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| EX-99.1 - PRESS RELEASE - AutoWeb, Inc. | ex99-1.htm |
| 8-K - CURRENT REPORT - AutoWeb, Inc. | auto8k_may062021.htm |
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Exhibit
99.2
Call Participants
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EXECUTIVES
Jared R. Rowe
CEO, President & Director
Michael A. Sadowski
Executive VP & CFO
ANALYSTS
Bruce Goldfarb
Lake Street Capital Markets, LLC, Research Division
Edward Moon Woo
Ascendiant Capital Markets LLC, Research Division
Michael Joshua Nichols
B. Riley Securities, Inc.,
Research Division
ATTENDEES
Cody Cree
Gateway Group, Inc.
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Presentation
Operator
Good morning, everyone, and thank you for participating in today's
conference call to discuss AutoWeb's financial results for the
first quarter ended March 31, 2021. Joining us today are AutoWeb's
President and CEO, Jared Rowe; the company's CFO, Michael Sadowski;
and the company's outside Investor Relations adviser, Cody Cree,
with Gateway Investor Relations. Following their remarks, we'll
open the call for questions. I would like to turn the call over to
Mr. Cree for some introductory comments.
Cody Cree
Gateway Group, Inc.
Thank you, Sarah. 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-Q for the
quarter ended March 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 any statement
disclosing the reasons why company management believes that
adjusted EBITDA provides useful information to investors regarding
the company's financial condition and results of operations are
included in today's press release that is posted on the company's
website.
And with that, I will now turn the call over to Jared.
Jared?
Jared R. Rowe
CEO, President & Director
Thanks, Cody, and welcome, everybody. I appreciate you joining us
here today. I want to apologize; I've got my pages mixed up. All
right, let's dive right into our prepared remarks.
So, through our performance during the first quarter, we've
sustained our operational momentum and really demonstrated the
continued efficiency of our business. Our focus on delivering
high-quality clicks and leads to our customers has really allowed
us to drive sequential top line growth relative to last quarter. On
the bottom line, we continue to improve profitability through our
significant year-over-year gross margin expansion as well as our
achievement of both positive net income and positive adjusted
EBITDA. We're already executing on our strategy at very high levels
in just the first few months of 2021. And our work for this year is
really just getting started.
Now as a broader macroeconomic recovery from the pandemic
progresses, we are seeing the beating signs of demand recovery
within our industry. Consumer confidence has started to rebound as
the vaccine becomes more widespread and U.S. automotive sales rates
have escalated throughout the spring. Now these signs point to a
healthy resurgence in demand, but supply recovery has proven more
difficult.
Recent global shortages in semiconductors and microchips have
really disrupted the automotive production and kept dealer
inventories exceptionally lean. In fact, Ford, one of our largest
accounts, has recently warned that 50% its output in Q2 is going to
be cut back, which is going to lead to a loss of production of 1.1
million vehicles in 2021. And General Motors, another one of our
largest accounts, has been echoing similar sentiments and quite
frankly, halting production at various plants at various
times.
LMC Automotive, which is a respected consultancy and prognosticator
in the automotive industry, they expect the chip shortage to
curtail North American automotive production by almost 550,000
vehicles in the first half of 2021, with not even 1/3 of this
volume loss predicted to recovery before 2020 use -- 2022. So, this
will be something that we're going to have to deal with as an
industry for quite some time. Now we believe that these production
issues affecting inventories will likely impact Q2 growth
prospects, and we're monitoring this exceptionally
closely.
Now amid this landscape, we remain committed to serving as a
supporter partner to the dealers in our network as they navigate
these challenges and the uneven progress towards pandemic recovery.
Now as we long stated, we expect our quarter-over-quarter dealer
cash to be choppy for the time being as certain engagements turn on
and off due to supply constraints in terms of subsequent pricing
challenges. However, we do expect our dealer count to gradually
recover throughout the year as our customers gain further
visibility on their businesses. So, in the meantime, to further
elevate the level of partnership we provide. We've made several key
improvements to our platform to facilitate better matches between
car buyer intent and dealers who can meet their needs.
Now as we optimize our platform, we're enhancing both the quality
of our product mixes and the experience that consumers have in our
site. During Q1, we invested in a new technology pattern, which can
be found at shop.car.com that's designed to speed up our innovation
cycle and really elevate our user experience. Now the testing of
this new technology pattern has already shown that it's improving
our page load times by about 30% and overall conversions by 50 --
15%, while introducing a cleaner, more contemporary design for our
overall consumer experience.
