Q4 2021 TrueCar Inc Earnings Call
Good day and welcome to the Truecar fourth quarter 2021 financial results conference call. Please.
Please note. This event is being recorded I would now like to turn the conference over to Zineb Macquarie Vice President Investor Relations. Please go ahead.
Thank you operator.
Hello, and welcome to Truecar fourth quarter, 2021 earnings conference call.
Joining me today are Mike Darrow, our President and Chief Executive Officer, and Jan tune Rogerson, our Chief Financial Officer.
By now I hope, you've all had the opportunity to read our fourth quarter stockholder letter, which was released on Tuesday February 22 after market close and is available on our Investor Relations website at IR Dot Truecar Dot com.
Before we get started I want to remind you that 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 they come seek will intend confident and similar expressions.
And are not and should not be relied on as a guarantee of future performance or results.
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 risk factors that could cause our results to differ materially.
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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.
Reconciliation of all non-GAAP measures to the most directly comparable GAAP measures are set forth in the Investor Relations section of our website at IR Dot Truecar 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'll turn the call over to Truecar, President and Chief Executive Officer, Mike Darrow for some opening comments Mike.
Thank you Dana good morning, everyone and thanks for joining US we issued our Q4 stockholder letter yesterday and highlighted some of the great progress. Our company has made during the quarter, even if the macro environment remains very challenging first I can't thank the truecar team members enough for their tireless efforts to strengthen our consumer and dealer Prada.
Act offerings in the face of these unprecedented macro challenges.
During the fourth quarter, we saw only slight improvements in new vehicle inventory and continue to see elevated pricing for both new and used vehicles, a combination that put pressure on our close rates reported units and other key metrics, we managed our business prudently through these headwinds while strengthening our core business, particularly on the <unk>.
Used car side.
We also made strong progress with our Truecar plus pilot an important initiative that we believe will help us benefit as more of the car buying and selling process moves online.
Truecar plus has garnered strong interest from dealers, leading us to extend the brands and dealers in the pilot and we're in talks to onboard additional groups.
We're also on track for the commercial launch of Truecar plus by the end of Q1, where.
We're targeting full market and brand coverage for new cars across Florida, as well as a robust statewide rollout for you used cars by the end of the second quarter.
This is an exciting time for our company and we plan to continue investing to ensure a successful rollout for truecar plus in subsequent quarters.
Morning, We also announced the Truecar as Chief Financial Officer, Jim <unk> has been appointed Chief operating officer effective March one.
Jim will continue to serve as our CFO . In addition to his new role.
CFO , Jay Z and played an important role in developing the strategic plan for Truecar plus S. G. O O. You will now also focused on making that rollout of Truecar plus happened in an optimal way.
This appointment underscores our commitment to the success of Truecar, plus and our strong belief in the tremendous opportunity before us.
Before we open the call up for live questions, we're going to address some questions are around various topics.
Data, what's the first question.
Thanks, Mike I'll start with the first question for you.
What can you tell us about the rollout for Truecar plus.
Yeah.
After the commercial launch of the Truecar plus pilot, which we expect by the end of Q1, we plan to have full market and brand coverage.
<unk>, Florida for new and a robust statewide rollout for used and certified pre owned cars by the end of Q2.
It will take time to scale Truecar plus to build volumes. So in the near to medium term, we do not expect there to be a material impact on revenue.
We expect it for the use side, including certified pre owned units, we will go across multiple states sooner and with a rapid rollout and nationwide inventory plant.
On the new side, we plan to go state by state with a rollout to cover all 50 states at a measured yet opportunistic pace.
We have already laid the groundwork for a large scale rollout leveraging the 7000 truecar dealers that have deal building and payment configuration already in the core experience.
During the second half of 2022, we expect to have enough information to build an articulated growth plan based on insights gained as we drive volume across new and used vehicles.
We will seek to present, the largest used inventory and the only marketplace for new vehicles purchased purchases online.
