry and in our local communities.
Our program prioritizes Institutionalizes and measures the creation of a diverse pipeline of talent and equitable practices for hiring promotion and salary structure at every level <unk>.
We have gone further by expanding our industry focus in the automotive industry. Only 1243 dealers are minority owned and of that just 265 or black owned.
Therefore, we have partnered with the National Association of minority automobile dealers to advance this mission to help black one dealerships thrived through technology and retail solutions for the program of cars sponsor education and training sessions and we are leveraging are preferred relationships with social media partners to seek insecure.
Co op funds for black on dealerships.
And for our communities, we have launched cars action, which provides volunteer resources and connections for our employees to help rebuild and revitalize under resorts communities.
We are committed to driving sustainable and meaningful change in our company our industry in our communities for the long term.
At this time I'd like to turn the call over to Sonya to discuss our financial results for the quarter Sonja.
Thank you Alec.
Wait a second quarter of 2020 with $102 million compared to 148 $2 million in the prior year period.
A decrease primarily due to embrace credit at 50% April and 30% and May and June of 2020 at we provided to our market. Thanks customers.
Over a year <unk>, having you with black while national advertising revenue declined 17%.
Now, let me move into a discussion of our operating expenses in the corner.
Total operating expenses for the second Court R. At 2020, 119 2 million.
Compared to 147 $2 million with a prior year period.
Action to manage cost and an uncertain covid environment drove the vast majority of our year over year screening.
Decrease with primarily due to lower marketing and and reduce head counting.
The majority of which with not intended to be a permanent reduction.
Marketing spend reductions, we're off that I increased efficiency and I'm more favorable SCM pricing environment due to the market wind pull back at the results.
We continue with our strong traffic and high quality.
To our customers.
<unk> for the second quarter of 2000, 2024 6 million.
437.
Sure compared to a gap net loss 6 million.
900 per deleted chair in the second quarter of 2019.
Justin net income for the second corner at 2000 28 million.
12 cents per deleted sure compared to 20 million.
430 per diluted sure and the second quarter at 2019.
It just it EBITDA for the second quarter of 2000, 2023, $2 million or 23% of revenue compared to 43 $5 million or 29% of revenue for the prior year period.
For the second quarter average monthly unique visitors grew 6% year over year and total traffic grew 10% year over year, we grew traffic across all our channel despite reduced marketing spend the gameboy, driven by continued efficiency and <unk> and performance marketing consumer demand for it.
Nicole and increase adoption or online car shopping.
Mobile traffic through 16% year over year and accounted for 75% of total traffic compared to 71% and the prior year.
We have 18033 dealer customers as of June 30th 2020, a decrease of 5% compared to the 18938, you want our customers as of March 31 2020.
This is primarily due to hire cancellation and reduce failed and marketplace. Our customers who are reacting to mandated closure up there dealership and concerns around market continent.
However, at the same time, our website customers crew to 3800 in the corner.
<unk> with $1442 and the second quarter of 2020 down 33% year over year, primarily beauty invoice credit you provided to our marketplace customer at 50% in April and 30% in May and June.
And Justin for the second quarter discount <unk> with approximately $2098 down 3% compared to the prior year and up slightly compared to the first quarter.
Net cash provided by operating activities for the six month period, ending June 30th 2020, with 57 $6 million compared to the $58 million in the prior year period.
Free cash flow for the six month period, ending June 30th 2020, with 48 $9 million compared with the 41 4 million and the fire year period.
Cash flow during the quarter benefited from positive changes and working capital, which is expected to be partially off back in the third quarter.
Including availability under a revolving credit facility total liquidity stood at 232 $2 million as of June 30th and has been around two approximately $240 million.
Do you recall given the uncertainty around the impact of Covid 19 to our business. We took the prudent action to Amanda credit facility and under the terms of our amended credit agreement or net leverage an interest coverage ratios or wait for the balance of 2020.
That we ended the quarter with net leverage up for one time.
Our business has a strong cash flow profile, which we believe is the highest and our competitive back our business of Arafat light required minimal capital expenditures and working capital needs are relatively neutral. This resolved any consistently high conversion of adjusted EBITDA into free cash flow.
Ask is Scott and the face of the pandemic, we took prompt action to support art dealer customers, while reducing our expenses are goal was to ask that at least 50% be anticipated revenue reduction, resulting from our dealer credit and other Colgate related revenue decreases we were successful in our effort.
