Q2 2021 CDK Global Inc Earnings Call

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Q2 2021, CDK Global Inc Earnings Conference call.

At this time all participants are in a listen only mode.

The speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press Star then one on your Touchtone telephone.

And please be advised that today's conference is being recorded.

If you require any further assistance please press star zero and now.

And the conference over to your Speaker today, Julie Schlueter director of Investor Relations. Please go ahead.

Thank you and good afternoon I'd like to welcome you to our second quarter of fiscal 'twenty one earnings call.

Joining me on today's call our CEO Brian percentage.

Chief operating officer, Joe Couches, and our new CFO Erik Garen.

Following their prepared remarks, we'll be taking questions.

Our earnings press release was issued after the close of the market today and is posted on our Investor Relations website at investors that CDK global Dot Com, where this call is being simultaneously webcast.

In addition, our website also includes an updated ex so schedule of supplemental financial information and a copy of our results presentation that we will be referencing during our prepared remarks.

Throughout today's call, we will be discussing our continuing operations only which do not include our international business.

And when we announced sale on November 30th 2020, the International business results are now presented as discontinued operations.

And we will no longer be reporting segments information.

Prior period amounts have been reclassified accordingly.

Within the press release, we have provided the last five quarters of historical financial data on a revised continuing operations only basis.

Unless otherwise noted all references to financial amounts during our call are on a non-GAAP adjusted basis reckon.

Reconciliations of adjusted amounts to the most directly comparable GAAP amounts are included in this afternoon's press release.

Please also note that all growth percentages refer to the year over year change for that period unless otherwise specified.

I would like to remind everyone that remarks made during this call.

And they contain forward looking statements.

These statements involve risks and uncertainties as further detailed in our filings with the SEC, which could cause actual results to differ materially from those mentioned in the forward looking statements.

With that it is my pleasure to turn the call over to Brian.

Thank you Julie and thank.

Thanks to everyone for joining us today.

So before I jump into the quarter and my thoughts around the company more broadly.

I'd like to take a moment and welcome a new member of the management team.

Very good.

Our new CFO.

And I'm joined our team and mid January and brings the perfect mix and financial expertise and business acumen that we were looking for and our CFO.

He has helped improve the finance operations of large complex organizations with hundreds of people.

And through numerous acquisitions.

He's got the right skill set and experience to bring together, our internal processes and systems to get them running like a well oiled machine.

So we can move quicker and seamlessly on our growth journey.

And it's a great fit with our values and culture and I'm excited to welcome him to the team.

Now, let's move onto per quarter.

We had a really exciting quarter as we continue to make and incredible progress on our journey for accelerated growth here at CDK.

As you know to the top metrics, we focus on are a number of sites and revenue per site.

Indicating the health of our subscription base and.

And revenue per site, demonstrating our software is increasing value to dealers.

This quarter, we had the highest level ever and the history of the company with both of these key metrics.

We've developed a very healthy subscription base now with all the work we've done around being customer centric.

And I'm happy to report that we just achieved our highest ever.

Net promoter score as well.

We've also built a great leadership team with a wealth of new talent on top of our strong foundational team.

And that has come together to drive CDK to the next level.

So now I'll hit on some of the key results for the quarter and let Eric dive deeper until all of the details.

And then I'd like to spend my time sharing with you the vision for the company and the progress we're making on our strategic initiatives.

Especially around some of the great technologies and since we've recently made.

During the second quarter, we had a revenue of $406 million and.

And that of 156 billion.

And EPS of <unk> 59.

And our strong cash flow generation.

When I take a step back and look at the performance drivers of the quarter the underlying business remains very healthy.

The COVID-19 certainly accelerated throughout the quarter and into January and.

And as you can see from the data and the charts we provided.

We're seeing some of the uncertainty reflected and certain areas of our operations.

I'll, let Eric provide more details in his remarks.

However, all and all we continue to feel good about the underlying business with auto site growth up eight quarters in a row.

And adjacency sites at the highest level and the Companys history.

Given the good visibility into our free cash flow and our confidence and the underlying health of the business.

We've continued to invest as part of our growth strategy.

And you'll see from our guidance that we expect stronger second half growth.

Our investments over the past two years are really showing progress and.

We are well positioned to accelerate bringing solutions and insights and value to our dealers Oems and developers.

As a reminder, our strategy is a multi pronged approach with initiatives to modernize our current products.

To develop new solutions.

Free utilized.

We utilized data insights and integration.

And finally fourth expand and connect the broader ecosystem.

And I'm going to talk about the progress of each of these and share some thoughts on our vision for the future.

And when we think about modernizing our current products.

We're looking at one having a frictionless user interface that is straightforward user friendly and more.

Mobile ready.

With a simple upgrade.

To be able to leverage the public cloud with the ability to auto scale and be available anywhere.

And three using flexible architecture to build faster and utilize API and plug and acts.

So put it apps are used to quickly add more functionality or new features and existing software.

And for example, we just announced the launch of our new rewards plug enough on per tell us and.

And this is the first directly integrated manufacturer loyalty program and any Dms.

And our last call we mentioned our creation of this plug and all that.

He used to instantly access customer rewards points and apply them for payment and the dealership.

Which was seamlessly and into the Dms.

This new feature has all the modern user interfaces and easy to use and very simple to install.

And we're now happy to officially launch the product and have signed with a major OEM to offer this exclusively during their pilot.

This marks the first manufacturer certified plug and app available to the <unk> marketplace.

And there's going to be more to come later this year.

We're currently working on several modernization efforts, including updating the user experience and our CDK service application.

And to deliver and easy to use interactive interface for our CDK inspect solution.

Additionally, we are adding new AI and machine learning capabilities to drive new database insights leveraging our new neurons platform and per tell us.

You'll be hearing more about this as we moved into pilot.

Moving on to our new software initiatives book.

And on addressing several growing needs within the industry.

Helping dealers on their journey to provide more omni channel digital retailing experiences for the consumer.

Our strategy is the key.

Quickly become the provider of choice for digital retailing solutions.

Through a combination of best in class solutions.

Given the wide acceptance of our connected store product and the investments we've made to compile the most complete set of products needed for true digital retail.

We see a lot of opportunity here and believe we're well positioned to the industry to be the industry leader.

Our new product development is also focused on meeting the needs of Oems and consumers with new applications, such as our CDK one pay solution.

And the new rewards plug it now.

Our third initiative is around data and insights.

And one of the company's greatest assets is data and why.

To share some very important news about our new data platform neuron.

I'm really excited about the launch of our intelligence big data and analytics platform, which will be a game changer for the industry.

By combining big data, our deep domain expertise.

And data science North.

And we'll address some of the industry's biggest pain points and won't be a huge differentiator for CDK.

So let me explain.

There's a massive amount of data and it's expanding every day from Oems dealers and increasingly the cars themselves.

Unfortunately, it's not very useful and its current forward.

In order to really harness all this data.

Sensitive.

And offer actionable insights to Oems dealers and software partners.

You need a combination of force it.

Our scalable platform.

Industry domain expertise.

AI and machine learning capabilities, and and API integration platform, all done within a secure and compliant environment.

Neuron is the industry's only intelligent data platform capable do with all of this.

The first neuron platform structure to be scalable and capable of handling the volume of structured and unstructured data that's flowing through the automotive and ecosystem.

Neuro and is built to analyze billions of data transactions that flow through our products annually alongside other industry data.

Which is a lot of data, but still tiny compared to where the industry is headed.

Neurons architectures being developed to scale up to many times that amount.

Second.

CDK has extensive domain expertise and the automotive and adjacency retail and industries.

We know what information is important and what is not.

And what dealers and Oems need.

We have 40 years of experience and deep industry, and we know how to cure and good data to get them. The right data at the right time, and and the right form to help them make better decisions.

And third we've made investments to build out our data science and engineering capabilities in order to carry manage analyze and extract knowledge and insights from the data.

Four we.

We have to tell us, which can securely and seamlessly integrate the insights and data to connect everything together across the automotive ecosystem.

And finally, we're building trust and how we manage data and applying a lot of care with <unk>.

Governments of data.

To ensure that we are compliant.

Secure and maintaining data privacy.

I'm sure you can see the value and this will bring to the industry and our customers.

But what does this mean for CDK.

Well I see that is helping us and through major ways.

First.

We're using the insights and enhance our products and solutions to bring even more value to our dealers and OEM customers.

This will help the customers retention.

So and penetration as well as new customer acquisition.

Second.

Well, let others within the ecosystem and utilize the platform to build and analyzed trends and insights that can then be shared with our customers via hotel us integrations.

This will further increase the value customers get from our Dms and integration as well as generate revenue per CDK via hotels.

And third we can expand outside of the vertical to broaden the connections with non automotive particles.

Which will increase revenue potential outside our current Tam.

All of these lead to revenue opportunities for CDK and puts us at the forefront of innovation and the data and intelligence space.

Last week, we announced the acquisition of square root.

A top developer of technology for data insights and duration per auto Oems.

Well this is a smaller acquisition.

Good example of the type of M&A.

Fits with our strategy.

The acquisition brings with it technology and data analytic capabilities that will complement and accelerate our neuron platform and Michigan.

The customer base and.

And deep analytics talent.

And we'll be attitude and easy to integrate within our current business.

We're really excited about the opportunities that neurons and will bring CDK and we will be sharing more about this and some.

And our other technology innovation and <unk>.

And that you'll be hearing about this spring.

So more to come.

And then finally, our fourth initiative is about connecting the ecosystem and I'd like to share some really great uptake on per ton.

And as I mentioned on our last call with <unk>.

The growth of per tell us by looking at the number of data transaction.

With an annual goal to reach 100 million and by the end of this year.

During Q2, we generated over $18 million transaction.

Which was a 33% increase over last quarter, and we're well are weighted towards making our $100 million goal for fiscal 'twenty one.

We added several new API and.

ISP partners.

Our repair order API is really suddenly take off.

Our year end call last August we said repair order had over 30 and small dealers generating over 100000 transactions.

We now have over 350 dealers installed generating over three and a half million transactions.

This is really exciting to watch.

And then I'll wrap up by providing an update on our international sales and also talk to you about our capital allocation strategy.

We're making good progress on finalizing the international sales and are all scheduled to close the transaction during our fiscal third quarter.

We decided to sell the international business for several reasons.

And I'm, a strong believer that companies can't be graded every quarter and you really have to pick and choose where we're going to focus on.

We've been doing that with products and so we did the same thing with our portfolio of businesses.

We looked at the fact that the international OEM and dealership business models and workflows are very different than in North America.

