TrueCar, Inc. (NASDAQ:TRUE) Q4 2023 Earnings Call Transcript

TrueCar, Inc. (NASDAQ:TRUE) Q4 2023 Earnings Call Transcript February 21, 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 Fourth Quarter 2023 Results Financial 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 fourth quarter 2023 earnings conference call. Joining me today is Oliver Foley, our new Chief Financial Officer. I hope you have all had the opportunity to read our 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 looking statements on this call. These 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 Factors section of our annual report on Form 10-K, our quarterly reports on Form 10-Q and our other report and filings with Securities 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 forward-looking statements except as required by law. In addition, we will also discuss certain GAAP and non-GAAP financial measures, reconciliation 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, I’ll provide a brief summary of the quarter. We continue to deliver as promised. In Q4, we achieved 13% year-over-year revenue growth and achieved adjusted EBITDA profitability of $2.1 million, a $12.1 million improvement year-over-year. Meanwhile, we saw encouraging signs of a potential bottoming in our total active dealer count, which was flat quarter-over-quarter with 11,500 active dealers at the end of Q4 versus 11,503 at the end of Q3, driven by the net addition of 135 franchise dealers offset by the net loss of 138 independent dealers in Q4. This is consistent with our viewpoint that while independent dealers continue to be challenged by today’s high interest rate environment, franchise dealers in particular are increasingly in need for TrueCar services to help them cope with growing new car inventories.

Further highlighting this trend, new vehicle sales compromised 59% of the total units sold on TrueCar in Q4, which is up from 50% of total units sold in Q4 2022 and up from 56% of total units sold in Q3 2023. We believe TrueCar’s leverage towards franchise dealers combined with our unique ability to offer targeted OEM incentives to our 250-plus affinity partner audiences positions us to capitalize on the growing focus on new vehicle sales. Coinciding with our presence at the National Automobile Dealers Association, also called NADA, we launched a new suite of dealer products called TrueCar Marketing Solutions, also known as TCMS. The development and launch of TCMS was informed by and in response to feedback shared by many of our dealer partners related to their most common challenges around one, identifying and reaching targeted audiences of in-market consumers; two, standing out from the sea of competing dealers in a consumer environment lacking the brand loyalty of the past and three; cost effective ways to showcase and promote inventory not being surfaced by the more common search algorithms.

The result is a new offering that is not only highly complimentary and accretive to the core listings lead gen business for which dealers have come to know us, but also represents a new cost effective alternative to the traditional digital marketing channels that presently capture a significant share of dealers’ digital marketing budgets. Therefore, we’re confident that the rollout and adoption of our TCMS products will serve as a key building block for our near term growth objectives by helping us attract and retain key dealer partners while growing revenue per dealer. Let us also briefly turn to TrueCar+. To be clear, the launch of TCMS is in no way a deviation in strategy and our singular focus remains on our pursuit of what we believe to be the holy grail of automotive retail, the ability to buy a new certified pre-owned or used car with or without a trade in from the comfort of your couch through an entirely digital online transaction.

For consumers, that means an experience build upon the trust and transparency we’ve always offered where they can; number one, shop millions of listings nationwide to find the right deal for them. Two, select between a range of aftermarket products offered by the dealer; three, receive offers and secure financing from a range of competitive lenders, regardless of their credit score; four, receive a firm offer on the trade in that is directly incorporated into the value of the deal; five, build out a fully transparent deal that includes all taxes, fees, and rebates; six, digitally execute a retail instalment contract, and seven, schedule pickup or delivery of their vehicle all from the comfort of their couch. For dealers who want to offer, one, an expansion of their addressable market and the ability to compete for consumers nationwide; two, superior attachment rates across the dealer’s customizable F&I menu; three, a significant improvement in sales volume and efficiency by delivering a completed transaction ready for fulfilment; and four, access to a risk-free trade-in.

We believe this is what a true online buying experience looks like. We are hopeful that TrueCar will enable the first true online purchase of a new car within the first half of this year and we’re partnering with several key external stakeholders to make this happen. This is not trivial work, and even though we have a clear product development roadmap, we know the significant level of effort and coordination this takes, including some out of our control. Once completed, the current TC+ product, effectively still a super lead, will be replaced with a complete online transaction and at that point, only cars that are fully transactable online will be classified as TC+. TC+ to date has been a vital learning platform for us to get to the product development and experiences we have today.

Lastly, our outlook for this quarter and beyond; as a reminder, our goal is to return the business to $300 million in revenue with 10% free cash flow margin by the end of 2026, implying a compound annual growth rate of 24% from 2023 to 2026. We believe we can achieve this goal by focusing on the following four building blocks. Number one, activate new dealers. Number two, limit dealer churn. Number three, grow average revenue per dealer through our expanded product offering. And four, continue to grow our OEM partnerships. Progress against each of these building blocks will take time, but should have a compound effect over the course of the year. We aim for 10% year-over-year revenue growth in Q1 and around breakeven adjusted EBITDA. As a reminder, our first quarter of the year adjusted EBITDA flow through is typically seasonally lower due to payroll related and NADA expenses.

