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ABTL > SEC Filings for ABTL > Form 10-Q on 1-Aug-2013All Recent SEC Filings

Show all filings for AUTOBYTEL INC

Form 10-Q for AUTOBYTEL INC


1-Aug-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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," "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 risks and uncertainties, many of which are beyond our control, and actual results may differ materially from these statements. Factors that could cause actual results to differ materially from those reflected in forward-looking statements include, but are not limited to, those discussed in this Item 2 and under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2012 ("2012 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.

You should read the following discussion of our results of operations and financial condition in conjunction with our unaudited consolidated condensed 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 2012 Form 10-K.

Our corporate website is located at www.autobytel.com. Information on our website is not incorporated by reference in this Quarterly Report. 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.

Basis of Presentation

The accompanying unaudited consolidated condensed financial statements presented herein are presented on the same basis as the 2012 Form 10-K. We have made disclosures in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles 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 statements of income and comprehensive income and cash flows for the periods ended June 30, 2013 and 2012 are not necessarily indicative of the results of operations or cash flows expected for the year or any other period. The unaudited consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto in the 2012 Form 10-K.

On July 11, 2012, the Company implemented a 1-for-5 reverse split of the Company's common stock, $0.001 par value per share ("Reverse Stock Split").
Trading of the common stock on a post-Reverse Stock Split adjusted basis on The NASDAQ Capital Market began on July 12, 2012. Accordingly, each five shares of common stock were reclassified into one share of common stock. All share and per share amounts and all options and other common stock derivatives, including their exercise/conversion prices, for all periods presented have been adjusted to reflect the Reverse Stock Split as though it had occurred as of the earliest period presented. Such reclassification did not impact prior period net income or total stockholders' equity.


Index
Overview

We are an automotive marketing services company that assists automotive retail dealers ("Dealers") and automotive manufacturers ("Manufacturers") market and sell new and used vehicles to consumers through our programs for online purchase request referrals ("Leads"), Dealer marketing products and services, and online advertising programs and data products. Our consumer-facing automotive websites ("Company Websites"), including our flagship website Autobytel.com®, provide consumers with information and tools to aid them with their automotive purchase decisions and the ability to submit inquiries requesting Dealers to contact the consumers regarding purchasing or leasing vehicles ("Vehicle Leads"). For consumers who may not be able to secure loans through conventional lending sources, our Company Websites provide these consumers the ability to submit inquiries requesting Dealers or other lenders that may offer vehicle financing to these consumers to contact the consumers regarding vehicle financing ("Finance Leads"). The Company's mission for consumers is to be "Your Lifetime Automotive Advisor ®" by engaging consumers throughout the entire lifecycle of their automotive needs.

Lead quality is measured by the conversion of Leads to actual vehicle sales.
Leads are internally-generated from our Company Websites ("Internally-Generated Leads") or acquired ("Non-Internally-Generated Leads") from third parties that generate Leads from their websites ("Non-Company Websites"). We rely on detailed feedback from Manufacturer and wholesale customers to confirm the performance of our Leads. In addition, in 2011 we started using R.L. Polk & Co. to evaluate the performance quality of both our Internally-Generated Leads as well as those we acquire from our third party Lead suppliers. Our Manufacturers and wholesale customers and R.L. Polk & Co. match the Leads we deliver to our customers against vehicle sales data to provide us with closing rates for the Leads we deliver to our customers and information that allows us to compare these closing rates to the closing rates of the Leads we acquire from third party suppliers. Based on the most current Polk data, automotive Leads from consumers shopping on Autobytel.com have a conversion rate of over 24% within 90 days of Lead submission.

In addition, we report a number of key metrics to our customers, allowing them to gain a better understanding of the revenue opportunities that they may realize from acquiring Leads from us. We can now optimize the mix of Leads we deliver to our Dealers based on multiple sources of quality measurements. Also by reporting the buying behavior of potential customers, the findings also can help shape improvements to online Lead management; online advertising and dealership sales process training. By providing actionable data, we are now placing considerable intelligence in the hands of our customers, and are seeing increased budget allocations for purchasing Leads from us.

