Q2 2021 TrueCar Inc Earnings Call
[music].
Good day and welcome to the Truecar second quarter 2021 Financial result conference call.
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I would now like to turn the conference over to Scott Watkinson. Please go ahead.
Yeah.
Thank you operator, Hello, and welcome to Truecar second quarter 2021 earnings Conference call. Joining me today are Mike Darrow, our President and Chief Executive Officer, and Jan tune Rieger Smith, 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 become seek 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 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 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 true 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. This quarter is going to be a bit of a departure from our previous calls I'll start my remarks today with a brief review of our impressive Q2 results I will then discuss our view of the current market conditions and the opportunities and challenges, we see coming out of Q2.
Lastly, I'll remind everyone of where we're headed as an organization with a specific emphasis on where we plan to play and the ongoing digital transformation of the automotive vertical.
I am pleased to report that Q2 was another strong quarter for Truecar.
Overall, we ended Q2 above both guidance and consensus forecast with revenue of $65.8 million and adjusted EBITDA of positive for.
For $7 million.
Year over year, yet revenue increased by 12% and quarter over quarter revenue increased by 1%, while being constrained by retailer inventory availability throughout June.
Additionally, Q2 was a record traffic quarter consumer traffic at a historic high of $9.6 million monthly unique visitors.
This was partially driven by sourcing truecar and unique research content covering nearly 100, new vehicles since the beginning of the year for.
Prospect conversion was 7% for the quarter up from 6.2% and 6.3% in the previous quarter and Q2.2020, excluding USAA respectively.
Unit growth driven by Truecar dot com and affinity partner growth increased 39% year over year.
Furthermore, we added 3 OEM programs to our newest affinity partner platform Navy Federal credit Union.
Overall, our affinity partner channel showed 39% year over year unit growth and 26% year over year visitor growth while over 'twenty 2 partners set new monthly unit records throughout the quarter.
Strong retail demand for new and used vehicles was a key driver for Q2 retail automotive sales performance.
Early in the quarter, the overall recovery and economy was strong and consumer demand reached near record highs was April SAR being and highest since 2000 and flat.
This is despite a 45% year over year increase in gas prices from $2.17 in June of 2020 to $3.16, and June of 2021, coupled with a 6 year low and OEM incentives.
Additionally, new vehicle stock was $1.3 million units less in June of 2021 day in June 2020, and $2.6 million less and in June of 2019.
This combination of high demand and low supply caused Oems to reduce their marketing and incentive spend dramatically while they search for creative ways to adapt to the shortages.
Oems are continuing to make strategic decisions on chip allocation to high margin and popular vehicles and are experimenting with creative ways to build vehicles that can be completed when more chips are available.
Even with these solutions new vehicle inventory decreased significantly during Q2, and we believe it's unlikely inventory will rebound to pre pandemic levels before the end of the year.
Regarding the pre owned market vehicle acquisition was a key focus for many retailers.
The scarcity of used vehicles led to extreme competition between retailers and acquiring cars directly from consumers.
The new and used vehicle inventory scarcity and pent up demand allowed dealers to increase prices and decrease their SG&A expense to further strengthen their net returns.
And the face of uncertainty regarding new vehicle production, we believe retailers will continue to focus their efforts on pre owned vehicles and <unk> will address our plans to support our retailers in that area in his comments.
Digital retailing initiatives grew as dealers continue to build or partner for an end to end offering.
This demand led to a major consolidation in the digital retailing space between industry vendors, especially the large all in 1 providers that offer both Dms and CRM integration capabilities. We believe this consolidation underlines the importance of a more broadly applicable solutions for dealers and consumers alike.
And to have the best digital retailing experience 1 we at Truecar can uniquely provide given our consumer trust and our strong dealer network for both new and used vehicles.
This is a good moment to provide and update on our current products as well as our end to end solutions as I mentioned and our last call and the first half of the year..1 initiative, we focus our efforts on was expanding our deal building capabilities across our new and used car inventory and thus providing the ability to our consumers to configure monthly loan payments.
