Autoweb Inc (AUTO) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Autobytel announces 2013 second-quarter financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions).

I would now like to introduce your host for today's conference, Roger Pondel, Investor Relations for Autobytel. You may begin.

Thank you so much and good afternoon, everyone. Welcome to Autobytel's 2013 second-quarter conference call. Presenting today are Jeffrey Coats, President and Chief Executive Officer; and Curt DeWalt, Senior Vice President and Chief Financial Officer.

Before we begin, I would like to remind you that during today's call, including the question-and-answer session, any projections and forward-looking statements made regarding future events or Autobytel's future financial performance are covered by the Safe Harbor statements contained in today's press release and the slides accompanying this presentation and in the Company's public filings with the SEC. Actual events may differ materially from those forward-looking statements.

Specifically, please refer to the Company's Form 10-K for the year ended December 31, 2012, and Form 10-Q for the quarter ended June 30, 2013, which was filed prior to this call, as well as other filings made by Autobytel with the SEC. These filings identify factors that could cause results to differ materially from those forward-looking statements.

We have included slides with today's presentation to help illustrate some of the points being made and discussed during the call. These slides may be accessed by clicking on the link in today's press release or by visiting Autobytel's website at www.autobytel.com. When there, go to Investor Relations, and then click on Events and Presentations.

Also, please note that during the call, we will be discussing EBITDA, cash net income and cash net income per diluted share, and cash flow, which are non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in the slides being used on this call and are posted on the Company's website.

And with that, I will turn the call over to Jeff Coats. Jeff.

Thank you, Roger. Hello, everyone.

Our focus on driving sales growth continued to pay off this quarter as we posted our highest second-quarter revenues in five years. Importantly, by also concentrating on internal lead-generation efficiencies, we improved gross margins and generated a near 70% improvement in net income on 13% revenue growth compared with last year.

Autobytel's ability to deliver consistently high sales conversion rates for our customers resulted in a 9% increase in retail revenues and a 21% increase in wholesale revenues. This year-over-year wholesale channel growth represents a new Company record by a very wide margin.

Autobytel has built a strong position over the last year as we continue to deliver on our promises to our customers and to our stockholders. We are increasingly more profitable, growing revenues quarter after quarter and improving margins. We fully expect to continue on our path to generate further growth.

Curt will provide our financial review, and then I'll come back to discuss our progress and outlook. Curt?

Thank you, Jeff.

As you'll find on slide four, revenues increased approximately 13% to $17.8 million for the 2013 second quarter, up from $15.7 million last year. This marked our 10th consecutive quarter of year-over-year revenue growth and, as Jeff said, our best second-quarter sales in five years.

Total automotive lead revenues rose nearly 16% from last year's second quarter, surpassing the growth that we posted in the first quarter of this year. Also as Jeff mentioned, sales in the retail channel grew approximately 9% and sales in the wholesale channel grew approximately 21%.

Moving to slide five, you can see that we delivered approximately 1.1 million automotive leads, which represents 18% growth over last year's second quarter. 69% of the leads delivered in the second quarter of 2013 were sold to the wholesale channel customers, with the remaining 31% delivered to the retail channel customers.

We delivered approximately 84,000 specialty finance leads during the 2013 second quarter versus 87,000 during the 2012 second quarter. Specialty finance lead revenues were relatively flat for the 2013 second quarter, compared with the same quarter last year, and improved slightly on a sequential basis. The market for specialty finance leads continues to stabilize, but remains constrained -- but supply remains constrained. Our ability to generate more specialty finance leads internally is beginning to help mitigate this constraint.

Advertising revenues were $895,000 for the 2013 second quarter versus $927,000 last year, but were up approximately 25% on a sequential basis. We continue to believe that advertising revenue will grow in single digits this year.

On slide six, you can see that gross profit improved to $7 million for the 2013 second quarter, compared with $6.3 million last year. Gross margin was 39.1% of total revenues for the most recent second quarter, versus 40.3% of total revenues a year ago.

Gross margin improved, as we anticipated, almost three percentage points from last -- from this year's first quarter as a result of more efficient internal lead generation activities. Our long-term goal remains -- target remains at above 40%.

