Good morning and welcome to the country's third quarter 2012 earnings conference call, hosting the call this morning is Alex Vetter, Chief Executive Officer, and Sonia Jain, Chief Financial Officer. This call is being recorded and a live webcast can be found. And investors can access it on the company's website. A replay of the webcast will be available until November 2013. A copy of the accompanying slides can also be found on the company's investor site. Following today's presentation, there will be a question and answer session with Alex and Sonia. I'd now like to turn the call over to Kamal Hamid, Director of Investor Relations.

Good morning, everyone, and welcome to our third quarter 2020 conference call. Before I turn the call over to Alex, I'd like to draw your attention to forward-looking statements and the description and definition of our non-GAAP measures, which can be found in our presentation. We'll be discussing certain non-GAAP measures today, including adjusted EBITDA, adjusted EBITDA margin, adjusted net income, and free cash flow. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measure can be found on the financial tables included in our earnings press release and the appendix of the presentation. For more information, please report to the risk factors included in our SEC filings, including those in our annual quarterly and current reports. We assume no obligation to update any forward-looking statements or information as of today's date. I would like to turn the call over to Alex.

Thank you, Kamal. Let me start by saying that I'm very proud of our performance this quarter, which demonstrates the resilience of our business and the dedication of our team. We remain relentless in our focus on customer ROI and value delivery, expansion, execution of our digital solutions strategy, and a disciplined focus on profitability. This resulted in momentum across the business and is apparent in our results. Strong traffic growth, quality early conversions, increased dealer customers, and ARPU expansion led to adjusted EBITDA growth. It was an impressive quarter, building on that success. Just two weeks ago, we achieved another significant milestone by refinancing our debt. We now have greater flexibility to make appropriate investments in the business going forward. Sonia will comment further on the refinancing in a few minutes. Although operating in a pandemic environment presents challenges, there is an upside in the accelerating trend of digital adoption by consumers and dealers that plays to our core strengths and product solutions. Consumers increasingly want to complete more of their car shopping online from the convenience of their homes, and dealers are quickly ramping up their solutions to capture this opportunity. Our business is well-positioned to enable our industry to accelerate the shift to a digital-first strategy. We delivered two consecutive quarters of dealer customer growth and have momentum behind us to deliver a third. If not for COVID, we grew our customers in Q4 of 2013 and Q1 of 2020, and we managed the pandemic better than most. After the second quarter's COVID impact, we added 97 new dealers in the third quarter of 2020, including growth in both marketplace and web solutions customers. We exited the quarter with 18,130 dealer customers as competition declined. Retention rates are at an all-time high and improved sequentially each month throughout the quarter, as dealers increasingly benefited from the reliability of our high-quality traffic, sales leads, and innovative digital solutions. Throughout the pandemic, online shopping soared, with leads and contacts through our digital platforms increasing, bringing record value to our dealer partners. Historically, we have consistently driven walk-in traffic that dealers didn't capture in our CRM. But with physical showrooms closed, consumer volume naturally shifted to more visible digital channels, making our value even clearer to dealers. Dealers comment that despite reducing Google search spending and all traditional media, they can replace that volume at a fraction of the cost. This digital dynamic opened up even more opportunity for our digital solutions strategy. The dealers want to know what else we can do to help them capture more sales. Our digital solutions continue to grow significantly, with website customers now totaling over 4,000, including more than 250 GM websites launched as of September 30th. We expect to launch half of the contracted GM websites by the end of the year. With every new dealer website launched, the accumulation of subscription revenue builds throughout the year and establishes a strong starting point for 2021 revenue growth. Further uptake on our Fuel product continues to accelerate since its launch this past February. Fuel