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35: R1 Document and Entity Information HTML 51K
14: R2 Consolidated Condensed Balance Sheets HTML 98K
27: R3 Consolidated Condensed Balance Sheets HTML 41K
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42: R4 Consolidated Condensed Statements of Operations HTML 77K
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44: R8 Basis of Presentation HTML 24K
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(Registrant’s telephone number, including area
code)
Securities registered pursuant to Section 12(b) of the
Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, par value $0.001 per share
AUTO
The Nasdaq Capital Market
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 [X] 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 such files). Yes [X] No
[ ]
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, 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.
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☒
Emerging growth company ☐
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 [X]
Accounts receivable, net of allowances for bad
debts and customer credits of $539 and $566
at September 30, 2019 and December 31, 2018,
respectively
22,647
26,898
Prepaid
expenses and other current assets
1,409
1,245
Total
current assets
30,186
41,743
Property
and equipment, net
3,377
3,181
Right-of-use
assets
2,919
—
Intangible
assets, net
7,964
11,976
Other
assets
796
516
Total
assets
$45,242
$57,416
Liabilities
and Stockholders’ Equity
Current
liabilities:
Accounts
payable
14,224
17,572
Accrued
employee-related benefits
1,196
3,125
Other
accrued expenses and other current liabilities
2,092
2,204
Current
portion of lease liabilities
1,398
—
Current
convertible note payable
—
1,000
Total
current liabilities
18,910
23,901
Borrowings
under revolving credit facility
1,036
—
Lease
liabilities, net of current portion
1,663
—
Total
liabilities
21,609
23,901
Commitments
and contingencies (Note 10)
—
—
Stockholders’
equity:
Preferred
stock, $0.001 par value, 11,445,187 shares authorized
Series
A Preferred stock, none issued and outstanding
—
—
Common stock, $0.001 par value; 55,000,000 shares
authorized, and 13,146,831 and
12,960,450 shares issued and outstanding at September 30, 2019 and
December 31, 2018, respectively
13
13
Additional
paid-in capital
363,388
361,218
Accumulated
deficit
(339,768)
(327,716)
Total
stockholders’ equity
23,633
33,515
Total
liabilities and stockholders’ equity
$45,242
$57,416
See accompanying notes to unaudited condensed consolidated
financial statements.
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
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 the Company’s 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 digital advertising
customers.
The
Company was incorporated in Delaware on May 17, 1996. The
Company’s common stock is listed on The NASDAQ Capital Market
under the symbol AUTO. Effective August 7, 2019, the
Company’s board of directors designated the Company’s
office in Tampa, Florida located at 400 North Ashley Drive, Suite
300, Tampa, Florida33602 as the Company’s principal office
for the transaction of business of the Company pursuant to Section
1.02 of the Company’s bylaws and as the Company’s
principal executive offices.
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 statements of operations and comprehensive loss and
cash flows for the periods ended September 30, 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.
Restricted
cash primarily consists of cash pledged pursuant to the Credit
Agreement (See Note 9).
As of
September 30, 2019, and for the nine months then ended, the Company
had cash and cash equivalents of $1.1 million and a net loss of
$12.1 million. The net loss is primarily attributable to operating
expenses of $29.3 million during the nine months ended September30, 2019. The Company used net cash in operations of $6.8 million
for the nine months ended September 30, 2019. As of September 30,2019, the Company had an accumulated deficit of $339.8 million and
stockholders' equity of $23.6 million.
The Company
has developed a strategic plan focused on improving operating
performance in the future that includes modernizing and upgrading
its technology and systems, pursuing business objectives and
responding to business opportunities, developing new or improving
existing products and services, and enhancing operating
infrastructure. The plan's objective is for the Company to generate
sustainable profitability throughout 2020. However, there is no
assurance that the Company will be able to achieve this objective.
Also, the Company entered into the Credit Agreement discussed in
Note 9 below that is expected to be used to partially fund
operations. However, if the Company continues to experience losses
and becomes unable to comply with the financial covenants in the
Credit Agreement, the Company may be unable to borrow funds under
this credit facility.
