Q1 2021 Autoweb Inc Earnings Call
[music].
Vs filings identify factors that could cause the results to differ materially from those forward looking statements.
Please also note the during this call management will be disclosing adjusted EBITDA. This as a non-GAAP financial measure as defined by S. E. C regulation G. A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure and a statement disclosing the reasons why company management believes that adjusted EBITDA provides you used for.
Information to investors regarding the company's financial condition and the results of operations are included in today's press release that is posted on the company's web site and with that I will now turn the call over the Jared Jared.
Well, thanks Cody in the welcome everybody appreciate you.
Joining us the here today.
All of the they'll get my.
Hey, just mixed up alright, let's dive right into our.
The prepared remarks.
They're of performance during the day during the first quarter, we'd need the standard operational momentum and really demonstrated the could give me the frequency of our business.
One of our focus on delivering high quality cliques in in lead car customers really allowed us to drive sequential top line growth relatives. The last quarter Uhm on the bottom line, we continue to improve profitability through our significant year over year of gross margin expansion as well as our achievement of both positive net income and positive adjusted EBITDA on we're already executing on a Saturday it very <unk>.
The levels and and get the first few months of 2021 and and I work for this year is it really just getting started now is the broader macroeconomic recovery from the pandemic of progressive we are seeing the beginning signs of demand recovery within our industry consumer confidence that started the rebound as the as the vaccine becomes more widespread in and you I thought of.
The motive sales right have the escalated throughout the spring.
Now the signs point to a healthy resurgence of demand, but supply recovery has proven more difficult you know recent global shortages in semiconductors, Microchip I really disrupted the automotive production and kept the dealer inventory exceptionally leeann.
In fact for one of our largest accounts has the has recently worn.
That that 50 per cent of its output in the in hue to is gonna be cut back uhm, which is going to lead to of lots of production of of of 1.1 million vehicles in 2021, and general Motors. Another one of our largest account has been echoing similar sentiments and quite frankly halting production that.
Various plants at various times.
L M C automotive, which is a a respected the consultancy and and prognosticated on the automotive industry. They they expect the of the chips ordered to curtail North American automotive production by almost 550000 vehicles on the first half of 2021 with the.
Not even a third of its the this volume lost the predicted the recovery before Twenty-twenty youth 2022. So this will be something that we're going to have to deal with as an industry for for quite some time now.
Now we believe that these production issues affecting inventories will likely impact queue to growth prospects in and we're monitoring this except for like closely now.
Now amid this landscape we remain committed the serving as a sport of partner to the dealers in our network as as they navigate the challenges and the uneven progress.
Towards the pandemic recovery.
Now as long as day, the respect our quarter over quarter of deals atrophy choppy on for the time being of certain engagements current on and off the the supply constraints and instead of of the subsequent pricing challenges. However, we do expect our dealer counts the regular cover throughout the year.
I'm again not for the visibility on their businesses on the meantime to further elevate.
The the level of partnership we provide you know we've made several key improvement for a platform to facilitate better matches between carbine on the 10th and dealer, who who can meet their needs.
Now as we optimize our platform what we're enhancing both the quality of our product mixes and the experience that consumers have on our site. During Q1, we invest in the new technology pattern, we can be founded shop Dakar Dot com.
Oh, that's designed did the speed of for innovation cycle and it really elevate our user experience now the testing of this this new technology pattern.
He's already shown that that is improving our page load times by about 30 per cent in an overall conversion bye bye 50, 15%.
Introducing a cleaner more contemporary design for for power overall consumer experience.
We're currently working on scaling shop that car dot com across our our search campaigns for for that specific site and and bringing other search engine marketing sites on to the pattern with more as as we're making the the improvements within our current expense framework demonstrating that we can make key investments in support of our growth, while while maintaining our focus on cost efficient.
Which we think is critically critically important that.
Now the benefits of our new technology pattern in similar updates are are significant steps towards the further improving our our Google quality score because of key measure of relevance and effectiveness of our ads and you know as of search arbitrage business. This is a really critical K P I for us.
Now, having a higher quality score means that the the content of our add in the ending pages is far more useful.
To consumers and closely matched to their for their overall intent than.
Then those of of other advertisers and and and the elements like paid low time can improve the likelihood of conversion and ultimately credit stronger relevance for consumers now for the past three years are heightened focus on optimizing the quality of our audience has already helped improve on Google quality Gore Bye bye almost 65%.
The quality scores for our our two cor accounts and we're we generate most of our leaders car dot com an artist a favorite for 68 per cent in 107 per cent respectively. During the same time period.
Now these two accounts generating nearly two thirds of our monthly lead volume. This improvement is meaningful to us and we still of more room to grow. So we expect that working to further improve the matches. Our platform can facilitate will will help us keep optimizing or of score on as well as great greater efficiencies in both our consumer acquisition cost and our overall go to them.
Market approach and and again I guess I'll I'll stop here for a second of just just highlight why we're talking about something like a good quality score and and and the reason we're talking about it because this is the kind of durable uhm operational improvement that really helps us manage our our customer acquisition costs, which is something that is that is.
Uhm the industry, leading quite frankly for us.
Now as we come to leave it as far as we've come in and reaching the chapter of our gross story.
Or truly just getting started we we spent the past few years, making a lot of of of lean of fishing organization yeah on.
From controlling expenses, the optimizing our product mixes, but but really reaching the next stage. It. It's it's gonna take more than just the operational efficiency and we know that so becoming of more comprehensive matchmaker will require us to combine the ongoing work on improving the fundamentals of our business with the strategic focus on we are checking the interaction model between on <unk>.
Buyers in our cellar, and we're gonna need to keep innovating rapidly, making core investment to fully augment our efficiency and and and quite frankly find ways to use the resources that we already have more effectively and and this is the team that's proven that they can do it. We're we're fully committed to that now we've made significant strides on the on both of our growth strategy in or.
Goal of of positioning auto web as the transnational matchmaker of scale and and and we really have plenty of of growth the opportunities. The captor ahead, but before I share more on that in the in some of our our product level of progress I I'd like to turn it over to Mike. The talk talk about Q1, the queue on financial results, which quite frankly.
Something that we're very proud of so Mike can you. Please the picking up.
Yep. Thank you Jeremy good afternoon, everyone.
Tied into the queue 120, 21 of the results total revenue in the first quarter was 17.9 million up for per cent from $17.3 million last corner, but down from the 24.5 million in the year ago quarter. As a result of the we're leaving click volumes on our industries uneven patient of the comfort from the pandemic.
The primary driver for growth in Q1 for skew for one of US in our leads product of 14.2 million in Q1 compared to the $13 6 million in queue for this.
This is down from the $18.5 million a year ago Court.
We've continued working to leverage the strategic importance of of deal account and click revenue. So let me briefly touch on the performance cross those areas a retail the on the account and the capacity with some of it down from queue for with the overall day of the account finishing at 1777.
