Exhibit 99.2
AUTOWEB INC
Moderator: Sean Mansouri
August 2, 2018
5:00 p.m. ET
Operator:
This is conference
# 1886006
Operator:
Good afternoon,
everyone, and thank you for participating in today's conference
call to discuss AutoWeb's financial results for second quarter
ending June 30th, 2018.
Joining
us today are AutoWeb's CEO, Jared Rowe, and the company's interim
CFO, Wes Ozima; and the company's outside investor relations
advisor, Sean Mansouri with Liolios Group. Following their remarks,
we will 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,
Brian.
Before
I introduce Jared, I remind you that during today's call, including
the question-and-answer session, statements 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 second quarter
ended June 30, 2018, which was filed prior to this call as well as
other filings made by AutoWeb with the SEC from time to time. These
filings identify factors that could cause results to differ
materially from those forward-looking statements.
Please
also note that during this call, management will be disclosing
non-GAAP loss or income and non-GAAP EPS. 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,
which is posted on the company's Web Site.
And
with that, I'll turn the call over to Jared.
Jared R.
Rowe:
Thanks, Sean, and
good afternoon, everybody.
During
the second quarter, we made great progress in working towards the
completion of our operating review and the development of our new
strategic plan. This included a comprehensive review of our
products, our traffic acquisition strategies, our pricing policies,
our distribution channel approaches and our organizational
capabilities and structure.
Although we are
still engaged in our strategic review, we've already begun to
redevelop and invest in the key pillars of our business, which will
continue to impact short-term profitability, particularly as we
invest in new product development, test new traffic acquisition
strategies to improve quality and consumer targeting.
In an
effort to improve our consumer to advertiser matching, we're also
investing to enhance our click algorithm, which we expect to
complete and deploy later this year. Further, we plan to
restructure our organization to better align with our revised
strategic imperatives, which could result in material restructuring
costs later this year.
With
just three months at AutoWeb, I'm very encouraged by the progress
our team has made to evolve our go-to market approach. However,
there is still much work to be done to determine the proper new to
used car targeting mix, our channel mix, our product mix and some
other strategic decisions.
But
before commenting further on our plans, I'd like to turn the call
over to Wes to walk us through the details of our Q2
results.
Wesley
Ozima:
Thank you, Jared,
and good afternoon, everyone.
Second
quarter revenue came in at $29.3 million, down from $34.6 million
in the year-ago quarter. Our average revenues were $6.9 million
compared to $8 million in the year-ago quarter with click revenues
of $5.8 million compared to $6.5 million. The declines are
primarily due to lower retail dealer count and lower lead in click
volumes.
Gross
profit during the second quarter was $5.5 million compared to $10.6
million in the year-ago quarter. The gross margin coming in at 18.9
percent compared to 30.7 percent. The decline was primarily driven
by investments in new traffic acquisition strategies that increased
the total cost of revenues. Normally, cost of revenues will be
expected to decrease proportionally with total
revenues.
Total
operating expenses in the second quarter were $10.9 million
compared to $10.4 million last year. As Jared mentioned earlier, we
plan to better align our organizational structure based on some of
the new strategic initiatives underway, which will be followed by
reinvestment to ensure that we have the proper capabilities in
place to execute our strategy.
On a
GAAP basis, net loss in the second quarter was $5.2 million or
negative $0.41 per share on 12.7 million shares compared to net
income of $0.3 million or $0.02 per share on 13.3 million shares in
the year-ago quarter.
For the
second quarter, non-GAAP loss, which adds back amortization on
acquired intangibles, noncash stock-based compensation, severance
costs, gain or loss on investment or sale, litigation settlements,
goodwill impairment and income taxes was negative $2.8 million or
negative $0.22 per share compared to non-GAAP income of $2.5
million or $0.19 per share in the second quarter of 2017. The
decline was primarily driven by the aforementioned lower revenue
and gross profit resulting from traffic acquisition investments,
lower retail dealer count and lower lead in click
volumes.
Cash
provided by operations in the second quarter was $2.9 million
compared to cash provided by operations of $6.5 million in the
prior year quarter. At June 30th, 2018, cash and cash equivalents
stood at $18.3 million compared to $15.2 million at March 31st and
$25 million at December 31st, 2017. The year-over-year decrease was
driven by our repayment of an $8 million revolving line of credit.
