Q4 2020 TrueCar Inc Earnings Call

Good day, and welcome to troopers fourth quarter, 'twenty 'twenty financial results Conference call.

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I would now like to turn the conference over to Danny Vivier. Please go ahead. Thank you operator, Hello, and welcome to Truecar as the fourth quarter 2020 earnings Conference call. Joining me today are Mike Darrow, our President and Chief Executive Officer, and Jan tune Rigors net our Chief Financial Officer. As a reminder, we will be making forward looking statements on this call eastern.

We're looking statements can be identified by the use of words, such as believe expect plan anticipate becoming toward will intend confident and similar expressions.

Not and should not be relied upon as a guarantee of future performance or results.

Actual results could differ materially from those contemplated by our forward looking statements. The caution you to review of the risk factors section of our annual report on form 10-K, our 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.

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.

Considerations of all non-GAAP measures to the most directly comparable GAAP measures are set for it in the Investor Relations section of our website at true dotcom.

The non-GAAP financial measures are not intended to be considered in isolation or as a substitute results prepared in accordance with GAAP now I'll turn the call over to Mike.

Thank you Danny and good afternoon, everyone I'm pleased to report that the turnaround story here at Truecar continues to gain momentum. It's amazing to think that just the short 12 months ago. We were hit by two existential threats at nearly the exact same time, the non renewal of a major affinity partner in the onset of of globe.

<unk> pandemic.

Many doubted that we could recover however in the face of of adversity. This organization has a history of rising to the occasion and yet again I believe today's results speak to that very resilience into the things you can achieve when a team of exceptionally bright and talented professionals. The IND together in pursuit of the common.

Go on.

I'll start my remarks today with a brief review of Q4, a critical quarter that marked the first period. Following the transition of USAA. I'll, then remind everyone of where we're headed as an organization with specific emphasis on where we play in the ongoing digital transformation of the automotive vertical.

And finally, I'll close with our key initiatives for 2021, including commentary on our recently announced in highly anticipated partnership with Navy Federal credit Union.

Let's start with Q4.

We closed the year with quarterly revenues of $64 million and adjusted EBITDA of 6 million both metrics coming in well ahead of expectations.

More importantly, as I've said before the fourth quarter underscored the standalone viability of our business model.

We operate an asset light business with high gross margins in room for meaningful margin expansion.

Thanks to the many decisive actions we took throughout 2020, including the strategic restructure of our work force in developing significant marketing efficiencies across our branded channel we delivered a strong fourth quarter upon which we will build.

And further as we seek to Reaccelerate top line growth in 2021, we'll be doing so from a position of strength with more than $270 million of cash and equivalents on the balance sheet as of year end. Thanks to the closing of our ALG divestiture in November.

Before I touch on our tactical priorities for the coming year I'd like to take a step back and remind everyone of the significant opportunities before us.

At the highest level the U S automotive market is massive.

The year franchise and independent dealers sell of roughly 55 million, new and used cars generating more than one trillion dollars in retail sales.

Billions more of our spend on manufacturing advertising, ensuring and financing costs.

Not only is the industry massive but it's also highly fragmented with the largest retailers of accounting for less than 3% of the overall market and perhaps most importantly, the automotive industry is changing rapidly with the acceleration of online retailing opening up new opportunities to extract value from different.

Parts of the transaction.

We've spent the last 12 months here of Truecar acting decisively to navigate a series of unforeseen circumstances, we've made the tough decisions focused on executing against the things within our control and now find ourselves well positioned to capitalize on the transformation around us.

Since taking over as CEO in mid 2019, I remain steadfast in my vision for Truecar to leverage our established marketplace Differentiators and build of car buying experience that seamlessly bridges, the online to offline transition empowering consumers with the flexibility of they've come to expect.

From modern day marketplaces of.

Of course, as the two sided marketplace addressing both supply and demand building. This car buying experience requires the active participation of our retail partners. Our job is to create the parameters within which consumers and retailers engaged bringing to the process much needed transparency and efficiency.

We were the first to articulate this vision of of modern automotive marketplace that would support online retailing at scale. We made investments in this direction as early as 2018 with the acquisition of dealer science, one of the pioneers in digital retailing and dealership desking tools and our investment inaccurate train. These <unk>.

Investments are the foundation upon which we build our end to end platform in 2020. Despite the challenges we faced we made great progress towards our vision a bit of which I will touch on today in 'twenty and 'twenty. One we intend to continue to solidify our market leading position of.

