Autoweb Inc (AUTO) 2004 Q1 法說會逐字稿

Good afternoon. My name is Amanda, and I will be your conference facilitator. At this time, I would like to welcome everyone to Autobytel Incorporated First Quarter 2004 Financial 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 "*" then the number "1" on your telephone keypad. If you would like to withdraw your question, press "*" then the number "2." Thank you. I would now like to turn the conference over to Mr. Printer. Thank you. You may begin your conference.

Thanks, Amanda. Good afternoon and thank you for joining us today to discuss Autobytel's earnings for the first quarter of fiscal year 2004. With me is Jeffrey Schwartz, President and CEO of Autobytel. We will begin with highlights of the quarter and a review of the financials. Jeffrey will discuss the business, and then we will open up the call 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 2003. These documents identify the principal factors that would cause results to differ materially from those forward-looking statements. With that, I'd like to turn the call over to Jeffrey.

Thank you, Hoshi. And welcome to Autobytel's first-quarter conference call. I'm pleased to report continued progress in the financial and operational performance of the company. Today, we reported Q1 revenue of 24.8 million and net income of 2.1 million or 5 cents per share. Year-over-year, revenue increased 22% and net income increased 138%.

During the quarter, our cash balance increased by 2.6 million, and we closed the quarter with over 64 million on hand and no debt. This amount excludes more than 10 million attributable to Autobytel Europe. Hoshi will discuss the quarter in greater detail, and I will reserve most of my comments for our business strategies and recent acquisitions, including integration. Given our desire to discuss the recent acquisition, we anticipate the call running about a half hour.

Before I turn it over to Hoshi, I wanted to briefly highlight a few of our accomplishments during the quarter, which were operational in nature and which give us great confidence about the trends we see in the business. First, we're seeing signs of some encouraging growth in our core business. Leads referral revenue increased sequentially by 5%, or $900,000, and year-over-year by 2.2 million, or 15%. For the third straight quarter, we added retail dealers on a net basis, around 200 in total, as our churn rates stabilized at 7% and new additions were very strong at around 580. More dealers and improved marketing efforts translated into 860,000 monetized purchase requests for the quarter, an increase of 95,000 or 12% from Q4.

Operationally, this is the most significant growth we've had in our core business in over two years. Including our recently announced acquisition of Stoneage, we now anticipate monetizing approximately 4.5 million purchase requests in 2004, up 50% from 2003 levels of around 3 million. Second, our traffic acquisition costs are trending down. Our cost of purchase requests decreased 8% from $9.50 in Q4 to $8.75 in Q1. We are very pleased with the progress, we're seeing in this area of the business, which is the result of several quarters of focused work and continued expansion of Autobytel market share. And third, I am pleased with the progress we are making on the marketing side of our business. We increased by five times the percentage of free purchase requests generated from national search and had a sizeable increase in free page viewers as well, which accounted for about 30% of our 100 million page views last quarter.

The numbers are relatively small today but the progress is dramatic, and the economics are highly favorable. We feel confident that we'll build on this progress throughout the year and expect that this will be an important source of growth and margin expansion, going forward. I will now turn it over to Hoshi to discuss the ins and outs of the P&L this quarter. Hoshi?

Thank you, Jeffrey. Let me begin with cash. We generated $2.6 million in cash in the first quarter ending with a cash balance of $64.3 million, improving long-term investments. The positive cash generation included the normal cash expenditures that are typical to our first quarter, such as insurance payments and higher payroll taxes and benefits. This excludes $10.4 million in cash attributable to Autobytel Europe. Going forward, we expect to generate cash every quarter this year.

For the two acquisitions that were completed after March 31, we used $20.3 million in cash -- $15.3 million for Stoneage and $5 million for iDrive. So we have essentially started the second quarter with $44 million in cash. For the fifth consecutive quarter, we generated net income, which was $2.1 million, or 5 cents per share, versus $3.8 million, or 9 cents a share, in Q4 2003.

As a reminder, in the last conference call, we discussed two items related to the fourth quarter, reduction of bad debt reserves of 900,000 and a benefit of 760,000 due to a repayment of loan by an ex-Autoweb employee. Net income grew by 138% over the same quarter last year. We are also pleased that the net margin for the fourth quarter of 2004 was at 8%, double the margin for the same quarter last year. We had record revenue of $24.8 million, a 3% increase sequentially and 22% increase over the same period last year.

