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) May 7,
2020
AutoWeb, Inc.
(Exact
name of registrant as specified in its charter)
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Delaware
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1-34761
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33-0711569
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(State
or other jurisdiction of incorporation)
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(Commission File
Number)
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(IRS
Employer Identification No.)
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400
North Ashley Drive, Suite 300
Tampa,
Florida 33602-4314
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(Address of
principal executive offices) (Zip Code)
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(949)
225-4500
Registrant’s
telephone number, including area code
(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:
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☐
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Written
communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
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☐
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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☐
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b))
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☐
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13e-4(c))
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Securities
registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol
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Name of each exchange on which registered
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Common
Stock, par value $0.001 per share
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AUTO
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The
Nasdaq Capital Market
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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).
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Emerging
growth company
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☐
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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.
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☐
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Item 2.02
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Results
of Operations and Financial Condition.
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On May
7, 2020, AutoWeb, Inc., a Delaware corporation (“AutoWeb” or “Company”), announced in a press
release its financial results for the quarter ended March 31, 2020.
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 May 7, 2020. A transcript of
that call is attached as Exhibit 99.2 to this Current Report on
Form 8-K.
The
attached press release and transcript contain information that
includes “Adjusted EBITDA,” a non-GAAP financial
measure as defined in Regulation G adopted by the Securities and
Exchange Commission. The Company defines Adjusted EBITDA as net loss before
interest, taxes, depreciation, amortization, non-cash stock-based
compensation, non-cash gains or losses, and other extraordinary
items. The Company’s management believes that
presenting Adjusted EBITDA 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. This non-GAAP measure
also assists management in its operational and financial
decision-making and monitoring the Company’s performance. In
addition, the Company uses Adjusted EBITDA as a measure for
determining incentive compensation targets. Adjusted EBITDA is 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. A table providing a reconciliation of Adjusted
EBITDA to the most comparable GAAP financial measure is included at
the end of the press release attached as Exhibit 99.1 to this
Current Report on Form 8-K.
The
attached press release and transcript 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 and transcript 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 and transcript are
“forward-looking” rather than
“historic.”
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Item 9.01
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Financial
Statements and Exhibits.
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(d)
Exhibits
Press Release dated
May 7, 2020
Transcript of
AutoWeb, Inc.’s Conference Call dated May 7,
2020
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:
May 11, 2020
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AUTOWEB,
INC.
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By:
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/s/ Glenn E.
Fuller
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Glenn
E. Fuller, Executive Vice President, Chief Legal Officer and
Secretary
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Exhibit 99.1
AutoWeb Reports First Quarter 2020 Results
TAMPA, Fla., – May 7, 2020 – AutoWeb, Inc.
(Nasdaq: AUTO), a robust digital marketing platform providing
digital advertising solutions for automotive dealers and OEMs, is
reporting financial results for the first quarter ended March 31,
2020.
First Quarter 2020 Financial Summary ($ in millions, excl. per share
items)
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Q1 2020
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Q4 2019
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Q1 2019
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Total
Revenues
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$24.5
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$26.7
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$31.6
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Advertising
Revenues
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$6.0
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$5.9
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$5.9
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Gross
Profit
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$5.4
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$5.5
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$5.8
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Gross
Margin
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21.9%
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20.7%
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18.2%
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Net
Income/(Loss)
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$(4.1)
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$(3.2)
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$(5.4)
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Net Income/(Loss)
per share
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$(0.31)
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$(0.24)
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$(0.41)
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Adjusted
EBITDA
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$(1.7)
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$(0.8)
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$(3.0)
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First Quarter 2020 Key Operating Metrics 1
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Q1 2020
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Q4 2019
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Q1 2019
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Lead Traffic
2 (millions)
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27.3
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25.8
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43.3
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Lead Volume
3 (millions)
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1.5
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1.7
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2.1
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Retail Dealer
Count 4
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1,822
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2,203
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2,360
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Retail Lead
Capacity 5
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106,000
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129,000
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138,000
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Click Traffic
6 (millions)
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31.8
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24.1
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31.9
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Click Volume
7 (millions)
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8.6
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6.5
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7.0
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Net Revenue per
Click 8
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$0.63
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$0.79
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$0.72
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Management
Commentary
“Since the start of the
global pandemic, our top priority has been our employees’
health and safety while continuing to support our dealer and OEM
customers,” said Jared Rowe, CEO of AutoWeb. “I’m
proud of our efforts on both fronts.
“We
were making good progress on our turnaround through most of Q1,
however, in March our retail dealer and OEM customers began to pull
back on marketing budgets as stay-at-home mandates were implemented
across the country and the status of dealerships as essential
businesses was uncertain. Many of our retail and strategic
customers subsequently entered a ‘suspend’ status for
our leads and clicks, which essentially turns off our service for
30 days or until it is rescinded. As a result, we began to reduce
our overall lead and click generation spend to better focus on
quality and manage our product supply with the underlying sales
demand in the industry and our client’s reduced sales
capacity.
Certain website properties have been added and
removed from tracking metrics as AutoWeb continues to refine its
website portfolio and its approach to tagging. These changes have
been made to the prior periods for lead traffic, click traffic, and
click volume as well for comparative purposes.
Lead traffic = total visits to AutoWeb’s
owned lead websites.
Lead volume = total new and used vehicle leads
invoiced to retail and wholesale customers.
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.
Retail lead capacity = 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”) at the end of the applicable
quarter.
Click traffic = total visits to AutoWeb’s
owned click referral websites.
Click volume = the number of times during the
applicable quarter that consumers clicked on advertisements on
AutoWeb’s owned click referral websites.
Net revenue per click = total click revenue
divided by click volume for owned & affiliated
sites.
“Our
industry’s sales were severely impacted in both March and
April. Various reports estimate automotive sales to be down
approximately 40% and 50% on a year-over-basis, respectively. J.D.
Power also now expects 2020 U.S. auto sales to range between 12.6 -
14.5 million vehicles compared to a pre-COVID baseline of 16.8
million.
“With
that said, OEMs continue to try to support new car sales as much as
possible. Strong OEM incentives, low financing rates, and loosening
restrictions in some states on auto dealerships have assisted in a
sales stabilization of sorts. The number of retail dealers entering
‘suspend’ status with us began to moderate at the end
of April, and our OEM volumes held up better than we originally
anticipated. However, one month does not make a trend, and the
industry is not out of the woods given unemployment continues to
increase and consumer confidence continued to decline through
April.
“We
have implemented several proactive cost measures to enhance our
liquidity, including a reduction of all non-essential spending,
consolidating various technology tools and products, limited
furloughs in the U.S. and layoffs of our staff abroad, and
voluntary pay cuts across our executive team and board of
directors. We will continue to evaluate other cost reduction
measures and explore all options to maximize employment for our
team while continuing to support our customers. While our business
is certainly down from where we were last year, our results in
April did not reach our worst-case scenario. If present trends
hold, we believe that our balance sheet and liquidity will see us
through 2020.