is ARPU created and on track to be the fastest-growing new product launch in our company's history. Online shopper and conversations also continue to grow as dealers are now proactively seeking these digital tools. The number of website solution customers purchasing conversations or online shopper increased substantially on a year-over-year basis, with NPD up 4 percent quarter over quarter, adjusted for second quarter invoice credit. It is increasingly clear that a diversified suite of products is offering meaningful value to our dealer customers and contributes additional economic value to cars. We continue to deliver strong traffic growth, with a 10 percent year-over-year increase in both average monthly visits and unique visitors. We also deliver continued robust growth despite reduced marketing on a year-over-year basis. The percentage of our traffic generated organically in the third quarter increased by five percentage points year-over-year to 76 percent, demonstrating the strength of our brand, which consistently ranks number one among our competitive set in total brand awareness scores. Editorial content also continues to be an important driver of our high-value organic traffic and a key differentiator in delivering a robust user experience for car shoppers and sellers. Our original content strategy is winning favor with dealers as competitors drive up search volume and try to sell it back to the dealers. We attract a unique audience that cannot be replicated and is incremental to the dealer's bottom line. This is most evident in our high concentration of organic traffic and our overall marketing efficiency, which is a sustainable advantage. That said, we judiciously increased our investment in marketing relative to Q2, remaining well below normalized levels due to our strong organic traffic momentum. We will continue to make deliberate marketing investments focused on high-quality channels to ensure our dealers finish the year with strong results. The retail sales environment shows signs of continuing strength in both the new and used car markets, while new car sales for the first nine months of the year were down 19 percent compared to the prior year period. However, in September, new car sales were up six percent, and estimates for 2020 are inching back up to the 16 million plus level we saw at the beginning of the year. Used car demand also remains robust, supporting double-digit year-over-year pricing growth. The new and used car demand is being driven by buyers choosing car ownership over mass transit and ride-sharing services, along with improved credit conditions that make car payments more affordable. Our roughly 50-50 inventory split between new and used cars on our marketplace provides us with resiliency and the ability to meet the demands of all shoppers and support our dealers and OEMs with reliable value that's vital to their success. We're leveraging our digital solutions, allowing them to operate on reduced staffing levels, and they are reporting record profits. Our business model continues to perform well in this environment. With fewer customers becoming more adept at operating virtually, our high-quality, largely organic traffic, strong lead conversion, and expanding suite of high-ROIC solutions have driven all-time high retention rates in Q3, as well as an increase in new marketplace and solution customers. This resumption of our pre-COVID momentum shows that growth will come from both LAPD expansion as dealers adopt more of our solutions and continued improvement in dealer customers this quarter. LAPD rebounded back to pre-COVID levels and grew slightly on a year-over-year basis. Our differentiated strategy to bring digital solutions to our dealer base through a robust sales platform is best demonstrated by the success of Fuel. Fuel is a unique, high-ROIC targeted video advertising solution, which generates higher returns than the expensive, outdated, and wasteful linear TV on which the auto industry spends approximately $10 billion a year. Since its launch earlier this year, Fuel has proven to be one of our fastest-growing new product introductions, and it's selling out in certain geographies. We leverage the high-quality, pure market audience generated from our platform and allow dealers to run targeted video messages via social media platforms, providing an alternative to broadcast TV that is far less expensive, far more effective, and far more efficient. Continued growth in Fuel sales and the penetration of dealers and OEMs positively contributes to revenue and profitability with upgrades that are substantially higher than the overall average revenue per dealer. Take a listen to what one of our large franchise dealer customers had to say about the impact Fuel has had on its market share in his own backyard.

