Q4 2021 Cars.com Inc Earnings Call

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Great.

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Good morning, and welcome to the caused fourth quarter 2021 earnings conference call.

This call is being recorded and a live webcast can be found at investor.

Investor calls.

A replay of this webcast will be available until March 10.

A copy of the accompanying slides can also be found on the company's investor Relations website.

I'd now like to hand, the call over to Robyn will Randall director of Investor Relations.

Good morning, everyone and thank you for joining us.

It's my pleasure to welcome you to the card fourth quarter and full year 2021 conference call.

With me this morning are Alex Vetter, CEO and Tony Chang CFO .

Alex I'll start by discussing business highlights from our fourth quarter and the full year and provide an overview of expectations for 2022.

Then Sonya will discuss our financial results in greater detail, along with our 2022 outlook well finish the call with Q&A.

Before I turn the call over to Alex I'd like to draw your attention to our forward looking statements and the description and definition of non-GAAP financial measures.

Which can be found in our presentation.

We will be discussing certain non-GAAP financial measures today, including adjusted EBITDA adjusted EBITDA margin adjusted operating expenses and free cash flow.

Reconciliations of these non-GAAP measures to the most directly comparable GAAP measure can be found in the financial tables included with our earnings release.

And in the appendix of the presentation.

For more information please refer to the risk factors included in our SEC filings, including those in our annual quarterly and current reports, which are available on the IR section of our website.

We assume no obligation to update any forward looking statements or information as of the respective date now I'll turn the call over to Alex.

Thank you Robin and welcome to our fourth quarter and full year 2021 earnings call cars delivered impressive results in 2021, we delivered double digit revenue and adjusted EBITDA growth underpinned by increased dealer customers elevated ERP and record customer retention.

We also announced two acquisitions.

You May ask your trade group.

Further accelerate our platform strategy.

This enabled us to enter 2022, well positioned for sustained growth and margin expansion.

Revenue momentum continued throughout the year as we increase value to our dealer and OEM customers driven by our high intent organic audience number one brand and industry leading solutions.

Dealer revenue increased 19% year over year, and total revenue increased 14% despite inventory constraints and continued OEM and national revenue softness.

After adjusting for last year's pandemic related credits dealer revenue increased 10% and total revenue grew 6% consumer demand remained strong throughout the year outpacing supply.

New vehicle production was down in the second half of the year, leading to widespread inventory shortages and softer sales.

Retail prices on both new and used car skyrocket.

<unk> record dealer profitability.

Average retail prices for new and used vehicles on cars dot com increased 26% and 33% in the fourth quarter respectively.

Despite current market conditions, we continued to deliver high value solutions that help dealers showcase their inventory and standout on dimensions other than just price our level playing field enables consumers to easily find cars of high quality and dealers know they are working with a partner who doesn't force them to lower <unk>.

<unk> decline in the search results.

Our reviews and reputation management solution for dealer Rater is another great example of our objectivity.

With more than 11 million reviews consumers helped determine which dealers are providing a great experience. This also allows individual dealers and salespeople at the standard out and build their brands.

The power of cars enables us to generate traffic far more efficiently than our competitors, who are forced to rent their audience via search.

For the year, 70% of our traffic came to us directly largely driven by our original editorial content and category expertise.

Just last week, our expertise was recognized by Elon Musk, who places the cars Dot Com American made an index on Twitter spurring a national conversation in front of the 70 million followers.

Our ability to consistently generate high quality organic traffic and leads is paramount to a dealer success for the quarter leads to dealers grew double digits and unique visitors increased 6% compared to a year ago.

This value is further evidenced by our historically low 2021 cancellation rate, which is half the 2019 average.

We reached 19179 dealer customers by the end of 2021, an increase of 807 dealers compared to the previous year and 150 dealer increase quarter over quarter.

For the year <unk> also grew an impressive 16% year over year or 7% when adjusting for the 2020 pandemic related credits.

This was driven by continued strong performance in our website solutions and the adoption of fuel which remains in high demand despite inventory shortages.

In 2021 total dealer websites grew to approximately 5300, <unk> further demonstrating dealers increasing adoption of our innovative technology.

Looking ahead, not only do we expect to continue to develop and launch additional dealer websites, but we also have tremendous opportunity to cross sell existing products from DIY fuel and marketplace, along with newly acquired solutions across more than 19000 dealer customer network.

As we advance our platform strategy and strengthen our transactional capabilities, we're making new solutions available to our customers.

We continue to differentiate our industry, leading brands by enabling the local retail system to be more efficient to drive more profit and better compete last quarter, we introduced credit IQ a cutting edge automotive digital financing technology that has been well received by the dealer community.