Although we have described the revenue reclassification in some detail in the press release, issued today, it may be instructed to reiterate it now. As we have previously communicated to you, beginning in the fourth quarter of 2004, revenues are being reported in the new categories of Lead Fees, Advertising, CRM Services, and Data, Applications & Other. The rationale for the new classification is to better align reported numbers and metrics with internal operations and to provide increased understanding and transparency for the investors.

The first revenue category, called Lead Fees, represents fees that are paid by retail dealers and OEMs for the delivery of new and used car sales leads from Autobytel. In the first quarter, consumers submitted approximately 1.1 million leads to us. We scrubbed out 204,000 leads in Q1 versus 194,000 in Q4, but did not meet our quality standards. Additionally, we decreased the number of unplaced leads to 57,000 in Q1 versus 61,000 in Q4 because of our enlarged dealer coverage.

The Lead Fees revenue increased by 5% sequentially from $16 million in Q4 to a record $16.8 million in Q1, representing the strength in our core business. The volume of leads increased sequentially by 12% from 765,000 in Q4 to 860,000 in Q1. Two thirds of the leads, or 580,000, were sent to retail dealers and the remaining 280,000 were sent to OEMs. The mix remained the same compared to the fourth quarter, and we've delivered 506,000 leads to retail dealers and 259,000 leads to OEM.

Our previously stated goal for 2004 was to deliver 3.5 million leads. With the acquisition of Stoneage as indicated in last week's press release, we intend to deliver 4.5 million leads this year. The revenue per leads combining both the retail and OEM was $19.59 in Q1 versus $20.89 in Q4. The 6% decline in the revenue was due to changes in the revenue reserve estimates from Q4 to Q1 and the increase volume of leads sent to the dealers under fixed fee program. We believe that our pricing is stable in the marketplace and expect it to remain so with an increased market share resulting from the recently announced acquisition of Stoneage.

As Jeffrey mentioned, the cost per lead declined by 8% from about 9.50 to 8.75 because of two factors. One, as we now allow consumers to select more than dealer, we pay less on the additional lead. These multi-choice leads constituted 6% of all the leads generated. The initial reaction to multi-choice leads is positive, and preliminary data suggests that it increases the Autobytel's growth rate. However, we are monitoring the market reaction both from the consumer and the dealer standpoint.

Two, we have been successful in negotiating lower pricing for several leads that are routed to our OEM customers. Combined deal accounts of both retail and OEMs increased from about 24,000 to 24,400. For the third consecutive quarter, we added retail dealers on a net basis, and the churn rate is now stabilizing at about 7% for the quarter. Lead Fees generated from used cars grew 11% sequentially from Q4 to Q1. the revenue associated with the Stoneage acquisition is primarily lead driven and the model is very similar to be Autobytel model. As we are going forward, the Stoneage lead revenue will be included in this category and a small portion will be captured in advertising.

The advertising revenue category remains unchanged from the prior classifications and represents fees split by marketers to advertise their products and services on our Web site. Q1 revenue was at $3.1 million essentially flat versus $3. 8 million in Q4. Jeffrey has elaborated on the progress we have made in this business.

The third revenue category is CRM services and represents fees paid by dealers and OEMs for services that helped them automate their safe (inaudible) and improve customer loyalty and retention marketing. It includes ABV and RPM the two CRM tools used at the front end and at the back end of the relations with dealership respectively. It also includes Autobytel's proprietary lead management system called iManager. Our intent is to encourage our dealers to migrate from iManager to ABV's web control products.

CRM revenue increased 4% sequentially from $3.3 million in Q4 to $3.5 million in Q1. The total CRM dealer count for both ABV and RPMs increased 5% from 3,774 to 3,971 offset by decline in the dealers using iManager. The revenue associated with the iDrive acquisitions will be captured in this category going forward although after two quarters we expect the RPMs and the iDrive platforms to be integrated completely.

Data applications and others. This category represents free statewide dealers, OEMs and third parties for the licensing of automotive pricing and certification data, customs software applications such as competitive comparison modules as well as four other products. It also includes training, international and legacy products. In Q1 2004, the revenue in this category was $1.3 million versus $1.4 million in the prior quarter. About two thirds of this revenue is from AIC, which remains an important and strategic business for Autobytel as it provides the data content and applications that drive our consumer site.

