CDK - Earnings call transcript Q2 2018

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Operator

Good day, ladies and gentlemen and welcome to CDK's Second Quarter Fiscal 2018 Earnings Conference Call. [Operator Instructions]. I'd now like to introduce your host for today’s conference Ms. Katie Coleman. Ma’am, please go ahead.

Katie Coleman

you. Thank thank earnings us call and quarter our for XXXX fiscal and you morning for joining second Good webcast. Presenting Brian on CFO. MacDonald, be CDK’s CEO; today’s and Joe call will Tautges, results with quarter. overview call for today’s begin some highlights will of Brian our followed by the an take the details then results, second of XXXX. through for guidance our fiscal you will the quarter Joe and few items before A we get started. financial adjusted basis noted. Throughout an today’s unless on call, amounts are references to otherwise morning’s adjusted amounts of are to the release comparable in directly available amounts this our section the most included GAAP the in of press site. Relations are and Reconciliations Investor Web also remarks call conference I'd remind to statements. like everyone made during forward-looking contain that this will differ risks forward-looking our uncertainties, SEC, cause the materially These the risks set to could and forth in from filings statements statements. those the with detailed in which involve results including actual Form we finally, filing And anticipate later today. XX-Q our over now call With that, the to I'll Brian. turn

Brian MacDonald

morning. Katie. you, us joining Thank this morning for Good you thank and

up for includes the XX% sequential was our driven year-to-date which year-over-year margin quarter, quarter We basis Adjusted EPS the EBITDA dollars to XXX Act. are Revenue a Reform the for for tax continued the rate truing basis $X.XX year-over-year. with grew a on year-over-year. points transformation tax XXX goals. our fiscal points basis the $X.XX, earnings towards increased by pleased plan results 'XX largely and the were related which of to progress EBITDA XX.X%. Diluted benefits X% grew

perspective business. like more reform. impact in our the of tax a revenue initiatives in But was our details our growth updates to satisfied from provide level on provide few including of first few performance the Joe minutes, financials revenue While focused around this we're on will I'd a a trajectory. line are to on with expectations, not and with improve

team; like sites. provide the our over losses. initiatives. and address XX First pursuit and we're reorganization update competitive Last Two, the of on you renewal to three areas One, a X last needs progress product discussed to days. experiences quarter for an site dealers. focusing made deal with X we the I'd three, we efforts addressing starting to customer site on

sites to dealers though customers. continue auto our and group sites, down revenue due we in X to with year-over-year were X to XXX plus smaller X grow declines do continued First, sites sites in dealer

Our renewal remain efforts ongoing.

basis will While we quarter-to-quarter sites still we site sequential a XXXX. auto quarter, likely modest year-over-year saw and this in gains expect decline on fluctuate fiscal a

to reorganization deal our announce I’m paying Next the off. of that competitive pleased team is pursuit

been to all and continued building pipeline sales increase year. has momentum Our

we're to dealers. sales second finished adding CDK DMS and needs to we The are welcoming forward DMS strong We the these shows site to X our for quarter new X addressing quarters. coming customers And product finally in making sites. focused on family progress the in look

still working customer targeted FTC internal the We we to the with Meanwhile, the closing experience exploring are the improving segment. Auto/Mate continue to acquisition in product related coming dealer focused on pending the initiatives are this anticipate enhancement acquisition and service and months.

our from transformation Now plan. highlight initiatives to like few I'd a

tools product busy time down are customer service Through year-over-year this available during dealers our using customer investing continue generate first we’ve first closely by During XX% the been customers resolution and while in to satisfaction. see teams also information case focus our year pleased critical facilitated weeks quality. satisfaction We're reduce monitoring dramatically year-to-date center. and average interactions the their efforts, accounting resource of open to We're dealer driving to able in drive online the metrics improvements our our cases supporting year, are proactive of backlog that experience customer three improved training and in year-end. quality,

quoting, is time organization. out better rolling the we sales intended levels. and and out contracting digital Over processes. tool into our billing rates will SmartQuote visibility SmartQuote contract include error simplify This providing team. of our reducing the to rolled tool sales remainder we benefits discounting begin Other and our new quarter to This streamline to

Last site sales. to endorsements. announced we turn me new Web quarter two let Now

While just have are up to grow we starting already site out, year. nice the in second and are roll begun these programs dealers the of to half Web see track signing on

We international also for DMS growth our see a opportunities number of segment.

