Q4 2020 Autoweb Inc Earnings Call
Good afternoon, and thank you for participating in today's conference call to discuss other webs financial results for the fourth quarter and full year ended December 31, 2020, joining us today on auto Webb, President and CEO, Jared Rowe, the company's CFO, Michael Sadosky and the company's outside of <unk>.
Best of relations adviser, Sean Mansouri with Gateway Investor Relations. Following their remarks, we will open the call for your questions I would now like to turn the call over to Mr. Mansouri for some 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 intent or belief are forward looking statements and are covered by the safe Harbor disclaimers.
Contained in today's press release, and the company's public filings with the SEC.
Actual outcomes and results may differ materially from what is expressed in or implied by these forward looking statements.
Specifically, please refer to the company's form 10-K for the year ended December 31st 2020, which was filed prior to this call as well on the other filings made by auto web with the SEC 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 the non-GAAP financial measure as defined by SEC regulation G.
A reconciliation of the non-GAAP financial measure for the most directly comparable GAAP measure and the statement disclosing the reasons why company management believes that adjusted EBITDA provides useful information to investors regarding the company's financial condition and results of operations are included in today's press release that is posted on the company's website.
With that I'll turn the call over to Jerry.
Yeah.
Thank you Sean.
Afternoon, everybody.
Well, we made excellent progress on our strategic priorities during the fourth quarter. Our continued focus on effective traffic acquisition and the operational efficiencies resulted in our highest levels of fourth quarter gross profit and gross margin since 2017.
And despite continued COVID-19 headwinds through other industry, we drove material year over year improvements in both net loss and adjusted EBITDA for the quarter.
Which resulted in both positive adjusted EBITDA and cash flow from operations for calendar year 2020. So in short we delivered another really strong quarter.
Now with automotive sales in 2020, hitting their lowest since 2012, our team has been resilient in supporting our dealer and OEM partners as they prepare for recovery.
The stabilization of our industry is not really expected until later this year and and while inventory levels are improving they are still well below 2019 levels. This atypical condition of these atypical of conditions have challenged our industry and impacted the long term trends that are evolving the vehicle buying process.
As dealers expand their digital retailing capabilities and as consumers further seek them. We believe we're well positioned to help match the changing needs of buyers with the evolving digital retailing offerings of dealers.
Since the onset of the pandemic, we have intentionally managed our media spend down the more closely align our traffic acquisition with the true state of consumer demand on the market.
The benefits of this approach, but then it allows us to better manage the lead and click quality and optimize for our profitability.
From Q1, 2020 to Q4 2020 of our overall lead volume was managed down by 34%.
During that same time period from Q1 to queue for our data indicates the same store sales closed rates more than doubled.
So as you can see we've generated better quality of leads and clicks for our network, which supports a better margin profile for the business and has further improved our strategic positioning.
Now the strategic investments that we've made to improve our technology improve our operations and improve our products are really helping to reposition auto web as an integrated marketing platform that's focused on transactional matchmaking at scale.
We're ensuring that our offerings are equipped to address not only the growing digital needs of dealers and buyers today, but also the automotive consumer of tomorrow.
Now this goal has been at the core of our operational improvements as well as the key partnerships, we've established to support them.
Our team has worked tirelessly to bolster auto webs financial and operational foundation and elevate our digital marketing capabilities to stay ahead of today's evolving industry and car buying dynamic I'm extremely proud of the progress that we've made on our strategic plan throughout 2020 and look forward to continuing our momentum through the remainder of 2021.
All of them or to discuss the better operational performance of strategic initiatives, but before commenting further I'd like to briefly introduce our new CFO, Mike Sadowsky Who's gonna be on shortly to discuss the financial performance in the in greater depth.
But you know Mike brings more than two decades of experience in Automotives analytics and digital marketing from companies like Cox automotive game works and general electric.
Well, he and I were colleagues at Cox automotive, Mike, let a variety of finance and operational function for Kelley Blue book for auto trader and for dealer Dot com.
After our time together of Cox I'd I'd hope for an opportunity to work together again on them I'm thrilled that the timing of aligned and he joined our team we.
We are very grateful for the contributions of J P. Hannan made the during his two years of CFO of all the web on there were.
