Attached files
| file | filename |
|---|---|
| EX-99.1 - PRESS RELEASE - AutoWeb, Inc. | ex99-1.htm |
| 8-K - CURRENT REPORT - AutoWeb, Inc. | auto8k.htm |
Exhibit
99.2
AUTOWEB, INC.
Moderator: Sean Mansouri
November 2, 2017
5:00 p.m. ET
Operator:
This is Conference
#8799839.
Good
afternoon, everyone, and thank you for participating in
today’s conference call to discuss AutoWeb’s financial
results for the third quarter ended September 30, 2017. Joining us
today are AutoWeb’s President and CEO, Jeff Coats; the
company’s CFO, Kimberly Boren; and the company’s
outside investor relations adviser, Sean Mansouri, with Liolios
Group. As a reminder, this conference call is being recorded.
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 Jeff, I’ll remind you that during today’s
call, including the question-and-answer session, any projections
and forward-looking statements made regarding future events or
AutoWeb’s future financial performance are covered by the
safe harbor statements contained in today’s press release,
the slides accompanying this presentation and the company’s
public filings with the SEC. Actual events may differ materially
from those forward-looking statements. Specifically, please refer
to the company’s Form 10-Q for the quarter ended September
30, 2017, 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.
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 www.autoweb.com.
When there, go to Investor Relations 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 income
and non-GAAP EPS. For purposes of its 2017 guidance, we’ll be
adjusting 2016 revenues and non-GAAP EPS to reflect the exclusion
of the company’s specialty finance leads product that was
divested at December 31, 2016, and for year-over-year comparisons,
prior year results with the exception of cash flow from operations
for all periods presented are adjusted to exclude the
company’s specialty finance leads product, which was divested
on December 31, 2016. 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/or in the slides,
which are posted on the company’s website.
And
with that, I’ll turn the call over to Jeff.
Jeffrey
Coats:
Thank you, Sean.
Good afternoon, everyone. Thank you for joining us today to discuss
our third quarter 2017 results. As a reminder to those of you who
are new to AutoWeb, we were founded 22 years ago at 1995 as
Autobytel, the original pioneer and leading provider of digital
online automotive marketing services connecting in-market car
buyers with our dealer and manufacturer customers. We recently
initiated the corporate rebranding and renamed the company AutoWeb
as we believe this name better aligns with today’s corporate
strategy and operations. Our third quarter was highlighted by the
continued strong growth of our clicks business, which was up more
than 15 percent from Q2 and 35 percent from the year-ago quarter
for record revenues of $7.4 million.
During
the quarter, we also made progress, implementing solutions to
improve our traffic acquisition as we work to continue to rebuild
our original high-quality traffic streams from quarters passed.
Each subsequent month, we’re seeing improvements to margin
and conversion rates as our systems continuously relearn and build
upon the previous months’ bid optimization
processes.
During
the quarter, we also purchased the usedtrucks.com URL and have
begun investing in the development of the site. We expect this
strong domain to be a key part of accelerating growth and our used
product moving forward. As you may recall this builds upon two of
our key stated its initiatives for 2017 by expanding our used
vehicles business and enhancing consumer-facing
properties.
Subsequent to the
quarter, we licensed the RoiQ audience creation and management
platform from DealerX. RoiQ utilizes a proprietary platform and
technology for targeted online marketing to end market car buyers.
This platform employs extensive machine learning to determine when
and what content to show a consumer across multiple devices. This
audience intelligence will enable us to generate highly targeted
clicks and leads for our dealer and OEM customers, while building
upon our initiatives to diversify and expand our sources of
high-quality traffic.
Before
commenting further on these exciting developments, I would like to
turn the call over to Kim and have her take us through the
important details of our Q3 financial results. Kim?
Kimberly
Boren:
Thanks, Jeff, and
good afternoon, everyone. As noted in our press release today, for
year-over-year comparative purposes, the results for all periods
presented and discussed on our call today exclude our specialty
finance leads product, which was divested on December 31,
2016.
