CDK Global, Inc.
Q2 2021 Earnings Call Transcript

Published: 8 Feb 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2021 CDK Global, Inc. 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. And please be advised that today’s conference is being recorded. I’d now like to hand the conference over to your speaker today, Julie Schlueter, Director of Investor Relations. Please go ahead.

[Julie Schlueter:]

Thank you, and good afternoon. I’d like to welcome you to our second quarter fiscal 2021 earnings call. Joining me on today’s call are CEO, Brian Krzanich; and CFO, Joe Tautges and our new CFO, Eric Guerin. Following their prepared remarks, we will be taking questions. Our earnings press release was issued after the close of the market today and is posted on our Investor Relations website at investor.cdkglobal.com, where this call is being simultaneously webcast.

[Brian Krzanich:]

Thank you, Julie, and thanks to everyone for joining us today. Before I jump into the quarter and my thoughts around the company more broadly, I'd like to take a moment and welcome a new member of the management team, Eric Guerin, our new CFO. Eric joined our team in mid-January, and brings a perfect mix of financial expertise and business acumen that we were looking for in a CFO. He’s helped improve the finance operations of large, complex organizations, with hundreds of people and through numerous acquisitions. He's got the right skill set and experience to bring together our many internal processes and systems to get them running like a well-oiled machine. So we can move quicker and seamlessly on our growth journey and it’s a great fit with our values and culture. And I'm excited to welcome him to the team.

[Joe Tautges:]