The
Company believes that current cash reserves and operating cash
flows will be sufficient to sustain operations through at least the
third quarter of 2020. If the Company's plans are unsuccessful, it
may need to seek to satisfy its future cash needs through private
or public sales of securities, debt financings or
partnering/licensing transactions. However, there is no assurance
that the Company will be successful in satisfying its future cash
needs such that the Company will be able to continue
operations.
In August 2018, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update
(“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
that 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.
Accounting Standards
Codification 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.” In February 2016, ASU No. 2016-02,
“Leases (Topic
842)”
(“ASC
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 842 effective January1, 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 upon transfer of 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 a
further performance before the 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 generation,
digital advertising, and other revenue. Accordingly, the Company
recognizes revenue for each source as described below:
●
Lead
generation – paid by Dealers and
Manufacturers participating in the Company’s Lead programs
and are comprised of Lead transaction and/or monthly subscription
fees. Lead generation is recognized in the period when service is
provided.
●
Digital
advertising – fees paid by
Dealers, Manufacturers and third-party wholesale suppliers for
(i) the Company’s click traffic program, (ii) display
advertising on the Company’s websites and (iii) email and
other direct marketing. 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 advertisement in the
period in which a user takes the action for which the marketer
contracted 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 account receivable balances on the
Company’s balance sheet at period end. Allowances for
customer credits were approximately $88,000 and $121,000 at
September 30, 2019 and December 31, 2018,
respectively.
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 September 30, 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 September 30, 2019 and December 31, 2018.
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 nine months ended September 30, 2019.
Disaggregation of Revenue
The
Company disaggregates revenue from contracts with customers by
revenue source and has 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: lead generation, digital, advertising, and other
revenues.
The
following table summarizes revenue from contracts with customers,
disaggregated by revenue source, for the three and nine months
ended September 30, 2019 and 2018. Revenue is recognized net of
allowances for returns and any taxes collected from customers,
which are subsequently remitted to governmental
authorities.
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 and
common shares issuable upon the exercise of stock options and
warrants.
The
following are the share amounts utilized to compute the basic and
diluted net loss per share for the three and nine months ended
September 30, 2019 and 2018:
For
the three and nine months ended September 30, 2019 and 2018, the
Company’s basic and diluted numbers of shares are the same
because 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 and nine months ended September 30, 2019, 4.6 million and
4.6 million of potentially anti-dilutive securities related to
common stock have been excluded from the calculation of diluted net
earnings per share, respectively. For the three and nine months
ended September 30, 2018, 4.0 million and 4.3 million 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 Loss as follows:
During
the three and nine months ended September 30, 2019 and 2018,
certain awards were modified or accelerated in connection with the
termination of employment of certain former officers of the
Company. In accordance with the terms of applicable award
agreements and/or consulting agreements, the vesting of certain
awards was accelerated, and the terms of certain awards were
modified. The Company recorded $0.1 million and $1.2 million of
expense related to the acceleration or modification of certain
awards during the three months ended September 30, 2019 and 2018,
respectively. The Company recorded $0.1 million and $2.1 million of
expense related to the acceleration or modification of certain
awards during the nine months ended September 30, 2019 and 2018,
respectively.
Stock
Options. The Company
granted the following stock options for the three and nine months
ended September 30, 2019 and 2018,
respectively:
These
options are valued using a Black-Scholes option pricing model and
generally have service-based vesting that 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 will be accelerated
in the event of a change in control of the Company, termination
without cause of an employee, and voluntary termination by an
employee with good reason.
In
August 2019, the Company awarded a total of 455,000 stock options
of the Company’s common stock to certain officers under the
2018 Equity Incentive Plan. In addition to the
service-based vesting described above, vesting of these options is
subject to the achievement of a performance condition based on the
weighted average closing price of the Company’s common stock
on The Nasdaq Capital Market reaching Five Dollars ($5.00). The
weighted average grant date fair value of these stock options was
$1.69.
The
grant date fair value of stock options uses the following weighted
average assumptions:
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
high credit quality financial institutions in the United States.
