Q3 2020 Cars.com Inc Earnings Call
Hi, [laughter].
[music].
Good morning, and welcome to the Carter's Dot Com third quarter 20, Twond earnings conference call hosting the call. This morning is Alexander Chief Executive Officer.
So new German cars, Chief Financial Officer. This call is being recorded and a live webcast can be found I didn't busters bought cars dot com a replay of the webcast will be available until November 23rd 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 and Sonya I'd now like to turn the call over to come all Hamid director of Investor Relations.
Good morning, everyone and welcome to our third quarter 2020 conference call before I turn the call over to Alex I'd like to draw your attention to our forward looking statement and the scripts and definition of our non-GAAP financial measures, which can be 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 as a financial tables included in our earnings press release independent so the presentation.
For more information please refer to the risk factors into that and FDIC filings, including those in our annual quarterly and current reports.
We assume no obligation to update any forward looking statements or information as of their respective date at this time I would like to turn the call over to Alex Alex.
Thank you Kimo let.
Let me start by saying that I'm very proud of our performance this quarter as it demonstrated the resilience of our business and the dedication of our team.
We remain relentless in our focus on customer ROI and value delivery expansion and execution of our digital solution strategy and a disciplined focus on profitability.
This resulted in momentum across the business and is apparent in our results.
Strong traffic growth and quality lead conversions increased dealer customers in air PD expansion and we're back to adjusted EBITDA growth.
It was an impressive quarter and building on that success, just two weeks ago, we achieved another significant milestone by refinancing our debt.
We now have greater flexibility to make appropriate investments in the business going forward Sonya.
So you will comment further on the refinancing in a few minutes.
Although operating in a pandemic environment presents challenges the upside is an accelerating trend digital adoption by consumers and dealers that plays to our core strengths and product solutions.
Consumers increasingly want to complete more of their car shopping online from the convenience of their homes and dealers are quickly ramping up their solutions to capture this opportunity.
Our business is well positioned to enable our industry to accelerate the shift to a digital first strategy.
We delivered two consecutive quarters of dealer customer growth and had momentum behind us to deliver a third if not for coated.
We grew our customers in Q4 of 2019 and Q1 of 2020, and we also manage the pandemic better than most.
After the second quarter Cobot impact, we added 97, new dealers in the third quarter of 2020, including growth in public marketplace and wed solutions customers.
We exited the quarter growing to 18130 dealer customers as competition went backwards.
Retention rates are at an all time high and improve sequentially each month throughout the quarter as dealers increasingly benefited from the reliability of our high quality traffic sales leads and innovative digital solutions.
Throughout the pandemic online shopping sword.
You think contacts through our digital platforms also increased bringing record value to our dealer partners.
Historically, we have consistently driven walk in traffic that dealers didnt capture in our CRM.
But with physical showrooms closed consumer volume naturally shifted to more visible digital channels, making our value even more obvious to dealers.
Dealer comment.
Despite dropping Google search spending and all traditional media source that can replace that volume on a fraction of the cost.
Digital dynamic opened up even more opportunity for our digital solution strategy as dealers wanted to know what else can we do to help them capture more sales.
Our digital solutions continue to grow significantly with web site customers now totaling over 4000, including more than 250, GM web site's launch as of September Thirtyth.
We expect to launch half of the contract to GM web sites by the end of the year.
With every new dealer website launched the accumulation of subscription revenue builds throughout the year and establishes a strong starting point for 2021 revenue growth.
Further uptake on our fuel product continues to accelerate since its launch this past February Julie RPD accreted and on track to be the fastest growing new product launch in our company's history.
Online shopper and conversations also continue to grow at dealers are now proactively seeking these digital tools.
The number of web site solution customers purchasing conversations or online shopper increased substantially on a year over year basis.
With their PD up 4% quarter over quarter adjusted for second quarter and voice credit. It is increasingly clear that our diversified suite of products is offering meaningful value to our dealer customers and contributes additional economic value to cars.
We continue to deliver strong traffic growth with 10% year over year increase in both average monthly visits and unique visitors.
We also delivered continued robust lead growth despite reduced marketing on a year over year basis, the percentage of our traffic generated organically in the third quarter increased by five percentage points year over year to 76% demonstrating the strength of our brands, which consistently ranks number one amongst our competitive set in Miller brownstone.
The brand awareness scores.
Editorial content also continues to be an important driver of our high value organic traffic and a key differentiator and delivering a robust user experience for car shoppers and sellers.
Our original content strategy is when he favour with dealers as competitors just bid up search volume and sell it back to the dealer where cars dot com has unique audience that can't be replicated in its incremental to the dealers bottom line. This.
This is most evident in our high concentration of organic traffic and our overall marketing efficiency, which is a sustainable advantage.
That said, we judiciously increased our investment in marketing relative to Q2, but the spending remained well below normalized levels due to our strong organic traffic momentum.
We will continue to make deliberate marketing investments focused on high quality channels to ensure our dealers finished the year with strong results.