Excited to continue our transformation through a focus on product innovation and profitable growth with with Mike on board since he shares our philosophy and approach for running a lean and high performing organization.
I'll now turn it over to Mike to walk through our Q4 and full year 2020 results Mike.
Thank you Darren and good afternoon, everyone. It's a pleasure to be on the call today and to be joining auto of at such a pivotal time.
Let's jump right of Q4 results total.
Total revenue for the fourth quarter was $17 3 million down slightly from $17 8 million last quarter.
As we expected with some normal seasonality.
And it was also down from $26 7 million in the year ago quarter.
Sleep, we highlighted the importance of growing both our retail leads channel and our click revenue now.
Now I'd like to talk of about the performance related to those critical areas.
Our retail dealer count grew sequentially in Q4 by approximately 5%, which in turn helped our retail lead capacity grow by almost 7%.
While normal seasonality led to a sequential 8% the company's revenue of $13 6 million. The retail channel was supported by overall growth in the retail lead capacity, which in turn of improved our lead mix and that helped the overall margin performance.
Digital advertising revenues, just predominantly click related had sequential growth of 19% of $3 6 million and was down from the $5 $9 million of the year ago quarter.
The sequential growth is highlighted.
As part of our continued product recovery the <unk>.
Specced at the year over year declines remain in line with the COVID-19 related challenges throughout our industry.
As well of the seasonality typically experienced during this period.
We have also continued to manage on marketing spend to lower levels to optimize the value of our lead and click mixes and keep both products volumes aligned the true market demand.
The benefits of the strategy are most reflected in the gross profit line.
Which we believe is of more appropriate proxy for our top line performance for.
For instance, so on managing revenue down 35 per cent year over year in Q4, our Q4 gross profit was up 6% to $5 9 million in.
In addition, fourth quarter gross margin came in at 34.0%, which is down 36 down from 36, 1% last quarter due to seasonality, but the significant improvement year over year from 27% in the queue for 2019.
The year over year increase was driven by continued efficiencies in traffic acquisition and our focus higher margin distribution channels as well as recovery on our click product as we continue to sell more clicks to endemic and near endemic advertisers.
We continued to reduce operating expenses during the quarter, which were down 23 per cent year over year for $6 6 million as a result of our disciplined approach to cost management.
There was a net loss in the fourth quarter of <unk> 9 million or negative seven cents per share compared to a net losses of <unk> 4 million of negative three cents per share last quarter.
This is the significant improvement compared to a net loss of $3 2 million of negative 24 cents per share.
On the year ago quarter.
Adjusted EBITDA in the fourth quarter was zero point $5 million, which was down from 1.0 of million last quarter as expected due to seasonality and up significantly from an adjusted EBITDA loss of zero point $8 million in the year ago.
We see the consistency of our adjusted EBITDA performance. These past several quarters as a positive indicator of our plan and focused efforts on gross profit.
As a reminder, Q4 in Q1 are typically the slowest quarters in our industry due to the holidays and model year sell down dynamics. So the seasonality remains in play for us through the end of 2020 and into the beginning of this year.
Our commentary last quarter remains in place as we anticipate operating around these near breakeven levels of adjusted EBITDA until we reach the seasonally stronger periods of Q2 and Q3.
At December 31st 2020, cash cash equivalents and restricted cash stood at $15 1 million compared to $14 6 million at September 32020.
We have seen consistent cash balance growth throughout the year.
And that is the result of our focus on gross profit and strong cost control efforts.
As of December 31st.
We had an outstanding balance of $10 2 million on our 20 million of revolving credit facility CIT Northbridge credit.
At December 31st we also had the current obligation of approximately 1.4 million related to our PPP loans without the.
Currently forgiven in January of 2021, and so youre going to see that coming off the balance sheet for moving forward.
We remain committed to improving our liquidity and managing our costs.
And we continue to be comfortable with our balance sheet and overall liquidity as we move forward into 2020.
Now, let's quickly run through of the full year results.
In 2020 total revenue was $76 6 million, which is down about 37 4 million from last year as a result of COVID-19 impacts as well as our gross profit focus during the year.
Lead revenue was $61 1 million down $29 6 million from a year ago and digital advertising revenue for 2020 was $15 4 million, which is down about $7 7 million compared to 2019.
Again, while operating at these lower levels of revenue gross profit in 2020 increased 5% compared to last year to $23 7 million.