Deposits held by banks exceed the amount of insurance provided for
such deposits. Deposits not subject to a controlled account
agreement with our lender 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 30%,
or $6.8 million, of gross accounts receivable at September 30,2019, and approximately 24% of total revenues for the nine months
ended September 30, 2019, are related to Urban Science
Applications (which represents Acura, Honda, Nissan, Infiniti,
Subaru, Toyota and Volvo) and General Motors. For 2018,
approximately 51%, or $13.2 million, of gross accounts receivables
at September 30, 2018, and approximately 42% of total revenues
for the nine months ended September 30, 2018, is related to
Urban Science Applications, Trilogy, 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.
Amortization
expense is included in “Cost of revenues” and
“Depreciation and amortization” in the Unaudited
Condensed Consolidated Statements of Operations. Total
amortization expense was $1.3 million and $4.0 million for the
three and nine months ended September 30, 2019, respectively.
Amortization expense was $1.6 million and $5.0 million for the
three and nine months ended September 30, 2018,
respectively.
Amortization
expense for the remainder of the year and for future years is as
follows:
Other
accrued expenses and other current liabilities:
Other
accrued expenses
933
1,346
Amounts
due to customers
444
424
Other
current liabilities
715
434
Total
other accrued expenses and other current liabilities
2,092
2,204
Total
accrued expenses and other current liabilities
$3,288
$5,329
Convertible Notes
Payable. In
connection with the acquisition of AutoUSA on January 13, 2014, the
Company issued a convertible subordinated promissory note for $1.0
million (“AutoUSA Note”)
to AutoNationDirect.com, Inc., with interest 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 September 30, 2019, consist of the
following:
Current
portion of lease liabilities
$1,398
Long-term
lease liabilities, net of current portion
1,663
Total
lease liabilities
$3,061
The
Company’s aggregate lease maturities as of September 30,2019, are as follows:
Rent
expense included in operating expenses and cost of revenue was $1.5
million for the nine months ended September 30, 2019. The
Company had a weighted average remaining lease term of 2.0 years
and a weighted average discount rate of 5.5% as of September 30,2019. Rent expense included in operating expenses for the nine
months ended September 30, 2018 was $1.2 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 nine months ended September 30, 2019 and 2018 is net of
sublease income of approximately $26,000 and $114,000,
respectively. As of September 30, 2019, the Company did not
have any additional operating leases that have not yet
commenced.
9. Credit Facility
On April 30, 2019, the Company entered into a
$25.0 million Revolving Credit and Security
Agreement ("Credit
Agreement" or
“Revolving
Loan”) 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 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 CompanySubsidiaries’ 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. As of
September 30, 2019, the Company had $1.0 million outstanding under
its credit facility. Financing costs related to the credit
facility, net of accumulated amortization, of approximately $0.3
million, have been deferred over the initial term of the loan and
are included in other assets as of September 30,2019.
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% so long as the daily LIBOR rate is
offered, ascertainable and not unlawful. 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 September 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 CompanySubsidiaries 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; and (v) declaring or making distributions on their
stock or other equity interests. The Company is also required to
maintain a $5.0 million pledged interest-bearing deposit account
with Lender until the Company’s consolidated EBITDA is
greater than $10.0 million. As of September 30, 2019, the Company
had restricted cash related to the credit facility of approximately
$5.0 million. The restricted cash accrues interest at a variable
rate currently averaging 1.82% per annum.
