CDK Global, Inc. (CDK) CEO Brian Krzanich on Q1 2020 Results - Earnings Call Transcript

Nov. 05, 2019 7:44 PM ETCDK Global, Inc. (CDK)
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CDK Global, Inc. (NASDAQ:CDK) Q1 2020 Earnings Conference Call November 5, 2019 5:00 PM ET

Company Participants

Julie Schlueter - Director of IR

Brian Krzanich - CEO

Joseph Tautges - CFO

Conference Call Participants

Ian Zaffino - Oppenheimer

Rayna Kumar - Evercore

Matthew Pfau - William Blair

Tim Willi - Wells Fargo

Gary Prestopino - Barrington Research

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Q1 Fiscal 2020 CDK Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I’d now like to turn the conference over to your host, Ms. Julie Schlueter, CDK Global Inc. Director of Investor Relations. You may begin.

Julie Schlueter

Thank you and good afternoon. I would like to welcome you to CDK’s first quarter fiscal 2020 earnings call. Joining me on today's call are CDK’s CEO, Brian Krzanich, and our CFO, Joe Tautges.

A few items before we get started. Throughout today's call, I would like to stress and make clear that we will be discussing our continuing operations only which do not include the Digital Marketing business that continues to be held for sale and presented as discontinued operations. This is consistent with our year-end fiscal 2019 reporting also consistent with our year-end fiscal 2019 reporting and a year-over-year or sequential comparisons are presented in accordance with ASC 606.

Beginning in the first quarter of fiscal year 2020, we adapted ASC 842 for lease accounting on a perspective basis. Finally, unless otherwise noted, all references to financial amounts are on a non-GAAP adjusted basis. Reconciliations of adjusted amounts to the most directly comparable GAAP amounts are included in this afternoon's press release and are available in the Investor Relations section of our website.

Also available within the Financial Information section of our website is supplemental financial data, which contains quarterly data for the prior-year in an Excel format, including a breakdown of revenue by category. I would like to remind everyone that remarks made during this conference call will contain forward-looking statements. These statements involve risks and uncertainties including the risks detailed in our filings with the SEC, which could cause actual results to differ materially from those set forth in the forward-looking statements. And finally, we anticipate that our Formed 10-Q will be available tomorrow. With that it is my pleasure to turn the call over to Brian.

Brian Krzanich

Thanks, Julie. And good afternoon, everyone. I'm excited to report to you our first quarter results today. Our results were very strong for revenue and profit for the quarter. And it's really proved to me that we're doing the right things from a strategic perspective. The team is quite focused on continuing to pivot CDK towards customer centric actions, and believe that benefits of that to our dealers, our partners and our OEMs are clear in our performance.

I want to thank all of our employees for rallying around that message and delivering the outstanding results they did this quarter. The highlights of the quarter are as follows. We had revenue of $495 million, which was an 11% increase over Q1 of fiscal 2019. We’re able to grow North America auto sites year-over-year by 37, the third quarter in a row with continued year-over-year site growth.

EBITDA growth was 3% and EPS was $0.79 up 5%. Overall, this was a very good quarter, and I'm pleased with the tremendous progress we've made. Joe will provide more details on the quarter results. But I would now like to start back and reflect on the past year since I've joined CDK and share with you some observations about what we have accomplished and where I think we are headed.

There are many strengths that were quite clear to me about CDK became before I joined, like the fact that it was a solid global company with over 40 years of history and strong positions within the market. During this last year, I spent a lot of time with the CDK teams around the world, as well as with our dealers to really understand the state of the business and where the opportunities were to better serve them. What I found within CDK was such an incredible hidden value. This is a company with great people, long standing customer relations, and sound technology that needed to be more customer and technology focused.

And so I rolled out three strategic initiatives that I believe are making an impact this year, and will improve the company quite significantly into the future. Now, let me get into these and tell you about all the work that we've done so far. It's really quite exciting. The three initiatives are centered around improving how we serve our customers, modernizing our technology and architecture and making it easier to do business with CDK.

Let's start with the first one. How we're transforming the company to become even more customer centric and focused on improving how we engage with our customers. The very first thing we did to fix the customer support engagement model was simple, like answering the phones on the weekends when dealers are open to doing business.

By increasing our support center hours, we're improving the way dealers engage with CDK each day as challenges arise in their dealerships. We then went out and found the right team of customer advocates, and performance managers who really help our dealers maximize the value of their existing technology. We needed to improve our support of customers after they go live on our software to make a smoother transition. So we added a post installation team, which arrives at this critical time to ensure that dealers and their employees can start-off on the right foot when utilizing our software.