Demonstrating the continued resilience and success of our strategy and improving our margins for.
Focused approach to increasing gross profit as opposed.
Total operating expenses from 'twenty 'twenty were $29 2 million down about $8 7 million from last year.
While there were efforts made around cost controls as of now.
<unk> a substantial effort around cost controls unrelated to COVID-19 had already been made over the last several years here at Ottawa, So our opex improvements and we're predominantly a result of those efforts.
These multiyear caution initiatives are also of what enabled us to generate positive cash flow in the middle of the global pandemic.
Loss from 2020 improved significantly to a loss of $6 8 million or negative 52 cents per share.
Net loss of $15 2 million of negative $1 17 per share.
Adjusted EBITDA for 2020 also increased significantly to a positive share point 2 million compared to an adjusted EBIT the loss of $5 1 million in 2019.
We have made tremendous progress on driving profitability improvements for both the fourth quarter and full year, even against the challenges that the pandemic is posed for industry over the past year.
As we get further one of the 'twenty. One we will continue to closely monitor any changes in the industry conditions and intend to maintain our focus on optimizing our organizational efficiency and advancing our strong financial and operational progress over the head.
This concludes my prepared remarks, and I'll turn it back over the Jared for additional operational updates and color on our strategic outlook Jared.
Thanks, Mike. So you know as we've stated since the onset of the pin debit pandemic of COVID-19 related challenges the search based advertising harder than other forms of digital media over the past year.
The pandemic has restricted overall automotive media search spend and advertising budgets in line with the difficulties as opposed to a broader consumer demand.
We've been proactive in value oriented and how we have responded these patterns throughout 2020 of them I'm pleased to share some of the additional milestones we hit on both of our strategic initiatives and the recovery of our business overall.
So for our click products, we sequentially improved total click revenue as a result of signing new retail dealer customers and near endemic advertisers. We also experienced improvement in the pricing environment for non endemic buyers, which also benefited gross margin the recovery patterns are encouraging and we plan to maintain our focus on on selling more clicks to endemic and.
Near endemic buyers as a reminder, when I say endemic when I'm talking about is as someone who is in the automotive business when I'm talking about near endemic I'm talking about somebody who is affiliated with the automotive business and when I talk about non endemic I'm of course talking about somebody who is not affiliated with the automotive business. All three of those groups of of buyers by our click product.
Now the work we've done to improve the or selling of clicks is further reflected through our click attachment rates, which are really tracks. The number of dealers who are on our lead product that also purchase clicks.
Last three years, we've driven consistent improvements in Q4 of 2018, the click attach rate was 9%.
On the following year of Q4 of 2019, it was 15% and in Q4 of 2020. It was 20%. So 20 per cent of the dealers that bought leads in Q4 2020 also purchase clicks. So well we're very pleased with this progress as you can see there's there's still good of a good bit of growth to go there.
As for our leads I mentioned as I mentioned, the beginning of the call. We continue to intentionally operate at lower levels of media spend to better align our our traffic acquisition with true consumer demand of the market.
The sequential improvements in our retail dealer count during the fourth quarter further demonstrates that our partners are seeing the value of our strategy and of our our matchmaking capabilities as well as the improvement in overall product quality.
No in fact, our data shows that 75 per cent of all the web of affiliated sales happened within 19 days, which is just a reminder of how ready to buy our audience really is and the differentiated value we provide the dealers and Oems.
Although retail dealer count will likely remain choppy over the near term for the long term, we believe retail growth validates that dealers view us as a valuable resource on their digital retailing don't get and is a key part of the preparation for the industry's long term sales recovery.
It leads off for stability leads off for higher margin and the lower funnel characteristics are two of these debt that leads provide the dealers and Oems really do help them in these times of great uncertainty.
So these are advantages that we can continue to capitalize on to to really support the vehicle sales growth across our partner base.
Looking for the months ahead, we're building on the strong progress that we've made with product optimization of the past year and we will continue to focus on evolving our products to best capture.
The opportunities inherent in the changes that are shaping our industry now as a reminder, we're gearing our platform for its facilitating transaction oriented matchmaking for the use of highly special specialized algorithmic matching.