The retail sales environment shows signs of continuing strength in both the new and used car markets, while new car sales for the first nine months of the year were down 19% compared to the prior year period.
For new car sales were up 6% and Saar estimates for 2020 or inching back up to the 16 plus million level, we saw at the beginning of the year.
Used car demand also remains robust supporting double digit year over year pricing growth.
New and used car demand is being driven by buyers choosing car ownership over mass transit and ride sharing services and improved credit conditions that may car payments more affordable.
Our roughly 50 50 inventory split between new and used cars on our marketplace.
Provides us with the resiliency and the ability to meet the demands of all shoppers and support our dealers and Oems with reliable value that's vital to their success.
Dealers are leveraging our digital solutions, allowing them to operate on reduced staffing levels and are reporting record profits.
Business model continues to perform well in this environment with dealer customers, becoming more debt and operating virtually.
Our high quality largely organic traffic strong lead conversion and expanding suite of high ROI solutions at driven all time high retention rates in.
In the Q3 increase in net new marketplace and solution customers, it's a resumption of our pre coded moment.
Growth will come from both air PD expansion, if you look to adopt more of our solutions and continued improvement in dealer customers.
This quarter Air PD rebounded back to pre co good levels and grew slightly on a year over year basis.
Our differentiated strategy to bring digital solutions to our dealer base through a robust sales platform is best demonstrated by the success of fuel.
Fuel is a unique high ROI targeted video advertising solution, which generates higher returns than the expensive dated and wasteful linear TV on which the auto industry spends approximately 10 billion a year since.
Since its launch early this year jualin prove to be cars fastest growing new product introduction and is selling out in certain geographies.
Fuel takes the high quality pure in market audience generated from cars that comp and allows dealers to run targeted video messages via OTN, social media platforms, providing alternative to broadcast TV that is far less expensive far more effective and far more efficient.
Continued fuel sales growth and the penetration to dealers and Oems positively contributes to revenue and profitability with their PD rates that are substantially higher than the cars overall average revenue per dealer taken.
Take a listen to one of our large franchise dealer customers has to say about the impact fuel has had on his market share in his own backyard.
By taking that exclusive cars that come in market shopping audience overlaid now with a video message. What was said today that you saw in a really great way to measure the success from a metrics stand.
Point, the digital standpoint would be branded search terms, we said hey, we actually getting more people talking about waltzer more importantly, because you probably have dealers on the line, they're gone blah blah blah I don't want to hear about these metrics did you sell more cars, yes, we not only sold more cars, but more importantly, we dominated in markets.
Here when we got our first two full months into steel in market video, we saw market share increase of the first month at 4.52%. So in like 5% market share gain and then the next month I hope everybody sitting down there is like 6.89% market share gain year over year.
Hi, it's 5% and then 7% I mean these are meaningful numbers.
Turning to our OEM business, we are beginning to see not just stability, but also some green shoots while national revenue was down 12% on a year over year basis, we saw substantial sequential improvement with revenue up 11% over Q2.
We saw signs of strength towards the end of the quarter in OEM advertising and see further opportunities with auto Jason advertisers to capitalize on our growing traffic trends.
And then post cobot world as OEM production normalizes, the new products are launched we believe Oems will once again be drawn to advertise to our huge largely organic in market audience.
While Sony will provide more detail on other operating results for the quarter I do I caught the meaningful improvement in our profitability and adjusted EBITDA on a year over year basis.
We did this despite tough operating conditions by maintaining very strict cost discipline and remain focused on the bottom line driving value to our users and customers.
Our strong results in the third quarter, our direct consequence of actions, we have taken to position ourselves for differentiated and sustainable growth.
With the strongest brand in the industry, the highest value organic traffic and the demonstrated success of our solution strategy and resilient business model at us and we believe that we are well positioned on build on our momentum and delivering strong results for our customers and our shareholders.
Before I turn the call over to Sonya I want to provide an update on the actions, we have taken and diversity equity and inclusion in the quarter.
Fortunately conspicuous examples of inequality, social and racial injustice continue but the cars team remains committed to taking sustainable action in our company our industry and in our community.
This quarter, we began our partnership with the National Association of minority automobile dealers. This.
This is an important partnership where we can advantage minority owned dealers with technologies and tools to better drive business results and we're partnered with Facebook to help enable these dealers with compelling co op programs to drive digital sales.
As we told you last quarter. This truly is a great opportunity to bring more diversity to the industry.
There are only 1200 43 minority owned dealers in the us.
To help accelerate faster growth in this small segment of dealers with our technology expertise and the initial response has been extremely promising.
At this time I'd like to turn the call over to Sonya to discuss our financial results for the quarter Sonya.
Thank you Alex revenue for the third quarter of 2020 with $144.4 million compared to $152.1 million in the prior year period. The decrease was primarily due to a 12% decline in national advertising revenue and dealer cancellations in the second quarter of 2020.
Largely attributable to Covance and partially offset by continued growth in solutions revenue compared with the prior year period.
Turning to expenses.