Brian, first, let me take a moment to welcome Eric, our new CFO to the team. I'm thrilled to have him here. It's been great to bring somebody in who has hit the ground running. And I'm really looking forward to working with you. I also couldn't be more excited about moving full time into the COO world. With our strategy and investments we've made over the last couple of yours that Brian highlighted, I think, I'm uniquely positioned to work with our CDK teams to deliver for our customers and accelerate our growth. And I'm excited to jump right in. Today I'll be sharing some insights about our performance in the quarter. In particular, details around our core software business, how we're thinking about our approach to data and our progress with Fortellis. I'll then talk about how we work more efficiently as a company to continue to increase profitability and create capacity for investment. One of the first steps we took towards improving the revenue growth of our business actually started a couple of years ago when we put so much emphasis on being customer centric. As Brian mentioned, we achieved the highest level ever for the company and our net promoter score, which measures how our customers views CDK. This is a huge proof point that the changes we've made are meeting the evolving needs of our customers with our improved installation quality, improved tech support experience, as well as improvements in our billing and ease of contracting. As a result of these efforts, we attained large increases in the percentage of customers who indicated they're likely to renew and in customers who said that CDK is making it easier for them to do business with us. This is really great news. And I'm very proud of the entire CDK team for their continued efforts to put our customers first. A big congratulations to all and we will continue to raise the bar from here. As a reminder, the way we think about revenue opportunities is one, growth within our DMS and strategic applications business two; from our data strategy and neuron platform, and three from Fortellis. So now let's double click into this, starting with some overall sales highlights. Looking at our sales performance during the quarter, we delivered a solid sales quarter across the board. We sold more DMS sites than we did a year ago and continues to see strong sales in our applications. We continue to see good demand and products that support digital retailing, such as connected store, and our digital contracting solutions like e-sign and sign anywhere, which are all helping dealers provide a seamless, omni-channel buying experience to their customers. For example, in each month during the quarter, more than 1.4 million documents were signed electronically using our eSign solution. Our recreation sector had the highest sales quarter in company history, with December producing a historic number of new deals in any one month. Sales were also strong in heavy equipment, including a new networking contract for 70 site dealership. Our installed team had a great quarter and continues to deliver new installs while managing the challenges of COVID. This quarter, we did more installs of our DMS, CRM and service applications than during the same period last year. Our DMS install rate for the quarter was the highest since 2015. And our service application installation volume grew over 100% from the prior year. All this work sets us up well as we look forward to fiscal 2022. Now, moving to performance on site and our DMS business. Looking at our entire portfolio of sites, which includes auto sites from both franchised and independent dealers, and adjacency sites, from dealers in areas like recreation and heavy equipment. We currently have the highest site count in company history at 14,851 sites breaking it down by businesses. Auto sites ended at 8997 and grew sequentially by 31 and year-over-year by 23. With continued growth in the three plus site dealer group, offsetting declines in the one to two site dealer group adjacencies sites came in at 5854 and were up sequentially by 50, and year-over-year by 52, to the highest site level in company history. We continue to focus on enhancements to our drive flex product, and have delivered new OEM capabilities for Ferrari, Honda, and Acura for franchise dealers. That brings our total OEM certifications to 11. At this point, we have over 60 customers on Drive Flex, and our technology teams continue to make progress and advancing its capabilities. When we look at the independent market, we're winning several new dealers here and see a clear opportunity by the end of our fiscal year for our DMS to be one of the leading solutions in the space. We continue to build out the robustness of Drive Flex for more complex dealers, and we'll continue to report our progress each quarter. Moving on to our applications. One of the biggest growth opportunities for us is in the application space. Both those that we integrate into our DMS and those that we sell standalone and integrate into other DMS’s. Our top growing applications are in digital retailing with connected store, dot cloud with our digitization of document storage, our Elead CRM suite, as well as our CDK Service application to name a few. Our underlying growth is certainly being fueled by our dealers adopting these applications. And there is plenty of opportunity for us as we bring our next generation versions like service to market. Let me share a few more details about these opportunities. Looking at Elead, the popularity of the application with dealers have consistently been strong. So the acquisition we've grown Elead sites by more than 50%. Our penetration in our DMS base is about one third of our penetration with dealers who don't have our DMS has grown to over 20%. This is real proof point of the power of our subscription base, sales team and ability to successfully integrate such a great acquisition into the portfolio. Looking at our service products, we have nearly 3500 sites on our service software, with penetration within our DMS base being roughly one third. Penetration outside of our DNS install base is less than 10% and represents a strong opportunity for us as we head into fiscal 2022 and bring our enhanced service software to market. The service business has largely been built by our organic efforts over the last few years and reinforces the benefits of investing to continually improve our software. Lastly is digital retailing. Providing a seamless end-to-end shopping experiences blind discuss is a top priority for us. By offering digital retailing solutions that are connected to our connected store product, we are focused on providing a consistent branded experience for the consumer when buying a vehicle from capturing the lead that often starts at the OEMs website to the sales lead and CRM through the finance and insurance process and all the way through to closing the deal with an e-signature. The penetration of our connected store application is around 10% and growing as more dealers adopt our solution. We view the non-DMS market as full Greenfield as our development teams work hard to bring an agnostic version of the product to market. Overall, we feel good about our underlying growth in our opportunity to accelerate revenue as we head into fiscal 2022. As I look at 2021, and in particular Q2, COVID continues to have a significant impact on our business. The impacts we continue to see our revenue are as follows; the on-going accounting impact from the discounts and free products we gave our dealers to support them during the height of the COVID shutdown last year, as well as the implementation delays we experienced during this time. To slow down and on-premise consulting work due to safety and social distancing efforts, and the decrease in discretionary spending on call center business. And the fact that our customers continue to face uncertainties about how COVID will impact their operations and the general economy. Moving on to neuron data strategy and revenue growth opportunities. As you heard from Brian, we'll be utilizing insights from neuron to enhance our products, which will support improved revenue growth within both our DMS and application. We will also be growing revenue through our connections with OEMs and other third party partners within the ecosystem. We believe the value we're bringing to market through neuron will drive revenues that help provide some offsets to headwinds we may experience from our partner program transition. As you know, we are transforming our approach to the partner program by better allocating value across our solutions, while working hard to absorb any additional headwinds due to timing mismatches. During Q2, we saw headwinds towards subscription revenue due to these efforts, but are seeing overall progress in transforming this program. While we know the progress will not always be linear, we are on the right track. The less growth opportunity I want to focus on is our Fortellis platform. As you know, this platform is growing, and we are currently seeing good results from our hailer app with Lyft, and our new report repair order API. I'd like to talk about another exciting offering that we are well into the successful pilot phase of which is our new CDK one pay solution, which is seeing strong interest from dealers. As we mentioned in our last call, this product, in partnership with global payments will modernize the entire payment experience at a dealership and integrate seamlessly into our DMS via Fortellis. We expect this to be a growth driver in fiscal 2022 for CDK as we move into generally shortly, and I look forward to sharing more metrics in this area in future quarters. Moving over to the operation side of things, I'd like to provide an update on our business process modernization program. While we've seen benefits in our MPS from the program, as customers see the results of our improvements in Billings, the program goes well beyond just solving that issue. It is a large effort that will drive efficiency and scalability, as we lower unit costs by providing standardization for things like our software offering, coding and installations, which will yield better satisfaction for our customers and more productivity from our employees. To put things in perspective, we're going from over 10,000 skews that our sales team could sell to a goal of reducing that to under 1000. The efficiencies that we can gain through standardization will result in an improved customer experience, as well as higher gross margins, and will provide additional capacity for investments. In closing, I spent time in this last week reflecting on my three plus years as the CDK CFO. And I'm quite proud of all that we've accomplished as a company and as a finance team. We've significantly improved our metrics and how we run the company, have made changes to our portfolio that positions us well for the future and strengthens our balance sheet and have planted the right seeds over the last two years to accelerate revenue growth and position the company for the long term. I look forward to working with the team. And I'm committed to executing our growth strategy and continued transformation. Now, I will turn the call over to Eric.

