Q4 2022 TrueCar Inc Earnings Call

Good day and welcome to the Truecar fourth quarter 2020 financial results Conference call.

Please note that this event is being recorded.

I'd now like to turn the conference over.

Alright.

Sorry, Vice President Investor Relations. Please go ahead.

Thank you, Nick Hello, and welcome to Truecar fourth quarter 2022 earnings conference call.

Joining me today are Mike Darrow, our President and Chief Executive Officer, Tien Tsin, Richardson, our Chief Financial Officer, and Theresa Luang, Our Chief Financial Officer.

Now I hope you've all had the opportunity to read our fourth quarter stockholder letter, which was released yesterday 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 target anticipate become seek will intend confident and similar expressions and are not and should not be relied on as.

Guarantees 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.

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 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 will turn the call over to Truecar, as President and Chief Executive Officer, Mike Darrow for some opening comments Mike.

Thanks, and good morning, everyone and thanks for joining us.

Delighted some of the great progress, we've made across our company and our fourth quarter stock holder letter. We also shared some of the exciting personnel enhancements, we made to align around our key business priorities. In 2023, we continue to refine our product experience and align our resources around delivering the automotive industry's first true.

Modern day marketplace for new certified pre owned and used vehicles as.

As we look ahead, we have four key priorities for 2023 to rebuild our core business.

Expand the market footprint for Truecar plus lean.

Lean into the used vehicle market and focus our marketing on converting our healthy top of funnel traffic into sales for our dealers.

Priorities are strategic for us and are informed by what we're seeing in the market today and what we heard from our dealer partners.

We're confident that our efforts throughout 2022 have provided a solid foundation to execute towards these priorities in the coming years.

To embrace the opportunities we identified for 2023, we organized our senior leader, we reorganized our senior leadership team and added essential new hires to ensure the successful execution against these key priorities in 2023.

Two of those leaders are here with me today, So I'll address them first.

<unk>, who previously held the role of both Chief Financial Officer, and Chief operating Officer has become our CFO in a dedicated role that initially we will focus on rebuilding our core business and on the rollout and adoption of Truecar plus in addition to our market planning our marketing plan to aggressively pursue.

Version of our robust top of funnel traffic.

We've also developed plans to add additional operating departments under and tune beginning in Q2.

<unk> has demonstrated that he is an effective leader and his influence over the operating functions will help ensure that our entire company remains focused on innovation that will be quickly scale to deliver value to dealers and consumers.

I'm excited to announce that we promoted three so long as your chief financial officer from SVP of financing recognizing her extensive knowledge of our company and her leadership and the many critical role she had placed since joining truecar in 2014, which include helping to take the company public.

We're seeing financial reporting.

Technical accounting tax forecasting and business plan, Congratulations Teresa <unk>.

In December we hired Jay Neiman to lead our field sales and sales team as our head of sales.

She has a proven track record in managing field sales and operations team and has quickly become a hands on leader for the sales organization.

He will report to Jan tune and will lead our efforts to rebuild our core dealer network and expand our truecar plus footprint.

We also recently hired Jason <unk> as our first Chief Commerce Officer created role, which he will bring his extensive experience in full funnel marketing and conversion.

In this capacity J, who will be responsible for scaling with truecar brand across multiple channels and helping us convert the millions of monthly unique visitors in the sales for our dealers Jay will report to Janssen.

At this point I'd like to turn it over to Jan tune for an operating update.

Thanks, Mike during Q4, we continued to see the supply of new vehicles rise across the industry. This is an encouraging start but since this recoveries from a very low base much more progress is needed in the quarters ahead.

Vehicle affordability is still a concern for many consumers who are struggling to manage their monthly payments, while interest rate rates continue to tick higher.

This has continued to pressure our close rates and we believe it will be several months before we return to a more balanced environment across our industry.

That dealer counts for our cost per lead base business increase during Q4 driven by growth in franchise dealers. During Q4 dealers have left their breath for them one day when new vehicle inventories were in decline started to return.

We saw some attrition amongst.

