Q1 2021 TrueCar Inc Earnings Call
Ladies and gentlemen, thank you for your patience you are holding for today's Truecar first quarter 2021 financial results call. At this time, we are gathering additional participants and will begin momentarily. We appreciate your patience and ask that you. Please continue to hold.
[music].
Good day, ladies and gentlemen, and welcome to your Truecar first quarter 2021 financial results call. All lines have been placed on a listen only mode and the floor will be opened for your questions and comments. Following the presentation. If you should require assistance throughout the conference. Please press star zero to reach a live operator.
At this time it is my pleasure to turn the floor over to Scott Watkinson, Sir the floor is yours.
Thank you operator, Hello, and welcome to Truecar, Inc. First quarter 2021 earnings Conference call. Joining me today are Mike <unk>, our President and Chief Executive Officer, and Jan Soon Regus Man, 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 will intend confident and similar expressions and are not and should not be.
Relied on as.
A guarantee 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 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 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 <unk> Dot 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 now I'll turn the call over to Mike.
Thank you Scott and good afternoon, everyone I'll start my remarks today with a brief review of Q1, I'll, then remind everyone of where we're headed as an organization with a specific emphasis on where we play in the ongoing digital transformation of the automotive vertical and finally I'll close with some industry observations I am.
Pleased to report that through the unwavering and tireless efforts of the entire Truecar team Q1 is another strong quarter for Truecar.
Overall, we ended Q1 above both guidance and consensus forecast with revenue of $65 $1 million and adjusted EBITDA of a positive $2 1 million.
Quarter over quarter revenue increased by 2%.
Unit growth driven by a 26% increase from Truecar dot com and an 8% increase in affinity partner units was up 17% year over year, excluding USAA.
Throughout the first quarter, we continued to see slightly better than forecasted dealer churn in spite of the recent macroeconomic headwinds from chip shortages, which I'll come back to at the end of my section.
And finally due to the focused efforts of our field sales team, we saw quarter over quarter revenue growth generated through additional dealer products of 15% in Q1.
I would now like to highlight three of our key initiatives, starting with our deal building capabilities.
As I mentioned in our last call in November 2020, we launched the ability for consumers to build their ideal deal on line from the comfort of their homes, which we referred to as deal builder.
Truecar deal builder is a flexible experience that guides a consumer through the process of configuring and accurate car deal personalized to them based on their trading valuation preferred lease or loan terms down payment preferences credit profile, and all taxes and dealer reported fees and accessories associated with the trans.
Action.
Homebuilders solves for the most challenging part of online retailing.
Really the creation of accurate deals across millions of cars and thousands of dealers in the transparent guarantee cash offer free trade it.
In March we saw a 20% of Truecar dotcom, new prospects in other words consumers that have created connection with a dealer and a vehicle engage with truecar deal builder, representing an increase of 74% since Q4.
Since the November launch, 78% of our franchise network has adopted our solution further underscoring the value deal or see in the truecar approach and helping each of them address the current consumer desire.
Really important this now means that our consumers have access to over 523000, new vehicles when they build their deal.
It is important to note that we're building a two sided marketplace inefficient penetration and healthy growth in both sides of the market dealers as well as consumers is critical.
While we do have 78% and growing adoption by dealer partners. Our continued focus will be to grow prospects engagement with yoga.
In addition to increased adoption of the tool from our dealer partners and our progress in rolling out deal builder to our partner network. In Q1. We also launched this capability to our used car experience starting with certified pre owned.
This launch brings truecar deal builder capabilities to roughly 10% of our used inventory.
As we continue to expand our deal building capabilities to used vehicles by the end of Q2, we expect to have more vehicles than anyone and automotive with respect to enabling accurate monthly payments.
Our second initiative I would like to address is our checkout flow, while providing online deal building capabilities supports a more stress free process for consumers inefficiencies for dealers, we know that once the deal feels right consumers are going to want to proceed to a purchase this remains an area where there are still a few more pieces to address.
Yes, specifically the final checkout purchase process.
