ex99-2
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Exhibit 99.2
Call Participants
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EXECUTIVES
Jared R. Rowe
CEO, President & Director
Michael A. Sadowski
Executive VP & CFO
ANALYSTS
Edward Moon Woo
Ascendiant Capital Markets LLC,
Research Division
Gary Frank Prestopino
Barrington Research Associates, Inc.,
Research Division
Jacob Stephan
Lake Street Capital
Michael Joshua Nichols
B. Riley Securities, Inc., Research Division
ATTENDEES
Sean Mansouri
Gateway Group, Inc.
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Presentation
Operator
Good afternoon, and thank you for participating in today's
conference call to discuss AutoWeb's financial results for the
fourth quarter and full year ended December 31, 2020.
Joining us today are AutoWeb's President and CEO, Jared Rowe; the
company's CFO, Michael Sadowski; and the company's outside Investor
Relations Adviser, Sean Mansouri with Gateway Investor Relations.
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
Gateway Group, Inc.
Thank you. Before I introduce Jared, I remind you that during
today's call, including the question-and-answer session, statements
that are not historical facts, including any projections,
statements regarding future events or future financial performance
or statements of intent or belief are forward-looking statements
and are covered by the safe harbor disclaimers contained in today's
press release and the company's public filings with the SEC. Actual
outcomes and results may differ materially from what is expressed
in or implied by these forward-looking statements. Specifically,
please refer to the company's Form 10-K for the year ended December
31, 2020, 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 adjusted EBITDA. This is a non-GAAP financial measure as
defined by SEC Regulation G. A reconciliation of this non-GAAP
financial measure to the most directly comparable GAAP measure and
a statement disclosing the reasons why company management believes
that adjusted EBITDA provides useful information to investors
regarding the company's financial condition and results of
operations are included in today's press release that is posted on
the company's website.
With that, I'll turn the call over to Jared.
Jared R. Rowe
CEO, President & Director
Thank you, Sean, and good afternoon, everybody. Well, we made
excellent progress on our strategic priorities during the fourth
quarter. Our continued focus on effective traffic acquisition and
operational efficiencies resulted in our highest levels, fourth
quarter gross profit and gross margin since 2017. And despite
continued COVID-19 headwinds throughout our industry, we drove
material year-over-year improvement in both net loss and adjusted
EBITDA for the quarter, which resulted in both positive adjusted
EBITDA and cash flow from operations for calendar year 2020. So, in
short, we delivered another really strong quarter.
Now with automotive sales in 2020 hitting their lowest point since
2012, our team has been resilient in supporting our dealer and OEM
partners as they prepare for recovery. Full stabilization of our
industry is not really expected until later this year, and while
inventory levels are improving, they're still well below 2019
levels. This atypical condition -- these atypical conditions have
challenged our industry and impacted the long-term trends that are
evolving the vehicle buying process.
As dealers expand their digital retailing capabilities and as
consumers further seek them, we believe we're well positioned to
help match the changing needs of buyers with the evolving digital
retailing offerings of dealers. Since the onset of the pandemic, we
have intentionally managed our media spend down to more closely
align our traffic acquisition with the true state of consumer
demand in the market. The benefits of this approach is that it
allows us to better manage lead and click quality and optimize for
our profitability.
From Q1 2020 to Q4 2020, our overall lead volume was managed down
by 34%. Now during that same time period from Q1 to Q4, our data
indicates same-store sales close rates more than doubled. So, as
you can see, we've generated better quality leads and clicks for
our network, which supports a better margin profile for the
business and has further improved our strategic
positioning.
Now the strategic investments that we have made to improve our
technology, improve our operations and improve our products are
really helping to reposition AutoWeb as an integrated marketing
platform that's focused on transactional matchmaking at scale.
We're ensuring that our offerings are equipped to address not only
the growing digital needs of dealers and buyers today, but also the
automotive consumer of tomorrow. Now this goal has been at the core
of our operational improvements as well as the key partnerships
we've established to support them.
Our team has worked tirelessly to bolster AutoWeb's financial and
operational foundation and elevate our digital marketing
capabilities to stay ahead of today's evolving industry and
car-buying dynamics. I'm extremely proud of the progress that we
have made on our strategic plans throughout 2020 and look forward
to continuing our momentum through the remainder of
2021.
I'll have more to discuss about our operational performance and
strategic initiatives, but before commenting further, I'd like to
briefly introduce our new CFO, Mike Sadowski, who's going to be on
shortly to discuss the financial performance in greater depth. But
Mike brings more than 2 decades of experience in automotive,
analytics and digital marketing from companies like Cox Automotive,
GameWorks and General Electric.