“The
work we have put in over the last two years to make AutoWeb a lean
and efficient organization is paying off during these uncertain
times, and when coupled with the recent cost reductions, we have
flexibility to continue operating in this environment and help our
dealer and OEM customers prepare for a post-COVID
recovery.”
First
Quarter 2020 Financial Results
Total
revenues in the first quarter of 2020 were $24.5 million compared
to $31.6 million in the year-ago quarter, with advertising revenues
of $6.0 million compared to $5.9 million in the year-ago quarter.
The decline in total revenues was primarily due to lower lead
volume.
Gross
profit in the first quarter was $5.4 million compared to $5.8
million in the year-ago quarter. As a percentage of revenue, gross
profit increased 370 basis points to 21.9% compared to 18.2% in the
year-ago quarter, with the improvement driven by more efficient
traffic acquisition and higher margin product and channel
mix.
Total
operating expenses in the first quarter decreased to $8.7 million
compared to $11.2 million in the year-ago quarter. The decrease was
driven by continued prudent cost management and further improving
various operating efficiencies.
Net
loss in the first quarter of 2020 improved to $4.1 million or
$(0.31) per share, compared to a net loss of $5.4 million or
$(0.41) per share in the year-ago quarter.
Adjusted
EBITDA in the first quarter of 2020 improved to $(1.7) million
compared to $(3.0) million in Q1’19.
At
March 31, 2020, cash, cash equivalents and restricted cash totaled
$7.9 million compared to $5.9 million at December 31,
2019.
At
March 31, 2020, AutoWeb had an outstanding balance of $6.7 million
on its revolving credit facility with CIT Northridge Credit, with
access to an additional $2 million on the credit
facility.
Conference
Call
AutoWeb
management will hold a conference call today at 5:00 p.m. Eastern
time to discuss its first quarter 2020 results, followed by a
question-and-answer session.
Date:
Thursday, May 7, 2020
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: 6270288
The
conference call will also be broadcast live at www.autoweb.com
(click on “Investors” and then click on “Events
& Presentations”). Please visit the website at least 15
minutes prior to the start of the call to register and download any
necessary software. For those who will be joining the call by
phone, 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 Gateway Investor Relations 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 May 14, 2020. The call will
also be archived in the Investors section of the company’s
website for one year.
Toll-free
replay number: 1-855-859-2056
International
replay number: 1-404-537-3406
Replay
ID: 6270288
Tax
Benefit Preservation Plan
At
December 31, 2019, the company had approximately $100.5 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 (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
March 31, 2020, there were 13,146,831 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 by
accessing the online registration form at investor.autoweb.com/alerts.cfm.
Note
about Non-GAAP Financial Measures
AutoWeb
has disclosed Adjusted EBITDA in this press release, which is a
non-GAAP financial measure as defined by SEC Regulation G. The
company defines Adjusted EBITDA as net loss before interest, taxes,
depreciation, amortization, non-cash stock-based compensation,
non-cash gains or losses, and other extraordinary items. A table
providing a reconciliation of Adjusted EBITDA is included at the
end of this press release.
The
company’s management believes that presenting Adjusted EBITDA
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. This non-GAAP measure assists
management in its operational and financial decision-making and
monitoring the company’s performance. In addition, we use
Adjusted EBITDA as a measure for determining incentive compensation
targets. Adjusted EBITDA is 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)
the company will continue to evaluate other cost reduction measures
and explore all options to maximize employment for its team while
continuing to support its customers; (ii) if present trends hold,
the company believes that its balance sheet and liquidity will see
the company through 2020; and (iii) the company has flexibility to
continue operating in this environment and help its dealer and OEM
customers prepare for a post-COVID recovery, 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, CFA or Cody Slach
Gateway
Investor Relations
1-949-574-3860
AUTO@gatewayir.com
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AUTOWEB, INC.
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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
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(Amounts in thousands, except share data)
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March 31,
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December 31,
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2020
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2019
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ASSETS
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Current
assets:
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Cash
and cash equivalents
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$7,354
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$892
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Restricted
cash
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502
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5,054
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Accounts receivable, net of allowances for bad debts and customer
credits of $759 and $740 at March 31, 2020 and December 31,
2019 , respectively
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20,820
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24,051
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Prepaid
expenses and other current assets
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1,168
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1,265
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Total
current assets
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29,844
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31,262
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Property
and equipment, net
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3,100
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3,349
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Right-of-use
assets
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3,633
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2,528
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Intangibles
assets, net
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6,244
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7,104
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Other
assets
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764
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661
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Total
assets
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$43,585
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$44,904
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|
|
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LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS'
EQUITY
|
|
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Current
liabilities:
|
|
|
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Accounts
payable
|
$12,525
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$14,080
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Accrued
employee-related benefits
|
1,345
|
1,004
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Other
accrued expenses and other current liabilities
|
1,696
|
2,315
|
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Borrowings
under revolving credit facility
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6,712
|
3,745
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Current
portion of lease liabilities
|
1,057
|
1,167
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Total
current liabilities
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23,335
|
22,311
|
|
|
|
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Lease
liabilities, net of current portion
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2,706
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1,497
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Total
liabilities
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$26,041
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$23,808
|
|
|
|
|
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Commitments
and contingencies
|
|
|
|
|
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Stockholders'
equity
|
|
|
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Preferred
stock, $0.001 par value; 11,445,187 shares authorized
|
|
|
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Series
A Preferred stock, none issued and outstanding
|
-
|
-
|
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Common stock, $0.001 par value; 55,000,000 shares
authorized; 13,146,83 shares issued and outstanding at March
31, 2020 and December 31, 2019, respectively
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13
|
13
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Additional
paid-in capital
|
364,537
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364,028
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Accumulated
deficit
|
(347,006)
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(342,945)
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Total
stockholders' equity
|
17,544
|
21,096
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Total
liabilities, minority interest and stockholders'
equity
|
$43,585
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$44,904
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AUTOWEB,
INC.
