TrueCar, Inc.

Good day and welcome to Truecar's fourth quarter 2020 financial results conference call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, press star then one on a touch tone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Danny Vivier. Please go ahead.

Thank you, Operator. Hello, and welcome to TrueCar's fourth quarter 2020 earnings conference call. Joining me today are Mike Darrow, our President and Chief Executive Officer, and Jantun Riegersman, our Chief Financial Officer. As a reminder, 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, anticipate, becoming, toward, will, intend, confident, and similar expressions, and are not and should not be relied upon as a guarantee 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 discussion of the factors that could cause our results to differ materially. The forward-looking statements we make on this call are based on information available to us as of today's date, and we disclaim any obligation to update any forward-looking statements except as required by law. In addition, we will also discuss certain GAAP and non-GAAP financial measures. Reconciliations of all non-GAAP measures to the most directly comparable GAAP measures are set forth in the investor relations section of our website at true.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. Now I'll turn the call over to Mike.

Thank you, Danny, and good afternoon, everyone. I'm pleased to report that the turnaround story here at Trucar continues to gain momentum. It's amazing to think that just a short 12 months ago, we were hit by two existential threats at nearly the exact same time. the non-renewal of a major affinity partner in the onset of a global pandemic. Many doubted that we could recover. However, in the face of adversity, this organization has a history of rising to the occasion. And yet again, I believe today's results speak to that very resilience and to the things you can achieve when a team of exceptionally bright and talented professionals band together in pursuit of a common goal. I'll start my remarks today with a brief review of Q4. a critical quarter that marked the first period following the transition of USAA. I'll then remind everyone of where we're headed as an organization with specific emphasis on where we play in the ongoing digital transformation of the automotive vertical. And finally, I'll close with our key initiatives for 2021, including commentary on our recently announced and highly anticipated partnership with Navy Federal Credit Union. Let's start with Q4. We closed the year with quarterly revenues of $64 million and adjusted EBITDA of $6 million, both metrics coming in well ahead of expectations. More importantly, as I've said before, the fourth quarter underscored the standalone viability of our business model. We operate an asset-light business with high gross margins and room for meaningful margin expansion. Thanks to the many decisive actions we took throughout 2020, including a strategic restructure of our workforce and developing significant marketing efficiencies across our branded channel, we delivered a strong fourth quarter upon which we will build. And further, as we seek to reaccelerate top line growth in 2021, we'll be doing so from a position of strength. With more than $270 million of cash and equivalents on the balance sheet as of year end, thanks to the closing, of our ALG divestiture in November. Before I touch on our tactical priorities for the coming year, I'd like to take a step back and remind everyone of the significant opportunities before us. At the highest level, the U.S. automotive market is massive. Every year, franchise and independent dealers sell roughly 55 million new and used cars, generating more than $1 trillion in retail sales. Billions more are spent on manufacturing, advertising, insuring, and financing cars. Not only is the industry massive, but it's also highly fragmented, with the largest retailers accounting for less than 3% of the overall market. And perhaps most importantly, the automotive industry is changing rapidly, with the acceleration of online retailing opening up new opportunities to extract value from different parts of the transaction. We've spent the last 12 months here at Trucar acting decisively to navigate a series of unforeseen circumstances. We've made the tough decisions, focused on executing against the things within our control, and now find ourselves well positioned to capitalize on the transformation around us. Since taking over as CEO in mid-2019, I have remained steadfast in my vision for Trucar. to leverage our established marketplace differentiators and build a car buying experience that seamlessly bridges the online to offline transition, empowering consumers with the flexibility they've come to expect from modern day marketplaces. Of course, as a two-sided marketplace addressing both supply and demand, building this car buying experience requires the active participation of our retail partners. Our job is to create the parameters within which consumers and retailers engage, bringing to the process much-needed transparency and efficiency. We were the first to articulate this vision of a modern automotive marketplace that would support online retailing at scale. We made investments in this direction as early as 2018 with