Dependent dealers in Q4 and in LIFO softening demand and other dynamics impacting the used side of the market, we expect some churn and independent dealers in the coming quarters.

Despite these near term issues, we remain firmly committed to the used side of the markets.

Wherever we travel across the country dealers tell us that they need more and more used cars.

It's clear to us that the limited availability of new vehicles over the past few years is creating some scarcity particular for one to two or three year old vehicles, and we intend to step up efforts to help our dealer source used vehicles.

During the fourth quarter, we continued to enhance our truecar plus marketplace, we upgraded our <unk> plus credit offering and expanded our coverage of auto lenders from fewer than 15, sorry fewer than 50 502 of more than 1500 brick 1500 lenders nationwide by.

<unk>, a third party provider with our own credit engine.

This is a huge feat by the team.

As a result of this upgrade D C plus dealers can easily find and configure their preferred lenders, which makes onboarding new dealers much simpler and may potentially support higher approval rates for consumers with a broader group of preferred lenders available for each dealer.

Additionally, we more than doubled the size of our accessories catalog NCC, plus which led to dealers over a broad based broad set of accessories throughout our marketplace and also help simplify the dealer onboarding process.

In addition to the great dealer consumer factor upgrades, we monitor we modernized our entire cloud infrastructure and upgrade that will allow us to reduce cost while increasing our development speed and flexibility to respond to change. We also launched our AI recommendation engine, which will be used to power some of the exciting new features.

Planned in the near term product roadmap for both U C plus and our core business.

After establishing a solid foundation in Florida, we announced the expansion of PC plus into five additional south Eastern States.

Throughout Q4 and have either signed out of dealers who are in the onboarding process with them in each of these states. It is important to note that as we expand our footprint for tissue plus we intend to focus on adding digitally forwardly dealers to our marketplace and help them broadened our market reach and impact to drive higher sales the dealer.

<unk> worked for <unk>, plus will therefore be much more curated.

Then our leads business and will be mostly focus on the inventory.

We also are launching we've also launched a new subscription packages for 2023 that are aligned to the value that our products can deliver to our dealers over the course of 'twenty three we plan to move away from the legacy paper sale model and focus on growing monthly recurring revenue or.

Also committed as ever to helping our dealers grow their unit volumes, especially as the market starts to shift from a purely supply driven market to one of our demand generation and a robust digital presence will increasingly be important.

I'll give I'll turn it back to our CEO Mike.

Thanks, Dan soon there are many other areas, where we're making strong progress that we'll continue to share with you over the coming year I'll touch on a couple of significant examples that demonstrates the resurgence of the Truecar brand in the affinity and OEM space.

We launched a new partnership agreement with Nerd wallet, a leader in the personal finance space with approximately 20 million monthly unique users of their sites for education insights and information about life's financial decisions we can.

Believe this program will help bolster our brand awareness for Truecar and Truecar plus is set to be active on the partner site at launch.

We also expect to significantly expand our OEM program with Mercedes Benz on March one this program and expansion will provide targeted Mercedes Benz offers to some of our most robust affinity platforms.

We're excited to combine the power of a world class automotive brand like Mercedes Benz with membership and purchasing power of our exclusive affinity network.

Our balance sheet remains healthy and we believe our cost structure is in a good place. We're encouraged by the signs that new vehicle inventories are starting to rebuild.

We will not be providing detailed guidance on this call. However, based on our current plan, we expect to achieve double digit year over year revenue growth and return to breakeven or positive EBITDA by the fourth quarter of 2023.

I am very encouraged by our progress during the fourth quarter and in the weeks at a follow up I wanted to thank the entire Truecar crew for their hard work dedication and commitment to our vision of bringing something new and unique to the market and doing it at a time of rapid change as we embrace what we expect to be increasingly digital.

The future for automotive retail.

So with that my four we opened the call before we open the call for live questions, we're going to address some questions around key topics zainab, what's the first question.

Thanks, Mike I guess first question is for you we've highlighted several updates with Truecar plus in the stockholder letter, including an updated credit experience and an expanded accessories catalog can you explain why these are important within the overall product flow for Truecar class and what is not.

