TrueCar, Inc. (NASDAQ:TRUE) Q1 2024 Earnings Call Transcript

TrueCar, Inc. (NASDAQ:TRUE) Q1 2024 Earnings Call Transcript April 30, 2024

TrueCar, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and welcome to the TrueCar First Quarter 2024 Financial Results Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Jantoon Reigersman, President and Chief Executive Officer of TrueCar. Please go ahead.

Jantoon Reigersman: Thank you, operator. Hello, everyone, and welcome to TrueCar's first quarter 2024 earnings conference call. Joining me today is the awesome Oliver Foley, our Chief Financial Officer. I hope you have all had the opportunity to read our most recent stockholder letter, which was released yesterday after market close and is available on our investor relations website at ir.truecar.com. Before we get started, I need to read our safe harbor. I want to remind you that we will be making forward-looking statements on this call, including statements regarding our revenue growth, expected adjusted EBITDA, as well as our aspirational goals regarding our three-year plan. Forward-looking statements can be identified by the use of words such as believe, expect, plan, target, anticipate, become, seek, will, intend, confident, and similar expressions, and are not and should not be relied on as guarantees of future performance or results.

Actual results could differ materially from those contemplated by our forward-looking statements. We caution you to review the risk factor section of our annual report on Form 10-K, our quarterly reports on Form 10-Q, and other reports and filings with the Security and Exchange Commission for a discussion of the factors that could cause our results to differ materially. The forward-looking statements we make on this call are based on information available to us as of today's date, and we disclaim any obligation to update any further forward-looking statements except as required by law. In addition, we will also discuss certain GAAP and non-GAAP financial measures. Reconciliations of all non-GAAP measures to the most directly comparable GAAP measures are set forth in the investor relations section of our website at ir.truecar.com.

The non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. With that, we get to the exciting part. I will provide a summary of the quarter as highlighted in our shareholder letter. In Q1, we continued to deliver. We delivered double digit revenue growth year-over-year and achieved positive adjusted EBITDA. Q1 revenue grew 11% year-over-year driven by growth in our core dealer business and the continued strength of OEM incentive revenue. We achieved adjusted EBITDA profitability of $0.9 million, a $12.3 million improvement year-over-year. Moreover, the supportive macro trends that we highlighted in the previous quarter, namely the normalization of new vehicle inventory and average days supply have continued their upward trajectory in Q1, reinforcing that franchise dealers increasingly need access to TrueCar's robust audience of new car shoppers.

In Q1, those shoppers drove strong new car sales across TrueCar franchise dealers who collectively saw a 7.3% year-over-year increase in new vehicle units, outperforming the industry's 4.9% year-over-year growth in new vehicle sales. During Q1, we announced the expansion of our dealer product offering with the launch of TrueCar Market Solutions, TCMS. TCMS is a suite of eight distinct products that leverage TrueCar's extensive proprietary data and hyper-targeted audience to help dealers more effectively reach and win in-market shoppers. During the two months since launching TCMS, we have been encouraged by the over 350 dealers that have added one or more TCMS products to their existing subscriptions, and even more encouraged by the early indicators of the incremental value those products are delivering to them.

We are actively working to bundle many of these TCMS products into our subscription offerings to accelerate adoption and drive additional value to our dealers while growing average revenue per dealer. As we expressed in our last letter, we remain steadfast in our pursuit to become the first digital marketplace where consumers can buy a new certified pre-owned or used car with or without a trade-in from the comfort of their couch through an entirely digital online transaction. Moreover, we stated our goal of completing the first end-to-end digital transaction for the purchase of a new car in the first half of this year and have been hard at work solving the myriad of complexities that historically could only be solved through human intervention at one or more steps of the transaction.

Thankfully, through productive collaboration with a forward thinking dealer group, rich engagement with key stakeholders including OEMs, DMS providers and the learnings gained over the last two years, we plan to launch a TC+ pilot later this quarter that finally offers TrueCar shoppers the ability to transact entirely online. We expect that the pilot will launch with hundreds of used vehicles available to be purchased online by consumers nationwide and thousands of new vehicles across various brands available to be purchased online by consumers residing in California. In addition, only vehicle trade-ins will be -- sorry, online vehicle trade-ins will be supported at launch and consumers will have the option to secure financing from most lenders inclusive of most OEMs captive financing arms.