Total operating expenses were $125.3 million or 9% lower than the prior year period, if you exclude the $461.5 million goodwill and intangible asset impairment charge.
The decrease in total operating expenses compared to the prior year period is primarily due to reduced marketing spend and the station our affiliate revenue share obligation in the second quarter.
GAAP net loss for the third quarter of 2020, the $12.3 million or 18 cents per diluted share compared to a net loss of $426.2 million.
$6.38 per diluted share in the third quarter of 2019.
The net loss is primarily due to the $30.9 million previously disclosed non cash charge for the correction of an error related to the calculation of the key one valuation allowance.
The valuation allowance for income taxes have been established in connection with an impairment recorded during the three months ended March 31st 2020.
Adjusted net income for the third quarter of 2020 improved to $34.6 million or 50 cents per diluted share compared to $21.3 million or 32 cents per diluted share in the third quarter of 2019.
Adjusted EBITDA for the third quarter of 2020 with $49 million or 34% of revenue an increase of 7% compared to $45.9 million or 30% of revenue last year.
Increase in adjusted EBITDA is primarily due to reduce expenses largely attributable to make prudent level of marketing spend in a period of strong organic traffic route and the elimination of our affiliate mature obligations in the second quarter.
We expect fourth quarter adjusted EBITDA to be higher on a year over year basis as we continue to benefit from the end of Rev share payments. We now expect adjusted EBITDA margin in Q4 in the 28% to 31% range as we continue to invest in marketing and talent in order to drive long term growth.
For the third quarter average monthly unique visitors and total traffic grew 10% year over year again, driven by continued efficiency an appeal consumer demand for vehicles and continued adoption of online car shopping organic traffic as a percentage of total traffic grew to 76.
Percent compared to 71% in the prior year period.
We had 18130 dealer customers as of September Thirtyth 2020, an increase of 1% compared to 18033 as of June Thirtyth 2020.
This increase is primarily due to an all time high retention rate coupled with new sales.
Of note, we grew market place dealer customers in the period. We also continue to grow West Bank customer and currently have over 4000 up 33% compared to the prior year period.
Hey, RPD grew to 2183 in the third quarter up 2020, snapping back in the second quarter and year over year.
Net cash provided by operating activities for the nine month period, ending September Thirtyth, 2020, with $96.9 million up 20% compared to $80.6 million in the prior year period three.
Free cash flow for the nine month period, ending September Thirtyth, 2020, with $84.3 million up 29% compared with the $65.1 million in the prior year period.
Our strong free cash flow generation enabled us to pay down $48 million of debt in the third quarter, bringing that leverage down to 3.0 times.
As Alex mentioned.
We completed a strategic refinancing of our debt taking advantage of favorable market conditions. Our new structure includes a 430 million dollar credit facility composed of a 200 million dollar term loan and a $230 million Undrawn revolver we.
We also raised $400 million in senior unsecured notes, which have a coupon of 6.38.
The refinancing extends our maturity date from 2022 to 2025 on the bank debt until 2028 on the new bonds.
From a capital allocation perspective, we remain committed to deleveraging as evidenced by the sequential step down in our net leverage ratio from 4.1 times in the second quarter to 3.8 times in the third quarter. Our goal is to bring that leverage down inside of three and a half times, while continuing to invest in the business.
While we expect to grow our suite of solutions through internal innovation opportunistic tuck in acquisition could provide compelling complement to our portfolio.
In summary, our strong topline trend, coupled with focused execution and cost discipline drove year over year growth in adjusted EBITDA and free cash flow Inc.
Increased investments in the business together with new digital solution sales will position us to exit the year with a strengthened competitive and financial position.
In addition, the recapitalization of our balance sheet improves our flexibility to invest in and grow our business and.
And now I'd like to turn the call back to Alex.
Thank you Sonia as I said at the top of the call I'm pleased with our Q3 results and the momentum we demonstrated on dealer count traffic growth and growth in air PD.
We continue to build on that strength with dealer growth in October as well.
Despite the uncertain pandemic environment, we are exiting 2020 with strengthen our brands appreciation of our differentiated business strategy and the rapid adoption of our digital solutions, all of which positions us for a strong start to 2021.
With that we'll now open the call for today operator.
At this time as a reminder, please press star then the number one on your telephone keypad, if you would like to queue up for questions.
Your first question comes from the line of Tom White from D.A. Davidson. Your line is open.
Great. Good morning, guys. Thanks for taking my questions two if I could.
You talked about how the pandemic is accelerating.
The trend of Digitization.
The automotive retail space.
You guys clearly had some kind of fore sight. There when you when you bought dealer inspire but kind of curious to hear if you can give us any color on how you're thinking about the product roadmap.
Beer is it is it kind of just reinforcing the core competencies.
Are you focused on.
Maybe more on the marketing side of things given the success it seems like.
Fuel.
Maybe the other parts of the dealer.
Operations, where you can do.
With that value and innovate and then just a quick follow up on track.
Traffic to lead conversion it sounds like that.
He needs to improve.
How sort of sustainable that is that benefiting from the pandemic.