We're currently working on scaling shop.car.com across our search
campaigns for that specific site and bringing other search engine
marketing sites onto the pattern. What's more is we're making these
improvements within our current expense framework demonstrating
that we can make key investments in support of our growth while
maintaining our focus on cost efficiency, which we think is
critically, critically important.
Now the benefits of our new technology pattern, and similar
updates, are significant steps towards further improving our Google
Quality Scores, which is a key measure of relevance and
effectiveness of our ads. And as a search arbitrage business, this
is a really critical KPI for us.
Now having a higher quality score means that the content of our ad
in the landing pages is far more useful to consumers and then
closely match for their overall intent than those of other
advertisers. And elements like page load time can improve the
likelihood of conversion and ultimately create stronger relevance
for consumers. Now over the past 3 years, our heightened focus on
optimizing the quality of our audience has already helped improve
our Google Quality Score by almost 65%.
The quality scores for our 2 core accounts, and where we generate
most of our leads is Car.com and Autosite, they've improved 68% and
107%, respectively, during the same time period. Now these 2
accounts generating nearly 2/3 of our monthly lead volume, now this
improvement is meaningful to us, and we still have more room to
grow. So, we expect that working to further improve the matches our
platform can facilitate will help us keep optimizing our score as
well as create greater efficiencies in both our consumer
acquisition cost and our overall go-to-market approach. And again,
I guess I'll stop here for a second and just highlight why we're
talking about something like a Google Quality Score. And the reason
we're talking about it is because this is the kind of durable
operational improvement that really helps us manage our customer
acquisition cost, which is something that is industry-leading,
quite frankly, for us.
Now as we've come to -- as we've -- now as far as we've come in
reaching this chapter of our growth story, we're truly just getting
started. We spent the past 3 years making AutoWeb a lean, efficient
organization from controlling expenses to optimizing our product
mixes. But really reaching the next stage, it's going to take more
than just operational efficiency, and we know that. So, becoming a
more comprehensive matchmaker will require us to combine our
ongoing work on improving the fundamentals of our business with a
strategic focus on rearchitecting the interaction model between our
buyers and our sellers. And we're going to need to keep innovating
rapidly, making core investments to fully augment our efficiency
and quite frankly, find ways to use the resources that we already
have more effectively. And this is a team that's proven that they
can do it, and we're fully committed to that.
Now we've made significant strides on both our growth strategy and
our goal of positioning AutoWeb as a transactional matchmaker at
scale, and we really have plenty of growth opportunities to capture
ahead. But before I share more on that and some of our
product-level progress, I'd like to turn it over to Mike to talk
about Q1 -- the Q1 financial results, which quite frankly are
something that we're very proud of. So, Mike, can you please pick
it up?
Michael A. Sadowski
Executive VP & CFO
Yes. Thank you, Jared, and good afternoon, everyone. Diving into
our Q1 2021 results. Total revenue in the first quarter was $17.9
million, up 4% from the $17.3 million last quarter, but down from
the $24.5 million in the year ago quarter as a result of lower lead
and click volumes and our industry's uneven pace and recovery from
the pandemic. The primary driver for growth in Q1 versus Q4 was in
our leads product, up $14.2 million in Q1 compared to the $13.6
million in Q4. This is down from the $18.5 million in the year ago
quarter. We have continued working to leverage the strategic
importance of our dealer count and click revenue, so let me briefly
touch on the performance across those areas.
Our retail dealer count and lead capacity was somewhat down from Q4
with our overall daily count finishing at 1,777. Now note that both
Q4 and Q1 represent seasonally slow periods for our business. And
some of our dealers have since had to reevaluate their main plans
as they're adjusting to that changing supply and demand pattern
that we're seeing. As we've discussed in previous quarters, we
expect recovery in our dealer count to remain choppy as our
industry recovers from the pandemic, and especially with many
dealers working through in mitigating the supply constraints that
Jared mentioned earlier.
Digital advertising revenues in the first quarter came in at $3.7
million, up slightly from $3.6 million in Q4 and down from $6.0
million in the year ago quarter. Within digital advertising, the
clicks product delivered $2.9 million in revenue compared to $3.0
million in Q4, and was down compared to $5.3 million in the year
ago quarter. The slight sequential softness in clicks reflects the
impact of seasonality and the dealer count choppiness I just
mentioned.
