Inc. (NYSE:CARS) Q3 2019 Earnings Conference Call - Final Transcript

Nov 06, 2019 • 10:00 am ET

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Alex Vetter

improving value delivery for our customers, and we believe these investments will yield positive results moving forward. Importantly, with the affiliate conversions now behind us our entire sales team is in control and focused on growth across all markets. I'm pleased to report that we delivered a strong October with nearly 100 net new dealer's subscriptions.

In fact, it was our second high gross sales month in over two years. Our dealer customer decline in Q3 was due to the declines in both direct and affiliate markets. Cancellation rates in affiliate markets were higher than direct, emphasizing the importance of early conversions despite the height nutrition experienced during periods and those markets were not under our control. The declines in the third quarter were partially offset by the growth in solutions only customers.

The improvement in dealer count is more of a marathon than a sprint and the initiatives around traffic and lead growth, product innovation, sales and effectiveness like our turnaround with SEO takes time, but ultimately makes our subscriptions much stickier. We're using the same playbook that was successful in reversing our traffic declines to the record growth we're experiencing today through investments in quality audience, technology, and a cohesive go-to-market strategy. The progress we continue to make on our attribution initiatives will also support our dealer retention strategy.

We now have several quarters of Roxanne data, which serves the consumers who are cross shopping between and at dealers' own website are far more engaged and likely to buy a car from that dealer. These analytics and tools in solutions are unlike any offer by our competitors and put in a unique position. Gaining complete control over affiliate markets has been a key tenet of our strategy to better address the needs of dealer customers and unlock value of our solution strategy through dedicated experienced fellows.

I'm proud to say that in October marked the end of the affiliate networks of cars and we have successfully converted the last affiliate dealers to our direct control. This was not only expected to drive $50 million in incremental free cash flow uplift beginning in 2020 but it also gives us complete control over our go-to-market capabilities in all markets for the first time in our history.

I spoke with one of our recently converted franchise dealers and he said to me, and I quote "when we were pitched by the newspaper and DealerRater were being sold to us as part of the bundle of print products to honestly we didn't want or understand the value proposition. The affiliate rep couldn't explain to us how that can help our business. And after a few calls with our dedicated rep we're now going to be customers of Dealer Inspire and DealerRater and I feel much better about my investment." This feedback is very typical to what we hear we convert a market to direct. Having direct control of all of our customer relationships going forward is a big