By taking that exclusive in-market shopping audience and overlaying it with a video message, what was the data that you saw? A really great way to measure the success from a metric standpoint, the digital standpoint would be branded search terms. We said, hey, are we actually getting more people talking about our dealership? More importantly, because you probably have dealers on the line, they're thinking, I don't want to hear about these metrics. Did you sell more cars? Yes, we not only sold more cars, but, more importantly, we dominated in market share. When we got our first two full months into Fuel in-market video, we saw market share increase of 4.5 percent the first month, so like a five percent market share gain. And then the next month, I hope everybody's sitting down, it was like a 6.89 percent market share gain year-over-year, five percent and then seven percent. I mean, these are meaningful numbers.

Turning to our OEM business, we are beginning to see not just stability, but also some green shoots. While national revenue is down 12 percent on a year-over-year basis, we saw substantial sequential improvement with revenue up 11 percent over Q2. We saw signs of strength towards the end of the quarter in OEM advertising and see further opportunities with auto-adjacent advertisers to capitalize on our growing traffic trends in the post-COVID world as OEM production normalizes and new products are launched. We believe OEM will once again be drawn to advertise to our huge, largely organic market audience. Sonia will provide more detail on other operating results for the quarter. I do want to call out the meaningful improvement in our profitability and adjusted EBITDA on a year-over-year basis. We achieved this despite tough operating conditions by maintaining very strict cost discipline and remaining focused on the bottom line for driving value to our users and customers. Our strong results in the third quarter are a direct consequence of actions we have taken to position ourselves for differentiated and sustainable growth. With the strongest brand in the industry, the highest-valued organic traffic, and the demonstrated success of our solutions strategy and resilient business model, we believe we are well positioned to build on our products and deliver strong results for our customers and our shareholders. Before I turn the call over to Sonia, I want to provide an update on the actions we have taken in diversity, equity, and inclusion this quarter. Unfortunately, conspicuous examples of inequality and social and racial injustice continue, but our team remains committed to taking sustainable action in our company, our industry, and in our community. This quarter, we began our partnership with the National Association of Minority Automobile Dealers. This is an important partnership where we can support minority-owned dealers with technologies and tools to better drive business results. We have partnered with Facebook to help enable these dealers with compelling co-op programs to drive digital sales. As we told you last quarter, this truly is a great opportunity to bring more diversity to the industry. There are only 143 minority-owned dealers in the U.S., and we hope to help accelerate faster growth in this small segment of dealers with our technology expertise. The initial response has been extremely promising. At this time, I'd like to turn the call over to Sonia to discuss our financial results for the quarter.

Thank you, Alex. Revenue for the third quarter of 2020 was $144.4 million, compared to $152.1 million in the prior year period. The decrease was primarily due to a 12 percent decline in national advertising revenue and dealer cancellations in the second quarter of 2020, largely attributable to COVID, and partially offset by continued growth in solutions revenue compared with the prior year period. Turning to expenses, total operating expenses were $125.3 million, nine percent lower than the prior year period. If you exclude the $461.5 million goodwill and intangible asset impairment charge, the decrease in total operating expenses compared to the prior year period is primarily due to reduced marketing spend and the cessation of our affiliate revenue share obligations in the second quarter. We posted a net loss for the third quarter of 2020 of $12.3 million, or 18 cents per diluted share, compared to a net loss of $426.2 million, or $6.38 per diluted share in the third quarter of 2019. The net loss is primarily due to the $30.9 million previously disclosed non-cash charge for the correction of an error related to the calculation of the Q1 valuation. A valuation allowance for income taxes was established in connection with an impairment recorded during the three months ended March 31, 2020. Adjusted net income for the third quarter of 2020 improved to $34.6 million, or 50 cents per diluted share, compared to $21.3 million, or 32 cents per diluted share in the third quarter of 2019. Adjusted EBITDA for the third quarter of 2020 was $49 million, or 34 percent of revenue, an increase of seven percent compared to $45.9 million, or 30 percent of revenue last year. The increase in adjusted EBITDA is primarily due to reduced expenses, largely attributable to a prudent level of marketing spend during a period of strong organic traffic growth and the elimination of our affiliate obligations in the second quarter. We expect fourth quarter adjusted EBITDA to be higher on a year-over-year basis as we continue to benefit from the end of the rush hour payment cycle. We also expect adjusted EBITDA margin in Q4 in the 28 to 31 percent range as we continue to invest in marketing and talent in order to drive long-term growth. For the third quarter, average monthly unique visitors and total traffic grew by 10 percent year-over-year. The gains were driven by continued efficiency and consumer demand for vehicles and the continued adoption of online car shopping. Organic traffic as a percentage of total traffic grew to 76 percent, compared to 71 percent in the prior year period. We had 18,130 dealer customers as of September 30th, 2020, an increase of one percent compared to 18,033 as of June 30th, 2020. This increase is primarily due to an all-time high retention rate, coupled with new sales of marketplace dealer customers during the period. We also continue to grow website customers and currently have over 4,000, up 33 percent compared to the prior year period. RPV grew to $2,183 in the third quarter of 2020, snapping back from the second quarter, and year-over-year, net cash provided by operating activities for the nine-month period ending September 30th, 2020, was $96.9 million, up 20 percent compared to $80.6 million in the prior year period. Free cash flow for the nine-month period ending September 30th, 2020, was $84.3 million, up 29 percent compared with $65.1 million in the prior year period. Our strong free cash flow generation enabled us to pay down $48 million of debt in the third quarter, bringing that leverage down to 3.8 times. As Alex mentioned, in October, we completed a strategic refinancing of our debt, taking advantage of favorable market conditions. Our new structure includes a $430 million credit facility composed of a $200 million term loan and a $230 million undrawn revolver. We also raised $400 million in senior unsecured notes, which have a coupon of 6.375 percent. The refinancing extends our maturity dates from 2022 to 2025 on the bank debt and to 2028 on the new bond. From a capital allocation perspective, we remain committed to deleveraging, as evidenced by the sequential step down in our net leverage ratio from 4.1 times in the second quarter to 3.8 times in the third quarter. Our goal is to bring that leverage down inside of three and a half times while continuing to invest in the business. While we expect to grow our suite of solutions through internal innovation, opportunistic tuck-in acquisitions could provide compelling complement to our portfolio. In summary, our strong top-line trend, coupled with focused execution and cost discipline, drove year-over-year growth in adjusted EBITDA and free cash flow. Increased investments in the business, together with new digital solutions sales, will position us to exit the year with a strengthened competitive financial position. In addition, the recapitalization of our balance sheet improved our flexibility to invest in and grow our business.

