Q3 2021 CarGurus Inc Earnings Call
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Greetings welcome to the cargo Bruce third quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please.
This conference is being recorded I will now turn the call over to your host current deep sing Vice President of Investor Relations.
Thank you operator, good afternoon I'm delighted to welcome you to carve your third quarter of 2021 earnings call. We will be discussing the results announced in a press release issued today after the market closed and posted on an Investor Relations website with me on the call today are Jason Trevathan, Chief Executive Officer Scott.
<unk>, Chief Financial Officer, Sam <unk>, President and Chief operating Officer, and Bruce Thompson, founder and Chief Executive Officer of car offers.
During the call we will make statements regarding our business that may be considered forward looking within applicable securities laws, including statements concerning our outlook for the fourth quarter and full year 2021 management's expectations for our future financial and operational performance and innovation, our business and growth strategies are expecting.
<unk> for our car all for business and anticipated acquisition synergies our expectations for car Greuze instant Max cash offer the value proposition of our current product offerings and other product opportunities the potential impact of the COVID-19 pandemic the semiconductor chip shortage in other macro level industry issues on our business and financial results.
And other statements regarding our plans prospects of expectation. These statements are not promises or guarantees and are subject to risks and uncertainties, which could cause them to differ materially from actual results information concerning those risks is available in our earnings press release distributed after market close today and in our most recent ripped.
Course on forms 10-K, and 10-Q, which along with our other SEC filings can be found on the SEC's website, and and the Investor Relations section of our website. We undertake no obligation to update forward looking statements, except as required by law further during the course of today's call. We will refer to certain non-GAAP financial measures are <unk>.
Conciliation of gap to non-GAAP measures is included in your press release issued today.
Are updated investor presentation can also be found on the Investor Relations section of our website with that I'll now turn it over to Jason.
Thank you for your <unk>.
Thank you to all those joining us today.
I'm pleased to share the cargo or as a cheap excellent results in the third quarter of 2021.
Despite the ongoing semiconductor chip shortage or performance demonstrated the continued resiliency of our leading foundational listings business and impressive progress and our transaction capabilities, including digital wholesale.
Max cash offer digital retail.
Since April the automotive industry has been navigating the semiconductor chip shortage pent up consumer demand, resulting in depleted new and used inventory and vehicle price inflation, reaching all time highs.
While some forecast predicted a recovery in the second half of 2021. It appears that the chip shortage will last into 2022 potentially late into the year.
But what remains difficult to predict when the shortage will ease and the resulting implications on new and used inventory. We continue to work closely with our dealer partners to provide support as we all continue to navigate through these unprecedented times.
Before I dive into their business results I'd like the first highlight are successful third annual automotive industry conference navigate which was held in October.
This year, we virtually welcome dealer registrants from across the U S, Canada, and the United Kingdom the.
The three day event discuss the move towards digital retail wholesale optimization through car offer.
Brand building and much more.
Pleased with the insights into content, we were able to provide dealers and look forward to an even bigger and hopefully in person navigate 2022.
Now turning to our business performance.
We were thrilled to have exceeded our guidance for the quarter.
Performance this quarter was driven by three key factors.
Our ongoing evolution from a lifting business to an end to end transaction enabled marketplace.
Our partnership with dealers to develop innovative digitally initiated solution.
Finally, our ability to provide consumers with self selective digital retail journey, when buying or selling a vehicle.
With these three areas driving our performance during the third quarter you were pleased to see strong dealer penetration of our car off her platform Swift.
Swift execution in rapid expansion of Carter's instant Max cash offer.
And continued innovation as we bring digitally initiated capabilities to our consumer audience and dealer partners.
As you said before the additional car offer is created powerful synergy through our integrated platforms that had further help to overcome the headwinds faced by the industry at large and we're thrilled with the continued growth of the car off for business in Q3.
Strong dealer adoption of the car upper platform continues as enrolled dealers increased by 27% quarter over quarter to approximately 7000 rooftops with similar enrollment rates in October.
Car offer continues to drive enrollment with approximately one third of new dealers coming from the car garage sales team.
The car up or buying matrix creates an opportunity for all types of vehicles, regardless of price to transact on the platform and as we continue to grow we believe over time, a meaningful portion of cargo is lifting dealers would be excellent candidates for the car off the platform.
With no monthly subscription fee dealers are encouraged to try the transaction based platform as a method to source and or liquidate inventory.
This quarter revenue from car offers dealer to dealer business grew modestly to approximately 58 million how.
However, gross merchandise sales or G. M. S declined moderately during the same period to approximately $875 million.
This decline was in part caused by dealer apprehensive Miss in purchasing vehicles wholesale as prices trend downward from July through late August.
