DealerTrack Holdings, Inc Second Quarter Results & Opportunities for Future Growth

Transcription

1 DealerTrack Holdings, Inc Second Quarter Results & Opportunities for Future Growth

2 Safe Harbor for Forwardlooking Statements Statements in this presentation regarding DealerTrack s expected 2011 performance, the longterm outlook for its business, and all other statements in this release other than the recitation of historical facts are forwardlooking statements (as defined in the Private Securities Litigation Reform Act of 1995). These statements involve a number of risks, uncertainties and other factors that could cause actual results, performance or achievements of DealerTrack to be materially different from any future results, performance or achievements expressed or implied by these forwardlooking statements. Factors that might cause such a difference include: economic trends that affect the automotive retail industry or the indirect automotive financing industry including the number of new and used cars sold; reductions in auto dealerships; increased competitive pressure from other industry participants, including Open Dealer Exchange, RouteOne, CUDL, Finance Express and AppOne; the impact of some vendors of software products for automotive dealers making it more difficult for DealerTrack s customers to use DealerTrack s solutions and services; security breaches, interruptions, failures and/or other errors involving DealerTrack s systems or networks; the failure or inability to execute any element of DealerTrack s business strategy, including selling additional products and services to existing and new customers; DealerTrack s success in implementing an ERP system; the volatility of DealerTrack s stock price; new regulations or changes to existing regulations; the integration of recent acquisitions and the expected benefits, as well as the integration and expected benefits of any future acquisitions that DealerTrack may pursue; DealerTrack s success in expanding its customer base and product and service offerings, the impact of recent economic trends, and difficulties and increased costs associated with raising additional capital; the impairment of intangible assets, such as trademarks and goodwill; and other risks listed in DealerTrack s reports filed with the Securities and Exchange Commission (SEC), including its most recent Annual Report on Form 10K. These filings can be found on DealerTrack s website at and the SEC s website at Forwardlooking statements included herein speak only as of August 8, 2011 and DealerTrack disclaims any obligation to revise or update such statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or circumstances, except as required by law. 2

3 DealerTrack Evolution TradeTracker trivin GoBig Menu ALG Chrome DealerWire DealerWare GlobalFax Arkona Curomax ASM AAX ecarlist Workflow & Innovation CreditConnection dealeraccess LeaseLink NADA BookOut Website Plus OpenTrack InventoryPro InventoryPro 2.0 Bundled DealWatch 1.0 Solutions Desking 2.0 Inventory 3.0 IPO SalesMaker Launch emenu IOS Price Driver Canada DMS econtracting WebAlg Credit App 1.0 Desking 1.0 PaymentTrack Vision: To be the market leader in providing technology and data solutions to the retail auto industry. 3

4 DealerTrack s Businesses TRANSACTIONS SUBSCRIPTIONS Sales And F&I Solutions Largest credit application network for the retail automotive industry in the United States Dealer Management System (DMS) Accounting system for dealers, provides dealers with easytouse tools and data to enhance efficiency Processing Solutions Electronic motor vehicle registration services and lien and titling services and digital document services Inventory Management Solutions Provides tools to accelerate usedvehicle turn rates and help increase profits for dealers X Compliance Solutions Helps dealers meet legal and regulatory requirements Data Services Data and consulting services (ALG, Chrome) REVENUE MIX Other 6% Other 7% Other 7% Other 6% 39% Subscription 55% Transaction 51% 42% Subscription Transaction 51% 42% Subscription Transaction 53% Transaction 41% Subscription H Q11 4

5 The DealerTrack Network Third Party Integrations Aftermarket providers, accessory providers, OEM s and OpenTrack partners Automotive Dealers 17,660 active U.S. dealers on DealerTrack network Lenders 1,062 U.S. lenders connected to credit application network 14,488 dealers with subscriptions (U.S. & Canada) Other Information and Service Providers Credit bureaus, used car value guides, identity verification services 5

6 Transaction Revenue Drivers: Car Sales The two main drivers of DealerTrack s transaction revenue are car sales and credit. Both new and used car sales are expected to rise in New Car Sales (units, in millions) Used Car Sales by franchised dealers (units, in millions) July 2011 YTD New Car SAAR: 12.5 million units July 2011 YTD Used Car SAAR: 14.2 million units TRAK Guidance TRAK Guidance Source: New car sales Automotive News. Used car sales CNW Research. 6