Thank you, Sonia. As I said at the top of the call, I'm pleased with our Q3 results and the momentum we demonstrated on dealer count, traffic growth, and growth in LAPD. We continue to build on that strength with dealer growth in October as well. Despite the uncertain pandemic environment, we are entering 2021 with strengthened brand appreciation of our differentiated business strategy and the rapid adoption of our digital solutions, all of which positions us for a strong start to 2021. With that, we will now open the call for Q&A.

At this time, as a reminder, please press star, then the number one on your telephone keypad if you would like to queue up for questions. Your first question comes from the line of Tom White from D.A. Davidson. Your line is open.

Great. Good morning, guys, thanks for taking my questions. If I could, Alex, you talked about how the pandemic is accelerating the trend of digitization in the automotive retail space. You guys clearly had some foresight there when you bought Dealer Inspire. I'm curious if you can give us any color on how you're thinking about the product roadmap here. Is it just reinforcing the core competencies, or are you focused on maybe the marketing side of things, given the successes? Where do you feel there are other parts of the dealer operations where you think that value is going to be? Also, just a quick follow-up on traffic to conversion; it sounds like that continues to improve, but just how sustainable is that, especially with people not going into showrooms until later in the process? Or are there things you guys are doing that are impacting that and could sustain those improvements? Thanks.

Sure, Tom, thanks. Well, first of all, I think the consumer trend toward private vehicle ownership is going to be the lasting impact of COVID. Our consumer surveys consistently show that users don't feel safe getting back on mass transit or ride-sharing services and are upgrading their personal or private fleet. So we think that vehicle sales are going to have a prolonged strengthening as a result of the pandemic. On the dealer side, a grand experiment was run during COVID, where dealers cut back all of their marketing budgets and yet saw these virtual marketplaces accelerate growth. Dealers are realizing that they're generating the same number of sales, if not higher, on a much more radically reduced marketing and advertising investment. And dealers are realizing they don't need to fly around the marketplace; the experienced consumers are going to do heavy research prior to purchase. Marketplaces are the best place to do that because of the incredible content we offer. I think part of COVID has been dealers now proactively contacting us about our digital solutions. We have been growing the business steadily but have seen an acceleration there because of COVID, with dealers wanting to upgrade their websites and use more technology. In fact, we launched more websites in the last quarter than we had in any prior period. Dealers are realizing that these digital storefronts are their primary channel. Thus, we are seeing a nice pickup in that business, and we believe it will be sustained.

Great. Thank you, guys.

Your next question comes from the line of Gary Prestopino from Barrington Research. Your line is open.

I'm sorry, I lied to you. Can you hear me now?

Yes, we can. Gary, go ahead.

So good morning, everyone. Sorry I haven't called on you. Hey, when you talk about a factual, historical or level of operating expenses going into Q4, could you give us maybe a range of what that may be?

Yeah, sure, thanks for the question. This is Sonia. We're really looking to invest in Q4 in marketing and in talent around our solutions strategy, including data and innovation. Broadly speaking, I think when you think about marketing in particular, we expect in Q4 to have marketing spend kind of consistent with what you might have seen from us in Q1. Now, bear in mind that number for the sales and marketing line includes a sales component. When you look year-over-year at the sales and marketing line, it may appear to be flattish, but there's a bit of a mix shift with some permanent savings in sales and some potential additional investment in marketing. Bear in mind, it's a highly competitive environment, and we evaluate marketing regularly. To the extent there are opportunities to gain additional efficiency there, we absolutely will. And as Alex mentioned, we think we have built-in benefits from the strength of our brand and content. But that might be helpful for color.

