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spk04: 304 million visits across dealer-inspired websites. Our opportunity continues to expand with the addition of AccuTrade and Credit IQ, and we look forward to updating you on the rollout of these solutions. In summary, once again, we delivered results in line with expectations, and I want to reiterate how pleased I am that our momentum continues. I'll now turn the call over to Jandy.
spk01: Thank you, Alex. I'm pleased with our solid start to the year. Revenue totaled $158 million, a 3% increase compared to the prior year. Dealer revenue grew 6% to $140 million as a result of 4% growth in dealer customers and 1% growth in ARPD, driven by strong customer retention rates and further adoption of our digital solution. The ongoing inventory shortage continues to impact our OEM and national revenue, which was down 16% from a year ago. New car inventory isn't expected to begin to recover until the fourth quarter this year. Despite the macroeconomic headwinds associated with inventory shortages, inflation, and rising interest rates, our diversified business model gives us confidence that we'll deliver another year of solid growth. Turning to expenses, for the quarter, total operating expenses were $147 million compared to $137 million a year ago. On an adjusted basis, operating expenses were $141 million, $10 million higher compared to the prior year. This increase is primarily due to an increase in marketing, including the return to an in-person NADA, as well as higher product and technology expense driven by higher compensation and consulting costs, including the addition of the integration of Credit IQ and AccuTrace. Net income for the quarter totaled $4 million, or $0.06 per diluted share, compared to $5 million or $0.08 per deleted share a year ago. We delivered adjusted EBITDA at $42 million or 27% of revenue within our guidance range. Margin for the quarter reflects our product mix, lower OEM and national revenue, and higher growth in our solutions business. Now turning to our key metrics. Our business is underpinned by strong fundamentals. The value we deliver attracts and retains dealers evidenced by growth of 321 dealers in the quarter, putting us at 19,500 dealer customers at quarter end. This is our highest number of dealer customers in more than three years. Our website business also continues to grow. As of March 31st, we had 5,500 website customers, up 800 from a year ago. Dealer Inspire revenue in total grew 15% year over year. ARPD for the quarter grew 1% year over year, driven by growth in our digital solutions and fuel products. Generating unique, high-quality traffic is something we've consistently delivered for our dealer and OEM customers. For the first quarter, we had 26.6 million average monthly unique visitors and 148.5 million visits. We grew our UVs, which best represents in-market car shoppers, by 2% year-over-year, while traffic was down 5%. More importantly, our value delivery was up. We grew our leads to dealers 12% year-over-year. All of this despite inventory levels being down more than 30% year-over-year. For the quarter, cash provided by operating activities was $30 million, and free cash flow was $26 million, $18 million lower than the first quarter last year. This decline was primarily due to a $9 million cash tax refund that we received last year in the first quarter related to the CARES Act and higher compensation payments in the current year period. During the quarter, we borrowed $45 million on our resolver and together with cash on hand, funded the upfront purchase price of Accutrade, resulting in total debt outstanding of $520 million at quarter end and net leverage of 2.7 times. Net leverage improved from 2.9 times a year ago. And while 2.7 times is slightly above our target range of 2 to 2.5 times, we are comfortable with this temporary step-up to fund M&A given our consistent, strong cash generation. We have $185 million available on our revolver, and our total liquidity was $215 million at the end of the quarter. With our strong balance sheet and modest net leverage, we began returning capital to shareholders. In March, we made the first purchases under our recently authorized share repurchase program, buying 338,000 shares for a total of $5 million. Now turning to guidance. For the second quarter, we expect to deliver revenue between $161 and $163 million, representing year-over-year growth of 3.5 to nearly 5%. This guidance reflects the continuation of our solid first quarter performance, as well as the ongoing industry-wide inventory shortage, which will continue to mute our growth. This low production environment, further delays in new model releases, and lower incentive spend have a negative impact on our OEM and national revenues specifically. While dealers are experiencing record profits and our retention rates remain strong, Dealers and OEMs are less inclined to increase or shift their advertising budgets during this time. We expect revenue growth to accelerate throughout the year as our growth in our subscription products accumulates and we roll out and ramp up our newly acquired products. We are reaffirming our full year expectation for revenue growth between 6% and 8% with double-digit growth in the fourth quarter. Our guidance assumes inventory shortages begin to recover in the fourth quarter and the macroeconomic environment does not have a worsening impact on car buying consumer behavior and dealer spending on products and solutions. Our expectation for the second quarter adjusted EBITDA margin of 26% to 28% reflects the impact of our projected revenue mix with lower OEM revenue and growing solutions revenue, as well as higher year-over-year expenses as we continue to invest in marketing and in our people, including the integration and launch of our recently acquired dealer solution. Adjusted EBITDA margin is expected to approach 30% by the fourth quarter as revenue growth accelerates and OEM and national revenue begins to recover in connection with inventory. In conclusion, our business is well-positioned for continued growth, in particular during this challenging macroeconomic environment. Our team remains focused on execution and delivering value to our consumers, customers, and to our shareholders. With that, I'd like to turn the call back over to Alex.
