Blueprint
 

 
UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
 
FORM 8-K
 
 
CURRENT REPORT
 
Pursuant to Section 13 or 15(d) of
 
The Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported) March 7, 2019
 
 
AutoWeb, Inc.
 
(Exact name of registrant as specified in its charter)
 
 
Delaware
 
1-34761
 
33-0711569
(State or other jurisdiction of incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)
 
18872 MacArthur Boulevard, Suite 200,
Irvine, California
 

 
 
92612-1400
(Address of principal executive offices)
 
 
 
(Zip Code)
 
Registrant’s telephone number, including area code (949) 225-4500

 
 (Former name or former address, if changed since last report.)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
 Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
Emerging growth company
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
 
 
 
 
 
 
 
 
Item 2.02
Results of Operations and Financial Condition.
 
On March 7, 2019, AutoWeb, Inc., a Delaware corporation (“AutoWeb” or “Company”), announced in a press release its financial results for the quarter and full year ended December 31, 2018. A copy of AutoWeb’s press release announcing these financial results is attached as Exhibit 99.1 to this Current Report on Form 8-K.
 
In connection with the press release, the Company also held a conference call that was webcast on March 7, 2019. Presentation slides referenced during the conference call were available on the Company’s website for viewing by call participants. A transcript of that call, including the presentation slides referenced during the conference call, is attached as Exhibit 99.2 to this Current Report on Form 8-K.
 
The attached press release, transcript, and presentation slides contain information that includes the following Non-GAAP financial measures as defined in Regulation G adopted by the Securities and Exchange Commission: “Non-GAAP (Loss) Income,” “Non-GAAP EPS,” “Adjusted Gross Profit,” and “Adjusted Gross Margin.” The Company defines (i) Non-GAAP (Loss) Income as generally accepted accounting principles (“GAAP”) net (loss) income before amortization of acquired intangibles, non-cash stock-based compensation, severance costs, gain or loss on investment or sale, litigation settlements, goodwill impairment, long-lived asset impairment and income taxes; (ii) Non-GAAP EPS as Non-GAAP (Loss) Income divided by weighted average diluted shares outstanding; (iii) Adjusted Gross Profit as GAAP gross profit minus the one-time cost of revenues - impairment charge due to the DealerX platform license; and (iv) Adjusted Gross Margin as GAAP gross margin, excluding the impact of the one-time cost of revenues - impairment charge due to the DealerX platform license. In addition to the foregoing Non-GAAP financial measures, for year-over-year comparisons in the presentation slides, prior year results for 2014, 2015, and 2016 presented are adjusted to exclude the Company’s specialty finance leads product, which was divested on December 31, 2016, which comparisons and prior year results are also Non-GAAP financial measures as defined by Regulation G. The Company’s management believes that presenting Non-GAAP (Loss) Income, Non-GAAP EPS, Adjusted Gross Profit, Adjusted Gross Margin, and the adjusted year-over-year comparisons and prior year results provides useful information to investors regarding the underlying business trends and performance of the Company’s ongoing operations, as well as providing for more consistent period-over-period comparisons. These Non-GAAP financial measures also assist management in its operational and financial decision-making and monitoring the Company’s performance. In addition, the Company uses Non-GAAP (Loss) Income and Non-GAAP EPS as a measure for determining incentive compensation targets. These Non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures. Management strongly encourages investors to review the Company’s consolidated financial statements in their entirety and to not rely on any single financial measure. Tables providing reconciliations of Non-GAAP (Loss) Income, Non-GAAP EPS, Adjusted Gross Profit, Adjusted Gross Margin, and the adjusted year-over-year comparisons and prior year results are included at the end of the press release and in the presentation slides attached as Exhibits 99.1 and 99.2, respectively, to this Current Report on Form 8-K.
 
The attached press release, transcript, and presentation slides are incorporated herein solely for purposes of this Item 2.02 disclosure. The information furnished pursuant to this Item 2.02, including the exhibits attached hereto, shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any incorporation by reference language of such filing. In addition, the press release, transcript and presentation slides furnished as exhibits to this report include “safe harbor” language pursuant to the Private Securities Litigation Reform Act of 1995, stating that certain statements about AutoWeb’s business contained in the press release, transcript and presentation slides are “forward-looking” rather than “historic.”
 
 
 
 
 
 
Item 9.01
Financial Statements and Exhibits.
 
(d)
Exhibits
 
99.1
Press Release dated March 7, 2019
99.2
Transcript of AutoWeb, Inc.’s Conference Call dated March 7, 2019 and Conference Call Presentation Slides
 
 
 
   
 
 
 
 
SIGNATURES
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
Date:  March 12, 2019
 
 AUTOWEB, INC.
 
 
 
 
By:
/s/ Glenn E. Fuller            
 
 
Glenn E. Fuller,
Executive Vice President, Chief Legal Officer and Secretary
 
 
 
Exhibit 99.2
 
Exhibit 99.1
 
 
AutoWeb Reports Fourth Quarter and Full Year 2018 Results
 
IRVINE, Calif. – March 7, 2019 – AutoWeb, Inc. (Nasdaq: AUTO), a robust digital marketing platform providing digital advertising solutions for automotive dealers and OEMs, is reporting financial results for the fourth quarter and full year ended December 31, 2018.
 
Fourth Quarter 2018 Financial Summary
Total revenues were $32.3 million compared to $31.7 million in Q3’18 and $33.3 million in Q4’17.
Advertising revenues were $6.5 million compared to $6.6 million in Q3’18 and $9.2 million in Q4’17.
Net loss was $5.3 million or $(0.41) per share, compared to a net loss of $18.0 million or $(1.41) per share in Q3’18 and a net loss of $65.8 million or $(5.22) per share in Q4’17.
Non-GAAP loss was $3.1 million or $(0.24) per share, compared to a non-GAAP loss of $2.4 million or $(0.19) per share in Q3’18 and non-GAAP income of $0.1 million or $0.01 per share in Q4’17.
 
Fourth Quarter 2018 Key Operating Metrics 
Lead traffic was 32.1 million visits compared to 34.4 million in Q3’18 and 26.8 million in Q4’17.1
Lead volume was 2.0 million compared to 1.9 million in Q3’18 and 1.8 million in Q4’17.2
Retail dealer count was 2,596 compared to 2,577 in Q3’18 and 3,008 in Q4’17.3
Retail lead capacity was 442,000 lead targets compared to 441,000 in Q3’18 and 528,000 in Q4’17.4
Click traffic was 6.1 million visits compared to 5.9 million in Q3’18 and 6.3 million in Q4’17. 5
Click volume was 6.6 million clicks compared to 6.6 million in Q3’18 and 7.3 million in Q4’17.6
Revenue per click was $0.81 compared to $0.84 in Q3’18 and $1.08 in Q4’17.7
 
1 Lead traffic = total visits to AutoWeb’s owned lead websites. Lead traffic visits for the applicable periods include visits to several additional AutoWeb websites that were not previously reported for the Q3’18 period.
2 Lead volume = total new and used vehicle leads invoiced to retail and wholesale customers.
3 Retail dealer count = the number of franchised dealers contracted for delivery of retail new vehicle leads plus the number of vehicle dealers (franchised or independent) contracted for delivery of retail used vehicle leads.
4 Retail lead capacity = the sum of the number of new and used vehicle leads contracted for by new or used retail vehicle dealers that the dealers wish to receive each month (i.e., “targets”) during the applicable quarter.
5 Click traffic = total visits to AutoWeb’s owned click referral websites.
6 Click Volume = the number of times during the applicable quarter that consumers clicked on advertisements on AutoWeb’s click referral websites.
7 Revenue per click = total click revenue divided by click volume.
 