Yeah, that does help. And are you giving the Dealer Inspire revenues on a quarterly basis anymore?

You know what, we're expecting to continue to see that business grow, and frankly, that is one of the growth engines of the business. I would point out that while it increases revenue, it does come with slightly lower margins, which does impact margins a little bit as we continue to grow that business. However, we believe that longer term it is part of our diversified strategy and is a very sticky business that will continue to provide value to dealers and us as we continue to build out relationships there.

Okay, but I want to ask a couple of questions about these digital solutions, which seem to be accelerating. But, you know, the websites you talked about and the number of placements there in terms of things like Fuel, online shopper conversations; could you share how many dealers have adopted each of these solutions?

Yeah, I mean, on Fuel, which just started this year, we're talking about just under 200 dealers, but with significantly higher average revenue per dealer, Gary, so it is very accretive to the business. Again, we're not having to add more sales expense to bring these new solutions to market; we're running them through our existing platforms. In terms of online shoppers and conversations, we've seen a lot faster acceleration during the COVID pandemic. So, you're talking about 1,000 plus dealers using those solutions, partially bundled with the website offering. So that's very good traction.

I guess the question I have for you is this, Alex: because they're not making more dealerships and going out and trying to kind of gain market share among dealerships is a very difficult thing to do. But if you take your average revenue per dealer just based on your subscription model, what would be the lift if a dealership took a website, Fuel, online shopper, and conversations? I'm trying to get an idea of how revenue accretive these solutions are to an existing dealer.

Yeah, if you think about the ARPU of some of our DIY products, the website on average is going to bring you a call in the neighborhood of $1,100 of incremental RPV. With the add-ons that we have between conversations and online shopper, you could easily double that amount. So if you're thinking about an existing dealer, there's a substantial opportunity to improve the RPV through just the incremental website and Fuel. As Alex mentioned, it has an RPG at a minimum that is multiples higher than our average monthly ARPU. That's a product that's actually sold on a zip code basis, so the RPV can fluctuate substantially depending on the number of zip code the individual dealer is interested in.

Right, so it seems to me that your marketing thrust, your sales thrust here has got to be the cross-sell of these solutions.

It is, and it's coming through in the numbers, Gary. If you look at the sequential improvement in RPV, the strategy's working. We're getting incremental take rates and dealers wanting to spend more money with us to garner a higher share of opportunities in sales. We are seeing a steady acceleration in our ARPU growth. That's great. Thank you so much.

Your next question comes from the line of Daniel Powell from Goldman Sachs. Your line is open.

Great, thanks so much for taking the question. First question around that ad you saw in the quarter, just curious if you could help us break down if there was an even distribution across marketplace and solutions that are getting that number and how that compares to the growth you've seen so far in October? And a follow-up.

We grew both marketplace and solutions-only customers in the quarter, so we were pleased to see both businesses step up in terms of dealer count. The dealer additions skewed more towards franchise dealers than independent. We saw bigger gains in our franchise dealer mix.

Got it. And then as it relates to the guidance on margin for Q4, realizing there's reinvestment around sales and marketing, I'm just curious how much the negative mix shift to some of the solutions is also weighing on the margin expectations because you think.

Yeah, no, that's certainly going to be a contributor. The solutions business does require upfront investment in terms of the launch of websites before we can really start recognizing the revenue associated with that. As that business scales, we expect to see an improvement there. But for the near term, we're really excited about the growth and the long-term health of the business that's going to drive growth.

Your next question comes from the line of Lee Krowl from B. Riley Securities. Your line is open.

Great, thanks for taking my questions, guys. I want to start out on the national advertising business. You kind of hinted at sequential improvement, but just wanted to nail that down. With improving inventory and OEMs revamping their ad budgets for Q4, would you expect the national business to be up sequentially?

