AutoWeb, Inc. - Quarter Report: 2019 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
or
[
]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to .
Commission file number 1-34761
AutoWeb,
Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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33-0711569
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(State or other jurisdiction of incorporation or
organization)
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(I.R.S. Employer Identification Number)
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18872 MacArthur Boulevard, Suite 200, Irvine,
California
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92612
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(Address of principal executive offices)
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(Zip Code)
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(949) 225-4500
(Registrant’s telephone number, including area
code)
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer ☐
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Accelerated filer ☐
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Non-accelerated filer ☐
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Smaller reporting company ☒
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Emerging growth company ☐
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards pursuant to Section 13(a) of the Exchange
Act. ☐
Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Trading Symbol
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Name of each exchange on which registered
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Common Stock, par value $0.001 per share
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AUTO
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The Nasdaq Capital Market
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As of May 6, 2019, there were
13,145,331 shares of the Registrant’s Common Stock issued and
outstanding.
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PART I. FINANCIAL
INFORMATION
Item 1. Financial
Statements
AUTOWEB, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per-share
data)
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March 31,
2019
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December 31,
2018
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Assets
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Current
assets:
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Cash
and cash equivalents
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$10,733
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$13,600
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Accounts
receivable, net of allowances for bad debts and customer credits of
$571 and $566 at March 31, 2019 and December 31, 2018,
respectively
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23,085
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26,898
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Prepaid
expenses and other current assets
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1,181
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1,245
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Total
current assets
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34,999
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41,743
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Property
and equipment, net
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2,809
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3,181
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Right-of-use
assets
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3,780
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—
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Intangible
assets, net
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10,618
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11,976
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Other
assets
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510
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516
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Total
assets
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$52,716
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$57,416
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Liabilities and Stockholders’ Equity
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Current
liabilities:
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Accounts
payable
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$16,549
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$17,572
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Accrued
employee-related benefits
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1,934
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3,125
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Other
accrued expenses and other current liabilities
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1,296
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2,204
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Current
portion of lease liabilities
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1,626
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—
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Current
convertible note payable
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—
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1,000
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Total
current liabilities
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21,405
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23,901
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Lease
liabilities, net of current portion
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2,298
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—
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Total
liabilities
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23,703
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23,901
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Commitments
and contingencies (Note 9)
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Stockholders’
equity:
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Preferred
stock, $0.001 par value, 11,445,187 shares authorized
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Series
A Preferred stock, none issued and outstanding
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—
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—
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Common
stock, $0.001 par value; 55,000,000 shares authorized and
13,116,462 and 12,960,450 shares issued and outstanding at March
31, 2019 and December 31, 2018, respectively
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13
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13
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Additional
paid-in capital
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362,076
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361,218
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Accumulated
deficit
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(333,076)
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(327,716)
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Total
stockholders’ equity
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29,013
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33,515
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Total
liabilities and stockholders’ equity
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$52,716
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$57,416
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See accompanying notes to unaudited condensed consolidated
financial statements.
AUTOWEB, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
AND COMPREHENSIVE LOSS
(Amounts in thousands, except per-share data)
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Three Months Ended
March 31,
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2019
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2018
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Revenues:
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Lead
fees
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$25,698
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$24,080
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Advertising
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5,878
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8,087
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Other
revenues
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28
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182
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Total
revenues
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31,604
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32,349
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Cost
of revenues
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25,847
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24,659
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Gross
profit
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5,757
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7,690
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Operating
expenses:
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Sales
and marketing
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2,878
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3,712
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Technology
support
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2,780
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3,385
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General
and administrative
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4,290
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4,575
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Depreciation
and amortization
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1,239
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1,160
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Goodwill
impairment
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—
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5,133
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Total
operating expenses
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11,187
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17,965
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Operating
loss
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(5,430)
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(10,275)
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Interest
and other income (expense), net
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70
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—
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Loss
before income tax provision
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(5,360)
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(10,275)
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Income
tax provision
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—
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4
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Net
loss and comprehensive loss
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$(5,360)
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$(10,279)
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Basic
loss per common share
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$(0.41)
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$(0.81)
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Diluted
loss per common share
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$(0.41)
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$(0.81)
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See accompanying notes to unaudited condensed consolidated
financial statements.
AUTOWEB, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY
(in thousands, except share data)
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Three
Months Ended March 31, 2019
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Additional
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Common
Stock
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Preferred
Stock
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Paid-In-
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Accumulated
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Number of
Shares
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Amount
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Number of
Shares
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Amount
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Capital
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Deficit
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Total
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Balance
at December 31, 2018
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$12,960,450
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13
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—
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$—
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$361,218
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$(327,716)
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$33,515
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Share-based
compensation
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—
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—
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—
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—
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551
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—
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551
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Issuance
of common stock upon exercise of stock options
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156,012
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—
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—
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—
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307
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—
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307
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Net
loss
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—
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—
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—
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—
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—
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(5,360)
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(5,360)
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Balance
at March 31, 2019
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13,116,462
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13
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—
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$—
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$362,076
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$(333,076)
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$29,013
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Three
Months Ended March 31, 2018
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Additional
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Common
Stock
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Preferred
Stock
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Paid-In-
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Accumulated
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Number of
Shares
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Amount
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Number of
Shares
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Amount
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Capital
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Deficit
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Total
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Balance
at December 31, 2017
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13,059,341
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$13
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—
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$—
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$356,054
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$(288,900)
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$67,167
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Share-based
compensation
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—
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—
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—
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—
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1,627
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—
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1,627
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Issuance
of common stock upon exercise of stock options
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15,217
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—
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—
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—
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73
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—
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73
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Cancellation
of restricted stock
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(178,333)
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—
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—
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—
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—
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—
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—
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Net
loss
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—
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—
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—
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—
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—
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(10,279)
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(10,279)
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Balance
at March 31, 2018
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12,896,225
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13
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—
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$—
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$357,754
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$(299,179)
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$58,588
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See accompanying notes to unaudited condensed consolidated
financial statements.
AUTOWEB, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Amounts in thousands)
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Three Months Ended
March 31,
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2019
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2018
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Cash
flows from operating activities:
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Net
loss and comprehensive loss
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$(5,360)
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$(10,279)
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Adjustments
to reconcile net loss to net cash used in operating
activities:
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Depreciation
and amortization
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1,787
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2,179
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Provision
for bad debts
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41
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69
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Provision
for customer credits
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74
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65
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Share-based
compensation
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551
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1,626
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Right-of-use
assets
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445
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—
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Lease
liabilities
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(446)
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—
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Change
in deferred tax asset
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—
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692
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Goodwill
impairment
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—
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5,133
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Changes
in assets and liabilities:
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Accounts
receivable
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3,698
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753
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Prepaid
expenses and other current assets
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64
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137
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Other
assets
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6
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(668)
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Accounts
payable
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(1,023)
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(1,355)
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Accrued
expenses and other current liabilities
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(1,954)
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(9)
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Net
cash used in operating activities
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(2,117)
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(1,657)
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Cash
flows from investing activities:
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Purchases
of property and equipment
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(57)
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(250)
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Net
cash used in investing activities
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(57)
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(250)
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Cash
flows from financing activities:
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Proceeds
from exercise of stock options
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307
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73
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Payment
on convertible note
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(1,000)
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—
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Payments
on revolving credit facility
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—
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(8,000)
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Net
cash used in financing activities
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(693)
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(7,927)
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Net
decrease in cash and cash equivalents
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(2,867)
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(9,834)
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Cash
and cash equivalents, beginning of period
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13,600
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24,993
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Cash
and cash equivalents, end of period
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$10,733
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$15,159
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Supplemental
disclosure of cash flow information:
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Cash
paid for income taxes
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$1
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$—
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Cash
paid for interest
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$20
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$73
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See accompanying notes to unaudited condensed consolidated
financial statements.
AUTOWEB, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
1.
