TrueCar Inc

NASDAQ:TRUE

Earnings Call Transcript 2023-Q2

[Operator]

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 Jantoon Reigersman, President and Chief Executive Officer of TrueCar. Please go ahead.

[Jantoon Reigersman, President and Chief Executive Officer]

Thank you, operator. Hello, everyone and welcome to TrueCar's second quarter 2022 earnings conference call. Joining me today is Teresa Luong, our Chief Financial Officer. I hope you all had the opportunity to read our second quarter stockholder letter, which was released yesterday after market closed and is available on our investor relations website at ir.truecar.com.

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. 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 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 factor section of our Annual Report on Form 10-K. Our quarterly reports on Form 10-Q and our 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 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.trucar.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.

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. Okay, it's time of change in the time of focus. We've turned a ship and are laser focused 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 or 24% of our headcount, all those -- these are always difficult decisions, it was an 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 pull those 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 in TrueCar? We have a unique opportunity to disrupt our markets and redefine our value propositions to both our consumers and dealers throughout 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.

[Operator]

[Operator Instructions]

And our first question here will come from Rajat Gupta with J.P. Morgan.

[Rajat Gupta, J.P. Morgan]

Great. Good morning. Thanks for taking the question and the quick prepared remarks. I have a question on the OEM incentive revenue, obviously pretty solid in the second quarter, big pickup sequentially. And like a big driver of the EBITDA as well. And could you help us understand how the activations work here? And how should we be thinking about the sustainability of these levels going forward, did you even send the programs continue to the third quarter and do you anticipate to see for the contribution, and just how to think about the cadence here the recurring versus nonrecurring aspect of this. And I have a follow up. Thanks.

[Jantoon Reigersman, President and Chief Executive Officer]

Absolutely. Hi, Rajat. Thanks so much for your question. So yes, we're excited on the OEM revenue, obviously, 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 in the past. And this dried out over the last couple of years. And so it's exciting to see that this is coming back. Not only is the OEM incentive piece being really interesting, it's also the combination of doing this together with our affinity partners. So it also articulates the strength of the platform we have as TrueCar, which is really combining the various stakeholders together and provide value to all of those involved. And so in this case, the combination of doing things with Sam's Club American Express and Mercedes is something that is incredibly valuable for all parties involved. And we hope to do more of these types of programs, we hope to grow this type of business over time, and it will always go a little bit with ebbs and flows still in the near term as obviously the macros resetting, but we do believe and expect this to be a longer term growth business for us.

[Rajat Gupta, J.P. Morgan]

Got it. NBA, USA program in the second quarter, is that, does that go on for a few quarters? Like do we -- would it be resold by other manufacturers? I mean, just curious, like, what --?

[Jantoon Reigersman, President and Chief Executive Officer]

Yes, it's a question. So yes, these are like almost individual programs. So it's always hard to predict the way works as they, we establish a program they run well, we then determined to continue the program or slow down the program, and we obviously have to do similar type of programs with other players as well. So it's a little bit of give and take. And so 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. But this program, obviously has been very effective. It's something we're continuing at the moment. And then will that be replaced with other programs over time? The answer is yes. That's obviously what the teams are working on very much. And so over time, can you expect that we will do more and more on the OEM revenue side and we have greater tractions with a variety of these type of programs? The answer is yes. Will that be a perfect straight line? The answer is probably no.

[Rajat Gupta, J.P. Morgan]

Understood. That's very helpful. And then just a question on the OpEx. The cost action was executed, I would say is this, latter part of the second quarter, your guidance for the third quarter OpEx is flattish sequentially, I would have thought it would go lower with the full effect of the actions. And I'm curious, like what the OpEx are. You talked about some additions needed in the sales organization, but curious if you could add any more color on that and how should we think about the cadence of the OpEx through to the remainder of the year. Thanks.

[Teresa Luong, Chief Financial Officer]

Yes, Rajat. Thanks for that question. I'll provide some clarification in around that piece. So in regards to the headcount, we did receive some benefit in Q2. So in regards to Q3, and Q4, we do expect some benefits and not to the full extent that leads us close in regards to the $20 million annualized savings, but we do expect some benefit. So when you think about our cost structure there's headcount, marketing, and other expenses. And as we said, marketing, we expect that to be fairly flat, quarter-over-quarter, but we're continuously monitoring the efficiency and effectiveness of those marketing spend. So we're able to adjust in real time as needed based on the trends that we're seeing, and there were other pieces, and we do expect that to stay flat. So overall, in total, I would say that we expect some benefit in Q3 and Q4 from the savings from the workforce reduction.