Looking beyond Q1, we anticipate an acceleration of our revenue and EBITDA growth and are confident that we can achieve positive free cash flow in the second half of the year. Now operator, let’s open the call for questions from our analysts.

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Q&A Session

Operator: [Operator instructions] And today’s first question comes from Naved Khan with B Riley Securities.

UnidentifiedAnalyst: Hi, this is Ryan on behalf of Naved. Thank you for taking my question. Two if I may. First, incentive revenue has grown pretty materially. How do you expect the growth trend to look in 2024? And then second, in the shareholder letter you alluded to the opportunity to incorporate TrueCar marketing solutions in subscription packages. Can you talk about the timeline for that? Thank you.

Jantoon Reigersman: Absolutely, so I think we so this is Jantoon, in terms of the revenue growth, as we outlined, we are obviously very focused to return to the $300 million revenue target set by the end of 2026. So that’s a compound annual growth rate of roughly 24%. So remember in Q3 we had single digit growth. Q4 now we’ve had double digit growth. Obviously growth is up to the right, never is perfectly linear and we are confident that we’re building up the building blocks required to get to this effectively compound growth rate that we’re seeking over the course of the next three years. So I think we know what we need to do and we have the building blocks, but also remember we’re just coming out of the trough of the first time that we were actually growing again in Q3 and we’ll be accelerating and building that up over the course of this year.

Vis-à-vis TCMS, so we have launched this at NADA, which was a couple of weeks ago and some of these products are currently being launched, others are being finalized, but I would argue that the real impact should be seen over the course of Q2 and going forward, although there will be some marginal ability for dealers to already effectively sign up in Q1 and some revenue will flow in Q1, but you’ll see or you should be seeing an increase in revenue per dealer over the course of this year as these products will roll out more widely.

Oliver Foley: Ryan, this is Oliver. I’ll just chime in on that second question. If you look at the description that we provided on each of the TCMS products, you’ll see that some of them are I think very programmatic and they’re really good candidates to be incorporated into our existing subscription bundles. Others are more bespoke where we’re effectively running targeted campaigns on the dealer’s behalf, right, and really trying to capture some of their digital marketing spend that would go to more traditional channels. And so our hope is that by the very beginning of Q2, our subscription tiers will reflect some of these more programmatic TCMS products, the ones that really are designed to provide incremental on-site awareness for dealers, branding opportunities, and additional — being an additional traffic driver for them.

Operator: And the next question comes from Tom White with DA Davidson.

UnidentifiedAnalyst: Hey, this is Wyatt on for Tom. Thanks for taking our questions. Could you talk a little bit about what your outlook assumptions are around TrueCar+ for 2024? Is there an explicit monetization benefit from TrueCar+ this year and if not, when do you think it could impact TrueCar’s revenues in a more meaningful way? Thank you.

Jantoon Reigersman: Yeah, good question and I think it’s a similar question that was asked in the past and I’ll repeat what we said then too. I think for 2024, the focus really is around the four building blocks that we mentioned. So it’s getting dealers back on to the platform, limit churn, increase revenue per dealer by expanding the product offering, and really focus on the OEM opportunity. We’re not assuming a significant contribution of TrueCar+ throughout 2024. Obviously, that is a high focus for us from a product development perspective, but we’re also well aware that as we roll that out, there are always going to be some learnings that you’ll do as you commercialize that more fully and as you expand that and put more dealers on that program. So for this year, assume that there’s no real or limited financial contributions and that should kick in obviously in 2025 and beyond.

Oliver Foley: I’ll just chime in quickly and say that in my view, the number one way that TrueCar+ will be monetized in 2024 is by helping us attract new dealers and retain existing dealers. The reason I say that is because I do believe that once we do transact that first entirely digital online new car purchase, we have a very differentiated marketplace that provides a very unique value proposition to dealers and we sort of outline some of those key value props for the dealer, whether it’s expanding their addressable market, it’s improving their ability to drive F&I sales. And so once we do prove that we can execute that, hopefully in the first half of this year, I do think we have a marketplace that’s truly differentiated from all the others out there, and that’ll help us sort of regain our share of dealers and hopefully retain our existing dealers.

UnidentifiedAnalyst: And then just one follow-up; could you update us on your capital allocation priorities for 2024?

Oliver Foley: I’ll jump in quickly there. I think we’ve long said that once we get to free cash flow break-even, we will be sort of actively engaged in the capital allocation strategy. Right now, we still maintain over $135 million on our balance sheet and we’re very keen to sort of come up with a deliberate strategy for the second half of this year, given that we do expect to be free cash flow positive in the second half of this year. So, as we’ve said before, everything is on the table, whether it be strategic acquisitions, it be share repurchases, it be supercharging the growth of TC+ with a more robust marketing budget. All those things are on the table for the second half of this year.