We believe this will be an unmatched competitive advantage. So stay tuned it's going to get excited.
Thanks, Mike.
The next question is also for you.
Truecar is now mainly for its new car business. What are you doing on the used car side.
Thanks, Dana one of the clear silver linings to the macro headwinds seen during 2021 is that a forced us to take a fresh look at our used car business and identify new ways to create value for our retail partners and consumers that didn't exist before and truecar.
This helped us become a strong used car resource for dealers and consumers in light of the inventory constraints for new cars.
In Q4 used units accounted for approximately 45% of total units as we can.
As compared to 36% in the fourth quarter, a year ago and approximately 19% of our used units came from dealer sales to consumers, who also search for a new vehicle on Truecar.
We made solid progress in strengthening our used car offering during Q4 and have several product launches planned in upcoming quarters that week that we expect to give us a comprehensive set of both new and used car offerings to market to our dealers.
Thanks, Mike Tianjin and the next question is for you.
You're indicating a negative adjusted EBITDA expected in 2022 can you please provide more color.
Absolutely.
<unk> mentioned on our calls before and similar to the investments. We began in Q4, we see a significant opportunity ahead for Truecar Blas and plan to maintain this flexibility to support his broader rollout with sales and marketing product and tech support so various investments in various areas.
We've already.
We've already been investing on the product and tech side and I think our recent hire of rich Distefano is our head of product is a great example of this.
We'll be leaning into broader brand building as well as well as all of our sales and marketing efforts as we start scaling in Florida. Initially and then afterwards expand in other states are.
Our strong balance sheet gives us the flexibility to make these investments and we're planning to.
To support any and all of these important initiatives, we've managed our business prudently over the past quarters and I think we've proven that to the markets and we'll continue to do so despite the headwinds, but we also feel that there's a huge opportunity ahead of us and we want to absolutely support.
Kathryn Here's one more question for you before we open the lineup for the audience.
Can you tell us how the recent announcement about accu trade affect truecar.
Yeah, absolutely and there are obviously more details in the 10-K that will be releasing.
But long story short is a truecar received an attractive offer for its minority interest in accu trade, while our initial investment allowed us to learn a lot. We determined that this minority interests was not required for truecar to continue to provide its best in class consumer experience with trade in offers.
So we're building a transaction focused marketplace model.
And so as a result, our focus will be on adding value for our dealers and each transaction rather than focus on driving software sales. So for us to to exit this investment made most sense of the strategic list.
Yeah.
Thanks, Mike and Janssen and now operator, let's open up the call for questions from the audience.
We will now begin the question and answer session.
Ask a question you May press Star then one on your Touchtone phone if.
If you were using a speakerphone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Rajat Gupta from Jpmorgan. Please go ahead.
Oh, great. Thanks for taking the question you mentioned you know that have ramped up investments for Truecar.
Could you could you help us quantify some of you know the math.
There will be investments you know marketing technology product.
And to what degree are those investments you know try to dive into Truecar plus specifically.
Paul.
Sure so.
We haven't disclosed any of the magnitudes and and they especially in northern Israel, obviously will be dialing a lot of the investments as we skill, but you can imagine that's a significant portion of the of the company is focused on on D C plus <unk>.
If you start thinking about the marketing side, if you start thinking about the product and engineering side as examples.
Our field teams, obviously are mostly focused on our core business currently but over time will gradually also get.
More and more engaged on the D C plus side. So it will just move in gravitas or the organization.
Understood.
Mike maybe you can just.
Yeah.
I just wanted to add to Jan tunes answered one of the key investments we made in Truecar plus and he mentioned it in his earlier answer was the hiring of rich distefano.
As our head of product rich comes to us with a lot of two sided market experience outside of the auto industry and he'll be a key role in helping us really bring life to this product.
And helps our transition out of the pilot phase into a commercial product.
As we will adhere and in Q1 and Q2.
