Q2 2021 CarGurus Inc Earnings Call
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Business that may be considered forward looking within applicable a security thoughts Inc.
Including statements concerning our outlook for the third quarter 2021, management's expectations for our future financial and operational performance and innovation are business strategies and growth strategies.
Our expectations for our car off for acquisition a value proposition of a product offering a growth investment performance and profitability and international market the potential impact of the COVID-19 pandemic on other macro level industry issues on our business and financial results and other statements regarding our plans prospect.
And expectations a.
A statement or not promises or guarantees and are subject to a risk and uncertainties, which could cause them to differ materially from actual results.
Information concerning those risks it's available in our earnings press release your sebree it after a market close today.
And in our most recent reports on forms 10-K, and 10-Q, which along with R. A.
Leather S. A SEC filings can be found on the S. A C website and and the Investor Relations section of our website. We undertake no obligation to update forward looking statements, except as required by law.
Please.
And last week, we launched cargos instant Max cash offer.
As we continue to expand our product portfolio. We believe we are well positioned to capitalize on these offerings and provide our dealers and consumers with end to end solutions to meet their evolving needs.
Now I'll walk through our results beginning with our foundational core listings business.
Our U S listings business demonstrated a remarkable resiliency and efficiency despite industry wide headwinds, we remain incredibly efficient and a marketing spend which helped drive improved margins both year over year and sequentially.
While the chip shortage caused us a pause our normal renewal rate increases and also resulted in a decline in paying dealers. Overall, we're pleased with the durability of the core business and are thrilled to have achieved a marketplace subscription and revenue plans this quarter.
As we mentioned last quarter, we remain focused on attracting lower funnel high intent shoppers to our site who are on.
More informed and ready to purchase.
Carter's upcoming 2021 buyer insights report revealed Carter as a 3 times more likely than other major U S. Automotive marketplaces to be the final auto shopping site visited by consumers before purchase further solidifying the value proposition we provides a dealers.
As we continue to drive lower funnel traffic to our site, we've seen an increase in leads to paying dealers year over year a 7%.
Our ability to provide more leads while the number of average monthly unique visitors and sessions are down year over year demonstrates the quality of our traffic and improved efficiency in our consumer acquisition strategy.
As we focus on high intent consumers and provide a more targeted and relevant consumer content. We believe we are generating higher quality leads for our dealer base.
We also continue to realize durable efficiencies by spending judiciously in line with our strategy to monetize leads via a growing paying dealers and increase in quarterly average revenue per subscribing dealer or Carson.
In Q2, we spent marginally less on marketing compared to last quarter, driven primarily by a reduction in our a ta spend.
While we plan to remain prudent in our consumer marketing spend going forward, we anticipate that we will need to invest more on marketing as inventory constraints ease in the coming quarters.
As a number 1 traffic U S automotive marketplace for Q2.2021. According to Comscore Carter's is an integral part of the dealer ecosystem and remains a preferred listings platform.
Even while dealers materially pulled back marketing and advertising spend in aggregate, we saw a minimal net dealer decline a 421 paying dealers in the U S down just 2% quarter over quarter.
Recognizing the uncertainty dealer space, we once again supported dealers by generally pausing rate increases during renewals despite a growing lead volume.
Even so we saw improved cars did both quarter over quarter and year over year.
<unk> was $5550 for Q2, representing a 2% increase quarter over quarter, primarily attributable to revenue expansion within our existing dealer base.
Including same product rate increases as well as upgrades to a premium listings products, even during a period a challenged inventory.
Turning to our international markets. We are thrilled to report that we delivered on a commitment of reaching profitability in Canada and expect to continue to grow top line revenue and remain profitable in that market.
Momentum from our international business in Q1 propelled our Q2 growth.
What a trip shortage the international market exceeded our expectations in queue too.
We remain excited about the opportunities in both Canada M. A U K and about providing our international dealers and consumers with transparent efficient and competitive solutions.
A profitability in Canada validates our hypothesis that our model can be successful in other markets and we look forward to growing and investing in our international business further.
<unk> is the market leader in the U S listings business and as a macro environment normalizes, we look forward to a core business both on the U S and internationally meaningfully reaccelerating as we seek to resume renewals upsell additional products and capture an even larger percentage of dealers share a what.
Moving on to a wholesale business you could not be more thrilled with a rapid growth and adoption a car offer.
A car offers instant trade platform allows dealers to transact automatically and at any time using rules based strategies, rather than time consuming option to create a buying and selling a experience that is unlike any other dealers a deal or a wholesale marketplace today.