Organization and Operations
AutoWeb, Inc. (“AutoWeb” or the “Company”) is a digital marketing company for
the automotive industry that assists automotive retail dealers
(“Dealers”) and
automotive manufacturers (“Manufacturers”) market and sell
new and used vehicles to consumers by utilizing the Company’s
digital sales enhancing products and services.
The Company’s consumer-facing automotive
websites (“Company
Websites”) provide
consumers with information and tools to aid them with their
automotive purchase decisions and the ability to connect with
Dealers regarding purchasing or leasing vehicles
(“Leads”). Leads are internally-generated from our Company
Websites or acquired from third parties that generate Leads from
their websites.The Company’s click traffic referral
program provides consumers who are shopping for vehicles online
with targeted offers based on make, model and geographic location.
As these consumers conduct online research on Company Websites or
on the site of one of our network of automotive publishers, they
are presented with relevant offers on a timely basis and, upon the
consumer clicking on the displayed advertisement, are sent to the
appropriate website location of one of the Company’s Dealer,
Manufacturer or advertising customers.
The
Company was incorporated in Delaware on May 17, 1996. Its
principal corporate offices are located in Irvine, California. The
Company’s common stock is listed on The Nasdaq Capital Market
under the symbol AUTO.
2.
Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements are presented on the same basis as the
Company’s Annual Report on Form 10-K for the year ended
December 31, 2018 (“2018 Form 10-K”)
filed with the Securities and Exchange Commission
(“SEC”). AutoWeb has made its
disclosures in accordance with U.S. generally accepted accounting
principles (“GAAP”) for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial
statements. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation with respect to interim financial
statements, have been included. The unaudited condensed
consolidated statement of operations and comprehensive loss and
cash flows for the period ended March 31, 2019 are not
necessarily indicative of the results of operations or cash flows
expected for the year or any other period. The unaudited
condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and
the notes thereto in the 2018 Form
10-K.
Certain
amounts have been reclassified from the prior year presentation to
conform to the current year presentation.
References
to amounts in the consolidated financial statement sections are in
thousands, except shares and per share data, unless otherwise
specified.
3.
Recent Accounting Pronouncements
Issued but not yet adopted by the Company
In August 2018, the FASB issued Accounting
Standards Update (“ASU”) 2018-13, “Fair Value Measurement -
Disclosure Framework” (Topic 820). The updated guidance improves the
disclosure requirements for fair value measurements. The
guidance is effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2019. The
Company is currently evaluating the impact of adopting the updated
provisions.
In August 2018, the FASB issued ASU No.
2018-15, “Customer’s
Accounting for Implementation Costs Incurred in a Cloud Computing
Arrangement That is a Service Contract” (“ASU 2018-15”). ASU 2018-15 was
issued to align the requirements for capitalizing implementation
costs incurred in a hosting arrangement that is a service contract
with the requirements for capitalizing implementation costs
incurred to develop or obtain internal-use software (and hosting
arrangements that include an internal-use software license). The
Company is currently evaluating the impact of adopting the updated
provisions which are effective for annual periods beginning after
December 15, 2019, including interim periods within that reporting
period, with early adoption permitted. The Company does not expect
the adoption of this guidance to have a material impact on the
Consolidated Financial Statements.
Recently adopted by the Company
Accounting Standards
Codification (“ASC”)
220 “Comprehensive Income.” In February 2018, the FASB issued ASU No. 2018-02,
“Reclassification of Certain
Tax Effects from Accumulated Other Comprehensive
Income.” The new guidance
allows a reclassification from accumulated other comprehensive
income to retained earnings for stranded tax effects resulting from
the Tax Cuts and Jobs Act and will improve the usefulness of
information reported to financial statement users. On January 1,
2019, the Company adopted ASU No. 2018-02 and it did not have a
material effect on the consolidated financial statements and
related disclosures.
Accounting Standards
Codification 842 “Leases” (“ASC 842”) In February 2016, ASU No. 2016-02,
“Leases (Topic
842)” was issued. This
ASU was issued to increase transparency and comparability among
organizations by requiring lessees to (i) recognize right-of-use
(“ROU”) assets and lease liabilities on the
balance sheet to represent the right to use the leased asset for
the lease term and the obligation to make lease payments and (ii)
disclose key information about leasing arrangements. Some changes
to the lessor accounting guidance were made to align both of the
following: (i) the lessor accounting guidance with certain changes
made to the lessee accounting guidance and (ii) key aspects of the
lessor accounting model with revenue recognition
guidance.
The
Company adopted the ASU effective January 1, 2019 utilizing
the modified retrospective
approach for adoption for all leases that existed at or commenced
after the date of initial application with an option to use certain
practical expedients. The package of practical expedients allowed
the Company to not reassess: (i) whether any expired or existing
contracts are or contain leases, (ii) lease classification for any
expired or existing leases, and (iii) initial direct costs for any
expired or existing leases. The Company also used (i) hindsight
when evaluating contractual lease options, (ii) the practical
expedient that allows lessees to treat lease and non-lease
components of leases as a single lease component, and (iii) the
portfolio approach which allows similar leased assets to be grouped
and accounted for together. In
addition, the Company implemented additional internal controls to
evaluate future transactions in accordance with the
standard.
The adoption of ASC 842 had a material impact on
the consolidated balance sheet due to the recognition of ROU assets
and lease liabilities. The adoption of this ASU did not have a
material impact on the consolidated statement of operations or the
consolidated statement of cash flows. The Company did not recognize a material
cumulative effect adjustment to the opening balance sheet retained
earnings on January 1, 2019. Because the modified retrospective approach was elected, the
ASU was not applied to periods prior to adoption and did not have
an impact on previously reported results. At adoption, the Company
recognized operating lease ROU assets and lease liabilities that
reflect the present value of the future payments. As the rate
implicit in the lease could not be determined for any of the
Company’s leases, an estimated incremental borrowing
rate of 5.5% was used to determine the
present value of lease payments. Based on the impact of ASC 842 on
the lease population, the Company recorded $4.4 million in lease liabilities and $4.2 million
for ROU assets based upon the lease liabilities adjusted for
deferred rent. See Note 8 for additional information on
leases.
SEC Release No. 33-10532,
Disclosure Update and Simplification. In August 2018, the SEC adopted the final rule
under SEC Release No. 33-10532, “Disclosure Update and
Simplification”, amending
certain disclosure requirements that were redundant, duplicative,
overlapping, outdated or superseded. In addition, the amendments
expanded the disclosure requirements on the analysis of
stockholders’ equity for interim financial statements. Under
the amendments, an analysis of changes in each caption of
stockholders’ equity presented in the balance sheet must be
provided in a note or separate statement. The analysis should
present a reconciliation of the beginning balance to the ending
balance of each period for which a statement of comprehensive
income is required to be filed. This final rule became effective on
November 5, 2018, and the Company adopted the requirements in
the first quarter of 2019. See “Unaudited Condensed
Consolidated Statements of Stockholders’
Equity.”
4.
Revenue Recognition
Revenue
is recognized when the Company transfers control of promised goods
or services to the Company’s customers, or when the Company
satisfies any performance obligations under contract. The amount of
revenue recognized reflects the consideration the Company expects
to be entitled to in exchange for respective goods or services
provided. Further, under ASC 606, “Revenue from Contracts with
Customers,” (“ASC 606”) contract assets or
contract liabilities that arise from past performance but require
further performance before obligation can be fully satisfied must
be identified and recorded on the balance sheet until respective
settlements have been met.
The
Company has three main revenue sources – Lead fees,
advertising, and other revenue. Accordingly, the Company recognizes
revenue for each source as described below:
●
Lead fees –
paid by Dealers and Manufacturers participating in the
Company’s Lead programs and are comprised of Lead transaction
and/or monthly subscription fees. Lead fees are recognized in the
period when service is provided.