We'll just kind of not going into showrooms until maybe later on in the process or are there things that you guys are doing better.
That's impacting that and sustain those improvement thanks.
Sure Tom Thanks.
First of all I think the consumer trend towards private vehicle ownership is going to be the last thing.
Impact on uncoated, our consumer surveys consistently show that users don't feel safe getting back on mass transit or ride sharing services and our and are upgrading their personal or private fleet. So we think that vehicle sales is going to have a prolonged strengthening as a result of the pandemic on the dealer side.
A grand experiment was run during Cove, it and that was dealers cutting back all of their marketing budgets.
But yet seeing these virtual marketplaces accelerate growth.
And for dealers, we are realizing that they were generating the same number of sales if not higher.
On a much more radically reduced marketing and advertising investment and dealers are realizing they're not going to buy around the marketplace experience consumers are going to do heavy research prior to purchase and marketplaces are the best place to do that.
Because of the market wide and content view.
I think on the.
Dealer behavior.
Yeah.
David has been dealers now proactively contacting us about our digital solutions. So you noted dealer inspire who we've been growing the business on a steady basis, but there has been an acceleration there because of co bid as dealers are wanting to upgrade their website and will use more technology. In fact, we launched more web sites.
In the last quarter than we had in any prior and so dealers are realizing that these digital store fronts are their primary channel.
And so we are seeing a nice pickup on that business as well that we see a sustained I think the final point I'd say is that.
Ultimately the businesses is performing extremely well virtually the same.
Traffic to lead conversion, both its been organic and inorganic.
Well that certainly shutting down showrooms is.
Driving people to communicate directly through these channels, which is giving our value a lot more visibility, but at the same time, we're continuing to make tremendous product improvements that are also helping us get further credit and visibility in the eyes of dealerships. So yes, I think lots of sustained advantages because of cobot.
Great. Thank you guys.
Your next question comes from the line of Gary Prestopino from Barrington Research. Your line is open.
I'm sorry, I had my thing on mute can you can you hear me now yes, we can Gary go ahead, sorry, good morning, everyone, sorry, Havent been on mute Hey, when you talk about a.
Back to historical or.
Level of operating expenses.
In the in going into Q4, I mean could you give us maybe a range of what that may be.
Yes sure.
For the question. This is down year on EPS on your area, where were really looking to invest in in Q4 are in marketing and then really talent around our solution strategy completing beta entity and broadly speaking I think when you think about marketing in particular.
What we expect in Q4 to have marketing spend 50.
Fit with what you might have seen from us and in Q1.
Now bear in mind that that that number the sales and marketing line. There the sales component to that when you look year over year at the sales and marketing line.
You know it may appear to be flattish, but it's a little bit of a mix shift could some permanent savings in sales.
And some potential additional investment in marketing I mean bear in mind right. It's a highly competitive environment and we evaluate marketing on a regular basis and so to the extent there are opportunities to gain additional efficiency. There, we absolutely will and as Alex mentioned, we think we have a lot of.
Bill can benefit with the strength of our branding contents, but that might be helpful color.
Yes that does help and are you, giving the dealer inspire revenues on a quarterly basis anymore.
You know.
We are expecting to continue to see that business.
On growth.
And frankly, you know that that is that is one of the growth engines of the business I point out that while it come.
Doug come with slightly lower margin. So it does impact margins a little bit as we continue to grow that business. What we believe that longer term. It is part of our diversified strategy and is a very sticky business that will continue to provide value to dealers and frankly to us as we continue to build that relationship there.
Okay.
Finally, I want to just ask a couple of questions on these digital solutions would seem to be accelerating but the.
The web sites, you talked about the number of placements there.
As far as.
Things like fuel online shopper conversations those are coming off fairly low basis could you maybe just share how many deal.
Dealers have adopted each of these solutions.
Yes, I mean on fuel, which just started this year, we're talking just under 200 dealers, but significantly higher average revenue per dealer, Gary so very accretive to the business.
And again, we're not having to add more sales extends to bring these new solutions to market, we're running them through our existing platform.
Rising online shopper and conversations got it a lot faster acceleration during the cobot pandemic.
So you are talking about a thousand plus dealers using those solutions.
Pardon, partially bundled with the website offering.
No. That's that's that's very good traction I guess the question I have for you is the Salix because again, they are not making more dealerships and going out and trying to trying to gain market share among dealerships is.
Very difficult thing to do but if you take your average revenue per dealer just based on your subscription.
Your your model and then what would be the lift if a dealership took a web site fuel online shopper in conversation, but just trying to get an idea of how revenue accretive or these solutions to your you know to to a dealership to your average revenue per dealer was just the deal that took your card cars dot com.
Listing offerings.
Yeah. So if you if you think about the ERP de of some of our DIY products. You know the web site on average is going to bring you call. It in the neighborhood of $1100 of incremental ERP and with the add ons that we have between conversations an online shopper you could easily double that that amount.