Turning to expenses, total expenses including profit acquisition costs increased by 8% from $21.1 million in Q4 to $22.8 million in the first quarter. As I stated earlier the fourth quarter expenses included a benefit of 900,000 because of reduction in bad debt reserves. Excluding this item expenses increased by 3%. Most of that increase was in the traffic acquisition cost for purchasing leads and for RPM.

The expected contribution margin on incremental revenue of $800,000 in Q1 was offset by first quarter related expenses which have seasonally higher payrolls, taxes, and benefits, annual insurance premiums, annual dealer conventions and stocks compliance. For 2004 the 404 (inaudible) requirements for stocks compliance was estimated to be between 500 to $700,000. As discussed in the press release we have consolidated Autobytel Europe in the company's balance sheet in accordance with Fin 46 R. As of March 31 2004 Autobytel Europe's cash balance was $10.4 million.

Beginning April 1 we will consolidate the results of the operations of Autobytel Europe and the company's financial statements. Autobytel's current ownership position is 49% of Autobytel Europe. We expect that the impact of consolidation will be immaterial to our operation. In 2004 inclusive of the two announced acquisitions, we expect to pay modest income tax associated with AMG. In 2005 we expect to pay income tax. We're currently analyzing the impact of analogs for 2005 and we will provide the additional guidance during the year.

A fully diluted share count of competition of EPS was 42.6 million in Q1 versus 41.9 million in Q4. Because of the two acquisitions the share count has increased by 2.7 million. Our estimate is -- that we will exit 2004 at 46.9 million shares and the average count for 2005 is estimated to be 47.6 million. Persistent with the estimate in the last conference call the CapEx for Q1 was about $400,000. But the balance of 2004 including the integration of the two acquisitions the estimate CapEx increased to a range of 800 to $900,000 per quarter. The corresponding depreciation expenses are estimated to be about a $1 million per quarter.

We expect CapEx and depreciation to continue at that rate in 2005. We ended the fourth quarter with essentially flat head count of 328. The net DSO declined from 41 days to 39 days. The DSO in the next two quarters may increase to the low to mid 40 range as we fold in the acquisition. In April we announced two acquisitions, iDriveonline and Stoneage. At his time, I would like to clarify the financial implications of those transactions. I will first address net income and growth followed by revenue and growth in the core business. The typical transaction involves integration cost and amortization of intangibles.

On a stand-alone basis our diligence indicated that both transactions will be profitable in 2004. In the recent press release, we estimated that for 2004 integration costs would be $2 million and amortization $2.2 million. But a total of $4.2 million, equating to about 9 cents per share EPS impact.

For 2004 we have also estimated the full year EPS of 25 cents or a net income of about $11 million. Adding back a 9-cent, I just referenced would imply an ongoing EPS for 2004 of about 34 cents a share or $15 million in net income. In 2004 because of very minimal tax payment we can assume that PBT is almost the same as net income. The 2005 we provided PBT times to exceed $25 million compare to $11 million in 2004. The $25 million PBT includes $2.7 million of integration and intangible cost compared to 4.2 in 2004. This is what we meant than we announced that the deals will quote slightly diluted in 2004 and highly accretive in 2005.

Let me now talk about revenue growth and in particular the revenue growth for the core business, the key point to keep in mind is that two acquisitions are so similar to the products we currently have. That in two quarters we expect to integrate the platforms and subsequently it will be impossible to distinguish their revenue contribution separately. Moreover we have assumed revenue synergies by combining both the products and the resources, which would make it impossible to aportion the revenue growth. That is why we believe that it will be inappropriate to conceptualize and model the company's financials in discrete compartments of Autobytel, iDrive, and Stoneage. With that background we have stated that the organic revenue would grow 15 to 20% in 2004, which implies estimated revenue of about $105 million. I would like to remind you that, that organic growth includes RPM.

We stated at the time of the fourth acquisition of iDrive, that the revenue would be in the range of 105 to $110 million. Really, any revenue above the approximate $105 million level would be attributable to iDrive and affinities between ET(ph) and RPM. Last week when we announced Stoneage, we gave revenue guidance of between $120 million to $125 million. This would imply that Stoneage and the corresponding synergies would generate about $10 million to $15 million in additional revenue. The net of this explanation is that management believes that the underlying core business is strong and will grow by 15 to 20% in 2004. For discussion purposes, we have concentrated on 2004, although the same logic holds for 2005. This concludes my comments. Jeffrey will now discuss the business update. Jeffrey?