As a reminder, we have continued to manage media spend down to stay
more closely aligned with consumer demand in the market. But as
Jared will detail later in the call, we've already started
generating sequential improvements in our click traffic and volume
this quarter and continue to diversify our click product
consumption, which we view as a promising trend for the rest of the
year.
Our strategy is further reflected in the gross profit line, which
we believe is a more appropriate proxy for our top line
performance. We managed revenue down 27% year on Q1, but our Q1
gross profit was up 8% to $5.8 million. In addition, first quarter
gross margin came in at 32.5%, which was down slightly from the
34.0% last quarter, but a significant improvement from 21.9% in the
year ago quarter and well within the range of guidance we have been
providing on this metric, which is in the low to mid-30% range.
This increase was driven by our continual focus on driving
efficiencies in our traffic acquisition, leveraging higher-margin
distribution channels and implementing platform improvements in
support of our long-term growth.
We continue to manage operating expenses during the quarter, which
were down year-over-year to $6.9 million as a result of our
disciplined approach to cost management. We also generated net
income in the first quarter of $0.3 million, or $0.02 per share,
representing a significant improvement from loss of $0.9 million or
negative $0.07 per share last quarter and a net loss of $4.1
million or negative $0.31 per share in the year ago quarter. This
increase was driven by our gross profit growth and prudent expense
management as well as recorded gain in Q1 as a result of the loan
forgiveness from the Payment Protection Program loan.
Adjusted EBITDA in the first quarter improved to $0.2 million,
which was down from $0.5 million last quarter, but up significantly
from the negative $1.7 million in the year ago quarter, which is a
positive indicator for the business given that Q1 is seasonally
challenging.
The result exceeded our expectations, which were closer to
breakeven for the quarter. Result that represents our fourth
quarter in a row of generating positive adjusted EBITDA. And we
continue to see the consistency of our adjusted EBITDA performance
as a positive indicator of our planned and focused efforts on gross
profit.
As we reach our seasonally stronger periods in Q2 and Q3, we
normally would expect growth in this metric to expand, but we are
being cautious in our internal expectations due to the inventory
constraints dealers are facing with the various material shortages
that are impacting vehicle supply, such as the chip, seat, foam and
rubber. We are monitoring the situation very closely, and we'll do
everything in our power to mitigate the potential impact of the
industry supply challenges on our business.
At March 31, 2021, cash, cash equivalents and restricted cash stood
at $15.5 million compared to $15.1 million at December 31, 2020,
with the increase driven by our focus on gross profit and strong
cost control efforts. We'll continue to fund those levers that
enable cash growth for the remainder of the year.
Now I do need to note that there is an error in the press release
that was just issued, and that will be amended to state that the
net cash provided by operating activities include that lease
liability use of cash, which was erroneously excluded from the
summation in that schedule. And the Q1 2021 total should be
$350,000 and the Q1 2020 total should be negative
$954,000.
As of March 31, 2021, we had an outstanding balance of $10.2
million on our $20 million revolving credit facility with CIT
Northbridge Credit. We continue to be comfortable with our balance
sheet and overall liquidity as we progress through 2021, and
maintain our commitment to improving our liquidity and prudently
managing our costs.
We're
proud of the progress we've made so far in delivering on our
strategy and achieving sequential revenue growth and year-over-year
profitability expansion. As we get further into 2021, we remain
closely attuned to any changes in our industry conditions and
focused on further optimizing our organizational efficiency and
capabilities of our platform throughout the rest of the
year.
This concludes my prepared remarks. I'll turn the call back over to
Jared for additional operational updates and color on our strategic
outlook. Jared?
Jared R. Rowe
CEO, President & Director
Thank you, Michael. So, every state over the past few quarters,
search-based advertising was deeply impacted by the pandemic last
year. But as in many other areas of the economy, we're seeing signs
of recovery. In our clicks business, we drove improvements in both
traffic and volume over last quarter, owing both to the addition of
a new publisher that we did add to the platform and better overall
optimization of our social media traffic sources. Now in fact, our
affiliate traffic increased 72% sequentially, while our total
affiliate clicks increased over 110% sequentially. Now this signals
that we are driving continued momentum with endemic buyers. As a
reminder, an endemic buyer is somebody who's directly involved in
the sale of a vehicle, dealers and OEMs, those are mainly what
you'd consider endemics.