On our last earnings call in November I discussed the rollout of our integrated payments and trade solution across over half of our franchise network remember when the dealer integrates with our payments of trade solution. We then of the inputs needed to generate penny perfect lease and loan payments on the inventories they list on our site.

By the end of Q4, we reached the level of payments and trade adoption, we deem necessary to release, our consumer facing experience referred to as Truecar deal builder.

The old builder is of turbotax like flow the guide the consumer through the process of configuring and accurate car deal personalized to them based on their trade in valuation preferred lease or a loan terms down payment preference credit profile and all other fees and taxes associated with the transaction.

True to our vision at any stage in the flow of consumer can drop off and go into the dealership. The complete the deal all of their information is stored with their profile and seamlessly integrates with the dealers back end software.

For the consumer walks into that very dealership days or even weeks later there'll be greeted by a trained rep equipped with all the information they've submitted earlier online.

In many ways the launch of deal builder is the culmination of a multiyear effort. We are now the only online site, where you can configure and compare accurate deals across millions of new vehicles, all from the comfort of your home.

And soon once we expand deal builder to our nearly 1 million used car listings, we expect to be the only site, where you can configure deals across both new and used cars cementing our position well ahead of our marketplace peers.

While this initial release is a major milestone in and of itself. We have elected a phased rollout by presenting the primary entry point into this new consumer flow within our post prospect experience on Truecar Dot com.

As a result, approximately 11% of Truecar Dot coms, new car prospects currently engaged with deal builder, while the sample size continues to grow and mature test results continued to show meaningful improvements to close rates and customer satisfaction, leading indicators of unit growth the key financial.

Drivers of this business expanding the use of deal builder is therefore, our first and most important strategic initiative in 2021.

Let me outline of our approach here first to complement our product evolution. It's critical that we of all of our brand promise beyond just price context and towards deal confidence with deal builder live on the site. We are now bringing transparency to all major components of the car deal true.

In the equity vehicle pricing as well as leasing and financing.

We've taken our core competency of transparent pricing that helped build this company and build on top of it.

What that creates is an experience that elevates the affordability of powering consumers with the tools they need to understand the best vehicles for them based on their unique situation.

In doing so we are alleviating a major source of the anxiety. So many of us feel when buying a car.

As we re imagine our brand promise we are in parallel working to introduce deal building features earlier in the shopping experience. We know of large majority of consumers don't make it through the point of registration are.

Our belief is that by providing our users with tools to research and compare vehicles based on what they can actually afford rather than simply on the car selling price, we will offer them more value earlier in their journey encouraging them to continue with truecar through registration.

And finally in the second half of the year, we'll look to rollout deal builder across our complete portfolio of affinity partners effectively doubling the number of users engaging with the feature.

You may now be wondering where this puts us in a roadmap to an end to end online car buying experience.

In our view the old builders solves for most of the challenging parts of the online retailing, namely the creation of accurate deals across millions of cars.

Building this capability in a scalable way that ensures accuracy, while still protecting the dealer Bottomline is no small feat.

However, once the deal was configured there are a few remaining steps to complete the purchase we referred to these final steps as the checkout flow, which includes the credit application positioning of insurance products the processing of documents and vehicle delivery for the subset of consumers, who choose not to pick up the vs.

At the dealer's lot.

Solving for checkout is our second key initiative for 2021.

Today, the majority of dealers lean on SaaS platforms like roadster Gaba go auto five car now and others to help power of their digital retailing experience. These platforms have built clean user interfaces that enable complete online deal building and require a deep integration with the <unk>.

Dealers back end tools and CRM.

Like many parts of the auto industry. The space is highly fragmented with many competing vendors servicing networks of fewer than 1000 dealers.

However, following the onset of the pandemic demand for these platforms increased dramatically with the latest estimates, suggesting more than half of franchise dealers have already integrated with their provider of choice.

So what does this mean for Truecar well a few things first it's important to remember that these digital retailing providers are not marketplaces. They did not help dealers efficiently acquire in market consumers instead, the power of the desk in software that enables the dealer's website and walk in traffic to build virtual deals and <unk>.

Complete the card deal in a transparent way with seamless transitions from online to in store.

As such we do not view these providers as competitors, but rather a strategic partners, who will help us deliver an end to end the experience.

Second the fractured state of the industry means that flexibility is key.