Thank you, Hoshi. I'd like to begin my discussion with a brief recap of the Autobytel business strategy then discuss how the recent acquisitions fit into our previously discussed strategic plan and briefly review our approach to integrating these businesses. Last October, I told you that the world was slowly turning our way, and that the signs the progress were visible everywhere. Since that time, 2003, automotive ad spending has been released, and it has further concerned my bullish sentiment.

Last year, automotive manufacturers increased their Internet marketing spend by 44% from 110 million to 160 million. Internet spending grew at more than seven times the overall growth rate of around 6%. The Internet account drew only 1.5% of manufacturer's measured media spending. This is still low given that consumers are increasingly drawn to the automotive Internet to helping cut through the media's clutter to find new useful information about product features and attributes which is what drive their product decisions today.

Gary Cowger, President of GM North America gets it. He recently proclaimed that, folks, the old marketing model is dead. By the way, Mr. Cowger puts his money where his mouth is. In Q2, GM sold $40 million of advertising from television. So the question is what rises from the ashes of the old marketing model? Simply stated, Autobytel does.

Unlike broadcast advertising, our audience base is increasing, not declining and our consumers are in-market car buyers not channel surfers. Our service is free to consumers and in fact saves them money. Our media is direct and measurable and our prices are highly competitive. We provide content and distribution, buyers and sellers. And we provide integrated tool to track and improve the overall effectiveness of marketing average in both sales and service. So, focus is on to build a lifetime relationships with the most profitable customers.

We feel that we are well positioned in the marketplace with the right product and services for consumers, dealers and manufacturers. We spent the last 30 years preparing ourselves for this opportunity. First, by improving our core business through operational excellence and increasing our profitability, and now by leveraging the platform that we've built to drive further growth in market share for the future.

Let me discuss the two acquisitions in the context of the foregoing. The acquisition of Stoneage Corporation and its Car.com brand is consistent with our belief that the Internet will continue to evolve as the dominant influence in consumers' car shopping and buying experience. The Stoneage deal brings an additional 6,000 retail and enterprise deal relationships to the company adds 50,000 cars for to our use inventory and should increase 2004 purchase requests to 4.5 million, a 50% increase from 2003 levels, it should have a similar effect on our market share of total new car buyers submitting requests through Autobytel, taking that number from an estimated 7% in 2004 to around 9%. It represents over $40 billion of new car sales and is a sizeable increase from 2003 level. Our goal of searching 10% of all new car buyers is well within reach; perhaps, we think it's next year.

Why is market share so important? Simply stated, as Autobytel represents an increasing share of our customers' total sales, we experienced lower churn and increased pricing flexibility. We have already seen this to be the case with our best customers and we believe the future holds great promise as we deepen our penetration in the market. Remember, it costs the dealer about $150 to sell a car through Autobytel and about $550 to sell a car using traditional media. This gap will close overtime and we should be the beneficiaries of this trend. Moreover, market share is the key driver of media costs, here more share translates into lower customer acquisition costs. We are seeing this benefit in our business today and would expect this to expand margins over time.

On the advertising side, the acquisition should increase by over 1 million, the number of consumers visiting an Autobytel site monthly. This should accelerate future growth prospects in this important area as we leverage our media expertise to optimize sales for the top Car.com site, including increasing their CPN. Our challenge has not been selling the media but increasing our supply. So this will certainly help. On the new product side, we pick up the finance leads business, which has been fastest growing product area for Stoneage and one, which we believe is a great compliment to our sales generation business.

Today, Stoneage is generating and selling over 50,000 finance leads monthly. Anyone of Autobytel consumer reach in dealer distribution should allow for even more aggressive sales going forward. We believe that the integration of Stoneage -- the Stoneage business could be relatively straight forward as we've been through a similar integration with Autoweb. We plan on keeping the folks in Detroit that are engaged in the new product areas, the most complementary and productive among our sales force and some key OEM account executives. All technology, product marketing and general management functions will be moved to Irvine. We anticipate that approximately half of their 70 or so employees will be transitioned out of the combined business. Approximately half of these employees have already been transitioned out with the balance coming out over the next couple of quarters.

