Q3 2024 Cars.com Inc Earnings Call
We will be discussing certain non-GAAP financial measures today, including adjusted EBITDA, adjusted EBITDA margins, adjusted operating expenses, adjusted net income, and free cash flow.
We will be discussing certain non-GAAP financial measures today, including adjusted EBITDA adjusted EBITDA margin adjusted operating expenses, adjusted net income and free cash flow.
Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the financial tables included with our earnings press release and in the appendix of our presentation.
Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the financial tables included with our earnings press release and in the appendix of our presentation.
Any forward looking statements are subject to risks and uncertainties for more information. Please refer to the risk factors included in our SEC filings, including those in our most recently filed 10-K, which is available on the IR section of our website.
Any forward-looking statements are subject to risks and uncertainties. For more information, please refer to the risk factors included in our SEC filings, including those in our most recently filed 10-K, which is available on the IR section of our website.
Alex: We assume no obligation to update any forward looking statements now ill turn the call over to Alex.
Alex: We assume no obligation to update any forward-looking statements. Now, I'll turn the call over to Alex.
Alex: Thank you Catherine.
Alex: Thank you, Catherine. We drove solid third quarter results that were powered by product innovation and improved performance across our platform. Revenue grew 3% year over year, our 16th consecutive quarter of growth, setting a new record for Q3 revenue.
Alex: We drove solid third quarter results that were powered by product innovation and improved performance across our platform revenue grew 3% year over year, our 16th consecutive quarter of growth setting a new record for Q3 revenue.
Alex: Product adoption expanded in all of our solutions and most notably Accu trade returned to positive quarter over quarter subscriber growth.
Product adoption expanded in all of our solutions and most notably AccuTrade returned a positive quarter-over-quarter subscriber growth. OEM revenue grew 17% year-over-year to exceed 17 million, a new three-year high based on broad demand from our partners.
Alex: OEM revenue grew 17% year over year to exceed 17 million a new three year high based on broad demand from our partners.
Alex: We also delivered adjusted EBITDA margin of 28, 5% at the top of our guidance range.
Alex: We also delivered adjusted EBITDA margin of 28.5% at the top of our guidance range.
Alex: <unk> growth that we saw in Q3 reinforces our platform strategy, helping dealers streamline our operations to accelerate the automotive retail flywheel.
The product-led growth that we saw in Q3 reinforces our platform strategy, helping dealers streamline their operations to accelerate the automotive retail flywheel.
Alex: Starting with inventory and a lot our latest customer data reinforces industry insights that sourcing vehicles via accu trade delivers higher quality vehicles supply.
Starting with inventorying the lot, our latest customer data reinforces industry insights that sourcing vehicles via AccuTrade delivers higher quality vehicle supply.
Alex: Acquiring cars from customers is far more profitable than wholesale auctions and it brings in popular of late model used inventory further generating high consumer engagement across our marketplace dealer websites and media solutions.
Acquiring cars from customers is far more profitable than wholesale auctions, and it brings in popular late-model used inventory, further generating high consumer engagement across our marketplace, dealer websites, and media solutions.
Alex: Nowhere is our data advantage more clear then on the cars dot com marketplace, where we found that our leads and connections typically influence around 30% of dealer unit sales.
where we found that our leads and connections typically influence around 30% of dealer unit sales.
Alex: In a recent analysis of a sample of franchise dealers are marketplace stimulated over $3 billion in their gross automotive sales this quarter alone.
In a recent analysis of a sample of franchise dealers, our marketplace stimulated over $3 billion in their gross automotive sales this quarter alone. As we invest to strengthen the attribution between our platform and vehicle sales, our market position will only improve.
Alex: As we invest to strengthen the attribution between our platform and vehicle sales our market position will only improve.
Alex: Our overall product performance helped us maintain healthy monetization in Q3 average revenue per dealer grew slightly quarter over quarter as we focused on cross selling our platform to enable dealers to operate with greater efficiency and profitability were.
Alex: Our overall product performance helped us maintain healthy monetization in Q3. Average revenue per dealer grew slightly a quarter of a quarter as we focused on cross-selling our platform to enable dealers to operate with greater efficiency and profitability.
Alex: We're pleased to be moving past the third party <unk> outage in Q3 that is temporarily muted our dealer growth and.