We refer to these final steps as the checkout flow, which includes aspects such as credit applications finalization of aftermarket products E contracting in vehicle delivery or pickup.
It is important to note that we believe there are two ways for a flexible approach to solve for the checkout flow.
Check out flow by integration with other SaaS platforms and native checkout flow process.
Let me address the checkout flow by our retailer platforms integrations first a significant portion of franchise dealers lean on SaaS partners to provide their digital retailing experience, including the checkout functionality.
The numerous high quality solutions being adopted by Oems and retailers means that flexibility is key for that reason. We've designed designed it opened API spec for API based integrations to standardize the transfer of data from our auto buying platforms dealers' digital retailing tools.
That way, we can provide a fully digital experience to our consumers, enabling a seamless transition from deal building to deal Finalization, while at the same time, we ensure active dealer participation in our marketplace.
As part of this we started a dialogue with various digital retailing vendors in order to support transitioning the consumer into the dealers preferred checkout flow.
Those conversations have progressed well and in April we launched our first pilot program in partnership with roadster.
Our two companies share more than 500 mutual dealer partners, who can begin supporting consumers desiring to complete numerous purchase aspects digitally.
Once a consumer completes all aspects of building their deal on our site. They are offered the ability to transfer this deal in the dealers roadster checkout process, which seamlessly integrates all deal details and allows the consumer to continue with the deal as built on our site. We're excited about this innovative pilot initiatives.
And look forward to seeing how it progresses.
While partner integrations are important we certainly also see real value in keeping our consumers within the truecar ecosystem by providing a native checkout flow solution.
We are assembling our own native checkout solution in order to support any dealer who doesn't currently have a digital retailing vendor solution in to support consumers, who wish to use our experience. This can be especially important for our smaller franchise and independent dealers, who perhaps don't have the resources to invest in a more comprehensive.
Digital retailing infrastructure.
Ultimately, we believe checkout flow in combination with our existing deal building and shopping capabilities will transform our platform into a leading automotive marketplace that enables complete online car buying at the scale of millions of vehicles.
The third initiative I would like to discuss is our truecar military and affinity partner network.
Our Q1 performance was driven in large part by strong performance in our affinity channel with multiple partners breaking monthly prospect volume Records in March.
Sam's club part spots and over a dozen other partners across all of our various affinity segments at all time highs. In addition to these record breaking performances. The launch of the Navy Federal car buying service has exceeded all of our expectations.
<unk> are working together on an exciting campaign, which is expected to start in June and run through the summer.
While it is still very early in the programs history, we're very excited about the potential in the initial performance of this partnership.
With partnerships with Gov X first commands and military auto source are also expected to launch campaigns in Q2 and continue to expand the reach of our Truecar military platform.
Between Truecar military and our new partnership programs. We are very pleased with the progress we are making in reaching and servicing the auto buying needs of the more than 40 million people that make up the military community and will continue to expand upon our efforts as we progress throughout the year.
Lastly, as I mentioned earlier I wanted to touch on the issue of the chip and inventory shortages.
As we've discussed on numerous occasions previously as a two sided marketplace, we sit squarely between demand and supply.
While our fundamental demand side metrics show clear signs of strength with sequential traffic and prospect growth of 16, five and 14, 7% respectively supply side restrictions continue to Mount.
Since last year, beginning with disruptions caused by the pandemic the auto industry has experienced a decline in inventory supply.
Inventory constraints have continued into the current year with the global chip shortage, the limited supply of new and used vehicles. In some brands has resulted in significant unmet consumer demand and led to an increase in prices that dealers charge consumers.
The reduced new car inventory levels paired with strong natural consumer demand as retailers closely monitoring demand generating sales and marketing expenses, which we believe will put pressure on our dealer count we.
We are also seeing supply side shortages impact our OEM revenue as certain Oems have opted to pause their current incentive programs due to limited inventory.
We share the widely held view that the chip and inventory shortages will be temporary in meantime, we remain focused on opportunities to help introduce the right car to the right consumer and nurture them with rich content to help them get to a buying decision.