We plan to build our technology using actual dealer data in a way that seamlessly integrates with the dealers' digital retailing provider. This is critical to ensuring active dealer participation of our marketplace, which ultimately improves the consumer experience.

And finally for the consumers who desire a complete end to end the experience on the Truecar platform.

And for our smaller franchise and independent dealers, who perhaps don't have the resources to invest in a more comprehensive digital retailing infrastructure. We plan to continue expanding our own checkout tools and software solutions solving for the final pieces of the end to end journey ourselves.

In late 2020, we started the dialogue with various digital retailers and we'll look to transition to a more formal pilots in 2021.

Meanwhile, our product and engineering teams are well underway building API based integrations to standardize the transfer of data from our auto buying platform to our dealers' digital retailing platforms technology to enable the smooth transition through a complete digital retail experience.

I'd like to now highlight our third and final key initiative for 2021 Truecar military.

Truecar boasts the industry's most robust portfolio of affinity partnerships that collectively represent nearly half of the units sold through our marketplace.

Partnerships of always helped us reach spa.

The specific demographics at scale supported by favorable customer acquisition cost the truecar.

These arrangements allow us to focus on what we do best powering customer experiences that make car buying easy for.

Furthermore, we know from the onset of scaling Truecar military would require the right mix of organic brand building in inorganic business development.

In 2020, the bulk of our effort was focused on standing up the branded military channel and Curating, an experience that provide differentiated value to our American heroes.

The channel's launch was a huge success and continued to grow steadily. However, our efforts have reached a new inflection point earlier. This month when we on boarded our newest affinity partner Navy Federal credit Union.

The significant of this net announcement cannot be overstated.

The Navy federal has more than 10 million members nationwide, just shy of USAA's $13 million with a similar composition of highly loyal members spending all breaches of the armed forces the department of defense veterans and their family members.

The program is expected to officially launch in March and we will be looking to augment the launch with targeted PR and marketing campaigns in partnership with Navy federal.

Most importantly, their participation is a major step forward in our goal is to reach and serve the more than 40 million members of the military community and builds on our existing partnerships with military auto source of ex veteran service organizations like Dav and team are W. B.

And Oems, such as FCA, Audi and BMW.

You'd be certain it will take time to bring this partnership to scale.

Still we believe the potential here is undeniable and we look forward to leveraging our product infrastructure history of serving the military community and nationwide deal network to grow this partnership as quickly as possible.

I also think it's important to recognize the impressive business development fee that was accomplished by our team and of largely virtual environment, establishing a new affinity partner relationship with a major banking institution, serving the military community in less than a year speaks volumes about how our affinity partner value prop.

<unk> resonates with the market.

These agreements are complex and require months of back in force communication to wrestle to the ground I could not be more proud of everyone involved in this effort.

Finally, I'm excited to hand, the call over to our new Chief Financial Officer Yan tune rigors of Min Jane tune brings to the executive team deep experience, leading the strategy and finance function for Tech led public companies.

Quick study already well integrated into the organization and making an immediate impact. His addition rounds out our strongest debt executive team with diverse backgrounds spanning the core disciplines of our business the.

Pieces are set and the tail winds are in motion. We are full speed ahead here at Truecar.

With that I'll hand, the call over to Janssen.

Thank you Mike let me start by thanking the entire Truecar team for so graciously welcoming me and for helping to accelerate the on boarding process into just a few short weeks.

I've been so impressed by the depth of talent across all parts of the organization and I'm really excited to partner with you all to build the best in class automotive marketplace.

I joined Truecar, because I believe in the vision you've heard Mike articulate. This company has a unique opportunity to be of leading voice in the industry undergoing rapid transformation the.

Team did an excellent job in 2020 stabilizing the current core business. Most importantly, the business is built on a number of competitive moats that I believe are underappreciated. These assets include one a strong consumer focused brand with lots of growth opportunity to relationships with over 14000 franchise and independent.

Dealers as well as the diversified partnership network three of healthy balance sheet allow for strategic investments to further accelerate the business and for the talent base eager and ready to lead the industry.

From the outside looking in I.

I saw what I believed to be of significant dislocation between the current value scribed for this company and its true intrinsic value as measured by at the existing assets and its long term growth potentials.

Assets that are especially valuable in the rapidly changing industry since joining the team I have become even more convinced in that view.

And look for to supporting the business realizing its full potential.