 
Management Commentary
“We continued to execute on our strategic initiatives in Q4, as reflected by another quarter of sequential improvement in lead volume and the first time we’ve generated two million leads since Q3 2017,” said Jared Rowe, President & CEO of AutoWeb. “We also began to mobile enable some of our new car websites, which led to improvements in conversion and resulted in our first sequential quarter of gross margin expansion since Q4 2016.
 
“We made progress implementing new traffic acquisition strategies and our new click algorithm during the quarter. In fact, as of November 2018, 90% of our click traffic was being exposed to the new algorithm and the early results have been promising, however there is still work to be done to improve our click through rate.
 
 
 
 
 
“This momentum has been further enabled by the establishment of our full leadership team. Over the last few months, we added a new CFO, COO, CTO, and CPO; all department heads are now in place. Further, we strengthened our board with the appointment of Chan Galbato, a seasoned executive from Cerberus Capital Management. Each team member brings a unique but complementary background and skillset to fill critical roles at AutoWeb.
 
“We have completed the first phase of our turnaround and are in the early stages of the next phase. Our team is in place, we’ve begun to deploy various initiatives and our results are beginning to turn in the right direction. However, we still need to make better progress on multiple fronts, particularly from a distribution perspective for both leads and clicks. While we improved dealer count and lead capacity during the fourth quarter, we do not anticipate a straight-line trajectory and believe we can make better progress in penetrating the top 150 dealer groups in the country.
 
“Overall, I am proud of the work our team has completed to date as we enter the next phase of this turnaround, and we remain fully committed to growing revenue and expanding margins in 2019 as we execute on our various strategic initiatives.”
 
Fourth Quarter 2018 Financial Results
Total revenues in the fourth quarter of 2018 were $32.3 million compared to $33.3 million in the year-ago quarter, with advertising revenues of $6.5 million compared to $9.2 million in the year-ago quarter. The decline in total revenues was primarily due to lower click volume and revenue per click.
 
Gross profit in the fourth quarter was $5.6 million compared to $8.1 million in the year-ago quarter, with the decrease primarily driven by lower revenue and cost of revenue inefficiencies. As a percentage of revenue, gross profit was 17.5%.
 
Total operating expenses in the fourth quarter were $11.0 million compared to $48.4 million in the year-ago quarter. The fourth quarter of 2017 included a goodwill impairment charge of $37.7 million.
 
Net loss in the fourth quarter of 2018 was $5.3 million or $(0.41) per share, compared to a net loss of $65.8 million or $(5.22) per share in the year-ago quarter. The difference was primarily driven by the aforementioned goodwill impairment charge in 2017, as well as a non-cash charge to income tax in the year-ago quarter.
 
Non-GAAP loss was $3.1 million or $(0.24) per share, compared to non-GAAP income of $0.1 million or $0.01 per share in the fourth quarter of 2017 (see "Note about Non-GAAP Financial Measures" below for further discussion). The decline was primarily driven by the lower revenue and gross profit noted above.
 
At December 31, 2018, cash and cash equivalents totaled $13.6 million compared to $15.8 million at September 30, 2018, and $25.0 million at December 31, 2017, with the reduction from year-end 2017 primarily driven by repayment of AutoWeb’s $8.0 million revolving line of credit and severance-related costs. Total debt was $1.0 million compared to $9.0 million at December 31, 2017.
 
Full Year 2018 Financial Results
Total revenues in 2018 were $125.6 million compared to $142.1 million in 2017, with advertising revenues of $28.2 million compared to $34.1 million in 2017.
 
Gross profit in 2018 was $15.3 million compared to $42.8 million in 2017. As a percentage of revenue, gross profit was 12.2%. The decrease was primarily due to lower revenues and efficiency, as well as the one-time impairment charge in Q3’18 associated with the DealerX platform license.
 
 
 
 
 
 
Adjusted gross profit in 2018, which excludes the one-time DealerX impairment charge of $9.0 million, was $24.3 million compared to gross profit of $42.8 million in 2017. As a percentage of revenue, adjusted gross profit was 19.3% (see "Note about Non-GAAP Financial Measures" below for further discussion).
 
Total operating expenses in 2018 were $54.3 million compared to $81.4 million in 2017. The 2017 period included a $37.7 million goodwill impairment charge.
 
Net loss in 2018 was $38.8 million or $(3.04) per share, compared to a net loss of $65.0 million or $(5.48) per share last year.
 
Non-GAAP loss was $9.2 million or $(0.72) per share, compared to non-GAAP income of $8.5 million or $0.64 per share in 2017 (see "Note about Non-GAAP Financial Measures" below for further discussion).
 
Conference Call
AutoWeb will hold a conference call today at 5:00 p.m. Eastern time to discuss its fourth quarter and full year 2018 results, followed by a question-and-answer session.
 
Date: Thursday, March 7, 2019
Time: 5:00 p.m. Eastern time (2:00 p.m. Pacific time)
Toll-free dial-in number: 1-877-852-2929
International dial-in number: 1-404-991-3925
Conference ID: 6986797
 
Please call the conference telephone number 5-10 minutes prior to the start time, and an operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Liolios at 1-949-574-3860.
 
A replay of the conference call will be available after 8:00 p.m. Eastern time on the same day through March 16, 2019. The call will also be archived in the Investors section of AutoWeb’s website for one year.
 
Toll-free replay number: 1-855-859-2056
International replay number: 1-404-537-3406
Replay ID: 6986797
 
Tax Benefit Preservation Plan
 
At December 31, 2018, the company had approximately $87.6 million in available net operating loss carryforwards (NOLs) for U.S. federal income tax purposes. AutoWeb reminds stockholders about its Tax Benefit Preservation Plan dated May 26, 2010, as amended on April 14, 2014 and April 13, 2017 (as amended, the “Plan”) between the company and Computershare Trust Company, N.A., as rights agent.
 
The Plan was adopted by the company’s board of directors to preserve the company’s NOLs and other tax attributes, and thus reduce the risk of a possible change of ownership under Section 382 of the Internal Revenue Code. Any such change of ownership under Section 382 would limit or eliminate the ability of the company to use its existing NOLs for federal income tax purposes. In general, an ownership change will occur if the company’s 5% shareholders, for purposes of Section 382, collectively increase their ownership in the company by an aggregate of more than 50 percentage points over a rolling three-year period. The Plan is designed to reduce the likelihood that the company experiences such an ownership change by discouraging any person or group from becoming a new 5% shareholder under Section 382. Rights issued under the Plan could be triggered upon the acquisition by any person or group of 4.9% or more of the company’s outstanding common stock and could result in substantial dilution of the acquirer’s percentage ownership in the company. There is no guarantee that the Plan will achieve the objective of preserving the value of the company’s NOLs.
 
 
 
 
 
 
As of January 31, 2019, there were 12,960,450 shares of the company’s common stock, $0.001 par value, outstanding. Persons or groups considering the acquisition of shares of beneficial ownership of the company’s common stock should first evaluate their percentage ownership based on this revised outstanding share number to ensure that the acquisition of shares does not result in beneficial ownership of 4.9% or more of outstanding shares. For more information about the Plan, please visit investor.autoweb.com/tax.cfm.
 
