Here’s the entire text of the prepared remarks from Cendant’s (ticker: CD) Q3 2005 conference call. The Q&A is here. We recognize that this transcript may contain inaccuracies - if you find any, please post a comment below and we’ll incorporate your corrections. And please note: this conference call transcript is a Seeking Alpha product, so feel free to link to it but reproduction is not permitted without the explicit permission of Seeking Alpha.
Jennifer Klein, Vice President of Investor Relations
Rick Post, President and Chief Executive Officer
Mike Schmidt, Executive Vice President and Chief Financial Officer
Rich Walker, Chief Operating Officer
Christa Quarles, Thomas Weisel Partners
Peter Slater, Peninsula Capital
Frank Gristina, Avondale Partners
Good afternoon. My name is Shayla (ph) and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Autobytel’s Third Quarter 2005 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session, if you would like to ask a question during this time, simply press “*” then the number “1” on your telephone keypad, if you would like to withdraw your question, press “*” then the number “2” on your telephone keypad. Thank you. Ms. Klein, you may begin your conference.
[Jennifer Klein, Vice President of Investor Relation]
Thank you, Shayla (ph), and welcome to everyone on the line. Before we start the call today, I’d like to make some comments on forward-looking statements. Today’s conference call, including the question and answer period, projections or other forward-looking statements regarding future events and the future financial performance of the company, are all covered by the Safe Harbor statement contained in our public filing. We would like to caution you that actual events or results may differ materially from those forward-looking statements. We refer you to documents the company has filed with the SEC, including the Form 10Q for the quarter ended September 30, 2005. These documents identify the principal factors that could cause results to differ materially from those forward-looking statements.
With that, I’d like to turn the call over to Autobytel’s CEO, Rick Post. Rick?
[Rick Post, President and Chief Executive Officer]
Thank you, Jennifer, and welcome to everyone on the call. I am pleased to be speaking with you to report on our third quarter ended September 30, 2005. Autobytel’s focus on improving quality began to pay off in the third quarter when we saw several key metrics move in a positive direction. Despite a challenging market environment for our leads business, we continue to grow advertising and CRM revenues. Our focus remains on helping dealers and manufacturers sell cars and market products while providing consumers with ever-increasing information to help them with their car buying experience. I look forward to telling you more about this in detail, but first, Mike Schmidt will go through the financials, after which I will review the third-quarter operating results and discuss our strategy going forward. Then, we will conclude the call with a question and answer period.
Also joining us today on the call is Rich Walker, our Chief Operating Officer. Now I’ll turn the call over to Mike for a review of the financials. Mike?
[Mike Schmidt, Executive Vice President and Chief Financial Officer]
Thank you, Rick. Let me begin by reviewing the income statement. Revenue for the third quarter of 2005 totaled $30.6 million, representing a decrease of $800,000 or 3% from the second quarter of 2005 and a decrease of $1.9 million or 6% when compared to the third quarter of 2004. Our revenue mix was 61% lead fees, 20% CRM, 16% advertising and 3% data and other services. For comparison, our revenue mix for the third quarter 2004 was 69% lead fees, 17% CRM, 11% advertising and 3% data and other services. Lead-fee revenue for the third quarter of 2005 totaled $18.6 million, representing a decrease of $1.1 million or 6% from the second quarter of 2005 and a decrease of $3.9 million or 17% when compared to the third quarter of 2004.
For the third quarter of 2005, a total of approximately 830,000 purchase requests were delivered, representing a decrease of approximately 7% from the second quarter of 2005. When compared to the third quarter 2004, purchase requests delivered declined approximately 25%. Approximately 550,000 purchase requests were delivered to retail dealers and approximately 280,000 purchase requests were delivered to enterprise dealers in the third quarter of 2005. The quarter-over-quarter decline in purchase requests delivered is primarily a decline in the number of purchase requests delivered to auto manufacturers in our enterprises combined with the decline in the average number of retail dealers. Revenue purchase requests in the third quarter of 2005 was approximately $19.20 compared with $19.25 in the second quarter of 2005.
Additionally, we delivered approximately 210,000 finance requests in the third quarter of 2005, down from approximately 225,000 finance requests delivered in the second quarter of 2005 and up from approximately 190,000 financial requests delivered the third quarter of 2004, respectively, to retail dealers, finance request intermediaries and automotive finance companies.
Revenue per finance lead in the third quarter of 2005 was approximately $12.55 compared to $11.81 in the second quarter of 2005. Advertising revenues for the third quarter of 2005 totaled $4.8 million, representing an increase of approximately $300,000 or 7% from the second quarter 2005 and an increase of $1.3 million or 36% compared to the third quarter of 2004.
BRM revenues for the third quarter 2005 totaled $6.2 million, representing an increase of approximately $100,000 or 2% from the second quarter 2005 and an increase of $800,000 or 14% compared to the third quarter of 2004.
