Discounts, delays take $60M bite out of CDK

The coronavirus pandemic cost CDK Global Inc. about $60 million in its fiscal fourth quarter in lost revenue from dealership discounts, product installation delays and a decline in vehicle transactions, the company said last week.

But the Hoffman Estates, Ill., dealership software giant said the financial impact of COVID-19 on its business came in at the "very low" end of its projections. Those could have topped out at $110 million, CFO Joe Tautges said on a conference call after CDK reported lower revenue as it swung from a loss to a profit for the fourth quarter ended June 30.

Transaction revenue was down roughly $10 million, he said. CDK collects fees to process credit reports and vehicle registrations; Tautges said lower volumes, particularly in April, cut into revenue before vehicle sales started to recover in May and June.

CDK in May said the impact of coronavirus-related discounts and installation delays were each expected to reduce fourth-quarter revenue by at least $20 million. Tautges did not break out the impact specific to those discounts and delays on the call, but CDK reported that North American subscription revenue fell by 7 percent to $305.1 million because of the crisis.

CDK offered discounts to dealership customers in April, including cutting fees for its DMS products by 25 percent and offering other tools such as its Elead customer relationship management system for free.

Absent COVID-19 impacts in the quarter, CEO Brian Krzanich said CDK's annual revenue for the 2020 fiscal year would have increased by 5 percent.

Revenue rose 2 percent for the year, to $1.96 billion.

The company did not provide guidance for its 2021 fiscal year. Tautges told analysts that anticipated revenue growth in the next year could be disrupted by the virus.

CDK is amortizing the impact of the April discounts over multiple quarters, and Tautges said the revenue hit in CDK's current quarter will be roughly $15 million lower than it was for the one that ended in June.

"We expect some ongoing project work delays," he told analysts, adding that they may be most prominent in CDK's international markets. "Also, it is unknown whether the delays in installations we experienced during Q4 due to the shutdown will continue and what impact this may have on future subscription revenue."

In May, Krzanich said some customers delayed product installations because of the pandemic. The company did not quantify how many were delayed, but a spokesman said CDK performed more installations in North America in April, May and June than in the previous three months. Other installations were pushed to the July-August-September period.

Tautges said CDK has shifted to virtual installations when customers aren't comfortable with on-site visits.

"COVID certainly presented an opportunity for how we think about our installation model," he said.