The new solution enables dealers to facilitate instant loan approvals and online financing with consumers for lenders of their choice.

<unk> solution also addresses one of consumers most pressing pain points during their car buying journey time spent in the dealership, making decisions around their financing options.

Credit iqs in the formative stages, and we'll continue to make investments this year to accelerate its integration into our platform.

We've already begun piloting credit IQ technology on cars Dot com and on dealer inspire website with approximately 100 dealer customers and we expect to begin scaling of this technology to a wider audience of users customers and lenders, while we ramp investment in this differentiated digital financing solution.

We further enhanced our offerings with the recently announced acquisition of the Accu trade group, which is expected to close later this quarter.

This technology will enable dealers to quickly and efficiently buy and sell inventory at scale across the consumer to dealer network and a dealer to dealer exchange, helping dealers improve inventory turn and maximize profits.

Nearly half of the $25 million in market shoppers on cars Dot com are looking to trade in or used car before making a purchase.

Using accu trade's proprietary didn't specific valuation and appraisal technology dealers can confidently source inventory directly from the tens of millions of high intent in market shoppers, who visit the cars platform.

Consumers will also benefit from real time transparency about our vehicles guaranteed value and gain instant connection to the best buyer, making it the easiest way to sell their car.

We will be launching new sell it yourself capabilities, allowing over $11 million annual private party car sellers.

Option to sell to another consumer or to one of our thousands of certified dealers. We will integrate this technology across our platform. Shortly after the transaction closes and invest in building out this consumer and dealer offering.

I want to emphasize the power of our platform is our high intent audience with nearly $592 million annual visits the cars dot com and an incremental 952 million visits across dealer inspire website.

As we deploy our technology solutions be it financing or trade. It we can unlock a much bigger opportunity across a larger consumer and dealer network, while leveraging insights and creating efficiencies across our platform.

I am pleased with the progress we've made building innovative solutions that advance our business and the industry.

These ongoing internal investments and innovation, coupled with high value accretive acquisitions position us to build on our momentum and deliver on our strategic growth priorities.

Credit IQ in Accu trade, along with organic investments bring to our cars dot com platform, a critical set of technology capabilities, enabling an omnichannel experience for car shoppers and sellers.

In 2022, we are investing for growth.

Sales and marketing expenses will modestly increase year over year with higher investment in the first quarter as we resume our participation in trade and industry events like any yet.

Also over the course of the year will restore investments into areas that have been curtailed due to the pandemic.

While our near term growth expectations have been somewhat muted by the inventory shortages, we expect our growth to accelerate in the second half of the year as inventory begins to recover.

And these investments, particularly those related to integrating our acquisitions will result in accelerated long term growth.

Our revenue comes from a diversified set of customers across dealers Oems lenders and other automotive industry participants as the inventory shortages subside, we expect that our high ROI innovative products and solutions to Oems will deliver increased contribution to both revenue and margin.

Credit IQ and <unk> will also contribute to accelerated long term growth in both revenue and margin, especially after the first year of prelaunch development work and product integration.

The completion of our tech transformation in 2021 enables us to innovate much faster and it is a natural inflection point in our product development journey to bring these new solutions to market.

To help drive our growth I am pleased to welcome Matthew Crawford, who joined US last month, as our new Chief product Officer.

Matthew has considerable experience managing operating and leading product development and enterprise scale.

<unk> built two sided marketplaces integrated acquisitions and scaled innovation for growth.

I didn't bring Matthews rich experience and platform expertise to our team.

Before I turn the call over to Sonya, who will discuss our financial performance and outlook in greater detail.

I like our ESG work that is core to our culture.

Powered by cars action in 2021, we continue to drive environmental social and governance priorities throughout the company are.

Our commitment towards carbon reduction has come to life in several areas across the business.

Most importantly in the form of ongoing consumer education.

The electric vehicle future takes hold we will double down on our leadership in this area, increasing our EV focused editorial content by over 20% this year we.

We will also continue to do our part in increasing representation in our company industry and communities.

Within our industry, we will continue to provide ongoing support and education technology and financial investments to critical partners such as the National Association of minority auto dealers women in automotive and girls some growth.

And at cars, we are proud of our work to build an inclusive culture, where 45% of our employees identify as other than male and a quarter of our team identifies as having a racial or ethnic background.

We are committed to increasing our representation of cars and we hold ourselves accountable by Forwardly timing executive compensation to our D Eni goals.

These actions are a critical part of our corporate culture, and we will continue to create sustainable value across all our stakeholders and now I'll turn the call over to Sonya.

Thank you Alex.

Pleased with our team's execution, we delivered double digit revenue and adjusted EBITDA growth ending the year in a strong financial position.

