Autoweb Inc (AUTO) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Autobytel 2013 fourth-quarter financial results call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the call over to your host, Roger Pondel, Investor Relations for Autobytel. Please go ahead.

Thank you operator and hello everyone. Welcome to Autobytel's 2013 fourth-quarter and year-end conference call. Presenting today are Jeff Coats, President and Chief Executive Officer, and Curt DeWalt, Senior Vice President and Chief Financial Officer.

Before I introduce Jeff, 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, the slides accompanying this presentation, and 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, 2013, which was filed just prior to this call, as well as other filings made by Autobytel with the SEC from time to time. These filings identify factors that could cause results to differ materially from those forward-looking statements.

I also would like to direct your attention to the press release distributed just prior to this call, whereby Autobytel announced its intention to file a shelf registration statement on Form S-3 with the Securities and Exchange Commission during the 2014 first quarter, for the offer and sale of securities by the Company.

There are slides included with today's presentation to help illustrate some of the points being made and discussed during the call. The slides can 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.

Please also note that during this call management will be discussing EBITDA, adjusted cash net income, adjusted 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 and are posted on the Company's website.

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

Thank you Roger. Good afternoon everyone. We reported another strong quarter, growing revenue 22% over last year's fourth quarter. Our 17% revenue growth for the full year readily eclipsed the approximate 9% growth in retail auto sales in the United States last year. And we expect our growth to continue to outpace the market for US retail auto sales for the foreseeable future.

Subsequent to the end of the quarter, we further strengthened our business through the acquisition of AutoUSA. We believe the acquisition will significantly expand our core business and drive new growth opportunities. Combined with the acquisition of Advanced Mobile and the strategic investments we made in 2013, we feel very good about Autobytel's future.

Curt will provide the financial review of the quarter and then I will update you on our continued progress.

Thank you Jeff. We've provided a few slides on our full-year results. The majority of my comments today will focus on our fourth-quarter results. On slide 4, you'll note total revenue growth of 22% to $20.7 million for the 2013 fourth quarter, up from $16.9 million last year and consistent with typical seasonal patterns.

Total revenues included a $236,000 contribution from Advanced Mobile, which we acquired in the third quarter of 2013.

Automotive lead revenues increased 27% from last year's fourth quarter, with retail channel sales rising 16%, and wholesale channel sales growing by 36%; a solid showing all around.

Moving now to slide 5, you'll see that we delivered nearly 1.4 million automotive leads during the fourth quarter of 2013, a 29% increase over last year. 73% of the leads we delivered to wholesale channel customers and 27% to retail channel customers.

We delivered 77,000 specialty finance leads during the 2013 fourth quarter, versus 79,000 last year. The decline was caused by ongoing marketplace supply constraints.

Advertising revenues were $722,000 for the 2013 fourth quarter, versus $854,000 last year. The decline related, in part, to changes completed throughout the fourth quarter, necessitated by the transition to JumpStart. You'll recall that JumpStart has assumed Autobytel's ad sales and service functions. We expect to see the initial real benefit of this relationship in the first and second quarters of 2014, once the transition is fully complete and all fiscal year campaigns are up and running.

On slide 8, you'll see that gross profit grew to $8.1 million for the 2013 fourth quarter, up from $6.4 million last year. Gross margin was 39.1% of total revenues for the most recent fourth quarter versus 37.8% of total revenues a year ago.

We were slightly short of our 40% margin target, primarily due to compliance with SEC regulations that took effect in October of 2013, under the Telephone Consumer Protection Act. This compliance had a short-term impact on our gross margins, as our lead conversion rates were impacted while we optimized through the new process. By December, gross margins had returned to 40% as originally expected.

As a result of our acquisition of AutoUSA, gross margin will be lower over the short-term. Historical gross margins for AutoUSA was in the mid 20% range and it will likely take us several quarters to bring it closer to the current Autobytel margin levels.

Total operating expenses amounted to $7.2 million, or 34.8% of total revenues, for the 2013 fourth quarter compared to $6.1 million, or 35.9% of total revenues, for the same quarter last year. The increase, as expected, is primarily related to additional operating expenses from the Advanced Mobile acquisition, as well as additional headcount expenses to support business growth, and included approximately $213,000 of acquisition related expenses.

As you'll see on slide 9, noncash stock-based compensation totaled $148,000 compared with $202,000 for the 2012 fourth quarter. Depreciation and amortization was $347,000 versus $536,000 last year.