As the optimal level of effectiveness. This process leverages data beyond product price and geography to work with detailed profiles of vehicle sellers and buyers getting the best possible understanding of the former specific value proposition and of ladders unique needs and preferences.
This then creates a tailored shopping experience for end consumers and more intelligent matches between shoppers and buyers who are best equipped to satisfy their wishlist, thereby increasing the likelihood of a mutually satisfying vehicle purchase.
The key partnerships, we formed and strategic investments we made during 2020 of already begun to move us in this direction with.
With our comfortable liquidity position and continued commitment to operating of the lean.
Patient and effective organization, we have a strong foundation from which we can continue our transformation.
Over time, we will provide more specific updates on our progress with these long term product evolutions, including further technological enhancements.
And the organic or inorganic steps, we may take to embed those more retail ready components into our conversion funnel.
In the meantime, we believe we are strategically and financially well equipped to support these future endeavors and our overall long term profitable growth.
Across nearly every vertical today consumers have come to expect highly customized shopping experiences from beginning to end essentially from the first ads they see the the final product they receive.
Sellers of rapidly looking to expand their capacity to provide these experiences responding to an increasingly digital and preference driven retail world.
From where we are positioned in automotive digital marketing. We believe we can help meet both parties needs and enhance the value we provide to our current and prospective partner network.
I'm exceptionally proud of the progress our team has made to date.
When you take a look at what we've accomplished over the last 12 months. It's a it's very easy to see that we have considerably improved the value of this business not just over the last 12 months, but really over the last 24 months, but we're not stopping here and I'm even more excited about what lies ahead.
So with that we're now going to open it up the the call for questions. Operator can you please take over.
Ladies and gentlemen to ask a question you will meet the press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from Gary pressed the piano with Barrington Research. Please go ahead.
Hey, guys How're you doing.
Erie doing well how are you doing.
Oh just fine.
Couple of questions here and I'll jump in the queue to get more on I don't want on take up a lot of time on the call, but Mike do you have the <unk>.
Advertising click revenue advertising display and other revenue for Q4 handy.
I do.
Okay could you.
Can you make that public to us here on this call.
Well, what what are we normally put in the K as we do split out that click revenue.
So that is in that disaggregated.
Revenue footnote.
Okay.
And the.
Yeah.
That should be posted here in about an hour.
Or less.
But I can tell you that the.
Are you looking for the 2020 clicks.
Inside of the digital advertising it's.
It's $10 1 million.
$10 1 million of advertising click revenue.
Yeah inside of that the digital advertising $11 8 million.
Hey.
And I will just check on all of that and that's part of that is for a total of 2020.
Okay.
And then.
The revenue per click on the quarter did you you didn't put that in your fourth quarter of matrix of numbers do you have that handy.
I do not have that the.
Andy but we can we can get that to you Gary.
Okay.
And then just a couple of some other things here and then like I said I'll, let somebody jump inside of further questions.
Neither one of the good job of managing the business.
Your gross margin.
Jared really has improved as we go forward and hopefully in the Q2 Q3, and even Q4 of next year as we start getting some revenue growth are you going to be able to keep that margin there I mean.
At that 30% plus level.
Yes, we do expect that we're gonna be able to do that Gary and we're gonna be able to do it in a couple of ways.
One is we're going to continue to manage our volumes a little bit lower volume than what we historically had done because the.
The new search patterns that we've applied.
We're finding to be very efficient. So we expect some of the cost per lead to escalate a little bit this year, but we think we can manage that down on top of that Gary we intend to continue to change the mix right and we've talked about this for a while.
Adding more clicks to the to the mix overall in terms of the percentage of overall revenue that that represents helps us from a gross margin perspective.
As does the retail growth right that debt.
Net retail growth that we had the sequentially.
Sequentially in terms of dealer count and capacity, that's a big deal for us.
So we're heads down on that retail side of the business to build that out because as you know the.
The margin characteristic of our retail lead is just fundamentally different than the margin characteristic of an OEM or wholesale lead for us. So we feel good about that we do.
Okay, and then Jared I apologize Gerry I misquoted, a number of the tool.
It was $13 1 million for clicks and it's 62 cents on that revenue per click on on about three minutes of clicks for the quarter so that that the.
Should help you.
For the three points of $6 million of flex for.
3 million in the $3 $6 million of digital advertising is clicks.
Okay. Thank you.