Got it got it great. That's helpful. I mean, maybe a question just on monetization a node in 'twenty to 'twenty two.
Or should we expect.
Monetization to progress sequentially through the year.
You you mentioned that Truecar, obviously, you know it was going to be immaterial from a contribution perspective, the theory, but given you know.
The mix of independent dealers, increasing you know do you see any structural change.
In that monetization going forward and.
Particularly as Truecar plus also starts to come into the picture.
Yeah. So we obviously have high hopes to monetize truecar plus significantly higher in the longer term in the near term, we do not expect us to add anything on the revenue side as we adopt this the the marketplace.
If you think of the monetization of Gore you can imagine that.
Hopefully at some point as the market resets there will be obviously some lag in first inventory resetting then obviously inventory at the dealers replenishing and then pricing, obviously coming down, which then improves our close rates and as our close rates improve obviously also mostly which is obviously most sensitive to close.
Improve our paper sale revenue.
Revenue and this will obviously then.
Lower somewhat the monetization that we currently have which is driven mostly by the subscription side of things and so it would basically reset itself somewhat to historical levels of monetization.
Understood.
Novelis, Florida that D C plus opportunity in the long term has significant greater monetization opportunities for us.
Understood great.
That's really helpful. Thanks.
Thanks, a lot good luck and I'll get back in queue.
The next question comes from Marvin Fong with B T. I G. Please go ahead.
Good morning, Thanks for.
For taking my questions. Congratulations John soon on the new role a couple of questions for me, maybe you could just start.
Well the discussion on.
The units I'm, just compared to industry wide, you know SAR on both new and used it seemed that you guys.
You know I had a little more pressure and I know you alluded to that but maybe you could just drill down a little deeper on you know what exactly is happening with conversion rates.
You know your traffic looked like it was not down as much as the units.
And then maybe you could particularly comment on part D. C. D C. It looked like the chance or the units that were down more than affinity.
And then a second question just on Truecar, plus I think you mentioned.
That you were working with a variety of Oems and nameplates are maybe you can just kind of help us understand you know how many.
How many Oems youre working with right now that have signed on board, maybe as a percentage of the total market.
And how does you know services like like Gm's car Bravo kind of.
You know fit into that picture, how how would you guys coexist. Thanks, so much.
Okay. So there are a lot of levels different questions in one so let's start with the the units. So obviously.
Yes, we our traffic is still very healthy despite.
Despite actually a pretty dramatic pullback on the marketing side. So it also shows you the robustness of our platform, but this is something that you obviously don't want to do for extended periods of time, so handles our interests to start investing so more on the marketing side over the course of 2022.
And the units have.
Indeed come down but that is pretty much effect, that's pretty much driven by your close rates. So remember, although our mix shift has become more used we're still.
Focused on new and obviously many of our franchise dealers are are also focused on new and with the lack of inventory.
It's hard to drive the units through them.
A lot of the dealers have very little inventory and so as we mentioned before there will be some lagging effect between stabilization replenishment at the local local level and then obviously the pricing resetting.
It's very different to some of our competitor said, obviously much more impression based so if we would work to be measuring ourselves on impression based than those metrics would look very differently and much more favorable to us, but we obviously are much more focus on attribution and getting paid that way.
I cannot remember was your second question was it was about you know working with the Oems to get you know Truecar plus activated in Florida.
You know how many you were working with any additional color there.
Yeah.
Marvin that's a great question, we've been out talking to all of our OEM partners about our plans with Truecar plus you.
You know Theres, a number of the Oems who have entered into the digital space Nissan launched their Nissan at home program, you mentioned car Bravo from G M.
We view these things as validation of where were taking our business to the <unk>.
The industry is moving online and a transaction way what we feel good about is we think there's a way for all these things to exist and we want to be the first real multi brand marketplace, where a consumer can go and shop across new used and certified pre owned vehicles in a.