Also the architecture and language of the CDK International technology is unique and proprietary.

Such that all the work, we're doing and North America to re imagine our products and technology wasn't going to apply to that business.

When comparing the attractiveness of both businesses, we determined there's just too much opportunity and North America.

We ran a process that had many interested parties the attractive valuations and we.

And we're very pleased to be able to announce the sale in November and are now focused on the clothing and our capital allocation strategy for the proceeds.

And one of the things we're going to do is to pay off some of our debt and all.

And to reduce our leverage and strengthen our balance sheet.

And this will allow for flexibility as we look at opportunities to further grow our business.

We're constantly looking at acquisitions and have a strategy to focus on great technology that can quickly integrate and be positive to the top and bottom line.

We think there are several good opportunities out there that could enhance our product core.

Or expand our tech capabilities in order to grow faster.

At this time were confident and our ability to deploy significant capital to grow the business and create value for our shareholders.

We'll run a disciplined process as we evaluate investments and continue to monitor our balance sheets over time.

Returning any excess capital.

That we can't deploy it efficiently to.

To shareholders.

I'll now turn it over to Joe for the business operations highlights of the quarter.

And Brian first let me take a moment to welcome Eric <unk>, our new CFO to the team I am thrilled to have and here, it's been great to bring somebody in who has hit the ground running and I'm really looking forward to working with you.

I also couldn't be more excited about moving full time into the COO role.

With our strategy and investments we've made over the last couple of years.

Brian highlighted I think on uniquely positioned to work with our CDK teams to deliver for our customers and accelerate our growth and I'm excited to jump right in.

Today I'll be sharing some insights about our performance and the quarter and.

In particular details around our core software business and how we're thinking about our approach to data and our progress with propel us.

I'll then talk about how we work more efficiently as a company to continue to increase profitability and.

And create capacity for investment.

One of the first steps, we took towards improving the revenue growth of our business actually started a couple of years ago. When we put so much emphasis on being customer centric and.

Brian mentioned, we achieved our highest level ever for the company and our net promoter score which measures how our customers view CDK.

This is a huge proof point that the changes we've made are meeting the evolving needs of our customers with our improved installation quality and proved tech support experience as well as improvements and our billing and ease of contracting as.

As a result of these efforts we obtained large increases and the percentage of customers, who indicated they are likely to renew and and customers, who said that PDK is making it easier for them to do business with us.

This is really great news and I'm very proud of the entire CDK team for their continued efforts to put our customers first.

And congratulations to all and we will continue to raise the bar from here.

As a reminder, the way we think about revenue opportunities as one growth within our Dms and strategic applications business too from our data strategy and neuron platform.

And three from per talents.

So now let's double click into this starting with some overall sales highlights.

Looking at our sales performance during the quarter, we delivered a solid sales quarter across the board, we sold more Dms sites and we did a year ago and continue to see strong sales and our applications.

We continue to see good demand and products that support digital retail such as connected store.

And our digital contracting solutions like E sign and signed anywhere.

Which are all helping dealers, providing seamless omni channel buying experience to their customers.

For example, and each month during the quarter more than $1 4 million documents were signed electronically using our E sign solution.

Our recreation sector had the highest sales quarter in company history with December producing a historic number of new deals and any one month.

Sales were also strong and heavy equipment, including a new networking contract 40, 70 and site dealership.

Our install team had a great quarter and continues to deliver new installs, while managing the challenges of Covid.

This quarter, we did more installs of our Dms.

CRM and service applications and during the same period last year.

Our DNS install rate for the quarter was the highest since 2015 and our service application installation volume grew over 100% from the prior year.

All of this work and sets us up well as we look forward to fiscal 2022.

Now moving to performance on site and our Dms business.

Looking at our entire portfolio of sites, which includes auto sites from both franchise and independent dealers and.

And adjacency sites from dealers and areas like recreation and heavy equipment. We currently have the highest site count in company history at 14851 sites.

Breaking it down by businesses auto sites ended at 8997 and grew sequentially by 31 and year over year by 23 with continued growth and the three plus site dealer group.

Offsetting declines and the one to two site dealer group.

Adjacency sites came in at 5854 and were up sequentially by 50 and year over year by 52 to the highest level in company history.

We continue to focus on enhancements to our drive flex product and have delivered new OEM capabilities for Ferrari.

Honda and Acura per franchise dealers that brings our total OEM certifications to 11.

At this point, we have over 60 customers and draw.

<unk> and our technology teams continue to make progress and advancing its capabilities.

When you look at the independent market and we're winning several new dealers here and see a clear opportunity by the end of our fiscal year for our Dms and be one of the leading solutions and the space.

We continue to build out the robustness of drive flex for more complex dealers and and we'll continue to report our progress each quarter.

Moving onto our applications.

One of the biggest growth opportunities for us and the application space. Both those that we integrate into our DNS and those that we sell stand alone and integrate into other dms.

Our top growing applications are and digital retailing with connected store.

Doc cloud with our Digitization of document storage and our elite CRM suite as well as our CDK service applications to name a few.

Our underlying growth is certainly being fueled by our dealers adopting these applications and there is plenty of opportunity for us as we bring our next generation versions like service to market let.

Let me share a few more details about these opportunities.

Looking at Ely, the popularity of the application with dealers has consistently been strong.

Since the acquisition, we've grown elite sites by more than 50 per cent.

Our penetration and our Dms space is about one third while our penetration with dealers, who don't have our DNS has grown to over 20%.

This is real proof point of the power of our subscription based sales team and ability to successfully integrate such a great acquisition into the portfolio.

Looking at our service products, we have nearly 3005 hundred sites on our service software with penetration within our DNS space being roughly one third penetration.

And outside of our Dms and installed base is left and 10 per cent and represents a strong opportunity for us as we head into fiscal 2022 and bring our enhanced service software to market.

The service business has largely been built by our organic efforts over the last few years and reinforces the benefit of investing to continually improve our software.

Lastly, as digital retailing and providing a seamless end to end shopping experience as Brian discussed is a top priority for us.

Offering digital retailing solutions that are connected to our connected store product.

We're focused on providing a consistent branded experience for the consumer when buying a vehicle from capturing the lead that often starts at the Oem's web site to the sales lead from CRM through the finance and insurance process and all the way through to closing the deal with and esignature.

The penetration of our connected store application is around 10% and growing and more dealers adopt our solution. We view the non Vms market is full greenfield as our development teams work hard to bring and agnostic version of the product to market.

Overall, we feel good about our underlying growth and our opportunity to accelerate revenue as we head into fiscal 2022.

And I look at 2021 and in particular Q2 Covid continues to have a significant impact on our business.

The impacts we continue to see our revenue are as follows.

The ongoing accounting impact from the discounts and free products, we gave our dealers to support them during the height of the Covid shutdown last year.

And as well as the implementation delays we experienced during this time.

The slowdown and on premise consulting work and due to safety and social distancing efforts.

And the decrease and discretionary spending and call center business.

And the fact that our customers continue to face uncertainties about how COVID-19 will impact their operations and the general economy.

Moving on to neuron standard strategy and revenue growth opportunities as you heard from Brian will be utilizing incites from neuron and to enhance our products, which will support improved revenue growth within both our Dms and applications.

We will also be growing revenue through our connections with Oems and other third party partners within the ecosystem.

We believe the value we bring to market through neuron will drive revenues that help provide some offsets to headwinds we may experience from our partner program transition.

As you know we are transforming our approach to the partner program by better allocating value across our solutions, while working hard to absorb any additional headwinds due to timing mismatches.

During Q2, we saw headwinds towards subscription revenue due to these efforts, but are seeing overall progress and transforming this program.

While we know the progress will not always be linear we are on the right track.

The last growth opportunity I want to focus on is our propel us platform.

As you know this platform is growing and we are currently seeing good results from our hailer app with lift and our new repair order API.

I'd like to talk about another exciting offerings that we are well into the successful pilot phase out which is our new CDK, one pay solution, which has seen strong interest from dealers as.

As we mentioned on our last call this product and partnership with global payments will modernize the entire payment experience and a dealership and integrates seamlessly into our DNS via for Telus.

We expect this to be a growth driver and fiscal 'twenty two for CDK and you move into general release, shortly and I look forward to share more metrics and this area and future quarters.

Moving over to the operations side of things I'd like to provide and update on our business process modernization program.

While we've seen benefits and our MTS from the program as customers see the results of our improvements and billings.

And that goes well beyond just solving that issue and it was a large effort that will drive efficiency and scalability as we lower unit costs by providing standardization for things like our software offerings, and quoting and installations, which will yield better satisfaction for our customers and more productivity from our import.

<unk>.

Things and perspective, we're going from over 10000, Skus that our sales team from cell to a goal of reducing that to under 1000.

The efficiencies that we can gain through standardization will result, and an improved customer experience as well as higher gross margin and we will provide additional capacity for investments.

In closing I spent time and this last week, reflecting on my three plus years with the CDK CFO and I'm quite proud of all that we've accomplished as a company and as a finance team.

We've significantly improved our metrics and how we run the company have made changes to our portfolio that positions us well for the future and strengthens our balance sheet and have plans at the right teams over the last two years to accelerate revenue growth and position the company and for the long term.

I look forward to working with the team and are committed to executing our growth strategy and continued transformation.

Now I will turn the call over to Eric.

Hello, everyone and thank you to both Brian and Joe for their nice comments.

It's been very exciting getting to know CDK over the past few weeks and the great team here I've.

I've already jumped into the mix on several key projects like the international sales.

We're rude acquisition and the business process modernization, which I've lived through something similar before and look forward to sharing my experience.

My overall priorities as CFO of accelerating profitable growth and driving operational excellence, we will focus on supporting the great momentum, we've got here and providing key financial insights to make the best possible decisions.

I'm looking forward to working closely with our employees and the entire executive team as well and is getting to know our shareholders research analysts and customers in the coming months.

So now onto the results.

I'd like to remind everyone. The results are for continuing operations only and do not include the international business, which is now presented as discontinued operations and prior periods have been reclassified to reflect this.

We are also now reporting on a consolidated basis with no segment reporting.

For the second quarter, we delivered revenue of $406 million, approximately 3% behind the same quarter and the prior year.

Subscription.

<unk> revenue was $328 million, which was up sequentially from our first quarter, but down 3% over the strong performance. We had in Q2 of last year.

Underlying subscription revenue growth was driven by auto site increases of 23 year over year.

And with revenue per site up 2%.

We saw continued strength and total recurring revenue from our three plus site auto dealer group offset by a slight decline from the one to two site groups.