However, we saw this trend reverse in September with an uptick in transactions correlating to arise in wholesale prices that was caused by a dearth of new vehicle supply and even fewer at least returned.
Furthering that trend October marked a record month for car offer driven by a record number of transactions.
Despite wholesale price volatility in seasonality driving near term transaction fluctuations, we're very pleased with car offers progress.
With each passing quarter through further integration, where harnessing the combined car offer and Carter as technology to provide dealers are differentiated value proposition unlike anything else.
Just a few of the initial examples of the power of our combined platforms include.
Dealers now have access to our I M. The pricing data and their wholesale matrix <unk>.
Retail prices next to wholesale offers in their car greuze dealer dashboard.
And access to a new source of consumer trade in via instant Max cash offer.
As we transition to a more digitally initiated environment, where consumers can choose to complete some or all of the transaction online.
We were pleased to see dealers embrace and involved with the change in consumer behaviour.
We continue to make great progress on our end to end solution with new functionality, becoming available for dealers and consumers like instant Max cash offer or instant Max for sure.
Since its launch in Q3 instant Max has expanded to cover over 50% of the U S population in just three months.
Today I'm happy to announce that this week, we are expanding even further into three additional space New York, Maryland in Minnesota, now covering a total of 22 states.
We are incredibly pleased with the performance since his lunch.
Since inception, we've already completed hundreds of transactions with vehicles ranging in price from approximately $2000 to $78000, which shows how this product conserve a wide swath of the market.
In October we completed approximately 13 times the number of transactions we did in August.
We were thrilled with the week over weak growth as we continue to scale the business.
As we expand further with national coverage anticipated in 2022, we expect to see continued growth across a wide variety of vehicles transacted on a platform with each expansion effort, we continue to refine the consumer and dealer experiences reached.
Recently, we streamline the document upload process.
Added a C H as an alternative payment method and invest and invest.
Invested in tools to enhance the intake experience for our logistics partners and landed dealers.
We're combining cargo roos customer centricity inexperienced with car offers deep expertise and documentation logistics and inspections to create a service that consumers can reliably trust and leverage for their vehicle trade ins in sales.
We believe we are poised for success as we have built in operating that provides our industry, leading consumer audience. The most competitive price.
Thousands of dealers and a great digital and off line experience and dealers the opportunity to become a landed dealer and receive access to thousands of consumer trade in otherwise not attainable.
<unk> is the only platform, where wholesale dealers and consumers and transact instantly and its scale.
Here's what are satisfied customer Dalian from Texas had to say about his latest experience coke the offer was better than any offer I was getting some dealerships for people in general and it was just an offer I couldn't turn down.
I will tell everybody Carter's will give you a great offer also it was a smooth process and easy process for me to go through to get the car sold so I would definitely recommend it to friends and family and Coke.
Leveraging the same technology and dealer network that powers instant Max cash offer we are now offering dealers consumer lane, a powerful trading tool for their own web site that enables them to instantly purchase vehicles directly from consumers with the confidence of a standing bid from another car off your dealer.
Following a successful pilot consumer lane is now being deployed by some of the industry's leading automotive groups.
Consumer Lee and reduces the risk for dealers offering to purchase a digital trade in by using car offers proprietary buying matrix technology, which leverages dealers, who are place standing by orders and not guaranteeing a value for the car to be traded.
Dealers can instantly make the most competitive offer on trade in to shoppers right from their website.
With every consumer off her back by the buying matrix by order consumer Lane provides the originating dealer the opportunity to keep the car for simply click a button and sell it through the wholesale platform at the guaranteed price.
<unk> will seamlessly received the highest cash offer from thousands of dealers in the matrix, which they can then bring into the dealership to receive payment or to use towards an upgrade.
The integration of consumer Lane provides dealers with an enhanced ability to retain consumer business from trade in the new car purchase and add yet another layer of transparency to the car buying experience for consumers.
As we continue to grow our dealers capabilities to purchase vehicle from <unk> vehicles from consumers, we believe it as an opportunity to not only raise awareness for instant Max cash offer but to enhance our brand awareness among consumers as well.
We have evolved tremendously from our traditional listing business to an end to end transaction enabled marketplace, where consumers can now transparently shop buy and sell vehicles online.
With such a compelling consumer offering we're excited to expand our marketing to communicate our broader set of offerings.
While we still plan to <unk> remain judicious with our spend and recognize efficiencies today on the listings foundation of our business. We are acutely aware that investment is required to ensure Carter's is top of mind when it comes to vehicle trade in in a digitally initiated experience.
In October we launched a new do more from home brand campaign, which emphasizes how Carter's uses technology in scale to equip consumers with the confidence and information they need to buy or sell a vehicle online.
