Dealertrack Technologies' (TRAK) CEO Mark O'Neil on Q2 2014 Results - Earnings Call Transcript

Dealertrack Technologies, Inc. (NASDAQ:TRAK)

Q2 2014 Earnings Conference Call

August 11, 2014 05:00 pm ET

Executives

Mark O'Neil - Chairman of the Board, President, Chief Executive Officer

Eric Jacobs - Chief Financial Officer, Executive Vice President, Chief Administrative Officer, Treasurer

Analysts

Matt Williams - Evercore

Sterling Auty - JPMorgan

Kevin McVeigh - Macquarie

Mitch Bartlett - Craig-Hallum

Operator

Good evening, everyone. Welcome to today's conference call. Today's conference call is being recorded. Joining us are Mark O'Neil, Chairman and Chief Executive Officer; and Eric Jacobs, Chief Financial and Administrative Officer of Dealertrack Technologies, Inc.

Mark will begin today's call with a summary of Dealertrack's financial highlights for the second quarter ended June 30, 2014. He would then provide an overview of the operating environment, including key business metrics.

He will also provide a summary of the quarter from a business and strategic perspective, as well as discuss Dealertrack's recent acquisition. Eric will then discuss Dealertrack's financial performance for the first quarter and updated guidance for 2014. Afterwards, they will be available to answer your questions.

Before they begin, Dealertrack would like to remind everyone that remarks made during this conference call will contain forward-looking statements made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

These statements are neither promises nor guarantees, but involve risks and uncertainties that could cause actual results to differ materially from these set forth in the forward-looking statements, including, without limitation, those risks detailed in Dealertrack's filings with the SEC, such as its most recent reports on Forms 10-K and 10-Q.

Dealertrack disclaims any obligation to publicly update or revise any such statements to reflect any change in their expectations or events, conditions or circumstances on which any such statements may be based or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

Dealertrack also uses non-GAAP financial measures to represent business performance. A reconciliation of GAAP to non-GAAP financial measures is included in today's press release, which is available on the Investor Relations section of the company's website at Dealertrack.com.

In addition, please refer to the current investor presentation posted on the company's website for information, which may be discussed during today's call.

As a reminder, Dealertrack acquired Customer Focused Marketing and Vintek in the fourth quarter of 2013 and Dealer.com in the first quarter of 2014. Therefore, these businesses are included in Dealertrack's results for the second quarter of 2014, but not for the second quarter of 2013.

Now I would like to turn the call over to Mark O'Neil, Chairman and Chief Executive Officer. Please go ahead.

Mark O'Neil

Thank you, operator. Good evening, everyone. Thanks for joining us today. I am pleased to report that Dealertrack delivered excellent performance in the second quarter of 2014, including particularly strong revenue performance across all revenue lines.

Total revenue in the second quarter was $225 million, an increase of 85% from a year ago, and 21% on an organic basis. We executed well and delivered an adjusted EBITDA margin of 22%. We are also pleased to report that our integration of Dealer.com continues to track on or ahead of schedule.

We believe these positive results along with our increased guidance expectations for the year are validation that our vision of transforming automotive retailing by delivering an integrated suite of technologies is resonating well with all of our clients.

The technologies and services Dealertrack is providing today and developing for tomorrow are capable of transforming both the process and experience that has historically been laden with paperwork, redundancies, and overall mistrust.

Our vision is to leverage our unique and broad collection of assets and software solutions to create a more efficient, profitable, and transparent workflow throughout the entire auto retailing experience.

The end result for dealers, lenders, manufacturers, and customers alike, is a simplified integrated system that creates a better buying experience and allows the dealers to showcase their brand and focus on what matters most, dealer profitability and consumer satisfaction.

Looking at our second quarter results in more detail, subscription revenue of $91 million, more than doubled from a year ago and increased 14% on an organic basis. Transaction revenue of $87 million increased 22% from a year ago and 14% on an organic basis.

Advertising and other revenue was $46 million, $40 million of which was advertising revenue related to Dealer.com. We expect our revenue mix for the rest of the year to be similar to the second quarter with subscription revenue being the largest portion of our total revenue and advertising revenue growing the quickest.

