CDK Global, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Q2 2021 CDK Global, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then one on your touch-tone telephone. And please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I'd now like to hand the conference over to your speaker today, Julie Schleter, Director of Investor Relations. Please go ahead.

Thank you, and good afternoon. I'd like to welcome you to our second quarter fiscal 21 earnings call. Joining me on today's call are CEO Brian Krasanich, Chief Operating Officer Joe Tauches, and our new CFO, Eric Guerin. Following their prepared remarks, we'll be taking questions. Our earnings press release was issued after the close of the market today and is posted on our investor relations website at investors.cdkglobal.com, where this call is being simultaneously webcast. In addition, our website also includes an updated Excel schedule of supplemental financial information and a copy of our results presentation that we will be referencing during our prepared remarks. Throughout today's call, we will be discussing our continuing operations only, which do not include our international business. Given the announced sale on November 30th, 2020, the international business results are now presented as discontinued operations, and we will no longer be reporting segment information. Prior period amounts have been reclassified accordingly. Within the press release, we have provided the last five quarters of historical financial data on a revised continuing operations only basis. Unless otherwise noted, all references to financial amounts during our call are on a non-gap adjusted basis. Reconciliations of adjusted amounts to the most directly comparable gap amounts are included in this afternoon's press release. Please also note that all growth percentages refer to the year-over-year change for that period, unless otherwise specified. I would like to remind everyone that remarks made during this call may contain forward-looking statements. These statements involve risks and uncertainty, as further details in our filings with the SEC, which could cause actual results to differ materially from those mentioned in the forward-looking statements. With that, it is my pleasure to turn the call over to Brian.

Thank you, Julie, and thanks to everyone for joining us today. Before I jump into the quarter and my thoughts around the company more broadly, I'd like to take a moment and welcome a new member of the management team, Eric Durin, our new CFO. Eric joined our team in mid-January, and brings that perfect mix of financial expertise and business acumen that we were looking for in a CFO. He's helped improve the finance operations of large, complex organizations with hundreds of people and through numerous acquisitions. He's got the right skill set and experience to bring together our many internal processes and systems to get them running like a well-oiled machine so we can move quicker and seamlessly on our growth journeys. Eric's a great fit with our values and culture, and I'm excited to welcome him to the team. Now, let's move on to the quarter. We had a really exciting quarter as we continue to make incredible progress on our journey for accelerated growth here at CDK. As you know, two of the top metrics we focus on are number of sites and revenue per site. With sites indicating the health of our subscription base, and revenue per site demonstrating our software's increasing value to dealers. This quarter, we hit the highest level ever in the history of the company for both of these key metrics. We've developed a very healthy subscription base now with all the work we've done around being customer-centric, and I'm happy to report that we just achieved our highest ever net promoter score as well. We've also built a great leadership team with a wealth of new talent on top of our strong foundational team that has come together to drive CDK to the next level. So now I'll hit on some of the key results for the quarter and let Eric dive deeper into all of the details. Then I'd like to spend my time sharing with you the vision for the company and the progress we're making on our strategic initiatives, especially around some of the great technology advances we've recently made. During the second quarter, we had a revenue of $406 million and EBITDA of $156 million, with an EPS of 59 cents and a strong cash flow generation. When I take a step back and look at the performance drivers of the quarter, the underlying business remains very healthy. But COVID certainly accelerated throughout the quarter and into January. And as you can see from the data in the charts we provided, we're seeing some of the uncertainty reflected in certain areas of our operation. And I'll let Eric provide more details in his remarks. However, all in all, we continue to feel good about the underlying business, with auto site growth up eight quarters in a row and adjacency sites at their highest level in the company's history. Given the good visibility into our free cash flow and our confidence in the underlying health of the business, We have continued to invest as part of our growth strategy, and you'll see from our guidance that we expect stronger second-half growth. Our investments over the past two years are really showing progress, and we are well-positioned to accelerate bringing solutions, insights, and value to our dealers, OEMs, and developers. As a reminder, our strategy is a multi-pronged approach with initiatives to, one, modernize our current product, Two, develop new solutions. Three, utilize data, insights, and integrations. And finally, fourth, expand and connect the broader ecosystem. I'm going to talk about the progress of each of these and share some thoughts on our vision for the future. When we think about modernizing our current products, we're looking at, one, having a frictionless user interface that is straightforward user-friendly, and mobile ready with a simple upgrade path. Two, being able to leverage the public cloud with the ability to auto scale and be available anywhere. And three, using flexible architecture to build faster and utilize APIs and plug-in apps. Now plug-in apps are used to quickly add more functionality or new features to existing software. And for example, We just announced the launch of our new rewards plugin app on Fortelis. This is the first directly integrated manufacturer loyalty program in any DMS. On our last call, we mentioned our creation of this plugin app that can be used to instantly access customer rewards points and apply them for payment at a dealership, which flows seamlessly then into the DMS. This new feature has all the modern user interfaces, is easy to use, and very simple to install. We are now happy to officially launch the product and have signed with a major OEM to offer this exclusively during their pilot. This marks the first manufacturer-certified plug-in app available through the Fortelis marketplace. There's going to be more to come later this year. We're currently working on several modernization efforts, including updating the user experience in our CDK service application to deliver an easy-to-use interactive interface for our CDK InSpec solution. Additionally, we are adding new AI and machine learning capabilities to drive new data-based insights, leveraging our new Neuron platform and Fratellis. You'll be hearing more about this as we move into pilot. Moving on to our new software initiatives, we'll focus on addressing several growing needs within the industry, including helping dealers on their journey to provide more omnichannel digital retailing experiences for the consumer. Our strategy is to quickly become the provider of choice