AutoWeb (AUTO) 9 Aug 202020 Q2 Earnings call transcript

Good morning, everyone, and thank you for participating in today's conference call to discuss AutoWeb's financial results for the second quarter ended June 30, 2020.

Joining us today are AutoWeb's CEO, Jared Rowe; the company's CFO, J.P. Hannan; and the company's outside Investor Relations Adviser, Sean Mansouri, with Gateway Investor Relations.

Following their remarks, we'll open the call for your questions. I would now like to turn the call over to Mr. comments. introductory some for Mansouri

Thank you, Dimitris.

statements Jared, Before statements today's historical of you or projections, from during intent by or forward-looking remind including I facts, financial the or in safe and any not disclaimers company's introduce call, are question-and-answer that the implied that events are Actual I session, outcomes performance future regarding contained filings belief and forward-looking including public future today's press statements statements. with expressed the are in may what differ by these materially results covered or the harbor statements is release and SEC.

of results that, press the are company's to regarding information reconciliation measure of Specifically, defined please from time. These well quarter as GAAP I'll as the refer to other investors over Jared. most filings filings identify financial time adjusted for condition to factors AutoWeb to SEC website. company's could turn is measure the is XX-Q made posted to this June results the the XXXX, also company's Form adjusted that ended during and forward-looking included XX, today's materially With believes which by reasons provides be in non-GAAP the call, financial those company a with EBITDA. financial operations non-GAAP comparable that release, SEC EBITDA note useful A on disclosing from disclosing management a directly why cause statement that and the G. the will as management by this to This statements. Please differ Regulation call measure

Thanks, Sean, and good everybody. afternoon,

strong in pandemic, navigate the our we've continues turnaround business made of effects our to the as here. coronavirus progress really So

And our quarter, results level reduced EBITDA achieved margin effectiveness turnaround. These of generated adjusted and positive. we we XXXX. over operations, really year-over-year. a the the would have years both loss, of improving to the During of quarter, efficiency not but overall been possible We gross sequentially the milestone crucial the turning strongest and the without past our of business second in the over our not net X since team's commitment our last just

Our far and work for already profitability. push the past workforce graded the We'd years initially shifted us remote we geographically. we over of and this all did to realign than structure, workforce couple us which more an also adjusted to really environment. we well transition We us of achieve helped allowed our smoothly our in organizational positioned lot EBITDA overall lean transition talent, anticipated as awful top of to

few during the health access keeping recovery. continuity were incredible. team work that really who to our job have been furloughed has important members adaptability team continued work ensured hard their during in for to this benefits. top intact Now during And really even serving OEM And we maintain across the ability time lowest points to We This our and business, our our customers dealer healthy our of and and retail continue the had of remained they pandemic the one our diligently ensured mid-April. the pandemic priorities. has of team

As for operating the environment broader automotive remains largely industry, uncertain. the

high consumer rates, affect got to which continue You've confidence. unemployment do

will and up to to that pick has with saw begun as Financing production demand, back only yet are - and We pre-COVID And does are below cars challenges cannot in customers' American started delinquency inventory in June evolve than consumer steepest have coming fully their patterns. in fact, And mix sync really. the After is ahead not quarter our our years. in all said, U.S. forgiveness. widespread of we've the in April XX in all-time will in second the those how shape - North replenished. reaching high going market and stayed we been lows auto our forward dealers control. its and demand in in businesses. largely in can wake GDP decline focus on forces of own, they out And really May, with contending areas, the loan expectations. the our that, well or Second quarter that was business months areas tighten more availability of these and that levels remain to predict of addition in it in how

better needs year. the spend traffic that value was during knew lead diminish sales, to compared given media them them. mix were have for leads increased We align volume in we intentionally the preserve driven volume we better with an organization sales that's we'd our which customers, with to customers. this focus traffic effective there to if the been customers. in wanted dealers ensured our to sending vehicle for was we our actually our this really in decline not it consistent would team's outcome prior strategic of for one and our customers, right decisions our benefit monetize lean, our disruption. but how a the to market by been continues This our incredibly back as approach really the more would running traffic our outcome environment. our scaled available, with to to profit that could tactics, because the acquisition quarter offering is it Our our This were for difficult have of the be efficient our key We match that traffic but of with a really fact reflected our customers focused on effective declined us line challenging to operationally lead testament on approach gross shift to We've real revenue capacity, ability