On October 29, 2019, the Company, the CompanySubsidiaries and PNC entered into a First Amendment to the Credit
Agreement (“Credit Agreement First
Amendment”) that provides
for an amended financial covenant related to the Company’s
minimum required EBITDA (as defined in the Credit Agreement). This
amended financial covenant requires the Company to maintain
its consolidated EBITDA (as defined in the Credit Agreement) at
stated minimum levels (i) of $0.7 million for the quarter ended September 30, 2019; (ii)
$250,000 for the month of October 2019; (iii) $600,000 for the
two-months ending November 31, 2019; and ranging from $3.6
million to $7.5 million for the
later periods set forth in the Credit Agreement First Amendment
during the remaining term of the Credit Agreement. In addition, the
Credit Agreement First Amendment adds a new financial covenant
requiring the Company to maintain at least a 1.20 to 1.00 Fixed
Charge Coverage Ratio (as defined in the Credit Agreement First
Amendment) for the periods set forth in the Credit Agreement First
Amendment. If the Company fails to comply with the minimum
EBITDA requirements or the Fixed Charge Coverage Ratio, the Company
has the right to cure (“Cure
Right”) through the
application of the proceeds from the sale of new equity interests
in the Company, subject to the conditions set forth in the Credit
Agreement First Amendment. The Cure Right may not be
exercised more than three times during the term of the Credit
Agreement and any proceeds from a sale of equity interests must not
be less than the greater of (i) the amount required to cure the
applicable default; and (ii) $500,000.
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 in 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.
11. 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.
The
Company’s effective tax rate for the nine months ended
September 30, 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 September 30,2019, all of which, if subsequently recognized, would have affected
the Company's tax rate.
As of
September 30, 2019, and December 31, 2018, there was no balance of
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 current
liabilities in the Company’s condensed consolidated balance
sheets. There were no material interest or penalties included in
income tax expenses for the three and nine months ended September30, 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 2015 are no longer subject to examination. However,
the net operating loss carryforward may be able to be adjusted up
to 3 years from when the NOL is utilized for federal income tax
purposes and 3-4 years for state income tax purposes. The Company
does not anticipate a significant change to the total amount of
unrecognized tax benefits within the next twelve
months.
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.
Total
revenues in the first nine months of 2019 were $87.3 million
compared to $93.3 million in the first nine months of 2018. The
decline in total revenues was the result of a strategic shift made
in Q1 2019 to prioritize internal traffic acquisition processes on
obtaining higher quality impressions that would yield increased
gross profit margins, as opposed to a prior focus on raw lead
volume. This caused a reduction in gross impressions and flat
volume that then contributed to decreased click revenue, as there
were fewer page views to present our click product. Digital
advertising revenue was also impacted by lower revenue per click,
and a decrease in display advertising revenue. We continue to work
with our traffic suppliers to optimize our search engine marketing
(“SEM”)
methodologies and further grow our high-quality traffic streams. We
are also investing in and testing new traffic acquisition
strategies and enhanced mobile consumer experiences. Further, we
continue to invest in our pay per click approach, to improve the
consumer, revenue customer, and financial performance of that
product. We do not expect desktop and mobile display advertising to
be a major area of focus for us in the future, as it represents a
secondary, not primary, stream of revenue.
With a
more efficient traffic acquisition model emerging, our plan for
2020 is 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. Following our 2018 strategic
realignment of our operations, we now have our full senior
leadership team in place, which we believe will increase the pace
of change and improve operational execution.
With respect to the automotive industry, 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. New vehicle retail sales in
Q3 of this year are projected to reach 3,622,500, flat compared to
Q3 2018. In contrast, new-vehicle retail sales in the first half of
the year were down 2.9%. 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. 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 available to them.
Although we are not
able at this time to disclose specific full year 2019 financial
performance with detail or accuracy, we do anticipate volatility in
our total revenues while cost of revenues continues to decline
yielding higher gross profit, and higher gross margin for 2019, as
compared to full year 2018. During the first nine months of 2019,
our cash used by operations increased as we invested in our people,
products and technology. These initiatives have allowed us to
reduce our office footprint and eliminate certain other positions
to further reduce staffing costs beginning in the third quarter of
2019.
We
continue to evaluate options to improve our ongoing liquidity and
balance sheet through non-dilutive measures and continue to have
availability under the revolving credit facility that we entered
into on April 30, 2019.
