Autoweb Inc (AUTO) 2010 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to Autobytel announces fourth quarter earnings and year-end results for 2010 conference call. (Operator Instructions) As a reminder today's call is being recorded.At this time, I would like to turn the conference over to Mr. Roger Pondel, Investor Relations for Autobytel. Sir, you may begin.

Thank you, operator, and hello everyone. Welcome to Autobytel's 2010 fourth quarter and year-end conference call. With me on the line today are Jeffrey Coats, President and Chief Executive Officer, and Curtis DeWalt, Senior Vice President and Chief Financial Officer. Before we begin, I would like to remind you that during today's call, including the Q&A session, any projections and forward-looking statements made regarding future events and the future financial performance of the Company are covered by the Safe Harbor statements contained in today's press release and in the Company's public filings with the Securities and Exchange Commission. Actual events and results may differ materially from those forward-looking statements. Specifically, please refer to the Company's Form 10-K for the years ended December 31, 2009, and 2010, expected to be filed within the next few days, as well as the Company's interim reports filed on Form 10-Q and other filings with the SEC. These filings identify the principal factors that could cause results to differ materially from those forward-looking statements. Slides are included with today's presentation to help illustrate some of the points being made and discussed during this call. You can access them by clicking on the link in today's press release or by going to Autobytel's website at www.autobytel.com. When there, go to Investor Relations, then to Events and Presentations. Also, please note that during the call we will be discussing adjusted operating expenses, which is non-GAAP financial measure as defined by SEC Regulation G. A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure is included in the slides posted on the Autobytel website. With that, I would now like to turn the call over to Jeff.

Thank you, Roger. Good afternoon, everyone. I'm excited to be updating you today on our progress. As a result of our September 2010 acquisition of Cyber Ventures and Autotropolis, we have every belief that Autobytel is now the largest generator of new car purchase requests in the country. Our ongoing efforts and the momentum coming out of this acquisition have clearly set the stage for continued revenue growth and additional margin improvement. As the automotive industry continues its path of steady improvement, and Autobytel continues to execute on its business plan, we believe that profitability and positive cash flow will be achieved in the second quarter of 2011. After Curt reviews our financial performance, I will return to discuss some of our key initiatives and explain why we believe Autobytel is well positioned to capitalize on the turnaround of the US auto market. Curt.

Thank you, Jeff. I will remind everyone that the slides we are referring to in today's call can be found on our website under Investor Relations, and then Events and Presentations. As you can see on slides three and five, total revenues for the fourth quarter grew 20% from 2009, to $14.7 million, and were up 14% on a sequential basis. This marks the third consecutive quarter of sequential revenue gains and the first time in more than three years of fourth quarter revenue growth in a year-over-year basis. These increases are principally due to the acquisition of Cyber Ventures and Autotropolis, which drove substantial expansion of our auto purchase request business, partially offset by a decline in advertising revenue on both a year-over-year and sequential basis. As a result of the significantly higher number of internally generated purchase requests and thus the improvement in quality of our overall requests, we have seen an increase in demand from our existing wholesale customers, including OEMs, certain large dealer groups, and third-party online automotive lead distributors. In addition, we have been able to attract new OEM customers.

Total auto purchase request revenue grew 26% from last year's fourth quarter led by a doubling in our OEM and other wholesale purchase request channels compared with a year ago. On the sequential basis, auto purchase request revenue rose 20% led by a 60% gain in OEM and other wholesale purchase requests. Much of this is due to the acquisition. We delivered approximately 917,000 auto purchase requests in the fourth quarter of 2010, up 37% from last year's fourth quarter and up 32% sequentially. The improvement reflects an increased delivery of purchase requests into our OEM and other wholesale channels. It has been a real bright spot over the last several years, something offsetting -- somewhat offsetting this is both a 15% decline in purchase requests to dealers as well as overall dealer purchase request revenue.

These declines are a result of our eliminating certain lower quality purchase request suppliers during the fist half of 2010, whereby impacting the number of purchase requests available for delivery to dealers. This was offset in large part by an increased volume later in the year and the fact that the number of dealers in our network increased versus the fourth quarter of last year.

