CDK quarterly profit falls, forecasts lowered, costs contained

The wind-down of CDK Global Inc.'s digital marketing business continued to drag down profit last quarter as the company worked to complete a sale to a private equity-backed marketing agency.

CDK reported Tuesday that it largely dodged a significant financial hit from the novel coronavirus pandemic in its fiscal third quarter, which brought much of the auto industry to a standstill in the last few weeks of March as government leaders worked to contain COVID-19, the respiratory illness caused by the virus.

Yet the company said the impact of the pandemic is the main reason it lowered revenue and earnings forecasts for the rest of the fiscal year, and that CDK has taken several steps to contain costs and preserve liquidity given the uncertainty of how long it will last.

"CDK remains focused on helping our customers adapt to the current challenges of the COVID-19 pandemic, while we continue to enable them to complete their mission-critical operations," CDK CEO Brian Krzanich said in a statement.

The Hoffman Estates, Ill., dealership management system giant reported Tuesday that net income attributable to CDK for the quarter that ended March 31 was $57.6 million, down 42 percent from the same quarter a year ago.

Fiscal third-quarter revenue, meanwhile, rose 3 percent to $516.3 million. That's as the number of North American DMS customer sites dipped slightly from the prior quarter, to 14,741, though the number of sites increased from the same quarter last year.

CDK's net income from continuing operations, which do not include the digital marketing business, increased 5.7 percent to $94.4 million in the quarter. The company reported a $34.9 million net loss in its digital marketing business.

When the virus outbreak hit this spring, CDK said, it launched an internal task force, moved employees to work remotely, discounted fees for dealerships and increased its borrowing capacity. Krzanich also said he will cut his salary and cash bonuses to $1 for the rest of 2020.

The company's cash balance as of March 31 was $285 million, the company said.

CDK lowered its revenue projections for the 2020 fiscal year, with expectations between $1.92 billion and $1.97 billion. That is compared with prior guidance of $2 billion and $2.05 billion in revenue. CDK said net income attributable to CDK for the 2020 fiscal year has been adjusted to $165 million to $205 million, down from a previous range of $290 million to $310 million.

Krzanich told analysts Tuesday that the company continues to work remotely on new customer service initiatives CDK announced earlier this year, including simplified invoices that are now available to more than half of its customers.

"While COVID-19 is the elephant in the room at the moment, we can not lose sight of our strategic goals, and we expect to emerge from this disruption in a better position to achieve the improvements we promised our dealers," Krzanich said.

CDK in April completed the sale of its digital marketing business, which included dealership advertising and websites, to Ansira Partners Inc., a marketing agency owned by private equity investors. As part of the transaction, all of CDK's former digital marketing customers were transferred to Ansira, which renamed the business Sincro.

In addition, Jen Cole, who previously led CDK's digital business as a senior vice president, joined Ansira as Sincro president.

In a regulatory filing April 30, CDK said it received a $24 million note and a 15 percent equity stake in Ansira when the deal closed.

A spokeswoman told Automotive News that "we believe the digital marketing assets bring significant value to Ansira, and the equity interest in Ansira allows us to share in the future growth of the combined company."