Q3 2021 Cars.com Inc Earnings Call

November 4, 2021

Quarter of strong growth in dealer customers AARP D and revenue.

Before we dive into the details of the quarter I'm excited to talk about our strategic acquisition of credit IQ, which strengthens our automotive technology platform and delivers value to dealers, lenders and consumers.

Credit IQ is built cutting edge auto finance technology that will leverage the massive audience of high intent in-market car shoppers that visit the cars platform. And will enable us to generate incremental revenue from a new set of customers lenders.

The ability to complete more of a card purchased online will allow us to better monetize the $142 million visits the cars.com and the additional 247 million visits across our dealer website.

This makes cars more transactional for our dealer partners, while giving us robust financing capabilities for dealer website.

This latest technology addition to our scalable platform represents our entry into the fast-growing multi-billion-dollar auto finance segment. Which aligns with our vision of creating a frictionless omnichannel experience for buyers and sellers.

Which aligns with our vision of creating a frictionless omnichannel experience for buyers and sellers.

We're excited to participate in this market with a powerful digital solution that better allows lenders to compete for car loans online.

Saving consumers time, and helping bring transactional capabilities to our dealer partners.

Credit IQ robust API technology enables a near seamless integration into both our marketplace and dealer website connecting buyers and sellers using the dealers existing lender network.

As we roll out this dealer centric platform to our marketplace and a 5200 websites we power, dealers will benefit from its advanced features for credit application management and contract ready digital retail.

In turn, dealers will be armed with preapproved loans, saving them valuable time in their finance offerings, enabling them to drive greater dealership efficiencies and enhanced customer experiences. Are using this technology consumers can be preapproved online and secure financing from the comfort of their home alleviating a key pain point in their car shopping journey.

Are using this technology consumers can be preapproved online and secure financing from the comfort of their home alleviating a key pain point in their car shopping journey.

This advanced digital financing technology creates an entirely new revenue stream for cards is now lenders can begin to compete for valuable upstream opportunities, connecting with car buyers and getting them preapproved prior to delivery or the dealership visit.

And by using the dealers existing lender network, we enhanced dealer financing profit and strengthen their respective lender relationships.

And finally, one of the direct benefits of this acquisition will be the improved sales attribution by helping dealers source more sales linked to credit IQ technology, we will further demonstrate Cars.com overall sales effectiveness.

Just like Cars, CreditIQ has been focused on helping dealers be more efficient and profitable using technology.

We're excited to combine forces and continue to enable dealers to generate more transactions online and enhance their digital strategy.

Credit IQ opens up an exciting new Tam for us participating in the rapidly growing fintech segment, which will create incremental long term value for shareholders.

While CreditIQ is new and exciting, I'm equally excited to talk about our strong Q3 results. We delivered revenue and adjusted EBITDA at the high end of our guidance.

We delivered revenue and adjusted EBITDA at the high end of our guidance.

Performance was driven by growth in ARPD from the continued adoption of our industry-leading digital solution. Dealer growth and continued strong retention. Revenue growth has continued unabated for more than a year and reflects the strength of our dealer revenue, which increased 12% year over year.

Dealer growth and continued strong retention.

Revenue growth has continued unabated for more than a year and reflects the strength of our dealer revenue, which increased 12% year over year.

Total revenue increased 8%, even as the industry wide shift shortage continued to impact our OEM revenue.

Looking ahead, we expect continued strength in our dealer business, accelerated growth from our acquisitions and we also anticipate a rebound in OEM revenue when the supply chain disruption ease, production levels return and new car launches normalize.

Consumer demand continues to outpace supply as lower OEM production is constrained new car sales and accelerated used car volume.

In the certified pre-owned market year to date sales were the best on record and are expected to continue to grow as dealers seek the buyout leases early and certify a higher percentage of used cars.

Our value in this inventory constrained environment is second to none. Our strong brand and organic traffic provide exceptional value, enabling dealers to market their actual on the lot inventory directly inefficiently to consumers searching for an exact match.

For the quarter, as expected, average monthly unique visitors and visits for lower compared to the prior year. Recall last quarter we noted that it would be difficult to outpace the COVID-19, lockdown period, which elevated traffic levels due to stay at home orders that lifted online car shopping to record levels.

We also noted that we will experience some temporary impacts from our technology transformation.