I'll review, the financial and operating results for the fourth quarter of 2020.

Revenue in the fourth quarter came in at $64 million down 25% year over year.

The year over year decline was expected the largest driver being the loss of USAA unit volumes. Following the end of the partnership in September of last year. The unit losses best reflected in our franchise of revenue line items, which ended the period of $47 7 million down 28% year over year.

Independent of the new dealer product revenues or less directly impacted by the USA transition and therefore remained roughly flat to Q3 levels coming in at $9 9 million of $3 3 million respectively.

And lastly, OEM revenues ended the period of $2 7 million down 29% year over year, but well ahead of the original guidance, we had signaled of $1 million to $2 million.

These results reflect favorably on our ongoing effort to transition clients onto our Truecar military platform.

We ended 2020 with 14383 dealer customers down just one five per cent from the end of Q3, we sold less churn in the fourth quarter than we had anticipated as dealers continue to lean into digital solutions to capitalize on strong consumer demand. However.

New additions in reactivation remained challenged by depressed new car inventory and continued state level of restrictions on the retail activity brought on by the pandemic.

Total units for the fourth quarter ended just above 166000 down 33% year over year Truecar Dotcom units. However were down just 3% a good outcome, particularly given the 22% drop in branded acquisition spend which I'll touch on shortly.

Monetization for the fourth quarter came in at 382.

Up 12 per cent compared to the same period last year. We had signaled this increase which is the result of a large base of subscription revenue. The does not immediately readjust with lower unit volumes, while we do expect gradual downward pressure on the monetization of the course of 2021 as we anticipate growth will outpace the rate of recapture the fourth.

Quarter results demonstrate how subscription billing hedges against periods of volatility leading to more predictable revenue outcomes.

Now turning to expenses and margins for the fourth quarter of 2020, where all of the following metrics are for continuing operations and are reported on a non-GAAP basis, unless otherwise stated the.

The business generated $58 9 million of gross profit in Q4, the gross margin of 92% and in line with prior quarters.

Technology and development spend of $8 8 million was in line with the third quarter and down significantly year over year as a result of the strategic restructuring effective June one of 2020.

General and administrative spend was $9 5 million in the fourth quarter up slightly from Q3, but also down materially year over year.

In 'twenty and 'twenty, one we expect both of these line items to annualize to their current Q4 run rates with typical seasonality pushing of slightly larger portion of the expense into the first quarter of the year.

Sales of marketing spend our largest expense category ended up $34 5 million down 35 per cent year over year as a percentage of revenue Susan marketing improved nearly 900 basis points as compared to Q4 of 2019.

Within sales and marketing Truecar Datacom acquisition spend was down 22% year over year, ending the quarter of $13 3 million. Despite the significant reduction in spend true part of calm units were down just 3%, resulting in a cost per sale of $149, 20% below the prior year we.

I believe much of the efficiency you're seeing here is a result of ongoing investments in our technology and machine learning algorithms that enable much more effective audience targeting throughout 2020.

Our 'twenty 'twenty, one forecasts does contemplate a return to a more competitive marketing environment throughout the year as retail activity continues to recover.

Part of our marketing spend was $10 1 million in the fourth quarter down 42% year over year due to the removal of USAA revenue share and lower extended affinity unit volumes.

As a reminder, going forward much of this line is variable in nature and type two of affinity partner unit performance.

Sales head count and other the final category within sales of marketing ended the fourth quarter at $11 2 million in line with the prior period and underscoring the positive impact of the strategic restructuring.

In summary.

Q4 revenue fell 25% year over year significant efficiencies across all categories of our sales of marketing spend drove a 30% reduction of non-GAAP expenses, resulting in adjusted EBITDA of $6 1 million or nine 5% of revenue well ahead of expectations.

Much of this can be attributed to flow through from our revenue beat which was driven by less than expected churn across our dealer network and better than I expected OEM revenues.

GAAP net loss for the fourth quarter of 2020 was $7.7 million for seven cents per share compared to a loss of $9 seven nine or nine cents per share in Q4 of 2019.

In the fourth quarter, we continued to execute against our share repurchase program buying a total of $6 9 million shares at an average price of $4 four to four cents.

For a total of $36 million, we continued repurchasing shares in early 2021 deploying a total of 50 million since the program's inception.

At this time, we do not intend to repurchase the shares over and beyond the $50 million already deployed as we believe maintaining a healthy cash position of <unk> the business more flexibility as we look to accelerate against our product roadmap and strategic opportunities with attractive return on capital deployed.