For
those of you following along with our earnings presentation, on
slide four, you can see that our third quarter revenue came in at
$36.9 million, down from $42.2 million in the adjusted year-ago
quarter. The expected decline was largely driven by the effect of
eliminated lower quality traffic campaign that we discussed last
quarter. This was partially offset by the continued strong growth
in advertising revenues, which increased 21 percent to $8.9
million.
Moving
to slide five, you’ll see that we delivered approximately 2.1
million automotive leads during the third quarter compared to 2.6
million last year, a reduction resulting primarily on the
eliminated traffic. Note that this lead volume reflects all leads
sold to both the retail and wholesale channels. As a reminder, the
retail channel comprises leads sold directly to dealers whereas our
wholesale channel primarily reflects the leads sold to OEMs that
are then distributed to dealers and their corporate leads program
at the OEM’s discretion.
And on
slide six, you’ll see that dealer count stood at 24,191 at
September 30th, a 1 percent decrease from Q2. Similar to our leads
breakout, this dealer count reflects all of the dealers we sell
leads to, including both the wholesale and retail channels for new
cars. It’s worth noting that we saw slight headwinds to both
revenue, and lead and click volumes in the third quarter as a
result of the hurricanes in both Houston and Florida. In fact,
parts of Florida were without power and therefore Internet
connectivity for an extended period of time leading to
mid-September. We have since seen recovery and expect to see a
slight uptick in volumes in Houston in the coming months as
consumers begin to replace their damaged vehicles. It goes without
saying that our thoughts are with all of those who were affected in
regions impacted by natural disasters.
Moving
on to advertising. As mentioned earlier, our advertising revenues
increased 21 percent to $8.9 million, compared to $7.4 million in
the year-ago quarter. The growth was due to a significant increased
input revenue.
On
slide seven, you’ll see click revenues increased 35 percent
to a record $7.4 million compared to $5.5 million in the same
period last year. The increase was driven by continued strong
customer demand, partially offset by the eliminated
traffic.
Now
moving to slide eight. Gross profit during the third quarter was
$11.1 million compared to an adjusted $15.3 million in the year-ago
quarter; with the gross margin coming in at 30.1 percent compared
to an adjusted 36.2 percent. The decline was driven by the
investment in additional traffic acquisition beginning in late Q3
2016, investments in our used vehicle business, and the
aforementioned eliminated traffic campaign. We expect gross margin
to remain in the low 30 percent range, as we focus on the
optimization of traffic acquisition costs and used vehicles’
investments.
Total
operating expenses in the third quarter decreased to $10.8 million
compared to an adjusted $11.2 million in the year-ago quarter. As a
percentage of revenues, total operating expenses were 29.4 percent,
compared to an adjusted 26.5 percent for the year-ago quarter. We
expect operating expenses as the percentage of revenues to be in
the low 30 percent range as we increase investments in technology,
and sales and marketing resources over the next year.
On a
GAAP basis, net income in the third quarter was $69,000 or 1 cent
per diluted share on 13.2 million shares, compared to adjusted net
income of $2.6 million or 20 cents per share on 13.3 million shares
in the year-ago quarter. For the third quarter, non-GAAP income,
which adds back amortization on acquired intangibles, noncash
stock-based compensation, acquisition costs, severance costs,gain
or loss on investment or sale, litigation settlements, and income
taxes was $2.4 million or 18 cents per diluted share, compared to
an adjusted $6.3 million or 47 cents per diluted share in the third
quarter of 2016. The decline was primarily driven by lower revenue
in gross margins, resulting from the aforementioned eliminated
traffic and used vehicles investments.
Cash
provided by operations in the third quarter was $2.5 million
compared to $5.9 million unadjusted in the prior-year quarter. We
also repurchased $1.2 million of stock during the third quarter and
have an additional $3 million authorized, of which up to $1.8
million may be used in 2017.
