Autoweb Inc (AUTO) 2002 Q3 法說會逐字稿

Good afternoon. My name is Linda, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Autobytel, Inc.’s third quarter 2002 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Now I will turn the call over to Hoshi Printer, Executive Vice President and CFO of Autobytel, Inc. Mr. Printer, you may begin your conference.

Thank you, Linda. Good afternoon and thank you for joining us today to discuss Autobytel’s earnings for the third quarter, ending September 30th, 2002. With me today is Jeffrey Schwartz, President and CEO of Autobytel. We will begin the call with an overview of the quarter, followed by a discussion of the financials. Jeffrey will discuss the business and we will then open the call up for questions. Today’s conference call, including the question and answer period, projections or other forward-looking statements regarding future events and the future financial performance of the company are covered by the Safe Harbor statement contained in today’s press release. We would like to caution you that actual events or results may differ materially from those forward-looking statements. We refer you to documents the company has filed with the SEC, specifically the form 10-K for the year ended December 31st, 2001 and quarterly reports on form 10-Q. These documents identify the principal factors that could cause results to differ materially from those forward-looking statements. With that, I’d like to turn the call over to Jeffrey Schwartz.

Thank you, Hoshi. And welcome to Autobytel’s third quarter conference call. I’m pleased to report our fourth consecutive quarter of EBITDA profitability. This quarter, we generated 600,000 of pro forma EBITDA or 2 cents per share on 19.3 million in revenue. Our pro forma net loss narrowed to 200,000, which is the lowest in the company’s history. The highlight of the quarter is that we were cash flow positive. This quarter we generated 3 million in positive cash flow, which represents a $7 million improvement from last quarter when we used $4 million.

Moving the business to cash flow positive is a significant achievement for Autobytel. It demonstrates that our relentless focus on operations is beginning to pay off and that the operating metrics we have put in place to drive the business forward are achieving the right results; improved cash flow and sustained profitability. And it demonstrates that our value proposition is firmly taking hold. We began the year with the simple belief that if we add value to the automotive marketing chain, then we can craft mutually beneficial relationships with our customers; relationships that are profitable on both sides. Well, the results show that we’re on track in building these relationships. Not just for Autobytel, but for our customers as well. With our close rates up 35 percent this year, we have dramatically reduced the average cost of selling cars for dealers.

Before I turn it over to Hoshi to review the financials, I’d like to make a comment about the results this quarter in the context of Autobytel’s long-term growth strategy. During the quarter, three dynamics influenced the revenue and profitability of the company. First, we made significant progress in reducing the number of unprofitable relationships in our dealer base. Second, we launched our intensive purchase request quality verification system. And third, in part as a result of the first two initiatives, we reduced lead volume by almost 200,000. While these strategies resulted in a 1.5 million reduction of revenue, we believe that ultimately, they bolster the long-term prospects of the company. On 7 percent less revenue, Autobytel was able to increase EBITDA and increase cash flow by $7 million sequentially.

So, if I were to describe in one word, our focus this past quarter, it would be quality. Quality of customers we served. Quality of car buyers we send to our customers. Quality of operations. And, as the end result, quality of financial results. Not that our attention has moved away from quantity. It never will. Our market share is the largest in the sector and is projected to triple in size over the next four years and we continue to generate more online car sales than any other automotive site in the world. But we recognize that in order to chart a clear path to sustained profitability, a temporary reduction in quantity may be necessary. Hoshi will now review the financials. Hoshi?

Thank you, Jeffrey. I want to begin my remarks by discussing a significant event in the financial history of the company. And that is cash generation. Autobytel’s cash balance as of September 30th was $26.5 million, versus $23.4 million as of June 30th. We generated $3.1 million this quarter. Let me explain the contributing factors of the top levels.

We start with $600,000 pro forma EBITDA as a proxy for cash generation. Additionally, our ongoing concerted efforts resulted in about $2 million of increased collections, versus the prior quarter as evidenced by the DSO being reduced from 43 days to 38 days. We successfully renegotiated a significant long-term contract reducing our cash commitments. The rest of the cash generation was due to favorable balance sheet items, offset by $300,000 in CapEx. Our collection effort will continue in the future. This is comprised of additional resources in the collection area, a better prioritization of the accounts, and suspension of dealers who do not pay us on time. We believe that the dealer credit problems and the high level of receivables may be behind us.