No no the both too for in Q1 represents seasonally so parents for our business and that some of our of dealers of since had to reevaluate their main plans of their adjusting to that changing supply and demand pattern that we're seeing.
As we've discussed the previous quarters, the expect recovery Interdealer counts for remain choppy has the registry of recovers from the pandemic and especially with many dealers working through and mitigating the supply constraints. The chair had mentioned earlier.
Digital advertising revenues the first quarter came in at 3.7 million up slightly from 3.6 million in queue for an down from 6.0 million in the year ago quarter within digital advertising the cliques product delivered $2.9 million in revenue compared to three point of a million in queue for.
It was down compared to $5.3 million in the year ago corner.
The slight sequential softness of clicks reflects the impact of seasonality Anthony on the count Choppiness I just mentioned.
As a reminder, we've continued to manage media spend down at the same are closely aligned with the consumer demand in the market, but is Jared well detailed later in the calm you've already started of generating sequential improvements on our click traffic and volume this quarter and continue to diversify or click part of consumption, which we view as of promising transferred the rest of the year.
Our strategies for the reflected in the gross profit line, which we believe is the more appropriate proxy for on top of mind performance. We managed revenue down 27 per cent you were on queue. One for the Cuban gross profit was up eight per cent to $5.8 million.
In addition, first part of gross margin came in at 32.5 per cent, which of those slightly from the 34.0 per cent last quarter, but of significant improvement from 21.9 per cent in the year ago quarter and well within the range of guidance, we've been providing on this metrics, which is in the low to mid 30 per cent range.
This increase was driven by a continual focus on driving efficiencies on our traffic acquisition, leveraging higher margin distribution channels and implementing platform improvements in support of our longterm gross.
We continue to manage the operating expenses during the corner, which were down year over year, six 9 million as a result of our disciplined approached cost management.
We also generated net income and the first <unk> first quarter of 0.3 million or two cents per share representing of significant improvement loss of zero point $9 million of negative seven cents per share the last quarter and the net loss of for 1 million of negative for 31 cents per share in the year ago corner.
The increase was driven by of gross profit growth and prudent expense management as well as the recorded gaining Q1 as a result of the loan forgiveness from the payment protection program on.
Just any of it done in the first quarter of improve two 0.2 million, which was down from the your point 5 million last quite a bit of significantly from the negative 1.7 million in the year ago quarter, which is a positive indicated for the business given the coupon of seasonally challenging.
The result of exceeded our expectations, which you were closer to break even for the corner.
There's also represents our fourth quarter in a row of generating positive adjusted EBITDA and.
And we continue to see the consistency of for adjusted EBITDA performance of positive indicator of of plan and focused efforts on gross profit.
That should be of interest seasonally starter periods in Q2 and Q3, we normally would expect growth in this metric to expand the.
But we are being cautious on our internal expectations due to the inventory constraints dealers are facing the the various material shortages that are impacting vehicle supply such as the the chips sea foam end of rubber.
Near of monitoring the situation very closely we will do everything on their power to mitigate the potential impact of the industry supply challenges on her business.
At March 31st one of the 21 cash cash equivalents and restrictive cash sit at 15.5 million compared to 15.1 million of December 31, 2020, with the increase driven by our focus on gross profit strong cost control efforts.
We'll continue the sounds of levers that enable cash growth for the remainder of the year.
And I do need to note that there was an error in the press release that was just issued and that will be amended the state. That's on that cash provide of operating activities include that least liability use of cash which was erroneous the excluded from the summation on that scheduled in the queue 120, 21 total should be 350000 in the queue on 2020 total should be negative $954.
[laughter] as of March 31, 2021, we had an outstanding balance of 10.2 million on our 20 million of revolving credit facility with the I T Northridge credit.
We continue to be comfortable with their balance sheet and over a liquidity as we progress through 2021 and maintain of commitment to improving out of liquidity imprudently managing our costs.
We're proud of of the progress we've made so far in delivering on our strategy and achieving sequential revenue growth and your for your profitability expansion.
As we get further into 2021 remain closely attuned to any changes in our industry conditions and focused on further optimizing our organizational efficiency and capabilities of our platform throughout the rest of the year.
Between buyers and sellers aims to keep people on the positive positive trends, which is why we began investing in our data science capabilities in Q4 of last year.
Now the insights that we have already generated through this newly built process function and profit.
We have already benefited all of our product development efforts benefited all of our sales approach.
And it's also benefited our audience acquisition efforts.
Now to provide additional insight into our product evolution roadmap for the year.
First things first is we do expect to carry of the success, we've generated with watching shop, Dakar dotcom that that new technology pattern across the various other portfolio of sites.
By the end of Q2, we expect to have similarly revamped the the technology the pattern of another key high volume lead generating cytosorb for in our portfolio and when we expect to see similar results when we make that transition, but these initiatives are some of the core necessary work in our our transformation that not only enables our platform to support our matchmaking journey, but also provides.
Yet another way for us to advance our business through making our existing resources more efficiently.
That's been a hallmark of the automated storage of data and quite frankly, that's the hallmark of the Ottawa of management team here and it's going to continue to be underscored.
With all of the work that we do going forward.
After implementing these these foundational changes to make our existing sites more efficient and better technologically equipped we do expect to begin layering in new retail ready components. Now. These components will span features related to finance trade in and and other specific elements of both the buying and selling experience.
Now of being able to collect the this kind of information from consumers is going on.
<unk> create more tailored profiles of the buyers.
Who are using our site and our products and better understand what kind of shopping experiences theyre looking for and then the better able to match them to the sellers that can provide the experience within their preferred parameters, which is which is of critical element of matchmaking.
Now along these lines, we have been running of tech for a few months now that the.
What type of is giving us.
A tremendous amount of additional confidence that the retail ready components will resonate with our consumers.
In short we've embedded some digital retailing elements on our lead funnel of thank you page.
That of produce some some very impressive results the so during Q1.
39 per cent of the consumers who were presented with this functionality engaged with it now what that means is that the of the consumers who saw that that functionality on the thank you page.
Over over a third of them, 39%, almost 40% clicked on that that functionality and interacted with it and so that's great engagement at that point in the process now.
What's even more impressive is that 9% of those consumers. They completed a secondary digital retailing conversion process.
That's even more impressive because not only is it almost 40 per cent of the consumers who.
Who saw the functionality interact with it but again almost 10% of those consumers.
They went through a whole another secondary digital retailing process and submitted their information through for that through that through that series of steps now these rates of engagement, we're extremely bullish on the prospects of of our future product evolution.
I'd like to remind everybody that becomes the transactional matchmaker of scale is not only our exciting response to where the market is headed it's a net.
The third step in an environment, where buyers are seeking increasingly customized experiences and sellers of rapidly expanding their capacity to provide them with the transformation is also the logical next step of the work that we've already done to evolve our value proposition, having generated sequential revenue growth having maintained our expanded gross margin.