[Eric Guerin:]

Hello, everyone. And thank you to both Brian and Joe for their nice comments. It's been very exciting getting to know CDK over the past few weeks, and the great team here. I've already jumped into the mix on several key projects, like the international sale, the square root acquisition and the business process monetization, which I've lived through something similar before and look forward to sharing my experience. My overall priorities as CFO of accelerating profitable growth and driving operational excellence We'll focus on supporting the great momentum we've got here and providing key financial insights to make the best possible decisions. I'm looking forward to working closely with our employees and the entire executive team, as well as getting to know our shareholders, research analysts, and customers in the coming months. So now, on to the results. I'd like to remind everyone, the results are for continuing operations only, and do not include the international business, which is now presented as discontinued operations, and prior periods have been reclassified to reflect this. We're also now reporting on a consolidated basis with no segment reporting. For the second quarter, we delivered revenue of $406 million, approximately 3% behind the same quarter in the prior year. Subscription revenue was $328 million, which was up sequentially from our first quarter, but down 3% over the strong performance we had in Q2 of last year. Underlying subscription revenue growth was driven by auto site increases of 23 year-over-year, with revenue per site up 2%. We saw our continued strength in total recurring revenue from our three plus site auto dealer group, offset by a slight decline from the one to two site groups. Adjacency sites were up 52 with robust site growth in heavy equipment sector adjacency revenue per site was up 3%. The solid underlying growth within our core subscription business was more than offset by the on-going transformation of our partner program and amortization of past COVID related discount and free products as Joe mentioned in his comments. Transaction revenue for the quarter was $39 million versus $40 million last year. Other revenue was $37 million versus $39 million last year, due to gains in Cloud Connect networking hardware offset by COVID related decreases in consulting and call center businesses. Now turning to earnings, second quarter EBITDA was $156 million versus $175 million last year, with a margin of 38.3%. In addition to the impact of lower revenue, earnings was pressured by our incremental spending on strategic investments, and a change in our employee vacation policy, partially offset by tight management of operating and travel expenses. To provide further clarity around the vacation policy impact, we've historically experienced a seasonal increase in earnings in our fiscal second quarter due to when we trude up our accrual for unused vacation days. In calendar year 2020, we changed our vacation policy such that this seasonality no longer benefits us in Q2. Our effective tax rate was 26.2% for the quarter, up from 25.5% in the same period last year, primarily due to an increase in state income tax and less benefit from foreign tax credits. Quarterly diluted earnings per share were $0.59 or $0.71 last year. With respect to our balance sheet and liquidity position, cash as reported on our balance sheet was $63 million with $238 million of cash within our international business being reported as assets held for sale. We plan to repatriate the excess cash to the U.S. before the sale of the International Business closes in the third quarter. Access to liquidity remains strong with 750 million available on our revolving credit facility. Year-to-date, we delivered free cash flow of $112 million, including the expected settlement payment of a lawsuit we discussed on our last call and the payment of $37 million in cash dividends to shareholders. Before I provide guidance, let me share some context around our expectations. Our guidance includes our latest view on managing the impact of COVID on our business, our effort to minimize the financial burden of the synergies and stranded costs related to the international sale and our continued focus on prudent management of strategic incremental investments, which are now closer to approximately 20 million for the full fiscal year. We expect the international sale to be finalized during Q3 with net proceeds estimated at approximately $1.25 billion after taxes and expenses. We expect a strong balance sheet as we deliver through the pay down of some of our debt with lower interest expense anticipated going forward. We're providing fiscal year 2021 annual guidance on a continued operation basis only to reflect the sale of the international business. With all of these factors in mind, we expect total revenue for the fiscal year 2021 to be $1.66 to $1.71 billion, EBITDA to be $640 million to $680 million, and EPS to be $2.45 to $2.75 with a tax rate within the range of 26% to 27%. In summary, I'm quite happy with the progress we've made on our customer and technology strategy. Our focus on our North America business and our strong financial profile. I believe there are enormous opportunities ahead for CDK. And I look forward to working with the team to deliver on our commitments. Thank you. And now we will open it up for questions. Operator?