<unk> acquisition credit ICU and appetite to add new capability and you got a new team to our platform.

Let me begin with our quarterly results.

Revenue totaled $158 million.

Year over year.

Revenue grew by 8%.

$3 million.

<unk> performance was driven by continued growth in dealer customers in AARP, reflecting the strength of fuel and our other digital solution dealer inspire revenue grew 19% year over year.

OEM and national revenue for the quarter was $15 million, 20% lower than the prior year, reflecting the industry wide shortage.

Which led to lower vehicle production lower new vehicle incentives and resulted in lower advertising budgets overall.

Used vehicle sales are projected to increase year over year. However, production returning more slowly than many had anticipated. Despite these macro headwinds our diversified business model allows us to perform well across industry and economic cycle getting a company that we will deliver another year of strong revenue growth.

Sure.

Moving to expenses fourth quarter total operating expenses were $154 million compared.

Compared to $137 million in the prior year unadjusted basis operating expenses increased $6 million.

Year over year.

Primarily due to the higher product and technology expense.

Last year's pullback in investment given the uncertainty of the pandemic constant revenue also increased driven by the strong growth in fuel and our other digital solution.

Net loss for the quarter was $6 million compared to net income of $7 million in the prior year.

Current quarter was impacted by $10 million of compensation expense recognized as part of the credit IQ acquisition, specifically under GAAP purchase accounting $10 million of our $30 million upfront purchase price with Dean's compensation expense and accordingly recorded in Q&A. This is a one time expense related to the acquisition.

<unk>.

Adjusted EBITDA for the quarter totaled $47 million.

29, 6% of revenue compared to $48 million or 31, 7% of revenue a year ago current quarter. Adjusted EBITA margin reflects product mix lower OEM advertising and higher growth in Activations that message comes at a slightly lower margin as well.

The actual investments in areas that had been curtailed during the pandemic.

Before I turn to our full year results I'd like to take a moment to review our key operating metrics and trends.

We ended the quarter with 19179 customers an increase of 807 compared to the prior year and an increase of 150 sequentially.

Our ability to grow the dealer base and net inventory constrained environment is evidence of the value. We provide dealers. Thank you rapidly connecting them with end market shoppers.

We saw strong growth in our website customers. We ended the year with 5300, let's say customer in 900 customer increase compared to a year ago strong OEM program acceptance and dealer adoption drove this performance, which includes our continued launch of GM and Ford website.

My inventory shortages, we've grown our audience for the quarter and 24 million average monthly unique visitors an increase of 6% year over year. We also delivered 134 million visitors traffic.

Traffic was down 3% year over year, but in the context of the vehicle listings down 39%, we are driving EBIT proportionately high level of traffic and perhaps even more importantly, we believe double digit year over year driving incremental sales to argue with our customers.

<unk> TV grew 3% year over year, driven by continued strong demand for fuel and our other digital solution.

Now moving to our strong full year 2021 performance total revenue increased 14% year over year to $624 million EBIT.

Even after adjusting for last year's $38 million.

Our next related invoice credit revenue still increased by six 5%.

And dealer revenue increased 19% to $550 million.

Total operating expenses were $575 million compared to $1 $4 billion last year on an adjusted basis operating expenses were $31 million higher compared to last year, which reflects the gradual reinvestment engineering are curtailed during the pandemic.

In 2020 to really focus on being a technology enabler empowering consumers dealers and OEM.

And now lender with innovative solution to that and we will make incremental investments in innovation, including launching new products optimizing our current product and integrating and growing our credit IQ in acetate.

Alex mentioned, we are highlighting the credit IQ technology on our dot com platform as well as our dealer inspire website and the reception has been.

Overall these investments will further set us up for sustainable growth in 2022 and beyond.

We ended the year with a strong balance sheet and have the financial flexibility to continue to invest in both organic and inorganic growth opportunities, while maintaining modest leverage.

Net cash provided by operating activities totaled $138 million for the year flat year over year free cash flow totaled $119 million million lower compared to the prior year current year free cash flow was impacted by higher interest expense normalized levels of working capital and purchase accounting.

For credit ICU.

To put this all in context, our LTM cash flow yield is 12%.

Our strong cash flow generators and enabled us to repay $120 million of our debt.

Resulting in total debt at year end of $477 5 million.

Leverage is down to two three times compared to three four times, just a year ago and well within our target range of approximately 2% to two five times.

We are excited about our accu trade acquisition and expect it to close.

The $65 million at close will be funded with a mix of cash on hand and revolver draw.

Now turning to our guidance.

And in 2018 outlook contemplates that vehicle inventory levels will improve in the latter part of the year.