The following table sets forth certain statement
of operations data for the three-month periods ended September 30,2019 and 2018 (certain balances
and calculations have been rounded for
presentation):
2019
%
of
Total
Revenues
2018
%
of
Total
Revenues
Change
%
Change
(Dollar amounts in thousands)
Revenues:
Lead
generation
$22,564
79%
$24,986
79%
$(2,422)
(10)%
Digital
advertising
5,968
21
6,606
21
(638)
(10)
Other
revenues
20
—
103
—
(83)
(81)
Total
revenues
28,552
100
31,695
100
(3,143)
(10)
Cost
of revenues
22,645
79
26,278
83
(3,633)
(14)
Cost
of revenues - impairment
—
—
9,014
28
(9,014)
(100)
Gross
profit
5,907
21
(3,597)
(11)
9,504
(264)
Operating
expenses:
Sales
and marketing
2,632
9
3,333
11
(701)
(21)
Technology
support
1,819
6
4,303
14
(2,484)
(58)
General
and administrative
2,112
7
3,639
11
(1,527)
(42)
Depreciation
and amortization
1,200
4
1,172
4
28
2
Long-lived
asset impairment
—
—
1,968
6
(1,968)
(100)
Total
operating expenses
7,763
27
14,415
45
(6,652)
(46)
Operating
loss
(1,856)
(6)
(18,012)
(57)
16,156
(90)
Interest
and other income (expense), net
117
—
(24)
—
141
(588)
Loss
before income tax provision
(1,739)
(6)
(18,036)
(57)
16,297
(90)
Income
tax provision
—
—
—
—
—
—
Net
loss
$(1,739)
(6)%
$(18,036)
(57)%
$16,297
(90)%
Lead
Generation. Lead
generation revenues decreased $2.4 million, or 10%, in the third
quarter of 2019 compared to the third quarter of 2018 primarily as
a result of a decrease in retail lead fee revenues coupled with a
decrease in revenues from automotive
manufacturers.
Digital Advertising.
Digital advertising revenues decreased
$0.6 million, or 10%, in the third quarter of 2019 compared to the
third quarter of 2018 primarily as a result of a $0.6 million
decrease in click revenues 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, which expired
in November 2018. Other revenues decreased to $20,000 in the third
quarter of 2019 from $103,000 in the third 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,
technology license fees, server equipment depreciation, and
technology amortization directly related to affiliated
websites. Cost of revenues
decreased $3.6 million, or 14%, in the third quarter of 2019
compared to the third quarter of 2018 primarily due to a $1.5
million decrease in SEM costs, $0.8 million decrease in purchase
requests and other traffic acquisition costs, $0.4 million decrease
in amortization expense from intangibles, a $0.4 million decrease
in click publisher costs and a $0.1 million decrease in the
amortization of internal use software. Further contributing to the
decrease was a $0.4 million decrease in costs related to headcount.
These costs were shifted to operational roles at the beginning of
2019, as we determined these roles were no longer directly tied to
revenue generation.
Cost of
Revenues-Impairment. Cost
of revenues-impairment consists of impairment charges on
definite-lived intangible assets which are directly related to
websites or technology that generate revenue for us. We make
judgments about the recoverability of purchased intangible assets
with definite lives whenever events or changes in circumstances
indicate that an impairment may exist. Recoverability of purchased
intangible assets with definite lives is measured by comparing the
carrying amount of the asset to the future undiscounted cash flows
the asset is expected to generate. In the third quarter of 2018, we
decided to terminate the platform support provision of an existing
perpetual license used to support our websites, significantly
impacting the usability of the asset. As a result, in the quarter
ended September 30, 2018, we recorded charges of approximately $9.0
million in connection with the impairment of this long-lived asset
to cost of revenues-impairment. We did not have a comparable charge
in the same period for 2019.
Sales and Marketing.
Sales and marketing expense
include costs for developing our brand equity, personnel costs, and
other costs associated with automotive retail
(“Dealer”) sales, website advertising, Dealer
support, and bad debt expense. Sales and marketing expense in the
third quarter of 2019 decreased $0.7 million, or 21%, compared to
the third quarter of 2018 due primarily to a decrease in
compensation and related benefits and the elimination of certain
discretionary compensation that will not be incurred in 2019.
Further contributing to this decrease was severance expense
incurred during the 2018 period.
Technology Support.