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||
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UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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(Amounts
in thousands, except share and per share data)
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||
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Three
Months Ended
|
|
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March
31,
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2020
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2019
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Revenues:
|
|
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Lead
generation
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$18,460
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$25,698
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Digital
advertising
|
6,012
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5,878
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Other
|
-
|
28
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Total
revenues
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24,472
|
31,604
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Cost of
revenues
|
19,115
|
25,847
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Gross
profit
|
5,357
|
5,757
|
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Operating
Expenses
|
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Sales and
marketing
|
2,132
|
2,878
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Technology
support
|
1,857
|
2,780
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General and
administrative
|
3,943
|
4,290
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Depreciation and
amortization
|
722
|
1,239
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Total
operating expenses
|
8,654
|
11,187
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Operating
loss
|
(3,297)
|
(5,430)
|
|
Interest and other
income (expense)
|
|
|
|
Interest income
(expense)
|
(832)
|
1
|
|
Other income
(expense)
|
68
|
69
|
|
Loss before income
tax provision
|
(4,061)
|
(5,360)
|
|
Income taxes
provision
|
-
|
-
|
|
Net loss and
comprehensive loss
|
$(4,061)
|
$(5,360)
|
|
|
|
|
|
Basic and diluted
loss per share:
|
|
|
|
Basic loss per
common share
|
$(0.31)
|
$(0.41)
|
|
Diluted loss per
common share
|
$(0.31)
|
$(0.41)
|
|
|
|
|
|
Shares used in
computing net loss per share:
|
|
|
|
Basic
|
13,133,498
|
12,824,591
|
|
Diluted
|
13,133,498
|
12,824,591
|
|
AUTOWEB,
INC.
|
||
|
CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS
|
||
|
(amounts
in thousands)
|
||
|
|
Three
Months Ended March 31,
|
|
|
|
2020
|
2019
|
|
Cash flows from
operating activities:
|
|
|
|
Net (loss)
income
|
$(4,061)
|
$(5,360)
|
|
Adjustments to
reconcile net income (loss) to net cash used in operating
activities:
|
|
|
|
Depreciation and
amortization
|
1,212
|
1,787
|
|
Provision for bad
debt
|
12
|
41
|
|
Provision for
customer credits
|
92
|
74
|
|
Share-based
compensation
|
509
|
551
|
|
Right-of-use
assets
|
396
|
445
|
|
Lease
Liabilities
|
(402)
|
(446)
|
|
Changes in assets
and liabilities
|
|
|
|
Accounts
receivable
|
3,127
|
3,698
|
|
Prepaid expenses
and other current assets
|
97
|
64
|
|
Other non-current
assets
|
(103)
|
6
|
|
Accounts
payable
|
(1,555)
|
(1,023)
|
|
Accrued expenses
and other current liabilities
|
(278)
|
(1,954)
|
|
Net cash (used in)
provided by operating activities
|
(954)
|
(2,117)
|
|
Cash flows from
investing activities:
|
|
|
|
Purchases of
property and equipment
|
(103)
|
(57)
|
|
Net cash (used in)
provided by investing activities
|
(103)
|
(57)
|
|
Cash flows from
financing activities:
|
|
|
|
Borrowings under
PNC credit facility
|
28,564
|
-
|
|
Borrowings under
CNC credit facility
|
8,001
|
-
|
|
Payments under PNC
credit facility
|
(32,308)
|
-
|
|
Payments under CNC
credit facility
|
(1,290)
|
-
|
|
Payments on
convertible note
|
-
|
(1,000)
|
|
Proceeds from
exercise of stock options
|
-
|
307
|
|
Net cash provided
by (used in) financing activities
|
2,967
|
(693)
|
|
Net increase in
cash and cash equivalents and restricted cash
|
1,910
|
(2,867)
|
|
Cash and cash
equivalents and restricted cash at beginning of period
|
5,946
|
13,600
|
|
Cash and cash
equivalents and restricted cash at end of period
|
$7,856
|
$10,733
|
|
|
|
|
|
RECONCILIATION OF
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
|
|
|
|
Cash and cash
equivalents at beginning of period
|
$892
|
$13,600
|
|
Restricted cash at
beginning of period
|
5,054
|
-
|
|
Cash and cash
equivalents and restricted cash at beginning of period
|
$5,946
|
$13,600
|
|
|
|
|
|
Cash and cash
equivalents at end of period
|
$7,354
|
$10,733
|
|
Restricted cash at
end of period
|
502
|
-
|
|
Cash and cash
equivalents and restricted cash at end of period
|
$7,856
|
$10,733
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
Cash paid for
income taxes
|
-
|
1
|
|
Cash refunds for
income taxes
|
381
|
-
|
|
Cash paid for
interest
|
323
|
20
|
|
Supplemental
disclosure of non-cash financing activities:
|
|
|
|
Right-of-use assets
obtained in exchange for operating lease liabilities
|
1,501
|
-
|
|
AUTOWEB,
INC.
|
||
|
RECONCILIATION
OF ADJUSTED EBITDA
|
||
|
(Amounts
in thousands, except per-share data)
|
||
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
March
31, 2020
|
March
31, 2019
|
|
|
|
|
|
Net
loss
|
$(4,061)
|
$(5,360)
|
|
|
|
|
|
Depreciation and
amortization
|
1,213
|
1,787
|
|
Interest
income
|
(12)
|
(6)
|
|
Interest
expense
|
844
|
5
|
|
Other income
(expense)
|
(6)
|
-
|
|
Federal, state and
local taxes
|
(186)
|
-
|
|
Non-cash stock
compensation expense
|
509
|
551
|
|
Adjusted
EBITDA
|
$(1,699)
|
$(3,023)
|
Exhibit 99.2
|
|
||
|
Call Participants
|
||
|
EXECUTIVES
Jared R. Rowe
CEO, President & Director
Joseph Patrick Hannan
Executive VP & CFO
ANALYSTS
Edward Moon Woo
Ascendiant Capital Markets LLC, Research Division
Gary Frank Prestopino
Barrington Research Associates, Inc., Research Division
James Philip Geygan
Global Value Investment Corp
Lee T. Krowl
B. Riley FBR, Inc., Research Division
|
|
|
|
|
Presentation
Operator
Good afternoon, everyone, and thank you for participating in
today's conference call to discuss AutoWeb's Financial Results for
the First Quarter Ended March 31, 2020.
Joining us today are AutoWeb's CEO, Jared Rowe; and the company's
CFO, J.P. Hannan. Following their remarks, we'll open the call for
your questions.
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 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-Q for the quarter ended March 31, 2020 as
well as other filings made by AutoWeb with the SEC from time to
time. These filings identified by factors that could cause results
to differ materially from those forward-looking
statements.
Please also note that during this call, management will be
discussing adjusted EBITDA. This is a non-GAAP financial measure as
defined by SEC Regulation G. A reconciliation of this non-GAAP
financial measures to the most directly compared GAAP measure is
included in today's press release, which is posted on the company's
website.
And with that, I will now turn the call over to Jared.
Jared R. Rowe
CEO, President & Director
Thank you, operator. I appreciate that, and good afternoon,
everybody. Given the ongoing circumstances surrounding the COVID-19
pandemic, I'm going to take a similar approach for this call, as I
did last quarter. So, what this means is that I'll start out by
providing a brief overview of our results for last quarter. And
then we'll dedicate most of our time to industry impact, the
current state of the business and how we're responding to the
COVID-19 pandemic.