●
Advertising –
fees paid by Dealers and Manufacturers for (i) the Company’s
click traffic program and (ii) display advertising on the
Company’s websites. Revenue is recognized in the period
advertisements are displayed on the Company’s websites or the
period in which clicks have been delivered, as applicable. The
Company recognizes gross revenue from the delivery of action-based
advertisements in the period in which a user takes the action for
which the marketer contracted for with the Company. For advertising
revenue arrangements where the Company is not the principal, the
Company recognizes revenue on a net basis.
●
Other revenues
– consists primarily of revenues from the Company’s
mobile products and revenues from the Company’s Reseller
Agreement with SaleMove, Inc. Revenue is recognized in the period
in which products or services are sold.
Variable Consideration
Leads
are generally sold with a right-of-return for services that do not
meet customer requirements as specified by the relevant contract.
Rights-of-return are estimable, and provisions for estimated
returns are recorded as a reduction in revenue by the Company in
the period revenue is recognized, and thereby accounted for as
variable consideration. The Company includes the allowance for
customer credits in its net accounts receivable balances on the
Company’s balance sheet at period end. Allowance for customer
credits totaled $132,000 and $121,000 as of March 31, 2019 and
December 31, 2018, respectively.
Contract Assets and Contract Liabilities
Unbilled Revenue
Timing
of revenue recognition may differ from the timing of invoicing to
customers. The Company records a receivable when revenue is
recognized prior to invoicing. From time to time, the Company may
have balances on its balance sheet representing revenue that has
been recognized by the Company upon satisfaction of performance
obligations and earning a right to receive payment. These not-yet
invoiced receivable balances are driven by the timing of
administrative transaction processing, and are not indicative of
partially complete performance obligations, or unbilled revenue.
Unbilled revenue represents revenue that is partially earned,
whereby control of promised services has not yet transferred to the
customer, and for which the Company has not earned the complete
right to payment. The Company had zero unbilled revenue included in
its consolidated balance sheets as of March 31, 2019 and December
31, 2018.
Deferred Revenue
The
Company defers the recognition of revenue when cash payments are
received or due in advance of satisfying its performance
obligations, including amounts which are refundable. Such activity
is not a common practice of operation for the Company. The Company
had zero deferred revenue included in its consolidated balance
sheets as of March 31, 2019 and December 31, 2018. Payment terms
and conditions can vary by contract type. Generally, payment terms
within the Company’s customer contracts include a requirement
of payment within 30 to 60 days from date of invoice. Typically,
customers make payments after receipt of invoice for billed
services, and less typically, in advance of rendered
services.
The
Company has not made any significant changes in applying ASC 606
during the three months ended March 31, 2019
Disaggregation of Revenue
We
disaggregate revenue from
contracts with customers by revenue source and have determined that
disaggregating revenue into these categories sufficiently depicts
the differences in the nature, amount, timing and uncertainty of
revenue streams. The Company has three
main sources of revenue: Leads, advertising and other
revenues.
The
following table summarizes revenue from contracts with customers,
disaggregated by revenue source, for the three months ended
March 31, 2019 and 2018. Revenue is recognized net of
allowances for returns and any taxes collected from customers,
which are subsequently remitted to governmental
authorities.
|
|
Three Months Ended
March 31,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Lead
fees
|
$25,698
|
$24,080
|
|
Advertising
|
|
|
|
Click
traffic
|
5,059
|
6,691
|
|
Display
and other advertising
|
819
|
1,396
|
|
Total
Advertising
|
5,878
|
8,087
|
|
|
|
|
|
Other
revenues
|
28
|
182
|
|
Total
revenue
|
$31,604
|
$32,349
|
5.
Net Loss Per Share and Stockholders’ Equity
Basic
net loss per share is computed using the weighted average number of
common shares outstanding during the period, excluding any unvested
restricted stock. Diluted net loss per share is computed using the
weighted average number of common shares, and if dilutive,
potential common shares outstanding, as determined under the
treasury stock and if-converted methods, during the period.
Potential common shares consist of unvested restricted stock,
common shares issuable upon the exercise of stock options and the
exercise of warrants. The following are the share amounts utilized
to compute the basic and diluted net loss per share for the
three months ended March 31, 2019 and 2018:
|
|
Three Months Ended
March 31,
|
|
|
|
2019
|
2018
|
|
Basic
Shares:
|
|
|
|
Weighted
average common shares outstanding
|
12,984,592
|
13,010,948
|
|
Weighted
average unvested restricted stock
|
(60,001)
|
(393,890)
|
|
Basic
Shares
|
12,924,591
|
12,617,058
|
|
|
|
|
|
Diluted
Shares:
|
|
|
|
Basic
shares
|
12,924,591
|
12,617,058
|
|
Weighted
average dilutive securities
|
—
|
—
|
|
Diluted
Shares
|
12,924,591
|
12,617,058
|
For
the three months ended March 31, 2019 and 2018, the Company’s
basic and diluted net loss per share are the same since the Company
generated a net loss for the period and potentially dilutive
securities are excluded from diluted net loss per share because
they have an anti-dilutive impact.
For
the three months ended March 31, 2019 and 2018, 4.1 million and 3.0
million, respectively, of potentially anti-dilutive securities
related to common stock have been excluded from the calculation of
diluted net earnings per share, respectively.
6.
Share-Based Compensation
Share-based
compensation expense is included in costs and expenses in the
accompanying Unaudited Condensed Consolidated Statements of
Operations and Comprehensive Income (Loss) as follows:
|
|
Three Months Ended
March 31,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Share-based
compensation expense:
|
|
|
|
Cost
of revenues
|
$—
|
$15
|
|
Sales
and marketing
|
72
|
225
|
|
Technology
support
|
41
|
153
|
|
General and administrative (1)
|
438
|
1,234
|
|
Share-based
compensation costs
|
551
|
1,627
|
|
|
|
|
|
Amount
capitalized to internal use software
|
—
|
1
|
|
Total
share-based compensation costs
|
$551
|
$1,626
|
(1)
During
the three months ended March 31, 2018, the Company recorded $0.8
million of expense related to the acceleration of certain awards
which were modified in connection with the termination of the
Company’s former Chief Executive Officer. The vesting
accelerated in accordance with the terms of the applicable award
agreements.
Service-Based
Options. The Company
granted the following service-based options for the three months
ended March 31, 2019 and 2018:
|
|
Three Months Ended
March 31,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Number
of service-based options granted
|
1,042,883
|
1,500
|
|
Weighted
average grant date fair value
|
$1.81
|
$4.30
|
|
Weighted
average exercise price
|
$3.41
|
$8.19
|
These
options are valued using a Black-Scholes option pricing model and
generally vest one-third on the first anniversary of the grant date
and ratably over twenty-four months thereafter. The
vesting of these awards is contingent upon the employee’s
continued employment with the Company during the vesting period and
vesting may be accelerated under certain conditions, including upon
a change in control of the Company, termination without cause of an
employee and voluntary termination by an employee with good
reason.
The
grant date fair value of stock options granted during these periods
was estimated using the following weighted average
assumptions:
|
|
Three Months Ended
March 31,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Dividend
yield
|
—
|
—
|
|
Volatility
|
65%
|
64%
|
|
Risk-free
interest rate
|
2.5%
|
2.4%
|
|
Expected
life (years)
|
4.4
|
4.5
|
Stock option
exercises. The
following stock options were exercised during the three months
ended March 31, 2019 and 2018,
respectively:
|
|
|
Three Months Ended
March 31,
|
|
|||||
|
|
|
2019
|
|
|
2018
|
|
||
|
|
|
|
|
|
|
|
||
|
Number of stock options exercised
|
|
|
156,012
|
|
|
|
15,217
|
|
|
Weighted average exercise price
|
|
$
|
1.97
|
|
|
$
|
4.80
|
|
7.