[Operator:]

Thank you. And our first question comes from Charles Nabhan from Wells Fargo. Your line is now open.

[Charles Nabhan:]

Hi, and thank you for taking my question. I want to get a little more color around the site count. You specifically mentioned that increases in the large dealer count offset some declines in the small dealer count. And wanted to get a sense for given the progress in Drive Flex, when you expect that small dealer side count to stabilize?

[Brian Krzanich:]

So, I can start and then – this is Brian, and Joe can add in. I tell you that we're already seeing improvement in the small site count. And we've cut the loss rate in the small dealers less than three, by almost half. So, there's a quite bit of improvement already. And as we continue to put both improvements into drive, because many of those small dealers still want to use the capabilities that come with Drive and Drive Flex. We think we can continue to turn that into eventually growth. Now that probably going to take another year or so before we can actually see growth in that space. But that is our target. But in the short-term, we are seeing pretty dramatic improvement in that space. And lot of that's been really not only making improvements in our products, but making our improvements in customer support. Those are the guys who typically look at things like customer success, having people get out there and talk to them about their business and they look for that kind of work, consulting time that it takes to answer calls into the helpline, all of those improvements have really helped, especially that smaller dealer network. But let me hand it to Joe and see if he has adds to that.

[Joe Tautges:]

Yes. No. I think it's well said, Brian. We're really proud of the team. The record NPS score that we've seen this quarter really sets us up well. As Brian said, the year-over-year comparisons still show a decline. But when you look at the last couple of quarters, you see more stabilization in that lower end of the business. And we're really pleased with the sequential site growth improvement. Our installation teams continued to work with dealers to safely implement our solutions. And as you can see, the underlying business continues to really turn out both billing and revenue per site growth as well as site growth.

[Charles Nabhan:]

Got it. Appreciate the color. As a follow-up I wanted to ask about for Fortellis. I appreciate the color around transactions. But one of the questions we seem to get quite often is how that translates to revenue. So any color around that would be helpful? And secondly, you talk a little about next-gen apps, including the payment app. And wanted to get a sense for, as you move forward in the development of your apps, could we expect them to be delivered through Fortellis as opposed to the traditional method of integration through the DMS?

[Brian Krzanich:]