So quickly on the first quarter. We made good progress on our
turnaround through most of Q1, with the stay-at-home mandates that
were enacted in March. However, we did see some marketing spend
pullback from both our retail and our OEM clients. There's a lot of
uncertainty around whether vehicle sales were considered an
essential service under local state and federal mandates during
that time. So, in this environment, many of our retail and
strategic accounts started entering, what we call, suspend status
with us, which effectively means that they put their spend with us
on hold for 30 days at a time or until they want to reset that.
Sometimes it's a little longer, sometimes it's a little shorter.
But it isn't a full termination or cancellation. It just helps them
manage their media spend.
Now during the same time, we also started reducing our overall lead
and click generation spend to better align our volumes with
industry demand and consumer intent to purchase a vehicle. As you
can imagine, when stay-at-home mandates were put in place, there
was a surge of consumers browsing for vehicles online. However,
that doesn't necessarily mean they were ready to purchase a vehicle
in the next 30 to 60 days. And those are the leads that we focus on
most for our clients. And we're really focused on highly targeted
in-market consumers who were ready to buy a car. Again, we focus on
folks who are ready to buy in 30 days, 60 days or at the longest 90
days.
And COVID-19 did severely impact sales in the automotive industry
for March and April. In those 2 months, various reports estimate
that auto sales were down 40% and 50%, respectively. They also now
expect 2020 U.S. sales to range between 12.6 million and 14.5
million. This compared to a pre-COVID baseline of anywhere from
16.8 million to 17 million SAAR (Seasonally Adjusted Annualized
Rate).
So, we're actively monitoring all these trends, and we're adapting
accordingly while still holding true to some of the strengths and
initiatives that constitute the core of our strategy. And namely,
we focused on staying efficient with our resources and further
positioning ourselves as a strategic partner to our clients. And
with higher numbers of consumers shopping online amid stay-at-home
orders, we continue to emphasize our commitment to delivering
high-quality mixes of leads and clicks to our
customers.
Now this focus has become especially important in the context of
current industry disruption. And within our organization, we have
implemented a series of cost reductions in response to the
pandemic, with the aim of mitigating the financial impacts to our
broader team. We've reduced our recruitment, we've reduced our
travel, consulting. We pulled back on B2B marketing expenses, and
we're going to continue to prudently manage nonessential spending
going forward. In addition, we've consolidated many of our
technology tools and products to realize further cost
savings.
And then finally, our entire Board of Directors and executive team
have taken voluntary compensation reductions for Q2, with cash
compensation being reduced by 50% for the Board, 30% for me and 10%
for the rest of the executive team. These measures are helping us
remain nearly fully staffed. We've had a few very limited furloughs
in the United States and some limited layoffs of our staff abroad.
But we're focused on trying to ensure that we're supporting our
employees, and they have continued access to health care during
this public health crisis.
The health and safety of our employees continue to be a top
priority, and we're going to continue to evaluate all measures
necessary. We're helping them through this challenging time while
also maintaining an effective continuity of operations for our
dealer and OEM clients. And we think that's critical right now is
to really stay supportive of those folks who are struggling as
well.
So, I'll have more to discuss about navigating these evolving
market conditions. But before commenting further, I'd like to turn
it over to J.P. to walk through our Q1 results. J.P., can you take
over, please?
Joseph Patrick Hannan
Executive VP & CFO
Well, thanks, Jared, and good afternoon, everybody. So, maintaining
the structure of our recent calls, we're going to focus the
commentary here on the key themes for the quarter rather than
reviewing every line item that can be found in our release and our
filings. We're also going to keep it brief as we realize that the
results for most of Q1 are now less relevant in today's
fast-changing environment.
So, with that said, total revenue in the first quarter came in at
$24.5 million, and that's down about $2 million from last quarter
and $7 million from the year ago quarter. Our total advertising
revenues, which is the aggregate subset of click and display
revenue, increased to $6 million, and that's up slightly from both
last quarter and the year ago quarter. The decline in total revenue
really stems from lower lead volume, and that was particularly so
in March.
Now our continued focus on value is further reflected at the gross
profit line. Gross profit is down only by $200,000 compared to last
quarter and $400,000 from the year ago quarter. Now this is despite
a $7 million reduction in quarter from last year.
Our first quarter gross margin was 21.9%, which is up 120 basis
points from last quarter and up 370 basis points from Q1 of 2019.
The gross margin improvements were driven by more efficient traffic
acquisition and higher-margin product and channel mix.
And our net loss in the quarter was $4.1 million, and that compares
to a net loss of $3.2 million in the fourth quarter of 2019 and a
net loss of $5.4 million in the year ago quarter. Our net loss in
this first quarter was negatively impacted by some onetime items
related to the refinancing of our PNC credit facility. So that
included a write-off of approximately $429,000 in capitalized debt
issuance expenses, and there was a $250,000 early termination
fee.
Our adjusted EBITDA for the quarter was a loss of $1.7 million, and
that's down by about $1 million from last quarter, but an
improvement of about $1 million from the year ago
quarter.
Our net cash used in operations in the first quarter was about
$900,000, and that's an improvement from the $9.4 million used last
quarter and up from $2.1 million used in Q1 of 2019. At March 31,
2020, cash, cash equivalents and restricted cash stood at $7.9
million compared to $5.9 million at the end of last year. At March
31, 2020, we also had an outstanding balance of $6.7 million on our
revolving credit facility with CIT Northbridge Credit. Now as of
March 31, 2020, we have about $2 million available to us on that
revolver. But please keep in mind that while both the PNC facility
and the new CIT revolver, our asset-based lending facilities, there
are some differences between the 2 structures just to be aware
of.
So, under the PNC line, we were required to maintain a restricted
cash deposit as additional collateral, but we didn't have any
minimum draw requirements on the line. With this new facility, we
again gain access to the majority of our cash reserves. However,
the CIT facility requires us to maintain a minimum balance
outstanding, which right now on the line is $8 million. So, as a
result, you'll see that we are now carrying a higher balance of
debt on the balance sheet, and our corresponding interest cost over
the next 12 months will also be higher than they were in the year
ago comparable period.
So, these steps we've taken to further reduce costs in recent
months, along with our cash position, access to the credit facility
that we signed in Q1, we think has positioned us to navigate this
market environment. If the present trends hold in our business,
which Jared will discuss more shortly, we believe that our balance
sheet and liquidity will see us through 2020.
Lastly, I'll provide a brief overview on our Q1 operating metrics.
Our clicks traffic was up by 7 million to 8 million visits
sequentially and down slightly year-over-year. The click volume
increased by about 2 million clicks from last quarter and the year
ago quarter.