These brand campaigns are just one of our many avenues for raising consumer awareness and driving high and 10 shoppers to our transaction enabled marketplace.
With the launch of instant Max cash offer we're realizing the synergistic effects of our combined car offer and cargo roos platforms.
Consumers, who utilize instant Max cash offer to sell their vehicle are also more engaged shoppers in the market for a new vehicle.
56% of consumers, who saved an offer utilizing instant Max also used car gurus to view vehicle detailed pages for a new vehicle and approximately 20% of instant Max offer savers also submitted a lead through Congress.
As our instant Max offerings scales, we believe we will be able to target even more consumers lower in the funnel that have sold their vehicles and are now in the market for a new vehicle.
These early marketing synergies are just one example of where the sum of the parts is greater than the Standalone component.
Although we saw increase conversions from consumers using instant Max cash offer overall leads were down this quarter in the U S.
As prices for vehicles increased and consumers became more aware of the chip shortage, we saw consumer demand pair back resulting in fewer leads.
Our latest research from our 2021 buyers insights report showed that 58% of current shoppers are aware of these higher prices, which has resulted in 31% of current shoppers delay their vehicle purchase.
While we view these dynamics to be temporary we're still pleased with the quality of the consumer base, we continue to attract and the high intent shoppers that come to our site as a result of our targeted marketing efforts.
While instant Max cash offer allows consumers to sell their vehicle from the comfort of their homes or other recently announced capabilities allow consumers to complete more element of car buying online.
According to a national survey, 80% of dealers said the pandemic is accelerated their adoption of digital path to purchase experiences and 90% of dealers expect to continue or accelerate digital retailing at their dealership.
In order to meet this growing demand we continue to innovate so dealers can reach and engage new shoppers in a local market and target new shoppers outside their immediate region as well.
We recently augmented R. C G convert product, which is still in early access and only available to a limited number of dealers with the addition of deposits and expanded financing capabilities.
D. G convert allows car shoppers to start their purchase from a cargo vehicle detail page and get to a near Penny perfect personalized deal on the vehicle. They are interested in purchasing before scheduling an appointment with the dealership to finalize the purchase quickly and transparently.
Now with auto Fi integrated into C. G convert shoppers can submit a credit application to receive real offers from a dealer's preferred lender group.
With auto 540, plus lenders, we believe does not only is the next step to a fully digital experience, but also a path to create more lower funneled qualified leads for dealers, while they retain their profits from F&I products.
Here's what Vita presently of Kuwait owner, operator at Midway Auto House had to say about their experience using C. G convert quote.
We decided to try convert in an effort to get more quality leads customers that have done their process of elimination they've done their research.
They're ready to buy.
Salespeople are aware that not all leads are created equal there extra excited and eager to hop on it when they see a cargo is convert lead come through they know that it's a serious committed buyer that's provided us with the information that we're looking for to begin the next steps to sail.
<unk>.
Additionally, for consumers, who are ready to commit and lock in their chosen vehicle, especially during an environment of limited inventory. We have recently piloted the ability for a consumer to put down a deposit for the car on our site.
The feature allows shoppers to place a 500 dollar deposit to reserve a vehicle for 72 hours.
It's not only improves the car buying experience for consumers, but also provides dealers with a more committed high intent shoppers that are ready to purchase.
B G convert with its updated functionality provides consumers of self selective journey, allowing for a smooth online to offline transition.
We're pleased with the dealer feedback on the enhancement and are continuing to further refine C. G convert while in early access before supplying broader access to dealers who are eligible.
Beyond T. G convert we continued to enhance our other digital retail capabilities.
In August we partnered with spin card to provide cargo roos dealers with interactive 360 walk around on their B D. PS.
The addition of 360 degree walk around adds another element of digital engagement and build trust between dealers and consumers by bringing the physical showroom experience to car shoppers online, allowing for a more immerses and engaging experience.
Moreover, as we continue to work closely with our dealers, we have listened to their feedback and created even more optionality with area boost.
Dealers can now selected delivery range that best suits their business, providing a more tailored offering that fits each dealers unique budget.
Based on the preferred delivery range dealers are likely to increase V. D P click by 20% to 50%.
With growing adoption for both area boost in our consumer financing offering combined revenue for those two products increased 36% year over year.
Even with the addition of auto by dealers continue to utilize our consumer financing offering for consumers that prefer a soft pole versus a heartfelt both.
Both still resulting in high quality prequalified leads.
Finally, as we mentioned it navigate we have begun testing our delivery pilot, which enables dealers to deliver vehicles to shoppers utilizing the cargo roos platform outside their local region without geographic limitations.
Similar instant Max cash offer the delivery experience associated with purchasing a vehicle needs to be flawless to earn consumers Trust.