and spend As for used we resisted allowed projected market the from instead industry to to funnel lead new, search first roll with lead us rates. consumer started rather leads demand vehicles traffic. closely new the phases, align trend, conversion. the initial product minded To this deployment volume industry submitted and in deeply experience the contemporary matched deliver test our a produced than This board of QX, across mobile by in and the selling XX% an action of buyers, and marketing for car in quarter, lead passive lead shoppers right sourced our or customer we true larger audience our both in engagement more discounting to improve and QX consumers' out with both experience media over discounted further In campaign. our improvement approach more

mobile efforts driven we're our to going have The to and optimize with working. and pleased continue proving well. solution the customer models. product optimization this while was for We're campaigns new area. conversion improvement services additional are targeted to deploy in success And demonstrates constant just our this of acquisition desktop really we our So enhance in of as campaigns, towards not benefits to our yielded material our developments conversion be that is reflective consistently based, provide. work efficiencies operational we've but market materially The really rather these strategy

impact offerings the continues change, behavior in pandemic's to will our paid consumer and our broader search crucial. industry As to remain quality leveraging

over service, environment. our further, trends I'd through like discuss to respond value-oriented stay flexible in firm to the we customers. market continue it recent J.P.? to J.P. high-quality walk to to QX conditions. offer operating about turn more this to we be have to really, going our I'll But before our We commenting and and we're results. how in will But

Great. afternoon, Well, everyone. thanks, Jared, and good

$XX into jumping from and from right at the quarter the in million, down in last quarter about million results. So million our about down which revenue second came ago Total is year quarter. $XX $X

$X.X which Our ago quarter. which last of primarily digital our where is the quarter million, click about and half were advertising revenues, consists we revenue, were of year

from gross challenges better is the and Now align success a this XX% proactive industry million. marketing line expected the quarter-over-quarter spend The volumes that profit automotive this the market these in reduced revenue year-over-year of decline total was and to as strategy to click reflected gross profit leading up at $X demand. in with continued stems

were lead Second as lower focus as year-over-year to by also channel. more significantly selling distribution continued improved well retail was sequential traffic our XX.X%. up our quarter and These and higher-margin margin per cost through gross acquisition improvements on driven

were million. $X.X operating also quarter, significantly which year-over-year We XX% reduced expenses to down the in

a share last loss Our in compares QX net to $X.XX $X.XX $X net of $X.X of $X.XX to improved from million share in per per of QX a that XXXX. million net which about in quarter. second and quarter million significantly the loss million to improved of Adjusted million $XXX,XXX, share, second $X.X a a or year up XXXX $X and is of XXXX the or quarter a loss loss ago of loss the and or in of quarter $X.X loss per from EBITDA

believe milestone. EBITDA for the last over to we've As truly we Jared to forward. earlier, enabled this at years in going the environment levels operate second mentioned we what's XXXX can reach adjusted positive us put in this of continue current half work X is the And

XXXX, As of $X.X June compares and cash restricted and $X.X million equivalents XX, at cash December cash, to million, our were that XX, XXXX.

an $X.X XX, $X.X Northridge on of credit our balance to revolver. had of million we Capital, that June us As had available XXXX, outstanding revolving on facility another we CIT million and with

months. our with Our sheet us remain position July, to the have as they liquidity present this previous next well actions trends If market changing costs comfortable hold environment. reduce XX and to through for balance bolster liquidity weather and we our

million I'll million overview and traffic of from down by year, clicks, in a quarter which brief totaled Click million down last for X.X quarter. visits million was last provide our last about lastly, million from X visits, at second Click metrics. Now XXX,XXX X XX the came volume quarter which X clicks operating about and was clicks year-over-year. visits about

million also visits million about about to down Our visits quarter by traffic by year-over-year. lead XX and X last was compared

a the reflective proactive marketing So customer demand, well earlier. as impact lead quarter-over-quarter were mentioned dealer count in the of as as both align to we capacity per sequentially dealers industry-wide sales. Jared Retail as increase the for industry come on our these to better online and our leads are their purchase auto car But spend net year-over-year. drove slight decreases largely back and down pandemic revenue true drive have with of more our the reduced click

to gross market And we'll continue continue the to to we building continue dynamics. profitability we our momentum. and as adapt XXXX flexibly on operate overall, of half second So margin to into plan

turn that I'll remarks, my Jared. and So concludes the over call back prepared to

