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    AUTO   US05335B1008

AUTOWEB, INC.

(AUTO)
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AUTOWEB, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/04/2021 | 03:27pm EST

Cautionary Note Concerning Forward-Looking Statements




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,"
"believes," "could," "estimates," "expects," "intends," "may," "plans,"
"projects," "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 2020
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 2020 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 or Presentation, of the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.




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 Item 7 "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in the 2020 Form 10-K. There
have been no changes to our critical accounting policies since we filed our 2020
Form 10-K.



Overview



Total revenues in the first nine months of 2021 were $53.8 million compared to
$59.3 million in the first nine months of 2020. The decline in total revenues
was primarily related to the impact of the coronavirus pandemic on vehicle parts
production and sales and overall demand from our customers for our leads and
clicks products.  As a part of our strategic decisions and as we have adapted to
the market conditions within the automotive industry, we shifted focus to our
core Leads, clicks and email products and services and away from non-core
products and services, such as third-party party product offerings. This shift
further negatively impacted total revenues. Generally lower retail Leads sales
levels resulting from attrition in our retail dealer network that occurred in
part of 2020 was an additional factor that contributed to lower total revenues
during the nine months ended September 30, 2021.  Offsetting some of the revenue
declines was the addition of the used vehicle sales component of our revenue
mix, which was added with the CarZeus Purchase Transaction effective as of
August 1, 2021.



                                      -18-
--------------------------------------------------------------------------------




As a result of the continued impact of the coronavirus pandemic disrupting the
supply chain for new vehicle inventory and sales, we have continued to
intentionally operate at lower levels of media spend to match projected industry
selling rates. Dealers and consumers alike are still contending with broader
macroeconomic uncertainty, and with this in mind, our objective is to provide
the right mix of high-quality Leads and click traffic to our customers by
staying aligned with automotive supply and demand dynamics.



Finally, the disruption from the January 2020 malware attack on the Company's
systems also negatively impacted total revenues in 2020. In March 2021, we
received an approximate $0.3 million insurance reimbursement related to the
January 2020 malware attack, which is partially included in other income during
the nine months ended September 30, 2021.



As we continue to work with our traffic suppliers to optimize our search engine
marking ("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 experience of that product. With
a more efficient traffic acquisition model emerging, our plan for 2021 and
beyond is to grow audience, improve conversion, improve Leads and clicks
delivery rates, expand distribution, and increase retail Dealer Leads and clicks
budget capacity. We believe that this focus, along with plans to develop or
integrate new, innovative products and re-platforming existing experiences will
create a more efficient process for how active vehicle shoppers with a vehicle
in mind can be matched with sellers that can meet the shoppers' needs, will
create opportunities for improved quality of delivery and strengthen our
position for revenue growth.



Our lead and click generation products have historically operated with limited
visibility regarding future performance due to short sales cycles and a high
rate of customer churn as customers are able to join and leave our platform with
limited notice.  Our advertising business is also subject to seasonal trends,
with the first quarter of the calendar year typically showing sequential decline
versus the fourth quarter. These factors have historically contributed to
volatility in our revenues, cost of revenues, gross profit, and gross profit
margin. We anticipate these trends will continue through the remainder of 2021
and beyond.



To maximize our growth potential as a more involved matchmaker, we believe that
we must continue to optimize our platform and products to facilitate more
comprehensive matches between vehicle shoppers and vehicle sellers who can meet
these shoppers' needs. These investments began with improvements to shop.car.com
and continued through the third quarter of 2021, spanning similar improvements
to our additional properties, as well as our strategic relationship with
CreditIQ and the CarZeus Purchase Transaction. We have also made progress with
layering additional retail-ready components into our platform. At the beginning
of June, we announced our new strategic relationship with CreditIQ, an
automotive retailing-focused software and service company that enables dealers
to provide seamless digital retail experiences to consumers. This relationship
allows shoppers using our search funnel to calculate car payments on a vehicle
of interest, which streamlines the car buying process for both buyers and
sellers. Features like these not only enhance our platform's user experience,
but also enable us to create more tailored profiles of the buyers using our
sites to understand what kind of shopping experience they're seeking.