The way that wont happen on Carvana Bravo doesn't exists on Nissan at home and we're excited about that but all of these things will play a role in the industries continued movement to provide more services to purchase vehicles online.
Perfect, Thanks, Mike and John too.
Yeah.
The next question comes from Chris Pierce with Needham. Please go ahead.
Hey, good morning, as you guys get closer to the east side of the business can I get your thoughts on tax refund season, and I know, how you deal with partners and who sells who are thinking about that now versus three or six months ago.
The reason I ask is kind of a third party data was weak into year end and figure out the year soft. There you think it's just high prices holding consumers back or if there's something more to it.
Yeah, I think Chris on the second part of your question is it's definitely pricing.
That have consumers pausing, we strongly believe that a lot of the discretionary demand in the marketplace has kind of been squeezed out the folks who are buying a car now new or used are the ones, who absolutely need to folks who are you know discretionary buyers that come in and out of the market on a regular basis they've had been.
Driven to the sidelines not only due to selection, but also due to the pricing that's out there for the vehicles. So you know we think there was pent up demand coming out of Covid in in our 2020 and that showed itself early in 2021 with the sales numbers that we saw in March April .
In May and then the inventory the chip shortage had such an impact on on new car availability driving pricing up which then drives used car pricing up and then that's when I think you saw the discretionary man demand starting to move out of the marketplace in the second half.
If I could give you as a follow up do you think that you know.
You hear about record high traffic or do you feel like some pricing over 'twenty 'twenty. One is that what's keeping prices high tech deal as you're kind of trying to hold the line or are they kind of just waiting for new cars or is it all kind of go together.
It's I think it's all coming together right. So as long as the local inventory is very very low then there's always these supply demand where they can charge because there is somebody who needs a car and when does the inventory will reset pricing will reset automatically shortly thereafter as well.
Now just note that this is obviously not a great consumer experience and so overtime. This.
This will probably be resetting sooner rather than later.
Perfect. Thank you.
The next question comes from <unk> Khan with <unk> Securities. Please go ahead.
Yeah, Thanks, and thanks a lot.
A couple of questions.
Sounds like the dealer.
Might be crossing.
Any color on.
How the trends have looked like into January and even February less sensitive to where.
In the back half of last year, and then uncool car plus.
And those markets actually are you.
To go live.
In a sense of the amount of traffic.
You would be testing on Coke light sources.
You know what mcdonalds.
Thank you.
Yeah, absolutely so.
And I think we also spoke about this in the letter so we feel that Q4 has effectively stabilized.
And from a rooftop perspective and.
So and that's a trend we have seen continue in January so I think were gone from the desert now remember there's a lot of macro at play so there's some give and take and it will probably continue to be so but overall, we feel that this is a as bottomed out.
As it stands right now for the best ability that we can see to.
To answer your question on the on the D C plus side. So remember two things. So one is there's a storefront effectively that will open on the tissue side that is specifically to Florida as we do the initial state rollouts. So that's <unk>.
People inside Florida, who can then see the full inventory of new and used cars that are available within that state.
Over time, obviously, we'll go on the new side will go state by state so to.
Much more audience specific within the states in order for new but used we'll always see rollout nationwide and so soon you'll be able to actually look at all the used inventory, even if you're outside of Florida and be able to transact online through the marketplace and so that'll be.
Recently would be our full audience effectively.
They Ain't event, it's Mike on the dealer churn thing as well, we've mentioned before and in Q4.
Our churn was actually at.
Low levels compared to what we saw pre COVID-19 . So what's happening is as dealers even at a reduced rate churn off the site.
The difficult challenges, adding new car franchise dealers to the program with no inventory out there. So that's why you're seeing the net decline. The small net decline that you saw was wasn't really due to churn churn was actually at a fairly low rate.
In Q4, it's just dealers don't have a lot of new cars out there. So it's tough to drum up new business.
New dealers on the new car side of the business.