The matrix enables dealers to buy and sell using limit orders saving them, a time inexpensive physically going to an auction.
In addition car offers flat fee pricing structure can save dealers hundreds of dollars per unit, an option fee, especially if more expensive frontline ready units.
With efficiency at its core every car off a transaction is supported by a robust back end operations, including a thorough inspection process reliable and timely transportation and seamless payment processing.
Having a completed our acquisition only 2 quarters ago were still on the early stages of leveraging the power of the combined car offer and cargo roof platforms reading, a more efficient and transparent solution that better integrates a retail and wholesale segments in powerful ways.
The need for the industry. It's first instant trade platform per vehicles as evidenced by car offers rapid growth and adoption.
A incredibly impressed to see a business that has been operating for less than 2 years achieve strong top and bottom line growth.
And Q2 car offers a momentum drove sequential month over a month revenue in transaction growth.
As a business continues to scale, we are investing heavily in hiring dealer sales and training and implementation teams to on board and support dealers to gain the most leverage from this innovative platform.
The increase in demand as further validated by the 210% quarter over quarter growth in revenue and the approximately 50 per cent increase in enrolled rooftops corporate a reporter.
At the end a Q2, we had approximately 5500 enrolled rooftops.
We also reported the queue to aggregate sale price of all vehicles sold by dealers on the car off a platform also known as gross merchandise sales a approximately $1 billion a material increase of 289 per cent corner over quota.
Similarly, we saw a transaction volume increased approximately 3 times a quarter over quota as well as heightened adoption for ancillary products as dealers continue to look for solutions to source inventory and drive profit.
We do anticipate these trends will stabilize as a semiconductor chip shortage is expected to normalize later this year.
You're beginning to see early signs and that's with a number of transactions in July modestly declining month over a month.
The true potential a car offers unlocked when you combine the instant trade technology with Carter, that's networks, a dealers and consumers to create a truly differentiate it offering.
As we tap into our collective power to provide consumers and dealers with enhanced capabilities as a product offerings, we recently announced a launch a carter's instant Max cash offer bigger.
Beginning in select markets consumers in Florida, Massachusetts, and Texas can sell their vehicles to are participating dealers 100 per cent on line.
We are harnessing the car off for buying matrix technology, and our combined network of dealers with their standing by orders for vehicles to instantly presented consumers with the highest offer available from thousands of dealerships.
Match vehicles are conveniently picked up the a white gloved concierge service inspected and delivered to the dealers a lot, helping save both time and money.
This new offering disrupts the way consumers and dealers think about vehicle trade in sales.
Parker a instant Max cash offer is inefficient inventory acquisition channel that will give dealers nationwide access to a previously unattainable source, a inventory, allowing them to compete with online retailers.
Meanwhile, consumers can sell confidently on line by receiving the highest instant offer a from a network of dealers minimizing the need to haggle a question if they're a better offers.
Consumers now have a more competitive online sales option with partners instant Max cash offer the industry's newest solution to an outdated inefficient and it'll pay process.
Here's a are happy customer Erica from Florida, I had to say about the experience.
I'm just over the Moon excited about the process I'm very thankful I would do it again, if I have a vehicle again to sell on the future partners is the only company that I will contact you guys were amazing.
Collectively with Carter is instant Max cash offer and a retail wholesale price them to us. We believe we are uniquely positioned to capture a considerable portion of the peer to peer consumer to dealer and dealer to dealer market.
Parker is is the only U S marketplace, where the largest network of dealers and the largest consumer audience can transact instantly and that's scale using our instant trade in Prebid technology.
A differentiated capabilities allowed a dealerships to remain competitive and thrive as a landscape or a car buying a balls.
COVID-19 dramatically accelerated the adoption of digitally initiated transactions by consumers interested in completing more elements a car shopping online.
We believe these new offerings, along with our digital retail toolkit level, the playing field per dealerships and we'll help them not only gain access to a new source a inventory, but also gain a competitive position amidst this new digitally initiated environment.
So now let's discuss digital retail.
The COVID-19 pandemic shifted the paradigm per vehicle purchases and accelerated both consumer desire and dealer adoption digitally initiated retail capabilities.
Advance as a part of their digital checkout, improving the overall quality of down final prequalified leads provided to dealers.
Moreover of the card or a shoppers that completed their personalised deal on line in June 46% chose to have their vehicle delivered further bolstering our ability to monetize our digital retail capabilities.
This is just the start for digital retail in the near term we are continuing to invest in digital retail from a partnership technology and head count standpoint.
Driven by consumer and dealer demand for digitally initiated solutions, we view this as a sizeable market opportunity.
