Q3 2021 TrueCar Inc Earnings Call

Good day and welcome to the true car third quarter of 2021 financial results Conference call.

You know this event is being recorded I would now like to turn the conference over to Xena Corrie Vice President Investor Relations. Please go ahead.

Thank you operator, Hello, and welcome to true cars third quarter 2021 earnings conference call joining.

Joining me today are Mike Darrow, our President and Chief Executive Officer, and Jan tune Rickerson, Our Chief Financial Officer.

Our third quarter stockholder letter, which was issued on Wednesday November 3rd aftermarket clothes is available on our industrial relations website at I R Dot true car Dot com.

We also issued a press release across P. R newswire with a link to the letter.

Before we get started I want to remind you that we will be making forward looking statements on this call, including statements regarding true car plus and our Prequalification home delivery and tell your car experience solutions, our partnering arrangements, including those with Navy Federal credit Union.

And Ah we.

And our dealer marketing spend and the macroenvironment, including automobile inventory levels.

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 a seizure.

[noise] performance or result.

Actual results could differ materially from those contemplated by are forward looking statements.

We caution you to review the risk factors section of our annual report on Form 10-K.

Our quarterly report on Form 10-Q, and our other reports in 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 gap 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 I R Dot true car 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.

With that I will turn the call over to true cars, President and Chief Executive Officer, Mike Darrow for some opening comments Mike.

Thanks, and good morning, everyone and thanks for joining us when I Hope you all had the opportunity to read our first stockholder letter that we issued yesterday after the market closed I hope you. All appreciate her new process and I invite all of you to read about the vision was shared for through car plus our modern marketplace that connects consumers with dealers to complete.

The vehicle purchase entirely online.

I believe.

Pluses unique because of all three true and and car buying experience.

In our marketplace ready to buy consumers will be able to access a broad selection of hundreds of thousands if not millions of vehicles from dealer inventory as we scale Truecar plus.

Once they identify a vehicle consumers will be able to complete each step of the card minding installing jury within its record close environment.

Means there'll be able to build a personalized deal that includes a trading range for financing complete your purchase and take delivery all from the convenience of their home.

Where in pilot would you start blushing, one mortgage with a select group of your partners and I've ordered a great deal through continuous testing.

We were using these learnings to improve the flow and connection point between consumers and dealers ahead of our plan for my lunch or two four plus and the first quarter of 2022.

While the Macroenvironment remain challenging during two three we managed our business prudently at the same time, we are investing in the future with regard plus and positioning ourselves to benefit as more and more of car buying and selling process moves online.

I'd like to thank the amazing through Cortines, who commitment and dedication has enabled us to make strong progress towards delivering truecar plus a modern automotive marketplace for new and used vehicles that will provide a true and and digital retail experience.

Before we opened up the call for questions, we're going to address some questions that have been on the minds of some investors <unk>, what's the first question.

[noise]. Thanks, Mike I have two for you and one for Canton. The first question is.

Your vision for Truecar pluses interesting, but don't car buying market places already exist, how it's true car plus different from what is already available.

Thanks <unk>.

Many companies use the term marketplace to describe what they do a trigger we don't use the term as a buzzword we use it as a guide for our investments and partnerships like dealer science accurate trade in auto fly to deliver a true modern day shopping experience in the case of Truecar, plus we're planning to deliver a two sided marketplace that enable.

Consumers to connect with dealers to provide a true and the and car buying and selling experience for new and used vehicles set in a native truecar plus environment.

A true into inexperienced <unk> entire journey will be available online.

That includes vehicle discovery across a selection of potentially hundreds of thousands of vehicles Transactable vehicle pricing Personalised deal buildings that includes the trade in value.

Hi, Nancy can protection products completed purchase an in store or at home delivery.

Consumers will be able to carry out each step from the convenience of their home without ever having to set foot in a dealership unless they choose to.

Other innovative companies have proven the model for digital sales of used vehicles, however, they're constrained by limited inventory.

Additionally, there's not been as much progress on the news side because of the complexity, we've been laying the foundation for true digital end to end purchases for the past three years through acquisition in product development. We think the marketplace approach that we've taken with <unk> plus will allow us to provide a unique offering for new and used vehicles that will have benefits.

For both consumers and dealers.

Thanks, Mike. The next question is for <unk>.