When compared to 2019, a more typical operating environment, monthly average unique visitors increased 5%. Lead generation also remains one of our strengths.

Lead generation also remains one of our strengths.

Although leases were lower as compared to the prior year when compared to the more normalized 2019 operating environment, dealer leads were up double digits.

Dealers appreciate Cars because we are a platform not an aggregator. They appreciate our unique high quality traffic and leads and love the volume of traffic we sent directly to our dealer websites.

They appreciate our unique high quality traffic and leads and love the volume of traffic, we sent directly to our dealer websites.

This is a key differentiator between Cars.com versus aggregator marketplace.

Aggregator marketplace.

While Aggregators force consumers to submit leads through their website, our platform successfully drive customers directly to our dealers.

Through our platform dealer customers received twice as many website referrals as compared to others.

This value as demonstrated by our record retention and continued growth in customers.

We ended the quarter with 19000 in 2009 dealer customers, a 184 dealer count increase from last quarter, and 899 higher than a year ago.

ARPD grew 7% for the quarter driven by continued strong performance in fuel, our targeted video solution that enables dealers or OEMs the connective car shoppers in an efficient manner.

Dealers using fuel consistently experienced market share gains as they realize the strength of our first-party data to reach pure end market car shoppers.

Fuel revenue grew double-digits compared to last quarter. Looking ahead, we see continued opportunities for growth given the ongoing shift from linear TV to streaming platforms, empowering dealers and OEMs to connect with cars dot com shoppers across digital video platforms and devices.

Looking ahead, we see continued opportunities for growth given the ongoing shift from linear TV and streaming platforms empowering dealers and Oems to connect with cars dot com shoppers across digital video platforms and devices.

This quarter we were also proud that we launched the first of our four dealer website. Delivering steady growth in customers and increased adoption of our digital tools. By quarter-end repowering over 5200 dealer website.

By quarter end Repowering over 5200 dealer website.

Looking ahead, we expect continued growth as we deliver on additional core dealer website, and we continue to grow the business with our existing OEM partners and others.

We have ample opportunity to expand beyond the 50 to 100 website customers we have today in an industry with more than 40000 dealerships.

Our focus on empowering dealers with innovative digital solutions is reflected in the growth of our differentiated solution strategy. We have successfully transformed the business moving from our legacy lead generation affiliate model into a platform with end-market car shoppers that empowers industry-leading digital solution.

Successfully transformed the business moving from our legacy lead generation affiliate model into a platform with end market car shopper that empowers industry, leading digital solution.

We are now enhancing that platform with financing capability that engage consumers, benefit dealers, and generate an entirely new customer revenue stream with scale potential.

Our strategy continues to win industry adoption and advance in powerful new ways. Now I'll turn the call over Sonya to discuss our detailed financial performance. Sonya.

Now I'll turn the call over Sonya to discuss our detailed financial performance Sonya.

Thank you, Alec. Let me start by saying how excited I am about CreditIQ, eight division to our platform will create an immune diversified revenue stream through inncremental shareholder value and helped drive our already strong growth.

I think how excited I am about credit IQ eight division to our platform.

Arm will create immune diversifies, adding.

Incremental shareholder value and helped drive our already strong growth.

In addition to sharing more detail on our acquisition of this cutting edge automotive finance technology. I'm also pleased to share that we delivered yet another quarter of solid results. Both revenue and adjusted EBITDA were at the high end of our expectations.

Revenue and adjusted EBITDA correct.

And our performance also yielded yet another quarter of robust cash flow generation. Revenue for the third quarter totalled $156.6 million dollar plus. At 8% year over year. Dealer revenue grew by 12% or $15.4 million year over year. Performance is given by a combination of newer customer and ARPD growth across all products.

Revenue for the third quarter totaled $156 6 million dollar plus.

At 8% year over year dealer revenue grew by 12% or $15 4 million year over year performance is given by a comedy.

newer customer and ARPD growth across all products.

We grew both marketplace and lifetime customer. And ARPD growth was driven by fuel and increased digital isolation penetration.

Mark and AARP growth was driven by fuel and increase digital isolation penetration.

And finally, our revenues grew 27% year over year. OEM and national revenue for the quarter was $15.3 million. 14% lower than the prior year.

Oh, Yeah, and national revenue for the quarter was $15 3 million.

14% lower than the prior year.

Also reflect the impact of the ongoing chip shortage, and the resulting pullback and OEM advertising due to the delay in new model launches and lower inventory.