We also continue to grow our transaction revenue at a much faster rate than an independent of the rate of growth through car sales. In the second quarter, transaction revenue grew 3.5 times the growth in new and used car sales by franchise dealers in the United States and Canada as we continue to cross-sell more transaction solutions and gain market share.

Additionally, we expect revenue visibility to improve beyond 2014 as recurring subscriptions and advertising revenue represent a larger percentage of total revenue.

The acquisition of Dealer.com is a critical development in our mission to link online marketing and in-store solutions into one integrated workflow. We are already realizing the benefits from this acquisition as evidenced in part by our strong advertising revenue results and our cross-selling success with OEMs and dealers.

We are also making significant progress in integrating our organizations; our legacy website team called Dealertrack Interactive is now reporting into Dealer.com, bringing together the groups and forming our digital marketing solutions team.

We are realizing the expected cost synergies. Additionally, we are launching a CRM solution this quarter that we believe will be best-in-class. Lastly, Kristin Halpin, former Chief Talent Officer at Dealer.com now leads human resources for all of Dealertrack.

These advancements in our integration are allowing Dealertrack to increase efficiencies and expand profitable growth opportunities, while also enhancing client relationships. Since the acquisition, we have seen our client interactions elevate more and more beyond point product opportunities to discussions of a much broader suite of solutions.

Additionally, our account management approach is supporting and enhancing the level of engagement with dealers regarding our combined business. For example, we have had particular success with the cross-selling OEMs as a number of them have recently selected our combined solutions for their dealer networks. This includes an advertising and a website deal with a major manufacturer, a preferred website agreement that will build upon our already successful advertising program with one of the big three, and two endorsements of our digital retailing solutions on existing Dealer.com website programs.

These examples highlight the power of cross-selling between advertising, websites, and online retailing solutions. For the second quarter, we are pleased to report that we experienced continued improvements in many key performance metrics; average monthly subscription revenue per subscribing dealer was $1,218 per month, a substantial increase from $757 a month in the comparable quarter a year ago. This represents significant growth from the $1,191 figure we reported for March, which was the first full month that included Dealer.com's results.

We added approximately 250 subscribing dealers in the quarter to reach a total of more than 23,800 subscribing dealers as of the end of the second quarter. While these metrics are strong, we believe we still have substantial runway ahead of us. The potential monthly subscription revenue per subscribing dealer now exceeds $13,000 per month for our expanded portfolio of solutions, inclusive of the new service offering of ASR Pro.

For comparison purposes, our monthly subscription revenue opportunity has more than doubled from $6,000 per month that was approximately two years ago.

On July 1, we announced the acquisition of substantially all of the assets of ASR Pro. Their solution streamlines service line operations at a dealership, allowing us to further extend our subscription solutions from sales and marketing to the service department, while the financial impact of this transaction is not material in the near-term as Eric will discuss later on.

We believe this acquisition has longer term strategic importance as it further strengthens the competitive position of our DMS solution. Furthermore, ASR Pro expands our addressable market of software solutions to include the vehicle service and repair market independent of our DMS solution.

In the second quarter, we saw an incremental increase in subscription revenue growth from the first quarter. Since we closed Dealer.com, sales cycles have lengthened as the overall dollar value and breadth of our solutions continues to expand as result of multi-products presentations. That said, we anticipate that we can continue to deliver incremental organic growth rates and subscription revenue into 2015 as we successfully closed our growing pipeline.

Our confidence is supported by the increased bundling of our digital retailing solutions with marketing and websites, our anticipated ability to leverage additional DMS installation capacity, and the launch of the best-in-class CRM solution.

Turning to our transaction businesses, we delivered 14% organic growth in transaction revenues in the second quarter or 3.5 times the 4% growth in car sales when compared to the year ago period. While new car sales growth was strong in the second quarter after a tough winter, used car sales by franchise dealers in the United States increased less than 1% as compared to the second quarter of 2013.

As our portfolio of transaction products continues to diversify, we continue to grow our transaction revenue independent of overall our sales. We are sustaining our growth through market share gains improving credit availability as well as executing our ability to cross-sell additional transaction products increasing both, the number of transactions as well as the transaction revenue per car sold.

