Q1 2023 TrueCar Inc Earnings Call

Good day and welcome to the Truecar first quarter 2023 financial results Conference call.

Please note. This event is being recorded I would now like to turn the conference over to Zane on Macquarie Ice President Investor Relations. Please go ahead.

Thank you operator, Hello, and welcome to Truecar first quarter 2023 earnings Conference call.

Joining me today are Mike Darrow, our President and Chief Executive Officer, John Sheehan Rogerson, our Chief operating officer.

And Teresa Wall, our Chief Financial Officer.

By now I hope, you've all had the opportunity to read our first 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 ger.

In terms 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.

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 dotcom.

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 highlighted some of the great progress made across our company in our stockholder letter for the first quarter of 2023.

Entire Truecar organization is focused on executing our four key business priorities in 2023. They are one to rebuild our core business to expand the market footprint for Truecar plus three.

Three lean into the used market and four focus on work our focus our marketing on converting our healthy top of funnel traffic into sales for our dealers.

I'll start with traffic in Q1, we had nearly $8 7 million monthly unique visitors across all our sites. This represented more than 19% year over year growth and exceeded our internal plan.

While we were measured with our marketing acquisition spend we were also focused with targeted SCO improvements and continuous improvements to our approach.

We believe this has put us in a solid position with our upper funnel traffic performance.

Our focus is now shifting into customized experience flows and all of the conversion of these millions of unique visitors into sales for our dealers. We are developing personalized shopping journeys for three initial consumer cohorts that we've identified.

Economic buyers convenience buyers and EV buyers buy.

By building personalized journeys for these cohorts, we believe we'll be able to help consumers in these cohorts identify the right vehicle for their needs and expect this to help us drive higher conversion, where our healthy upper funnel traffic.

To complement our demand side performance, we've started being more deliberate and proactive in our approach to the supply side of our platform.

This will position truecar to deliver a better e-commerce matchmaking experience for the consumer cohorts that we plan to focus on.

We grew our net franchise dealer count by 37 dealers in Q1 and focused on adding brands and inventory, where we have active shopping interest as new car inventory continues to recover slowly up a historically low base, we plan to continue to add dealers and inventory that match our consumer demand.

Patterns.

On the used car side, our dealer count declined in Q1 impacted by consolidation and current market challenges, particularly for smaller independent dealers.

We'll continue to focus on adding larger independent dealers that will align well with our very active shopping cohort of economic buyers that has emerged in our used car channel.

On the product front, we redesigned our truecar plus checkout flow deliver better e-commerce experience for consumers through a transparent intuitive and streamline flow. We also launched a new order confirmation step that allows a consumer who has built a deal within truecar plus to confirm their desire to complete the transaction.

Additionally to support our Truecar plus retail partners, we made a specific enhancements in dealer portal that will make it easy for dealers to respond to Truecar plus orders.

We believe these enhancements will make the truecar plus experience more efficient accurate and transparent to both dealers and consumers will continue to expand the geographic footprint for Truecar plus beyond the six states, where it was awesome.

For the next few months, we're preparing to more than double Truecar plus market coverage, starting with key metro areas across an additional 10 states. We've already started adding dealers in Virginia, Ohio, Maryland and Texas.

Finally, as we lean into the used car market, we launched Truecar plus wholesale solutions a wholly owned subsidiary that will provide market based vehicle valuations that are established using a proprietary algorithm and by leveraging multiple market inputs, including values that reflect our current dealer demand.

We implemented a broad rollout of Truecar plus wholesale solution valuations across the contiguous United States at the end of April .

The sourcing of used vehicles consistently remains a top demand for our dealers and we believe this program will be irrelevant solution for them.

There are many other areas, where we're making strong progress for example in mid April we expanded our OEM program was the Lantus and extended our Mercedes Benz program, both of which will provide targeted offers to select affinity programs.