Data, applications and other revenues for the third quarter of 2005 totaled $1.1 million compared to $1.1 million in the second quarter of 2005 and $1.1 million in the third quarter of 2004. Cost of revenues for the third quarter of 2005 totaled $12.8 million, an increase of approximately $100,000 from the second quarter of 2005 and a decrease of approximately $200,000 from the third quarter of 2004. As a percentage of revenues, cost of revenues for the third quarter of 2005 increased to approximately 42%, up 1 point from the second quarter of 2005.
Other operating expenses, including sales and marketing, product and technology development, general administrative and amortization of acquired intangible assets for the third quarter of 2005 totaled $18.6 million compared to $22.2 million in the second quarter of 2005. This decrease is primarily driven by a decrease in expenses associated with the restatements completed during the second quarter of 2005. In addition, during the third quarter of 2005, the Company spent approximately $900,000 in legal costs associated with enforcing our intellectual property as well as defending purported class action and derivative lawsuits.
Net loss for the third quarter was $287,000 or $0.01 per fully diluted share. This compares to a net loss of $3.3 million or $0.08 per fully diluted share in the second quarter of 2005.
Now let me summarize the balance sheet. The company’s domestic cash, cash equivalents and short-term and long-term investments totaled $44.1 million at September 30, 2005, a decrease of $900,000 from June 30, 2005. As disclosed in our 10Q filing, we expect to receive our share or 49% of the assets of Autobytel Europe prior to the end of the first half of 2006. At June 30, 2005, Autobytel Europe had approximately $8.6 million of cash and cash equivalents.
DSO for the third quarter of 2005 was 62 days compared to 59 days the second quarter of 2005. Going forward, we expect the DSO to remain flat or improve slightly.
The Company’s September 30th, 2005 accounts payable and accrued expenses totaled $12.9 million, representing a decrease of $400,000 from the balance at June 30th, 2005. Now I’ll turn the call back over to Rick. Rick?
[Rick Post, President and Chief Executive Officer]
Thanks, Mike. I discussed in our last earnings conference call that we are focusing on strengthening our business from the inside. This means taking measures to increase quality and reduce customer churn. While revenue declined in our core lead business due to competitive challenges and we believe the impact of employee pricing promotions offered by the major auto makers, I’m encouraged by our results for the quarter. Driving a reduction in customer churn has been one of our key initiatives since I joined as CEO last April. As we have said previously, we believe that focusing on quality, particularly the quality of consumers that we send to our dealers, helps improve dealer satisfaction while reducing customer cancellations. Closing ratios are probably the most important measure of success for a dealer when they determine lead quality. Closing ratio determines ROI and quite simply the number of cars that a dealer sells.
The most recent J.D. Power & Associates dealer study shows that Autobytel.com generated a higher closing ratio than any of our other competitors. We believe this is a strong validation of our efforts on the quality front. We are also pleased that we received our all-time highest overall dealer satisfaction ranking, as well as our highest-ever scores for lead quality and dealer gross profit margins. But we are perhaps most proud that we received improved dealers ratings in every business generation category versus 2004. Business generation is the bottom line for dealers and our efforts continue to be focused on making sure that our services result in increased business for our dealers and customers. We believe that is reflected in the fact that during the third quarter, Autobytel’s retail dealer cancellations declined by 12% from the previous quarter.
Now, let me to touch on the market environment for our core business, purchase request leads for our retail dealers. This is a competitive business that became even more challenging during the third quarter with the auto makers employee pricing campaigns in full swing. We believe that as their online inventories declined over the summer months, many dealers delayed signing up with a lead provider. We also believe that the discontinuation of employee pricing bodes well for Autobytel and should help in our efforts to sign up new dealers. Our lead referral dealer relationships represent every major domestic and imported make of vehicle and light truck sold in the United States. As of September 30, 2005, our lead referral dealer relationships, excluding dealer enterprise relationships attributable to automotive manufacturers or their automotive buying service affiliates, totaled approximately 6,560, encompassing approximately 5,850 retail dealer relationships and relationships with major dealer groups, representing approximately 710 enterprise dealer relationships. Additionally, our lead referral dealer relationships include six direct relationships, encompassing 16 brands with automotive manufacturers or their automotive buying service affiliates through our enterprise sales initiatives, representing up to approximately 17,530 enterprise dealer relationships.
From time to time as sign major dealer groups to receive purchase requests, dealers that are part of such groups and previously represented retail dealer relationships are counted as enterprise dealer relationships. During the third quarter of 2005, approximately 50 retail dealer relationships were transferred to our enterprise dealer relationship category in connection with signing up major dealer groups. In the third quarter of 2005, we experienced a net reduction of approximately 180 retail dealer relationships between these two categories. We signed and launched one new OEM during the third quarter and one new top 10 dealer group. Autobytel is one of two exclusive lead providers for this leading national dealer groups. We signed a contract with a major Japanese manufacturer in the third quarter for a program that includes leads and direct marketing. This relationship was activated in October.