For example, transaction revenue per car sold increased to $8.68, up 18% from a year ago, reflecting the benefits from our acquisition of Vintek and the market share gains across several transaction-based solutions. Also supporting transaction revenue growth was the number of active lenders on our U.S. credit application network, which is up by more than 110 from year ago. We now have a total of more than 1,460 lenders, who are serving nearly 21,000 franchised and independent dealers.

While we expect continued healthy organic growth from subscriptions and transactions, we anticipate advertising revenue will help drive even stronger organic growth over the longer term. We ended the second quarter with 7,031 active dealers on our advertising platform.

If you recall, Ford Direct selected Dealer.com as the advertising platform for its digital advertising program, which includes over 3,004 dealers. Ford granted us head of store exclusivity period for which only Dealer.com provided advertising services.

During exclusivity, we executed well and retained the higher number of Ford dealers than we projected during our Q1 call. Average monthly advertising revenue per dealership increased to $1,826 per month in the second quarter, up from $1,708, our first month with Dealer.com.

We believe we have sustainable runway ahead of us for increasing monthly advertising revenue per dealership over the long-term as the trend of investing in traditional media shift to digital. As dealerships and OEMs increasingly look for higher value and more effective advertising programs, we are well positioned to capture this business with our sophisticated offering of retargeting paid search, premium and network display and social media programs.

In summary, we are pleased with the excellent results we delivered in the second quarter. We remain very optimistic that we are well-positioned to take advantage of the opportunities ahead, including accelerating subscription growth into 2015.

We are very pleased with the pace that we are integrating Dealer.com and enthusiastic about progress in advancing our vision to transform automotive retailing.

Now, let me turn the call over to Eric for additional details on our financial performance in the second quarter and our updated guidance for 2014.

Eric Jacobs

Thank you, Mark. Hello, everyone. I am pleased to report the following second quarter 2014 financial highlights.

Revenue for the second quarter was $225 million, the total increase of 85% from a year ago. With Dealer.com, our combined company grew at a pace of 21% organically for the second quarter in a row. Looking at revenue in more detail, subscription revenue was $91 million, the total increase of 105% from year ago and a 14% increase on an organic basis. Transaction revenue was $87 million, a total increase of 22% from a year ago and a 14% increase on an organic basis. Advertising and other revenue was $46 million.

Earnings for the second quarter were as follows. Our GAAP net loss was a negative $1.4 million or a net loss per diluted share of a negative $0.03. Our adjusted EBITDA $50 million, which equates to an adjusted EBITDA margin of 22% and our adjusted net income was $22 million or $0.41 per diluted share.

Reflected in non-GAAP earnings per share for the second quarter is a slight decrease in share count. Contrary to the first quarter, there was no dilution from the warrants relating to our convertible notes this quarter.

A reconciliation of GAAP to non-GAAP measures is included in our press release schedules as well as it in our investor presentation, which also includes impact of reconciled items on individual income statement classifications and our organic revenue growth calculations.

Turning to our balance sheet, as of June 30th, we had approximately $134 million in cash, cash equivalents and short-term marketable securities, compared to approximately $149 million at the end of the first quarter.

During the second quarter, we approximately $26 million in cash to pay down our term loan, the credit facility of which only $1 million was required to be repaid. Consistent with our strategy to reduce our trailing 12-month net debt to adjusted EBITDA leverage ratio, we intend to continue to manage our net debt to further de-leverage our balance sheet.

As of the end of the second quarter, our trailing 12-month net debt to adjusted EBITDA leverage ratio was 3.6 times. Our $225 million revolving credit facility still remains undrawn. Capital expenditures in the second quarter of 2014 were approximately $25 million as we invest in realizing our vision to create integrated suite of solutions, including leading online and in-store assets.

Capital expenditures included $3 million of purchased software $11 million of internally developed software. Net cash flow provided by operating activities was strong this quarter as we generated $30 million during the quarter.

On July 1st, we announced the acquisition of substantially all the assets of ASR Pro for consideration of approximately $12 million in cash, plus $2 million in equity exclusive of any potential earn-out. This transaction will not have a material impact on our 2014 results as we expect this acquisition to contribute less than $2 million of subscription revenue and have a negative $1 million impact on adjusted EBITDA for the remainder of 2014.