So this - let's start with – it’s Brian again. Let’s start with the second one. That's a very simple answer. And the answer is, yes. Fortellis will be the way most things will get delivered now and into the future. And the reason is, it's all API-based. It's oftentimes, depending on what the application is. It can be simple click of a button within the DMS but would download that app. Let's say, you want to download Zoom, because you want to do a Zoom call. We'll make an API that links to Zoom and you'll be able to click in. If you want to do Hailer and do Lyft calls, we'll make a simple button and it'll download that application into the DMS and off it'll go. So this is a modern and very efficient way and very simple way to deliver those things. The first part of your question was more about, okay, transaction versus revenue and how do you think about that? And here's the way we think about Fortellis. First off, we're building an ecosystem. And the key here is to really entice and excite developers, third-party developers who build products on Fortellis that integrate both with our software, but with other party software as well. There'll be some that never actually uses our DMS. Maybe it goes, sits on Fortellis and talks to some other third parties service application or whatever. The way we'll charge for Fortellis will depend on the amount of engineering and basically, effort that goes into whatever the application is that people are doing. So, for example, if somebody is just doing a data download to pull into their excel spreadsheet, we may charge very little to nothing, because that doesn't really require a lot of engineering on our part. And then, we're just storing their data at a fairly efficient and low cost. But whoever's data that is, we may charge for a small fee there, but it's not much. There's other applications, like the Service RO application, Repair Order application, which has a lot of calculation that goes into it. There's a lot of embedded engineering that goes into that application that looks at things like is it a warranty part? How do we go back into the DMS and calculate the books and all of that? And it's managing all of that data, such that somebody can just simply enter in the repair order, and it takes care of it through the DMS or through connection to the CRM or whatever. And that we're adding a lot of value and we charge for that then. And we charge a fair price like anybody else would on an engineering application. So you're going to see as Fortellis grows, kind of both of those extremes and things in between as well, that really drive the revenue of this. But right now, with the reason we are trying to show you, the transactions is that, that's the key here is that as that grows, we’ll entice more developers, and some of those applications will have that engineering into them and we will charge to it. But our target here is to grow 8x to 10x every year on Fortellis. And that will deliver that revenue growth over time. And Joe, if you have other inputs?

[Joe Tautges:]

No. The only thing I would say, BK, is that the big distinction chuck that we're seeing is -- think about what Brian just said, which is, we're starting with, how do we create value for the dealers to sell more vehicles, to service more vehicles. How do we start with the end customer to drive a better end customer experience? How do we help engage and integrate OEMs to be able to create more value-added connectivity there? As long as we start with that value, as the first leading case, then the monetization and the value that's created all comes as a result of that, and I thought Brian laid out the structure, right? But it's pretty exciting, when you look at the use cases, every one of them that we talked about in the script and they really pivots the company in a very different way than we have historically .

[Charles Nabhan:]

Got it. Thanks, guys. And Eric, we look forward to working with you.

[Eric Guerin:]

Hey. And the only thing I would add to what Joe just said is the other thing that is really neat about Fortellis is that because it's all API-driven and it is modern, it allows us to integrate opportunities very quickly. So you heard about our square root application or acquisition, excuse me, that will help -- Fortellis will help us integrate a lot of their applications and their technology much quicker. You saw our payments, partnership that we've just put out there. That is going to be integrated through Fortellis. And it allows us to do that integration with third parties, then we'll get paid quite nicely for on a per transaction basis. So, it's really going to be the engine that helps us grow our business, even if it's quote -- not Fortellis that's getting paid for that transaction. But it's allowing us to integrate with applications that we are getting paid for. And so, it's going to be convoluted how it does, but it's going to transform the rate at which we're able to make change and improvement.

[Charles Nabhan:]

Okay.

[Operator:]

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

[Gary Prestopino:]

Good afternoon all. Brian, you mentioned that this neuron product is a game changer. So, couple of things here. Number one is, will this be sold on a subscription basis or transaction basis? You did mention you will get paid for it. So we'd like to delve into that a little bit. And then could you also give us an idea of some of the key data insights that this can develop that dealer's really want and need in the market right now?

[Brian Krzanich:]

Sure, Gary, I was little concerned about that big sigh at the start of your question.

[Gary Prestopino:]

No, I had to think a lot to get that out.

[Brian Krzanich:]

