Cars.com Inc (CARS) 2017 Q2 法說會逐字稿

Good morning and welcome to the Cars.com earnings conference call for the second quarter of 2017.

Hosting the call this morning is Alex Vetter, Chief Executive Officer; and Becky Sheehan, Chief Financial Officer. (Operator Instructions)

I would now like to turn the call over to Jandy Tomy, Vice President, Investor Relations and Treasury.

Good morning, everyone, and welcome to our second quarter 2017 earnings conference call.

During our discussion today, we will be referring to our earnings presentation, which is available on the investor relations portion of our website.

Before I turn the call over to Alex, I'd like to first draw your attention to our forward-looking statement and description and definition of our non-GAAP financial measures found on Slides 2 and 3 of the presentation.

We will be discussing or providing certain non-GAAP financial measures today, including adjusted EBITDA, adjusted net income and free cash flow. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measure can be found in the financial tables included with our second quarter 2017 earnings press release and in the appendix of the presentation.

For more information, please refer to the risk factors discussed in our Form 10 registration statement, the Form 10-Q for the first quarter of 2017 and the Form 8-K filed with the FCC today, along with the associated press release.

Cars.com assumes no obligation to update any forward-looking statements or information which speak as of their respective dates.

With that, let me now turn the call over to Alex.

Thank you, Jandy. Good morning, everyone, and welcome to our first earnings call of the standalone publicly-traded company. We will be reviewing our results for the second quarter of 2017.

The second quarter was transformational for Cars.com. We completed our spinoff on May 31 and began trading on the New York Stock Exchange. As an independent company, we are well positioned to drive growth and continue our leadership in the digital automotive marketplace.

As this is our first earnings call, and many of you may not be familiar with Cars.com, I'll spend a little extra time on this call giving some additional background on our business and the industry in which we compete.

We are an established leading brand in the digital automotive marketplace for buyers and sellers. We compete in the large and attractive automotive advertising industry where the digital segment is growing at twice the overall industry rate.

Let me highlight a few of our key differentiators. First, our trusted, unbiased editorial experts combined with over 5 million user reviews creates a powerful environment to help consumers make better decisions.

Second, our industry-leading mobile first technology platform includes the highest rated and most downloaded app in both Android and IOS environments, and we were recently awarded a patent for our lot-insights technology.

Third, our marketplace is the only solution that helps consumers with the four Ps of all automotive decisions -- product, price, place and person.

And, fourth, our 500-person sales force supports thousands of dealers in their local communities.

And we do all of this at scale. Our business model produces strong operating tax flows at industry-leading margins.

Further, our experienced leadership team and best-in-class talent provide a strong foundation that will enable us to label our existing assets and make further investments to drive growth.

The move to a standalone company was a defining moment for Cars.com and for our industry. While many digital-technology companies are out to disrupt traditional retail, we are proud to help the local retail system win. Local dealers are the heart of the U.S. auto industry and while we're not a digital dealership, we are helping our dealers do digital.

Having now operated as an independent public company for just two months, we are at the beginning stages of this transformation. The transaction allows Cars.com to augment our business with greater financial, operational and strategic focus as well as provide us with enhanced opportunities to pursue target, organic and inorganic growth.

We put a new capital structure in place consisting of a $900 million credit facility, which we used in part to fund a one-time $650 million cash transfer to our former parent. Importantly, the flexibility of our new structure will allow us to better pursue value-enhancing acquisitions and adjacencies.

Before we dive into the quarterly results, let me give you some context around the large and highly-fragmented industry in which we compete and what gives me confidence about our position within this market.

When it comes to car decisions, consumers are overwhelmed by choices. Over 30 manufacturers launch over 1,000 make, model, trim combinations annually, and further confusing consumers is the fact that there are thousands of dealers in digital destinations vying for consumer attention.

That's why being the trusted third-party voice is so important both to consumers and to our deal and OEM partners. We know that consumers trust Cars.com. Our brand is the number one brand awareness in our competitive set as Cars.com is synonymous with car shopping.

Over the next five years, the $30 billion U.S. auto advertising industry is expected to grow at a 5% (inaudible) and digital advertising is expected to grow 10%, nearly twice the industry rate. Auto advertising remains a reliably growing force despite the current headwinds in the auto industry.