the acquisition of Dealer Science, one of the pioneers in digital retailing and dealership desking tools, and our investment in Accutrade. These investments are the foundation upon which we've built our end-to-end platform. In 2020, despite the challenges we faced, we made great progress towards our vision, a bit of which I will touch on today. And in 2021, we intend to continue to solidify our market-leading position. On our last earnings call in November, I discussed the rollout of our integrated payments and trade solution across over half of our franchise network. Remember, when a dealer integrates with our payments and trade solution, we then have the inputs needed to generate penny-perfect lease and loan payments on the inventory they list on our site. By the end of Q4, we reach the level of payments and trade adoption we deem necessary to release our consumer-facing experience, referred to as TrueCard Deal Builder. Deal Builder is a TurboTax-like flow that guides a consumer through the process of configuring an accurate car deal. personalized to them based on their trade-in valuation, preferred lease or loan terms, down payment preference, credit profile, and all other fees and taxes associated with the transaction. True to our vision, at any stage in the flow, a consumer can drop off and go into the dealership to complete the deal. All of their information is stored with their profile and seamlessly integrates with the dealer's backend software. When the consumer walks into that very dealership, days or even weeks later, they'll be greeted by a trained rep equipped with all the information they've submitted earlier online. In many ways, the launch of DealBuilder is the culmination of a multi-year effort. We are now the only online site where you can configure and compare accurate deals across millions of new vehicles, all from the comfort of your home. And soon, once we expand DealBuilder to our nearly 1 million used car listings, we expect to be the only site where you can configure deals across both new and used cars, cementing our position well ahead of our marketplace peers. While this initial release is a major milestone in and of itself, we have elected a phased rollout by presenting the primary entry point into this new consumer flow within our post-prospect experience on TrueCar.com. As a result, approximately 11% of Truecar.com's new car prospects currently engage with DealBuilder. While the sample size continues to grow and mature, test results continue to show meaningful improvements to close rates and customer satisfaction, leading indicators of unit growth, the key financial drivers of this business. Expanding the use of DealBuilder is therefore our first and most important strategic initiative in 2021. Let me outline our approach here. First, to complement our product evolution, it's critical that we evolve our brand promise beyond just price context and towards deal confidence. With DealBuilder live on the site, we are now bringing transparency to all major components of the car deal. Trade in equity, vehicle pricing, as well as leasing and financing. We've taken our core competency of transparent pricing that helped build this company and build on top of it. What that creates is an experience that elevates affordability, empowering consumers with the tools they need to understand the best vehicles for them based on their unique situation. In doing so, we are alleviating a major source of anxiety so many of us feel when buying a car. As we reimagine our brand promise, we are in parallel working to introduce deal-building features earlier in the shopping experience. We know a large majority of consumers don't make it through the point of registration. Our belief is that by providing our users with tools to research and compare vehicles based on what they can actually afford, rather than simply on the car selling price, we will offer them more value earlier in their journey, encouraging them to continue with Trucar through registration. And finally, in the second half of the year, we'll look to roll out DealBuilder across our complete portfolio of affinity partners, effectively doubling the number of users engaging with the feature. You may now be wondering where this puts us in our roadmap to an end-to-end online car buying experience. In our view, DealBuilder solves for most of the challenging parts of the online retailing, namely the creation of accurate deals across millions of cars. Building this capability in a scalable way that ensures accuracy while still protecting the dealer bottom line is no small feat. However, once a deal is configured, there are a few remaining steps to complete the purchase. We refer to these final steps as the checkout flow, which includes a credit application, positioning of insurance products, processing of documents and vehicle delivery for the subset of consumers who choose not to pick up the vehicle at the dealer's lot. Solving for checkout is our second key initiative for 2021. Today, the majority of dealers lean on SaaS platforms like Roadster, Gobago, Autofi, CarNow, and others to help power their digital retailing experience. These platforms have built clean user interfaces that enable complete online deal building and require deep integration with the dealer's backend tools and CRM. Like many parts of