Inventory shortages will lead our growth in the first half of the year OEM revenue will continue to face near term pressure in this low production environment with delayed in new model releases and lower incentive spend and while dealer.

<unk> record profit and our retention rates are at record highs dealers and Oems are less inclined to increase or shift their advertising budget at that time.

We are pleased with our year to date customer growth. It reflects the core strength of our platform and create a solid foundation for growth in both AARP and strategy.

With that as a backdrop.

Our first quarter 2022 revenue to range between 156 and.

$158 5 million.

We also expect year over year revenue growth to accelerate throughout the year as we continued the rollout of recently acquired and announced the mission and the inventory began to recover.

Full year revenue growth is expected to range between six and 8% with double digit year over year growth in the fourth quarter, assuming inventory recovery in the second half of the year.

Turning to our first quarter adjusted EBITDA margin. Our outlook includes the margin impact from our expected revenue mix, which includes a lower mix of OEM revenue versus solutions.

Along with increased investment.

During the quarter, we will invest in integrating our acquisitions into our platform to begin driving adoption through our dealer network and we will continue to mature investments and hearing that curtailed due to COVID-19 with our first quarter industry events and brand marketing.

Even beckman advance our end to end platform capability and position us for accelerated future growth.

Given these factors, we anticipate adjusted EBITDA margin for the first quarter to be between 26, and 28% margins are expected to rise towards 30% in the fourth quarter as revenue growth accelerated inventory returns and we see growth in our new solutions and modest growth in our OEM business and <unk>.

Wholesale because investments are expected to be weighted towards the FERC half of the year.

Capital expenditures for the year are expected to range between 23 and $26 million.

And we expect to deliver another year of strong free cash flow.

We remain committed to strategically deploy capital that will drive the greatest shareholder value.

$200 million share repurchase program over the next three years reflects the strength of our business and the confidence we have in our long term growth projections.

Also underscores the strength of our cash flow, which gives us the capacity to invest in both organic growth opportunities and value accretive M&A like credit ICU and accu trade, while maintaining conservative leverage and repurchasing shares would.

With these investments.

And our strong organic growth. We believe there is tremendous value in our shares and believe in investing in ourselves.

Current valuation.

In summary, we've made significant progress in furthering our platform strategy, enabling us to innovate faster better serve and support our consumers and our customers and drive sustainable growth.

Entering 2022 with tremendous momentum and are well positioned to deliver further growth with that I'll turn the call back over to Alex. Thank you Sonya in closing we delivered robust growth for the year. Our platform strategy is clearly differentiated to continue to deliver revenue growth and value.

We have a sustainable winning and unique marketplace platform and have added exciting new solutions to accelerate our growth.

Our business has demonstrated resiliency and profitability during a period of uncertainty and our momentum supports compelling long term revenue and adjusted EBITDA growth for cars in 2022 and beyond.

With that we'd now like to open up the call for questions operator.

Thank you Steve I'd like to ask a question. Please press star followed by one on your telephone keypad now.

If you change your mind, please put stuff on the budget.

<unk> to ask a question. Please make sure. Your line is open you should likely.

Our first question comes from never come from Trish.

It is now open. Please go ahead.

Thanks for taking the question. This is Robert <unk> beds purchased wanted to say, it's good to see the return to growth in dealer customers with our growing as well.

More impressive in this tough environment.

So the full year 2022 guidance assumes 6% to 8% revenue growth.

And you mentioned in the press release, you expect growth to accelerate throughout the quarter. So is there a meaningful contribution from the from the acquisitions baked into this or do you expect most of the benefit to be seen in 2023 and then.

The company recognizes.

These earn outs over the next one to three years, how do you.

How do these acquisitions affect your ability to pay down your.

And what are your targeted net.

Target net <unk>.

<unk> target net leverage multiples over the next one to three years. Thank you.

So great great questions I'm going to try to get that and then let me know if I missed anything starting out with guidance, we are guiding sort of annually to get to 6% to 8%.

Revenue growth in what I would say is the high end of that range reflects the acquisitions that we've completed I think understandably the businesses that we've had extremely strong technology, but haven't necessarily had the customary distribution and thats, what we bring to the table. So we expect to back began rolling these products.

Across our network over the course of the year, we've already started doing that in a in a limited fashion with credit ICU and so they will have some benefit to 2022, but really the meaningful benefit as you sort of indicated it's going to come in 2023 and beyond.

I think moving to your next question, which I believe was on leverage and how we think about our target net leverage ratio. We ended the year at two three times, we're really pleased with how much we've managed to delever, our balance sheet and we think that's a really comfortable range for us.

We are a growth business and so we expect to deliver continued improvement over time in adjusted EBITDA.

