Q1 2020 Earnings Call
A P financial measures to the most directly compare G.A.P. measure is included in today's press release, which is posted on the company's website and with that I will now turn the call over two Jared.
Thank you <unk> operator, appreciate that and a good good afternoon, everybody given the the ongoing circumstances surrounding the coded 19 pandemic I'm going to take up.
A similar approach for this call as I did last quarter. So what this means is that all start out by providing a brief overview of our results for last quarter.
And then we'll dedicate most of our time to industry impact the current state of the business and and how we're responding to the covert 19 pandemic.
So quickly on the first quarter, we make good progress on or turn around through most of Q1 with a stay at home mandates that were an accident March. However, we did see some marketing spend pull back from both our retail and are we clients. Yeah. There was a lot of uncertainty around whether it vehicle sales were considered in the central service under local state.
Federal mandates during that time.
So in this environment many of our retail and strategic account started entering what we call suspend status with us because actively means that they they put their their spend with us on hold for for 30 days at a time or or until they want or we said that sometimes a little longer from time to little shorter, but it isn't a poltermann.
Cancellation, it just helps them manage their their media spend.
During the same time, we also started reducing our overall lead and click generation spend better a line or volumes with industry demanded consumer intend to purchase a vehicle.
And you can imagine when stay at home mandates were put in place there was a surge of consumers browsing for for vehicles on line.
However, the that doesn't necessarily mean.
They were ready to purchase a vehicle in X. 30 to 60 days and those are the leave that that we focus on most for our clients and we're really focused on highly targeted in market consumers and we're ready to buy a car yeah and we we we focus on folks who are ready to buy a 30 days 60 days or.
The longest 90 days.
Coping 19 did severely impacts sales in the automotive industry for March and April those two months various reports estimate that auto sales are down 40, and 50% respectively.
They also a now expects 2020 U.S. sales to range between 12.6 14.5 million.
There's compared to a pre covert baseline of anywhere from 16.8 to 17 million SAR seasonally adjusted and realize raid.
So you know we're actively monitoring all these trends and we're we're adapting accordingly, while still holding true to some of the strengthen initiative that that constitute the core of our strategy.
Namely, we've we've focused on thing efficient with our resources and further positioning ourselves as the the strategic partner to our client.
It was higher numbers of consumer shopping online a mid stay at home orders, we continue to emphasize our commitment delivering high quality mixtures of leaping click to our customers.
It was focus has become especially important in the context of of current industry disruption.
Within the organization, we haven't wanted a series of cost reductions in response to the pandemic with the aim of mitigating the financial impact.
Tar broader team, we've reduced our recruitment reduced our travel consulting we pulled back on B. marketing expenses and and we're going to continue to prudently manage not a central spending going forward.
In addition, we've consolidated many of our technology tools and products to realize further cost saving.
And then finally, our our entire board of directors and executive team have taken voluntary compensation productions for Q. too cats compensation being reduced by 50% for the board.
Except for me and 10% for the rest of the executive team. These measures are helping us remain nearly fully staffed we've had a few very limited furloughs in the United States in some limited layoffs or staff abroad.
But but we're focused on trying to ensure that we're supporting our employees and they have continued access to health care. During this public health crisis.
The health and safety of our employees continues to be a top priority and we're gonna continue to evaluate all measures necessary.
For helping them through this challenging time also maintaining an effective continuity of operation for our dealer and volume client. We think that's critical right now is to really stay supportive of of those folks who are who are struggling as well.
So all of more to discuss about navigating evolving market conditions, but before commenting further like turn it over to J.P. to walk through our Q1 results K.P. can you take over <unk>.
Hello.
And good afternoon, everybody Ah maintaining the structure of our recent calls we're going to focus the commentary here on the key themes for the quarter rather than reviewing every line item that can be found in our beliefs and our filings.
We're also going to keep it brief as realize that the results for most of Q. Wonder now less relevant in today's fast changing environment.
So with that said.
Total revenue in the first quarter came in at $24.5 million, that's down about $2 million from last quarter, and 7 million from the year ago quarter.
Total advertising revenues, which is the aggregate subset of click and display revenue increase to $6 million.
That's up slightly from the last quarter in a year ago quarter.
No. The the decline in total revenue really stems from lower lead volume and that was particularly so in March.
Nor continued focused on value is further reflected the gross profit line gross profit as down only by $200000 compared to last quarter and 400000 from the year ago quarter. Now. This is despite a 7 million dollar reduction in quarter from last year.
Or first quarter gross margin was 21.9%, which is up 120 basis points from last quarter.
370 basis points from Q1 of 2019.
Gross margin improvements were driven by more efficient traffic acquisition and higher margin product and channel mix.
And our net lost in the corridor was $4.1 million not compares with net loss.
