Q2 2023 TrueCar Inc Earnings Call
Good day.
And welcome to the Truecar second quarter 2023 financial results Conference call.
Please note. This event is being recorded today.
I would now like to turn the conference over to John tune, Roger Smith, President and Chief Executive Officer of Truecar. Please go ahead.
Thank you operator, Hello, everyone and welcome to the Truecar second quarter 2023 earnings Conference call.
Joining me today is Teresa long, our Chief Financial Officer.
Oh I hope you all had the opportunity to read our second quarter, our stockholder letter, which was released yesterday after market close and is available on our Investor Relations website at IR adult bottled cool.
Before we get started I need to read our safe Harbor I want to remind everyone that 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.
<unk> such as believe expect plan target anticipate become seek will intend confident and similar expressions.
And our notes 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 reports and filings with the security and Exchange Commission for a discussion of the factors that could cause our results to differ materially.
The forward looking statements, we make on the score 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 be to the most direct comparable.
GAAP measures are set forth in the Investor Relations section of our website at IR adults, regardless of all the non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP.
That was fun now with that I will provide a summary of the quarter. So.
Now we get into the real stuff. It is an exciting time at Truecar.
It's time of change and the time of focus we've turned the ship and our laser focus on growing the business in Q2, we achieved quarter over quarter revenue growth significantly improve their bottom line and we're targeting Q3 year over year revenue growth followed by double digit revenue growth and adjusted EBITDA profitability in Q4.
In mid June we streamlined organization and eliminated 102 positions were 24% of our headcounts or those these are always difficult decisions. It wasn't important step to be nimbler as a company and a more focused company.
We have so many diamonds in the rough that are ready to shine, we're excited to bolus dose together over the many quarters to come and transform this business for long term success as an example.
Did you know that more than 50% of the nationwide supply of electric vehicles, excluding Tesla is available and truecar.
We have a unique opportunity to disrupt our markets and redefine our value proposition to both our consumers and dealers through our various cohorts. We're excited to bring you along on this journey with us and we'll elaborate more on this in the coming quarters as we launch our cohorts.
Now operator, let's open the call for questions from our analysts.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you're using a speaker phone please pick up your handset before pressing the keys and to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And our first question here will come from Rajat Gupta with JP Morgan. Please go ahead.
Great. Good morning, Thanks for taking the question in the prepared remarks.
I have a question on the OEM incentive revenue, obviously pretty solid in the second quarter.
Pick up sequentially and like a big driver of the EBITDA.
As well could you could you help us understand you know how the Activations work here.
And how should we be thinking about the sustainability of these levels going forward.
No it didn't even temporal programs continue into the third quarter and do you anticipate to see.
The contribution I'm, just how do you think about the cadence here.
Regarding gross margin cutting aspect of this.
And I have a follow up thanks.
Oh, absolutely I wish I had thanks, so much for the question. So yeah. We're excited I'm on the OEM revenue. Obviously, we're we're excited for two reasons. One is it's great to see OEM incentives coming back. It has obviously been an important part of our business and in the past.
And there's dry it out over the last couple of years and so it's exciting to see the business coming back.
Not only is the OEM incentive piece is really interesting. It's also the combination of doing this together with our affinity partners. So it also articulate the strengths of the platform, we have us truecar, which is really combining the various stakeholders together and provide value to all of those involved and so in this case the.
A combination of doing things with Sam's Club American Express and Mercedes is something that is incredibly valuable for all parties involved.
We hope to do more of these type of programs, we hope to grow this type of business over time.
It will always go a little bit with Epsom flow still in the near term is obviously to the macros resetting, but we do believe and expect this to be a a longer term growth business for us.
Got it.
M D M B USA.
Program here in the second quarter is that.
Does that go on for a few quarters like you know do we would you would it be recently by other manufacturers I mean, just curious like what.
Yes, it's a good question.
Yeah. Yeah. Yeah. These are these are these are all like almost individual programs. So it's always hard to predict the way. It works is they we establish a program. They run well. We then determined to continue the program or or or slow down. The program. We obviously have do similar.
Di both programs with other players as well so it's a little bit of given day can so it's a it's always it's hard to say hey. This is the steady growth. Because these are all always programmatic basis. This is not necessarily like an ongoing revenue flow always.
This program, obviously has been very effective it's something we're continuing at the moment.
