Q4 2020 Cars.com Inc Earnings Call
And.
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Thank you.
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Good morning, and welcome to the current Dot Com fourth quarter 2020 earnings conference call.
Hosting the call. This morning is Alex that and Chief Executive Officer, and Sonya Jain Chief Financial Officer.
This call is being recorded and the live webcast can be found at investor cars Dot com.
A replay of the webcast will be available until March 11th a copy of the accompanying slides can also be found on the company's investor site.
Following today's presentation, there will be a question and answer session with Alex and Sonya.
I would now like to turn the call all of the <unk> Treasurer.
Good morning, everyone and welcome to our fourth quarter and full year, 'twenty and 'twenty conference call before I turn the call over to Alex I'd like to draw your attention to our forward looking statements and the description and definition of our non-GAAP financial measures, which can be found in our presentation, we will be discussing certain non-GAAP financial measure.
As of today, including adjusted EBITDA adjusted EBITDA margin adjusted net income and free cash flow reconciliations of these non-GAAP measures to the most directly comparable GAAP measure can be found and the financial tables included with our earnings press release and in the appendix of the presentation for more information. Please refer to the risk factors included in our SEC.
These filings, including those in our annual quarterly and current reports, we assume no obligation to update any forward looking statements or information as of their respective day at this time I would like to turn the call over to Alex.
Good morning, everyone and welcome to our conference call for the fourth quarter and full year 2021.
Today's call I'll be discussing the business highlights from our year and fourth quarter and provide an overview of the expectations and priorities for 2021.
And then hand, the call over to Sonya, who will discuss our financial results in greater detail.
The cars delivered impressive results and 2020 and despite the pandemic. We grew <unk> for the second consecutive quarter and grew dealer customers and three out of four quarters. This past year, all while reaching record levels of traffic and lead generation.
Our performance resulted in a return to year over year revenue growth and the fourth quarter.
In 2020, our team also maintained strict spending discipline and continued to invest strategically and the business driving and incredibly strong quarterly and annual adjusted EBITDA and cash flow.
And the subscription business like ours, it's important to remember how impactful the strong year end exit rate is and how well it positions us if you enter 2021.
The accelerating the adoption of digital products and solutions of our dealer customers has been core to our success and.
Until 2020, many dealers were reluctant to fully embrace of digital first strategy depend emmick accelerated car dealers of adoption of digital tools and we have seen a marked increase and dealer subscribing to our digital solutions and.
And we expect the trend net emerge from the stay at home economy to endure.
Despite signs of the stay of home requirements of subsided. The preference for cars is the mode of transportation and car ownership persist.
And consumers are appreciating the convenience of shopping when where and how they want.
Not only of dealers embracing technology to meet the changing expectations of car shoppers, but they are also finding meaningful efficiencies in their businesses.
Day, the showroom was both physical and digital the range of car solutions are perfect to satisfy traditional share and sales and.
And also of quick dealers to meet the demand for digital retail is the strategic imperative.
Marketplaces like <unk> Dot com are and will continue to be vital to the success of dealers because we are of valuable platform for attracting and market shoppers and sales at scale.
And the severe restrictions over the past year consumers flocked to our platform to research shop and connect with local dealers of online.
We responded by creating tools for dealers to more effectively showcase their services and available inventory.
Our home delivery and online shopping batches, which identify the dealers who offer the services have seen incredible adoption since they were launched and in fact, we of Badged nearly 20 million vehicles to date.
We also saw a material increase and the number of customers leveraging our cars social and fuel products as dealers seek to connect with our targeted in market car shopping audience.
The cars that kind of marketplace has a unique advantage and its ability to efficiently drive high quality and market traffic.
Today, we generate over two thirds of our traffic from organic sources, which allow us to balance and control our marketing spend while providing a unique audience to our clients.
As far as dot com attracts a high volume of quality direct traffic driven by the industry's number one brand most popular mobile app incredible editorial content ratings and reviews.
Our industry, leading editorial content is an important sustainable advantage and differentiator for our consumer experience and another lever supporting our organic traffic for.
For example, this month, we have been announcing our annual best of awards, which revealed the best cars and five categories.
This unique content initiatives continues to win favor from consumers and drives new visitors to the site.
The industry also recognizes our authority, even showcasing our awards and their own advertising and price.
And the last two weeks, both Volkswagen and Hyundai issued press releases Publicising, the best family vehicle and the best value Vehicle Award they received from our editorial staff.
A demonstration of how impactful it is to earn credible third party validation for their vehicles.
And 2020 organic traffic grew 10% and mobile traffic grew 12% year over year, demonstrating the increasing strength of our brand and the shift towards online car shopping.