spk04: Thank you, Jandy. I'm pleased with our progress in advancing our platform strategy, enabling OEMs and dealers to better compete in a rapidly evolving industry that's driven by changing consumer preferences. And with that, we're ready to begin our Q&A. Operator?
spk00: Thank you. To remind everyone to ask a question, just press star 1 on your telephone keypad. To withdraw your question, just press the pound key. Your first question comes from the line of Dan Kornis of the Benchmark Co. Your line is open.
spk07: Great. Thanks. Good morning. Alex, nice result on the dealer-customer growth. It's pretty positive, especially in this environment. Maybe just a couple of things. I know it's super early with the acquisitions you've made. You were at, you know, you're at NADA, you're having conversations. Jandy just made comments just about the tough environment. So how are you thinking about things? I feel like I asked this a lot, but it's especially important now, I think. How are you thinking about things like bundling, trying to get these guys locked in? to either longer-term commits or, you know, I know you're doing some piloting and testing right now, especially on the C2B side. So just help us think through the strategy here and how it evolves maybe over the coming quarters in light of the backdrop and trying to, you know, just continue the strong dealer momentum that you've seen now that you have kind of a more robust product suite to offer. Sure.
spk04: Sure. Thanks, Dan. Good to hear your voice. We were very pleased with the dealer growth in the quarter and see a continued opportunity to add dealers to our platform because, to your point, we've got a range of solutions that start from entry level to people like we feature on the call who participate with us across the full enterprise suite of solutions. And so I think that gives us tremendous flexibility to solve dealers' individual problems and then grow the relationship over time. You're seeing that in our strong ARPD in that we're able to get more solutions sold. When I look at the opportunities with both AccuTrade and Credit IQ, keep in mind these are opening up brand new TAMs for us. On Credit IQ, we've now been in active discussions with all the U.S. large lenders. who are eager to figure out how they can better help compete for market share. And then on vehicle acquisition side, every dealer that we've talked to is interested in adding tools that will help them buy cars from the street. And so I think knowing that we've chosen solutions that meet the customer need gives us a wide net of opportunity on ARPD. And then certainly the cross-selling opportunity grows because, you know, your question about contracts, I would say we're less focused in trying to, quote, lock dealers into long-term contracts. We're winning with value and we're winning with service. You know, our philosophy is we want to win dealers based on our innovation, but we're going to keep them with service and value delivery. And I think that's what you see, double-digit lead delivery growth. Website solution sales continue to grow, and now these new products are going to add to our capabilities.
spk07: And just to be clear, Alex, the conversations even in this environment, you know, obviously given, you know, sort of the uncertainties from the macro front, you're basically trying to communicate, though, that you're having still very constructive conversation. There's no hesitation in that. in these communications?
spk04: Yeah, no, I think, well, first of all, we know that dealers are reporting record profits and they are also eager to shift their business aggressively towards tech. I think if there's been any softness, it's on things like, you know, fuel and other, you know, broader marketing strategies in this environment because they are dealing with such limited inventory and But on the technology solution side, there is an eagerness about how they can run their dealership with fewer resources relying on tech. And so, again, I think the only areas that are soft right now for us would be OEMs, which obviously don't have product to push, and so they are not doing as much. Got it.
spk07: And just on the marketing front, Alex, you know, just as we kind of go forward throughout the year, we're understanding, again, sort of the tricky macro you guys are investing. You've got a bunch of, you know, stuff to invest against now, which I think, you know, is very telling for 23. Just how do you balance, you know, kind of maintaining sort of healthy EBITDA levels versus sort of going after, you know, the TAM expansion that you talked about, you know, over the coming quarters, you know, depending on how the environment evolves.