We believe we are best positioned to capture a significant market share with our unmatched selection of inventory and competitive purchase and trade in pricing.
A couple that with a vast consumer audience empowered by freedom of choice convenience and trust and we believe we have a platform that is poised for success as a transaction on marketplace.
We expect 2021 will mark the transformation of the digital retail opportunity for dealers, who are unable to provide you a solution to consumers on their own and or wish to acquire more shoppers to our platform.
We look forward to releasing more of our digitally initiated offerings later this year as a further advance a digital retail capabilities.
We were thrilled with our queue to results, while we did anticipate Tom headwinds this quarter from a global chip shortage on depleted auto inventory.
With the efficiency and resiliency, a our core business and that the momentum a car off for offset these headwinds and exceeded our expectations.
Now more than ever we feel that Carter's is becoming a fully integrated transaction enabled marketplace for consumers and dealers.
As we continue to build out our capabilities, we believe a consumer and dealer audiences unrivalled R. A y and unparalleled digital wholesale and digital retail solutions have let us do an inflection point in a company's history and we were excited to unlock a truly differentiated offerings for consumers and dealers over the near term as a retail and wholesale a shopping experience.
As we completed another quarter, a remote work because of the COVID-19 pandemic.
Hopefully at the prospect of reuniting our team together once again.
We are keenly aware of the difficulty experienced by everyone in the last year and a half.
And be on grateful for the team, we have a cargo room, and a cough or for their relentless dedication and commitment.
We've had many milestones since we began working remotely and these achievements would not a impossible without a incredible employees globally, who embody a core values day in a day out.
With that I'll turn it over to Scott to discuss our financial results.
Thank you Jason I will provide a detailed overview of our second quarter performance followed by a hour guidance for the third quarter of 2021.
If we're discussing the details of a corner I would like to highlight that all year of a your values are compared to as a reported Q2.2020 numbers, which include COVID-19, and just spilling discounts given last year, a approximately $47 million, our second quarter Twenty-twenty press release hasn't adjusted pro.
Form a reconciliation of those discounts added back for comparison purposes.
Total second quarter 2021 revenue was 217.7 million up 130% a year over year and nearly 26 million a head on the high end of our most recent guidance range.
Oh, a marketplace subscription revenue grew 80 per cent versus a year ago period to 144.2 million.
Jason mentioned earlier this was a in line with our expectations for the corner a based on a inventory issues affecting the industry and a dealer customers on.
Other revenue and a second quarter grew a 397% a year over year to 73.5 million. This is where we demonstrated outside performance driven by a car offer that significantly exceeded our forecast for the business.
Or a guidance included an estimate that car per would roughly double from a Q1's 18.5 million pro forma revenue, but as you can see an hour a investor presentation and as a reported in or a 10-Q. The revenue for the quarter was 57.3 million a 210 per cent increase from Q1.
That's a remarkable a result from a car for a team as well as the efforts from a cargo regime that is helping accelerate growth on demand for inventories solutions remains a priority for most dealers.
R. A U S. A business generated a 134.1 million and marketplace subscription revenue and a second quarter and our international business generate a 10.2 million in a marketplace subscription revenue.
A U S accounted for 95 per cent a total revenue on a second quarter.
U S revenue increased 130 per cent versus a year ago period to 206.6 million and our international revenue.
Increased 124 per cent year over a year to 11.2 million the.
The increase in U S revenue is largely attributable to increased revenue and a quarter from car offer. Additionally.
Additionally, a year over year a growth in both U S and international revenue is also in part due to the fee reductions we provided hour paying dealers and Q2.2020 in response to the challenges the COVID-19 pandemic created for our dealers.
Turning to paying dealer accounts, we ended Q2 with 30727 total paying dealers representing a decrease a $486 on Q1, and then increase a 469 versus a year ago period.
In the U S. We finished with a quarter with 23950 paying dealers, which is a decrease a 421 dealers from the end of the first quarter.
The decrease in paying deal account is primarily due to the macroeconomic conditions related to the semiconductor chip shortage, which caused dealers to pull back on a marketing spend as they remained inventories constrained.
It's worth noting that in a queue to dealer retention was in line with Q1, when we grew paying dealer accounts.
A primary driver behind declining counts for on the end of Q1 is that we saw a few a new dealers join a cargo was platform as a paying dealer while inventory remains constrained.
And our international business, we finished a second quarter with 6777 international paying dealers a decrease of 65 from the end of the first quarter.
Our international business, a strong deal a reduction in Canada with modest deal a churn in the U K.