I'd like to end by thanking our employees as they continue to push and focus on our end to end consumer experience in transforming our business to a true digital marketplace. Despite the continuing global pandemic and various other adverse circumstances and with that I'll hand, the call over to Janssen.
Thank you Mike let me start by underlining how impressed I am with the team continues to operate effectively in an ever changing market environment. The Truecar team continues to push forward and focus on our transformation as we keep gaining momentum.
Before I touch on our first quarter performance I would like to take a step back and remind everyone of the significant addressable market opportunity in front of us.
By 2025, the total addressable market of car sales is expected to reach 57 million units and according to industry reports, 40% of which is anticipated to be purchased.
Okay.
By 2025, the total addressable market of car sales is expected to reach 57 million units and according to industry reports, 40% of which is anticipated to be purchased digitally a total of $22 million.
This represents roughly 6 million, new and 17 million used cars, we are well underway towards offering a full end to end experience for our customers to address this need in both markets.
We have a highly respected consumer facing brands and a strong dealer network, making is uniquely suited to enable this two sided marketplace and provide consumers and dealers alike and awesome digital car buying experience.
I will now review the strong financial and operating results for the first quarter of 2021.
Revenue in the first quarter came in at $65 1 million down 18% year over year, but up 2% quarter over quarter the.
The year over year decline was expected with the largest driver being the loss of USAA unit volumes. Following the end of the partnership in September of last year.
As Mike mentioned unit growth, excluding USAA is a good proxy for our performance and we delivered a strong 17% growth year over year by debt metric.
Franchise revenue ended the quarter at $47 9 million last quarter over quarter independent of new dealer products came in at $10 $4 million on $3 8 million, respectively with quarter over quarter growth at 5% and 15% respectively.
OEM revenues ended the period with $2 8 million up 3% quarter over quarter.
We ended Q1 with 14148 dealer customers down just 2% from the end of Q4.
Total units for the first quarter ended well above 165000 year over year Truecar does global units were up 26% and extended affinity units were up 8% as mentioned before total Q1 units, excluding USA were up 17% year over year.
Monetization for Q1 came in at $391 flat compared to the same period last year, demonstrating our continued ability to preserve revenue in spite of the lingering impacts of COVID-19 has had on the units.
As mentioned in our last goal, we expect gradual downward pressure on monetization of the force of the year as we anticipate unit growth to outpace rate capture.
Re capture will always lag behind unit performance because of our subscription billing models as rates can only be altered when a dealer is eligible for a service renewal.
Now turning to expenses and margins for the first quarter of 2021, where all of the pulling metrics are for continuing operations and reported on a non-GAAP basis, unless otherwise stated.
The business generated $59 7 million on gross profit in Q1, the gross margin of 92% and in line with prior quarters.
Technology and development spend of $10 million was up from the fourth quarter due to seasonal expected higher head count costs associated with payroll taxes, but down year over year, driven by the strategic restructuring effective June one 2020.
General and administrative spend was $10 5 million for the first quarter up from Q4 due to higher payroll taxes in Q1, but down year over year, driven by lower bad debt in 2021, resulting from improved collection efforts on forecast assumptions.
Sales and marketing spend our largest expense category ended up at $37 1 million down 15% year over year, driven by lower creative and brand experience spend as a percentage of revenue sales and marketing remained about the same as Q1 of plenty plenty that's 57%.
Within sales and marketing Truecar of Gull acquisition spend was up 12% year over year, ending the quarter at $14 1 million.
Drew hurdles common units were up year on year, 26%, resulting in a cost per sale of $155, 11% below the prior year the.
The difference in year over year performance between acquisition spend on units reflects the macro environment. We faced last March in which we saw large decrease in sales at the onset of COVID-19 and therefore had an inflated cost per sale.
Part of our marketing spend was $10 2 million in the first quarter down 14% year over year.
Sales have found on other to final category within sales and marketing ended the first quarter at $12 8 million down 34%, primarily driven by the reductions in headcount that went into effect from Q2 of 2012.