Yeah, you got it.
But Gary when we when we think about the on the margin we are thinking in the the low to mid thirties Thats what were the that's our target.
Okay.
Net.
Thank you. Our next question will come from Josh Nichols with B Riley. Please go ahead.
Hey, Thanks for taking my question and good to see the the gross profit.
Continuing to grow on a year over year basis, I did want to ask the you know we're already.
Largely through the first quarter here.
Lead volumes of $1 1 million for the fourth quarter I know the four key of <unk> are typically seasonally slow what's the type of cadence the youre seeing or expectations for the first quarter and then.
What's the kind of potential trajectory as you look to manage the spend.
During the seasonally stronger periods of probably try and think about the cadence on how that may play out for the year.
Yeah, Yeah, I'll tell you what let me start and then Mike and Mike can follow and the good talking to you. Thank you for the question.
So we're.
We're we're kind of signaling on the same thing that we said in the last quarter, which is the expect Q1 two.
The look a lot like you for only a.
No. There is no expense load going in at the beginning of the year. So we're still guiding them from Q1, if you want to call it that to that.
The breakeven number.
Central It and then when you think about Q2 and Q3.
Based on everything that's going on.
We're pretty optimistic.
You've got 1.9 trillion dollars going to flow into the kind of flow into the economy. That's on top of the savings. That's already been done Q2 is definitely a seasonally stronger quarter than Q for Q2, Q1, and Q3 as well so you'll see us lean in there a bit.
And in and drive that media spend up but again you know a lot of this is going to be focused on the right volume.
The margin quality little matrix that we have because.
We're really proud of the work we've done in terms of the margin of the lead and we're really proud of the the quality right. Most of the doubling our same store sales over over a four quarter period is not the not something to be the sniff debt. So we're going to continue to be thoughtful in how we drive the volume back into the business and just know that everything we do is really.
Focused on stacking up as many gross margin dollars as humanly possible not just chasing of top line.
The revenue number that that's just not how we're going to run this business going forward.
Yeah, Thanks for the color of that.
And then I was going to ask you did mention obviously I would assume you'd probably start to see an uptick from middle of America with the stimulus. That's expected to go out soon also what are you seeing in terms of.
The dealer inventory levels any type of Permian of softening as far as the new and used car prices that they can also the impact on the business as well.
Yeah, we're seeing that bubble of a couple of things going on so you've got continued issues with the with microchip.
I'm just announced I think last week, they talked about how they're going to continue to have a lower level of capacity because of my chip and also you know the industry expect this to carry on for several months.
And with new car inventory continuing to be a bit tighter than it was in 2019, it's better than it was with the with the shutdown.
And how it got in Q4 of its still is relatively tight for certain make model of combinations and with that what youre seeing is youre seeing strengthening of our of of used car sales and used car pricing.
Because the Oems, while the stepped in a little bit in Q4 from an incentive level. They haven't really leaned in hard because they haven't had to do because they don't have a lot of inventories sitting right now at least compared to the historical so we do expect to see the used car pricing continue to strengthen we do expect to see used cars continue to be very strong.
But we also expect to see the new car supply then gets sorted out later in the year and we think that you know when you talk about this is all speculation but take it for what it's worth is you know as.
Vaccination rates increase you've got what one point to $1 four trillion of incremental savings that's been put aside plus you've got debt one nine trillion coming over the top.
We think this could be a frothy little market in the second half, but we are going to be somewhat inventory constrained some of the folks out there who are taking a look at projecting Saar are thinking that we're gonna be below 16 million for the year, not because enough demand won't be there, but simply because there won't be enough new cars.
Supply to meet it because again, you've got the you've got the shutdowns midyear last year of production you've got the you've got the.
Oh, the chip issue and then you've got some other issues in Japan with the with the earthquake and the one last thing I'll say and I apologize its been a of the meandering answer is when you think about used car of the reason that used car pricing of strengthening you could listen the rental fleet companies. The fleet last year, right and they're not going to re fleet.
Anytime soon.
Which essentially means that you are going to have a tightening of used car supply at the same time that youre going to have folks coming in with disposable income and wanting to buy of vehicles again, if you think about the the just the overall.
Sales.
April and May tend to be the two strongest used car month of the year and their top five for new car, so depending on how that money hits and and how people feel about the their financial security.