Total debt at June 30, 2018, was $1 million compared to $9 million
at the end of 2017.
Moving
on to some of our other operating metrics. We delivered
approximately 1.7 million automotive leads during the second
quarter compared to 2 million in the year-ago period, a reduction
resulting primarily from lower retail dealer count and less
effective traffic acquisitions. Note that this lead volume reflects
all leads sold to both the retail and OEM channels for new and used
vehicles.
As a
reminder, the retail channel comprise of leads sold directly to
dealers, whereas our OEM channel primarily reflects leads sold to
OEMs that are then distributed to dealers in their corporate leads
program at the OEM's discretion.
Dealer
count stood at 23,546 at June 30th, down one percent from 23,886 at
the end of Q1. The decrease was primarily driven by the
aforementioned decline in retail leaders. Subsequent to the
quarter, we added Maserati to our OEM leads program and expect this
new program to be activated in the third quarter.
I
remind listeners that our dealer count reflects all leaders to
which we sell new vehicle leads, including both the OEM and retail
channels. It's also worth noting that our dealer count represents
approximately 73 percent of all franchise dealers in the
U.S.
Buy
rates for the quarter remained strong with Autobytel.com generating
an average estimate buy rate of 29 percent and all AutoWeb
internally generated leads estimated at about 17 percent. This
compares to an estimated 30 percent for Autobytel.com and an
estimated 17 percent for all AutoWeb internally generated leads in
the second quarter of 2017.
Our
traffic mix for the quarter also remained steady with 79 percent of
leads being internally generated and the other 21 percent of leads
coming from third-party lead providers. This compares to 77 percent
internally generated last quarter and 80 percent in the year-ago
quarter.
With
that, I'll now turn the call back over to Jared.
Jared R.
Rowe:
Thanks,
Wes.
As we
mentioned earlier, we've gone through an extensive review of our
current assets and capabilities over the last few months and have
made great progress on the development of our new strategic plan.
And during our product review, one thing we realized and will seek
to improve is the integration of our products as a more unified
solution.
Just to
over simplify this concept, previously, our leads were not
effectively speaking to our clicks nor were they effectively
speaking to our e-mail marketing campaigns. These three key product
should be working together with the ultimate goal of monetizing
advertising every ad impression we generate across each product.
This will provide us with an opportunity to maximize our clients'
marketing dollars by reach and frequency to contact their target
audience of in-market consumers.
Now, as
I mentioned earlier, we're also investing to enhance our click
algorithm to improve consumer and advertising matching. This
algorithm will be more equipped to take advantage of the mass
amount of consumer data we collect every single day. Ultimately, if
we enhance the match, we believe we can enhance both consumer and
advertiser value, which is what we ultimately monetize. We've also
thoroughly reviewed our distribution capabilities, which is a
reference to our sales channel mix of OEM and retail dealers. While
our OEM business has historically been very strong, our retail
business has been in steady decline for some time now.
Although we are
still working to determine the proper channel mix, we expect to
enhance our retail business through more effective market
segmentation. Today, we are underpenetrated in the retail segments
that we believe to be the most attractive and can benefit most from
our products. This segmentation approach will include pricing
rationalization. For competitive reasons, we can't get into too
much detail here, but know that we're undertaking an extensive
review to find the right balance of price and margin to maximize
volume for both the OEM and retail channels.
Regarding our
traffic acquisition, during the second quarter, we began to invest
in new strategies to enhance targeting and the quality of our
leads. Frankly, I believe some of the company’s previous
strategies were not contemporary and were not aligned to really
focus on the buying signals of the consumer.
As I
mentioned on our last conference call, our goal is to move away
from commodity matching of buyers and sellers and begin looking at
more data-driven approaches to connect a specific targeted buyer
with a specific targeted seller. We believe this can help us
differentiate in the market as well as improve both the margin and
volume characteristic of our business. We expect these investments
to continue over the near term as we work to optimize our traffic
acquisition method and return to growth.
In
closing, I'd like to reiterate a few key points. In the short time
that I've been back with AutoWeb, I'm very pleased with the
progress we've made and the steps we've taken to address the
challenges. I continue to believe there are opportunities for us to
be more efficient with our existing resources and to more
effectively compete for our client’s marketing
spend.