7 Low Sales Unsustainable in LongTerm The current turnover ratio (as of March 2011) is approximately 21 years, still very high but well below the peak of 27 years. Given this unsustainable level, we expect the turnover ratio will decline over the next several years due to further increases in new car sales. U.S. Fleet Turnover Source: 7

8 Historic Natural Demand: Average 14 Million Units Annually Given the number of cars scrapped and the number of new incremental drivers, we estimate that the longterm annual demand for new vehicles is approximately 14 million units Millions Scrappage New Licensed Drivers Data Sources Scrappage: , Polk; , NADA, 2010 Deutsche Bank estimate Licensed Driver Data: US Department of Transportation data not available. 8

9 Credit Approval Trends Improving During the credit crisis, auto loan application approval rates fell significantly and began to rebound in Approval rates for prime and nearprime borrowers are back to precredit crisis levels. Rates for subprime borrowers have been steadily improving, but are currently still well below peak levels % 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Auto Loan Application Approval Rates 94.31% 88.26% 12.78% Jan07 Feb07 Mar07 Apr07 May07 Jun07 Jul07 Aug07 Sep07 Oct07 Nov07 Dec07 Jan08 Feb08 Mar08 Apr08 May08 Jun08 Jul08 Aug08 Sep08 Oct08 Nov08 Dec08 Jan09 Feb09 Mar09 Apr09 May09 Jun09 Jul09 Aug09 Sep09 Oct09 Nov09 Dec09 Jan10 Feb10 Mar10 Apr10 May10 Jun10 Jul10 Aug10 Sep10 Oct10 Nov10 Dec10 Jan11 Feb11 Mar11 Apr11 May11 Jun Prime Near 619 Sub Source: CNW Marketing Research 9

10 Credit Environment Improving During the credit crisis, the number of LDR s* declined significantly due to dealership closure / consolidation and lenders exiting indirect auto lending. This metric has begun to rise as credit has improved, dealership closures have abated, and lenders are deploying more capital into auto lending DealerTrack U.S. Lender to Dealer Relationships (in 000 s) & Avg. # of Lenders Per Dealer** Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q 10 4Q10 1Q11 2Q11 LDRs avg # of lenders per dealer * Each lender to dealer relationship (LDR) represents a pair between an active U.S. lender and an active U.S. dealer on the DealerTrack network. ** Active lenders per dealer defined as LDRs divided by active U.S. dealers 10

11 Key DealerTrack Transactions in Car Buying Process *** Verify ID* and pull credit bureau Submit credit application Process contract** Vehicle registration Title and lien administration ~ 1 to 2 transactions ~ 1 to 4 transactions ~1 to 2 transactions ~1 transaction ~ 1 to 2 transactions DealerTrack has the potential to process multiple transactions on a single car sale through the DealerTrack network * Verification services can either be transaction or subscription revenue. ** Additional contract related transactions can occur based on lenders participation in digital document services. *** Not all cars sold are processed through the DealerTrack network. 11

12 DealerTrack s Transactions Businesses Metrics Active Dealers & Lenders in U.S. Network 970 1,062 Number of Transactions Processed (in millions) ,147 22,043 19,652 16,690 16,829 17, Q11 Active Dealers Lenders Q 11 TTM 12

13 Facilitating Workflow in the Dealership Finance & Insurance Sales Solution DMS Solution Compliance Solution General Management DMS Solution Compliance Solution Inventory Management Solution Sales Inventory Management Solution Sales Solution DMS Solution Fixed Operations DMS Solution 13

14 DealerTrack s Subscription Businesses Metrics # of Dealers with Subscriptions Average Monthly Spend Per Dealership 13,209 14,342 13,852 13,996 14,488 $749 $802 10,722 $550 $678 $415 $ Q H 11 14

15 DealerTrack s Strategy Expand Customer Base Add financing sources Add subscribing dealers CrossSell Additional Solutions Four solutions makes marketing and crossselling easier Increases stickiness of our subscriptions Facilitate endtoend workflow Expand Product/ Service Offerings Add features, functionality and integrations to products Add value to subscription products to increase dealership efficiency and profitability Enhance core credit application functionality Strategic Acquisitions Buy technology and services to increase operating leverage Distribute acquired products and services through DealerTrack s networks 15