And having achieved our fourth quarter in a row of positive adjusted EBITDA.
We think that we've proven that our strategy works.
Now our ability to control expenses and deliver high quality product mix of shows that we're already doing so much more than what we have so much more with what we have.
But to get to where we know we can go we have to keep building on this progress we need to continue optimizing our resources to build a platform that can most fully address the specific needs of the automotive consumers of tomorrow now.
Now as we evolve our digital marketing capabilities to stay ahead of the stay ahead of today's evolving industry and car buying dynamic that we've already made material financial and operational progress we're off to a strong start in 2021, and we look forward to what the head for the remainder of the year.
Net.
That ends my my my remarks that I've got prepared I would just before we go to questions. Just reiterate a couple of things one as we delivered on the financial commitments that we made this the this quarter.
For two as we maintained the margin in the in the low to mid thirties, which is what we've talked about on the gross margin line and number three and this is something we're very proud of and we did all of this at the same time that we made material investments in the platform.
So again I'm very proud of the work that the team has done I'm very proud of the work that this team will do and with that operator, let's let's turn it over for questions.
Thank you, Sir ladies and gentlemen, if you have a question at this time. Please press the star and the net number one key on you touched on kind of phone.
Again, ladies and gentlemen, if you have a question at this time. Please press Star then the number one key on your Touchtone telephone.
Last question from moment to compile the Q&A roster.
Yeah.
The first question comes from the line of Josh Nichols from B. Riley. Your line is open you may ask the question.
Yeah. Thanks for the.
Taking my question it looks like we're in for a little bit of an interest in selling season, right, where you have some strong recovery from the consumer.
Juxtaposing that is like the relatively.
Shortage the rehab for some of these at some of the dealers the production.
Production cuts how should we think about the trajectory for the bulk of the growth but also.
More so like the gross margin expansion potential as we enter of the stronger selling seasons with with that of mines.
Okay, what Josh.
Josh Thanks for the question, let me, let me start and then and then Mike can follow up.
Your point Theres, just a lot of uncertainty around Q2 and Q3.
And we're really proud of the results of Q1.
And we did that in an environment, where quite frankly, it wasn't optimal right. We've yet the we've got a better portion of a year here with the sub optimal market conditions. So we're pretty we're pretty bullish on as the market recovers our ability to capture the economic leverage that we've created but to your point.
You know those those.
Those day supply at the dealer level of its pretty concerning when you see in Asbury, where the 31 day supply of lithium with the 41 day supply of Sonic with the 43 day supply Penske for the group 130 for Autonation 29 at the end of at the end of March.
Those folks are going on are going to pull back and harvest profitability as well they should in and the variable marketing expenses that we represent the arnie the area for them to do that so.
Our focus is how do we offset that by being good managers of the business overall, how do we offset that by continuing to lean into the clicks business.
For the clicks of a slightly different value proposition. It's just not new car leads you can present used car inventory as well and we've done a nice job of.
Of transitioning some of the budget into that into the collect which as we all know has a better gross margin characteristics from the core business.
So we do continue to expect Q2, and Q3 to be better than Q4 and Q1.
Think of us understanding exactly how much better that's one thing that we don't have good line of sight on right now of course, just or I am sorry, Josh just because of the.
The uncertainty around day supply on the uncertainty around production.
Production, Mike did I, Miss anything or anything you want to clean up there no I mean I think the biggest thing is we're going to continue to manage that profit dollar.
So we do expect that we can continue to be in that that steady range that we've been operating in.
Did your average point, it's really about the volume and trying to drive additional clicks in the volume mix.
But really trying to manage through and maintain that profit dollar in that that solid ability to deliver financially.
The board and so we're just kind of actively continue managing all of that.
I think every opportunity that's out there for us.
To really manage through any of this Q2 choppiness that we're seeing based on inventory.
And Hey, just one last thing I would mention is its one of the reasons why when we talk about things like quality score and we talk about some of those things I I know that is really inside baseball pretty arcane.
But it's but it's critical to our business because it helps us manage the cost of acquisition.
Down and quite frankly, we continue to be able to manage our cost of acquisition.
Well, well well below what it was.
About a year and a half the two years ago, we've been steadily chopping away of that chipping away on it.
So to Mike's point, we're going to stay focused on that gross profit line.
And we will do that by being efficient effective managing our expenses, well and managing that mix mix very aggressively leads the eclipse.
Thanks for the clarity there and then can you talk a little bit about the dynamics impacting like the revenue per click on the I know you mentioned.
That's obviously, a higher margin piece of the business there.
What's the expectation there what are the puts and takes whether it be used car prices are dealer inventory levels.
It's really dealer inventory levels with that one.
What we've been working on for quite a while and we've made a good of lot of good progress over the last the last couple of years is selling more of the clicks to endemic meaning.
Meaning dealers.
<unk> OEM, meaning.
Even some of the near endemic like some of the insurance provider, who we brought on board.
Because essentially the the revenue per click we get there is just substantially better than it is when we when we sell through of click arbitrage folks, which is where the remainder of the the volume goes.
Does that national coverage is very important for us.
So as we think about that it really is continuing to lean in on the dealer side and and pushed budget towards.
The <unk> one of the things we've had a good deal of success with over the past year is we've we've introduced something called the dynamic inventory targeting which is really leveraging on the clicks platform to put used car inventory in front of new car buyers when either the.
Abandon the the lead funnel or hopefully the submission and we've seen some good progress there. So we've got tools in our tool belt to help dealers, regardless of whether they're having new car inventory issues or not because of they are leaning in the used car price. We can we can help them with that we can transition budget around and so again the two.
Dynamics, there are really how do we make certain that we sell as many of those clicks as possible to endemic and near endemic.
And then also how do we really.
How are we smart with our clients.
To really optimize their spend with us in a way that aligns with the inventory realities that they are facing every single day.
Because again, you may have new car constraints, which I know, we do right as an industry used car pricing.
It's very high right now, but you can still get access to it. So they can continue to sell there. So that that's how it kind of tactically we've addressed it with the cloud.
Thanks for the last question for me the pop back in mind.
<unk>.
Whenever you're looking for and the impact of the shortages for silicon like rubber another basic parts like.
How should the mix be interpretive I know that some.
OEM is not just shutting down production, but they're showing them more production. It seems like of like the lower level of entry level vehicles to try in favor of the higher margin.
The trim vehicles does that impact your business at all or how should we think about that.
That actually helps us a little bit in that as long as we stay focused on what the Oems are looking for and we stay very closely aligned with the most of our OEM clients around what sort of mix. They are looking for we try to tailor our search campaigns towards that.
But we don't want to be doing is generating a bunch of leads for a bunch of vehicles that they may have on ground, but they may not be high demand.
And so again, where we tailor our approach is for our largest clients in particular.
Around what their current marketing mix is focused on which tends to lean towards what it is they're trying to sell.
So we do move our mix around from a marketing spend perspective monthly.