For the three and six months ended June 30, 2013, our business, results of operations and financial condition were affected, and may continue to be affected in the future, by general economic and market factors, conditions in the automotive industry, the market for Leads and the market for advertising services, including, but not limited to, the following:

· The adverse effect of high unemployment on the number of vehicle purchasers;

· Availability of, and interest rates for, financing for vehicle purchases;

· Pricing and purchase incentives for vehicles;

· Disruption in the available inventory of automobiles;

· The expectation that consumers will be purchasing fewer vehicles overall during their lifetime as a result of better quality vehicles and longer warranties;

· The impact of gasoline prices on demand for vehicles;

· Increases or decreases in the number of retail Dealers or in the number of Manufacturers and other wholesale customers in our customer base;

· Volatility in spending by Manufacturers and others in their marketing budgets and allocations; and

· The effect of changes in search engine algorithms and methodologies on our Lead generation and website advertising activities and margins.


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Results of Operations

 Three Months Ended June 30, 2013 Compared to the Three Months Ended June 30,
2012

The following table sets forth certain income statement data for the three-month
periods ended June 30, 2013 and 2012 (certain amounts may not calculate due to
rounding):

                                         % of                         % of
                                        total                        total
                          2013         revenues        2012         revenues       $ Change       % Change
                                           (Dollar amounts in thousands)
Revenues:
Lead fees               $  16,843             95 %   $  14,760             94 %   $    2,083             14 %
Advertising                   895              5           927              6            (32 )           (3 )
Other revenues                 33              -            44              -            (11 )          (25 )
Total revenues             17,771            100        15,731            100          2,040             13
Cost of revenues
(excludes
depreciation of $23
and $32 for the three
months ended June 30,
2013 and 2012,
respectively)              10,815             61         9,396             60          1,419             15
Gross profit                6,956             39         6,335             40            621             10
Operating expenses:
Sales and marketing         2,136             12         2,268             14           (132 )           (6 )
Technology support          1,767             10         1,619             10            148              9
General and
administrative              2,146             12         1,773             11            373             21
Depreciation and
amortization                  409              2           401              3              8              2
Litigation
settlements                   (67 )            -           (67 )            -              -              -
Total operating
expenses                    6,391             36         5,994             38            397              7
Operating income              565              3           341              2            224             66
Interest and other
income (expense), net         (96 )            -            (3 )            -            (93 )       (3,100 )
Income before income
tax provision                 469              3           338              2            131             39
Income tax provision           83              1           107              1            (24 )          (22 )
Net income              $     386              2 %   $     231              1 %   $      155             67 %

Leads. Lead revenue increased $2.1 million or 14% in the second quarter of 2013 compared to the second quarter of 2012 primarily due to an increase of 13% and 21% in the demand for volume of automotive Leads delivered to new and used retail Dealers and Manufacturers and other wholesale purchasers, respectively.

Advertising. Advertising revenues decreased less than $0.1 million or 3% in the second quarter of 2013 compared to the second quarter of 2012 due primarily to a decrease in data licensing revenue.

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 on-line automotive information providers. Other cost of revenues consists of search engine marketing ("SEM") and fees paid to third parties for data and content, including search engine optimization ("SEO") activity, included on our properties, connectivity costs, development costs related to our websites, compensation related expense and technology license fees, server equipment depreciation and technology amortization directly related to the Company's websites. SEM, sometimes referred to as paid search marketing, is the practice of bidding on keywords on search engines to drive traffic to a website.

Cost of revenues increased $1.4 million or 15% in the second quarter of 2013 compared to the second quarter of 2012 primarily due to a corresponding increase in lead volume, coupled with increased investment in the lead acquisition team headcount.


Index
Sales and Marketing. Sales and marketing expense includes costs for developing our brand equity, personnel costs and other costs associated with Dealer sales, website advertising, Dealer support and bad debt expense. Sales and marketing expense in the second quarter of 2013 decreased by $0.1 million or 6% compared to the second quarter of 2012 due principally to lower headcount-related costs.

Technology Support. Technology support expense includes compensation, benefits, software licenses and other direct costs incurred by the Company to enhance, manage, maintain, support, monitor and operate the Company's websites and related technologies, and to operate the Company's internal technology infrastructure. Technology support expenses in the second quarter of 2013 increased by $0.1 million or 9% compared to the second quarter of 2012 due to increased headcount-related expense.

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 second quarter of 2013 increased by $0.4 million or 21% compared to the second quarter of 2012 due to an increase in headcount-related compensation costs and professional fees.

Depreciation and amortization. Depreciation and amortization expense was essentially flat in the second quarter of 2013 compared to the second quarter of 2012.

