Q4 2019 Earnings Call

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Ladies and gentlemen, please standby your conference call will begin momentarily once again, ladies and gentlemen, please stay on board.

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Good morning, everyone and thanks for participating in todays conference call to discuss Autoweb financial results for the fourth quarter and full year ended December 31st 2019.

Joining us there ought to web CEO Gerard ROE the company's CFO, Jay if you had them and the company's outside Investor Relations advisor, So I'm, sorry, with Gateway Investor Relations. Following their remarks, we'll open the line for your question when I turn the call over to Mr. <unk> introductory comments.

Thank you.

Before I introduce Jared I remind you that during today's call, including the question and answer session statements that are not historical facts, including any projections statements regarding future events or future financial performance or statements of intentions or beliefs are forward looking statements that are covered by the safe Harbor disclaimers contained in today's press release and the company's public.

Filings with the FCC.

Actual outcomes and results may differ materially from what is expressed and or implied by these forward looking statements.

Specifically, please refer to the company's form 10-K for the year ended December 31st 29 team as well and other filings made by all the web with the FCC from time to time.

These filings identify factors that could cause results to differ materially from those forward looking statements.

Please also note that during this call management will be disclosing adjusted EBITDA.

This is a non-GAAP financial measure as defined by FCC regulation G.

A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measures is included in today's press release, which is posted on the company's website.

With that I'll turn the call over to Gerard.

Thanks, Sean and good morning, everybody.

We want to start the call today by just acknowledging that.

No. We're clearly operating in a period of uncertainty as it relates to covert 19, I know you have a lot of questions related to the future and worried do our best but to answer them.

Our thoughts are with everybody was affected by the virus in the top priorities, then really ensuring the health and safety of our employees and really the continuity of operations for our dealers and OEM customers.

So I'll start out by providing a brief overview of our results for the fourth quarter and the progress that we made to close out the year. However, given the circumstances surrounding the pandemic I'll dedicated most of our time on the current a state of the business and what we're doing in response to want to cope with Nike.

Pardon me.

So quickly on the fourth quarter, we continue to drive towards profitability focusing much more strategy I think he initiatives, we laid out through 2019.

These initiatives include improving our traffic acquisition and conversion, establishing the right mix of of leads and clicks sold to the light mix of clients, who talked a lot about that and being as efficient as we can with our resources at the operating level, we've done a much better job of monetizing the traffic, we generate and we're going to continue to focus.

On selling more valuable.

Clicks to retail dealers to better position ourselves as a strategic partner and not just out of transactional cielo products.

At the operating level, we maintained our focus on running a lean efficient organization and we continued to make improvements to our fixed cost structure.

This included a reduction of some expensive roll them a team that they were not generating a level of improvements and delivering the value that we needed. So we want to hadn't made some changes there.

Our focus on operational and organizational efficiency remains intact and is driving our current response pickup in 19, and I'm really proud of the work on the team's doing.

To make this transition and not to lose a lot of productivity. During this volatile period I'm always more to discuss on these topics later in the call.

Before commenting further I'd like to turn it over to J.P. to walk through though I like to Q4 and a in full year results JP.

Hey, Thanks yard and good morning, everyone.

So as we mentioned on the last call really continue to refine our approach on these calls to focus on the call inventory during more on key themes around the quarter in year, rather than reviewing every line item that you could find in a press release in our filings.

So with that total revenue in the quarter came in at $26.7 million, that's down about 2 million from last quarter, and 6 million from year ago quarter.

Advertising revenues increased to 5.1 billion, that's up a few points from last quarter.

The down from the year ago quarter.

We expect a decline in total revenue stems from a lower volume and art sales channel mix.

We're continuing to focus on selling more value to the retail dealers as opposed to selling volume to the Oems.

This is further reflected at the gross profit line is our gross profit was nearly flat compared to last quarter and that's despite a 2 million dollar reduction.

Overall revenue.

That's a similar situation or clicks does.

So what click traffic was down a one to 2 million visits sequentially and year over year.

We generated about the same level of click volume in Q4, we also posted our highest revenue per click we got all year.

Our fourth quarter gross profit came in at five and a half a million dollars, which as I mentioned is relatively flat from last quarter and from a year ago quarter.

Fourth quarter gross margin was 20.7%.

Which is also flat from last quarter, but up 320 basis points from a pro forma Q4 2018 number.

No that year over year gross margin improvement was driven by a much more efficient traffic acquisition and higher margin product and channel mix.

Our net loss in the fourth quarter, 2019 was $3.2 million or loss of 24 cents per share.

And that compares to a loss of 1.7 million or 13 cents per share in Q3, 2019, and a net loss of five point threemillion or loss of 41 cents per share in Q4 2018.

Our adjusted EBIT off for the fourth quarter was a loss of $800000.

Which is down just under 2 million from last quarter, but up more than 2 million from the your go quarter.

Our net cash used in operations in the fourth quarter was $9.4 million.

Up from 6.8 million last quarter, and 2.9 million in the fourth quarter last year.

All right at December 31st 2019, our cash cash equivalents unrestricted cash stood at $5.9 million.

And that compared to 6.1 million.

In September Thirtyth, 2019, and 13.6 million at the end of last year.

This decrease from the into 2018 was driven by our operating losses and the funding of our capital expenditures.

No as of December 31st 2019, we had an outstanding balance of $3.7 million on our $25 million revolving credit facility, we had with PNC bank.