for digital retailing solutions through a combination of best-in-class solutions. Given the wide acceptance of our connected store products, and the investments we've made to compile the most complete set of products needed for true digital retailing. We see a lot of opportunity here and believe we're well-positioned to be the industry leader. Our new product development is also focused on meeting the needs of OEMs and consumers with new applications such as our CDK OnePay solution and the new Rewards plug-in app. Our third initiative is around data and insights. And one of the company's greatest assets is data. And I want to share some very important news about our new data platform, Neuron. I'm really excited about the launch of our intelligent big data and analytics platform, which will be a game changer for the industry. By combining big data, our deep domain expertise, and data science, Neuron will address some of the industry's biggest pain points and will be a huge differentiator for CDK. So let me explain. There's a massive amount of data, and it's expanding every day from OEMs, dealers, and increasingly the cars themselves. Unfortunately, it's not very useful in its current form. In order to really harness all this data, make sense of it, and offer actionable insights to OEMs, dealers, and software partners, you need a combination of four things, a scalable platform, industry domain expertise, AI and machine learning capabilities, and an API integration platform, all done within a secure and compliance environment. Neuron is the industry's only intelligent data platform capable of doing all this. First, Neuron platform is structured to be scalable and capable of handling the volume of structured and unstructured data that's flowing through the automotive ecosystem. Neuron is built to analyze billions of data transactions that flow through our products annually alongside other industry data, which is a lot of data, but still tiny compared to where the industry is headed. Neuron's architecture is being developed to scale up to many times that amount. Second, CDK has extensive domain expertise in the automotive and adjacency retailing industries. We know what information is important, and what is not, and what dealers and OEMs need. We have 40 years of experience in these industries, and we know how to curate the data to get them the right data at the right time and in the right form to help them make better decisions. And third, we've made investments to build out our data science and engineering capabilities in order to curate, manage, analyze, and extract knowledge and insights from the data. Fourth, we have Fortelis, which can securely and seamlessly integrate the insights and data to connect everything together across the automotive ecosystem. And finally, we're building trust into how we manage data and applying a lot of care and governance of data to ensure that we are compliant, secure, and maintaining data privacy. I'm sure you can see the value this will bring to the industry and our customers. But what does this mean for CDK? Well, I see this helping us in three major ways. First, we're using the insights to enhance our products and solutions to bring even more value to our dealers and OEM customers. This will help the customers' retention, upsell, and penetration, as well as new customer acquisition. Second, We'll let others within the ecosystem utilize the platform to build and analyze trends and insights that can then be shared with our customers via Fortelis integrations. This will further increase the value customers get from our DMS and integration, as well as generate revenue for CDK via Fortelis. And third, we can expand outside our vertical to broaden the connections with non-automotive partners. which will increase revenue potential outside our current TAM. All of these lead to revenue opportunities for CDK and puts us at the forefront of innovation in the data intelligence space. Last week, we announced the acquisition of Square Root, a top developer of technology for data insights and curation for auto OEMs. While this is a smaller acquisition, it's a good example of the type of M&A that fits with our strategy. The acquisition brings with it technology and data and other capabilities that will complement and accelerate our Neuron platform initiatives. Their customer base and deep analytics talent will be additive and easy to integrate within our current business. We're really excited about the opportunities that Neuron will bring CDK and we'll be sharing more about this and some of our other technology innovations at an event you'll be hearing about this spring. So more to come. And then finally, our fourth initiative is about connecting the ecosystem. And I'd like to share some really great updates on Fortelis. And as I mentioned on our last call, we tracked the growth of Fortelis by looking at the number of data transactions, with an annual goal to reach 100 million by the end of this year. During Q2, we generated over 18 million transactions which was a 33% increase over the last quarter, and we're well on our way towards making our 100 million goal, or fiscal 21. We added several new APIs and ISV partners. Our repair order API is really starting to take off. On our year-end call last August, we said repair order had over 30 installed dealers generating over 100,000 transactions. We now have over 350 dealers installed, generating over 3.5 million transactions. This is really exciting to watch. I'm going to wrap up by providing an update on our international sale and also talk to you about our capital allocation strategy. We're making good progress on finalizing the international sale and are on schedule to close the transaction during our fiscal third quarter. We decided to sell the international business for several reasons. I'm a strong believer that companies can't be great at everything, and you really have to pick and choose where you're going to focus on. We've been doing that with products, and so we did the same thing with our portfolio of businesses. We looked at the fact that the international OEM and dealership business models and workflows are very different than in North America. Also, the architecture and language of the CDK international technology is unique and proprietary, such that all the work we're doing in North America to reimagine our products and technology wasn't going to apply to that business. When comparing the attractiveness of both businesses, we determined there's just too much opportunity in North America. We ran a process that had many interested parties, attractive valuations, we were very pleased to be able to announce the sale in November and are now focused on the closing and our capital allocation strategy for the proceeds. And one of the things we're going to do is to pay off some of our debt in order to reduce our leverage and strengthen our balance sheet. And this will allow for flexibility as we look at opportunities to further grow our business. We're constantly looking at acquisitions and have a strategy to focus on great technology that can quickly integrate and be positive to the top and bottom line. We think there are several good opportunities out there that could enhance our product core or expand our tech capabilities in order to grow faster. At this time, we're confident in our ability to deploy significant capital to grow the business and create value for our shareholders. We'll run a disciplined process as we evaluate investments and continue to monitor our balance sheets over time, returning any excess capital that we can't deploy efficiently to shareholders. And now I'll turn it over to Joe for the business operations highlights of the quarter.