Selected Balance Sheet Accounts
Property and
Equipment. Property
and equipment consists of the following:
|
|
March 31,
2019
|
December 31,
2018
|
|
|
|
|
|
Computer
software and hardware
|
$11,448
|
$11,393
|
|
Capitalized
internal use software
|
6,228
|
6,228
|
|
Furniture
and equipment
|
1,743
|
1,743
|
|
Leasehold
improvements
|
1,613
|
1,613
|
|
|
21,032
|
20,977
|
|
Less—Accumulated
depreciation and amortization
|
(18,223)
|
(17,796)
|
|
Property
and Equipment, net
|
$2,809
|
$3,181
|
Concentration of Credit Risk
and Risks Due to Significant Customers. Financial instruments that
potentially subject the Company to concentrations of credit risk
consist primarily of cash and cash equivalents and accounts
receivable. Cash and cash equivalents are primarily maintained with
two high credit quality financial institutions in the United
States. Deposits held by banks exceed the amount of insurance
provided for such deposits. These deposits may be redeemed upon
demand.
Accounts
receivable are primarily derived from fees billed to Dealers and
Manufacturers. The Company generally requires no collateral to
support its accounts receivables and maintains an allowance for bad
debts for potential credit losses.
The
Company has a concentration of credit risk with its automotive
industry related accounts receivable balances. Approximately 37%,
or $8.6 million, of gross accounts receivable at March 31, 2019,
and approximately 28% of total revenues for the quarter ended March
31, 2019, are related to Urban Science Applications (which
represents Acura, Honda, Nissan, Infiniti, Subaru, Toyota and
Volvo) and General Motors. For 2018, approximately 45%, or $11.6
million, of gross accounts receivables at March 31, 2018, and
approximately 38% of total revenues for the quarter ended March 31,
2018, is related to Urban Science Applications, General Motors and
Media.net Advertising.
Intangible
Assets. The Company
amortizes specifically identified definite-lived intangible assets
using the straight-line method over the estimated useful lives of
the assets.
The
Company’s intangible assets will be amortized over the
following estimated useful lives:
|
|
|
March 31, 2019
|
December 31, 2018
|
||||
|
Definite-lived
Intangible Asset
|
Estimated Useful Life
|
Gross
|
Accumulated Amortization
|
Net
|
Gross
|
Accumulated Amortization
|
Net
|
|
|
|
|
|||||
|
Trademarks/trade
names/licenses/ domains
|
3
– 7 years
|
$16,589
|
$(15,053)
|
$1,536
|
$16,589
|
$(14,914)
|
$1,675
|
|
Customer
relationships
|
2 -
5 years
|
19,563
|
(16,491)
|
3,072
|
19,563
|
(15,544)
|
4,019
|
|
Developed
technology
|
5 -
7 years
|
8,955
|
(5,145)
|
3,810
|
8,955
|
(4,873)
|
4,082
|
|
|
$45,107
|
$(36,689)
|
$8,418
|
$45,107
|
$(35,331)
|
$9,776
|
|
|
|
|
March 31, 2019
|
December 31, 2018
|
||||
|
Indefinite-lived
Intangible Asset
|
Estimated Useful Life
|
Gross
|
Accumulated Amortization
|
Net
|
Gross
|
Accumulated Amortization
|
Net
|
|
|
|
|
|
|
|
|
|
|
Domain
|
Indefinite
|
$2,200
|
$—
|
$2,200
|
$2,200
|
$—
|
$2,200
|
Amortization
expense is included in “Cost of revenues” and
“Depreciation and amortization” in the Unaudited
Condensed Consolidated Statements of Operations. Amortization
expense was $1.4 million and $1.7 million for the three months
ended March 31, 2019 and 2018, respectively.
Amortization
expense for the remainder of the year and for future years is as
follows:
|
Year
|
Amortization Expense
|
|
|
|
|
2019
|
$3,514
|
|
2020
|
2,371
|
|
2021
|
1,499
|
|
2022
|
902
|
|
2023
|
86
|
|
Thereafter
|
46
|
|
|
$8,418
|
Accrued Expenses and Other
Current Liabilities. Accrued expenses and other current
liabilities consisted of the following:
|
|
March 31,
2019
|
December 31,
2018
|
|
|
|
|
|
Accrued
employee-related benefits
|
$1,934
|
$3,125
|
|
Other
accrued expenses and other current liabilities:
|
|
|
|
Other
accrued expenses
|
555
|
1,346
|
|
Amounts
due to customers
|
375
|
424
|
|
Other
current liabilities
|
366
|
434
|
|
Total
other accrued expenses and other current liabilities
|
1,296
|
2,204
|
|
|
|
|
|
Total
accrued expenses and other current liabilities
|
$3,230
|
$5,329
|
Convertible Notes
Payable. In connection with the
acquisition of AutoUSA, LLC on January 13, 2014, the Company issued
a convertible subordinated promissory note for $1.0 million
(“AutoUSA Note”) to AutoNationDirect.com, Inc. with
interest is payable at an annual interest rate of 6% in quarterly
installments. The entire outstanding balance of the AutoUSA Note
plus accrued interest was paid in full on January 31,
2019.
8.
Leases
The
Company determines if an arrangement is a lease at inception. The
Company leases its facilities and certain office equipment under
operating leases which expire on various dates through 2024. ROU
assets represent the Company’s right to use an underlying
asset for the lease term and lease liabilities represent the
obligation to make lease payments arising from the lease. Operating
lease ROU assets and liabilities are recognized at commencement
date of the lease based on the present value of lease payments over
the lease term. When readily determinable, the Company uses the
implicit rate in determining the present value of lease payments.
The ROU asset also includes any lease payments made and excludes
lease incentives. Lease expense for lease payments is recognized on
a straight-line basis over the lease term.
Lease
Liabilities. Lease
liabilities as of March 31, 2019 consist of the
following:
|
Current portion of lease liabilities
|
|
|
|
|
|
$
|
1,626
|
|
|
Long term lease liabilities, net of current portion
|
|
|
|
|
|
|
2,298
|
|
|
Total
lease liabilities
|
|
|
|
|
|
$
|
3,924
|
|
The
Company’s aggregate lease maturities as of March 31, 2019 are
as follows:
|
Year
|
|
|
2019
(remaining 9 months)
|
$1,348
|
|
2020
|
1,332
|
|
2021
|
513
|
|
2022
|
459
|
|
2023
|
472
|
|
Thereafter
|
199
|
|
Total
minimum lease payments
|
4,323
|
|
Less
imputed interest
|
(399)
|
|
Total
lease liabilities
|
$3,924
|
Rent
expense included in operating expenses and cost of revenue was $0.5
million for the three months ended March 31, 2019 with a
weighted average remaining lease term of 2.3 years and a weighted
average discount rate of 5.5%. Rent expense included in operating
expenses for the three months ended March 31, 2018 was $0.4
million under ASC 840, the predecessor to ASC 842. In June 2017,
the Company subleased one of its buildings to a third party for the
remainder of the lease term which expired in February 2019. Rent
expense for the three months ended March 31, 2019 and 2018 is
net of sublease income of $26,000 and $37,000, respectively. As of
March 31, 2019, the Company did not have any additional operating
leases that have not yet commenced.
9.
Commitments and Contingencies
Employment Agreements
The
Company has employment agreements and severance benefits/retention
agreements with certain key employees. A number of these agreements
require severance payments and continuation of certain insurance
benefits in the event of a termination of the employee’s
employment by the Company without cause or by the employee for good
reason (as defined is these agreements). Stock option agreements
and restricted stock award agreements with some key employees
provide for acceleration of vesting of stock options and lapsing of
forfeiture restrictions on restricted stock in the event of a
change in control of the Company, upon termination of employment by
the Company without cause or by the employee for good reason, or
upon the employee’s death or disability.
Litigation
From
time to time, the Company may be involved in litigation matters
arising from the normal course of its business activities. Such
litigation, even if not meritorious, could result in substantial
costs and diversion of resources and management attention, and an
adverse outcome in litigation could materially adversely affect its
business, results of operations, financial condition and cash
flows.
10.