Including all taxes and fees for pre owned vehicles.
This obviously is a fundamental part of building and end to end solution.
And throughout Q2, we have been rolling out our deal boating experience across the used car marketplace and thus far we are happy to report that we enabled more than 60% of pre owned vehicles are approximately 500000 vehicles with accurate payments, helping our consumers purchase vehicles with complete price transparency and precise payments base.
On actual data from lenders.
In addition, and the last quarter, we continued expanding our deal building capabilities across our partner network, reaching approximately 50% of partner traffic and we intend to continue rolling out this experience across the rest of the partner network by the end of the year.
Overall, the number of consumers building deals on our platform continues to gain momentum with 25% of Truecar Dot com, new car prospects and 6% of Truecar Dot com and used car prospects actively engaging and are building deals in.
In addition to increased consumer engagement with the tool. We also see a very healthy increase and customer satisfaction with this experience and a 2 <unk> increase and the net promoter score on Truecar Dot com, which further underscores our shoppers desire for price transparency convenience and a stress free buying experience.
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We also observed 26% and 31% increases and close rate for prospects and build deals for new and used cars respectively.
Additionally in April we launched our first pilot program of a digital retailing integration partnership with roadster.
Our 2 companies have more than 500 mutual dealer partners configured to support consumers with a desire to complete various purchase steps digitally.
Initial data from the pilot and indicates that approximately 20% of consumers who build deals want to finalize their deal online and are handed over to Roadsters checkout process.
This is a very encouraging metric as we progress further and our vision to bring more of the purchase process online natively to Truecar Dot Com. We are also seeing the 33% of those consumers transfer from Truecar dot com to roadster checkout experience.
Fleet and submit a credit application.
As a reminder, we have designed an open API spec for API based integration to standardize the transfer of data from our auto buying platform to dealers digital retailing tools that way, we can extend the digital buying experience for our consumers from deal building to deal Finalization at the dealer while at the <unk>.
<unk> time, we ensure active dealer participation and our marketplace by integrating their digital retailing tools.
And while providing extensive consumer flexibility. This approach still remains a hybrid digital solution with opportunity for improvement from a fully contained solution.
In parallel we are actively working on a truecar native solution and end to end car buying experience entirely online, including all aspects of purchase finalization, such as credit application aftermarket products E contracting and nationwide vehicle delivery.
In fact, as it relates to the credit application and aftermarket product component I am very excited to announce that we have partnered with <unk>. The leading commerce platform for end to end digital automotive sales and financing to provide consumers with an easy and seamless process to explore auto financing directly from the truecar.
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Truecar consumers will be able to CD offers from a variety of lenders and compare them and decide what's right for their needs.
In addition, once they've selected their financing options and you'll be able to choose protection products and thus complete the essential steps of purchase finalization digitally on our platform.
I have alluded to this and the past, but want to take the opportunity here to provide some additional clarifying details our goal is to build and auto buying platform in the form of a 2 sided online marketplace that gives consumers the ability and the convenience of purchasing a car new or used from the comfort and a couch while it.
At the same time, providing our participating dealer partners the ability to efficiently market and sell units at scale.
In order for this to succeed we intend to combine the strength and trust of the consumer facing Truecar brand with the strength of our extensive dealer network to create a true 2 sided marketplace that enables dealers to transact their sales online within the comfort and convenience of the trusted Truecar platform.
This ultimately will provide consumers with a streamlined and enjoyable purchasing experience and allow.
Our dealers are for slipped data complete online car buying experience, thus, enabling them to scale, while being more efficient and highly profitable.
During the second half of the year as we seek to finalize the build out of our native and to end car buying platform. We plan to launch multiple milestone based test of our and inexperienced with a targeted set of dealers.
Here, we can test learn and iteratively improve our platform by working closely with our dealer partners to reshape the future of the online car buying experience.