One of the bright spots this quarter with certified pre own this market in the sale and the inventory constrained environment and our CPL product with Nissan. On the Internet.

On the Internet.

As new car inventory levels began to normalize, we expect OEM advertising sign to pick up and continue to shift towards more targeted digital advertising solutions that we offer.

Now turning to expenses, our operating expenses for the third quarter were $144.5 million compared to $125 million in the prior-year period.

On an adjusted basis, operating expenses increased by $15.6 million or 13% compared to the prior year.

The increase is primarily due to last year's pullback in investment given the uncertainty of the pandemic.

The current period reflects more normalized marketing plan, as well as incremental investments to support growth in website customers and fuel. As well as higher product technology in that market.

While it's higher product technology in that market.

Net income for the third quarter was $2.4 million. Adjusted EBITDA totaled $45.8 million or 29% of revenue compared to $49 million or 34% the prior-year period.

Adjusted EBITDA totaled $45 8 million or 29% of revenue compared to $49 million or <unk> 30.

The 4% the prior year period.

Performance reflects our revenue mix, which had been temporarily impacted by OEM production challenges as long as the return to more normalized levels of investment in the business.

And now turning to our key operating metrics, which are the foundation of strong quarterly results.

We have made 2029 newer customers an increase of 899 compared to the prior year. And 184 higher compared to last quarter. This increase is primarily due to continued strong retention rates as well as solid retail, which further demonstrates the value we provide.

Website customers also continued to grow reaching 5200, an increase of more than 1000 customers versus a year ago. Growth was reflected of OEM program acceptance and dealer adoption due to our focus on both consumer and customer experience.

<unk> of OEM program acceptance and dealer adoption due to our focus on both consumer and customer experience.

As Alex mentioned, we launched the first of our fourth quarter and anticipate continued growth given by Ford, GM and other OEM businesses in the pipeline.

That's a really unique high quality traffic is something that we have consistently delivered to our dealer and OEM customer. During the third quarter of last year we experienced a record-breaking traffic as consumers migrated more of their car shopping journey online in the wake of COVID restriction.

A record breaking traffic.

<unk> migrated more of their car shopping journey online in the wake of Colgate restriction.

That coupled with certain short term impact of our re-platforming is also unique visitors and traffic that were down 4% and 10% year over year, respectively.

In contrast, we're looking at a more normalized period like Q3, 2019, unique visitors were up 5% and traffic was down just 1%. And perhaps most importantly, our [dealers need] performance has increased double-digits versus two years ago.

Fourth-quarter, ARPD increased 7% year over year to $2,332. Performance was driven by increased penetration of fuel and our digital solution.

Our balance sheet and liquidity remain strong. Our cash balance at quarter-end was $51.5 million and coupled with our $230 million undrawn revolver, resulting in total liquidity of $281.5 million.

We are in a strong financial position and have the flexibility to continue to strategically invest in the business whether through acquisitions like CreditIQ or continued organic innovation to drive growth. We continue to pay down that included our net leverage position.

Acquisitions like credit ICU or continued organic innovation to drive growth.

We continue to pay down that included our net leverage position.

As a reminder, we're acquiring CreditID advanced [auto command] technology for $30 million at closing to be funded with cash on hand.

Technology for $30 million at closing to be funded with cash on hand.

In addition, there is the potential for performance based payouts of up to $50 million over the next three years.

With CreditIQ technology, we expect to increase our market share within the rapidly growing multibillion-dollar industry. This acquisition expands our end to end transaction capabilities across the Cars platform improve lead quality and attribution and also create a new lender base revenue stream.

We expect to make incremental investments as we integrate and scale the CreditIQ technology across our platform with rollout to dealer customers expected to begin in the first quarter of 2022.

Net cash provided by operating activities for the first nine months of the year was $116.2 million up 20% compared to $96.9 million last year. Free cash flow for the nine months period, ending September 30th 2021 totalled $98.3 million up 17% from $84.3 million in the year prior. Performance was primarily driven by year to date growth in adjusted EBITDA and to put all of this in context of our cash-generating efficiency, our LTM free cash flow is 14%.

$3 million in the year prior. Performance was primarily driven by year to date growth in adjusted EBITDA and to put all of this in context of our cash-generating efficiency, our LTM free cash flow is 14%. 14%.