Can you speak to the financials at a high level and give us a sense of how the third quarter played out Additionally, you're not providing guidance, but what can you comment on.

Absolutely thanks for the questions and if so uhm three parts to the question and I'll answer all three so one regarding the Q3 financials. So.

Our third quarter revenue was 55 million, which was down 28.8% year over year and 16.4% sequentially. This was primarily due to limited you view vehicles and inventories are crucial our dealers for business really driven by the macro uhm ongoing semiconductor shortage and over.

Rules with large and issues. So it's very much out of our control the stage.

We continued our prudent ghost management, so we achieve the need just that EBITDA 1.5 million as compared to 20.5 last year.

And four seven in the second quarter of this year, but I think it was really important for us to just keep on being very prudent, especially as we started thinking about the ramp up with trigger locks going forward.

Our balance sheet remains strong with 251 million in cash and zero deaths on the bottle. So it's a little something really important to note and is more challenging micro environments. If you think about ear. Today 2021 has really been the bill to have during the first half of the year.

The industry souls are numbers effectively raising through April.

Super strong rebuild demand since the beak Sars decline inventory levels have gone progressively worse and this is effectively continue through the third quarter and we don't expect is necessarily to return before the end of the you're at least so.

So if you think back or what happened during the 20th 20 overall over the year is that there was a recovery after goal with if you look back of last year ago would really seem to have been his only in a single order.

Whereas this seems to be much more pronounced and also take longer to resolve and probably will extend into next year and so it's something we're just the <unk> and ready for obviously these inventory levels would happens in our business models that there's a strong correlation between the level of inventory and are closer.

Rates and therefore directly in fact, it affects our financials in particular paper still the close race.

<unk> are effective Lola only by purely inventory levels spittle loosely at lower inventory levels are so market pricing adjustments happened on the on a per vehicle basis at the dealerships, so which makes it obviously our business model slightly more susceptible at the paper skill level.

Uhm regarding your question on guidance. So given the continued uncertainty in the market the remote providing any guidance for the fourth quarter.

Although we believe these headwinds are temporary we expect a little change in the macro for the balance of 2021 and possibly into 2022 until at least the inventory started rebuilding.

Many of the metrics throughout our product floor, holding up pretty well, it's really isolated towards the close right at the end of the day of people walking into the dealership and then effectively buying a car or north and so we will continue managing our business Super prudently like the way we have when we've proven over the last couple of quarters mm mm one.

Really good example is how we will be scaled back our performance marketing spend as we saw the inventories decrease pretty dramatically and so we were very responsive towards the business overall over the long term. However, we expect conditions and inventories to improve and the pendulum of the inventory will swing back.

So to prepare for that that continues to lean in reinvest in both of our four business as well as the trooper plus business and we see huge prudential's for the business long term.

And obviously true Careplus gives us a really nice opportunity to focus on the on the car buying a car buying and selling experience really as it shifts moral line. So we will continue to manage our business prudently invest in strategical through initiatives that will position us for growth and increased monetization.

Once we see a more meaningful recovery and and inventories overall so thank you for <unk>. Thank you <unk> Mike. The next question is for you. It seems that inventory shortages happened more have been more prevalent on the new side first as they used vehicle side.

How has the side of your business been trending.

Great questions A&M, we're pleased with the progress we've been making on the used car side of the business I think many investors take a true car is mainly focused on new so we're happy to highlight you use vehicles side of our business.

During Q3 used vehicles as a percent of total units accounted for 45% up from 38% in Q2, and 41% a year ago are independent dealer count also increase year over year, when compared to Q too.

We are strengthening our used car business by fast tracking solutions and our stockholder letter we discuss the Q3 launch of our pre qualification experience.

In queue for we expect to launch our home delivery pilot, which we believe will help level the playing field for traditional dealers competing with digital dealers and finally, we expect to launch a new sell your car experienced in queue for to help deal or source vehicles directly from consumers.

Thanks, Mike now operator, let's open up the call for questions from the audience.

We will now begin right question and answer session.

To ask a question.

You May <unk>, sorry, then one on your telephone keypad.

So let's try your question. Please press Star then tail at this time, while paused momentarily to assemble the roster.

The first question come from.

Rajat Gupta from J P. Morgan. Please go ahead.

Hi, good morning, Thanks for taking the questions just had a couple are so untrue plus.

Could you give us a sense.