In addition, we made several improvements to our customers service channels to make it easier for dealers to get the assistance and support they needed. We're finding new ideas every day on how to improve serving our customers. But let me tell you about the results so far.

They've exceeded my expectations of what I thought we could accomplish when I first joined the company. This is now our third consecutive quarter with growing North American auto sites. Before we did all this, sites had been declining year-over-year for nine quarters in a row. This is phenomenal progress and the impact has come sooner than I thought it would. We now have the highest base of North American auto and adjacency sites over the recorded history of the company with a total of 14,732 sites.

In addition, North America sales were up strongly in the quarter, our best first quarter for DMS sales in the company history and I'm excited to report that our sales team won a 40 plus site dealer group in the quarter, our largest win in the past few years.

Now, let's move on to the second initiative on how CDK is bringing the best technology to the market. We're focused on two areas, modernizing architecture of the current technology, and second building a technology ecosystem for the future. We're modernizing the technology across our platforms, including improvements in our product management capabilities, and main software applications to make them open, and API driven, which will enhance their functionality and be consistent with our investments in the Fortellis API platform.

We're working on a significant number of projects this year that are focused on reducing the number of software versions, streamlining the installations, and improving the data access which will not only benefit the dealers experience and end-to-end workflows, but will also improve our ability to quickly and easily innovate and maintain the software going forward. One of the best examples of this is Drive Flex, the most open and technologically advanced DMS platform in the market. As you may recall, Flex has a modern and modular design, which looks more like a phone app with drop down menus, auto fills, and walk me button and is fully in the cloud with AWS.

We have finalized the certification process with our second OEM. And in order to prepare for a broader rollout, we're being very methodical throughout our implementation process and are learning a lot about how to improve the product capabilities and installation procedures. Given the long-term importance of this product, we firmly believe that investing the time and effort now is the best approach. It will ultimately support a quicker ramp-up as we head into the fiscal 2021 and beyond.

All of this modernization and focus on API driven architecture is putting us in a good position to realize our long-term vision for an open and agnostic technology environment, and to grow our Fortellis API platform. I want to stress the importance of this platform to our industry. We need to prepare for a world beyond just auto sales to contemplate trends such as interoperability to allow cars, dealers and manufacturers and consumers to connect and use the data driven decision engines built within our apps to drive insights and provide dealers with enhanced information to more effectively run their business.

Building out and driving the adoption of our Fortellis API platform will ultimately result in our goal of providing dealers with access to data and analytics at a reasonable cost. In order to prepare for these trends, we need an open architecture and technology stack. Fortellis is the only API ecosystem in our vertical and as a market leader, we are uniquely positioned to champion its development and in end to benefit from its use as the industry standard.

We currently have over 20 API's in production or beta stage that were developed by both CDK and third-parties. For example, Hailer our ride sharing API with Lyft is in full production and live with several hundred dealers. An example in the beta stage is our repair order API, which is being tested with major partners and OEMs, including our expanded relationship with Cox Automotive.

We continue to open up more API's including through the promotion of our developer days, and events for building communities. Our final initiative is about making CDK easier to do business with. We're going to change the way we go to market that will simplify its standardized items such as quotes, catalog lists, installation processes and invoices.

The business process modernization program is a multi-year effort that includes both internal changes that will improve our operating and implementation quality, and customer facing external changes. Like our invoices, which include more user friendly layouts, descriptions, and content.

We've gone out to field test the new invoice format and the dealer feedback was extremely positive. The team plans a broader pilot of a new invoice starting in the next few months with a rollout to all dealers this year. We're committed to moving forward with these priorities and maintaining our long-term strategy looking out to the rest of the fiscal year with our level of site growth and the continuation of our planned investments, we’re confident in reaffirming our full-year guidance.

And finally, I'm very happy to report that we have settled another lawsuit, this one with MVSC. And Joe will provide more details in his section. But I'm pleased to be able to put another lawsuit behind us and continue our focus on the future. I also wanted to provide a little more clarity on the status of the Digital Marketing divestiture, they’ve received a great deal of interest for the asset that are currently in the process of narrowing down the potential options for sale.

We hope to close a transaction by the end of the calendar year. To conclude, I’m very happy with the first quarter progress. I know that we have a lot of work to do in front of us. The investments we're making today will clearly differentiate CDK and our critical component of our long-term strategy. I remain confident in this strategy and our ability to deliver value-added solutions to our dealers, our partners, and OEMs, as well as solid returns to our shareholders.