At the conference call in January, we discussed the reasons why the allowances and provisions had to be increased. I’m pleased to report that the allowance for doubtful accounts and customer credits has declined from $7.1 million at December 31, to $4.3 million as of September 30th. The provision for bad debts and customer credit has declined from $3.5 million to $2.2 million during the same period. The long-term contract I referred to is with a major Internet portal. As a more matured company we have become more adept and sophisticated at optimizing our media economics. Instead of continuing quarterly cash payments for the next five quarters, the contract now requires that we make only one additional payment in the first quarter of FY 2003. These marketing resources will be more efficiently deployed elsewhere. And finally, the CapEx level of $300,000 in Q3 is the reflection of our keen focus on a narrow set of objectives and limited projects and those resources are being directed to bolster the core marketing products.

Let me now turn to revenue. Jeffrey has highlighted the focus on quality and profitability. This has affected our revenue in the short-term, but positions us well for the long-term. In that context, let me explain the 7 percent or $1.5 million sequential decline in revenue.

Starting with program fees. The program fees revenue declined by $1.4 million for two reasons. One, the dealer car decline in Q3 as we continue to reduce the number of unprofitable dealer relationships. This means that we will only engage dealers who will pay us adequately for the quality of the services we provide them or there is termination. In the past, both for goodwill reasons and to build future business, we have carried unprofitable business on the books. We are methodically weaning ourselves off that legacy and in the process will continue to eliminate unprofitable dealers. Approximately 60 of the 300 net reduction in the dealer count is attributable to the dealer attrition in Canada and that attrition will continue.

Two, there is decline in the quantity of purchase requests sent to member dealers. A company-wide emphasis on generating the highest quality leads possible is the cause of the decline. We purchase a large portion of the leads from the affiliates. All leads are now thoroughly scrubbed prior to sending them to the dealers. While this rigorous scrubbing reduces the number of leads to the dealers, the resulting quality of the leads is substantially higher, which results in a high closing ratio for the dealers. The cost benefit to us of lead scrubbing is that we now purchase and send only those leads that are both valid and [monatizable]. In the long-term, this drive for quality leads and quality revenue is a win-win for both our dealers and for Autobytel.

Let me offer some metrics to support my comments. The program dealer count declined from 5,900 in Q2 to about 5,600 in Q3. And the purchase requests per member dealer declined from 47 per month to 40 a month for the same period. The average monthly program fee for dealer declined modestly to about $800 a month.

On the other hand, the revenue per purchase request per member dealers has increased by 14 percent, from about $18 to $20. To give you a sense of our drive towards profitability, dealers who are added in the third quarter paid an average fee of $820 per month, versus dealers who cancelled in the third quarter who are paying us $740 a month. That’s a difference of $80.

The most telling story is the closing ratio, which is the economic [indecipherable] test from the dealers’ standpoint. The closing ratios from Autobytel leads have steadily increased from 12 percent at the end of last year, to 13 percent in Q1, 15 percent in Q2, and 17 percent in Q3. That is a staggering 35 percent increase in the quality of purchase requests. So, the financial and operational metrics that reflect the health of the business are sound.

Management’s task, now, is to focus attention on the sales side. Jeffrey will comment on the initiatives that we have implemented in the sales organization. The same strategic logic that I just described for program fees is also applicable to the enterprise revenue. Enterprise revenue primarily consists of revenue from OEMs and large dealer groups. That revenue declined by half a million dollars because we sent fewer, but again, very high quality purchase requests. We expect our revenue to increase in the coming quarters. We currently have a test relationship with a major OEM that will continue through November 30th and initial indications of the test are positive. Jeffrey will elaborate on that relationship.