About AutoWeb, Inc.
AutoWeb, Inc. provides high-quality consumer leads, clicks and associated marketing services to automotive dealers and manufacturers throughout the United States. The company also provides consumers with robust and original online automotive content to help them make informed car-buying decisions. The company pioneered the automotive Internet in 1995 and has since helped tens of millions of automotive consumers research vehicles; connected thousands of dealers nationwide with motivated car buyers; and has helped every major automaker market its brand online.
 
Investors and other interested parties can receive AutoWeb news alerts and special event invitations by accessing the online registration form at investor.autoweb.com/alerts.cfm.
 
Note about Non-GAAP Financial Measures
AutoWeb has disclosed non-GAAP (loss) income and non-GAAP EPS in this press release, which are non-GAAP financial measures as defined by SEC Regulation G. The company defines (i) non-GAAP (loss) income as GAAP net (loss) income before amortization of acquired intangibles, non-cash stock-based compensation, severance costs, gain or loss on investment or sale, litigation settlements, goodwill impairment, long-lived asset impairment and income taxes; and (ii) non-GAAP EPS as non-GAAP (loss) income divided by weighted average diluted shares outstanding. A table providing reconciliations of non-GAAP (loss) income and non-GAAP EPS is included at the end of this press release.
 
AutoWeb has also disclosed adjusted gross profit and adjusted gross margin in this press release, which are also non-GAAP financial measures as defined by SEC Regulation G. The company defines (i) adjusted gross profit as GAAP gross profit minus the one-time cost of revenues - impairment charge due to the DealerX platform license; and (ii) adjusted gross margin as GAAP gross margin, excluding the impact of the one-time cost of revenues – impairment charge due to the DealerX platform license. A table providing the reconciliation of adjusted gross profit and adjusted gross margin is included at the end of this press release.
 
The company's management believes that presenting non-GAAP (loss) income, non-GAAP EPS, adjusted gross profit and adjusted gross margin provides useful information to investors regarding the underlying business trends and performance of the company's ongoing operations, as well as providing for more consistent period-over-period comparisons. These non-GAAP measures also assist management in its operational and financial decision-making and monitoring the company’s performance. In addition, we use non-GAAP and non-GAAP EPS as a measure for determining incentive compensation targets. These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures. Management strongly encourages investors to review the company's consolidated financial statements in their entirety and to not rely on any single financial measure.
 
 
 
 
 
 
Forward-Looking Statements Disclaimer
The statements contained in this press release or that may be made during the conference call described above that are not historical facts are forward-looking statements under the federal securities laws. Words such as “anticipates,” “could,” “may,” “estimates,” “expects,” “projects,” “intends,” “pending,” “plans,” “believes,” “will” and words of similar substance, or the negative of those words, used in connection with any discussion of future operations or financial performance identify forward-looking statements. In particular, statements regarding expectations and opportunities, new product expectations and capabilities, projections, statements regarding future events, and our outlook regarding our performance and growth are forward-looking statements. These forward-looking statements, including, that (i) there is still work to be done to improve the company’s click through rate; (ii) the company still needs to make better progress on multiple fronts, particularly from a distribution perspective for both leads and clicks; (iii) while dealer count and lead capacity improved during the fourth quarter, the company does not anticipate a straight-line trajectory and that the company believes it can make better progress in penetrating the top 150 dealer groups in the country; and (iv) the company remains fully committed to growing revenue and expanding margins in 2019 as it executes on our various strategic initiatives, are not guarantees of future performance and involve assumptions and risks and uncertainties that are difficult to predict. Actual outcomes and results may differ materially from what is expressed in, or implied by, these forward-looking statements. AutoWeb undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Among the important factors that could cause actual results to differ materially from those expressed in, or implied by, the forward-looking statements are changes in general economic conditions; the financial condition of automobile manufacturers and dealers; disruptions in automobile production; changes in fuel prices; the economic impact of terrorist attacks, political revolutions or military actions; failure of our internet security measures; dealer attrition; pressure on dealer fees; increased or unexpected competition; the failure of new products and services to meet expectations; failure to retain key employees or attract and integrate new employees; actual costs and expenses exceeding charges taken by AutoWeb; changes in laws and regulations; costs of legal matters, including, defending lawsuits and undertaking investigations and related matters; and other matters disclosed in AutoWeb’s filings with the Securities and Exchange Commission. Investors are strongly encouraged to review the company's Annual Report on Form 10-K for the year ended December 31, 2018 and other filings with the Securities and Exchange Commission for a discussion of risks and uncertainties that could affect the business, operating results or financial condition of AutoWeb and the market price of the company's stock.
 
Company Contact
J.P. Hannan
Chief Financial Officer
1-949-437-4651
jp.hannan@autoweb.com
 
Investor Relations Contact:
Sean Mansouri or Cody Slach
Liolios Investor Relations
1-949-574-3860
AUTO@liolios.com
 
 
 
 
AUTOWEB, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands, except share and per-share data)
 
 
 
 December 31,
 
 
 December 31,
 
 
 
 2018
 
 
 2017
 
Assets
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 $13,600 
 $24,993 
Short-term investment
  - 
  254 
Accounts receivable (net of allowances for bad debts and customer credits of $566 and $892 at December 31, 2018 and 2017, respectively)
  26,898 
  25,911 
Prepaid expenses and other current assets
  1,245 
  1,805 
Total current assets
  41,743 
  52,963 
Property and equipment, net
  3,181 
  4,311 
Investments
  - 
  100 
Intangible assets, net
  11,976 
  29,113 
Goodwill
  - 
  5,133 
Long-term deferred tax asset
  - 
  692 
Other assets
  516 
  601 
Total assets
 $57,416 
 $92,913 
 
    
    
Liabilities and Stockholders' Equity
    
    
Current liabilities:
    
    
Accounts payable
 $10,908 
 $7,083 
Accrued employee-related benefits
  3,125 
  2,411 
Other accrued expenses and other current liabilities
  8,868 
  7,252 
Current convertible note payable
  1,000 
  - 
Total current liabilities
  23,901 
  16,746 
Convertible note payable
  - 
  1,000 
Borrowings under revolving credit facility
  - 
  8,000 
Total liabilities
  23,901 
  25,746 
 
    
    
Commitments and contingencies
    
    
 
    
    
Stockholders' equity:
    
    
Preferred stock, $0.001 par value; 11,445,187 shares authorized
    
    
Series A Preferred stock, none issued and outstanding
  - 
  - 
Common stock, $0.001 par value; 55,000,000 shares authorized; 12,960,450 and 13,059,341 shares issued and outstanding, as of December 31, 2018 and 2017, respectively
  13 
  13 
Additional paid-in capital
  361,218 
  356,054 
Accumulated deficit
  (327,716)
  (288,900)
Total stockholders' equity
  33,515 
  67,167 
Total liabilities and stockholders' equity
 $57,416 
 $92,913 
 
 
 
 
 AUTOWEB, INC.
 UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
 (Amounts in thousands, except per-share data)
 
 
 
Three Months Ended
 
 
Twelve Months Ended
 
 
 
