AutoWeb exploring strategic options after disclosing doubt about 'going concern'

Dealership marketing company AutoWeb says its board will explore strategic alternatives for the company, including a potential sale or restructuring, as "substantial doubt" exists about its ability to continue as a going concern.

The Tampa, Fla.-based company said Monday that a special board committee will evaluate strategic alternatives, including obtaining new debt or equity funding; selling the company or assets; and restructuring, including through federal bankruptcy protection.

AutoWeb said in a statement that its current cash and liquidity situation led management to determine "that it has substantial doubt about the company's ability to continue as a going concern for a period of one year" after its first-quarter financial statements were issued.

"The company's ability to continue as a going concern is contingent upon the successful execution of strategic alternatives and management's near-term operating plans," according to the release. "There can be no assurance that the company will be successful in achieving any strategic alternative or management's near-term operating plans."

No timeline or decisions have been made on strategic alternatives, the company said.

CEO Jared Rowe said in a statement that AutoWeb is suspending its CarZeus used-vehicle acquisition business and furloughing employees within that business, citing the company's financial constraints. AutoWeb acquired assets of the CarZeus business, which buys vehicles from consumers and then resells them in the wholesale market, in July 2021.

On a first-quarter earnings call Monday, Rowe cited macroeconomic headwinds, including rising interest rates, inflationary pressure and declining consumer sentiment.

“Unfortunately, there are no current indicators signaling a recovery in automotive market conditions any time soon,” Rowe told analysts on the call. “We’ve experienced continued losses and work through our cash supply at a faster rate than, quite frankly, we anticipated.”

Rowe said CarZeus bought more than 110 cars from consumers in April, the best month it has had, and was on a similar path in May. But the business has high cash needs, he added, and company executives hope to reestablish operations pending a positive outcome of the board’s review.

He added of CarZeus: “This is not a decision we made lightly. I remain steadfast in my belief that AutoWeb has the potential to drive long-term value as an automotive matchmaking platform, but suspending CarZeus operations was necessary to support the viability of our core lead and click operations.”

AutoWeb said it swung to a net loss of $4.3 million in the first quarter from net income of $310,000 in the same quarter a year earlier. The company said the net loss in the quarter ended March 31 was the result of a drop in gross profit and higher operating costs, and the year-earlier quarter also benefited from a federal Paycheck Protection Program loan.

Revenue rose 7 percent in the quarter to $19.1 million, boosted by the addition of the CarZeus used-vehicle acquisition business. Lead traffic and volume both were below first-quarter 2021 levels, AutoWeb reported.

AutoWeb said it had $3.8 million in cash and equivalents and $4.3 million in restricted cash as of March 31.

The company said in a federal regulatory filing Monday that it had an accumulated deficit of $359.7 million as of March 31 and current forecasts indicate that “the Company does not believe that it currently has sufficient cash to sustain operations through the entire remainder of 2022.”