In summary, significant efficiencies across all categories of our sales and marketing expense drove a 15% reduction in non-GAAP expenses, resulting in adjusted EBITDA of $2 1 million or three 2% on revenue.
GAAP net loss for the first quarter was $8 4 million or <unk> <unk> per share compared to a loss of $10 4 million or 10 cents per share in Q1 offs on each one.
I'd now like to provide commentary on our expectations for the rest of 2021, despite an improving retail environment. There remains a heightened level of uncertainty, especially around the industry applications due to the inventory shortages.
As such we will not be providing formal full year guidance at this time the year over year comparisons for the first three quarters of 2021 will be further complicated by the USAA transition on the impact of the pandemic specific needs a significant drop in unit volumes beginning in March of 2020, and the broad based subscription discounts provided.
Throughout the second quarter.
We will only be providing a range of our expected revenue performance for the second quarter of 2021 of $65 million to $66 million.
As it relates to adjusted EBITDA, we expect adjusted EBITDA to be above breakeven for the quarter.
We are keenly aware of the marginal unit economics for both through BARDA from an extended affinity channels and anticipate deploying AD spend more aggressively to take advantage of improvements through on site conversion monetization or customer acquisition costs, when new inventory levels return back to normalized levels.
And with that let's go to questions.
Thank you ladies and gentlemen, the floor is now open for questions. If you do have a question. Please press star one on your telephone keypad at this time, Inc.
We're using a speaker phone, we think well posing your question you pick up your handset to provide the best on quality again, ladies and gentlemen, if you have a question or would like to ask if you have a comment. Please press star one on your telephone keypad at this time, we will take our first question from Steve Dyer with Craig Hallum. Please go ahead Sir.
Thanks, Good afternoon guys.
Just a question on dealer count.
You talked about some of the challenges around inventory and so forth, but with that said we've seen you know maybe a couple of your other competitors I guess modestly add dealers nothing nothing enormous but I'm wondering if there was some residual maybe.
Dealer falloff from USAA.
That you feel like maybe is contributing to the to the dealer softness.
Yes, thanks for the question and what.
What we said in the in the call and I think what we saw in Q1 was clearly we did see a small drop off in dealer count, but it was actually slightly better than we had forecasted.
Anticipating that there might be some some residual fallout still from the USA a transition. So we actually came in a little bit above where we had projected our dealer count to be which was virtually flat.
For Q1.
There are some additional headwinds that everybody is mentioning in their calls around new car inventory and some of the things that are starting there.
To be discussed but.
We see our dealer count is fairly stable and we're working on on a day to day basis to make sure we're delivering value to our network as we see it.
Got it Okay and then just.
On the roadster.
Is the idea with that from a monetization perspective, that's a separate.
Most of the SaaS solution or separate I guess subscription.
Versus the monetization you get from actually selling a vehicle or how do some of these extra skip monetized.
We haven't completely finalized all the monetization.
Thoughts around that pilot program. The key was to get it out there and test the consumer experience.
And give our consumers a chance to fully build the deal out on our site and then smoothly transition them into the roadster checkout process and let them finish the deal there so.
We think there'll be a number of different ways to monetize that one you mentioned potentially as an additional product. The other would be you know, we're hoping to see a better.
Because of the better consumer experience, we're hoping to see a higher close rate.
We think there'll be a lot of good outcomes that come out of this test we do have consumers flowing through the process already.
Not really enough data yet to talk about but we're excited with what we've seen so far and we truly believe this is another big step for us in bringing more and more digital capabilities onto our platform in and being the first real digital marketplace modern day marketplace in the automotive vertical.
Got it makes sense last one from me I guess generally as you look around the industry, we're seeing more I guess vertical.
E Commerce solutions, whether that's from some of the big dealer groups themselves or some of.
Your competitors on things like that I mean, as you go to market in what's a very become a very very kind of crowded marketplace and end to end is obviously the buzzword, how do you sort of intend to differentiate going forward. Thanks.