December 31,
 
 
December 31,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
 
2017
 
 
2018
 
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
Lead fees
 $25,659 
 $23,896 
 $96,936 
 $107,045 
Advertising
  6,526 
  9,228 
  28,169 
  34,142 
Other revenues
  68 
  197 
  484 
  938 
Total revenues
  32,253 
  33,321 
  125,589 
  142,125 
Cost of revenues
  26,613 
  25,182 
  101,315 
  99,352 
Cost of revenues - impairment
  - 
  - 
  9,014 
  - 
Gross profit
  5,640 
  8,139 
  15,260 
  42,773 
 
    
    
    
    
Operating expenses:
    
    
    
    
Sales and marketing
  2,323 
  3,630 
  12,419 
  14,315 
Technology support
  3,185 
  2,986 
  13,838 
  12,567 
General and administrative
  4,097 
  2,961 
  16,077 
  12,001 
Depreciation and amortization
  1,402 
  1,158 
  4,897 
  4,781 
Goodwill impairment
  - 
  37,688 
  5,133 
  37,688 
Long-lived asset impairment
  - 
  - 
  1,968 
  - 
     Total operating expenses
  11,007 
  48,423 
  54,332 
  81,352 
Operating income (loss)
  (5,367)
  (40,284)
  (39,072)
  (38,579)
Interest and other income (expense), net
  72 
  (656)
  250 
  (946)
Income (loss) before income tax provision (benefit)
  (5,295)
  (40,940)
  (38,822)
  (39,525)
Income tax provision (benefit)
  (10)
  24,900 
  (6)
  25,439 
Net income (loss) and comprehensive income (loss)
 $(5,285)
 $(65,840)
 $(38,816)
 $(64,964)
 
    
    
    
    
 
    
    
    
    
Basic earnings (loss) per common share
 $(0.41)
 $(5.22)
 $(3.04)
 $(5.48)
Diluted earnings (loss) per common share
 $(0.41)
 $(5.22)
 $(3.04)
 $(5.48)
 
    
    
    
    
 
    
    
    
    
 
Shares used in computing earnings (loss) per common share (in thousands):
 
    
    
 Basic
  12,892 
  12,622 
  12,756 
  11,853 
 Diluted
  12,892 
  12,622 
  12,756 
  11,853 
 
 
 
 
 
AUTOWEB, INC.
RECONCILIATION OF NON-GAAP INCOME (LOSS) / EPS
 (Amounts in thousands, except per-share data)
 
 
 
Three Months Ended
March 31,
 
 
Three Months Ended
June 30,
 
 
Three Months Ended
September 30,
 
 
Three Months Ended
December 31,
 
 
Year Ended
December 31,
 
 
 
2018
 
 
2017
 
 
2018
 
 
2017
 
 
2018
 
 
2017
 
 
2018
 
 
2017
 
 
2018
 
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 $(10,279)
 $484 
 $(5,217)
 $322 
 $(18,036)
 $69 
 $(5,285)
 $(65,840)
 $(38,816)
 $(64,964)
Amortization of acquired intangibles
  1,687 
  1,387 
  1,670 
  1,359 
  1,650 
  1,343 
  1,511 
  1,646 
  6,518 
  5,736 
Non-cash stock based compensation:
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
Cost of revenues
  15 
  20 
  4 
  19 
  2 
  19 
  2 
  19 
  23 
  78 
Sales and marketing
  225 
  412 
  159 
  402 
  520 
  409 
  77 
  481 
  981 
  1,703 
Technology support
  152 
  127 
  173 
  134 
  886 
  138 
  36 
  184 
  1,247 
  583 
General and administrative
  1,234 
  452 
  607 
  389 
  388 
  397 
  386 
  501 
  2,615 
  1,739 
Total non-cash stock-based compensation
  1,626 
  1,011 
  943 
  944 
  1,796 
  963 
  501 
  1,185 
  4,866 
  4,103 
 
    
    
    
    
    
    
    
    
    
    
Severance costs
  950 
  - 
  - 
  57 
  1,140 
  - 
  188 
  - 
  2,278 
  57 
Litigation settlements
  (17)
  (25)
  (25)
  (25)
  (25)
  (26)
  (25)
  (33)
  (92)
  (109)
Gain (loss) on investment
  - 
  - 
  (125)
  - 
  100 
  - 
  - 
  580 
  (25)
  580 
Goodwill impairment
  5,133 
  - 
  - 
  - 
  - 
  - 
  - 
  37,688 
  5,133 
  37,688 
Long-lived asset impairment
  - 
  - 
  - 
  - 
  10,982 
  - 
  - 
  - 
  10,982 
  - 
Income taxes
  4 
  625 
  - 
  (166)
  - 
  81 
  (10)
  24,900 
  (6)
  25,439 
 
    
    
    
    
    
    
    
    
    
    
Non-GAAP income (loss)
 $(896)
 $3,482 
 $(2,754)
 $2,491 
 $(2,393)
 $2,430 
 $(3,120)
 $126 
 $(9,162)
 $8,530 
 
    
    
    
    
    
    
    
    
    
    
Weighted average diluted shares
  12,617 
  13,309 
  12,726 
  13,344 
  12,787 
  13,201 
  12,892 
  13,452 
  12,756 
  13,366 
 
    
    
    
    
    
    
    
    
    
    
 
    
    
    
    
    
    
    
    
    
    
Diluted GAAP EPS
 $(0.81)
 $0.04 
 $(0.41)
 $0.01 
 $(1.41)
 $0.01 
 $(0.41)
 $(5.22)
 $(3.04)
 $(5.48)
Diluted impact of adjustments
  0.74 
  0.23 
  0.19 
  0.16 
  1.22 
  0.18 
  0.17 
  4.90 
  2.32 
  5.50 
Diluted Non-GAAP EPS
 $(0.07)
 $0.26 
 $(0.22)
 $0.19 
 $(0.19)
 $0.18 
 $(0.24)
 $0.01 
 $(0.72)
 $0.64 
 
 
 
 
AUTOWEB, INC.
 
 
 
 
 
 
RECONCILIATION OF ADJUSTED GROSS PROFIT (LOSS) AND ADJUSTED GROSS MARGIN
(Amounts in thousands, except gross margin %)
 
 
 
 
 
 
 
 
 
Year Ended
December 31,
 
 
 
2018
 
 
2017
 
 
 
 
 
 
 
 
Total Revenues
 $125,589 
 $142,125 
 
    
    
Cost of revenues
  101,315 
  99,352 
Cost of revenues - impairment
  9,014 
  - 
Gross (loss) profit
  15,260 
  42,773 
 
    
    
Non-GAAP adjustments
    
    
Cost of revenues - impairment
  9,014 
  - 
Adjusted gross profit
 $24,274 
 $42,773 
 
    
    
 
    
    
Gross margin
  12.2%
  30.1%
 
    
    
Non-GAAP adjustments
    
    
Cost of revenues - impairment
  7.2%
  0.0%
Adjusted gross margin
  19.3%
  30.1%
 
 
Exhibit 99.2
 
Exhibit 99.2
 
 
AutoWeb, Inc.
Moderator: Sean Mansouri
03-07-19/5:00 p.m. ET
Confirmation # 6986797
Page 1
 
 
AutoWeb, Inc.
 
Moderator: Sean Mansouri
March 07, 2019
5:00 p.m. ET
 
 
OPERATOR: 
This is Conference # 6986797
 
Operator: 
Good afternoon, everyone, and thank you for participating in today's conference call to discuss AutoWeb's financial results for the fourth quarter and full year ended December 31, 2018.
 