We anticipate running the pilot through the end of Q3 in order to incorporate and test key learnings while in parallel we complete the development of certain key components that would enable us to quickly expand the scope of dealers and geographies throughout Q4. The objective of the pilot is to validate and refine, one, the technical solutions we have developed to eliminate the need for human interaction across the consumer purchasing process, from selecting the right vehicle to executing the binding Retail Installment Contract. Two, the extent to which a true digital transaction effectively integrates into a dealers backend system can unlock significant sales efficiencies for the dealer. Three, the mechanism we have developed in the consumer flow to maximize the attachment rate on the dealer's F&I products.

And four, the process we have developed to digitally establish a competitive and accurate binding value for consumers trade-in that gets incorporated into the deal while mitigating the dealer's risk through a backstop to the value. Achievement of these objectives will mark a critical milestone on our path to product market fit for TC+ and allow us to initiate the steps required to begin scaling TC+ more broadly in Q4 2024. To that end, as we've articulated before, our objective is not only to directly monetize TC+ in 2024, but to instead demonstrate the value it can drive for the ecosystem broadly. For dealers, we intend to demonstrate how TC+ expands their addressable market, allowing them to win consumers they would otherwise never reach, while driving sales efficiencies that grows their bottom line.

For consumers, we seek to demonstrate that car buying can, in fact, be done from their couch, whether new, certified, pre-owned or used. For OEMs, we aim to demonstrate that brand loyalty grows when consumers are no longer constrained by shopping inventory in their backyard, but can instead shop for the best deals on a car they want regardless of where it is. In sum, we believe that by demonstrating these core value propositions, we can create a powerful flywheel that will fuel the growth of TC+ in 2025 and beyond and unlock new and powerful monetization opportunities for TrueCar. Back to our core business and our outlook for the near term. We believe that the strength of our core business will help to maximize the success of TC+ and as such we're intently continuing to focus on the following four building blocks to drive near-term growth.

One, continue to activate new dealers with a focus on regaining many of the franchise dealers that left the platform when new vehicle inventory was constrained. Two, reduce dealer churn by doubling down on our commitment to help them drive incremental sales and providing them with unmatched support and service. Three, continue to grow average revenue per dealer through TCMS product offering. And four, grow OEM revenue by expanding our OEM partnerships and continue to invest in highly effective incentive programs across our network of affinity partners. Execution against these four building blocks provide us with the path to achieving our goal of returning the business to $300 million in revenue and a 10% free cash flow margin by the end of 2026.

To that end, we aim to grow Q2 revenue by 13% year-over-year while maintaining an adjusted EBITDA target of breakeven. The primary reason for the lower revenue flowthrough, quarter-over-quarter is our belief that the continued rise in new vehicle inventory, days supply and OEM incentives represents an opportunity to profitably increase marketing spend in the quarter and capture a greater share of new vehicle shoppers for our franchise dealer network. Given our operating leverage, we believe that by spending a greater share of revenue on paid marketing in Q2, while conditions are favorable, we can further accelerate our revenue growth in the second half of the year and put us on the path to achieving positive free cash flow in Q4. Finally, I would like to acknowledge that the TrueCar team and their commitment to the future TrueCar we're building.

In pursuit of the best online experience for dealers and consumers, the team is making huge strides overcoming structural roadblocks that in the past have impeded innovation in the automotive retail. I also would like to thank TrueCar Board member Erin Lantz for seven-plus years of dedicated service to the organization. We wish Erin the best and are excited that the Board has nominated Diego Rodriguez to fill her seat. If elected, Diego's decades of experience integrating business design and technology at the very highest levels of industry will be invaluable to the next phase of TrueCar's lifecycle. Having most recently served as Intuit’s Chief Product and Design Officer and prior to that, as a senior partner at IDEO, Diego will be a tremendous asset for TrueCar and our mission to deliver the first ever car buying digital marketplace.

Now operator, let's open the call for questions from our analysts.

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