So, think of neuron as you're really re-architecting our internal database and restructuring it. Getting everything labeled, getting everything tagged, building how the data will flow in and out of your architecture. And that's been a huge tag. What you would get at the end of that is now a database that's scalable, the way it was architected within CDK prior, it was broken up into many little data ponds. It wasn't scalable though. There was often duplicated data, things like that. So we've really been going through this cleanup process and this process of turning it into a manageable, scalable architecture that can now have applications applying to it. And the second part of your question is, will we charge for that? Again, it's going to depend on the application. So we won't necessarily just charge people to put their data into neuron. Where if you're a dealer and you're using our DMS and you're using our layered applications, whatever, neuron comes with it. What allows us to do those, aggregating most of data from more application, data from third-party applications, all of this and provides those inputs. Our game plan here is that you'll have kind of a good, better, best. Some of those insights will just get built into our products. It will go to our DMS. It will go to our CRM, its very nice service tools. And then some of those applications or insights will have very high levels of engineering applied to them. And those will get paid for. So let's give an example of something like inventory. Having the ability to look at all of your used car inventory on your lawn. And on it literally a real time basis getting that inventory, looking at the price that you've got it listed at. Looking at all the other colors that are selling out there at various other locations. And looking at the days unlock, having that insight into what would be your best strategy around that? Is an insight that we provide? Another thing is service. You're looking at all the service reservations you have. Who's coming in. What kind of cars, those are. All of that. You could look at all the other cars that are being serviced, that have similar mileage and similar features that are in a certain radius. And we can start helping them, look at their parts inventory and saying, hey, by the way, these parts coming in for -- banking. But by the way, if we look at all the other cars in the 100 mile radius, that are about age and that model number, and we're looking at cars that have that kind of issue over the last six months, we typically required these parts. We suggest you stock those parts. You're actually short autumn, and you have these many coming in next week. That's really helpful, because that makes the dealer much more efficient. And that makes them be able to service their customer better. Those are just two examples. We have hundreds literally that we started thinking about that we could apply whether it be inventory, whether it's predictability about as you look at your CRM data, and you can predict who's a better customer and who's more likely to buy a car. And those customers you should follow in touch against your CRM data. You can look at what's the highest probability of upsells within cars when you're selling the car, what kind of service you can likely upsell when certain cars and these customers come in. Although that predicted, is things that we're used to on our phones today. But they aren't happening in the dealer world. And by aggregating this data in your neuron database. And then getting feels like we're doing what square root, we're going to be able to provide that into the DMS, into the CRM, into the service.

[Gary Prestopino:]

Great. That's great answer. And then just real quickly, a quick one. Rank order your preferences for the proceeds from the sale of the CDK international business. Debt reduction, stock repurchases, acquisitions?

[Brian Krzanich:]

I'll take and I'll start. And then I'm going to let Joe and Eric both get their opinion, because mines pretty simple. And what my priority might be versus what will actually happen is not necessarily going to be perfectly aligned. So I always believed you invest in the business first. If I know a way to take the cash, whatever it is, the sale or just our normal free cash flow. And apply it and invest into the business. And I see a return because we do everything around an NPV and return on investment basis. Then I think that that is the number one thing. The management team and I are here to grow this business. But after that, if there's not -- and there's organic and there's inorganic in that growth, right? So it could be -- we're investing in our engineering teams, or we're investing through with acquisition . After that, it would be dividends and then lastly, buybacks kind of something like that. And I put debt repayment in there based on opportunity, right. What’s the term on repayment or reliability to repayment? So I would put repayments above dividend or buybacks as well. But that has to be timed opportunistic. I think when you look at the proceeds that we're doing from the International; you're definitely going to see some debt reduction. And we said that in our statement, we'll do some of that. We've having some discussion about how much and what timing and things like that internally. I think we're actually becoming pretty well line. But you'll see some pretty big piece of it goes towards debt reduction. I don't think we'll have to do any other investments organically that we haven't already forecasted. So I don't see a lot of additions there. And the rest we'll look for other opportunities, whether it would be inorganic or whether it be live action, or whatever.

[Joe Tautges:]

Thank you. Gary, I wouldn't have a lot to what Brian said. The only part I would add is just to take a moment to say, it's been a heck of a quarter. When you look at the International sale, and the net proceeds to 1.25. And it just gives an indication to the value opportunities as we look at even accelerating the North America business further. And so, we're quite excited about that. And we'll be very thoughtful between Eric, myself and Brian on returns based framework as we evaluate the decision points Brian laid out.

[Gary Prestopino:]

Thank you.

[Operator:]

Thank you. And our next question comes from Ian Zaffino from Oppenheimer. Your line is now open.

[Ian Zaffino:]

Hi, great. Thanks. I'll just touch upon the cadence of the quarters. I guess you're expecting a pretty strong second half. What is effectively driving that versus maybe the first half of the year? And sort of how we think about that ramping. And again, maybe drivers of the strength. And maybe the drives of the optimism? Thanks.