Our organic traffic, coupled with the surge and online activity and a more favorable pricing environment led to our ability to reduce our year over year marketing investments, while still achieving growth.
Despite materially reduced investment, particularly in the second and third quarters cars Dot com posted record traffic and lead numbers in 2020 true.
Traffic and unique visitors were up 8% and 5% year over year, respectively.
And leads were up 13% year over year.
While traffic is an important measure of performance. We are ultimately focused on delivering high quality connections to our dealers and an effort to maximize the ROI.
Traffic and leads that are more likely to translate into sales.
Another metric that has been increasing in importance as website referral traffic, which represents the consumers who start shopping on a marketplace like cars Dot com and then click through to the dealer's website.
Dealers consistently site leads from their own website is converting at the highest level.
Data from thousands of website customers last year showed the cars that comps and three times more ready to buy car shoppers to the dealer websites.
<unk> to its nearest third party marketplace competitors.
In addition, these cars dot com shoppers purchase cars from those dealers at twice the rate of those who solely visit of dealer website.
As dealers are increasingly focused on digital metrics the strength of our referral traffic helps demonstrate our platform strength and quality attribution, leading to a record retention rates.
Unlike our competition, we don't need to spend nearly as much and traffic acquisition because of our brand and original content drives the vast majority of our traffic.
In 2020, 73% of our traffic was generated by organic channels.
With our value building and the strength of our year to date traffic and leads and the fourth quarter, we prioritized longer term investments into our brands to continue to ensure its number one position and long term health.
Those investments coupled with the strength of our audience and value delivery to our dealers is reflected and the strong retention rates and growth and our dealer customers and the second half of this year.
We grew our dealer customers by over 300 dealers and the second half of 2020 and nearly half of this growth was from marketplace.
We are experiencing record high customer retention rates and that momentum continues into the first quarter of 2021.
Our differentiated digital solution strategy played a key role in facilitating auto sales for our customers as dealers embraced online shops zone and virtual tools to engage with consumers.
Our tools allow dealers compete virtually and supporting increased and more efficient sales and dealers have been able to continue to leverage some of these operational efficiencies, even as restrictions ease enabling them to reach new levels of profitability dealers leverage our digital solutions to have more touch points with consumers and their car buying experience.
Today, we power for 400 dealer websites, having added 200, new website customers and 2020.
Online shopper and conversations penetration rates also of growth from 14% and 25% last year to 20 and 27% at the end of 2020.
Keep in mind these penetration rates on top of a growing base of website customers. We expect to see growth as we continued to deliver on other business and our pipeline as well as complete the initial launch of the GM websites and 2021.
We also see and opportunity to help you this leverage digital advertising the sell more cars and the fourth quarter, we announced that for direct selected dealer inspire is the preferred digital advertising provider for U S Ford dealerships.
These dealers now have access to the dealer inspire as full suite of connected digital marketing services via our proprietary AD Tech platform and advanced reporting technology prism.
Fuel is another market driving solutions for dealers that has gained incredible traction since we first announced the launch of the product just one year ago.
It continues to be the fastest growing new product and cars history.
Fuel is the unique high ROI targeted video advertising solution, the generates higher returns than expensive data and and wasteful traditional PV model on which the auto industry spend of approximately 10 billion of the year.
Because such a small fraction of the U S population is actively shopping for a car at any given time fuel and powers dealerships to reach and advertise purely to end market car shoppers by leveraging the power of cars Dot com is unique and market earnings.
Fuel customers see twice the average click through rate compared to industry averages and our dealers are seeing benefits of how efficiently fuel targets and market car shoppers.
In fact, one of our fuel customers the GM of regional Hyundai and broken Arrow, Oklahoma recently said quote if I was pulled ahead to cancel every marketing tool I have.
And only keep one fuel would be it.
After just one year fuel has been adopted by the most progressive dealers and the country and Theres a lot more opportunity for further penetration into the ZIP codes within each market on an exclusive geographic basis.
Fuel as the <unk> accredited and only available to existing marketplace customers.
Now turning to the automotive environment in terms of used car prices remain high and strong demand on leading new car inventory the strengthening dealer margin REIT.
Retail sales continue to show of strength and both new and used car markets.
<unk> was $16 3 million and the fourth best December for sales.
OEM incentives were down over 8% in December and more than 7% for the quarter further demonstrating the strength of the market driven by consumer demand and tight inventory.
Turning to our national business, while revenue was down 9% on a year over year basis, we've seen consecutive quarters of revenue improvement and the second half of 2020.
Fourth quarter revenue surpassed our first quarter revenue and we are pleased to see signs of stabilization after weathering the challenges of COVID-19.