If you're thinking about in existing dealer substantive opportunity to improve the RPD through just the incremental website and upsells sales fuel as Alex mentioned has an ERP D. At a minimum that is multiples higher than our average monthly RPD. That's that's a product that's actually sold.
On a total basis, so our PD can flex up substantially depending on the number.
The individual dealers interested in.
Right. So it seems to me that that your your your marketing for US your sales reps, there's got to be to cross sell lease these solutions.
It is and its coming through in the numbers Gary I mean, if you look at the sequential improvement in air TV. The strategy is working we're getting incremental take rate and dealers wanting to spend more money with us.
To garner a higher share of opportunities in sales and so we're seeing a nice steady acceleration in our ERP the growth.
That's great. Thank you so much.
Your next question comes from the line of Daniel Powell from Goldman Sachs. Your line is open.
Great. Thanks, so much for taking the question first question around the net adds that you saw in the quarter. Just curious if you could help us kind of break down if there was sort of even distribution across the marketplace and.
Solutions not in that number.
How that compares to the net growth that you're seeing so far in October and then a follow up.
We grew both marketplace and solutions only customers in the quarter. So we were pleased to see both businesses step up in terms of dealer count the net dealer additions skewed more towards franchise dealers than independent we saw bigger gains in our franchise dealer mix.
Got it and then secondly, as it relates to the guidance on margin for Q4.
I realize there is reinvestment around around sales and marketing, but just curious how much of the sort of negative mix shift to some of the solution is also weighing on.
The margin expectations for Fourq. Thanks.
Yes, I know thats, certainly going to be a contributor here and the solutions business does require upfront investment in terms of.
The launch launch of web site before we can really start to start recognizing the revenue associated with that as that business scales.
On.
Well, we'll expect to see an improvement improvement there, but for the for the near term, we're really excited about the growth.
And the long term health of the business, that's going to drive but it does it does have it does flow through to March.
Yeah.
Great. Thank you.
Your next question comes from the line all that we can grow from B. Riley Securities. Your line is open.
Great. Thanks for taking my questions guys.
I want to start on the national advertising business.
You kind of hinted at sequential.
The improvement, but just kind of wanted to nail that down with improving inventory and Oems re re upping their AD budget for Q4 would you expect to national business to be up sequentially.
International business is a little bit spottier and harder to predict because Oems come in and out the business does.
Lead time, a little bit more to model launches with Oems, So as Oems launch new mixer models.
The period, we can see an increase in overall spending and we saw some nice sequential month over month pickup in national for September and heading into October. So we feel good about the signals, we're getting and then a big percentage that business also is bought on an upfront basis for next year, where manufacturers are committing to us.
Set times of the year that they want to promote new products.
And we're seeing a very healthy.
Discussion happening there for 2021 as well so we feel good about the stability of the business and then hopefully moving it towards growth.
Got it and then.
Slide deck, you put out some.
Fairly significant double digit growth drivers to kind of highlight the shift to digital.
As we layer in kind of all these incremental revenue drivers on top of a fairly stable marketplaces business.
When would you guys kind of expect to see year over year revenue growth inflection.
When we started the year, we were on a path for growth in the second half of this year.
Until co visit and obviously that delayed all of our plans temporarily but if you look at the trend on what we have been doing we grew our dealer count in Q4 of last year. We grew it again in Q1, even with some of the pandemic starting in the first quarter and then to see the business snapped back both from our discounts and now.
Accelerated solutions growth we.
We think we are back on track obviously.
Obviously, the coated period delayed our achievement of that growth objective in the second half of this year and will push us closer towards 2021, we're just not giving revenue guidance. This time, because with the pandemic still being so unsure it makes predicting that revenue trends much more difficult, yes, the only other thing maybe.
Add there is that you know in our subscription model you do need to see that revenue build over time, so to Alex's point the improvement in a RPD growth in dealer count in three of the last four quarters right in one of those with the cobot quarter.
Oh, 0.22, really strong strong underlying strength.
Got it.
Then last question.
You've seen kind.
Kind of the secular shift to online and consumers obviously.
Browsing a lot more on that uses traffic for sure, especially on an organic basis, but.
Do you guys get a sense that you you're continuing to see traffic share gain I know in prior quarters, you kind of highlighted that as well, but noticed it was missing from the commentary.
No maybe quantify or qualitatively speak about perhaps a share gains you're seeing across just the net traffic growth from your peers.
Yes, the share gains have been very vivid throughout the past year and change we've grown, particularly when you look at just FCO growth theres that nobody that's taken more market share in terms of organic traffic, which that traffic has incredible conversion and is at the highest quality. So.
Set aside the fact that its coming to us three and inorganic capacity, but it's converting extremely well and so the right mix of traffic has been in our favor now for a year and we hope to sustain that when we launch our new beta platform. Early next year. So that remains where we're obsessed is continuing to generate high quality.
Content that lends a disproportionate share of organic traffic I think the larger traffic picture is somewhat hard to predict.
I know there are lesser competitors that don't have the diversified strategy or differentiation in their business and I think they will have a hard time sustaining growth next year, particularly vehicle sales start to fall a bit theres going to be more intense competition for a lower.