3.2 million in the fourth quarter of 2019, and a net loss of 5.4 million a year ago quarter.
Or net loss in this first quarter wasn't negatively impacted by some one time items.
Related to the refinancing of R.P.S.U. credit facility. So that included a right off of approximately $429000 in capitalize dead is she wants expenses and there was a 250000 dollar early termination fee.
Are adjusted even after the quarter was a loss of $1.7 million and that's down by about a million from last quarter, but an improvement of about a million from the year ago quarter.
[noise] or net cash used in operations in the first quarter. It was about $900000. That's an improvement from the 9.4 million use last quarter and up from 2.1 million used in Q1 2019.
But march 31st 2020, cash cash equivalents and restricted cash stood at $7.9 million compared to 5.9 million.
At the end of last year.
March 31st 2020, we also had an outstanding balance of $6.7 million.
Revolving credit facility with C.I.T. Northridge capital.
As of March 31st 2020, we have about 2 million available to us on that revolver.
Please keep in mind that well, both the P.N.C. facility and the new C.I.T. revolver are asset base lending facilities. There are some differences between the two structures just be aware of.
Under the P.N.C. line, we were required to maintain a restricted cash deposit as did you have a collateral, but we didn't have any minimum draw requirements on the line.
With this new facility, we again gain access to the majority of our cash reserves.
The C.I.T. facility requires us to maintain a minimum balance.
Standing, which right now on the line is $8 million.
<unk>, you'll see that we're now carrying a higher balance of down on the balance sheet and our corresponding interest costs over the next 12 months will also be higher than they were in a year ago comparable period.
So these steps we've taken to further reduce costs in recent months along with our cash position in the access to the credit facility. We started Q1, we think is positioned us to navigate this market environment.
You know if present trends hold in our business, which Gerard we'll discuss we're shortly.
Believe it or balance sheet liquidity, we'll see us through 2020.
Lastly, provide a brief overview on her q. when operating metrics.
Or click truck traffic was up by seven to 8 million visit sequentially and down slightly year over year.
Click volume increased by about 2 million clicks from last quarter in a year ago quarter <unk>.
He traffic was also up by about 2 million visits compared to the last quarter, but it was down compared to last year.
I was Jerred mentioned, we believe much of this increase is coming from the elevated numbers of consumers looking for cars online.
Given the stay at home orders.
Or retail dealer count or retail lead capacity Internet revenue per click roll down both sequentially on your every year.
And we can correlate these decreases with some of the covert related impacts.
They hit the auto industry, a widely over the last few months.
And with that that concludes my prepared remarks, and I will turn the call back over to <unk>.
Hey.
So as we look to key to look closely monitoring of trends for both you know any sort of industry patterns that we can discern as well as you know our customer activity.
We expect or anticipate the automotive industry is entering you know you shape, but w. shaped whatever shape you want to choose.
That that really speaks to a longer period of <unk>, a sustained lows before vehicles return to pre covered levels now that the department of Homeland Security is classified vehicle sales is essential service.
Card can be bought either online or at the dealership nearly everywhere Oh M.'s are also trying to support new car sales as much as possible.
He really strongly m. incentives are really low financing rates and really loosened state restriction.
On auto dealerships, we see them as is really helping to stabilize the sales over the last couple of weeks.
So given us bought her industry contact.
What a better place than we thought we would be since our initial thinking around the pandemic in March well our business, it's certainly down from where we were last year.
Our results in April did not reach our worst case scenario the number retail dealers entering suspend status with up began to stabilize at the end of April.
I'm, an only him lead volumes of how held up better than we really initially a anticipated just for some perspective on this Arthur Dent status peak was during the second week of April.
But by month and it actually have improved by roughly 10 per cent. The reason that this really matters, we talk about this in the past it.
And when I'm talking about the spends data so I'm really talking about our highest margin clients. These are direct retail relationships top hundred and 50 dealer relationships as well it it's amazing to see relationships.
So it was really good for us to see that it peaked and actually have been coming back down and really stabilized over the last a couple of weeks.
We know however that one month, certainly does not make a trend and at the industry and out of the woods, yet we must still contend with certain undeniable macro economic factors, including increasing unemployment numbers and declining consumer confidence.
At this stage, we we estimate that are volumes are gonna be down anywhere from 20% to 35% from pre cobin levels as we aren't really engaging in deep discounting or any other measures that would <unk> artificially inflate our volumes.
Now this isn't because we're we're taken affirmed stance on price it because we're sticking with our commitment delivering high quality leads and clicks for our clients ones that have a higher propensity to translate the car sales.
Also lower volumes are better aligned with the current sales capacity of our clients and since they're certainly not running at full strength right now.