This evening, we will be filing a shelf registration to register approximately $5.9 million shares that were issued as part of the Dealer.com acquisition. We were required to register these shares as part of the terms of the deal. As per agreement and our prior communications, these shares remain locked up through August 28, 2014. Starting August 29, 2014, they will technically be freely tradable.

Substantially all of these shares are held by institutional investors. Turning now to our updated guidance for 2014, new car sales were stronger than anticipated in the second quarter with the new [cars] 16.6 million units in the quarter and 16.5 million units in July.

However, this was partially offset by used car sales that only grew 29,000 units from the same period year ago. Therefore, we continue to anticipate that combined new and used car sales were increased by approximately 3% in 2014, which is consistent with our prior guidance.

With that backdrop, we are updating our 2014 guidance as follows. Revenue is expected to be between $829 million and $843 million, which would represent growth of approximately 74% from 2013 at the midpoint. This is an increase of $16 million from the midpoint of our prior guidance of $814 million to $826 million. This increase in expected revenue reflects our over-performance in the first quarter and ongoing business momentum across all revenue lines.

Our GAAP net loss is expected to be between negative $7 million and a negative $12 million or a net loss of negative $0.13 to a negative $0.23 per share, an improvement from prior guidance of a net loss of a negative $12 million to negative $18 million or net loss of a negative $0.23 to $0.34 per share.

With regards to non-GAAP earnings, we expect adjusted EBITDA to be between $186 million and $190 million, which is a $4 million increase from the midpoint of our prior guidance of $180 million to $188 million. This represents an adjusted EBITDA margin of approximately 22.5% at the mid-point of our adjusted EBITDA and revenue guidance.

With regards to synergies from the Dealer.com acquisition, we continue to expect to realize approximately $5 million in net cost synergies for the full year. Finally, we expect adjusted net income to be between $81 million and $86 million, or $1.47 to $1.56 per diluted share, an increase of $0.05 from the midpoint of our prior guidance.

Our 2014 GAAP net loss per share guidance is based on an estimated diluted share count of 53 million shares. Adjusted net income per share guidance is based on an estimated diluted share count of 55 million shares.

As stated earlier, the integration of Dealer.com benefits us in multiple ways in terms of our quarterly financial performance, including accelerating our overall growth rate due to advertising, cross-selling opportunities on subscriptions.

Additionally, we are seeing a reduction in the seasonality we have historically experienced in our quarterly adjusted EBITDA margin. We do however still expect a slight decline in transaction revenue and adjusted EBITDA from the third quarter to the fourth quarter given historic trends for the absolute number of cars sold in Q4 relative to Q3.

Please refer to our investor presentation posted on our company website for additional assumptions embedded in our current guidance.

In summary, we are very pleased with our second quarter performance and remain very optimistic about 2014, as reflected in our guidance as well as our longer term opportunities to transform auto retailing.

Operator, we will now take questions from conference call participants.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question will come from Matt Williams from Evercore. Please go ahead.

Matt Williams - Evercore

Hi, guys. Congrats on the quarter and thanks for taking my questions. Just quickly on the subscription side. I am just wondering if you could speak a little bit more or provide a little bit more detail on some of the strategic conversations that you are having and your confidence in your ability to somewhat speed up the process understanding that sales cycles are elongating a little bit, but clearly the organic performance is a little bit better this quarter and just a little bit more color on sort of what's going on with those discussions with dealers?

Mark O'Neil

Sure. Thanks for that commentary, Matt. The conversations are much more suite-oriented than they are product-oriented. The suite conversations with some groups are as extensive as the entire suite, DMS and digital marketing and all the other solutions and others are digital marketing plus one or two, maybe inventory and CRM. Very few of our conversations, and I think this is due to two things, both the Dealer.com acquisition and our movement to key account management model, but a very few of the conversations are really single point product now. That's great for us. I think, that gives us the confidence as you said to not only take the incremental growth we delivered Q2 over Q1, but keep that growth going Q3 over Q2, Q4 over Q3, et cetera.

The color is, there is more conversation. The pipeline is larger, perhaps larger than it has ever been for us at Dealertrack, and we think we can continue to close that. Obviously, into August here into the third quarter, and we like the trend we are continuing to see.