16 Financial Information Net Revenue and Number of Transactions GAAP Net Income (Loss)(1) (millions) $19.3 $19.8 ($ in millions, no. of transactions in millions) Transaction Revenue Subscription Revenue Other Revenue No of Transactions $5 $291.4 $20.1 $233.8 $11.4 $173.3 $7.2 $120.2 $5.2 $32.4 $242.7 $15.6 $225.6 $243.8 $4.5 $1.7 $1.6 ($4.3) ($15) $18.3 $16.3 ($35) ($27.8) * * Includes $28.4 million deferred tax valuation allowance $75.1 $132.1 $94.7 $ $114.9 ** Includes $28.4 deferred tax valuation allowance in 4Q10, $24.5 million reduction in valuation allowance in 1Q11, and $1 million increase in valuation allowance in 2Q11.. Adjusted EBITDA $123.5 (millions) Q11 TTM ** $82.6 $112.7 $147.3 $132.4 $94.4 $102.0 $ Q 11 TTM (1) See adjusted net income reconciliation on page 15 for details of nonoperating items included in GAAP net income (loss). (2) Adjusted EBITDA is a nongaap financial measure. Please see page 14 for a reconciliation to net income. 31.0% 27.1% 28.0% 21.1% 19.7% $32.6 $53.8 $ % 15.3% $47.9 $34.4 $42.1 $ Adj EBITDA Q 11 TTM Adj EBITDA margin 16

17 Appendices 17

18 Competitive Landscape DMS / Sales Subscription Products Credit Application Network Open Dealer Exchange (ODE) Reynolds & Reynolds Other niche players Other niche players (Compliance / Menu / Desking) Data Services (Chrome / ALG) Inventory Management Solutions Vehicle Registration / Title Management 18

19 Number of Franchised Car Dealerships* The recession and OEM s bankruptcies resulted in franchised dealership closures and consolidation. Since the beginning of 2008, there has been a 3,500 decrease in the number of franchised car dealerships. We believe that the number of car dealerships has stabilized. 21, , , , , , , , , Source: NADA * As of January 1st 19

20 DealerTrack Processing Solutions (trivin) DealerTrack purchased trivin on 1/31/2011 for approximately $125.5 million expected to be integrated into by end of trivin s revenue is mostly transactionbased. shared distribution channels (lenders and dealers) Collateral Management Services (previously called FDI) Largest vehicle collateral management company in the U.S. Provides electronic and paperbased lien and title solutions to over 2,000 lenders Currently manages 24 million titles (12.5 million paper and 11.5 million electronic) Process paper titles in all 50 states and processes electronic lien and titles in all 16 ELT states (AZ, CA, FL, GA, HI, ID, LA, MA, NE, NY, OH, PA, SC, TX, VA, WA) Complements DealerTrack s edocs solution Significant crossselling opportunity to lenders for outsourcing functions (sales forces were combined immediately) Opportunity for new transactions: mytitlesupport.com (lost titles) Addressable market ~ $150 million 2 Provides lenders with a more comprehensive suite of outsourcing origination and servicing solutions 1 2 Registration & Titling Services (previously called GSS) Provides vehicle registration software and services that allow auto dealers and fleet companies to electronically register vehicles with state DMVs Processes vehicle registrations, either manually or electronically in all 50 states and offers electronic registrations in 13 states1 (CA, CT, IN, IL, MD, MA, NJ, NY, NC, OH, PA, VA, WI) for over 4,000 dealers. In the process of evaluating the 13 electronic states not in. Opportunity for new transactions: temporary tags Addressable market ~ $300 million 2 Better positions DealerTrack longterm to provide a comprehensive set of consumer purchase and financing solutions for the retail automobile market, both instore and online 26 states currently allow third party electronic registration and DealerTrack is currently not in 13 of those states (AL, AR, FL, HI, LA, MI, MN, MS, NV, OR, SC, TN, TX). DealerTrack estimate 20

21 Car Sales Seasonality Source: New car sales data Automotive News, Used car sales data CNW, lender to dealer relationships Company 21

