AutoWeb, Inc.

Good afternoon, everyone, and thank you for participating in today's conference call to discuss AutoWeb's financial results for the fourth quarter and full year ended December 31st, 2021. Joining us today are AutoWeb's President and CEO, Jared Rowe, the company's CFO, Carlton Hamer, and the company's outside investor relations advisor, Cody Cree, with Gateway Group. Following the remarks, we'll open the call for your questions. I would now like to turn the call over to Mr. Cree for some introductory comments.

Thank you, Josh. Before I introduce Jared, I remind you that during today's call, including the question and answer session, statements that are not historical facts, including any projections, statements regarding future events or future financial performance, or statements of intent or belief, are forward-looking statements and are covered by the safe harbor disclaimers contained in today's press release and the company's public filings with the SEC. Actual outcomes and results may differ materially from what is expressed in or implied by these forward-looking statements. Specifically, please refer to the company's Form 10-K for the year ended December 31, 2021, which was filed prior to this call, as well as other filings made by AutoWeb with the SEC from time to time. These filings identify factors that could cause results to differ materially from those forward-looking statements. Please also note that during this call, management will be disclosing adjusted EBITDA. This is a non-GAAP financial measure as defined by SEC Regulation G, a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure, and a statement disclosing the reasons why company management believes that adjusted EBITDA provides useful information to investors regarding the company's financial condition and results of operations are included in today's press release as posted on the company's website. And with that, I will now turn the call over to Jared. Jared, over to you. Okay.