Alex: We're pleased to be moving past the third-party DMS outage in Q3 that intently muted our dealer growth. And we're off to a positive start in Q4, as we grew marketplace dealers in October. Now, I'd like to unpack our product-led growth and traction from the third quarter, starting with AccuTrade.
Alex: And we're off to a positive start in Q4 as we grew marketplace dealers in October.
First, AccuTrade positions us at the center of dealership operations, helping our customers acquire the right cars at the right price to maximize profitability.
Alex: Industry data suggests that gross profits can be up four times higher when a transaction involves a trade-in, creating a strong incentive for dealers to source from customers.
Alex: Times higher when a transaction involves the traded creating a strong incentive for dealers to source from customers.
Alex: Accu trade makes this process simple and seamless by displacing both traditional profit eroding wholesale auctions and labor intensive legacy inspection model.
AccuTrade makes this process simple and seamless by displacing both traditional profit eroding wholesale auctions and labor-intensive legacy inspection models.
Alex: We see this change in dealer behaviour reflected in accu trade appraisal volume, which rose to 671000 appraisals in Q3 up a healthy 5% quarter over quarter.
We see this change in dealer behavior reflected in AccuTrade appraisal volume, which rose to 671,000 appraisals in Q3, up a healthy 5% quarter over quarter.
Alex: Furthermore, these appraisals are converting into real inventory at a faster rate as dealers acquired on average nearly 40% more vehicles per month.
Alex: <unk> compared to a year ago.
Alex: Take Ed Martin Toyota located in Noblesville, Indiana, who committed to appraising vehicles directly in the service Lane using accu trade. After only 60 days they acquired and sold dozens of vehicles that delivered on average 87% more profit per sale.
Alex: Accu trade is changing the game the more dealers appraise cars.
Alex: More retail opportunities they will enjoy.
Alex: Based on our strong value delivery accu trade connected expanded to approximately 950 dealers in Q3 and returned to quarter over quarter growth.
Alex: Notably nearly 50% of the new dealers onboard in Q3 were affiliated with Oems, who have endorsed accu trade as a non program solution.
Alex: Recall that last quarter. We also unveiled an exclusive agreement with Jaguar land Rover to power dealer websites with the Accu trade web application, which we began enrollment in late Q3.
Alex: We will keep prioritizing this strategic playbook of leveraging OEM endorsements to stimulate dealer sales and awareness and we're in active talks to win more partnerships in 2025.
Alex: Next a growing number of dealers adopted our digital website experience and media solutions to showcase their inventory to the right buyers and improve inventory turn time.
Alex: Power over 7650 dealer websites during the third quarter up nearly 150 customers sequentially with particularly impressive expansion in Canada.
Alex: Commerce became the number one franchise dealer website provider in Canada in July as we distance ourselves from competitors with better product performance and premium features.
Alex: For example, a significant upgrade to our core platform infrastructure has resulted in double digit increases to site speed, ensuring a smoother and more delightful consumer experience.
Alex: We also deployed new AI translation capability for over 100 languages, specifically engineered for dynamic automotive website content like vehicle description specs and features.
Alex: Within media solutions, our Vin performance media product is almost quadruple that subscriber base since its Q1 launch exceeding $3 million in annualized revenue in Q3.
Alex: Customers using VPN have seen up to double digit improvements in inventory turn rate compared to non users.
Alex: One case study showed the average days listed for older inventory dropped by 28% driving incremental revenue and reducing flooring costs the benefit dealers bottom line.
Alex: These compelling results spotlight, how our proprietary data and differentiated insights power, our customers' marketing to drive profitability and the retail flywheel.
Alex: The reception of <unk> has been very positive and we see a long runway for media solutions growth in the coming quarters.
Alex: Turning to the core of our platform our scaled marketplace continues to lead the industry on consumer awareness engagement and trust.
Alex: We drove organic traffic to 62% of our total traffic mix in Q3, reinforcing our strong position as the number one most recognized automotive marketplace.
Alex: Our audience quality is unmatched with around 84% of our visitors on our site and tending to buy a vehicle within six months.
Alex: Naturally our lead conversion continues to be extremely strong, especially as we put more tools in the hands of consumers.
Alex: New car hub, which reduces the complexity of new car shopping consistently sees lead conversion that is seven times higher compared to overall traffic.
Alex: There is a margin of approximately 30% based on continued cost discipline and operational efficiency for the remainder of the year.