Earlier this week, we paid off that outstanding balance on the former credit facility and we signed a new $20 million revolving credit facility with C.I.T. North Bridge capital.

This is gonna offers much more flexibility as we continue finishing our turnaround work at Autoweb. Since this facility has no ongoing financial maintenance covenants.

I quickly running through the full year results.

2019, total revenue was approximately $114 million, that's down about 12 million from last year.

Our advertising revenues of 23.2 million, that's down about 5 million compared to 2018.

Total operating expenses in 2019 was $37.9 million, that's down about 16 million from last year.

As a reminder, our 2018 expenses did include a goodwill impairment charge and a onetime long lived asset impairment charge, which totaled $7.1 million.

Our net loss in 2019 was $15 billion to $15.2 billion $1.17 cents loss per share.

And that compares to a net loss of 38.8 million or a loss of $3.04 per share last year.

Adjusted EBITDA full year, 2019 was $5.1 million compared to 7 million or she's got loss of 5.1 million for her to a loss of 7 million in 2018.

Now onto our operational metrics you know the full year tells the same story the fourth quarter simply put were being much more effective with what we have.

Our lead traffic was down by about 8 million visits 234 million.

The lead volume was only down by 100000 leads to 7.4 million.

Our own sites click traffic was down by 5 million visits to 54 point Threemillion.

While our own sites click volume actually increased by approximately half a million clicks.

Now at the dealership level or a retail dealer count was down by about 400 dealers to 2200 dealers compared to the end of a 2018.

We capacity was also down but as we mentioned in the past capacity it doesn't necessarily have to increase as long as we're delivering a higher percentage of or.

Customers requested lead orders.

So with that that concludes my prepared remarks, I don't know call a turn the call back to Gerard.

Thanks GP.

So as I mentioned earlier, we're developing action plan to address our operations business continuity client communication and technology infrastructure as we got to adapt to a new environment.

I want to take some time to review that plan at a high level and discuss what we're focused on in 2020 and then we'll go right into question.

So in terms of operations, we are more vigilant than ever about maintaining a lean efficient organization, we'd already taken considerable cost out of the business prior to the Kobin 19 pandemic, but we continue to target reductions.

In personnel related expenses marketing expenses, and then any other various other miscellaneous operating expense categories that we can become more efficient and we'd be more come become more efficiently.

We will continue to focus on driving these personnel related productivity and efficiency improvements that needed as we work through the current market environment and plan to more fully leverage the dollars that we're spending against our people across the business.

A couple of quick just notes on that did when you look at our headcount year over year, it's been reduced by about 15%.

That's translated to about a 25% reduction in people costs and one thing to remember too is we made this transition together with the team.

We also have added a lot of new team members roughly 43% of the a the current team.

Had been hired by the new management team I'm over the last two years. So we've had significant significant improvement in this area the business over the last year to happen I'm really proud of the work that the team's done to really manage this kind of a this kind of potential disruption in the business, but but ultimately the sort of a.

Transition that we've made.

Now for marketing expenses were actively dialing back our search spend and being more selective in bids well. This will result in lower revenue, we expect that to improve our gross margins.

I'm President. Please remember that then when we talk about lead volume, we're focused on delivering quality lead volume, which is really defined by our clients ability to contact these consumers and sell them a car.

We really closely monitor lead quality or two weeks and months is likely going to.

Buck the historical buying patterns that weve used to help shape, our SCM spend over the years.

No we pulled back on the spend just anecdotally, we pulled back unless I'm fairly considerably over the last several weeks as you can imagine trying to adjust to that the new reality of the stay at home orders and some of the retail stoppages that have been announced that though.

State and county and local level.

And what's been interesting is that just see what's going on with the margin characteristic and also what's going on with the volume because we pulled back volume hasn't necessarily come back as much as we'd expect meaning it hasn't been reduced as much as we'd expect.

Simply because the demand is is Ah, it's so much lower with the with the auction. So so we're gonna have to really closely monitor this and it really try to a line or.

Yeah, I'm spend with the with the new reality above the needs of our clients.

Also with the new shopping patterns of consumers.

The quickly touching on or teams and technology infrastructure or maybe cobot 19 pandemic, we've always had a bit of or about a workforce and cross functional teams across the U.S. name in Guatemala. So we have plenty of existing tools and processes in place to support it and even more decentralized model.

Because we've had a full team working from home for over a week now.

However, this does represent a bit of a change in how we manage the day to day operations at some were most critical team since they.

Have a historically been clustered together and has been highly collaborative so we're going to continue to closely monitor productivity and evolve our approach is necessary to ensure that we continue to efficiently manage this business, but I'm pretty pleased with how things have gone over the last week in the house and how we've been able to transition the team to a complete work.

From home environment.

Now in an effort to further support our customers and provide them with flexibility. During this challenging time, we are offering retail dealers voluntary suspension contract. So at dealers close or they dramatically reduce their staff a we're working with them to ensure that the immediate packages are aligned with their current business and operation need.

You know anecdotally, we've got over $450000 in this current category.

Brendan status and we expect that too.

Impact.

Next month.

We also expect that to grow a bit as say the market conditions change on the reason that I mentioned that because these are retail dealers and also some of our strategic account. So the impact will have a disproportionate ER or having a disproportionate impact on on the margin of the business for the next month or two.

Well, we're prepared to refine our approach where necessary as the a at the market conditions the ball, but we're really still actively working toward the organizational goals that drove our business throughout 2019.