Income Taxes
On
an interim basis, the Company estimates what its anticipated annual
effective tax rate will be and records a quarterly income tax
provision in accordance with the estimated annual rate, adjusted
accordingly by the tax effect of certain discrete items that arise
during the quarter. As the year progresses, the Company refines its
estimated annual effective tax rate based on actual year-to-date
results. This process can result in significant changes to the
Company's estimated effective tax rate. When such activity occurs,
the income tax provision is adjusted during the quarter in which
the estimates are refined and adjusted. As such, the Company's
year-to-date tax provision reflects the estimated annual effective
tax rate. Therefore, these changes along with the adjustments to
the Company's deferred taxes and related valuation allowance, may
create fluctuations in the overall effective tax rate from period
to period.
At
March 31, 2019, and December 31, 2018, the Company has
recorded a valuation allowance of $28.7 million against its
deferred tax assets.
The
Company’s effective tax rate for the three months ended March
31, 2019 differed from the U.S. federal statutory rate primarily
due to operating losses that receive no tax benefit as a result of
a valuation allowance recorded against the Company's existing tax
assets.
The
total amount of unrecognized tax benefits, excluding associated
interest and penalties, was $0.5 million as of March 31, 2019,
all of which, if subsequently recognized, would have affected the
Company's tax rate.
As
of March 31, 2019 and December 31, 2018, there were no
accrued interest and penalties related to uncertain tax positions.
The Company recognizes interest and penalties related to uncertain
tax positions as a component of income tax expense, and the accrued
interest and penalties are included in deferred and other long-term
liabilities in the Company’s unaudited condensed consolidated
balance sheets. There were no material interest or penalties
included in income tax expense for the three months ended
March 31, 2019 and 2018.
The
Company is subject to taxation in the U.S. and in various foreign
and state jurisdictions. Due to expired statutes of limitation, the
Company's federal income tax returns for years prior to calendar
year 2015 are not subject to examination by the U.S. Internal
Revenue Service. Generally, for the majority of state jurisdictions
where the Company does business, periods prior to calendar year
2014 are no longer subject to examination. The Company does not
anticipate a significant change to the total amount of unrecognized
tax benefits within the next twelve months.
11.
Subsequent Event
On April 30, 2019, the Company entered into a
$25.0 million Revolving Credit and Security
Agreement ("Credit
Agreement") with PNC Bank, N.A.
(“PNC”) as agent, and the Company’s
U.S. subsidiaries Car.com, Inc., Autobytel, Inc., and AW GUA USA,
Inc., as Guarantors, (“Company Subsidiaries”). The initial draw down on the Credit Agreement
was approximately $8.0 million. The obligations under the
Credit Agreement are guaranteed by the Company Subsidiaries and
secured by a first priority lien on all of the Company’s and
the Company Subsidiaries’ tangible and intangible assets.
The Credit Agreement provides a
subfacility of up to $5.0 million for letters of credit. The Credit
Agreement expires on April 30, 2022.
The
interest rates per annum applicable to borrowings under the Credit
Agreement will be, at the Company’s option (subject to
certain conditions), equal to either a domestic rate
(“Domestic Rate
Loans”) or a LIBOR rate for one, two, or three-month
interest periods chosen by the Company (“LIBOR Rate Loans”), plus the
applicable margin percentage of 2% for Domestic Rate Loans and 3%
for LIBOR Rate Loans. The domestic rate for Domestic Rate Loans
will be the highest of (i) the base commercial lending rate of
Lender, (ii) the overnight bank funding rate plus 0.50%, or (iii)
the LIBOR rate plus 1.00%. The Credit Agreement also provides for
commitment fees ranging from 0.5% to 1.5% applied to unused funds
(with the applicable fee based on quarterly average borrowings),
but with the fees fixed at 1.5% until June 30, 2019. Fees for
Letters of Credit are equal to 3% for LIBOR Rate Loans, with a
fronting fee for each Letter of Credit in an amount equal to 0.5%
of the daily average aggregate undrawn amount of all Letters of
Credit outstanding.
The
Credit Agreement contains customary representations and warranties
and covenants that restrict the Company and the Company
Subsidiaries from engaging in or taking various actions, including,
among other things (but except as otherwise permitted by the Credit
Agreement): (i) incurring or guaranteeing additional indebtedness;
(ii) making any loans, investments or acquisitions; (iii) selling
or otherwise transferring or disposing of assets other than in the
ordinary course of business; (iv) engaging in transactions with
affiliates;or (v) declaring or making distributions on their stock
or other equity interests. In addition, the Credit Agreement
contains financial covenants that require the Company to maintain
its consolidated EBITDA (as defined in the Credit Agreement) at
stated minimum levels ranging from ($2,900,000) to $7,500,000 for
various periods during the term of the Credit Agreement. The
Company is also required to maintain a $5,000,000 pledged deposit
account with Lender until the Company’s consolidated EBITDA
is greater than $10,000,000.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Cautionary Note Concerning Forward-Looking
Statements
The Securities and Exchange Commission
(“SEC”) encourages companies to disclose
forward-looking information so that investors can better understand
a company’s future prospects and make informed investment
decisions. This Quarterly Report on Form 10-Q contains
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Words such as
“anticipates,” “could,” “may,”
“estimates,” “expects,”
“projects,” “intends,” “plans,”
“believes,” “will” and words of similar
substance used in connection with any discussion of future
operations or financial performance identify forward-looking
statements. In particular, statements regarding expectations and
opportunities, industry trends, new product expectations and
capabilities, and our outlook regarding our performance and growth
are forward-looking statements. This Quarterly Report on Form 10-Q
also contains statements regarding plans, goals and objectives.
There is no assurance that we will be able to carry out our plans
or achieve our goals and objectives or that we will be able to do
so successfully on a profitable basis. These forward-looking
statements are just predictions and involve significant risks and
uncertainties, many of which are beyond our control, and actual
results may differ materially from these statements. Factors that
could cause actual outcomes or results to differ materially from
those reflected in forward-looking statements include, but are not
limited to, those discussed in this Item 2, Part II, Item 1A of
this Quarterly Report on Form 10-Q, and under the heading
“Risk Factors” in our annual report on Form 10-K for
the year ended December 31, 2018 (“2018 Form 10-K”).
Investors are urged not to place undue reliance on forward-looking
statements. Forward-looking statements speak only as of the date on
which they were made. Except as may be required by law, we do not
undertake any obligation, and expressly disclaim any obligation, to
update or alter any forward-looking statements, whether as a result
of new information, future events or otherwise. All forward-looking
statements contained herein are qualified in their entirety by the
foregoing cautionary statements.
The
following discussion of our results of operations and financial
condition should be read in conjunction with our unaudited
condensed consolidated financial statements and related notes
included in Part I, Item 1 of this Quarterly Report on Form 10-Q
and our audited consolidated financial statements and the notes
thereto in the 2018 Form 10-K.
Our corporate website is located at
www.autoweb.com.
Information on our website is not incorporated by reference in this
Quarterly Report on Form 10-Q. At or through the Investor Relations
section of our website we make available free of charge our Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and all amendments to these reports as soon as
practicable after the reports are electronically filed with or
furnished to the SEC.
Unless
the context otherwise requires, the terms “we”,
“us”, “our”, “AutoWeb” and
“Company” refer to AutoWeb, Inc. and its consolidated
subsidiaries.
Basis of Presentation and Critical Accounting Policies
See Note 2, Basis of
Presentation, to the
accompanying unaudited condensed consolidated financial
statements.
We prepare our financial statements in conformity
with accounting principles generally accepted in the United States
of America, which require us to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Accordingly, actual results
could differ materially from our estimates. To the extent that
there are material differences between these estimates and our
actual results, our financial condition or results of operations
may be affected. For a detailed discussion of the application of
our critical accounting policies, see Note 2 of the “Notes to
Consolidated Financial Statements” in Part II, Item 8
“Financial Statements and Supplementary Data” in the
2018 Form 10-K. Except as disclosed in Note 8 to the Unaudited
Condensed Consolidated Financial Statements, pertaining to our
adoption of Accounting Standards Codification 842,
Leases, there have been no changes to our critical
accounting policies since we filed our 2018 Form
10-K.