Okay.

Thanks, Dana we greatly improve the dealer and consumer experience at Truecar plus during the fourth quarter in a number of ways first we expanded the number of lenders that dealers can access within our marketplace from just under 50 lenders do more than 500. This is an important upgrade for several.

Reasons first dealers will be able to provide vehicles shoppers access to a broader set of their preferred lenders second consumers applying for credit when I have more options and more of them may be able to get financing now that the selection of auto lenders is much wider some in a matter of a few minutes.

Third as we expand truecar plus into additional markets and bring dealers onto our platform Onboarding. These dealers becomes easier sits will have integration with many if not all of their preferred lenders.

<unk>, we shifted a key capability from a third party to our own in house credit engine. This gives us a lot of flexibility to continue to customize the offerings and also opens up our marketplace to lender partners.

We've done something similar with accessories and protection products and important and lucrative revenue stream for dealers more than doubling the catalog of approximately 28000, multi brand parts and accessories and protection products across all major Oems from when we launched in October .

This means that dealers can find and bring the accessories that they want to sell on Truecar plus quickly and consumers can customize their desire vehicles.

With these updates the flow within Truecar, plus now allows vehicles shoppers to find their car get full credit approval from a dealer's promote preferred lending partners and customize their desired vehicle by adding accessories action products offered by the dealer.

In the first quarter of 2023, we plan to enable and order confirmation that will effectively represent the fully baked deal on the dealerships terms using financing from a dealership preferred lenders and the accessories and protections plans they want to sell after which the deal will be ready for review.

You and fulfillment.

Zainab back to you.

Thank you Mike I'll direct the next question you can hand, Gen 10 houses a new subscription packages.

Compared to our past, one and how our dealers reacting to that change.

Yeah.

Yeah, Thanks, Ed as Mark as Mike mentioned, we've made significant investments in product and technology over the past year to develop and launch exciting new offerings for both new and used vehicles.

As a result of this we started 2023 with an expanded set of products to take to our dealers, we've demonstrated that our <unk> plus marketplace attract high intent profitable shoppers truecar.

Truecar plus theaters do two to three times improvements in close rates and a 65% reduction in days to close in 2022, approximately 1200 90 consumers apply for credit and received lender approval through the PC plus platform.

Additionally, during the fourth quarter tissue, plus shoppers with a dealer approves reservation, who added at least one protection plan or accessory to their vehicle added on average.

<unk> thousand 700 worth of optional plans or accessories.

These are our measures that we believe dealers will be very excited about to here at.

At the start of the year, we launched three new subscription based packages that we believe are aligned to the value our solutions offer dealers. The new plans include three tiers that encompasses our leads based business or the buying solution.

A regional.

<unk> and Truecar plus.

In addition to this dealers have the ability to customize their chosen packages with add on services and to select their desired levels of market exposure and reach we believe the new structure offers the flexibility for for dealers to choose a package that best serves their needs.

We are as committed as ever to helping dealers grow their unit volumes, while we shift towards the subscription model across our overall business, where we will focus on growing our monthly recurring revenue across our dealers do.

During the course of this year will be moving away from the legacy pay per sale model. Many of our dealers are already under a subscription model. So we don't anticipate much disruption from the new packages, we have begun signing up dealers at the higher IRR. However, it is early days and as leaders adjusted a new subscription pricing, we may see some migration in our turnover.

And what we've seen thus far.

Been within our expectations.

Let's have the next question.

Thank you. The next question is for Teresa, our Chief Financial Officer, who I want to congratulate and welcome to the call.

Teresa can you explain what drivers will help truecar achieved double digit revenue growth and return to breakeven or positive adjusted EBITDA by the fourth quarter of 2023.

And secondly, what could the revenue cadence look like.

Thanks, Dana for the warm welcome it's great to be here. So when we think about drivers I'll point back to what Mike highlighted earlier in his remarks.

Priority for 2023, which are should we build a great business.

Our market footprint.