Turning to iDrive, this acquisition is consistent with our belief that dealers will increasingly turn to CRM marketing tools and services through to enhance their customer loyalty and retention marketing initiatives. Let me give you some context here. The service business is critical to dealers representing about 12% of the revenue but 48% of their operating profit. We recognized the opportunity here two years ago when we set out to build our RPM product. We believed then, as we do now, that dealers with leverage best in-class technology to create and nurture lifetime customer relationships. We were right. And RPM has turned out to be the fastest growing area of Autobytel.

So if we have a great product in RPM, why make an acquisition? Let me give you three reasons. First, we expect that the acquisition will have a favorable impact to market structure. The combination of the two businesses will create a $50 million product group for Autobytel this year and one that should go beyond -- grow beyond 30 million next year. This puts Autobytel in a position of market leadership with a unique ability for large-scale enterprise deployments. As evidenced by our recent announcement with Mitsubishi, this capability has become a critical element to manufacturers as they choose their marketing partners.

Second, the acquisition should accelerate profitability in this area as we use this scale in the business to leverage both fixed and variable costs. We anticipate cost reduction from just about every area, from data to fulfillment to headcount, which should expand margins over the time. And third, it brings together the unique features of two leading products in the industry, which should drive ASPs going forward. The RPM products will add in online sales prospect in the retention tools, enhanced data and segmentation capabilities and improve dealer reporting. These are the tools that iDrive has used to generate higher monthly fees for dealer in RPM, over $2,000 versus 1100 for RPM.

Again, we believe that the integration of iDrive will be relatively straightforward. Within six months, we expect to have a fully integrated RPM platform that will combine the best of both products. In the interim, we will need to support both products. The founder and CEO of iDrive will be the BT General Manager of this program going forward, and he is a terrific addition to the Autobytel management team. We anticipate that within six months there will be some headcount reductions.

Let me make some comment about the integration with Autobytel. Our integration approach is to tightly integrate acquisitions to gain synergies, leverage and the benefits of products integration. All corporate functions including general management, product marketing and IT will be consolidated with corporate operation. Sales functions for the two businesses have already been integrated with those at Autobytel.

We have spent months planning these integration projects and they are off to a rolling start. In two quarters, we expect these businesses will be indistinguishable from what you know today as Autobytel. Let me also make a brief comment about the disciplined acquisitions at Autobytel. We have seasoned professionals in this areas of the business and we applied strict criteria for evaluating perspective acquisitions, both of this deals fit squarely inside that criteria and we are very comfortable with our ability to realize the synergies and financial benefits of these deals.

However, it's important to remember we are still in the first innings of the Automotive Internet. A game that will be played out over the next several years and one that we intend to win. We will continue to focus on the numbers and we will not miss an opportunity to build and prepare this business to the sizeable market opportunity that is ahead of us. Should you expect more acquisitions, the answer is yes. Will they be accretive, the answer is yes.

With one important caveat, as Hoshi noted, many transitions involve integration costs and non-cash intangible and amortization. We are prepared to work our way through these charges for a couple of quarters, if we believe the payback to be substantial and comes in the form of expected increases to shareholder returns. That was the case with the two acquisitions we've completed this year and anymore that we might contemplate going forward. To be clear, the two recently announced acquisitions are accretive excluding these items.

With that, I'll open the call up to questions, operator?

At this time, I would like to remind everyone. If you would like to ask a question, please press "*" then the number "1" on your telephone keypad. We'll pause just a moment to compile the Q&A roster.

Your first question comes from Mark May with Kaufman Brothers.

Hi. Thank you very much. Good afternoon.

Hi, Mark.

Hi, guys. I had three questions. The first is on Stoneage, I guess if you -- back out some of the number that you've given there it looks like that their average revenue per lead somewhere in that $10 range, nearly half of what your average is, if you could just clarify that, that's true and what opportunity do you think that you can get that lead fee up over time, second question has to do Ad revenues, they've been flat for a few quarters here and it seems like that you'd have would have more opportunity to kind of grow that revenue bucket over time and just wondering if you think there is some opportunity there and if so, what is that? And then the third question has to do with your comments with regards to one of the drivers that drove down the average revenue per lead that you talked about fixed fee dealers, which I think about half of your retail dealers -- receiving more leads and I'm wondering is that a function of the conversion rates at those particular dealers coming down if you could just kind of walk us through what's -- driving that, that'd be great?