And we still have work to do to achieve those those goals and complete the turnaround of Autoweb. So well. This is another headwind we do feel good about a about the work that we've done we feel good about a continuing on the path that we put a that we put in place a year year half ago.

But first we must improve both our product and sales channel mix them from a product perspective that means focusing on the mobile optimization, both lead and click products and evolving or consumer engagement approach I'd be far more content rich in fulfilling from the consumer perspective, no. We made considerable improvements to the quality of our products in 2019, but our work isn't Doug.

No we talked a lot last year about the mobile, enabling our products and we did you did a good job there I'm now it's time to to mobile optimize our products and that's a good bit of focus.

For us for 2020.

From a sales channel perspective, you know improvement means selling more leads to retail dealers more clicks to endemic in near endemic advertisers.

No as I've mentioned this will be accomplished by positioning Autoweb is a strategic partner to our customers and not just a a vendor selling a transaction as our sales channel mix improves we expect our gross margin to improve in lockstep.

No again, we've made good good progress here, we haven't gotten all the all the way we haven't achieved everything we wanted to.

But we have made good progress and cross selling clicks with would lead to an improving our attach rate. We're finally at full strength from a a retail sales perspective as well it's been a long time since we've been at full strength. So.

We've got some work to do there, but I feel good about the changes that we've made oh, we crop created the talent in some of the the selling motion changes that are in place that there's going to pay dividends over the medium to long term, but we still at work to do.

Second we must continue to effectively manage our resources has we have throughout 2019 that means continuing to focus on traffic acquisition spending conversion well continue to run a lead and fish in a fish and at the operating level all of which is even more imperative in this current environment. So.

Hi, accomplishing these initiatives initiatives. We believe we can complete our turnaround I can't stress enough. We're incredibly focused on turning profitable and we will not simply produced revenue for the sake or revenue without proper margin.

This goal is being made far more difficult due to the current kogan 19 challenges, but that does not change our result, I'm just alters the timeline a little bit.

So JP mentioned earlier, we established a new $20 million secured revolving credit facility with the I.T. North bridge credit.

Which is going to provide us with the flexibility we need during this challenging time, we're very appreciative to support reassert received from our banking partners and PNC they've been a great partner.

No. We really look forward to want to building this new relationship with C.I.T. as we finish executing our turnaround.

Now from an industry perspective, we're monitoring the situation its impacts on Oems and dealers in real time dealers were already struggling with profitability of a new car sales and a decade, a decade low margin before cobot 19 in the recent events are expected to amplify those struggles.

The ability for consumers to purchase could cars today seems to various state by state and at the local level as some of the regulating authorities are designated dealerships are there isn't a central services from a sales perspective, whereas some are not often and some are just I'm keeping it very vague.

We're going to continue to alter our go to market approach to support our clients in a manner that keeping with federal state local and individual dealer standards, but again, what I will tell you. This is a moving target things have changed considerably just over the last a few days you know we're we're monitoring.

The situation right now there's about 20 states that have a stay at home or retail restriction of some kind of six of those states have but said that sales is essential I'm one of the state's came out and said that they don't believe it is so are they at least at one of the a one of the.

Oh, the dealer advocate group said that they don't believe it is or that the dealer needs to be careful a breadth of stayed a bit Bay God. So this is a dealer by dealer location by location environment, and we're working with our clients to really help them.

Manage their businesses through this time.

Nevertheless, we do expect the business to return and we do expect that demand for all products will will return as the conditions normalize and we're positioning ourselves to help dealers get end market car buyers through there.

Outdoor when when the time columns.

I've stated many times on prior calls one of the things that we really like about this business is that where pay for performance.

Our value is a line very closely with the client value you don't pay for our products. If they don't work for you essentially.

We're really held to a standard of performance with our clients at some of our somebody other marketing providers in automotive arch and well some folks maybe that is challenged I view that very much as an opportunity I also think it's going to really help us as the market starts to come back because ultimately the dealers are gonna be looked.

For the types of solutions that we provide which is high quality sales opportunities.

That are really personal in nature right. We put names in a CRM systems, we provide dealers would real purchase intent, which is quantifiable measurable and they can hold us to an ROI standard. So I actually think that's going to help us as the a as the market starts to normalize and come back.

So in summary, we're positioning ourselves to help dealers and Oems navigate the current environment and we are continuing to make key improvements to product quality traffic acquisition and conversion all while maintaining a very lean and efficient operating base.

We'll also continue to optimize our product mix of leads and clicks along with our sales channel mix of Oems and retail dealers with a strong emphasis on profitability as opposed to revenue growth.

Last I really want to reiterate my gratitude to our team's dedication response the challenges presented by Kobin 19, and by their commitment to the work that that lies ahead.

I also just want to provide the I just want to say how.

I'll thankful I am to the clients that we're working with they're a they're facing some challenges or their own and we're doing the best fit to support them in the way that they need.

So with that we're going to open it up for a for a for questions and well do the best weekend to answer a anything airport.

Thank you, Sir ladies and gentlemen, if you have a question or comment at this time. Please press the star than the one key on your Touchtone telephone. If your question. It's been answer to you wish to move yourself from acute please press the pound Keith.

Our first question comes from the CRO would be the rally FBR.

Great. Thanks for taking my questions guys.