spk01: Hey, Dan, it's Jandy. It's a great question. I mean, it's one of the things that's so great about our business is the tremendous strong cash flow that we're consistently generating. It gives us a lot of options, right? So obviously, we've been a company and continue to be a company that's very, very focused on profitability and cash flow. But in the end, we can use that cash flow to invest back into our business, which is what you're seeing with with the numbers this year, right, with the guidance we've given for the rest of the year, as well as our results here this quarter, is we're putting a little bit more money back into marketing, into our people, and into these acquisitions, which you see across our operating expenses. So certainly it's a balance. And as the revenue mix changes, we're mindful of, you know, the impacts to cash flow here. but we're constantly looking for, you know, investing back into growth and into the business.
spk07: Got it. Thanks very much, and a solid start to the year. Thanks, Dan.
spk00: Your next question comes from the line of Tom White of D.A. Davidson. Your line is open.
spk06: Thank you. Good morning, guys. I guess, first off, Alex, could you maybe talk a little bit more about Accutrade, the solution there, and maybe how that offering is differentiated from some of the other competing similar digital platforms out there? And I guess sort of as a follow-up there, should we anticipate any kind of normalization in the growth rate of that business? I know it's still super early, but I guess I'm just sort of looking forward to a period when local dealers used inventory levels start to kind of normalize and they start getting inventory from the more kind of traditional channels like, you know, like consumer trade into the dealership. You know, how do you sort of see the growth rate of the Accutrade business kind of behaving once that happens?
spk04: Sure. Well, Tom, we're in pilot right now with our dealer partners, and they're helping us develop the proper go-to-market here. But I can flash a couple examples. I mean, dealerships are spending, in some cases, in excess of $10,000 a month on various tools from different suppliers that, frankly, we can bring them all together through AccuTrade. whether that's pricing and analytics or trade-in widgets on their website or third-party services that allow them to source cars. You know, in many cases, dealerships have three to five different vendors trying to do these things for them at any given time. And if you look at what Accutrade does, obviously our pilot go-to-market is on a subscription basis. You know, we do see an opportunity to enter into a variable model as well, particularly as we get into dealer-to-dealer trading. But, you know, we are intentionally being somewhat disruptive on pricing because we believe that dealer network wants fewer tools from a smaller number of vendor providers. And we certainly are bringing a sweep and enterprise strategy to the dealer network. I think when you look at the strength of Accutrade, it really comes down to a few things, such as their VIN-specific valuation capabilities that is far more precise than, say, generic make-model mileage-type valuation tools in the market. We don't rely on third-party inspections, and certainly we are backing up the AccuTrade offer with a guarantee. So we've got a lot of things that are helping dealers buy cars without any friction between them and the seller. And we're doing it in a software as a service type model where dealers know that we're enabling them to do this, not just off online, but in their physical stores, in their service lanes, they are using Accutrade across their whole business and aren't using it as one narrow buying channel. You're going to hear more about this next quarter as we reveal some of the success stories that we're finding in our pilot, but there's no reason every dealer in the country wouldn't want Accutrade.
spk01: And to further that point, there's no reason that a change in consumer behavior – would impact the way dealers are looking to acquire vehicles, right, and value vehicles. This is something that they can continue to use going forward, no reason to change if the environment changes. Right.
spk04: Trade-ins at the dealership, they can use Accutrade to properly value the car and buy it on the spot in the physical form. Great point.
spk06: Got it. I appreciate that, Jandy. Thanks. And then just a quick follow-up. Apologies if I miss this, but did you guys comment on whether dealer account and ARPD grew for the core listings business this quarter?
spk01: It did.
spk06: Okay. Terrific. Thanks so much, guys.
spk01: Thanks, Tom.
spk00: Your next question comes from the line of Navid Kang of Drew Wister. Your line is open.
spk02: Hey, guys. Thanks for taking the question. This is Vincent Franklin, an entrepreneur vet. Two questions, if I may. So the first, I think that dealer inventory appears to be improving, and we've seen some signs of price inflation somewhat settling down. So how do you expect these dynamics to drive marketplace revenue growth over time? And the second, on the outlook for the ETH margin approaching 30% by 4Q, How confident are you in OEM ads then rebounding street COVID levels by then, given new car inventory now expected to recover into the latter half of the year? Thanks.