Joining us today are AutoWeb's CEO, Jared Rowe, the Company's CFO, JP Hannan, and the company's outside investor relations advisor, Sean Mansouri with Liolios. Following their remarks, we'll open the call for your questions. I would now like to turn the call over to Mr. Mansouri for some introductory comments.
 
Sean Mansouri: 
Thank you. Before I introduce Jared, I remind you that during today's call, including the question-and-answer session, statements that are not historical facts, including any projections, statements regarding future events or future financial performance or statements of intent or belief are forward-looking statements and are covered by the safe harbor disclaimers contained in today's press release, the slides accompanying this presentation and the company's public filings with the SEC.
 
Actual outcomes and results may differ materially from what is expressed in or implied by these forward-looking statements.
 
Specifically, please refer to the company's Form 10-K for the full year ended December 31, 2018, which was filed prior to this call as well as other filings made by AutoWeb with the SEC from time to time. These filings identify factors that could cause results to differ materially from those forward-looking statements.
 
 
 AutoWeb, Inc.
Moderator:  Sean Mansouri
03-07-19/5:00 p.m. ET
Confirmation # 6986797
Page 2
 
There are slides included with today's presentation to help illustrate some of the points being made and discussed during the call. The slides can be accessed by visiting AutoWeb's website at autoweb.com.
 
When there, go to Investors and then click on Events & Presentations. Please also note that during this call and/or in the accompanying slides, management will be disclosing non-GAAP loss or income, non-GAAP EPS and adjusted gross profit and gross margin.
 
These are non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in today's press release and slides, which are posted on the company's website. And with that, I'll turn the call over to Jared.
 
Jared Rowe: 
Thanks, Sean, and good afternoon, everyone. In Q4 we continued to execute on our strategic initiatives, as reflected by another quarter of sequential improvement in lead volume and the first time we've generated 2 million leads since Q3 of 2017.
 
We also began to mobile-enable some of our new car websites, which led to improvements in conversion and resulted in our first sequential quarter of gross margin expansion since Q4 of 2016.
 
We made progress implementing new traffic acquisition strategies and ramping our new click algorithm during the quarter. In fact, as of mid-November 2018, 90% of our click traffic was being exposed to the new algorithm and the early results have been promising.
 
However, there's still work to be done with the algorithm, as we are seeing benefits to revenue per click, but to click-through rate. To address the click-through rate, we have recently developed an approach to mobile-enable our click product.
 
We're still in the testing phase, but we believe this product enhancement will be a solid addition to our overall solution for dealers and OEMs, as it's designed to improve display and engagement for consumers who use their mobile device. All this momentum has been further enabled by the establishment of our full senior leadership team.
 
 
AutoWeb, Inc.
Moderator: Sean Mansouri
03-07-19/5:00 p.m. ET
Confirmation # 6986797
Page 3
 
Over the last few months, we added a new Chief Financial Officer, Chief Operating Officer, Chief Technology Officer and Chief People Officer. We now have our full senior team in place, which should increase the pace of change and improve operational execution.
 
Further, we strengthened our board with the appointment of Chan Galbato, a seasoned executive from Cerberus Capital Management. Each team member brings a unique but complementary background and skillset to fill critical roles at AutoWeb and we look forward to leveraging all of their leadership experience as we continue to execute our turnaround.
 
I'll provide more detail on our progress and strategic initiatives later in the call. But I'd first like to introduce our new CFO, JP Hannan, to walk through the details of Q4 and the full year results.
 
Before I let him talk about the results, I do want to introduce him. JP has more than 20 years of public and private CFO experience across various media-related organizations, and I couldn't be more excited to have him as my financial partner. So with that, we'll turn it over to JP.
 
JP Hannan: 
Thank you, Jared. I appreciate the kind words, and I'm thrilled to be here. Good afternoon, everybody. So jumping right into our results, fourth quarter revenue came in at $32.3 million. That was down from $33.3 million in the year ago quarter. Our advertising revenues were $6.5 million compared to $9.2 million in the year ago quarter.
 
Click revenues were $5.4 million compared to $7.9 million. These declines were primarily due to lower click volume and revenue per click, which resulted from an unfavorable advertising mix that Jared will expand on later.
 
Gross profit during the fourth quarter was $5.6 million compared to $8.1 million in the year ago quarter, with gross margin coming in at 17.5% compared to 24.4%. This decline was primarily driven by lower revenue and the continued need to improve our cost-revenue efficiency.
 
Total operating expenses in the fourth quarter were $11 million and that compares to $48.4 million last year. Please note that the fourth quarter of 2017 also included a goodwill impairment charge of $37.7 million.
 
 
AutoWeb, Inc.
Moderator: Sean Mansouri
03-07-19/5:00 p.m. ET
Confirmation # 6986797
Page 4
 
On a GAAP basis, net loss for the fourth quarter was $5.3 million or a loss of $0.41 per share on 12.9 million shares. This compares to a net loss of $65.8 million or a loss of $5.22 per share on 12.6 million shares in the year ago quarter.
 
This improvement was primarily driven by the aforementioned goodwill impairment charge in 2017, as well as a non-cash charge to income tax in the year ago quarter.
 
For the fourth quarter, non-GAAP loss which adds back amortization on acquired intangibles, non-cash stock comp, severance costs, gain or loss on investment or sale, litigation settlements, goodwill impairment, long-lived asset impairment and income taxes was $3.1 million or a loss of $0.24 per share.
 
This compares to non-GAAP income of $0.1 million or $0.01 per share in the fourth quarter of 2017. This decline was primarily driven by the aforementioned lower revenue and gross profit.
 
Cash used by operations in the fourth quarter was $2.2 million compared to $2 million in the third quarter and $1 million in the prior year quarter. And note that Q4 was negatively impacted by one-time severance costs totaling $460,000, as well as routine impact of year end DSO expansion, which results from slower paying customers.
 
We continue to expect incremental cash burn in the first half of 2019 as we invest in our people, products and technology, with the intention to return to growth and margin expansion this year.
 
We also expect to improve our liquidity and balance sheet through non-dilutive measures, as we are currently in discussions with various banks for the establishment of new credit facilities.
 
At December 31, 2018 our cash and cash equivalents stood at $13.6 million. This compares to $15.8 million at September 30, and $25 million at December 31, 2017.
 
 
AutoWeb, Inc.
Moderator: Sean Mansouri
03-07-19/5:00 p.m. ET
Confirmation # 6986797
Page 5
 
This decrease from year end 2017 was primarily driven by our repayment of an $8 million revolving line of credit, as well as severance-related costs. Total debt at December 31, 2018 was $1 million compared to $9 million at the end of 2017.
 
And subsequent to quarter end, we paid off the remaining $1 million note and are now debt-free. Now I'll quickly run through the full year results. 2018 revenue came in at $125.6 million, compared to $142.1 million in 2017.
 
Advertising revenues were $28.2 million compared to $34.1 million in the year-ago quarter, with click revenues of $23.4 million compared to $28.3 million. While the year-over-year comparison certainly does not look favorable, it's important to note that we significantly abated the rate of decline throughout the year.
 
Gross profit during 2018 was $15.3 million compared to $42.8 million in 2017, with gross margin coming in at 12.2%. That compares to 30.1%. Adjusted gross profit which excludes the one-time DealerX impairment charge that occurred in the third quarter of 2018, was $24.3 million compared to gross profit of $42.8 million in 2017.
 