To support some of the some of the largest clients that we have in particular, a couple of them that we called out in the in the in the <unk>.
In the prepared remarks.
Day close to those folks and try to generate a good.
The purchase intent for stuff that consumers want and they can sell and they have.
Great. Thanks, guys.
Your next question comes from the line of Advil from S. N. Gen capital Your line is open.
Yes, congratulations on the quarter. My question is it seems like the consumer confidence is high on what they've got a lot of stimulus money seems like car dealers, even though the volume maybe like the inventories like that the profitability is very strong is there any opportunity to.
The price increases.
Well, yes.
Yeah No. We appreciate the question the reality of it is is no as we sit right now you know as we think about taking rate, we think about that within the context of a further product evolution and product improvement, we think that'll give us an opportunity.
But over the short term, it's more about delivering high value, which really is about shifting the mix from wholesale to retail we've talked a little bit about this in the past.
The way that we can take rates.
Without <unk> without increasing price is simply shifting more of the mixed from wholesale to retail now the current environment make that difficult.
But as we sit today, we don't think we can simply raise prices on on existing non existing clients.
Quite the contrary, we're trying to do is rationalize pricing to get them to take more volume.
Because we think that's a better value equation for them and ultimately we think that a broader footprint with more products layered up create a better environment for us to partner with them over the long term.
Great and then you obviously, they're on it's obviously going to be a lot of industry constraints on new cars, what about used cars as the dynamics change on would you guys be making a bigger focus on used cars leased.
Yeah, you know it's.
It's about used car leads per se, it's more about how do we introduce used car into the new car audience and so that's where this dynamic inventory targeting comes in.
It's the way for us the authentically represent.
Used car inventory two of predominantly new car audience, because that's who we have that's what we have.
As we know that consumers are willing to make the trade off and they are willing to go from new to used as long as they find the right used vehicle that matches their needs and so where we've really leaned in over the last several months several periods quite frankly is in this the DIY.
Product margin.
Again, it is relatively new for us.
And it's again, it's the way for us to take of dealers used car inventory and then put it in front of our new car buyers as they're going through the funnel in a way that makes sense for the consumer.
Sets, the advertiser up well and like we keep talking about that that click revenue.
If we can transition money in the click revenue of the gross margin characteristic is better for us so we like that.
Great well, thanks for answering my questions and good luck.
Thanks, Ed.
And last question comes from the line of Bruce calling for from Lake Street.
<unk> open.
Thank you George and Mike Congratulations on the great quarter.
Thank you Bruce.
I'm sorry, the question so like you discussed.
Quality of improvements lowering your customer acquisition costs.
Longer term do you think that is going to prove the quality of the.
We do generate and I mean, maybe in the near term, but longer term do you think that could.
You know represent sort of low hanging fruit in terms of.
The increase in prices later.
You know again, what we've done with the from a quality perspective, we talked a little bit of some of the last call right. We've seen tremendous improvement in the overall product quality right. So the the.
Core underlying raw material of our businesses.
We're generating.
More closes on average than we did this time last year and so we do think that has a material benefit for the business. It just takes a little while for for the market to recognize it and for the market to basically then consume that.
We don't think that that's going to translate necessarily without product innovation translate necessarily to to better price per unit again, what we think it will do and what we're seeing some success is transitioning more of that volume that away from the wholesale channel away from Oems and end of the retail channel because like we've talked about the price.
The differential in the margin differential between selling that exact same lead to an OEM versus the dealer is substantial so.
It's actually kind of interesting Bruce in that we could discount our leads on the retail side increased the footprint shift more traffic over.
More of the leads over and improve our gross margin characteristic of the portfolio overall, that's really where we're focused.
So we've got to get that that retail side moving we did have a slight the Clinton sequential decline were down eight dealer in the current environment I will tell you. We are pretty excited about the fact that we're only down eight dealers on the current environment because again a lot of dealers right now are cranking back their marketing expenses are variable marketing expenses to harvest.
The profitability because demand far outstrips supply and they'd be economically irrational not too. So we do think that we will harvest value from all of these quality improvement and the good consumer acquisition cost improvements that we've made.
Just kind of really see it play out over time in cross sell upsell with us being able to sell more products and services in the dealer lead plus clicks for our tax rate of work and also increasing the number of retail dealers. We have on the network if we do that.
That like I said, we will actually materially improve margin and we will essentially be equivalent of taking rate.
Great. Thank you.
The other question too has the vaccination rates in the U S has that had an impact on you.
Overall the activity on your websites sort of positively correlated.
Just out of curiosity.
It really hasn't we haven't really seen that.
You've kind of tracks with the overall market is as consumer confidence increases and some of that has to do with the fact that.
Theres the dollar flowing in from from stimulus.
People are getting vaccinated, they are starting to get back to kind of normalcy or some level of normalcy, whatever the new normal will be but we don't see it necessarily aligned or correlate with vaccination rates, we see it more aligned with just consumer confidence overall.
And how good they feel about their financial prospects right, because if you're going to enter into this kind of transaction right you've got to feel pretty good about your financial prospect and quite frankly, the prospects of the economy overall.
Great well thank you.
That's again on the the great quarter.
Okay.
At this time. This concludes our question answer session I would now like to turn the call back over to Mr. <unk> for closing remarks.
Well, thank you operator.
Thank you everybody for joining the call.
We're proud of the work we've done.
Like I said earlier, we're very excited about the prospects for 2021.
We've got a lot of work ahead of us, but we have set a very very solid foundation.
And then like I mentioned earlier is the you know as the market improves we do expect to the.
The see some of the economic leverage that we've created the scale up so we're excited about where we're at and we're making good strategic investments in the platform to evolve beyond the existing value proposition in the.
So we're looking forward to talking to you again here in another quarter and and telling you. How we progressed. So thank you everybody for joining the call. Thank you for the auto web team for all of your hard work is paying off and we appreciate it.
So the well everybody stay safe and we'll all talk soon okay.
Thank you for latest ladies and gentlemen. This does concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
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Good morning, everyone and thank you for participating on today's conference call.
I discussed at the labs financial results for the first quarter ended March 31, 2021 shining after day, our auto ex President of C. E O of Jared Rowe, the company's CFO, Michael Sadowski, and the company's outside Investor Relations advisor Cody Acree with Gateway Investor Relations for.
Following their remarks, we'll open the call for questions I would like to turn the call over it domestically you for some introductory comments.
Thank you Sarah before I introduce Jared I remind you that during today's call, including the question 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.
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 Companys form 10-Q for the quarter ended March 31, 2021, which was filed prior to this call as well as other filings made by Ottawa of 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 the during this call management will be disclosing adjusted EBITDA. This is a non-GAAP financial measure as defined by the SEC regulation G. A reconciliation of this non-GAAP financial measure for the most directly comparable GAAP measure any statement disclosing the reasons why company management believes that adjusted EBITDA provides useful information.