And after that approximately 70% of our temporary revenue reductions through cost reduction.
Of which were permanent but the majority of which were intentionally temporary.
Looking forward, we expect to reinvest in areas of the business that report growth.
Getting spend is expected to increase as the <unk> environment becomes more competitive a trend we have already notice and the third quarter of 2020.
In addition, we expect to begin hiring and targeted areas of the business to drive growth and product lunch and website deployment.
Effective July 1st me reverse the 10% across the board pay reductions we had implemented on April 1st.
This is important to remain competitive for talent and to ensure we are investing in our most critical asset are people.
We haven't demonstrated commitment to identifying cost efficiencies and remain focused on maximizing free cash flow while spend may increase in a measured way as we returned to a more typical operating environment, we are ever mindful of being thoughtful store and a capital.
Turning to our outlook you are aware, we suspended are guidance on March 23rd 2020, given the uncertainty generated by coded.
The effects of the Covid 19, pandemic, and resulting lower number of dealer customers will naturally impacts subscription revenues results of operations and cash flow. However, the extent of the impact will vary depending on the generation in the course of the pandemic related restrictions and the resulting impact on to.
<unk> environment.
Are strong brand and high concentration of organic value generate a strong cash flow profile and strong liquidity that position as well to whether the storm or differentiated and diversified solution equally enable us Anthony resume are pack market leadership and now.
With that let me turn the call back to Alex.
Thank you Sonja.
Is Sonya mentioned in the current volatile business, the auto sector and health environment, it's premature to predict and quantify actions an impact of the ongoing Covid 19 pandemic for the remainder of the year.
Data shows that car buyers increasingly came back to the market starting in may and continuing through July.
Data further shows that are higher and growing proportion of car buyers are leading transactions online and having the cars delivered directly to their homes, a far more efficient process for both the dealer and the consumer.
We expect to judiciously increase our marketing spend while maintaining our high level of value delivery are dealer customers expect from cars and at the same time focus on the efficiency of our traffic and lead generation, where we enjoy competitive advantages.
We continue to focus on the things we can can control.
Lee are strong customer service and solutions offerings to dealers are highly disciplined expense controls and our continued focus on free cash flow and balance sheet flexibility.
And we believe we have the industry's most powerful platform. One that was really built for the disrupted car buying market that we're in today.
This feedback from dealers and we see it in our year to date traffic numbers. We continue to feel confident that this difficult time provides cars a great opportunity to emerge from this period, even stronger with category leadership.
Now before we go to the Q&A session I want to extend my thanks to January for dedication to cars as in from CFO during the last six months.
She has been a disciplined later during these extraordinary times and it should be recognized for efforts to modify your credit agreements and for guiding or finance team during this challenging period.
That is an exemplary leader Fortunately for US Janney will continue to contribute to cars as treasurer and support Sonia as rapid a simulation his car CFO.
Thank you Jamie.
With that I'll open up the call for questions.
Thank you to ask a question you will need to press star one on your telephone to withdraw your question press the pound or a husky.
Please standby, while we compiled the Q&A roster.
My first question comes from the line of Lee Crown with be O'reilly FBR. Your line is now open.
Great. Thanks for taking my question and nice job on a fairly solid quarter all things considered.
I wanted to just really focus on the digital retailing spec that we've tried that we've observed kind of an Q2 and that will likely continue further maybe just kind of talk about some of the development steps and product initiative you guys are working on to remove some of the friction of digital retailing versus some.
The steps that would otherwise be done.
At the showroom floor at the dealers.
Sure. Thank you Lee.
Well first of all I was very pleased with how quickly our product and technology in engineering teams responded the answer to the pin demick.
Deploying home delivery and virtual test drive tools.
Prove to be extremely valuable at the onset and was certainly.
Big driver to our strong both lead in traffic conversion.
Think also when you look at our technology solutions business and the deployment of both online shopper and our digital conversation tool conversations not only take rate of those increase but the utilization by dealerships really grew during the period and so we're pleased not only with our own innovation, but how well the dealer.
Community has responded and shifted their behaviors.
I think what's <unk>.
Telling to me is how dealers are expressing desire to operate with fewer resources and lean more on technology is the second half of the year remains a bit uncertain and so I see the utilization of our technology and tools as being something that won't be temporary but more structural in long term.