As a percentage of revenue, adjusted gross profits was 19.3%. Total operating expenses in 2018 were $54.3 million. This compares to $81.4 million last year. As mentioned earlier, the 2017 period included a significant goodwill impairment charge.
 
On a GAAP basis, net loss in 2018 was $38.8 million or a loss of $3.04 per share on 12.8 million shares. This compares to a net loss of $65 million or a loss of $5.48 per share on 11.9 million shares in 2017.
 
Our non-GAAP loss in 2018 which again adds back amortization on acquired intangibles, non-cash stock comp, severance costs, gain or loss on investment or sale, litigation settlements, goodwill impairment, long-lived asset impairment and income taxes; was $9.2 million or a loss of $0.72 per share. This compares to non-GAAP income of $8.5 million or $0.64 per share in 2017.
 
 
AutoWeb, Inc.
Moderator: Sean Mansouri
03-07-19/5:00 p.m. ET
Confirmation # 6986797
Page 6
 
As you may recall from last quarter, the company introduced several new key operating metrics that we believe are instrumental to understanding the new direction of our business.
 
These include lead volume and source, lead traffic, retail dealer count, end retail lead capacity, as well as click volume and revenue per click. We've also completed our click traffic analysis and will be providing this on a go-forward basis as well.
 
So with that, lead traffic was 32.1 million visits during the fourth quarter, compared to 34.4 million in the third quarter and 26.8 million in Q4 of 2017.
 
The sequential drop was driven by some of the testing that we've been doing with our traffic acquisition strategies, as we develop ways to reach consumers more efficiently. Now note that these visits reflect the number of consumers who visit our entire portfolio of lead websites during the quarter.
 
Also the reported number of visits for Q3 is different from what we provided on our last call, as we're now including visits to a few additional properties that were not accounted for last time around.
 
So despite traffic being down, we were more efficient with the traffic we generated, as we increased lead volume to approximately 2 million automotive leads, compared to 1.9 million in the third quarter and 1.8 million in the year-ago period.
 
The sequential improvement was largely driven by conversion rate efficiencies resulting from the mobile enablement of our core websites and continued tuning of our SEM approach.
 
But note this figure includes new and used vehicles leads invoiced to both our OEM and retail clients. Our retail dealer count was 2,596 compared to 2,577 in the third quarter and 3,008 in Q4 of 2017.
 
This is our second quarter in a row generating a sequential improvement in dealer count, indicating that our new operating and marketing approach is resonating with dealers, as it's much more focused on delivering a very competitive and attributable cost per sale relative to alternative forms of media.
 
 
AutoWeb, Inc.
Moderator: Sean Mansouri
03-07-19/5:00 p.m. ET
Confirmation # 6986797
Page 7
 
That said, we do not anticipate a straight-line trajectory or distribution metrics like dealer count and lead capacity, as we still have some work to do to refine our strategy.
 
Note that this dealer count figure includes the number of franchise dealers contracted for delivery of retail new vehicle leads plus a number of franchised or independent dealers contracted for delivery of retail used leads.
 
Retail lead capacity was 442,000 lead targets compared to 441,000 in the third quarter and 528,000 in Q4 2017. This is the first time the company has increased lead capacity since the fourth quarter of 2015.
 
And note that retail lead capacity is the sum of the number of new and used vehicle leads that our retail dealer clients wish to receive each month during the quarter.
 
Estimated buy rates for leads we delivered in the quarter was 17%. Note that this estimated buy rate reflects the percentage of consumers submitting leads that we delivered to our customers represented by the number of these consumers who purchased the vehicle within 90 days of that lead submission.
 
Our lead source mix for the quarter also remained steady with approximately 80% of the leads being internally generated from our media properties and the other 20% of leads coming from third party lead providers. We continue to believe a roughly 80-20 mix is the appropriate target to balance quality and quantity of our core lead product.
 
Through 2018, the company was largely focused on stabilizing the leads business as it comprises the majority of our revenue. Now that we've stopped those declines and made the turn with leads, our next area of keen focus will be on the clicks.
 
Our click traffic in the fourth quarter was 6.1 million visits compared to 5.9 million in the third quarter and 6.3 million in the year ago quarter. The increase was driven by greater lead volumes.
 
Click volume in the fourth quarter was 6.6 million clicks and that compares to 6.6 million in the third quarter and 7.3 million in Q4 of 2017. Now given that click traffic increased sequentially for the quarter and click volume remained flat, this would indicate that our conversion was lower.
 
 
AutoWeb, Inc.
Moderator: Sean Mansouri
03-07-19/5:00 p.m. ET
Confirmation # 6986797
Page 8
 
However, it's important to understand that we're making several changes to this product that will impact short-term volumes, including updating our click algorithm as we're working to tune its performance.
 
We exposed 10% of our traffic to this new click algorithm on October 24, 25% on November 6, and then 90% on November 13. Each of these 3 deployments impacted conversion during those time frames. Tuning this algorithm is an ongoing optimization process and it's going to require continued investment and focus.
 
Similarly, revenue per click was down to $0.81 compared to $0.84 in Q3 of 2018 and $1.08 in Q4 2017. The same factors are in play here, given the 3 deployments of our new click algorithm during the quarter, along with a few other factors that Jared's going to expand upon later in the call. Now with that, I'd like to turn the call back over to Jared.
 
Jared Rowe: 
Thanks, JP. So as I look back over the last 10 months, I can confidently say that I believe that we've completed the first phase of our turnaround and are in the early stages of the next phase.
 
We've completed the strategic review of AutoWeb's operations. We've identified the opportunities and constraints and we've really begun to deploy various initiatives with the intent to return AutoWeb to growth and profitability.
 
This began with first attacking our lead generation capabilities to stabilize the decline to the largest part of our business; also beginning to integrate our products to create a more unified solution of leads, clicks and emails; and of course, building out the senior leadership team which is incredibly important.
 
Now during the fourth quarter we made progress on several key initiatives, including improvements to our operational integration and distribution channel effectiveness as well as product quality enhancements.
 
Now for our distribution channel in Q4, we managed to sequentially increase dealer count for the second quarter in a row and as JP mentioned earlier, increased our lead capacity for the first time since Q4 of 2015.
 
 
AutoWeb, Inc.
Moderator: Sean Mansouri
03-07-19/5:00 p.m. ET
Confirmation # 6986797
Page 9
 
While these are both solid indicators of the progress we're making, I still believe we have a lot of work to do to refine our distribution channel effectiveness and really do a better job at ramping our relationship with the top 150 dealer groups.
 
I believe the trend is beginning to bend in the right direction, but I don't anticipate a straight line from here. We do expect some choppiness for both dealer count and lead capacity, as we continue to evolve our engagement model for both retail dealers and the top 150 dealer groups.
 
Now a key implementation for us in the fourth quarter was the mobile enablement of our some of our core new car lead generation sites. As you can imagine, providing a desktop experience for a consumer researching cars on their mobile device does not typically lead to great outcomes.
 
So we mobile-enabled 21% of our new car sites during the fourth quarter, which represents 90% of our organic new car lead volume, and the overall results have been positive as we've increased conversion and expanded gross margins during the quarter.
 
Mobile enablement will be a considerable area of focus for us throughout 2019, as we intend to evolve our sites to deliver a better experience for consumers to drive conversion.
 