spk04: Sure. Well, first of all, I think even what's interesting, if you look at inventory levels on the new car side, we know those are down massively. But, you know, the used car business still remains very robust and dealerships do have healthy levels of inventory, particularly those that are relying on tech to acquire cars and keep inventory levels flush. I think even though the used car pricing is coming down, our subscription model is somewhat tied to inventory levels. So we think our ARPD strength is actually quite good considering inventory levels are down and most of the dealer additions that we've had over the last few quarters are coming in at a much lower subscription rate than say we were at a year ago because they just have lower overall inventory. And so as inventory levels increase, it somewhat helps stabilize and or even grow ARPD just being tied to that dynamic. I think, you know, the, the, Opportunity for us, obviously, is that – well, let Jandy comment on the second part of your question.
spk01: Yeah, absolutely. From an outlook perspective and the margins you were asking, the margins reaching 30% by the end of the year isn't necessarily directly tied to OEMs revenue returning back to growth. We certainly are expecting it to not get worse. Well, you know, to recover and be rather flat by the end of the year from a year over year perspective. So we're not assuming massive growth in OEM by the end of the year, more of a recovery and rather flat from a year over year perspective. So just to put a little bit of a finer point on that. And then to Alex's point, and I think the question that Tom asked at the end of his was about marketplace, ARPD, and dealer count growing. Dealer count from a marketplace perspective did grow. ARPD though, there's several components of it, right? There's the solutions from a website perspective, there's fuel, and then there's the core marketplace. The core marketplace ARPD was a bit down year over year. It's the solutions and the fuel business. that really drove the year-over-year growth. Like Alex just said, from inventory levels being down and new dealers coming in at lower rates, ARPD from just pure marketplace subscriptions was a little bit down year-over-year. So I wanted to make sure I clarified that.
spk02: Awesome. Thank you.
spk01: Thank you.
spk00: Your next question comes from the line of Doug Arthur of Uber Research. Your line is open.
spk03: Yeah, thanks. Jannie, just to clarify, are you saying the ARPD for the core listings business was down, or that as well as total revenues attributed, X new solutions, X fuel, X dealer-inspired, was down a little bit year over year?
spk01: You know what? I actually don't know the answer to that because we don't look at it broken out that way. You know what? Actually, no, here it is. It was up. Marketplace, just the core solution, was up year over year, driven by the customer growth.
spk03: Okay, because, I mean, Alex, you said, I believe, if I caught that correctly, that new dealerships, core listing marketplace customers are coming in at a lower price. So the new solutions, you know, adoption must be pretty strong given you're up in overall ARPD. Is that a fair reading of it?
spk01: Well, dealer customer growth, right, just the customer count alone, even though it's coming in at a lower rate, it's still bringing in incremental revenue. So, yeah, the combination of those two factors leads to revenue growth year over year. Does that answer your question?
spk03: Yeah, yeah, okay. And then just, you know, going back to the margin outlook, I mean, given the fact that there's a lot of demand variables here for the rest of the year, as you look at your expense, how you modulate expenses, particularly in marketing, how flexible do you feel or how much flexibility do you feel you have on some of these expenses depending on where revenues, you know, come in?
spk01: It's a fair question. I mean, we certainly have flexibility in different areas of the business. Marketing is one example. I think we've proven to be pretty strong operators, especially when you go back two years ago to COVID. I mean, I'm certainly not talking about pulling some of the levers that we did back then, but there are other areas that we can look to to try to curb spending if revenue winds up coming in softer. Okay, I got it.
spk03: Thank you.
spk01: Thanks, Todd. Thank you, Doug.
spk03: Thank you, Doug.
spk00: Again, everyone, if you would like to ask a question, just press star 1 on your telephone keypad. Your next question comes from the line of Gary Prestokino. Your line is open.
spk05: Thank you. Good morning, Alex, Jandy. A couple of questions here. First of all, when you're talking about closing nearly 200 deals in MATA, would you kind of – would most of those deals point solutions, or did you also get a goodly amount of new dealers looking at your marketplace business wanting to sign up for it?