The lion's share of digital auto advertising today is focused on driving traffic directly to dealer and manufacturer website. Yet the overwhelming consumer preference is to shop and research on unbiased and informed third-party marketplaces like Cars.com.

As in other industries, consumer preference ultimately influences the allocation of advertising investment. We are working hard to help dealers and manufacturers understand and embrace these consumer realities.

Only 7% of the U.S. population is in the market to buy a car at any given time, and the objective of nearly all automotive marketing is to persuade consumers to consider, try or buy their vehicles. And at Cars.com, 80% of our audience intends to purchase a vehicle in the next six months and 96% of our audience is undecided on what to buy or where to buy it, an ideal audience and just what marketers should be looking for.

We tend to get a lot of questions about how the evolution of the auto industry will impact our business. The U.S. auto industry is a $1.1 trillion market representing over 20% of the U.S. retail economy, and while the industry will continue to evolve through ride-sharing services and even eventually self-driving vehicles, we believe that the vast majority of the U.S. population enjoys the freedom and empowerment that car ownership provides. We see this consumer preference and desire for car ownership as long lasting.

I'm happy to report that we're confirming our 2017 guidance despite the current automotive headwinds. For the first time since 2008, (inaudible) decreased for six consecutive months, which is affecting dealer advertising. Dealers decreased their overall marketing expenditures by 3% in 2016, and that trend continues into 2017. Although we're an efficient and strong partner to dealers and OEM customers, we are, of course, not completely immune to the conditions of the overall industry.

In the second quarter of 2017, traffic was 104.1 million visits, down just 1% from last year, representing a significant improvement from the 7% decline that we saw in the first quarter.

Last year, we completed a multiyear website replatforming project with an essential upgrade of our consumer-facing technology, some of which had been in place since around our inception nearly 20 years ago.

Transitioning on to a new website impacted our SEO authority and throughout 2016 our natural search traffic had declined. While I'm pleased with our progress, we still have more work to do to improve our SEO position and grow our overall traffic.

Our current issues are focused on acquiring traffic from a variety of channels including social and paid as well as to brand advertising. Importantly, we continue to be the industry-leading marketplace. And I can't emphasize enough the importance of mobile. Mobile represented 58% of our total traffic in Q2, and our mobile traffic grew 9% compared to the same period last year.

In June, we achieved a first-ever milestone for the business in being awarded a patent for our lot-insights technology. This technology identifies mobile consumers on or near dealership lots and provides valuable insights allowing for more precise, accurate and location-based consumer data for our Cars.com dealer and OEM partners.

Dealers self-report that walk-ins have the highest closing rate of all forms of traffic. Using lot-insights technology, we can provide our partners with mobile consumer shopping behavior to help them understand and sell to more of this qualified traffic, and, importantly, attribute the traffic to Cars.com.

Also related to attribution, we are working with independent marketing measurement companies to provide dealers and manufacturers better analysis of the sources of their sales and credible insights into the full aspect and impact of their digital marketing investments with us. Consistently, these independent measurement firms show the impact of Cars.com is far more significant than the information supplied to dealers by their own CRM systems. These two initiatives will enable us to better illustrate our value delivery as dealers seek to identify their best sources of sales.

I am most proud of the continuing improvement in the pace of our innovations. Our new platforming is allowing much faster innovation than ever before. Here are some of the highlights of the new product initiatives that we've been able to achieve as a result of our new technology platform.

First, the launch of our pricing-contextualization tools. These state-of-the-art free pricing guidance tools are designed to commoditize pricing intelligence that other sites withhold in exchange for consumer's contact information. Due to the agile and flexible nature of our new website, we've been able to integrate quickly. We're already working on the fourth generation of this new free pricing feature. The first evolution was to provide national guidance, but based on feedback from consumers and dealers we added local comparisons while highlighting key features.

It is our belief that pricing should be transparent and commoditize this free content, and we strive to provide relevant information to consumers as they go through their shopping and decision-making journey.

Reviews also remain a key differentiator for our business. Cars.com is unmatched in both quantity and quality of reviews. This quarter, our total reviews -- including vehicle reviews, dealership reviews and now salesperson reviews -- total over 5.3 million.