The reality is is that they're far fewer consumer's willing to purchase a vehicle in the next 30 days. So so we're not going to.
Let our customers believe that we can deliver the same amount of high quality leave as we did pre cove. It. This isn't about pricing again, it's about real consumer demand and being respectful of her client current sales capacity.
<unk>, our internal data further support this position thing.
We saw a lead closed rate deteriorate in the back half of March and then hits a low in the early part early half of April.
Before they stabilized and actually improve materially by the end of the month. So we feel pretty good about the approach that that we've taken because we think that by proactively pulling from the volume out and optimizing our campaign.
We're actually helping to stabilize the overall quality of a a core product offering that that we sell to our client.
Oh, that's sad what what we know there if you were in market consumers today, we're we're still helping many of our retail dealer and O.M. customers prepare for the post coded recovery.
And that's what our current volumes reflect as we follow the evolving macro economic changes in both the auto industry in consumer behavior. We're gonna continue to work closely with all of our customers to to make sure that they're media packages are aligned with their current business and operational needs for the coming months.
Oh, we can't predict what will happen in a broader economy.
We know that we will continue delivering quality services and products and with data quality partnership which is ultimately the goal.
Not a separate node in in unrelated to covert 19, one of early M. customers decided to terminate its entire third party.
Lead based marketing program, we're in the process of transitioning manufacture out of early M. program.
It begins signing a network of dealers do our retail program just for those new word of the auto Web story, we felt leaving flicks Oh, we but then redistributive resell those products.
But they are dealers as part of a corporate leads program.
However, we also sell lead directly to dealers throw retail program. So in short we will now be getting selling to these dealers directly instead of going through the Oh yeah.
This will impact or leaving click volumes over the short term is this <unk> Oh, yeah, I'm accounted for about 3% of our revenue, but but as we rebuild the retail network, we believable benefit.
Our business and the medium to long term it as as the far more profitable sales channel with gross margin that are materially higher than the L.E.M. program.
We were making good progress on this because we we saw this comment about a month or so ago <unk> covitz slowed it down a little bit in terms of the dealer enrollment process, but again you see this as a fertile opportunity for us to transition. Some of those are all we revenue into into retail revenue.
Now is I've consistently stated in the past Govan 19, aside we have to continue to work to improve our sales channel mic for both leads and clicks by selling more leads to retail dealers are more clicks to endemic or near endemic advertisers.
This manufacturer's dealership <unk> program into a retail program plays directly into that strategy for lead.
Now the click side, we must continue to work towards increasing the mix of endemic in near endemic advertisers even in this current environment, we believe that clicks.
Will be more targeted their audience and command pricing that that is often eight to 10 times higher than what we see when selling to non endemic advertisers.
As a closing thought across our business, we're benefitting from both short and long term work, we have put in to make autoweb ilene flexible fishing organization.
The cost initiatives that we've taken over the past two years, even the past few months really helped us support our team and and really help us support our our clients and Oh, our client both dealers and all we EM as they navigate new environment and prepare for the recovery.
Current trends in the latest information available to US. We believe we are in a comfortable position for the road ahead and O.J.P. mentioned earlier, if present trends in the business whole, we believe it or balance sheet and liquidity, it's going to see if they're 2020.
So with that that's the end of our prepared with remarks, and so I think we're going to open it up for for questions. Now. So operator can you open it up for questions. Please.
<unk> at this time, if you would like to ask a question. Please press start then a number of wine on your telephone keypad again that start the number of wine for any questions little pause for just a moment to compile the committee roster.
And our first question will come from the line as Gary Prestopino from being can research.
Good afternoon channel and then how are you.
Scary doing all right hopefully up your family or well.
Yeah Everything's great here.
Can't complain hey, a couple of questions here.
First of all.
With this oh, yeah, and suspending the lead program you now have the ability to go out and sell to the dealers right.
My recollection was that Oh, yeah, M. leads were about half the ticket dealer league was that kind of correct.
Pretty close yeah, yeah, okay. So so basically [laughter] to recruit recoup.
The three per cent of revenues that you're losing on the outside you have to sell half as much to the dealers to to achieve equilibrium.
Yeah, and then the good news here too is that we can we can push a different mix and sort of your point, Gary it's not one for one and getting back plus when we're talking with our clients well focused on.
More solution based sales so we're talking about lead and clicks together and as we we optimized that mix. It has a much better margin characteristics and just selling lead the loan through the O.M. programs. So again, it's not one the one you're absolutely right. It does open up the opportunity across a plus and clicks as well, which is you know an important part of what we're trying to.
Do here.
Okay, and then just a couple other questions on what somebody jump in.
When a deal that goes into suspense do you count that as a dealer as of the end up a quarter.
Yeah, I just saw <unk> you do.
Yeah.