I'd now like to provide commentary on our expectations for 2021 despite.

An improved retail environment.

And indications of widespread vaccinations may proceed of broader reopening of the economy of later this year the remains of heightened level of uncertainty and as such we will not be providing formal full year guidance at this time.

However, as we think about the year over year comparisons. The first three quarters of 'twenty 'twenty, one will be complicated by the USAA transition and the impact of the pandemic specifically the significant drop in unit volumes beginning in March of 'twenty, 'twenty and the broad based subscription discounts provided throughout the second quarter given the complexity.

<unk> will be providing in the range for our expected revenue performance in the first quarter of this year and we would expect to grow revenue sequentially from there with the bit less sequential improvements from the third to fourth quarter as a result of typical seasonality.

For the first quarter of 2021, we expect revenues to be in the range of $60 million to $62 million.

As it relates to adjusted EBITDA. It is managements view of that accelerating unit growth takes priority over near term profitability for Q1. However, we expect the healthy adjusted EBITDA for the remainder of the year.

We are keenly aware of the marginal unit economics for both Truecar dot com and extended affinity channels and will deploy AD spend more aggressively to take advantage of improvements to onsite conversion of monetization of our customer acquisition cost.

And briefly as Mike mentioned, we recently disclosed through an 8-K, the Navy federal partnership, which we expect to formally announce and launch in March.

We'll have a better sense of the near term impact of this partnership boss launch over excited about the long term potential and with that let's go to the questions.

We will now begin the question and answer session to ask a question you May Press Star then one on a touchtone phone.

If you are using a speakerphone please pick up your handset before pressing the keys.

Anytime your question has been interest and you would like to withdraw your question. Please press Star then two at.

At this time, we will pause momentarily to assemble our roster.

The first question comes from Andrew Boone with JMP Securities. Please go ahead.

Okay.

Hi, and thanks for taking the question.

As I think about traffic and its improvement and for Q and understood that was across kind of of all channels.

But I'm, assuming the majority of that was T. C D C.

To that point as we think about T. C. D C units down 3% year over year and broadly kind of trailing traffic growth through 2020, how do we think about the old builder and digital retailing more broadly improving conversion and is there a possibility of doing it can begin to grow faster than traffic overall and then.

Then on maybe federal and that was a really big announcements.

Understood. It starts in March and it's still really early there, but can you talk about kind of the levers and in your ability to grow that to USAA size and just any details you can provide today on the size of the opportunity. Thank you.

Yes. Thank you Andrew this is Mike. Thank you for the question.

Regarding the <unk> D C. A unit growth of our situation for Q4.

Down 3% that was driven some by the macro elements of what's going on out there with new car inventory some of our retail partners Big retail partners reported their Q4.

Unit number is not too dissimilar from what we saw on teams in D. C. So we're excited to see the traffic's up.

We are working.

Working on moving deal builder deeper and deeper.

Across the site, we're excited by the data we've seen by from the old builder.

And the early signs of art will have a positive certainly having a positive impact on conversion rate.

And also our NPS, which are both really key signs for us in executing that product. It exist now post prospect on Truecar Dotcom. So you know I mentioned some of the steps, we're going to take to push it out across our site into our marketplaces on new and used cars and then across our.

Our affinity partner network. So we're excited about the early data we're seeing for for deal builder around conversion and we definitely think it'll be one of the tools, we can use to grow conversion in 2021.

Regarding Navy Federal we were really excited to make that announcement.

Youll see us do more and more PR around that as we get closer to the launch.

As we want to be respectful to the transition of their current.

Current channel, but you know the.

The size and member of affinity to that so that brand are similar to what we saw at USAA. So we're excited about the ability to grow that channel.

We think we can take all the learnings from our <unk>.

Our long standing.

The relationship with USAA and begin to implement tactics to grow that channel very quickly.

Exactly how fast that will happen is a little bit hard to say, but it certainly has the the capabilities of being of equal size and remember we've also launched our military channel, which we can work in tandem with that to continue to reach into that audience. So we're excited we'll we'll we're looking forward.

To the launch in early March.

And then I think youll see us spend a lot of energy against that relationship doing all of everything we can to grow it.

Great. Thank you.

The next question comes from Steve Dyer with Craig Hallum. Please go ahead.

Thanks, Good afternoon, guys a couple for me.