Just the cost of the dealers on a bar transaction basis.

What's the margin trade off for the dealer no why you know using this regardless platform.

And how <unk> how have you seen the traction you know the Florida group given like the diet adventure environment in terms of adoption, while that platform and I have a couple of follow ups.

So a ratchet. Thank you for the questions that we have not disclosed anything around economics, yes, we will do so at the right time, but will at the moment, we have molds then.

No bun anything around that.

This is really focused on the pilot program. So this is really.

Making sure we do all the right testing really product focus et cetera, we have really good traction on the top end of the formal we have really good into visibility on the flow through the pharmacist address over learning a lot and we're adjusting of loss and those are really interesting pilots for us to run in anticipation of the bigger launch will be seeing you in Q1.

So things are going really really well, we identified a series of tests and we're on track of doing these tests and so overall, we're in a really good place where we were really wanted to do with the purpose of this letter was leaned forward and articulate to the market all the things we're working on at the right time, we've come forward with much more clarity around unit economic.

Potentials.

And scalability around Truecar cloth over the course of the teams when you do.

Understood is there an opportunity for higher monetization here I'll just anecdotally.

Okay, and I would say I would argue significantly higher monetizations is probably the right word to use.

Is that is that coming from like maybe getting more sure of yet deny or is there any other part of the transaction that allows you to get that apart from just overall experience just curious as to what.

What buckets, we should we thank God. Thank you are allowed through online by.

By helping dealers leading into your online sales I think you're you're allowing them to think through the reshaping of the buy in its entirety and we're going to help them really be able to compete with lower level of the other online platforms out there.

<unk> do direct sales and so as a result, I think there is a lot of opportunity for all of us to to reshape some of those economics, which obviously would be beneficial to us as well.

Understood, Okay, and you mentioned you know.

That took off with export expands the dealers reach beyond like to put in Zip code.

Provided more national audience How'd, you tackle that for new vehicles.

Well all you seem to moving a restriction there in terms of you know supplying the lakers to different zip codes different states. So how do you manage.

That just as two car plus email Gainesville traction.

Sure some of those will be very much zipcode based at the end of the day. This is obviously a as you start thinking about it for the longer term rollout. So we will obviously be in compliance that goes without saying.

At the end of the day the great thing that we have currently is obviously a very vast network of dealers that are across the country. So we can then really think through both national and localized offering and depending on the different states and the different locations of ZIP codes, there are more or less restrictions, where we are able.

<unk> adapted up accordingly, given the vast.

Asked amount of dealers, who obviously have on a network as well as obviously the large amount of inventory would have available on the site.

He just seemed like I, just I would just add to <unk> comments, you know that we're really focusing in queue for on getting the consumer product doubt in and really lined up the right way. We believe the winner in this space will be the ones, who deliver the best consumer experience and we're working closely with our dealers in the market to make sure.

We're achieving that we think the rest of these things will all fall in place as we show that we can deliver a really high quality consumer experience.

And something that the dealers are excited to lean into so that will have more information on the aspects of what we'll be able to charge for this and what the value exchange will be as we learn more but we're really doubt and now I'm, making sure we get the product right.

Great. Thanks for all the Colorado jump jump back in queue for email follow ups. Thanks.

The next question comes from Nick Jones from City. Please go ahead.

Great. Thanks for taking the questions I guess, just a couple of just kind of traffic trends.

Sure with a letter some of the channel partners are seeing kind of more I guess prospects there growing faster than the actual traffic volumes can you speak to that I mean is there enhancements to the partner channels, where they're kind of.

Highlighting the truecar offering a little bit more are there things youre doing that are kind of driving prospect prospect grows faster than traffic.

I think thanks for the question they get I think what we're seeing there.

Is there is.

There's a lot of interest for folks to try to find the vehicles that are out there so our our upper funnel metrics.

Around the business are extremely strong.

Traffic numbers are great our conversion.

The prospects are good.

The challenges are coming in the clothes right. So.

Our partner networks always are leaning into our buying channels and we're continuing to see that happen and we expect it to continue there's there's really strong signals from the demand side of the business across all of our aspects of our business our partner business R. T. C. D C plus channel, it's just with the limited supply out there.

We're facing some challenges with close right.

Got it and then when I look at kind of overall traffic I think I like Paige too.

Traffic was down kind of sequentially.