The national business is a little spottier and harder to predict because OEMs come in and out. The business does lead to a little bit more to model launches with OEM. As OEMs launch new makes and models, we can see an increase in overall spending. We saw some nice sequential month-over-month pickup in national in September and heading into October. So we feel good about the signals we're getting. A big percentage of that business is also bought on an upfront basis for next year, where manufacturers are committing at specific times of the year to promote new products. We're seeing very healthy discussions happening there for 2021 as well, so we feel good about the stability of the business and hope to move it towards growth.

Got it. And then, you know, in the flight deck, you put out some fairly significant double-digit growth drivers to highlight the shift to digital. As we layer in all these incremental revenue drivers on top of a fairly stable marketplace business, when would you guys kind of expect to see year-over-year revenue growth inflection?

When we started the year, we were on a path for growth in the second half of this year until COVID hit. Obviously, that delayed all of our plans temporarily. However, if you look at the trend of what we had been doing, we grew our dealer count in Q4 of last year, and we grew it again in Q1, even with some of the pandemic starting in the first quarter. Seeing our business snap back following our discounts and now accelerated solutions growth, we think we're back on track. The COVID period has delayed our achievement of that revenue objective in the second half of this year and will push us closer towards 2021. We're just not giving revenue guidance right now because the pandemic makes predicting those trends much more difficult.

The only other thing I would add is that in our subscription model, you need to see that revenue build over time. So to Alex's point, the improvement in RPV and growth in your account in three of the last four quarters point to really strong underlying strength.

Got it and then last question. You've seen a secular shift to online and consumers obviously browsing a lot more, and that Jesus traffic for sure, especially on an organic basis. But do you guys get the sense that you're continuing to see traffic share gain? I noticed it was missing from the commentary. Could you quantify or qualitatively speak about perhaps the share gains you're seeing across just the net traffic growth from your peers?

The share gains have been very vivid throughout the past year and change. We've grown, particularly when you look at just the old growth. There has been nobody that's taken more market share regarding organic traffic, which has incredible conversion and is of the highest quality. So people set aside the fact that it's coming to us organically; we sustain our revenues based on our own merits instead of having to drive up spending to generate volume. I think that’s one of the material advantages that will set us up well for 2021.

Great, thanks for taking the questions.

Your next question comes from the line of Nick Jones from Citigroup. Your line is open.

Great, thank you for taking the questions. I guess, as far as traffic share gains, we talked about the lead conversion to cars and then the conversion at the dealership to actually selling a car. How do you bridge the traffic volume again with supply constraints we've heard of in the industry? How are these conversations coming up in terms of ARPU when you are talking to dealers? Thank you.

Sure, Nick. First of all, the lead conversion improvements have been substantial. I'll point to the high concentration of organic traffic as we’re capturing a natural stream of car buyers who are using the platform and contacting dealers directly through organic channels. We’re seeing our value delivery increase substantially. With dealer showrooms closed for a significant part of the country, all that activity that was physical traffic has now shifted to digital conversion. Dealers are getting almost a two to four lift in terms of our traffic value and visibility. Dealers have cut back a lot of their direct spending. Most notably on Google. So they’re looking at our volume and conversion rates and how to attribute more of those sales to our platform versus, say, last-click attribution. I believe dealers are understanding our value better than ever before. That has shown through our record retention rates and lowest cancellation rates we've ever seen in the business. Now, you're also seeing some dealerships come back because it's much cheaper to advertise on a marketplace than drive all the traffic directly to the store. Those are the things that are coming through in our value delivery.

Thank you.

Your next question comes from the line of Steve Dyer from Craig-Hallum. Your line is open.

Thanks. Well, someone answered at this point, but I want to make sure I have the math on GM correct. My math is just under 200 or so GM sites launched during Q3, which would imply north of 500 that need to be launched in Q4, which seems like a steep ramp. Is that right? And then, you know, assuming that's doable based on where we are in the quarter.

Yeah, let me clarify a little bit. We had just over 800 incremental GM websites. We've launched over 200 of those, and we expect to reach the halfway mark by the end of the year. Obviously, flight delays related to COVID during Q2 knocked us back, but we're plowing ahead with good traction.

Yes, just as it relates to Q4, revenue guidance; you don't seem to understand or some degree, but you don't want to give revenue guidance, or, you know, because of the method that returns. But this seems to have a lot of momentum. We're halfway through the quarter; it's a subscription business. I guess just directionally, would you anticipate being obviously Q3 this year? Any color there would be great.