First Jim.

Just looking at your dealer churn in Q4 over Q3, I guess I would've expected that to stabilize if not actually add net dealers in Q4 as you know as the inventory situation improved following the Covid shutdowns early in the year did you see something different or where are you.

Surprised and would you expect that you'd be net dealer adds here.

Q1.

Yeah.

Thanks, Steve for the question I think.

The the.

The churn situation on our dealer network is certainly under control.

We were unsure what to expect in Q4 from dealer churn being our first quarter without USAA.

And at one 5%.

We were glad to see it stabilize.

Part of our our efforts there will be to begin to bring on.

The new dealers onto our platform we spent much of of.

Q3, and Q4 getting our deal builder tool set out across our existing network and using our sales team to do that so you'll see us shift our focus of bid.

The churn numbers are at a very manageable level and we will start to add new dealers, specifically with the announcement of USAA or I mean with the Navy federal as new partner.

We expect net new dealer adds and number to grow quickly so.

We do plan to get back to.

Dealer growth in 2021.

Okay.

And then over the last I think of couple of quarters, we've seen a lot of the automotive Oems and balance some of their own sort of homegrown digital retailing solutions be it new or used.

Do you have of viewpoint on that I think there has been probably a half dozen of them or so is your view of their sort of trying to.

Cut all of the middleman, so to speak or can you work in tandem or what's sort of your thoughts about that.

Well many of the.

Of the digital retailing capabilities, you're talking about on the OEM side are the are the same ones.

That are working at the dealer level to build out the dealer capability. So we're in conversations with all of the software providers, we think our.

Our ability to integrate.

With them is going to be key to our success as we go forward.

There is a growing percentage of folks who are saying they want to go end to end, but the large majority of shoppers want to just bring more of the transaction online.

In a digital way and then transition to completing the deal at the dealership. So.

We're we're working with all the providers there is a lot of really good software out there and the key to that integration is the data and because we are working deeply with our partners on deal builder on getting their pricing data of their financing data and all of the data we need we think integration into the dealer platforms.

And the OEM platforms in some extent.

If that evolves into something bigger will be something that's very easy for us. So we're staying close to the the software providers out there theres a lot of good tools being developed in and we think what dealers will quickly turned to once they've made their choices is how do they fill those new systems up with traffic and we think we can be.

The key player as you know the.

Third party marketplace to feed those new systems with with bankers, who are partway through.

Through the journey and then can be connected into the dealership to finish it out in the very efficient way.

Got it okay.

And then lastly for me and I'll toss it back in the queue.

As it relates to your balance sheet. It's obviously substantial you bought back a little bit of stock sounds like youre, putting the brakes on that.

One of the thoughts going forward with the balance sheet in terms of reigniting growth I mean is that the technology, where do you sort of look to put that money.

Hi, Steve It's Jim June I think it's all of the above really it's the optionality that we have I think the balance sheet has a strong balance sheet. The company has a lot of opportunities going forward, both internally and potentially even externally and so.

Our ability to deploy the capital efficiently as.

We have various opportunities and obviously as we're moving towards that greater complete our end to end experience, obviously various opportunities to innovate and we can do the in various ways. So we'll utilize the cash at the that expense.

Thank you.

The next question comes from Nick Jones with Citi. Please go ahead.

Great. Thanks.

I guess two.

For me one.

What percentage of dealers or what kind of the disclosure. If you can give around the dealers that are really engaging with kind of digitizing their business performing of bigger piece of the transaction out of line, maybe all of it online and other.

The follow up is really just on I think you gave a percentage of of what kind of consumer engagement.

Feel better could you expand a little bit on net.

Of engagement you are seeing.

That product launch thanks.

Yeah, Thanks, Nick and I'll start with that question.

<unk> seen a major shift in a major acceleration from the dealer perspective on digital retailing and the processes they need to put in place.

That was one of the residual effects.

Of the Covid pandemic, there were certainly acceleration that went on there and I guess the dealers.

Began to experiment with the digital retailing platforms. They saw that many of the peers they had.

Prior to implementation were dealt with in a very efficient way regarding protection of growth and in those type of things. So theres, a very high very different percentage post COVID-19.

Men pre Covid and I think the data shows.

Probably 70% to 80% of dealers are leaning into digital retailing I can tell you from a personal perspective, we just recently had our dealer advisory board together.