Adjacency sites were up 52 with robust site growth and heavy equipment sector adjacency revenue per site was up 3%.

The solid underlying growth within our core subscription business was more than offset by the ongoing transformation of our partner program and amortization of past Covid related discounts and free products as Joe mentioned in his comments.

Transaction revenue for the quarter was $39 million versus $40 million last year.

Other revenue was $37 million versus $39 million last year.

Due to gains and cloud connect networking hardware offset by Covid related decreases and consulting and call center businesses.

Now turning to earnings.

Second quarter, EBITDA was $156 million per $175 million last year with a margin of 38, 3%.

In addition to the impact of lower revenue earnings were pressured by our incremental spending on strategic investments and a change and our employee vacation policy.

Actually offset by tight management of operating and travel expenses.

To provide further clarity around the vacation policy impact, we've historically experienced a seasonal increase in earnings and our fiscal second quarter due to when we true up our accrual for unused vacation days.

And calendar year 2020, we changed our vacation policy such that the seasonality no longer benefits us and Q2.

Our effective tax rate was 26, 2% for the quarter up from 25, 5% and the same period last year.

Primarily due to an increase and state income tax and less benefit from foreign tax credits.

Quarterly diluted earnings per share were <unk> 59 cents per 71 last year.

With respect to our balance sheet and liquidity position cash.

Cash as reported on our balance sheet was $63 million with $238 million of cash within our international business being reported as assets held for sale.

We pay out and we plan to repatriate the excess cash to the U S. Before the sale of the international business closes and the third quarter.

Access to liquidity remains strong with $750 million available on our revolving credit facility.

Year to date, we delivered free cash flow of 112 million, including the expected settlement payment of a lawsuit we discussed on our last call and the payment of $37 million and cash dividends to shareholders.

Before I provide guidance, let me share some context around our expectations.

Our guidance includes our latest view on managing the impact of Covid on our business.

Our effort to minimize the financial burden of dis synergies and stranded costs related to the international sale.

And our continued focus on prudent management of strategic incremental investments, which are now closer to approximately $20 million for the full fiscal year.

We expect international sales to be finalized during Q3 with net proceeds estimated at approximately one 5 billion after.

After taxes and expenses.

We expect a strong balance sheet as we deliver through the pay down of some of our debt.

With lower interest expense anticipated going forward.

We're providing fiscal year 'twenty, one annual guidance on a continuing operations basis only to reflect the sale of the international business.

With all of these factors in mind, we expect total revenue for the fiscal year 'twenty, one to be $1 66 to 171 billion.

EBITDA to be $640 million to $680 million.

And EPS to be $2 45 to $2 75, with a tax rate within the range of 26% to 27%.

In summary, I'm quite happy with the progress we've made on our customer and technology strategy.

Our focus on our North America business, and our strong financial profile.

I believe there are enormous opportunities ahead for CDK and I look forward to working with the team to deliver on our commitments.

And now we will open it up for questions copper.

Operator.

Thank you as a reminder to ask a question and you'll need to press Star then one on your Touchtone telephone.

Your question. Please press the pound key.

And our first question comes from Charles and the Bond from Wells Fargo. Your line is now open.

Hi, and thank you for taking my question I wanted to get a little more color around the site count.

Specifically mentioned that.

Increases and the large dealer count offset from some.

Declines and the small dealer count and wanted to get a sense for given the progress and drive flex when you expect that small dealer site count to just stabilize.

So I can start and then that's it.

Brian and then Joe can add in.

And I tell you that we're already seeing improvement and the small cell count.

But the loss rate and the small dealers are less than three <unk>.

And I almost half so.

And there is there's quite a bit of improvement already.

And as we continue to put more Gulf improvements and to drive because many of those small dealers still want to use the capabilities that come with Jive and drive flex.

We think we can continue to turn that.

And to eventually growth.

Probably going to take another year or so before we can.

We see growth in that space, but but that is our target.

But one of them and.

And the short term, we are seeing pretty dramatic improvements in that space and there are a lot of that's been really not only making improvements and our products, but making our.

<unk> and customer support those are the guys, who typically look at things like customer success, having people get out there and talk to them about their business and they look for that kind of work consulting.

Time that it takes to answer calls.

And to the health line all of those improvements have really helped us, especially that smaller.

Dealer network.

But that's about.

And it is Joe and see if he has that.

And that.

Yeah, No I think it's well said, Brian we're really proud of the team the record NPS score that we've seen this quarter. It really sets us up well as Brian said the year over year comparisons still show a decline, but when you look at the last couple of quarters and you see more stabilization and.

And that lower end of the business and we're really pleased with the sequential site growth improvements and our installation teams continued to work with dealers and at the same fully implement our solutions and as you can see the underlying.

And this continues to really turn out both billings and revenue per site growth as well as cycling.

Got it I appreciate the color as a follow up I wanted to ask about four tell us.

All right the call around transactions, but one of the questions.

And we seem to get quite often is how that translates to revenue.

And so any color around that would be helpful. And secondly, you talked a little about nextgen apps, including the payment App and.

And wanted to get a sense for as you as you move forward in the development of your apps could we expect them to be delivered through for Telus as opposed to.

And the traditional the traditional method of integration through the Dms.

So.

Let's start with this is Brian again.

Start with the second one.

Very simple answer and answers yes.

Tell us will be the way.

And most things will get delivered now and into the future and.

And the reason is it's all API based and it's oftentimes depend.

And depending on what the application is it can be simple click of a button within the Dms that we download that app lets say you want to you want to download zoom and because you want to do a zoom call and we'll make an API that links to zoom and you'll be able to click and if you want to do haler and do lift calls.

We will make a simple button and the download that application into the day of us and off it'll go. So so this is a modern and very efficient way and a very simple way to deliver those things.

The first part of your question was more about okay.

Transactions versus revenue and how do you think about that.

And here's the way, we think about for <unk>.

But first off we're building, an ecosystem and AR and AR and the <unk>.

Key here is to really and Tyson.

Excite developers and third party developers, who build products on for.

Tell us that integrate both with our software, but without the party software as well.

There'll be some that never actually.

Uses our Dms, maybe it goes.

And it sits on per tell us and talk to some other.

Third parties service application or whatever.

The way, we'll charge from should tell us will depend on the amount of engineering and.

Basically.

And efforts that goes into whatever the application is that people are doing so so for example, if somebody is just doing a data download to pull into their excel spreadsheet.

We made charged very little to nothing because that doesn't really require a lot of engineering on our part and.

We're just storing their data at a fairly efficient and low cost and whoever stayed and that is we made charge for a small E. There, but it's it's not much there's other cash.

Applications like the service R. O application per order application, which has a lot of calculation that goes into it. There's a lot of embedded engineering that goes into that application that looks at things like is it a warranty part how do we go back into the CNS and calculate the books and all of that and it's managing all of that data.

Such that somebody can just simply and or in the repair order and it takes care of it through the Dms through connection to the CRM or whatever and that that we're adding a lot of value and we charge for that and we charge a fair price like anybody else would on and engineering applications.

So so you're going to see us or tell us growth.

And kind of both of those extremes and things in between as well that really drive the revenue like this but right now the reason we are trying to show you.

And the transactions is that that's the key here is that as that grows.

We will entice more developers and some of those applications will have that engineering into them and we will charge to it.

But our target here is to grow eight to 10 ex every year and tell us and that will deliver that revenue growth over time, Joe if you have.

No you know the only thing I would say BK is that the big distinction chop that we're seeing is think about what what Brian just said, which is we're starting with how do we create value for the dealers to sell more vehicles to service more vehicles, how do we start with the end customer to drive a better and customer experience, how do we help and.

<unk> and integrate Oems to be able to create more value added connectivity there as long as we start with that value and stuff.

First leading case than the monetization and the value that's created outcomes as a result of that and I thought Brian laid out the structure right, but it is pretty exciting when you look at the use cases every one of them that we talked about and the script today really pivot the company and a very different way than we have historically.

Got it thanks, guys and Eric we look forward to working with you.

And the only thing I would add to Joseph.

The other thing that is really neat about for tell us is that it's because it's all API driven and it is modern and allows us to integrate opportunities very quickly. So you heard about our square root application.

Our acquisition of excuse me.

That will help.

Foretells will help us integrate a lot of their applications and their technology much quicker.

You saw our payments.

Partnership that we've just put out there.

<unk> is going to be integrated through for Telus and and allows us to do that integration with third parties that will get paid quite nicely for us on a per transaction basis. So it's really going to be the engine that helps us grow our business, even if it's not for tell us thats getting paid for that transfer.

<unk>.

And it's allowing us to integrate with applications that we are getting paid for and so it's gonna be convoluted, how it does but it's going to transform the rate at which we're able to make change and improvement.

Okay.

Thank you and our next question comes from Gary across the P&L from Barrington Research. Your line is now open.

Good afternoon all.

Brian You mentioned that this neuron product is a game changer. So couple of things here number one is.

Will this be sold on a subscription basis or transaction basis. You did mention you will get paid for it so we'd like to dwell into that a little bit and then could you also give us an idea of some of the key data insights that this can develop the dealers really want and need and the market right now.

Sure Gary.

And there's a little concerned about that big sigh at the start of your question.

No I had to think a lot to get that out so I'm okay.

Uh huh.

Think of neuron as well.

Were really re architected, our internal database and restructuring and getting everything and labels because every single time to build and how the data will flow in and out of the architecture and.

That's been a huge task.

And at the end of that is now a.

Database Thats scalable.

The way it was architected within CDK price.

<unk> broken up and mineral little data ponds, and it wasn't scalable there was up and duplicated data.

Things like that so.

We've really been going through this cleanup process and this process of turning it into a manageable scalable architecture.

And that can now have applications applied to it.

And the.

Second part of your question is will be charged for that and again, it's going to depend on the application. So so we won't necessarily just charge people to put their data into Maryland.

If you're a dealer and you're using our DNS and.

And you're using our layered applications whatever.

Neuron comes with it.

And when will allow.

It was just to do the aggregate.

Data from her and.

Data from third party applications all of this and provides us.

Our game plan here is that you'll have kind of a good better best some of those insights will just get built into our products that will go to our Dms and go to our CRM and.

Services.

And then some of those applications.

And I will.

We will have.

High levels of.

Engineering applied to them and.

And those will get paid for it so let's get an example of something like inventory, having the ability to look at all of your used car inventory on your lot and on and literally a real time basis.

Scaling that inventory looking at the price.

You got it listed at looking at all the other colors that are selling out there.

And other locations and.

And looking at the day is on la and having that insight into what would be your best strategy around that.