We ended Q3 up on dealer count. Importantly, we saw that dealer account improvement on both the marketplace and the solution side of the business. We expect a nice way to start Q4, and as Alex mentioned, we had a strong October from a dealer account perspective. We continue to see good growth in our national business from a sequential performance standpoint from Q2 to Q3. So there are many positive signs when you look at just the last couple of months of performance.

Got it. And then just sort of the dearth of inventory, are you seeing, you know, do you think there's still a negative impact to you just because a lot of dealers don't have anything to sell or not enough to sell? Certainly, there's not a lot of reason to go out and spend significantly, whether that's national or on the individual level.

I think keeping the industry turning is something that everybody is trying to contribute to. We've seen increased demand from dealers to buy trade-in products, so they want to source vehicles directly through our marketplace. We have a higher concentration of private sellers listing their cars for sale than most of our competitors. So dealers are talking to us, wanting to buy those opportunities and getting access to that inventory. The second thing is that we're seeing record dealer profitability. So dealers aren't in a typical Q4 mindset, which is about cutting back to hit a year-end profit target. They've been able to hold their retail pricing and generate extraordinarily high profits because they're not spending to the same degree they have in the past. But there are also times that these marketplaces are rich sources of opportunities, and it is very affordable to list on a marketplace. Even with the inventory shortages, there’s a battle for market share out there, and we're a fertile ground for it.

Your next question comes from the line of Doug Arthur from Huber. Your line is open.

Yeah, thanks. Just on the ARPU strength, Alex, you sort of touched on this in your remarks, but is there a way to sort of ballpark the contribution from the new services as opposed to traditional listing services in terms of both the absolute level and the growth of that number?

I'll point to just the ARPU growth being largely driven by product mix and franchise dealer mix. We're getting more franchise dealers subscribing not only to our marketplace but also to our solutions platforms. You're seeing two mix shifts happening in our ARPU, which is leading to sequential growth as well. We were pleased to also broker dealer count in October, and that's followed that same trend.

Just to add, that might be helpful as you roll through some of the numbers. We ended with about 4,000 web customers in Q3. If you think about the ARPU, the business has always been growing on the customer side. We did see a return to growth on the top line, as well, in the high teens when you think about the revenue we're generating there.

And I guess just as a follow-up to mix, are you still seeing the small independent dealers struggle, as has been mentioned by some of your competitors? Are some of them still turned off at this point because they can't get inventory or they don't have a marketing budget? Or is that looking a little bit better going into the fourth quarter?

We've always skewed towards the larger independent dealers as opposed to the long tail smallest independent. Hertz would be a great example of losing smaller dealerships because they would then declare bankruptcy. That will hurt our dealer count but not much on revenue because those stores have very few pieces of inventory per location. Besides that one example, we're seeing a healthy independent dealer base driven by strength in used cars and retail pricing.

Once again, if you would like to ask a question, please press star then the number one on your telephone keypad. Your next question comes from the line of Marvin Fong from BTIG. Your line is open.

Great, thanks for taking my questions. Just to build on that last question, we are still down 800 dealers on a net basis from last quarter. Just curious how those conversations are going in terms of winning back some of those dealers. What do you feel is holding them back now that the environment is a lot better? I think we would have guessed a couple of months ago. And then I have a follow-up.

The conversations are actually going quite well. One of the big shifts that has happened in the past 120 days is the number of inbound dealer inquiries we get. We used to be 100 percent outbound sales focus. Now we're actually getting dealers calling us directly to engage. I see this as a real shift in dealer awareness of what's working out there. It's a small community, and dealerships talk; they understand value very well. Dealers are starting to realize that we are much better than some of the competitive services that just focus on search arbitrage; they see we have high organic traffic concentration that they can’t buy elsewhere. This leads to a healthy discussion about our value delivery, which has not only helped us in conversations but also produced meaningful improvements in retention and cancellations.

It was on Fuel. I know it's early days, but it looks like it's doing very well. Just curious if you're already able to calculate and compare how efficient it is from a cost per lead or sale basis as it pertains to traditional media. How does Fuel's cost per lead compare to other forms of digital marketing or even through the marketplace?

