Q3 2020 TrueCar Inc Earnings Call
Greetings and welcome to Truecars third quarter 2020 earnings Conference call. Please note. This conference is being recorded I would now turn the call. So what's your host did you give you because you know investor Relations Mr. <unk> you.
You may begin.
Thank you operator, Hello, and welcome to Truecars third quarter 2020, <unk> earnings Conference call. Joining me today are Mike Darrell President and Chief Executive Officer, and Noel Watson, our Chief Financial Officer.
As a reminder, we will be making forward looking statements on this call. These forward looking statements can be identified by the use of words, such as believe expect plan anticipate becoming toward well intentioned confident and similar expressions and are not and should not be relied upon as a guarantee of future performance or results Act.
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 quarterly reports on form 10-Q, and our other reports and filings with the Securities and Exchange Commission for a discussion of the factors that could cause our results to differ materially.
Were 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.
In addition, we will also discuss certain GAAP and non-GAAP financial measures 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 I true dotcom.
The non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP now I will turn the call over to Mike.
Hi, and good afternoon, everyone well the world around US continues to battle with a series of unprecedented obstacles. The team here at Truecar remain hyper focused.
Opportunity before us.
It has been a leader did a global digital agencies, including start calm mindshare and denser.
Oversee our product marketing communications function and will be responsible for unifying and evolving the way in which we meet the needs of the modern consumer.
Both of these leaders have hit the ground running and are making an immediate impact I'm thrilled to welcome them to the Truecar family and look forward to working with them to elevate this company to new level now back to the details of the quarter and our priorities for the end of the year.
We concluded the broad base discounting a subscription rates in June which helped at that drive 18.6 million dollar sequential improvement in our total revenues ending the period at 77.2 million.
Traffic to our site continues to grow with monthly unique visitors up 24% year over year on significantly lower paid media budget and outcome that speaks to the success of our rebrand earlier this year they.
The enduring efficiencies with gained across our digital campaigns and the impact of growing organic traffic.
We're also seeing a steady recovery in retail activity is dealerships across the country are reopening their doors more motivated than ever to test and implement new ways of reaching the growing majority of digital first customers we.
We saw a strong 20% sequential increase in our non U S. A unit volume in the third quarter and remain optimistic that units will continue to recover as prospect conversion enclosed rates benefits from ongoing covid recovery and other truecar specific product enhancements.
Do that point product development sustained this rapid pace in the third quarter as we March closer towards enabling a flexible and complete online car buying experience.
In late September we launched our consolidated payments to trade solution across our franchise network equipping dealers with a complimentary best in class digital retailing offering that will help them appeal to a broader consumer base, while maintaining full control over there back in profit centers as we said before jewelry.
Engagement with these tools is absolutely critical in helping to facilitate a modern online car buying experience as more and more dealers adopt payments and trade. The majority of the 2 million new and used vehicles on the site will become eligible for Personalised and transact bold deal configuration inane.
Enabling consumers to quickly gain insight on accurate monthly payments customized to their loan or lease term preferences, downpayments trading equity and credit score.
To date, no other destination exists whether online or in store, where a consumer can select from millions of new and used vehicles to quickly and easily build and compare transaxle car deals customized to them and honored at the point of retail.
We're well on our way to bring in the automotive sector of the modern marketplace experienced it so desperately needs.
Through the end of October over half of our franchise network has adopted our payments that trade solution, which is aimed enabling a meaningful uptick in the number of consumers who are engaging with deal deal building features on the site those who engage demonstrates significantly higher person and purchase intent is measured by lower days to sail and.
Higher clothes rates and show a meaningful improvement and overall satisfaction.
Most importantly feedback from major dealer groups have been very positive as evidenced by the expansion of our partnership with auto nation, which is on board at all 300 franchises with payments and trade.
In summary, we're very pleased with the early adoption of our digital retailing tools across our franchise network and we will continue to explain coverage over the coming quarters.
Next I'd like to provide an update on the great progress we've made in the third quarter to drive awareness of our Truecar military experience, which we continue to view as a key lever for growth over the coming quarters and.
In the third quarter, we announced the dedicated marketing campaign and partnered with NASCAR driver and Naval Officer, Jesse Oji to be true cars military first Brandon Bachelor.
Who would you will be featured in the new campaign, which will help to build brand awareness through emotional storytelling that engages in empowers the military audience. He.
He was awarded Nascars diverse driver of the year Award in 2017 and 2018.
And brings a unique perspective as the only NASCAR driver currently racing at the National level, who has ever served in the military.
As awareness of our military offered rose R. O E M affinity and dealer partners are taking notice and leaning into the program.
Audi and B M. W. For example, recently extended targeted incentive offers up to $4000 to verified military consumers.
Partner, such as Sam's club and I've also embraced the program enhancing our military offered with exclusive rewards to members who validate their mills military status before purchasing at a truecar certified dealer.
Most importantly, the promotional push has accelerated our business development pipeline presenting new opportunities to rapidly expand awareness among the military community.