In addition, we've seen continued traction and interest among auto adjacent customers as well as with the tier two associations that are looking to access and market car shoppers and these continue to be promising opportunity for us and help further diversify our revenue.
Over the last few quarters, we have more of early discussed our company's dei actions and our efforts to drive representation and the auto industry.
Of all of the franchise dealers and the United States, just over 200 or minority owned and 265 are black loans.
And the fourth quarter, we partnered with Facebook to conduct a trial of leveraging our social selling solutions for more than 200 members of the National Association of minority automobile dealers may Matt.
We also had held digital advertising selling and education sessions to provide them with the information solutions and technology to better compete.
<unk> is also a longtime supporter of the women and automotive organization, just 18% of auto dealers of women and women of color represent only 6% of the industry workforce.
We are proud to have one of the most diverse executive teams and companies and our industry with 46% of cars employees of identifying of female and 23% of identifying and racially or ethnically diverse.
And while the significantly outpaces the industry, we know we can and will do more.
In 2021, and we will continue to focus on dei.
Reflecting the important role of these actions play and maintaining cars strong corporate culture, and ensuring we retain the industry's best and brightest talent.
Additionally, each of our executive team members' compensation will now be linked to the EI.
We will also continue to build stronger policies and provide more public disclosures of our company's progress on <unk> and other social and environmental factors most directly related to our industry and our business.
Entering 2021, we have and improved competitive position, we have deep and high value relationships with our dealers a compelling product portfolio of massive and market audience driven by our brand and a very strong financial position as the result of the actions we took during 2020.
Despite the challenges we faced last year, we delivered year over year revenue growth and the fourth quarter strong adjusted EBITDA and cash flow and we have a capital structure of that gives us flexibility to invest and the business and pursue inorganic growth.
We've grown dealer customers from both January and February, giving us strong momentum for the first quarter of this year.
Our strategy remains focused on empowering consumers with unique content data and information they need to make informed car buying decisions and supporting our customers with efficient digital solutions that drive high quality of consumer audiences and increased sales conversion further cementing our unique value and differentiation and the market.
At this time I'd like to turn the call over to Sonya to discuss our financial results for the fourth quarter full year 2020, and additional details of our enter 2021 outlook assumptions and key drivers Sonya.
Thank you Alan we delivered solid results. This quarter, we grew top line revenue generated strong cash flow and profitability and ended the year with $68 million and cash and cash equivalents.
Alright, let me discuss the quarter.
Revenue was $153 million up 1% year over year higher AARP driven by solution sales drove the top line growth.
Year over year dealer inspire of revenue grew 22%.
National advertising revenue and the fourth quarter with the highest of the year.
And.
And just $1 million or 5% year over year.
Turning to expenses total operating expenses for the fourth quarter were $137 1 million.
Compared to 147 million.
For the prior year period expenses were down primarily due to the elimination of our affiliate revenue share expense from the second quarter and.
And it will continue to benefit our year over year metrics and the first half of 2021.
Lastly, the invested and the business and both of the third and fourth quarters last year marketing and in particular with year over year, as we reinvested and our brand.
GAAP net income for the fourth quarter of 2020 with $7 2 million <unk>.
<unk> per diluted share.
From a GAAP net loss of $4 1 million or six cents per diluted share and the prior year.
This was driven by the tax benefits generated through an increase and the companys ability to carry back operating off of it as a result of the cares Act.
Adjusted net income for the fourth quarter of 2000 $26 million compared to $42 2 million and the fourth quarter of 2019 debt.
Decline of each and adjustments to our annual effective tax rate with kind of significant impact and the quarter's effective tax range.
Fourth quarter, adjusted EBITDA was $48 5 million or.
32% of revenue compared to $39 3 million or 26% of revenue for the prior year period.
Before I move onto an overview of our full year 2020 results I'd like to take a moment to review the key operating metrics that undermine the very solid quarterly result.
We have 18370 <unk> dealer customers as of December 31 of 2020 and increase of 1% compared to 18130 as of September 32020.
This increase was primarily due to continuing strong retention rates, coupled with solid Inc. Sales and this growth marked our second consecutive quarter of dealer count growth Inc.
We grew the dealer customers by 339, and the second half of 2020 and nearly half of this growth from marketplace customers.
And also continue to see strong growth and our once the customer. We currently have 4400 website customers up 38% compared to a year ago.
And the fourth quarter, and kind of $138 1 million traffic and.
2018, 2 million isn't true.
And I think and unique visitors were down, 6% and 5% year over year, respectively, and the fourth quarter of.