Before turning over to Joe, I'd like to thank all of our employees one last time. Their work is producing outstanding results, and I'm proud of what they've accomplished over the last quarter. I look forward to sharing more of their progress with you in the upcoming quarters. So now I'll turn over to the call to Joe for the financial results.

Joseph Tautges

Thank you, Brian and good afternoon, everyone. To reiterate, Brian sentiments, we are pleased with our Q1 results and in particular, the progress we've made on accelerating revenue growth and the improvements in site counts, as well as our team's focus on the area of investments that will allow us to continue on our path towards future revenue growth. When you look at the business in aggregate, the revenue we've seen has come from stabilization from our core DMS business and accelerated growth in our layered applications.

Our profitability is in line with the significant investments we're making in the business in the areas of customer success, sales and marketing, and improvements and implementation capabilities and technology. We are happy to be seen improved results due to our focus on enhanced execution as well as our increased level of investments and we are excited about the future opportunities.

As we look forward to the rest of the year, we remain confident that the business can continue to deliver growth in line with our guidance ranges, and we’re reaffirming our annual guidance for revenue, EBITDA and EPS. Now, let me turn to the detailed results starting with revenues.

Total company revenue was up 11% on a year-over-year basis, primarily due to growth in our North America DMS and layered application business as well as from acquisition revenue from the purchased ELEAD business. In addition, revenues benefited from changes in accounting for hardware as a service under ASC 842 offset by the headwinds from the partner program transition that we discussed on the last earnings call.

During Q1, we passed the one-year anniversary of our successful ELEAD acquisition. And we're very pleased with the growth we have seen from the business since it was purchased in mid-September of 2018. Growth in North America came largely from subscription revenue, which was up 10% for the quarter as a result of gains from key applications like CRM, service and document management sold both within our DMS sites and to non-DMS dealers.

North America auto site growth increased for the third quarter in a row with auto sites at their highest level since December 2017. The year-over-year increase was 37 or 0.4% due to growth in three plus site groups, partially offset by a decline in one to two site groups. As Brian mentioned, we are seeing improvements in the one to two site group performance driven by increased sales of our Drive platform as well as much better retention.

I am particularly proud of our overall retention performance of the team in light of the fact that we had been facing a larger than normal renewal schedule as a result of the two-year renewal program executed in fiscal 2018. The peak renewals from this program will occur in our second quarter, and we are quite focused on continuing our retention progress.

Given our investments in sales and the customer experience, we’re confident that we can grow North America auto sites by 1% this fiscal year. North America transaction revenue was up 4% mainly because of rate increases on certain pass through prices for credit checks, modestly offset by lower volumes.

Other revenue in North America was up $16 million, partially as a result of the changes in accounting for hardware as a service under ASC 842 and certain ELEAD business. Revenue from our international segment was $77 million down 2% but up 2% on a constant currency basis. Subscription revenue was up 2% driven by strong growth in revenue per site partially offset by a decline in smaller dealer sites.

Revenue from on site licenses and installations was down by $3.5 million, due in part to the timing of a certain point in time revenue that benefited the prior-year period. International sites were 12,973 down 2% over last year, attributable in part to the impact of site consolidations, and losses in legacy products. While we’re not happy with these results, we are seeing some pockets of improvement. Revenue per site saw a strong increase of 10% year-over-year as a result of broadening solution sales to existing customers and higher mix of DMS revenue as a result of site consolidations.

Moving on to earnings performance, EBITDA for the company was $188 million, up 3% over the prior-year with a margin of 38.1% down 310 basis points. Earnings were driven by underlying growth from our DMS and application businesses, offset by incremental investments and headwinds from the partner program transition. Margins were also negatively impacted by the lower margin profile of certain ELEAD business lines.

At a segment level, North America pre-tax earnings were $168 million, up 3% with a margin of 40.1% down 430 basis points, primarily due to the same reasons. For international, pre-tax earnings were $15 million down 19% with a margin of 19.9% down 410 basis points mainly because of timing of certain point in time revenue that benefited the prior-period.

For the total company, our effective tax rate was 25% and diluted earnings per share was $0.79 up 5%. EPS growth was driven by increases in EBITDA, as well as lower share count partially offset by higher interest expense. Our cash balance on September 30, 2019 was $313 million, of which $243 million was held outside of the United States. Free cash flow was $50 million, which was negatively influenced primarily by a legal settlement payment made during the quarter, as well as the timing of collection of receivables. We ended the quarter with a leverage ratio of 3.4 times net debt-to-adjusted EBITDA.