14%.

Our strong and consistent cash generation enabled us to continue to Delever the business and we've made great progress in doing that.

Net leverage is down to 2.3 times from 3.8 times, just a year ago.

During the quarter, we made $32.5 million in debt payments. And for the year, we paid $107.5 million of which 100 million were voluntary prepayment, resulting in total debt at quarter end of $490 million.

Hi, good morning, where voluntary prepayment, resulting in total debt at quarter end of $490 million.

Now turning to our outlook, we're pleased with our solid results and anticipate continued momentum. We expect continued growth in dealer revenue, even as we maintain a more conservative position on OEM and national revenue, given our expectation that the industry like chip shortage will continue throughout the fourth quarter.

As a result, we expect fourth quarter revenue to be between 157.5 and $109.5 million. It still represents 3% to 4% year over year growth in the challenging fourth quarter environment.

<unk> hundred 57, five and $109 5 million.

It still represents 3% to 4% year over year growth in the challenging fourth quarter environment.

Given the timing of close we do not anticipate credit Nike to have a material impact on our fourth quarter results.

We expect adjusted EBITDA margin for the fourth quarter to be between 28.5% and 30.5%.

In summary, we remain focused on execution and delivering a great value to consumers, customers and our shareholders. We have effectively de levered our balance sheet over the last several quarters and we are well-positioned to continue to invest in the business to drive growth and further extend the reach of our platform. And now Alex and I are happy to take your questions. Operator.

And now Alex and I are happy to take your questions operator.

Thank you we will now proceed the Q&A. If you'd like to ask a question, you can press star one on your telephone keypad. If you wish to withdraw your question, you can press star two. Please ensure you're unmuted locally when asking your question.

Please ensure your mute it looks like when asking your question.

He's got to take your questions.

Our first question comes from Nick Jones from Citi. Nick, your line is now open.

Your line is now open.

Great, Thanks for taking the questions. Could you kind of talk a little bit more about the Fintech acquisition? And how we should think about the economics that will flow through to the P&L. From Aaron I guess really how big the opportunity is as you see it.

Taking the questions could you could you kind of talk a little bit more about the Fintech acquisition.

And how we should think about the economics that will flow through to the P&L.

From Aaron I guess really how big the opportunity is.

As you see it.

Then the second question would just be as new cars, supply remains constrained, how are you thinking about kind of a dealer mix I mean is the opportunity to maybe regain independent dealers. As used cars remain in demand. Thanks.

Supply remains constrained or how are you thinking about kind of a dealer mix I mean is the opportunity to maybe regain independent dealers.

As used cars remain in demand.

Thanks, Nick well first of all the fintech opportunities in emerging market and a growing one at that. And the TAM on it it certainly is significant. And when you think about it there's 40 million vehicles that are being financed every year.

The fintech opportunities in emerging market and a growing wanted that in the Tam on it it certainly is significant.

And when you think about it.

There's 40 million vehicles that are being financed every year.

Which predominantly are done by the larger franchise dealerships that are that are financing vehicles, which is the core of our customer mix.

And so I think the opportunity is enabling those transactions, not only for the users, but the dealers and saving the dealers time and money in helping preserve their profits by closing more of the transactions online.

I think the opportunity is.

Enabling those transactions not only for the users, but the dealers and saving the dealers time and money in helping preserve their profits by closing more of the transactions online.

If you look at some of the public digital dealerships that are out there. There is certainly being successful in helping consumers get more of the process done online and we're going to bring that same power to our 20000 dealer network.

Which is extremely exciting. Certainly, you can imagine the possibilities also just enabling miss on the 5200 dealer inspire websites alone every dealership is wanting to advance our digital strategy and now we've got an industry-leading solution to enable it I think.

So anything else you would add on that? No, I think that is it. As Alex mentioned, we think there is a huge opportunity out there. If you look at the number of vehicles sold by dealerships on an annual basis today, I think upwards of 60% of those end up being financed not to mention what's happening in private party channel. And we think we have an incredible opportunity to play in that space. I think from a timing perspective, and to your question around.

As Alex mentioned, we think there is a huge opportunity out there. If you look at the number of vehicles sold. Dealerships on an annual basis today, I think upwards of 60% of those end up being financed not to mention what's happening in private party channel and we think we have an incredible opportunity to play in that space I think from a timing perspective, and yes to your question around.