And we all know not all traffic is created equal evenly okay.
And generating quality traffic that converts into lead and sales and ultimately generate higher ROI for our dealer customers.
We're constantly testing learning and optimizing our marketing mix to be more efficient and maximize customer ROI and this is evident and the decisions, we made and the fourth quarter to invest more heavily and brand and continue to shift investments into channels that generate high quality traffic along with strong lead conversion Anthony.
We'll go ahead to 2021, we expect to continue to deliver strong ROI to our dealer customers remember that traffic metrics allow and are not the best way to evaluate our value delivery and our focus is on generating high quality well informed ready to buy car shopping traffic and we are delivering and Alex mentioned earlier.
And with the referral traffic from cars Dot com at three times the rate of the next marketplace competitor and the shoppers.
The rate of of shopper simply visit the dealer website.
The second and third quarters of 2020, and particular remarked by a third and traffic and the related to COVID-19, and is unlikely to be replicated the same order of magnitude on a go forward basis.
We believe continued investment and the cars brand coupled with maintaining our focus on optimizing our key channel will deliver the best quality traffic to our dealers and in the long term.
Capex overall.
Topping off our strong metrics with the 6% year over year increase and AARP and of 4% increase over the previous quarter.
And with part of Europe.
Fueled the majority of this growth and we continue to see opportunity for growth not just with fuel, but also with our website solution suite of products, including online shopper and conversation of.
Alex mentioned earlier, we grew the penetration rates for both online shopper and conversation to 20% and 27% respectively. This quarter and we believe there is more room to drive subscriptions could ease of products as the increase of our website customers and grow penetration rate.
In addition, we are focused on cross selling our solutions only customers and to marketplace subscription. We are of great opportunity to continue to grow AARP, the revenue and profitability by simply increasing dealer penetration of our existing and digital solutions, which are all aimed at helping dealers of more cards.
And operating more efficiently.
Now from a quick overview of the year revenue for 2020 with $547 $5 million.
Compared to $667 million and 2019, the vast majority of the decrease was driven by invoice credits given the dealer and the second quarter during the height of the COVID-19 restriction period.
Total operating expenses for 2020 were $1 4 billion.
The $528 9 million, excluding the 2020 goodwill and intangible asset impairment charge compared to $1 1 billion or 591 $3 million, excluding the 2019 goodwill and intangible asset impairment charge.
The decrease in expenses is due to the operating expense reduction primarily related to marketing and head count and peaking during the second quarter as the result of the COVID-19 environment.
Elimination of affiliate revenue share expense. This year also lowered operating expenses by $10 million year over year.
GAAP net loss for 'twenty, and 'twenty was $817 1 million.
$12 and 15 per diluted share compared from the GAAP net loss of $445 3 million or $6 65 per diluted share in 2019 and.
Adjusted net income per the year with $70 3 million or $1 and <unk> per diluted share compared to $104 2 million or $1 55 per diluted share and the prior year period and <unk>.
Adjusted EBITDA, but the $155 9 million or 28% of revenue compared to $167 3 million.
And were 28% of revenue and the prior year period.
We ended the year with a very strong balance sheet and liquidity position and October we refinanced our debt on favorable terms extending the maturity date to 2025 for the credit facility and 2000.
98 for our new senior unsecured notes.
Hi, Thank you the refinancing we had and all bank structure that was comprised of a term loan and revolving credit facility with the 2020 maturity date, we diversified our lender base.
Adding $400 million and bonds and lowering our outstanding debt to our bank lenders to $200 million.
With access to the currently Undrawn $230 million revolver.
This provides us with the flexibility to invest and the business organically and to take advantage of of opportunistic M&A and the future.
Net cash provided by operating activities for the year, but the $138 $6 million.
Up 37% compared to $101 5 million and the prior year period free cash flow in 2020 was 121 $9 million.
Up 15, 2% from $82 million and 2019. This incredible growth was driven by lower nonrecurring costs and capital expenditure in 2020, as well as favorability and working capital.
Also keep in mind 2019 included $38 million of expense related to payments to our former affiliate and 2020 included only 11 million and supporting our increase and year over year cash flow.
Our strong free cash flow generation enabled us to pay down $50 million and <unk>.
Debt during 2020 net of borrowing bringing total debt outstanding of $597 million at the end of the year. We ended the year with net debt of $529 8 million.
Decrease of $104 $8 million year over year.
Net leverage was down to three four times and secured leverage with just one three times and just last month, we made an incremental $30 million of voluntary debt payment and still had $55 million of cash on hand at the end of the month.
We are pleased with our current momentum and strong sequential performance. However, the first quarter of 2020 represents of challenging pre COVID-19 comp.