Litigation settlements. Payments primarily from settlement of patent infringement claims against third parties relating to the third party's methods of Lead delivery for the second quarter of 2013 were $67,000 and were unchanged from the second quarter of 2012.

Income taxes. Income tax expense was $83,000 in the second quarter of 2013 compared to income tax expense of $107,000 in the second quarter of 2012. Both periods included tax expense related to various state taxes and the deferred tax liability related to tax deductible goodwill amortization.

Six Months Ended June 30, 2013 Compared to the Six Months Ended June 30, 2012

The following table sets forth certain income statement data for the six-month
periods ended June 30, 2013 and 2012 (certain amounts may not calculate due to
rounding):

                                         % of                         % of
                                        total                        total
                          2013         revenues        2012         revenues       $ Change       % Change
                                           (Dollar amounts in thousands)
Revenues:
Lead fees               $  34,360             95 %   $  30,554             94 %   $    3,806             12 %
Advertising                 1,611              5         1,786              6           (175 )          (10 )
Other revenues                 61              -            96              -            (35 )          (36 )
Total revenues             36,032            100        32,436            100          3,596             11
Cost of revenues
(excludes
depreciation of $51
and $64 for the six
months ended June 30,
2013 and 2012,
respectively)              22,485             62        19,265             59          3,220             17
Gross profit               13,547             38        13,171             41            376              3
Operating expenses:
Sales and marketing         4,376             12         4,613             14           (237 )           (5 )
Technology support          3,473             10         3,447             11             26              1
General and
administrative              4,435             12         3,788             12            647             17
Depreciation and
amortization                  833              2           803              2             30              4
Litigation
settlements                  (138 )            -          (137 )            -             (1 )           (1 )
Total operating
expenses                   12,979             36        12,514             39            465              4
Operating income              568              2           657              2            (89 )          (14 )
Interest and other
income (expense), net         307              -            (4 )            -            311          7,775
Income before income
tax provision                 875              2           653              2            222             34
Income tax provision          154              -           169              1            (15 )           (9 )
Net income              $     721              2 %   $     484              1 %   $      237             49 %


Index
Leads. Lead revenue increased $3.8 million or 12% in the first six months of 2013 compared to the first six months of 2012 primarily due to an increase of 15% and 16% in the demand for volume of automotive Leads delivered to new and used retail Dealers and Manufacturers and other wholesale purchasers, respectively.

Advertising. Advertising revenues decreased $0.2 million or 10% in the first six months of 2013 compared to the first six months of 2012 due primarily to lower display advertising coupled with lower data licensing revenue.

Cost of Revenues. Cost of revenues increased $3.2 million or 17% in the first six months of 2013 compared to the first six months of 2012 primarily due to a corresponding increase in lead volume coupled with increased investment in the lead acquisition headcount.

Sales and Marketing. Sales and marketing expense in the first six months of 2013 decreased $0.2 million or 5% compared to the first six months of 2012 due to lower headcount-related costs.

Technology Support. Technology support expense in the first six months of 2013 increased slightly compared to the first six months of 2012 due to increased professional fees.

General and Administrative. General and administrative expense in the first six months of 2013 was $4.4 million, an increase of $0.6 million from the first six months of 2012 due to an increase in headcount related costs, professional fees and one-time personnel relocation expenses.

Depreciation and amortization. Depreciation and amortization expense increased $30,000 or 4% in the first six months of 2013 compared to the first six months of 2012, primarily due to computer equipment purchases.

Litigation settlements. Patent Infringement settlements for the first six months of 2013 were $138,000 compared to $137,000 in the first six months of 2012. Payments primarily from settlement of patent infringement claims against third parties relating to the third party's methods of Lead delivery.

Income taxes. Income tax expense was $154,000 in the first six months of 2013 compared to income tax expense of $169,000 in the first six months of 2012. Both periods tax expense relates to other state taxes and the deferred tax liability related to tax deductible goodwill amortization. The prior period included the New York state income tax audit assessment for the period January 1, 2006 through December 31, 2008.

Liquidity and Capital Resources

The table below sets forth a summary of our cash flows for the six months ended
June 30, 2013 and 2012:

                                                          Six Months Ended June 30,
                                                          2013                2012
                                                                (in thousands)
Net cash provided by operating activities              $       918       $        2,910
Net cash (used in) provided by investing activities           (404 )               (105 )
Net cash (used in) provided by financing activities              5               (1,605 )

Our principal sources of liquidity are our cash and cash equivalents balances and positive operating cash flow. Our cash and cash equivalents totaled $15.8 million as of June 30, 2013 compared to cash and cash equivalents of $15.3 million as of December 31, 2012.