Just wanted to start up first on a dealer count I noticed it was down in the quarter and I was just trying to figure out it's not a function of kind of the optimization around retail mix, Oh, we versus retail dealers.

Haley Thanks to the question now it's more of a bunch of timing, we normally see a decline in dealer count we see an increase at the end of the year dealer start to or you know start to take a look at their their marketing budgets and you know our product is one the dealer can cancel and come back on.

With very little friction.

So we see dealer count declined and we see some of those clients come back throughout the year.

You know really when we look the dealer count quite frankly, we just need to continue to two to chop would not improving our selling motion and I'll go to market approach you know we've talked about this and the path.

And it's true today.

You know, we've got to get better.

Presenting our value proposition the dealers because our value proposition is real its measurable we just haven't always done the best job of Ah presenting it you know a good example is the click attach rate, which is something we've started talking about our click attach rate was.

Little over 8% a couple of quarters ago, and it's over 15% now and we didn't do anything other than really start to present that product in a different way wasn't like the product change. We've made some underlying product improvements don't get me wrong, but from a dealers perspective that wasn't why we weren't getting the.

Traction that we want it so a lot of this has to do with top grading the talent a lot of it has to do with improving the selling motion a lot of it has to do with the the structural work that we've been up to and that's one of the things that we didn't make as much progress on in 2019 as I hope I'm at a lot of churn on the retail side of the business from.

From a team member perspective.

We had a couple of starts and stops with a with building a team and Tampa, but I feel good about where we're at right now I think we've got a good solid foundation to build upon but it really has more to do with how we present our products and.

And how we go after the market and a than it does I think or anything else Lake.

Got it and then just I'm thinking about gross margin.

You know you've made some progress for the year over year basis, you know with with the first quarter.

Essentially complete can you maybe just talk about maybe the progress you guys have made on gross margin ahead of the the slow down and then I guess is the expectation that it declines.

First and second quarter that you know, perhaps with volumes come back you're kind of a reset higher level.

As a threat way to think about it and maybe just kinda talk about the trend today.

Yeah, I tell you what I'll just talk a little bit very very briefly on some of the some of the business impact that we've seen at all at JP pick it up.

And finish it out I mean, you know we had the malware incident in January which didn't help from a margin perspective.

We've overcome that we're back up and running and then with the coded issue that we're seeing you know that is going to have an impact because of how it's going to change some of the and the revenue mix that we have.

But we continue to make progress we continue to get more efficient on the operating line like I said, we you know we have taken costs out and we continue to to get more efficient with our I'm. Our search spend you know we've had some fits and starts there, but I feel good about the trajectory overall that were on that.

And the mix need to continue to be optimized, but JP I mean, what did I Miss there.

Yeah, I must remember a year ago, you know, we told everybody that it was gonna be a little choppy you know wouldn't be a straight line, but you know we felt that we could get margins back too.

30% it wasn't going to be immediately but over time, we get there and.

So we started to have higher numbers, a we'd have a few in the high teens and a couple in the Twentys. The last six months of last year.

Six straight months of 20% plus gross margin so that's great.

We had a couple of those that got up into the 23, 24% range.

My 10-Q, one is going to be about what you saw in Q4, and then we'll start to build again and hopefully start to see consistent production in that mid twentys with a few into the high Twentys and 30% range and then hopefully you know next year, we can get this back solidly at 30%.

Got it and then just last question for me and and obviously it's.

Fairly dynamic times, but.

Some of the other ought to lead Gen companies have signaled kind of a one month impact others three month impact you know as it relates to your suspended accounts or maybe just kind of a base case for now they're kind of the expectation that this is kind of a one month suspension or or is there an expectation that it could be longer than that.

Yeah, that's an interesting question Lee and I'm expecting it to.

The longer than one.

But I expect it to transition several times and I'll give you a couple of examples so.

When the stay at home in the retail restrictions were put in place.

Some states reacted and some some some local governments reacted very.

Very strongly for retail dealers and so we hadn't dealers starting to shut down in certain state.

Over the last couple of days, we've actually gotten notices the dealers are opening backup Maryland is an example, Delaware as an example, new York's an example, they're starting to open back up and so I think we're going to see some some fits and starts here I do expect the impact to be prolonged.

I will also tell you that the bulk of that number that I I shared with your earlier in terms the impact that that's not only M that strategics.

And that's retail we haven't seen much of an impact on the OEM side, but I do expect to see that as well. It's one of the reasons why we're pulling back our marketing spend a bit I'm, because we're getting out in front of it because as you know, it's it's not a de get flipping a switch I mean on these Lisa SCM spend we want to retain any level of efficiency. So.

I expected to be more than a one month impact I expected to grow and I also expect it to contract in certain ways.

But I do expected to grow before we get a meaningful material kind of pull back, but I hope that answered your question I wish I could be more specific way there again, it's fascinating because.

The way the hit in the states are handling it and I think you I'm sure you know.

We've also got the all of the.

The folks who support the Oh, yeah or support the the dealer business lobbing very heavily.

To get a retail sales into a central status.

Again in a lot of state its its services, specifically called out sale to them.

And now that clarifying so it's going to be a dynamic a situation don't exactly no, but I do expect it to be more than a one month impact and I do expect it to grow before it before it really materially decline that useful and if not and JP. Please please.

In two because we want to give you the best information. We can I just you know, we're dealing with or without an hour by hour day by day basis.

Probably the only thing I would add to that is just keep in mind that you know 20% margins and.