Website advertising revenue increased sequentially by 24 percent or about $400,000 as a result of major accounts that we had signed in the first half. We expect the fourth and future quarters to form up for website advertising. The automotive sector appears to be healthier than the overall website-advertising sector. The fourth revenue category is other products and services, which consists of new products, Legacy products and internationals. Our new service reminder product called RPM was launched in the second quarter and continues to do well. We had about 140 dealers activated within six months of the product launch. We expect that RPM revenue will continue to increase in the coming quarters. International and Legacy products will contribute a small and declining portion of this revenue category going forward.

Let me now talk about expenses. As a continuation of our commitment to manage expenses and focus on profitability, you will note that while the revenue decline was 7 percent, we decreased expenses by 9 percent, excluding non-recurring charges. The gross margin continues to be in excess of 55 percent. We have seen some upward pressure in the costs that we incurred for purchasing leads from affiliates. The cost of leads has increased from $8 plus, to about $9 plus and we forecast that the cost per lead may start to level off after about two quarters.

The head count reduction actions that we took in the second quarter helped the expenses in the third quarter. Our headcount was essentially flat at about 227. Expenses declined in all areas except RPM, where we have added sales resources and will continue to do so to ensure the success of the product. We incurred a non-recurring charge of $1.9 million. We have developed a standard platform from which to create websites for the U.S. and several international entities. The basis for impairment is the lack of use for the platforms, because of reductions in international operations.

Let me summarize the guidance to you at this time. Fourth quarter revenue is forecasted to be sequentially flat, so that the full-year revenue will be about $80 million. Expenses will be flat sequentially. Pro forma EBITDA for Q4 will be flat at about 2 cents a share for a full year pro forma EBITDA of 7 cents a share, in line with prior guidance. We expect to break even at the net income level in Q4 as per the earlier guidance. We will be cash neutral to positive in the fourth quarter. And finally, while the state of the economy and the world events make forecasting difficult for the next year, we firmly believe that the full year 2003, we will be cash positive. Jeffrey will now give his comments on the business. Jeffrey?

Thank you, Hoshi. As you can see, we continue to make progress in many areas of the business. Let me review some Q3 highlights and briefly discuss the larger strategic environment. As Hoshi noted, the close rates on the Autobytel network are at an all-time high. We began the year with close rates in the 12 percent range and closed out Q3 at 17 percent.

Today, it costs a dealer around $120 to sell a car through Autobytel. As a point of comparison, this is significantly lower than the $475 that it now costs dealers to sell a car using traditional media. While the per-vehicle selling costs using traditional media have increased over 10 percent this year, the cost of using Autobytel continues to decline. I’ve been telling you throughout the year that we have been getting the company back to its D and A. Simplifying its form, clarifying its purpose, and intensifying the services it renders. Well, nothing is a better sign that we’re on track than increasing close rates.

Let me give you an update on how we’re achieving these hard-won gains and a few examples of how this focus on quality is having collateral benefits in other areas of the business. As for improving close rates, well, we told you during the last call that we were getting serious about quality and we have. We have changed the language on all the Autobytel sites to reinforce that our service is for serious buyers. In doing this, we’ve taken a point of departure from our competitors in the industry who are still using looser language that allows non-intending visitors to slip through to the dealer. These changes to the website have proven powerful when combined with the launch of our new quality verification system to scrub leads. The net effect has been a reduction in the overall number of purchase requests, but increasing close rates.

The benefits of these initiatives are driving the quality of the financial results we are reporting today. For one, we’ve been able to reduce dealer accomodations and credits from 3.7 million in the first quarter to 2.3 million in the third quarter, an improvement of over 35 percent. I believe this progress to be a clear sign that dealers are seeing increased value in the services we are delivering. When combined with improved operations, the results get even better. We had a record quarter for cash collections, lowered the average dollar value of each dealer accomodation by 35 percent and significantly improved the DSO.

And improved product quality continues to reinforce our pricing strategy. We’ve taken the average revenue per purchase request to over $20, an increase of over 45 percent, in nine months. And we’ve not given it all away through increased customer acquisition costs. Gross margin per purchase request has increased over 37 percent since the beginning of the year. Focusing on gross margin per purchase request has allowed us to increase EBITDA while revenue tailed-off this quarter.