Dealers many of whom are located in geographic areas with large military representation are seeing investments, we're making and looking for ways to participate.
Doug Dugger and operations Directorate Oarsmen automotive group, which owns a large number of franchise dealerships across the Washington D. C. Metro had this to say about the Truecar military program.
We've been a customer of Truecar for a long time now and USA a leads through the Truecar program have always been a material part of our business.
When we learn the decision to end the car buying service, we were concerned about the impact it would have on ourselves.
Fortunately truecar acted quickly to stand up a whole new experience to reach the large community of military members and their families here in the D. C market since the program launched just a few months back the verified truecar military customers, who have visited our store are always ready and willing to transact.
It's reassuring to know that we still have a scalable way to reach these high intent buyers. The goal now is to work with <unk>. The two car team to grow the number of customers coming through this channel.
We are committed and eager to do our part to make this program assessed as successful as it can be.
Given the excitement we're seeing from folks like Doug or actively looking to expand our in store footprint by rolling out of Truecar branded military showroom experienced at selected dealerships.
As we look towards the future we view true card military not simply as a new acquisition channel, but more importantly, as a platform that extends are differentiated value proposition to the military audience made possible by the active participation of our retailers or.
We're excited by the significant progress we've made in such a short period of time and remain focus on rapidly growing the program over the coming quarters.
And finally I'll share a few words regarding the CFO transition before handing a call over to Noel to take you through the numbers.
It's been a highly effective CFO for true card during a very challenging period in the company's history.
Is a collaborative leader, who helped us redefine the culture here Truecar and embraced an environment of inclusivity and openness I'm grateful for always contributions and wish him all the best in his future endeavors well.
Wells agreed to remain with the company for the next few weeks at which point our controller, Charlie Thomas will take over as our interim principal financial officer I have the utmost confidence in Charlie and the rest of our talented finance leadership team to support the organization during this interim period.
That said.
Filling the permanent C F O seat as a top priority for me.
And with that I'll hand, the call over to Noel.
Thank you, Mike and good afternoon, everyone. It's been a privilege serving as a CFO truecar for the past year and a half I've enjoyed every minute of the experienced and feel very grateful for the opportunity to have helped me this organization alongside Mike and the rest of the executive team.
Can take comfort in knowing that I leave truecar well positioned to deliver on its strategic plans and to unlock it's next chapter of growth.
I will now take you through the results for the third quarter of 2020, which reflect a strong sequential topline recovery contributing to an all time high adjusted EBITDA and gap profitability offer.
Financials are from continuing operations unless otherwise stated.
The wind down of USA weighed on our overall unit performance with the channel ending down 43% year over year.
Excluding the impacts from USA combined unit volumes for Truecar that Tom and extended affinity ended the third quarter down 11% year over year.
Total dealer count in the third quarter declined by approximately 5% sequentially ending the period at 14603.
The decline was similar across our franchise and independent networks and was primarily due to the impact of the Cobi 19 pandemic.
The pandemic related supply chain disruption earlier. This year has contributed to a tight inventory environment, particularly on the new car side, which weighed on our sales productivity in the third quarter.
We also saw a slight uptick in churn in the lead up to the USA Sunset.
However in October the first month with USAA completely transition dealer count stabilized ending the month inline with where we ended September.
The rollout of our payments and trade solution and growing awareness of our military program have helped to retain key accounts and we believe the normalization of new car inventory levels will be a tailwind to sales productivity in the new year.
As it relates to churn the remains a moderate level of risk, particularly in the fourth quarter as dealers adjusting the sunset of USA, but we are encouraged by the October results.
Now turning to expenses and margins, where all of the following metrics on a non-GAAP basis, unless otherwise stated.
Cost of sales decreased by 300, K quarter over quarter, while revenues rebounded, resulting in a 94% gross margin up 250 basis points sequentially.
Compared to a loss of $8.8 million for eight cents per share in Q3 of 2019.
Non-GAAP net income was 15.3 million for 14 cents per share in the quarter compared to a net loss of 1 million for one cent per share this time last year.
And the third quarter, we executed against our share repurchase program to buy a total of 2.4 million shares at an average price of $4.84 for a total of $11.6 million. We have continued purchasing chairs in the fourth quarter and through October we have now purchased over 4 million chairs on a year to date basis.
We ended the third quarter with nearly $180 million of cash and cash equivalents on the balance sheet as.
As a reminder, the divestiture of a O G remains on track to close by November 30th which would result in a significant inflow of cash proceeds before year end.
Now turning to guidance.
Fourth quarter, 20th 20th will be the first period pollen USAA transition.
Our guidance as soon as the economy continues to recover the COVID-19, pandemic and we do not see an expansion or extension of widespread closures.
For the fourth quarter of 2020, we expect to generate revenue of $57 million to $59 million or a 32% year over year decline at the midpoint weeks.
We expect total dealer revenue, including new product revenue to declined by approximately 30% year over year.
We expect OEM revenue of approximately $1 million to $2 million in the fourth quarter, a sequential decline, giving USA a with a large driver of R. O M revenue.