With Carter as representing the last mile. It is imperative to ensure the customer receives a white glove hassle free experience and dealers are worry free of logistics documentation and customer service calls.
We are eager to use our learnings from the pilot to quickly adapt and creative solution that is optimal for consumers and dealers.
With these incremental additions, we continued to get closer to creating a full end to end digital retail solution.
Consumers are shifting toward a digitally initiated mindset to reduce the guesswork in time commitment behind traditional car shopping.
51% of consumers prefer to sort out their financing online versus in the dealership and 45% prefer to negotiate price before heading to a dealership.
With consumer preferences to complete more elements of the transaction online having grown to over 60% are digitally initiated tools allow consumers and dealers the flexibility to choose how far to take the transaction online.
Our vision is to partner with dealers by supplementing what works in their dealerships with new tools that adapt to the evolving consumer need thus, allowing dealers to sell more and sell efficiently.
While the listings business that we were founded on has grown to become a piece of a much greater story. It's still remains the fundamental core to the Carter is platform integrating all offerings into a unified marketplace that create the flywheel effect for the overall business.
This quarter, our listings business exceeded forecasted marketplace subscription revenue in the U S and internationally.
We ended the quarter with 23979 U S dealers, a modest increase quarter over quarter.
Internationally, we continued to see growth in Canada, with a slight increase in paying dealers quarter over quarter, while the UK had a nominal decline during the same period.
Although Canada has followed R. U S business closely in the U K there remains lingering effects from COVID-19 related shutdown and a delayed impact from the semiconductor chip shortage.
This quarter, while paying dealer ads remained modest we were pleased to see dealer churned declined from elevated levels earlier this year.
While we entered Q3 with fewer paying dealers on our platform than when we entered queue to.
We're incredibly impressed with our account management team, who continued to dry it quarterly average revenue per subscribing dealer or Carson gross.
U S. Carson grew by $52 to 5000, and $602, primarily through upgrades and product expansion.
Moreover, new pain dealers that were added to our platform, where generally higher paying franchise, an independent dealers, while lower paying emerging independent insurance.
Internationally Carson increased by $33 driven by similar factors.
As we continue to roll out additional features to create a full end to end solution for dealers and dealers continue to re engage in marketing efforts. We believe we are well positioned to grow Carson through product expansion in ourselves.
Our foundation of lifting his business continues to expand and there are several growth factors for us that we believe can overcome the near term headwind of the global pandemic and chip shortage.
We look forward to unlock and these opportunities to grow the business and further propel our initiatives and digital wholesale and digital retail as we develop a customer centric and to end transaction enabled marketplace.
We are pleased with our Q3 results.
While the chip shortage continues to cause near term uncertainty and volatility we remain excited about our long term vision and opportunity.
By combining our foundational lifting his business with digital wholesale and digital retail.
We were able to provide consumers and dealers with an automotive transaction enabled marketplace experience that is unmatched anywhere else.
We are the only full featured platform that will enable deal it was to purchase a vehicle wholesale using proprietary market insight.
Lifted using our I M V technology.
And ultimately sell it to a consumer all through a single sweet of sites and before the vehicle even reaches their lives.
The same platform offers consumers access to a one stop shop from the comfort of their home to transparently and confidently shop by finance and even sell from the largest network of dealers and their inventory.
As Carter's has expanded its capabilities beyond being the top listings marketplace in the industry, we believe that with our vast consumer audience and the largest selection of inventory of my major U S online automotive marketplaces, coupled with our technology routes supplies us with an edge that is unparalleled in.
These key differentiators that drive both our excitement and our growth.
This was an exceptional quarter and I would be remiss. If I did not think are extraordinary employees globally for their continued dedication and commitment is our evolution to an end to end transaction enabled marketplace takes shape.
This is an exciting period in Carter's history, and I'm energized to work with a talented group of individuals, bringing our vision to reality.
With that I'll turn it over to Scott to discuss our financial results.
Thank you Jason.
Before I begin I am pleased to share that in October we released cargos first corporate social responsibility report.
Report highlights our focus on making a positive impact in the areas of environmental social and corporate governance.
While there is so much to learn and even more to do as we formerly launch R. E. S. G journey, we look forward to continuing the momentum and sharing our progress along the way.
Now I'll provide a detailed overview of our third quarter performance, followed by our guidance for the fourth quarter and full year 2021.
Total third quarter revenue was 222.9 million up 51% year over year and nearly 7 million ahead of the high end of our most recent guidance range.
The marketplace subscription revenue grew 11% versus the original period to $144.6 million.
The increase in marketplace subscription revenue aligns with Jason's previous comments regarding the strength and resiliency of our foundational lifting his business. Despite the ongoing macroeconomic industry headwinds faced by our dealer partners.