As seen on slide four, our dealer network comprised approximately 38 -- excuse me, 3,800 new and used dealers, up 27% on a year-over-year basis and up 12% on a sequential basis. There were 256 finance dealers in our network at the end of 2010 and an increase of 16% from the same period last year but flat sequentially. Finance request revenue rose this year as credit became more available to consumers. Finance request revenue grew 39% to $1.6 million from last year's fourth quarter, but was down slightly on a sequential basis related to seasonality. We delivered approximately 98,000 purchase finance requests in fourth quarter of 2010, which was 29% higher than the year-ago quarter and down 16% sequentially.

Advertising revenue declined 39% in the fourth quarter compared with last year and was down 17% sequentially. The decreases are due to a reduction in total monetized page views across our websites, which was reflective of a strategy to eliminate poor quality traffic that we canceled in late 2009 plus others in early 2010. While the acquisition of Cyber Ventures and Autotropolis added significant monthly page views, it will be some time before we fully monetize that opportunity from an advertising perspective. However, our click-through rates are at an all-time high during 2010, running more than twice the current online industry average. This type of performance strengthens our position as we focus on generating a greater number of visitors to our sites.

Revenue totaled $51.5 million for the full year ended December 31, 2010, versus $52.9 from the prior year period. The purchase requests for 2010 grew 3% over 2009 as we had as a greater mix of OEM and other wholesale revenue. Advertising revenue totaled $3.8 million for the 2010 compared with $6.5 million for 2009. Gross margin increased to 39.3% for 2010 fourth quarter, up from 39.1% a year ago and 36.8% in the 2010 third quarter. The improvement primarily relates to a greater mix of internally generated auto purchase requests. With approximately 70% of all our purchase requests now coming directly from Autobytel's network of sites, we believe there is significant opportunity for additional margin enhancement moving forward.

To reiterate what we said last quarter, assuming revenue mix and other factors remain relative static, we believe that we could see additional gross margin improvements of several hundred basis points throughout 2011.

For the full year 2010, gross margin improved to 37.8% from 35.8% last year.

Slide six shows the cost structure on an adjusted basis and the changes in head count over the past three years.

Total adjusted operating expenses were $7.5 million for 2010 fourth quarter, up from $5.9 million for the 2009 fourth quarter. The reconciliation includes a $1 million in severance expense in the fourth quarter related to head count reductions, amortization and acquisition-related costs which we did not have in the prior year. You will remember last quarter we initiated actions to reduce head count, eliminating approximately 20 positions and $3.2 million of annualized expenses. Additionally, we have identified approximately $1.8 million of annualized non-head count related operating expense savings, and approximately $1.3 million of annualized cost of revenue savings.

Over the long term, we have taken out more than $6 million of total annualized costs from P&L, which we would expect to see reflected in the future periods.

Total operating expenses for 2010 were $28.5 million, compared with $24.1 million in the prior year. 2010 includes $1 million of severance, $700,000 of acquisition expense, $700,000 of acquisition operating expenses, and $400,000 of acquisition amortization that were not included in the prior year.

Non-cash share-based compensation for the fourth quarter 2010 was $298,000, compared with $319,000 last year. Depreciation and amortization was $499,000 for the most recent quarter, versus $355,000 in the 2009 fourth quarter. The net loss for 2010 fourth quarter totaled $3.3 million, or $0.07 per share, compared with $970,000 or $0.02 per share a year ago.

Net loss for 2010 totaled $8.6 million or $0.19 a share compared with $2.4 million or $0.05 per share for 2009, which included $1.2 million or $0.03 per share in income from discontinued operations.

Our cash and equivalent balance stood at $8.8 million at December 31, 2010, down from $10.3 million at September 30, 2010, and $25.1 million one year ago. The decrease in cash relates primarily to the purchase of Cyber Ventures and Autotropolis, as well as $1 million investment in DriverSide, which we discussed last quarter.

We are also now carrying a $5 million convertible note from the acquisition on our balance sheet, which pays simple interest at the rate of 6% a year. With that I will turn the call back to Jeff.