investments process to capabilities making we're of bring the We securing new are to new in endorsements. market in and the the OEM business

and on ahead product to dealers acquisition executive from like the the initial Dashboard update of are on turning enterprises solution. great provide a Now our reporting We're tracking to of and response dealership the I'd results a M&A. quick getting expectations.

are While of our we the now this With of it it. over Joe. put still to distribution behind channel the acquisition by excited when power I'll potential tuck-in type we that, early, has turn

Joe Tautges

good Thanks, everyone. Brian, and morning,

most As reminder, well on results quarter between our directly be results be schedules GAAP will guidance non-GAAP comments an Reconciliations the found a fiscal XXXX our for the these adjusted the financial comparable as accompanying earnings in release. as can basis. and adjusted

driven dealers pound, to from We Second OEM This in dollar. tailwinds primarily foreign on and as growth grew fluctuations, currency revenue was international, as euro, advertising exchange Canadian additional and the well X% by marketing or advertising revenues. and offset saw in revenues spend lower continues rate Revenue quarter America associations. increased per local constant be lower and spend by basis. currency site from transaction X% a both North

revenue solutions. revenues shift one-time sites America in increased year-over-year steadily per on site down revenues up lower plan partially standard. Solutions were was America from counts and was revenues XX.X%. of down to year-over-year, program sites grew XX% America while local adjacency were auto basis Average basis. by quarter. due which Act. per The in XXX million decline true-up by were was costs primarily was EPS Solutions $X.XX continued offset recorded Diluted slightly expanded versus were marketing Reform segment hardware points advertising with Transformation X%. mix North tax from the to a the OEM basis associations. spending Retail Dealer Retail Approximately interest year-over-year. of dealers XXX slightly in approximately the X%, offset year-over-year we Web and and Pre-tax $X as the X%, X% Site reduced Advertising drop EBITDA XXXX site associated benefits margins transaction down on expansion. sites up sites North revenue higher higher the related grew expense basis, a revenue Our delivered International increased North North increased is certain by an international to EPS of offset points up accounting of tax also basis saw share. per implementation XXX fiscal X% X% currency CDK points were revenues and to the increase points one-time DMS up which or of revenue and the prior due enacted higher budgets margins X%. point constant expanded Total basis to primarily XX and $X.XX for XX% points. were XXX Total year. basis America recognition margin segment revenue new year-to-date margin a to benefits rate revenue

count share program. is growth average higher Beyond earnings through lower driven tax achieved capital our by an and reform, returns

an open million which $XX.XX. share returns $XX.XX million the held $XXX $XXX to calendar market million, quarter outside repurchases at price dividends United shareholder balance bringing We average million in executed the of is for at an buybacks share States. total price $XXX of average including cash of was of Our $XXX the and year of

the in guidance $X of shareholder continue are on million to target I to billion We for guidance The now And again XXXX. a growth on XXXX. basis. $XXX X%. X% returns to year-over-year calendar an move to revenue of adjusted fiscal a XXXX and We years maintain comparisons will

EBITDA seeing to foreign by offset this year for margin currently to previously the revenue exchange is high-end an to XX% XX% at rate are advertising of favorable We more guidance expect XX% of reported. exit fiscal of in be as softness XX% growth. with which We rates the

to the to of includes ongoing raising $X.XX $X.XX $X.XX $X.XX, reform. are benefits which approximate from tax $X.XX guidance impact our We an from to the $X, EPS up

our to effective down XX% XX%. to XX% be expect We XX%, to tax rate from

company, current XXXX. future Based effective Reform we be rate. our a adjusted approximately will further fiscal see tax in our anticipate effective year X of we will Act, rate tax our than As tax the on interpretation lower fiscal to reduction points X

of EBITDA accounting XXXX performance in this the detail record deliver at exiting be law. later we're more in new to 'XX are back the call of to tax the in areas. in XX-Q, I XX% our estimate Brian from we In in complete will necessary reasonable of and our operator, and estimates certain second other discussed quarter track take over no made will any one have now fiscal We case and the XX% to our target no impact the and in our questions. but fiscal summary, XX%. your turn with targets in to committed remain our areas and As the on happy form adjustments on enactment the Reform to I pleased tax quarter we any year margin finalize of to analysis, period than and the of intend Act we

Operator

question Our Oppenheimer. Zaffino from Ian of the first [Operator comes Instructions] line with

now Your line is open.