Class.

Moving to the used vehicle market and two increased traffic conversion.

These priorities are the operational roadmap that equal will help drive growth power business and the opportunity for monetization in the coming year as new vehicle inventory got your email.

So far acquired business, we plan to rebuild our core dealer network throughout this year as new vehicle inventories start to recover.

There are still headwinds I've seen at it with independents and affordability concerns for consumers, but this is a definite priority for us.

In regard to Truecar plus we've also started monetizing at the beginning of the year.

Introduced new subscription packages for our other solutions as well.

Well, let to broaden our footprint for Truecar, plus with digital white dealers.

Looking for innovation and committed to the digital channel I think spanned a number of markets that we are and we expect to expand the monetization opportunities available to us and grow revenue contribution from cheap car class.

Now in regards to the CFO market, we've talked about dealers consistently tell us that they want by more E car. Despite.

Despite the near term issue in the used car market the longer term repercussions from the supply closet for new cars will need scarcity and used car.

Particularly in a desirable one to three year old vehicle category.

For this reason it will be our leading loyalty cards with a focus on helping dealers source used vehicle.

Clancy setting new offerings with trading and vehicle sort of thing that we.

<unk> broadened our monetization opportunity once it has slots.

On the fourth point of traffic, we have continued to see sustained strength in our monthly unique visitors and are focusing on improving conversion across the topics that we are already driving for a site to both raise consumer awareness of Truecar, plus and some of our existing healthy top of funnel into unit volume for our dealers.

As Mike noted earlier, we have realigned our senior team and added key hires to ensure that we execute on these priorities that's here.

And finally with respect to revenue cadence.

Salaries are rarely linear and there are enough cross sell product that could anything choppy in the near term.

Assuming macro trends continue to recover steadily and we don't end up in an economic downturn, we expect the second half to be better than the first half.

That new vehicle supply improvement to broaden and also expect to have a broader market.

Part of that.

Let's next question Dana.

Thank you Theresa <unk>. Our final question before we open up the line is for Mike and Gen 10.

First Mike you mentioned, bringing dealers back to the Truecar platform is a priority for 2023.

Given our expectations for some churn with independent dealers.

What do you expect for Truecar dealer counts and secondly for Jan tune.

If truecar plus.

A dealer group is more curated what should we be looking to to gauge our progress there.

Thanks, Abe I'll go first on this one.

New vehicles inventories are rebuilding but the gains are still somewhat concentrated by OEM and brand and well below typical inventory levels for the industry. So we're not out of the woods, yet traditionally new vehicles have been our area of strength for Truecar. So our teams are out in the field, reaching out to both new franchise dealers and do deals.

She turned us off when inventories were low and going to the market with a portfolio of great solutions for both new and used vehicles, our franchise dealer count rebounded in Q4.

On the used vehicle side, we expect unfavorable market conditions to create some pressure on dealer's gross margins per unit as a result, we saw some attrition for independent dealers in Q4 and expect some additional churn in months ahead for independent dealers to only focus on used vehicles.

We operate a full marketplace that includes small privately owned independent dealers large public dealerships and vertically integrated digital operators that focus on the used vehicle market like Carvana. Some smaller independent dealers may go out of business, while others will be acquired by larger dealers many will employ expense.

Saving measures to conserve cash until conditions stabilize we're already starting to see some of this take place. However, we remain committed to the used vehicle market and see many opportunities ahead to help dealers source vehicles and grow their sales volume.

The dealers back to our Truecar dot com to our core Truecar Dot com offering is one of our priorities in 2023, while we are early in the recovery for new vehicle inventory and given the economic backdrop. We think there may be some choppiness in the months ahead.

We are providing targets or expectations for dealer counts across our core four.

Truecar Dot com business. However, we explore balance to return to the market as 2023 progresses further and the recovery broadens, we expect our core business to benefit as that happens.

Dan why don't you take why don't you cover the Truecar plus part.

Absolutely and I'll keep it short.

<unk>.