What do you think underpinning that it is just a strained environment and consumers are struggling to kind of find cars and there. They are discouraged and not kind of as engaged as an upper funnel contact challenge that you're kind of contingency working on any color.

Just hire thinking about the top of a traffic to kind of true cause I think I think you again. So next week I think you can look at it two different drivers. One is we've obviously pulled back on performance marketing as well. So that has one among drive are obviously on the marketing side, which is a pretty much a direct consequence overall.

<unk> pullback the other one is.

Also one of the things we see is a discretionary buyers are effectively more and more out of the market.

And so.

You'll have so then also you don't to deploy and less marketing dollars again is what's a little bit of a vicious circle to just to be mindful.

But those are the two main drivers for for the traffic.

Got it thanks for the questions.

The next question comes from Marvin <unk> of B T. I D. Please go ahead.

Good morning, and thanks for taking my question. Some couple of follow ups on Truecar plus.

Any any additional color you can provide just sort of how many of your your 13000 dealers you think true car could believe could be applicable to.

Shall we think about it.

Equally.

[noise], but equal potential between your franchise are independent and independent dealers or is this mainly independent offering and then I have some more questions.

So I think.

Long term it should be very attractive to everybody right. So.

Near term you can imagine that obviously used independence are very interested because it allows them to do something fast or no listen to use it's probably easier to to transact with less legal complexities, but.

But like franchises equally are super interested to lean in where these are all conversations we're having life right word we're now piloting as Mike said before we're really focused on the products to the consumer side of the product development.

And so we've we've also obviously reconfirmed the launch or with commercial fully commercially by Q1 of of becoming year and so these are conditions were having but the short version is it's a very.

Broadly applicable for everybody and it also really allows dealers to have an opportunity to really lean in on this shift to online car buying without having to make a lot of infrastructure expensive. So it's a very attractive proposition to them.

Okay. Good morning, Marvin This is Mike I would just add to that.

Where it is very important in the early phases of this product rollout that we get the right dealers.

In working with us.

There are some service level agreements that we ask the dealers to commit to in order to deliver the type of product that we want so I think early on Youll see.

Ah selective process as we find the right dealers in the marketplace to support a high level of consumer experience like we're we're working towards and then as we see success with that I think you'll see a lot of dealers wanting to jump onboard.

And as Gen tune mentioned, it really gives them an opportunity to participate in a in a digital marketplace without having to make that using that huge investment on their own. So.

We'll see separation probably have used a new a lot of independence a lot a franchise dealers looking to get their used cars on a out there in a digital kind of national sales basis, and then new cars were making sure we get the right dealers, who will lineup with the type of service, we want to provide to the consumers as as.

They enter into this product with us.

And the next question comes from Chris Pier Anita. Please go ahead.

Oh, Hey, good morning, when I think about two car plush do you guys have the technology pieces in place to get this off the ground or should we be looking at thinking about this cash balance being used for some sort of add on MAA spend as you kind of build it out.

And then.

On that same vein do you think you have.

I guess the dealer network, if I look at the dealer network over a one year two years.

Are there enough dealers out there that.

I guess at some point if you have you said 19 hundreds of thousands of car is that enough for consumers like the do need 200000 300000 cars like what.

Like what do you think about it start inventory like 100000 seems like plenty to me to get this thing started so I'm just curious.

What are you thinking about deal account going forward.

So let me start with the first question first so the answer's, yes. So I think we mentioned also on the previous couple of goals.

And Mike is read today reiterated this many times that building out the ability to do this well requires a lot of work and has been effectively ongoing for the last several years and so.

Several components that are really critical as you build out such a marketplace. One of them is obviously to deal building experience. So how would you how does a consumer actually find the right car within the vast inventory of cars available and how do you really make sure did you match the car that as president of <unk>.

<unk> with the consumer requires that in itself is a level of complexity and we've solve that already some time ago and it took some time to do any other ones are also as an example elements like check outflows et cetera. So that has all been built in all the pieces were billed so it was really dying out to the last and to and <unk> as it were.

In this process and then we're now just testing those final flows, but things like dealer signs and notify partnerships. The dealer science acquisition. The accurate trade partnerships et cetera are all pieces to this wider puzzle the help us enabled us.

When you're on your second question no I mean, I think the short answers are going to be a ramp up associated to this product and reward particulate that more in the future.

But over time.