Volume of sales.
And because we have a differentiated strategy. We just think we're really well positioned to take more share from others, who say basically rely on search engine marketing arbitrage to generate value. We don't have that problem with the majority of our traffic coming to us organically or directly we're able to sustain our revenues and our customer relationships based.
On our own merits as opposed to having to drive up spending did.
To generate volume and so I think thats, that's one of the material advantages that will set us up well for 2021.
Great. Thanks for taking my question guys.
Your next question comes from Milan, Mick Jones from Citigroup. Your line is open.
Great. Thank you for taking the questions I guess, just first on the skews traffic share gain.
You talk about I guess, the lead conversion to cars.
And then the conversion at the dealership to actually selling a car and I guess, how how is.
How do you bridge kind of the traffic volume again kind of the supply constraints you've heard of.
In the industry and how are those conversations coming up in terms of a RPD. When you are talking to dealers. Thank you.
Sure Nick will first of all the lead conversion improvements have been substantial and again I'll point to the high concentration of organic traffic. So.
So we're capturing a natural spring if you will of car buyers, who are using the platform and contacting dealers directly coming in through organic channels and so we're seeing are a value delivery incur.
The increase substantially and then keep in mind with dealer showrooms closed for huge part of the country. All of that activity that was physical traffic has now shifted to digital conversion as well so dealers are getting almost a two for.
Lift in terms of our traffic value and visibility I think the third thing is dealers have cut back a lot of their direct spending.
Most notably on Google and so they're able to look at our volume our converts and attribute more of those sales to our platform versus say last click attribution or attributing sales to their own website, because they lost sight of where that traffic source originated from and so I just think dealers are understanding our value.
You better today than ever before you come through in our our record retention rates.
Lowest cancellation rates, we've ever seen in the business.
And now you are seeing some dealerships come back because it's certainly a lot.
Deeper to advertise on a marketplace and to try to drive all the traffic directly to the store and so those things have really come through in our value delivery and on the traffic share gain I.
I mean, we have a differentiated strategy were laying down meaningful lines of new product revenue or whether that's through dealer inspire our fuel business.
And generating that revenue allows us to reinvest back into the business and the brand on a more sustainable way. So I think we're really well positioned in the in the marketing War chest Department. So to speak and are really pleased with the organic trends and how we're generating our value basically our competition.
Great. Thank you.
Your next question comes from a line of Steve Dyer from Craig Hallum. Your line is open.
Thanks, most might have been answered at this point, but Tom I, just want to make sure I have the math on GM correct. So.
My math is.
Just under 200, or so you Im sorry, just launched during Q3, which to sort of get to the.
The about half that you talked about that would imply even north of 500 that need to be launched in Q4, which.
Seems like a steep ramp is going to rise in assuming that that's doable based on where we are in the quarter.
Yeah. So let me let me clarify a little bit you know we had we had come out with just over 800.
Incremental GM website, we've launched over 200 of those.
And we expect to be at kind of the halfway Mark bye.
By the by the end of the year, obviously slight delays related to cobot during Q2, but we're plowing ahead there with.
Good traction.
Okay.
And then just as it relates I guess to to Q4 revenue guidance here you don't seem to.
Understandably I guess to some degree, but you don't want to give revenue guidance or you know dealers men that have seen the churns, but there seems to have a lot of momentum we're halfway through the quarter.
Subscription business, so I guess just.
Directionally would you anticipate being up recently in Q3.
We didn't give any color there would be great.
Yes, you know me I had I mean.
Really excited to have ended Q3 up on dealer count I think importantly, being that dealer count improvement on both the marketplace as well as the solution side of the business DIY it back to be a nice nice.
Likely to start Q4, and as Alex mentioned, we had strong October from a dealer count perspective.
On the fly has continued to grow on any softened good traction in the national business. When you look sequentially up performance from Q2 to Q3. So a lot of really positive sign when you look at the last couple of months of performance.
Got it and then just the sort of the dearth of inventory are you see or do you think that theres still in negative impact to you guys. Just because a lot of dealers don't have anything to sell through so not or enough to sell so certainly not a lot of reason to go out and spend significantly whether that's national or on the individual doable.
Level.
I think.
Keeping the industry turn rate going is something that everybody's trying to to contribute towards we've seen increased demand from dealers to buy.
Trade in products, so that they want to source vehicles directly through our marketplace, we have hired.
Higher concentration of private sellers listing their car for sales and then most of our competitors. So dealers are talking about buying those opportunities and getting access to that inventory. So thats an opportunity I think the second thing is we're seeing just record dealer profitability. So dealers aren't in a typical Q4 mine.
Set which is about cutting back to hit a year end profit profit target they've been able to hold or retail pricing.
No and generate extraordinarily high profits because they're not spending to the degree that have in the past, but there are also times of these marketplaces are rich sources of opportunities and and certainly are very affordable to spend a few thousand dollars to list on a marketplace.
So even with the inventory shortages there is a battle for market share out there and we're a fertile ground for it.