While he and I were colleagues at Cox Automotive, Mike led a
variety of finance and operational function for Kelley Blue Book,
for Autotrader and for Dealer.com. After our time together at Cox,
I'd hope for an opportunity to work together again, and I'm
thrilled that the timing aligned, and he joined our team. We are
very grateful for the contributions that J.P. Hannan made during
his 2 years as CFO of AutoWeb. And we're really excited to continue
our transformation through a focus on product innovation and
profitable growth with Mike on board since he shares our philosophy
and approach to running a lean, high-performing
organization.
I'll now turn it over to Mike to walk through our Q4 and full year
2020 results. Mike?
Michael A. Sadowski
Executive VP & CFO
Thank you, Jared, and good afternoon, everyone. It's a pleasure to
be on the call today and to be joining AutoWeb at such a pivotal
time.
Let's jump right to Q4 results. Total revenue for the fourth
quarter was $17.3 million, down slightly from $17.8 million last
quarter as we expected with some normal seasonality and was also
down from $26.7 million in the year ago quarter.
Previously, we highlighted the importance of growing both our
retail leads channel and our click revenue. Now I'd like to talk
about the performance related to those critical areas. Our retail
dealer count grew sequentially in Q4 by approximately 5%, which in
turn helped our retail lead capacity grow by almost 7%. While
normal seasonality led to a sequential 8% of combined revenue of
$13.6 million, the retail channel was supported by overall growth
in retail lead capacity, which in turn improved our lead mix and
that helped overall margin performance.
Digital advertising revenues is predominantly click related, had
sequential growth of 19% to $3.6 million. It was down from the $5.9
million of the year ago quarter. This sequential growth is
highlighted as part of our continued product recovery. The expected
year-over-year declines remain in line with the COVID-19-related
challenges throughout our industry as well as the seasonality
typically experienced during this period.
We have also continued to manage our marketing spend to lower
levels to optimize the value of our lead and click mixes and keep
both products volumes aligned with true market demand. The benefits
of this strategy are most reflected in the gross profit line, which
we believe is a more appropriate proxy for our top line
performance. For instance, while managing revenue down 35%
year-over-year in Q4, our Q4 gross profit was up 6% to $5.9
million. In addition, fourth quarter gross margin came in at 34.0%,
which is down 36 -- down from 36.1% last quarter due to
seasonality, but a significant improvement year-over-year from
20.7% in the Q4 2019.
The year-over-year increase was driven by continued efficiencies in
traffic acquisition and our focused higher-margin distribution
channel as well as recovery on our click product as we continue to
sell more clicks to endemic and near-endemic advertisers. We
continued to reduce operating expenses during the quarter, which
were down 23% year-over-year to $6.6 million as a result of our
disciplined approach to cost management.
There was a net loss in the fourth quarter of $0.9 million or
negative $0.07 per share compared to a net loss of $0.4 million or
negative $0.03 per share last quarter. This is a significant
improvement compared to a net loss of $3.2 million or negative
$0.24 per share on the year ago quarter. Adjusted EBITDA in the
fourth quarter was $0.5 million, which was down from $1.0 million
last quarter as expected due to seasonality and up significantly
from an adjusted EBITDA loss of $0.8 million in the year
ago.
We see the consistency of our adjusted EBITDA performance these
past several quarters as a positive indicator of our plan and
focused efforts on gross profit. As a reminder, Q4 and Q1 are
typically the slowest quarters in our industry due to the holidays
and model year sell-down dynamics. So, this seasonality remained in
play for us through the end of 2020 and into the beginning of this
year. Our commentary last quarter remains in place as we anticipate
operating around these near-breakeven levels of adjusted EBITDA
until we reach a seasonally stronger periods of Q2 and
Q3.
At December 31, 2020, cash, cash equivalents and restricted cash
stood at $15.1 million compared to $14.6 million at September 30,
2020. We have seen consistent cash balance growth throughout the
year, and that is a result of our focus on gross profit and strong
cost control efforts.
As of December 31, we had an outstanding balance of $10.2 million
on our $20 million of revolving credit CIT Northbridge Credit. At
December 31, we also had a current obligation of approximately $1.4
million related to our PPP loan, subsequently forgiven in January
of 2021. And so you're going to see that coming off the balance
sheet moving forward. We remain committed to improving our
liquidity and managing our costs, and we continue to be comfortable
with our balance sheet and overall liquidity as we move forward
into 2021.
Now let's quickly run through the full year results. In 2020, total
revenue was $76.6 million, which is down about $37.4 million from
last year as a result of COVID-19 impacts as well as our gross
profit focus during the year. Lead revenue was $61.1 million, down
$29.6 million from a year ago, and digital advertising revenue for
2020 was $15.4 million, which is down about $7.7 million compared
to 2019. Again, while operating at these lower levels of revenue,
gross profit in 2020 increased 5% compared to last year to $23.7
million, demonstrating the continued resilience and success of our
strategy in improving our margins, focused approach to increasing
gross profit as opposed to [Audio Gap].