On
slide nine, you’ll see that our cash balance remains strong
despite debt paydown, stock repurchases, and the usedtrucks.com URL
purchase with cash and cash equivalents of $44.7 million at
September 30, 2017, compared to $38.5 million at December 31, 2016.
Total debt at September 30, 2017, was reduced to $19.1 million
compared to $23.1 million at the end of 2016.
With
that, I’ll now turn the call back over to Jeff.
Jeffrey
Coats:
Thank you, Kim.
Before getting into some of the usual quarterly metrics, I’d
like to provide some more color on DealerX. First, the transaction
structure. As you can see on slide 10, we paid $8 million upfront
to DealerX to license its technology in perpetuity. During the
initial five-year period, we will receive tech development and
support from their team, including product upgrades, new product
development, and audience expansion. During this initial
period, DealerX has the contingent right to receive approximately
711,000 shares of our AutoWeb common stock, if our market
capitalization reaches $225 million and maintains that level for 90
consecutive days or if there is a change in control of AutoWeb that
reflects the market capitalization of $225 million or more. If
these shares are issued to DealerX, its obligation to provide
platform operations and support will continue in
perpetuity.
It’s also
worth noting that we have the option upon the occurrence of certain
events to make a lump sum payment of $12.5 million to extend
DealerX’s platform support obligations in perpetuity. At
which point, their right to receive any AutoWeb stock is
terminated.
With
that out of the way, I’d like to expand on the DealerX
platform a bit. DealerX has created a unique all-in-one automotive
online marketing platform that is a truly end-to-end operation from
data collection and activation to analytics and attribution. Their
technology records countless consumer-driven behavioral events
online and scores them in real-time to determine what content to
show a consumer with optimal location and timing. We plan to
utilize this technology to support both our clicks and leads
products as we can target the right consumer and monetizes the
events in multiple ways.
As you
can see on slide 11, DealerX has comprehensive dashboards that
provide analytics to show multi-pronged attribution. The data
showcased in these dashboards will allow us to demonstrate to our
dealer and OEM customers, the significant value we are providing
with this high-quality traffic and leads in helping them sell more
cars and trucks.
In
addition to the monetary benefits, the DealerX platform will
provide us with an entirely new source of traffic, which builds
upon our strategy to diversify our consumer acquisition partners.
We’ve been testing the technology for several months, and
both the conversion rates and margin profile have been very
impressive. This was a critical factor in our decision to license
the technology as we remain committed to only providing the highest
quality consumer leads and clicks to our dealer and OEM
customers.
Now,
moving back to the third quarter. In our clicks business, we
continue to increase click volumes with existing clients and have
added new dealers, OEMs, and advertising customers. As I’ve
mentioned in the past, our strong growth in clicks up to this point
has only come from a small number of customers, so there’s
still plenty of room for ongoing growth. It should be noted that
even though we have seen strong growth in click revenue, this
growth has been limited by the elimination of traffic campaigns
that we referenced earlier on the call as well as last
quarter.
We
continue to make progress on recovering the lost traffic from these
eliminated campaigns and improving our bid optimization strategies
with our traffic partners. As I mentioned earlier, each subsequent
month, we’re seeing improvements to margin and conversion
rates as our systems continuously relearn and build upon the
previous months’ bid optimization processes. We expect this
rebuilding to continue into 2018.
Moving
on to our used vehicles business. The usedcars.com site continues
to gain traction. Q3 traffic is up at 120 percent year-over-year,
and our engineers have continued to improve site load time. We will
continue to work with our Google experts to adopt more adaptive
experiences to create an optimal user flow for
usedcars.com.
As I
mentioned earlier, we purchased the usedtrucks.com URL during the
third quarter. Trucks and SUVs continue to be among the bestselling
new and used vehicles for our dealers and manufacturer customers,
and they generally also carry the highest margins for them.
Accordingly, we are very exciting to have acquired this strong
domain to further boost our used product.