And so even with the earn outs, we're contemplating we feel very comfortable at the.

Leverage levels that we're talking about.

Okay, great. Thank you.

Our next question comes from Dan <unk> from Benchmark Company. Your line is now open. Please go ahead.

Okay.

Great. Thanks.

Morning.

Alex at the risk of sort of.

Asking your question Youre welcome to ask you guys a lot of this in terms of the go to market strategy from here you've got what is now a more comprehensive portfolio.

Interesting just wanted to make remarks about obviously the dealers are flushed with cash right now so.

No.

Certainly nobody in this environment nobody needs to spend the sell cars. They don't have <unk>, which is a challenge, but as you guys now have more tools in your Arsenal to go back to the dealer and say Hey look we can now offer you can now offer this and here's a complete platform approach do you start changing.

Your view on pricing and bundling and contract lengths are those like contemplation now.

You guys had excellent retention, obviously, a tough environment.

It's continued sort of shifting even more towards I guess, the SaaS model effectively did.

Is that being contemplated in the forward outlook or am I off base.

Dan Thanks for the question.

Youre right to point out that the fastest growing part of our business.

As our software solutions, which don't have variable marketing or traffic dependent.

And so we can invest in these very sticky software solutions that have the same reoccurring SaaS like benefits that our marketplace broadly does but we're selling them into the same established customer base and so I do think that's where we see really strong growth in our EBIT margins accumulating over time, because we're good.

Sell through across our portfolio of solutions I think it hasnt, we havent had to change your contract lengths are.

Or anything like that because in this environment, what is consistent regardless of the macro factors as dealerships aggressively shifting to digital format.

That's a consistent trend that's reliable we actually even believe that the Oems are going to have to start rethinking their distribution model and start marketing digitally more so than they do traditionally because of their scarce inventory in our platform.

Advertising base, it's really a marketing platform, we're telling dealers they don't need to advertise in this environment, but their cars do need to be found in that message resonate increasingly with Oems as well, who still have inventory, it's just <unk>.

<unk> spread throughout the United States and our platform allows consumers will find the specific cars, they want and have them shift if needed and so the business is proving to be really resilient even in this.

Inventory constrained environment.

And then the risk is probably getting a non answer.

Since you haven't really developed it yet, but the whole concept of now having access to <unk> to be effectively which is.

That untapped 11 million inventory a lot of guys, who are trying to attack that space.

How do you differentiate there and we've heard from some others just around sort of pricing Backstops, obviously accu trade gives you a specific.

Measurement tool, which is unique so just help us think about.

Being competitive in that space, how much share do you think you could capture.

Meaningful that will ultimately be to results.

We have not even launched yet.

Well, Dan I think the.

Cancer becomes more evident through our accurate accu trade acquisition rate, giving consumers real real time vehicle values that not only are more accurate that can be guaranteed is a huge consumer benefit that doesn't exist in other environments, and importantly, where I know theres a lot of competition in this space.

But a lot of our competitors are burning through a lot of capital to try to build these solutions part of our advantage is that the cars dot com brand generates a steady stream of organic.

Sellers, each and every day and so we're able to enable this strategy leveraging our existing traffic our existing audience and don't need to add a ton of marketing costs to generate a lot of opportunities for our dealers to buy cars directly from the public.

And obviously awareness.

Different ways that you can show your car.

Extensive and so we're plugging in the accu trade platform into our existing platforms, both on our marketplace and on dealer websites and we can generate meaningful volume without having to spend tons of capital to sustain that revenue model on a go forward basis now we've got to make some short term investments this year.

Year to integrate the technology, which is why you see some near term pressure on their EBIT margins as we invest year to develop the solution into our marketplace and into our websites, but then we see meaningful both revenue and margin appreciation in the outer periods. As you know in a subscription model the impact isn't going to be as profound in the curve.

Current year, because a lot of the revenues back in.

It has a tremendous.

Implication on our financial outlook for 2023 and beyond.

Got it great. Thanks, Alex.

And our next question comes from Gary <unk> from Barrington Research. Your line is now open. Please go ahead.

Good morning, all kind of a series of questions. So first of all Alex can you maybe touch on how much.

Dealer retention has improved on a year over year basis can you slap some metrics on that.

Sure I mean, we.

We're we've cut our cancellation rate in half.

2019, which I think it was a more normal operating environment.

As you can see in our numbers, we've been experiencing strong dealer growth, which new sales are coming at a slower rate. So I think a bigger contribution to our dealer growth has been just are consistent traffic delivery and our our value delivery, which is persistent and inorganically driven.