Formation to investors regarding the company's financial condition and the results of operations are included in today's press release.
And on the company's website and with that I will now turn the call over to Gerry Gerry.
Yeah.
Okay.
Oh, Thanks, Jody and welcome everybody appreciate you.
Joining us here today.
Well I apologize I've got my.
Hey, just next step alright, let's dive right into our.
The prepared remarks.
Through our performance during the during the first quarter, we sustained our operational momentum and really demonstrated the continued efficiency of our business day.
Our focus on delivering high quality clicks and leads to our customers has really allowed us to drive sequential topline growth relative to last quarter.
On the bottom line, we continue to improve profitability through our significant year over year of gross margin expansion as well as our achievement of both positive net income and positive adjusted EBITDA.
We're already executing on our strategy at very high level of in just the first few months of 2021 and our work for this year is really just getting started now as the broader macroeconomic recovery from the pandemic progresses.
We are seeing the beginning signs of demand recovery within our industry consumer confidence has started to rebound as the as the vaccine becomes more widespread in U S. Automotive sales rates have escalated throughout the spring.
So these signs point to a healthy resurgence of demand, but supply recovery has proven more difficult.
Recent global shortages in semiconductor microchip I really disrupted the automotive production and kept the dealer inventory exceptionally leanne.
In fact for one of our largest accounts.
Recently ward.
That.
That the 50.
50% of its output in Q2 is going to be cut back which is going to lead to a loss of production out of $1 1 million vehicles in 2021, and general Motors and other one of our largest accounts has been echoing similar sentiments and quite frankly halting production that at various plants the at various times.
All of them see automotive, which is a respected.
[noise] consultancy and and <unk>.
Not the gated on the automotive industry. They expect the of the chips ordered to curtail North American automotive production by almost 550000 vehicles on the first half of 2021.
I would not even a third of it of this volume losses predicted the recovery before 2000 22022. So this will be something that we're going to have to deal with as an industry for for quite some time.
Now we believe that these production issues affecting inventories will likely impact.
Q2 growth prospects and we're monitoring this exceptionally closely.
Now I'll mid this landscape, we remain committed to serving as the support of partner for the dealers on our network is as they navigate the challenges and the uneven progress.
Towards the pandemic recovery.
Now as we've long stated, we expect our quarter over quarter deal of casualty choppy average.
The time being of certain engagements turn on and off.
On the supply constrains in terms of the subsequent pricing challenges. However, we do expect our dealer count gradually recover throughout the year.
Gain further visibility on their businesses on the meantime to further elevate.
The the level of partnership we provide we've made several key improvements of our platform to facilitate better matches between car buyer of intent and dealer too who can meet their needs.
Now as we optimize our platform, where we're enhancing both the quality of our product mixes and the variance that consumers have on our site. During Q1, we invested in new technology pattern on what can be found at shop that car dotcom.
Oh, that's designed the speed up our innovation cycle and it really elevate our user experience now the testing of the new technology pattern.
He has already shown that it's improving our page load times by about 30% and overall conversion by by 50, 15%.
On introducing a cleaner more contemporary design for per overall consumer experience.
We're currently working on scaling shop that card on kind of across all of our search campaigns for for that specific site and bringing other search engine marketing based on the pattern that.
What's more as we're making the improvements within our current expense framework demonstrating that we can make the investments in support of our growth while maintaining our focus on cost efficiency, which we think is critically critically important.
Now the benefits of our new technology pattern in filler updates of our significant steps towards further improving our Google quality scores because the key measure of relevance and effectiveness of our ads as of <unk>.
Search arbitrage business. This is a really critical kpis for all.
Now, having a higher quality score means that the the content of our AD and the ending pages, it's far more useful.
For consumers and closely matched to their for their overall intent than.
And then those of other advertisers in the elements like page load times and improve the likelihood of conversion and ultimately create stronger relevance for consumers.
For the past three years, our heightened focus on optimizing the quality of our audience has already helped improve our global quality GOR by by almost 65%.
The quality scores for our two core accounts and where we generate most of our leads of car dot com and other say Steven on for 68% and 107% respectively. During the same time period.
Now these two accounts generating nearly two thirds of our monthly lead volume. This improvement is meaningful to US and then we still have more room to grow. So we expect that working to further improve the matches our platform can facilitate well will help us keep optimizing our score as well as great greater efficiencies in both our consumer acquisition cost and our overall go to.
The approach and again I guess I'll I'll stop here for a second and just the highlight why we're talking about something like a Google quality score and the reason we're talking about is because this is the kind of durable operational improvement that really helps us manage our customer acquisition cost, which is something that is the that is.
The industry, leading quite frankly for us.
Now as we've come to believe.
As far as we've come in reaching the chapter of our growth story.
We are truly just getting started when we spent the past three years, making a lot of wave of lean of fishing organization from.
From controlling expenses, the optimizing our product mixes, but really reaching the next stage of its going to take more than just the operational efficiency and we know there.
So becoming a more comprehensive matchmaker will require us to combine our ongoing work on improving the fundamentals of our business with the strategic focus on we are protecting the interaction model.
One of our buyers and our seller and we're going to need to keep innovating rapidly, making core investments to fully augment our efficiency and quite frankly find ways to use the resources that we already have more effectively and this is the theme that's proven that they can do it or we're fully committed to that now we've made significant strides on on both of our growth strategy.
And our goal of positioning auto web is the transactional matchmaker of scale and we really have plenty of growth the opt.
Opportunities the capture ahead of them.
For I hear more on that in some of our product level of progress I'd like to turn it over to Mike to talk the talk about Q1. The Q1 financial results with quite frankly are something that we're very proud of so Mike can you. Please the picking up.
Yes, Thank you Jared and good afternoon, everyone.
Guidance for Q1 2021 results total revenue in the first quarter was $17 9 million up 4% from $17 $3 million last quarter, but down from the $24 5 million in the year ago quarter as a result of lower lead and click volume in our industry is uneven pace of the comfort from the pandemic.
The primary driver for growth in Q1 versus Q4 was on our leads product of $14 2 million in Q1 compared to the $13 6 million in Q4.
This is down from the $18 5 million as of the year ago quarter.
We have continued working to leverage the strategic importance of our dealer count in the clinic revenue. So let me briefly touch on the performance across those areas.
Our retail dealer count and the capacity was somewhat down from Q4 with the overall daily count finishing at 1777.
Now no. The both two for in Q1 represents seasonally slow periods for our business and some of our dealers of since had to reevaluate their plans. If they are adjusting to that changing supply and demand pattern that we're seeing.
As we've discussed in previous quarters, we expect recovery on our dealer counts remain choppy as the industry recovers from the pandemic and especially with many dealers working through and mitigating the supply constraints that Jeff had mentioned earlier.
Digital advertising revenues for the first quarter came in at $3 7 million up slightly from $3 6 million in Q4 and down from 6.01 million.