Marketing
efficiency is critical in the automotive industry, and we aim to
continue to be on the forefront of helping our clients achieve
their goals. We will also maintain our focus to deliver on being
the highest quality lead and click provider in the industry and
have already begun to alter our approach. It will take some time
and organizational restructuring to get where we need to be, but I
remain confident in our long-term prospects. I am very excited
about the opportunities ahead and look forward to updating you on
the progress along the way as well as rolling out our new strategic
plan later this year.
With
that, we'll open the call for questions.
Operator:
Thank you,
sir.
Ladies
and gentlemen, at this time, if you would like to ask a question
over the phone lines, press "star" and then "one" on your telephone
keypad. If your questions have been answered and you wish to remove
yourself from the queue, simply press the "pound" key. Once again,
ladies and gentlemen, to ask a question, that is "star" and then
"one."
And our
first question will come from the line of Sameet Sinha with B.
Riley FBR. Your line is now open.
Lee T.
Krowl:
Hey, guys. Thanks
for taking my question. This is Lee Krowl filling in for Sameet.
Couple of questions.
First,
just trying to get a sense of, during the quarter, what impacts the
current restructuring has had on current results? And what
essentially was the product of kind of the competitive dynamics in
the marketplace? Just trying to get a sense of what you guys have a
control over and kind of what the market has caused or impacted
your business.
Jared R.
Rowe:
Yes, hey, Lee,
thanks for the question.
The
restructuring costs really haven't hit just yet. What you're seeing
in terms of the cost side of the business is really about some
things that we found during the quarter that needed a bit of
shoring up in a bit more of aggressive way than I initially thought
when I first showed up. Investing heavily in traffic acquisition,
really (inaudible) our approach and rethinking some of the ways
that we actually structure those campaigns. Like I said earlier
(inaudible) comments, some of the strategies that we were employing
were not what I would consider to be contemporary, and so we've
been investing heavily into that.
When we
think about the competitive dynamic and the competitive landscape,
in particular, when we think about the marketing spend inflation,
we're less concerned about that, quite frankly. We're more
concerned about how we generate the right impressions and then what
we do from a conversion rate perspective, and quite candidly, those
things are within our control. And really what you're seeing from
an expense perspective is us investing and bolstering those
capabilities so that we can build long-term value and get this
business back to profitability.
And
then just kind of on the pricing and I guess rationalization and
better segmentation, I guess, can you maybe just talk about --
obviously, no two dealers are the same and bigger ones warrant
different pricing than smaller ones, but I guess, as you go into
that, is there a margin implication to that as well?
Jared R.
Rowe:
That's a fair
question.
And as
we think about the business, it's all rate volume. And so one of
the things that we're thinking about is, how do we actually grow
our overall margin profile in the business by -- maybe not on a per
unit basis -- but overall. And so when you look at our retail
business in particular, it's been in decline for several quarters
now, we think by better targeting, the segments of the dealer
population that are best (inaudible) to really get the benefit of
our products and services, and then pricing appropriately, we
actually think we can get some of that share back.
As we
think about the business, we do think about it that simply. We want
to have the best margin characteristic we can on a per-unit basis
for as many units as humanly possible. But again, this isn't just
about rate; this also about volume for us.
And
then just jumping over the balance sheet click, it seems like you
guys have ample cash, but obviously the changes you're making are
going to cause temporary disruptions. Is the balance sheet a gating
factor to being able to move faster? Or with the current
flexibility of the balance sheet, do you think you can kind of
execute your turnaround plan on a pace or a schedule that you would
like?
Jared R.
Rowe:
We feel good with
where we're at right now from a balance sheet perspective. We don't
think that it's going to inhibit our progress, and to be candid
with you if we get to a point where we're (inaudible) it'll really
be the planning process for the new strategic plan we tend to roll
out later this year, which would mean (inaudible) we thought that
we could move faster with a slightly different approach -- then we
would actually include that in the plan and we'd go execute against
that.
Again,
as we sit today, I feel really good about the balance sheet; it's
not going to inhibit our turnaround. And if we get to a point where
we think we can actually move faster by figuring out a different
way to manage the balance sheet, we will absolutely avail ourselves
of those opportunities.
Lee T.
Krowl:
Got it.
Thanks.
Jared R.
Rowe:
Thank
you.
And our
next question will come from the line Ed Woo with Ascendiant. Your
line is now open.
Ed
Woo:
Yes, thank you for
taking my question.