We plan to expand both this base and the offerings of our platform even further
as a result of the CarZeus Purchase Transaction, which we believe positions us
to participate more meaningfully in the used vehicle acquisition and sales
market by providing us the opportunity to purchase used vehicles directly from
consumers and resell them primarily through wholesale auctions, forming a
complementary product line extension to our existing consumer offerings. We
believe this acquisition will also allow us to increase our total addressable
market by expanding our presence in the used vehicle market, while giving us the
opportunity to enhance the offerings and usefulness of our underutilized sites
and monetize our traffic more effectively. We plan to use our traffic
acquisition capabilities and operational efficiency to drive growth, improve
financial performance and build scalable operating processes to enhance
performance within the San Antonio, Texas market. With this foundation in place,
we plan to prepare the business for broader geographic coverage in the
long-term.



                                      -19-
--------------------------------------------------------------------------------




Although we are not able to provide any specific guidance regarding our full
year 2021 future business, results of operations, financial condition, earnings
per share, cash flow or the trading price of our stock (individually and
collectively referred to as the Company's "financial performance") with detail
or accuracy, many industry analysts have forecast modest improvement in the new
vehicle unit sales seasonally adjusted annual rate from 14.5 million units in
2020 to a range of 15.0-15.5 million units in 2021, or 3-7% growth.  Industry
reports indicate that during the first half of 2021, franchise dealer unit
volume grew 29%, but inventory shortages have reduced growth to the lower end of
the range, and new vehicle sales have dropped below 2020 levels in the 3rd
quarter of 2021. New vehicle sales levels are expected to continue to be
challenged until inventory supplies normalize. We are not able at this time to
provide any specific guidance related to the impact on our full year 2021
financial performance as a result of the CarZeus Purchase Transaction.



We anticipate that our remaining 2021 financial performance may be adversely
impacted when compared to 2020 by (i) the continuing impact of the coronavirus
pandemic on vehicle sales and on demand for our products and services; (ii)
increased competitive pressure on cost of audience acquisition that may limit
how much volume we will be able to profitably source and distribute to our
customers; (iii) the costs and revenue impact associated with our efforts to
optimize our clicks product; (iv) the decision to shift our focus to our core
leads, clicks and email products and services and away from non-core product and
services provided by other partners; and (v) the increased competition for and
price of used vehicles that we would target for acquisition and resale.



In early 2020 and continuing as of the date of this Quarterly Report on Form
10-Q, the outbreak of coronavirus has led to quarantines and
stay-at-home/work-from-home orders in a number of countries, states, cities and
regions and the closure or limited access to public and private offices,
businesses and facilities, worldwide, causing widespread disruptions to travel,
economic activity and financial markets. The continuing effect of the
coronavirus pandemic has led our Manufacturer and Dealer customers to experience
disruptions in the (i) supply of vehicle and parts inventories, (ii) ability and
willingness of consumers to visit automotive dealerships to purchase or lease
vehicles, and (iii) overall health, safety and availability of their labor
force. Manufacturers have also shut down assembly plants, adversely impacting
inventories of new vehicles. Volatility in the financial markets, concerns about
exposure to the virus, governmental quarantines, stay-at-home/work-from-home
orders, business closures and employment furloughs and layoffs have also
impacted consumer confidence and willingness to visit dealerships and to
purchase or lease vehicles. High unemployment rates and lower consumer
confidence may continue even after stay-at-home/work-from-home orders and
business closures have ended. These disruptions have impacted the willingness or
desire of our customers to acquire vehicle Leads or other digital marketing
services from us. We are also experiencing direct disruptions in our operations
due to the overall health and safety of, and concerns for, our labor force and
as a result of governmental "social distancing" programs, quarantines, travel
restrictions and stay-at-home/work-from-home orders, leading to office closures,
operating from employee homes and restrictions on our employees traveling to our
various offices.