Dealerships on an annual basis today, I think upwards of 60% of those end up being financed not to mention what's happening in private party channel and we think we have an incredible opportunity to play in that space I think from a timing perspective, and yes to your question around.

How this will flow through the P&L. As I mentioned in the outlook section, we expect closing to happen over the course of the next couple of days. So impacts to Q2 thousand 21 financials is obviously going to be quite muted. Our focus is really on getting to a rollout. Beginning in Q1 of next year, and we will be investing to ensure that that rollout's smoothly.

As I mentioned in the outlook section.

But I expect closing to happen over the course of the next couple of days. So impact Q2 thousand 21 financials is obviously going to be quite muted. Our focus is really on getting cooler rollout.

Beginning in Q1 of next year, and we will be investing to ensure that that rollout.

It's about dealer adoption number one and making sure we get that can see my experience nailed down really well so that we can accelerate DB implementation of the technology across our network.

DB implementation of the technology across our network.

And the second part Nick on dealer mix, we are seeing strong pickup and indeed dealer growth rate, we had a great quarter on dealer growth. It was more evenly balanced between the two but the fact that independent dealers are realizing location based marketplaces are the most efficient way to get the <unk>. It out on the cars that they have in stock and then keep in mind over almost half that the leads that we're generating for dealers have a trade in opportunity included with it and I think dealers are recognizing with cars dot com, they're now able to sell their vehicles more efficiently, but it is a reservoir of opportunities too.

It out on the cars that they have in stock and then keep in mind over almost half that the leads that we're generating for dealers have a trade in opportunity included with it and I think dealers are recognizing with cars dot com, they're now able to sell their vehicles more efficiently, but it is a reservoir of opportunities too.

Our restock their inventory and I think that's been one of the reasons why our platform has performed really well in this supply constrained environment.

Great. Thanks for taking the questions.

Thanks, Nick.

Thank you Nick.

Our next question comes from Dan.

Tunnels from benchmark company down the line is now open.

Great. Thanks, good morning. Alex, just to follow up on that line of questioning just to be clear. Are you I mean, this is an al LAAS type are you selling is not a subscription basis? Or is this kind of like a product attach or is it dependent on conversion? Just to be clear on that.

Alex just to follow up on that line of questioning just to be clear.

Are you I mean, this is an al Aaas type.

Are you selling is not a subscription basis or is this kind of like a product attach or is it.

Dependent on.

On conversion just to be clear on that.

And does it also include things like.

Like digital deposits and your capabilities or do you need to add to that Scott and I'll follow up on that on fuel.

So to your first question. Thanks for the question.

It's both actually so the.

Primarily we view this as a new lender based revenue stream, it's not necessarily going to be subscription based with the lenders may it's going to be based on the number of funded funded loans. So it is a transaction based model, but again given the sheer volume of consumers, we have coming both to the card dot com marketplace as well as our dealer <unk>.

Buyer websites and bear in mind, we have an installed base of online shopper dealers is while we think there's tremendous opportunity on the basis of this transaction based revenue stream, we're going to develop an enzyme. In addition, yes. There is a lending as a service opportunity here as well that the credit IQ team has already been out.

They're pursuing where we would be able to effectively white label their solutions and ATI to other customers and we think that is an exciting opportunity in our view. This kind of solution is imperative for folks who want to have.

<unk> credibility in the automotive space to be using and leveraging and while we're talking about it I should mention one of the key differentiators of the solution and one of the reasons. We were so attracted Chile was the dealer centric model that it embraces we are not forcing dealers to work with Jeff with the lenders and.

Our network, we are an open effectively an open platform, we will support dealers preferred lenders as well so the dealer doesn't have to make changes on their end, it's actually going to be extremely seamless for them and that is a key differentiator of what we're bringing to market versus what others are doing right now.

Got it Thats helpful. Tony Thank you for that color.

And then obviously kind of night again I've been talking about this for a while pickup and ARPG.

We look at supply constraint issues notwithstanding the dealers are just absolutely flush of cash right now.

So.

Better conversion cost type products that probably would be well received in the market can you just talk about the conversations you're having with dealers around incrementals.

Incremental attach rates multi product attach rates and how you guys are thinking about either accelerating or enhancing kind of the pipeline over the next.

Digital product offering at this point with what might be impacted.

Sure Dan well first of all we.