And inside that.

Another thing is a service you are looking at all of the service reservations, you have who's coming in and what kind of cars. Those are all of that you could look at all the other cars that are being serviced.

And similar mileage and similar feat.

Features that.

And a certain radius and we can start helping them look at their parts inventory and saying hey by the way these cars coming in for squeaky brakes.

By the way if and you look at all the other cars and 100 mile radius that are of that age and that model number and.

Looking at cars that have that kind of.

Issue over the last six months and critically required. These parts we suggest you stock those parts.

Actually George on them and you have these many coming index.

That's really helpful because that makes the dealer much more efficient and.

And be able to service their customers better.

Those are just two example, hundreds literally we've spent and thinking about that increment from whether it's inventory whether its predictability about as you look at your CRM data and you can predict.

Who's a better customer and who is more likely to buy a car.

And those cuts and you should prioritize against your CRM data you can look and whats the whats the highest probability of up sells within cars when you're when you're selling the car what kind of service you can likely up sell when.

And when certain cars and new customers come in.

All of that ticket is things that we're used to other flow today.

Orange happening and the dealer world and by aggregating the data and from the neuron database and then feels like we're doing with square is we're going to be able to provide that came to the dms into the CRM.

Great. That's great answer and then just real quickly a quick one.

Frank Order your preferences for the proceeds from the sale of the CDK International business.

Debt reduction and stock repurchases acquisitions.

I'll tell you what I'll start and then I'm going to let.

Joe and Eric both give their opinion.

Our minds are pretty simple.

And what my priority might be versus what will actually happen is not necessarily going to be perfectly aligned.

I believe you invest in the business force if I know are a way to take the cash whatever it is the sale or just our normal free cash flow and apply it and invest.

And to the business and I see a return because we do everything around and NPV and a return on investment basis.

And it's and factor was the number one thing and the <unk>.

Management team and I are here to grow this business.

But after that and so theres not and there is organic and inorganic and that growth rate could be we're investing and our engineering teams or we're investing.

Sure what acquisition amongst others.

After that it would be.

Dividends and and then and then lastly buybacks kind of something.

Something like that and I put debt repayment and theyre based on opportunities right.

The terms on repayments are reliable pizza and repayments.

I'd put repayments above dividend or buyback as well.

That has to be timed and new opportunities I think when you look at the pace that we're doing from the international you're definitely going to see some of that.

And we said that at our statements will do something like that.

Having some discussion about how much and what timing and things like that internally.

I think we're actually becoming pretty well lives.

But you'll see some pretty big piece of it goes towards debt reduction.

I don't think we'll have to do any other investments organically that we haven't already forecast and so I don't see a lot of addition, there.

And the rest will look for other opportunities.

And organic or whether it would be.

Buybacks or whatever.

Good day.

Gary I wouldn't add a lot to what Brian said, the only part I would add is just to take a moment per say, it's been a heck of a quarter, but when you look at the international sales and the net proceeds of 1.25 and it just gives an indication to the value opportunities and.

And as we look at and even accelerating and the North America.

Business further and so we're quite excited about that and we'll be very thoughtful and between Eric and myself and Brian.

A returns based framework as we evaluate the decision points finally, though.

Thank you.

Thank you next call and your net and then.

Our next question comes from and.

And now from Oppenheimer. Your line is now open.

Hi, great. Thanks.

And I just wanted to touch on the cadence.

And of the quarters, I guess youre expecting a pretty strong second half and.

You know what is essentially driving that versus maybe the first half of the year.

And sort of how we think and with that ramping and and again and maybe the drivers of the strength and maybe it drives and the optimism.

Yeah, So maybe I'll start out and good to hear from you and I'll, let Eric.

Take it from there.

So from our perspective, Covid had a pretty meaningful impact and this quarter, particularly in the areas that are more discretionary and you can really see that when you look at the site growth and the revenue and billing per site growth some of the discretionary areas of the business, where we're quite impacted as we go into the second half of the year, we have good visibility with our backlog and.

And everything else going on and the way I would think about the second half for the revenue and EBITDA surely evenly split between Q3 Q4.

And and what I think underneath that is sequentially walking Q2 to Q3 Youre right to point out the seasonality of the North America business.

Going forward is different than what CDK global was before and so normal and our fiscal Q3, which you'll experience upcoming and as our revenue stream uptake from our tax filing business.

And then you really seen subscription revenue with the installs that we're doing build momentum I talked about my section N P and a record quarter for Dms and installs this quarter back to 2015, and I think you should start to see sequentially that come in and help Q3 out the tax filing business come into Q3 and that really Q4 star.

To build momentum as we exit the year and set us up well for 2022, that's how you should think about the cadence from our perspective.

Eric anything you would add to that.

No Joe I think you covered it nicely I think the only thing I would add is if you look at our annual guidance. It does represent that we feel pretty good about Q3, and Q4 and as Joe indicated.

But I'm looking pretty much.

Q3, and Q4, as we move forward and the back half of the year.

Okay. So so let me ask you. Another question on that is the guidance seems to be unchanged. If you if you back out and discontinued ops and we're there.

Things that you maybe thought would've been book in the second quarter and that will now be booked and the third quarter, where their push outs.

Either.

And that you'll be able to recoup and meeting demand wasn't lost.

I'm, just trying to get a better handle on kind of what you've seen in the second half versus what we saw and the first half.

And I'm trying to absorb your question and I don't.

If you make the comment.

When you compare it to.

Our number is it's coming in and not far from where we thought it would and so I don't you know from our perspective, we see momentum continuing to carry forward into Q3 Q4, the way I'd describe when you look at it year over year.

You'll recall last year Covid started to hit around mid March is where they were with saga and the North America business and so the comparisons get a bit easier and Q3 and then.

More so in Q4, and so I don't I don't think there's anything unusual I would I would point to and other than the items I described earlier, Eric anything else you would add.

No I agree with you Jeff.

Hey, Joe and I think he and pushing.

He was asking a little bit separate.

There are things like.

Our consulting business that was impacted and the second quarter that we believe picks back up as dealers. There were there were certain activities.

There were installs, there where the consulting and some of those businesses plus some of the transactional businesses that.

And we're down in the second quarter that we think is COVID-19.

Restrictions and kind of behaviors relax, a little bit those come back and the third and fourth quarter and those are missed up or opportunities that got pushed.

So we've sold and sign a contract on our back.

Backlog.

And install is quite high on many of our products right now.

Because the dealers have asked us not to come on site and do some of these installs and so those get pushed into the third and fourth quarter and we're already seeing the quote relaxation in many cases I think that's part of the answer that.

And was looking for as well.

Yeah, I think that's fair context, and when you look at the consulting business is a good one we book a fair amount of business, that's ready to be installed and again, we haven't put all of that day.

And some of that starts to come back.

A bit.

Okay.

That's the color I was looking for and that thanks guys.

Thank you Ed.

Thank you and our next question comes from Josh Baer from Morgan Stanley. Your line is now open.

Thanks for the question I was hoping you could give an example of what happens when a customer adopts.

Adopt additional applications.

And maybe focusing on an auto 9000 per site per month.

If you assume day.

As for a 5000 and the rest are apps, how many apps does that represent.

I mean are those numbers right and what happens if you attach.

And additional one or two applications.

Yeah, sure so I'll start I'll start out and and.

Brian can add and so I think your numbers are directionally.

Correct and listen I think our sales team does a great job working with the deal with to bring a deal where the solutions and and.

And from our perspective today and we're about as you heard in my remarks and towards Dms penetrated base, where about a third.

30, 35%, depending on the application penetrated into the base and the way you should think about it as we add and that new capability and bundle and Newark.

And more applications you see that revenue per site increased as it has been and.

And when we get down and said the other side of some of the Covid desk.

Discount you'll see that continue to accelerate further the new opportunity, we have and and as Eric and I talk about it. He gets on board sharing more transparency of the metrics, we have a new opportunity and that's starting.

To really accelerate which is non BMS opportunities to sell applications. As we look at you know Brian talked about in his remarks spring and service flips the market.

We already have the elite standalone solution and again, its and average revenue per site per the applications that we sell standalone and that's really a quite significant new Tam expansion opportunity and for us that we're bringing to market.

And anything else you would add them.

And I would tell.

And so I think I think the root of the question is like how much does it go up a day either.

Some applications or whatever that is and the problem is it varies quite a bit some of our applications that are added on to the Tms are a couple of hundred dollars a month.

Some of them are over $1000.

Is it more complex and advanced forms like CRM and north so it can vary quite a bit.

But they're they're they're all in.

And that range kind of.

Thanks.

That's helpful color I appreciate it thanks.

Operator, this will be the last question.

Thank you and our last question comes from the line of grain and Kumar from Evercore ISI. Your line is now open.

Good evening, Thanks for taking my question can.

Could you discuss growth.

Thoughts on how dealer sites come up.

For the back half of FY 'twenty, one and then second and you spoke a little bit about some implementation delays that.

Being pushed from Q3 Q could you quantify it.

The revenue from from those till April.

And I can start.

Right now we continue to.

<unk> model that will continue to growth sites.

Somewhere and that one to two per subs, if you look at the Dms.

Growth rate right. So.

My goal is to crossover well into the low nine thousands from the 80 997, Joe that we're at today.

So I expect us to be well above $9 and as we exit this year.

So you know we already have our sights set on how do we cross 10000.

And what does it take and how kind of how do we have to improve and what.

How do we deliver a better service to our customers to the.

Continue to grow into that range.

I don't think we'd be actually ever break out the dollars on.

And these things from that standpoint.

But I'm not sure Joey.

We have and the path straight and I don't think.

Yeah.

Yeah, and now we won't get into that level of detail, but for sure.

And the installation team has done and pushing hard nonetheless.

And make sure it's done appropriately and comfort with the dealer and with our teams and we have a very strong backlog and and we continue to expect and see positive momentum and sequential sales growth as we go into the second half of the year.

Thank you, Brian Scott and Terry got.

That's very helpful and then one follow up.

Could you talk about and little bit about the competitive environment, you're seeing I'm for three plus site dealer growth.

And then also first time and the smaller dealers I mean any change in 19 and excellent.

I would tell you that the dynamics haven't dramatically changed.

Probably seen a bit of a pickup in acquisitions and consolidation.

And the last four or five months.

The big guys are tending to go out and do some purchases now so the big guys are getting a little bigger.

Some of the smaller guys are.

And growing a bit too.

Relative dynamics have stayed the same right.

There's the other big guys of the Dms space Theres quite a few and our layered application space that are quite competitive.

Uh huh.