[Joe Tautges:]

Yes. So maybe I'll start out. Ian, good to hear from you. And I'll let Eric, take it from there. So from our perspective, COVID had a pretty meaningful impact in this quarter, particularly in the areas that are more discretionary. You can really see that, when you look at the site growth and the revenue billing per site growth, some of the discretionary areas of the business were quite impacted. As we go into the second half of the year, we have good visibility with our backlog. And everything else going on the way. I would think about the second half would be revenue, EBITDA, surely evenly split between Q3, Q4. And when I think underneath that is sequentially walking Q2 to Q3. You're right to point out the seasonality of the North America business as it's going forward is different than what CDK global was before. And so, normal and our fiscal Q3, which you'll experience upcoming is our revenue stream uptick from our tax filing business. And then, you're really seeing subscription revenue with the installs that we're doing. build momentum. I talked about my section. It being a record quarter for DMS installs this quarter, back to 2015. And I think as you start to see sequentially that come in and help Q3 out, the tax filing business come into Q3. And then really Q4 start to build momentum as we exit the year and sort of stuff well for 2022. That's how you should think about the cadence from our perspective. Eric, anything you would add to that?

[Eric Guerin:]

No. Joe, I think you covered it nicely. The only thing I would add is if you look at our annual guidance, it does represent that we feel pretty good about Q3 and Q4. As Joe indicated, they are looking pretty much like Q3 and Q4 as we move forward to the back half of the year.

[Ian Zaffino:]

Okay. So let me ask you another deeper question on that. The guidance seems to be unchanged as you back out discontinued ops. So, were there things that you maybe thought would have been booked in the second quarter that will now be booked in the third quarter with they're pushed out? Is there demand that you'll be able to recoup, meaning, demand wasn't lost? I'm just trying to get a better handle on kind of what you're seeing the second half versus what we saw in the first half?

[Joe Tautges:]

I'm trying to absorb your question. I don't -- if you make the comment, when you compare it to our numbers. It is coming in not far from where we thought it would. So I don't -- from our perspective, we see momentum continuing to carry forward into Q3, Q4, the way I described. When you look at it year-over-year, if you recall, last year, COVID started to hit around mid March is really where we start in the North American business. And so the comparisons get a bit easier in Q3 and then more so in Q4. And so, I don't think there's anything unusual. I would point to Ian, other than the items I described earlier. Eric, anything else you would add?

[Eric Guerin:]

No. I agree with you, Joe.

[Brian Krzanich:]

Hey, Joe. I think, Ian's question is asking a little bit separate. There are things like a consulting business that was impacted in the second quarter that we believe picks back up as dealers. There were certain activities. There were installed. There were consulting. Some of those business, plus some of the transactional businesses that were down in the second quarter that we think as COVID restrictions and kind of behaviors relax a little bit, those come back in the third and fourth quarter. And those are missed up opportunities that got pushed. We've sold and signed a contract. Our backlog for installs is quite high on many of our products right now. Because the dealers have asked us not to come on site and do some of these installs. And so those get pushed into the third, fourth quarter. We're already seeing the relaxation in many cases. I think that's part of the answer that I was looking for as well.

[Eric Guerin:]

Yes. I think that's fair context. So when you look at the consulting business, is a good one. We booked a fair amount of business. It's ready to be installed. Again, we haven't put all of that. And so when we think some of that stuffs going to come back a bit.

[Ian Zaffino:]

Okay. Yes. I mean, that's the color I was looking for. Thanks, guys.

[Brian Krzanich:]

Thank you.

[Operator:]

Thank you. Our next question comes from Josh Baer from Morgan Stanley. Your line is now open.

[Josh Baer:]

Thanks for the question. I was hoping you could give an example of what happens when a customer adopts additional applications. So, maybe focusing on auto 9000 per site per month, if you assume, DMS is 4000 or 5000 and the rest are apps. How many apps does that represent? I mean, are those numbers right? And what happens if you attach an additional one or two applications?

[Joe Tautges:]

Yes, sure. So I'll start out and then Brian can add in. So I think your numbers are directionally correct. And listen, I think our sales team does a great job working with the dealer to bring the dealer solutions. And from our perspective, today, we're about as you heard in my remarks into our DMS penetrated base. We're about a third to 30%, 35%, depending on the application penetrated into the base. And the ways you think about it, as we add in that new capability and bundling more applications, you see that revenue per site increase as it has been. And particular, when we get down to the other side of some of the COVID discount, you'll see that continuing to accelerate further. The new opportunity we have. And as Eric and I talked about, as he gets on board, sharing more transparency, the metrics. We have a new opportunity that's starting to really accelerate which is non DMS opportunities to sell applications. As we look at -- Brian talked about in his remarks bringing in service plus the market, we already have the elite standalone solution. And again, it's an average revenue per site for the applications that we sell standalone. And that's really quite significant new expansion opportunity for us that we're bring in to market. Brian, anything else you would add on application?