Overview
Total
revenues in the first three months of 2019 were $31.6 million
compared to $32.3 million in the first three months of 2018. The
decline in total revenues was primarily due to a traffic
acquisition focus on quality and margin as opposed to raw lead
volume, a decrease in
click revenue caused by lower revenue per click, and a decrease in
display advertising revenue. We continue to invest in new traffic
acquisition strategies and enhanced mobile consumer experiences.
Further, we continue to invest in click approach changes to improve
the consumer, customer, and financial performance of that product.
We do not expect display advertising to be a major area of focus
for us in the future, as it represents a secondary, not primary,
revenue stream.
During
the third quarter of 2018, we completed a comprehensive review of
our products, traffic acquisition, pricing policies, distribution
channels, technology infrastructure, strategic positioning and
organizational capabilities. This review involved a significant
change in key management and organizational structure. We moved
into the fourth quarter of 2018 with a plan that we began to
execute strategically in the first quarter of 2019. We will
continue to work with our traffic partners to optimize our search
engine marketing (“SEM”) methodologies and rebuild
our high-quality traffic streams. We also expect to invest in new
product development and technology infrastructure, and to continue
to restructure our organization to better align with our revised
strategy, which will likely result in material expenses. We have
begun to deploy various initiatives to address these issues, which
began with addressing our lead generation capabilities to stabilize
the declines in the largest part of our business, integrating our
products to create a unified solution of leads, clicks and emails,
and building out the team to execute on our strategy.
We
cannot provide an exact timeframe for resolution of these issues,
as we are early in the implementation of our revised strategy.
However, our plan is designed to enable us to grow impressions,
improve conversion, expand distribution, and increase capacity. We
believe that this focus, along with plans to develop new,
innovative products, will create opportunities for improved quality
of delivery and strengthen our position for revenue growth. We now
have our full senior leadership team in place which we believe will
increase the pace of change and improve operational execution.
During 2018, we focused on stabilizing the leads business as it
comprises the majority of our revenue. For 2019, we will be
focusing on our click traffic product.
Starting in 2018,
we began to mobile-enable our core new car lead generation
websites. This will be a considerable area of focus for us in 2019
as we evolve our sites to deliver a better experience for consumers
to drive conversion. We anticipate that we will mobile-enable the
rest of our lead generation sites throughout 2019. We also recently
developed an approach to mobile-enable our click traffic product
and is a critical step in our mobile enablement plan. The click
product allows us to more effectively monetize visits to our
websites. Further, it provides our clients with a unique
opportunity to engage consumers with relevant messaging in a unique
format. We began testing of the mobile enablement of our click
traffic product in the first quarter of 2019. However, there is
still work to be done with the display and algorithm as we expect
to see some benefits to revenue per click, but not our click
through rate. Ultimately, mobile optimization of our websites and
products is the goal, and we still have a good bit of work to do in
this area.
Expanding on the
automotive industry at large, we expect total vehicle sales and the
seasonally-adjusted annual rate to be down in 2019. LMC Automotive
has forecasted 2019 U.S. total light vehicle sales and retail
light-vehicle sales at 17.0 million and 13.7 million, respectively,
representing declines in U.S. total light vehicle sales and retail
light-vehicle sales of 1.9% and 1.5%, respectively, over 2018
sales. AutoNews has reported that light vehicle sales are off to
the slowest start for a year since 2014, with year-to-date sales
down about 3%. We believe it will be difficult for Manufacturers to
maintain their historic volumes due to affordability challenges
with interest rates and overall less Manufacturer incentives.
However, we continue to believe we can operate well in this
environment as we believe Dealers will seek out their highest
return on investment marketing channels to drive sales. And with
our detailed attribution and product quality improvements, we
believe we will continue to have a strong place in their marketing
budgets as we believe we are one of the most efficient marketing
channels they have.
Although we are not
able at this time to disclose any guidance as to 2019 financial
performance with detail or accuracy, we do anticipate some level of
volatility in our total revenues, cost of revenues, gross profit,
and gross margin for 2019. We expect incremental cash burn to
continue in the first half of 2019 as we invest in our people,
products and technology. Our plan is to improve our liquidity and
balance sheet through non-dilutive measures, including use of the
$25 million revolving credit facility we entered into on
April 30, 2019.
Results of Operations
Three
Months Ended March 31, 2019 Compared to the Three Months Ended
March 31, 2018
The
following table sets forth certain statement of operations data for
the three-month periods ended March 31, 2019 and 2018 (certain
amounts may not calculate due to rounding):
|
|
2019
|
% of total revenues
|
2018
|
% of total revenues
|
$ Change
|
% Change
|
|
|
(Dollar amounts in thousands)
|
|
||||
|
Revenues:
|
|
|
|
|
|
|
|
Lead
fees
|
$25,698
|
81%
|
$24,080
|
74%
|
$1,618
|
7%
|
|
Advertising
|
5,878
|
19
|
8,087
|
25
|
(2,209)
|
(27)
|
|
Other
revenues
|
28
|
—
|
182
|
1
|
(154)
|
(85)
|
|
Total
revenues
|
31,604
|
100
|
32,349
|
100
|
(745)
|
(2)
|
|
Cost
of revenues
|
25,847
|
82
|
24,659
|
76
|
1,188
|
5
|
|
Gross
profit
|
5,757
|
18
|
7,690
|
24
|
(1,933)
|
(25)
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Sales
and marketing
|
2,878
|
9
|
3,712
|
12
|
(834)
|
(22)
|
|
Technology
support
|
2,780
|
9
|
3,385
|
10
|
(605)
|
(18)
|
|
General
and administrative
|
4,290
|
14
|
4,575
|
14
|
(285)
|
(6)
|
|
Depreciation
and amortization
|
1,239
|
4
|
1,160
|
4
|
79
|
7
|
|
Goodwill
impairment
|
—
|
—
|
5,133
|
16
|
(5,133)
|
100
|
|
Total
operating expenses
|
11,187
|
35
|
17,965
|
56
|
(6,778)
|
(38)
|
|
Operating
loss
|
(5,430)
|
(17)
|
(10,275)
|
(32)
|
4,845
|
47
|
|
Interest
and other income (expense), net
|
70
|
—
|
—
|
—
|
70
|
100
|
|
Loss
before income tax provision
|
(5,360)
|
(17)
|
(10,275)
|
(32)
|
4,915
|
48
|
|
Income
tax provision
|
—
|
—
|
4
|
—
|
(4)
|
—
|
|
Net
loss
|
$(5,360)
|
(17)%
|
$(10,279)
|
(32)%
|
$4,919
|
48%
|
Lead
fees. Lead fees
revenues increased $1.6 million, or 7%, in the first quarter of
2019 compared to the first quarter of 2018 primarily as a result of
a $2.9 million increase in revenue from Manufacturers, offset by
declines in retail lead fee revenues.
Advertising.
Advertising revenues decreased $2.2
million, or 27%, in the first quarter of 2019 compared to the first
quarter of 2018 as a result of a decline in click revenue
associated with decreased click volume and
pricing.
Other
Revenues. Other
revenues consist primarily of revenues from our mobile products and
revenues from our Reseller Agreement with SaleMove, Inc., which
expired in November 2018. Other revenues decreased to $28,000 in the first
quarter of 2019 from $182,000 in the first quarter of 2018
primarily due to lower customer utilization of the mobile product
and SaleMove product.
Cost of
Revenues. Cost of
revenues consists of purchase request and traffic acquisition costs
and other cost of revenues. Purchase request and traffic
acquisition costs consist of payments made to our purchase request
providers, including internet portals and online automotive
information providers. Other cost of revenues consists of SEM and
fees paid to third parties for data and content, including search
engine optimization activity, included on our websites,
connectivity costs, development costs related to our websites,
compensation related expense and technology license fees, server
equipment depreciation and technology amortization directly related
to the Company Websites. Cost of revenues increased $1.2 million,
or 5%, in the first quarter of 2019 compared to the first quarter
of 2018 primarily due to increased traffic acquisition costs,
offset by a decrease in amortization expense from intangibles
written off in the third quarter of 2018 and costs related to a
headcount which was shifted to operational roles
at the beginning of 2019.