Wholesale and other revenue in the third quarter group, 347% year over year to $78.3 million.
Offer continues to drive strong growth of inventory constrained dealers looked a source vehicles through an efficient acquisition channel.
Seen an hour investor presentation, and that was reported in our 10-Q wholesale revenue for the quarter was 63 million a 10% increase from the prior quarter a.
A meaningful portion of the quarter over quarter growth was driven by the launch of instant Max cash offer which contributed approximately 5 million and quarterly revenue for the third quarter and incredible contribution since its launch at the end of July.
As we continue to expand across additional states and sent Max cash offer has the ability to meaningfully drive revenue, while creating a flywheel effect for our listings and digital retail businesses.
As mentioned last quarter hour guidance estimates for Q3 or not inclusive of any incremental <unk> cash offer revenue and we are excited with this early growth.
R U S business generated 134.3 million and marketplace subscription revenue in the third quarter and our international business generated 10.3 million and marketplace subscription revenue.
The U S accounted for 95% of total revenue in the third quarter.
U S revenue increased 53% versus the year ago period to 211.6 million and our international revenue increased 25% year over year to 11.4 million.
The increase in the U S is largely attributable to increase revenue from our wholesale business and exceeding our forecasted marketplace subscription revenue for the quarter.
International revenue continues to demonstrate strong growth has the markets recover from the economic impact of COVID-19, and experienced the impact of the semiconductor chip shortage.
Turning to paying deal account, we ended Q3 with 30754 total paying dealers representing an increase of 27 dealers from Q2, and an increase of 592 versus the year ago period and.
In the U S. We finished the quarter with 23979 paying dealers, which is an increase of 29 dealers from the end of the second quarter.
We are pleased to see positive dealer add the Q3 during challenging market conditions.
It is through our differentiated value proposition that we remain confident in a future growth of our dealer base is a macro economic headwinds subside.
International business, we finished the third quarter with 6775 paying dealers a decrease of two dealers from the end of the second quarter.
The decrease is primarily due to the lingering effects of COVID-19 in the UK market as previously mentioned, but it was offset by an increase in paying dealers in Canada.
And the third quarter U S quarterly average revenue per subscribing dealer was $5602, representing a 1% increase compared to the prior quarter and a 9% increase compared to the year ago period into.
International quarterly average revenue per subscribing dealer was $1524, representing a 2% increase compared to the prior quarter and a 21% increase compared to the year ago period.
I will now discuss our expenses and profitability on a non-GAAP basis, which backs out our stock based compensation expense amortization of acquired intangible assets acquisition related expenses and net income attributable to redeemable noncontrolling interest.
Third quarter non-GAAP gross margin was 73% down roughly 4% compared to the previous quarter and a 20% decrease from the year ago quarter. The.
The change in non-GAAP gross margin quarter over quarter is primarily due until the 24% increase in cost of revenue associated with the growth of the car for wholesale business.
We anticipate our consolidated gross margins to evolve as the wholesale business continues to scale.
Total third quarter non-GAAP operating expenses were 99.9 million up 21% year over year.
Non-GAAP sales and marketing expense increased 16% year over year to 63.9 million and represented 29% of revenue down from 37% of revenue in the year ago period.
While we have increased our marketing spend to further enhance our Brandon winters for newer offerings, such as instant Max cash offer and digital retail we continue to recognize efficiencies in our traffic acquisition strategies as it relates to our foundational listings business in comparison to the year ago period.
Moving forward, while we anticipate continued marketing efficiencies, we will invest prudently in areas, where we generate the consumer traffic that is integral to the growth and success of the business.
Our third quarter, non-GAAP product technology, and development expenses come with 34% person of the year ago period to 21 million.
The increase was primarily due to an increase in employee related costs as a result of a 39% increase in headcount and continued investment in our technology teams to grow our new areas and digital wholesale and retail as well as new features and enhancements to our marketplace subscription products.
We generated non-GAAP operating income of $63.1 million, representing a margin of 28% and roughly 6 million ahead of the high end of our guidance range.
Non-GAAP diluted earnings per share of turned off the car doors, Inc. With 38 cents for the third quarter.
Six cents above the high end of our guidance ranch.
On a gap basis regenerative third quarter gross margin of 73% and incurred total operating expenses of 122.8 million up roughly 30% year over year.
The increase in operating expenses was primarily driven by an increase in our expensive compared to the prior year's cost minimization efforts in response to the COVID-19 pandemic as well as an increase in headcount and other people related expenses pertaining to the car off for acquisition.
Third quarter, GAAP operating income decreased 8% year over year to $40.1 million.