I don't think they know the competitive dynamics, if I looked a year ago.

So today.

I wouldn't say, there's much of a difference and and others.

And then tried though it's always been competitive and.

I think part of what we're doing and you saw our actions and this quarter is to really figure out where you really want to be great.

Focusing on those.

Do the right thing for the business and those areas, where we're not or we don't want to.

And make those investments and and then to hold ourselves accountable and so you've seen the work we've done on the deal versus the layered applications and around CRM and service Joe Joe talked to you about the great growth, we've had and CRM.

And you saw US also make the decision to sell the international business because that was one that we weren't going to make those investments and and it was the right thing to go and do for the business.

But competitively it's about the same.

Okay. Thank you Brian.

Okay, I, just like to bring it to a close for today I really want to thank everybody for taking their time attending our call.

I really hope you see the really the good work the team has done over this year I think we've navigated the COVID-19 environment and the other changing environments out there quite well.

And we've laid out our strategy over the last two plus years now and I think youre really starting to see the results payout and really see the changes occur and you see that and things like MTS you see it site growth.

And you see it and our overall per footage.

And so thank you very much and I'd really like to thank the CDK team for a great quarter.

And really continuing to contribute at an extremely high level.

And until next quarter. Thank you everyone.

And ladies and gentlemen, and thank you for participating in today's conference. This does conclude the program and you may all disconnect.

[music].

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Well, ladies and gentlemen, and thank you for standing by and welcome to the Q2 2021, CDK Global Inc Earnings Conference call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press Star then one on your Touchtone telephone and please be advised and today's conference is being recorded.

Require any further assistance. Please press star zero and now again the conference over to your Speaker today, Julie Schlueter director of Investor Relations. Please go ahead.

Thank you and good afternoon, and I'd like to welcome you to our second quarter fiscal 'twenty, one and earnings call Joy.

Joining me on today's call, our CEO, Brian percentage, Chief operating officer, Joe Couches, and our new CFO Erik Garen.

Following their prepared remarks, we'll be taking questions.

Our earnings press release was issued after the close of the market today and is posted on our Investor Relations website at investors that CDK global Dot com.

This call is being simultaneously webcast.

In addition, our website also includes an updated schedule of supplemental financial information and a copy of our results presentation that we will be referencing during our prepared remarks.

Throughout today's call, we will be discussing our continuing operations only which do not include our international business.

And the announced sale on November 30th 2020, the international business results are now presented as discontinued operations.

And we will no longer be reporting segments operations.

Prior period amounts have been reclassified accordingly.

Within the press release, we have provided the last five quarters of historical financial data on a revised continuing operations only basis.

Unless otherwise noted all references to financial amounts during our call are on a non-GAAP adjusted basis.

Reconciliations of adjusted amounts to the most directly comparable GAAP amounts are included in this afternoon's press release.

Please also note that all growth percentages refer to the year over year change for that period unless otherwise specified.

I would like to remind everyone that remarks made during this call.

They contain forward looking statements.

These statements involve risks and uncertainties as further detailed in our filings with the SEC, which could cause actual results to differ materially from those mentioned in the forward looking statements.

With that it is my pleasure to turn the call over to Brian.

Thank you Julie and thanks to everyone for joining us today.

Before I jump into the quarter and my thoughts around the company more broadly.

I'd like to take a moment and welcome a new member of the management team.

Eric Garrett.

Our new CFO.

And that joined our team and mid January and brings the perfect mix and financial expertise and business acumen that we were looking for.

Total.

He has helped improve the finance operations of large complex organizations with hundreds of people.

And through numerous acquisitions and.

He's got the right skill set and experience to bring together, our many internal processes and systems to get them running like a well oiled machine.

So we can move quicker and seamlessly on a growth journey.

And it's a great fit with our values and culture and I'm excited to welcome him to the team.

Now, let's move on to the quarter.

We had a really good quarter as we continue to make incredible progress on our journey for accelerated growth here at CDK.

As you know two of the top metrics, we focus on a number of sites and revenue per site.

Price, indicating the health of our subscription base.

And revenue per site, demonstrating our software's increasing value to dealers.

This quarter, we had the highest level ever and the history of the company for both of these key metrics.

We've developed a very healthy subscription base now with all the work we've done around being customer centric and then.

I'm happy to report that we just achieved our highest ever net promoter score as well.

We've also built a great leadership team with a wealth of new talent on top of our strong foundation of team.

That has come together to drive CDK to the next level.

So now I'll hit on some of the key results for the quarter and let Eric dive deeper into all of the details.

And I'd like to spend my time sharing with you the vision for the company and the progress we're making on our strategic initiatives.

Especially around some of the great technology assets, we've recently made.

During the second quarter, we had revenue of $406 million.

And we did that.

The 156 billion.

With an EPS of <unk> 59.

And our strong cash flow generation.

When I take a step back and look at the performance drivers of the quarter and.

Your line business remains very healthy.

The COVID-19 certainly accelerated throughout the quarter and into January.

And as you can see from the data and the charts we provided.

We're seeing some of the uncertainty reflected and certain areas of our operations.

And I'll, let Eric provide more details in his remarks.

However, all and all we continue to feel good about the underlying business with auto site growth up eight quarters in a row.

And adjacency sites at the highest level and the company's history.

Given the good visibility into our free cash flow and our confidence and the underlying health of the business.

We have continued to invest as part of our growth strategy.

And you'll see from our guidance that we expect stronger second half growth.

Our investments over the past two years are really showing progress.

And we are well positioned to accelerate bringing solutions and insights and value to our dealers Oems and developers.

A reminder, our strategy is a multi pronged approach with initiatives to modernize our current products.

To develop new solutions.

Sorry.

And utilize data insights and integration.

And finally port and expand and connect the broader ecosystem.

I'm going to talk about the progress of each of these and share some thoughts on our vision for the future.

And when we think about modernizing our current products.

We're looking at one having a frictionless user interface that is straightforward user friendly and mobile ready.

With a simple upgrade.

To be able to leverage the public cloud with the ability to auto scale and be available anywhere.

And three using flexible architecture to build faster and utilize API and plug and acts.

The plug and apps are used to quickly add more functionality or new features and existing software.

But for example, we just announced the launch of our new rewards plug enough on per tell us and.

And this is the first directly integrated manufacturer loyalty program and any Dms.

And our last call we mentioned our creation of this call you and App that can be used to instantly access customer rewards points and apply them for payments and the dealership.

Which was seamlessly and into the deal.

This new feature has all the modern user interfaces and easy to use and very simple to install.

And we're now happy to officially launch the product and have signed with a major OEM to offer that's exclusively during their pilot.

This marks the first manufacturer certified plug and are available through the <unk> marketplace.

And there's going to be more to come later this year.

We're currently working on several modernization efforts, including updating the user experience and our CDK service application.

To deliver and easy to use interact and interface for our CDK inspect solution.

Additionally, we are adding new AI and machine learning capabilities to drive new database and sites, leveraging our new <unk> platform and tell us.

You'll be hearing more about this as we move into pilot.

Moving on to our new software initiatives the book.

And on addressing several growing needs within the industry.

Helping dealers on their journey to provide more omni channel digital retailing experiences for the consumer.

Our strategy is to quickly become the provider of choice for digital retailing solutions.

Through a combination of best in class solution.

Given the wide acceptance of our connected store product and the investments we've made to compile the most complete set of products needed for true digital retail.

We see a lot of opportunity here and believe we are well positioned to the industry to be the industry leader.

Our new product development is also focused on meeting the needs and Oems and consumers with new applications, such as our CDK one pay solution.

And the new rewards plug and <unk>.

Our third initiative is around data and insights.

And one of the company's greatest assets is data.

And I want to share some very important news about our new data platform neuron.

I'm really excited about the launch of our intelligence big data and analytics platform, which will be a game changer for the industry.

By combining big data, our deep domain expertise and.

And data science, Nora and well address some of the industry biggest pain points and won't be a huge differentiator for CDK.

So let me explain.

There's a massive amount of data and it's expanding every day from Oems dealers and increasingly the cars themselves.

Unfortunately, its not very useful and its current board.

In order to really harness all this data makes sense of it and.

And offer actionable insights to Oems dealers and software partners.

You need a combination of four things.

Scalable platform.

Industry domain expertise.

AI and machine learning capabilities, and and API integration platform.

Got it within a secure and compliant environment.

Neuron is the industry's only intelligent data platform capable to do and all of this.

The first neurology platform structure to be scalable and capable of handling the volume of structured and unstructured data that's flowing through the automotive ecosystem.

Neuro and is built to analyze billions of data transactions that flow through our products annually alongside other industry data.

Which is a lot of data, but still tiny compared to where the industry is headed.

And the architecture is being developed to scale up and many times that amount.

Second.

CDK has extensive domain expertise and the automotive and adjacency retail industry.

And we know what information is important and what is not and.

And what dealers and Oems.

We have 40 years of experience and lead the industry and we know how to curate the data to get them the right data at the right time and.

And then the right form to help them make better decisions.

And third we've made investments and build out our data science and engineering capabilities in order to carry manage analyze and extract knowledge and insights from the data.

Before we.

We have to tell us, which can securely and seamlessly integrate the insights and data to connect everything together across the automotive ecosystem.

And finally, we're building trust and to how we manage data and applying a lot of care.

Evidence of data.

To ensure that we are compliant.

Secure although global data privacy.

I'm sure you can see the value and this will bring to the warmest strength and our customers.

But what does this mean for CDK.

Well I see it is helping us and through major waves.

First.

We're using the insights and close our products and solutions to bring even more value to our dealers and OEM customers.

This will help the customers retention.

<unk> and penetration as well as new customer acquisition.

Second.

Well, let others within the ecosystem and utilize the platform to build and analyzed trends and insights that can then be shared with our customers via hotels integrations.

And further increase the value customers get from our Dms and integration as well as generate revenue per CDK and the upper tell us.

And third we can expand outside our vertical to broaden the connections with non automotive partners.

Which will increase revenue potential outside a quote.

All of these lead to revenue opportunities for CDK and puts us at the forefront of innovation and the data and intelligence space.

Last week, we announced the acquisition of square root.

A top developer of technology for data insights and curation for auto Oems.

Well. This is a smaller acquisition is a good example of the type of M&A that.

Fits with our strategy.

The acquisition brings with it technology and data analytic capabilities that will complement and accelerate our.

Maryland and platform initiatives.

The customer base.

And deep analytics talent.

And we'll be attitude and easy to integrate with and our CRO business.

We're really excited about the opportunities that neurons and will bring CDK and we'll be sharing more about this in total.