Technology support expense includes
compensation, benefits, software licenses and other direct costs
incurred by us to enhance, manage, maintain, support, monitor and
operate our websites and related technologies, and to operate our
internal technology infrastructure. Technology support expense in
the third quarter of 2019 decreased by $2.5 million, or 58%,
compared to the third quarter of 2018 due primarily to lower
headcount related costs coupled with the elimination of certain
discretionary compensation that will not be incurred in
2019.
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 third quarter of 2019
decreased by $1.5 million, or 42%, from the third quarter of 2018
due primarily to consulting and recruiting costs coupled with
compensation and benefit related expenses and the elimination of
certain discretionary compensation that will not be incurred in
2019.
Depreciation and
Amortization. Depreciation and amortization expense in the third
quarter of 2019 did not materially change when compared to the
third quarter of 2018.
Long-Lived Asset
Impairment. We record
impairment losses on long-lived assets when events and
circumstances indicate that the assets might be impaired. Events
that may indicate that the assets might be impaired include, but
are not limited to, a significant downturn in the economy, a loss
of a major customer or group of customers or a significant decrease
in the market value of an asset. During the third quarter of 2018,
we recorded an impairment of approximately $0.4 million related to
the impairment of asset advances to SaleMove which were determined
to be non-recoverable at September 30, 2018. In addition,
approximately $1.6 million was recorded as an impairment on
customer relationships acquired in a 2015 acquisition after an
analysis showed that a significant percentage of the acquired
customers were no longer part of the dealer base. We did not have a
comparable charge in the same period for 2019.
Interest and Other Income
(Expense), Net. Interest and other income was approximately
$117,000 for the third quarter of 2019 compared to interest and
other expense of approximately $24,000 in the third quarter of
2018. The increase in interest income was primarily due
to a $0.3 million Repurchase Agreement we entered into with GoMoto
on July 30, 2019. Interest expense increased approximately $0.2
million in the third quarter of 2019 when compared to the third
quarter of 2018, primarily due to the Credit Agreement we entered
into on April 30, 2019. During the third quarter of 2019, we
borrowed $29.8 million on the revolving loan and had principal
repayments totaling $28.8 million. Interest expense includes
interest on outstanding borrowings and the amortization of debt
issuance costs. Refer to Note 9, “Credit Facility” of
our notes to unaudited condensed consolidated financial statements
included elsewhere in this report for further
information.
Income Taxes.
We did not record income tax expense
in the third quarter of 2019 or 2018, respectively. Income tax
expense for the third quarter of 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.
The following table sets forth certain statement
of operations data for the nine-month periods ended September 30,2019 and 2018 (certain balances
and calculations have been rounded for
presentation):
Lead
Generation. Lead
generation revenues decreased $1.3 million, or 2%, in the first
nine months of 2019 compared to the first nine months of 2018
primarily as a result of a $4.4 million decrease in retail lead
generation revenues offset by a $3.1 million increase in revenues
from automotive manufacturers.
Digital Advertising.
Digital advertising revenues decreased
$4.4 million, or 20%, in the first nine months of 2019 compared to
the first nine months of 2018 due to a $3.6 million decline in
click revenues associated with decreased click revenue volume and
pricing coupled with a decrease of $0.8 million associated with
display advertising traffic on our websites.
Other
Revenues. Other
revenues decreased to $67,000 in the first nine months of 2019 from
$0.4 million in the first nine months of 2018 primarily due to
lower customer utilization of the mobile product and SaleMove
product.
Cost of
Revenues. Cost of
revenues decreased $4.5 million, or 6%, in the first nine months of
2019 compared to the first nine months of 2018 primarily due to a
$2.6 million decrease in purchase requests and other traffic
acquisition costs, a $1.4 million decrease in click publisher costs
and other various cost of sales, and a $1.4 million decrease in
amortization expense from intangibles and software development.
Further contributing to the decrease was a $1.2 million decrease in
costs related to headcount. These costs were shifted to operational
roles at the beginning of 2019, as we determined these roles were
no longer directly tied to revenue generation. Partially offsetting
the decreases was a $2.1 million increase in SEM
costs.