In its
current form, the temporary site has very limited functionality but
also has click listings monetization. We expect to launch a more
robust version of the site in the second half of 2018. As we
continue to improve the user experience for our consumers and
expand inventory across our used vehicle sites, we will accelerate
our approach and mission to drive new traffic in the coming
quarters. We have a lot of opportunity to grow here with our paid
SEM efforts only represent a fraction of our overall investment,
and we have a clear path to get there. We are creating a mobile
first experience that we believe will allow us to reach all end
market consumers with ease.
On
slide 12, you’ll see that our estimated average buy rate for
internally generated leads in the third quarter was 18 percent,
which remains within our targeted range of 16 percent to 24
percent. And on slide 13, you’ll note that these estimated
buy rates have remained consistently strong since Q1 2011, with
Autobytel.com generating an average buy rate of 27 percent and all
Autobytel internally generated leads at about 18 percent. Note that
we have relaunched Autoweb.com to now be our corporate site, and we
plan to keep the Autobytel.com site active along with our other
consumer facing sites, car.com, usedcars.com, and usedtrucks.com,
as they remain strong consumer-facing sites and continue to
generate high margin, meaningful advertising revenue for
us.
On
slide 14, you’ll see that J.D. Power LMC Automotive is
holding their forecast for full year 2017, total light vehicle
sales at 17.1 million units, and retail light vehicle sales at 13.9
million units, both down slightly from 2016. For 2018, J.D. Power
LMC Automotive forecast total light vehicle sales to be 17 million
units with retail light vehicles at 13.8 million.
Moving
now to our 2017 business outlook highlighted on slide 15. We are
maintaining our previously issued guidance and expect revenue to
range between $144 million and $148 million, compared to an
adjusted $150.4 million in 2016. We also continue to expect
non-GAAP EPS to range between 78 cents and 82 cents on 13.3 million
shares.
Though
2017 fell short of our financial expectations due to extenuating
circumstances with our traffic acquisitions, we made solid progress
on our stated goals that were laid out to start the year.
We’ve enhanced our consumer-facing websites and expanded our
used vehicles business with investments in usedcars.com and
usedtrucks.com, and have diversified our sources of traffic by
licensing the RoiQ platform from DealerX.
Looking
ahead, we intend to continue to execute on these initiatives and
work with our traffic partners to rebuild our high quality traffic
streams, while restoring our revenue and margin profiles. We also
plan to accelerate our clicks business by expanding the offerings
to more dealer and OEM customers, while utilizing the new sources
of traffic from DealerX to increase click volumes. We expect the
incremental sources of traffic to equally support our new and used
vehicle leads business. With multiple initiatives and products in
place, we will continue to serve our dealers and OEMs with highly
targeted clicks and leads, while developing a more efficient
pathway to purchase for consumers.
At this
time, Andrew, we’re ready to open the call for
questions.
Operator:
Thank you, sir.
Ladies and gentlemen, if you have a question at this time, please
press star then the one key on your touch-tone telephone. If your
question has been answered or you wish to remove yourself from the
queue, please press the pound key. To prevent any background noise,
we ask that you please place your line on mute once your question
has been stated.
Our
first question comes from Sameet Sinha with B. Riley. Your line is
now open.
Sameet
Sinha:
Yes, thank you very
much. A couple of questions –if you look at guidance in the
implied fourth quarter, it indicates that the height of guidance
could be flat sequentially. How realistic is that expectation? And
is that a function of what you indicated earlier about the
hurricanes benefiting fourth quarter?
Secondly, can you
talk – you spoke about tech investments in technology, and
sales and marketing. Can you elaborate on where exactly
you’re investing, I guess, to have a better sense of sales
and marketing investments, but technology would also be
helpful?
And
last question would be just if you can talk about the demand
dynamics and the clicks business; if I remember correctly, last
year, you had about 200 partners from a demand side. And if you can
talk about how much has that number expanded or increased. Thank
you.