With the acquisition of DealerRater exactly one year ago this month, we are now, by far, the industry's largest and broadest-reaching platform for dealership and salesperson reviews. In the first quarter of this year, we rolled out the DealerRater product suite to our sales force, and with the ability to leverage the considerable reach of this fee we are seeing tremendous success. DealerRater has been a very strong addition to our company, providing much desired user-generated content to consumers and shoppers and has provided us with another tool to help our customers shine a light on their individual local businesses.

For the first half of this year, our total revenue was $309.8 million, in line with our previously-issued guidance. First half adjusted EBITDA of $112.3 million reflects industry-leading profits with a margin of 36%.

Our strong free cash flow is $77.8 million for the first half of 2017. I am proud of our ongoing ability to generate strong profitability at scale and the opportunity that this provides us to invest in future growth.

I am now going to turn the call over to Becky Sheehan, our Chief Financial Officer, to provide more detailed information our financial results for the second quarter.

Thanks, Alex.

Before I discuss the financials for the quarter, let me also provide some additional information on our revenue stream. Our revenue is derived from a diversified customer base that includes individual dealers, local retailers serving their local markets, national dealer groups and automotive manufacturers.

Approximately 80% of our revenue is related to subscription advertising products sold to local dealers. Automotive dealer customers purchase advertising packages to market their vehicle inventory and other aspects of their dealerships, such as the service department. The remaining revenue is generated through national advertising products sold primarily to automotive manufacturers.

We sell our subscription-listing products through two primary channels, the Cars.com direct salesforce, and the affiliate sales channel. Almost three-quarters of our revenue is sold by our dedicated Cars.com sales force, and we call this our Retail Channel. Our direct sales force provides deep local expertise and delivers unmatched service with strong relationships at the local level.

The remaining one quarter of our revenue, which we call wholesale or affiliate revenue, is sold by third-party affiliates who were the former owners of Cars.com.

Wholesale revenue is also derived from subscription advertising products, but these are sold by our affiliate partners. Cars.com receives a wholesale rate or approximately 60% of the retail rates we are able to achieve when we sell through our direct channel.

Also included in wholesale revenue is $6.3 million per quarter in amortization of unfavorable contract liabilities. When these affiliate wholesale contracts were put in place in 2014, following Tegna's acquisition of the company, an unfavorable contract liability was recorded in purchase accounting associated with the notion that these contracts were at below-market rates. This liability will be fully amortized by October of 2019.

We enjoy good relationships with all of our affiliates and we are also amenable to converting some of our affiliate relationships prior to the expiration dates. We believe the affiliate markets represent a significant growth opportunity.

Now, let's take a look at our Q2 2017 results in more detail. Revenue for the second quarter of 2017 was flat for the prior year at $156.6 million. Retail revenue grew 2% benefiting from the incremental revenue driven by our DealerRater products, strength within sales to our national dealer groups and growth in our national advertising business. This growth was offset in part by local dealers migrating to lower subscription packages. Recall that DealerRater was acquired in August of 2016.

Wholesale revenue, on the other hand, declined 5% during the Q2 2017 period driven by declines in dealer counts and declines in the purchase of upsell products, only partially offset by modest increases in the wholesale prices due to higher retail rates.

Total operating expenses for the second quarter of 2017 were $127.8 million, compared to $114.8 million in the prior year period. This increase is primarily related to a $12.3 million increase in general and administrative expenses, $10.3 million of which is non-recurring and includes costs related to our spinoff, the move of our corporate office, restructuring charges and an asset impairment; $2.2 million of the increase is incremental depreciation and amortization resulting from the amortization of DealerRater intangibles and accelerated depreciation on assets no longer in service following the move to the new corporate headquarters, and $1.7 million of the increase in general administrative expense is related to incremental public company costs.

Offsetting these increases were cost efficiencies in other areas.

Net income for the second quarter of 2017 was $24.8 million compared to $42 million in the prior year period. This decline in net income was driven by the increases and operating expenses including the non-recurring and public-company cuts, which I described a moment ago and was also impacted by the increase in interest and tax expense associated with our new capital structure.

Adjusted net income for the second quarter of 2017 was $50.5 million compared to $60.2 million for the prior year period. The decline in adjusted net income was also impacted by the increasing costs associated with the new capital structure.