We continue to be focused on delivering leverage within our targeted range of two and a half to three times with an expectation to return to the top of the range by the end of the fiscal year. In the first quarter of fiscal 2020, we paid $18.2 million in dividends to shareholders.

We are reaffirming our guidance for fiscal 2020 as it relates to revenue, EBITDA, EPS, tax rate and shareholder returns. It is worth noting that our guidance absorbs any negative effects of changes in foreign exchange rates. We expect the level of revenue and profitability in Q2 to be similar to Q1 and anticipate an acceleration in the second half based on normal seasonal factors and results from our investments.

As Brian mentioned, we’re pleased with the recent legal settlement. The claims brought by MVSC were dismissed and a one-time settlement payment was made in October, which was covered by the $90 million litigation liability recorded last year.

Regarding the status update on our Digital Marketing discontinued operations, we continue to work with Allen & Company on the divestiture of the business and are in active discussions with potential buyers.

We remain committed to completing a sale by the end of the fiscal year, though we would hope to conclude it earlier, and our guidance continues to be based on the calendar 2019 year-end sale.

In closing, we're off to a good start to the fiscal year with much more work to come. We're making the right investments to deliver on our guidance through continued revenue growth and improvements on sites. The progress we're making on several fronts, both operationally and financially is allowing us to continue to move forward with our growth strategies and is helping to fuel the spending needed for our planned investments and partner program transition. We’re pleased with this disciplined and focused execution of our strategy, and I look forward to updating you next quarter.

I'll turn it back to the operator, and we'll be happy to take your questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And our first question comes from the line of Ian Zaffino with Oppenheimer. Your line is now open.

Ian Zaffino

Hi, great. Thank you very much. Nice to see the customer site count increasing. Could you give us an idea of maybe where you’ve seen increases if you can maybe disaggregate the larger dealers from the smaller dealers. Maybe tell us how you did in each area? Thanks.

Brian Krzanich

Sure. So Ian this is Brian. I can start in. I think if you take a look at it, we typically talk about dealers that are like five and less, and then five sites or less and then five to whatever 50 or so and then the really big ones 50 and above. I tell you, the really big ones have just stayed very stable for us and not, not really, have we seen an exit or anything nor have they, we added any of them really, really large ones like that obviously.

You’ve heard in our prepared comments that we added 40 plus dealership on our DMS this quarter, those will start to be installed in Q1 timeframe. So you'll start to see those add to our site count in the second half of the fiscal year where we're seeing a much better retention is in those five and below dealer sites where we really put an effort, that's where we were seeing most of the retention loss before we put a real effort in retaining those.

That's where we'll be inserting Drive Flex first, as well. So if we've had a retention process better service, better support, we've talked about that in the call and then we started to work with these dealerships on the beginnings of Drive Flex as well. So when we look across that, I'd say the biggest change in retention is in those five and below, we've done pretty well in that mid-range five to 50.

And you've heard we added one and then and then it's been pretty stable in 75 and above or whatever you want to get into really big ones. But also remember that we're talking DMS layered apps. That's just as important for us in growth in our revenue forecast and there we’re seeing add across the board from seeing more ELEAD CRM into all of the various levels of those dealerships. So five and below, five to 50 and 50 and above.

Joseph Tautges

Hey Ian, it’s Joe. Just to add some of the numbers to it, so in the three plus dealers consistent with how we've disclosed that in the past, the revenues in that group are up high single digit and to Brian's point very consistent performance in the wins and retention and one to two’s the revenue was down slightly, the best quarter we've seen, at least in the last couple of years.

And so and like Brian said a lot of that from retention, so good performance and improvements in particular, the one to two.

Ian Zaffino

Okay, great and maybe I’m a little bit picky here, but on the average revenue per site, on the DMS side, we saw a little bit of a tick down and it’s like $27 but I tried. But basically, what drove that? Is that a mixed thing is there?

Brian Krzanich

So when you look at the revenue per site, and I assume you're looking at it sequentially Ian?

Ian Zaffino

Correct.

Brian Krzanich

Yes, so when you look at it sequentially, it's actually performed quite well. If you recall, we said at our year-end call that we were going through a transition of the partner program. The reduction of those partner program fees came through effective July 1 at the start of the quarter that put pressure on revenue per site, you'll continue to see that in our rate, as we get into Q2, Q3, Q4 consistent with what you've seen in Q1, underlying rate in the business did grow in line with what we expected, but again that was more than offset by the partner program transition impact that we disclosed at year-end.

Ian Zaffino

Okay, great. Thank you very much.