Ian Zaffino

lower an could drove I much. Thanks. give Great. Question said guess, transaction you if of, on buckets you revenue it were the down? maybe the down some was and Can you just revenues product transaction break sales. would -- What maybe you very there Hi. be Thank again decline. us idea down that

Joe Tautges

morning. sure. Yes, Good Thanks, Ian.

take transaction revenues, should So look couple that when at consideration. of into you things you a

auto and in our decline going see X% the that are discussed you we’ve that revenue. First, through would sites down transaction so

XXXX, area product OEM is solution that grew for in second XXXX, XXXX. point transaction subsidized, which an specific we nicely was a in introduced point solution, product QX The

which away, this look that down, subsidy transaction QX year. driving gone get in revenue funding revenues. we this us gone past we the When the transaction fiscal revenues, that item, product behind with seeing it of particularly once As is you’re has at the has be in will decline

Ian Zaffino

Okay.

are major those the two So buckets?

Joe Tautges

right. That’s

Ian Zaffino

side, those the then get the versus And idea core associated can dealer Okay. an what maybe was on with margin margin? the loss you Thanks. us

Brian MacDonald

set, Hi, Brian. that it the enough It's consistent lost the don't the -- out sample reasonably that to specific dealer. look the are -- looks Yes, to generally we’ve large leaving, would a average dealer. we relatively break I It's dealers Ian. dealers. similar average look say,

Ian Zaffino

Okay.

or losses? move no So related be dealer margins the there to would in necessarily losses site

Brian MacDonald

not it's lower but revenue little its -- delta. slightly per a maybe No, site, a significant margin maybe

Ian Zaffino

you quarter. very Thank Okay. much. Very good

Brian MacDonald

you, Ian. Thank

Joe Tautges

you. Thank

Operator

Our of Blair. with Matt William next comes Pfau the question from line

line now is Your open.

Matthew Pfau

Hey, questions. my guys. Thanks taking for

First, wanted the sites. touch Web on to

in included assume sequentially been were Ford that of at dealers least or -- a that that the in yet. the they agreements that number bit So with and those Nissan down aren't you've some conversations I and initial

that is decline by that of so And some still off continuation driven the of results? these agreements impacting of went the just sort exclusivity

Joe Tautges

Yes. Matt. the question. Good morning, Thanks for

look on. at Web spot So when you’re you sites,

So you sort the right business. now the is of in normal see churn base of what the

within as half installing we of And We backlog we're traction Web the are and we'll sites we’re that agreements to look excited of two come have progress at both in building as the from have is line and a sales, sight the getting up. the we momentum second terms filling endorsements. endorsed what busy

in meaningful about you about endorsements, two of to a it think from think as the the we impact see I'd revenue As impact more expect XXXX.

Matthew Pfau

investments seems in wanted like it. CDK strength the something market result or driven on hit geographies? seems then good your International by guys potentially like driving else as there it you with that’s those international have improvement Is incremental a Got done well. It you’ve and that International improving, geographies. there some some is the there And mentioned in to

Brian MacDonald

Yes. here. It's Brian

So we in some have made International. changes

want to we’re improvements a some faster, have new at increasingly be to us made company, a We above grow there. the so faster. on We install able and rate International which growth gets we to President, focused revenue to operational

We business win continue grow. new to and

the quite about ability have and there. do that we grow International excited the our prospects growth, some investments for to So, but we’re to business reach make to

Matthew Pfau

you so know but benefit maintain what is? FX, FX FX don’t have you I those -- advertising Got missed each is two Did mentioned I last in bit a the it. And revenue maybe how that Joe, guidance? offset FX you do has increased the other, guidance it, and the additional if one, lower and quantify while impact positive

Joe Tautges

didn't much fluctuation won't that We is out. we there how just given and break

point share a improved roughly quarter I think last from it's did, discussion, we but earnings say so in there, at point. all that’s we our this and will

Matthew Pfau

Got guys it. my taking questions. Thanks for

Brian MacDonald

good Thanks, Matt. Have a day.

Joe Tautges

Thank you.