And finally, we expect forecast insulting and other revenue to be immaterial in the fourth quarter as the USA a transition services agreement concludes and we continue to report a oh jeeze financials and discontinued operation.
Given a series of strategic adjustments to our fixed cost structure, including the workforce reduction completed earlier this year and improved efficiencies in our traffic acquisition spend we expect adjusted EBITDA in the fourth quarter of 2020 to be in range of minus one to plus $1 million for breakeven at the midpoint.
Before we go to questions on now turn the call back to Mike for final remarks.
Thank you well I'd like to quickly take a moment to recap, although we've accomplished here a true car in recent quarters.
Since learning of USA his decision not to renew our partnership just days before the February earnings call. We knew we had to move quickly and decisively.
The challenges, we faced as an organization where significant.
Would have been easy to doubt our ability to get through it, especially when things got worse in late March is COVID-19, pandemic disrupted major section sectors of the economy, including automotive how're.
However, the belief here a true card and never waver any exceptional resilience of our team won out I could not be more proud of what we've accomplished over the past nine months period in which the world around us was fraught with instability and risk.
In such a short time, we rapidly improve our consumer and dealer product experiences moving further down the funnel as we launched innovative digital retailers solutions to bring more of the buying process online we.
We quickly stood up and all new military offered an exciting growth channel heading into 2021.
Our inventories to improve in Q3, and I think you heard from the.
The major retailers, who have reported publicly that it didn't.
And that certainly slowed the.
Some of the dealers, we added suspension and coming back to the network and and probably cause some additional suspensions on the new car franchise side. The other big piece of it was the the USAA business winding down.
In Q3 that certainly had an impact.
We tried to contain that geographically and respond.
To those markets to continue to provide.
Acceptable value proposition to the dealers and you know.
The good news on that front is October.
Yes, I think first of all I should state that we are extremely excited about what we've been able to get done.
With the true core military channel, we split that up in May it was.
It's been our fastest growing channel ever launched.
We engaged with.
The military agency to help us deliver that brand into the marketplace and we're really excited about our relationship with Jesse a routine.
We have added some partners we added military auto source that has representation and exposure on all the military bases in the U.S. So we're working on all aspects of that to grow that quickly I'd just remind everybody that it took us 13 years to get the USA business to where it was so.
It's going to take a minute.
To build this military channel, but we're really excited about the growth we're seeing we're having some really active discussions with additional partners.
Going into the channel and we look at us as a key growth lever for us in 2021.
Got it.
Thanks for taking my question.
Our next question comes from the line of Rich Kypta with JP Morgan. Please proceed with your question.
Hi, Thanks for thanks for taking my questions.
Just had a quick question first question on the fourth quarter guidance.
The the approximately breakeven EBITDA can you help.
Alright, just disaggregate that you know.
You know between like on the gross margin should look like versus you know like the cost structure and then we wouldn't be as DNA.
How the different buckets are likely to play out and then the reason I asked that is like how given that's going to be post USA.
So is that the kind of level, we should be expecting going forward as well. It doesn't look like just as DNA levels and I have a follow up thanks.
Hi result, this is Noel I'll take that one.
When we did the and we talked about this on our last call. When we did the restructuring in Q2, it was really with an eye to beyond the USA transition and so.
What we saw in Q3 was kind of the full impact of the downsizing that we did in Q2 and really a new baseline from a from a cost structure standpoint, we expect that to to really continue into Q4 at a somewhat similar level there will be some puts and takes there.
But.
One is one of the factors is the the expiration of the transition services arrangement with with USAA.
We will impact us so we'll see.
Thanks.
Sure no problem.
The the we started repurchasing shares under our authorization in Q3, you know obviously that only represents a partial quarter of activity. We've noted in our prepared remarks that we continue to buy back shares in this quarter.
And today, we have now repurchase well over 4 million chairs under the program. So we expect to to continue this activity, especially at at these share price levels and then we will will plan to regularly reevaluate the program as far as it is it real.
So we've rolled those tools out the over 6000 dealers.
At this point and exposing it to a lot of our inventory. So you know we're excited about some of the investments. We've made in the past are starting to really pay benefits for us and we've got dealers leaning into those products that are really accelerated.
Celebrated right.
Got it that's a great color. Thanks, so much and good luck.
Okay. Thank you.
Thank you.
Our next question comes from the line of Marvin Pong P. T O G C with your question.
That's very channel can do as it grows one of the frustrations R. O M partners would have.
In that channel was the limited ability to market. So now that it's our channel on T. C. D. C O two car dot com.
In building out these numbers and we're really excited about traffic growth.
That were seeing to the site, we are seeing growth material growth in prospects.
Inc. will therefore conversion on our TCPC channel and our.
You are rewriting the Truecars story, and it's because of view that we've been able to accomplish accomplish what we have in 2020. So stay focused on the things within our control and keep pushing forward Im really proud of our results and our of our organization and thanks, everyone for joining thank you.
This concludes today's teleconference. You may now disconnect. Your lines. Thank you for your participation and have a wonderful day.
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