Our goal is to have full end to end transactions flowing through our platform with our initial set of dealers and Q1 of 2022 and to scale up from there with additional dealers who share the vision of making this experience available to consumers who want it.
Before turning the call over to Jan tune and I'd like to thank all the amazing Truecar members, who through their unwavering focus and commitment have enabled us to deliver impressive quarterly results and our core traditional business while in parallel continuing our integration work with dealer digital retailing efforts and more.
Importantly, put us and are positioned to become the first automotive marketplace with a true end to end digital retail experience for both new and used cars within the first quarter of 2022.
And with that I'll hand, the call over to Janssen.
Thank you Mike These are super exciting times at the company and I am proud to see the strides the team is making and our transformation.
Before I touch on our second quarter performance I would like to reiterate the message Mike just underlined.
Despite the macro challenges, we delivered another strong quarter with units up 39% year over year, excluding USAA the closest proxy for our performance.
Looking ahead for the second half of the year, we do expect continued inventory constraints, while experts predict the Saar will continue to decline from original 2021 projections.
Volume brands, such as Toyota Honda and Kia and the American Oems will continue to lag behind the average yield on our day supply for the balance of the year.
Even though temporary in nature, we do anticipate continued pressure on our dealer accounts throughout the remainder of the year and.
And the near term, we will seek to partially mitigate this by fast tracking additional product offerings, especially used vehicle acquisition.
We also plan to expand our single and multi marketable frame or distance retailing at Soma Colette for pre owned cars. So traditional dealers can compete equally with the online retailers.
And the longer term, we are confident that the combination of our current business model with the before mentioned and to end solutions will make us a winning platform and the industry for dealers and consumers alike and other words, we have a fundamentally strong business with ample room for further growth and its current form in addition to tremendous value creation.
Opportunities and our new product roadmap.
So despite the macro challenges these are very exciting times at the company.
I will now review the strong financial and operating results for the second quarter of 2021.
Revenue in the second quarter came in at $65.8 million up 12% year over year.
The year over year increase was driven by a strong 39% growth and units year over year, excluding USA and bolstered by COVID-19 concessions, we provided to certain subscription arrangements and Q2.2020.
Franchise revenue ended the quarter at $48 million up 14% year over year and flat quarter over quarter.
Independent revenue ended the period at $11 million up 87% year over year and up 6% quarter over quarter.
New dealer product revenue came in at $3.7 million up 80% year over year for down 2% quarter over quarter.
OEM revenue and other revenue ended the period at $2.8 million and zero point $3 million, respectively, with OEM revenue down 42% year over year debt flat quarter over quarter.
We ended Q2 with 13159 dealers down 7% from the end of Q1. The primary calls with limited new dealer activation, a consequence of the constrained macro environment as dealers sell out their inventory.
Total units for the second quarter ended well above 190 for.
Year over year, Truecar, Broadcom and extended affinity units were both up 39%.
Monetization for Q2 came in at $336 up 16% compared to the same period last year. The year over year increase was driven by a combination of strong growth and units year over year, excluding USA and bolstered by COVID-19 concessions. We provides the surgeon subscription arrangements and Q2 of last year.
Now turning to expenses and margins for the second quarter of 2021, where all of the following metrics are for continuing operations and are reported on a non-GAAP basis, unless otherwise stated.
The business generated $61 million and gross profits and Q2 and gross margin of 91% and in line with prior quarters.
Knowledge and development spend of $9.6 million was down from the first quarter due to seasonally.
Specced on lower headcount cost and down year on year, driven by a lower head count and general.
General and administrative spend was $9.8 million and the second quarter and line year over year and down from Q1, due to lower head count costs and professional fees and currency.
Sales and marketing spend and our largest expense category ended at 36.
Zero million up 42% year over year.
As a percentage of revenue sales and marketing improved 200 basis points to 55% as compared to Q1.
But it is up 11% from Q2.2020 due to our decision to dial back on marketing during pandemic related lockdowns and the prior year.