[Brian Krzanich:]

Yes. The only thing I tell you is that. So I think the root of the question is like, how much does it go up? If they add some application, whatever that is. And the problem is, it varies quite a bit. Some of our applications that are added on to the DMS are a couple of hundreds dollars a month. Some of them are over $1,000 a month. We get more complex and advanced ones like CRM. And so it can vary quite a bit. But they are all in that range, kind of.

[Josh Baer:]

Thanks. That's helpful color. I appreciate it. Thanks.

[Brian Krzanich:]

Operator, this would be the last question.

[Operator:]

Thank you. And our last question comes through Rayna Kumar from Evercore ISI. Your line is now open.

[Rayna Kumar:]

Good evening. Thanks for taking my questions. Could you first discuss your thoughts on how dealer sites could look for the back half of FY 2021? And then second, you spoke a little bit about some implementation delays that are being pushed from 2Q into 3Q, could you quantify the revenue from those delays?

[Brian Krzanich:]

I can start. So right now we continue to model that we'll continue to grow sites somewhere in that 1% to 2% if you look at the DMS growth rate, right. So, my goal is to crossover well into the low 9000s from the 89, 97 Joe that we're at today. So I expect us later to be well above 9000 as we exit this year. Just as you know, we already have our sights that how do we cross 10,000. And what does it take. And how do we have to improve. And how do we deliver a better service to our customers to continue to grow into that rage. I don't think we actually ever break out the dollars on these things from that standpoint. But I'm not sure, Joe, if we have in the past, right? I don't think we have.

[Joe Tautges:]

Yes. Now we won't get to that level of detail. But for sure, most of the installation team has been pushing hard. Nonetheless, you want to make sure it's done appropriately and comfort with the dealer and with our teams. And we have a very strong backlog. And we continue to expect to see positive momentum in sequential site growth as we go into the second half of the year. Thank you very much.

[Rayna Kumar:]

Got it. It's very helpful. And then one follow up. Could talk a little bit about the competitive environment you're seeing on for three plus site dealers group. And then also, for some of the smaller dealers. Any change in dynamics there?

[Brian Krzanich:]

I would tell you that the dynamics haven't dramatically changed. We've probably seen a bit of a pickup in acquisitions and consolidation, say in the last four, five months. So the big guys are turning to go out and do some purchases now. So the big guys are getting a little bigger. Some of the smaller guys are growing a bit too. The competitive dynamics have stayed the same, right? There's the other big guys of the DMS space. There's quite a few in the layered application space that are quite competitive. I don't think right now the competitive dynamics. If I look a year ago till today, I wouldn't say there's much of a difference in environment right now. It's always been competitive. And I think part of what we're doing and you saw our actions in this quarter is to really figure out where we want to be great. Focusing on those. Do the right thing for the business in those areas where we're not, where we don't want to, and make those investments and then to hold ourselves accountable. And so, I know you've seen the work we've done on the DMS, the layered application around CRM and service. Joe, talk to you about the great growth we've had in CRM. But you saw us also make the decision to sell the international business. Because that was one that we weren't going to make those investments and it was the right thing to go do for the business. But competitively it's about the same. Okay, Rayna.

[Brian Krzanich:]

Okay. I just like to bring it to the close for today. I really want to thank everybody for taking the time, attending our call. I really hope you see really the good work the team has done over this year. I think we've navigated the COVID environment and the other changing environments out there quite well. We've laid out our strategy over the last two plus years now. And I think you're really starting to see the results pay out and really see the changes occur. And you see that in things like NPS, you see it site growth, and you see it in our overall performance. And so, thank you very much. And I'd really like to thank the CDK team for a great quarter and really continuing to contribute at an extremely high level. So until next quarter, thank you, everyone.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. And you may all disconnect.