We expect our Truecar plus dealers to be more of a curated group remember truecar pluses and best suited for digitally forward dealers, we're committed to the digital channel to increase their sales and expand our market reach.

For the core business and our lead business model dealer density and rooftop gowns are an important factor while for Truecar plus it's much more about having the right inventory for national coverage. So our new subscription plans encompasses both our core true core offering and Truecar plus so signing up dealers.

Two our elite package is one indicator for Truecar philosophy is important.

Growing sales volumes for dealers and driving MLR higher will be some of the indicators of our progress.

Fair enough.

Thank you, Mike Jensen and Teresa now operator, let's open up the call for questions from the audience.

Thank you.

Well now begin the question and answer session ask a question you May Press Star then one on you touched on phone.

Youre using a speakerphone please pick up your handset before pressing the keys.

Your question. Please press Star then two.

At this time, we'll pause momentarily to assemble the raft.

First question will be from.

Hi, Joe.

J P. Morgan. Please go ahead.

Okay.

Great. Thanks for taking the question.

Just wanted to follow up on some of the commentary around you know the dealer churn.

I know that Youre seeing us launching new subscription packages.

Are you able to put some numbers around that you know on what they are already seeing.

These packages have been large.

Including like what the monetization has been for those packages.

If you could just help us with that no one whats governing your 2020 guidance in terms of dealer count and you know just like monthly dealer revenue were all how long do you want to look at it in terms of metrics going forward. Thanks.

Thanks Roger.

There is little guidance to give so far remember we've we've started a new packages as of January one. So we're now effectively what six or seven weeks in.

The weather has been very positive is that there is an understanding by the dealer base or the broader value we provide.

There, obviously is some churn related to that especially with some smaller dealers that are saying, hey, let's see where they can do this ourselves or if youre. If youre an independent smaller use player now your restaurant early struggling a little bit more on your P&L side. There's also obviously a lot of movements happening in the marketplace. There is consolidation.

<unk> a good example.

Layer that came off of our platform most tread the REIT acquired by Cogs and so as a result.

Dwell more participated or program anymore. So those are there are different there is a little bit of a given jake overarching dough.

We've been successful in getting the revenue up.

Really if you remember we've not increased our prices in any shape or form for a long period of time, and so really moving from a pay per sale model to a much more value based selling approach is key this is not about just giving a single lead. This is about giving the opportunity to really be subscribed to be a subscriber.

Large value set that we provide one example of that is for example, the the delivery aspects right. So we now provide dealers to actually have deliver even on non truecar dealers that we can provide for them.

The other one is obviously.

Uh huh.

Right. So the deal for instance, we said around the accessories to prioritization of juicy blocks around the accessories, they're captive lenders et cetera et cetera. So there's a lot of value that we can subscribe to the dealers. It's too early to really give big indications, but overarching I think we're trending nicely and we're happy with where the numbers are so far.

Yes.

Got it and so.

As this journey lockers.

For starting to occur.

As the monthly.

Revenue per dealer OLED and trying to pick up with those packages or is that something you would expect to blend over time I'm just curious like what's the new algorithm to look for in terms of growth.

Absolutely it will be the ladder it will be it will because this is a transition will do over the course of the year. So this is not something that youll see immediately pick up over the course of the next quarter or two this is much more something that we'll do gradually over the course of the year.

Especially as we're focusing initially mostly on the paper sales side, and then start moving into subscription States and then obviously any new deal are coming onto the platform will be on the new package, but we're slowly but surely transiting legacy dealers.

Onto the new system and so this will take some time, so don't expect any immediate optics, but obviously over the course of the year I just will start having a greater impact.

Got it so the unit guidance the revenue guidance is more driven by like <unk>.

Traffic.

More than like just the monetization fees does that did that trend.

Yeah and industries with Goldman Sachs.

It's fair. It's obviously, it's obviously an expectation that inventory we will start building up in conversion rates will start improving its obviously opportunities around although revenue sources as well, but it's also overarching.

Customization improving.

Vis vis the end of the year, so but overarching yes its units units driven.

Well as all of our revenue sources.