Adjusted EBITDA for the second quarter of 2017 was flat at $62.1 million or 39.7% of revenue.

Net cash provided by operating activities was $96.7 million for the first half of 2017, compared to $72.3 million for the prior year period. The prior year period was negatively impacted by use of the cash related to changes in working capital, primarily due to timing of payments, including deferred compensation payments under the previous ownership structure.

Free cash flow was $77.8 million for the first half of 2017 compared to $67.5 million for the prior year period.

Note that to date we have incurred incremental capital expenditures in 2017 of $13.9 million related to the costs of the new corporate office space. We also have $9 million accrued at June 30, 2017.

Now, moving on to our key performance metrics. In the second quarter of 2017, our traffic was 104.1 million visits, down 1% to the prior year second quarter. As Alex mentioned, this represents a significant improvement from the 7% year-over-year decline in the first quarter.

As of June 30, 2017, we had 21,465 dealer customers, consistent with the end of the first quarter. Excluding the DealerRater-only customers, our dealer customers were down 2% compared to a year ago. Average vehicle listings in the second quarter were 5 million.

And, now, turning our attention to the balance sheet. Cash and cash equivalence increased to $36.6 million as of June 30, 2017. Debt outstanding as of June 30, 2017 was $675 million representing net leverage of 2.5 times.

As Alex noted, we have a $900 million credit facility in place, and at June 30, 2017, $225 million was undrawn on this facility. During July, we voluntarily repaid $20 million on our revolver with our excess cash balances.

Our size and scale are truly differentiators of our business, and our scale drives a substantial cash flow our business generates. As Alex mentioned earlier, we're looking forward to capitalizing upon our strong cash flow by investing in technology and marketing initiatives as well as pursuing acquisitions that allow us to better serve our partners and consumers.

We are on track to reach the full year 2017 guidance we gave at Investor Day in May. We expect revenue to be flat to up 2% and adjusted EBITDA margins between 38% and 40%.

During the second half of this year, despite the headwinds in the automotive industry, we expect to invest in incremental technology and marketing initiatives to drive traffic and connections between consumers and our partners, which Alex described earlier. We are confident that the benefits from these initiatives will be realized over time.

We expect our CAPEX for 2017 to be approximately $34 million representing our historical run rate of approximately $10 million, plus an incremental $24 million related to the relocation of our corporate headquarters, which we completed the week following our spinoff.

Keep in mind, our full year cash flow will be impacted by our new capital structure. In addition to approximately $7 million of public company costs in 2017, we expect to have approximately $13 million in interest expense on our debt in 2017. Further, as a result of establishing a corporate legal entity structure effective with the spin our full year effective tax year for 2017 is expected to be 37%. However, this will only be recorded during the seven-month period post spin.

From a cash tax perspective, we have the benefit of incremental deductions, the largest of which relates to tax-deductible goodwill amortization which results in lowering our cash tax rate to approximately 25% to 28%.

Lastly, we expect stock-based compensation expense in 2017 to be approximately $3 million.

I'll now turn it back over to Alex.

Before I open this up to your questions, I want to briefly lay out our capital allocation priorities as we look ahead.

First and foremost, we plan to invest in product and technology to further accelerate the pace of innovation. We also plan to invest in new marketing initiatives to further support our partners during this difficult environment.

Next, we will seek inorganic growth opportunities in areas such as those that can extend our mobile leadership or advance (inaudible) innovation related to consumer experience or sales attribution.

Let me close by giving my thanks to the entire Cars.com family and to our business partners. I'm extremely proud of our workforce who's driven positive change so far this year and who continually keeps us focused on the road ahead.

And, with that, I'd now like to open this up to your questions. Operator.

(Operator Instructions)

Our first question comes from Steve Dyer from Craig-Hallum. Please go ahead.

Thank you. Good morning.

You had mentioned a little bit about improved SEO trends throughout the quarter. Any color on sort of how they're trending July, August so far? Are you continuing to see the improvement that you'd hoped?

Steve, good morning. Thanks for joining us.

Sure. I mean, first of all, overall we're pleased with the traffic progress we're making, as Becky noted. You know, we were down 7% in Q1. We're only down 1% for Q2. So on a sequential-quarter basis, we're confident of the trends that we're on.