J.P. Thanks,

product concerns consumer has and media affecting click in forms the disruption of demand the the to in buying experienced further performing been reflective By with its been from extension, pandemic-related the cycle. have impacts automotive advertising, performance and financing some largest volumes budgets. volumes which confidence traffic demand consumer with line disruption traditional of of advertising typical Our have automotive

to expect As a continue adjusting line see do consumers business dealers the the market traditional clicks and in normal, recovers over broader new in time with media and corresponding improvement advertising. to we our

on Moving to our product. leads

We has over of critical months, some progress momentum past efficiencies and market-driven. been the have gained few although this

stay and operational leads really ahead at valuable us sales of our been have maintain allowed customers. expectations crucial Our our a of which and lower customers to and us leads lead recovery able cost pricing. has investments for to to leads part strategy, their enabled generate We've are a generating

periods Our during market and effectively lead of history traditional than other demonstrates that be more attributed can because dealers valued and advertising. uncertainty leads OEMs forms to turn of

an sales car confirmed no position, leads results the XX% is consumers relative Our to vehicle AutoWeb's users, end not purchase what that lower vehicle this case purchase. Their market coming their to to know of recently is delay a survey they'd buyers. over diminished which already These that their during often to consumers. a We of leads from type want are not purchases are respondents U.S. found broadly purchase they automotive given vehicle vehicle which trend funnel intention as the had of they who pandemic. of result truly our active reflect our They like e-mail know pre-COVID demonstrate more plans committed to a decline. and

delivering dealers working difficult Now during within our strategy and to be support this appears time. to prime our context, this

dealer in status. mentioned, our validated further improvements dealers improvement suspend our J.P. has significant As along retail by in with count, our current been strategy modest

point, XX% suspend from its status peak latter our the more On revenue is now in in mid-April. down than

count remains over Given as the industry-wide the dealer stability. choppy operating that next market towards few environment, we our the somewhat works months expect

us the trending from improvement tells right quarter-over-quarter we're the direction. that However, in QX

us a volumes Now operational financial June, we for through our and QX. performance optimize and to July, which sustain have gives foundation we from our believe continued strong

drive will As business to half our both Simply costs XXXX. trends now, operate like we continue positive look particularly current market operate we put, effectively past in times If adjusted across manage X times and to are good can which the not we and EBITDA ahead we of hold, to accordingly. has really put AutoWeb over efficiencies the levels, continue believe and breakeven in second the years to an work positioned good. to we

although So operating of to steps - model, were still the this demonstrate to response we've and proud navigate for do potential we although we that still to proud I'm work in us turnaround true so fully members of really our I'm especially have of our to commitment the their our taken and environment. to really And journey. our team this point get achieve

we'll call for over? up can questions. that, open you the with please So now Operator, take

Gary question And we'll from come Barrington. Instructions] first our with [Operator Prestopino

this my through mind, just you lot the turnaround. because guess fact that of spend. gross as of the A of margin. first Or I pulled is back level that a move to sustainable would a thing Is you series that pandemic, Great of progress on come level? Jared, the reflective that really marketing the questions guys here. on

you if a elaborate so And could on little bit? that

Gary, couple that of some there we And of is is there. know bit a Number Yes. questions. market is in there There A automotive thanks one that in things. market spend overall absolutely. and down. the ads for little is

'XX I be to eMarketer number was down going it year-over-year thought to this think from year, the was 'XX. XX%.

less we historically auction in little seeing have seen. So are than a we competition the

global in an whole not we pandemic. tactics had to may that old a making However, had the certain It's really courage out here. ways, adage there not deployed lemons series of been lemonade of a deploy we of have

have improvement conversion rate, that the durable. I that's new that, changes On search conversion Gary, the that mobile we are that durable. is campaigns. some remarks large actually us those of our for will third rate have in some deployed side, real the we've search top That's doubled particular, sustainable. prepared to those material the tell tactics the And campaigns, on some what, change. that in efficiency I basically incremental believe we've That's from deployed for for driving like some mobile piece product experiences driven said, is I of And our you referenced I

conversion a pulled what's mobile mobile, you second So let's but and Gary, side. went on really out interesting, volume a on At more actually time, answer, at on we desktop which of drove aggressively this more than we the in buy did improvements, the so I'll side, the we if means up because trend same search here, these deployed spend long a look stop we lead impressions into our rate conversion turn the mobile.