The Company analyzed and concluded
these roles were no longer directly tied to revenue
generation.
Sales and
Marketing. Sales and
marketing expense includes costs for developing our brand equity,
personnel costs and other costs associated with Dealer sales,
website advertising, Dealer support and bad debt expense. Sales and
marketing expense in the first quarter of 2019 decreased $0.8
million, or 22%, compared to the first quarter of 2018 due
primarily to a decrease in SEM and tradeshow
expense, partially offset by
compensation and benefits expense related to headcount previously
included in Cost of revenues. Further, the 2019 period does not
include severance related costs which were incurred in the 2018
period.
Technology Support.
Technology support expense includes
compensation, benefits, software licenses and other direct costs
incurred by the Company to enhance, manage, maintain, support,
monitor and operate the Company’s websites and related
technologies, and to operate the Company’s internal
technology infrastructure. Technology support expense in the first
quarter of 2019 decreased by $0.6 million, or 18%, compared to the
first quarter of 2018 due primarily to lower headcount related
costs, partially offset by an increase in consulting
fees.
General and
Administrative. General and
administrative expense consists of executive, financial and legal
personnel expenses and costs related to being a public company.
General and administrative expense in the first quarter of 2019
decreased by $0.3 million, or 6%, from the first quarter of 2018
due primarily to severance costs in the prior year period related
to the termination of the Company’s former chief executive
officer, offset by an increase in professional fees during the
current year period.
Depreciation and
Amortization. Depreciation and amortization expense in the first
quarter of 2019 was $1.2 million compared to $1.2 million
in the first quarter of 2018.
Goodwill impairment.
The Company evaluated enterprise
goodwill for impairment as of March 31, 2018 due to the
Company’s decreased stock price since its annual goodwill
impairment analysis on October 1, 2017. As of March 31, 2018, the
carrying value of AutoWeb was higher than its fair value based on
market capitalization at that date. As a result, a non-cash
impairment charge of $5.1 million was recording during the three
months ended March 31, 2018.
Interest and Other Income
(Expense), Net. Interest and other income (expense), net was
$70,000 for the first quarter of 2018 compared to zero for the
first quarter of 2018. Interest expense decreased to
$5,000 in the first quarter of 2019 from $88,000 in the first
quarter of 2018 due to the payoff of our revolving line of credit
and convertible note during the first quarter of 2018 and first
quarter of 2019, respectively. Other income for the quarter ended
March 31, 2019 was $75,000 compared to $88,000 in the prior year
period.
Income Taxes.
Income tax expense was zero in the
first quarter of 2019 compared to expense of $4,000 in the first
quarter of 2018. Income tax expense for the quarter ended
March 31, 2019 differed from the federal statutory rate primarily
due to operating losses that receive no tax benefit as a result of
valuation allowance recorded for such losses.
Liquidity and Capital Resources
The
table below sets forth a summary of our cash flows for the three
months ended March 31, 2019 and 2018:
|
|
Three Months Ended
March 31,
|
|
|
|
2019
|
2018
|
|
|
(in thousands)
|
|
|
Net
cash (used in) provided by operating activities
|
$(2,117)
|
$1,657
|
|
Net
cash used in investing activities
|
(57)
|
(250)
|
|
Net
cash used in financing activities
|
(693)
|
(7,927)
|
Our principal sources of liquidity are our cash
and cash equivalents balances and borrowings under the $25 million revolving
credit facility we entered into on April 30, 2019
(“Credit
Facility”). Our cash and cash equivalents
totaled $10.7 million as of March 31, 2019 compared to $15.2
million as of March 31, 2018.
We
believe that our cash and cash equivalents, cashflows from
operations and available borrowings under the Credit Facility
should be sufficient to meet our working capital requirements for
the next 12 months. Our future capital requirements will depend on
many factors, including but not limited to, implementing new
strategic plans, modernizing and upgrading our technology and
systems, pursuing business objectives and responding to business
opportunities, challenges or unforeseen circumstances, developing
new or improving existing products or services, enhancing our
operating infrastructure and acquiring complementary businesses and
technologies. If we
continue to experience losses and cannot comply with financial
covenants in the Credit Facility, we may be unable to borrow funds
under the Credit Facility. To the extent that our existing sources
of liquidity are insufficient to fund our future activities, we may
need to engage in equity or additional or alternative debt
financings to secure additional funds. There can be no assurance
that additional funds will be available when needed from any source
or, if available, will be available on terms that are acceptable to
us.
Net Cash Provided by (Used in)
Operating Activities. Net cash used in operating activities
in the three months ended March 31, 2019 of $2.1 million resulted
primarily from net loss of $5.4 million, offset by
depreciation and amortization of $1.8
million, stock compensation expense of $0.6 million, other non-cash
charges of $0.1 million, and a $0.8 million net increase in net
working capital.
Net
cash used in operating activities in the three months ended March
31, 2018 of $1.7 million resulted primarily from net loss of $10.3
million. We also had net decreases in working capital,
driven by a decrease in our accounts receivable balance related to
the timing of payments received offset by a decrease in accounts
payable of $1.1 million and cash used to reduce accrued liabilities
of $0.3 million primarily related to the payment of annual
incentive compensation amounts accrued in 2017 and paid in the
first three months of 2018.
Net Cash Used in Investing
Activities. Net cash
used in investing activities was $0.1 million in the three months
ended March 31, 2019 related to purchases of property and
equipment.
Net
cash used in investing activities was $0.3 million in the three
months ended March 31, 2018 which primarily related to purchases of
property and equipment and expenditures related to capitalized
internal use software.
Net Cash Used In Financing
Activities. Net cash
used in financing activities of $0.7 million in the three months
ended March 31, 2019 primarily related to $1.0 million repayment of
the AutoUSA Note, offset by proceeds of $0.3 million from the
exercise of stock options.
Net
cash used in financing activities of $7.9 million in the three
months ended March 31, 2018 primarily related to payments of $8.0
million to pay down the revolving credit facility. In addition,
stock options for 15,217 shares of the Company’s common stock
were exercised in the first three months of 2018 resulting in $0.1
million cash inflow.
Off-Balance Sheet Arrangements
At
March 31, 2019, we had no off-balance sheet arrangements as defined
in Regulation S-K, Item 303(a)(4)(D)(ii).
Item 3. Quantitative and Qualitative Disclosures about Market
Risk
Not
applicable.
Item 4. Controls and Procedures
Our
Chief Executive Officer and Chief Financial Officer (our principal
executive officer and principal financial officer, respectively)
have evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Security Exchange Act of 1934, as amended, the "Exchange Act") as of March 31, 2019, the
end of the period covered by this Quarterly Report on Form 10-Q
(the “Evaluation
Date”). They have concluded that, as of the Evaluation
Date, these disclosure controls and procedures were effective to
ensure that material information relating to the Company and its
consolidated subsidiaries would be made known to them by others
within those entities and would be disclosed on a timely basis. The
Chief Executive Officer and Chief Financial Officer have concluded
that our disclosure controls and procedures are designed, and are
effective, to give reasonable assurance that the information
required to be disclosed by us in reports that we file under the
Exchange Act is recorded, processed, summarized and reported within
the time period specified in the rules and forms of the Securities
and Exchange Commission. They have also concluded that our
disclosure controls and procedures are effective to ensure that
information required to be disclosed in the reports that are filed
or submitted under the Exchange Act are accumulated and
communicated to our management, including the Chief Executive
Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosure.
Changes in Internal Control over Financial Reporting
Except
as set forth below, during the quarter ended March 31, 2019, there
were no changes in our “internal control over financial
reporting” (as defined in Rule 13a-15(f) under the Exchange
Act) that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
Beginning
January 1, 2019, we implemented the updated guidance on lease
accounting. In connection with the adoption of this standard, we
implemented changes to our disclosure controls to ensure we
evaluated our contracts and properly assessed the impact on our
financial statements.