Matt Williams - Evercore

Great. That's helpful. Maybe just one quick follow-up for me, and then I will hop off. In the past, you have talked about the strength in the DMS business and that you are six months booked ahead and that sort of thing. I am wondering, it's been so strong for several quarters now, are you starting to see customers come back and add on different capabilities now that theoretically they have already implemented their DMS?

Mark O'Neil

The core DMS, yes, so we are -- and there isn't a particular area we think though that as we launched the CRM, we have a lot of hand raisers based on initial communications with our DMS base about the capability of that solution and the feedback from the team in terms of how quickly they can sell it, how quickly can we engage, and install that solution is very encouraging.

The second thing that is very encouraging in DMS is that the acquisition of ASR Pro. As we mentioned, look, a very small company in revenue, but strategically very important. It really shores up an area for us which is related to DMS, which has the ability to bring more capability to help a dealer drive profitability in parts and service.

Again, I would say the sales pipeline is probably, I wouldn't say not probably, definitively exceeds our installation capability in the near-term with ASR Pro, and we are talking small numbers here, but again very encouraging signs. Again, these are short timeframes, but it's what gives us confidence that Q4 will be better than Q3 on the subscription side, and so while we maybe maxing out a DMS installed capacity, the ability to up-sell that solution will be well in place by the end of the year as well as into next year.

Matt Williams - Evercore

Great. Thanks so much for taking the questions.

Mark O'Neil

You are very welcome.

Operator

Thank you. Our next question will come from Sterling Auty from JPMorgan. Please go ahead.

Sterling Auty - JPMorgan

Yes. Thanks. Hi, guys.

Mark O'Neil

Hey, Sterling.

Eric Jacobs

Hi, Sterling.

Sterling Auty - JPMorgan

Back on to subscription, could you remind us what the organic subscription growth was in the first quarter? Looking at the acceleration that you saw, how should we be thinking about the trend of further improvement given your comment about bundling in the CRM launch?

Mark O'Neil

Yes. It was 13% in Q1, and obviously 14% in Q2. As we said, we expect steady growth in Q3, Q4, and in 2015. I would say, slow and steady wins the game. That's what we are focused on. That is probably about as much clarity as I can give you now, but we have very high confidence we will beat the Q2 numbers in Q3 given where we are in the quarter already.

Sterling Auty - JPMorgan

Can you give us a sense in terms of the CRM, what was the kind of final outcome in terms of taking the functionality that you acquired versus your own in-house? What has been [squirm] together here for the CRM launch and what does that roadmap look like?

Mark O'Neil

Yes, again, I put this under the category of, we are very successfully integrating Dealer.com and things are going ahead of plan. Approximately six to eight weeks after completing the acquisition, we had an independent team evaluate the Dealer.com CRM solution against our solution. Both products have a lot of strengths, but at the end of the day, we took the Dealer.com solution as the going forward platform, so we are going to develop on that.

The primary reason for that was we think the cost to scale, it will actually be lower than our original solution, and they have been ahead of the game in terms of integration to websites which we think is very powerful in terms of integrated workflow of connecting online in-store. That said, I think our mobile functionality and some very specific feature and functions will need to be ported over, and those are in the process of happening.

Right now, we have launched the new solution. Again, this is the case of our backlog, because they are exceeding our installation capacity. That's a good thing. The numbers are small though right now, but we expect that solution to ramp as we fully build it out over the next couple of quarters and ramp up our sales efforts.

Sterling Auty - JPMorgan

Last question, on the transaction part of the revenue, you gave us a number of different levers to that growth, everything from the number of dealers, number of lenders, et cetera, but I am curious relative to besides just [the SAAR] improvement, what are the one or two biggest contributors to the strength and transaction revenue in the quarter?

Mark O'Neil

Right, this is the good opportunity to highlight to really everyone on the call that we have a new investor presentation up on our website. It's materially expanded from old presentation that we had up in prior quarters and there is actually a specific slide that I will point you to that compares or breaks down the components of transaction growth and one of the drivers of it.

A little bit of it is acquired, that's the smaller percentage of total. Some of it is car sales, some of it's higher percent of vehicle being financed versus either all the cash or cash equivalents like a home equity line, improving credit market, that would be driven by maybe more subprime players, healthier environment, a little more credit shopping going on, then our execution with more lenders whether that's OEM relationships or it is independent second lenders gaining share there as well.