As new vehicle supply continues to rebuild we continue to work with leading brands to offer benefits to the members of our exclusive affinity partners.

Our balance sheet remains healthy, allowing us to invest in our priorities for 2023.

We continue to anticipate breakeven or positive adjusted EBITDA in the fourth quarter as well as double digit revenue growth compared to the fourth quarter of 2022.

As always I want to take this opportunity to thank the entire Truecar crew for their hard work dedication and commitment to our vision of bringing something new and innovative to the market at a time of rapid change.

We will continue to embrace what we expect will be an increasingly digital future for automotive retail.

Before we open the call up for live questions, we're going to address some questions around key topics.

They know what's the first question.

Thank you Mike.

The first question is for Janssen Janssen, what factors drove that behavior of independent dealers in Q1, and how are you factoring this into the go forward plan for rebuilding the core business.

Absolutely. So the used market has been experiencing headwinds in recent months higher interest rates I've heard many independent dealers as their floor plan financing costs have risen the price and supply dynamics are less favorable and affordability issues remain a challenge for consumers. The combination of these and other factors have put pressure on dealer's gross profit per unit.

Especially for smaller independent dealers.

Our net independent dealer count was lower by 277 in Q and Q1.

Wherever there are a couple of points to make the vast majority of these.

Dealers were smaller smaller independents, and feelers, where we understood the reasonable their departure over 40% are either acquired or went out of business in one case.

A single group actually had 95 rooftops when our blot photo was acquired.

Although obviously the rooftop count was lower it had very minimal impact on the MLR as we rebuild our core business in 'twenty three.

It is our intention to add the right dealers with the right inventory to our network that matches the demand from our shoulders. This will be particularly important as we focus on converting a traffic and on developing personalized shopping journeys for the three initial consumer Gulfport, So as Mike mentioned.

Further we see some of the major franchise and independent dealer centralizing their efforts for online transaction, which actually is clearly to our favor.

This will represent the single connection point for Truecar by dealer, but with significantly more inventory behind it single connection point and the dealers with greater ability to deliver a better consumer experience. So we see overarching a bunch of changes happening, which are effectively journey into our favor which is good.

Thank you Jan San.

The next question is for Mike Mike can you explain why we're launching.

T C. W. S valuations and how this is different either from what was used previously or other existing sources of used vehicle valuations.

Thanks, Dana at the end of April we launched Truecar wholesale solutions valuations to provide truecar dot com and our extended affinity partner sites with real time value vehicle valuations and a backstop on trade ins through Truecar plus.

G C. W. S. Valuations also support will also support consumer to dealer sales through our cellular card program.

These vehicle valuations are established using a proprietary algorithm leveraging multiple market inputs, including values that reflect current dealer demand, which is relevant for consumers who want a current assessment of what their used car or trade. It is worse and for dealers, who continue to tell us that used vehicle acquisition is a major priority for them.

We believe truecar wholesale solutions will be more relevant to consumers and dealers and valuations based solely on backward looking algorithms that did not incorporate current market value inputs.

We as we lean into the used market, we expect to open up additional opportunities for Truecar and our retail partners in this market and offering real time valuations is just one of the way one of the efforts underway at Truecar.

Let's have another questions Ana.

Thank you. Mike next question is for again soon Jensen can you tell us more about the three consumer cohorts, we've identified and explained how we plan to use the new experienced players to drive higher conversion.

Absolutely. So we continue to make a big strides on Truecar plus.

Improvements like unified PDP, and streamline checkout flow as highlighted in our letter.

I also urge everybody to look at the visuals because again I think you clearly see that it's so much more efficient flow. While we've spent time building to various features for an online transaction. We are also starting to hone in on developing a more defined experienced floor to help match consumers with vehicles in our in our dealers' inventory that suit their wants and needs in all.

To drive higher conversion across our strong top of funnel traffic match.

Matchmaking higher up in the funnel will therefore become increasingly more important for us.