How --
what's your outlook for the auto industry in the U.S.? I know July
was a little bit of a pick-up, but how does that impact your
business and how do you guys are deploying through your structural
plan?
Jared R.
Rowe:
Yes, thanks for the
question. That's a fair question.
We
didn't get off to a really good strong start here in the second
half from an automotive perspective. We're on -- I think the SAAR
total was, what, 16.73, which was down a little bit sequentially,
but we still feel good about the industry overall. We are still
seeing that big kind of structural shift away from cars into SUVs
and trucks. And we still do see some of the core drivers in the
industry starting to heat up, whether it be increases in interest
rates or whether it be the extension of loan terms -- those sorts
of things.
But I
guess from our business, we look at it this way, which is, we're
relatively small percentage of overall -- of our overall clients'
marketing spend. We also are measured media, whereas a lot of the
ways that dealers and OEMs are spending money, they just don't have
the ability to prove the value of -- the way that we
do.
We
believe very strongly that if you focus on delivering quality to --
real value to the end buyer of your product and you do it in a way
that is demonstrable that we're going to be able to effectively
compete in an up- or a down-market. This doesn't mean we're
cyclical, this doesn't mean we're countercyclical; it just means
that we're a relatively small percentage of their overall spend.
We're measurable and we are very tangible from a media spend
perspective, which I think helps us grow in an up-market, and I
think it really helps us manage the business in a market that's in
decline.
And
then the other question I have is, have you seen any possible
disruption from your customers -- either the OEMs or the dealers in
terms of some discussion is about the potential auto tariff? Is
that putting anybody's spending on marketing or plans are -- just
on hold or is no real impact yet?
Jared R.
Rowe:
Yes, nothing for
us. We haven't seen anything associated with that at
all.
Ed
Woo:
Great. Well, thank
you and good luck.
Jared R.
Rowe:
Thank
you.
And our
next question will come from the line of Peter Delgado with Global
Value Research Company. Your line is now open.
Peter A.
Delgado:
Yes, hey, Jared,
again. Peter Delgado from Global Value Research
Company.
I know
you've only been there kind of a short time. I'm curious if you
could maybe give us a little more color on how long you think the
company might need to complete its strategic review?
Jared R.
Rowe:
Hi,
Peter.
We do
intend to present our strategic review later this year. I think
it's reasonable that we would do it either at the next earnings
call or maybe even prior to the next earnings call, but I think
we'll be in good shape to talk with everybody about it in that kind
of time frame. We have made really good progress on it; the
operating review has gone very, very well. As I mentioned earlier,
we're already starting to make some investments and make some
progress to get the business back in the kind of shape we think it
needs to be to really make the extension of the platform and really
make the turn. That would be the timeline I'd give you as we sit
right now.
Peter A.
Delgado:
Got you, very good,
understood.
I guess
just second question's here, did see obviously the margin drop due
to your rather strategic -- making some strategic investments
across the board there. Kind of curious, do you anticipate seeing
them down here in that range before they go back up to your
historically higher level around high 20s, 30 percent?
Jared R.
Rowe:
Yes. I guess the
way I would answer that question is this way, Peter, which -- we're
not providing guidance as we sit right now. We do intend to
continue to make the kinds of investments that you're (inaudible)
for the foreseeable future. We're really (inaudible) the
capabilities who build the foundation of this business. We have a
fundamental belief here that we make the right investments now, we
build the right capabilities now, it's going to position us very
well to create real value over the medium- to long-term. That would
be way that I'd answer that question.
Peter A.
Delgado:
OK. Understood.
Thanks, guys.
Jared R.
Rowe:
Thank
you.
Operator:
Thank you. At this
time, this concludes our question-and-answer session.
I would
now like to turn the call back to Mr. Rowe for closing
remarks.
Jared R.
Rowe:
Well, thank you,
everybody. I appreciate your time and joining the call. I also want
to thank the team here at AutoWeb. They've done good work in a very
brief period of time and I'd reiterate just how excited we are
about the future. I know we've got a lot of hard work ahead of us
and we're not where we want to be, but we are committed to get
there. Thank you to everybody and we'll talk soon, OK? Thank
you.
Operator:
Ladies and
gentlemen, thank you for your participation on today's conference.
This does conclude our program and we may all disconnect.
Everybody, have a wonderful day.
END
