Q3 2024 TrueCar Inc Earnings Call

Good day and welcome to the Truecar third quarter 'twenty 'twenty four financial results conference call.

Please note this event is being recorded.

I would now like to turn the conference over to Jan tune Rakers men, President and Chief Executive Officer of Truecar. Please go ahead.

Thank you operator, Hello, everyone and welcome to the Truecar third quarter 2024 earnings Conference call. Joining me today is Oliver Foley, our Chief Financial Officer.

I Hope you all had the opportunity to read our most recent stockholder letter, which was released yesterday after market close and is available on our Investor Relations website at IR adult Truecar adult goal.

Before we get started I need to read our safe Harbor I want to remind you that we will be making forward looking statements on this call, including statements regarding our revenue growth and positive free cash flow.

Well as Asps.

Inspirational goals regarding 2026 revenue and free cash flow margin.

We're looking statements can be identified using words, such as believe expect plan target anticipate become seek will that go into them and similar expressions and are not and should not be as reliable as guarantees of future performance or results actually.

Results could differ materially from those contemplated by our forward looking statements. We caution you to review the risk factor section of our annual report on Form 10-K, our quarterly reports on Form 10-Q and a.

Other reports and filings with the Securities and Exchange Commission for a discussion of the risks that could cause our results to differ materially.

The forward looking statements we make on the school 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 measure are set forth in the Investor Relations section of our website.

I R adult Truecar adult cool.

The non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP, let us get into the ballpark.

As we continue to navigate the turnaround of <unk> legacy business, while simultaneously laying the foundation for what Truecar aims to become we acknowledged at the Truecar stories nuanced and requires investors to evaluate and underwrite.

The distinct opportunities that exist for both our legacy and future businesses.

Driving strong near term growth of the legacy business requires that we embrace and learn and lead into the unique competitive advantages that over nearly two decades have helped truecar fortunes identity as a leading vehicle listings that lead gen provider, however for us to effectively innovate.

Your father will feature of automotive retail, we must be willing to evolve the identity. We have long embraced this year alone. We have launched a broad suite of digital marketing solutions for both dealers and Oems and this past quarter, we have become the first and only digital marketplace that enables consumers to buy it.

New certified pre owned or used vehicle entirely online.

There are more we have taken steps to begin monetizing our rich poker Terry datasets, recognizing the potential to unlock powerful insights for our partners and enable an increased level of personalization across the consumer buying journey.

While these initiatives represent.

A natural extension of our unique competitive strengths. They also represent a departure from the traditional role just a third party lease listing and lead Gen provider.

While our shareholder letter elaborates on Truecar has unique advantages.

Which we are leveraging to drive near term.

Growth and position Truecar for a much larger role in the future of automotive retail.

We use this golf cole to highlight our third quarter results, which we believe demonstrates strong traction against those near term and long term goals.

Turning now to a summary of Q3 financial and operational highlights.

Total revenue in Q3 was $46 $5 million, representing a 13, 1% increase from the same period last year and 11, 4% increase from the prior quarter.

Our Q3 net loss decreased to $5 8 million from $7 9 million in Q3, 2023, and we achieved adjusted EBITDA profitability of zero, but $2 million.

Our core franchise dealer business continued to strengthen in Q3 with franchise dealer revenue growing 12, 7% year over year, and five 5% quarter over quarter. Most importantly, despite the industry's one 3% year over year decline in new vehicle retail sales.

Q3, Truecar grew new sales by 16, new car sales by 16, 3% year over year.

Driven in part by the incremental marketing investments we've made.

Over the last six months.

This equates to nearly seven new unit sales.

This equates to nearly 7 new unit sales per franchise dealer, which is the highest level since Q3 2021.

Franchise dealer, which is the highest level since Q3 2021.

As we have previously articulated a key building block for achieving our long term growth objective is to regain our share of franchise dealers through activating new dealers and minimizing churn and in order to achieve that we must demonstrate truecar is the ability to capture share of total new vehicle sales by delivering strong new unit growth and accessible.

The overall industry growth.

Another sign of the strengthening of our core franchise dealer business is the adoption of Truecar marketing solution also called D. CMS I mean, Q3 is relatively new product offering contributed $1 million.

Oh dealer revenue, even more encouraging is the performance being achieved by this suite of marketing products.

By leveraging our first party data to help dealers reach highly targeted audiences across a variety of channels Truecar is helping dealers achieve significant improvements in our marketing efficiency, while growing the overall sales volume.

Given our growing revenue per sales is another core building block for achieving our 2026 revenue target T C message, allowing us to capture great share of wallet and drive real traction against this building block.