You see in the deck, really all of them are contributors, which is helping. It means, we are not dependent on any single element for growth going forward. To remind you, most of the acquired revenue as it relates to transactions relating to Vintek.

Sterling Auty - JPMorgan

Got it. Thank you guys.

Mark O'Neil

Did that help you?

Sterling Auty - JPMorgan

Absolutely.

Mark O'Neil

Okay.

Operator

Next question will come from Kevin McVeigh from Macquarie. Please go ahead.

Kevin McVeigh - Macquarie

Great. Thanks. In addition to just really organic growth, the margins really seem to be the one of the standouts in the quarter, was that a function of just the advertising revenue coming in better than expected, the subscription or kind of mixed advertising? Any sense of what really drove the margin deep?

Mark O'Neil

Kevin, I am going to let Eric jump in on that one.

Eric Jacobs

I think it was across all three components, transaction, subscription and advertising, all of them contributed to the margin uptick.

Kevin McVeigh - Macquarie

Okay. Then…

Eric Jacobs

One more comment.

Kevin McVeigh - Macquarie

Sure.

Eric Jacobs

To some extent, we have been managing our overall EBITDA margin, because we have been making investments, so in Q1 we could have contributed more in terms of the over performance, but we had planned investments that we were making throughout the year, so we will continue to do not like we did last year where we are trying -- giving annual guidance in terms of our expected adjusted EBITDA performance. For the most part, are plans are to hit that number and then we will make trade-offs if we need to for our investments to the extent that's required.

As good corporate citizens and consideration of our shareholders there just we are balancing this year increased guidance. If you look at $4 million on '16, that's the 25% gross incremental margin versus 22% for the business. Obviously giving some of that back, but as Eric said, we managing the other half, because this is a very ambitious and aggressive integration to grow the plan to transform auto retailing here. We want some of those extra dollars to go into technology investment as well.

Last point Mark mentioned that the absolute dollars in terms of what we increased guidance at the midpoint for adjusted EBITDA, which was $4 million, that reflects a negative $1 million impact of ASR Pro, so essentially there was even higher if look you look at our year for margin performance would even be higher for that.

Kevin McVeigh - Macquarie

Well, then really nice uptick in average subscription versus kind of where we exited Q1. Anyway think about where that target is? Then was the increase kind of the market kind of the market opportunity 13,000. Was that all Dealer.com, just the contribution?

Mark O'Neil

When we - Q1, we had indicated it did grow in part of Dealer.com, but that probably brought us up to the $10,000 maybe $11,000 number to deal all the way to $13,000 is really driven by ASR Pro. The parts and service market is very substantial in terms of dealerships willing to invest additional dollars in software to both, drive more absolute service and part sales and also to increase the profitability of each service customer, repair order that they created a dealership and ASR Pro really helps with both.

The addressable market was driven by both acquisitions. In terms of how to think about the increased growth in subscriptions, look, again I would say much of it we are talking about sequential growth in percentages, the dollar's slow and steady growth quarter-over-quarter here as we continue to execute on the on the subscriptions side, I think it will track closely track closely with that organic growth rate.

We are not adding many new dealers on subscriptions given the breadth of our dealer accounts for subscriptions, but the most of the growth will come on the adverts spend per which it be system with that organic growth.

Kevin McVeigh - Macquarie

Awesome. Thanks. Congrats.

Mark O'Neil

Thanks. Appreciate it.

Operator

Thank you. Our next question will come from Mitch Bartlett from Craig-Hallum. Please go ahead.

Mitch Bartlett - Craig-Hallum

Yes. I just wanted to ask on the Dealer.com side on, both the advertising and websites. First, the advertising that number of subscribing dealers, very strong. You had guided down, perhaps a lot of turnover in the 3,000 or so Ford dealers that came on, what happened in the quarter. What that spend from Ford now look like margin wise and otherwise. Have you connected to these dealers on a longer term plan or what might be the outlook there? Could we see more turn in Ford going forward?

Mark O'Neil

Mitch, it's a great question. On Q1, I think we brought down expectations, probably a little aggressively. We never had such a short-term exclusivity period, but short, let me just leave it at that, but yes look, we want to take advantage of any exclusivity period is a good. Our anticipation was that with a very quick ramp, we wouldn't have enough time to really build a relationship with a dealer or retain them, but that said, the sales team and kudos to both, the Dealer.com and Dealertrack sales team working together, really went out there and engaged with customers, try to extend the relationship in terms of communicating the value proposition of working with Dealertrack and they have resonated with many of our - we are just executed well.