We continue to monitor the chip issue and inventories shortage closely and I expect that inventory levels are likely to return to more normal levels. Later this year.
In July we saw a U S and international Pangu has remained relatively stable with Q2 ending accounts and we are encouraged by this recent trend.
In a second quarter U S. Carson was $5550, representing a 2 per cent increase compared to the prior quarter and and 82 per cent increase compared to the year ago a period.
A quarter of a quarter growth in a car said was primarily driven by revenue expansion among existing franchise dealers, including dealers that upgraded to a premium listings products featured or a featured priority.
International Carson was $1491, representing a 34 per cent increase compared to the prior quarter and a 132 per cent increase compared to the year ago period.
Order a a quarter of an international per cent growth was primarily driven by discounts provided in Q1, 2 UK dealers as well as revenue expansion among dealers in Canada.
Yeah.
We continue to allocate resources as needed to manage near term business needs and support longer term growth initiatives across all 3 areas of our business listings digital wholesale and digital retailing.
We generated non-GAAP operating income of $68.9 million, representing a margin of 32% and roughly $29 million ahead of the high end of our guidance range.
Non-GAAP diluted earnings per share attributable to common stockholders was 41 for the second quarter 16 above the high end of our guidance range.
On a GAAP basis, we generated first quarter gross margin of 77%.
And incurred total operating expenses of $129 million up roughly 69% year over year the.
The increase in operating expenses was primarily driven by an increase in our expenses compared to the prior years cost monetization efforts in response to the COVID-19 pandemic.
Second quarter GAAP operating income increased 342% year over year to $38.5 million.
Second quarter GAAP net income attributable to common shareholders totaled $28.1 million.
Geographically second quarter U S. GAAP operating income was $40.2 million up 162% year over year.
On a GAAP operating loss of $1.7 million in our international business compared to a $6.6 million loss in a year ago quarter.
We ended the second quarter with $269.6 million in cash and investments an increase of $28.9 million from the end of the first quarter. The increase in our cash balance was driven primarily by our second quarter profitability.
We generated $37.5 million in cash from operations on a second quarter and $32.9 million of non-GAAP free cash flow, which includes capital expenditures and capitalized website development costs of $1.1 million.
I'll close my prepared remarks, with our outlook for the third quarter of 2021.
We expect our third quarter revenue to be in a range of $210 million to $216 million non-GAAP operating income in a range of 53 to 57 million and non-GAAP earnings per share in a range of 30 to 32.
After such a large beat of our Q2 guidance I want to expand on why our Q3 revenue guidance is not increasing quarter over quarter.
The inventory constraints continue to create a challenging environment for dealers in the near term and we ended Q2 with net paying dealer declines, which in a subscription business. That's the run rate lower for Q3 lower than Q2.
Second with anticipated seasonal slowdowns in car shopping and a second half of the year, our core listings business as well as the car for a wholesale business may be directly impacted.
As I mentioned earlier, we are encouraged by recent trends with paying dealer count in July and as inventory returns to a anticipated normal levels over the near term. We believe we will eventually see net positive paying dealer count additions each quarter like we saw in Q1.
1 final comment as you adjust your models I would like to point out that transactions from our recently announced cargos instant Max cash offer will be accounted for on a gross basis.
We would include the gross value of the vehicle and a transaction as well as the transaction fees.
This has the potential to meaningfully impact revenue numbers in upcoming quarters, but since this product just launched in 3 states. These transactions are excluded from our Q3 guidance figures and could result in upside if we see significant consumer and dealer adoption in our initial limited market release.
With that I will echo Jason sentiment that we are incredibly excited for the future and growing the business as a fully integrated transaction enabled marketplace for consumers and dealers now I'll turn it back over to the operator, and we can open up the call for Q&A.
We will now begin the question and answer session.
To ask a question press Star then 1 on a touchtone phone.
You are using a speakerphone please pick up your handset before pressing the keys to withdraw your question Press Star then 2.
Yeah.
And the first question comes from Dan <unk> with the Benchmark company. Please go ahead.
Great. Thanks, a good.
Good evening, obviously, a nice quarter guys.
On <unk>.
Fair question, Jason I guess just out of the box.
If the Max just help us think about sort of.
Roadmap, what youre looking for timing.
You know kind of how you set the buy box relative to what is on.
On the car offer a platform margin just anything that just helps us think about.
The way that you are setting the south and then on.
The asleep be consumer facing you guys again, maybe a little early to ask this but just in terms of the way that you guys look at kind of marketing spend on your historical.