Pleased to see that that dealer growth continues in the first quarter of this year. Thus far so we see steady growth in dealers, but it's largely driven by dealers are really appreciating that our value is tapping into a new incremental audience, where some of our competitors are just bidding up SCM and selling that back to the dealers a privilege which doesn't really.

Generate any incremental sales.

Okay, and then suddenly did you give us what the dealer inspire revenue grew in the quarter are you still given that metric out.

We didn't give that metric out and I believe it was 19.

Percent.

In the quarter.

For Q4, yet.

Okay I have a couple of questions on this.

Accu trade.

Business here.

My understanding.

<unk> I think from a note that I put out that it's a subscription product paid by the dealers right.

And youre going to put this on dealer inspire websites as well as put it on your marketplace platform and it's going to be used for consumer the dealer and then consumer to consumer transactions is that correct.

Correct It will stop.

<unk> consumer to dealer and then over time as we build out the dealer network will enable dealer to dealer trading.

Okay can you maybe talk about.

The ability here to give an instant guaranteed offer solution for vehicles.

And I realize you got all the data to back it up but it's just.

Out of this as Vin specific valuation.

What happens in the extent.

Individual misrepresented the car to an extent that.

Yeah.

If there is an issue there that would actually not the value down that the dealer wanted to pay how does that work.

Sure.

Lots of impact there, but let me let me give my best go here first of all obviously the power of our data set is pretty incredible when you think about the forward looking demand data signals that we generate each and every day across our dealer network of websites as well as our marketplace and so using Gallagher historical data.

Our forward looking predictive data, we see that we can get hyper precise in terms of what a car is going to be worth.

Over coming periods, and therefore be able to price inventory pretty accurately both what it's worth today and what its likely to be worth over the next few periods.

And therefore, we can provide instant guarantees through our wholesale partner.

Who has agreed to buy cars using our data set in the event the dealers don't want to buy the vehicle now consumers we know do.

And my or their own cars more so maybe than the market will and so that's part of the benefit of the Accu trade technology is it doesn't generate generic.

Vehicle values, but rather than specific vehicle values that are tied down to nuances that include not only the history of the vehicle, but but.

Specific options and features.

As the equity trade team likes to say they don't look at just the history of the vehicle they like to look at the health of the vehicle. So part of our technology also comes within <unk>, which is an onboard diagnostic where a dealer can plug a key into the car and actually retrieve the actual accident in history of the car and any mechanical work that's been done.

So we know that we can deliver super precise vehicle valuations. We can also show the consumer what the market will bear for this car over the next few periods to help give the dealer tools to educate the consumer on the true value of the car and we think that will remove friction from buyers and sellers and enable.

Transactions to happen with greater ease.

So my understanding is you're not taking any risk on this you've got somebody backing it that will take the car dealers don't want to take the car is that correct.

That's correct. We're approaching this in a very asset light SaaS like software model and leveraging partners.

And dealers again are going to carry the risk of the last mile and we think they are the best equipped to handle the the actual logistics and vehicle.

Inspections, and we're more providing the software and the enablement.

The platform will also include that the seller takes pictures and puts them up and it gets pushed to the dealer or there are isn't any of that involved.

That option will be there not all sellers, who want to go to.

The degrees. So therefore, our local dealer can finish the inspection and <unk>.

In person, but our goal is to enable a hyper local dealer network, that's going to be far more efficient and profitable.

To allow local dealers to handle the last mile.

Okay and then.

Okay, that's great and then lastly.

Your traffic was down a little but you are.

New business was up could you just maybe comment on where most of the traffic.

A tough comp versus last year, maybe there were a lot of people on fishing expeditions, but.

Werent following elevated traffic.

Gary we did have elevated traffic last year due to the COVID-19 and shelter at home issues, but you'll also recall, we relaunched our platform and frankly made it a lot more efficient if you look at our lead conversion on our lead delivery now part of that's also driven by scarce inventory, but our lead volumes up double digits.

Our unique visitors are actually higher this year than they had been in the past three <unk>.

<unk> visitation went down because consumers are finding the car that they're looking for and contact and the dealer more.

And so we're seeing double digit value improvement in our subscription offering so.

We're not worried about the visit decline that will come over time, but I think part of that is driven by the inventory scarcity environment right now, yes, no just to add there as Alex mentioned, just now inventories down our listings are down about close to 40% and so when you think about traffic in that context, I think what you see is actually a really.

Healthy vibrant marketplace with a lot of consumer demand for vehicles.

Thank you.

Yes.

Our next question comes from Steve Dyer from Craig Hallum Capital Group, Steve. Your line is now open. Please go ahead.

Good morning, Ryan on for Steve.

Okay.

Curious.

Dealer inspire website.

