CDK settles Cox Automotive lawsuit, reports quarterly net loss

CDK Global Inc. has reached an undisclosed financial settlement with Cox Automotive that dismisses all claims in an antitrust lawsuit, the dealership software giant said Tuesday.

A $90 million accrual for litigation, part of which included the settlement with Cox Automotive, and the loss of income from discontinued digital marketing operations, pushed CDK to to a net loss in its fiscal fourth quarter.

CDK on Tuesday said revenue for the quarter ending June 30 rose 10 percent to $489 million, while it reported a $155 million net loss attributable to CDK. That compares with a $99.4 million profit in the same quarter a year earlier.

The company reported a loss before income taxes of $19.9 million, down sharply from when it made $110 million in the year-earlier period, while adjusted earnings before income taxes came in at $136 million, flat from the year-ago period.

CDK CEO Brian Krzanich told investors and analysts in a call late Tuesday that the agreement with Cox settles all of the Cox’s allegations against CDK.

“On July 10 we entered into a settlement agreement with Cox Automotive resulting in the dismissal of all claims from the litigation between our companies,” Kraznich said on the call. “We’re glad to put this behind us and look forward to our renewed and positive relationship with this key partner.”

Shares of CDK were down 7.8 percent to $43.71 in midday trading Wednesday.

Cox filed the lawsuit against CDK in December 2017, indicating at the time that its antitrust claims against CDK topped $200 million.

CFO Joe Tautges said the company recorded the $90 million expense that included the Cox settlement and a reserve for remaining unsettled cases. Kraznich said the settlement does not resolve all of the antitrust litigation the company faces, but described the Cox settlement as “predominately the larger of the lawsuits that are out there.”

A Cox Automotive spokesman confirmed the settlement with CDK, but said terms remain confidential.

“We believe this step will allow both companies to move forward in a positive and productive way for the benefit of our mutual dealer partners and the broader automotive industry,” a Cox spokesman wrote in an email to Automotive News.

Kraznich also described Cox Automotive as one of its partners and said Cox is beta testing a repair order open API through its Fortellis platform.

“The repair order API is important as it allows a simpler, more cost effective way for our partners to link their service and repair software with CDK DMS,” he said.

Another hit on the fourth quarter was the move of the digital marketing business to discontinued operations. In June, CDK announced plans to sell that business to focus on its core automotive software.

For CDK’s 2019 fiscal year, revenue grew 8 percent to $1.9 billion, while net income attributable to CDK dropped 66 percent to $124 million.

Looking at its 2020 fiscal year, CDK expects to generate revenue of $2 billion to $2.05 billion and net earnings attributable to CDK of $340 million to $370 million.

Kraznich said the company plans to invest $30 million in technology and service projects in fiscal 2020 to help drive revenue growth of 4 to 6 percent.