Total operating expenses in 2020 were $29.2 million, down about
$8.7 million from last year. While there were efforts made around
cost controls as of 2019, a substantial effort around cost control
is unrelated to COVID-19 had already been made over the last
several years here at AutoWeb. So, our OpEx improvements in 2020
were predominantly a result of those efforts. These multiyear
caution initiatives are also what enabled us to generate positive
cash flow in the middle of a global pandemic. Loss from 2020
improved significantly. So, a loss of $6.8 million or negative
$0.52 per share compared to net loss of $15.2 million or negative
$1.17 per share.
Adjusted EBITDA for 2020 also increased significantly to a positive
$0.2 million compared to an adjusted EBITDA loss of $5.1 million in
2019. We have made tremendous progress in driving profitability
improvements for both the fourth quarter and full year. Even
against the challenges that the pandemic has posed for our industry
over the past year. As we get further 2021, we will continue to
closely monitor any changes in our industry conditions and intend
to maintain our focus on optimizing our organizational efficiency
and advancing our strong financial and operational progress over --
ahead.
This concludes my prepared remarks, and I'll turn it back over to
Jared for additional operational updates and color on our strategic
outlook. Jared?
Jared R. Rowe
CEO, President & Director
Thanks, Mike. So, as we've stated, since the onset of the pandemic,
COVID-19-related challenges have hit search-based advertising,
harder than other forms of digital media over the past year. The
pandemic has restricted overall automotive media search spend and
advertising budgets in line with the difficulties opposed to
broader consumer demand. Now we've been proactive and
value-oriented in how we have responded to these patterns
throughout 2020. And I'm pleased to share some of the additional
milestones we had on both our strategic initiatives and the
recovery of our business overall.
So, for our click products, we sequentially improved total click
revenue as a result of signing new retail dealer customers and
near-endemic advertisers. We also experienced improvements in the
pricing environment for non-endemic buyers, which also benefited
gross margin. These recovery patterns are encouraging, and then we
plan to maintain our focus on selling more clicks to endemic and
near-endemic buyers. As a reminder, when I say endemic, what I'm
talking about is someone who's in the automotive business. When I'm
talking about near-endemic, I'm talking about somebody who's
affiliated with the automotive business. And when I talk about
non-endemic, I'm, of course, talking about somebody who is not
affiliated with the automotive business. All 3 of those groups of
buyers buy our click product.
Now the work we've done to improve our selling of clicks is further
reflected through our click attachment rates, which really tracks
the number of dealers who are on our lead product that also
purchase clicks. Over the last 3 years, we've driven consistent
improvements. In Q4 of 2018, the click attach rate was 9%. And the
following year, Q4 of 2019, it was 15%. And in Q4 of 2020, it was
20%. So, 20% of the dealers that bought leads in Q4 2020 also
purchased click. So, we're very pleased with this progress. As you
can see, there is still a good bit of growth to go
there.
As for leads, as I mentioned at the beginning of the call, we
continue to intentionally operate at lower levels of media spend to
better align our traffic acquisition with true consumer demand in
the market. The sequential improvements in our retail dealer count
during the fourth quarter further demonstrates that our partners
are seeing the value of our strategy and of our matchmaking
capabilities as well as the improvement in our overall product
quality.
Now in fact, our data shows that 75% of AutoWeb's affiliated sales
happened within 19 days, which is just a reminder of how ready to
buy our audience really is and the differentiated value we provide
to dealers and OEM. Although retail dealer count will likely remain
choppy over the near term, for the long term, we believe retail
growth validates that dealers view us as a valuable resource in
their digital retailer toolkit and as a key part of their
preparation for the industry's long-term sales
recovery.
Leads offer stability. Leads offer higher margin and the lower
funnel characteristics to -- that leads provide the dealers and
OEMs really do help them in these times of great uncertainty. Now
these are advantages that we can continue to capitalize on to
really support the vehicle sales growth across our partner
base.
Looking to the months ahead, we're building on the strong progress
that we've made with product optimization over the past year, and
we will continue to focus on evolving our products to best capture
the opportunities inherent in the changes that are shaping our
industry. Now as a reminder, we're gearing our platform towards
facilitating transaction-oriented matchmaking through the use of
highly specialized algorithmic matching.