In addition to the continued impact of the coronavirus pandemic on supply chains
and vehicle inventories and sales, Manufacturers have also experienced
significant disruption in the supply of semiconductor chips required for new
vehicles due to a worldwide shortage of these chips. As a result, the ability of
Manufacturers to maintain regular production output of certain vehicles, and the
corresponding reduction in available new vehicle inventories, have adversely
impacted vehicle sales. Further disrupting the automotive industry and the
number of vehicles available for sale or lease are disruptions in the supply of
other components used in vehicle manufacturing, such as seat foam and rubber,
which is a key material used in tires as well as other components of new
vehicles.



We are unable to predict the continuing extent, duration and impact of the
supply chain disruptions on the automotive industry in general, and on our
business and operations specifically. The spread of coronavirus variants and
governmental responses thereto may prolong or increase the negative impacts of
the pandemic. Vehicle sales have declined, and we continue to experience
cancellations or suspensions of purchases of Leads and other digital marketing
services by our customers, which could materially and adversely affect our
financial performance. In light of the continuing impact of the pandemic and
supply chain disruptions, we have continued taking steps to reduce our overall
lead and click generation efforts and corresponding costs to better align our
volumes with industry demand and consumer intent and ability to purchase or
lease vehicles. We will continue to evaluate these and other cost reduction
measures, and explore all options available to us, in order to minimize the
impact of these events on us.





                                      -20-
--------------------------------------------------------------------------------



Results of Operations


Three Months Ended September 30, 2021 Compared to the Three Months Ended June 30, 2021




The following table sets forth certain statement of operations data for the
three-month periods ended September 30, 2021, and June 30, 2021 (certain
balances and calculations have been rounded for presentation). In accordance
with Regulation S-K Item 303(c), as amended, we are providing a comparison of
our September 30, 2021, period against the preceding quarter. We believe
providing a sequential results-of-operations is more useful for investors and
stakeholders, as it provides more clarity into our current year financial
performance. For additional information related to the three months ended June
30, 2021, please refer to our Quarterly Report on Form 10-Q for the quarter
ended June 30, 2021, filed with the Securities and Exchange Commission on August
5, 2021.



                                            % of                                % of
                         September         Total                               Total
                          30, 2021        Revenues        June 30, 2021       Revenues        Change        % Change
                                                        (Dollar amounts in thousands)
Revenues:
Lead generation         $     12,030             70 %    $        15,225             81 %    $  (3,195 )           21 %
Digital advertising            3,525             21                3,511             19             14              -
Used vehicle sales             1,604              9                    -              -          1,604            100
Total revenues                17,159            100               18,736            100         (1,577 )           (8 )
Cost of revenues:
Cost of revenues -
lead generation and
digital advertising           11,280             66               12,179             65           (899 )           (7 )
Cost of revenues -
used vehicles                  1,446              8                    -              -          1,446            100
Total cost of
revenues                      12,726             74               12,179             65            547              4
Gross profit                   4,433             26                6,557             35         (2,124 )          (32 )
Operating expenses:
Sales and marketing            2,465             14                2,103             11            362             17
Technology support             1,395              8                1,271              7            124             10
General and
administrative                 3,260             19                3,089             17            171              6
Depreciation and
amortization                     179              1                  196              1            (17 )           (9 )
Total operating
expenses                       7,299             42                6,659             36            640             10
Operating loss                (2,866 )          (16 )               (102 )           (1 )       (2,764 )        2,710
Interest and other
income (expense), net           (190 )           (1 )               (202 )           (1 )           11             38
Loss before income
tax provision                 (3,056 )          (17 )               (304 )           (2 )       (2,753 )          906
Income tax provision               -              -                    -              -              -              -
Net loss                $     (3,056 )          (17 )%   $          (304 )           (2 )%   $  (2,753 )          906 %




Lead generation. Lead generation revenues decreased $3.2 million, or 21%, in the
third quarter of 2021 compared to the second quarter of 2021, primarily as a
result of a decrease in the volume of automotive leads delivered to
manufacturers and wholesale customers. Further contributing to this decrease was
a one-time lump sum payment for the early termination of the new vehicle leads
program by one of our manufacturing customers which approximated $0.5 million in
the second quarter of 2021.