In the year ago quarter within digital advertising, the clicks product delivered $2 9 million in revenue compared to three point of $1 million in Q4.
It was down compared to $5 $3 million on the year ago quarter the.
A slight sequential softness in clicks reflects the impact of seasonality and the the other account Choppiness I just mentioned.
As a reminder, we've continued to manage media spend down at the same are closely aligned with consumer demand in the markets, but as Jared will detail later on the call. We've already started generating sequential improvements in our click traffic and volume this quarter and continue to diversify our click product consumption, which we view as a promising trend for the rest of the year.
Our strategy is further reflected in the gross profit line, which we believe is of more appropriate proxy for our top line performance. We managed revenue down 27% year on Q1 Q1 gross profit was up 8% of $5 8 million.
In addition, first quarter gross margin came in at 32 for 25%, which was down slightly from the 34.0% last quarter, but a significant improvement from 21, 9% in the year ago quarter and well within the range of guidance, we've been providing on the metrics, which is in the low to mid 30% range.
This increase was driven by our continual focus on driving efficiencies on our traffic acquisition, leveraging higher margin distribution channels and implementing platform improvements in support of our long term growth.
We continued to manage operating expenses during the quarter, which were down year over year to $6 9 million as a result of our disciplined approach to cost management.
We also generated net income in the first in first quarter of <unk> 3 million or <unk> <unk> per share representing a significant improvement loss of <unk> $9 million of negative <unk> <unk> per share last quarter and the net loss of $4 1 million of negative 31 cents per share in the year ago quarter.
This increase was driven by our gross profit growth and prudent expense management as well as the recorded gain in Q1 as a result of the loan forgiveness from the payment protection program loan.
Adjusted EBITDA on the first quarter of improved two zero point of $2 million, which was down from as you point of 5 million last quarter, but up significantly from the negative $1 7 million in the year ago quarter, which is a positive indicator for the business given the Q1 is seasonally challenging.
The results exceeded our expectations, which youre closer to breakeven for the quarter.
Also represents our fourth quarter in a row of generating positive adjusted EBITDA.
And we continue to see the consistency of our adjusted EBITDA performance is a positive indicator of our plan and focused efforts on gross profit.
As we reach our seasonally stronger periods in Q2 and Q3, we normally would expect growth in this metric to expand.
But we are being cautious on our internal expectations due to the inventory constraints. The others are facing with the various material shortages that are impacting vehicle supply such as the chips the film and rubber.
We are monitoring the situation very closely and we will do everything on the power to mitigate the potential impact of the industry supply challenges on her business.
At March 31, 2021, cash cash equivalents and restricted cash stood at $15 5 million compared to $15 1 million at December 31, 2020, with the increase driven by our focus on gross profit and strong cost control efforts.
Continue to some of those levers that enable cash growth for the remainder of the year.
I do need to note that there is an error in the press release that was just issued and that will be amended to state that the net cash provided by operating activities.
Include that lease liability of use of cash which was erroneous the excluded from the summation of on that schedule and the Q1 2021 total should be 350000 in the Q1 2020 total should be negative 954000.
As of March 31, 2021, we had an outstanding balance of $10 2 million on our 20 million of revolving credit facility with CIC Northbridge credit.
We continue to be comfortable with our balance sheet and overall liquidity as we progressed through 2021 and maintain our commitment to improving our liquidity and prudently managing our costs.
We're proud of on the progress we've made so far on delivering on our strategy and achieving sequential revenue growth and year over year profitability expansion.
As we get further into 2021, we remain closely attuned to any changes in our industry conditions and focused on further optimizing our organizational efficiency and capabilities of our platform throughout the rest of the year.
This concludes my prepared remarks, I will turn the call back over to Jared for additional operational updates and color on our strategic outlook Jeremy.
Thank you Michael So every state over the past few quarters. The search based advertising was deeply impacted by the pandemic last year, but as in many other areas of the economy, what we're seeing signs of recovery.
In our clicks business, we drove improvement in both traffic and volume over last quarter, owing both to the addition of of new publisher that we did add to the to the platform and better overall optimization of our total of social media traffic sources.
Now in fact, our affiliate traffic increased 72% sequentially, while our total affiliate of clicks increased over 110% sequentially.
The other signals that we are driving continued momentum with endemic buyers. As a reminder, an endemic buyer is somebody who is directly involved in the sale of the vehicle dealers and OEM as those are those are mainly what you'd consider endemic now.
The quick publishers and the endemic buyers are important to this segment of our business you can have offsetting the potential impact of the industry supply shortages that could affect retail dealer quick consumption.
Now first of our Q1 click attach rate remained stable at 20% relative to last quarter and we have strong runway to grow this rate even further.
Now as a reminder, our audience is very ready to buy a in fact on average.
One eight percentage of our consumers buy of vehicle of some kind of <unk> and 75% of of new vehicle sales to our audience occur.
Occur within 19 day, so three business week basically of lead submission.
Of our work to facilitate better matches between buyers and sellers aimed to keep cool on the positive positive trends.
Which is why we began investing in our data science capabilities in Q4 of last year.
Now the insights that we have already generated through this the newly built.
The function and profit.
We have already benefited all of our product development effort.
Day sales approach.
And it's also benefited all of our audience acquisition efforts.
Now to provide additional insight into our product evolution roadmap for the year.
The first things first is we do expect to carry the success, we've generated with losses shop, Dakar, dotcom that that new technology pad of the crop.
The other portfolio of sites.
By the end of Q2, we expect to have similar really revamped the the technology.
Other key high volume lead generating sales in our portfolio and when we expect to see similar results when we when we make that transition.
Some of the core necessary work in our our transformation that not only enables our platform to support our matchmaking journey, but also provides yet another way for us to advance our business through making our existing resources more efficiently.
That's been a hallmark of the autumn Ed story today and quite frankly, that's the hallmark of the Ottawa of management team here and it's going to continue to the underscored.
With all of the work that we do going forward.
After implementing these the foundational changes to make our existing sites more efficient and better technologically equipped we do expect to begin layering in new retail ready components now none of these components will span features related to finance trade in and other specific elements of both the buying and selling experience.
Now being able to collect the this kind of information from consumers.
It allows us to create more tailored profiles of the buyers.
Who are using our sites and our products and better understand what kind of shopping experiences theyre looking for and then the better able to match them for the sellers that can provide the experience within their preferred parameters, which is which is of critical element of matchmaking.
How long these lines, we've been running of tests for a few months now that the.
Quite frankly has given us.
A tremendous amount of additional confidence that the retail ready components will resonate with our consumer.
In short we've embedded some digital retailing elements on our lead funnel. Thank you page on.
And that of produced some very impressive results the during Q1.
The 9% of the consumers who were presented with this functionality engaged with it now what that means is that the of the consumers who saw that that functionality on the thank you page.
Over over a third of them, 39%, almost 40% clicked on that that functionality and interacted with it and so that's great engagement at that point in the process.