<unk> nice growth continues there sequentially how much of those customers are also marketplace customers or maybe said differently. How much of those were cross sold from marketplace into web site solutions.

We continue to see.

A fairly sort of steady group of customers to our what we consider to be solutions only customers I think what's important to consider when you look at our growth for the year or even our growth for the quarter as our growth is coming to us in a very balanced way in terms of growth in our marketplace as well as <unk>.

Those dealers that are coming to us for dealer inspire specific solution and to your point that does present, a really attractive cross sell opportunity for us.

Whether it's dealers who come to US first for marketplace. Then we can cross sell them into our solution via dei or fuel or dealers that come to us.

They have their website built first and then we and then we cross sell them into marketplace. We've talked about it on some of our other call, perhaps a little bit last year.

But when when dealers are using both our marketplace is followed by dealer inspire products, we can meaningfully demonstrate to them the value of the referral traffic that our marketplace to drive to their dealer websites and how we're actually driving leads that may be considered not traditionally from a marketplace to that.

And we continue to see that as a really strong benefit that we bring to our dealer customers.

Good.

One other one for Ross just on Accu trade can you elaborate more on financial expectations, specifically for 2022.

Given the purchase price and the comment that it will be accretive in 2022 at the time of announcement sounds a lot more measured here on this call on margin expectations. This for.

For this year on this call.

Curious I guess kind of benefit this year to out years.

Intersect those comments I guess.

Yeah, No I mean, we do continue to expect <unk> to be accretive to 2022.

It is a slightly more established business and then credit IQ.

We're acquiring it for its technology that being said it does have a base of customers. It's been distributed largely through third party partners and we think there is a substantial opportunity for us to grow that base, what's key though in order to really grow that base to get it more fully integrated into our platform, which is what we expect to do.

After close.

What you are hearing from us in 2022 is going to be a bit of a year of investment for both active trading credit IQ, Let me get them established in our platform start rolling it out to dealers, but we do expect them to have a revenue contribution is going to be more back half weighted and since this is particularly for active trader subscription.

Model Youre, not really going to see even the full impact of that subscriptions. We do that in 2022 until 2023 and thats. When we expect to see more material growth in the business anyway, because it will be more fully integrated into our platform, but if you want to try to put some harder numbers around that what I would tell you is that on our app.

The guidance range.

That we put out there that 6% to 8%.

If you look to the high end of that range I would tell you that part of what gets US there is seeing the ramping of our acquisitions and that's part of the reason. We've also talked about how we expect revenue growth to accelerate quarter quarter by quarter over the course of the year.

I hope that helps a little bit.

Thank you.

Our next question comes from Martin Fone of BT LNG Martin Your line is now open. Please proceed.

Good morning, Thanks for taking my questions.

I guess.

A few more on guidance in accu trade.

So with Accu trade.

Could you just.

Also.

Just put a finer point so on the on the on the private party transactions are talking about whether it will be up a backstop for that I can appreciate that dealers will be able to.

Without that backstop of went up also apply the private party transactions Youre talking about and then just on the subscription model.

How does how does the subscription revenue you generate scale and volume. So in other words, if a dealer is doing a lot more volume through the through the platform do they pay more to you is it like a teeter structure anything more on that you could provide would be great.

And then maybe just one for stone.

To elaborate more on what you are saying with the 8% being.

The result of success.

Acquisition. So can we interpret to mean that for the full year, we think 6% would be a good number for the core business.

Thanks.

For tomorrow and great questions.

So our private seller solution is going to give consumers multiple choices for how they want to transact and so.

We're going to enable a consumer that they want to lift their car in a marketplace and see what they can fetch in the open market, we can enable that technology and through actually trade. We can tell them. What we think the cars' worth and provide them an immediate point of egress, if they want to if they want to advertise it longer and entertain opportunities from other private buyers.

That will be their choice part of the guarantee is just saying that when you if you're if you're unsuccessful in selling in the open market just know that cars dotcom will help you get out of this car immediately at this price point, so it'll work either way, whether it's southern wants to go open market or through the dealer network I think as far as <unk>.

<unk>.

The business, what's exciting to us is.

Being a software enabler.

We want to see that SaaS like revenue accumulate through more dealer participation and we've gotten tremendous initial response on the accu trade cars Dotcom Act.

Acquisition, because dealers are desperate to buy more cars directly from the general public and we have a steady stream of those sellers to provide.

Dealers are being fee to death by a lot of participants in this category charging on a per transaction basis.

And our software model is meant to be a much more efficient path for dealers to use our software solutions to generate volume and scale without the variable cost of that.

That come along with success and so I think dealers are going to flock to our model over the traditional ways that they are buying and wholesaling cars and find it to be far more profitable for them than the existing status quo of this market.