Brian Krzanich

Thank you, Ian.

Operator

Thank you. Our next question comes from the line of Rayna Kumar with Evercore. Your line is now open.

Rayna Kumar

Hi, thanks for taking my question. Could you talk a little bit about the trends you're seeing in the international business and when you expect that to return to growth?

Brian Krzanich

Sure. So some of the trends, this is Brian again, I will start. Some of the trends we're seeing and return to growth, we continue to A, it's stabilized compared to what we saw last year, which was a decline. And we think that we will or we continue this forecast, it will be growing back into the second half of the year. That's going to be largely on the back of continued growth in partner program and some additional applications in European segment and some growth in China as well this year. And so we continue to see that start to materialize now as we went through the first quarter.

And we continue to think that second half of this year will see us back into a growth perspective

for the international.

Joseph Tautges

Hey Rayna, it’s Joe I will just add a few comments. So while on the top line, it looks like going to grow, that was currency related. So the constant currency business did grow this quarter. And we had talked about in my prepared remarks the timing of revenue item that also affected some of the year-over-year comparisons. So I think as Brian said, we'll see the acceleration in growth as we head into Q2 and the second half of the year.

And the team has more work to do on sites and they're focused on that, but the rate has been impressive, and I think they've got a lot of the right things going.

Rayna Kumar

That's very helpful. And then just digging a little more into the average revenue per DMS site. Should we expect that to continue to be up for the remainder of the year, especially given your increased renewal cycle that you called out and maybe if you can just tell us a little bit about that 5% increase we saw on North America, how much of that is mix versus actual pricing increases?

Brian Krzanich

Yes, we'll take one at a time. When you look at rate per site and if you go look at the last several quarters and getting into the Q2, I wouldn't expect a rate expansion that we’ve seen in the first quarter, as you go Q2, Q3, Q4, principally because of again the partner program transition that we've announced. And so when you go look at the comparisons, that revenue per site growth will be more muted, if you will, Q2 to Q4. And then once we get beyond that, it will return more to the mid-single digits as we've just discussed historically, then what was your second question?

Rayna Kumar

Just since you guys have this high renewal cycle, should we expect some actual price increases ex the partner program impact?

Brian Krzanich

I'd say we're Rayna we have a good balance of selling. And we're working with our customers to bring more solutions to market. When you look at the application opportunity we have, the sales team has done a great job around bringing the more bundled package, taken the transition of the partner program combined with more application. So I'd say rate for us is more driven right now by bringing and selling more solutions to the customers.

Rayna Kumar

Great and just finally, if you can discuss your progress with Drive Flex and maybe this year migration timeline for onboarding customers to the new platform?

Brian Krzanich

Sure, I can start. This is Brian. So if you take a look at Drive Flex right now, we continue to do installs. We've got, we talked about it. We had our first OEM in 2019, we added our second OEM certification, we're working on a third OEM certification at this time, we continue to look at having all the OEM certifications towards the end of this year.

And so, that portion, that's really how to rate limiting step you have to have all the OEM certifications done in order to really expand beyond a one or two rooftop dealerships. And then you get beyond one or two rooftops, they start to add multiple OEMs and it just gets complex for us to not have the right combination of OEM.

We are continuing at a pretty good rate. And what we've really been focusing on right now is learning. So as we do each install, each install that's going on with Drive Flex is actually a combination of our normal install team and engineering team. And I want the engineers in there doing the installation and a start-up of the dealership. So we really understand what is working and not working difficult on the install.

And our goal is and we've put a target towards the end of this calendar year. So the end of our second quarter fiscally to have a series of improvements that reduces the installation time and costs by significant portion. So the idea here is that Drive Flex will be much easier and cheaper for us to install into a dealer and has gone in and done some of the improvements that we're learning as dealers have actually started to use the software in capacity.

So things like how do you modify forms and how do you get some of the accounting detail out and things like that. So we're quite pleased with the progress. And we're kind of going in parallel with learning and making some improvements while we finish the rest of the OEM integration. And so I think you'll see our target is somewhere sub-100 this year fiscal year, and you'll see a big ramp as we go into the next fiscal year, where we've got all the OEM integrations, we're really able to take it into our larger set of dealers.

Rayna Kumar

Got it. Thank you.

Operator

Thank you. And our next question comes from the line of Matt Pfau with William Blair. Your line is now open.

Matthew Pfau

Hey, guys, thanks for taking my questions. First one to start-off with the one to two site dealer segment. And it's great that you're seeing nice improvement in retention there. What do you think needs to happen to flip the switch and get that segment to growth?