Your next question comes from the line of Doug Arthur from Huber. Your line is open.
Yes, Thanks, just on the RPD strength, Alex and you sort of touched on this in your remarks, but is there a way to sort of.
Ballpark the contribution from new services as opposed to traditional listing services in terms of.
Both the absolute level.
And the growth of that of that number.
Sure I'll point to just the RPD growth is mostly driven by product mix and and and franchise dealer mix. So we are getting more franchise dealers subscribing not only to our marketplace, but also to our solutions platforms and so you are getting.
Two two mix shifts happening there in our air PD, which is leading to a sequential quarter growth as well as we saw that continue into indirect.
Into October and we were pleased to also grow our dealer count in October and that followed that same trend.
Yes, just to add there might be might be helpful. If you will come up a number you know we ended with about 4000.
Web customers in Q3, and you know if you if you think about DIY. The business. He is only been growing on the customer side, we did see kind of a return to growth on the top line as well in the in the high teens. So what do you think about the revenue we're generating there just wanted to make sure you had that piece of information.
And.
And I guess, just as a follow up to mix I mean are you still seeing the small independent.
Dealers struggle.
As mentioned by some of your competitors and are some of them still churned off at this point.
The because they just don't have that they can't get inventory. They don't have marketing budget or or is that looking a little bit better going into the fourth quarter. I think we've always skewed towards the larger independent dealers as opposed to the longtail smallest independent.
Hurts should be the probably the best example of losing.
Smaller dealerships because hurts as I think like almost a 100 locations with very few.
Few cars and some declaring bankruptcy that.
That will hurt us on dealer count, but but not very much on revenue right because hertz stores had very few pieces of inventory per location.
So no. Besides that one example, we're seeing a healthy independent dealer base driven by the strength in used cars and retail pricing.
Great. Thank you.
Once again, if you would like to ask a question. Please press Star then the number one on your telephone keypad. Your next question comes from a line of more than four phone from GE. Your line is open.
Great. Thanks for taking my questions.
This kind of build on that last question. So we are still down you know I guess 800 dealers.
On a net basis from last quarter just curious.
You know how are those conversations going in terms of winning some of those dealers back what do you feel is holding them back now that the environment is a lot better than I think we would have guessed no. A couple of months ago, and then and then I have a follow up.
Yes, I mean, the conversations are actually doing quite well in fact, one of the big shifts that's happened in the past all at 120 days is the number of inbound dealer inquiries, we get we used to be 100% outbound sales focused.
And again part of the Cove. It responses now, we're actually getting dealers, calling us directly about engaging in so I would I would signal that as a real shift in dealer awareness on what's working out there and.
This is a small community dealerships talk they actually understand value really well and dealers are starting to realize that we are much better than some of the competitive services, which are just surcharge Raj.
Offering offerings, where we have high organic traffic concentration that dealers can't buy.
Elsewhere, and so thats, leading to I think a very healthy discussion about this.
Visibility of our value visa the other services what was your second question there.
It was on fuel.
I know, it's early days, but.
Looks like is doing very well just curious if you're already able to kind of.
Populated and compare how efficient it is say from a cost per lead or cost per sale basis.
Very difficult to even track that for like traditional media, but how does cost per lead for field compared to perhaps other forms of digital marketing or even a lead through the marketplace. Thanks, yes.
Yes, we wanted to feature. The example on the call of how the dealership is looking at their market share overall pre and post fuel and.
They shared some pretty amazing results in terms of how they saw a material share shifting in those geographic markets and that's an important distinction for fuel because we sell it on a geographic exclusivity dealers to actually benchmark their market share down to the ZIP code level.
And weve seen enormous.
Renewal rates already from the dealers, who started with us in fuel in Q1.
And largely not seen much if any attrition yet because dealers are able to see notable share shifts and their overall market share as measured by retail sales and its video messaging. So we're not demanding consumers fill out forms and we are very upfront about that with dealers is that look you're tapping into the car.
Dot com marketplace audience I'd.
And by doing that you're able to message with frequency about why buy from your dealership viz, a viz someone else's and so.
This is going to be a smaller segment of dealers call. It 2000 dealerships, who actually know digital works and won't be obsessive about.
Digital Capex, but more will trust that this will shift market share in their favor and that's why we're commanding.
Materially high higher ERP and average fuel subscription could be anywhere from eight to $10000 a month for geographic zone and dealerships are in balking at it because they know how much of a share point would cost them to generate on their own.
Thats terrific. Thanks, Alex appreciate it.
Thank you.
Your next question comes from the line of Tom White from D.A. Davidson. Your line is open.
Great guys. Thanks for letting me back in the queue here.
Alex you mentioned that a couple of times this dynamic where.
Dealers, maybe during kind of the height of the pandemic.
A lot of their marketing areas kind of direct marketing in areas like Google.
And then we're able to replace that traffic.
Via cars Dot Com and I think you said sort of EPS at a fraction of the cost and I guess I'm curious whether that dynamic is has you rethinking at all.
How are you thinking about unit pricing in the in the core listings business.