Before I discuss net income, I'd like to describe the valuation allowance reversal which was taken in accordance with technical accounting guidance that positively impacted our bottom line results. Because of the cumulative losses Autobytel incurred over the years, we maintained a full valuation allowance against our deferred tax assets.

Historically, we'd been in a position of cumulative losses over the trailing 12 quarters; however, ending the third quarter of 2013, we had achieved a position of cumulative income over the trailing 12 quarters. As a result, we evaluated the need to maintain or release the valuation allowance. Based on our projections of future profitability, we determined that it was appropriate to release most of the valuation allowance in the fourth quarter, resulting in a onetime tax benefit of $35.5 million.

We still have a remaining valuation allowance of $6.4 million, of which $1.6 million relates to the State of California net operating losses that will likely expire unutilized; and $4.8 million of related stock option deductions that will be realized in future years, once the deductions have reduced income taxes payable.

This reversal is a onetime benefit to our results and I should note that we will begin recognizing a book tax provision on our pretax income prospectively, beginning with the first quarter of 2014 and there will be no impact to cash.

Including this onetime benefit, net income totaled $36.1 million or $3.26 per diluted share for the fourth quarter of 2013 compared with $351,000 or $0.04 per diluted share for last year's fourth quarter. Excluding the tax benefit, net income was $662,000 or $0.06 per diluted share.

It is important to note that there was approximately 23% more diluted weighted average shares outstanding during the 2013 fourth quarter than in last year's fourth quarter. The increase in share count relates to a higher share price and the impact that had on our Cyber Ventures related convertible note and warrants outstanding.

EBITDA totaled $1.2 million for the fourth quarter of 2013, up from $1 million last year. Adjusted cash net income was $1.3 million or $0.12 per diluted share compared with $1.2 million or $0.13 per diluted share for last year's fourth quarter. These measures will be important as we move forward, given my comments on income taxes and the fact that we will be utilizing our NOLs to minimize actual cash taxes paid.

Cash and cash equivalents balance grew to $18.9 million at the end of 2013, up from $15.3 million at the end of 2012.

Effective October 1, we had completed the acquisition of Advanced Mobile for an initial consideration of $2.5 million plus the opportunity for the sellers to earn up to an additional $1.5 million in contingent payments based on certain performance metrics over a three-year period, beginning January 1, 2014.

Cash provided by operations for the 2013 fourth quarter was $1.6 million compared with $1.4 million in the prior year. Detailed full year financial results can be found in the press release, in the Form 10-K we issued and filed earlier this afternoon.

Now I'll turn the call back to Jeff.

Thanks Curt. Although we recently held a conference call to discuss our acquisition of AutoUSA, I'll start today with a short update. The integration is well underway and on plan. We continue to believe that the acquisition will drive meaningful increases in our revenue and cash flow and that it will be accretive to our 2014 financial results. The acquisition significantly enhances our retail distribution network for selling leads, adding an incremental 1,400 net dealers. Our dealer services teams are working to further expand our dealer client base, giving us a larger footprint through which to sell our high converting sales leads and other high value dealer products.

We're excited about the AutoUSA acquisition and believe it has made us an even more important player in the marketplace, in addition to becoming a much larger player. As you can see on slide 10, AutoUSA had about $30 million in revenues last year, with historical gross margins of about 25% to 27% and nearly $6 million in operating expenses. We expect 20% to 25% of AutoUSA revenue and corresponding costs will be eliminated due to intercompany transactions, since we were the second largest supplier of leads to AutoUSA before the acquisition. We also expect to meaningfully reduce AutoUSA's operating expenses.

We have a robust fleet of dealer and manufacturer products aimed at helping dealers sell more cars. Among these products is Autobytel Mobile, formerly Advanced Mobile, which you can see on slide 11. This advanced platform will be the core of a wide array of mobile services Autobytel offers to its dealer and manufacturer customers and will also be available to consumers through Autobytel's websites.

At the center of the platform is Autobytel's unique TextShield product that offers dealers the ability to connect with consumers using text communication via a secure platform that protects the consumer's privacy. In addition, Autobytel will offer dealers mobile websites, designed to drive consumer engagement with dealers, as well as mobile apps, text message marketing and the ability for a consumer to send information to their mobile device using our Send2Phone products.