Thank you Curt. As you know, the auto industry has been making steady improvement over the past several months and forecasts call for continued growth, as you can see on slide seven. When you consider that half of all cars on the road in the United States are at least ten years old, and 35% of them are older than 12 years, it is no surprise that we are beginning to witness true pent-up demand that will need to be fulfilled. The automotive industry ended 2010 with a strong showing. In January and February 2011 are significantly more robust than January and February 2010. Industry sources indicate this may lead to further upside in vehicle sales this year. Evident by the fact that major forecasters are already increasing their 2011 estimates. According to a recent JD Power update, auto sales are expected to grow 12% in 2011, with additional growth of 16% in 2012. During the recent National Automobile Dealers Association convention in San Francisco, the mood was more positive than it has been for quite sometime.

As shown on slide eight, if history relating to post recession car sales is repeated, a relatively strong rebound in car sales is indicated in the coming years. While the environment over the past several years certainly challenged nearly all participants in the automotive industry, we believe the actions we have taken have positioned us well to take advantage of the upturn in the sector. Our acquisition of Cyber Ventures and Autotropolis has truly been a game changer for the Company. With nearly six months of operating history behind us, we are pleased with the contributions of these companies. We are now self generating the majority of our new car purchase requests through Autobytel's network of websites and, as I said at the start of the call, we believe Autobytel has now become the largest generator of new car purchase requests in the country. Internally generated purchase request volume has grown by nearly 180% since the acquisition. As a result, purchase request quality has significantly improved, and demand for purchase requests from our OEM and other wholesale channel partners has increased.

It is important to note that our major competitors in the new car purchase request distribution industry acquire substantially all of their requests from third parties, including a meaningful amount from Autobytel. Conversely, our consumer facing websites provide us a significant competitive advantage since we are not dependent on partners whose requests can sometimes be of lower quality, less reliable volume, and subject to unfavorable and changing business rules. As you can see on slide nine, internally generated purchase requests now make up approximately 70% of all Autobytel purchase requests, which is already in excess of our original goal for 2011. Over time, we now believe we can increase this to the 75% to 80% range, while acquiring the remainder of our purchase requests from trusted partners. Slide 10 demonstrates the more than double pro forma increase in our internally-generated purchase request volume we expect to see during 2011, which further increases our gross margins as well as our key quality metrics.

The acquisition has also been a key contributor to improving margins. Fourth quarter gross margin improved 2.5 percentage points from the third quarter of 2010. In addition to improving purchase request quality to drive margin enhancement, we have several additional initiatives under way that are intended to provide even more margin upside, including improved management of our dealer base to optimize lead delivery. We expect these efforts to add several hundred basis points to our gross margin throughout 2011.

As I mentioned, purchase request quality has improved significantly and is supported anecdotally by program reports received periodically from our OEM and other wholesale customers. In one OEM relationship, we are now performing more than 20% above program average. We are also seeing an increase in demand in general for our internally-generated purchase requests from existing customers, further indication of the performance of our requests.

As we continue to integrate Cyber Ventures and Autotropolis in the Autobytel's operations, our objective is to generate further improvements in performance and close rates in addition to refining our SEM and SEO techniques. Self generation of purchase requests is by far the most efficient and effective way to drive quality, margin enhancement, and profitability. High quality purchase requests that convert to sales for our dealer, OEM and other wholesale customers is of the utmost importance in our industry, making our investment in quality and ensuring quality a sound one. As I have said before, the higher the quality of our purchase requests, the stronger our customer relationships, and the greater our ability to retain them and increase our business with them.

If you followed us for the past several quarters, you know that growth in our OEM and other wholesale programs has been quite strong. In fact, we now deliver more purchase requests to OEMs and other third parties in the automotive leads distribution industry than we do to dealers even though our dealer base has grown consistently for five consecutive quarters. In the fourth quarter, our total dealer count, including both new and used dealer franchises, grew in the low double digits on the percentage basis from the prior year. It is this growing customer base that provides the foundation from which to deliver innovative products and services and generate new revenue streams. For example, our WebLeads+ program, which helps increase purchase request volume through a dealer's website by presenting potential end market buyers with a special offer, coupon or incentive at the time they are actively searching for a car, is now being used by approximately 10% of our dealers. Since we launched this program in the third quarter of 2010, many customers have reported that dealership purchase request volume has grown by 50% to 100%.