Got it and then picking into your account the roll off of the discounts and the commentary around kind of what the cue to Normalised average revenue per dealer wasn't Q too.
Offset number would you guys expect sequential improvements an average revenue per dealer.
And I guess, maybe just talk to the contributors to that'd be it.
Incremental dealer inspire contribution in fuel.
Certainly if you're actually if you look at our average revenue per dealer and back out the discount ARPG actually grew on a sequential quarter basis.
Which I think shows the fundamental turnaround that we've we've made with the business year over year and so.
We're pleased with that trend as I look out in terms of the growth of fuel.
Which did get delayed a bit during covid, but now is taking up momentum that has significantly higher ARPG, although it will be a more limited dealer count that uses fuel.
But also are solutions business.
Endorsements, we've gotten from new Oems and the continued rollout of Gn all contribute healthily to our <unk> on a go forward basis.
Got it last question could you guys, maybe just quantify.
Or maybe qualitatively give kind of an outlook for the marketing expense would you expect to kind of get back to a more normalized level of sales and marketing expense and Q3 or is it a gradual ramp two incremental marketing dollars.
Yes, we do expect to the marketing expense increase.
Q3.
And for the second half of the year. We are we are taking measured Scott and tons of however be investing in that state, but we have already started seeing.
<unk> environment become more competitive different this month alone.
Got it thank you for taking my questions guys.
Thank you.
My next question comes from Tom Light with D. A Davidson your line is now open.
Thank you good morning, guys.
And congrats to your Sonya on the new rule.
My first question is just on margins or how to think about margins for the back half of the year the second quarter EBITA margins.
We'll definitely solid.
Given the revenue declines I guess, thanks to the cost control measures you guys Institute instituted.
In the back half.
The affiliate payments are done you are starting to get some general motors revenue recognition can you guys get to EBITA margins kind of.
Close to 30% exiting this year do you think or.
Or some of the investments and marketing ramping up and maybe adding back some head count.
Okay, now going away into that marching ramp and then I just have a quick follow up.
Yeah. So.
We are if you look to the second half.
Dealer discounts have rolled off which is certainly a benefit you did site, which is accurate at the affiliate affiliate payments will be going away in the second half, which is certainly helpful. But we are going to be reinvesting in the business.
We're not.
Obviously, the second half environment is a little bit unpredictable and tons of cold in and what the ongoing impact a bar maybe.
But we are we are expecting to return to two more I'm more normalised level of performance.
Okay.
And then just had a follow up on national advertising. It sounded like you guys or maybe thinking a bit more positively about that revenue line.
Going forward.
Okay. Thank you touched they're going to add spend coming off.
Some of the social networks, because I was curious about how maybe the pipeline for new vehicle launches or.
The production lines for new vehicles.
Maybe becoming more active is that.
Factoring into your outlook on national advertising or.
Because I think that's a big factor, but I'm just curious whether that's.
Something that maybe we will support.
More resilient.
Trend for that revenue.
Thanks, Tom Yes Nationals got obviously, a lot of puts antiques and we do make.
A decent amount of money on new vehicle launches in if those get delayed or pushed out that could have a negative impact and Conversely.
Manufacturers follow through on their launch plans, we can benefit there.
They are definitely is some pullback from some of the social platforms because of the brand safety and content.
And that we're finding ourselves on the receiving end of that.
<unk>, which is a positive and we certainly are talking to oem's about our fuel using data strategy and new product. So we've got a lot of momentum minute, but I think we're being very cautious knowing there's so much uncertainty and with limited production.
Inventory, we just think the marketing and advertising budgets are going to be cut back commensurate with limited.
Supply. So I think that's why we've got a little bit more of a month to month view on national and.
He'll confident giving really any mid term or long term guidance on it.
Okay. Thank you.
My next question comes from the line of Daniel Powell with Goldman Sachs. Your line is now open.
Great. Thanks for taking the question.
Maybe just a couple high level questions here around on the industry I guess curious to see here there with anything you saw either in your those trajectory of your traffic that you saw throughout the quarter.
That was tied to consumer stimulus or a stimulus telling them from the government that could potentially caused a pull forward here in Q too.
For vehicle demand and you're seeing any indication.
More near term.
And then a question persona just high level I know you're talking about were measured we investment here, but are you trying to think about where this businesses today with accelerating traffic growth.