[Operator]

Our next question will come from Naved Khan of B Riley Securities.

[Naved Khan, B Riley Securities]

Great. Thank you. It's nice to see sequential growth in the unit. And I'm just curious if the increase was driven mostly by a more favorable macro. So more of a general improvement? Or how much of this is really driven by TrueCar Plus versus the improvement in general?

[Jantoon Reigersman, President and Chief Executive Officer]

Yes, so a very good question. So it's actually, it's, I think it's two things, but TrueCar plus. So TrueCar Plus yes, to date is still in material compared to the bigger numbers. And so that's not the big driver. However, we continuously improve the platform, close rates, focus on conversions on the site, et cetera. And so it's a combination of obviously macro resetting as well as a continued improvements that the teams are doing in terms of the type of leads, they provide, the conversion rates on the site itself. So there are two drivers for that. And TrueCar Plus is having good traction, obviously now with the cohorts, 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 TrueCar plus units in there is effectively immaterial.

[Naved Khan, B Riley Securities]

Got it. And then you had previously talked about rolling it out nationwide. Is that still on track? How do you kind of view that by yearend?

[Jantoon Reigersman, President and Chief Executive Officer]

Yes. Naved, it's a very good question. So the new ones we're doing is if you think about the lessons, we've learned of TrueCar Plus, to date it was very much effectively a person finding their own way into product flow. And that's obviously never a really good experience, because every person has a very different buying expectation and a very different engagement with the product. And so what we realized is we had to personalize those flows much more and take out constraints that appear, as you go along. I'll give examples. If you are lower credit profile, then obviously, lending will become a big issue. And then lending will become a 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 realize that we 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 at the cohorts in more detail, you realize that each of them will have a very unique flow. And therefore we're solving a lot of the friction points inside the product immediately by having that more personalized flow. And the idea there is obviously the ability to be nationwide, also 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 OEMs are or others or certain states. And so as a result, with the cohorts and launching two cohorts that 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 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'll seek to be nationwide by the end of the year.

[Naved Khan, B Riley Securities]

Got it. And then last question on the monetization, that went down sequentially, is it just a reflection of the mix between new versus the used, how should I think about that?

[Teresa Luong, Chief Financial Officer]

Yes, I think that's correct. I mean, I think if you look at our new used mix, or used mix dropped down to I think about 44% were, in the last few quarters it was closer to 48% and 49%. So definitely that did have a factor in that mix there.

[Operator]

Our next question will come from Tom White with DA Davidson.

[Tom White, DA Davidson]

Great. Thanks for taking my question. Just one for me. I guess it's been a couple quarters now you guys are talking about kind of these three kinds of buyer cohorts? And I guess I'm thinking about your commentary around sales and marketing probably being flat sequentially. Can you just talk a little bit about whether this kind of change in the way you're viewing the audience or you're segmenting the audience is requiring you guys to acquire traffic or acquire would be car buyers in different ways or you use different channels. Any just kind of differences or changes to kind of your marketing mix or marketing spend that go along with this. Thanks.

[Jantoon Reigersman, President and Chief Executive Officer]

Yes, Tom, very good question, then the answer is absolutely, yes. So I think one of the beauties of doing the cohort 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 froth at certain places and have a more targeted approach. It also, and so effectively, we're allowing people to find a journey, either by the way, retarget on the marketing side, or as they obviously arrive on the site, they're going to be different entry points in which they can take certain cohort paths. Remember, also don't misunderstand that the three cohorts are just the start of many more cohorts. But the three cohorts given the focus that we have as a company, obviously, those three create real opportunity for us.

Remember, the economic cohort is one that is in very large unserved markets. And to date, if you look at TC Plus engagements, a significant part of the people that are seeking TC Plus transactions are actually within this cohort already. And so it was 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 of TrueCar, but also allows us to really then focus in the line a little bit better with the different affinity partners and even lenders. So you start segmenting cohorts that actually facilitates everything, so does not only facilitate the targeting of the marketing, which absolutely is true, and it's something we're now embarking on. 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 cohorts. So the answer is yes, in terms of overarching dollars on the marketing side, that's not expected to increase per se, but it's much more the allocation of dollars and being smart about that, which we're now working on.

[Operator]

[Operator Instructions]

Our next here will come from Chris Pierce with Needham.

[Chris Pierce, Needham and Company]

Hey, good morning. I just had a question on the macro. And then a follow up, kind of looking at new car shortage, it seems like fleet is kind of driving some of the recovery. Do you think we haven't really seen a consumer recovery yet? And that sort of -- there's further growth to come from the business where you guys kind of are more levered to, is that kind of would you agree with that? Is that the right way to think about it?