We're pleased with the growth in <unk> and then I also know that you know how our business works and that we charge based on the market and the dealership size of inventory and so with inventory levels depleting and us selling into smaller geographies you would actually expect our ERP did decline, but what youre seeing is the <unk>.

Strength of our solution strategy come through we've had tremendous success with fuel we've had dealers recognize that this is the most efficient way to acquire trade ins and it's the most efficient way to advertise specific inventory that they've got versus general or mass market advertising and so dealerships are.

Operating with record profits, but I would tell you they are having a greater appreciation for the power of our platform strategy and its unique contribution to their success.

See this reflected in our not only strong retention rates, but our growth in dealer count and rising ERP D and so the conversations have been extremely healthy I think perhaps the biggest change I've noted in the past two quarters is how much dealers are leaning in to their website metrics, which also is where our value is shining through.

Through particularly relative to other.

Marketplaces, who are really just aggregators and don't drive traffic to them directly to the Dealership's website, which is increasingly becoming the focal point in dealerships dealerships now are obsessing over their website metrics more than their physical store metrics because they now have better line of sight.

What's what's converting sales I think credit IQ is just going to extend our lead as a platform that delivers traffic deeply into the dealer system and we're excited to begin those discussions with dealers who the initial response I've gotten today.

It's been extremely positive.

Got it Super helpful. Thanks, Alex Thanks, Tony.

Thank you Dan. Our next question comes from <unk> Khan from <unk> Securities Your.

Your line is now open.

Yeah. Thanks a lot. Maybe just on [the fuel], can you just talk about the geographical [inaudible] where are you with respect to that?

Yes.

Maybe just on the.

Fuel can you just talk about me.

The clinical visit.

Our view with respect to that.

And also maybe the customer account and then.

Another question on fuel.

Rollout, how should we think about the timeline for that.

Yeah. So on on fuel fuel is continuing to grow really rapidly we experienced double digit sequential growth. This quarter. So just quarter over quarter growth has been tremendous.

And we're seeing really great take rates. We are currently we currently have a presence in all of the top 40 DNA. The dealers really are leaning in to the solution.

Haven't really been talking quite as much about dealer count specifically for this product the interesting thing with it is that we're selling fuel on a ZIP code exclusive basis and actually what we're finding in many cases is that some of our early adopter of dealers.

On a sequential basis or as their contract law are looking to actually expand the number of ZIP codes that they are participating in so we really think the key here is to ensure that we are in the markets that matter.

And that that is definitely that is definitely taking shape as we speak.

In terms of board.

The <unk> rollout is a little bit different than the GM rollout in the sense that for GM dealers. They really hadn't had a choice of providers before <unk> got program acceptance, there and they created a window transition window, so to speak where dealers kind of opted in Q working.

With us for a little bit different afford already had choice and we are simply coming in as additional choice.

And we think we offer excellent value, but it but there is no formal window in which dealers have to opt in so we expect to see the Ford website come in on a rolling basis staffing side, we had really strong outreach from Ford dealership, when they first heard Denise and Thats part of the.

Pipeline that we are currently working through even as we continue to grow with.

Grow the pipeline of Ford dealer and I think the best way to think about it is ultimately we do believe that we will get our fair share on Ford dealers. There are about 3004 dealers in the U S. Today.

So I would sort of.

Leave it there very healthy response from our foreign partners.

Great. Thank you.

Thank you our.

Our next question comes from Gary <unk> from Barrington Research. Your line is now open.

Thank you, good morning, everyone. Sonya, did you call out what the dealer inspire revenue increased in the quarter? Year over year dealer inspire revenue increased 27%. Okay.

Tanya did you call out what the dealer inspire revenue increased in the quarter. <unk>.

<unk>.

Year over year dealer inspire revenue increased 27%.

Okay.

Alright, now I got a number of questions revolving around this CreditIQ, I'm trying to understand it here. Does the dealer have to be a customer of yours via either your legacy market platform or website platform to use this product?

Does.

And does the dealer has to be.

A customer of yours via either your legacy.

Market platform or website platform to use this product.

Yes, it has to be a participant with us either through our websites or through our marketplace.

Alright, so how many.

Dealers business company.

Currently have right now.

On the platform.

It's a relatively small customer base, but it's a bigger lender network that they've built including over 1000 integrations with various systems Gary throughout the industry, so that as we wire our traffic and value into this platform.