Digital advertising. Advertising revenues did not materially change when compared to the second quarter of 2021.

                                      -21-
--------------------------------------------------------------------------------




Used vehicle sales. Used vehicle sales was $1.6 million in the third quarter of
2021, as a result of the commencement of operations for our used vehicle
acquisition and reselling business subsequent to the CarZeus Purchase
Transaction on July 31, 2021. The third quarter of 2021 was the initial quarter
with used vehicle sales for us.



Cost of Revenues - lead generation and digital advertising. 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 third-party 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 the Company
Websites. Cost of revenues decreased $0.9 million, or 7%, in the third quarter
of 2021 compared to the second quarter of 2021 primarily due to decreased SEM,
purchase request and traffic acquisition costs and a decrease in click publisher
costs.



Cost of revenues - used vehicles. Used vehicle cost of revenues was $1.4 million
in the third quarter of 2021, as a result of the CarZeus Purchase Transaction on
July 31, 2021.



Gross profit. Gross profit decreased $2.1 million, or 32%, in the third quarter
of 2021 compared to the second quarter of 2021. This was a direct result of a
reduction in sequential lead traffic and lead volume. Further contributing to
this decrease was a one-time lump sum payment for the early termination of the
new vehicle leads program by one of our manufacturing customers which
approximated $0.5 million in the second quarter of 2021.



Sales and Marketing.  Sales and marketing expense include 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 third quarter of 2021 increased $0.4 million, or 17%, compared to
the second quarter of 2021 due primarily to an increase in headcount related to
the CarZeus Purchase Transaction coupled with an increase in marketing expenses.



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 2021 increased by $0.1 million, or 10%, compared
to the second quarter of 2021 due primarily to an increase in consulting related
expenses.



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 2021
increased by $0.2 million, or 6%, from the second quarter of 2021 due primarily
to an increase in certain discretionary compensation.



Depreciation and Amortization. Depreciation and amortization expense in the third quarter of 2021 did not materially change when compared to the second quarter of 2021.




Interest and Other Income (Expense), Net. Interest and other income (expense) in
the third quarter of 2021 did not materially change when compared to the second
quarter of 2021.



Income Taxes. Income tax expense was zero in the third quarter of 2021 as well
as the second quarter of 2021. Our income tax rate for the second quarter of
2021 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.



                                      -22-
--------------------------------------------------------------------------------

Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020

The following table sets forth certain statement of operations data for the nine-month periods ended September 30, 2021, and 2020 (certain balances and calculations have been rounded for presentation):



                                         % of                          % of
                                        Total                         Total
                          2021         Revenues         2020         Revenues        Change        % Change
                                                   (Dollar amounts in thousands)
Revenues:
Lead generation         $  41,444             77 %    $  47,496             80      $  (6,052 )          (13 )%
Digital advertising        10,727             20         11,822             20         (1,095 )           (9 )
Used vehicle sales          1,604              3              -              -          1,604            100
Total revenues             53,775            100         59,318            100         (5,543 )           (9 )
Cost of revenues:
Cost of revenues -
lead generation and
digital advertising        35,530             66         41,498             70         (5,968 )          (14 )
Cost of revenues -
used vehicles               1,446              3              -              -          1,446            100
Total cost of
revenues                   36,976             69         41,498             70         (4,522 )          (11 )
Gross profit               16,799             31         17,820             30         (1,021 )           (6 )
Operating expenses:
Sales and marketing         6,768             13          6,062             10            706             12
Technology support          4,034              8          5,094              9         (1,060 )          (21 )
General and
administrative              9,479             18          9,954             17           (475 )           (5 )
Depreciation and
amortization                  579              1          1,506              3           (927 )          (62 )
Total operating
expenses                   20,860             40         22,616             39         (1,756 )           (8 )
Operating loss             (4,061 )           (9 )       (4,796 )           (9 )          735            (15 )
Interest and other
income (expense), net       1,011              2         (1,087 )           (2 )        2,098            822
Loss before income
tax provision              (3,050 )           (7 )       (5,883 )          (11 )        2,833            (48 )
Income tax provision            -              -              -              -              -              -
Net loss                $  (3,050 )           (7 )%   $  (5,883 )          (11 )%   $   2,833            (48 )%




Lead generation. Lead generation revenues decreased $6.1 million, or 13%, in the
first nine months of 2021 compared to the first nine months of 2020 primarily as
a result of the impact of the coronavirus pandemic on vehicle sales. This
decrease is partially offset by the one-time lump sum payment for the early
termination of the new vehicle leads program by one of our manufacturing
customers which approximated $0.5 million.