In addition to the momentum of our franchise dealer business, our OEM business remains strong and positioned for near and long term growth.

Despite being down 11, 5% year over year decline attributed to heavily marketed incentive programs. During the same period last year Q3, OEM revenue increased by 45% from the second quarter driven by strong performance over a long standing incentive program with Atlanta that was reactivated.

Speaker Change: You know steadily increasing next year I'm.

Speaker Change: Hopefully in part catalyzed by better affordability, either through new vehicle incentives coming from Oems or lower interest rates I think franchise dealers will.

Well no longer feel like Theyre treading water, so much but sort of get back into growth mode. I think once that happens, we'll hopefully see this acceleration in our franchise dealer count them next year.

Speaker Change: Got it that makes sense thanks, guys.

Speaker Change: The next question comes from Roger.

Roger: J P. Morgan go ahead please.

Speaker Change: Oh, great. Thanks for taking the question you know Jeremy you know good acceleration in revenue growth intra quarter and expecting in the fourth quarter.

Speaker Change: No on some of the drop through you know from these initiatives you know it would be helpful.

Speaker Change: I have one quick follow up thanks.

Speaker Change: Yeah, Yeah, I think Oh Oh.

Speaker Change: Oh, I don't think of them or so the like I think the short answer the short answer to this is really is really simple is.

Speaker Change: It's really important for us to continue to have.

Speaker Change: Positive adjusted EBITDA profitability.

Speaker Change: And it also obviously in the near term to become.

Speaker Change: Also live on the free cash a lot so and that's actually a personal thing I think businesses should be free cash levels of this.

Speaker Change: And then it'll be negative free cash flow for too long.

Speaker Change: Early for a reasonable the existence of the business model itself.

Speaker Change: So adjusted EBITDA profitability is important to US. However, we also and I think we've mentioned this in the past. We also know that our business is very.

Speaker Change: Has again has a lot of positive impact if we deployed more on the marketing side, we have obviously been very constrained on the marketing side in the last couple of years and we know that.

Speaker Change: We can deploy and we noted it has a good positive impact on the business overall, and so we're probably going to straddle somewhat the balance over the next couple of quarters, where we're going to deploy more on the marketing side, even if that means having.

Speaker Change: Having slightly lower EBITDA margins, but obviously, it's still positive, but obviously you'd be willing to push the boundary of the business a little bit more especially because the the marketing deployments were doing now have a broader halo effect not just to drive units in the near term, but also really the ability to start.

Speaker Change: Positioning truecar overall as a as a platform where people can also buy cars online and so.

Speaker Change: Straddling that somewhat as importantly, we did we also understand that.

Speaker Change: That's for the market there has to be some more clarity, which is the reason why we gave the 2026 guidance of the 10% free cash flow margin because that really was for US was important to indicate like yes. It's a really important metric that we have our eyes on but if you think over the next couple of quarters.

Speaker Change: Adjusted EBITDA profitability is key but most importantly, it's also just continued driving their business and effectively provide oxygen back into the business.

Speaker Change: Got it got it that's helpful color and then just as a follow up you know.

Speaker Change: M O D adopt monetization should could you maybe give us a sense of the ramp curve here.

Speaker Change: How how quickly could we expect to see contribution from these initiatives you know.

Speaker Change: Any guardrails you can provide around revenue near term yeah that would be helpful. Thanks.

Speaker Change: Yeah. I think this is this is more a matter of like over the course of the next year. We can start seeing the contributions. This is not a matter of the next quarters, but if you think of for example, theres being a building block within the the plan towards the 300 billion in 2026 and this is over.

Ben: Ben This is one of the building blocks that we feel we have real opportunity.

Ben: Now, what's a little bit tricky is obviously there are different forms of monetization and some are more obvious than others. One of them is for example, as to the OEM AD sales as one example.

Speaker Change: And it's also not just purely the monetization it becomes important to hear but also utilization of these tools to create a much more personalized buying experience for the consumers or our ability frankly to identify new consumer and the type of consumer much earlier on in the journey, which then mills only allows us to.

Speaker Change: Personalize the buying the shopping journey effectively number one but also number two allow them to be much more targeted in our approach and this can be targeted from.

Speaker Change: Oh, Yeah, an AD sales perspective, but it could also be targeted from becoming much more dynamic than the way you presented incentives for example for the Oems and things like that and so I.

Speaker Change: I think the answer is if you start looking over the course of the next four quarters, then I think you'll you'll you'll start seeing real impact and growth there. Although it was a if you think over the next couple of quarters it will be very positive.