Particularly on the top line as Alex mentioned, we grew our dealer customers and both January and February giving a strong momentum for the first quarter. However, given the decline the.
And in the second quarter last year and due to COVID-19, our dealer customers and the first quarter will still be low are on a year over year basis slowing our ability to grow marketplace revenue year over year.
While we did see a pickup and OEM advertising spend in the fourth quarter and many are still operating on a more cautious splitting and Theres also some natural sequential seasonality of lower OEM spending in the first half of the year.
We expect continued strong growth and solution sales, including both website product and fuel, which will positively impact revenue and year over year RTD growth and 2021.
And along with managing through car buying seasonality and uncertain economic times and also plan to continue to increase of organic investment with a particular focus on marketing to support value delivery and ROI for our customers Inc.
<unk> investments and higher quality higher converting channels, which op income at a higher cost.
In addition, we plan to make long term investments and the current brand, which we believe is a key driver of sustaining our organic traffic strength.
We also expect the impact and resources to increased growth of our existing products and accelerate product innovation.
These investments will result in lower sequential adjusted EBITDA margin and the first quarter.
Higher adjusted EBITDA on a year over year basis, we expect adjusted EBITDA margin of between 27, and 30% and the first quarter.
From a cash flow perspective for the full year, we expect capital expenditures of approximately $25 million.
Interest expense of approximately $40 million and minimal cash capex.
And that we have and net operating loss and tax credit carry forward position, which will defray our cash taxes and the near term.
Along with cash deductible intangible amortization from which we will continue to benefit.
In summary, our strong topline trends, coupled with focused execution and cost discipline allowed us to exit the year with a strengthened competitive and financial position, which we expect will yield growth and revenue and profitability and 2021.
And now I'd like to turn the call back to Allen.
Thank you soon.
<unk> 2020 was a strong year for price and we have and unmatched set of competitive advantages our brand as the category leader and last year our business. Once again proved its durability.
We are focused on creating a great shopping and selling the experience for consumers and customers not commoditize the NIM.
Our solutions lead the industry and enabling local dealers to compete beyond price and to drive increased profitability by communicating their unique dealership experience.
These advantages will continue to drive growth and value for our customers consumers and shareholders before turning the call back to the operator for Q&A I want to reiterate that we believe and expect of 2021 will be a year of growth at cars.
As consumers embraced car ownership more flow now than ever before dealers clearly have a growth opportunity in front of them the.
<unk> has become an extension of our homes and is viewed as safer and public transportation and rideshare.
Favorable credit conditions have made card purchases more attainable for many and the recently proposed new round of stimulus payments should make it even more so.
The outlook for our industry and our business is bright and our strategy is working we will continue and remain a valuable partner to both buyers and sellers. We will continue to extend the digital solutions portfolio and drive dealer adoption of these important tools for efficient sales and profitability.
And we will continue to leverage our cash flow and strong balance sheet to invest and the business, both organically and inorganically to accelerate our innovation and to drive topline growth.
Cars is well positioned to drive additional shareholder value.
Operator, we're now ready to begin the Q&A session.
From this time of you'd like to ask a question. Please press Star then one of our one and your telephone keypad.
Our first question comes from Tom White with D. A Davidson your line is open.
Okay.
Go ahead of time.
Okay.
Okay.
So the one.
Okay.
And then.
Alright.
Okay.
We're having a hard time hearing you Tom Youre breaking it into the house.
And here.
Operator, we're having a hard time Harry Mr. White.
Thank you.
And Mr. Wei could you free.
Thank you.
Yes.
Hum.
Hi.
Go ahead.
And our next question comes from Gary <unk> with Barrington Research. Your line is open.
All of How're you doing.
Hey, Gary good morning.
Just a series of questions here.
The dealers that you are adding Alex.
How does the breakdown between the franchise and independent.
Segments of the market.
Yes.
Sure, we've actually seen solid uptick on both segments of the market franchise and independent dealers.
If you look at our opportunity obviously, we have plenty of room to grow and both and I think.
What we're seeing on the solution side certainly is most of that growth is coming from franchise dealers, both for fuel and dealer inspire but our marketplace subscriptions are growing in both segments of the market used cars. Obviously, you are picking up momentum because of the chip shortage and so thats part of the growth that we're seeing in both January and February.
This year.
So we're pleased with the growth in both sides for marketplace.
Okay and in terms of online shopper and conversations.
You gave some statistics of the penetration for Q4 I believe.
And what was what were the comparison percentages there.
And what were those versus Q3.
Share both of these platforms are low penetration today, because we're adding web sites at a brisk pace, Gary so even though the penetration rates that we use and the scrip or roughly and the low twenty's.