It's going to be interesting to see how it ripples through the industry. So hopefully that was helpful.
No. Thanks for the color on that.
And then last question for me then I'll hop back in the queue of pass the torch here you've seen it looks like a revenue per click on the the click analysis seems to be going up. It was 42 to 53 and now it's like 60 cents. If you could talk a little bit about how.
How do you see that trending in the drivers as we think about 2021 on all of that piece of the business.
Yeah, Yeah. So let me start there too so one of the interesting things about search is.
You look at all of U S auto AD spend overall needs.
Neither E marketer of figures right. So from 2019 to 2020 total digital ad spend.
Went down 18, almost 19%.
Now the marketers expecting total automotive digital AD spending to come back 22%, So basically get back to 2019 levels by the end of 2021.
The reason I tell you that because what's interesting is inside of that.
Search spend is not expected to recover completely so what's happening is the dollars are flowing back in there.
Theyre getting restructured youre seeing more dollars go into video of more dollars go into display and the mobile those sorts of things now. The reason I mentioned that is that that's good net bad for US right on the good side of it helps us on the cost per lead basis, because again at the end of the day word of search arbitrage business. So we like that that's a tailwind.
The other thing is doing those is dampening some of the spend in search or search like plot products in our click is lilly of sort of like product. It is the display AD debt with search characteristics. So what you saw on made year was you saw the search pullback negatively impact the pricing that we get with our click.
<unk> product for.
For non endemic and near endemic.
Not for dealers on that brand damage, but for the other ones that did pull back and that's what you're seeing inside of our pricing now what's happening is is as that money is coming back online and more of those dollars are flowing back into those campaigns, we're seeing strengthening in the non endemic.
And from strengthening in the near endemic pricing. So we expect to see some more strengthening there. We also expect to manage that strengthening by selling a better mix to endemic and near endemic buyers because they tend to be less volatile from a pricing perspective, because again.
The real impact on our pricing was really the non endemic who buy our clicks on an as Ive mentioned in past calls we sell way too many of our clicks the non index.
Which which adds that volatility and like do you want to talk at all about the kind of how we're thinking about click pricing going forward.
Yeah, I mean, I would say that.
We're looking to maintain that kind of consistent level that one of the last couple of quarters.
And really drive like Jerry talked about right there is that the.
That retail business opportunity from of clicks perspective, there's the near endemic and that Holistically come together and aiding us in holding that revenue per click.
Driving that throughout 2021, so that's.
That is part of the goal the next several quarters as to kind of maintain what we've been able to generate.
Since Q3 Q4.
Thanks, guys.
On one else take a crack and ask the question.
Thank you. Our next question will come from Jacob Stephen with Lake Street Capital. Please go ahead.
Yeah.
Hi.
I'm here on behalf of Eric Martin Newsy.
Just wanted to get some more color on the kind of competitive environment that youre seeing.
And your your cost per lead and I know you guys said that it would go up this year, but can you give some more color on that.
Yeah, you know what we're expecting it to.
We're expecting to give back a little bit of the cost per lead.
Our efficiency that we've gained over the last year.
But you know one of the questions that we've had over the through.
For the last several periods of how much of our cost per lead improvement is the is durable and what I'm happy to report is we believe a good portion of the durable of lot of its durable accurately.
Because of some of the changes we made to them.
I remember that a couple of periods ago, we improved our mobile conversion rate by on Wanna say, 50%, which is the big deal because 70% of of the traffic is mobile on top of that we've deployed some new campaign management approaches, which have really helped us manage that net cost per lead down. So while we do expect to give some of it back.
The call it mid single digits throughout the year.
We expect it to stay well below where we were at just just a year ago. If you go back to Q for Q1 of the Q4 of 19 Q1 of the.
Of this year I mean, we were we were considerably higher than we're projecting to be throughout the remainder of the year and I know cost per lead isn't something that we provide publicly and so I apologize for not being more specific with you, but what I can tell you is we don't expect to give most of that back we expect to really manage that cost effectively add some.
Back in and then do a better job of continuing to cross sell up sell to improve the margin characteristics of the business and hold it in that low to mid thirties.
We all know I think that search spend is on one of our largest spend right around the I know you've got the two two big cost items in this business you've got people and you've got search spend so managing that effectively as it is of critical lever for us and we feel really good about where we're at.