As optimal level of effectiveness, this process leverages data
beyond product, price and geography to work with detailed profiles
of vehicle sellers and buyers getting the best possible
understanding of the former specific value proposition and the
latter's unique needs and preferences. This then creates a tailored
shopping experience for end consumers and more intelligent matches
between shoppers and buyers who are best equipped to satisfy their
wish list, thereby increasing the likelihood of a mutually
satisfying vehicle purchase.
The key partnerships we formed and strategic investments we made
during 2020 have already begun to move us in this direction. With
our comfortable liquidity position and continued commitment to
operating as a lean, efficient and effective organization, we have
a strong foundation from which we can continue our
transformation.
Over time, we'll provide more specific updates on our progress with
these long-term product evolutions, including further technological
enhancements, and the organic or inorganic steps we may take to
embed those more retail-ready components into our conversion
funnel. In the meantime, we believe we're strategically and
financially well equipped to support these future endeavors and our
overall long-term profitable growth.
Across nearly every vertical today, consumers have come to expect
highly customized shopping experiences from beginning to end,
essentially from the first ads they see to the final product they
receive. Sellers are rapidly looking to expand their capacity to
provide these experiences, responding to an increasingly digital
and preference-driven retail world.
From where we are positioned in automotive digital marketing, we
believe we can help meet both parties' needs and enhance the value
we provide to our current and prospective partner network. I'm
exceptionally proud of the progress our team has made to
date.
When you take a look at what we've accomplished over the last 12
months, it's very easy to see that we have considerably improved
the value of this business, not just over the last 12 months, but
really over the last 24 months. But we're not stopping here, and
I'm even more excited about what lies ahead.
So, with that, we're now going to open it up the call for
questions. Operator, can you please take over?
Question and Answer
Operator
[Operator Instructions]
Our first question comes from Gary Prestopino with Barrington
Research.
Gary Frank Prestopino
Barrington Research Associates, Inc., Research
Division
A couple of questions here, and I'll jump in the queue to get more.
And I don't want to take up a lot of time on the call, but Mike, do
you have the advertising click revenue, advertising display and
other revenue for Q4 handy?
Michael A. Sadowski
Executive VP & CFO
I do.
Gary Frank Prestopino
Barrington Research Associates, Inc., Research
Division
Okay. Could you -- can you make that public to us here on this
call?
Michael A. Sadowski
Executive VP & CFO
Well, what we normally put in the K as we do split out that click
revenue. So that is in that disaggregate revenue
footnote.
Gary Frank Prestopino
Barrington Research Associates, Inc., Research
Division
Okay. And the...
Michael A. Sadowski
Executive VP & CFO
Yes. But the -- that should be posted here in about an hour or
less, but I can tell you that -- are you looking for the 2020
clicks inside of digital advertising. It's $10.1
million.
Gary Frank Prestopino
Barrington Research Associates, Inc., Research
Division
$10.1 million of advertising click revenue?
Michael A. Sadowski
Executive VP & CFO
Yes. Inside of that digital advertising, $11.8
million.
Gary Frank Prestopino
Barrington Research Associates, Inc., Research
Division
Okay. I'll just check...
Michael A. Sadowski
Executive VP & CFO
And that's for total year 2020.
Gary Frank Prestopino
Barrington Research Associates, Inc., Research
Division
Okay. And then the revenue per click in the quarter, did you -- you
didn't put that in your fourth quarter matrix of numbers. Do you
have that handy?
Michael A. Sadowski
Executive VP & CFO
I do not have that handy, but we can get that to you,
Gary.
Gary Frank Prestopino
Barrington Research Associates, Inc., Research
Division
Okay. And then just a couple -- some other things here. And then
like I said, I'll let somebody jump in as I have further questions.
You're doing a good job of managing the business. Your gross
margin, Jared, really has improved. As we go forward and hopefully,
in the Q2, Q3 and even Q4 of next year, as we start getting some
revenue growth, are you going to be able to keep that margin there?
I mean at that 30%-plus level?
Jared R. Rowe
CEO, President & Director
Yes, we do expect that we're going to be able to do that, Gary.
We're going to be able to do it in a couple of ways. One is, we're
going to continue to manage our volumes -- a little bit lower
volume than what we historically had done because the new search
patterns that we've applied, we're finding to be very efficient.
So, we expect some of the cost per lead to escalate a little bit
this year, but we think we can manage that down.
On top of that, Gary, we intend to continue to change the mix,
right? We've talked about this for a while. Adding more clicks to
the mix overall in terms of the percentage of overall revenue that,
that represents, helps us from a gross margin perspective as does
the retail growth, right? That retail growth that we had
sequentially in terms of dealer count and capacity, that's a big
deal for us. And so we're heads down on that retail side of the
business to build that out because, as you know, the margin
characteristic of a retail lead is just fundamentally different
than the margin characteristic of an OEM or wholesale lead for us.