Hey Mark, this is Jeffery, I'll take a couple of these, and I'll give it a couple to Hoshi. On the Stoneage ASP, your analysis is mostly accurate, they do have a lower ASP than we do in the market place and we enjoy that ASP in part because we are the market leader and we have a pretty rigorous system of quality verification and we have the dealer support and the training and the tools and all that, that's principle why we get premium.

The answer to your question was unequivocally yes. We would expect to conform the ASPs overtime to the ones which we currently enjoy, that will be not an immediate activity mark it will be an activity that will involve first converting all their leads having them go through our quality verification system and feeding that in the marketplace providing with the level of customer service and support -- that we've currently provided in the past then, I think you'll see the ASP go up. Second question, on advertising, I'll take our and I'll give the other one to Hoshi.

The revenue was sequentially flat in advertising and it was largely driven by the fact that we had an uneven distribution of traffic during quarter. January was very light, seasonally its kind of a light month in the automotive advertising world, but it was very light for us, we came back very strong in the second half of February and finished very strong and March going into April, the result for that was our advertising sales efforts just frankly didn't catch up to the impressions that we have delivered -- and as I look at the percentage of total inventory sold over the last number of quarters it's been very high -- in the high 90% range and it came down 5 to 10% in Q1.

We would expect it to come back up in Q2 as they said as sales efforts catch up -- but we still -- continue to put all of our energy and focus on driving quality traffic to the site. And that has been a project that we're working on. We're making a tremendous amount of progress with the search engines and as I indicated in my comments, we see -- our listings and our index -- our index pages going way up we're in the process of optimizing those Mark. Those bring very high quality low cost - or no cost to visitors to the site, and so we expect that to be a driver of supply. And the issue really is not one of demand, it's just availability to bring high quality traffics to the site. As regards to the ASP on the fixed fee dealers, I can give that to Hoshi.

Hi Mark, this is Hoshi. Mark on the fixed fee -- there are about 60% our dealers on fixed fee that is and so contractually, if a lead comes to that particular area we are obligated to send it to them. And it just so happens that -- higher percentage in this quarter came to those fixed fee dealers. Now, that varies every quarter so you know I think we should be back to normal probably this quarter, I do not expect the fees to go down, the revenue for need to go down. On the Stoneage leads, I'd just add one more color to your comment and the question that you asked and the comments that Jeffrey made. Stoneage leads, there is a higher proportion of lead going to OEM versus those going to retail that's is why that overall ASP is a little bit lower.

And Hoshi, just a follow-up, you mentioned at the end there, that you would not expect for the revenue per lead to decline in the second quarter, but does that take into account that the inclusion of Stoneage?

No that did not. That was excluding Stoneage. That's a good clarification. Thanks, Mark.

OK. Thanks

The next question is from Frank Gristina with Avondale Partners.

Thanks, guys. The question on the -- you talked about the bringing the average cost per lead down to kind close the loop on leads. Multi-choice is one, lower cost for leads that end up being rounded to OEMs is the other, can you talk about Natural leads that you generated during the quarter percent of the leads price they were natural to Autobytel site and then maybe expand on efforts to increase that number, for example, a Google search where you've moved up noticeably in the rankings in that recent months, does that have an impact or what kind of impact do you expect that to have on your cost per lead say from the end of this quarter to fourth quarter of the year or first quarter of next year?

Great, thanks. Thanks for the question, Frank. This is Jeffrey A couple of things. First on the -- on the natural search side, I told you that we increase substantially the total number of purchased requests that we received free from -- from the search engines to our indexing. You referenced the fact that we have -- had recognized precipitous increase during Q1 of our -- of our Google rankings and we now have an excess of 200,000 pages index we are in the process of optimizing all those pages. First comes pages views then comes purchase requests and that's what I would tell you, as we make those index pages more relevant and put consumers into the right pages.

So, we're very pleased with our efforts but it's still a pretty small number, but it's certainly is a contributor to an 8% sequential decline in the cost for purchase request. Overall, we see-- that as being a driver of our total free, free purchase requests our total direct purchase requests and that went up a point or two during the quarter. So, continue to focus on it and something we have been talking about, it's not something that happens overnight but we're very pleased with the progress we saw during Q1. And as I said on the traffic site, overall on the(ph) Q2 we think pretty strong.

Can you remind us what the cost per lead was in the fourth quarter again I know you said it, but I missed?

$9.50 down to 9 -- 9.50.