Digital advertising. Advertising revenues decreased $1.1 million, or 9%, in the
first nine months of 2021 compared to the first nine months of 2020 primarily a
result of a decrease in click revenue associated with decreased click volume.
The decrease in click volume is attributed to the impact of the coronavirus
pandemic and our internal decision to reduce overall click generation efforts to
better align with industry demand.



Used vehicle sales. Used vehicle sales was $1.6 million in the third quarter of
2021, as a result of the commencement of operations for our used vehicle
acquisition and reselling business subsequent to the CarZeus Purchase
Transaction on July 31, 2021. The third quarter of 2021 was the initial quarter
with used vehicle sales for us.



                                      -23-
--------------------------------------------------------------------------------




Cost of Revenues - lead generation and digital advertising. Cost of revenues
decreased $6.0 million, or 14%, in the first nine months of 2021 compared to the
first nine months of 2020 primarily due to decreased SEM, purchase requests,
click traffic acquisition costs and other costs of revenues.



Cost of revenues - used vehicles. Used vehicle cost of revenues was $1.4 million in the first nine months of 2021, as a result of the CarZeus Purchase Transaction on July 31, 2021.




Gross profit. Gross profit decreased $1.0 million, or 6%, for the first nine
months of 2021 compared to the first nine months of 2020. This was a direct
result of the impact of the coronavirus pandemic on vehicle sales. Offsetting
this decrease was a one-time lump sum payment for the early termination of the
new vehicle leads program by one of our manufacturing customers which
approximated $0.5 million.



Sales and Marketing.  Sales and marketing expense in the first nine months of
2021 increased $0.7 million, or 12%, compared to the first nine months of 2020
due primarily to an increase in headcount related to the CarZeus Purchase
Transaction coupled with an increase in marketing expenses.



Technology Support. Technology support expense in the first nine months of 2021
decreased by $1.1 million, or 21%, compared to the first nine months of 2020 due
primarily to a reduction in consulting related expenses.



General and Administrative. General and administrative expense in the first nine
months of 2021 decreased approximately $0.5 million, or 5%, from the first nine
months of 2020 due primarily to reductions in recruitment, travel-related
expenses, rent, severance and consulting-related expenses



Depreciation and Amortization. Depreciation and amortization expense in the
first nine months of 2021 decreased $0.9 million or 62%, compared to the first
nine months of 2020. The decrease in depreciation and amortization expense was
due primarily to assets that have been fully depreciated or removed from
service.



Interest and Other Income, Net. Interest and other income (expense) was $1.0
million of income for the first nine months of 2021 compared to $1.1 million of
expense in the first nine months of 2020. In the first quarter of 2021, we
recorded $1.4 million of income associated with the forgiveness of our Paycheck
Protection Program loan. Further contributing to the increase in interest and
other income (expense) was an insurance reimbursement related to the January
2020 malware attack in which we recorded $0.2 million on our Unaudited Condensed
Consolidated Statement of Operations. Interest expense decreased to $0.8 million
in the first nine months of 2021 from $1.3 million in the first nine months of
2020, due to the prior year write-off of our deferred financing fees associated
with the revolving line of credit under the PNC Credit Facility. Interest
expense includes interest on outstanding borrowings and the amortization of debt
issuance costs.