And my other technology innovation.

And you'll be hearing about this spring.

And so more to come.

And then finally, our fourth initiative is about connecting the ecosystem and I'd like to share some really great uptake from Portola.

And as I mentioned on our last call. We track the growth of per tell us by looking at the number of data transaction.

With an annual goal to reach $100 million by the end of this year.

During Q2, we generated over eight 2 million transactions.

Which was a 33% increase over last quarter, and we're well are weighted towards making our 100 million goal for fiscal 'twenty one.

We added several new API and.

And highest new partners.

Our repair order API is really starting to take off.

Our year end call last August we said repair order had over 30 and small dealers generating over 100000 transactions.

We now have over 350 dealers and installed generating over three and a half million transactions.

And this is really exciting to watch.

And then I'll wrap up by providing an update on our international sales and also talk to you about our capital allocation strategy.

We're making good progress on finalizing the international sales and are all scheduled to close the transaction during our fiscal third quarter.

We decided to sell the international business for several reasons.

And I'm, a strong believer that companies can't be greater that reported and you really have to pick and choose where youre going to focus on.

We've been doing that with products and sell.

So we did the same thing with our portfolio of businesses.

And at the fact that the international OEM and dealership business models and workflows are very different than in North America.

Also the architecture and language of the CDK International technology is unique and proprietary.

Such that all the work, we're doing and North America to re imagine our products and technology wasn't going to apply to that business.

When comparing the attractiveness of both businesses, we determined there's just too much opportunity and North America.

We ran a process that had many interested parties the attractive valuations and we.

We were very pleased to be able to announce that sale in November and are now focused on the clothing and our capital allocation strategy for the proceeds.

And one of the things we're going to do is to pay off some of our debt and all.

And to reduce our leverage and strengthen our balance sheet and.

And this will allow for flexibility as we look at opportunities to further grow our business.

We're constantly looking at acquisitions and have a strategy to focus on great technology that can quickly integrate and be positive to the top and bottom line.

There are several good opportunities out there that could enhance our product core.

Or expand our tech capabilities in order to grow faster.

At this time were confident and our ability to deploy significant capital to grow the business and create value for our shareholders.

And we'll run a disciplined process as we evaluate investments and continue to monitor our balance sheets over time, returning any excess capital that.

And that we can't deploy it efficiently to.

And to shareholders.

And now I'll turn it over to Joe for the business operations highlights of the quarter.

And Brian first let me take a moment to welcome Eric <unk>, our new CFO to the team I am thrilled to have and here, it's been great to bring somebody in who has hit the ground running and I'm really looking forward to working with you.

I also couldn't be more excited about moving full time and to the COO.

And with our strategy and investments we've made over the last couple of years.

Brian highlighted I think on uniquely positioned to work with our CDK teams to deliver for our customers and accelerate our growth and I'm excited to jump right in.

Today I'll be sharing some insights about our performance and the quarter and.

In particular details around our core software business and how we're thinking about our approach to data and our progress with propel us.

I'll then talk about how we work more efficiently as a company to continue to increase profitability and.

And create capacity for investment.

One of the first steps, we took towards improving the revenue growth of our business actually started a couple of years ago. When we put so much emphasis on being customer centric and.

Brian mentioned, we achieved the highest level ever for the company and our net promoter score which measures how our customers view CDK.

This is a huge proof point that the changes we've made are meeting the evolving needs of our customers with our improved installation quality improved tech support experience as well as improvements and our billing and ease of contracting as.

As a result of these efforts we obtained large increases and the percentage of customers, who indicated they are likely to renew and and customers, who said that PDK is making it easier for them to do business with us.

This is really great news and I'm very proud of the entire CDK team for their continued efforts to put our customers first and.

And congratulations to all and we will continue to raise the bar from here.

As a reminder, the way we think about revenue opportunities as one growth within our Dms and strategic applications business too from our data strategy and neuron platform and.

And three from Fort Collins.

So now let's double click into this starting with some overall sales highlights.

Looking at our sales performance during the quarter, we delivered a solid sales quarter across the board, we sold more dms sites, but we did a year ago.

And continued to see strong sales and our applications and.

We continue to see good demand and products that support digital retail such as connected store and our digital contracting solutions like E sign and signed anywhere which are all helping dealers, providing seamless omni channel buying experience to their customers.

For example, and each month during the quarter more than $1 4 million documents were signed electronically using our E sign solution.

Our recreation sector had the highest sales quarter in company history with December producing a historic number of new deals and any one month.

Sales were also strong and heavy equipment, including a new networking contract 40 70 site dealership.

Our install team had a great quarter and continues to deliver new installs, while managing the challenges of Covid.

This quarter, we did more installs of our Dms CRM and service applications and during the same period last year.

D M S install rate for the quarter was the highest since 2015 and our service application installation volume grew over 100 per cent from the prior year.

All of this work sets us up well as we look forward to fiscal 'twenty and 'twenty two.

Now moving to performance on site and our DNS business.

Looking at our entire portfolio of sites, which includes auto sites from both franchise and independent dealers.

And adjacency sites from dealers and areas like recreation and heavy equipment and we currently have the highest site count in company history at 14851 sites.

And it down by businesses auto sites ended at 8997 and grew sequentially by 31 and year over year by 23 with continued growth and net three plus site dealer group offsetting declines and the one to two secular growth.

And adjacency sites came in at 5854 and were up sequentially by 50 and year over year by 52 to the highest level in company history.

We continue to focus on enhancements to our drive flex product and have delivered new OEM capabilities for Ferrari.

Honda and Acura for franchise dealers and that brings our total OEM certifications to 11.

At this point, we have over 60 customers and.

<unk> flex and our technology teams continue to make progress and advancing its capabilities.

When we look at the independent market, where winning several new dealers here and see a clear opportunity by the end of our fiscal year for our Dms and be one of the leading solutions and the space.

We continue to build out the robustness of drive flex for more complex dealers and that will continue to report our progress each quarter.

Moving onto our applications.

One of the biggest growth opportunities for us is and the application space. Both those that we integrate into our DNS and those that we sell standalone and integrate into other Dms is our top growing applications are and digital retailing with connected store.

Doc cloud with our Digitization of document storage.

Elite CRM suite as well as our CDK service application to name a few.

Our underlying growth is certainly being fueled by our dealers adopting visa applications and there is plenty of opportunity for us as we bring our next generation versions like service to market.

Let me share a few more details about these opportunities.

Looking at Ely, the popularity of the application with dealers has consistently done strong.

Since the acquisition, we've grown elite sites by more than 50 per cent.

Our penetration and our DNS space is about one third while our penetration with dealers, who don't have our DNS has grown to over 20%.

This is real proof point of the power of our subscription based sales team and ability to successfully integrate such a great acquisition into the portfolio.

Looking at our service products, we have nearly 3005 hundred sites on our service software with penetration within our DNS space being roughly one third penetration.

Penetration outside of our DNS and installed base is left and 10% and represents a strong opportunity for us as we head into fiscal 2022 and bring our enhanced service software to market.

The service business has largely been built by our organic efforts over the last few years and reinforces the benefits of investing to continually improve our software.

Lastly, as digital retailing and providing a seamless end to end shopping experience as Brian discussed is a top priority for us.

Offering digital retailing solutions that are connected to our connected store product.

We are focused on providing a consistent branded experience for the consumer when buying a vehicle from capturing the lead that often and starts at the Oem's web site to the sales lead and CRM through the finance and insurance process and all the way through to closing the deal with and esignature.

The penetration of our connected store application is around 10 per cent and growing as more dealers adopt our solution and we view the non vms market at four Greenfield as our development teams work hard to bring and agnostic version of the product to market.

Overall, we feel good about our underlying growth and our opportunity to accelerate revenue as we head into fiscal 'twenty and 'twenty two.

And as I look at 'twenty and 'twenty, one and in particular Q2 Covid continues to have a significant impact on our business.

The impacts we continue to see our revenue are as follows.

The ongoing accounting impact from the discounts and free products, we gave our dealers to support them during the height of the Covid shutdown last year and.

As well as the implementation delays we experienced during this time.

The slowdown and on premise consulting work and due to safety and social distancing efforts.

And the decrease and discretionary spending and call center business.

And the fact that our customers continue to face uncertainties about how COVID-19 will impact their operations and the general economy.

Moving onto neuron banner strategy and revenue growth opportunities as you heard from Brian will be utilizing incites from neuron and to enhance our products, which will support improved revenue growth within both our DNS and application.

We will also be growing revenue through our connections with Oems and other third party partners within the ecosystem.

We believe the value we bring to market through neuron will drive revenue that help provide some offsets to headwinds we may experience from our partner program transition.

As you know we are transforming our approach to the partner program by better allocating value across our solutions, while working hard to absorb any additional headwinds due to timing mismatches.

During Q2, we saw headwinds towards subscription revenue due to these efforts, but are seeing overall progress and transforming this program.

And while we know the progress will not always be linear and we are on the right track.

The last growth opportunity I want to focus on and as our propel us platform.

And as you know this platform is growing and we are currently seeing good results from our hailer app with lift and our new repair order API.

I'd like to talk about another exciting offerings that we are well into the successful pilot phase out.

Which is our new CDK, one pay solution, which has seen strong interest from dealers as.

As we mentioned on our last call this product and partnership with global payments will modernize the entire payment experience and a dealership and integrates seamlessly into our DNS via for Telus.

We expect this to be a growth driver and fiscal 'twenty two for CDK and you move into general release, shortly and I look forward to share any more metrics and in this area and future quarters.

Moving over to the operations side of things I'd like to provide and update on our business process modernization program.

While we've seen benefits and our M. P. S from the program as customers see the results of our improvements and billings.

Program goes well beyond just solving that issue and it was a large effort that will drive efficiency and scalability as we lower unit costs by providing standardization for things like our software offerings, and quoting and installations, which will yield better satisfaction for our customers and more productivity from our <unk>.

<unk>.

To put things in perspective, we're going from over 10000, Skus that our sales team can sell to a goal of reducing it to under 1000.

The efficiencies that we can gain through standardization will result, and an improved customer experience as well as higher gross margin and we will provide additional capacity for investments.

In closing I spent time and this last week, reflecting on my three plus years and the CDK CFO and I'm quite proud of all that we've accomplished as a company and he is a finance team.

We've significantly improved our metrics and how we run the company have made changes to our portfolio that positions us well for the future and strengthens our balance sheet and have plans with the right team over the last two years to accelerate revenue growth and position the company for the long term.

I look forward to working with the team and are committed to executing our growth strategy and continued transformation.