Within sales and marketing Truecar Datacom acquisition spend was up 145% year over year and down 4% quarter over quarter, ending the quarter at $13.5 million.
Truecar Duff Goldman units were up year over year, or 39%, resulting in a cost per sale of $130, 16% below the prior quarter and 76% above the prior year.
The difference and year over year EPS performance reflects the macro environment, we faced last year, and which we pulled back on acquisition spend and therefore had a deflated cost per sale.
Partner marketing spend was $11.6 million, and the second quarter up, 14% and 68% quarter over quarter and year over year, respectively.
Those have gone and other the final category within sales and marketing ended the second quarter at $10.8 million down 70% year over year, primarily driven by the reduction in head count and went into effect in Q2 of 2020.
In summary, significant efficiencies across all categories of our sales and marketing spend drove a 3% reduction and non-GAAP expenses quarter over quarter, resulting in an adjusted EBITDA of $4.7 million up 126% quarter over quarter.
GAAP net loss from continuing operations for the second quarter of 2021 was $7.1 million for <unk> 7 per share compared to a loss of 11.4 million or <unk> 11 per share and Q2 of 2020.
I would now like to provide commentary on our expectations for the rest of the 2020, 1 despite an improving retail environment and the first half of 2020, 1 and there remains a heightened level of uncertainty, especially around the industry implications due to the inventory shortages.
While our core business fundamentals remained strong increased pricing and further constrained availability of new car vehicles.
As we began to experience and Jude will create an uncertain environment for new unit retail volume until inventory approves.
As such we will not be providing formal Q3, our full year guidance at this time we.
We will continue to manage the business responsibly and expect above breakeven adjusted EBITDA for Q3.
And with that let's go to questions.
We will now begin the question and cash.
To ask a question and Im sorry, and then 1 and you touched on.
And you are using a speaker phone please.
You had a 4 percentage points.
Inc.
And on your questions and interest.
And we would like for all of your question. Please press star and scale.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from EBITDA.
Dyer with Craig Hallum. Please go ahead.
Thanks, Good afternoon guys.
I have missed this I know you sort of touched on.
The dealer count quarter over quarter down fairly significantly, but I don't know, what I heard or rebuild or or sort of what youre seeing real time.
Why that was and why you expect that pressure to continue.
Hey, Steve This is Mike Thanks for thanks for the question.
We did see some downward pressure and in Q2, particularly the second half of Q2 with the dealer dealer.
Dealer count.
On a very very high percentage of that was based on the limited inventory availability that was out there and the marketplace.
And we.
We've begun to take some efforts as you saw and some.
Some of <unk> comments around shifting some focus to the used car side of the business, but we feel we've got the dealer count under control.
Even with the decline we had in Q2, we were able to hit above the topline revenue number the big impact that we're seeing.
Around the decreased inventory and then the resulting.
On retail pricing, that's going on and the new car space is that its creating some creating some uncertainty.
Around new car close rates.
And about 30% of our business as you know is is pay per sale and with an inability to really get our arms around.
Our close rate based on data that came in and Q2 was a quarter of 2 different stories.
April was a great month record Saar and looking back to like 2005.
And then we saw inventory began to change the story through May and then into June so.
We feel confident we've got the dealer count issue under control our core dealer network remains very strong and intact.
And our biggest.
Our us GAAP I guess and in what we're looking at is what what happened and new car close rate as we go into Q3.
Got it okay.
And I guess looking ahead, I know, you're not giving specific guidance for just given the fluctuation and dealers and things like that Q3 is typically pent up.
Modestly from from Q2.
Great.
Would you expect that relationship to hold this year or.
The lower dealer number going away on that.
Yes, I think what we'll see coming out of Q2, as we will face some pressure on net sequential quarter growth and in Q3, not necessarily like I said because of the dealer count.
But on the uncertainty around pay per sale units.
That will flow through the system and in Q3 and and listen we're on.
We're very proud of the business coming out of a very strong first half.
And what we were able to accomplish we are bullish on on where the business is going to go both for our core business and and the things that we've been able to put in place too.