Brian Krzanich

So I think there's a couple of things that needs to occur one, we need to go out and support them. If you take a look, said some of the technologies that they were really critical to them. We're going to start to be losing support. I don't think we had the right customer experience. Those are the guys who really needed those extended hours of the call center. They needed customer success advocates because they don't tend to have the staffs and the experience to really manage the software as well as some of the larger operations.

So those have been kicking in, I think we'll see continued and as Joe mentioned, there's a fairly large number of renewals that are coming up. So it's a great opportunity for us to really up that number set over the next quarter or so. So that will be one set. The real answer though, is something like Drive Flex, Drive Flex really gives them the ability, it's much more like an iPhone, it runs on AWS, if your network goes down, you just pull out literally your iPhone or tablet and you can run the software. So you're not tied to network capabilities. You have the ability to modify forms to a certain extent. And so there are training of salesman and workers within the organization is going to be much less.

And so we think it'll be a real efficiency ad for the one to two site dealerships. And that's really going to be a game changer for them. So as we go into next year, what we're really working on is hey in while we're getting Drive Flex ready for you and finished out the OEM integrations, here's our new package of support and continued progress on existing technologies. Here's your better hours of call center, here's your better customer support. And you'll be first also on to Drive Flex. That story is going quite well into that portion of the market.

Matthew Pfau

Yes, makes sense. And the other thing I wanted to ask about is if there's any update on your initiative to target independent and used car dealers with the Drive Flex platform?

Brian Krzanich

Yes, so that's a space. So we continue to do some installs there. And we continue to see the size of the market to be plus 1000 to 2000. That number varies depending on how you want to size it dealers that are probably equipped to take on something like Drive Flex. But what we really want to do is get the installation costs and time down before we really attack that market because that is a market that is going to be a more cost sensitive and we really got to get the initial cost of the technology to be a bit lower.

So the good thing is to me on Drive Flex, that's just kind of summarize it is, it's out there, it's working in dealers. And we're now in the point of refining it. We're refining the cost. We're refining the speed of installation, we're refining the last few things we want to improve on the technology and architecture itself. We're making some improvements on the data architecture, for example.

And that's a very different spot than it's about to come out or it's waiting for the next release. And so for the independents, what I really want to do is I need to get that installed time and cost down before we really attack that market. So I think you're looking at, we will start hitting that one hard in the second half of this year.

Matthew Pfau

Great. That's all I had. Thanks a lot, guys.

Operator

Thank you. And our next question comes from the line of Tim Willi with Wells Fargo. Your line is now open.

Tim Willi

Thank you. Good afternoon. I have a handful of questions here. One if I could ask with Fortellis, is there a way to and I apologize if this is asked before sort of bouncing back and forth between calls. But is there any way to think about the timing in your mind that Fortellis really begins to have an impact around revenue either as sort of a discrete line item or is just again a reason for deeper relationships with existing dealers or ultimately obviously bringing on new rooftops and new relationships?

Brian Krzanich

So from first talk about Fortellis and kind of where are we, what's running and then we could talk to get to root of your question is because it's something that is revenue generating or is it something that is more focused on the ecosystem and tighter relationships. The answer to that question by the way is it's a bit of both but let's take a look at Fortellis. There are about 20 APIs that last time I checked it continues to grow that are up and running or in development, final stages of development on Fortellis.

Two really good examples, we used is our Hailer application which is application tied to Lyft that allows them to fund the DMS follow Lyft vehicles for the customer, if you causing for maintenance or you've come in to look at a car or something like that created a car in, that's running in several hundred dealers, we continue to sign-up lots of dealers every month. And that is a revenue generator and just informed. We had a percentage of each Lyft that's called. And it's starting to generate revenue.

So it doesn't cost anything to install the software. This is a good example of how these programs will work to some extent, it has nothing to install the Hailer program. It sits as an added feature inside the DMS and its RK is based on a percentage of the use and so the dealer has to see benefit.

So we continue to see that that's growing nicely. The other one is our repair order. That one, we've talked about Cox being the lead partner there. And that's really to build a deeper relationship to start, allowing our dealers to have more choice. And we think that will be a differentiator for our DMS and CDK in general, the open agnostic.

Look, we're here to give you the best solution. And we do get paid for repair order. But the real functionality there is about building that deeper relationship both with Cox and with our dealers allowing them to have more choice.

So both of those are good examples. We are getting paid on those. I don't think you'll see it change the needle of our revenue charge for a couple of years, is that three years or four years? I don't know yet. But it's not this year, and it's probably not next year. That's going to be a big shift in our revenue scheme.