Similarly, our iControl by Autobytel product is now used by approximately one-third of our new car dealers. It is the only offering of its kind giving car dealers the flexibility to custom configure the mix of online purchase requests to reflect real-time inventory and other local market activity. It has been quickly adopted by dealers whose want to better match their marketing spend to their actual inventory to maximize ROI.

In response to requests from our dealers, we launched DealershipJobs.com in early February. This website, which is the first comprehensive industry-specific job portal, helps dealers attract high quality employees. There are currently more than 5,000 automotive jobs posted on the site, including sales, finance, management, and service positions. We are working now to include additional functionality, such as job seeker advice, including resume tips, interviewing strategies and certified training for dealer positions. At present, the site is free to dealers and job seekers. However, we believe that as a degree of scale is achieved from a traffic perspective, we expect to generate advertising and other revenues from the site.

As with all of our dealer products, our primary goal is to help our dealer and OEM customers sell more new and used vehicles, so in the coming months, based on customer feedback, we plan to launch additional products and services that will improve dealer and OEM efficiencies while creating additional revenue streams for Autobytel. With approximately 12 million monthly page views across our network of websites and click-through rates at nearly twice the online industry average, we are continuing to work on attracting and monetizing an even broader base of users. The Internet remains a vibrant and useful medium for automotive consumers regardless of where they are in the ownership life cycle, from purchase to maintenance to resale. Towards that goal, we are completing a major upgrade of our flagship Autobytel.com site that will incorporate many new features that we believe are key to driving more users to our site, and importantly, keeping them their continually for the full automotive life cycle. The new and enhanced site, which is on schedule to launch in June of this year, will reflect our research on consumer Internet and automotive shopping behavior, coupled with design and navigation principles that we think will provide consumers with a more customized and contemporary automotive experience.

As you can see on slide 11, although many automotive dealers and all OEMs use the Internet as an efficient way to reach consumers through a variety of marketing programs, JD Power recently reported that third party sites such as Autobytel are used by consumers more frequently than any other type of site, including dealer and manufacturer sites, in the six months prior to purchasing a vehicle.

Among the most interesting and useful content we are adding to Autobytel.com is the My Garage feature, which I touched on last quarter. Through an alliance with and an investment in DriverSide, our My Garage product will be powered by the leading -- the industry's leading online vehicle ownership experience. My Garage gives users access to personalized advice on a wide variety of car ownership subjects such as auto insurance, financing, parts and accessories, warranty updates, service and maintenance, cost of ownership, and recall information. My Garage, which aggregates a consumer's ownership information in one place, is currently in beta on our existing site, and will be fully integrated when Autobytel.com relaunches in June.

By touching the consumer at numerous points in the automotive ownership life cycle, we are enabling the Autobytel brand to interact with consumers on an ongoing basis rather than only every three to seven years when they are actively in market to purchase or lease their next vehicle. Through this strategy we are creating attractive new monetization opportunities. In fact, just this morning we announced an alliance between our Car.com property and Kelly Blue Book. This alliance is designed to offer visitors to KBB.com, who are challenged with credit, direct access to Car.com's network of participating dealers and lenders. We plan to discuss this and other highly scalable opportunities in more detail in the coming months as we make additional progress.

We are also making headway on our new data and analytics products, which leverage the significant amount of auto purchase and tendered data that we continuously gather. We believe that our data captures approximately 25% to 35% of end market demand at any point in time, and it is important to note that this data reflects actual shopping behavior versus self reported statistics. Through our new partnership with Datran Media's Aperture product, we are combining Autobytel's real-time auto purchase and tendered data with their demographic, financial, and behavioral information. The resulting data will provide invaluable intelligence for auto manufacturers, large dealer groups, advertising agencies, and publishers to help them better understand automotive consumers in an effort to more effectively plan and optimize marketing investments. This high margin opportunity which takes advantage of the data we already own, has been well received by OEMs and their agencies, which report that this type of information is invaluable in helping them analyze, select, serve, and measure their digital media efforts.

While our advertising revenues have declined over the last two years as we focused instead on successfully reinvigorating our primary purchase request programs, we are well positioned to take advantage of several positive trends. As the market for Internet advertising picks up, our strong click-through rates and focus on increasing monthly page views will serve us well. As a result of performance and page view actions, for the first time in several years, we are delivering on our page view commitments to advertisers, and in many cases over delivering. Through the upcoming relaunch of Autobytel.com, along with other initiatives under way, we believe we have the ability to improve ad performance on our sites, driving greater advertiser demand and revenue.