And the standard question, how are you paid -- your unique visitors during the quarter? Can you track that by month or give us an average monthly unique visitors?

Yeah, again I said that the visits were down in January and then very good in February and March. I think the average for the entire quarter was around 6.5 million or 7 million. But I can refer you to (inaudible) to get you some more detail on that.

OK. Thanks a lot, guys.

OK. Thanks, Frank.

Your next question is from Peter Tredway (ph) with Chrysler Capital.

Hi, guys. How are you?

Hey, how are you, Peter?

Two questions. You guys talked about advertising being down due to less traffic but it seems like with the number of leads that you generated that actually traffic was up and that corresponds with the fact that your cost per lead was down. So, can you help me reconcile the advertising versus the total purchase request going up and also the cost per lead -- cost per purchase request going down?

Peter, this is Hoshi. Well, your question is very good and let me give you the background by saying that what Jeffery said was -- problem was one of -- not one of demand but one of supply. However, there is a timing issue here also and the timing issue is that that the volume of leads increase, they did not come proportionately in every month. So -- as the page views increased very rapidly in February and then -- especially in the month of March. But we did not have enough time to sell all those page views. That is why we think going forward we have a good opportunity to continue with that. There are higher revenue trends of March. As for the whole quarter, while that purchase request were high which translated into more page views, we could not monetize those page views very rapidly.

OK.

That's the matter of -- we did not have enough lead-time to sell them.

And the second question was with regard to dealer churn, you guys have brought that down considerably, do you think that will kick up as you try and transition Stoneage dealers from $10 a lead to $20 a lead, will that number pick up to that 25% of the dealerships that overlap?

Peter, this is Jeffery. This one point of clarification, the Stoneage ASP in the marketplace -- in the retail marketplace is not $10. I think, you know, the number would be closer to probably 17 or 18.

OK.

And so there's probably -- and what you're probably looking at is the -- thinking about is kind of a blended average between the enterprise and the retail ASP. Yeah, there might be some churn that may increase but again, you know, the overall number of retail dealerships is going to increase by 1300, as well. So on a percentage basis, I don't know that would have any sort of real impact.

Great.

But, you know, we're focused on that; we've been communicating with all our new customers. We have our new sales folks in town for two weeks beginning next week. We're very active, very engaged but does not appear a one-week out, that's any indication. There does not appear to be anything that would give us concern.

And should we have already started to see -- you mentioned that you've been in process of integrating some of the acquisitions already. Should we have already started to see those hit the P&L in terms of the integration costs?

Certainly in Q2, yeah.

OK.

Yeah

OK. Thank you.

The integration cost will start hitting us from the day we announce those two deals.

OK. Thank you.

Yeah. Thanks, Peter.

Thanks, Peter.

Your next question is from Peter Mirsky with Oppenheimer.

Thanks very much guys. Can you just talk a little bit -- I know you broke out the leads by retail and by OEM, but can you talk about leads per dealer, you only gave some of the numbers on the call, so I haven't had a chance to work through? And what the trend is adjusting for the seasonality or is that up or down?

OK. On the fixed side, clearly the number of leads that we sent to the dealer per month on a monthly basis went up. That was one of the reasons that I cited. And it went from about -- we've normally sent about 30 -- you know, sending about 30 leads a month to the fixed fee dealers that went up to about 32 to 33 and for that fixed -- for the flex fee (ph) is 20 and the high 30s. That's what the trend has been.

OK.

Peter, does that answer your question?

Yeah. How about on revenue per lead just breaking it out on the -- I guess, what you used to call program versus enterprise? You gave the blended number this time but could you break those out separately?

Let me give you the member number. The old one that you're familiar with which is about $25 to $26; that was about $24 and I told why for the reason...

Right.

The corresponding number is to go to at 25.75 in Q4, the new numbers and 23.63 in Q1 those are the new numbers.

OK. And a number I guess you haven't traditionally given but if you could on the enterprise, the OEM side?

Yes. Peter, you're absolutely right. We have not given the OEM number in the past and I think we have given you the blended number.

OK.

But we can get there.

OK. Thank you.

At least you can make an effort.

Sure. Thanks.

Thanks, Peter.

Again to ask a question please press "star" "one" on your telephone keypad. The next question is from Al Kaschalk with MDB Capital.

Hey Jeffrey, Hoshi

(inaudible).