Now, can we sustain close to 100% of the business? Probably not, but I think it will be a very slow trickle off and I think we will continue to perform well with these dealers. In terms of how well, we are finding that a number of them are reasonable percent are now spending more dollars. They tried spending a few with us and it was a small program, measured in the hundreds of dollars, not thousands per dealer. We have had a number of those hundreds turn into thousands and for that we are feeling great. It doesn't bring our average spend, because the program was targeted in hundreds and not the thousands, and we are holding on to them.

Look, we will continue to work to up-sell. We will continue to I think build the program at Ford in terms of communicating through great results, our ability to execute for them and hopefully we will earn the right for them to be in interested in spending more through us.

Overall, we think that will generate more revenue for the program, because even if the number declines, because you can't maintain such a high volume and definitely, the spend per dealer will more than offset the decline in the dealers.

Mitch Bartlett - Craig-Hallum

I was also thinking from the opposite, if you excluded those Ford dealers, there is probably pretty good organic growth in the Dealer.com base prior to that.

Mark O'Neil

Absolutely, no question.

Mitch Bartlett - Craig-Hallum

Okay. Then on the website business, you alluded to a number of times about digital retailing being attached to your website business and doing fairly well. You don't break out that business, but how did the website business do?

Mark O'Neil

No. We don't breakout digital retailing. To give you both, the core website business did well, but given its scale right now and the significance of our penetration, we are relying on cross-selling additional solutions to website customers to really drive that average subscription dollar up. [Immersed] in our commentary and I'm sorry I wasn't clear on it, it really has start to pick up in Q3. There was very little Q2 digital retailing cross-sell. Most of that started out in Q3. In fact, we only just opened up the both, sales team about 30 days ago, so Q2 was a nice, let's see if it works as work on getting the integration complete from the technology perspective and now Q3 is the beginning of ramping up the sales initiatives.

Again, it will be a slow and steady right into Q4, but it's this kind of execution that gives us confidence in the sequential subscription growth quarter-to-quarter and this is one of those area that happens to be - I would say the team is executing particularly well with and the customers are very receptive to the offering.

Mitch Bartlett - Craig-Hallum

Just last one Dealer.com. In your slides, you have the numbers out there and online videos is a very big segment of the advertising opportunity. Do you participate there at Dealer.com?

Mark O'Neil

Yes. We do. It's pretty new category for dealers. The rate of technology movements are exceeding the average customer's ability to grab the value and just raw understanding of the technology, but we do offer it and we are starting to create some case studies to help the dealer understand the value of video and it is value. It has very high impact on close rates when a dealer uses video on their sites.

Mitch Bartlett - Craig-Hallum

Great. Thanks, Mark.

Mark O'Neil

You are welcome.

Operator

Thank you. (Operator Instructions) Our next question will come from (Inaudible) with Stifel. Please go ahead.

Unidentified Analyst

Sure. Thank you. Last quarter you noted some customer confusion surrounding certain overlapping products between you and Dealer.com. You earlier noted a launch a new CRM system and you noted were going to standardize on Dealer.com. Can you talk about the customer reception to that decision - dissipated as a result?

Mark O'Neil

Yes. The reception has been very good, in part because we have been very specific about what we are going to deliver and how that in new solution while it doesn't today have every component that either of the two individual solutions have. It will have and that's going to have it fairly quickly, so we are converting anything right now, say, who has a Dealertrack solution. They are happy with that, and if they are particularly focused on functionality that does not yet exist in the newly launched solution then we are not forced to convert that.

When we have all of what they have today and more that is better than we will convert on. That's a really good strategy for keeping your existing customer base happy as well as creating a lots of new clients, so far so good, our sales are exceeding our installation capacity, so we would call that a good metric for execution.

Eric Jacobs

Some of the [headwinds] were created, because we had sold quite well in NADA, the Dealertrack solution and now we had to go back to those customers and tell them a slightly different story.