Compared to where we were just two years ago.
Great. Thanks.
So in terms of seasonality typically Q3 is kind of like your strongest quarter.
Where do you still feel that way or is there something else that might come on.
No no we still feel the same way so when we're looking at the year of how its going to rollout for 2021.
In Q1's going to be a tough comp year over year, because you've got a pre COVID-19 quarter and we're now on a post COVID-19 world.
But after that we expect Q2 to two of a nice seasonal bounce to it like we've seen in the past quarter of past years, and we expect Q3 net of a nice seasonal balance to it too.
And we're excited because as you've seen us put some of the volume back in in Q3 and Q4 of last year.
We've been able to hold the margin.
And that's not all just because of what's going on the market right. There's there's a lot of operational tactics. We've deployed the give us confidence that we're going be able to scale the volume back not too that the where they were in prior years, because we don't want to do that quite frankly, because we think we can drive more gross margin dollars of this new approach, but we think we can put more revenue dollars over the top of this thing in Q2 and Q3.
Hi.
And hold the margin characteristics that we have so we're pretty excited about 2021.
Because of its good to hear.
Okay.
You guys touched on the stimulus of little bit just kind of wondering if you guys have done any internal analysis on what that's going to mean for.
You guys you guys there.
No we havent done the internal analysis, it's more just talking to folks who are a little bit smarter than us about this stuff and they all seem pretty positive on.
A lot of those dollars are going to flow in People's pockets, and then out and they expect automotive to get a pretty good portion of that.
And when I say that what I'm talking about is not just the stimulus dollars that are going to have.
They're going to be released here on the next few weeks, but also.
That debt incremental savings that's been done over the past year, you've got the buy.
By some estimates what 1.4 trillion dollars of disposable income that's been created due to COVID-19 that they expect to get released into the economy. Once the once we get past the.
Some of the the the vaccination concerns that people have so I can't give you a hard number but I'll tell you I think it's going to be we think it's going to be a.
A bit of a tailwind for US again I just want to remind you of the one thing I said earlier the counterpoint here is.
Supply.
Again, we are you know.
Some of the folks out there who are projecting them Cox automotive talks about how they believe that they're going to be it's going to be below 16 million. They believe it can be 15, seven getting not because there isn't demand.
But simply because there isn't enough supply to meet demand and one last reminder of just remember I mean, the average transaction prices of crept up over $40000 for new cars.
And so you know when you start spending that kind of money if the supply mix isn't right.
People may hold and they may wait until the supply mix is right because that is not a that is not a small purchase for a for a lot of folks.
Right that's a good point.
Thanks Al I'll hop back in line here.
Thank you.
Thank you. Our next question will come from Ed Woo with <unk>. Please go ahead.
Yes congratulations.
Given the strength on the used car business are you guys going to attempt to refocus on use of car used car products.
Yeah he had.
We're opportunistic when it comes to that and so I think we've talked about it in past calls one of the things that we've seen some nice growth on and you've seen inside the click mix.
Is.
Selling click traffic to used car.
Retailers, whether they be franchise or some of the some of the other folks.
And the reason I say that is because you know a lot of consumers will go and they will cross shop, right, new and used and so some of the price strengthening that youre seeing inside of the click revenue line is through endemic buyers and those endemic buyers arent just buying it for new car traffic. They are buying it for used car traffic I think we've talked about this on past calls, but one of the things that we've done is we've evolved our.
Click product to where we can actually present, a vin specific advertising with real pricing in real pictures of cars and what we found is we found that consumers who go through a process maybe submit a liter dosimeter leap.
They engaged pretty pretty pretty readily with that and in those and those partners, who buy that traffic from us they like the ROI characteristics of it so and as we think about it it's not really of wholesale pivoted to say used car leads we've got of used car lead business, but as we've talked about it it's nice, but it's not where it's not a big folk.
We don't intend to pivot there well, we intend to do is really leverage our click traffic on our clip product to meet the more natural needs of consumers of natural needs of retailers by presenting them with both new and used car options as they are coming through our conversion funnel.
Great. Thanks for the color and good luck. Thanks.
Thanks, Dan.
Thank you and we do have a follow up question from Gary pressed the Pinot with Barrington Research. Please go ahead.