Got it and lastly.

I might have missed this on the call, but you are reiterating the 125 million great.

Great and $125 million cash.

Cash guidance.

Yeah.

The answer is yes, but obviously our <unk>.

Caveat that all day long with saying that right. If there if there are opportunities to do attractive buybacks et cetera. So yes donor twenty-five absolutely in the ordinary course of business, but if there if there are attractive M&A opportunities or buyback opportunities or those type of things and definitely we will execute upon those so but I think it will.

Important for people to realize that we have a strong balance sheet will continue to keep a strong balance sheet. So the 125 is a good marker to house.

But it's not written in stone.

Got it great. Thanks for all the color I'll jump back in queue.

Thank you next question will be from Chris Pierce of Needham. Please go ahead.

Hey, good morning, everybody I, just wanted to get a sense you kind of talked about building out the teams and kind of some hires as you'd like to have class I wanted to get a sense. How we should think about the path of opex in two.

2023, as you reiterate exiting the year positive or breakeven adjusted EBITDA.

Yeah, I'll I'll take I'll take notes for now and then.

Anticipation of <unk> going forward, but the so remember that we've said last time as well as Opex is fairly stable for us we're very focused on making sure that we keep opex under control.

Remember there are three large buckets on the operating side its human human capital right. It's marketing expense and then it is effectively our overhead charge. If you think of marketing expense. It's two buckets partner and then it's effectively performance marketing. So the variable that we can play with very easily is obviously performance mark.

Sitting with.

Articulated clearly last time that we want to focus on conversion as a key theme for 'twenty. Three we have a lot of uniques coming to our site. So conversion of ski adding another unique is not necessarily as valuable.

And so conversion is key which is obviously one of the great things of having a J crew come aboard.

But so overarching the opex side I think you can assume to be relatively flat to slightly increasing in the sense that we're looking at opportunities around.

Dealer sourcing used vehicles and we're doing some really interesting initiatives with there wasn't there which will have some.

Initial startup costs associated with that but I.

I would argue and yes, you could probably anticipate a slightly increased head count costs, but overarching opex is something that we wanted to keep reasonably flat.

For the course of the year and so just keep that in the back of your mind, which I think makes also the modeling a little bit easier.

Thank you very much.

Thank you next question from Steven Dyer of Craig Hallum Capital Group. Please go ahead.

Yes.

Good morning, Ryan on for Steve just one for US curious following Autonation is investment in November there've been any changes in the operational partnership there.

Hey, Ryan Thanks for the question.

We continue to pay.

Pay close attention to Autonation Theyre, one of our biggest partners, we have ongoing dialogues with them and I think we will continue to work to make sure that their investment emphasizes where we believe we sit in the leadership position on digital retailing and will continue to work with them to advance those those off.

<unk>.

They have many of the same needs all dealers have in acquiring used vehicles. So we're working with them to stay coordinated on all of our initiatives for 2023, and <unk> and that partnership will continue to grow.

Maybe just a follow up are they one of the Truecar plus customers.

They are not yet.

And that's it's really about timing because you want to make sure you get the right people. So if you think about autonation overtime.

There are really several pillars upon which we can have really interesting collaborations, which we're working on with them.

And so they are not yet on the platform.

That is by design frankly, because they are.

We're looking at.

Forward leaning dealers now that are much more in the trenches with the product development as we mentioned before we've now changed from the credit piece, we've changed on the accessory piece. So now is the time that we actually have a product that can be rolled out.

Across dealer. So this is something that is now a much closer focus for a much more of a near term.

Great. Thanks, guys. Good luck.

Thank you.

Thank you. This concludes our question and answer session.

I'll turn the call back over to Truecar, President and CEO , Mike <unk> for.

For closing remarks.

Thanks, operator, I'd like to thank everybody for taking the time to participate in our call. Today I also want to thank the entire team of Truecar for all their hard work over the past year and as we work to execute our priorities for 2023. This is exciting time for our company look forward to sharing more about our progress with all of you on the next.

Paul Thanks for joining.

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

Okay.