Now
these click publishers and the endemic buyers are important to this
segment of our business and can help offset any potential impact of
industry supply shortages that could affect retail dealer click
consumption. Now further, our Q1 click attach rate remained stable
at 20% relative to last quarter, and we have strong runway to grow
this rate even further.
Now as a reminder, our audience is very ready to buy, in fact, on
average, 28% of our consumers buy a vehicle of some kind. And 75%
of new vehicle sales to our audience occur within 19 days, so 3
business weeks basically, of lead submission. Now our work to
facilitate better matches between buyers and sellers aims to keep
pulling on these positive, positive trends which is why we began
investing in our data science capabilities in Q4 of last year. Now
the insights that we have already generated through this newly
built process, function and process, have already benefited our
product development efforts, benefited our sales approach and it's
also benefited as our audience acquisition efforts.
Now to provide additional insight into our product evolution road
map for the year, first things first is we do expect to carry the
success we've generated with launching shop.car.com, that new
technology pattern, across various other portfolio sites. By the
end of Q2, we expect to have similarly revamped the technology
pattern of another key, high-volume, lead-generating site in our
portfolio, and we expect to see similar results when we make that
transition.
Now these initiatives are some of the core necessary work in our
transformation that not only enables our platform to support our
matchmaking journey, but also provides yet another way for us to
advance our business through making our existing resources more
efficient. Now that's been a hallmark of the AutoWeb story to date,
and quite frankly, that's a hallmark of the AutoWeb management team
here, and it's going to continue to be underscored with all the
work that we do going forward.
Now after implementing these foundational changes to make our
existing sites more efficient and better technologically equipped,
we do expect to begin layering in new retail-ready components. Now
these components will span features related to finance, trade-in
and other specific elements of both the buying and selling
experience.
Now being able to collect this kind of information from consumers
is going to allow us to create more tailored profiles of the buyers
who are using our sites and our products, and better understand
what kind of shopping experiences they're looking for. And then be
better able to match them to the sellers that can provide an
experience within their preferred parameters, which is a critical
element of matchmaking.
So, along these lines, we've been running a test for a few months
now that quite frankly has given us a tremendous amount of
additional confidence that these retail-ready components will
resonate with our consumers. Now in short, we have embedded some
digital retailing elements on our lead funnels thank you page that
have produced some very impressive results.
So, during Q1, 39% of the consumers who were presented with this
functionality engaged with it. Now what that means is that of the
consumers who saw that functionality on the thank you page, over
1/3 of them, 39%, almost 40% clicked on that, that functionality
and interacted with it. And so that's great engagement at that
point in the process. Now what's even more impressive is that 9% of
those consumers, they completed a secondary digital retailing
conversion process. That's even more impressive. Because not only
is it almost 40% of the consumers who saw the functionality
interact with it, but again, almost 10% of those consumers, they
went through a whole another secondary digital retailing process
and submitted their information through that series of steps. Now
these rates of engagement, we're extremely bullish on the prospects
of our future product evolution.
I'd like to remind everybody that becoming a transactional
matchmaker at scale is not only our exciting response to where the
market is headed, it's a necessary step in an environment where
buyers are seeking increasingly customized experiences and sellers
are rapidly expanding their capacity to provide them. Now this
transformation is also the logical next step of the work that we've
already done to evolve our value proposition. Having generated
sequential revenue growth, having maintained our expanded gross
margin and having achieved our fourth quarter in a row of positive
adjusted EBITDA, we think that we've proven that our strategy
works.
Now our ability to control expenses and deliver high-quality
product mix has showed that we're already doing so much more than
what we have -- so much more with what we have. But to get to where
we know we can go, we have to keep building on this progress. We
need to continue optimizing our resources to build a platform that
can most fully address the specific needs of the automotive
consumers of tomorrow.
Now as we evolve our digital marketing capabilities to stay ahead
of today's evolving industry and car buying dynamics, we've already
made material financial and operational progress. We're off to a
strong start in 2021, and we look forward to what's ahead for the
remainder of the year.
Now that ends my remarks that I've got prepared. I would just --
before we go to questions, just reiterate a couple of things. One
is we delivered on the financial commitments that we made this
quarter. Number two is we maintained the margin in the low to
mid-30s, which is what we've talked about on the gross margin line.
And number three, and this is something we're very proud of, we did
all this at the same time that we made material investments in the
platform. And so again, I'm very proud of the work that this team
has done. I'm very proud of the work that this team will do. And
with that, operator, let's turn it over for questions.