So could you may be just talk about.
Some of the issues that drove the retail looks like the retail deal account sequentially was down about 400 right mhm.
So what what what what's going on there is that since it's not suspended dealers that means that dealers I've just generally dropped your programs.
Yeah. So there's a couple of things going on there one is their seasonality in that we always be a we normally see a declining dealers at the end of Q. for early Q. wanted dealers are starting to rethink their their marketing strategies and then you know Gary we we tend to turn dealers, where we pick them up because there's really no friction between them, leaving in coming back I mean, well, we certainly didn't transition are good.
Drug dealer into suspend status you know, we weren't able to keep them all and we didn't see an increase there at the end of March in particular.
Dealers, who are hunkering down and we're and and we're really preparing for the unknown with the stay home orders as they started to come on line.
So you know it was a bit of a drop we think we're gonna get some of that back throughout the year for the reasons that I mentioned I I will give you a couple of datapoint's around the retail side, because I think it's it's interesting because we've talked about retail effectiveness and the need to improve retail effectiveness and a couple of data points I'll give you. If that is you know from December April.
We've increased our outbound calls volume for productivity.
They all came by 57% now that same time, we've also added Puerto sales people. So we've increased capacity and also increase efficiency now that's that's one measuring that's interesting, but we've also increase our talk time by 17%. So it's not that we're touching more just talking more client, we're actually having longer engagements with them and longer interaction.
Which leads us to the place, where we talked about needing to systematize that and and be better with our selling motion and those two metrics help me have confident that we are actively improving our selling motion and enlist we talk a lot about the retail handle aren't need to get there and you know.
No. We we made a lot of changes from a leadership team perspective, and I think we're seeing some of that finally, I finally take root and so you know within those are those are activity based measures and the outcomes follow but you need the activity before you can get the outcome.
Okay. Thank you I'll, let somebody else go.
Thanksgiving.
In your next question comes friend of mine at G.T.K. again from global value investments.
Good afternoon, gentlemen, you can push towards profitability for some time enough made some progress really since the second half a flash dear.
<unk>, you say that you're liquidity and your balanchine are sufficient to make it through the rest of the year. How do you really think about turning cash flow positive are becoming profitable in in in what timeframe do you anticipate doing that considering that [noise].
Changes in macro economic environment.
It'd be you want to take that one and good talk show.
Would you take that one yeah.
Yes, you know what you're seeing and then we spent it really two key areas. We've been focused on windows operating expenses and the occupant expenses. This year should be down over $8 million you every year from where we finished.
And 2019 and then the second is in the costs of revenue and then the gross margin. So we've seen steady sequential growth and gross margin things must six quarters in a row and we saw gross margin climb every month January February March nicely.
We actually had one of the best gross profit months.
I've had in two years in north of March despite everything else going on around us.
So it's you know, it's a combination of all of that but.
Tough operating environment, but I think we are far better.
Run today, we were far leaner and more efficient and.
And if we get a little top line.
Momentum I mean, I think we're going to be well positioned here.
[noise] and I noted that your gross margin has increased nicely.
Hi, <unk>.
Well the thing.
And over what timeframe and you target a specific number or what what's optimal for you.
[noise] or something right now my you know are my goal our goal in terms of just to get too.
Generating cash you know <unk> positive cash again, we're we're negative worry about 300000, a month is our drag right now we want to get that positive.
And then you know from there it just all depends on the environment around us and I don't.
I think it'd be premature to put any kind of forecasts out there were hard numbers until we know a little bit more about.
You know the situation world living in right now with the pandemic.
It's understandable.
As you receive have removed costs from operating expenses how much of this is structural change that we would expect to last in perpetuity versus how much. He has been taken out in response to cope 19 or the the current environment or how much is short term.
[noise] [noise], where we didn't even haven't Oh go ahead go ahead, I'm, sorry, I'm, sorry, I'm just going at one point in the you know we'd.
We recently cut 1.7 million out and it was almost entirely fixed costs.
Done a lot with personnel we haven't we thought was by design, we didn't want we want to we want it to maintain the stuff.
You know it's false level possible.
So I I think most of what we've done in most of ways layered in is fixed and permanent unless there's some strategic reason, we want to start leering costs back in.
I'm, sorry, <unk> take it from there no no no I I couldn't agree more and I was gonna say the same thing there'd be when you. When you think about one of the thing we talked about last call I believe what makes my last call.
Is you know we've done a lot of transformational work with the organization in terms of realigning restructuring, bringing some folks in elevating some folks internally to new roles and new challenges and <unk> point.
Well, we're really trying to do here right now it is really hold onto the team and keep this team engaged in focus because we've done an awful lot of hard work at some other businesses have to do now, but we've done it over the last year and a half and so we're.