As Hoshi noted, the quarter marks the first that Autobytel has achieved positive cash flow. During the last conference call I told you that improving the quality of the products and services we deliver to our customers would likely have some negative short-term impact, but that in the long-run we believed it would solidify the foundation on which strong financial performance was based. Well, it has played-out as expected. While we’ve experienced some short-term revenue loss, we have significantly improved the quality and foundation of our business.

During the last call I also told you that we were focusing on ways to reinforce best practices with our customers. High close rates make for very happy dealers. To this end, we’ve launched our first round of dealer management reports. Which reports key customer survey data back to our dealers. Publishing this data has already improved the rate at which our dealers contact Autobytel customers, which now stands at 76 percent. These reports are serving as an early warning sign that a dealer may be under-performing on our program and should help us drive improved sales and retention efforts in the coming quarters.

During the quarter we also made important advances in two areas of the business; our enterprise and advertising sales initiatives. On the enterprise front we added over 11,000 franchise points to the Autobytel program through a new initiative with General Motors. The program, which has been in development for many months, allows non-Autobytel GM [bypower] dealers to receive qualified purchase requests from the Autobytel network. While the program is in its infancy and has been launched on a pilot basis, we believe that providing General Motors with a large number of qualified sales leads they are likely to be happy and may continue with the program.

On the advertising sales front a couple of developments are driving our optimism. First, we are beginning to see the sign of a significant increase in automotive manufacturing marketing dollars being directed to the Internet. We’ve completed the 2003, up-front season with some of our customers and have secured increases as high as 300 percent for next year. There continues to be a disconnect between how many consumers research and shop for their vehicle online, around 60 percent, and the percentage of total manufacturer dollars dedicated to the Internet, around 3 percent. Seeing a narrowing of this gap is encouraging and reinforces our belief that there is considerable growth ahead in this sector. Our development of innovative new marketing application is also helping drive these gains and should produce strong advertising growth for our business next year.

We have made noticeable progress while meeting a series of challenges this year. However, there are still areas for obvious improvement in the business. During the first quarter we worked to improve the technology, which now appears to be working quite well. During the second quarter we launched our yield management system, which is now driving more profitable revenue. During the third quarter we worked to improve quality. Every test that management has set its sights on, we have achieved.

Next comes sales. While our enterprise sales initiatives have met with success this year, we had some deterioration to the program dealer base, which is impacting our revenue. Many dealers were asked to leave the program because we could not fashion a mutually profitable business relationship. But many good customers have left as well. We can do better. So, we’ve turned the entire energy of the company towards sales and have recently hired a new Vice President to direct these efforts. Steve [Ammons], our new Sales VP comes to the company with over 30 years of technology sales experience, having been a top performer at the likes of IBM, Oracle and Cybase. He has only been here for a few weeks, but already we are beginning to see the benefits of Steve’s talents. It will take some time as we continue to weed out the segment of our customer base that have lower negative gross margin, but we feel that we are on the right track and that sales will improve.

To punctuate this point, I’ve created an executive sponsor program for each territory, which should provide additional support to our field sales force. Again, regaining growth in our core business is management’s key focus in the coming quarters. I have every confidence that we will be able to achieve this.

I remain very optimistic about the overall strategic environment. The OEMs are spending at a higher rate than we have seen in the history of Autobytel and there does not appear to be any cooling of dealers’ desire to generate cost efficient sales. Our position in the category has remained strong. Judging by the recently released J.D. Powers study, which confirms that our market share remains nearly three times greater than our nearest competitor. This trend reinforces my strong belief that we are making progress in this market and that the market opportunity continues to grow. But the near-term goal of Autobytel is to operate at 15 to 20 percent margins which means that we still have some work to do.

Part of that will come from internal operations. Improving the efficiency of our existing platform and getting our core business growing again. We will do that. But part of the story will unfold through partnership. We have demonstrated that this platform scales and that there is additional room for leverage. So, driving growth organically and through partnership remains the focus of management at this time.