Question and
Answer
Operator
[Operator Instructions] Your first question comes from the line of
Josh Nichols from B. Riley.
Michael Joshua Nichols
B. Riley Securities, Inc., Research Division
It looks like we're in for a little bit of an interesting selling
season, right, where you have some strong recovery from the
consumer but juxtaposing that is like the relatively shortage that
we have for some of these dealers and production tests. How should
we think about the trajectory for the revenue growth? And also more
so like the gross margin expansion potential as we enter the
stronger selling seasons with that in mind?
Jared R. Rowe
CEO, President & Director
Yes. I'll tell you what -- Josh, thanks for the question. Let me
start and then Mike can follow up. To your point, there's just a
lot of uncertainty around Q2 and Q3, and we're really proud of the
results of Q1. And we did that in an environment where, quite
frankly, wasn't optimal, right? We've yet to -- we had a better
portion of a year here with suboptimal market conditions. So, we're
pretty bullish as the market recovers, our ability to capture the
economic leverage that we've created. But to your point, those days
supply at the dealer level is pretty concerning. When you see an
Asbury with a 31-day supply, a Lithia with a 41-day supply, a Sonic
with a 43-day supply. Tansky, 40. Group 1, 34. AutoNation, 29, at
the end of March. Those folks are going to pull back and harvest
profitability as well they should. And the variable marketing
expenses that we represent are an easy area for them to do
that.
So,
our focus is how do we offset that by being good managers of the
business overall. How do we offset that by continuing to lean into
the clicks business because the clicks has a slightly different
value proposition. It's just not new car leads. You can present
used car inventory as well. And we've done a nice job of
transitioning some of the budget into that -- in the clicks, which
as we all know, has a better gross margin characteristic in the
core business.
So we do continue to expect Q2 and Q3 to be better than Q4 and Q1.
I think us understanding exactly how much better, that's one thing
that we don't have good line of sight on right now, Chris, just --
or I'm sorry, Josh, just because of the uncertainty around days
supply and the uncertainty around production. Mike, did I miss
anything? Or anything you want to clean up there?
Michael A. Sadowski
Executive VP & CFO
No. I mean I think the biggest thing is we're going to continue to
manage that profit dollar. And so, we do expect that we can
continue to be in that steady range that we've been operating in.
To Jared's point, it's really about the volume and trying to drive
additional clicks in the volume mix. But really trying to manage
through and maintain that profit dollar in that solid ability to
deliver financially across the board. And so, we're just going to
actively continue managing all of that and take every opportunity
that's out there for us to really manage through any of this Q2
choppiness that we're seeing based on inventory.
Jared R. Rowe
CEO, President & Director
Yes. And Josh, one last thing I would mention is, it's one of the
reasons why when we talk about things like quality score and we
talk about some of those things, I know that is really inside
baseball and pretty arcane. But it's critical to our business
because it helps us manage the cost of acquisition down. And quite
frankly, we continue to be able to manage our cost of acquisition
well, well, well below what it was. Probably 1.5 years to 2 years
ago, we've been steadily chopping away at that and chipping away at
it.
So, to Mike's point, we're going to stay focused on that gross
profit line. And we'll do that by being efficient, effective,
managing our expenses well and managing that mix very aggressively,
leads to clicks.
Michael Joshua Nichols
B. Riley Securities, Inc., Research Division
And can you talk a little bit about the dynamics impacting like the
revenue per click. I know you mentioned that's obviously a
higher-margin piece of the business there. And what's the
expectation there. What are the puts and takes, whether it be used
car prices or dealer inventory levels.
Jared R. Rowe
CEO, President & Director
It's really dealer inventory levels with that one. What we've been
working on for quite a while. And we've made a good lot of good
progress over the last couple of years is selling more of the
clicks to endemics, meaning dealers, meaning OEMs, meaning even
some of the near-endemics. Like some of the insurance providers we
brought on board. Because essentially, the revenue per click we get
there is just substantially better than it is when we sell to click
arbitrage folks, which is where the remainder of the volume goes
because that national coverage is very important for
us.
So, as we think about that, it really is continuing to lean in on
the dealer side and push budget towards the clicks. One of the
things we've had a good deal of success with over the past year is
we've introduced something called dynamic inventory targeting,
which is really leveraging our clicks platform to put used car
inventory in front of new car buyers when either they abandon the
lead funnel or folks lead submission, and we've seen some good
progress there. So, we've got tools in our tool belt to help
dealers regardless of whether they're having new car inventory
issues or not. Because if they're leaning into used car, right, we
can help them with that and we can transition budget
around.