Matthew Pfau

you. Thank

Operator

of Rayna from Our ISI. next Evercore the Kumar line question with comes

is line Your open. now

Rayna Kumar

the in trends share market quarter the your were second of at What market? morning. Good the high-end

Brian MacDonald

primarily plus continue obviously penetration in lower, Look, the in that’s X some is the why sites X Auto/Mate hey, dealers for continue to dealer and dealer We’ve Yes, Brian. grow which the market purpose to transaction, site the many -- closing losses that we market. on focused Rayna, segment. it's X product had we in fit of smaller for segment we’re

Rayna Kumar

Are at you competitive of entrants seeing any high-end market? the new the

Brian MacDonald

would I are regardless talking of you deal personally It's pretty competitive overall lot segment very market. is market a in Look, are and is Dealers each focused their a Yes. about. I’m on own and economics, every involved competitive. and say the of deals competitive what

very and So out is competitors think there's competitive and I competitive. it's there a market deal a every number of

Rayna Kumar

can if helpful. very And question That’s I sneak in. last one Understood.

expansion? growth and revenue Beyond what’s FYXX, for game your margin plan

Brian MacDonald

Yes, guidance beyond we haven't FYXX. given

year. rate on we’re guidance We we and this we're growth revenue that … the beyond improving obviously later growth 'XX this had give We year on we think with will this of satisfied that and later focused the will not quarter do

Rayna Kumar

Understood. Thank you.

Brian MacDonald

profitability both revenue for … and growth.

Rayna Kumar

Thank you.

Brian MacDonald

Thank you.

Joe Tautges

Thank you.

Operator

question Stanley. next from of Brian Morgan with the Our Essex comes line

is line now open. Your

Brian Essex

segment? Hey, end if the wondering again regard problems solve the that you for how be is deferring that, the you the have could was just you pending might you address and in? with that follow-up might guys, to in with you coming product And of example do Dash low market? Any the on go-to-market of and efforts competitive market existing Auto/Mate bottom transaction any to of morning for and end where good might Auto/Mate question. see that I taking thank improving in maybe impact

Brian MacDonald

Brian. Yes. MacDonald. Brian It's Hi,

here, the X market fundamentally been in quite dealers trend smaller for think the the to I quarters the number lot to a experiencing is consistent with So, a losing trend the we’re of that we’re company -- the of dealership X pretty experiencing competitors. that part namely of has

dealers. so, And product purpose for see we footprint we fit for as smaller Auto/Mate -- a really

And so, now the the and process we’re in we working constructively hope in the through we're coming transaction with the FTC that close review the review. FTC months and to working and second with

the we're close transaction about So able the to I months. being optimistic coming think in

Brian Essex

have of deferring any your Okay. is that at targeted bottom market? But That's end that the efforts helpful. in the may transformation of you

Brian MacDonald

things the we No, we’re working of standstill, product, things so of doing, to lot a we announcing we’ve we've continue some the in we in in moves our go-to-market. executed, some part needs of are But our And lot that will standing we're their future. make definitely no, be on, -- across that we still don’t the a that of not addressing terms market. of that

Brian Essex

And we -- a the for models so to nice progression tune of great. just see. that’s as great Joe, as then mean, a margin fine on I maybe kind Okay, follow-up expansion, here,

year of we contribution? this summary how our and on forward, the it we cash expect or of any of normalized cash bring As either of models build flow rate transformation and year translate the to for conversion going of of that kind to flow a remainder get forward, may going so can might you down cash out kind cost kind flow that

Joe Tautges

think in what the past total we roughly million I for for said is the program will Yes, spend the program. $XXX transformation we’ve

I balance think between QX, would XXXX. to spend in the will what I say and QX you and look date see we’ve be spent can and

we within that it work the the will beyond, so to look we of programs segments. are the self-funded As to results arrange operating

Brian Essex

That’s Okay. very you much. Thank helpful.

Operator

the with Our next Barrington. question of Gary comes from line Prestopino

is line open. Your now

Gary Prestopino

good morning Hey, everyone.

Brian MacDonald

Gary. Good morning,

Joe Tautges

Good morning.

Gary Prestopino

of basis, are us you losses, of dealer you X losses -- give sites guys dealer on the from smaller up you the some the could small the X kind if -- could out a dealers? you on X to apples-to-apples Brian, factor Hey, range site losses, an

Brian MacDonald

are. Yes, we

Gary Prestopino

you idea something Can want give you us that to some or share? not is

Brian MacDonald

I don't think we want to share that.

in obviously we’re but X in continue grow quite market that and think X. And the part our we’re -- with above. and we plus of losing growth to I to comfortable X in the dealers

a working we're to So that solve. that’s fundamentally issue product

Gary Prestopino

is coming talk metric. monthly important Okay. continue to very in site of And up, key see you from -- that of like the getting we Sixth inning inning? terms are as Where well drivers Can in I number give third the you idea? that? inning? the as of what it even higher? which revenue that's in, think terms of us Is go then some about you per Can average some

Joe Tautges

morning, Gary. Good Yes. Joe It's Tautges.

with portfolio within So go look the core the at when -- we about it, applications. and solid a all footprint full we that to penetrate with layered have DMS it's