Now I will turn the call over to Eric.

Hello, everyone and thank you to both Brian and Joe for their nice comments, it's been very exciting and getting to know CDK over the past few weeks and the great team here.

I've already jumped into the mix on several key projects like the international sales.

Where are we with acquisition and the business process monetization, which I've lived through something similar before and look forward to sharing my experience.

My overall priorities as CFO of accelerating profitable growth and driving operational excellence, we will focus on supporting the great momentum, we've got here and providing key financial insights to make the best possible decisions.

I'm looking forward to working closely with our employees and the entire executive team as.

And as well as getting to know our shareholders research analysts and customers in the coming months.

So now onto the results.

I'd like to remind everyone. The results are for continuing operations only and do not include the international business, which is now presented as discontinued operations and prior periods have been reclassified to reflect this.

We are also now reporting on a consolidated basis with no segment reporting.

For the second quarter, we delivered revenue of $406 million, approximately 3% behind the same quarter and the prior year.

Subscription revenue was $328 million, which was up sequentially from our first quarter, but down 3% over the strong performance. We had in Q2 of last year.

Underlying subscription revenue growth was driven by auto site increases of 23 year over year.

With revenue per site up 2%.

We saw continued strength and total recurring revenue from our three plus site auto dealer group.

All set by a slight decline from the one to two site groups.

Adjacency sites were up 52 with robust site growth and heavy equipment sector adjacency revenue per site was up 3%.

The solid underlying growth within our core subscription business was more than offset by the ongoing transformation of our partner program and amortization of past Covid related discounts and free products as Joe mentioned in his comments.

Transaction revenue for the quarter was $39 million versus $40 million last year.

Other revenue was $37 million versus $39 million last year.

Due to gains and cloud connect networking hardware offset by Covid related decreases and consulting and call center businesses.

Now turning to earnings.

Second quarter, EBITDA was $156 million versus $175 million last year with a margin of 38, 3%.

In addition to the impact of lower revenue earnings were pressured by our incremental spending on strategic investments and a change and our employee vacation policy.

Really offset by tight management of operating and travel expenses.

To provide further clarity around the vacation policy impact, we've historically experienced a seasonal increase in earnings and our fiscal second quarter due to when we true up our accrual for unused vacation days.

And calendar year 2020, we changed our vacation policy such that the seasonality no longer benefits us and Q2.

Our effective tax rate was 26, 2% for the quarter up from 25, 5% and the same period last year.

Primarily due to an increase and state income tax and less benefit from foreign tax credits.

Quarterly diluted earnings per share or 59 cents per 71 cents last year.

With respect to our balance sheet and liquidity position cash.

Cash as reported on our balance sheet with $63 million with $238 million of cash within our international business being reported as assets held for sale.

We pay out and we plan to repatriate the excess cash to the U S. Before the sale of the international business closes and the third quarter.

Access to liquidity remains strong with $750 million available on our revolving credit facility.

Year to date, we delivered free cash flow of $112 million, including the expected settlement payment of a lawsuit we discussed on our last call and the payment of $37 million and cash dividends to shareholders.

Before I provide guidance, let me share some context around our expectations. Our guidance includes our latest view on managing the impact of Covid on our business.

Our effort to minimize the financial burden of dis synergies and stranded costs related to the international sales.

And our continued focus on prudent management of strategic incremental investments, which are now closer to approximately $20 million for the full fiscal year.

We expect the international sales to be finalized during Q3 with net proceeds estimated at approximately $125 billion after taxes and expenses.

We expect a strong balance sheet as we delever through the pay down of some of our debt.

With lower interest expense anticipated going forward.

We're providing fiscal year 'twenty, one annual guidance on a continuing operation basis only to reflect the sale of the international business.

With all of these factors in mind, we expect total revenue for the fiscal year 'twenty, one to be 166 to $1 $71 billion.

EBITDA to be $640 million to $680 million.

And EPS to be $2 45 to $2 75, with a tax rate within the range of 26% to 27%.

In summary, I'm quite happy with the progress we've made on our customer and technology strategy.

Our focus on our North America business, and our strong financial profile.

I believe there are enormous opportunities ahead for CDK and I look forward to working with the team to deliver on our commitments.

And now we will open it up for questions operator.

Operator.

Thank you as a reminder to ask a question and you will need to press Star then one on your Touchtone telephone to withdraw your question press the pound key.

And our first question comes from Charles and the bonds from Wells Fargo. Your line is now open.

Hi, Thank you for taking my question I wanted to get a little more color around the site count.

Specifically mentioned that.

Increases and the large dealer count offsets from some.

Declines and the small dealer count and wanted to get a sense for given the progress and drive flex when you expect that small dealer site count to stabilize.

So I can start and then.

As Brian and and Joe can add in.

And I tell you that we're already seeing improvement and the small cell count and we've cut the loss rate and the small dealers are less than three by almost half.

And there is there's quite a bit of improvement already.

And as we continue to put more cost improvements and to drive because many of those small dealers still want to use the capabilities that come with Jive and drive flex.

We think we can continue to turn that and.

Eventually growth no.

Are we going to take another year or so before we can actually see growth in that space, but but that is our target.

But in.

And the short term, we are seeing pretty dramatic improvement in that space and there are a lot of that's been really not only making improvements and our products, but making our improvements and customer support those are the guys, who typically look at things like customer success.

People get out there and talk to them about their business and they look for that kind of work consulting.

And time that it takes to answer calls.

And to the help line all of those improvements have really helped especially that smaller.

Dealer network.

But let me and it is Joe and see if he has that adds to that.

Yeah, No I think that's well said, Brian we're really proud of and seen the.

Record NPS score that we've seen this quarter really sets us up well as Brian said the year over year comparisons still show a decline, but when you look at the last couple of quarters and you see more stabilization.

And that lower end of the business and we're really pleased with the sequential site growth improvement.

Installation teams continue to work with dealers.

Safely implement our solutions and as you can see the underlying.

Business continues to really turn out.

Billing and revenue per site growth as well as cycling.

Got it I appreciate the color as a follow up I wanted to ask about four tell us.

I appreciate the color around transactions, but one of the questions. We received we get quite often is how that translates to revenue.

So any color around that would be helpful. And secondly, you talk a little about nextgen apps, including the payment App and wanted to get a sense for as you as you move forward in the development of your apps could we expect them to be delivered through for Telus as opposed to.

And the traditional the traditional method of integration through the Dms.

So let's start with this is Brian.

Start with the second one because that's a very simple answer and answers yes.

Tell us will be either way.

Most things will get delivered now and into the future and and the reason is it's all API based and it's oftentimes depending.

And depending on what the application is it can be simple click of a button within the DNS that would download that app lets say you want to you want to download Xu because you want to do a zoom call and we'll make an API that links to zoom and you'll be able to click and if you Wanna do haler and do lift calls.

We will make a simple button and the download that application into the DNS and off it'll go. So so this is a modern and very efficient way and very simple way to deliver those things.

The first part of your question was more about okay.

<unk> transactions versus revenue and how do you think about that and.

And here's the way, we think about <unk>.

First off we're building, an ecosystem and AR and AR and VR.

The key here is to really and Tyson.

And.

Excites developers and third party developers, who build products on.

Tell us that integrate both with our software, but without the party software as well.

There'll be some that never actually.

You know uses our Dms and maybe it goes.

<unk> sits on per tell us and talk to some other.

Third parties, a service application or whatever.

The way, we'll charge from just tell us depend on the amount of engineering and basically.

And efforts that goes into whatever the application is that people are doing so so for example, if somebody is just doing a data download to pull into their excel spreadsheet.

We made charge very little to nothing because that doesn't really require a lot of engineering on our part and.

And we're just starting their data at a fairly efficient and low cost and whoever stayed at that is we made charge for a small E. There, but it's it's not much theres other.

Applications like the service R. O application per order application, which has a lot of calculation that goes into it. There's a lot of embedded engineering that goes into that application that looks at things like is it a warranty part how do we go back into the CNS and calculate the books and.

All of that and it's managing all of that data such that somebody can just simply and are in the repair order and it takes care of it through the Dms through connection to the CRM or whatever and that that we're adding a lot of value and we charge for that.

And we charge a fair price like anybody else would on and engineering applications.

So you're going to see us or tell us growth.

Kind of both of those extremes and and things in between as well that really drive the revenue of this but right now. The reason we are trying to show you.

The transaction is that.

And that's the key here is that as that grows.

We will entice more developers and some of those applications will have that engineering and until then we will charge to it but our target here is to grow eight to 10 ex every year, they tell us and that will deliver.

Revenue growth over time and.

Joe if you have.

Yes.

No you know the only thing I would say BK is that the big distinction and Chuck that were seen as they think about what what Brian just said, which is we're starting with how do we create value for the dealers to sell more vehicles to service more vehicles, how do we start with the end customer to drive a better and customer experience, how do we help engage and integrate.

And can be able to create more value added connectivity there as long as we start with that value and stuff.

First leading case.

And the monetization and and and the value that's created outcomes.

Out of that and I thought Brian laid out the structure right, but its pretty exciting when you look at the use cases every one of them that we talked about and the script and they really pivot the company and a very different way than we have historically.

Got it thanks, guys and Eric we look forward to working with you.

And the only thing I would add to that Joseph.

The other thing that is really neat about tell us is that it is because it's all API driven and it is modern and it allows us to integrate opportunities very quickly. So you heard about our square root application.

Our acquisitions excuse me.

That will help.

Sports and this will help us integrate a lot of their applications and their technology and much quicker.

You saw our payment.

Partnership that we've just put out there.

And it's going to be integrated through for Telus and it allows us to do that integration with third parties that will get paid quite nicely for us on a per transaction basis. So it's really going to be the engine that helps us grow our business, even if it's not per tell us that's getting paid for that tranche.

Action.

And it's allowing us to integrate with applications that we are getting paid for and so it's gonna be convoluted, how it does but it's going to transform the rate at which we're able to make change and then.

Okay.

Thank you and our next question comes from Gary price the P&L from Barrington Research. Your line is now open.

Good afternoon all.

Brian You mentioned that this neuron product is a game changer. So couple of things here number one is.

Will this be sold on a subscription basis or transaction basis. You did mention you will get paid for it and so we'd like to dwell into that a little bit and then could you also give us an idea of some of the key data insights that this can develop the dealers really want and need and the market right now.

Sure Gary.

It's a little concerned about that big sigh at the start of your question.

No I have to think a lot to get that out so hum.

Uh huh.

Think of neuron as well.