And as website sales grow that penetration rate can grow with it.
We certainly see tremendous upside and our solution strategy, both websites as a core but also and conversations and online shopper I mean, if you if you pan back and they're both and low single digit percentages of the industry. So.
These are growth opportunities and platforms per upsells that our sales force is actively adding every day.
Okay and that those debt for those percentages were as a percentage of your websites right.
Correct.
And then if you look at the total market the opportunity here is even greater Okay, and then just lastly.
You gave the talked about website referral traffic that you guys are clicking through it.
All of a much higher rate is that kind of a new measure of attribution that youre going out and using what's the dealerships.
It's always been there Gary but I think what's happening is dealerships are really evaluating what's driving the sales. So many dealers are using digital retail tools today and.
But we were able to deep link are to users directly into their digital retail systems. The dealers are starting to see the qualitative aspects of our audience, which is converting at two times the rate of all of the other traffic sources combined and so when you think about how much the dealer stands and search for example, OLED to get small.
Percentage of that traffic to convert versus cars, the dot com, which the majority of the the people we're sending into the dealer's website are converting I think dealers are now starting to recognize what we've been saying all along which is you can't replicate the high intentionality of and end market marketplace like part of.
Dot com and so we're certainly accelerating the training and education through Google analytics, and our own proprietary tracking tools prism, but dealerships are recognizing the quality of our traffic more than ever.
Thank you very much.
Our next question comes from Tom White from D. A Davidson your line is open.
Great. Thanks, Doug Let's try this again can you guys hear me Okay now.
Perfect Tom.
Okay great.
Hopefully someone did ask about kind of the the marketing question, but it sounds like you guys are maybe.
Considering or have already started sort of maybe re tilting your ear of marketing mix, a little bit more in favor of of brand centric spend so could you maybe just elaborate a bit more on kind of the the rationale behind that shift it.
And if indeed it is a.
The shift and.
And maybe how we should think about kind of the the timelines for.
You know sort of of the payback of the ROI on on kind of more brand spend and.
And the mix versus how you guys use the.
Do it before and then just a follow up on national advertising I know its notoriously hard to forecast, but if you could give us any sense of your current thinking on kind of the range of outcomes for for that line item. This year that'd be helpful.
Absolutely Tom I'll start on the marketing mix, and then and so and you add color.
First of all of its hard to not just comment that we had just an incredible year on the traffic side following a really robust 2019 and so.
And our traffic was up 8% year over year, our UV is up 5% and importantly, our leads up 13% and 2020 and so the value delivery that we are generating for our dealers is what's driving incredible retention rates and obviously part of the formula for dealer growth.
And so we made a shift towards investing and the brand and the fourth quarter, because we felt like we had nailed the value of delivery equation really well throughout 2020 and that again has been building on a strong pickup and 19.
And our media mix is always kind of ebb and flow based on seasonality and what the market.
Requires and so we're being very deliberate in terms of investing and the brand to ensure sustained and strong performance throughout 2020, I guess the other comment I'd make is that we are going to run up against really tough comps throughout 2020.
I think the shelter at home restrictions really elevated traffic levels in 2020, which will make it difficult for us to lap that comp, which was wide point. The quality. We have a steady stream of buyers that were generating for our dealers and I don't see any challenge and of sustaining our value delivery from you what else would get and the media mix.
Yes, and I think you covered a lot of it Alex I think overall, we expect that the marketing spend increase and Q1 on a year over year basis and.
And it's going to be increasing on both the performance marketing side as well as the brand side, but on the brand side, a little bit more heavily since that's one of the areas that we pulled back, particularly significantly during COVID-19 and to Alex's point I think one of the real Differentiators and easy for our business is the strength of our organic traffic and.
And the investment and brand is really going to support the continued health and growth there and our organic cash generation.
Great point and on the National front Tom.
And as a little bit lumpy I think it's always a little bit lower and the first half of the year versus the second half and so we see that continuing this year, particularly because of the chip shortages Oems I think youre going to be a little bit more.
Cautious and the first half of this year, and we will see nice pickup and the second half, which will help on the EBITDA margin side, but the business is fundamentally with the.
And we've hit an inflection point, particularly with the growing.
Privacy implications that are happening Oems are realizing that reaching end market shoppers directly at the stores is going to be of more reliable investment and a lot of the data inferred models a bit of relied on in the past and so I think the business is well positioned.
Great. Thanks, guys appreciate it.
Our next question comes from Nick Jones of Citi. Your line is open.
Great. Thanks for the questions.
I guess two.
As you win new day.