[Jantoon Reigersman, President and Chief Executive Officer]

Yes, Chris, I think the answer is absolutely, yes. So I think you're in a world where prices still held fairly high over time, agree that the fleet obviously was an important driver. But also remember that there's a lot of pent-up demand in the markets. And I think you can see that even from right like the used cars still holding fairly steady. Even though obviously new cars prices are coming down. There is a lot of demand. And you can see that even across all of the different platforms is that demand and in the UVs 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 our dealer 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 et cetera. But we expect this to iron out over the course of the next several quarters.

[Chris Pierce, Needham and Company]

Okay, it looks like you guys added franchised dealers or it looks like franchise dealers might have bottomed in quarter of 2022. Can you just kind of walk me through what's kind of resonating with those dealers? Is it because prices are still high, they're relying on needs more? Is it because of the changes you guys have made? Is it because a TrueCar Plus is just kind of to get a sense of what's driving the franchise dealer account back to possible --?

[Jantoon Reigersman, President and Chief Executive Officer]

Yes, it's a great question. It's a combination of all. So I think there's an element of dealers obviously, now having more inventory than they had previously and have a greater need of help. Obviously, as the markets are coming back, we also have something that's called lost sales, right? So you walk into a dealership and you can show that they have actually lost sales in certain ways in their own area. And you can show like, hey, if you actually were to do ABC, it's actually much more beneficial to you. And so it's all very data driven because obviously now the markets are turning and we have all the data available. It's also because we're proving on the product flows and starting to offering for interesting new opportunities. I'll give you an example. We're launching, sponsored listing, for example, for new cars. So we only used to have that for use cars. And so there are opportunities there also to play for dealers. And then the other thing is also, just overarching the opportunity to especially as you start segmenting into cohorts, obviously that's resonating really well for the dealers, because many dealers have some form of specialization in some shape, or form. And so segmenting and cohorts actually allows them to really do what they do best. And so for us having that type of traction is important.

The other thing also that I think is important to underline is that historically, our salesforces were often driven by rooftop count, or those type of metric that has all shifted to really focusing on effectively net revenue generation. And so you'll, it's normal that you see a natural shift happening of some dealers coming off that are very low MR and often very small, independent players, and we're really focusing on often a little bit more valuable revenue generating larger independents or franchise dealers, which is obviously the historical core and the bread and butter of the firm as well. So yes, so 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 as 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 that we'll 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 than 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 the different companies actually different. And so it's a concerted effort we're conducting right now where we are articulating this much better. And also will come forward much cleaner and clearer with our articulation on what makes TrueCar actually so much different from many of the other players in the market.

[Operator]

[Operator Instructions]

Our next question here will come from Martin Fong with BTIG.

[Martin Fong, BTIG]

Hi, good morning. Thanks for taking my questions. One question on conversion rates, 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.

[Jantoon Reigersman, President and Chief Executive Officer]

Yes, I think, Marvin, I think it's both. So we're continuously making improvements. And we're always getting smarter on the product side. And also, thanks to TC Plus, we're learning a lot on like, where people draw up and what happens and what makes people tick 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 like a couple of quarters ago, when the conversions are relatively low, two of the big drivers were obviously, lack of availability of the cars or when they were available, the pricing was disproportionate in the eyes of the consumer. And so now that becomes more, and they're almost a possibility for the consumers themselves. I think 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 obviously only going to improve over time as we become more focused on these cohorts.

[Martin Fong, BTIG]

Got it. And my follow up is, I understand everything you were saying a question ago about a lot of the lower value. Dealers are going to be turning off as you focus on net revenue, but just because you talk about the independent dealer count, like what's your visibility there? Should we continue to expect that to decline or do you think that might be stabilizing? Thanks.

[Jantoon Reigersman, President and Chief Executive Officer]

Yes, there are, like the ones that are turning are often gone 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, given on the independent side, given that there are those we have quite a little smaller player still making the longtail effectively so on the rooftop 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 their business lines, it's hard to say whether they will be able to make that or not. But for the time being, like while the interest rates are relatively high, and obviously used car prices are where they are, and some of them will probably struggle. And that will stay like that. So I would anticipate us to keep going for a little bit and then at some point that will level out.

[Operator]

And this concludes the question-and-answer session. I'd like to turn the call back over to TrueCar’s President and CEO, Jantoon Reigersman for any closing remarks.

[Jantoon Reigersman, President and Chief Executive Officer]

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 calls. Thank you.

[Operator]

The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.