But what you're really seeing is much deeper relationships, much more opportunity for the dealers, the dealers, several dealers are starting to look at moving some of their internal applications onto Fortellis and so all of that ecosystem is a build. It's good for the industry, it's good for our dealers, and in the long-run, it'll be good for CDK.

Tim Willi

Great, then I just had two follow-ups. The first one was just going back around the low-end of the market, those one and two sort of dealer rooftops where you said there's still some I think you had said they were still down a little bit, but trends are improving. And I guess I'm just curious that within that discussion of those customers being down, assuming that there are new customers coming on, but just more leaving though you're approving that trend, is there anything to call out around those new relationships at the low-end in terms of products being purchased, revenue characteristics that just was sort of point to the productivity and the future around the revenue, growth and margin in that segment of the market as you continue to fix the retention issue and really build on the sales productivity side?

Brian Krzanich

Okay, so I think I understand your question, but let me start and as I answered if Joe thinks, I've missed the question or we’re kind of looking at each other, trying to make sure we understand the question.

Tim Willi

Let me rephrase it, are new customers at the low-end that are coming on, right, so I'm assuming that you're bringing on new customers or customers at the low-end, but you also have an attrition issue with customers leaving and that's still sort of outweighing but it's getting better. So are the new ones that you're bringing on in terms of the revenue profile, product purchase profile relative to those that you're losing. Is it a different characteristic one that we would consider to be encouraging as you continue to build and fix the low-end of the market?

Brian Krzanich

Yes, I don't know if we've really got the absolute numbers for you. But let me give you kind of the general trends and what we're seeing. This is a segment of the market that we said we were not going to -- we were not providing them the right level of support, both in technology and architecture and in just general business support.

So by going out now and saying, okay, look, we made a mistake. We're here to help. We're going to move you along the technology curve. What we've gone out and done now is really said hey, look, we can provide you a solution today with Drive. We can continue to make improvements in your existing architecture. And we can move you first off to Drive Flex.

In addition, we've started going into some of these dealers and showing them even though they tend to be smaller applications like ELEAD CRM, or our service applications or oftentimes, very applicable to those dealerships, and they've been under supported in that area.

So in general, and I think this is something that is we're not talking enough on this call about is, if you take a look, what we're trying to do, and Joe mentioned this in his prepared remarks, and we've tried to talk about this a bit, is it's not just walking into a dealership, whether they're one and two dealer rooftop dealership or 50 rooftop dealership, you can't just sell them a DMS really, you really need to sell them solutions.

And you need to bring them that this bundled package, the CRM, the DMS, the service application, all of these things, and our open agnostic of these some other applications you need that fit your specific business. That solution, that combination is going to be an improvement, it's either going to provide you the ability to serve more customers with the same resources or reduce your resources.

But we're going to show you an improvement in your business operation by doing these packages of products and solutions. And we’re really focused on that and that's with those one and two dealers as well. So the ones we're signing up are signing up more with these bundled packages that have more of our applications not necessarily charging them more for the DMS, we're selling them more solutions and giving them more capability and they’re able to utilize it and improve their operations as a result.

So from a big picture we're selling yes, more if you take a look at it more software per dealer in that space, whether it's typically the renewal or the new ones that we're bringing on, but it's not because we're charging more for the DMS in many cases, we may be selling them a bundle that just is the DMS price may be down up, it doesn't really matter, because that combined bundle is what they're really looking at.

And it’s may be cheaper than what they're currently using or it's going to provide them opportunities that they currently don't have.

Joseph Tautges

Yes, and the only thing I would add is I mean when you look at the revenue of what Brian's saying what it translates into is revenue per site growth that is healthy from the bundling, and listen the Drive platform is a great platform and they can when you bundle in all the other integrations can deliver success we’re dealing I think, we've pivoted hard to this bundled strategy and it's showing up in the revenue per site.

Tim Willi

Great, perfect. That's exactly what I was looking for a commentary on. Thank you.

Operator

Thank you. And our next question comes from the line of Gary Prestopino with Barrington Research. Your line is now open.

Gary Prestopino

Hey, guys, how you’re doing? Most of the questions have been answered. But I guess first of all, I just want to try to get something clear here. This Drive Flex is for one to two point dealerships. And really is the initial thrust here, once you get all of the certifications is to go out and sell it to your existing base of one to two point dealers. And it will get not sell but really convert. And that's going to have a big impact on retention. Is that kind of a correct assumption?