And we asked them what percent of them or we're heavily invested in heavily leaning into digital retailing the.

The Ah meeting of go when we asked that question the number came in at about 60%.

And the last meeting, which we just recently it was 100% of the dealer so.

Dealers are very quickly gravitating to the software systems that are out there, they're seeing efficiency in their dealerships and improvement in their customer satisfaction numbers. So I think youll continue to see that grow.

We've been continuing to work to get our deal builder capabilities out across our network I think the last time, we chatted we were at about 50% I believe the number now is approaching 80% or above of our dealers of our using our franchise dealers who are using our deal builder capabilities. So that's important to us.

We didn't charge dealers for it we wanted to get it out there in mass adoption in and get it out there. So that we could launch deal boehner on the site. So you know the the dealers have of.

Embraced us and get it launched in there. They are encouraged by the results they're seeing that we've mentioned so we think those numbers will stay very very high from a penetration point of view.

Great. Thank you.

The next question comes from Rajat Gupta with J P. Morgan. Please go ahead.

Oh, Hey, good afternoon, good evening.

Thanks for taking my questions.

I just kind of the first one on the first quarter EBITDA guidance.

I mean, you had $6 million in EBITDA in the fourth quarter.

No.

And that kind of ex exclude the USAA a more of a baseline baseline number to work off of.

You talked about some you know.

The additional expenses during the first quarter and seasonality, but as you as we think through the rest of the year in terms of you know what you were expecting from a revenue progression.

And EBITDA progression perspective, you know from a margin perspective should we think about the $6 million in the fourth quarter as like a base of the run rate on an annualized.

The way or our.

Our expenses going to outgrow.

Doing the extent that we might be somewhere below that.

Just wanted some clarification of that.

I have a follow up thanks.

Sure Let me let me thanks for the question. So let me let me start with <unk>.

The for so Q1 to Q4, so Q4 for Q1 effectively of a sequential decline.

Consistent with like the typical seasonality some of them are one and if you didn't think about your expenses being variable and fixed and fixed really in Q1, yes, you can anticipate a little bit of the increased annual reset of non recurring benefits that you have in the first part, but really Q4 is probably a good run rate for.

Your fixed cost throughout the year.

And so and then really the variable element is the part that we're going to be a little bit more flexible on.

There's obviously a lot of opportunity for us to invest in the business, even though adjusted EBITDA is reimported to us.

We're also coming out of the rapidly changing year, and we want to maintain flexibility to accelerate the business and opportunities that we see.

Prevailing around us so I think the answer is that the business is the healthy business, we're pursuing healthy adjusted Ebitdas, but.

We're also feeling that there are plenty of opportunities to invest number one and then I would argue for a fixed cost base Q4 is probably the right run rates two of to assume for the remainder of the year.

Got it and just as a follow up to debt can you remind us like what the mix of today fixed versus variable like some of the restructuring you've done so far.

Well I would argue that probably the largest part of the variable sales and marketing.

Got it okay.

Okay all right.

This is Danny and I can quickly clarify on that the two line items that you can think of is primarily variable would be the truecar dot com acquisition spend.

And the partner marketing both of which we disclosed.

And you can use us more on the variable side.

Got it got it okay. That's the that's.

Very helpful.

And just from the capital deployment with the.

The cash on hand, just a follow up to one of the previous question.

One of the competitor in the scenario of.

The recently made an acquisition.

And in the <unk>.

Online of wholesale space.

Is that something or something along those lines would be would be of interest to truecar would you be looking to get into that kind of adjacency.

Or it's going to be more in around like the carbon business for.

That'll be all thank you.

Thanks for the question of Yours on this regard this is Mike.

The regarding the potential investment opportunities, we kind of got a jump one of them on the our competitors with two of the investments we made back in 2018 around dealer science and our accu trade.

Investment, which we've been working on for two years kind of enabled us to get.

To where we are today and as we look out over the horizon I think we will.

We'll keep a keen focus on enhancing our consumer capabilities and accelerating our opportunity to get to a complete end to end solution on Truecar Dot com and you know there's a number of areas you can look at in the.

And the work we have yet to do around.

Finance and insurance and those sort of things. So we'll look out across the industry and be selective, but we want to we want to keep an eye towards acceleration and if those opportunities are out there.

We'll be aggressive and make moves like we did with the.

With dealer science in Accu trade back in 2018.

Got it got it okay. That's super helpful. Thanks, and good luck and I just wanted to add one thing which is like remember also we're very disciplined as an organization. So.