It seems like a lot of the growth you're kind of forecasting in revenues for the for the future come from new product adoption, but.
Is it possible that you guys might be able to kind of find or extract some some pricing power.
What's happened here recently.
Thanks, Tom well certainly the restoring of our our rate strategy post pandemic shows a lot of durability in our pricing Greg Weaver.
It looks the restore after the cobot discounts go back to full pricing relatively quickly and then we saw dealers increasing take rate of new solution and so the fact that we're growing our dealer count and you're also seeing sequential period improvement in RPD shows that we're not having to discount to generate volume.
We're holding our rates and we're getting more product sell through at the same time, while we're growing dealerships and that's that's going to produce a very healthy trend going into 2021.
I think in terms of the marketing experiment dealerships cutback heavily across all their advertising and marketing but saw these these marketplaces.
Generate much more volume during the call that period and also beyond and so I think they have a greater appreciation that this is traffic that they have to compete for and keep in mind, Tom we see very clearly through dealer inspire basically got 4000 dealers, where I could look at competitive traffic and what is converting for d.
Dealers and we see very did lead number one the cars that come generates two to three times as much traffic into the dealers website versus other marketplaces.
And number two what we see is our traffic is converting it almost four times the rate of all the dealers other web site traffic sources combined.
So we see both our value in volume and in quality through the dealers own website analytics and so I think our team feels very front foot with our pricing and our value.
Great. Thank you.
Your next question comes from the line of Dan Kurnos from a benchmark company. Your line is open.
Great. Thanks, good morning.
Hey, I wanted to go back to something you said about.
[noise], creating data the source of inventory on on trade and in the marketplace I know that theres been a lot of talk in the industry about trying to figure that out obviously king being the way. They are now is probably not the way things will be 12 months from now where he can get it in years.
Car basically sells and like 24 hours once it hits a lot, but just to extend that you have an opportunity to.
To expand that get better they thought process I'd love to hear that and then I want to ask you some more questions about the traffic and leads but let's start with that.
Sure Dan I will first of all.
Even though the retail dealer network sales 44 million used cars a year as you know there is still almost 11 million cars that are sold private party peer to peer that sit outside the retail system.
And we get a very natural organic stream of those people listing their car for sale on our web site every day.
And dealerships to your point needing to acquire inventory, we see that as a new revenue opportunity. In fact, we were in beta right now with.
Pretty healthy degree of dealerships testing.
Vehicle acquisition products from private parties listing on our web site, and so dealers now or looking to us to accelerate.
The digitization of their buying strategy I'd, rather buy a car from a private seller that go to the auction and compete with 20 of my dealer friends is a common phrase we hear play back to us so.
We can be a reliable source of inventory for dealerships and so again, we're in pilot right now with that solution and expect to see more from us there.
Got it Super helpful. And then I know you're excited we're excited to talk more about it.
Lead growth in traffic growth I guess, you said continued robust lead growth off of 10% traffic growth I mean could you know this is the link grows faster or slower than the traffic growth without giving us an absolute number and then I just want to understand it it sounds like we're getting into Q4.
You know, we're not focusing on back to normalized inventory levels yet it sounds like you made is starting to lean a little bit back more into them and as is the broader peer group was the strength you had organic.
Pressing different channels. This.
Yes.
There are different ways.
Hi, Mark.
French patient you pointed out it could be here and kidney cancer as you can tell us.
I know its really to drive the lead to have any visibility, but today you can talk about that.
Tend to buy now that you are seeing with your organic traffic on do you believe it takes place.
It's been a mismatch.
It would be helpful.
Sure you broke up a little bit there, but I think I got the essence of both questions. So yes, our value delivering our lhi growth has outpaced our traffic growth and that was driven partially by the cobot elevation to all these digital channels. So we got.
A much higher growth in our lead counts in our conversion rate, which translates to dealer value I think on the traffic side keep two things in mind that we have a robust new card business as well so consumers still vacillate between new and used even up until the day, they buy and so we have a ton of.
Phenomenal new car content, so as the new and used car market shift back and forth cars Dot com is being heavily sought out for the device and then I think also just our differentiated reviews and content strategy.
Our expert editorial team is generating critical assessments of all new cars being sold today and then we've got more reviews than than any other platform out there not only for for cars, but for dealerships as well and so that content is what's helping us generate a higher degree of organic traffic concentration.
And then any of our peers and so as dealers look to do I get incremental sales from terms dot com becomes much more valuable because they know that they can't buy that traffic directly where other competitors, who just take the dealers money and bid up search and sell it back to the dealerships that's not going to net them.
The incremental sales that say tapping into organic traffic well is going to generate for the dealership and so I think our traffic strategy is starting to be rewarded which is why we had dealer growth in Q4 again in Q1 snap back dealers in Q3 and saw a dealer growth again in October this past month.
Got it Thats really helpful. Thanks, Alex.
There are no further questions I would like to thank everyone for joining me Costar come third quarter 2020 earnings call.
You may now disconnect.
Thanks.
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