Cost of
Revenues-Impairment. Cost of
revenues-impairment expense of $9.0 million incurred in the nine
months ended September 30, 2018 is due to our decision to terminate
the platform support provision of an existing perpetual license
used to support our websites, significantly impacting the usability
of the asset and resulting in an impairment charge to the related
intangible asset. We did not have a comparable charge in the same
period for 2019.
Sales and
Marketing. Sales and
marketing expense in the first nine months of 2019 decreased $1.6
million, or 16%, compared to the first nine months 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 contributing to
this decrease was the elimination of certain discretionary
compensation that will not be incurred in 2019, coupled with
severance related costs which were incurred in the 2018
period.
Technology Support.
Technology support expense in the
first nine months of 2019 decreased by $3.9 million, or 36%,
compared to the first nine months of 2018 due primarily to lower
headcount related costs, coupled with the elimination of certain
discretionary compensation that will not be incurred in
2019.
General and
Administrative. General and
administrative expense in the first nine months of 2019 decreased
approximately $1.6 million, or 13%, from the first nine months of
2018 due primarily to severance costs in the prior year period,
related to the termination of our former chief executive officer.
Further contributing to the decrease was compensation and benefit
related expenses coupled with the elimination of certain
discretionary compensation that will not be incurred in 2019.
Offsetting this increase was recruiting costs during the current
year period.
Depreciation and
Amortization. Depreciation and amortization expense in the first
nine months of 2019 increased $0.1 million to $3.6 million compared
to $3.5 million in the first nine months of 2018. The increase
in depreciation and amortization expense was primarily due to
capitalized software projects being placed into service during the
current year period.
Goodwill Impairment.
We evaluated enterprise goodwill for
impairment in the first nine months of 2018 due to our decreased
stock price. 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 nine months ended September 30,2018. We did not have a comparable charge in the same period for
2019.
Long-lived Asset
Impairment. We record
impairment losses on long-lived assets when events and
circumstances indicate that the assets might be impaired. Events
that may indicate that the assets might be impaired include, but
are not limited to, a significant downturn in the economy, a loss
of a major customer or group of customers or a significant decrease
in the market value of an asset. During the third quarter of 2018,
we recorded an impairment of approximately $0.4 million related to
the impairment of asset advances to SaleMove which were determined
to be non-recoverable at September 30, 2018. In addition,
approximately $1.6 million was recorded as an impairment on
customer relationships acquired in a 2015 acquisition after an
analysis showed that a significant percentage of the acquired
customers were no longer part of the dealer base. We did not have a
comparable charge in the same period for 2019.
Interest and Other Income,
Net. Interest and
other income was $0.2 million for the first nine months of 2019 and
2018, respectively. Interest expense was $0.3 million in the first
nine months of 2019 compared to $0.1 million during the same time
period in 2018.
Income Taxes.
Income tax expense was approximately
$5,000 in the first nine months of 2019 compared to approximately
$4,000 in the first nine months of 2018. Income tax
expense for the first nine months of 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 nine
months ended September 30, 2019 and 2018:
Net
cash provided by (used in) financing activities
444
(7,723)
Our
principal sources of liquidity are our cash and cash equivalent
balances and borrowings under the Credit Agreement. Our
cash and cash equivalents and restricted cash totaled $6.1 million
as of September 30, 2019, compared to $13.6 million as of
December 31, 2018. As of September 30, 2019, we had a net loss
of $12.1 million. The net loss is primarily attributable to
operating expenses of $29.3 million during the nine months ended
September 30, 2019. We used net cash in operations of $6.8 million
for the nine months ended September 30, 2019. As of September 30,2019, we had an accumulated deficit of $339.8 million and
stockholders' equity of $23.6 million.
We have developed a strategic plan focused on
improving operating performance in the future that includes
modernizing and upgrading our technology and systems, pursuing
business objectives and responding to business opportunities,
developing new or improving existing products and services and
enhancing operating infrastructure. The plan's objective is
for the Company to generate sustainable profitability throughout
2020. However, there is no assurance
that we will be able to achieve this objective. Also, we entered
into the Credit Agreement discussed above that is expected to be
used to continue to partially fund operations. However, if we
continue to experience losses, fail to comply with any of the
financial covenants in the Credit Agreement and cannot raise
sufficient equity capital to cure any such default, we will be
unable to borrow funds under this credit
facility.