Lead traffic was also up by about 2 million visits compared to the
last quarter, but it was down compared to last year. Now as Jared
mentioned, we believe much of this increase is coming from the
elevated numbers of consumers looking for cars online, given the
stay-at-home orders. Our retail dealer count, our retail lead
capacity and our net revenue per click were all down, both
sequentially and year-over-year. And we can correlate these
decreases with some of the COVID-related impacts that hit the auto
industry widely over the last few months.
And with that, that concludes my prepared remarks, and I will turn
the call back over to Jared.
Jared R. Rowe
CEO, President & Director
Thanks, J.P. So, as we look to Q2, we're closely monitoring the
trends for both any sort of industry patterns that we can discern
as well as our customer activity. We expect or anticipate that the
automotive industry is entering a U-shape, a W-shape, whatever
shape you want to choose. That really speaks to a longer period of
sustained lows before vehicles return to pre-COVID
levels.
Now that the Department of Homeland Security has classified vehicle
sales as an essential service, cars can be bought either online or
at the dealership nearly everywhere. OEMs are also trying to
support new car sales as much as possible. We see really strong OEM
incentives, really low financing rates and really loosened state
restrictions on auto dealerships. We see them as really helping to
stabilize the sales over the last couple of weeks.
So given this broader industry context, we're in a better place
than we thought we would be since our initial thinking around the
pandemic in March while our business is certainly down from where
we were last year. Our results in April did not reach our
worst-case scenario and the number of retail dealers entering
suspend status with us began to stabilize at the end of April. I
mean OEM lead volumes have held up better than we really initially
anticipated. Just for some perspective on this, our suspense status
peak was during the second week of April. But by month end, it
actually improved by roughly 10%. The reason that this really
matters, and we talked about this in the past, is when I'm talking
about the spend status, I'm really talking about our highest margin
clients. These are direct retail relationships, top 150 dealer
relationships as well as some agency relationships. So, it was
really good for us to see that it peaked and actually has been
coming back down and really stabilized over the last couple of
weeks.
We know, however, that 1-month certainly does not make a trend and
that the industry is not out of the woods yet. We must still
contend with certain undeniable macroeconomic factors, including
increasing unemployment numbers and declining consumer confidence.
At this stage, we estimate that our volumes are going to be down
anywhere from 20% to 35% from pre-COVID levels. As we aren't really
engaging in deep discounting or any other measures that would
artificially inflate our volumes.
Now this isn't because we're taking a firm stance on price. It's
because we're sticking with our core commitment to delivering
high-quality leads and clicks for our clients and ones that have a
higher propensity to translate to car sales. Also, lower volumes
better align with the current sales capacity of our clients, since
they're certainly not running at full strength right now. The
reality is that there are far fewer consumers willing to purchase a
vehicle in the next 30 days. So, we're not going to let our
customers believe that we can deliver the same amount of
high-quality leads as we did pre-COVID. This isn't about pricing
again. It's about real consumer demand and being respectful of our
clients' current sales capacity. Our internal data further supports
this positioning.
We saw lead close rates deteriorate in the back half of March and
then hit a low in the early part -- early half of April before they
stabilized and actually improved materially by the end of the
month. So, we feel pretty good about the approach that we've taken
because we think that by proactively pulling some of the volume out
and optimizing our campaigns, we're actually helping to stabilize
the overall quality of our core product offering that we sell to
our clients.
All that said, while we know there are fewer end market consumers
today, we're still helping many of our retail dealer and OEM
customers prepare for the post COVID recovery, and that's what our
current volumes reflect. As we follow the evolving macroeconomic
changes in both the auto industry and consumer behavior, we're
going to continue to work closely with all of our customers to make
sure that their media packages are aligned with their current
business and operational needs for the coming months. While we
can't predict what will happen in the broader economy, we know that
we will continue delivering quality service and products. And with
that, a quality partnership, which is ultimately the
goal.
And on a separate note and unrelated to COVID-19, one of our OEM
customers has decided to terminate its entire third-party
lead-based marketing program. We're in the process of transitioning
this manufacturer out of our OEM program to begin signing its
network of dealers into our retail program. Just for those newer to
the AutoWeb story, we sell leads and clicks to OEMs that then
redistribute or resell those products to their dealers as part of a
corporate leads program. However, we also sell leads directly to
dealers through our retail program.
So, in short, we will now begin selling these dealers directly
instead of going through the OEM. This will impact our lead and
clicks volumes over the short-term as this OEM accounted for about
3% of our revenue. But as we rebuild the retail network, we believe
it will benefit our business in the medium to long term, and it's a
far more profitable sales channel with gross margins that are
materially higher than the OEM program.
We are making good progress on this because we saw this comment
about a month or so ago pre-COVID. COVID slowed us down a little
bit in terms of the dealer enrollment process. But again, we see
this as a fertile opportunity for us to transition some of our OEM
revenue into retail revenue.
Now as I've consistently stated in the past, COVID-19 aside, we
have to continue to work to improve our sales channel mix for both
leads and clicks by selling more leads to retail dealers and more
clicks to endemic or near endemic advertisers. The transition of
this manufacturer's dealer from an OEM program into a retail
program plays directly into that strategy for leads. Now on the
clicks side, we must continue to work towards increasing the mix of
endemic and near endemic advertisers even in this current
environment, as we believe that clicks will be more targeted to
their audience and demand pricing that is often 8 to 10x higher
than what we see when selling to nonendemic
advertisers.
As a closing thought, across our business, we're benefiting from
both short- and long-term work we have put in to make AutoWeb a
lean, flexible and efficient organization. The cost initiatives
that we've taken over the past 2 years and even the past few
months, have really helped us support our team and really helped us
support our clients, both dealers and OEM, as they navigate this
new environment and prepare for the recovery. With our current
trends and the latest information available to us, we believe we
are in a comfortable position for the road ahead. As J.P. mentioned
earlier, if present trends in the business hold, we believe that
our balance sheet and liquidity, it's going to see us through
2020.
So, with that, that's the end of our prepared remarks. And so I
think we're going to open it up for questions now. So, operator,
can you open it up for questions, please?
Question and Answer
Operator
[Operator Instructions] And our first question will come from the
line of Gary Prestopino from Barrington Research.
Gary Frank Prestopino
Barrington Research Associates, Inc., Research
Division
A couple of questions here. First of all, with this OEM suspending
the lead program, you now have the ability to go out and sell to
the dealers, right? My recollection was that OEM leads were about
half the ticket of dealer leads. Is that kind of
correct?
Jared R. Rowe
CEO, President & Director
Pretty close. Yes.
Gary Frank Prestopino
Barrington Research Associates, Inc., Research
Division
Okay. So basically, to recoup the 3% of revenues that you're losing
on the OEM side, you have to sell half as much to the dealers to
achieve equilibrium.