Speaker Change: Thank you.

Speaker Change: The next question comes from Chris.

Go ahead please.

Hey, good morning, guys.

Speaker Change: We are in the prepared remarks did you say did I hear you correctly that amex has cycling out as an affinity partner.

Speaker Change: Yeah. So.

Speaker Change: So I'm a IMAX will come off in April so they've had a mutually successful run and Ah that they've decided to really focus more on their core business.

Speaker Change: Which is around travel dining entertainment segments.

Speaker Change: Which is all obviously for us it's always frustrating when BARDA has come off but remember these are.

Speaker Change: Programs that are always pre defined and.

Speaker Change: And we know are always a there's a finite amount of time effective leasing and see people cycle on and off yeah. So they'll they'll come off in April and.

The good news is that we're obviously, having dialogues with the right parties to actually take up some of that volume and being able to to put that in different program. So.

Speaker Change: The answer's, yes, unfortunate because it is a great partner, but we also fully understand and I gave it their focus.

Speaker Change: And is there a way to quantify just roughly how many extended affinity units they tend to drive a quarterly basis or on a yearly basis as a percentage of overall extended affinity units.

Sorry.

Speaker Change: The question.

Speaker Change: How should we think about what percentage of extended affinity units Nx typically guide.

Yeah.

Speaker Change: Yeah. So we so we provided a little bit of color in the queue. Chris that you can find but yeah. You know over the last 12 months, it's been roughly about 5% of the AR the partner units.

Speaker Change: Got it.

Speaker Change: No.

Speaker Change: So it gets pretty fragmented and there's not a lot of concentration within affinity partners or at least have to raise amex is not overly concentrated okay got it yeah. Yeah. So remember it's just as it is.

Speaker Change: Specific program rights or like if you think about it there's a and then there's also what I tried to articulate in the prepared remarks, which is these are programs that are relatively cost of nice, but one day kind of once they kind of click we can deployment deployed them in different affinity networks with different Oems. So what's really important is the Oems to be.

Speaker Change: Willing to provide incentives and then obviously, we can deploy them across different affinity networks and so that's really the key of it. So if one goes away.

Speaker Change: So at the end of the war for US because we can actually then effectively moves that audience to other affinity partners. So it's always been an important partner for us would be the yeah. They come and go and so for us to be able to shift that is something we can do in short order.

Speaker Change: And then just lastly, do you have any dealer, they're taking only T. C. N. There or has that been a generator for you guys to get their lead Gen product back into deal is that it may be turned off during COVID-19 or like how should we think about it or do you see and I subtract them different dealer, it's like what's the kind of a go to market for both of those products.

M D: Yeah. So this is this is M D. The answer's no and the first one yes, I'm a louder and so this is really the ideal the approach of them just being a lead generator, but really we're becoming a much more of a full service provider and really helping the dealers sell more cars.

Speaker Change: And it can be done in different forms and one of the things. We realized very quickly is that obviously dealers come in many different shapes and sizes and so theres no. One one glove that fits for all of them in terms of the issues. They are facing and how we could potentially help them. So I'm, providing a suite.

Speaker Change: Both products that we can do we can utilize as really important but yeah in order for them to become get on to CMS. They have to be on the core side as well and that has been in it.

Speaker Change: Good driver for us because it actually enabled much more strategic and <unk>.

Speaker Change: And his senior conversations with a lot of these dealer groups.

Speaker Change: Okay perfect. Thank you.

Speaker Change: Walking into the dealership as well as online and so it's hard to predict.

Speaker Change: What any changing administration has an impact on the on the industry overall, what we do know is that obviously if.

Speaker Change: For the automotive at the moment like one of the constraints. There is is the affordability notion and so right affordability adjustments will be beneficial, but the overarching I think it's really hard for us to go months north at our place.

Speaker Change: Got it that's fair thank you.

Speaker Change: Yeah.

Speaker Change: This concludes our question and answer session I would like to turn the call back over to Jensen for closing remarks.

Jensen: Thank you I would like to thank everybody for taking the time to participate in our call today with gratitude. Thank you.

Jensen: And I think it's important to know that our dealers need us we have strong OEM and T. CNS programs in place, we're sitting on a trove of under monetize data and we have proven to be able to ship successful new products, including being the first and only marketplace to buy new CPO and used cars online.

Jensen: So we're excited about the future we've regained our momentum and we're moving steadily and consistently to be up to the right. So we will close with the words that I love to say to infinity and beyond.

Speaker Change: The conference has now concluded.

Speaker Change: For attending today's presentation you may now disconnect.