So, we feel good about that, we do.
Michael A. Sadowski
Executive VP & CFO
And Jared, I apologize, Gary, I misquoted a number. The total here
was $13.1 million for clicks and it's $0.62 on that revenue per
click on about 3 million clicks for the quarter. So that should
help you. Excuse me, $3.6 million of clicks. Yes, $3 million in the
$3.6 million of digital advertising is clicks.
Jared R. Rowe
CEO, President & Director
But Gary, when we think about the margin, we are thinking in the
low to mid-30s. That's what we're -- that's our
target.
Operator
Our next question will come from Josh Nichols with B.
Riley.
Michael Joshua Nichols
B. Riley Securities, Inc., Research Division
Good to see the gross profit continuing to grow on a year-over-year
basis. I didn't want to ask since we're already largely through the
first quarter here. Lead volumes, $1.1 million for the fourth
quarter. I know that 4Q and 1Q are typically seasonally slow.
What's the type of cadence that you're seeing or expectations for
the first quarter? And then what's the kind of potential trajectory
as you look to manage and spend though during the seasonally
stronger periods? If I try and think about the cadence and how that
may play out for the year.
Jared R. Rowe
CEO, President & Director
Yes. Okay. Well, let me start and then Mike can follow and good
talking to you. Thank you for the question. So, we're kind of
signaling the same thing that we said in the last quarter, which
is, expect Q1 to look a lot like Q4, only there is no expense load
going in at the beginning of the year. So, we're still guiding from
Q1, if you want to call it that, to that breakeven number,
essentially.
And then when you think about Q2 and Q3, based on everything that's
going on, we're pretty optimistic. We've got $1.9 trillion going to
the flow into the economy. That's on top of the savings that's
already been done. Q2 is definitely a seasonally stronger quarter
than Q4 to Q1 and Q3 as well. So, you'll see us lean in there a bit
and drive that media spend up.
But again, a lot of this is going to be focused on the rate,
volume, margin quality, little matrix that we have because we're
really proud of the work we've done in terms of the margin of the
lead. And we're really proud of the quality, right, doubling our
same-store sales over a 4-quarter period is not something to be
sniffed at.
So, we're going to continue to be thoughtful in how we drive the
volume back into the business and just know that everything we do
is really focused on stacking up as many gross margin dollars as
humanly possible, not just chasing a top line gaudy revenue number.
That's just not how we're going to run this business going
forward.
Michael Joshua Nichols
B. Riley Securities, Inc., Research Division
Yes. And then I was going to ask, you did mention, obviously, I
assume, you'd probably start to see an uptick, right, from Middle
America with the stimulus that's expected to go out soon. Also,
what are you seeing in terms of dealer inventory levels? Any type
of firming or softening as far as new and used car prices that can
also have an impact on your business as well?
Jared R. Rowe
CEO, President & Director
Yes. We're seeing that bubble of -- a couple of things going on.
So, you've got continued issues with microchip. GM just announced,
I think, last week, they talked about how they're going to continue
to have lower levels of capacity because of microchip. And also,
the industry expects this to carry on for several
months.
And with new car inventory continuing to be a bit tighter than it
was in 2019 -- it's better than it was with the shutdown, and how
it got in Q4, it still is relatively tight for certain make and
model combinations. And with that, what you're seeing is, you're
seeing strengthening of used car sales and used car pricing.
Because the OEMs, while they stepped in a little bit in Q4 from an
incentive level, they haven't really leaned in hard because they
haven't had to because they don't have a lot of inventory sitting
right now, at least compared to historical.
So, we do expect to see used car pricing continue to strengthen. We
do expect to see used cars continue to be very strong, but we also
expect to see the new car supply then gets sorted out later in the
year. And we think that when you talk about it's all speculation,
but take it for what it's worth is, as vaccination rates increase,
you've got, what, $1.2 trillion, $1.4 trillion of incremental
savings that's been put aside, plus you've got that $1.9 trillion,
call it, over the top. We think this could be a frothy little
market in the second half, but we are going to be somewhat
inventory constrained.
Some of the folks out there who are taking a look at projecting
SAAR or thinking that we're going to be below $16 million for the
year, not because enough demand won't be there, but simply because
there won't be enough new car supply to meet it because again,
you've got the shutdowns midyear last year of production. You've
got the chip issue, and then you've got some other issues in Japan
with the earthquake.
And the one last thing I'll say, and I apologize, it's a bit of a
meandering answer is, when you think about used car, the reason
that used car pricing is strengthening because, listen, the rental
fleet companies de-fleeted last year, right? And they're not going
to re-fleet anytime soon, which essentially means that you are
going to have a tightening of used car supply at the same time that
you're going to have folks coming in with disposable income and
wanting to buy vehicles.