Over the last two years, we have evolved and refined our business to improve shareholder value. Our efforts to drive that value are founded in our commitment to our customers, through our ability to bring innovative solutions to market. To that end, the continued upturn in the US automotive market will enable Autobytel to further solidify its position and allow us to continue to pursue additional strategic growth opportunities. Thank you for your continued interest and support. Joe, we will now take questions.

Thank you, sir. (Operator Instructions) Our first question comes from Neil Chatterji with Craig-Hallum.

Hi guys. I'm actually calling in for Steve Dyer. First question, just on, if you could maybe add a little bit more color kind of around the new website launch. What kind of impact you think that might have on, kind of, operating expenses and kind of the run rate there?

The expenses related to the website launch are -- doing the redesign and the rebuild and the replatform -- are pretty much already embedded in our numbers. Some of the funds were expended during 2010. There will be some amount in the first half of 2011, but not anything major.

Okay. And then, just in terms of functionality, I guess, what kind of benefits do you see being generated from the new design? I know you spoke a little bit about it, but if you can just elaborate a little bit.

Sure. It's a combination of making it easier for consumers to find the information they need for their next vehicle purchase, whether it's new or used. Better navigation, enhancements to the configurator and the comparison sections in there. We are also adding, as we have talked about, the My Garage feature, which really moves into the full life cycle of ownership, which is an area that we have really not been involved in historically. So, it will allow us to stay in touch with the consumer the whole time they own it, which will be great for us both from a revenue generation opportunity with some of the new opportunities out of auto insurance, auto warranties, parts and accessories, that will be generated through our relationship with DriverSide, which will be powering the My Garage section, as well as keeping us in touch with that consumer while they own the vehicle and as they are ready to then move in to the next purchase. So, instead of having to go back out into the market as we have had to historically through our own SEM SEO advertising marketing activities, we will be with that consumer the entire ownership cycle, and it will be easy for us to take them by the hand and lead them to our member dealers as they are ready to move into their next vehicle. So, we are very excited about that.

Okay. Great. And then, I guess, one last question, if I can sneak it in. In terms of the competitive environment, if you can maybe talk a little bit more about that. Maybe the pricing environment.

If you -- from a retail standpoint, I think pricing in the retail market, i.e. the dealer market, is reasonably stable. It's been reasonably flat for some time. We are not seeing any downward pricing pressure. In fact, the opposite in many cases. The new iControl product that we have introduced allows dealers to buy out of multiple different sectors -- research, car buying sites, enthusiast sites. The leads that we generate internally all go into the research site, and in many cases, depending upon certain factors, we are able to charge more for those purchase requests than we have been historically.

Okay. That's it for me. Thanks.

Thank you Neil.

(Operator Instructions) Our next question comes from Noah Steinberg with G2 Investment Partners.

Hi, guys. On the 917,000 leads that you delivered, I think that's the number that you gave, what percentage of that roughly was retail versus the OEM/enterprise?

About 30% of it was retail, and the remainder went into our wholesale channel.

What was that last quarter?

You mean third quarter?

Yes.

Probably about 40% retail, with remainder being wholesale.

Okay. And what was the -- maybe I missed this also, but the revenue from new car leads and the revenue from used car leads. I think you had broken that out in the past.

I believe it's broken down on one of the slides. Slide five shows it. So, it would have been $5.4 million. Oh, you are asking new and used.

New and used. That was in previous slides, previous slide decks that you guys have put out -- put out in older presentations.

Yes, I think Curt mentioned it in his section. I don't actually have that at my fingertips.

Okay. I will just wait for the webcast. I'll just get it.

Sorry.

No problem. Thanks.

Thank you.

(Operator Instructions) I'm showing no further questions. I will now turn the call back over to Mr. Coats for closing remarks.

Thank you, Joe. Again, thanks everybody for taking the time on the call today. You will be hearing more from us in the coming weeks and months. We are very much looking forward to a very good 2011. Thank you all for your interest. Have a good day. Bye.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone have a great day.