Speaker Change: Hi, Zack while Josh <unk> on for Joe Spak today. So thank you for the question I had two quick ones one to the hurricanes impact the business and accu trade adoption in the quarter and then two just any change in tone from the dealers about adding services and higher inventories was 90 days ago, especially as we head into the.
Speaker Change: Seasonal holiday season. Thank you.
Speaker Change: Great question, we did see seasonal impact or I should say regional impact to the hurricane impact and we've seen this movie before where a consumer traffic initially comes to a halt as people reckon with the crisis and even dealer inventories are impacted but theyre also followed with it like a 30 day lag and we're seeing record.
Speaker Change: Traffic rebounds in those regions.
Speaker Change: And much stronger consumer demand than where we were before the impact. So it's somewhat nets itself out and certainly we know it spurs a lot of replacement vehicle sales.
Speaker Change: As far as interesting product adoption.
Speaker Change: New car inventory levels are rising.
Speaker Change: But the one durable trend, which we're seeing across the industry take form as dealers recognizing that street buying or sourcing cars from private sellers is far more profitable than battling over ageing inventory at wholesale auction and so regardless of inventory levels dealers are recognizing that that sourcing cars from their customer.
Speaker Change: <unk> always brings in more desirable inventory.
Speaker Change: Youre seeing this reported by some of the large publicly traded dealer groups, who are signaling this as being one of their key profit driving strategies and now thats, taking route across the dealer community looking for ways to replicate that success at their local level and so we've been doing accu trade luncheons over the past two months and they've been sellout.
<unk>.
Speaker Change: Events across the country, where dealers are coming to learn how can I, how can I copy what some of the industry players are doing to source directly and so I think we're on a very durable trend there.
Speaker Change: Thank you.
Hum.
Speaker Change: Gary <unk> from Barrington Research. Your line is now open.
Hey.
Speaker Change: Good morning, all.
Speaker Change: I kind of jumped on the call a little bit late did you.
Speaker Change: Hey, guys quantify.
Speaker Change: Talk about any lagging impact of the CDK CDK cyber hit in the quarter.
Speaker Change: For Q3.
Speaker Change: Yes, Gary the headline there with just our sales pipeline rebooted, a little bit slower than we would've liked but definitely popped in October across all product lines. So.
Speaker Change: We're on the right track it just took a little bit longer to get people pass it in moving forward and certainly obviously the current economic.
Speaker Change: Cloud and the dealer community is profit normalization happens also is a little bit harder sales rate, where dealers looking to cut back on technology solutions as opposed to add but when they see the strength of our solutions I think they know they're getting enterprise grade technology. So we're feeling really good about the October growth occur.
Speaker Change: <unk> the board all solutions.
Yes.
Speaker Change: I'm just interested in looking at slide 11, with the VPN There've been performance media.
Speaker Change: Business, which you said the subscribers have quadrupled since Q1.
Sure.
Speaker Change: It's very early in the game, but.
What are the dealers finding.
Alex: Is the real benefit with this product and maybe if you could could you slap a number on how many dealers have actually started to subscribe to this Alex.
Yes.
Alex: I don't know the dealer count numbers, but generally if you understand the product benefit is that we can put more media weight against aging inventory, so dealers rather than just promoting all of their cars with equal weight. We now help the dealers customize where they want additional re targeting waiting on aging.
Alex: Inventory and what that's doing is it's lifting the total turn rate for the dealers entire inventory.
Speaker Change: And so yes, they've got to spend more to sell more but.
Speaker Change: We're not finding resistance and the price points here, which are analogous to almost a different subscription tier.
Speaker Change: And so the take rate has been strong out of the gate and I think that will continue to accumulate heading into next year as I, just think we're going to head into higher inventory levels slightly softer demand dealers are going to have to be much more disciplined about moving their entire inventory as opposed to being reliant on a third yes.
Speaker Change: And I'll just add in terms of the number of dealers who are using the product is still as you mentioned in early days, but we have several hundred dealers that are are using the product and benefiting from these results.
Speaker Change: Okay and.
Speaker Change: And is this price on.
Dealer size.
How do you price this.
So it's a it's a it's a flat fee.
Speaker Change: <unk> per month.
Yes.
Okay, and then just just as you talk to.
Speaker Change: Your dealer base are your salespeople are out there talking to the dealer base.
Speaker Change: It was.