Maybe you can just talk to us a little bit about sort of the growth first profitability trade off your sort of seeing over the next year. He had gone to the rule. Thanks.
Sure Daniel Thank you well look I think our businesses is <unk>.
Well positioned.
Cause of it's digital strength in particularly during a pandemic you saw that we had mass consumer adoption and utilization growth in on a much reduced spend and we certainly saw digital conversion to dealers increase as an alternative to visiting the physical showroom and we can measure that so we've seen.
Our app showing up less times physically on the showroom floor, but our digital signals and contacting communicating directly with dealers increase.
So how long that will persist we think is really tied to the pandemic and but I also would say structurally we're seeing dealers embraces and we're seeing consumers expect more particularly in the area of home delivery, that's probably been.
Fastest growing trend for both consumer preference in dealer <unk>.
Delivery I think on the pull forward I wouldn't put it more on federal stimulus I think if anything it's more of a safety boost that we're getting in that we know from a research consumers don't feel comfortable getting back on mass transit or using ridesharing services in the car is an extension of the home and the <unk>.
<unk>.
Recent recommendation that the personal ownership is the safest form of transportation I think.
As a sign of things to come with people really are reserved about going out in public or back on mass transit.
We are going to continue to advocate for federal stimulus aimed at the retail sector. We think it's the best form of stimulus the government could provide because people still need to get to work.
People need to get.
Get around in the car is certainly.
<unk> way to do that and so we hope to continue to advocate on behalf of the industry for some form of consumer Stimulous and the second half.
And then maybe taking the second part of your question.
We delivered tremendous value QR customer at this past quarter and that continues to be okay for us.
Whether that's investments that we're making in our tech transformation and product development, which we think position aswell longer term.
And our accreted.
The overall business or whether it's investments and marketing.
Which helped helped drive needs and lead conversion to <unk>, our customers the ladder in particular I think.
Theme. This past quarter is an area, where we can flat and we do believe we have tremendously from organic strength, which is one of the things that allowed us to flex this quarter as needed to.
Thanks, so much.
Our next question comes from Gary <unk> with Barrington Research you line is now open.
Good morning, everyone.
Thank you Jerry.
Couple of questions number one.
With the decline in dealer customers. These were cancellations on their part it wasn't kind of a suspension of service, saying, let's evaluate this and see three months from now where we go I just wanted to get an understanding.
How that works and then the second question related to that.
Where the cancellation more than the one to two point.
Ships versus the larger dealerships.
Got it will look the cancellations, obviously accelerated directly correlated to the pandemic and I think the cancellations for broad and sweeping across all marketing and advertising and not necessarily performance and or logical discussions around Roy.
And I think that's one of the reasons why we're seeing.
Sequential quarter improvement in our selling right.
Going into Q3.
So the cancellation mix, yes, Gary we tended to segment are dealers by franchise, an independent dealers and and we did see slightly more cancellations on the smaller dealer side, but as you know the bulk of our revenue in the bulk of our relationships tend to be with a larger profitable franchise dealers who have service revenues.
That drive profits just are operating in a much stronger healthier financial state.
I need to add a little bit more color I think what we saw with with coded.
Initial increase in cancellation and sort of an intent to cancel amongst our dealer base and what we saw is sequentially each each month and the quarter and frankly, even into July and August since we have some visibility with our 30 day cancellation policy is a study improvement in that I think if anything especially with the traffic.
And an improvement and leave that you've seen this quarter.
<unk> really far the benefit the solution or solution provides for them right in a market where there.
Really limited access to your showrooms, our folks are as comfortable walking in they need to conduct research on our site and is Alex mentioned earlier.
There was a growing interest in pursuing more and more of the purchase path in online channels.
Okay. Thank you and then did I understand correctly without these price discounts your average revenue per dealer would've been.
Up year over year.
That would've been up sequentially.
Up sequentially Okay.
Okay and then.
Sonya Lastly, you said the websites where.
Where totaled 3800, where will you.
At the end of Q1.
Yeah, So we thought lethal growth there.
Okay, but you can't get the number.
We had a couple hundred ads and cute couple under that's okay. Thank you.
Our next question comes from the line of Nick Jones with city.
In line is now open.
Great. Thank you for taking my questions first.
Are you able to see.