And then we'll we will that'd be replaced with other programs over time are the answer's, yes. That's obviously what the teams are working on very much and so overtime can you expected, we will do more and more on the OEM revenue side, and we have greater traction with a variety of these type of programs. The answer's, yes, well that'd be a perfect straight line the answer is probably no.
Al.
Understood that's very helpful.
And then just a question on the Opex.
The cost actions were executed you know.
Neither part of the second quarter.
You your guidance for the third quarter Opex.
Flattish sequentially.
I would've thought it would go lower you know with the full effect of the actions I'm curious like what the offsets are you talking about.
Some additions needed on the sales organization.
If you could add any more color on how we should think about the cadence of the Opex a little.
Thanks.
Yeah. Thanks for that question I'll provide some clarification around that piece.
And I guess in regards to the head counts on yes, we did receive some benefit in Q2.
In regards to Q3 and Q4 do you expect some benefit but not to the full extent that we disclose it even if I say 20 million annualized savings and we do expect some benefit.
So when you think about your cost structure, you know, there's head count marketing.
Other expenses and marketing, we expect that to be fairly flat.
Quarter over quarter, but we're continuously monitoring the efficiency and effectiveness of this marketing spend that we're able to adjust in real time as needed based on the trends that we're seeing and what the other piece that Jonathan do you expect that to stay flat, though overall in total I would say that we expect some benefit in Q3 and keep our condensate and send me a workforce.
Yes.
Got it got it thanks, great I'll get back in queue for follow ups.
Our next question will come from Nevada, Com with B Riley Securities. Please go ahead.
Great.
It's nice it's nice to see a sequential growth in the units Oh and I'm just curious if the if the increase was driven mostly by.
A more favorable macro to more of a general improvement how much of this is really driven by <unk>.
Truecar plus.
We're seeing that improvement in general.
Yeah. So that's a very good question. So it's actually it's it's I think it's two things.
Not trigger Plaza Truecar, plus yet to date is still a immaterial compared to the bigger numbers.
So that's not the big driver however, we continuously improve the platform close rates.
On conversions on the site et cetera, and so it's a combination of obviously macro resetting as well as our continued improvements of the teams are doing in terms of the type of leads it provides the conversion rates on the site itself. So there are two drivers for that.
Truecar plus is having good traction obviously now with the go works, we're going to go into a much more narrow field there and so we're going to report out accordingly, as well going forward and that's really focused on the transaction side, obviously going forward, but right now the number of Oh.
Plus units in there is is effectively immaterial.
Got it and then you had previously talked about.
Pulling it out nationwide is that still are on track how do how do you kind of view that my ear and.
Oh, Yeah, that's doing them.
Yeah, no. It's a very good question. So in the new ones were doing is if you think about the lessons we've learned on Truecar plus is two days it was very much.
Effectively a person finding their own way into product flow and that's obviously never really good experience because every person has a very different buying.
Buying expectation in a very different engagement with the product and so what we realize is we had to personalize those flows much more than takeout can strange that did appear as you go along I'll give examples if you are a little lower credit profile, then obviously lending will become a big issue and then.
Lending will become and the big issue not only for the consumer because they need to find the right lender that can lend against the right rates, but also for the dealer because depending on the type of lenders it might actually affect the margins of the dealers a lot.
And so at the end of the day, we realized that we didn't need to have a much more personalized journey, which is why we landed on the three cohorts to start with over time, obviously, we'll do more cohorts, but if you look.
Look at the cohorts in more detail, you'll realize that each of them will have a very unique slow and therefore, we're solving a lot of the friction points inside the product immediately by having that more person less flow.
The idea there is obviously the ability to be nationwide Oh, so much quicker remember that you can be nationwide with used without any issue.
It's harder to be nationwide with new because there are restrictions either by Oh, yeah, EMS or <unk> or others or certain states and so as a result.
With the go Hearts and launching to go horse it actually will facilitate us to be nationwide faster and sooner and we'll anticipate to do that obviously, depending on the type of cohorts and the type of cars, but as an example in the form of the economic cohort.
We're seeking to be pretty much nationwide depends on certain states given the financing requirements, but a pretty much nationwide almost from the outset. So net net is it depends a little bit on the type of product and it depends on the type of cohort, but the answer is yes, we will we will seek to be nationwide by the end of the year.
Got it and then.
And last question.
Undimmed.
On the monetization VACMAN down sequentially is that just a reflection of the mix between new and what should we use how should I think about that.
Yeah, I think that's correct I mean, I think if you look at Ari who use next our he's Nick.