As we move into the fourth quarter, I feel that the company is on solid ground. In a difficult economic environment, Autobytel will have hit most of its financial targets for the year; EBITDA, cash flow and in the fourth quarter we are projecting net income break even. As I look back over the year, I can say that we have realized the synergy of the [autoup] acquisition, that we have secured the benefits of improved market share, that we have managed the expenses in a tough market, and that we have improved the overall financial fundamentals and operations of the business. The benefits of the management change are taking hold and our business model is beginning to mature.

As always, I want to thank you for your support of the company and seek your patience as the story unfolds. There is opportunity here and I believe that Autobytel is positioned to be the leader in our market space in creating value. Thank you. I will now open the call up to questions.

At this time I would like to remind everyone in order to ask a question, please press star and the number one on your telephone keypad. We’ll pause for just a moment to compile the Q and A roster. Your first question comes from Mike Crawford, of B. Riley.

Do you have the program dealer count by your three primary websites?

Mike, will you repeat that question?

The program dealer count by Autobytel, Autoweb and Carsmart?

Mike, this is Hoshi. Mike, the ratios have remained kind of unchanged. About 60 percent of them between Autobytel and Carsmart and the remaining 35-40 percent come from Autoweb.

Okay. And what was the net program dealers added during the quarter? Not net, but gross. I’m sorry.

The gross was about 550.

550. So, the churn was about 700, something like that?

Well, actually, the cancellations were -- the net cancels were 300, so we added to gross cancels are about 800, 850, in that range.

So, when do you expect that to turn around?

By the way, the cancellations included the 60 in Canada also, that I referred to. In terms of when that cancellation will come down, that’s what Jeffrey’s comments are about regarding the sales. What we are focusing on sales and dealer retention.

Yes, Mike, this is Jeff. How you doing? The entire energy of the company is focused on sales right now. As I’ve indicated, we’ve gone through and fixed the technology. We’ve taken out the latency in the business model, improved the product quality. And we have a really strong belief that we’re going to be able to get much more traction on the sales side now. The other point Mike, as you well know, we’ve been trying to cull out some of the negative gross margin customers. I still think we have some more work to do there that will probably come through in the fourth quarter. But, I think that we’re going to be making progress here pretty soon. Our new sales VP is going to give us a lot of guidance-a lot of energy on that one.

Okay. A couple of other quick questions. What do you get from this long-term contract that you talked about? Advertising?

I’m sorry. Are you referring to the GM pilot or the --

The one that you had five more quarterly cash payments, but now you’re just making one additional payment.

Yes. It’s a marketing program, Mike. It was with one of the major portals. The one thing that we’ve been pretty sophisticated in doing here is understanding sort of what our customer acquisition economics are. And where we’ve had agreements that have turned, sort of, out of market, if you will, we’ve quickly renegotiated those. And that just simply represents another one of those programs.

Okay. What do you think is going to be the fate of these middlemen, like invoice dealers and these other companies like iMotors, that don’t add a lot of value, but just kind of collect leads and then give them to someone like you?

I don’t want to comment on their fate, but what I will tell you is that we’re aggressively out there marketing. We think we need to have more direct customer relationships and we think that we need to be generating more of our car buyers, sort of, natively. So, right now, we generate about 20-25 percent natively through sort of direct site traffic. We’ve begun some offline advertising campaigns this quarter. And so what you’ll expect to see is in the media mix for next year is more offline advertising-more brand-driven advertising. We think we can do that, again, cost efficiently, you know, which further reduces our reliance on those companies that you discussed.

Okay. Final question is, with advertising looking like its going to come in between 7 and 8 million this year, how do you think that could go next year?

I’ll give you my sense and Hoshi can comment. We’re not giving any guidance, Mike. But I’ll tell you, the initial indications are that the market is really firming up nicely. We’ve gone through up front with a few of the OEMs and in every case we’ve secured pretty big gains for next year. That’s driven, I think, in part by our product strategy. We’ve developed some great new products that the OEMs seem to be embracing. It’s driven by our market share. And it’s also driven, frankly, by the fact that the OEMs are committing a larger amount of money to the channel. So, I think all those benefit us.

Okay. Thank you.

Your next question comes from Peter Slider.