And to advance our end to end digital retailing platform.
We provided some details on and we're excited about.
And the impact that's going to have on our business. So.
This inventory situation as a very temporary situation.
We know.
We will quickly work our way out of it and we're confident that.
And then as inventory starts to build we will see close rates come back up pricing will normalize again on the new car side and.
And it gives us a better line of sight on our top line number for Q3 as that happens.
And I guess I'm not entirely sure maybe could you explain the close rate.
The pay for sale close rate piece of it.
And I generally understand that's about 30% of your business, but how is that right now being impacted.
Yes so.
And as we talked about on the call.
And the key metrics the fundamental metrics to our business are extremely strong. So in Q2, we set all time traffic records and.
And prospect records for what the traffic coming through our platform. So those are 2 of the 3 fundamental metrics, we look at to calculate and and forecast our business and those are at record levels. What's happening is as we send people into the marketplace at retail and they're finding a very very limited.
Selection and on what vehicles, they can't find they're seeing pricing thats kind of unprecedented to the time.
And so thats impacting the close rate, which as you know on our pay for sale units drives that business.
So hopefully that explains it like I said visit and the core fundamentals are strong top of funnel is very good conversion rates. Good it's just without inventory.
In the marketplace and with the pricing on the vehicles that are available on.
And our shoppers arent arent finding a solution.
And so they're buying needs.
And at the rate we normally see.
And so then maybe the deviation I guess it sounds like between your your results and outlook versus your competitor who reported. This morning is largely you're you're much more tied to new which is a hard place to be a profit.
And we will be for a little bit yes.
Well were not only more tied to new but we're also more tied to the transaction right.
We've always talked about being very accountable and running and our system of attribution that ties us to the success at the dealership with sales.
The other reports youre going to hear about marketing numbers and software sales products and things like that we're running more of a pure marketplace.
And we're affected more in times like this when inventory gets so low.
And dealers react by raising prices the way they have.
So that's a big piece of the puzzle now what that allows us to do and I have had this conversation as it sets us up.
To be successful and moving this end to end process truly into place.
And excuse me so.
We're excited about the progress we're making there we've seen good results with the products, we have launched around moving consumers further along the process digitally.
And we'll we'll be ready in Q1 to start Q1 of 2022 to start flowing and to and car buying solutions for both new and used through new and used through the system. So yes.
Our reported is different and that we actually.
Tie our success to the dealer sales.
Got it helpful. Thanks, Mike.
Mhm.
Our next question comes from Marvin Fong with <unk>. Please go ahead.
Okay.
Great. Thank you for taking my questions.
Yes, just to revisit dealer count actually perhaps more of a.
Forward looking question, but.
When inventories do return to normal how would you expect the dealer count to behave what should we expect a pretty a pretty sharp snapback.
I appreciate the difference between dealer count and the unit sales that you just spoke about Mike, but just in terms of the excellent dealer count how would you expect that to come back once inventories normalize.
Yes, I think we will see it come back more of and how quickly. It comes back we will probably vary by franchise will vary by how quickly the brands get caught up on their inventory and and how that happens. We track reason codes and very very closely on through our system on a dealer leaves our platform.
And like I mentioned.
Very very very high percentage of the folks, leaving our platform our quoted are.
Our stating that the reason is limited inventory to no inventory to sell so we expect that to respond very very quickly.
Once the units start to build back up.
We feel strongly that we're viewed as a very efficient investment for dealers when they are selling cars and.
And bringing consumers and on that those units. So we think it'll come back quickly. The challenge, we're having and I think everybody probably face and the same thing as the information seems to be inconsistent.
About when inventory will come back it varies by brand and that varies by model a lot of different discussions going on as to how thats going to come back. So we're keeping a close eye on it and we're managing our dealer count.
We're managing our business through Q3 and and.
And we'll look forward to good results, but we just didn't have enough data.
Around close rates.