Dropped down to about 44% were in the last few quarters. It was closer to 48, 9% so definitely that they talked about it.
That they'd have a.
A factor in that in that market there.
Yeah understood. Okay. Thank you guys.
Our next question will come from Tom White with D. A Davidson. Please go ahead.
Oh, great. Thanks for taking my question just one for me I guess, it's I guess, it's been a couple of quarters. Now you guys are talking about kind of these three.
On a buyer cohorts.
I guess and I guess I'm thinking.
Thinking about your commentary around the sales and marketing probably being flat sequentially here, you've talked a little bit about.
Oh, whether this kind of change in the way you're you're viewing the audience you're segmenting the audience is requiring you guys to.
Acquire traffic or acquire a you know would be car buyers in different ways or you use different channels.
And he just kind of different see differences or changes to kind of your marketing mix or a marketing spend.
That go along with it.
Yeah, It's all a very good question and the answer is absolutely. Yes. So I think one of the beauties is doing to go hard is that the value proposition for each cohort consumer is slightly different the value proposition even for the dealers is slightly different even though as a dealer you could obviously serve multiple cohorts.
But the answer is absolutely yes, it allows us to not only capture people within that value prop at certain places and have a more targeted approach.
It also and so effectively or we're allowing people to find the journey either by the way we target on the marketing side or as they are we see a rifle decides they're going to be different entry points in which they can take certain go work baths remember also don't misunderstand that.
Three cohorts are just the start of many more cohorts, but the three cohorts given the focus that we have as a as a company obviously those three.
Create real opportunity for us remember the economic cohort is one that isn't very large unserved markets and to date. If you look at T C plus engagements.
Difficult part of the people that are seeking to see plus transactions are actually within this cohort already and so it wasn't one of the triggers whether we actually have the current product flow set up the right way then if you think about the convenience cohort that's much more of the historical bread and butter.
Oh off Truecar, but also it allows us to really focus on the line a little bit better with the different affinity partners and even lenders. So he should start segmenting cohorts. It actually facilitates everything so it does not only facilitates the targeting of the marketing, which absolutely is true and it's something where we're now embarking.
But it's also.
Targeting effectively with partner so we have on the affinity side as well as the different lenders that are more specialized in each of these bars.
So the answer is yes D D in terms of overarching dollars on the marketing side, that's not expected to increase per se, but it's much more of the allocation of dollars and being smart about that which is which we're now working on.
Great. Thank you.
Again, if you have a question you May press Star then one to join the queue.
Our next question here will come from Chris Pierce with Needham. Please go ahead with your question.
Hey, good morning, I shoot a question on the macro.
And then a follow up.
Yeah kind of looking at new car Saar. It seems like its fleet is kind of driving some of the recovery do you think we haven't really seen it gets where recovery yet in that sort of there's further growth to come from the business, where you guys kind of are more levered to that kind of would you agree with that is that the right way to think about it.
Yeah, Chris I think the answer is absolutely, yes, so I think you're you're in a world where price is still held fairly high overtime agreed that the fleets. Obviously it was an important driver.
But also remember that there's a lot of pent up demand in the markets and I think you you can see that even from where I'd like the used car still holding fairly steady.
Even though obviously new car prices are coming down and there's a lot of demand and you can see that even across all of the different platforms is that demand in the U vs are very high.
Because people are looking for cars.
And so the answer is yes, I think that there's a healthy mix has come back I also think that now the days in inventory has started increasing and so all in all I think the macro is turning very much into our favor which is a good thing for us obviously and we can be more and more helpful for you.
All our partners, which is also always a good thing for us.
It is still a little bit sporadic so it still depends a little bit on the brands and the makes its attracts but we expect this to iron out over the course of the next several quarters.
Okay and it looks like you guys added franchise dealers are it looks like the franchise dealers made a bottom or a 2022 can you just kind of walk me through what kind of resonating with the dealers is it because prices are still high they're relying on needs more.
Changes you guys have made it to the Truecar plus or just kind of have to get a sense of what's driving the franchise dealer count back to Oh, yeah.
It's a great question, it's a combination of all so I think there's and there's an element of it.
Dealers, obviously are now having more inventory than they had previously and have and they have a greater need of help.
Obviously as the markets are coming back we also have something Thats golf ball sales right. So you walk into a dealership and you can show that they have actually lost sales in certain ways and in their own area and you can show like Hey, if you actually were to do a b C. It's actually much more beneficial to you.