Acknowledged sort of lower unaided brand awareness. This obviously brings a whole new leg.
This tool for you guys have been excellent.
A customer acquisition.
Does this end up driving incremental marketing efficiencies you put some more money behind this you know depending on how the pilot goes just help us think through a way that you get this program that's in the marketplace and maybe some of a follow on effects that could have on sort of the quarter.
A core business.
Sure Thanks, Dan Jason here.
There was a lot in that so I'll try and I'll try and parse some of it out so on a yes on the instant cash Max offer.
We've launched it in 3 states.
And we.
We will expand beyond that in the near term.
But we're.
Excited about the very early traction that we're seeing in those 3 states.
It is a.
Is seamless I mean, it's a concierge service to the consumer.
And they get the offer.
Excuse me if they get the offer immediately.
And upload their docs and a rescheduled.
We scheduled to pick up and so it's very easy for them you mentioned a buy button on your question I mean, there's a sort of the opposite if you can sell a button I guess, but it is as close to a sell a button as there is out there.
This absolutely can drive a.
Can drive marketing.
<unk>.
By that I mean, we do plan to market This service.
And we do believe that this gives people another reason to come to us and so by that token.
From a broader perspective, it could also drive marketing efficiency, because we now have more solutions to market to consumers more reasons to come to a site and hopefully.
We when we help someone pellekar a that we then are a natural person a natural partner for them to go buy a car.
To help them buy a car. So we think it's big in its own right.
And we think that it fits really nicely as a complement to how we help consumers find a car they want a buy in as you heard from a remarks.
We're going down a path of helping them actually buy so.
We.
No view ourselves as working toward.
This transaction model that allows them to sell with a click of a button and buy with a click of a button.
That's helpful and just to be clear I mean since you guys have owned it for a whopping what 6 months now or whatever it is.
Just on car offer and thinking about it I think Scott thanks for the color on the <unk> Guide.
I mean should we be modeling that as sort of similar seasonality I know it's early on.
Or might there be puts and takes depending on a free.
Let's assume theres, a normalized environment, just trying to think going forward, how we should think about how car offer would flow throughout the year.
Yeah, I'll give some feedback and Sam can jump in if he wants to so what I'd say is.
As they if they were at maturity, which then on Ben.
Been a hyper growth mode, especially on the <unk>.
Last 6 months really 9 months.
I would say that sort of normal seasonality would kick in in a second half of the year and since it's not a subscription business, 100% transactional.
That's something that you could see a second half softening versus first half.
I think there is these aren't normal times and also on the evolution of a company there is still strong adoption going on.
But I think it's a mix of dealer adoption and also a throughput on a per dealer basis. So were looking at that trying to trying to get our arms around it with that team.
So these aren't normal times.
Evolution of the company a theres still early but.
Under normal circumstances, the business was more mature it's a yes, we'd see a typical softness in second half of the year.
Got it Super helpful. Thanks, guys.
Of course through all of them.
The next question comes from Ralph <unk> with William Blair. Please go ahead.
Good afternoon, and thanks for taking the question Jason on the prepared remarks, you talked about you know the business reached an inflection point with some of the products and services today than on a call you talked about I think adding some more services a products maybe kind of just frame the opportunity going forward what would some of those products and services B, perhaps you don't have to think about.
Sort of as a consumer go on the dealership dip tax title place et cetera. So just trying to understand if you're you know 1 day trying to be sort of a 1 stop shop either per white label for a dealership and doors a consumer to do all the transactions on your on your website or you're a marketplace with sort of a love your thoughts on that.
Sure.
Hey, Ralph a good.
Good to hear from you. Thank you.
Yes, we we intent I mean, when we talk about digital retail it's us empowering a.
You know and in a.
Empowering and enabling dealers to sell their inventory online through us.
And so.
All of the aspects of the transaction that you just mentioned a few tax title.
There's a transaction itself theres the other F&I products, there's a trade in there you know it's all of the steps that you can think of a we would enable the dealer a to.
To do those at their inventory on our site and we would be the.
The group that is a helping.
Helping the dealer.
Complete all of those steps on a platform seamlessly to the consumer.
And so you know.
That is when people talk about the buy button that that is the buy button, that's what we're working toward a.
And when.
When we have that.
And a great example, as is trading with car offers as the backbone.
Is a perfect example of how we think we're gonna have a.
On a competitive edge.
With our digital retail offering because we're going to give the consumer we believe more choice and a form of more inventory for more dealers rather than single dealer inventory.
Gonna get them likely more choice, a financing and other options across dealers.
With that choice typically comes better pricing.