Yes, Jeff, Hoshi, I think you put up a great quarter. I’m wondering what you think you can do in terms of, maybe, brackets of sales growth next year, versus the 80 million year here? Not necessarily giving any guidance, but what would you consider, given you’re putting all of your wood behind one arrow and in terms of revenue growth next year?

Hi Pete, this is Hoshi. Pete, as you correctly prefaced it, we are not giving guidance at this time for 2003, other than to say that we’ll be cash positive for the year. But to give you just some directionally, I think website advertising and enterprise revenue will definitely see growth. On the category that we call other products and services, RPM, will definitely grow. On the program fee side, you should see some stability in Q4 and Q1 and then I believe that we should start seeing the fruits of the labor that Steve Emmins, our new Sales VP is putting in. So, I think you should see a turn-around in the program fees sometime in the early part of next year.

Alright. And then on the cost side, what’s going on there from a lead delivery standpoint?

The lead delivery standpoint, as I mentioned to you, I think we are currently paying about $9 plus a little bit. And that may increase for the next one to two quarters. The question that Mike Crawford asked, is what happens to the middleman? As the pressure on them intensifies, I believe the cost pressure on us to buy the leads will also diminish. In other words, you know, we may see up to $10 at the most -- $10 or $11, something like that, but then it should level off. At least that’s our sense of the market right now from a cost standpoint of purchasing the leads. From a headcount standpoint, which is our second largest cost, we will continue to manage the headcount as best as we can. And I think we have already demonstrated that, starting in the second quarter of this year. And even now, we are adding very selectively on places like RPM, where we see sales growth. So, you may see headcount actions as appropriate.

Great. Well, good quarter. Thanks a lot.

Your next question is from John Sporon, of W.R. Hambrick.

Could you help quantify how many of your program dealers are still unprofitable? I’m trying to get a sense of how many you’re trying to weed-out still, over the next quarter.

John, this is Hoshi. Obviously, you’re asking a question that we have not made any public statements about. But, what I would tell you is there’s probably -- my estimate is probably 10-15 percent that are still paying us less than what I would consider an appropriate price per purchase request. So, we have some work to do there.

Johnny, this is Jeffrey. The work that we’re doing there is not immediately kicking them off the program. What we’re trying to do is we’re trying to work with them to get the price point up, to reduce the territory, to make the program work for them. So, it’s only in the last instance that we terminate the relationship. So, we’ve made a lot of progress over the last nine months. I still think we’ve got another three to six months ahead of us of working through pricing issues. But, as you can see, we are working -- you know, the pricing dynamic is working well in our business. We’ve taken the average revenue per purchase request up over $20 this quarter and again, that’s reinforced by the quality improvements.

Okay. And a general question. If auto sales should decrease from the current level, would you expect your number of leads to follow that or would you be able to compensate for that?

Yes. That’s a great question, Johnny. Thank you for asking that. The fact of the matter is there’s not a perfectly symmetrical relationship between the number of people who are submitting purchase requests or buying online and overall automotive sales. In the case of the Autobytel business, we’re only responsible for 4-5 percent of all domestic automotive sales. So, we’re negatively or positively impacted very much on the margin. What I would tell you though, is that in a difficult sales environment, the necessity to drive cost efficient sales increases and as the dealers look through their marketing portfolio, the fact that they’re selling cars for $110-125 through Autobytel, as opposed to 475 using other media forms, I think that all goes well for our business in a slowing down sales environment.

And finally, the new GM pilot program, since it is a pilot program, I assume there’s nothing built-in to Q4 from that?

As I said -- Johnny, this is Hoshi. As I said, this program lasts through the end of November, so there is some factored into Q4. But not beyond that.

Okay. Thank you.

Your next question is from Brian Horey, of Equity Growth Management.

Hi. Thank you. Can you just talk about what are some of the reasons behind the increase in the price per lead?

Brian, this is Jeffrey. Thank you for the question. We’ve been able to increase the average revenue per purchase request largely driven by two factors. The first is increase in quality. We began the year with about a 12 percent close rate on the purchase requests. We’ve taken that up, sequentially, about 40 percent this year. And in Q3 it ended in about 17.5 percent. So, the fact of the matter is that the lead is worth more. The quality is higher. We’re now scrubbing and scoring the leads. They close at a much higher rate than they ever have in the history of Autobytel. So, given the fact that there’s a huge price difference between traditional and Internet media, we still think that we actually have more pricing opportunity.