spk04: Well, they were across the board, Gary, but the majority of the dealer signups there were wanting to participate with us with Accutrade. It was an absolute home run on that front. And so we're beginning the enablement and the production side of all those orders now in Q2, getting those all as the initial pilot dealers up and running.
spk05: Was that, were most of the dealers that were signing up for Accutrade, were they independents versus franchise, or was it just mixed across the board?
spk04: It's almost all franchise. NADA largely is the big franchise dealer show, but we do have independent operators that are interested for sure.
spk02: Okay.
spk05: So from the time that you sign these entities up for either Accutrade or Credit IQ, how long does it take for you to actually roll out the product to the dealer and the dealer starts using the product?
spk04: We're working through a lot of those details. We can turn on the digital side of it fairly quickly, particularly because we have all the dealer's information already in-house, either through Dealer Inspire or any of our existing solutions. I think for the dealers that are wanting to use Accutrade for their in-store appraisal process, and even in their service lanes, certainly that's requiring a little bit more time to get them to fully appreciate the totality of the solution. But we can start revenue recognition and dealer value delivery really quickly. It's just trying to get the whole dealership operation to embrace the tech takes a little more time.
spk01: So it's really kind of a training issue to make sure that they fully appreciate everything the product does so they can enjoy all the benefits from it.
spk05: Would you know if the dealers that signed up for Accutrade had a competing product and they were going to double source, or were these dealers that really didn't have a product to source cars from consumers?
spk04: Well, I think the answer is both there, Gary, because part of the value is obviously sourcing sales either from their website or from our marketplace. And dealers across the country have various tools that do that today, certainly none that are integrated to do both through one technology. Like a dealer will use a third-party vendor for a widget on their website. They'll source leads through, you know, a various third-party or a buying matrix-type solution. And so they're using multiple tools. With Accutrade, they can do all of those things through one interface. And so dealers initially are reporting – Oh, my God, I can actually save a lot of time. I have less things to train people on, and I can buy cars directly from my own website and from cars.com. It's far easier. So I do think we will replace a lot of existing tools, but there is no reason that we also can't be in addition to other solutions that they use.
spk05: Okay. And do they have to be a marketplace customer to use AccuTrade, or can you sell this just as a point solution?
spk04: They don't, but I will tell you we've already won a lot of dealers back to the marketplace because when they heard about Accutrade, they wanted to buy Accutrade and then said, let's get back onto the marketplace as well because now we can sell cards and buy them from you. So that's been a nice positive as well.
spk05: Okay, and then a couple more questions. I promise I'll get off. Just in terms of as we look at the expenses as a percent of sales in the quarter, Are those levels as a percentage of sales pretty much going to be consistent throughout the whole year, Jandy, in terms of revenue operations, product technologies, marketing, sales, and G&A?
spk01: You know, so marketing and sales is a bit elevated in Q1, frankly, because of NADF. Year over year, you see that. Also, if you look at the trending out throughout the rest of the year, it'll come down a bit. We're still expecting to spend more each quarter than we did last year. But it'll be lower than Q1. Product and tech is from kind of a pure dollars perspective is a little bit light in Q1 simply because we only owned Accutrade for one month. So Accutrade being kind of fully in for the rest of the year, you'll see a little bit of a step up there. And then G&A, you have to look at it without stock-based comp. Stock-based comp actually is going to go up a little bit. We brought more employees into the equity program this year, so stock-based comp will be up. But if you look at it kind of normalized and without stock-based comp, G&A is probably, you know, flattish for the rest of the year. Okay.
spk05: And then just lastly on your share repurchase, Just curious, you only repurchased 338,000 shares in the quarter. Were you locked out of buying your stock after the announcement that Sonia had left or was leaving?
spk01: We certainly do have restricted trading windows, and because of the timing of when we put the plan in place, we didn't have the opportunity to have set up a 10B51. They needed a 30-day cooling-off period. So that's part of the reason why the shares were kind of concentrated toward the beginning of the month.
spk05: Okay, thank you.
spk01: Thanks, Gary.
spk00: There are no other questions over the phone. I'll turn the call over back to Alex Vetter, CEO.
spk04: Thank you for your interest in cars, and enjoy the rest of your week.
spk00: This concludes today's conference call. Thank you for participating. You may now disconnect.
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