And we're also going to give them the convenience and sort of.
Optionality to completed fully on line or to go into the dealer.
If they if they do want to go on to the dealer.
And then a layer of trust as well with a the.
You know a consumer handling that we are planning to 2 and have started to build out.
So they can have sort of all the benefits of a selection and choice and then a single single point, a trust to come too which would be us.
So and a.
Again, you know trade in the example, I used on trade in a.
<unk> works.
When you're selling it to the dealer from whom you're buying and that has certain advantages.
If it's not a seamless transaction like that where you're doing a trade and then a we do have other options and P to P and instant cash back software as well so a.
You know we've we've.
Instead it in these remarks, but we really do intend to have and believe we will have a.
The most complete platform for both consumers and dealers to buy and sell their cars.
And that May take the form of dealer to consumer a consumer to dealer dealer to dealer.
When people think about buying or selling a car.
We want them.
To use us.
A really helpful. Just maybe 1 more Scott.
Could you just remind me you talked about car off for a gross margin scaling just kind of remind me you know where we think those could go longer term and sort of what's the I guess, the the cogs component within that business versus sort of the listing business. Thank you.
Sure, we haven't said, where it's going I'm, sorry, I can't really comment there.
Within that business is on the people side, there's on boarding a service folks that we have that basically.
Bring the dealers up to speed getting a training on a matrix and so forth then there's a pass through cost for inspections and delivery goes on.
On a major items.
Okay, that's actually if I could sneak 1 more on just on the instant cash offer that's in 3 states you know can.
Can you provide maybe any color or sense of a rollout plan you know I guess why those 3 states are there any sort of regulations a as you go state by state without a that product. Thank you.
I can I can take that and staying with you on a if you want to add a.
There are some regulatory.
You know considerations to make a.
But 3 states in this case was we wanted to pilot to make sure that operationally, we were providing a great experience a.
3 states happened to be a.
2 out of the 3 haven't been a larger states with maybe a a lot of a.
Dealer penetration and so it's actually like a pretty good chunk of the country a more than $3.50, that's for sure.
A.
And yeah, we we expect to rollout a more states.
In pretty short order.
We expect a quite a bit of a geographic expansion progresses here.
Right. Thanks, Jason Thanks, Scott.
Uh huh.
Okay.
The next question comes from Jed Kelly with Oppenheimer. Please go ahead.
Hey, great. Thanks for taking my questions I'm, just just Scott maybe on a follow up can you just discuss what drove the gross margin improvement and car offer and then when we're looking kind of.
Over the next couple of quarters with a car offer should we think about it growing past seasonality trends just because you're the velocity of new dealers you can add and how should we view that versus seasonality.
Yeah, I mean, so the on a growth standpoint, I'll, let Sam take that after because.
That's something that the team and in a sort of figuring out a day.
Dealer adoption I think is has gotten a bit of a tailwind for sure from the inventory situation.
Probably some dealers out there that you.
You know that otherwise may not have have jumped on car for but certainly trying them out well there.
Searching for inventory.
But I'll, let Sam touch on that for with regards to.
The improvement in margin as part of a scale.
We just have so many dealers jumping on and a team knows is updated capacity from an on boarding standpoint, so we've done well there and we put more resources and so what we'd say a more a account management customer success and sales versus what would be a cost a bit.
Sales for <unk> versus <unk>.
Sort of a traditional onboarding. So a reclassification of some resources also move that a little bit.
Yeah I'll jump in thanks for your question on future growth with Colorado, or we don't I don't want a project exactly where that's going to go you know that the major players in the auction industry see seasonal downside in the later part of a year the last 4 months or so.
Thing I can say is you're asking really thoughtful question. They they are growing through and blowing through some of the expectations. We had certainly a.
Our expectation of enrollments.
From customers just jumping on that program, it's truly an innovative capability. There is no instant trade platform anywhere in the marketplace. So the.
On the enrollments the installations crushed our expectations the transactions that those dealers are are trading on you heard about the $1 billion a gross merchandise sales in the last quarter. It's just an incredible set of results. So I can't predict so early in the.
In the adoption curve that it a little.
It'll blow through all of that seasonality I will say car on car Gurus is just at an early stage of getting our customers signed on to the car offer platform. The car off our team is doing such a great job signing dealers on a day to day basis. So dramatically we haven't even optimize the car gurus adoption of a platform we're moving in.
And achieving that that first phase of integration, but there's so much more to go and has enrolled.
Enrollments go transactions go in transaction fees and revenue go. So we're really excited about the next phase of the integration.
That's very helpful. And then just as you think about getting more vertical or.