I would say, though, we're not satisfied. We continue to make a lot of tactical changes in initiatives to drive greater key-word ranking, but the real battlefield is on page one rankings, which is where we're focused. I think ultimately that's something we don't control. We are all at the altar of Google to hope that they recognize the great improvements that we make, and it's very hard to predict when their algorithm will reflect all the positive changes we've made.

I think we're not going to just wait for Google's response to the tactical changes we've made. So we are focused on a lot of other channels, such as paid, our brand advertising, increased investment in social and, obviously, continuing to double down on our lead in mobile.

So time will tell if we've made all the right moves in SEO, but we're pleased with the progress we've made year to date.

Great. Thanks, Alex.

Next one for me, I guess, you know, overall SAR has flattened out, and maybe even rolled over a little bit in the last couple of months. Are you seeing any changes in dealer marketing or ad spending? Any pressure from competition? Hearing a lot about, you know, certain players in the space that are, you know, maybe pricing irrationally. Any changes there over the last few months?

Sure. I mean, as you know, Steve, it's a dynamic market, and what I will tell you is that one of the positive trends I'm seeing is that as the SAR slows down, dealership operators and management are becoming much more engaged in looking at the marketing efficacy of all their programs. And I think with the investments we've made to better illustrate how much that we're driving in terms of dealership visitation to the physical store, we're finding renewed interest in how can they expand that and do more.

Certainly, you know, price-sensitive competition is always disruptive, but we don't believe it's a winner-take-all game. Dealerships, on average, are working with seven to nine different solution providers to acquire traffic efficiently, and we know we're one of their strongest partners with some of the highest dealer satisfaction scores.

So I think low-priced competition will always be there. We tend to focus more on our value, which is to help shoppers decide across all the dimensions of shopping -- product, price, place and person -- and drive them in a mobile-first environment to the store. And then I think we're holding up well in this environment.

Great. Thanks very much. Good luck.

Our next question comes from Gary Prestopino from Barrington Research. Please go ahead.

Good morning, everyone.

Couple of questions. You mentioned that you're working with some independent, third-party partners on attribution. Could you maybe talk a little bit more about that, if you can, as to how you may be trying to, you know, change or structure your attribution to the dealerships versus what you have now?

Absolutely, Gary. And, you know, I think this isn't just us working on it. What I'm most pleased about is seeing how the industry overall is gravitating towards using third-party audit firms to validate marketing efficacy. And that will have an echo-chamber effect on our value as more and more dealers are seeking the counsel and advice of third-party consultants.

I'm pleased to report that there hasn't been an independent firm that we've -- either I've seen in the market, identified or been following who hasn't recognized that our impact tends to be far greater than the dealer's CRM systems, which rely on last click or, you know, single-source attribution.

And so, you know, our view is rather than us just explaining our value (inaudible), we're enabling these partners to have access to our data. Many of them are taking IP address matching back to the home address of the sales records and the dealers' CRM systems and doing a match in terms of what websites their current sales have visited prior to them selling the car. And, overwhelmingly, I think the industry is seeing consumers are using Cars.com to do a lot of their shopping and research, and, therefore, it's the right place to be for a very small percentage of their marketing budget.

So we're going to continue to be a partner to all the firms that are trying to crack the code on attribution, because the more people that are telling our story, I think, can only speed the industry's adoption of new technology and new ways to look at measurement.

Okay. And then could you maybe just talk about, you know, some of this, you know, these dealership losses that you're having, although it's not dramatic, but are a lot of these coming out of the wholesale channel versus the retail channel right now?

Sure. Well, first of all, our affiliate revenue did decline 5% on the quarter and continues to be an area that we're investing in and working with to turn around.

We flew in all of our affiliate partners in the quarter, about a month-and-a-half ago, to have a candid discussion with them about the resources and skills that are needed to compete in this environment, and I am enthusiastic about the response that we've gotten from the senior leadership in the affiliate markets.

I think, you know, some of our challenges were actually related more to national advertising, with two large OEMs having made changes in their overall spending, but we're working with them to bring them back to their previous levels and feel good about that as well.

But, as you noted, the dealer turn has been relatively small and not as significant, and we do have an acute issue on the affiliate side.