Were really re architected, our internal database and restructuring and getting everything you label and who can be everything and try to build and how the data will flow in and out of the architecture and.

That's been a huge task, but you'd get at the end of that is now huh.

Database that's scalable.

The way it was architected within CDK.

And CDK price.

It's broken up and it literally little data point on it wasn't scalable there was up and duplicated data.

Things like that so.

Really been going through this cleanup process and this process of turning it into a manageable scalable architecture.

That can now have applications applied to it.

And the second part of your question is will be charged for that and again, it's going to depend on the application. So so we won't necessarily just charge people to put their data into Maryland.

And if you're a dealer and you're using Ikea mass and.

And you're using our layered applications whatever.

Neuron comes with it.

And what it allows us to do the aggregate and all day.

Data from data.

Data from third party applications all of this and provides us.

Our game plan here is that you'll have kind of a good better best some of those insights will just get built into our products. It will go to our Gms and go to our CRM and our service.

Service tools.

And then some of those applications.

And I will have.

Very high levels of engineering applied to them and.

And those will get paid for it so let's get an example of something like inventory, having the ability to look at all of your used car inventory on your lot and on and literally a real time basis.

Scaling that inventory looking at the price that you're you've got it listed at looking at all the other colors that are selling out there.

Various other locations and.

And looking at the days on la and having that insight into what would be your best strategy around that is and insight.

Another thing is a service you are looking at all the service reservations, you have who's coming in and what kind of cars. Those are all of that you can look at all the other cars that are being fairly similar mileage and similar.

Teachers.

Or and a certain radius and we can start helping them look at their parts inventory and saying hey by the way these cars coming in for squeaky brakes.

We're looking at cars that have that kind of.

Issue over the last six months typically required these parts and we suggest you stock those parts.

Actually George on them and you have these many coming in next week.

That's really helpful because that makes the dealer much more efficient and.

And be able to service their customers better.

Those are just two example, hundreds literally we started thinking about that increment flying and weather.

Inventory, whether its predictability about as you look at your CRM data and you can predict.

Who's a better customer and who's more likely to buy a car.

And those cuts and we should prioritize against your CRM data and you can look and whats the whats the highest probability of up sells within cars when you're when you're selling a car what kind of service you can likely up sell.

Certain cars and from customers come in all of that should get us things that were used to other flow today, but they arent happening and the dealer world and by aggregating the data and pulling the manure.

And the neuron database and then getting feels like we're doing with square is we're going to be able to provide that seem to the BMS incident, and CRM and Berkshire.

Yeah.

Great. That's great answer and then just real quickly a quick one.

Rank order your preferences for the proceeds from the sale of the CDK International business.

Debt reduction and stock repurchases acquisitions.

Yeah, I'll tell you what I'll start and then I'm going to let Joe and Eric both give their opinion because.

Mine's pretty simple and.

And what my priority might be versus what will actually happen is not necessarily going to be perfectly aligned.

I always believe you invest and the business force if I know are a way to take the cash whatever it is for sale or just our normal free cash flow and apply it and invest.

And to the business and I see a return because we do everything around and NPV and a return on investment basis.

And I think that's always the number one thing and the management team and I are here to grow this business.

After that if there is not and there is organic and inorganic and that growth right. So it could be we're investing and our engineering teams or we're investing.

Sure what acquisition whatsoever.

After that it would be dividends and and.

And then lastly buybacks kind of.

Something like that and I put debt repayment and theyre based on opportunities right.

And the terms on repayments are reliable pizza repay book, so I wouldn't put repayments above dividend or buyback as well.

And that has to be timed and new opportunistic I think when you look at the pace that we're doing from the international you're definitely going to see southern debt reduction and.

We said that at our statement will do something like that.

Having some discussion about how much and what timing and things like that internally.

I think we're actually becoming pretty well aligned.

But you'll see some pretty big piece of it goes towards debt reduction.

I don't think we'll have to do any other investments organically that we haven't already forecast and so I don't see a lot of addition, there and.

The rest will look for other opportunities.

And the inorganic or whether it would be.

Buybacks or whatever.

Thank you.

Gary I wouldn't add a lot to what Brian said, the only part I would add is just to take a moment and say it's been a heck of a quarter, but when you look at the international sale and the net proceeds of 1.25 and it just gives an indication to the value opportunities and.

As we look at and even accelerating and the North America.

Business further and so we're quite excited about that and we'll be very thoughtful and between Eric and myself and Brian.

A returns based framework as we evaluate the decision points foreign laid out.

Thank you.

Thanks next call Internet and and.

Our next question comes from Ian Zaffino from Oppenheimer. Your line is now open.

Hi, great. Thanks.

Touching upon the cadence.

And of the quarters, I guess, you're expecting a pretty strong second half and you don't what is essentially driving that versus maybe the first half of the year.

And sort of how we think and might that ramping and and again, maybe the drivers of the strength and maybe it drives the optimism.

Yeah, So maybe I'll start out and good to hear from you and I'll, let Eric.

Take it from there.

So from our perspective, Covid had a pretty meaningful impact and this quarter, particularly in the areas that are more discretionary and you can really see that when you look at the site growth and revenue and billing per site growth some of the discretionary areas of the business, where we're quite impacted as we go into the second half of the year, we have good visibility with our backlog and.

And everything else going on and the way I would think about the second half where the revenue and EBITDA surely evenly split between Q3 Q4.

And and what I think underneath that is sequentially walking Q2 to Q3 Youre right to point out the seasonality of the North America business and its going forward is different than what CDK global was before and so normal and our fiscal Q3, which you'll experience upcoming and as our revenue stream uptake from our tax filing business.

And then you really seen subscription revenue with the installs that we're doing a build momentum I talked about my section N P and a record quarter for Dms and installs this quarter back to 2015, and I think you should start to see sequentially that come in and help to three out the tax filing business come into Q3 and that really Q4.

Start to build momentum as we exit the year and set us up well for 'twenty and 'twenty. Two that's how you should think about the cadence from our perspective.

Eric anything you'd add to that.

No Joe I think you covered it nicely I think the only thing I would add and if you look at our annual guidance. It does represent that we feel pretty good about Q3, and Q4 and as Joe indicated.

And then looking pretty much.

Q3, and Q4 as we move forward and turn it back after the year.

Okay. So so let me ask you. Another question on that is the guidance seems to be unchanged.

You back out discontinued ops.

And so does it.

And they're things that you maybe thought would've been book in the second quarter and that will now be booked and the third quarter, where their push outs.

Either demand that you'll be able to recoup and meeting demand wasn't lost.

I'm, just trying to get a better handle on kind of what you're seeing and second half versus what we saw and the first half.

And I'm trying to absorb your question I don't.

If you make the comment.

And when you compare it to.

Our number is it's coming in and not far from where we thought it would and so I don't you know from our perspective, we see momentum continuing to carry forward into Q3 Q4, the way I'd describe when you look at it year over year.

You'll recall last year Covid started to hit around mid March is where they were with SOG and the North America business and so the comparisons get a bit easier and Q3 and then more so in Q4 and so I don't I don't think there's anything unusual I would I would point to Ian other than the items I described earlier.

Eric anything else you would add.

No I agree with you Jeff.

Hey, Joe and I think.

And pushing.

He was asking a little bit separate.

There are things like.

Our consulting business that was impacted and the second quarter.

And we believe picks back up as dealers there were there were certain activities.

There were installs, there where the consulting and some of those businesses plus some of the transactional businesses that.

We're down and the second quarter that we think is COVID-19.

Restrictions and kind of behaviors relax, a little bit those come back and the third and fourth quarter and those are missed up or opportunities that got pushed.

So at least we sold and sign a contract.

Backlog.

For installs is quite high on many of our products right now.

Because the dealers have asked us not to come on site and do some of these installs and so those get pushed into the third and fourth quarter.

And he seemed a quote relaxation in many cases I think that's part of the answer that.

It was looking for as well.

Yeah, I think that's fair complex and when you look at the consulting business is a good one we book a fair amount of business.

And to be installed and again, we haven't put all of that now and we think some of that starts to come back.

A bit.

Okay. Yeah, I mean, that's the color I was looking for thank you guys.

Thank you Ed.

Thank you and our next question comes from cash Bar from Morgan Stanley. Your line is now open.

Thanks for the question I was hoping you could give an example of what happens when a customer.

Additional applications.

And maybe focusing on an auto 9000 per site per month.

If you assume.

As for a 5000 and the rest are apps.

How many apps does that represent.

Those numbers right and what happens if you attach and it did.

And additional one or two applications.

Yeah.

Yeah sure. So I'll start I'll start out and and Brian can add and so I think your numbers are directionally correct.

Correct and listen I think our sales team does a great job working with to deal with to bring the dealer.

And the solutions and and from our perspective today and we're about as you heard in my remarks and toward D. M. S penetrated base, where about a third.

And you know the 30 35 per cent dependent on the application penetrated into the base and the way you should think about it as we add and that new capability and bundle and duopoly.

More applications you see that revenue per site increased as it has been and.

And particularly when we get down and cause the other side of some of the Covid.

Discount and Youll see that continue to accelerate further the new opportunity, we have and and as Eric and I talk about it and he gets on board sharing more transparency of the metrics, we have a new opportunity and that's starting.

To really accelerate which is non BMS opportunities to sell applications. As we look at you know Brian talked about and his remarks spring and surface floods the market.

We already have the ENB standalone solution and again, its and average revenue per site per the applications that we sell standalone and that's really a quite significant new Tam expansion opportunity and force that will bring it to market.

And anything else, you would add and I forget.

Yes.

And so I think I think the root of the question is like how much does it go up if they add.

Some application or whatever that is and the problem is it varies quite a bit some of our applications that are added onto the dms or a couple of hundred dollars a month.

Some of them are over $1000.

Is it more complex and advanced ones like CRM and north so it can vary quite a bit.

But they're they're they're all in.

And that range kind of.

Thanks.

It's helpful color I appreciate it thanks.

Operator, this will be the last question.

Thank you and our last question comes from the line of Wayne and Kumar from Evercore ISI. Your line is now open.

Good evening, Thanks for taking my question can.

Can you discuss your thoughts on how dealer sites are good luck for the back half of FY 'twenty, one and then second and.

And you spoke a little bit about some implementation delays that are being pushed from Q3 Q could you quantify.

The revenue from those delays from.

And I can start.

So you know right now we continue to.

And model that will continue to growth sites.

Somewhere and that 1% to 2% if you look at the Dms.

Right right so.

My goal is to crossover well into the low nine thousands from the 80 997, Joe that we're at today.

So I expect.