Yes, I think we probably we talked about two solutions that we have to address that number one is we want to build a very flexible.
On a format on our side in an open API. So that we can work with with the folks out there are hard and developing their own solutions for the large dealer groups or even the fully integrated used car players who are out there now are members of our platform. So.
We'll come at it from from two approaches we'll make sure we have a flexible process that feeds into the software and solutions that the large dealer groups in the the verticals are building and then we'll have our own native solution that will continue to pursue.
To give consumers a chance to go end to end fully on.
On the Truecar platform and a lot of dealers out there, we're still figuring out what their digital retailing solutions going to be and we will provide a solution for those dealers. So we're going to go at it from two different ways. We think this roadster test is a big step in the first direction of of integration into some of the effective.
Platforms that are out there and then we will continue to work on our own flow, adding on to deal builder with a checkout process as we move through 2021.
Alright, thanks, guys.
Yeah.
As a reminder, ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad at this time, we will take our next question from Nick Jones with Citi. Please go ahead Sir.
Great. Thanks for taking the questions.
I guess looking kind of throughout the rest of the year here, how should we be thinking about your kind of.
Sales and marketing efforts, both on driving more traffic and winning dealers. If inventory is expected to be constrained I think at least in the next quarter on probably throughout the rest of the year due to the chip shortage in that net pressures that puts on.
Used car dealers kind of have lower inventory, how does how are those conversations going and trying to.
Regained dealers.
Yes, thanks for the question Nik and I'll start with the.
The traffic side of the business, we're seeing good traffic growth.
Both organic and efficiency on paid on our both our Truecar dotcom platform Anr affinity partner platform with.
We've added some new partners to the network, we talked about Navy federal credit Union being added in and some real record months from some of our opinion affinity partners. So we.
We really look at the demand side of our marketplace as being extremely strong right now traffic in the upper funnel is good and growing conversion to prospect is good.
Also due to our investment in the used car space over the past quarters seeing gross in our used car business.
All the signals on both the demand side for new and in our used car business are very very strong we will continue to monitor the inventory situation.
And make sure that we're delivering value to our dealers and we're staying in line with what we're able to deliver to them, but we see the supply side issue being short term.
Hard to guess what short term really is now I've heard.
<unk> forecast that we could begin to see improvements beginning as early as as June.
Other forecast say that may be an issue that we're dealing with through through Q3. So we will continue to focus on the demand side all of those indicators are strong and good and we will continue to drive that to drive value to our dealers in and if we have more of a shift to used during this low supply side on the new car.
We're prepared to deal with that.
Great and maybe one more if I can.
There are some reports that Google is testing, maybe getting more involved in kind of classify the listing of local autos any thoughts on how that could potentially challenge organic traffic or is there something they've tried to foreign fail just any thoughts on on those reports.
Yeah.
Anytime you hear rumors of Google getting involved is something it's certainly worth paying attention to.
We think what differentiate differentiates our site is not just the listings, but you know the comprehensive market data that we can provide around the vehicle listing and provide the consumers as they enter into the buying a phase of the shopping experience. So.
We think our transparency around pricing and educating consumers around not only what vehicles are available, but what a fair price is for that vehicle what vehicles similar to that or selling forward in their marketplace.
We will continue to differentiate us in and.
Like I said all of our all of our demand side metrics. Our are strong right. Now. So we're looking forward to the spring and summer selling season, and we hope this supply side pressure is short lived and that we find a correction for that.
Great. Thank you.
Once more ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad at this time again, that's star one on your telephone keypad to queue up for a question.
Mr Day Arrow, there appear to be no further questions at this time.
Thank you operator, and thanks to everyone, who took the time to join us today.
I'd also like to thank again, thank our truecar employees for their unwavering commitment and dedication to the transformation of the Truecar to the first truly digital modern day marketplace. So thanks for your time today and look forward to chatting to you again.
Ladies and gentlemen, this does conclude today's teleconference. We thank you again for your participation you may disconnect. Your lines at this time and have a great day.
Sure.
Yes.
Okay.
Yes.