stuff, beyond market and that the improvements product will listen, again, tactics the So that disruption. last the

the the then I truly that think guess, they count the your that dealer I suspended mean of bottomed retail it's did - dealers you biggest then late suspended this back? see Or increase is start is March, good to in and have terms in here? is started where dealer improved. really go into that coming may And to And issue there status way the sequentially? that dealers

we actually Gary. dealer No, grew Yes. count,

the So or they about pull had of we numbers the on active program. the still but because they still contract. just suspended review we last we actively either quarter out dealers didn't talked were mid-quarter when the it They weren't had participating, status

is growth. quarter-over-quarter seeing count what of terms you're dealer count actual dealer So in

though, you of coming characteristic coming has of know, is the improvement, off margin Some business margin the side status a wholesale our because suspended better as of side. from retail than dealers the

margin it So for mainly product. actually lead both also but back enhanced clicks, online, as these came the the the dealers

about that of other out me quarter, you in going question. to that was lead And last had your of lead I opted remember OEM program. revenues my X% said the the to

you're and So the this early dealers to selling getting OEM, least must success some of there? you be at

We are.

But side out efforts every earnest, yes, and on where progress started we've progress, really other have to the reaching and of started loss slowed of those up Gary. traction. pick dealers And more in dealers down. again, suspended to dealers on exactly the volume, We pandemic are. side. to side but come way We're as once hit you we or that hitting, the the our right lead as prior up than know, participated It was getting a we the to side side OEM we picking really retail is side. lead interesting to here we us Then on in total because making the lead on back valuable pandemic status, wholesale had OEM some the those the as terms back were prior we're retail all good in nice out not we're some

And comes Riley from FBR. our Krowl with B. Lee next question

that business. expect Wanted Wanted in to specific visibility in facing do visibility the to that clicks throughout is Or sequential the be clicks rebound the from and a start overall but it see, business industry. to not quarter? and to universally Obviously standpoint? do the go pretty growth on business just you have an touch sustained the can as say out pressures, business, but you that

clicks attacked Lee, good bit business, We've been because traditional done got hit the click a the than kind the of hard and of there. right? tended rest media harder the the optimization hit distribution get with some interesting side to with work, pullback. of side lead side pretty little They has really we've the

good back. And that we're we've the progress seen that so on months. X X bring last some over And starting to or

grind do end slowly do spend I to I as that do. we're And will the of it it. expect can that but of here throughout on grind quick XX%, slightly the we that. think that wouldn't starting of some quick flat wouldn't for we to with July at on think up-ish. of through so the away it I next be the I improvements we'll it XX% through it Again, as have the I in, think we I back make continue quarter rebound. a quarters. And to we're well. couple carrying at I out rebound trends saw come comes back But And to thing. quarters, down can think a But media expect incremental a

in more second trying to issue becoming in and one, are clear is level of And and that, in Does June not been guys? kind enough of through inventory the question, high a my was but both excluding is that July, new that then a spike in OEMs capacity demand as inventory used for it's out that's you Or headwind there way as manifest get any that online. an demand issue? there, an

is Number they'd well tell your It's the they're one, back are starting - interesting, we've but total And you, have inventory, couple having Lee, - vehicles as We a dealers, dealers can to production more they while, to difficult status. some ramping off Yes. just had right vehicles don't there's that and is like. been terms vehicles get list we're of had on. What anecdotally reason in X we've are or on down is, many their and I hear of that to that the are dealers more are as XX% now. OEMs The our hotter point, hands in-demand some from because flow again. not of of - because challenges suspense the them. times, anecdotally,

suspense bounced as. dealers So why and that's and and off have the the back had challenges the between forth one they on of

staff. sales is other The

new to earnest side. BDCs and opening salespeople to of demand capacity level bring sales more and their in a of their So dealers are up on just their in and kind optimize back some starting

a it a bit headwind. So it Lee, is of is.

a XX I overcomeable, to to estimate. over the that's think days. believe conservative going that do very be I think I XX And next it's

and to OEMs are replenish and push on in think the I side. the lean new car going

it's yes, here we to of think couple a something I out We the have So eye about going sorted get months. over on. But keep it. it's we to next didn't very close wish itself worry do