Good. Just a more of a question for the next couple of quarters and out here strategically on the Stoneage acquisition, but Jeff you haven't really talked too much of that although you didn't mentioned it on the finance lead generation -- specialty finance. So little bit different then what you maybe has talked about historically and with Autobytel's historical monitor. Am I reading something into that or could you comment on that?

Well, you should read the opportunity into it and we're very excited about it. The finance business, as you probably know represents about 30% of our dealers total revenue but over 30% of their operating profits. It's an enormously profitable area of business for our customers.

The business model in the finance leads area is again not to compete with the dealer for the finance business but to generate the finance applications for the dealer. It's a 17 field application that involves running the customer's credit. And then in essence selling that to the dealer as we would sell a purchase request on the sales side. The reason that dealers love this business because as I said it's very profitable. And for a specialty finance consumer, the dealer will typically want to put them in the finance before he put them in the car meaning a lot of times the consumer will last to more car they can afford.

Right.

So the way it typically works in those businesses but you get the credit first and then you figure out what car you can buy? So we love the business, we think that we're going to provide a lot of consumer reach to this product and then obviously a tremendous amount of dealer distribution. So you know we've told you that its doing over 50,000 leads a month a day AST in the mid-teens cut low customer acquisition costs. We think this is a terrific business for us going forward.

Would that be logical to extend to other products specifically what comes the mind as it relates to a dealer and selling cars would be insurance.

No. I wouldn't say that we're looking at that business Al. You know there is not as much business -- insurance business you could done if a dealership with finance business, so we're focused on building up the finance product.

OK. Thank you.

Thank you.

Once again to ask a question please press "star" "one" on your telephone keypad. The next question comes from Mark Argento with ThinkEquity Partners.

Good afternoon, guys. Just a little clarity if you would on your tax situation for fiscal '05 and what are the issues you have to look at and which we be look out there.

Mark, this is Hoshi.

Hi Hoshi.

OK. For 2004 we have said that you know, there will be very minimum taxes we'll pay probably the automotive minimum tax that is what we'll end up paying because of the NOLs. For 2005, as I have indicated to some of you in the past, we are studying our NOLs. We currently have $63million set for NOL that we have disclosed in the 10-K. However, we are analyzing it at a deeper level to see there is some greater benefit that we could get probably in 2005. So we will keep you informed. But in the meantime, I would say there will be some taxes that we'll have to pay under the current NOL situation. But I cannot expand on it anymore than what I have just told you, only because you have studied that situation.

OK. Could you provide some general sensitivity meaning, worse case you pay full income tax, best case you pay 5% or 10%?

I would say that we would probably, even in the worst case, I'll not end up paying the full income tax and we now have some (inaudible) some twenties from percent range. I do not know, but it won't be -- it won't be 37%, 38%. I don't think so. Not what you have to 5.

OK. Thank you.

The next question is from Toby Sumna (ph) with SunTrust.

Good afternoon. I apologize, if you've touched on this already. I joined the call late. Could you comment on about what the acquisition market looks like and degree to which you've may add to your business sort of which direction, you think, you're likely to add over the coming quarters in the years? Thank you.

Yeah. Thanks Toby, this is Jeffrey. The strategy that we've been articulating here, for sometime is one of deepening our penetration in lot of the businesses, that we're currently in. So sales generation, businesses that help us from the sales generation side businesses that add to our advertising business, businesses that deepen our penetration in the CRM category which we think is a very good area and one that's growing 145% year-over-year each quarter. And then, next the data and applications business which has not been our -- a high growth business for us, to date, but we think its a very important business.

And one where scale leverage would be very beneficial. So look to us to do deals in areas, where we can add scale in leverage, as I said to our core business areas, where there is revenue synergy, areas where there's easy expense synergy stand and obviously look to us to do deals that that will be accretive, certainly within the couple of quarters. The acquisition market is-- I think there is a lot of opportunity out there for us (inaudible). We've had and continued to have, some very good discussions, with folks out there. There are some terrific companies and we -- as we've said in my script, we indicated that we will not be reditin (ph) about investing in this business. We're very optimistic and bullish about the opportunity, we think it's an enormous opportunity, and one which you know the full benefit cannot be realized, if one has a one or two quarter orientation to the business.

Thank you very much.

Thank you.

At this time, there are no further questions. Are there any further remarks?

There are no further remarks. Thank you for everybody's time. Bye-bye.

This concludes today's conference call. You may now disconnect.