Kimberly
Boren:
Hi, Sameet.
I’ll start with the guidance questions first. Around our
range, the lower end of the range assumes the current run rate as
is the higher end of the range assumes the spike for the used
vehicles in the fourth quarter and a spike for seasonally adjusted
number as we head into the holiday season. So it’s consistent
with the model that you guys have put out.
The
second question is regarding investment in technology, and sales
and marketing. With the branding change, we’re going to
continue to invest in getting the AutoWeb name out there, so
you’ll see a significant uptick in what we’re spending
right now. It’s not significant and material those numbers,
but it’s more than we’re currently spending today from
a marketing perspective. And in addition, we’re adding sales
and customer service headcounts. With regard to technology, we are
continuing to invest, as Jeff mentioned, in used trucks, used cars,
and other URLs as well as the ad server and other things that
we’ve talked about throughout the year.
Jeff, I
don’t know, if you want to go into the demand dynamics on the
clicks?
Jeffrey
Coats:
On the demand side,
Sameet, for the clicks business, we have a significant amount of
demand. We have added some new customers mostly around agencies
that represent dealers as well as a couple of OEMs. But given some
of the volume and quality problems we had during the first half of
the year that caused us to pull the bad traffic out of our
campaign, we were kind of slow walking the clicks product a little
bit until we fully diagnosed from where the quality problems were
coming.
So, now
that we’ve got that behind us, we are beginning to push it
– we have already begun to push it again, and we’re
seeing continued signup. And also, we have pretty strong demand for
it. The click product is very well received by our OEM customers as
well as the agencies that represent dealers as well as some that
represent OEMs. So it’s quite positive.
Sameet
Sinha:
OK. Thank
you.
Operator:
Thank you. Our next
question is from Ed Woo with Ascendiant Capital. Your line is now
open.
Ed
Woo:
Yes, thank you for
taking my question. A clarifying question in terms of the guidance
you gave earlier, Kim, about gross margin in the 30 percent range
and operating expense in the 30 percent range as well. Is that just
for the fourth quarter? Or is it for the next couple of
quarters?
Kimberly
Boren:
That’s
planned to roll for the fourth quarter and moving into the next
period in 2018. Although, we’d expect that the OpEx as a
percentage would be lower than gross margin in those
periods.
Ed
Woo:
OK. And then that
leads me to my question is now that you’re making these
investments and I know you’re not going to be giving specific
guidance for 2018, but is there leverage in the model? And when do
you think that opportunity is to, really, get back to the gross
profit profiles that you previously had?
Kimberly
Boren:
That’s a good
question, Ed. So, right now, we’re actually going through the
process of budgeting for 2018. I wish I could provide you more
guidance at this point in time. But we are a little (way down)
until nailing down where we’re ready to guide for 2018. So I
would expect that on our next call.
Jeffrey
Coats:
Ed, this is Jeff.
I’d also point out the leverage in our P&L is certainly
more pronounced at the higher revenue level that we had to back off
from a traffic standpoint. So there is still leverage in our
product lines and then our approach. But we’ve got to rebuild
our traffic campaigns to get our revenue back in line in order to
really demonstrate it.
Ed
Woo:
I guess more just a
qualitative high-level view, Jeff. Obviously, when you, guys, made
the acquisition of AutoWeb last year, you guys had a lot of
expectations and whatnot. Has anything changed in the past year to
really get you guys to change your expectations on a long-term
basis in the clicks business?
Jeffrey
Coats:
No, I
wouldn’t say that anything has changed from a long-term or
even medium-term standpoint with the product. I mean we’re
continuing to see really strong growth. We had a flat
quarter-over-quarter and year in the second quarter, but
that’s in-part because we were really slow locking some stuff
related to some of the quality concerns for a while.