Total operating expenses were $6.4 million, or 36% of revenues, for the second quarter of 2013, compared with $6 million even, or 38.1% of revenues, for the second quarter last year.

As shown on slide seven, non-cash stock-based compensation was $188,000, compared with $218,000 for the 2012 second quarter. Depreciation and amortization totaled $523,000 for the 2013 second quarter versus $511,000 last year.

For the 2013 second quarter, net income grew substantially to $386,000, or $0.04 per diluted share, versus $231,000, or $0.02 per diluted share, for last year's second quarter. EBITDA grew approximately 16% for the second quarter of 2013 to $1.1 million from $922,000 last year. Cash net income totaled $1.1 million, or $0.12 per diluted share, for the most recent second quarter, compared with $960,000, or $0.10 per diluted share, for last year's second quarter.

At June 30th, 2013, our cash and cash equivalents balance had grown to $15.8 million from $14.7 million at the end of the 2013 first quarter and $15.3 million at the end of 2012. Cash provided by operations for the 2013 second quarter was $1.3 million versus $2 million for the second quarter of 2012. The change mainly related to working capital requirements of accounts receivable.

You can find detailed year-to-date financial results on our press release issued earlier this afternoon.

Now I will turn the call back to Jeff.

Thanks, Curt.

I will begin today with an update on our internal lead generation activities, lead quality, and sales conversion rates, initiatives that are driving our improving financial results and are further elevating Autobytel's reputation and recognition in the automotive marketplace.

As Curt discussed, lead volume increased 18% from last year's second quarter as the result of several factors, which I will be discussing today. First, our lead quality is clearly resonating with our customers. Second, the number of dealers purchasing leads from us is growing. Third, we are generating leads more efficiently. And last, the improving automotive market is helping drive strong customer demand.

As you'll notice on slide eight, the leads we generate from Autobytel.com currently convert to sale, on average, at a rate of approximately 21%, as validated by R.L. Polk, an independent research firm.

All leads internally generated by Autobytel currently convert to sales, on average, at a rate of approximately 16%. As a reminder, these numbers represent a rolling three-month average and naturally fluctuate on a monthly basis.

The sales conversion rate on our leads is three times that of the industry average, which is estimated at approximately 6% to 8%. We speak about this subject quarter in and quarter out because this is one of the primary reasons that our business is progressing so solidly, and it's clearly a differentiator and competitive advantage for us.

The data we are generating with Polk also is providing never-before-available insight into the automotive consumer. We are currently working on ways to get this data into the hands of our customers more quickly so that dealers can act on it in the timeliest manner possible. We are also working to incorporate information about where cars are being financed to enhance the competitive data we already provide to dealers regarding to whom they are losing car sales.

Having the data to put our money where our mouth is is great, but we need to continue educating the marketplace about our progress.

To that end, we have been invited to jointly present with Polk at the JD Power 2013 automotive marketing roundtable in Las Vegas this October during a session entitled, Consumers Are Not Created Equal, the Data Behind Real Buying Trends.

We will also have a speaking role at the AutoCon convention in September where we will be discussing how to sell more new cars utilizing third-party leads by making process improvements. And I will also be participating on a panel about vertical media in a mobile social world at LeadsCon in New York in mid-August.

The data we are collecting and sharing with the marketplace is playing a significant role in expanding our footprint among new and used auto dealers. As you can see on slide nine, over the course of the second quarter we added over 70 dealerships, bringing our total dealer franchise network to more than 3,600. With more than 21,000 franchise dealers currently operating in the United States, we have a great opportunity to expand our market share and we are working to take advantage of that opportunity.

We are also making significant progress in the wholesale channel where we realized our most significant growth in the Company history in the second quarter. Autobytel is now the largest supplier of leads to most auto manufacturers who purchase leads. In many cases, these OEMs have removed the caps on our program and are willing to take as many leads as we can supply.

At the same time, we are benefiting directly from several manufacturers that recently began new lead programs. The quality of our leads makes Autobytel a great resource for these manufacturers.

On slide 10, you can see ongoing steady improvement in the auto market, which is helping drive demand for our leads. In fact, it was just reported this afternoon that July US light vehicles sales are up 14% over last year.