The overall total revenue losses, not as impactful because we're only dropping 20 cents to the bottom line.

Yeah that makes sense, certainly dynamic times and I appreciate the attitude I don't think fuckers.

[laughter].

Safely.

Our next question comes from Gary Prestopino with Barrington Research.

Hey, I'm good morning, everyone.

Hi, good morning.

Just a quick question here in terms of well couple of questions really.

In terms of performance in the quarter, what was the topline up to your expectations or or or did it come in lighter than you had expected it was going to.

[noise] I came in lighter than we wanted it to than I was expecting and did it and again, we haven't made the progress on the revenue side than the revenue growth side that we expected last year.

This year, we're gonna have to have stuff, we're going to have to get more performance out of that and a lot of our focus is going to be on that yeah Gary.

We came in lighter than than I had hoped.

Okay.

It looks like here based on your income statement.

12 months it looks like you took out or just you know rah rah rah costs here it looks like there's a $9 million decrease back to the on below on your on your costs ex the goodwill impairment of long lived assets.

And then to me it looks like you know in order to really break even off this cost structure you got to generate between 120 129 million a sales based on on these numbers here. So I know you've done a great job of taken the taking costs out probably a lot of low hanging fruit, but what what else can you do in terms of your manageable.

Costs is particularly given you know the situation that you're probably going to be in here for the next three to six months.

So we did take another close the million dollar run rate cost out in a.

Q1 early Q1 late Q4 early Q1, so we continue to turn that screwed, Gary and we continue to find areas of opportunity.

We think we can get more efficiency, there, but but again you know at the end of the day, we have to do as we have to get our marketing spend more efficient that's part of it and we have to get the retail side growing again retail side with the a with the margin characteristic is critical.

To this business so because as we've talked about the OEM side of the business is produces volume.

But it's not really all that all that margin positive and so you know we're attacking this from multiple phones. One is on the sale side, we've talked about that Oh earlier.

Two is on the cost side working continue to turn that screw we're going to continue to find operational efficiencies and extract more productivity I don't think were down there.

And then on a product side. Some we haven't talked a bunch about we're making a bunch of small changes that are actually having you know impact.

Now we're gonna have to come to you stack some of those up but we feel good about the trajectory. We're on and example would be we've added new AD units and thank you page that's a that's actually.

Or monetizing it through the click a distribution channel on the click through rate is north of 60%.

That's good positive progress that's a that's a few thousand dollars a day or high margin new revenue that were folding into the mix and what we're giving us as we're giving up a secondary lead.

Revenue, which had lower quality and lower margin. So so we'll do that all day along.

<unk>, we're improving some of our funnel conversion metrics with some of the changes that we're rolling out as well so it's going to be a mix of those things that get us home Gary.

JP do you have anything to add to it I missed anything there yeah I would just expand on what you said about you know we.

Lot of those cost initiatives last year were mid year and somebody later in the year and then at the very end of the year. We took on more so we're gonna we still have yet to see the full annual benefit of those decisions.

So I think we do we do nothing else, we will see overall expenses for calendar year 2020 down by about $4 million from 29 team.

Okay 4 million, Okay, great and then in terms of.

If you could even talk about this in terms of Oh lead traffic lead volume like traffic volumes, how much did you guys start seeing a step down.

In the last two weeks of March versus the first two weeks of March and like I said, if you can't really talk about it that's fine because you know I understand where you haven't reporting Q1, yet, but just trying to get an idea the magnitude of what's going on here.

Yeah, It's what you see overall I'm, what we're seeing is very similar to what the rest of the market is saying here and so what's been interesting areas. We sought come down and then we're seeing traffic come back on.

And so call it 20% to 30% off in terms of traffic, but the traffic and Sal isn't a great.

Isn't a great a signal of what's going on because.

Couple of things one is the auctions are getting easier to win because folks are pulling spend out we're not competing with as many people in the auction. So our spend is actually getting more efficient.

Cost for lead is actually a right that that we would love to see it at overall and aware of them. So we're seeing some some good improvements there I'm just won't be sustainable over the long term without some other changes were seeing it right now because of the market dynamic.

The other thing that I'm I'm, a little worried about quite frankly, and we're trying to get our hands around is well traffic has started to come up as people are at home and their submitting lead.

I mean, they're gonna be buying cars at the same right and so the one thing I'm worried about is kind of the underlying demand that really sit there I mean JD power as you know they announced yesterday with him for they think mark sales gonna be down 45% year over year, They think april's gonna be down once a 78% year over year made down 75% year over year. So.

Well, we're generating lead or generating the same what looks like the the same quality of lead if consumers are going to buy in a different way, if they're going to elongate the buying cycle, which likely they're going to don't get me wrong. The Oems are doing everything they can you keep people in market. When you look at the incentives are out there right now it's a great time to.

If you're thinking about buying right your present Brady for months and GM Ford you got that six month deferral program Hyundai Soc with their assurance program Nissan's got Europe or 60 mine.

Yeah, no all in and they're all really pushing hard to stimulate that demand, but again, we're generating lead our traffic down or efficiencies up what I'm really worried about is kinda that underlying demand is there because that will swing back on us in the form of credit because we are ROI base, which means.

We sell dealers leads and they expect us to to sell cars within 30 day period. So.