Third quarter GAAP net income attributable to common shareholders totaled 29.2 million.
Geographically third quarter U S. GAAP operating income was $41.9 million down 10% year over year.
We had a gap operating loss of 1.9 million and our international business compared to a $2.9 million loss in the year ago quarter.
We ended the third quarter with $321.1 million in cash and investments an increase of $51.4 million on the end of the second quarter.
The increase in our cash balance was primarily driven by our profitability in the third quarter.
We generated a $53.7 million in cash from operations in the third quarter and $51.4 million of non-GAAP free cash flow, which includes capital expenditures and capitalize website development costs of $2.3 million.
I'll close my prepared remarks, with our <unk> for the fourth quarter and full year of 2021, we expect our fourth quarter revenue to be in the range of $273 million to $285 million of that we expect instant Max cash offer to account for $32 million to $40 million.
We are sharing the forecast specific to instant mask cash offer because of the gross revenue treatment of those transactions and the corresponding impact to consolidated margins.
Non-GAAP operating income in the range of $44 million to $50 million and non-GAAP earnings per share in the range of 28 cents to 30 cents.
For the full year 2021, we expect revenue to be in the range of 885 to 897 million.
Non-GAAP operating income in the range of $224.4 million to $234 million and non-GAAP earnings per share in the range of $1.41 to $1.43.
What's that will open up the call for Q&A.
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Your first question comes from Dan Carnose with benchmark company.
[noise] great. Thanks, Good evening couple here, obviously could progress car offer across the board here, but Scott just to be clear, where you're making a comment that you expected dealer gross to be sequentially up in Q4.
Can you give me only growth.
Paying via the account that you'd be sequentially up.
I I don't think we said anything about that then.
Okay. Just say you said future growth alright, that's why I just wanted to double check and then just in general you guys have obviously announced more expansion isco huge ramp in queue for you guys already covered more than 50% now. So just can you give us sort of any initial learning as you have.
In terms of.
Timing to stand off the market stands up how much is coming from let's say the initial three to 10 market that you launched and kind of what you're seeing and maybe how that is influencing your decision to expand on the time that would work best.
Hey, Dan Sam <unk>, all started and I'll turn it over to our friend Bruce Thompson, the great CEO car offered to share any color behind it it starts with consumer experience. So you know we started with three states move to eight got to 19 now we're moving to 22 were thrilled with our performance and it starts.
The consumer experience are they having a great quality experienced when they instantly receive an offer do they save it do they sell their vehicle an R. N P S and and consumer satisfaction scores have been phenomenal on that front number two can we keep up with the operation, There's a process and Bruce can talk to it.
Uhm the title transfer the processes, we take to ensure great consumer end dealer experienced digital payments and everything else that goes into that number three is does our our marketing work on site are we using all those visitors are coming in entering the turning them into the funnel, we need and is the brand awareness up there that you can now.
Sell your car on <unk> from Ah Ah an incredible digital experience and are those consumers also turning into lead for US I think Jason's comments remark that uhm sell my car instant Max consumers are coming in and actually I'm submitting leads as well as selling their vehicles, which is really important to us and then finally.
Is there a gross margin to this business really can scale up for the long term and create a profitable business. We've seen all of those things work really really well so far and dealers are having a great experience in the landed dealer concept that locally they receive that vehicle all of those moving in a positive direction tells us to keep moving to more.
Our states and Bruce I'll ask you to add.
Add any color from something I've sent them.
Yeah. Thank you C M. Yeah. So when basically late July and August with all about really getting our operations them from Ah getting a white glove service to pick up. These course, merce operationally assume indicated handling the titles that money transfer the payment secondarily the logistics.
You know, we gotta make sure that we can scale in every market.
Which we are doing we are leveraging them a lot of the ridesharing services, which gives us really unlimited scale, which were.
Proud of that we also developed a system that the way we rolled out with an intake process to be able to take those documents. They had a <unk> at a consumer so home or place of business get those documents instantly uploaded we have teams here that can analyze those in minutes and finalize those transactions.
And I think you you also mentioned from the first set of Dieter for the second set of dealers I think we we don't want a second set of beaters, roughly 30 days or so.
Three days, maybe post launch so about a 30% lift one in terms of volume from from the secondary large in.
Started to keep the momentum going.
Awesome. Thanks for the call I appreciate you guys.
As a reminder, please limit to one question and one follow up next question comes from Tom White D. A Davidson.
Hi, This is tevis on for Tom just one question for you wondering.
Could you elaborate a bit on the size of the addressable market opportunity for instant Mac cash offer for the next three to five year. Thank you so much.
I didn't hear the first name sorry, I couldn't hear it but thanks for asking the question.
Have it.
Thank you so much it's Sam Zales I'll I'll start in.