Using the dealers by the web sites and is there.
All of these dealers kind of and the curve of adopting more of the solutions.
How does that kind of offers I mean is there is there kind of still quite of bit of runway to go.
And kind of more spend to the advertising products and then I guess the second question is.
Dealers.
Are really scrutinizing, how theyre getting leads and particularly digitally and so a lot of Joseph has been closed.
Out of the tire to kind of dealer growth throughout the year. I mean is it is it fair to assume maybe dealer count starts to accelerate and us.
Sequentially throughout the year as people start to figure out the best way to get leads.
Thanks for the question, Nick well first of all I think one of the things that the Covid did was it is accelerated dealers desire to invest and digital solutions and platforms and we certainly see this and our DIY website business. It went from a business, where we were doing more outbound.
Sales do you have a lot more inbound dealer interest and obviously part of that was driven by the the.
Of course closures of the showrooms, but I think what you saw in 2020 as dealers started reporting record profits and they were cutting back on their physical staffs in favor of investing and digital tools and so.
Dealers are very aware now that the digital format is the most profitable and efficient ways for them to run the business and I think that will have a lasting implications on the industry well beyond COVID-19 and so we're seeing the growth on DIY site, and our technology tools and accelerate across the entire mark.
And I don't think there is a.
Curve here. This is all dealers are now focusing on how do I get to the profitability that we enjoyed during the COVID-19 restrictions I think number two.
The dealers of evaluating performance I think this is also where we shine.
A lot of other marketplaces are merely lead arbitrage markets. The generate a lot of leads at a very low closing percent ever.
Every dealer out there will say that they closed the leads from their own website at the highest rate oftentimes two times with the C and other marketplaces.
And were driving the majority of traffic and the dealers website and so I think this is one we made the announcement of NAV.
The about our impact on dealer website performance dealerships are scrutinizing that and.
And what sources of driving the most traffic into the web sites and were generating three times more than our nearest marketplace competitors.
Alright, Thanks Ross.
Our next question comes from Dan Kiernan and with benchmark. Your line is open.
Great. Thanks, and good morning, Alex how are you just kind of follow up a little bit just on sort of the philosophical way.
The whole space attacking the market here, obviously and other common refrain now.
Channel conflict between the day.
The dealers developing their own digital tools on the digital retail side and then obviously you have some competitors that are trying to get.
Kind of Penny perfect pricing.
And kind of replicate that showroom experience I know you guys.
You have kind of a wider range of you spent a lot of time talking about the.
The advertising and lead drive angle and increase conversion. So just maybe your thoughts on.
No.
And how you kind of walk.
Tight rope from here and to the second part of my question and I think you made some some pretty clear comment and again and maybe I don't want to misread this but it seem like inorganic it's certainly still part of the equation here and just curious what tools do you think you are sort of missing at this point or the areas, where you think based on.
And on the products you have that would be the greatest adjacent areas of opportunity.
Thanks, Dan well first of all I think and on the channel conflict side.
There is not a new phenomenon and the dealers want to convert sales on their own properties. That's been a consistent since the dawn of our business and I think that's why we've played an active role and helping show dealers that were of demand Gen platform for their own platforms.
And why all of the large <unk>.
Branded national entities feature the inventory on cars because they know it is of high quality reliable source of sales.
That's really the ethos of our business is we're aggregating demand because consumers are largely undecided about what to buy and where to buy it and retailers need to be featured in those wells, where consumers are making those decisions using our rate and choosing our reviews using our content.
And to help inform what they should buy.
As far as the tools go Theres, a lot of innovation happening and the market where dealers are.
Investing heavily in sophistication to convert more of traffic to sales and.
And that's where our solution strategy is robust and growing and an accelerated rate.
We just won awards as being the best website provider and the category as recent as last week and.
And we continue to take market share. There. So we think we're well positioned to ride a lot of the growth the dealers are going to invest and their own websites and the tools that theyre going to use and we certainly have we're just scratching the surface on our on this business, both with fuel and our website business and our digital tools.
And on the inorganic side, Alex just maybe thoughts on the adjacencies or areas that you could kind of shore up that portfolio.
Well sure I think.
We're just scratching the surface on our existing investments and innovation.
And what fuel, even though it's a year old it's barely scratching the surface in terms of the opportunity we have there and so we feel really good about our growth trajectory on an existing business I think if you're asking about what other areas. We can invest and for growth I think certainly anything that the dealer today you can assume.
And capital to manage we think we can complement their operation with technology and so anything of the dealer has workflow.
The required labor you can be assured that we're innovating and testing and learning in terms of how we can bring technology to solve problems to help dealers run more efficiently.