So it's all very data driven because obviously you know the markets are turning and we have all the data available. It's also because were moving on the on the product flows in and starting to offering Oh for interesting new opportunities I'll give you. An example, we're launching sponsored listing for example for new Guards, we only used to have that for used cars and so there are <unk>.
Opportunities there also to to to play for dealers and then the other thing is also.
Just overarching the opportunity do especially if you start segmenting into go Hearts, obviously, that's resonating really well for the dealers because many dealers have some formal specialization in some shape or form and so segmenting and go horse actually allows them to really do what they do best and so for us having that type of traction is in.
And the other thing also does I think is important to Jordan underlying is that historically.
Our sales forces were often driven by rooftop count or those type of metric that is all shifted to really focusing on effectively net revenue generation and so you'll it's normal that you see a natural shift happening off some dealers coming off that are very low M. R. R.
And often very small independent players and then we're really focusing on are often a little bit more valuable revenue generating a larger independents or franchise dealers, which is obviously the historical quote the bread and butter of the firm as well. So yeah. So these are these are normal natural shifts to happen for us, but there's a value proposition that is good I think.
One thing to highlight as well is.
We're we're also.
Focusing now that we've started segmenting on the cohorts. We've also gotten much more in tune with the value proposition that we have for both consumers and dealers and so this is an effort of will continue conducting over the next couple of months, where we're really refining on what are the biggest strengths that we have and articulate that differentiation much better.
And we have in the past I think overarching even for the financial community. If you actually look right. It's hard to assess what makes that different companies actually different and so it's a it's a concerted effort. We're conducting right now where are we we are articulating this much better and also will come forward much cleaner.
Unclear with our articulation.
On what Truecar, what makes truecar actually so much different from many of the other players in the market.
Thank you good luck.
Again, if you have a question or follow up you may join the queue by pressing Star then one.
Our next question here will come from Marvin Fong with B T. I G. Please go ahead.
Hi, good morning, Thanks for taking my questions.
Just a question just one question on conversion rates are you know units were up although traffic was down quarter over quarter. Just wondering if you could maybe break that down a little bit more are you.
Attributing that to improvements on the website or are you noticing any changes in consumer behavior, and then I have a follow up.
Yeah, I think Marvin I think it's both so we're we're continuously making improvements where we're always getting smarter on the product side and also thanks to D. C. Plus we're learning a lot on life, where people drop and what happens in and what what what makes people take effectively.
That's number one but it's also don't forget that at the end of the day a large part of conversion is also driven by car prices and car availability. So if you look into in the in the like a couple of quarters ago. When the conversions are relatively low two of the big drivers were obviously.
A lack of availability of the cars or when they were available the pricing was disproportionate in the eyes of the consumer and so.
Now did that becomes more and they're almost a possibility for the consumers themselves.
I think that's a that's a big driver, but in addition to that we're obviously, making the right continuous improvements on the site itself and then we think that that's the least you're only going to improve over time as we as we become more.
<unk> focus on these cohorts.
Got it and my follow up is you know it.
I understand everything you were saying a question to go about.
You know a lot of the lower value.
Dealers are are going to be churning off as you are focused on on net revenue, but just.
Could you talk about the independent dealer count like what's your visibility there should we continue to expect that to to decline or do you think that might be stabilizing. Thanks.
Yeah, it's at them.
There are like the ones that are turning are often going out of business or merging or so those are often smaller players.
I think that just needs to kind of wash through the system.
I anticipate this to happen.
For some time give it on the independent side given that there are those that we have quite a lot of smaller prey are still like in the long until effective lease on the roof Dope number counts there are still some left and the question is a little bit depending on how the markets normalize or how they are able to adapt our business lines, it's hard to say whether they.
We'll be able to make that Arnold.
But for the time being like while the interest rates are relatively high and obviously used car prices are.
Or at where they are I'm not like some of them will probably struggle and double will stay like that so I wouldn't anticipate just to keep going for a little bit and then at some point it will level out.
Great. Thanks, Don appreciate it.
And this concludes the question and answer session.
To turn the call back over to <unk>, President and CEO , John tune riders Madden for any closing remarks.
I would like to thank everybody for taking the time to participate on our call today.
I also wanted to thank the entire Truecar team. So the team is working tremendously well coming together, it's a smaller team. It's a nimble team and the team continues to work Super hard. So it's an exciting time for the company and we look forward to sharing more about our continued progress with all of you on our next couple.
Of course.
Thank you.
The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.