It's it's an enormous Tam I I hate to put numbers on it but they're about 30 million vehicles that are transacted every year from a consumer either trading in or selling to another consumer we look at that market and I'll say to you then that's what we're most excited about.
<unk> is that I think you heard the range of vehicle prices that we've that we work on and sell my car in the instant Max capabilities gone from Motown single thousands to 80000 dollar vehicle 78000, or maybe more than was our our highest transaction, but the average transaction is is very significant the price of the vehicle.
So when you look at that 30 million vehicles, and we think we can participate in both the uhm the trade in process or the peer to peer transaction process. We think it's hundreds of billions of dollars and Tam and we look at that as a huge opportunity for us and we're gonna.
Take more of that sure because the consumer has this unique value proposition with hundreds or thousands of dealers bidding to the highest bid to win their sell my car offer it's an unbelievable differentiated offer and we think we can take a large share of that hundreds of billions of dollars and Tam anybody else want to add to that.
I'm a thing.
I would just echo that that.
From our perspective, you know the reason that we did really did this deal with core gurus in January was shipped to capitalize on the 34 35 36 million consumers that visit in <unk>.
Really develop a system platform to take these cars in and deliver those to our leader or dealer networks in or do your clients and feel like we can look really level, the playing field for them Dilly.
Deliver a lot of course, then with a brand new consumer channel that they do they typically don't have the you know.
The marketing scaled to be able to reach in collectively with the perjury ruse in and decor offer we can deliver those cars.
Yeah.
Great. Thanks, so much great info.
Thank you next question comes from my Vet Con what's true it's securities.
Hi can you hear me.
Yes, we got chewed out of it.
Okay.
I'll take questions on on car offer and and send Max.
Cash offer so uhm, maybe just to get him to the 875 million and.
<unk>, that's just either to do the right and and then on the gross margin side of things.
The worst part of it didn't go down between 222 cute tree.
<unk>.
And the numbers I learned noisy because.
And it's been Max casual clothes, or how should we think about the margins in just a dealer to dealer side, what other puts in pigs.
And what might have shifted and then just on the stand alone visit a couple of those.
10, Max cash I could look like on the margin business.
Is there something that can be compatible X K O. Two two the date of the dealer.
I can describe you on it I'm Gonna go pick.
<unk> okay.
Thanks for the bed. So Ah your first question. The 875 gross merchandise sales is just day to day.
And in terms of.
Gross margin dynamics at car off her which I'll focus on day to day to start.
I think we outlined in the past that we include.
To include quite a lot of our.
Trade advisers and account management and our cost of sale and so you'll notice that there is you know not that much opex below the below the gross profit line on a relative basis, which is what allows business to be as profitable as it is at this early stage and we think that.
Is a testament to the the far more efficient business model than a lot of other wholesale platforms that have to have heavy sales forces at dealerships trying to.
Remind them to launch vehicles and remind them to bid on vehicles.
So in any given quarter.
There are a mix of revenue streams between buy and sell transactions. We have other products transportation is a revenue stream and so depending on the mix of those that will.
Can influence the gross margin line from a from an operating expense and also from a handheld perspective that goes in the cockpit.
That.
Companies growing fast and so you know there may be a quarter here or there were were hiring ahead or behind on hiring that could influence that as well, but I think ultimately what is so impressive about what Bruce and his team have built there is the efficiency of the business model in terms of your last question in terms of margin.
File for infant Max cash offer.
That you can think of that like other wholesale operations of other dealer groups I would say, which tends to be in the mid single digits from a gross margin perspective.
And.
And and you know.
The the opex associated with that is not that intensive, especially when you when you get the scale.
And the fact that we can leverage a lot of our audience from car. The ruse is is a huge benefit because we can be much more.
We can control much better the marketing expense associated with it because we have this baked and.
It's already.
The price of the vehicles can influence gross margin as well because ah.
Ah by fee for a 14000 dollar car is the same as a by P. For 24000 dollar car under our model right now.
So as car values come down.
And the transaction fee stays the same the gross margin would would pick up naturally because of that.
And there's <unk>.
Thank you.
Of course X question, Chris Pierce with Needham and company.
Hey, you're just looking at the average <unk> average monthly uniques, the past couple of quarters would.
Would you say this is kind of related to consumers pulling back in the used car market in terms of shopping or you know.
It was just a large percentage of this efficiencies that you guys are able to ring I have learned from the pandemic.
In the sense that you know.
I'd like to play subscription revenues were flat court reporter on much less visitors are there higher quality visitors or do we kind of scraping less quality visitors in the past and just kind of curious about this dynamic here.
Sure I can thanks for the question, Chris I can take it it's Jason it's it's.