We're also enthusiastic about SaleMove, shown on slide 12, the company in which we made a strategic investment in the third quarter. Autobytel is the exclusive provider to the automotive industry of SaleMove's products for enhancing and redefining communications with consumers by improving the online car shopping experience.

These products allow dealers to interact with consumers in real-time using live video, audio, text-based chat, or phone, basically whatever method is most comfortable for the consumer. SaleMove also allows dealers to provide a guided tour to consumers using the dealer's website as a virtual showroom.

Consumers are now doing more of their shopping online. In fact, the average consumer now physically visits only 1.9 automotive dealerships before purchasing a vehicle, which is down significantly from the historical average of 3.2 visits.

As a result, a dealer's virtual showroom is more important than ever and SaleMove makes certain that this virtual showroom is not left unattended. SaleMove's products have been well received by the dealer community so far and are helping us attract new customers, while also expanding our relationships with current customers.

You will recall that last year we also made a strategic investment in AutoWeb, which is pay-per-click auction driven automotive advertising marketplace. AutoWeb recently launched its new service and Autobytel became the first advertiser and publisher to use the platform to help us monetize traffic that had been under-monetized or essentially not monetized at all. We're seeing some really meaningful early results from the program and believe this could be a healthy new revenue stream captured from our existing traffic.

AutoWeb is in the marketplace signing new automotive advertisers and publishers and is making significant headway with some well-known brand names. You'll be hearing more about AutoWeb in the coming months.

I'll finish up with an update on our core auto leads business, which continues to perform very well. Lead volume grew a healthy 29% for the fourth quarter and surpassed 5.1 million leads for the full year, up 23% from last year. The fourth quarter is historically seasonally slower for our industry, yet lead volume remained seasonally solid throughout.

With the AutoUSA acquisition which was completed in January of this year, dealer count is now approximately 5,000. As shown on slide 13, organic dealer count grew to more than 3,600 this quarter. AutoUSA's dealer count typically churns more than ours, so we expect some fluctuation in the number over the months ahead as we work through all of the integration elements.

As you'll see on slide 14, we are continuing to generate high converting sales leads. The leads we generate from Autobytel.com currently convert to sales on average at a rate of approximately 25%, as validated by R.L. Polk. All leads internally generated by Autobytel currently convert to sales on average at a rate of approximately 18%.

Again, I remind you that this data is based on a rolling three-month average and will fluctuate on a month-to-month and quarter-to-quarter basis. Our success over the past several quarters is directly correlated to the fact the leads continue to convert to sales at three times the estimated industry average.

The auto market continues to provide opportunities for Autobytel. As you can see on slide 15, you can see ongoing improvement in the overall automotive market. For the month of January, SAAR was projected at approximately 13.1 million, which is up from 12.7 million in December.

January U.S. light vehicle sales were up only 3% as severe winter weather affected purchases during the month. We do not believe, however, that this represents a fundamental change in the industry. In fact, the recent National Automobile Dealers Association Convention we attended was the most upbeat we've seen in about five years, with dealers showing continued optimism and expecting a good sales year in 2014.

As I mentioned earlier, we expect to outperform U.S. retail auto sales for the foreseeable future. Based on current business trends, we estimate that 2014 first quarter organic revenue growth, excluding the impact of the AutoUSA acquisition, will be in the range of 18% to 22% as compared to the 2013 first quarter.

Our ongoing business initiatives are summarized on slide 16. We continue to look for the right kind of strategic investments and acquisitions that could bolster our core leads business, broaden our technology footprint, or enhance our lead-gen activities, among others.

We remain quite enthusiastic about Autobytel's future as we work to continue accelerating revenue and profit growth for our shareholders.

Operator, we're now ready to take questions.

(Operator Instructions) Our first question comes from Sameet Sinha with B. Riley. Your line is open.

Yes, thank you very much. Jeff in terms of Q1, pretty solid guidance that you've given there. How much would you say is the benefit from Jumpstart, from AutoWeb, to that revenue growth rate? I'm just trying to get a sense of what's the rate of acceleration that we can expect from those smaller businesses?

I wouldn't say there's a big impact at all from Jumpstart in the first quarter. We were still working pretty heavily, late in the fourth quarter, to make the technology changes that were necessary for Jumpstart to take over our advertising.