Okay.
Alright, great. Thanks appreciate it.
Your next question comes from Marvin Fong with <unk>. Your line is now open.
Marvin Fong your line is open.
Hi, sorry about that.
Yeah.
Two questions just to start with the great to share again, the retention rates are very strong if I missed that I apologize, but could you just talk about how your prospecting is going you know the inflow.
Of new customers and how their efforts are going in terms of recapturing dealers the churn during the Covid period, and then I have a follow up.
Well two things Marvin.
I'm glad you noted that the record retention rates, we think is a function of our.
Great traffic growth and our organic concentration of traffic rights of the dealers know that this is traffic that they can't buy elsewhere and.
And that is part of our strong retention, but as we noted we had strong dealer growth in January and in February and so.
So that's been steady, but I would also point to our solutions stability here and growth during the Covid pandemic dealers didnt cut their website the cut back on a lot of advertising across the board. It wasn't specific to any performance issues on any vendor they just cut back, but they did and on the website.
And so you saw the resilience and the business and 2020, because we weathered the COVID-19 pandemic other than any of our peers I think the adding dealers back we're going to have the we'll lap the Q2.
Cancellations from Covid.
And then Youll see a great second half because we're going to be lapping that dealer loss on the anything what would you add.
I think I think in terms of the momentum we've seen and the second half of the year, it's been a combination.
Dealers that are true.
And in Q2 related to Covid, along with really really healthy new sales pipeline that we've been seeing so with the combination of both of our names and I think the kind of complement with Alex that I think the accident and game has changed a little of that with cobalt with dealers and you think recognizing the value of the traffic we bring to them along with us leveraging our data.
For example, the the data we shared with you on DIY platelets.
Terrific. Thanks, and then my follow up I, just wanted to drill down a little more on the Gi business, though the.
The customer base of 38% I think you had said from the revenue was up 22% and obviously I understand the lag effect as the Onboarding as you can just update us I mean, how are pretty much all of the GM dealers onboard and now and then as we look the FY 'twenty one.
Can we think about.
The revenue kind of converging closer to where the client the customer growth has been that'd be great. Thanks.
Yes, the Wii.
So actually have and number of the original 800, Gms and we're feeling the pie.
And for a launch in 2021, I think overall from a from a growth perspective.
We think there is still a very substantial opportunity for growth here just on the basis of the kind of where the existing businesses. If you think about the launches that we had in 2028 day were back half weighted and so as you look at 2021 will benefit from the full annual day of.
Of those websites that we launched in 2020. In addition to the remaining GM website, along with our existing pipeline of launches.
We have slated for this year.
Is it does get a little bit more challenging as the revenue base growth to keep pace with the same rate of growth, but we think we have a lot of opportunity just on the bank's website business not to mentioned continuing to grow our conversations and online online shopper.
Does that help answer the question yes.
Perfect. Thanks, so much from it.
Great.
Our next question comes from Doug Arthur with Huber Research. Your line is now open.
Yeah. Thanks, two questions.
So and you just to clarify on the dealer count and 18372 the.
When you talk about 4400 D. I websites of I assume that is not 4400 dealers per se and is that in the eight eight.
<unk> thousand 372 or is that separate.
Yes, so so website customers don't necessarily translate one to one.
Dealer count however of the 18372 does include all of the Gi dealer customers.
Okay.
And because based on the 38% it looks like it was about 3200 and give or take a year ago up to 4400, but again, it's not one to one as you say.
They're going to be some customers who used <unk>.
The product as well as our marketplace customers. So we effectively the deep the keane groups to get to the 18000. Please.
Okay.
And then just a clarification.
When you were pretty clear on obviously margins for Q1.
Can you just reiterate what you said of that sort of the.
And the dealer of the the revenue trend in Q1 year over year.
Yeah, So I think as we talked about.
Really really pleased with the performance of bond the second half of the year and the momentum that we're bringing into Q1, but nevertheless, it is a challenging pre COVID-19 comp for us and I think from a revenue perspective, maybe I'd highlight few of the areas that make it a little bit more of a challenging comp right. Despite the dealer account growth of <unk>.
At the end of the year and into this year, we're still going to be down and dealer count, which certainly presents some challenges and growing client marketplace revenue and then the second component and it's just a reminder of that national revenue does tend to be a little bit Steve and all of it a stronger second half and first half and and that's also a very high <unk>.
And business right, which is also slowing down through to the margin making right.
Okay, great. Thank you.
There are no further questions in queue at this time I will turn the call back over to Alex Vetter for closing comments.
Thanks for joining us today and have a great rest of week.
This concludes today's conference call you may now disconnect.
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