We are
continuing to sign up customers for it. We have taken a little bit
slower approach. We would be further along. But as we talked about
on the second quarter call, we started identifying some quality
problems late last year and they rolled over into this year. And
that’s really caused us to just expand that product a little
bit more slowly until we got the quality stuff straightened out. I
mean the last thing we wanted to do was potentially screw up a
great new product by pushing poor quality traffic to some new
customers.
Ed
Woo:
Right. Well, thanks
for answering my questions. Thanks a lot. Thank you.
Jeffrey
Coats:
Thank
you.
Operator:
Our next question
comes from Tom Cullen with Lake Street. Your line is now
open.
Tom
Cullen:
Thank you. Good
afternoon. Just a few questions and some are follow-ups to some of
that have already been asked, but curious about the expectation in
the fourth quarter for OEM incentives or other potential tools to
increase demand around the holidays and Black Friday. Also
wondering about your relationships, have they improved or changed
in any way with some of the search partners since the Q2 traffic
issues? And then, if you could, just expand a little on your growth
expectations for pay per click in 2018 and also if the traction for
the used car leads business is as you saw on plan; just where you
in that process.
Jeffrey
Coats:
Let me – you
might have to remind me on some of those as we go through with. So
the first one, we do think there will be increased incentives. Oh,
good, Kim wrote them down. Thank you, Kim. Going through the fourth
quarter, we do believe there will be increased incentives. You may
have noticed that over the last two or three years, or three years,
I guess, a lot of the manufacturers have started doing Black Friday
advertising right after Thanksgiving and that has really changed
the profile of Q4 for us over these years. It was very successful
for General Motors and some of the others. But GM, in particular,
last year and a couple of years before that, it’s our
understanding that they’re planning to do the same thing
again this year. It was – they kind of started it in
‘14, expanded it in ‘15. A lot of other guys started
jumping in a little bit in ‘15 and ‘16. And so, we
would expect to see more this year.
In
addition, to our understanding, incentives have been pretty much at
an all-time high this year, particularly during the summer. So the
manufacturers have been pushing very hard to move metal,
particularly in the second half of this year, I assume, in part to
get their own inventories in line as they approach the end of their
fiscal years in December.
I would
say our partner relationships remain very strong across all of our
search partners. We have a very strong relationship. And even
though we’ve had some issues, we continue to work very
closely with those partners in order to diagnose and take care of
the issues. So, if anything, the relationships are probably
stronger now than ever.
Click
growth in 2018, we would expect it to continue to grow in double
digits next year. It will be – how strongly that is, is a
function of our leads traffic to some extent, but also now the
DealerX traffic partnership that we have begun developing. It
operates on a day-to-day basis, somewhat like relationships with
our search partners. And that we opened accounts with them and do
campaigns somewhat similarly in order to buy traffic. And so we
would expect that to continue to support both sides of the
business. But, again, we expect the clicks business to grow double
digits next year.
Used
cars, I would acknowledge used cars has grown a little more slowly
than we would have liked. We have been adding resources to it. We
have been expanding and improving the usedcars.com website with
more functionality. We’ve been also adding more dealers to
the program and getting their inventory posted. We need to do
better. And we are in fact, doing that, we’re adding more
sales resources as well to what we are doing. So we are a little
behind where we had hoped to be by this point in time. But we do
expect to accelerate in 2018.
Tom
Cullen:
Much appreciated.
Thank you very much.
Operator:
At this time, this
includes our question-and-answer session. I would now like to turn
the call back to Mr. Coats for closing remarks.
Jeffrey
Coats:
Thanks, Andrew.
Thanks, everybody, for joining us today. I’d also like, as
always, to thank our team of hard-working and dedicated employees.
We look forward to meeting with all of our current and prospective
shareholders, I think, next in December at the LD Micro Conference
in Los Angeles and through our periodic non-deal road shows. If we
don’t see you before, we will be doing our Q4 call in early
March. Thank you.
Operator:
Ladies and
gentlemen, this does conclude today’s teleconference call.
You may now disconnect your lines at this time. Thank you for your
participation.
END