Thanks, Cody. Good afternoon, everybody. Before we jump into the quarter and our strategic goals for 2022, I wanted to briefly spend some time recapping just how far we've come as an organization. So I think as you all know, we started this turnaround journey in 2018, and we've made some really, really meaningful strides towards transforming the company over the past four years. Now, during this time, we've done a lot in terms of consolidating our operations and reducing unnecessary overhead and redundancy. We have retired a tremendous amount of technical debt to greatly improve our operational resiliency and efficiency. We've replenished our key challenge, including appointing industry experts to some of our most critical roles. We've modernized our audience acquisition approach to continue providing our customers with high-quality leads and We've overhauled our operational structure to become far more nimble and better positioned for future growth across multiple revenue streams. So essentially what we've done is we've created an organization that's much more efficient with better operating leverage, all while responding to a very, very challenging macroeconomic environment. As a result of these efforts, when comparing our full year 2021 results with our full year 2018 results, which again was the first year of the turnarounds, We were able to cut our costs of sales by 49% and operating expenses by 43%. During the same comparison period, our revenue declined by 43% as we repositioned the company for future growth. We focused on delivering a better quality product rather than just chasing revenue volume. We dealt with the challenges facing the automotive industry. And we've been able to, like I said, really focus on replenishing our talent as an organization. So to put a bit of a finer point on all this, over the past four years, we removed more than a dollar of expense operating in cost of sales for every dollar of revenue that came out of this business, which is one of the reasons why we feel really good about our future prospects. Now, again, we've done all this in the face of unprecedented market conditions, and I do think it's important to recognize all we've been able to accomplish despite an unfavorable macroeconomic environment. Now, our work is only just beginning as we start to scale our vehicle acquisition business, which is really the fulfillment of our transaction-enabled matchmaker strategy. I do want to take the time to thank our tireless employees and dedicated stakeholders who continue to support this company through this journey. Now, let's jump into the fourth quarter. Overall, our fourth quarter results were marked by the continuation of macroeconomic challenges and headwinds felt throughout the year. Inventory challenges, pricing constraints, and an unsavorable consumer spending environment resulted in a decrease in many of our key metrics when compared year over year. To give further context to the consumer environment we were operating in, new vehicle inventory challenges for dealers worsened in the fourth quarter. This has significantly affected new vehicle sales across the country and extended the average time it usually takes for a consumer to purchase a vehicle. In fact, our internal research shows that Ottawa's audience is still buying at the same rate as previously reported, but it's actually taking them twice as long to do so. So, again, what's interesting is the overall quality of our audience is there. Again, consumers are just facing a very challenging buying environment, and it's taking them about twice as long to buy a vehicle. In fact, I'm sorry, one other note, and I'll just make this one other note. One other note about the macro environment that I think is very interesting is that the average monthly new vehicle SAR for the second half of the calendar year has only declined six times since 2000. So what I mean by this is when you look at the average SAR for the first six months, and compare it with the average SAR for the second six months of any given year from 2000 to 2021, what you see is that it's only declined six times in that time period. Now, that makes a lot of sense, right, because the automotive industry is very seasonal. And most of the big selling days and big selling weekends are actually in the back half of the year, the second half of the year, month seven and beyond. Now, the largest decline in that timeframe came in 2021, with the second half of the year average monthly SAR being down 21.8% compared to the first half of the year. That means that the average for the first six months of the year, the SAR, was $16.8 million. It means in the second half of the year, it was $13.1. That's where you get the 21.8% decline, which is substantial. And I'll tell you why in a second. Because the second... largest decline in those 21 years was actually in the back half of 2008, and that declined 20.2%. So as you can see, that was a very different environment, a very challenging environment, but challenging for different reasons. You can see that we've actually just worked our way through what appears to be the worst second half in terms of total vehicle sales from a SAR perspective on the new car side that we've seen since 2000. Now, we believe this is directly attributable to the inventory and pricing environment that new car buyers are currently facing. So, what does this mean for AutoWeb? During the fourth quarter, we continued to intentionally operate at lower levels of media spend. Despite these challenges, we were still able to methodically ramp up our used vehicle acquisition channel, and with the additional revenues generated, we were able to offset some of the slowdown that we experienced in the core leads business. Now, with CarZeus, our used vehicle acquisition business, we were focused heavily on scaling, optimizing, and integrating that channel. Throughout the quarter, we were able to materially improve the unit economics of our San Antonio location. As expected, we did initiate our first expansion effort by moving into Austin, Texas, which we currently serve remotely through our existing operations in San Antonio. Now, this part of our business is still in its infancy, and we spent much of the past quarter preparing for the broader geographic coverage that we aim to have. But, again, we're very excited and bullish on the impact that this is going to have on our business overall. In conjunction with our expansionary efforts within CARSIS, we also spent much of the quarter focused on curating a larger audience of consumers, looking to dispose of their vehicles. I'm pleased to report that within our San Antonio market, our revenue per marketing dollar spent has increased over 480%, and the resulting gross margin per marketing dollar spent increased over 775% when comparing the first seven months of last year to the last five months of last year. Now, the reason we do that comparison is because, as you all know, we acquired the Carzu's assets, at the end of July, which means it only had an effect on the business for the final five months. So, again, as you can see, this has a material impact on the revenue per marketing dollar and on the gross margin per marketing dollar spent by Ottawa. But we believe these metrics show that the consumers are positively engaging with our marketing initiatives, which has the potential to provide meaningful contribution to our profitability as we begin to scale this part of our business. Overall, the fourth quarter capped off a very challenging year, but we're still pleased with the progress we were able to make. The macroeconomic environment has closed our transformation, but I do believe that we've taken a series of impactful steps in preparing this company for the future. I remain exceptionally confident in our core operations across the organization. I look forward to scaling our used vehicle acquisitions while we cautiously monitor the macro environment. Before I dive into the 2022 strategic initiatives, I'd like to turn the call over to Dr. to our new CFO, Carlton Hammer, to walk through our fourth quarter and full year 2021 financials in more detail. Now, as a reminder, Carlton and I have worked together in the past, as he's worked with several of our senior executives here. He joined us as the chief financial officer in January 2022. Carlton is a certified public accountant, bringing to our executive team almost three decades of experience, including a significant portion of his career dedicated to the automotive industry while at Cox Automotives. We're very excited to have Carlton's impressive financial acumen and strong background as a member of this senior executive team as we continue to move into 2022 and we continue to drive the business transformation of AutoWeb overall. So with that, Carlton, I'm going to turn it over to you.