And so again, the 2 dynamics there are really how do we make
certain that we sell as many of those clicks as possible to
endemics and near-endemics. And then also, how do we really -- how
are we smart with our clients to really optimize their spend with
us in a way that aligns with the inventory realities that they are
facing every single day. Because again, you may have new car
constraints, which I know we do, right, as an industry. Used car
pricing is very high right now, but you can still get access to it
so they can continue to sell there. So that's how kind of
tactically we've addressed it with the clients.
Michael Joshua Nichols
B. Riley Securities, Inc., Research Division
And then last question for me, and then I'll pop back in line.
Whenever you're looking at your -- and the impact of the shortages
for silicon, like rubber and other basic parts, like how should the
mix be interpreted? I know that some OEMs, it's not just shutting
down production, but they're shutting down more production, it
seems like, like the lower-level or entry-level vehicles to try and
favor the higher-margin, higher-churn vehicles. Does that impact
your business at all? Or how should we think about
that?
Jared R. Rowe
CEO, President & Director
That actually helps us a little bit in that. As long as we stay
focused on what the OEMs are looking for, and we stay very closely
aligned with most of our OEM clients, around what sort of mix
they're looking for and we try to tailor our search campaigns
towards that. What we don't want to be doing is generating a bunch
of leads for a bunch of vehicles that they may have on ground, but
they may not be high demand. And so again, we tailor our approaches
for our largest clients, in particular, around what their current
marketing mix is focused on, which tends to lean towards what it is
they're trying to sell. So, we do move our mix around from a
marketing spend perspective, monthly, again, to support some of the
largest clients that we have, in particular, a couple of them that
we called out in the prepared remarks, we stay close to those folks
and try to generate good quality, purchase intent for stuff that
consumers want and they can sell and they have.
Operator
Your next question comes from the line of Ed Woo from Ascendiant
Capital.
Edward Moon Woo
Ascendiant Capital Markets LLC, Research Division
Yes. Congratulations on the quarter. My question is, it seems like
the consumer confidence is high. They got a lot of stimulus money.
It seems like car dealers, even though the volumes may be light,
their inventory is light, their profitability is very strong. Is
there any opportunity to do price increases, for you at
least?
Jared R. Rowe
CEO, President & Director
Yes. No, we appreciate the question. The reality of it is, is no,
as we sit right now. As we think about taking rate, we think about
that within the context of further product evolution and product
improvement. We think that will give us an opportunity. But over
the short term, it's more about delivering high value, which really
is about shifting the mix from wholesale to retail.
We've talked a little bit about this in the past. The way that we
can take rate without increasing price is simply shifting more of
the mix from wholesale to retail. Now the current environment makes
that difficult. But as we sit today, we don't think we can simply
raise prices on existing clients.
Quite the contrary, what we're trying to do is rationalize pricing
to get them to take more volume because we think that's a better
value equation for them. And ultimately, we think that a broader
footprint with more products layered up create a better environment
for us to partner with them over the long term.
Edward Moon Woo
Ascendiant Capital Markets LLC, Research Division
Great. And then you obviously -- there are obviously going to be a
lot of industry constraints on new cars. What about used cars? Has
the dynamic changed? And would you guys be making a bigger focus on
used cars leads?
Jared R. Rowe
CEO, President & Director
Yes. It's less about used car leads per se. It's more about how do
we introduce used car into the new car audience. And so that's
where this dynamic inventory targeting comes there. It's a way for
us to authentically represent used car inventory to a predominantly
new car audience because that's who we have. That's what we
have.
As we know that consumers are willing to make the trade-off, and
they're willing to go from new to used as long as they find the
right used vehicle that matches their needs. And so, Ed, where
we've really leaned in over the last several months, several
periods, quite frankly, is in this [ VIT ] product, which again is
relatively new for us. And again, it's a way for us to take a
dealer's used car inventory and then put it in front of our new car
buyers as they're going through the funnel in a way that makes
sense for the consumer and sets the advertiser up well. And like we
keep talking about, that click revenue, if we can transition money
in the click revenue, the gross margin characteristic is better for
us. So, we like that.
Operator
The last question comes from the line of Bruce Goldfarb from Lake
Street Capital.