Churn also decreased across all of our business units and we continue to see strength from finance leads, advertising, and CRMs. At the close of the third quarter, Autobytel had 310 finance lead relationships. Finance lead dealer accounts increased by 20% from a year ago and associated revenues have increased by 25% during that same period. Finance leads now represent 9% of our total revenue.
Advertising continues to be a steady, strong business for Autobytel. As one of the leading automotive consumer networks, we continue to attract the best-of-breed advertisers and branding partners. OEMs typically drive marketing and promotional activity in the late summer and early fall as they launch vehicles for the new model year. Autobytel offers a variety of ad placement opportunities that provide maximum exposure in concentrated areas of our sites. We sold a number of opportunities like this in Q3, which increased revenue during the period.
Autobytel continues to be recognized as a leading automotive innovator in the arena of search as we refine on a daily basis, our proprietary Black Condor SCO (ph) technology. Black Condor, coupled with our natural search initiatives, resulted in a record quarter for search page views, which is both natural and paid combined. We generated over 46 million search page views in the quarter. This is a 13% increase from the previous quarter and a 41% increase from Q3 of 2004.
During the third quarter, advertising page views increased to approximately 111 million or 22% from approximately 90 million in the second quarter of 2005. Year-over-year page views increased by 32%. The CPM per page for the third quarter of 2005 was approximately $39 compared to $44 in the second quarter of 2005. We expect to see continued strength from this portion of our business as we further develop rich media and direct marketing offerings.
Let me say a bit more about advertising as an opportunity for Autobytel. OEMs and their agencies continue to shift more of their advertising spend to the Internet. From an ROI perspective, they are seeing that a single 30-second TV ad spot during prime time may cost as much as $600,000, but an interactive ad can be developed and run for $150,000 and reach a much more targeted audience. Many of the OEMs are exploring how to use video-on-demand, which is an exciting opportunity for Autobytel. Our CarTV property posted 5.1 million video views during the third quarter, an increase of 66% from 3.1 million in the second quarter of 2005. We believe that we are the first automotive site to provide downloadable video content for iPods. These are just a few examples of how Autobytel is providing innovative marketing solutions for OEMs.
We saw a net dealer ads for both RPM and WebControl in the third quarter. As of September 30, 2005, CRM customer relationships consisted of 2,940 WebControl relationships with our lead management product tool and 780 retention performance, known as RPM, relationships our customer loyalty and retention marketing program. During the third quarter, we began full-phase rollout of Autobytel’s D-Duplication (ph), program leverages the Autobytel leads and WebControl relationship to provide dealers with incremental business. This D-Duplication system works by automatically checking to see if a customer has already been sent to a dealer. If the customer has already been received by the dealer, the lead is not delivered, saving the dealer valuable time, creating goodwill and improving Autobytel lead quality.
Now to give you a sense of the scope of our consumer reach and how we translate that into dealer sales, based on data from a third-party study and our internal numbers, we have determined that approximately every 7.4 seconds, someone submits a request to purchase a vehicle through Autobytel. Major studies continue to show that the influence of the Internet on consumer automotive purchases has continued to grow and outpace traditional media. Autobytel brings incredible value to the dealers who use our services. According to independent third-party research, the average cost of selling a car through Autobytel is approximately $232, which is considerably lower than the NADA average of $493 spent by dealers per vehicle on traditional advertising. We believe that there continues to be great opportunity in our own market, so long as we are able to continue to innovate, provide quality to our customers and to scale our business.
The automotive Internet does not sit still. It is constantly evolving and its importance to dealers and OEMs and the dollars that they are dedicating to Internet marketing continues to grow. It is, therefore, critical that Autobytel focuses on quality and evolves its marketing programs ahead of the competitive curve in this rapidly changing marketplace. We believe that we have the products and programs to provide value, efficiencies and strong ROI for dealers and OEMs throughout the customer lifecycle, from customer generation to customer retention.
Now let me say a few words about our next steps. We have announced that we retained the services of Merrill Lynch to assist us in exploring strategic alternatives that will help us grow the scale of our current business. These alternatives may include potential acquisitions or mergers with complementary businesses, as well as the potential sale of the Company. Let me give you a little color about our decision to explore these strategic options.
We continue to believe that we need to be a leader in the automotive marketing space, and in order to do that, we believe that we need to significantly increase revenues from our current size. We also believe that we have the infrastructure to increase these revenues. We are committed to being a leader in the very competitive automotive marketing services arena and to innovating the highest quality products and services for our dealers and OEM customers, as well as for the millions of consumers who use our network.
With that, operator, I’d like to open the call to questions.
- The Q&A from this call is here.
- A list of full conference call transcripts available on the Seeking Alpha Network.
- All Internet Stock Blog articles on Autobytel.
- The complete list of Internet stocks (and links to articles about them) covered by The Internet Stock Blog.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.