We wanted to feature the example on the call of how a dealership is looking at their overall market share pre and post-Fuel, and they shared some impressive results in terms of how they saw material shifts in those geographic markets. That's important for Fuel because we sell it on a geographic exclusivity basis. Dealerships can benchmark market share at the zip code level, and we've seen enormous renewal rates from the dealers who started with us in Q1. Dealers see notable share shifts in their overall market as measured by retail sales and video messaging. We're not demanding consumers fill out forms; we're upfront with dealers that we're tapping into the existing audience on our marketplace. This is going to be a smaller segment of dealers. But more will trust that Fuel will improve market share in their favor, which is why we're commanding higher ARPU. An average annual subscription can be anywhere from $8,000 to $10,000 per month for a geographic zone, and dealerships aren't balking at it because they see the value.

That's terrific. Thanks, Alex, for that. Appreciate it.

Thank you.

Your next question comes from the line of Tom White from D.A. Davidson. Your line is open.

Great, guys. Thanks for calling me back in the queue here. You mentioned a couple of times this dynamic where dealers, during the height of the pandemic, cut a lot of their marketing in areas like Google and were able to replace that traffic via your marketplace, and I believe you said at a fraction of the cost. I'm curious whether that dynamic has you rethinking how you think about unit pricing in the core listings business. It seems like a lot of the revenue growth you're forecasting for the future comes from new product adoption. Could it be possible that you might be able to extract some pricing power out of what's happened here recently?

Certainly, the restoring of our great strategy post-pandemic shows a lot of durability in our pricing, right? We were able to restore after the COVID discounts and return to full pricing relatively quickly. We saw dealers increasing the take-rate of new solutions. The fact that we're growing our dealer count and seeing sequential improvements in ARPU shows that we're not having to discount to generate volume. We're holding our rates and getting more products selling through at the same time while also growing our dealerships. That provides a very healthy trend going into 2021. The marketing experiment with dealerships cutting back their marketing during COVID has shown them that these marketplaces can generate much more volume without such heavy marketing budgets. Dealers are appreciating that this is traffic they have to compete for. We see this shown through Dealer Inspire; we can look at competitive traffic and see that we generate two to three times as much traffic into the dealer's website versus other marketplaces. Our traffic is converting almost four times the rate of all their other website sources combined. I think our team feels very confident about our pricing strategy and overall strength.

Thank you.

Your next question comes from the line of Dan Kurnos from The Benchmark Company. Your line is open.

Great, thanks. I want to go back to something you said about creating a source of inventory on trade-ins on the marketplace. There's been a lot of talk in the industry about trying to figure this out. Obviously, things being the way they are now is probably not the way things will be 12 months from now, where you can get a used car that basically sells in like 24 hours. I'm just curious if you have an opportunity to expand that if that is thought process, and then I want to ask more questions about traffic and leads.

First, even though the retail dealer network sells 44 million used cars a year, as you know, there are almost 11 million cars sold private party, peer-to-peer, that sit outside the retail system. We get a very natural organic stream of those people listing their car for sale on our website every day, and dealerships need to acquire inventory. We see that as a new revenue opportunity. We're currently in beta with a healthy number of dealerships testing vehicle acquisition products from private parties listing on our website. Dealers are looking to us to digitize their buying strategy. They would prefer to buy from a private seller rather than go to an auction and compete. We want to be a reliable source of inventory for dealerships. We’re currently piloting this solution and expect to see more from it.

Got it. So helpful. And then, I know you were excited. We're excited to talk more about the growth and profit growth. Could you delay growth faster or slower than the traffic growth without giving us an absolute number? I just want to understand how you're starting to lean back into things. Is this going to be a broader peer group process to discuss how you can press different channels this time around? I know it's really hard to drive leads to have any visibility.

Yes, our value delivery and lead growth have outpaced our traffic growth, driven partially by the pandemic. We experienced much higher growth in our lead counts and conversion rates, translating to delivered value. Keep in mind that we have a robust new car business as well. Consumers will still shift between new and used even up until the day they buy, and we have a ton of phenomenal new car content. As the market shifts from new to used and vice versa, we expect to become a higher resource for that advice. In combination with our differentiated reviews and content strategy, our expert editorial team is generating critical assessments of all new cars being sold today while also generating significant organic traffic concentration. As dealers look to whom to get incremental sales from, cars.com becomes much more valuable.

That's really helpful. Thanks, Alex.

There are no further questions. I want to thank everyone for joining the third quarter 2012 earnings call. You may now disconnect.

Thank you.