I would like to spend some time talking about how we are improving our internal lead generation capabilities, which in turn helps expand gross margins, as you saw this quarter. Last week, Google published a case study about how Autobytel increased click-through conversion rates by better connecting with end-market car buyers where and when they are gathering information during the car-buying process.

Our SEM strategy is complex, and I believe we are one of the best in the business when it comes to optimizing our spend and maximizing the results of our paid search campaigns.

We experiment with compelling ad copy and landing pages across all devices where consumers are engaging with content, while setting keyword bids according to the location of the consumer, time of day, and the type of device, including mobile, being used to access our information.

By upgrading to Google's enhanced campaigns, we were able to increase our click-through rates and improve internal tracking. These enhanced campaigns put us in the right place at the right time for consumer engagement. Combined with enhancing the user experience at Autobytel.com, we have increased conversions on our website by more than 10% and by more than 15% through mobile devices since February, allowing us to capture a larger number of meaningful end-market leads that can be sold and delivered to our consumers.

We are using these same tools to enhance our finance lead generation capabilities. As Curt said, the market is stabilizing and our efforts are helping mitigate supply constraints. Internally generated finance lead volume is trending upward, and we believe these leads will become a more meaningful contributor to volume in the months ahead.

With a greater understanding of user behavior, we are working toward further improving the user experience on our sites. And one of the primary ways to deliver the highest possible quality leads for our customers is to generate those leads from our own websites. As you know, our number one goal is to bring consumers and dealers together to facilitate the automotive purchase process.

As you can see on slide 11, our YouTube channel continues to impress. Now approaching 20 million views and populated with more 600 unique videos, we are attracting a fast-growing number of interested consumers. Our recent migration of the Autobytel YouTube channel to Google's new YouTube One channel format has provided very positive initial results.

We also began delivering a newsletter through Twitter and a variety of social media channels for consumers and customers called Autobytel's Daily Wheels, in which we curate and aggregate news from our auto industry friends. Daily issues features video, photos, news, technology, leisure, and education from hundreds of automotive influencers. If you'd like to take a look at the high-value content we are providing or subscribe to Autobytel's Daily Wheels, you can go to the top of our homepage on autobytel.com and click the Twitter link to follow us.

As I hope you've realized throughout our discussion today, we're feeling really great about our Autobytel stands and our ability to capture the many opportunities presented by the improving car market, along with the substantial progress we've made in enhancing lead quality and the value of our websites to consumers. We are looking toward the rest of the year and beyond with optimism.

We've summarized our business objectives on slide 12 and will continue to work toward accelerating revenue and profit growth. More immediately for the third quarter, we're expecting revenues in the range of $18.3 million to $19 million. We also anticipate generating gross margins of 40% for the second half of 2013.

Operator, we are now ready to take questions.

(Operator Instructions). Chris McCampbell, Southwest Securities.

Congrats on the quarter. I'm relatively new to the story, and so I'm sorry if this question has been answered in the past, but could you comment on the high amount of cash that y'all have and the plans that you might have for that?

We get asked that question quite a lot, actually. But we do have a high cash balance.

We do have plans for that cash. We are currently investing in growing our business. We're always on the outlook for interesting acquisition opportunities, and so we would expect to utilize that cash to further grow our business in the months ahead.

Could you maybe give a little more color on the types of acquisitions might make sense for y'all?

Well, I probably can't really give a whole lot of color on it, but we are interested in acquisitions that will help us from a technology point of view.

The last acquisition we did, approximately three years ago, we bought a company in the lead generation business. We are always interested in reviewing opportunities for incremental lead generation capabilities, as well as consolidation opportunities in our marketplace.

Would those opportunities be likely to be accretive or is that not something that y'all would focus on in the short run?

We do tend to try to focus on ensuring that whatever we do is accretive. That normally should be the case, I would think.

Okay. And I guess just in terms of the industry, is it relatively fragmented or has there been a lot of M&A?

It is relatively fragmented. There has really not been a lot of M&A. A little bit, but not a lot.

Okay, best of luck. Thanks.

(Operator Instructions). [Matt Reiner], [The Asian Art Fund].

Nice quarter. I had a question. If we look at -- in this kind of environment where auto sales are quite strong and bouncing back, is it kind of a rising tide floats all boats or does it hurt you somewhat when things are this hot, where maybe dealers don't seek leads as much, or am I missing how that plays out?