Where the demand is coming from I guess, what I'm wondering is are you seem kind of first time car buyers or maybe put another way people, who don't have cars and are not buying cars.
Part of a D urbanization trend.
One follow up.
We are seeing strong growth.
Even in particular DMA as like New York San Francisco.
Chicago, we're seeing growth in major urban metropolitan areas, but certainly the growth is pervasive nationally we're seeing it.
There aren't down pockets in the country I think truck sales have been a bright spot.
And so I would say the growth is pretty consistent across the country. We do know that due to safety concerns we issued release in the quarter Nick about how.
People previously not considered only a vehicle have decided to enter the market. So we do think we are benefiting from wave of net new buyers that are responding to coded.
Great. Thanks, and then I guess, one more follow up on the cancellations I mean.
Back some of these might come back pretty quickly.
All the time, either or kind of the back half maybe early next year and then I guess more broadly. When this is all over are you expecting that'd be led dealers and the U S. Let somebody who's kind of permanently clothes and not come back.
Nick a couple of things I think.
First of all I think that this has been a large marketing experiment for the auto industry to see how.
Dealerships of operated I think perhaps the biggest expenditure the dealerships now have to rethink is restoring their search search spending.
Is dealers unilaterally cut marketing cutting off variable performance pay-per-click marketing.
Happened overnight, but what you did not see is value from digital marketplaces decline.
I think it underscored the durability, a third party marketplaces as being indispensable for users and you're not going to be able to buy around them and so dealerships or rethinking how much marketing too I really need to spend if I can count on these digital marketplaces to reliably generate traffic.
So I do believe that I.
<unk> is being discussed throughout the industry and again, we're seeing <unk>.
Improve selling rates going into Q3.
I think on the consolidation side look I think with inventory shortages and dealerships that don't have service centers as a profit center.
I think they're going to have a hard time in the second half. So I do think there will be some consolidation on the smaller long tail independent dealers, who are solely relying on vehicle sales is there is there way of life.
Fortunately for us the bulk of our revenue are with the larger franchise dealers, who have very diversified businesses and I think can whether these these economic storms far greater.
Great. Thank you.
Our next question comes from the line of Steve Dire with Craig Helen Capital You line is now open.
Hi, welcome Sonja.
You.
Although this is Ryan signal on for Steve sporadic Clark.
Just to start Sonya I think I've heard that you said.
By a revenue was flat year over year is that correct and then can you talk about the puts and takes there because it seems.
It's surprising given kind of a website adds new OEM programs market share games et cetera.
So yeah steeler inspire revenue was flat year over year I didn't quite catch the second part of your questions I think it was basically that.
Even though there was there were ads et cetera et cetera.
Flat, but you added customers yeah.
So that we did.
We did.
Making a couple of pets and take bear.
One is we did have.
Some some some discounting in dealer inspire which is one other thing that that is you're not seem kind of that flow through necessarily Avenue customers timing is also an issue in terms of one when the new customers come online as well so those would be two of the things that I would.
And the third.
Is that the search engine spending that generates revenue there pulled back.
Aggressively because dealers cut all their third party spending which can have an impact on da so don't forget that sorry. This is candy a piece of the business is the digital advertising business, where dealer as well.
US we will help them with <unk> spending and that was an area that with political back on that one piece of it but the other is with telling you describe the fact that we did have discounts that we gave to the website side of the business and bye.
D I customers, obviously firefighter less than the broad based discounts that we gave to the marketplace customers, but that business continue to grow customer then the second quarter.
And just off from that the 200 website customer growth that we that we talked about.
Yes, that's helpful. And then just on the discounts have those been completely removed similar to the marketplace or are there any still lingering in July and August here.
That's correct Bacon on it.
Okay.
Then.
Dealer churn.
Exactly clear to me, but was there dealer growth or churn in July.
For dealer inspire there was steeler growth.
I'm, sorry, overall business or the core marketplace.
Yeah, I think I think for the for the core marketplace.
We are seeing an improvement.
In in sale and try and continues or <unk>.
Cancel right cancel right continue to improve relative to where we were in QQ, but we don't expect a growth in the month of July.
Gotcha.
And I guess when do you expect that potentially turn it feels like there's more stabilization greater aligns on digital and all the positive things you talked about with traffic and everything else I guess.
It feels like we're past the worst.