<unk> one of the things that I think is amazing on the Truecar network is that we obviously have a very very vast inventory level, both new and used remember that currently we are working in a constrained macro environments that also makes it a little bit of an anomaly with one of the pendulum swings also the ability.

For a consumer to go in and effectively look at both new and used offerings and to be able to.

Choir discarded they're really long.

From the comfort of their home is something that's very unique rare and we feel we have both that they can look technology. The brand the double funnel nd inventory through our dealers available to make that happen. So we're very excited looking forward to 2022.

The next question comes from Novack Con from Truest. Please go ahead.

Yes, Thank you guys.

Maybe a quick question I'm a dealer count.

<unk> and you saw in Que Creek any just maybe talk.

Talk about the monthly trends.

Are you an agenda quarter.

Is that something that continuing into two four how should we be thinking about that.

Yeah. So the monthly trends are for Q3 or very much like as I mentioned earlier.

The year was effectively until two deals so until the end of June or colon mid June the.

The market's very very much on the rise and then have the goal of mid June it started during the monthly trends have been effectively downwards. If you'll look into what has like the couple of weeks now into into Dove work all of the five weeks into the queue for.

Some of these elements seems to be stabilizing across the board. If you look at some of the macro data that's coming out there right. So you look at the announcements of two yoda GM et cetera.

Then you'll see some light signs of improvement, but it's really hard to say and it's really like overall inventory is obviously very very fickle at the moment and and also consumer behaviors are shifting a little bit in anticipation of this market. The other thing also to remember is that even if.

You hit a pure boredom, which hopefully will hit soon there are still some time it will take some time before inventory rebuilds and.

So there is going to be somewhat of a lagging effect, which is why we don't anticipate any improvements early before the end of the year from a macro perspective anyway.

This is Mike too I would add that we've shifted our sales focus a bit and you saw that we've actually added to our independent dealer counting Q3.

That's where the opportunity seemed to be as as the new car inventories remained challenged and and the used car business remains extremely strong. So we've changed our focus our churn is actually below pre COVID-19 levels. The the challenge you face is adding new dealers to the program, particularly on the franchise side. So we changed that.

Focus we're now looking to add independent dealers were working with our franchise dealer partners to accentuate their used car products and help them. There. So there's been a bit of a shift in our focus that we saw good results from on the used car side of the business in Q3.

The next question comes from Tom White of da Davidson. Please go ahead.

Great. Good morning, and thanks for taking my questions I got one on the balance sheet and one on a dealer account uhm.

So the balance sheets, obviously in in and strong shape I think it's like over 50% of your your market cap in cash no that you are managing to kind of EBITDA breakeven can.

Can you maybe just share updated thoughts on on how you are kind of weighing maybe using that.

Mm cash and a more creative and more aggressive way maybe in and when.

I guess, specifically I'm curious about your view on on maybe raising the buyback or or M&A or maybe you just like having you know kind of a big cash balance or given the.

The uncertain kind of inventory.

Backdrop.

And then I have a follow up.

Absolutely so.

So we're we're thinking strategically through the cash balance on an ongoing basis. So we are opportunistic when it comes to M&A. We we have healthy deal flows of M&A, and we particularly look at where we could potentially accelerate some of our strategic initiatives that we have in the pipeline.

So we continuously monitor that's one of the issues two dates around M&A has just been overpricing overpriced assets at the end of the day and so we're prudence, where prudence acquirers.

So we are mindful that but it's something that we definitely and all continuously to monitor.

Over to mystically, we have done some buyback throughout the Q3, it's something in real so identified in the letter and you'll see in our cash flow statement. So we utilize that.

Somewhat around the edges, but overall I think it's also important that we've now articulated in some more clarity and we will continue to do so the opportunity that exists around truecar, plus and obviously, making sure that we really start leaning in into that product as the world is shifting more online and that obviously will.

Require investments over time, as we start scaling the business.

Or that side of the business and so.

There there will be investments that will maybe making in that area as well.

This concludes our question and answer session I would like to turn the call back of it's in my stereo for closing remark.

Thank you operator, and I want to thank everybody for taking time to participate in our call today and once again, thanks to the entire team of true car for all their hard work as we continue to optimize our core business, while making strong progress on delivering truecar, plus which we believe will be a true automotive marketplace that will make the car buying and selling journey.

Any available to consumers in a digital environment. Thanks again for your time.

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