Well, I guess what I'm getting at is if you look at your sequential, your car listings are up a little bit. Now, obviously, that's going to be seasonal, but, yet, you know, your dealers are down just a little bit. So, you know, we're hearing all sorts of things, price competition in the market and all that.

I guess the question I would have is that with your larger rooftop dealers, that is where you're still really growing in terms of listings. I guess that's what I would kind of get from the data. Some of these dealerships that are attriting, maybe the smaller ones that are not as sophisticated with their digital-marketing campaigns.

Yes, so, Gary, this is Becky. Let me just amplify what Alex was describing. So you're right. What we're seeing with our large national dealer chains is actually very strong growth, and that's in unit counts and that's also in just overall spending with us.

Where we see the dealer turn being more significant is on the affiliate side, and that's the challenge we have and the opportunity as we look forward. So I think you had that exactly right.

Okay. And then in terms of -- you know, you talk about commoditizing pricing, the feedback you're getting from your dealers versus some of your -- versus what some of your competition has, what kind of feedback are you getting from them in terms of, you know, using a plot scanner, whatever, for your pricing versus listing a deal, good, bad or great?

Well, obviously, with such a large network of dealerships, we get all kinds of varying feedback, but I'll tell you, overwhelmingly, it's been very positive. There's been a few sites that have used price as a hook to almost show that you need to use us to extract the best price from the dealership. I think what dealerships are realizing is they want to be transparent. They want to put their best foot forward.

And what we've done differently in our environment is we're now providing the dealership the ability to demonstrate if their car is priced higher than the market, what are the options or trend-level issues that justify or warrant this car to be priced higher than, say, other inventory in our database. And so I think there is a general enthusiasm that we're being open and transparent with giving the dealership control to tell their story as to why they've priced the car. We've done that really effectively with programs like certified pre-owned, which gives the manufacturers incentive and -- or seal of approval, if you will. And so I think we've been generally very pleased with the feedback we've gotten.

The next version of our pricing guidance is being tested in one market today, which helps the consumer understand how the car's priced relative to market in a more (inaudible) or visual way, and we're working with dealers to get feedback on the next round as well.

So I guess what I'm striving for is, you know, is the perception that you're not getting between the dealership and price with what you're doing versus competitors.

That's right. I mean, we run a very transparent, two-sided market, and we don't pretend to either side that we're getting in the middle. We provide a platform that allows the two sides to come together and transact on their terms, and we're not dictating the rules of engagement to force the user to take any inorganic steps or to force the dealer to price to our terms. And we think that's a winning model and why we've scaled to the size that we have.

And that will always be, I think, core to our platform model is that we're not dictating the rules of the road.

Okay. And, lastly, is lot insights rolled out to all of your dealerships?

It is. We're in the process now of rolling that data up by brand for the manufacturers, so that will be a focus for us in the second half of this year is showing manufacturers how we can show them lot visitation from make to make. So we're now taking the technology and starting to work with manufacturers to show them that we can actually see how many people showed up to a Honda lot today, and then subsequently went to visit Toyota in that same day. So we're excited about starting to work with that next segment of customers.

Thank you.

Your next question comes from Doug Arthur from Huber Research. Please go ahead.

Yeah, thanks. A couple of questions. Becky, the 5% drop in marketing and sales spending or expenses in the second quarter is that somewhat of an anomaly or is that a trend? I mean, I thought part of the strategy was to ramp that up as you're trying to, you know, get more dealers and more traffic in the system. So I'm wondering if you can just comment on that, and then I've got a follow up.

So what I would say is remember that our second quarter was a personal quarter, post spin, and now operating on our own. We do intend to continue to make investments. Importantly, our investments also will be in the product and technology area, which Alex mentioned earlier in his remarks, and so, similarly, if you look in the quarter, you'll see a corresponding increase in our product check-in operations line item as well.

Okay.

Yeah, Doug, I would just add I think our philosophy is we want to invest in product in tech, make some new innovations and then scream those from the mountaintop through marketing investments. So you'll see increased marketing support from us starting in the third quarter.

Okay. Got it.

And then just sort of a nitpick, I think when you had your analyst day and you had a slide that said your mobile traffic was growing at a 15% rate, I think this quarter you're citing 9%. Is that just the law of large numbers in terms of year-over-year comps or is that -- are you starting to see that growth ease off a little bit?