Income Taxes. Income tax expense was zero for the first nine months of 2021 and
2020, respectively. Our income tax rate for the first nine months of 2021
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, 2021, and 2020:



                                                        Nine Months Ended
                                                          September 30,
                                                         2021         2020
                                                          (in thousands)
Net cash provided by operating activities             $      702     $ 

1,313

Net cash used in investing activities                     (1,579 )      

(396 ) Net cash (used in) provided by financing activities (50 ) 7,709





                                      -24-
--------------------------------------------------------------------------------




Our principal sources of liquidity are our cash and cash equivalent balances and
borrowings under the CNC Credit Agreement. Our cash and cash equivalents and
restricted cash totaled $14.2 million as of September 30, 2021, compared to
$15.1 million as of December 31, 2020. As of September 30, 2021, we had a net
loss of approximately $3.1 million. The net loss is primarily attributable to
operating expenses of $20.9 million during the nine months ended September 30,
2021, exceeding our gross profit of $16.8 million. We had cash provided by
operations of $0.7 million for the nine months ended September 30, 2021. As of
September 30, 2021, we had an accumulated deficit of $352.8 million and
stockholders' equity of $14.8 million. For information concerning our CNC Credit
Agreement, see Note 9 in the Notes to Unaudited Condensed Consolidated Financial
Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.



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.



Our objective is to achieve cash generation as a business; however, there is no
assurance that we will be able to achieve this objective. The CNC Credit
Agreement is expected to be used to continue to partially fund operations in
addition to enabling the purchase of vehicle inventory that is ultimately resold
by CarZeus.



We believe that current cash reserves and operating cash flows will be enough to
sustain operations for the next twelve months. If we are unsuccessful in meeting
our objective to grow our gross profit and sustain cash generation as a
business, we may need to seek to satisfy our future cash needs through private
or public sales of securities, additional debt financings or
partnering/licensing transactions; however, there is no assurance that we will
be successful in satisfying our future cash needs to continue operations.



Our future capital requirements will depend on many factors, including but not
limited to, those discussed in this Item 2, Part II, Item 1A of this Quarterly
Report on Form 10-Q and the risk factors set forth in Part I, Item 1A, "Risk
Factors" of our 2020 Form 10-K. To the extent that our existing sources of
liquidity are insufficient to fund our future operations, 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.



Net Cash Provided by Operating Activities. Net cash provided by operating
activities in the nine months ended September 30, 2021, of $0.7 million resulted
primarily from depreciation and amortization of $1.9 million, stock compensation
expense of $1.4 million, a $1.1 million net decrease in net working capital and
other non-cash charges of $0.8 million. Offsetting this was a net loss of $3.1
million, the forgiveness of the Paycheck Protection Program loan of $1.4 million



Net cash provided by operating activities in the nine months ended September 30,
2020, of $1.3 million resulted primarily from depreciation and amortization of
$3.0 million, a $2.2 million net decrease in net working capital, stock
compensation expense of $1.5 million and other non-cash charges of $0.5 million.
Partially offsetting this was a net loss of $5.9 million.



Net Cash used in Investing Activities. Net cash used in investing activities was
approximately $1.6 million in the nine months ended September 30, 2021, which
primarily related to expenditures of capitalized internal use software of $1.3
million coupled with a $0.3 million purchase of certain assets of CarZeus as
detailed in the CarZeus Purchase Transaction on July 31, 2021.



Net cash used in investing activities was approximately $0.4 million in the nine months ended September 30, 2020, which primarily related to purchases of property and equipment and expenditures related to capitalized internal use software.




Net Cash Used in Financing Activities. Net cash used in financing activities of
$0.1 million in the nine months ended September 30, 2021, primarily related to
$0.2 million of net borrowings on the credit facility offset by $0.1 million
proceeds from the exercise of stock options.



Net cash provided by financing activities of $7.7 million in the nine months
ended September 30, 2020, primarily related to net borrowings of $10.0 million
on our credit facility, a $1.4 million Paycheck Protection Program loan coupled
with $0.1 million proceeds from the exercise of stock options, offset by a $3.7
million repayment on the PNC credit facility.



                                      -25-
--------------------------------------------------------------------------------

Off-Balance Sheet Arrangements

At September 30, 2021, we had no off-balance sheet arrangements as defined in Regulation S-K, Item 303(a)(4)(D)(ii).

© Edgar Online, source Glimpses

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