Bruce Goldfarb
Lake Street Capital Markets, LLC, Research Division
Jared and Mike, congratulations on a great quarter.
Jared R. Rowe
CEO, President & Director
Thank you, Bruce.
Bruce Goldfarb
Lake Street Capital Markets, LLC, Research Division
So, I have a question. So, like you discussed quality improvements,
lowering your customer acquisition costs. Longer term, do you think
that is going to improve the quality of the leads you generate? And
I mean maybe not near term, but longer term, do you think that
could represent sort of low-hanging fruit in terms of increasing
prices later?
Jared R. Rowe
CEO, President & Director
Again, what we've done with from a quality perspective, we talked a
little bit on the last call, right? We've seen tremendous
improvement in overall product quality, right? So, the core
underlying raw material of our business is better. We're generating
more closes on average than we did this time last year. And so, we
do think that has a material benefit to the business. It just takes
a little while for the market to recognize it and for the market to
basically then consume that.
We don't think that that's going to translate necessarily --
without product innovation, translate necessarily to better price
per unit. Again, what we think it will do, and what we're seeing
some success in, is transitioning more of that volume then away
from the wholesale channel, away from OEMs and into the retail
channel. Because like we've talked about, the pricing differential
and the margin differential between selling that exact same lead to
an OEM versus a dealer is substantial.
So, it's actually kind of interesting, Bruce, in that we could
discount our leads on the retail side, increase the footprint,
shift more traffic over and more of the leads over and improve our
gross margin characteristic of the portfolio overall. That's really
where we're focused.
So, we've got to get that retail side moving. We did have a slight
sequential decline. We're down 8 dealers. In the current
environment, I will tell you, we are pretty excited about the fact
that we're only down 8 dealers in the current environment. Because,
again, a lot of dealers right now are cranking back their marketing
expenses, their variable marketing expenses to harvest
profitability because demand far outstrips supply and they'd be
economically irrational not to. So we do think that we will harvest
value from all of these quality improvements and this good consumer
acquisition cost improvements that we've made, you're just going to
really see it play out over time in cross-sell, upsell with us
being able to sell more products and services into dealers, leads
plus clicks. So, our CAC rate is going to go up. And also
increasing the number of retail dealers we have in the network. If
we do that, that, like I said, will actually materially improve
margin and will essentially be equivalent of taking
rate.
Bruce Goldfarb
Lake Street Capital Markets, LLC, Research Division
Great. And then another question, too. Has the vaccination rates in
the U.S., has that had an impact on just overall activity on your
websites to sort of positively correlate in? Just out of
curiosity.
Jared R. Rowe
CEO, President & Director
It really hasn't. We haven't really seen that. It kind of tracks
with the overall market as consumer confidence increases, and some
of that has to do with the fact that there's dollars flowing in
from stimulus. People are getting vaccinated. They are starting to
get back to kind of normalcy or some level of normalcy, whatever
the new normal will be. But we don't see it necessarily aligned or
correlate with vaccination rates. We see it more aligned with just
consumer confidence overall and how good they feel about their
financial prospects, right? Because if you're going to enter into
this kind of transaction, right, you've got to feel pretty good
about your financial prospects and quite frankly, the prospects of
the economy overall.
Bruce
Goldfarb
Lake Street Capital Markets, LLC, Research Division
Great. Congrats again on the great quarter.
Jared R. Rowe
CEO, President & Director
Thank you.
Operator
At this time, this concludes our question-and-answer session. I
would like to turn the call back over to Mr. Rowe for closing
remarks.
Jared R. Rowe
CEO, President & Director
Well, thank you, operator, and thank you, everybody, for joining
the call. We're proud of the work we've done. Like I said earlier,
we're very excited about the prospects for 2021. We've got a lot of
work ahead of us, but we have set a very, very solid foundation.
And then like I mentioned earlier, as the market improves, we do
expect to see some of the economic leverage that we've created
scale up.
So, we're excited about where we're at. We're making good strategic
investments in the platform to evolve beyond the existing value
proposition. And so, we're looking forward to talking to you again
in here in another quarter and telling you how we've
progressed.
So, thank you, everybody, for joining the call. Thank you to the
AutoWeb team for all of your hard work. It is paying off, and we
appreciate it. So be well, everybody. Stay safe, and we'll all talk
soon, okay? Thank you.
Operator
Ladies and gentlemen, this does conclude today's teleconference.
You may disconnect your lines at this time. Thank you for your
participation.