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EX-99 - PRESS RELEASE - AutoWeb, Inc. | ex99-1.htm |
8-K - CURRENT REPORT - AutoWeb, Inc. | auto8k_may72020.htm |
Exhibit 99.2
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Call Participants
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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
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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.