We do expect to mobile enable the rest of our new car lead generation sites in 2019. But as I've said before, mobile enablement is just the beginning. Ultimately mobile optimization of our sites and products is the goal.
 
We still have a good bit of work to do in this area, but again I do think that we're making good progress. As I mentioned earlier, we also recently developed an approach to mobile enable our click product.
 
This is a critical next step in our mobile enablement plan, as the click product allows us to more effectively monetize our visits. Further, it provides our clients with a unique opportunity to engage consumers with hyper-relevant messaging in a unique format.
 
 
AutoWeb, Inc.
Moderator: Sean Mansouri
03-07-19/5:00 p.m. ET
Confirmation # 6986797
Page 10
 
We're in the early stages of testing in Q1 and hope to provide more detail on the product and outcomes over the next couple of quarters. But we will stay focused on this, as this is something that's unique to us and very important to the business overall.
 
Moving on, I'd like to elaborate a bit further on JP's comments regarding our new click algorithm in its early results. So with 90% of our click traffic now being exposed to the new algorithm as of mid-November, we've seen strong improvements in revenue per click when compared to the 10% of the traffic that is still being exposed to the legacy algorithm.
 
However, the overall revenue per click is still lower than where it was last quarter, and even 1 year ago, as the client mix is far too rich in terms of non-endemic advertisers.
 
Just as a reminder, endemic advertisers are automotive advertisers. Non-endemic are folks who are not automotive related. So of course, endemic advertisers tend to pay more money per click than a non-endemic advertiser.
 
So we need to continue to focus on shifting this mix back towards endemic clients and we're already taking steps in this direction. However, we believe this is an area that will require several quarters of focus to get performance back to a level that is representative of its true potential.
 
Now expanding a bit on the automotive industry at large, we along with most others continue to expect total vehicle sales and SAAR to be down in 2019. Automotive News recently reported that light vehicle sales were off the slowest start for a year since 2014, with year-to-date sales down about 3%.
 
I believe it will be difficult for OEMs to maintain the kinds of volumes that they've had over the last few years due to affordability challenges, interest rates increases and a pullback on incentive spend.
 
However, we continue to believe that we can operate well in this environment, as I believe dealers will seek out their highest ROI marketing channels to drive sales.
 
And with our detailed attribution and product quality improvements, I believe we will continue to have a strong place in their marketing budgets, as we believe we are one of the most efficient marketing channels they have.
 
 
AutoWeb, Inc.
Moderator: Sean Mansouri
03-07-19/5:00 p.m. ET
Confirmation # 6986797
Page 11
 
I'm very proud of the progress the team has made, and while there's still much work to be done, we remain fully committed to growing revenue and expanding margins in 2019, as we deploy and execute our various strategic initiatives. So with that, I think we're going to open it up for calls.
 
Operator: 
(Operator Instructions)
 
And our first question will come from Sameet Sinha with B. Riley FBR.
 
Sameet Sinha: 
Jared, congratulations. This seems to be a very strong and fast turnaround. So a couple of questions here. So let me first start with considering the kind of turnaround phase where you are at and if you combine that with seasonality, can you speak to us about what trends, how do you expect the business to trend over the next few quarters this year?
 
I understand you're not going to give guidance, but to the extent that you can help us with our modeling, that will be helpful. Secondly, I'm interested in revenue per click or revenue per lead.
 
As you have studied the inherent nature of traffic and algorithm and all these; is other benchmarks that you use to figure out where, let's say, revenue per click in a click environment, what's the industry standard right now? Where are we at? So that gives us a sense of upside. I'll leave it at two and then I have a follow-up question.
 
Jared Rowe: 
I'm going to go in reverse order, if that's okay. So as we think about revenue per click, really what we look at is we look at average revenue per click that a dealer or an OEM or any endemic advertiser would pay to go out and generate that sort of click organically.
 
So if somebody just went to Google and they generated a click to their website, we think that is kind of a standard by which we look in terms of what our revenue per click should be.
 
We think we want to be a little bit below that, because of the way we're positioned in the market. But we think that we have really high quality traffic. Because essentially what you've got is you've got double locked-in traffic, right?
 
You've got consumers who we've collected through our search arbitrage work who've clicked through our ads, gotten to our websites and then have clicked through from the ad page as well for the click product.
 
 
AutoWeb, Inc.
Moderator: Sean Mansouri
03-07-19/5:00 p.m. ET
Confirmation # 6986797
Page 12
 
So we think that if we can be somewhere in the area of what OEMs and dealers pay for a click like that organically, only give them a better quality product because a consumer has clicked a couple of times to get there; we think that's a good place to be.
 
In terms of seasonality and trends, we are going to still see some choppiness. This is again a first-half, second-half story, I think. The first half we're going to continue to burn a little bit of cash.
 
We're going to see some choppiness. And in the second half, we do expect to really make the turn on this business and get it back to growth and margin expansion. JP, I don't know if you have anything to add there to help a little bit.
 
JP Hannan: 
Yes, I would just add with about a few weeks left in this quarter, I mean I think the first quarter is largely going to be consistent with what you saw in the fourth quarter. And then it will start to ramp from there in the back half, as Jared said. Leads are trending the way we want them to. But we've got some work to do on clicks.
 
Sameet Sinha: 
Jared, I'm going to push you a little more on the revenue per click. So I mean you have the numbers since you advertise on Google. And you have your revenue per click number. So can you help us with what sort of upside are we talking about, 2x to 3x?
 
Jared Rowe: 
Yes is the answer to that. It's 2-3x. I mean you know, when you look at our revenue per click last year, we in Q4 it was about $0.80. The year prior to that it was $1.00.
 
I think 2x to 3x over time getting back there. If we're in the $2 to $3 range, it's going to take some time to get there, Sameet. Don't get me wrong. It's going to take some time to get there.
 
But I think that's reasonable, because it's far below what an advertiser would need to spend to go get that organically on their own. So again, what we're looking for is we're looking to be very price competitive relative to somebody going out there and generating them on their own.
 
But again, our mix is way off on the click product. Roughly half of our volume is going to non-endemics right now and non-endemics just don't value our traffic the same way an endemic would.
 
 
AutoWeb, Inc.
Moderator: Sean Mansouri
03-07-19/5:00 p.m. ET
Confirmation # 6986797
Page 13
 
And again, that's more of a go-to-market approach issue than anything else, which is why I have confidence. It's not that the product doesn't have value. It's quite frankly we're not getting in front of the right people and selling the value the right way. Is that more helpful?
 
Sameet Sinha: 
Yes, that's great. So my final question, when you speak about margin expansion, are we talking about margin expansion at some point in '19 or do you expect expansion for the full year?
 
JP Hannan: 
Yes, I mean we've got revenue growth and margin expansion in the full year.
 
Operator: 
And our next question will come from Ed Woo with Ascendiant Capital.
 
Ed Woo: 
My question is more on the auto industry. How has I guess some of the slowdown affected you guys? Are you guys really seeing that impacting your business?
 
Jared Rowe: 
You know, I think we're actually not seeing much of it, at least we didn't in Q4. And I think one of the reasons was is because the performance has been so depressed that we're actually kind of growing through it.
 
So we haven't gotten to the point where we're performing so well on that scale right now, Ed, that we get hit by some of the seasonality, just because of the way that we were performing earlier in the year. I do expect to see a little bit of it this year with the slowdown.
 
We tend to believe that it is going to be in the high 16s from a SAAR perspective and I do think that the affordability issue from a consumer perspective is going to start to push us in the second half.
 