And then and then maybe a little bit to your question around the 6% to 8%.

Do you have an expectation for a meaningful growth organic growth in our business.

I think the 6% to 8% as I mentioned on the high end of the range that does that that does reflect the.

The inclusion of the acquisitions and what they bring to the table, it's going to be.

In all transparency. These acquisition 2022 as an investment in an integration year for these businesses and so they're going to be a relatively small contributor overall, but its incremental revenue, which is why it impacts the guidance range I think when you think about organic growth in the core I think one of the factors that could move us.

Higher in the range is going to be the timing of when inventory returns and we start seeing a bit of a pickup in some of our OEM and national National revenue.

Now, let's say I did have one other question I could sneak in here since you brought it up I mean, what are your expectations for OEM and national It seems that the volatile revenue alone.

Can you share your thoughts on that.

Yeah no.

We have taken a more conservative stance in RMB Yuan on OEM and national and its contribution to the year, but more particularly to Q1 and that view is factored into the guidance range that we provided.

Thank you.

Also when we think about the full year, we have been seeing some improving trends right. When it comes to inventory from November to December December to January just even when we look at the number of lifting that we have on our own site that being said the pickup is just a little bit more gradual than we had.

As expected.

So we are expecting inventory to begin to recover in a more meaningful basis in the second half of the year, which is again one of the drivers for why we expect to see an acceleration in.

Revenue growth as we go through the year.

But transparently for Q1.

We are our guide guys increase sort of year over year pressure on OEM and national and frankly, even some sequential pressure as you compare it to last quarter.

Okay awesome.

Thank you so much.

Appreciate it.

As a reminder, if you'd like to ask a question today. Please press star followed by one on your telephone keypad now.

Our next question comes from Doug Arthur of Huber Research. Your line is now open. Please go ahead.

Yes. Thank you.

Playing a little bit of catch up here. So just to be clear in your answer to a prior question. If you look at the <unk> eight.

807, net dealers added for the entire year I believe.

Youre, saying that the spread between <unk> and <unk>.

Subscription.

Traditional subscription.

Dealers is even in that number I mean is it sort of.

It's a combination of two.

<unk> weighted.

No it is not diluted.

And in terms of the traditional.

Dealer customers is some of that gaining back dealers loss during the pandemic or is that new or is that a combination of both.

That's a great question, what I would tell you is it's a combination of the Q we had.

The pandemic has seen a number of dealers who had dropped in that sort of Q2 2020 timeframe come back, but we've also seen an uptick and new dealers coming to us and I think that in part is just a testament to the value delivery that we've been providing over the last several quarters.

So it's a mix of the two.

Okay.

And just.

A house.

Detail.

Issue.

Provide I don't believe adjusted earnings per share anymore. It looks to me based on whatever tax rate you want to assume for adjusted net income that it came out around <unk> 43, a share which is in line with expectations is that a fair.

Run at it.

Or is that.

Is that a metric is not really youre looking at these days.

We don't really use that metric I think we're far more focused on adjusted EBITDA and frankly part of the reason we're focused on that is just because of how great cash flow. In this business is in there like that direct kind of flow through as you think about EBITDA and adjusted EBITDA to cash flow.

But you're right there were some one time impact in Q1, I think I mentioned right. We related to you. The credit ICU acquisition, you did have a portion of the purchase price that went through the P&L and as a result impacting GAAP EPS and.

And if you adjust that out.

The story from an EPS perspective would be would be different.

Okay, and then finally on the $200 million share repurchase program.

What kind of cadence should we expect there.

Over a few years kind of as opportunities present themselves just trying to get a sense for the sort of urgency there.

I think that's right, it's a three year program.

We believe that there is long term value in our business and just take a step back for a moment and talk a little bit about how we got here.

Our capital allocation priorities have not changed at all right. We are focused on investing in growth.

And I think you've seen evidence of that with our recent acquisitions and the focus on the product roadmap.

Also we also continue to be really focused on maintaining leverage in a comfortable place, which we've kind of outlined does that two to two five times neighborhood and what we find is even after all of this we still generate a lot of free cash flow and we think theres a lot of value. That's just embedded in our shares which is why this.

Share repurchase plan makes a lot of sense to us we're not necessarily going to telegraph on we're going to be in the market, but we do intend to utilize this over the course of <unk>.

Three year.

Okay terrific. Thank you.

And no further questions now I'd like to turn the call over to Unexpressive CEO for any closing remarks.

I just want to thank everybody for their engagement today.

This concludes today's call. Thank you for joining you may now disconnect your lines.

[music].

Right.

Yes.

Okay.