Speaker Change: Was there a feeling like a lot of companies prior to the election. They were saying they were really kind of sitting on their hands and all of that and now that the election is over I know, it's really a day or two over but.
Speaker Change: Is there still.
Speaker Change: Think a big appetite for your product lines out there given what's going on in the market itself and then it's a real sluggish market.
Speaker Change: Okay, We just held.
Speaker Change: To date.
Speaker Change: Dealer Council meeting here in Chicago, with probably 25 of the larger dealer groups in the country and what they shared with US heading into next year is that while they were concerned about the election outcome and not wanting to see that heavily contested election or a prolonged period.
Speaker Change: It doesn't look like we're gonna have they generally been going into next year wanting to invest more in technologies to help reduce our overall employee cost and try to compete on running a more efficient business as vehicle sales and gross profit per unit normalizes. So.
Speaker Change: They are really reaffirm that our cars commerce platform technologies that seamlessly work together.
Speaker Change: Is the antidote to what they're trying to solve and so going into next year. I generally think dealers are going to be looking to spend more in technology to automate parts of their business and to streamline operations versus less.
Speaker Change: Okay. Thank you.
Gary Barrington: Thank you Gary.
Speaker Change: Thank you. The next question is from Marvin Fong from <unk>. Your line is now open.
Great.
Speaker Change: Good morning, Thanks for taking my question. So I also hopped on a little late to the call but to two.
Speaker Change: Two questions on hockey trade first questions great to see the dealer account rebound the positive growth up 50 in the quarter I believe.
Speaker Change: Just to level set expectations I mean, how do you see sort of that.
Speaker Change: That cadence.
Speaker Change: Of increases going over the next couple of quarters should we kind of think about 50 to 100 dealers this quarter over quarter growth is about the right number.
Speaker Change: And then second question, Alex I do believe you mentioned earlier.
Speaker Change: That youre in.
Speaker Change: In discussions with Oems about getting further endorsements for IQ trade.
Speaker Change: And maybe some co op dollars could.
Speaker Change: Could you just kind of.
Speaker Change: Our drill down a little bit deeper a little bit of kind of know like what are sort of those.
Speaker Change: <unk> like what is it that Oems are looking for before.
Speaker Change: Before they kind of.
Speaker Change: Give the go ahead.
For those endorsements just love some extra insight there.
Mark: Sure Mark.
Speaker Change: Well first of all we're really pleased with the health of the Accu trade install base you know not only are our dealers who are using our platform appraising more vehicles, we can actually see the data that they are also acquiring more cars.
Speaker Change: So our first priority is making sure our clients are successful with with the technology and the tools and we're feeling front footed on that I think part of our Q3 success was that we did snap through the the Dms impact that halted sales earlier in the quarter.
Speaker Change: So we did get a little bit of a pickup there, but I do think that's a realistic kind of pacing that we could finish the year on <unk>.
Because we're getting a lot of interest and importantly industry attention when.
Speaker Change: When publicly traded dealer groups reported record profitability sighting.
Speaker Change: Vehicle acquisition being entirely done from customers versus auctions.
Speaker Change: <unk> body takes notice and so theyre trying to replicate what some of the large consolidators are demonstrating and their financial performance and they're looking to us to enable that that outcome. So.
That's exactly what accu trade does it levels, the playing field and gives our back to the long tail of this industry. So.
Speaker Change: I would hope that can be a consistent growth metric that we could achieve most of next year, but we'll see how Q4 finishes out and give guidance.
Speaker Change: For next year.
Speaker Change: At the end of the quarter.
Okay, that's great.
The second part.
Yes, the OEM.
Yeah on the OEM side look we're really pleased with the progress in fact, I think it's almost like 60% of the sales that we generated for accu trade in the quarter were from the OEM dealers that we've got endorsements with so it's showing that if we can get the OEM endorsements and the top down financial support from Oems.
Two point dealers our direction it can be a boost for sales. So we are in discussions with more Oems I don't think those will close this year, but I think that'll be a 2025.
Saying that could accelerate our growth next year, but but.
Speaker Change: Were in multiple conversations to expand the accu trade footprint with Oems.
Speaker Change: This year.
Speaker Change: Got it okay I'll leave it at that thanks, so much appreciate it.
Mark: Thank you Mark.
Perfect.
Speaker Change: Thank you there are no further questions at this time I will now hand, the call back to Alex Vetter for closing remarks.