Namely feeds directly into the dealer systems of records and Thats, one of the big benefits, where other competitors are just flagging a feel in an email lead we're actually converting the opportunity for the dealer directly into their systems, allowing them to improve their workflow make this easy.

To manage and get further along in getting the loans fully approved.

So our credit IQ integrated with the dealer track vendor network is that one of the way <unk> Daniel.

You've got it Gary.

And route one right. So we fully integrate into the existing systems that dealers are using the process.

Loans and Thats going to greatly improve the quality of the experience for the user and certainly say the dealerships a ton of time.

Okay. So so this is basically kind of a pre approval process before anybody walks into a dealership right. If you are considering buying a car.

So.

Does this take any of the Decisioning on the part of the F&I Guy does it circumvent the F&I guy at the dealership.

Or does the F&I guy probably some kind of role in this.

Through this whole process.

Well certainly we can with technology help enable faster decision, making for the user experience and even helping the dealerships optimized towards <unk>.

Profitability for them.

So we can do this dynamically so yes, we are automating a lot of the things that today dealerships manually have to do.

The great news about this is that it will allow the dealership to process more transactions with fewer resources.

They can work with their existing lender network. So it enhances their ability to.

Run their finance teams more efficiently and again it delivers a better user experience because the dealership is accelerating the customer experienced either deliver the car to their home or to reduce the time that the customer spend in the physical store.

And so it's on our quest to help dealerships be more efficient and then at the same time leveraging their existing workflow and systems, Gary as you know changing dealer process takes time, the beauty of the credit IQ platform is it taps into the dealers existing workflow.

Right.

AD.

Mhm.

Sorry, I was just going to add. There is a lending as a service component to the CreditIQ business. So technically speaking there could be some dealers who are not part of our network, who are accessing credit IQ technology through the lending or the service component of the business, but I think ultimately long term the way we see it with our rollout, which we expect to start next year, the vast majority of dealers who are using it, will be using it directly through us.

And.

There is there is a lending as a service component to queue. The credit IQ business. So technically speaking there could be some dealers who are not part of our network, who are accessing credit IQ technology through the lending or the service component of the business, but I think ultimately long term the way, we see it with our rollout, which we expect to start.

<unk> the vast majority of dealer two are using it will be using it directly.

So my last question. So it would be so if I'm on your one of your your.

I find the car on your site I go through the whole pre approval process. It comes back to me does it tell me what rate on going to get on the on the loan.

Yes.

Okay. So does that also include the ability does that also include a dealer markup because usually they are going to mark up the loan a little bit was that included in that whole bundled price.

Yes, it's the dealer.

Out the door offer to the consumer.

Thank you.

Thank you Carrie. Thank you Sir our next question comes from Marvin Fong from <unk> Martin Your line is now open.

Great. Thanks for taking my questions a couple more on credit IQ congratulations on that deal so.

Just thought I'd ask about the earn out.

Maybe help us understand what might be the triggers for those.

And how many how many different payments there might be with that and then.

Just drilling down I think you said.

There'll be some further investment to build out build out that product. So is there any.

Meaningful EBITDA drag that's embedded for credit IQ.

On your fourth quarter guidance, and then maybe help us think about it for next year the potential EBITDA drag and then I have one other follow up on advertising.

Yeah sure. Thanks for the question Marvin So taking the first one on earn out there are really two components to the earn out their performance base. One is we are excited that credit IQ comes to us with a solid network of lenders to began with it really does cover sort of the consumer credit spectrum.

From the outset, but we do believe that there is opportunity to expand that further but we do have a set of milestones associated with bringing more lenders to the platform, but I would say the more sizable component of the earn out is really tied to EBITA performance milestone.

So those are those are the acute primary drivers.

The earn out I view 2022 is a bit more of an investment period and the business that we invest a little bit and also.

Look to scale across the dealer network and fine tune the consumer experience.

I would I would think the earn out payments are not necessarily going to be front weighted in Q.

Next year that being said.

We end up being found that would be excellent right in terms of how quickly we were able to get things up and running.

Okay.

Thank you had a second.

Yes, just about any any EBITDA impact.

Any in the fourth quarter, and maybe thinking about it for next year.

Yeah, you know not.

Not really any material EBITDA impacts the fourth quarter I mean, when you think about it.