the auto industry, the space is highly fragmented, with many competing vendors servicing networks of fewer than 1,000 dealers. However, following the onset of the pandemic, demand for these platforms increased dramatically, with the latest estimates suggesting more than half of franchise dealers have already integrated with their provider of choice. So what does this mean for Trucar? Well, a few things. First, it's important to remember that these digital retailing providers are not marketplaces. They do not help dealers efficiently acquire in-market consumers. Instead, they power the desking software that enables a dealer's website and walk-in traffic to build virtual deals and complete the car deal in a transparent way. with seamless transitions from online to in-store. As such, we do not view these providers as competitors, but rather as strategic partners who will help us deliver an end-to-end experience. Second, the fractured state of the industry means that flexibility is key. We plan to build our technology using actual dealer data in a way that seamlessly integrates with the dealer's digital retailing provider. This is critical to ensuring active dealer participation in our marketplace, which ultimately improves the consumer experience. And finally, for the consumers who desire a complete end-to-end experience on the Trucar platform, and for our smaller franchise and independent dealers who perhaps don't have the resources to invest in a more comprehensive digital retailing infrastructure, we plan to continue expanding our own checkout tools and software solutions solving for the final pieces of the end-to-end journey ourselves. In late 2020, we started the dialogue with various digital retailers and will look to transition to a more formal pilot in 2021. Meanwhile, our product and engineering teams are well underway building API-based integrations to standardize the transfer of data from our auto buying platform to our dealers' digital retailing platforms. technology to enable the smooth transition through a complete digital retail experience. I'd like to now highlight our third and final key initiative for 2021, Trucar Military. Trucar boasts the industry's most robust portfolio of affinity partnerships that collectively represent nearly half of the units sold through our marketplace. Partnerships have always helped us reach specific demographics at scale. supported by favorable customer acquisition costs to Trucar. These arrangements allow us to focus on what we do best, powering custom experiences that make car buying easy. Furthermore, we know from the onset that scaling Trucar Military would require the right mix of organic brand building and inorganic business development. In 2020, the bulk of our effort was focused on standing up the branded military channel and curating an experience that provided differentiated value to our American heroes. The channel's launch was a huge success and continued to grow steadily. However, our efforts have reached a new inflection point earlier this month when we onboarded our newest affinity partner, Navy Federal Credit Union. The significance of this announcement cannot be overstated. Navy Federal has more than 10 million members nationwide, just shy of USAA's 13 million, with a similar composition of highly loyal members, spending all breaches of the armed forces, the Department of Defense, veterans, and their family members. The program is expected to officially launch in March, and we will be looking to augment the launch with targeted PR and marketing campaigns in partnership with Navy Federal. Most importantly, their participation is a major step forward in our goals to reach and serve the more than 40 million members of the military community and builds on our existing partnerships with Military Auto Source, GovX, veteran service organizations like DAV and Team RWB, and OEMs such as FCA, Audi, and BMW. To be certain, it will take time to bring this partnership to scale. Still, we believe the potential here is undeniable, and we look forward to leveraging our product infrastructure, history of serving the military community, and nationwide deal network to grow this partnership as quickly as possible. I also think it's important to recognize the impressive business development feat that was accomplished by our team in a largely virtual environment, establishing a new affinity partner relationship with a major banking institution serving the military community in less than a year, speaks volumes about how our affinity partner value proposition resonates with the market. These agreements are complex and require months of back and forth communication to wrestle to the ground. I could not be more proud of everyone involved in this effort. Finally, I'm excited to hand the call over to our new Chief Financial Officer, Jantun Riggersman. Jantun brings to the executive team deep experience leading the strategy and finance function for tech-led public companies. He's a quick study, already well integrated into the organization and making an immediate impact. His addition rounds out a strong executive team with diverse backgrounds spanning the core disciplines of our business. The pieces are set and the tailwinds are in motion. We are full speed ahead here at Trucar. And with that, I'll hand the call over to Jan Toon.