PART II. OTHER
INFORMATION
Item 1A. Risk Factors
The
following factors, which supplement or update the risk factors set
forth in Part I, Item 1A, “Risk Factors” of our 2018
Form 10-K, may affect our future business, results of
operations, financial condition, earnings per share, cash flow or
the trading price of our stock, individually and collectively
referred to in these Risk Factors as our “financial
performance.” The risks described
below are not the only risks we face. In addition to the
risks set forth in the 2018 Form 10-K, as supplemented or
superseded by the risk factors set forth below, additional risks
and uncertainties not currently known to us or that we currently deem to be
immaterial may also materially and adversely affect our
business.
We may require additional capital to implement new strategic plans,
modernize and upgrade our technology and systems, pursue business
objectives and respond to business opportunities, challenges or
unforeseen circumstances. If capital is not available to us, or is
not available on favorable terms, our financial performance could
be materially and adversely affected.
Our
future capital requirements will depend on many factors, including
but not limited to, implementing new strategic plans, modernizing
and upgrading our technology and systems, pursuing business
objectives and responding to business opportunities, challenges or
unforeseen circumstances, developing new or improving existing
products or services, enhancing our operating infrastructure and
acquiring complementary businesses and technologies. In addition,
if we continue to experience losses and cannot comply with
financial covenants in the Credit Facility, we may be unable to
borrow funds under the Credit Facility. To the extent that our
existing sources of liquidity are insufficient to fund our future
activities, we may need to engage in equity or additional or
alternative debt financings to secure additional
funds.
We may require additional capital to implement new
strategic plans, modernize and upgrade our technology and systems,
pursue business objectives and respond to business opportunities,
challenges or unforeseen circumstances, including to develop new
products or services, improve existing products and services,
enhance our operating infrastructure and acquire complementary
businesses and technologies. As a result, we may need to engage in
equity or debt financings to secure additional funds.
There can be no assurance that
additional funds will be available when needed from any source or,
if available, will be available on terms that are acceptable to
us.
Our
Credit Facility contains restrictive covenants that may make it
more difficult for us to obtain additional capital, as could any
additional debt financing that we may secure in the future that
could involve additional restrictive covenants. Volatility in the
credit markets may also have an adverse effect on our ability to
obtain debt financing. If we raise additional funds through further
issuances of equity or convertible debt securities, our existing
stockholders could suffer significant dilution, and any new equity
securities we issue could have rights, preferences and privileges
superior to those of holders of our common stock. If we are unable
to obtain adequate financing or financing on terms satisfactory to
us, when we require it, our ability to continue to implement new
strategic plans, modernize and upgrade our technology and systems,
pursue business objectives and respond to business opportunities,
challenges or unforeseen circumstances could be significantly
limited, and our financial performance could be materially and
adversely affected.
Item 6. Exhibits
|
Number
|
Description
|
|
|
|
|
3.1
|
Sixth
Restated Certificate of Incorporation of AutoWeb, Inc.,
incorporated by reference to
Exhibit 3.4 to the Current Report on Form 8-K filed with the
SEC on October 10, 2017 (SEC File No. 001-34761) (“October 2017 Form
8-K”)
|
|
|
|
|
3.2
|
Seventh
Amended and Restated Bylaws of AutoWeb, Inc. dated October 9, 2017,
incorporated by reference to
Exhibit 3.5 to the October 2017 Form 8-K
|
|
|
|
|
4.1
|
Tax
Benefit Preservation Plan dated as of May 26, 2010 between Company
and Computershare Trust Company, N.A., as rights agent, together
with the following exhibits thereto: Exhibit A – Form of
Right Certificate; and Exhibit B – Summary of Rights to
Purchase Shares of Preferred Stock of Company, incorporated by
reference to
Exhibit 4.1 to the Current Report on Form 8-K filed with the
SEC on June 2, 2010 (SEC File No. 000-22239), Amendment No. 1 to
Tax Benefit Preservation Plan dated as of April 14, 2014, between
Company and Computershare Trust Company, N.A., as rights agent,
incorporated by reference to
Exhibit 4.1 to the Current Report on Form 8-K filed with the
SEC on April 16, 2014 (SEC File No. 001-34761), Amendment No. 2 to
Tax Benefit Preservation Plan dated as of April 13, 2017, between
Company and Computershare Trust Company, N.A., as rights agent,
incorporated by reference to
Exhibit 4.1 to the Current Report on Form 8-K filed with the
SEC on April 14, 2017 (SEC File No. 001-34761)
|
|
|
|
|
4.2
|
Certificate
of Adjustment Under Section 11(m) of the Tax Benefit Preservation
Plan, incorporated by reference to
Exhibit 4.3 to the Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2012 filed with the SEC on
November 8, 2012 (SEC File No. 001-34761)
|
|
|
|
|
10.1
■
|
Offer
of Employment between Daniel Ingle and Company dated November 26,
2018, incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K filed with the
SEC on January 16, 2019 (SEC File No. 001-34761).
|
|
|
|
|
10.2
■
|
Inducement Stock Option Award Agreement dated as of January 16,
2019 between Daniel Ingle and Company, incorporated by
reference to
Exhibit 10.25 to the Annual Report on Form 10-K for the Year
Ended December 31, 2018 (SEC File No. 001-34761).
|
|
|
|
|
10.3
■
|
Severance Benefits Agreement dated January 16, 2019 between Daniel
Ingle and Company, incorporated by reference to
Exhibit 10.26 to the Annual Report on Form 10-K for the Year
Ended December 31, 2018 (SEC File No. 001-34761).
|
|
|
|
|
10.4
|
Revolving
Credit and Security Agreement by and among PNC Bank, National
Association, as Agent, the Lenders Party thereto, and AutoWeb,
Inc., as Borrower, and Car.com, Inc., Autobytel, Inc., and AW GUA
USA, Inc., as guarantors, dated April 30, 2019, incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K filed with the
SEC on May 1, 2019 (SEC File No. 001-34761).
|
|
|
|
|
Chief
Executive Officer Section 302 Certification of Periodic Report
dated May 9, 2019.
|
|
|
|
|
|
Chief
Financial Officer Section 302 Certification of Periodic Report
dated May 9, 2019.
|
|
|
|
|
|
Chief
Executive Officer and Chief Financial Officer Section 906
Certification of Periodic Report dated May 9, 2019.
|
|
|
|
|
|
101.INS††
|
XBRL Instance Document
|
|
|
|
|
101.SCH††
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
|
101.CAL††
|
XBRL Taxonomy Calculation Linkbase Document
|
|
|
|
|
101.DEF††
|
XBRL Taxonomy Extension Definition Document
|
|
|
|
|
101.LAB††
|
XBRL Taxonomy Label Linkbase Document
|
|
|
|
|
101.PRE††
|
XBRL Taxonomy Presentation Linkbase Document
|
*
Filed herewith.
■
Management
Contract or Compensatory Plan or Arrangement.
††
Furnished
with this report. In accordance with Rule 406T of
Regulation S-T, the information in these exhibits shall not be
deemed to be “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, or otherwise subject
to liability under that section, and shall not be incorporated by
reference into any registration statement or other document filed
under the Securities Act of 1933, as amended, except as expressly
set forth by specific reference in such filing.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
|
AutoWeb, Inc.
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: May 9, 2019
|
By:
|
/s/ Joseph P. Hannan
|
|
|
|
|
|
Joseph P. Hannan
|
|
|
|
|
|
Executive Vice President, Chief Financial Officer
(Principal Financial Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: May 9, 2019
|
By:
|
/s/ Wesley Ozima
|
|
|
|
|
|
Wesley Ozima
|
|
|
|
|
|
Senior Vice President and Controller
|
|
|
|
|
|
(Principal Accounting
Officer)
|
|
-21-