Don't know if I'm doing a good job answering your question Gary but these are all the things that we're wrestling with right now we're trying to dial back our spend we're trying to harvest as much margin as possible right now because again, there's there's there's less competition in the auction and at the same time, we're really trying to keep an eye on that quality, which is a bit of a moving target because.

Between stay at home orders the OEM incentives.

And consumer confidence and how consumers are feeling about making some of these these these you know consider purchases. These luxury Adam purchases right now that it's just we're trying to triangulate our way through that and we're walking the close rates on a weekly basis, but again, we're gonna have to really keep a close close eye on that because even if we generate.

When we generate revenue right now I am concerned that the lead quality, maybe eroding underneath that we don't see it just yet simply because these other factors that I mentioned.

Okay, and then lastly, you know it looks like you got a lot of money tied up in in receivables and obviously, that's that's you know until those become monetized that's a big use of cash but in general how much cash do you need to run this business.

You know on a monthly basis or on annual basis.

Well, our receivables are the basis for the the credit line that we just right right put in place. So off so we draw off of the balances that we have there. So we've got now this new $20 million line.

We will under this line, we have a minimum draw of $10 million that we have to me. So we will have $10 million on hand.

Okay going into next quarter.

Okay.

And that should be sufficient where you should be right I believe so yes.

All right. Thank you.

[noise]. Our next question comes from Eric Martinuzzi with Lake Street.

Yeah I also wanted to focus on the new credit facility.

The.

As those receivables get work down.

I'm just concerned about the ceiling sort of dropping to a level.

Is that may not supports the working capital needs of the business I don't know if I'm framing there. The question right, but is there are risks that that happens in the next three to six months.

Yeah, I certainly we did the quality of the receivables matters the age of the receivables matters in how much availability will have on the line and then we were able to access 85% if that value.

Okay draw.

So yeah, we're very very focused on those things and if.

Quality and aging started to.

Fine then.

We would have less availability, but I don't think we're going to need to draw more than this minimum draw that we have now this year and I think we're in a very very good spot.

Mhm.

What about the ability have you seen any any canary in a coal mine.

Signals from I'm, certainly not on the OEM side, but on the retail side of dealers and that's an invoice I'm not going to pay.

[noise], so our process, maybe a little different than others and then we actually vet that before the invoices go out to the dealers. So we're able to reconcile with Townsend quality errors issues. They may have before it even gets built.

So as a result, you see very very little bad debt in this company.

Mhm.

And Eric that's one of the reason why we're on the front side of this too with the suspend status and also modifying the.

Yeah, the size of the Oh, the marketing spend that we have with our clients. We've been actively working with our client can make certain that were right sizing.

Their marketing spend for what's going on because you know dealers may not be shutting down their sales, but they may go to a skeleton crew and if they go to skeleton crew that may not 100 leads they may want sippy lead.

Because they want to keep people working and they want to keep people flown but it doesn't mean that we are managing that as well. So when we look at that suspend status and we think about some of the other adjustments we've made to the to the clients. We're also trying to get on the front side of this.

To help them right sized their spend with us so that which ultimately helps on the receivable size as well because.

Again, there they they know what to expect and worked with them on it.

Mhm as Gerry said, you know lead quality is important we're trying to help these dealers sell cars. So we want to make sure that they are getting and being billed for exactly what they ordered and what helps and drive their business.

Yeah.

I guess one of the other thing but.

Yeah, well have triggered one other thing I'd add to that too is you know what we're shifting our mix a little bit in terms of what we're presenting as well from a sales perspective listen a year ago, we would've had really hard time doing.

But right now so what we're focused more on on traffic sale like our click product more on web leads plus.

More on payment pro somebody's other products that with the downturn will still deliver value as well. So please understand too as well as we're making this transition we're working with our clients. We aren't just continuing to push some of the other products that that historically, we've pushed that may not be as valuable to certain dealers in a local market.

And we're starting to move that too so again for what it's worth the work we've done to create a better foundation from a selling perspective allows us to get more precise with what we offer the clients.

And change the mix a little bit to better align with the current market conditions.

HM Okay.

Okay.

And my last question for you Gerry you you know you've been around me digital marketing for a long time, and specifically auto related digital marketing any lessons learned from your time, maybe going back to Cox automotive with your your time at auto trader Kelley Blue book as far as you know.

Muscling your way through a recession in the auto industry.

Yeah, Yeah, no absolutely I.

I do think it's as simple as stay aligned with your clients and really stay focused on what's going on in ultimately it's about rate volume with the clients and so GPS earlier point that lead quality Super important we've got to stay really really focused on that and also getting out in front of some of these trends.

With our at the M. spend our media spend overall, because you know these things have a way of sneaking up on you.

And we've got to get out run of it and be proactive to really manage the business you know to really harvest as much margin in a line the demand that we create would the demand at our clients actually want and then again if you know just good business one on one is wasn't.

We've been cintron, our belt for a year and a half and and the good news on that is we know how to do it.

And so you know this isn't a change for US. This is off just continuing to turn that screw and and find more operational efficiencies and more productivity.

And and we think there's more to be had there but again the good news in my mind for us that we've been doing it for a while I'm not all businesses or or are you know have that muscle as strong as we've got it because they haven't had to do it for a while so I would just say that's another one too as we just got to keep England.

I actually focus on operational efficiency and productivity I apologize for the background noise. Here. These are the joys of working from home.

[laughter] alright.

Well, we are fully appreciate that myself. Thanks for taking my question.

I think there.