Put a forecast or our guidance out there, but we expect this to be very short term and and we think it will snap back to your question.
Thank you and.
Couple of follow up maybe for John staying up.
On monetization.
If I back out total.
OEM incentive and new dealer products that it looked like it came down pretty significantly.
Maybe closer to where it's been in prior quarter could you just kind of.
For for the year because of that <expletive> because of that mix between subscription and 1 on and and paper. So.
Your question on the marketing side. So there are a couple of elements associated with it. So 1 is obviously everybody currently and the Indy industries focusing on the same keywords right everybody's focusing on used and so there's a there's some elemental for for your ghost off marketing overall, though remember that the advent 1 of the advantages that.
Think we have is a business models are pretty much 50% of our our cost structure is flexible and variable and so a large part of that is marketing. We're very day marketing team that we have is a very good team and we were very adequate and moving and according to the channels and and see the right opportunities as we've been doing and as you've seen over the last couple of quarters, We've got on the <unk>.
Very very efficient and our marketing spend and our calls for the acquisition and.
And this obviously is a little bit of and and and interesting time.
<unk> and all the different players are effectively focusing on that and kind of the same channels, but overall, we feel we have a lot of room no. The only on the performance marketing side, but also on on like more of the overall brand marketing at the trial, I mean, getting Mike and and in his remarks already alluded to effectively we've now rich.
And articles on the hundred vehicles that have that have received a lot of unique visits at the try and so there's a lot more room for us to also create more visitors and accordingly.
And it's in that but we have seen some real interesting things and the first thing I mentioned and.
And the pre read was that 20% of people who get to the stage of do you want to finish the deal online are clicking that they do I think thats a number higher than what you hear from the marketplace and oftentimes you.
When you talk to a retailer they will say less than 10% of my volume is.
And is.
Fully digital or people, who want to do the deal fully online we're getting indications that the numbers much more significant and that through our roadster test.
We're seeing good NPS customer satisfaction numbers for the folks flowing through it.
So theres a lot of good data that we will be able to talk about more as we gather more overt regarding sales and clothes and things like that.
And as far as the relationship with Roche there is very strong.
I talked to Andy after the company was acquired he was excited about it.
And they create a bigger footprint for them and the marketplace.
And their relationship with CDK and and a bigger footprint for roadster. Therefore provides a bigger opportunity for us to expand that business with them. So we've gotten a real positive.
Our reaction from particularly our big dealer partners on our approach to leaning into the.
Digital systems that the dealers are investing in roadster was the first 1 of those and we're real happy with it we hope to see that 1 grow and we have plans to add more more of those digital retailers to the system as we go.
And just I'll just add 1 thing.
To add 1 thing that I think is important.
The roadster integration is interesting for us because it really is a further qualification of the leads for dealers, but at the end of the day. It still is a and some ways only a partial digital integration was really where were focused and where I think the emphasis has been also and the preamble has been around.
And also building out and much more native solution on the true end to end.
Effectively 1 step further so even though the roadster integration is a very interesting BARDA and is really our responsiveness to our dealer network to enable.
A variety of options to integrate with our system and some shape or form is really day native piece and will enable a true transaction happening online.
Got it got it.
And I don't know if this came up on your on the call, but 1 of your peers.
And this instant online appraisal tool.
Helping dealers source inventory from retail customers.
And which has amplified over the last few quarters.
But just curious if you could share your thoughts on the Diamond and then again.
And Youre looking to.
Venture into any such avenue going forward as well.
Maybe that can time for the capital allocation as well.
Yes, we're looking at certainly leaning into.
Our dealer partners acquisition of used vehicles.
1 of the ways, we've done that is through our deal builder product.
The best way and.
Still 50% of the people who are transacting on a new vehicle have a used car attached to that we put a guaranteed value on those trades for our for our retail partners and Theyre getting interesting volume through that.
You've always got our eyes openness and things.
Things, we could be doing to help dealers and the used car acquisition space.
We have a <unk>.
Sell my car feature.
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