On February 13, 2012, we announced that the Board of Directors had approved a stock repurchase program that authorized the repurchase of up to $1.5 million of Company common stock. The Board of Directors authorized us to repurchase an additional $2.0 million of Company common stock on June 7, 2012. Under these repurchase programs, we may repurchase common stock from time to time on the open market or in private transactions. This authorization does not require us to purchase a specific number of shares, and the Board of Directors may suspend, modify or terminate the programs at any time. We will fund repurchases through the use of available cash. We began repurchasing Company common stock on March 7, 2012. During the three and six months ended June 30, 2012, 333,823 and 379,811 shares were repurchased for an aggregate price of $1.2 million and $1.5 million, respectively. The average price paid for all shares repurchased during the three and six months ended June 30, 2012 was $3.69 and $3.83, respectively.
No shares were repurchased during the three and six months ended June 30, 2013. The shares repurchased in the three and six months ended June 30, 2012 were cancelled by the Company and returned to authorized and unissued shares.


Index
Credit Facility. We entered into an $8.0 million revolving credit facility ("Facility") in February 2013 with Union Bank, N.A. The Facility may be used as a source to finance capital expenditures, acquisitions, stockholder buyback, and other general corporate purposes. Borrowings under the Facility will bear interest at either the bank's Reference Rate (prime rate) minus 0.50% or the London Interbank Offering Rate (LIBOR) plus 1.50%, at the option of the Company.
We will also pay a commitment fee on the unused Facility of 0.10% payable quarterly in arrears. The Facility has not been drawn against as of June 30, 2013. The Facility contains certain customary representations and warranties, affirmative and negative covenants and restrictive and financial covenants, including that the Company maintain a minimum consolidated net liquidity, profitability, EBITDA and tangible net worth, with which the Company was in compliance with as of June 30, 2013. Borrowings under the Facility are secured by a first priority security interest on our accounts receivable and proceeds thereof. The Facility matures in February 2015.

Net Cash Provided by Operating Activities. Net cash provided by operating activities in the six months ended June 30, 2013 of $0.9 million resulted primarily from net income of $0.7 million, as adjusted for non-cash charges to earnings. In addition accounts payable increased $2.9 million offset by cash used to reduce accrued liabilities of $2.2 million, inclusive of the payment related to annual incentive compensation amounts accrued in 2012 and paid in the first three months of 2013, and a $1.9 million increase in our accounts receivable balance, related to increased sales and the timing of payments received from our customers. Net cash provided by operating activities in the six months ended June 30, 2012 of $2.9 million resulted primarily from net income of $0.5 million, as adjusted for non-cash charges to earnings, in addition to cash used to reduce accrued liabilities of $0.9 million primarily related to the payment of annual incentive compensation amounts and severance accrued in 2011 and paid in the first six months of 2012 offset by a $1.5 million increase in our accounts payable balance.

Net Cash (Used in) Investing Activities. Net cash used in investing activities was $0.4 million in the six months ended June 30, 2013 related to purchases of property and equipment. Net cash used by investing activities was $0.1 million in the six months ended June 30, 2012 and is net of purchases of property and equipment, offset by a decrease in a certificate of deposit used to secure the processing of certain SEM activity offset by purchase of property and equipment.

Net Cash Provided by (Used in) Financing Activities. Stock options for 21,738 and 6,744 shares of stock were exercised in the six months ended June 30, 2013 and 2012, respectively, which resulted in $61,000 and $15,000 cash inflow for the six months ended June 30, 2013 and 2012, respectively. Net cash provided in financing activities in the six months ended June 30, 2013 was offset by contingent payments of $56,000 related to the Cyber acquisition. Net cash used in financing activities in the six months ended June 30, 2012 consisted of contingent payments of $167,000 related to the Cyber acquisition and $1.5 million used to repurchase 379,811 shares of our common stock. Our future cash flows from employee stock options, if any, will depend on the future timing, exercise price and amount of stock option exercises.

Off-Balance Sheet Arrangements

At June 30, 2013, we had no off-balance sheet arrangements as defined in Regulation S-K, Item 303(a)(4)(D)(ii).

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