It's a good question. The fact that sales are surging, and candidly have been for the last couple of years, has not hurt our business.

Dealers tend to focus on each incremental sale, and I think still today most automotive dealers and certainly the manufacturers recognize that buying leads is one of the best return on investment ways they can spend marketing dollars to sell incremental vehicles. That's really helped grow our business, turn our business around from where we were four years ago and really begin to grow it more strongly.

I do think there is a differentiator factor for those of us that are able to generate and sell high-quality leads, leads with higher close rates, which is something that we have been focused on and very proud of the fact that we are today selling some of the highest closing rate leads in the automotive space.

Yes, that was helpful, the way you broke that out on this call and the way you have been emphasizing that. I do appreciate that. Can you also discuss the MyGarage piece of the business and how that's playing out for you?

Sure. MyGarage is our kind of ongoing communications section or vehicle with consumers that submit leads through us.

Historically, most people that do what we do would touch consumers every three to five years, and then not hear from them again until they go back into the market to buy their next new or used vehicle. Not necessarily the most efficient way to do it since you really have to kind of capture people all over again when they start their research process.

We created MyGarage to begin allowing us to communicate more regularly with people who have submitted leads through us, and also to provide them with different kinds of services. It's an area that we really started a couple of years ago.

We continue to invest in it. It's not as robust today as we would like it to be, as we have been reinvesting in our website and in another parts of our business to really accelerate our revenue growth and profitability. But it is an area that we do continue to invest in and that we will be more focused on in the months ahead to really kind of build that ongoing link and revenue generation opportunity with consumers.

Okay, and then, lastly, kind of hitting on the question that you get quite frequently on the cash. I heard your answer on looking at some M&A opportunities or what not, but would you also consider going back and buying back stock, if you can't find the right M&A opportunities? Or if there some level of stock buyback you would consider, as well?

We would consider buying back, if we were unable to find good M&A opportunities to use that cash.

Okay, thank you.

George Santana, Ascendiant.

It's George Santana with Ascendiant Capital. Hi, guys, how are you? And congratulations on another great quarter.

Thank you, George.

I was under the impression that on the first-quarter call, you had said you had not given revenue guidance in four-plus years and that was the first time you were seeing the business so firm that you provided us the guidance for the second quarter, and I presume that kind of confidence is only strengthening as you're continuing to post these results.

Right.

Also, in terms of how we were set up to look at the rest of the year, it sounded like you were going to make a lot of investments. But we look at the operating expenditures and they're down, even with the -- or fairly flat, and even with the strong revenue growth, what should we be expecting for the rest of the year, and can the gross margin improvement -- I mean, as Mark said, and you can actually see it very well in the numbers, but when we start looking at the OpEx, is there anything major coming that we should be expecting?

Actually, George, we have continued to invest in the business despite the fact that OpEx has come down because we have been shifting expense dollars from certain areas into other areas. So, we are continuing to invest in the business. We will continue to do that for the rest of the year.

I don't think you should expect to see a big uptick, I mean, in terms of the expense line. I mean, we will continue to make some of those investments both above the line and below, but we're trying to do it in a prudent way, in a measured way, in order to keep our growth rates up, and yet do it in a responsible way so we manage the bottom line appropriately.

Well, it looks great. On more of a detailed question, when you actually look at your improvement in gross margin for the quarter, how much of that, would you say, is the efficiency that you talked about versus, let's say, the pricing that you are seeing in the market and recognizing on the lead side?

A significant piece of it is efficiency. We are pushing up our ASP across the business in different areas. We would continue to expect to do that and see positive results from that, given again the high close rates that we are providing to our customers.

I'd say many of our customers understand they are getting a great return on investment from the leads they are buying from us, and it's not unreasonable to see some price improvement as part of that. It's not a wholesale kind of thing, it's not going to happen overnight, but we do it as we can.

Keep up the great work, guys. Thanks so much.

(Operator Instructions). I'm not showing any further questions in the queue. I'd like to turn the call back over to management for any further remarks.

Thank you. Thanks again, everyone, for joining us today. We are pleased with the progress we've made and we remain quite upbeat about the remainder of the year. Curt and I look forward to speaking with you all next quarter. Thank you.

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