Well, yeah, just --

Or is it --

First of all, our app is growing at double-digit rates, so our IOS app, which we've made a lot of progress on, grew at 20% for the -- year to date, and our overall mobile business, which takes in part our responses site, that growth rate is smaller. So there is some nuance there in the numbers.

And the 15% was our app growth. That was what, if I recall correctly, Alex mentioned at Investor Day.

Right.

Okay. So there's --

And, by the way, Doug, we're going to continue to put more emphasis on the app, because it is best in class, and so we're leaning forward with that. It's a growth platform for the business, and I hope to see that rate continue to stay in the double digits.

So bottom line, you're pleased with your mobile trends, bottom line.

We are.

Yes.

Okay. Okay. Thank you very much.

And our last question comes from Jeff Friedman from GMO. Please go ahead.

Hey, guys, congratulations on a strong quarter, especially with the much improved traffic trends and the June growth. That's really, really good to see.

Just two questions from me. The first is how are you thinking about the affiliate markets at this point? Obviously, you know, that represents a massive growth opportunity for the company, like close to $100 million of revenue just from the 60% going to 100% and then, you know, upselling on top of that. Like are you -- A couple of quarters back you said that you were exploring potential discussions on buying in those markets. Like how are you thinking about that strategic opportunity near term?

Sure. Thank you, Jeff, for joining us and for the remark.

The affiliate contracts don't transition until 2019 and 2020, but we're not going to wait for that date to really engage and try to help turn that performance around.

As I mentioned, we had flown all the senior leadership from our affiliate markets to Chicago, who, you know, all expressed an interest to extend the affiliations beyond their original terms.

I think our view is until we see improved both traffic and sales performance, that's unlikely, and so we spent a lot of time talking about the resources they would need to commit to turn their performance around.

Certainly, we're in discussions with the affiliates that are furthest behind the curve, and we do have minimum performance thresholds that they must adhere to or the markets transition to us prior to the expiration date.

I think they're committed to not coming near those minimums and are trying to turn the resources around to drive the performance. And I hope that we'll see some improved performance in Q3 from them, but it's still early on, and we are in discussions about potential early transitions. Certainly, that takes two sides to agree to, but our interest is in investing in the business and growing our traffic and our sales in those markets, because they're some of the biggest and best markets in the country.

And when you think about (inaudible) location, you know, how do you prioritize potential buy-ins, you know, and preemptively buying in some of those affiliate markets versus other inorganic opportunities?

Well, look, I think, just like Alex said, the affiliate markets represent an important opportunity for growth as we think forward and could be an appropriate use of capital, certainly from our perspective to take and work with those affiliates to transition those markets sooner.

So I would tell you that this is a priority for us in terms of improved performance in some form, and, you know, we're not going to lose sight of that.

And then my last question -- thanks very much -- is so, at this point, like, you know, the replatforming issues kind of cause traffic to tank and kind of it seems like bottom out in the October, November, December of 2016 timeframe and even a little earlier this year. It feels like your traffic is showing, you know, significant signs of improvement or at least flattening.

Do you feel like the replatforming issues are behind you at this point? And when would you actually expect to see benefits from your replatforming?

Right. Well, first of all, we are, too, pleased at the progress we've made year to date. In fact, when we look at our core competitive set we've taken share year to date growing from 17% share of the market to about 19%, according to comScore. So we know that the progress we're making is taking share in the category.

I think we are behind the replatforming from a technology standpoint and are seeing the benefits of that in our pace of innovation. So that's probably the biggest payoff in the replatform, but I think, you know, there's still a lot of work to do on the FCO front. Until we reestablish our FCO authority, we're going to continue to make this, you know, an A number one priority. We continue to spend a lot of our operating time on things that we can do to invest here and to grow, and then I think that's probably the area of the replatforming that isn't done.

But certainly from a technology investment standpoint, we are really thrilled with the new innovation that we've got going, and we think that those product improvements will also help contribute to traffic. But it'll be an ongoing effort and remains for the core focus of the organization.

Great. Thanks so much.

And there are no further questions at this time. I will now turn the call back to Alex for closing remarks.

Kelly, thank you, and thank you all for joining us today, and we look forward to seeing you at the end of the next quarter.

Have a good day.

This concludes today's conference call. You may now disconnect.