Again, ladies and gentlemen, if you have a question or comment at this time. Please press Star then the one key on your Touchtone telephone.

Our next question comes from had Booth estimate capital.

Yeah. Thanks for taking my question. My question is more on the supply chain are you seeing any disruptions with <unk> dealers being able to get cars and your fingers and maybe any interest not and no production.

Yeah, Hey, Ed.

The good news Bad news story, so on the good news side, we entered into this with call. It 69 day supply right. So we got a lot of inventory going into this and in some of that manufacturers had more than others and I think Ford entered with I want to say about 95 days supply.

Sta entered would like 75 days supply GM entered its like 70 day supply. So we had a good bit of supply on ground.

Now, we all know that the way W and a in the manufacturers. They did a they did come to an agreement where they're going to start where there were there already shutting the plants right and they have shut the plant than they expected to be rolling couple of weeks, it's probably going to be longer than that right probably going to be closer to.

You know in my estimation, depending on the OEM, it's going to be anywhere from you know a couple of weeks to two month month, and a half, but they're going to they're gonna see some some no some production declines.

But again they entered into this with good robust a day supply or ground stock also with the sales rates falling like we're expecting them to fall you know I think we've got inventory for a while I'm not overly concerned with ground stock on on the new car side.

I'm also on the used car side with would be auctions going more digital than they are a than they are a physical and I mean, most physical auctions have been closed and so with either digital or nothing.

I don't see.

A a struggle with supply unless this goes for a prolonged period of time I think what we've got as we're going be able to sell down the ground stock that we have as an industry and hopefully as demand starts to increase on the on that on the consumer side, they're gonna be other ramp up production back pretty quickly again.

And if this is only a month or two months I think we're going to be okay. If it did extend beyond that gets more disruptive or if they take production offline, but to do other things it may become a challenge, but but but I don't foresee it in the next month the two months.

Great. Thank you enough, where you guys. Good luck.

Yeah. Thanks.

Our next question comes from J.P., you're getting from global value investment group.

Good morning, you discuss how you are your product provides an ROI and measurable ROI for your customers, but can you put some more color around how you measure that and how that number's developed.

Yeah sure <unk>. Thanks for the question.

So we triangulate the number we triangulate at one of three ways. One is we get sales match stayed up from a subset of our clients. So they actually send us there already RJ than there are retail deliberate report that.

Until we calculated off of that for those clients.

I'm too as we have a couple outside sources that we generate close rate matches off of it so registration data as well as RDR data, but aggregated by third parties, we buy we buy that and we match it that until we look at it that when we look at it I think when I talked about this the Pat.

We look at enrolling 90 day period, and we also look at a 30 day period could ultimately our clients are looking at an on same store close rate 30 day period that convert.

And then number three is I'm really the interactions we have their client you know we do have a credit process, where it's a client doesn't see value in the lead maybe doesn't meet all of the standards.

We have collectively agreed to in terms of contact rate or quality a dealer can ask for credit. So we watch that as well as just chatting with our dealers through this process and our customer support side to really understand the value of a that we're delivering that in store basis, and I think we all know.

You know the good news badness message on this one but dealers aren't shot and so you know there they're very open with the with US around are we delivering value all we not delivering value. So that's the way that we manage this again number one is we do get some sales match data from some a subset of our clients too as we we've got outside sources that we use that we can match.

Across all of our dealers and then three you know we watch.

Terminations credits and our interactions with our C. S sounds very closely to make certain that we understand the trends and dynamics that are going on because that is more of a leading indicator than some of the other ones that we have.

Can you either quantify that ROI or give us some color on how that's developed directionally overtime.

Yeah sure I mean.

At the end of the day it depends on the dealers close right. It depends on their process and so you know we see anything from you know.

You know, 234% close right all the way up to 12% close rate then when you do the math on our leads and.

Those different close rates based on a dealers.

Cost of acquisition and their overall.

Cost of to sell a car, we with the dealer who as relatively reasonable.

Efficiency and productivity.

We can easily beat what any idea considers to be the standard.

The the cost for new vehicle sold so you know, we do want to be a high quality low price product quite frankly, we're not afraid to.

To get aggressive because we believe in our value. So we do believe that were very very competitive in relation to other forms of digital media that could substitute this out for.

Because we are more measurable and at the end of the day the ROI for the for the average deal or is it more productive with Austin than what you see with some of their understand.

Great can you discuss your Salesforce, how that's developed since you arrived at the company and what I wish I want to do in terms of developing your sales force.

Yeah, well absolutely so.

And we've got two major sales teams and I'll take them individually one is the OEM and strategic side of the business is what we call. It so OEM and top 150 and then the other is the retail cool.

[noise].

Yeah. The retail group will start there was we had inside sales we had outside sales than we had hybrid sales. We also it inside support outside support Highbridge imports.

We really kind of transition to be more of an inside sales and support based model. We still do have some folks in the field and grace and they do a good job for us, but kind of the dominant kind of approach is really evolved around being more inside sales and support focused.

Also we didn't have a sales presence when I arrived in Tampa, We only had a sales team in California men in the field.

So what we've done over the last years, we really built a sales team in Tampa and then we've got the sales team in.

Sales and support team tamp on trend they've got to sales and support team and in California as well it allows us to to chase. The Sun. We also originally didnt have clearly what I consider to be a really clearly defined market representation approach in terms of territory management, we've improved that.

Over the last year, not all the way there, but we've improved considerably.