We have identified three initial consumer cohorts to focus on economic buyers convenience buyers and EV buyers each have different wants desires and budgets motivations for shopping for a vehicle.

Economic buyer has a lower credit score and will have the ability to search for inventory qualified for their buying power.

Convenience buyer has a higher credit score focused some comparability is most likely new certified pre owned probably interested in leasing the E V buyers seek different information not only on range or battery life, but also considerations around buying your use D. V. For example, or even the comparison against an internal combustion engine.

Both the convenience and EV buyers are also very attractive profiles for Oems as they look to re engaged our incentive programs and figure out how to penetrate deeper into these markets.

This is especially prevailing unimportant in a rising interest world, where interest rate world, where Oems would like to subsidize for their consumers.

The cohort identification also allows us to target a top of funnel more efficiently and allows us for more targeted and curator dealer engagement too. So overarching it just creates a greater focus for the company.

Thank you gentlemen.

Our final question before we open up the line is for Teresa.

Teresa market conditions remain next what are the drivers of the double digit year over year growth and breakeven or positive adjusted EBITDA by the fourth quarter of 2023 that we're expecting.

Thanks, Dana regarding the driver Sysco stats here, our focus on our four key priorities for 2023, which we believe will help us achieve the double digit year over year top line growth, we expect in Q4.

Encouraging to see new vehicle inventories continued to reap out while more progress is needed we are adding franchise dealers to help them generate demand for their inventories. There are still definitely some headwinds that we are watching closely including what is going on in the used market and with independent dealers that couldn't make our practice a little uneven, especially in this first half.

As we are rebuilding our core business. Our main focus there is to recapture dealer and grow inventory, we are being intentional as we focus on franchise dealers and larger independent dealers to our platform, who had the brands and inventories that our consumers are shopping for wheat.

We expect this focus on adding the right network and.

On developing personalized shopping journeys that you know it seems like about to enable us to match supply with consumer demand and drive conversion higher which will help us grow sales for <unk>, leading to more efficiency in our acquisition spend.

As inventories continue to sell and we made progress with recapturing these dealers and executing the priorities. We have set for 2023, and we expect the second half will be better than the first half of this year.

That's easy.

Thank you and thank you, Mike Chinn tuned and Theresa.

Now operator, let's open up the call for questions from the audience.

We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.

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

To withdraw your question. Please press Star then two.

The first question comes.

From Rajat Gupta.

Of J P. Morgan. Please go ahead.

Great. Good morning, and thanks for taking the question just wanted to follow up on those comments.

No.

How should we get comfortable with the bridge.

From the 11 million EBITDA loss to a positive breakeven to positive EBITDA in the fourth quarter.

I know you mentioned like the revenue drivers, but just from a profitability perspective like how should we get comfortable with that bridge as you know.

It seems like a pretty big Hill.

But you know if you could give us some more color there would be helpful. And then maybe if you could comment anything around.

Just the linearity within the first quarter, you know like the profitability improve through the course of the quarter.

April any color on that also would be very helpful and I have a follow up.

Thanks Roger.

You know I think as the country expenses, where we've been very disciplined and how we invest into the company and we're a chance to spend wisely into all the different types of.

It's strategic.

Jack is that we have when we look at our first quarter, especially I think normally we have slightly higher expenses in the first half of the year, we're always looking for efficiencies throughout the year. So this is something that we'll continue to do and well keep a tighter focus on that and you know the other big bucket that we always look at.

It's really on the marketing side now as he mentioned that our focus this year one of our core priorities this year.

Focus on the higher conversion and we have a pretty healthy pop vinyl.

And without really adding a let me spend there. So you know I think being able to keep that marketing spend diablo keeping yourself healthy and then really focusing on converting those unique visitors into sales will really help us drive that home, but you know in regards to expenses is something that were.

Watching closely and we'll always look for efficiencies where we can.