And our Ascendiant Capital. from Woo next question Ed with comes

have improvement. of signs Sun the noticed My is in the as of question on Belt differences COVID you states reoccurring? seen some spikes any have Congratulations

Ed, we haven't.

internally. in those theory what count dealer about And tell in talk decline either I'll is volume lead haven't We seen we or specifically this a in areas. here our working you because

is look weren't the from bad that Our right, an you operations working May, the at for dealers their when prepared evolved and is and time, this, as was industry April theory hardened they've as get a Since that you bit. we that have disruption. about perspective could April, really because

the rate, the again. infection down so We're And seeing see which in the in essentially, disruption because as thing not being in we and a manageable for appears we're bars this operating automotive industries be closed in the in. manner, other some markets, being dealers restaurants now we've those and down closed seen more bit same in new spike some are to that operating environment of

terribly it's But what we spikes infection an plugging we're seeing rate they're we that. for dealers as some perspective haven't seen and thought the We So might. resilient, terribly, from though across worth, the are even country. along,

a very And to as Great to guys business. down is, the then revenue question my expenses you can you of our ramp business? existing getting your again? have upside operating back, Or much operating rightsize costs with How will revenue did up for job the leverage grow comes hear. you good to other

don't why you J.P., take one? that Yes.

would we've - about we million then really entered into X round, for as mean, be the we optimizing when cost bunch XXXX. $X.X calendar been know, cuts, I which year expense did you of Sure. years. inside we on line, a announced accelerated pandemic, the another of as And

thing so we away about possible did the people. cuts everything is And cutting those from to stay cost

and a was of lot fixed it so expenses. cost overhead And

again. now start So expand and in we won't things to add have back people to as grow

from saying don't move to of if cost forward all, here. a at way lot to in think of long have we're add back I going a to it's So any,

from next question, with follow-up Prestopino Barrington. a our Gary And is

the J.P., question a on cash. had Yes. I quick just

is generating pulled it, that reading like 'XX. then Q You some flow. you am some had line money at end looked that I $X.X at positive looked this it grew. I But million on that you quarter, - And to thought right? of your the be cash first, cash what Is about may $X.X equal the million I

Yes.

requirement a that under we of debt. levels to the have carry new have We higher facility

So we we that balance have a borrow. have minimum to

we of sort that's so up amount. to And borrowed what the

the That saw we that' in had month negative flow, cash operating in actually the flow on earlier So increase I cash swing - of the said, it in cash. towards say, been whereas will positive quarter. the June

confident I And your adjusted you positive hear think that half Okay. then go you'll feel somewhat I you correctly? in think said that ahead. that that the you I of year, have QX. narrative, EBITDA Did - in the back and Because QX

Yes. I positive mean mean some of breakeven to I there's positive. level EBITDA.

positive Okay. less said a more or I Jared because Breakeven breakeven. think

wanted I Okay. what That's to clarify.

- some always read can generate EBITDA level we don't believe do we Gary. - adjusted of We don't We well, always that forward. going positive I

to make wanted right. I just had I sure Okay. it

positive or I'm the with - good feel can And you, No, in is sorry, - - here tough mentioned We too. August quarter. going believe July July a good a point was the we be start. we a to we We about is want a slightly there. where to like good off is. hedging want last But been And way market start we too our narrative, it don't feel tell weren't pretty going I good, looking environment - weren't being that forward. in predictions and we're make bold necessarily the many to X promises hedging. just gotten We to years, it's don't to we've

the the on QX in from saw a we changes we us half. what about we sideways end, at and perspective, second good market nothing pretty feel So go

Yes. Well, to that's order great. always deliver. good under-promise It's to in

So...

We're trying.

to our turn this I At closing for time, like call . Rowe would to back remarks. the over now concludes any session. this question-and-answer Mr.

thank you appreciate Well, really everybody's hard work. much. very I

really business of has heroic we team to the Our last it. done really of effectively as this a months transitioned transition as over couple lot things

to thank year. the the team. They've of So want we're I excited and job, just to second the you done great a say half about

We and to everybody. for you. look forward safe, joining Thank thank call. talking And you soon, so again the stay

Ladies this does and conclude teleconference. gentlemen, today's

this disconnect your for may lines at you You your Thank time. participation.