We've also top grade is a lot of the talent you know that the team from leadership perspective has has transitioned extensively over the last probably six to eight months.

The other thing we've done it we've we've worked on incentive plan the incentive plans really werent focusing the team on a specific mix when when we first started this journey.

We're getting far better at being able to focus the team on the kind of mix that we're looking to drive as a business for our margin and also to the benefit of the dealers because we know what actually helps sustain their businesses better.

That's on the retail side I know, there's a lot there and I'm I also didn't go and everything but but that's that's a good overview I think now on the on the OEM side.

And on top 150 side, we Didnt have a group that was specifically focused on the top 150, we do now.

We've transitioned the talent there a couple of times as well we've added a more customer support there and we've got a news leader there as well on the OEM side has got a new leader there too.

We've also started to better articulate our tier one versus tier two strategy like tier one is the OEM tier twos, the advertising groups that work with dealers amnio.

So a lot of work is going on there the same thing on the OEM side as you know.

Modifying the sales approach modifying the incentive plans.

Doing a lot of that blocking and tackling that need to do to have good hygiene around consistent sales. So again, we're not all the way there, but I feel good about the work we've done I feel good about the progress, we're making and listen a couple of these instances, we we had to start over once or twice we did.

And so you know we like the approach we pushed forward it didn't work out the way we expected it to so yeah.

The Big Kras, we took it down we rebuilt it again and you're going to see US continue to do that until we get it right, but I feel really good about what were what we're doing right now and I feel good about the the trajectory rod.

Okay. On my final question is can you discuss changes in consumer behavior that youre observing above and beyond I'm. When it's caused you didnt really mobile enabling optimize your platforms, perhaps more of long term trend and how that affects autoweb.

Yeah, Yeah no.

Finding ways to engage consumers beyond that for five long lead formal starts there. It is important so as we think about where we're going and we've talked about this matchmaker concept in the past its really about matching buyers and sellers and dimensions, others product pricing geography and show you know we've actually done some work there and we're gonna have to continue to do.

The work because ultimately consumers of expectations that are beyond just you know I'm going to give you my information and then from dealers are going to get back to me with pricing and so that's one trend as consumers being able to.

We're going to manipulate how they interact with the dealer is important and that's one thing is how we fulfill that come up and the consumer experience perspective [noise].

The second thing is is you know folding in things like.

Automated interaction between consumers and what appears to be a seller to give them more information to to improve the the quality of the lead that's going to become increasingly important we see some of that another another.

Vertical category to a limited degree, but another vertical categories well things like.

I'm going to Boston wrapping interact with consumers right up until the point, where the basic questions can't be answered and at that point, you've increased the consumer propensity to purchase and you can transition them more effectively to two clients so bad that to something that.

That's going to impact us over the medium to long term.

And then also just opening up other channels of communication.

You look a younger buyers.

Email is not a dominant form of communication for that other place then anyplace other them work for the workplace and even the workplace. That's that's starting to erode as well with all these you know Microsoft teams and slack and all these other things are really replacing an email and a lot of ways. It looks more chat base.

So interacting with our consumers and making those connections through SMS and some of these other thing other forms is gonna be important as well and we're working on those and thinking about those things too so.

I think downs or some of the broader trends on digital retailing really feeds into what I mentioned earlier about a more robust consumer experience, where buyers and sellers are able to connect on dimension to other than product and pricing [noise].

Honestly I'm so all of that really goes into our thinking and that's part of our product development and product Roadmaps that we've developed and that we're working on.

Great. Thank you very tight.

Hey, JP I guess, one other thing I would say I apologize I tend to get long window. When it comes one other thing I would say it affordability you know we serve a very specific consumer segment that that's really focused on affordability and so helping consumers make the decisions around affordability is gonna be increasingly important this way.

Well the average new car prices for over 35000, though 36 is not a little bit higher than days I haven't looked at the number recently.

And so you know even with interest rates being as low as they are affordability is going to increasingly be something that we're going to help east consumers make good decisions on again, because our consumers. When you look at though the makeup on and these are bread and butter Autobahn.

This is middle America. These are folks who who you know really are focused on that 10, 15, 2025, $50 extra month and helping them in that area is gonna be incredibly important I think it's it's something that's going to hit this industry over the next.

By 12 to 18 months and in a much more material way than but it hasn't a previous 12 to 18.

I'm.

Just a question and answer session I'd like turn the call back over to Mr. off for closing remarks.

[noise], well, Hey, I just want to say thank you to everybody. We really appreciate you joining the call look forward to speaking with you next earnings call I know that can be coming up shortly and so thank you for everything also just want to thank the team.

Our team has made this transition to the work from home environment I'm in a pretty pretty pretty a pretty good manner I've been pleased with the way. The teams engaged had been pleased with the way the team has continued to.

The soldier on and work through you know these are times, where you've got a lot of personal disruption I mean, it's easy to get distracted by that but I'm really proud of the work that our team has done to stay focused on not just a personalized also stay focused on what we need to do to deliver value to our shareholders deliver value to our clients and really keep the promises that we're making.

In the marketplace. So I just want to say thank you for all to all of you joined the call really appreciate your support appreciate everything that the that are you done force from last year really said really just say thank you to the team for everything that they continue to do and again, we look forward to chat with you soon about the Q1 results.

Ladies and gentlemen, just conclude todays presentation. You may now disconnect have a wonderful day.