All of the factors that you said, so but just to reiterate them number one inventories down and so with dealers having less cars on the lot there is.
Less reason for us to drive high volumes of leaves on a single given unit.
The second thing is that we have.
Gotten much more effective at acquiring users to our site who are have a higher likelihood to convert and so we're able to drive you know think of it as well.
Now able to drive the same volume of leads on a smaller audience, then we could have a year ago or or two years ago.
And then I.
I guess, maybe it's related to inventory, but the.
The point.
That I think somebody made earlier about dealers.
<unk> and willingness to market right now is pretty limited for two reasons one they have less inventory to demand is high and so they're able to garner pretty high prices, which is terrific for them, but they also don't need to market as much and so in the absence of US renewing were again sort of picky.
Picking our spots and being thoughtful about the timing of when we would want to drive a lot of volume so.
This has been a <unk>.
Question that we've we've gotten often as to the correlation between traffic and her audience size and lead volume and we.
Are sort of squarely focused on lead volume and traffic is sort of a means to an end.
Two other sort of macro comments I'll I'll make is that one there seasonality in Q3.
From Q2, typically and then the second is that and we talked about this in the script consumers are aware of these high prices. So despite the fact that you know they're paying high prices.
<unk> leads into dealers at an industry level are likely down just because consumers, 31% of our shoppers said that they're they're gonna delay their purchases.
Okay. Thank you.
The next question Marvin song with P. T I G.
Oh terrific. Thanks for taking my questions just to if I may you know first of all a little more on an instant Max cash offer just you know I know, it's early days, but I'm just curious on how the dynamics work you know how quickly after you launched in your in your state for or regions.
Do you do you feel like it takes for for dealers to kind of start reaching a level, but that's that's been very competitive was saying you know the local carmex or whoever you know is it is it pretty competitive out of the gate or does it take time for that to sort of mature and then my next question just on on the guidance I It looks like you're a guiding for.
Non-GAAP operating income to be down sequentially, and just curious if that's being driven by by marketing Koston and investing you know to support the launch of instant makes clash offer or are there other dynamics at play perhaps you could also throw in a comment about uhm.
C P c's and what you're seeing there. Thanks so much.
Yeah. This is Bruce I'll take that first question Scott can handle the second.
The beauty about our system is it works very similar to the stock market in so bye.
By orders are placed in what we call the matrix and eaters go in and they enter those orders in the system for the quantities of cars.
Pacific.
Of course, if they want to buy.
Cross the board in any given day now we have billions and billions of offers.
That are in that by matrix when a consumer launches his car what we've essentially done is basically point the same matrix that operate from the deed or does either platform.
To the consumer right. So it's instantaneous so when a consumer goes online and launches his car, we take that core Inez push that bin number through the matrix and it's automatically going to match it to the highest.
By ordering the system, just like you would with the stock market and we didn't turn around and display the offer so in terms of traction attractions immediate all of the dealers or on our platform. Today want These consumer course and have a high demand for the consumer cars and so you're watching a.
Once you get a region or or or you know an area market area is is instantaneous as far as that goes and.
It's a testament on it you know we mentioned that October was a record a record month for US you know their phone it's on every front that's.
With the instant Max cash offer the dealer to dealer and enrollments as well. So we're thrilled with our October and the way the fourth quarter started in.
With that I'll turn it over to Scott for the second question [laughter].
Thanks for Us and Marvin Thanks for the question. So a few things on on the profit guidance. It. It is a bit of what you allude to we.
Jason talked to in his prepared remarks, <unk> have been and will continue to be judicious on our marketing spend four.
Called the core listings business, we are definitely leaning into marketing for I incident, Max cash offer with that expansion into.
Many states and more to come we will continue to to invest their to drive that and build consumer awareness as well as half of our you know.
30 million Uniques audience. We also have finally gets are getting some good traction you know it's no secret everybody's talking about great resignation encore reshuffling, but we are getting good momentum we've been rebuilding our workforce. After you know some challenging times from a Q2 of <unk>.
<unk>.
Expense reduction that we made and then challenging times in 2021 so.
We are seeing great progress with adding to the team and we have a lot of investment there to make going forward into 2022.
[noise] great. Thanks for <unk> appreciate it.
Next question, Nick Jones, what city.
Great. Thanks for taking my questions could you just comment on kind of your pilot of the kind of last mile delivery, you know, what what kind of investment might that be for you is you know you gain traction decide to expand it I mean is that it.
Is there a way that you're going to maybe controls on the logistics of actually own. It is it largely gonna be outsourced can you just give a little more color how 'bout evolving in the early days.
Sure Nick Thanks for the question. This is Jason so the the pilot right now is with.
A short list of dealers and it's us.