Further down the transaction funnel with a consumer I mean, how are you managing your your relationships with the dealers are you seeing any push backs or are they pretty accepting of this I mean, the dealers do like a on the customers. So how is this how are you managing that tricky spot with a relationships.
Jason you're going to take it or do you want me to jump in.
Okay, I'll jump first which is a Jed I think incident Max cash offer is a perfect example of a win win in the marketplace.
You're helping dealers who are saying there are other big retailers, who are winning a consumer sales and when theyre selling my vehicle, we need a tool to help us get there and get us to compete.
Compete favorably now they have the opportunity to to look at $35 million 32 to 38, whatever the numbers each month that are coming to our site who are interested in selling their vehicle and winning that new source of inventories. So as consumers move digitally and say I'm more comfortable selling my vehicle.
You know online and we have this white glove capability for inspection payment and pick up in a in a consumer's driveway, what an opportunity for dealers to say Ive got the biggest challenge in 30 years and inventory acquisition.
If you can give me access to those 35 million consumers on the happiest a dealer in the marketplace. So we're opening up a channel. We hoped we would it's probably quicker than we expected a.
And so the win win there is consumers, having the opportunity to say I'm comfortable selling online you're giving me a max cash offer because those dealers are putting their bids into the buying matrix and I'm gonna get something better than just go into 1 single retailer and so these dealers a saying I'm now competing with some of those big name players who were.
Buying consumers' vehicles. So that's a win win for the marketplace I think as Jason said, we go down the path of digital retail we're doing the same here, we're gonna enable dealers to get in front of a preapproved consumer financial Preapproved and then <unk>.
A half facilitate that transaction with that dealer and help them sell more vehicles. So we're you know I think these are win wins and our positioning in a marketplace, where we're helping both sides of the marketplace facilitate transaction.
Yeah.
Thank you.
The next question comes from Nick <unk> with Raymond James. Please go ahead.
Hey, guys congrats on a good quarter. Thanks for taking my question.
The number of paying dealers in the U S. You talked about the chip shortage driving a lack of inventory and hurting that number driving that sequential decline could you just a more detail on your thoughts on the supply situation moving forward. It seems like you think it's going to start to improve into the back half cut how are you thinking about that.
And what does guidance built in for a dealer count kind of Directionally in the third quarter and how are you thinking about that metric.
2 a into the back half.
A year in general.
Hey, Nick it's Scott I'll take that.
So.
We don't get too specific on what we're guiding to a number but.
For the quarter as I mentioned on the prepared remarks, you know it was <unk>.
Description revenue instead of walking in with a basis on with losing some some dealer count on a core business that sets a lower basis than when we walked into Q2 with so that's that explains some of the the revenue I think me.
Really positive thing that we saw though is a.
Our versus Q1 on Q2.
Our retention rate with dealers was about the same.
On the inverse of that churn didn't get any worse it really what what changed from Q1 to Q2 is when the inventory issue bubbled up.
What sort of stops first was new dealers moving onto the platform.
And that's really what changed for us from a paying dealer count standpoint going from a net positive in Q1, 2 a net negative in Q2 as we didn't get as many new dealers on us.
We saw on Q1, but doesn't match on retention or churn roughly the same quarter to quarter. So as we look into a second half of the year, specifically Q3 inventory issue hasn't abated, yet we're seeing some very modest movement in the right direction with a used inventories slightly picking up.
New a new inventories still sluggish because they are waiting on chips, but we have seen some positive momentum would use inventory and as that creeps up.
That could help us moves on.
Dealers that are sitting there on a freemium platform just sort of waiting to need a market again to jump back in so.
No specific guidance there, but that's that's what we're seeing I'll, let Sam jumped on a he's probably got some more commentary on the front lines with a sales team.
Yeah, Scott not not much more to add Nick appreciate the question as Scott said.
That that Hardie a cut.
Customer retention is is spilling into July.
We hit the third quarter, so I feel very good about.
Where we are a Scott talked about the macro trends, we do believe new car manufacturing will start to kick in again in the next short period of time that will help but it's not going to ease the situation of a 30 year low in our industry immediately but we do feel very good as Scott said about customer retention now the effort is getting dealers to come back.
On board and saying I'm comfortable spending remember with our lead growth as high as it is you can give 7 leads per vehicle and that's not going to help that the net cars get sold so we're.
Being thoughtful about.
How.
Aggressively we can grow our consumer audience, we're doing it really efficiently and very well for dealers on that lead volume has been really successful dealer.