Again, if you think about the just overall sales, April and May
tend to be the 2 strongest used car months of the year, and they're
top 5 for new car. So, depending on how that money hits and how
people feel about their financial security, it's going to be
interesting to see how it ripples through the industry. So
hopefully, that was helpful.
Michael Joshua Nichols
B. Riley Securities, Inc., Research Division
And then last question for me, then I'll hop back in the queue or
pass the torch here. You've seen -- it looks like revenue per click
on the click analysis seems to be going up. It was $0.42 to $0.53,
and now it's like $0.60. If you could talk a little bit about how
you see that trending and the drivers as we think about 2021 on
that piece of the business?
Jared R. Rowe
CEO, President & Director
Yes. Yes. So, let me start there, too. So, one of the interesting
things about search is, if you look at all U.S. auto ad spend
overall, these are eMarketer figures, right? So, from 2019 to 2020,
total digital ad spend went down 18%, almost 19%. Now eMarketer is
expecting total automotive digital ad spending to come back 22%. So
basically, get back to 2019 levels by the end of 2021.
The reason I tell you that is because what's interesting is inside
of that, search spend is not expected to recover completely. So,
what's happening is, the dollars are flowing back in, they're
getting restructured. You're seeing more dollars going to video,
more dollars go into display, into mobile, those sorts of things.
Now the reason I mentioned that is, that's good and that's bad for
us, right? On the good side, it helps us on a cost per lead basis
because again, at the end of the day, we're to usher arbitrage
business. So, we like that. That's a tailwind.
The other thing it's doing, though, is dampening some of the spend
in search or search-like products, and our click is really a
search-like product. It's a display ad with search characteristics.
So, what you saw midyear was you saw the search pullback negatively
impact the pricing that we get with our click product for
non-endemics and near-endemics. Not for dealers, so not for
endemics. But for the other ones, it did pull back, and that's what
you're seeing inside of our pricing.
Now what's happening is, as that money is coming back online and
more of those dollars are flowing back into those campaigns, we're
seeing strengthening in the non-endemic and some strengthening in
the near-endemic pricing. So, we expect to see some more
strengthening there. We also expect to manage that strengthening by
selling a better mix to endemic and near-endemic buyers because
they tend to be less volatile from a pricing perspective because,
again, the real impact on our pricing was really the non-endemics,
who buy our clicks. And as I mentioned in past calls is that we
sell way too many of our clicks to non-endemic, which adds that
volatility in.
Mike, do you want to talk at all about kind of how we're thinking
about click pricing going forward?
Michael A. Sadowski
Executive VP & CFO
Yes. I mean I would say that we're looking to maintain that kind of
consistent level that the last couple of quarters and really drive,
like Gary talked about, right, there is that retail business
opportunity from a clicks perspective. There is the near-endemics
and that holistically come together and aiding us and holding that
revenue per click and driving that throughout 2021. So that is part
of the goal, the next several quarters is to kind of maintain what
we've been able to generate since Q3, Q4.
Operator
Our next question will come from Jacob Stephan with Lake Street
Capital.
Jacob Stephan
Lake
Street Capital
I'm here on behalf of Eric Martinuzzi. Just wanted to get some more
color on the kind of competitive environment that you're seeing in
your cost per lead. I know you guys said that it would go up this
year, but can you give some more color on that?
Jared R. Rowe
CEO, President & Director
Yes. We're expecting it to -- we're expecting to give back a little
bit of the cost per lead efficiency that we gained over the last
year, but one of the questions that we've had over -- through the
last several periods is, how much of our cost per lead improvement
is durable. And what I'm happy to report is, we believe a good
portion of it is durable. A lot of it is durable, actually, because
of some of the changes we made, right? Remember that a couple of
periods ago, we improved our mobile conversion rate by, I want to
say, 50%, which is a big deal because 70% of our traffic is mobile.
On top of that, we've deployed some new campaign management
approaches, which have really helped us manage that cost per lead
down.
So, while we do expect to give some of it back, call it, mid-single
digits throughout the year, we expect it to stay well below where
we were at just a year ago. If you go back to Q4, Q1 of -- Q4 of
'19, Q1 of this year, I mean we were considerably higher than we're
projecting to be throughout the remainder of the year. And I know
cost per lead isn't something that we provide publicly, and so I
apologize for not being more specific with you. But what I can tell
you is, we don't expect to give most of that back. We expect to
really manage that cost effectively, add some volume back in and
then do a better job of continuing to cross-sell, up-sell to
improve the margin characteristics of the business and hold it in
that low to mid-30s.