Overall, CRM is not a large installed base, but it did have an impact in Q1 and Q2, but if you think of this overall - that impact of this is the largest acquisition we have ever done. I think, here we are in our really first full quarter, but thus fall the second quarter being together ha a business and the list of wins, the list of successes far exceeds any of the hurdles or the challenges you would expect particularly with the largest ever acquisition that we have done in our history, so we are really pleased with how well things are going. The teams are working well together, the customers are responsive the technology roadmaps are coming together. This is just terrific execution on behalf of the team.

Unidentified Analyst

That's excellent. Speaking of the technology roadmap, could you maybe give us an update on project FUSION, kind of the broader integration across all your products?

Mark O'Neil

Yes. That's a great question. It's continuing to go very well. With the existing suite of Dealertrack products project FUSION was what we substantially done by December, I would say substantially a well measured into the 90 percentile in terms of available and expected integrations.

The Dealer.com team has a very aggressive roadmap as well to create a components of FUSION, a number of those will be done by NADA, which is a month past the end of the year. Then a couple beyond NADA, but they won't be as nearly as impactful in terms of all workflows. There are some integrations that are more important than others, and the most important ones that we will be seeing by the time we show up at NADA, again, we are real happy with that execution as well.

Unidentified Analyst

Excellent, just one question for me for Eric. Eric, is there any seasonality in the advertising business that we should sort of anticipate as we look at our numbers kind of going forward here?

Eric Jacobs

Sure. Generally not quarter-to-quarter, within quarter, due to holidays, there is some seasonality, but you shouldn't really see it from your perspective.

Unidentified Analyst

Perfect. Thank you very much. Congrats on the quarter.

Eric Jacobs

Thanks very much.

Operator

Have another question from Mitch Bartlett from Craig-Hallum. Please go head.

Mitch Bartlett - Craig-Hallum

On your website, slideshow here, and especially that the spider web graph that shows the opportunity for further market penetration and ASR Pro gets his own little segment here and you highlighted it in the conversation on the call here. Is ASR Pro, which you said had $2 million in revenues and $1 million loss in EBITDA, is it that meaningful in parts and services as you go forward?

Mark O'Neil

Yes. Parts and service is huge. In absolute dollars, it doesn't compare to our new car sale. In profitability, it's the worse new car sales. It is where a dealer makes their money as cost estimate auto retail industry country called absorption, which is a percentage measure of what percent of your total costs are covered by parts and service revenue and most dealer strive to cover all their fixed cost through their arts and service operation that our fixed costs are running the entire dealership, so it is a really important part of the business. The nice part of ASR Pro is, it can sold independent of our DMS as well as fully integrated with our DMS. It strengthens our offering competitively, so that's why it has its own segment.

You noticed in size, they are pretty similar. They are both, really large and we haven't penetrated either nearly to the to the extent we see the potential, so lots of growth opportunity there and most of the realized sales are going to be with DMS, but we do anticipate them separate ones and part of that will be driven by OEM being interested in that solution and potentially mandating or recommending the dealers use our solution, so that also gives us the unique sales channel opportunity.

Mitch Bartlett - Craig-Hallum

Interesting. Thank you.

Mark O'Neil

You are welcome.

Operator

Thank you. I am not showing any further questions. I would like to turn the call over to Mr. Mark O'Neil for any closing remarks.

Mark O'Neil

Thanks, operator. Thanks everyone for the real nice commentary tonight. Look, like you guys, we think it was a pretty terrific quarter. The good news is, I think we have enough visibility the Dealer.com acquisition. Now we can say, we feel good about the next couple of quarters ahead of us as we round-out finishing up the year.

Look, overall, kudos to the team here. I think we executed well and I think we are going to in continue to execute well. Thanks for all your continued support and we will look forward to - some marketing coming up here up here in the quarter as well as the one-on-one meetings with the analyst team.

Just a reminder to all the analysts on the call, we are going to be hosting an Analyst Day in September, September, 11. It will be in New York City. It's going to be a terrific day, not only to talk about the business, but also to demo some of our products and really have you see first-hand, some of the terrific integrations we are creating and some of the ways that we are going to be transforming auto retailing in term of integrated work flows. Hopefully the analyst community can all join us for that day.

That's it, guys. Thanks a million. Take care. Bye.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.

Eric Jacobs

Thank you, operator.

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