Dealers are now, saying as inventory comes back as Scott just said I'm more interested in spending and we're seeing that we're seeing that on a hopeful trend as we go forward.
Got it very very helpful. Thank you.
Just quickly a sales and marketing obviously you guys have made.
Significant strides there in terms of marketing efficiency.
Last year and into the first half of this year. How are you generally thinking about kind of a right level of sales and marketing percentage.
How durable the gains you've made or do you get some of those back as you press the accelerator on marketing expenses going forward.
I can I can take that thanks for the question.
Yeah. So.
I think we are.
I'll weigh in in regardless of the environment.
Covid environment or a inventory supply consumer behavior, we are always looking to do 2 things 1 make a R.
Sure.
Consumer experience as efficient as possible and number 2 a.
From both the traffic acquisition, all the way through to the connection with a dealer, making a lead as high quality as possible. So.
<unk> and quality such that.
What we are delivering to the dealer is something that is high leverage for them that they're not spending their wheels on on <unk>.
Low quality leads.
We have made a lot of progress in on both of those fronts and so you can you just acknowledged some of that on the efficiency side. What I think I'm also just as proud of it is it's hard to tell from the numbers is that we firmly believe we're also improving the quality quite a bit you heard a couple data points a pre.
<unk> a.
Lead generate a pre qual lead prequalification lead quality.
As well as in the C G convert propensity to a.
On to convert to a sale so.
And a and B.
So that efficiency, all else being equal and quality have trended in terrific direction. Throughout there are these times, though where a macro factors like COVID-19 like the inventory supply.
Do impact the level of spending that we think makes sense.
And what I mean by that is that.
We're looking at a.
<unk>.
Hundreds of metrics a lot a metrics.
That speak to a.
Dealer level growth rates and dealer segment level growth rates.
So that we're delivering to the dealer.
A product in a service that is always growing in value, but it's also somewhat predictable and consistent for them. So they can plan their business around that as well.
And so in an environment, where there is lower inventory there on that as many cars. They don't have as many cars and therefore, you could argue not only don't need as many leads but having too. Many leads on 1 piece of inventory is not even helpful to them because a they.
They you know they can only sell a car ones.
So we think a again in a all else being equal efficiency and quality and quality have improved a lot. But this certainly has been a time most recently because of inventory, where we were able to be more efficient in marketing because the units are low the consumer demand was high and so I wouldn't say.
That I think some of that efficiency goes away, but I think in reaction to some of the macro trends. We expand we said this I think in the remarks, we do expect to grow our marketing as the market sort of normalizes.
The final question today comes from Doug Arthur with Huber Research Partners. Please go ahead.
Yes. Thanks.
Got on a on a revenue guidance for a third quarter on it and I understand the caution on this as a subscription business based on everything you've talked about on a macro level, what I don't quite get is.
The implied number for a car off or I mean, you're growing you talked about the auction business a seasonality and all of that but you are growing at a very rapid rate.
And your guidance for the third quarter basically.
Assumes a full stop and growth I mean sort of flat sequentially is that what you're intending to employ.
Well so full stops thanks, a full stops a strong word, but I think the the inventory issue sort of that.
Bubbled up in earnest in April on I think that just changed dealer behaviour in a dramatic way than it was a.
A huge tailwind into a business that was already growing really fast, but I do think we.
Are seeing early impact of seasonality also I think there's some caution with dealers with regards to the pricing.
Being so high and so some dealers or a.
You know being judicious about how much inventory they want to buy at these prices and it is consumer demand going to be sustainable. So I think there is a.
It's a unique time right now a peak pricing a lowest inventory.
That.
Dealers are monitoring both wholesale pricing and consumers' willingness to pay a things.
All time highs for for pricing.
Used vehicles on especially so.
It also we have some insight.
With regards to what we've seen in July right and so there's some modest we saw a month over month increases all year long for a car offer and we've seen as Jason mentioned.
On a slight.
Lots and lots of growth from a June to July and also on other months, so would that insight, we're just being a bit more prudent.
But with the operative word is you saw a growth in July over June.
No I think Jason his prepared remarks said, we saw a slight slowdown.
Okay Alright.
Alright got it thank you.
Okay.
This concludes our question answer session.
Now, let's turn the conference back over to management for any closing remarks.
Yeah.
Thank you very much a so this is Jason I just wanted to thank everyone for joining us today on a call and for your thoughtful questions.
I want to thank again all of the Carter's a car off her employees for all your hard work.
We're so proud of the team on what we've accomplished and we appreciate your interest in cargoes and we look forward to talking with all of you again next quarter. Thank you very much for your time.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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