As we all know, I think that, that search spend is our -- one of
our largest spends right around. You get to 2 big cost items in
this business. You've got people, and you've got search spend. So,
managing that effectively is a critical lever for us, and we feel
really good about where we're at compared to where we were just 2
years ago.
Jacob Stephan
Lake
Street Capital
Great. So, in terms of seasonality, typically, Q3 is kind of like
your strongest quarter. Where -- do you still feel that way? Or is
there something else that might come on?
Jared R. Rowe
CEO, President & Director
No. No. We still feel the same way. So, when we're looking at the
year of how it's going to roll out for 2021 because Q1 is going to
be a tough comp year-over-year because you've got a pre-COVID
quarter, and we're now in a post-COVID world. But after that, we
expect Q2 to have a nice seasonal bounce to it, like we've seen in
the past quarter or past years. And we expect Q3 to have a nice
seasonal bounce to it, too. And we're excited because, as you've
seen us put some of the volume back in, in Q3 and Q4 of last year,
we've been able to hold the margin.
And that's not all just because of what's going on in the market,
right? There is a lot of operational tactics that we've deployed
that give us confidence that we're going to be able to scale the
volumes back, not to where they were in prior years because we
don't want to do that, quite frankly, because we think we can drive
more gross margin dollars through this new approach, but we think
we can put more revenue dollars over-the-top of this thing in Q2
and Q3 and hold the margin characteristics that we had. So, we're
pretty excited about 2021.
Jacob Stephan
Lake Street Capital
Good. That's good to hear. You guys touched on the stimulus a
little bit. Just kind of wondering if you guys have done any
internal analysis on what that's going to mean for you guys
there?
Jared R. Rowe
CEO, President & Director
No. No. We haven't done an internal analysis. It's more just
talking to folks who are a little bit smarter than us about this
stuff, and they all seem pretty positive on a lot of those dollars
are going to flow into people's pockets and then out. And they
expect automotive to get a pretty good portion of that. And when I
say that, what I'm talking about is not just the stimulus dollars
are going to be released in the next few weeks, but also that
incremental savings that's been done over the past year. You've
got, by some estimates, $1.4 trillion of disposable income that's
been created due to COVID that they expect to get released into the
economy once we get past some of the vaccination concerns that
people have.
So, I can't give you a hard number, but I'll tell you, I think it's
going to be -- we think it's going to be a bit of a tailwind for
us. Again, I just want to remind you, the one thing I said earlier,
the counterpoint here is supply. Again, we -- some of the folks out
there who are projecting Cox Automotive talks about how they
believe that they're going to be -- it's going to be below $16
million. I believe it's going to be $15.7 million. Again, not
because there isn't demand, but simply because there isn't enough
supply to meet demand. And one last reminder, just remember, I mean
even transaction prices have prepped up over $40,000 for new cars.
And so when you start spending that kind of money, if the supply
mix isn't right, people may hold, and they may wait until the
supply mix is right because that is not a small purchase for a lot
of folks.
Operator
Our next question will come from Ed Woo with
Ascendiant.
Edward Moon Woo
Ascendiant Capital Markets LLC, Research Division
Congratulations. Given the strength in the used car business, are
you guys going to attempt to refocus on used car or used car
products?
Jared R. Rowe
CEO, President & Director
Yes. Ed, we're opportunistic when it comes to that, and so I think
we've talked about it in past calls. One of the things that we've
seen some nice growth on, and you see it inside the click mix, is
selling click traffic to used car retailers, right, whether they be
franchise or some of the other folks. And the reason I say this is
because a lot of consumers will go and they will crush up, right
new and used. And so some of the price strengthening that you're
seeing inside of the click revenue line is through endemic buyers.
And those endemic buyers aren't just buying it for new car traffic,
they're buying it for used car traffic. I think we've talked about
this in past calls, but one of the things that we've done is, we've
evolved our click product to where we can actually present
VIN-specific advertising with real pricing and real pictures of
cars.
And what we found is, we found that consumers who go through our
process, maybe submit a lead or don't submit a lead, they engage
pretty readily with that. And those partners who buy that traffic
from us, they like the ROI characteristics of it. So, as we think
about it, it's not really a wholesale pivot into, say, used car
leads. We've got a used car lead business, but as we talked about,
it's nice, but it's not our big focus. We don't intend to pivot
there. What we intend to do is really leverage our click traffic
and our click product to meet the more natural needs of consumers
and natural needs of retailers by presenting them with both new and
used car options as they're coming through our conversion
funnel.
Operator
And we do have a follow-up question from Gary Prestopino with
Barrington Research.
Gary Frank Prestopino
Barrington Research Associates, Inc., Research
Division
A couple of more follow-up questions here, Jared. You mentioned in
your narrative that your same-store leads growth was up in the
quarter. And I didn't quite get what you said that percentage was,
if you even nailed the percentage there. Can you just talk about
that a little bit?