The second point I would make, Brian, is that it’s driven by market share. The market dynamics have changed in our market space considerably over the last year-year, year and a half. And whereas it would have been practically impossible, theoretically difficult, to serve in price increases a year and a half-two years ago. Given the fact that there’s fewer players We have much more market share after the autoup acquisition. It just creates a little bit more opportunity for us on the pricing side.

Okay. I was trying to focus on the price you pay for the leads that you buy and why that went up?

Oh, okay. I can just give you a quick overview on that. One thing that we’re trying to do is that we’re trying to gain more market share online. In terms of the -- on the buy side of the business. And so, we’re out aggressively marketing. And there are certain companies out there that are, in essence, standing between us and the ultimate customer; the ultimate provider of car intending buyers. And in many cases we’ve had to work around them and that’s, frankly, driven the price of the lead up.

Okay. All right. Then I had two other questions if I may. And I’m new to your story, so you’ll have to indulge me if you will, on some fundamental questions. I’m trying to understand a little bit more why you appear to be having trouble convincing the dealers to pay a reasonable rate in order to kind of stay in the program and make them profitable for you if you’ve had these big jump in closure rates on leads? And there’s this kind of four to one difference in media costs between you and more traditional media environment. That would sound pretty compelling, so what’s the disconnect with the dealer?

Brian, this is Hoshi. I’d answer your question two different ways. Number one, we have publicly acknowledged that there was some drop off in the quality of our leads in the first quarter. And because of some idea issues that we had. And that we have fixed completely.

Number two, I would tell you that the dealers are a sector that traditionally will investigate and challenge every penny. So, what we are facing is no different than any other lead provider would face regarding sending them leads. I think because we have the quality of the leads that we do, we have been able to hold our own. The question that was asked previously as to how come we are being able to demand a higher price? The reason why we are being able to command a higher price is because one, just in terms of our brand name. And number two, the quality of the leads has improved substantially. So, yes, we were having difficulty about two or three quarters ago. I think we are past that one now.

Okay. So, is this kind of a lag issue, as that quality issue fades into the background and as closure rates and that kind of stuff --

There is definitely a lag issue and the only external factor, I would say to you, not from our standpoint, but from the dealers’ standpoint, is the economy. If the economy slows down very dramatically, then of course, their spending dollars are tighter. But, that would be true for all lead providers, not just for us. I would not characterize us as being singled out for having difficulty selling to dealers.

Okay. Although their part of the economy has been doing pretty well. [multiple speakers] And the last question, you sited some J.D. Power market share stats, I guess. Could you just tell us what that market share is based on and what’s the distance of your lead, versus the next one or two competitors?

Yes. The market share data is based on a study of -- I don’t know exactly their methodology, but it was around 50,000 car buyers; online car buyers. It found that for the fourth straight year we are the sales leader. Our combined market share is in the 20 percent range and the nearest competitor is in the 7, 8 percent range. I’d rather not going into great detail, but the market share relates to what percentage of total online sales you generate.

Okay. Thank you.

Your next question is from Albert Alessandra, of Alessandra Capital.

Hi, guys. And congratulations on the quarter. I think you’ve done a great job. Can you hear me okay?

Yes, nice to hear you, Al.

I’ve got a question for you. You’ve got $26 million in cash. A lot of money. Are you looking at other companies? Are you looking to buy other spots? Why do you carry so much cash?

We absolutely are looking at partnership and acquisition opportunities. I indicated in my conference call script, we think that we can skin a good portion of this organically through growth and improved operations, but we think that there’s an incredible amount of leverage in the platform. We’ve demonstrated that. In the autoup acquisition we took costs out by 50 percent; reduced head count by 50 percent. So, we’re absolutely looking at all that opportunity, Al. And we think $26 million is a fine amount of cash. We don’t think it’s too much.

Thank you.

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Thank you very much to everybody for joining the call. Bye-bye.