And in Jan two did a great job of answering on the traffic. We're looking at a single storefront approach to our business as we go forward, we'll begin to expose more and more traffic to the truecar plus offering as we roll out and we have more new car brands represented and more used car vehicles available for consumers to choose from.
So you know will regulate the exposure of that as we build out the inventory in the market coverage.
That's great. Thank you and congrats on the extended role gently.
Thank you.
As a reminder, if you have a question. Please press star then one to be joined into the question queue.
The next question comes from Tom White from D. A Davidson. Please go ahead.
Hi, Thanks, so much for taking our questions haven't stopped the com first I have them on the Uber partnership I was wondering is that's primarily about helping drivers get into new or used cars and also how big of an opportunity is that relative to the rest of the business and maybe.
Another question in there maybe update us a bit on the status of your partnership with higher car and how this deal fits into that and then I have a follow up question after that.
Yeah. We're we're excited about the the Uber partnership and and you nailed it with the purpose of that we want to make sure that you have or drivers are have an opportunity to search a large inventory of new and used cars as they're replacing their vehicles.
Which become the main the main way for them to generate revenue. It's early on in the partnership and we try not to put too much pressure on early partnerships as they are developing but we think you know based on the number of drivers out there. We think it can be a big opportunity for us and and you know we look.
We look to be able to grow that partner partnership.
Steadily as we go forward.
And that in conjunction with the hire car offering these pieces all kind of fit together this is a growing.
Certainly a growing community and we want to be a part of it we want to provide a service.
To these folks and we think it'll be a continue to grow for us and be an opportunity to grow our partner business along with some of the other new ads. We've added it added there you know it wasn't that long ago that we added Navy federal credit Union.
You know the largest credit union in the world and we're looking to grow that business. So we're excited about where the partner business is in the new partners, we've been able to add our role in the in the the driver community is one where we think we can we can grow our business. So we're excited about that.
Great. Thanks, So much and then on my second question is on dealer Count I made a reference to uncertainty about it in the shareholder letter. So I was curious if you could provide any color or anything specific you've seen thus far into the first quarter and what type of lag do you envision it like what create.
As new car pricing a win win.
When inventories start to rebuild.
Yeah, So what we mentioned earlier so we've seen.
We seem to assume that the seen the bottom of it and in Q4, and so and into the new year or to the bounce have stabilized.
<unk>.
The it's hard to say exactly when inventory resets it seems that in industry inventory has stabilized maybe even slightly grown and the end of last year.
But there's obviously has a lagging effect for the replenishment of the local inventories and only when that happens do you have pricing go down.
And so and then dose moments that's obviously when the dealers will then start focusing on actually expanding their reach et cetera, and so there is some element of a lag and it's hard to predict exactly when that exactly will go into effect in each of the stages, but we're confident it will the question is just because of what the exact.
Diamond will be.
And in our conversations with our OEM partners. They are working aggressively to build plans.
To ramp up production as chips become available.
It's just there's a sequencing to the timing there is as more vehicles are built.
You know theres dealers out there retailers right now who are sitting on a pre sold orders and waiting for inventory to come in so even as production increases.
We don't think Youll see an immediate build to inventory.
Particularly coming into our spring selling season, so there'll be a lag as we capture some of that demand that's been sitting out there and you'll begin to see inventory build then we'll begin to see pricing coming down and we think you'll be able to see a noticeable change in that we hope in the first half.
But it'll probably be second half of this year before inventories significantly returned to the type of levels, we've seen in the past.
Okay.
Great. Thanks, so much for taking my question.
This concludes our question and answer session I would like to turn the call back over to Truecar as President and CEO , Mike Doyle for any closing remarks.
Thanks, everyone I really appreciate you taking the time to join US This morning, and I want to also thank the Truecar team who's done an amazing job of staying focused.
During this difficult macro time, and we've worked hard to improve not only our core product offering but to get us a good start on our truecar plus pilot and where that can take us in the future. So we're very excited about what's ahead of us and thanks for spending the time this morning together.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.