Jared R. Rowe
CEO, President & Director
Yes. Yes. So 2 things: One is we did have franchise growth, right,
overall. So, the number of clients we had grew -- Michael, keep me
honest, but it was 6% -- 5% to 6% quarter-over-quarter, right?
Okay.
Michael A. Sadowski
Executive VP & CFO
Right.
Jared R. Rowe
CEO, President & Director
On top of that, lead capacity grew, and we've talked about this in
past quarters, right? Gary, the lead capacity, when we sell a
dealer on our lead product, we essentially get a budget from them,
right, they'll buy, call it, up to 100 leads. And then there is a
bill rate associated with that. So capacity is important because
capacity really represents the total potential leads that we can
sell, and we saw capacity growth quarter-over-quarter as well. So,
that's another point that we make.
The third point that we made was the same store close rate. What
that means is, we sell a lead to a dealer, right, what percentage
of them turns into sales. And what I can tell you is, from Q1 to
Q4, we doubled that. So, we actually improved our product quality
considerably over the last 12 months, which we're really proud of.
And you need that, right? As we continue to grow our retail channel
or build the capacity to grow our retail channel consistently, that
product quality is critical.
It takes a while for the market to kind of understand it and absorb
it and then reward us for it, but we're really proud of the fact
that, that same-store close rate doubled and improved a lot. And it
didn't just happen either, Gary, just to be clear. That is driven
by our search process, by our approach to what keywords we buy, how
we filter them, who we send them to, all that stuff is incredibly
important to make certain that we optimize the close
rate.
Gary Frank Prestopino
Barrington Research Associates, Inc., Research
Division
Right. And then I guess the question I would have is, when you look
at the -- there is a sequential increase in dealers, right? And you
still kind of said you were pulling back and all that. So, what are
the specific things that you can point to that you can attribute to
that increase in dealers? Was it the fact that the close rates are
getting better? Or...
Jared R. Rowe
CEO, President & Director
That's part of it. The other piece of it, those are selling motion.
And we've talked a little bit about this in past calls, right?
We've had to rebuild our retail -- our go to market -- our retail
go-to-market approach. And listen, over the last couple of years,
we've had some starts and stops there. We really have.
What we've seen over the past several periods, though, is much less
volatility and a much better approach in terms of our selling
motion and how the activities that are incorporated in our retail
sales approach are delivering consistent outcomes. And I think
we've talked about this in the past too, Gary, which is, at the end
of the day, I'm a big believer that sales is really about
discipline and around -- it's about process
management.
I'm happy to report that for the last several periods, we've seen a
much more disciplined and a much more predictable outcome be
occurring from our retail sales efforts. So, we're going to keep
grinding there. We're going to keep chopping wood on that. We
haven't wrestled that thing completely to the ground, but I will
tell you is, there is a connection between our activities, our
outcomes and what we're seeing in terms of that retail side, and
the churn rate as well as just the gross sales side of
it.
And on top of that, Gary, it's not just selling something, it's the
mix. So, as we think about this, we're also looking at that attach
rate going up. That has to do with our selling motion, too, because
it's how you present the product. It's how many times you present
the product. It's how you price the product. It's how you deploy
the product and onboard a client. It's how you manage the client
once they're onboarded.
All of that is wrapped up in that selling and servicing motion that
we've been trying to wrestle to the ground for, quite frankly, 3
years. And I think I've been open with you and others on this is,
that's an area of the business that we've been behind. We're not as
far ahead as -- we're not where we wanted -- where I wanted us to
be. But what I would tell you is, again, over the last few periods,
we're seeing some real green shoots there that are really helping
deliver it.
Operator
And speakers, I'm showing no further questions in the queue at this
time. I would now like to turn the call back over to Mr. Jared Rowe
for any closing remarks.
Jared R. Rowe
CEO, President & Director
Well, thank you, everybody. I'm going to start by thanking the
AutoWeb team. This has been a bit of a trying year for most
businesses, but I'm incredibly proud to be a member of this team
and incredibly proud of the work that this team has done. Getting
back to cash flow positive, adjusted EBITDA positive in the middle
of a global pandemic is no small feat. So, thank you for the
AutoWeb team and all of their great work. And also thank you to
everybody else who's joined this call. We love these conversations,
and quite frankly, we look forward to speaking with you on the next
earnings call, which will be to report Q1 results. So, until then,
take care, be safe, and we'll talk to you all soon. Thank
you.
Operator
Ladies and gentlemen, this concludes today's teleconference. You
may disconnect your lines at this time. Thank you for your
participation.