And by the layered targeting it, around a stages, our it platforms two the metric way across in call detailed more and the one, we’re applications, around much so, base. the really penetration inning for in beginning region, splitting

So able bring benefit able then us services increased aligning plans being be with and and we dealerships, revenue within and the metric-ing of are to increased quite site go the the the to to happy seeing portfolio. per to then that drive value-added comp such

Gary Prestopino

it look have as obviously inventory were app? same while. been layered an There service a there could be serve the So Was that as side for the assume, at apps, -- -- it I layered on the something you ones well? it's the driving

Brian MacDonald

Gary. Brian. Hey, service. Yes, It's

about traction sites, on We're So, other Web we’ve very products. some good optimistic service.

I in continue across to it's to penetration our about -- install ability layered we good drive So base. think our apps feel DMS

Joe Tautges

lot performance to and great to at look the our the recent a dealers Dashboard, acquisition you that as on gate application through an that when example I of Dealership take really of that good mean, being the base, of And and we're seeing value out able of being able it's take a find distribution well.

Gary Prestopino

pick this deeper up to the quarter? as do into you OEM and next lastly, starting quarter we advertising And see get

Brian MacDonald

Yes.

the look advertising is revenue get choppy. spend grow comps when to The association easier tend is, is you this I to local just as necessarily could But -- we double-digit, quarter when QX, can down. OEM -- past I marketing dealer it QX. wouldn't grow be it, as and growing nicely. would in you the question segment expect say but be performance, direct next it advertising -- we it well So will quarter and at what after declining, One don't get the direct I at look the spend it

we we’ve the taken pretty of the view And in terms how our so, forecast year. balance in a for balanced of factor

Gary Prestopino

you. Thank Okay.

Brian MacDonald

Gary. Thanks,

Joe Tautges

Gary. Thanks,

Operator

Tim question next of from Our line the comes Fargo. with Willi Wells

line Your now open. is

Timothy Willi

Thank two morning. you questions. good and I had Hi.

just comments the that teams there, progress pursuit so seem had the one, then a first some of deal around -- you a And showing these be to not bit made about your follow-up. talk are, those was The and sort you making what wanted, at level just you’re I steps progress? what

Brian MacDonald

Brian here. it's Tim, sure. Yes,

really So, historically create that logos, And pull on to we new decided that out for winning if will, interspersed, we with had new specialization that with focus sales -- our our focus do normal winning you and works. team logos channel what channel. a dedicated and typically

channel, And a put its data will, and in so processes new pursuing logos last for together place. up the create if leads basically X the clean created effective takes and while, team a July put of you year to separate we really and the

making. satisfied six happened we're over the and So progress that with months quite we’re last the

Timothy Willi

would benefit they intend as taking is reform, corps of how whatever, themselves of partnerships, their versus that or be they dealers talked Thanks. see the their or I’m Great. S obviously might you’ve paycheck, the to this I sensed leases business my there then react they’re the heard sort terms purchases consumer might and was, new it and as do that curious dealerships how a answer, their regarding reinvesting for then depending consumer I with think think to with in corporations, home new in upon guess, hard of tax of assume kind tax going benefit vehicles? your you’ve structured but I one what about of just what also terms in and And some to are mean, follow-up I

Brian MacDonald

have. -- on think structures different side, so on that obviously of first Yes, that is dealer dealers lots there the I

about at If the tax corps. of you and own they’ve look made publics, comments reform C their some their

And that there I think so benefit. is obviously

consumer with good I -- after-tax and vehicle people their as year. it cash paychecks the pretty we the start think this think, get benefit -- will sales I and I obviously some feeling to is XXX(k) in think see at statements think flow, look I that their

here so feeling and be reform market seems given pretty markets think I the to the kind are. capital good tax of And where

reasonably I channel. optimistic And think dealer in so the -- mood is the the

Timothy Willi

taking much great. the Sounds Thanks questions. so for

Brian MacDonald

All great Have day. right, Tim. a

Joe Tautges

you. Thank

Operator

not call any for queue back time. I’m the turn like questions remarks. I’d showing this to And at closing any in further Mr. to MacDonald

Brian MacDonald

make I joining for to want we great we're to today and thank you continuing forward here CDK at to progress and call soon. everybody to our look talking

Operator

for in your participation conference. great Ladies program and have the a may gentlemen, thank you disconnect. and today's This you day. Everyone now concludes

CDK Global (CDK) 30 Jan 182018 Q2 Earnings call transcript