We won't have all of the new 2014 advertising programs up and running during the first quarter. A couple of the Japanese manufacturers don't really begin their new fiscal year until April 1. So, we'll have some impact as a result of that. So, not a big benefit from Jumpstart in the first quarter.

AutoWeb, there's some benefit AutoWeb in the first quarter, but I would not say it's a big impact as compared to what's going on. I mean what's really driving the revenue increase, Sameet, is continued improvements in lead volume, lead conversions, and really boosts in both the wholesale and the retail programs. So, it's the core leads business that is really driving it.

Okay. Now, in terms of the specialty finance leads, obviously that market has been under pressure for a while. What are your expectations? Do you think this is something that we should expect steady state for the next couple of quarters; maybe down a little bit or how should we model this particular business going forward?

As you know we have struggled with our finance leads business. There remain ongoing supply issues in that marketplace. There's been a recent influx of even more poorer quality coming into that, that everyone has had to deal with.

Having said that, we do think it should be reasonably stable. We should remain reasonably flat for the next few quarters. We are continuing with our internal lead generation effort. We've done okay from a volume standpoint. We still don't have the margin where we want it to be, but we are still focused on it, we are still working on it. So, we would expect some improvement hopefully later this year, but we are still struggling with that business.

Now, in terms AutoUSA, can you talk to us about the quality of leads there? I mean how do the close rates compare to your close rates?

You spoke about gross margins, can you also talk about how much of the gross margin improvement will come from just better pricing or pricing going up to the levels that Autobytel charges versus other efficiencies?

Their close rate overall don't come up to the same levels that we see. We do boost their close rates somewhat. We were their second largest leads supplier, but I would remind you that AutoUSA is what's known as an aggregator in this industry. In other words, they bought 100% of all the leads they turn around and sold.

So, I would say we will be bringing the overall lead quality up. We will be working with their existing suppliers to improve the quality of the leads that we're buying from them, many of whom we already buy from as well. We are also working to improve the overall volumes.

With regards to your question about pricing, interestingly enough, AutoUSA had done a good job of keeping their average selling price at retail in a good place. They never really cutthroat prices, unlike certain other providers in the marketplace. Even if they provided incentives or discounts, they would bring their customers up to a more reasonable market rate. So, that's been one of the nice things that we came to realize as a result of our diligence and ultimately the acquisition.

From a margin standpoint, I mean we are, as you know, working to improve our pricing over time based upon our higher close rates than are generally available in the marketplace. So, some of our improvement in the gross margin there will come from that.

Some of it will also come from pushing more of our own internally generated leads into those dealers now. We have a much larger direct retail footprint through which to do our lead generation. So, we expect to see some nice margin improvement as a result of that.

You gave us guidance for organic revenue growth, how should we think about AutoUSA? I mean is it approximately $5 million or so in Q1 and then kind of goes up slightly from there?

You know Sameet, we're not prepared to really talk about that yet. We're still getting our arms around it. We believe --- we had a couple of comments in the earlier remarks. We will see some eliminations as a result of the fact that we were the second largest supplier of leads to AutoUSA. So, we're still working through those revenue elimination issues.

Their dealers do churn at a higher rate than our dealers do. The dealer churn rate historically in this industry has been 5--plus-% per month. They are still subject to levels like that, if not a bit higher. Our churn rate internally at Autobytel is down between 3% and 4%; actually closer to 3%.

So we've done a good job of getting our arms around that and reducing the churn in our dealer body. We are working to apply a lot of the same methodologies to the AutoUSA side of the family now and so we do expect to get our arms around that.

But until we do -- and it will take us a few months to accomplish that. Until we do, we'll probably see some churn on the dealer side. So, we just want a little more time to really a get good feel for what it's going to look like from that standpoint.

I would say that it should at least be -- the revenue -- actually, I will just stop there. Let me just stop there.

Okay. Just one final question. In terms of the operating expenses, can you remind us how should we be thinking about that over at AutoUSA?

They had operating expenses in the neighborhood of $6 million a year. Obviously, as we transition through the process, there will be synergies, but we're not there yet. So again, I think under the heading of what Jeff just said, we're going to take a little bit of wait and see for the next few months and see exactly how it all shakes out.

But I will also add, we'll being them down significantly. We'll bring them down by more than 30%.

Great. Thank you very much.

(Operator Instructions) Our next question comes from Eric Martinuzzi with Lake Street Capital. Your line is open.