Now with even more impressive is that 9% of those consumers. They completed a secondary digital retailing conversion process.
That's even more impressive because not only did almost 40% of the consumers who.
Who saw the functionality interact with it but again almost 10% of those consumers.
They went through a whole another secondary digital retailing process and submitted their information through for that.
Through that the debt.
Series of staff now these rates of engagement, we're extremely bullish on the prospects of of our future product evolution.
I'd like to remind everybody that becoming the transactional matchmaker at scale. It is not only our exciting response to where the market is headed.
Necessary step in an environment, where buyers are seeking increasingly customized experiences and salaries of rapidly expanding their capacity to provide them the other.
Transformation is also the logical next step of the work that we've already done IPO of all of our value proposition, having generated sequential revenue growth having maintained our expanded gross margin and having achieved our fourth quarter on a row of positive adjusted EBITDA, We think that we've proven that our strategy works.
Now our ability to control expenses and deliver high quality product mix. It shows that we're already doing so much more than what we have for.
Oh much more with what we have.
But to get to where we know we can go we have to keep building on this progress we need to continue optimizing our resources to build a platform that can most fully address the specific needs of the automotive consumers of tomorrow.
Now as we evolve our digital marketing capabilities to stay ahead of the stay at.
Head of today's evolving industry and car buying dynamic that we've already made material financial and operational progress we're off to a strong start in 2021, and we look forward to what the head for the.
The remainder of the year.
That ends my Lai.
My remarks that I've got prepared I would just before we go to questions. Just reiterate a couple of things one as we delivered on the financial commitments that we made this the this quarter.
Number two is we maintained the margin in the in the low to mid 30 of which is what we've talked about on the gross margin line and number three and this is something we're very proud of we did all of this at the same kind of we've made material investments in the platform.
And so again I'm very proud of the work that this team has done I'm very proud of the work for this team will do and with that operator, let's let's turn it over for questions.
Thank you, Sir ladies and gentlemen, if you have a question at this time. Please press. The Star then the number one key on your Touchtone telephone.
Ladies and gentlemen, if you have questions at this time, please press star and the the number one key on your cash down telephone well pause for just a moment to compile the Q&A roster.
Yeah.
Yeah.
Your first question comes from the line of Josh Nichols from B. Riley. Your line is open you may ask the question.
Yes, thanks for the.
Taking my question it looks like we're in for a little bit of of an interest in selling season, right, where you have some strong recovery from the consumer.
The juxtaposing that is like the relatively short.
Shortage the rehab for some of these at some of these dealers the production cuts how should we think about the trajectory for the benefit of growth, but also.
More so like the gross margin expansion potential as we enter the the stronger selling seasons with with that in mind.
I'll tell you what Josh.
Josh Thanks for the question, let me, let me start and then Mike and lots of follow up.
To your point Theres, just a lot of uncertainty around Q2 and Q3.
And we're really proud of the results of Q1.
And we did that in an environment, where quite frankly, it wasn't optimal right. We've yet to we've got a better portion of a year here with the sub optimal market conditions. So we're pretty we're pretty bullish on as the market recovers our ability to capture the economic leverage that we've created but to your point.
Yeah.
All of those those.
Those day supply at the dealer level of its pretty concerning when you see in Asbury with the 31 day supply of Lithia with of 41 day supply of Sonic with the 43 day supply Penske for the group 130 for Autonation for 29 at the end of at the end of March.
Those folks are going on are going to pull back and harvest profitability as well they should and the variable marketing expenses that we represent the arnie the area for them to do that so our focus is how do we offset that by being good managers of the business overall, how do we offset that by continuing to lean into the business.
As of the clicks of a slightly different value proposition is just not new car leads you can present used car inventory as well and we've done a nice job of.
Of transitioning some of the budget into that in the collect which as we all know is the better gross margin characteristics from the core business.
So we do continue to expect Q2, and Q3 to be better than Q4 and Q1.
Thank you know us understanding exactly how much better that's one of the thing that we don't have good line of sight on right now of course, just or I'm, sorry, Josh just because of the the on.
Uncertainty around day supply on the uncertainty around.
Production, Mike did I.
Missing anything or anything you want to clean up there no I mean I think the biggest thing is is we're going to continue to manage that profit dollar.
And so we do expect that we can continue to be in that that steady range that we've been operating in.
Did you average point, it's really about the volume and trying to drive additional clicks in the volume mix.
But really trying to manage through and maintain that profit dollar and that that solid ability to deliver financially.
The board and so we're just kind of actively continue managing all of that.
I think every opportunity that's out there for us to really manage through any of this Q2 choppiness that we're seeing based on inventory.
Hey, guys. One last thing I would mention is its one of the reasons why when we talk about things like quality score and we talk about some of those things I know that is really inside baseball pretty arcane.
But it's critical to our business because it helps us manage the cost of acquisition.
<unk> down and quite frankly, we continue to be able to manage our cost of acquisition well.
Well, well well below what it was.
About a year and a half the two years ago, we've been steadily chopping away of that chipping away at it.
One of Mike's point, we're going to stay focused on that gross profit margin.
And we will do that by being efficient effective managing our expenses, well and managing that mix mix very aggressively leads the clip.
Okay.
Thanks for the clarity there and then can you talk a little bit about the dynamics impacting the revenue per click on the I know you mentioned.
That's obviously, a higher margin piece of the business there.
What's the expectation there what are the puts and takes whether it be used car prices are dealer inventory levels.
It's really dealer inventory levels with that one.
We've been working on for quite a while and we've made a good of lot of good progress over the last the last couple of years is selling more of the clicks to index.
Meaning dealers.
<unk> OEM, meaning you know even some of the near endemic like some of the insurance provider, who we brought on board.
Because essentially the the revenue per click we get there is substantially better than it is when we when we sell through of click arbitrage folks, which is where the remainder of the the volume goes.
That national coverage is very important for us.
So as we think about that it really is continuing to lean in on the dealer side and and pushed budget towards.
The flex one of the things we've had a good deal of success with over the past year is we've we've introduced something called the dynamic inventory of targeting which is really leveraging the eclipse platform to put used car inventory in front of new car buyers when either the MBA abandon the the lead funnel or hopefully the mission and we've seen some good progress there. So we've got tools.
Of our tool belt to help dealers, regardless of whether they are having new car inventory issues or not because of they're leaning on the used car price. We can we can help them with that and we can transition budget around and so again. The two dynamics. There are really how do we make certain that we sell as many of those clicks as possible. The two endemic and near endemic.
And then also how do we really.
How are we smart with our clients.
To really optimize their spend with us in a way that aligns with the inventory realities that they are facing every single day.
Because again, you may have new car constraints, which I know, we do right as an industry used car pricing.
It's very high right now, but you can still get access to it. So they can continue to sell there. So that's how it kind of tactically we've addressed it with the client.
Thanks for the last question for me the pop back in mind.