Jared R. Rowe
CEO, President & Director
Yes. And the good news here too is that we can push a different
mix. And so, to your point, Gary, it's not one-for-one and getting
this back, plus, when we're talking with our clients, we're focused
on more solution-based sales. So, we're talking about leads and
clicks together. And as we optimize that mix, it has a much better
margin characteristics and just selling leads the loan through the
OEM program. So again, it's not one-to-one, you're absolutely
right. And it does open up the opportunity for us to press in
clicks as well, which is an important part of what we're trying to
do here.
Gary Frank Prestopino
Barrington Research Associates, Inc., Research
Division
Okay. And then just a couple of other questions, and I'll let
somebody jump in. When a dealer goes into suspense, do you count
that as a dealer as of the end of the quarter?
Jared R. Rowe
CEO, President & Director
Yes, we do.
Gary Frank Prestopino
Barrington Research Associates, Inc., Research
Division
We just saw a pretty -- you do?
Jared R. Rowe
CEO, President & Director
Yes.
Gary Frank Prestopino
Barrington Research Associates, Inc., Research
Division
So could you maybe just talk about some of the issues that drove
the retail? It looks like the retail dealer count sequentially was
down about 400, right? So, what's going on there? Is that -- since
it's not suspended dealers, that means that dealers have just
generally dropped your programs?
Jared R. Rowe
CEO, President & Director
Yes. So, there's a couple of things going on there. One is there's
seasonality in that. We always see -- we normally see a decline in
dealers at the end of Q4, early Q1 as dealers are starting to
rethink their marketing strategies. And as you know, Gary, we tend
to churn dealers where we pick them up because there's really no
friction between them leaving and coming back. And while we
certainly did transition a good number of dealers into suspend
status, we weren't able to keep them all. And we did see an
increase there at the end of March, in particular, of dealers who
are hunkering down, and we're really preparing for the unknown with
the stay-at-home orders as they started to come
online.
So, it was a bit of a drop. We think we're going to get some of
that back throughout the year for the reasons that I've mentioned.
I will give you a couple of data points around the retail side
because I think it's interesting because we've talked about retail
effectiveness and the need to improve retail effectiveness. And a
couple of data points I'll give you is this is from December to
April, we've increased our outbound call volume. So, our
productivity, think of it as sales teams by 57%. Now at the same
time, we've also added 4 new salespeople. So, we've increased
capacity and also increased efficiency. Now that's one measure, and
that's interesting.
But we've also increased our talk time by 17%. So, it's not that
we're touching -- just touching more clients. We're actually having
longer engagements with them and longer interactions with them,
which leads us to the place where we talked about needing to
systematize this and be better with our selling motion. And those 2
metrics help me have confidence that we are actively improving our
selling motion. And listen, we've talked a lot about the retail
channel and our need to get there. As you know, we've made a lot of
changes from a leadership team perspective. And I think we're
seeing some of that finally take root. And so, listen, those are
activity-based measures and the outcomes follow them. You need the
activity before you can get the outcome.
Operator
Our next question comes from the line of JP Geygan from Global
Value Investments.
James Philip Geygan
Global Value Investment Corp
You've been pushing towards profitability for some time and have
made some progress really since the second half of last year. When
you say that your liquidity and your balance sheet are sufficient
to make it through the rest of the year, how do you really think
about turning cash flow positive or becoming profitable? And what
time frame do you anticipate doing that, considering the changes in
the macroeconomic environment?
Jared R. Rowe
CEO, President & Director
J.P., do you want to take that one? And a good talking to you, JP,
by the way. But J.P., would you take that one, please?
Joseph Patrick Hannan
Executive VP & CFO
Yes. As you've seen, I mean, we've spent -- really, 2 key areas
we've been focused on. One is operating expenses, and the operating
expenses this year should be down over $8 million year-over-year
from where we finished in 2019. And then the second is in the cost
of revenue and in the gross margin. So, we've seen steady
sequential growth in gross margin. I think, it's about 6 quarters
in a row. And we saw gross margin climb every month, January,
February and March, nicely. We actually had 1 of the best gross
profit months we've had in 2 years in the month of March, despite
everything else going on around us. So, it's a culmination of all
of that, but I mean this is a tough operating environment, but I
think we are far better run today. We are far leaner and more
efficient. And if we get a little top line momentum, I mean, I
think we're going to be well positioned here.
James Philip Geygan
Global Value Investment Corp
And I noted that your gross margin has increased nicely. How do you
see this developing and over what time frame? Do you target a
specific number? Or what's optimal for you?
Joseph Patrick Hannan
Executive VP & CFO
Well, I mean, right now, our -- my goal -- our goal internally just
to get to generating cash -- positive cash again. We're negative by
about $300,000 a month is our drag right now. We want to get that
positive. And then from there, it just all depends on the
environment around us, and that I think it'd be premature to put
any kind of forecast out there or a hard number until we know a
little bit more about the situation we're all living in right now
with the pandemic.
James Philip Geygan
Global Value Investment Corp
Yes. Understandable. As you have removed costs from operating
expenses, how much of this is structural change that we would
expect to last in perpetuity versus how much has been taken out in
response to COVID-19 or the current environment? Or how much is
short term?
Jared R. Rowe
CEO, President & Director
We haven't -- go ahead, J.P., I'm sorry.
Joseph Patrick Hannan
Executive VP & CFO
I'm sorry. I was just going to add one point. Then we recently cut
$1.7 million out, and that was almost entirely fixed costs. We
haven't done a lot with personnel. We haven't -- that was by
design, we didn't want. We wanted to maintain the staff at its
fullest level possible. So, I think most of what we've done in most
of the what is layered in is fixed and permanent, unless there's
some strategic reason we want to start layering cost back in. So,
I'm sorry, Jared, take it from there.
Jared R. Rowe
CEO, President & Director
No, no, no. I couldn't agree more. And I was going to say the same
thing, J.P. When you think about -- one of the things you talked
about in the last call -- I believe I mentioned in the last call,
is we've done a lot of transformational work with the organization
in terms of realigning, restructuring, bringing some folks in,
elevating some folks internally into new roles and new challenges.
And to J.P.'s point, what we're really trying to do here right now
is really hold on to the team and keep this team engaged and
focused because we've done an awful lot of hard work that some of
the businesses have to do now, but we've done it over the last 1.5
years.
And so, we're focused right now. And again, anything can change,
depending on the market conditions. But where we're focused right
now is just taking the team we have, using the time that we have
right now to further harden our operations and really get ready for
the other side of this because this isn't going to last forever,
and whether it's U, W, whatever we want to call it, we are going to
see this thing abate at some point. And we're trying to really hold
the team together until then. Again, because we like the team we
have. We like kind of the operational improvements that we've made.
So, we didn't do a lot of kind of onetime stuff. This was more
about pulling forward maybe a little bit of work that we hadn't
gotten to in some of the structural costs because we've been
working our way through it systematically. But again, this was not
a reaction to the pandemic in terms of -- we just took a bunch of
cost out, and we're going to layer them back in. It was more about
timing, and it just sped up our timeline a little bit with a couple
of these costs. So, we feel good. We feel. We think a lot of this
is structural, quite frankly.