Yeah, a couple of more follow up questions here Jared just you'd mentioned in your narrative debt your same store leads growth.
Was up in the quarter and I Didnt quite get what you said that percentage was if he even nailed the percentage. There can you just talk about that a little bit.
Yeah, Yeah. So two things one is we did have a franchise growth right. Overall, so the number of clients. We had grew Michael keep me honest for I believe 6%, 5% to 6% quarter over quarter right. Okay right on top of that lead capacity grew and we've talked about this in past quarters right Gary of the lead capacity when we sell of dealer on a leaf product we essentially.
Get them.
Budget from Mitel by call. It up to 100 leads and then Theres a bill rate associated with that so capacity is important because of capacity really represent the total potential leads that we can sell in and we saw capacity growth quarter over quarter as well. So that's another point that we made the third point that we made was the same store.
For clothes right.
That means is.
We sell of lead to a dealer right what percentage of them turns into sales and what I can tell you is from Q1 to Q4, we doubled that.
So we actually improved our product quality.
Sidra of late over the last 12 months.
Which we're really proud of and you need that right as we've as we continue to grow our retail channel or build the capacity to grow our retail channel consistently that product quality is critical it takes a lot of it takes a while for the for the market to to kind of understand it and absorbent and then reward us for it.
But we're really proud of the fact that that same store close rate.
Doubled and improved a lot the and it didn't just happen either Gary just to be clear.
That is that is driven by our search.
Assessed by our approach to what keywords, we buy how we filter on who we send them to all of that stuff is incredibly important to make certain that we optimize the close rate.
Right.
And then I guess I guess the question I would have is when you look at the.
There was a sequential increase from dealers right and you're still kind of said you were pulling back on all of that so what.
What are the specific things that you can point to that you can attribute to that increase in dealers.
Is it the fact that the close rates are getting better or.
That's part of it the.
Other piece of it though is our selling motion and we've talked a little bit about this on past calls right as we've had to rebuild our retail our go to market of retail go to market approach in and listen over the last couple of years. We've had some starts and stops there we really have what we've seen over the past several periods, though it is.
Is much less volatility and a much better approach.
In terms of our selling motion and how the activity that are incorporated in our sales retail sales approach are delivering consistent outcomes and I think we've talked about this in the past to Gary which is at the end of the day I'm a big believer that sales is really about discipline and of round about process management.
I'm happy to report that for the last several periods, we've seen a much more disciplined and a much more predictable outcome.
Be occurring from our retail sales efforts. So we're going to keep grinding there we're gonna keep chopping wood on that where we havent, we havent Russell debt thing completely on the ground, but I will tell you is there's a connection between our activities our outcomes and what we're seeing in terms of that retail side and the churn rate as well as just the.
Gross sales side of it and on top of that Gary.
Not just selling something it's the mix. So as we think about this we're also looking at that attach rate going up.
And that has to do with our selling motion to because.
It's how you present the product is how many times you present, the product Thats, how you price the product. It's how you deploy the product and onboard of client is how you manage the client once they're on boarded all of that is wrapped up in that debt selling and servicing motion that we've been trying to wrestle the group to the ground for quite frankly.
Three years, and I think I've been open with you and others on this as you know that's an area of the business that we've been behind where we're not as far ahead as the we're not where we wanted us where I wanted us to be but what I would tell you is again over the last few periods. We're seeing some real green shoots there that are are really helping the deliberate.
Okay.
Alright, and that that should do it for me. Thank you so much.
Thanks, Gary.
Thank you and speakers I'm showing no further questions in the queue. At this time I would now like to turn the call back over to Mr. Jared Rowe for any closing remarks.
Well, thank you everybody.
I'm going to start by thanking the other web team.
This has been a bit of of trying year for most businesses, but I'm incredibly incredibly proud to be a member of this team of an incredibly proud of the work that this team has done getting back to cash flow positive adjusted EBITDA positive in the middle of the global pandemic is the is no small feat. So thank you for for the on.
The web team and all of their great work and also thank you to everybody else Who's who joined this call.
We love these conversations and quite frankly, we look forward to speaking with you on the the next earnings call, which will be to report Q1 results. So until then take care of be safe and we'll talk to you. All soon thank you.
Ladies and gentlemen. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
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