But again, we like our position in the market because we think we can compete very effectively with some of the larger players in the space, simply because our media is attributable and we can generate a demonstrable cost per sale that is more efficient than the others in the space and we can do that with good margin in there for us. So we haven't seen much yet. But I do think that we will as an industry see a bit of a slowdown.
 
But again, I like our ability to sell into that environment, because we are going to be focused on a pretty pure and simple sell, which is we're measurable and we think we can be more efficient for you on a cost-per-sale basis than some of the substitutes that are in the industry.
 
 
AutoWeb, Inc.
Moderator: Sean Mansouri
03-07-19/5:00 p.m. ET
Confirmation # 6986797
Page 14
 
Operator: 
(Operator Instructions). And our next question will come from JP Geygan with Global Value Investment Corp.
 
JP Geygan: 
Your Q4 numbers show some encouraging trends. What have you observed so far in 2019 and have you experienced any unexpected setbacks in the implementation of the changes you've made?
 
Jared Rowe: 
Yes, I'll start and then JP can fill in some of the blanks. You know, again, like JP said earlier, we're seeing good positive trends on the lead side. Leads were strong for us in Q4.
 
We think that we've made some changes that are actually real structural systematic improvements to that part of the business. But you can see some of the softness that we're seeing on the click side.
 
That has continued into the quarter. We're attacking those fairly aggressively, but like we said in the initial remarks, that's going to take a bit of work. And we do expect to get that sorted out throughout the year, but yes, we've seen a little bit of softness continue into Q1 on the click side.
 
JP Hannan: 
Yes, and I would just add on the expense side, I mean I think there is room to improve there. I mean I think there are definitely some efficiencies that we can gain as we implement these new technologies and upgrade legacy practice. And that's been some upside in that that I wasn't quite expecting coming into the quarter.
 
JP Geygan: 
Okay, how is your dealer network developing beyond simply the retail dealer count? If you could provide some more detail around that, that would be appreciated.
 
Jared Rowe: 
Yes, absolutely. So when we think about our distribution channel, I'd break it up into three main buckets. You've got the retail side, of course.
 
We actually sub segment out the retail side into the majors or strategics of the top 150 dealer groups. And then you've got the OEM side. The OEM side is incredibly stable, no real change there. That just holds where it is, and we've had that for a very long time.
 
On the top 150 dealer groups, to be quite candid with you, we didn't make the progress that I wanted to make in the quarter. We just didn't. I can tell you that we've hired. We've made a recent hire in that area and we're going to continue to focus on it.
 
 
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But there is real opportunity for us in the top 150 dealer group. But I am a little disappointed with the progress we've made there. Then on the retail side, as we said, we've got good sequential growth second quarter in a row. But again, we expect that to be choppy.
 
We think the real growth here is to continue to lean into the OEM side, continue to pick up the retail side. But I do think the top 150 dealer groups is an opportunity for us that is just not being exploited right now.
 
Our value proposition aligns very well with their needs and their goals. They buy media in a similar fashion to the way that OEMs do. But again, we haven't really built a unique and strong capability there to sell and service to that group of clients which we're definitely focused on.
 
JP Geygan: 
Has some of your recent hires enabled the company to better address the needs of the OEM dealer group and how do you foresee your internal salesforce developing?
 
Jared Rowe: 
So a couple thing there, one is we actually are expanding the retail salesforce. We've made a few hires in that regard.
 
Those folks are actually going to be placed down in Tampa. That way we can chase the sun across the full side of the country. We've got an internal sales team as well as an external sales team.
 
But we've got an internal sales team here in California, an external sales team spread across the country and then we're going to have an internal one in Tampa. So we're continuing to ramp that, because as we think about salespeople, those folks really start to pay for themselves very, very quickly. So those are investments, not pure expenses.
 
On the OEM side, we've made some improvements from a hiring perspective. But it's less about the sales side in that regard. It's more about industry knowledge and some of the product work that we've been doing internally.
 
How do we take our capabilities, bundle and then re-bundle them into forms of media that maybe are a little bit more attractive to OEMs. Again, early, early days there; we still have work to do. But I'm at least pleased with the initial steps we've taken.
 
 
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JP Geygan: 
Okay, and then my final question might be somewhat premature. But can you discuss expansion or acquisition opportunities that you see, especially considering that you said you were going to reestablish your bank financing while concurrently forecasting a return to growth in margin expansion in 2019.
 
Jared Rowe: 
Yes, that one is a little bit too early to talk about. So I don't have really much to add there to be honest with you, JP. We're pretty heads down right now in the core business. I think some of those things will take care of themselves. But first things first, we've really got to get this business operating the way that we think it can.
 
And as we mentioned earlier, we've still got some work to do on the click side. And we haven't even really talked about the email side, because that's very nascent. But we think there's real opportunity there as well.
 
JP Geygan: 
Sure, well the organic growth trends are certainly encouraging, as I previously said and we look forward to continuing to watch it develop.
 
Operator: 
And our next question will come from Sameet Sinha with B. Riley FBR.
 
Sameet Sinha: 
A couple of questions, Jared and JP, just talking about the gross margin. The gross margin side, under the previous model the company had reached gross margins somewhere in the high 30s.
 
As you have changed the model, integrated the product, what is the gross margin profile? What would the gross margin profile look like? And it could be long-term.
 
That's fine. But is it higher, lower or equal to what the previous model could suggest? And the second question was on the OpEx side. So sort of that cash OpEx and excluding the one-time expenses kind of failed sequentially.
 
And as you grow it, JP I think you mentioned there are some opportunities for efficiencies. And Jared, you mentioned about investment in the sales side. But can you help us think about other -- where are you investing, where exactly you could find some efficiencies? Thank you.
 
 
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JP Hannan: 
Sure, well I'll start. On the margins, I mean I think we can get margins to a comparable level. But it's going to take a while. We're experimenting with a number of things and we are refining the way we do a lot of our SEM expense management.
 
So I think there's definitely improvement there to be had. With regard to the OpEx, I mean there's a lot of internal processes, a lot of things, legacy workflows and such that just need to be modernized. And the byproduct of that will be cost reductions.
 
Sameet Sinha: 
And any investments that we should be aware of, apart from the sales team?
 
JP Hannan: 
No, I mean there's no other major expenses planned.
 
Jared Rowe: 
You know, all the other investments we're making, Sameet, they're investments inside the business and they're not big one-time things. When we think about making investments, we think about kind of earning the money to pay for them.
 
So we are going to be transforming our technology stack over the 36 months. But to be quite candid with you, that's not something we're going to come out and talk about and have a big expense line associated with and merchandise it.
 
We're going to do that as we go. Because we think we have to pay for this stuff as we go. So we aren't really focused on big bang investments. We're really focused on incremental improvement operationally and that's how we're going to move this business ahead.
 
Operator: 
Thank you. At this time this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Rowe for closing remarks.
 
Jared Rowe: 
Well, I just want to thank everybody. Thank you for joining the call. I want to thank the team. We have seen some good improvement in the business. We've got a lot of work to do. But I think we're off to a good start here and we're starting to see some progress being made. But thank you for your interest.
 
Thank you for spending some time with us and thank you for your continued interest in the business. We've got a lot of work to do, but we feel good about where we're headed this year. So with that, have a good day and hopefully we'll all talk soon.
 
Operator: 
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
 
END