Yeah, I think it also or is that thanks for the question also articulate a little bit on the vote button. So.

Remember that we have.

Effectively realigned our our field team at the end of Q4 of last year. It basically means getting their stride. It was the separation of two roles that we implemented.

Provided the teams with their books of her gowns and targets throughout the early parts of Q1, and so to your question around the curve, it's very obvious that already in March.

March April and in particular in May obviously.

We've gone through the worst of that and the trajectory has gotten a lot more positive and so I think we're comfortable in reiterating the top line and.

What we're looking at and so it's pretty much on plan for us in terms of the first quarter was pretty much on plan and the board blame you originally had.

And so this is a it's still work work in progress, but we've gone through the worst for us as a business.

Got it.

That's helpful color and then maybe just on the independent dealer Com and.

You gave us some color around the 40% number.

We're like digital dinners also a part of that I don't know like how much exposure you have to digital used car dealers, but where they are part of that sequential decline as well.

And was there any churn because if you know some of the pricing actions that you might have taken a with truecar plus.

Just wondering if any more detail you could give us and then have you seen these trends continue into Q2 as well thanks.

Yeah. Those are all good questions. So first first of all I think last time, we articulated so number one digital dealer. So if you're single players like Carvana. For example, they are they are only on our platform with one single rooftops.

So those the rooftop numbers themselves are not super Big the other thing is also it's always a little bit tricky because on the one hand, a concept of rooftop is important because it shows you effectively a number of clients you have but one of the things we've started shifting towards and we've been really focused on is much more revenue than revenue.

<unk> by our customers and so it really depends on the type of dealers that are churning off overarching.

Smaller smaller dealers here or at least the rising interest rate world similar to the past. So if you look at historical numbers 10 years ago, very similar profiles were happening a lot of moms and pops stores that don't necessarily have very strong financing.

Start suffering as well as obviously a greater M&A.

Activity around especially mid sized dealers that are looking to acquire some of the smaller ones.

And so that will continue to have to happen.

If you look at other reasons for people to come off it's often for themselves gross margin.

Nervousness et cetera, so it really depends some still don't have a lot of inventory or half the difficulties accessing inventory as Mike mentioned, a lot of our dealers are seeking to get access to used inventory. So if you're a smaller dealer with a with less footprint, it's going to be harder to get access to inventory. So there are multiple.

Reasons effectively for us I think overarching, though if you look at our our team they've been really good at booking door dealerships, making sure and Theres.

There is an active engagement with our network and.

And I think that's already bearing a lot of the fruits. If you look at our numbers.

And so overarching I think we're in a really good sports.

In terms of Carvana, specifically, which I think was our digital dealer question, obviously and I think this was mentioned last time as well there was a moment, where some of the larger digital retailer effectively turned off any external support.

Are those are those are things where were obviously an active dialogue with all of our clients at all times and various claims will try new things are different things in this environment that is constantly changing but we feel very confident about the customer base that we have a bowl of across the board and.

We're very much a revenue focus as opposed to purely rooftop garden focused.

As a reminder, if you have a question please press star one.

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

Oh, great. Thanks for taking my questions good morning.

I guess first off thanks for the kind of the color and some of the background behind them.

About the new customer cohorts and the kind of the personalized I guess E. Commerce flows that you guys are.

Kind of developing or focusing on I guess.

When I think about.

How that might change your your kind of customer acquisition or your audience acquisition.

I'm just curious like I guess, how much of a change does it require you guys to this new kind of approach from how much of a change does it require you to make.

On the on the traffic acquisition or customer acquisition side of things.

Or is it does it mean, new marketing channels or our new tactics and how confident are you that you can acquire kind of audiences that are specifically tailored to these new kind of profiles. If you will in an efficient way and then just secondarily on on OEM spend and I guess this is kind of tied to your <unk>.

Commentary on a new inventories but.