This will be focused on return on capital for US is a very important element. So we're very patient operators at the end of the day for the business. So I just wanted to make sure that everybody is aware of that as well.

Fair enough. Thank you.

As a reminder, if you have the question. Please press Star then one to be joined into the queue.

The next question comes from Marvin Fong with <unk>. Please go ahead.

Great. Thanks for taking my questions.

And welcome gentlemen, congratulations on the new role so.

A lot of my questions have already been covered I guess, though.

Couple of still remained also on on OEM incentive.

Nice to see that come in ahead of your expectations just curious.

How we should think about that going forward I think.

<unk> you had indicated that USAA has caused some of the Oems the step back yet.

Now we have navy federal the look forward too, but we all five of chip shortage hurting new car production just.

But if.

I think of shedding a light on your thoughts about that that'd be great and then.

Follow up question, just on the search or not.

Sure.

Web traffic.

Talk about how that trended within the new car within the Truecar channel sorry, if I missed that and then just talk about how organic.

Search traffic has been performing.

That'd be great. Thanks.

Yes.

Yeah, Thank you Marvin and the and I'll I'll start with the.

The first question and we.

Oh, I'm, sorry hold on a minute.

Okay.

Im sorry Marvin.

Rob there for a minute.

Just connecting back remind me on your first question again I'm sorry.

Yes.

So how we should think about OEM incentives for the year for.

For 2021, yeah yeah.

Yeah the.

The OEM business.

We did see good signals from it in Q4.

And a lot of that was driven by the Oems embracing our military channel.

The Truecar dot com piece of that that we launched in May and we brought a number of our OEM partners over there if you look of.

On our site right now we have 11 different brands with FCA and all of their brands Audi and BMW.

And I think we mentioned on one of our last calls.

The USAA was a fairly heavy percentage up to about 60% of our OEM revenue in 2019. So I can tell you of our OEM partners are extremely excited about our our new deal with Navy federal Theyre looking forward to that platform because they understand the similarities and I don't think that.

The.

The chip issue will affect the OEM spend in the military category, they're pretty committed to.

<unk> discounts to that segment and have been really supportive of our efforts there.

You know the the the chip shortage as of drags out could affect I think mass market incentives, probably more more specifically than than some of the things you will see the Oems doing with the with us where they get very targeted around military.

Or conquest or some of those things so.

We're we're hoping for the the Oems to suppliers to get caught up on the chips.

And inventory levels in general get back to their levels, but we haven't really seen an impact of our military and and the.

The the Oems have been leaning into Truecar military since we launched and like I say they are very excited to see our navy federal credit Union.

The launch and I think youll see many of them move over to that channel. So you know we're looking for some some real good opportunities.

With the Oems.

In 2021 for sure.

That's great. Thanks, so much.

Marvin I kind of I can answer your second question on the traffic so.

Long story short.

We anticipate significant growth traffic growth in 2021.

Yes, there was a slight dip in effectively in the October November timeframe, but that was really impacted because of the prolonged election election season. So generally seems to have already bounced back.

Also remember USA as not necessarily of large traffic contributor so ready to traffic you've seen the past let me sneak mostly comes from our original two channels in the Truecar with Goldman extended affinity.

Both of obviously growth in both channels as our top priority.

And although traffic is important to remember the units effectively is what drives our business. So it's a it's always the focus of us and obviously, we are making structural improvements on traffic acquisitions.

As we already discussed in the in the in our and our other remarks as well so but long story short I think we have ample opportunity in both channels.

That's great. Thanks, I appreciate that.

This concludes our question and answer session I would now like to turn the conference back over to Mike Darrow for any closing remarks.

Mike before it before this is Jen two before given the the work to Mike I just wanted to highlight one thing that came up as a separate question at some point.

Which is the question around the <unk>.

Considered continued operate the discontinued operations in Q4 and the.

The the words.

Words around us basically the discontinued operations represent the operating results for ALG through the sale.

Date of 11 32020, plus the gain we recognized on the sales of LG. So I just wanted to make sure that's clarified as a clarification to our to our release earlier today. So I will give the worked for Mike.

Thanks for that Jen tuna, and thanks again, everyone for joining the call today, we're really excited about momentum that we're building and we're thrilled to have your support through this process and we look forward to speaking to all of you again soon so thanks again and look forward to Chad.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.

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