Brian Krzanich

You're thinking too small. So, Drive Flex is really designed to be modular and it has the ability to scale by both in its data set and its ability to integrate applications and OEMs. So it's really designed for anywhere from a single rooftop to 1,000 rooftops. And if you took, if we are all sitting here in a call 10 years from now, I would expect the majority of our dealers to be on Drive Flex by that time.

And so whether there are 400 dealer rooftop or a single dealer rooftop. We would have them on there, what you see it starting in the one and two rooftop dealers is because of the ability oftentimes, as we add OEMs it becomes easier to fill the one and twos, they may all have just GM, or they have GM and Ford for a town. And we've got that combination, so we can go fill their needs quicker. So it's more of a ability to quickly do that. And then some of the modules that we need to add, because remember each OEM requires a different reporting algorithm set for how the dealership reports the financials up to them, but then the dealer wants to roll those up across all of those OEMs.

And so we have to be able to provide each of those modules, we have to provide a Ford module for rolling up that Ford dealership into the OEM and GM and SCA and so on. And then we need to provide a different module to aggregate the dealerships for the dealer group.

And so those modules are just modules that we develop later stage and oftentimes have to be kind of crafted based on the combinations or how those dealer groups want to see things. And so you just see the multi-site dealers and multi-OEM dealers tend to be a little bit later in the ramp of the technology. So I wanted to make sure you're opening up your thoughts of what Drive Flex was going to go to.

And our approach right now is to actually as we go out, is to go I'd say equally in both converting our existing groups and going and acquiring new ones. So our tension is not to just use Flex to convert the existing business and number of sites, but we think it's a really competitive advantage, and the differentiated technology that will allow us to go compete against our competitors at a level that they are not going to be able to deliver. And so we're going to go after additional sites as well.

Gary Prestopino

Can an OEM actually or can a dealer actually sign up for this before an OEM certification is approved?

Brian Krzanich

No, because the OEM would require like, so we have people, I guess I want to make sure I answer your question. We have people signed up in anticipation of an OEM integration being completed because we have scheduled. So for example, we may not have Toyota done but we say we're going to have Toyota done in the first quarter of next calendar year, third quarter for fiscal year. And so we could sign you up for the end of that quarter, for example. But we wouldn't install it and get you up and running prior because you wouldn't be able to report financials officially up to that OEM and that would be a big problem for you as a dealer.

Gary Prestopino

And did I hear you, right that you said all the OEM certifications will be done by the end of this calendar year?

Brian Krzanich

No, it is probably more like the end of the fiscal year. So majority of the big ones will be done into the first quarter. And then remember there's over 30 OEMs.

Gary Prestopino

Right, no, no, I get that. But I guess the question I would have then is you got this 40 site win. All right, is this going to be an application of the Drive Flex going forward? And if it isn't, then what was the competitive, what was the competitive issue that allows you to take this away? What did they come back to you with that said, you won this business?

Brian Krzanich

So that will not be a Drive Flex, now don't forget. So it will be Drive for the most part. We can run Drive Flex and Drive in the same dealer group once we get the OEM certification. So, for example, we may at some point once we get some of the other integrations done, the last few could be Drive Flex. You can, you don't have to be all or nothing as an example.

So we have the ability to, to really mix and match as we go along. What's winning is the same thing that we've talked about here in this discussion about why our retention is better, why we've hit the highest number of sites in total in the company's history, is it starts with customer support.

The call center hours, the customer success advocates, the post install team, it moves on then to the sales group putting these bundles together and showing people real value and that we can actually provide them a package set of solutions that are better performing with better support for a better cost, and that's what's winning right now both from a retention standpoint and these new acquisitions of sites as well.

Joseph Tautges

Okay, Gary, for the non-techie in the room. Besides this thing that we've done a lot around just there's so much progress and good things happening in the Core Drive product and as Brian said across the value chain of how we engage with customers.

And so our focus is that's every day with the sales team is driving with the installation, with the customer support teams are driving in. And we expect to see those benefits and we expect to see those benefits improving as the year goes on. And we're doing the right things for the long-term with Drive Flex and we're going to be patient with it and do it in a very good quality way. And so it's quite a good balance and yielding the results we were looking for.

Gary Prestopino

Thank you

Operator

Thank you. And I'm showing no further questions. I will now turn the call back over to CEO, Brian Krzanich for closing remarks.

Brian Krzanich

Thank you. I just want to thank everyone for being on the call this evening. And I want to again say, we had a great quarter. Thank the employees for all the work that they've done. And I want to thank you all for your great questions and your time this evening. So thank you very much. Good evening.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

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