22 Reconciliation of GAAP Net Income to NonGAAP Financial Measures Adjusted EBITDA (in millions) Q 11 TTM Net income (loss) $4.5 $19.3 $19.8 $1.7 $(4.3) $(27.8) $1.6 Interest income (0.3) (4.3) (5.6) (4.7) (1.1) (0.5) (0.5) Interest expense Provision for (benefit from) income tax (3.5) Depreciation of property and equipment and amortization of capitalized software and website costs $32.6 $48.0 $66.0 $41.3 $26.3 $39.2 $54.5 Restructuring costs Acquisitionrelated and other nonrecurring professional fees Realized gain (loss) on securities 6.0 (1.4) (0.6) (0.4) Reversal of preacquisition accrued contingency (0.6) Acquisition related earnout compensation expense Contrarevenue $32.6 $53.8 $66.0 $47.9 $34.4 $42.1 $61.5 Amortization of acquired identifiable intangibles EBITDA Adjusted EBITDA 22

23 Reconciliation of GAAP Net Income to NonGAAP Financial Measures (continued) Adjusted Net Income ($ millions) Q 11 TTM $1.7 $(4.3) $(27.8) $1.6 Deferred tax asset valuation allowance (nontaxable) Amended state tax returns benefits (nontaxable) (1.1) Stockbased compensation expense (excluding restructuring costs) Amortization of acquired identifiable intangibles Acquisitionrelated and other nonrecurring professional fees Realized (gain) loss on securities (nontaxable) 6.0 (1.4) (0.6) (0.4) Reversal of preacquisition accrued contingency (nontaxable) (0.6) Acquisition related earnout compensation expense Contrarevenue (14.3) (16.1) (12.3) (16.0) $34.7 $20.0 $21.9 $32.7 GAAP net income (loss) Adjustments Restructuring costs (including stockbased compensation) Tax impact of Adjustments Adjusted Net Income (nongaap) 23

24 New and Used Car Sales (Fleet, Financed, Cash) New & Used Car Sales (Fleet, Financed & Cash) NEW SAAR 1 2Q11 vs. 2Q10 2Q11 vs. 1Q11 Actual Units 1 Fleet 2 Retail Financed 3 Cash 4 Actual Units 5 USED Financed 5 Cash 5 Actual Units Retail Units TOTAL Fleet Financed Cash Apr10 May10 Jun10 11,488,912 11,822,980 11,066, ,302 1,103, , , , , , , , , , , , , ,816 1,193,076 1,461,633 1,575, , , , , , ,444 2,175,378 2,564,717 2,559,288 1,985,746 2,311,290 2,324, , , ,811 1,340,572 1,549,010 1,497, , , ,260 Jan11 Feb11 Mar11 12,640,000 13,450,000 13,120, , ,535 1,246, , , , , , , , , , , , , , , , , , , , , ,189 1,518,382 1,612,749 2,124,598 1,345,862 1,406,871 1,859, , , , ,997 1,023,123 1,327, , , ,522 Apr11 May11 Jun11 13,170,000 11,780,000 11,430,000 1,157,928 1,061,841 1,053, , , , , , , , , , , , ,589 1,367,997 1,503,084 1,653, , , , , , ,941 2,525,925 2,564,925 2,707,049 2,303,661 2,339,267 2,490, , , ,275 1,574,291 1,540,959 1,613, , , ,530 2Q10 1Q11 2Q11 11,459,498 13,070,000 12,126,667 3,069,207 3,059,891 3,273, , , ,197 2,391,337 2,415,955 2,608,977 1,961,825 1,987,935 2,132, , , ,107 4,230,176 2,195,838 4,524,725 2,424,974 1,265,723 2,595,625 1,805, ,115 1,929,100 7,299,383 5,255,729 7,797,899 6,621,513 4,611,793 7,133, , , ,197 4,386,799 3,253,658 4,728,495 2,234,715 1,358,135 2,405, % 7.2% 6.6% 7.0% 2.0% 3.1% 9.1% 8.0% 8.7% 7.3% 10.8% 11.2% 7.0% 106.1% 7.0% 105.1% 6.9% 107.4% 6.8% 48.4% 7.7% 54.7% 2.0% 3.1% 7.8% 45.3% 7.6% 77.1% Notes 1 Source: Automotive News 2 Source: JD Power 3 Estimate 4 AutoCount 5 CNW Marketing Research 24

25 DealerTrack Holdings, Inc. NASDAQ: TRAK For more information, contact: Elizabeth Besen, Director of Investor Relations & Corporate Communications