Operator
And your next question comes from the line of Lee Krowl with B.
Riley.
Lee T. Krowl
B. Riley FBR, Inc., Research Division
Wanted to touch on a few key points. Thinking about the change in
traffic trends, and how important traffic acquisition cost is for
your business, particularly on gross margin. It seems like kind of
sector-wide, there's been a cheapening in traffic acquisition
costs. Just curious if you guys are seeing the benefit of that as
it relates to the improvement in gross margin? And perhaps if that
is the case, how sustainable can that become a
tailwind?
And then my second question is, just given the context of driving a
better value proposition in a time of lower volumes, just tweaks to
the product bundling strategies that you've outlined on prior
calls.
Jared R. Rowe
CEO, President & Director
Yes. Okay. No, good question, Lee. And absolutely right. Listen, as
an industry-wide, we have seen some benefit here, in particular in
April, of traffic acquisition costs going down. One of the things,
Lee, it's helped us start thinking about it in a slightly different
way is what is the volume going to look like going forward. Because
what we have seen generally speaking, it becomes a little bit more
efficient for us to generate traffic. We've also adopted some
slightly different tactics than we probably would have if the
pandemic hadn't hit us, which has really helped us to optimize in
that environment.
So while we are seeing some benefit from the pullback of some other
spend, I did not give all the credit to just the market conditions
in terms of the operational efficiency that we've been able to
drive over the last 30 days, really because we hit the good
running. Oh, I think it was like March 26 is when we really started
to make some changes to our SEM spend in particular. And we've been
able to optimize from a cost perspective to a surprising extent.
Now to your point, we're going to give some of it back, right? As
the market recovers and as people come back in, we're going to give
some of it back. We certainly don't think we're going to give it
all back, though. Again, because this isn't just simply us riding
the wave here. It's us actually taking the opportunity to optimize
our campaign around this new volume characteristic, which is
helping us learn some things about the business that it just would
have been harder to learn. So that's my answer to that side in
terms of the marketing spend.
And in terms of the positioning of the products, that's an
interesting question, too. So, we've been promoting the bundle for
a while now. We haven't done it as well as we would have liked, but
we're doing it better now. So, we've gone to the market right now
with something that we're calling our DRR package. It's a Digital
Retail Ready package. And really what it is, is it's a bundling of
existing products and services that really conform to this new
transition or push to being more focused on digital retailing. And
listen, I think this is a trend we've been talking about for 6
years digital retailing. I think this is going to help to burn it
in a bit more in terms of the retail side and also the consumer
side.
But there are ways for us to leverage our traffic product, our new
car lead product got these other products as well, like web leads
plus and Payment Pro, that are really components to a digital
retailing strategy or support a dealer's approach to digital
retailing. And so we have gone to market with a bundle that's
really focused on either dealers existing digital retailing
practices that we help support with our products and services and
really kind of oriented towards that unique approach that the
dealer is taking or we can help to deliver components that maybe a
dealer didn't have like the Payment Pro product, which is, it's
really about putting payments first into the process, so a consumer
can get $0.01 perfect payment on an actual piece of
inventory.
So we definitely have our heads there, Lee, and we're not letting
this be lost on us because this gives us an opportunity to maybe
have some conversations with our clients and position our products
from a bundling perspective in ways that, that it would have been
more difficult before. I guess one last thing I would say to this,
too, is what's been interesting is as things slowed down on the
retail side, we've been able to have better engagements with our
clients because they're thinking about their businesses slightly
differently, which makes them think about us a little differently.
And so, we've been taking advantage of that over the last few weeks
as well.
And so again, this is all activity stuff. But I'm pleased with the
way that we're building the pipe, and I'm pleased with the way that
we're taking our solutions and starting to reposition and repackage
them to the clients. And quite frankly, the current market
disruption is helping us in that regard.
Lee T. Krowl
B. Riley FBR, Inc., Research Division
Got it. Just last question from me. And obviously, no one has a
crystal ball right now, but it seems like the mix shift to new
versus used is very prevalent today. Just kind of your thoughts on
that trend, whether it's temporary or if it has the potential to be
a multiple quarter trend, just kind of given the context of some of
the incentives and financing options that are out there right
now?
Jared R. Rowe
CEO, President & Director
Yes. I think there's 3 big things that we all need to keep our eye
on in regards to that. Number one is exactly what you're talking
about with the OEMs. So, listen, the OEM years are pinned back
right now in terms of the support that they're putting behind the
new car side of the business. They're doing everything they can.
Most OEMs are doing just everything they can right now. So that's a
positive.
Number two is we need to keep our eyes on the wholesale pricing.
There's still a lot no sale. There's building supply on the used
car side. While we've seen some adjustments to used car pricing in
the wholesale market, we haven't seen all of the price adjustments
that we would expect to see just yet and that's coming. And we're
going to have to just keep our eye on that and really manage our
way through it. That's number two.
And then the third big thing, and this is the one that we talk an
awful lot about internally is just availability of credit and
consumer confidence overall. Listen, consumer confidence fell in
the first half of April, it didn't fell again in the second half of
April. If consumers are disappointed with how the economy opens
back up, we could see even further pressure on that new car side.
And just new car and just cars overall because if you don't need a
car, then consumers may start to push their purchase timing out
even further.
I would tell you, one thing that was interesting. It's a bit of a
non sequitur, but it's interesting, nonetheless. As we've been
doing some research internally with our consumers and the e-mail
asking them about how has COVID-19 impacted their purchase timing.
Now I think this is specific to us and specific to the way that
we've attacked the market from a search perspective, but 74% of the
consumers that we have researched that have responded to us, I
should say. And we think the sample is significant. It's 74% of
them said that it either didn't impact them or that they actually
pulled up their purchase timing. Don't get me wrong, Lee. I don't
think that is representative of the full overall market. I do think
it speaks to the in-market readiness of somebody who uses our
services. Because if you're to the point where you're going to
submit a lead, if you go through the trouble to do it, you're
probably pretty darn close to transaction.
So, I know that was a bit of a meandering answer, Lee. I think that
I have hopes that the new car market will hold. I think we're
hearing good things out of Washington as well around the potential
need to support the industry. And we've certainly seen what happens
when the folks in Washington lean in and support the automobile
industry, good things happen, particularly on the new car side. So,
we feel good about the SAAR rate. I think 12.5 million to 13
million, I think that's a good number. If the government steps in,
it could go higher. But 12.5 million to 13 million is still a
robust number, maybe not in the context of the last 5 years. With
the 12 million to 13 million cars, it's still okay. It's still a
decent market for us. So hopefully, that answered your
question.