At the time you close it is really going to be somewhat somewhat de minimis from a timing perspective in terms of how long we've owned it in Q4 I do expect that we will invest against that and in 2022 and you can provide more color on that when we do guidance next quarter, but I think when you look at our overall capex and how.

Judicious we are I think you can trust that we will be thoughtful in terms of what that incremental investment that end up looking like.

Okay.

And Marvin the benefit the benefit of this opportunity is that it has tremendous synergy right. Our go to market systems are built.

We're enabling our existing dealer network and using both the consumer volume that already exist on cars dot com and on dealer websites to enable our success here and so there's just a tremendous amount of synergy with the deal that youre not going to have to model. This with like ramping costs. Like this is really taking advantage.

Of our existing distribution strength.

100%.

Right No that's great and then just a quick follow up I think Sonya you've mentioned advertising a little bit we.

Continue to be cautious for good reason.

But just in terms of the P&L.

Any additional color you can give on just maybe how advertising.

What are your outlook for the fourth quarter is maybe relative to the third quarter should we expect it to be flattish, maybe down a little bit more or have we seen bottom.

Yeah, I think when you look at our marketing marketing investment over the last couple of quarter that has been relatively tightly banded. It's all it's all of us.

Challenging too let.

Let me put it this way I think what you've seen from US. The last couple of quarters is kind of consistent with where I would think we would land in Q4 staffing side, we are always looking for opportunity Q.

The efficient when the opportunity presents itself.

And to take advantage and lean into the channels, where we can provide the most value delivery to our dealer because ultimately that is what determines the marketing investment is the value delivery that we're sending to our dealer customers.

That's great. Thanks.

Thanks for that.

Revenue side.

How do you think your OEM advertising.

Perform thanks.

I think we're actually pleased with some of the signals, we're getting in Q4 from Oems.

Is varied picture by OEM.

And we flagged that we are seeing some great success with OEM certified pre owned programs with limited new car inventories. They too are focused on how to get more sales of certified vehicles and their brands, which is one of our our key strengths I think with the traffic levels, we're seeing in the strong.

<unk>.

Performance of our organic audience, we feel good about next year, particularly as as many Oems are preparing to launch EV vehicles.

As another strength of ours, we held a huge EV webinar last week the <unk>.

<unk> of content consumers are searching on which EEV Dubai.

We know we're sailing towards an EV.

<unk> share battle and consumers are going to do heavy amounts of online research comparing and contrasting the various merits of the different EV players, which again fits right into our original content strategy and so I think I think we're feeling really good about what we're hearing in the 2022 upfront. Despite some of the current fourth quarter.

Softness that we're guiding against because we just want to be prudent in this year and finish.

Great. Thanks, so much appreciate it guys. Thank you.

Thank you Milton our next question comes from Steve Dyer from Craig Hallum.

<unk> Your line is now open.

Good morning, guys. This is Matt Wagner on for Steve Thanks for taking our questions.

Lot of mine have been answered already but just curious on the in the quarter the mix of your net new dealers with primarily.

The core marketplace solutions was there more it was it more weighted towards fuel an online shopper and any new products just any color on that thanks.

The growth has been in both right. We had good growth in marketplace. We had good growth in website customers.

And the ads were relatively even between franchise and independent dealers.

Again, 65% of our mix tends to skew towards the franchise dealer market. So it was healthy across the board Sonya what else would you add I would just add.

You also mentioned fuel in order to.

Purchase fuel from US you actually have to be a marketplace customer they are already embedded in the customer count, but I just reiterate why Alex side, which is we've seen good customer growth kind of across both marketplace and the solutions side of the business.

And it was a little bit more even this quarter relative to others in terms of the mix of franchise versus independents in terms of a net add perspective.

Got it great all asked about Q. Thanks, guys.

Thank you Steve as a reminder, if you'd like to ask a question you can press star one on your telephone keypad.

Yeah.

Okay. We have no further questions for today I will hand, it back over to Alex for any closing remarks, Alex over to you.

Thank you look in conclusion I just want to reiterate how pleased I am with our performance across the business and certainly the acquisition of credit IQ and hopefully we see great continued success heading into next year as our progress is a differentiated platform for the industry is more essential than ever.

<unk>.

Our platform strategy is working and we're excited to bring transactional capabilities to enhance that strategy on a path to category leadership. This concludes our call. Thank you.

Yes.

Thank you for joining today's call you may now disconnect.

[music].

Okay.

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