We
believe that current cash reserves and operating cash flows will be
enough to sustain operations through at least the third quarter of
2020. If our plans are unsuccessful, we may need to seek to satisfy
our future cash needs through private or public sales of
securities, debt financings or partnering/licensing transactions.
However, there is no assurance that we will be successful in
satisfying its future cash needs such that the Company will be able
to continue operations.
Our
future capital requirements will depend on many factors, including
but not limited to, those discussed in this Item 2 and 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. 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.
For
information concerning our Credit Agreement, see Note 9, Notes to
Unaudited Condensed Consolidated Financial Statements included in
Part I, Item 1 of this Quarterly Report on Form 10-Q.
Net Cash Used in Operating
Activities 2019.
Net cash used in operating activities in the nine months ended
September 30, 2019 of $6.8 million resulted primarily from net loss
of $12.1 million, offset by depreciation and amortization of $5.3
million, stock compensation expense of $1.8 million and other
non-cash charges of $0.3 million, partially offset by a $1.8
million net increase in net working capital and a $0.3 million gain
on the sale of an investment.
Net Cash Used in Operating
Activities 2018.
Net cash used in operating activities totaled $0.7 million for the
nine months ended September 30, 2018. This decrease in cash
provided by operating activities was driven by a decrease in gross
profit, an increase in compensation charges incurred as a result of
organizational headcount changes, and increased payments on
technology enhancements, partially offset by a decrease in interest
paid and an increase in liabilities accrued which will not be paid
until 2019.
Net Cash Used in Investing
Activities 2019. Net
cash used in investing activities was approximately $1.1 million in
the nine months ended September 30, 2019 which primarily
related to purchases of property and equipment and expenditures
related to capitalized internal use software offset by a gain on
the sale of an investment.
Net Cash Used in Investing
Activities 2018. Net
cash used in investing activities was $0.7 million in the nine
months ended September 30, 2018, which primarily related to
purchases of property and equipment and expenditures related to
capitalized internal use software of $0.8 million, offset by $0.1
million in proceeds from the sale of the SaleMove
investment.
Net Cash Provided by Financing
Activities 2019. Net
cash provided by financing activities of $0.4 million in the nine
months ended September 30, 2019, primarily related to net
borrowings of $1.0 million ($46.7 million of total borrowings less
$45.7 of total repayments within the period) on our credit
facility, coupled with $0.4 million proceeds from the exercise of
stock options, offset by a $1.0 million repayment of the AutoUSA
Note.
Net Cash Used in Financing
Activities 2018. Net cash used
in financing activities of $7.7 million in the nine months ended
September 30, 2018, primarily related to payments of $8.0 million
to pay down the revolving credit facility in March 2018, offset by
proceeds from the issuance of common stock and the exercise of
stock options.
Off-Balance Sheet Arrangements
At
September 30, 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 September 30,2019, 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
During
the quarter ended September 30, 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.
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.
If we are unable to generate positive
cash flows, we will not be able to continue operations unless we
are able to obtain additional cash through private or public
sales of securities, debt financings or partnering/licensing
transactions.
As of
September 30, 2019, we had cash and cash equivalents of $1.1
million and restricted cash of $5 million. For the nine months then
ended, we had a net loss of $12.1 million and used $6.8 million net
cash in operations. As of September 30, 2019, we had an accumulated
deficit of $339.8 million and stockholders’ equity of $23.6
million. Although we have developed a strategic plan with the
objective to generate sustainable profitability throughout 2020, if
our plans are unsuccessful, we will need to seek to satisfy our
future cash needs through private or public sales of securities,
debt financings or partnering/licensing transactions. However,
there is no assurance that we will be successful in satisfying our
future cash needs such that we will be able to continue
operations.
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.
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 will 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.
Tax Benefit Preservation Plan dated as of May26, 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 April14, 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)
First Amendment to 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 October 29, 2019,
incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K filed with the
SEC on October 30, 2019 (SEC File No.
001-34761)
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.
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.