Whenever you're looking for and the impact of the shortages for silicon like rubber another basic parts.
How should the mix be interpretive I know that some.
It's not just shutting down production, but they're showing them more production. It seems like of like the lower level or entry level vehicles to try in favor of the higher margin higher gem vehicles does that impact your business at all or how should we think about that.
That actually helps us a little bit in that as long as we stay focused on what the Oems are looking for and we stay very closely aligned with the most of our OEM clients around what sort of mix. They are looking for we try to tailor our search campaigns towards that.
Well, we don't want to be doing is generating a bunch of leads for a bunch of vehicles that they may have on ground, but they may not be high demand.
And so again, where we tailor our approaches for our largest clients in particular.
Around what their current marketing mix is focused on which tends to lean towards what it is they're trying to sell.
So we do move our mix around from a marketing spend perspective monthly again to support some of the some of the largest clients that we have in particular, a couple of them that we called out in the.
In the in the in the PREPA.
Third remarks.
We stay close to those folks and try to generate good.
Good quality purchase intent for stuff that consumers want and they can sell on they have.
Yes.
Great. Thanks, guys. Thanks, Jeff.
Your next question comes from the line of edible from S. N. Gen capital Your line is open.
Yes, congratulations on the quarter. My question is it seems like the consumer confidence is high with they've got a lot of stimulus money seems like car dealers, even though the volume may be light the inventories of light that their profitability is very strong is there any opportunity to.
The price increases.
Well, yes.
Yes, no. We appreciate the question the reality of it is is no as we sit right now.
Think about taking rate.
We think about that within the context of of further product evolution and product improvement, we think that will give us an opportunity.
But over the short term, it's more about delivering high value, which really is about shifting the mix from wholesale to retail we've talked a little bit about this in the past.
The way that we can take rate.
Without <unk> without increasing price is simply shifting more of the mix from wholesale to retail now the current environment make that difficult.
But as we sit today, we don't think we can simply raised prices on existing not on existing clients.
Quite the contrary, we're trying to do with rationalized pricing to get them to take more volume because we think that the better value equation for them and ultimately we think that a broader footprint with more products layered up create a better environment for us to partner with them over the long term.
Great and then you obviously, they're all of its obviously going to be a lot of industry constraints on new cars, what about used cars as the dynamics change on would you guys be making a bigger focus on used cars leads.
Yeah.
Less about used car leads per se, it's more about how do we introduce used car into the new car audience and so.
That's where this dynamic inventory targeting comes in it's the way for us the authentically represent.
Used car inventory to a predominantly new car audience, because that's who we have that's what we have.
As we know that consumers are willing to make the trade off and they are willing to go from new to used as long as they find the right used vehicle that matches their needs and so Ed where we've really leaned in over the last several months several period quite frankly is in this the the IC product.
Which again is relatively new for us.
Again, it's the way for us to take the dealers used car inventory and then put it in for.
The <unk>.
Our new car buyers as they're going through the funnel in a way that makes sense for the consumer.
And Thats, the advertiser up well and like we keep talking about that click revenue.
We can transition money in the click revenue the gross margin characteristic is better for them. So we like that.
Great well, thanks for answering my questions on good luck.
Thanks, Ed.
Your last question comes from the line of Bruce Goldfarb from Lake Street.
Licensed open.
Thank you George and Mike Congratulations on the great quarter.
Thank you Bruce.
I'm sorry, you asked a question so like you discussed.
Quality of improvements lowering your customer acquisition costs.
Longer term do you think that is going to improve the quality of the.
Leaves you generate in May.
Maybe in the near term, but longer term do you think that could.
You know represent sort of low hanging fruit in terms of.
The increase in prices later.
Again, what we've done with the from a quality perspective, we talked a little bit on the last call right. We've seen tremendous improvement in overall product quality right. So the the core underlying raw material of our business is better we're generating.
The more closes on average than we did this time last year and so we do think that has a material benefit for the business. It just takes a little while for for the market to recognize it and for the market to basically then consume that we.
We don't think that that's going to translate necessarily without product innovation translate necessarily to better price per unit again, what we think it will do and what we're seeing some success and is transitioning more of that volume that away from the wholesale channel away from Oems and end of the retail channel because like we've talked about the price.
<unk> differential in the margin differential between selling that exact same lead to an OEM versus the dealer is substantial so it's actually kind of interesting Bruce in that we can discount on our leads on the retail side increase the footprint shift more traffic over.
More of the leads over and improve our gross margin characteristic of the portfolio overall, that's really where we're focused.
So we've got to get that that retail side moving we did have a slight sequential decline were down eight dealer in the current environment I will tell you. We are pretty excited about the fact that we're only down eight dealers on the current environment because again a lot of dealers right now are cranking back their marketing expenses, the variable marketing expenses the harvest harvest prop.
The ability because demand far outstrips supply and made the economically irrational not too. So we do think that we will harvest value from all of these quality improvements and the good consumer acquisition cost improvements that we've made youre just kind of really see it play out over time and cross sell.
Sal without being able to sell more products and services in the dealer leads plus clicks for our attachment rate of work and also increasing the number of retail dealers. We have on the network if we do that.
That like I said, we will actually materially improved margin and we will essentially be equivalent of taking rate.
Great. Thank you had the Oh.
The other question too has the vaccination rates from the U S has that had an impact on you.
Overall, our activity on your websites sort of positively correlated.
Just out of curiosity.
It really hasn't we haven't really seen that.
You've kind of tracks with the overall market is as consumer confidence increases and some of that has to do with the fact that.
The dollar flowing in from from stimulus.
People are getting vaccinated, they are starting to get back to kind of normalcy or some level of normalcy, whatever the new normal will be but we don't see it necessarily aligned or correlate with vaccination rates, we see it more aligned with just consumer confidence overall.
And how good they feel about their financial prospects right, because if you're going to enter into this kind of transaction right you've got to feel pretty good about your financial prospects and quite frankly of the prospects of the economy overall.
Great well, thank you and congrats again on the great quarter.
Thank you.
At this time. This concludes our question answer session hold on.
Like to turn the call back over to Mr. <unk> for closing remarks.
Well, thank you operator, and thank you everybody for joining the call.
We're proud of the work we've done.
Like I said earlier, we're very excited about the prospects for 2021.
We've got a lot of work ahead of us, but we have set a very very solid foundation.
And then like I mentioned earlier is the you know as the market improves we do expect to the.
The C. Some of the economic leverage that we've created the scale out. So we're excited about where we're at and we're making good strategic investments in the platform to evolve beyond the existing value proposition and the <unk>.
So you know we're looking forward to talking to you again here in another quarter and I'm, telling you of how we progressed. So thank you everybody for joining the call. Thank you for the auto web team for all of your hard work is paying off and we appreciate it.
So the well everybody stay safe and we'll all talk soon okay.
Thank you for latest ladies and gentlemen. This does concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.