Thank you. Curious to know on the lead-gen side and this will be a wholesale side, I assume a large part of that growth was your onboarding of the new OEM, Honda. What about the other OEMs, kind of legacy OEMs, what were the trends like there in Q4 and your expectations for Q1?

I would say our overall wholesale business remains extremely robust. It was extremely robust in the fourth quarter and it is certainly extremely robust in the first quarter thus far.

Okay. And I know searching the Internet is not directly impacted by the weather, but what's the correct response to: hey, are you guys impacted by the cold weather hitting in Q1?

You know certainly the retail end of the automotive industry was affected. Dealerships were closed because of storms or people just couldn't get there. We've not really seen that impact at all in our revenue in the first quarter thus far.

And if anything it probably causes people to stay at home and go online and do whatever shopping or research they would do and we've certainly benefited from that.

Okay. And then I also noticed you had a shelf filing. I'm curious to know if you can give us any more specifics there.

Before you respond to that, can you just give us a picture of the pro forma balance sheet post the AutoUSA acquisition?

We did put out a press release that we plan to file an S-3. I'm told by my general counsel, I can't really answer any other questions regarding that today. I'm sorry.

And then where are we as far as the pro forma balance there? Because I -- based on the math I just did for your December 31, net cash looks to be about $10 million and you spent about $10 million on AutoUSA. Then I know you took on some debt or line of credit to do that one. But where are we as of kind of a January 31 balance sheet?

Well, we're still working through having the financials audited for AutoUSA, but I think you'll see in the 10-K, we do have some preliminary numbers as it relates to what we expect the AutoUSA transaction to look like. So, including the goodwill that was generated etc. So, I'd just refer you to the footnote in the 10-K for further explanation.

Okay. Congrats on the quarter.

Our next question comes from Jared Schramm with ROTH Capital Partners. Your line is open.

Couple of quick questions here. Any change in the competitive landscape since the AutoUSA acquisition? Has there been a behavioral shift in some of the people you see out there?

Not that we can identify at all. We have not noticed anything.

And then you mentioned you expect about 25% of sales at AutoUSA to be eliminated due to the fact you were a large supplier of theirs. Is there a potential that that could go down as you start to scrub out some of the quality and then you maybe offset that by maybe some price hikes as you present a better offering to some of --- to the end market?

I would not anticipate at this point that it would be any less than that.

Okay. Any updates on the YouTube channels?

It's funny that you said that. We actually did not put the YouTube slide in. Tim, can you give me that? Sorry, one second, Jared.

We're at about 27 million views and we have over 800 videos on the YouTube channel thus far. And we should leave that slide in there every quarter.

Sorry, didn't mean to cause trouble there. And then lastly with AutoUSA here, of the outstanding OEMs and dealers left in the market that would reasonably be a potential customer of yours, what percentage do you think to-date is a greenfield opportunity at this point in time?

From a wholesale standpoint, we do business to one extent or another I think with every manufacturer that has a wholesale program. There are, I don't know, a handful, a couple that we could potentially have bigger opportunities with based upon adjustments over time in the business rules under which they operate.

From a retail standpoint, as a result of the acquisition, we've got about 5,000 dealers. There are approximately 18,500 in the United States. We could easily see having perhaps as many as 9,000 or 10,000 on the program without having too much overlap, in terms of looking at that. So, there's still plenty of room to grow from a retail side.

Of those say 10,000, we're assuming the remaining 8,000 will be realistically too small to participate in any kind of program in a meaningful way?

Some would be. It would be a little bit that, but a lot of it would be more overlap in the major metropolitan areas where there's, I don't know, eight or 10 of the one of the major nameplates and it really only makes sense for us to have five or six of those, so we don't have too much overlap.

Okay. That's it for me. Congrats on the quarter.

Thank you. I'd now like to turn the call back to Jeff Coats.

Thank you all for joining us today. As you can see, we remain extremely pleased with our progress and are quite upbeat about the future. I encourage you to listen to the replay of our presentation last week at the Stifel Technology, Internet & Media Conference in San Francisco, which can be found on our website.

Curt and I also look forward to speaking with many of you again soon and hopefully, to seeing you at the upcoming ROTH and B. Riley conferences at which we will be presenting. Thank you.

Ladies and gentlemen thanks for participating in today's program. This concludes the program. You may all disconnect.