Its still that revenue line is still pretty depressed just curious if there's kind of any change to how you're thinking about the trajectory of that revenue line. This year.

Thanks, Tom This is Mike.

Great questions, let me start with.

The first one you put out there you know we've we were seeing so much more in understanding so much more about our shoppers with the evolution of the Truecar flush flow there.

And that we're able to identify these cohorts in a much more specific way that the three that we mentioned became very evident early on these are initial cohorts that will be able to pursue and as we see folks progressed through dealmaking.

Requiring trading values are doing softballs applying for full credit online we get so much data that you know, it's really helping us understand our customer traffic at a much deeper level that then can be spun around as you mentioned into leveraging that in buying the type of traffic.

That that that fits the supply of vehicles, we had so we're working both sides of that equation.

Out there looking for dealers, who can provide the type of inventory that our shoppers seem to be predisposed to and then on the acquisition side of marketing, we can get more aggressive in marketing specifically the vehicles, we have on our site and leaning into those cohorts as they work on the flow. So we're getting.

And seeing much more information about both sides of that and we're utilizing it and being more effective at it and you know we made some changes in the marketing side of our organization and I'll, let <unk> provide a little more color on that but this is an area, where we'll continue to get better and better we'll learn more about our shopping patterns of our traffic and then be able to.

Lean into you know more and more efficient.

Efficient acquisition spend.

Yeah no.

So I'll go like there always be a lot of nuances here, but well number one we already have in our audience.

So most of these identified cohorts number one number two.

We're also shifting a little bit or the length of how we think about the journey of the buyers. So where historically we were very focused on the seven days prior to purchase we're actually now moving to <unk> and.

And 98 day cycle prior to purchase where people can really start thinking about discovery and finding the right.

GARS for them.

So there are a lot of things we're removing the good thing is that we are very few have been very efficient and I think we've also continued showing our marketing efficiency. So these are quota cohorts it'd be ready half, but are also we feel are good and easy for us to attract and some of them are highly underserved.

So it's an attractive opportunity for us. It's also go hearted, we've been identifying already engaging very actively with Tc plus.

So we feel that the each of these journeys effectively can have a much more experienced slow so in other words really thinking about economic buyer start to finish we will engage very differently with our product than a convenience buyer and as a result really does actually create that as frictionless as possible because.

For one for example, registration which was much more important and for another word for example, refinancing would be really important and so as opposed to having as a generic person arrive on the side I have to do self discovery, we're gonna make more predetermine funnels, which then enables us to actually have greater amount of conversion.

And then I think Tom that the.

The second part of your question was around the OEM business.

We're seeing probably the same signals you have in the marketplace you know that the big issue that everybody in the vertical is trying to address is affordability. The Oems first steps in that seem to have been.

Buying down apr's through their captive Sabine leases and those sort of things to address affordability for consumers, but we are very active in our discussions with the Oems more active than we've been in the past.

They seem to be more receptive.

To those discussions and I think as as Jan mentioned as we get more specific about these cohorts. The convenience shoppers are going to be a very attractive.

Our cohort for our OEM partners as well as the EV shopper. So they all have the opportunity to come in and actually in.

Insert themselves in key stages of that cohort buying process and try to influence those outcomes. So the discussions and the pace of discussions are picking up on the OEM side. We've had some success as I mentioned with expanding the still Lantus program and then extending the program we've been running with.

Mercedes Benz onto additional affinity partner sites. So we expect that OEM business to continue to get more active throughout the year.

Great. Thank you.

But again if you have a question please press star one.

This concludes our question and answer session I would like to turn the call back over to Truecar as President and CEO , Mike Darrow for closing remark.

Yeah, I want to thank everybody for taking the time to participate in our K I also want to thank the entire team of Truecar for all the hard work over the last few months as we work to execute on our clear priorities for 2023, so exciting time for our company. We look forward to sharing more about our progress with all of you on our next call. Thanks for joining.

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