The shelter in place in Coalbed <unk>.
Potentially but I guess why are we still see in turn today, even if it is improvements.
I think it really is too hard to predict because of so many second order effects that are still happening.
And searches in cases, and continued uncertainty and the economic environment and so.
Dealers I know also struggling with inventory shortages. So I think we're taking a very cautious and measured approach managing the business month to month. We are pleased by the improvement on a sequential quarter basis, and our retention rates.
And dealer sentiment because obviously are valued delivery signals are are improving but again I think there's larger macro forces here that make predicting that that growth and dealer count a little bit more difficult.
Certainly the more websites that rollout and the second half of the year will contribute.
Meaningful way.
But at this time, we're not giving formal guidance on that.
Great. That's it for me guys. Good luck in all up back in the cute.
Thank you Brian.
Hi, My next question comes from does Arthur with Hoover Research you line is now open.
Yeah. Thanks.
Two things.
Just to clarify.
Dealer inspire is it fair to say you expect decent growth and the second half given everything.
A already said.
Yes.
Fire with olive.
I'll, just add dealer inspire with always going to be a bit more of a second half story for us as growth and web web site's ramped up and we continue to expect that to be the K.
Okay, and then and then just finally sort of big picture.
I was given the growth and leads and traffic year over year.
Despite the marketing spin cut.
Do you feel that.
You've learned something about.
Getting spend allocation that might suggest longer term.
Less spend there I know you've talked about wrapping it back up but it seems like the.
The channel work pretty well despite.
You spend and I'm just wondering if that's got any longer term implications for how you view that cost category over the next couple of years.
Yeah, I think obviously, we're still learning everyday dug and I think the marketing experiment is still underway with us as well and so we'll be continuing to test and refined our approach.
We can see very vividly as people stop visiting showrooms are digital lead counts have have grown <unk>.
Materially double digit growth and lead generation and so.
We know that the offline sales that we weren't getting credit for have now shifted to very vivid digital channels and I think that is improving R.
Our value.
Equation with dealers and again I think that's why we're seeing solid improvements in our sales and cancel trends there.
I think obviously, we're we're we continue to enjoy the benefits of having a strong organic channel that's generating a ton of value, but also we aspire to take more market share from competition.
Until we think.
Measured investment that continues to position us as the market leader is one way that we can shift sure of dealers and our way. So we will be expanding our investments and the second half.
Okay got it thank you.
Hi next question comes from the line of Marvin phone with <unk> you line is now open.
Alright, good morning, Thanks for taking my questions and the wealthy Sonya.
Alright. Most of my question has been asked what I did want to.
Follow up I guess on marketing spend but just more broadly you've done a terrific job of controlling expenses and I know that you said the majority.
Tended to come back, but should we think about the businesses.
Structurally having a higher margin oil.
Assuming that revenues.
A relatively intact <unk>.
Tracking well.
Well look I think we've got to continue to invest in some of our growth.
<unk> is particularly our website business, we've got contracted demand.
For over 800 website from the second half of the year and so we need to make investments to scale and support that customer equation. Because you know, it's a lower margin business, but it has a good growth profile.
And so I think there are certain investments that we're going to have to make I also mindful that it is an extremely competitive environment and if there are recessionary second order effects that may car sales lower than the second half there'll be more intense competition to buy for those sales into generate traffic and leads and so I just figured.
Again, it'll be a month by month calibration of what's needed, but certainly we need to make deliberate investments into the website business, which is scaling nicely and again, we see solid growth and the second half.
Great and my follow up question is just <unk>.
Zero dollars a month Nissan opportunity because you just <unk>.
Remind me like how many dealers nationwide.
But the the incumbent situation there how many approved vendors auto over there.
That'd be great. Thanks.
Which platform, where you're talking about Marlon you cut out the Lisa Nissan.
Oh, great each of our OEM, new endorsements that we announced and a quarter have about 1000 dealers and they're network.
And those those aren't semi exclusive agreements.
So unlike GM, which we have a semi exclusive license to sell these other Oems aren't don't have that nature. So there will be more competition, but they all have about 1000 dealers and they're network.
Terrific thankfully.
Okay sure.
Okay, no questions and Q at this time Mister better I turn the call back over to you.
Thank you all very much for your time today, and we look forward to speaking with you again shortly have a great day.
This concludes today's conference call you may know disconnect.
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