Operator
And your next question comes from the line of Ed Woo with
Ascendiant Capital.
Edward Moon Woo
Ascendiant Capital Markets LLC, Research Division
My question is, do you notice any trends or differences in how the
geographies perform, especially in areas that did not have a
lockdown? And have you seen any recent trends with some of the
places that have eased up, particularly in your home
state?
Jared R. Rowe
CEO, President & Director
Yes. Ed, interesting question. And we have seen that. There's
definitely -- listen, as the case of COVID-19 rise in a given
geographic area, you definitely see the stay-at-home orders be put
in place. And then you see declines in sales. And then as you see
the crest get hit and the plateau get hit, it starts to lighten up
a bit. It's really that upward trend is what we've seen in terms of
having the negative impact on retail sales.
What's interesting though, too, is that it really is market by
market. And so, we're kind of preparing for waves of this. And
that's how we're talking about it internally. To be quite candid
with you is we're expecting it to come in waves in terms of major
metros. And for our business, right, the major metros matter
because of how vehicle sales are clustered. Texas is an interesting
example. Texas is a big market for car sales. It's a big market for
us. And that's one that has been hit nearly as hard, say, New York,
for a whole host of obvious reasons.
But as we get to this plateau point, as we get to kind of something
that appears to be kind of relatively kind of the new normal, we do
see it start to open back up, which is one of the things I think
we're seeing in terms of the close rate data. Again, just to go
back to that close rate data. We looked from January until the end
of April, and we cut each month into half, right, first half,
second half, mainly because we thought that March and April were
going to be first half, second half historic than they were. Again,
the close rates were normal in January, normal in February. At the
beginning of March, they started to decline. The second half March,
they really moved down. The first half of April, they held there,
and they were low. Second half of April, they started coming back.
And if you put that on the time line and take a look at all the --
everything that was going on, it's kind of how we've gone through
this in a lot of regards with some of the big markets with the
stay-at-home orders and then some of the loosening as well as our
clients getting to a place where they understand how to operate in
the new environment.
That's one thing, too, I would say, Ed, it's been interesting to
watch these markets go through these learning curves because when
the initial stay-at-home orders are made, there's a general kind of
seizing up in the local market. And then you see the retailers who
are incredibly, incredibly resourceful. We know -- car dealers are
incredibly resourceful, let me figure out how to operate in this
new environment. And then you see it kind of open back up. We think
we're seeing that. But again, I think this thing is going to hit us
in the waves. And that's at least -- listen, we don't claim to have
all the answers, but that's at least how we're preparing for it
internally.
Edward Moon Woo
Ascendiant Capital Markets LLC, Research Division
Great. Well, that's a very good color on the situation. And I just
want to say from something from California, I hope you could dip
your toes in the stand while you're in Tampa for us for California.
It's just real hard to do that here.
Jared R. Rowe
CEO, President & Director
Thanks, Ed. Thanks, Ed. No, no, to your point is
that...
Edward Moon Woo
Ascendiant Capital Markets LLC, Research Division
Be safe guys.
Jared R. Rowe
CEO, President & Director
Yes. Be well. Be well. Thank you.
Operator
We do have a follow-up question from the line of Gary Prestopino
from Barrington Research.
Gary Frank Prestopino
Barrington Research Associates, Inc., Research
Division
Yes. I just want a quick question going back to this dealer or this
OEM has opted out of your program. Can you give us any idea how
many dealers they have across North America?
Jared R. Rowe
CEO, President & Director
Gary, that's a good question. I don't know off the top of my head.
And I want to be clear with something too. They're not asking out
of our program. They're not going to provide third-party leads to
their dealers at all. So, they're shutting the whole thing now.
It's not specific to us. They're just shutting the whole thing
down. And so, I'll tell you what Gary. I'll circle back on that
one. I can tell you this, they're a major OEM.
Gary Frank Prestopino
Barrington Research Associates, Inc., Research
Division
Okay. I was just curious...
Jared R. Rowe
CEO, President & Director
And they -- go ahead. I'm sorry.
Gary Frank Prestopino
Barrington Research Associates, Inc., Research
Division
No. I was just curious because my next question is going to be is
that when an OEM takes your leads, third-party leads, the OEM,
obviously, is paying for those leads. Does the OEM then charge the
dealers to the leads that they take? Or is that just the cost
hitting the OEM and then to go out and get these dealers to sign
up, that becomes a cost on their P&L from your lead generation?
I'm just trying to get an idea how this all works and
flows.
Jared R. Rowe
CEO, President & Director
So, absolutely. So, none of the OEMs do this for free. And they may
not calculate it -- some calculate it as per lead fee, and they do
that, they basically negotiate bulk rates. Some will mask it in
other fees and services. Because what they normally do is, they run
these digital marketing programs with multiple components inside of
them. And so, whether they charge their dealers a technology fee,
whether they charge their dealers kind of transactional fees, the
OEMs are certainly not -- they're not losing money on the program.
They're not doing it for free.
So we actually think our story for a lot of our clients is actually
very positive because when they go direct with a theory, they get
control over the program in a bunch of different ways, and also
relative to our retail rates, and we've been doing this, right,
we've been optimizing our pricing side on the lead side, in
particular, where we can bundle it with clicks. We think we can go
directly to the clients and show them a really, really attractive
bundle of services that are actually, in certain ways, better for
them than just participating in kind of the cookie-cutter
program.
And again, don't get me wrong. We appreciate all of our OEM
clients, and they do a great job, and they're great partners. But
as you can imagine, when they build these programs, they build them
for everybody as opposed to the specific unique needs of the
clients. And hey, I've got a good team behind me, Gary, because I
just got a text message from one of my team members. 1,500 is the
number of franchisees that this client has.
Gary Frank Prestopino
Barrington Research Associates, Inc., Research
Division
Okay. So, this is a pretty big OEM. Okay, thank you.
Operator
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 R. Rowe
CEO, President & Director
Well, I just want to say thank you, everybody. We appreciate you
joining the call. Look forward to talking to you again. This is an
interesting time to be in the automobile business. But quite
frankly, I feel blessed to have the team that we do, I'm really
proud of the work that we're doing. I'm really proud of the way
that this team has transitioned and really met the challenges over
the last 2 years. But specifically, just over the last 60 days,
it's been really impressive to watch the AutoWeb team rise to the
challenge and really meet these challenges that we're facing right
now and continue to stay focused on delivering value to our
clients, take care of each other and also just take care of those
communities.
So, I want to say thank you all for joining the call. I appreciate
that. And I just want to say thank you to the team for all the
great work they've been doing, and I look forward to talking to you
on the next earnings call when we can talk about Q2. Thanks,
everybody. Take care.
Operator
Ladies and gentlemen, this does conclude today's conference call.
You may disconnect your lines at this time. Thank you for your
participation.