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spk05: and welcome to the Truecar 3rd Quarter 2021 Financial Results Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Zainab Bakari, Vice President, Investor Relations. Please go ahead.
spk09: Thank you, Operator. Hello and welcome to Truecar's 3rd Quarter 2021 Earnings Conference Call. Joining me today are Mike Darrow, our President and Chief Executive Officer, and Jantun Rigorsman, our Chief Financial Officer. Our third quarter stockholder letter, which was issued on Wednesday, November 3rd after market closed, is available on our investor relations website at ir.trucar.com. We also issued a press release across PR Newswire with a link to the letter. Before we get started, I want to remind you that we will be making forward-looking statements on this call. including statements regarding Truecar Plus and our pre-qualification, home delivery, and sell your car experience solutions, our partnering arrangements, including those with Navy Federal Credit Union and OEMs, and our dealer marketing spend and the macro environment, including automobile inventory levels. These forward-looking statements can be identified by the use of words such as believe, expect, plan, anticipate, become, seek, will, intend, confident, and similar expressions, and are not and should not be relied on 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 factor 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 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.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. With that, I will turn the call over to Trucar's President and Chief Executive Officer, Mike Darrow, for some opening comments. Mike?
spk03: Thanks, Zeynep. Good morning, everyone, and thanks for joining us. By now, I hope you've all had the opportunity to read our first stockholder letter that we issued yesterday after the market closed. I hope you all appreciate our new process, and I invite all of you to read about the vision we've shared for Trucar Plus, our modern automotive marketplace that connects consumers with dealers to complete a vehicle purchase entirely online. We believe Trucar Plus is unique because it will offer a true end-to-end car buying experience. In our marketplace, ready-to-buy consumers will be able to access a broad selection of hundreds of thousands, if not millions, of vehicles from dealer inventory as we scale Trucar Plus. Once they identify a vehicle, consumers will be able to complete each key step of their car buying and selling journey within the Trucar Plus environment. This means they'll be able to build a personalized deal that includes a trade-in, arrange for financing, complete their purchase, and take delivery, all from the convenience of their home. We're in pilot with Trucar Plus in one market with a select group of dealer partners and have ordered a great deal through continuous testing. We are using these learnings to improve the flow and connection point between consumers and dealers ahead of our planned formal launch of Trucar Plus in the first quarter of 2022. While the macro environment remained challenging during Q3, we managed our business prudently. At the same time, we are investing in the future with Trucar Plus and positioning ourselves to benefit as more and more of car buying and selling process moves online. I'd like to thank the amazing Trucar teams whose commitment and dedication has enabled us to make strong progress towards delivering Trucar Plus, a modern automotive marketplace for new and used vehicles that will provide a true end-to-end digital retail experience. Before we open up the call for questions, we're going to address some questions that have been on the minds of some investors. Zainab, what's the first question?
spk09: Thanks, Mike. I have two for you and one for Jan Toon. The first question is, your vision for TrueCar Plus is interesting, but don't car buying marketplaces already exist? How is TrueCar Plus different from what is already available?
spk03: Thanks, Zainab. Many companies use the term marketplace to describe what they do. At Trucar, we don't use the term as a buzzword. We use it as a guide for our investments and partnerships like Dealer Science, Accutrade, and Autofi to deliver a true modern-day shopping experience. In the case of Trucar Plus, we're planning to deliver a two-sided marketplace that enables consumers to connect with dealers to provide a true end-to-end car buying and selling experience for new and used vehicles. set in a native Trucar Plus environment. A true end-to-end experience means the entire journey will be available online. That includes vehicle discovery across a selection of potentially hundreds of thousands of vehicles, transactable vehicle pricing, personalized deal building that includes a trade-in value, financing and protection products, completed purchase, and in-store or at-home delivery. Consumers will be able to carry out each step from the convenience of their home without ever having to set foot in a dealership unless they choose to. Other innovative companies have proven the model for digital sales of used vehicles. However, they're constrained by limited inventory. Additionally, there's not been as much progress on the new side because of the complexity. We've been laying the foundation for true digital end-to-end purchases for the past three years through acquisition and product development. We think the marketplace approach that we've taken with Trucar Plus will allow us to provide a unique offering for new and used vehicles that will have benefits for both consumers and dealers.
spk09: Thanks, Mike. The next question is for Jan Toon. Can you speak to the financials at a high level and give us a sense of how the third quarter played out? Additionally, you're not providing guidance, but what can you comment on?
spk00: Absolutely. Thanks for the questions, Zeynep. So three parts to the question, and I'll answer all three. So one, regarding the Q3 financials, so our third quarter revenue was $55 million, which is down 28.8% year over year and 16.4% sequentially. This was primarily due to limited new vehicle inventories across all our dealers, right? This was really driven by the macro. ongoing semiconductor shortage and overall supply chain issues. So it's very much out of our control at this stage. We continued our prudent cost management. So we achieved an adjusted EBITDA of 1.5 million as compared to 20.5 last year and 4.7 in the second quarter of this year. But I think it was really important for us to just keep on being very prudent, especially as we start thinking about the ramp up of true card loss going forward. Our balance sheet remains strong with 251 million in cash and zero debt on the balance. So it's also something really important to note in these more challenging macro environments. If you think about year to date, 2021 has really been a tale of two halves. During the first half of the year, the industry saw SAR numbers effectively rising through April and super strong retail demand. Since the peak, SARS declined. Inventory levels have gone progressively worse, and this has effectively continued through the third quarter. And we don't expect this necessarily to return before the end of the year at least. So if you think back of what happened during the 2020 overall of the year is that there was a recovery after COVID. If you look back of last year, COVID really seemed to have been hit only in a single quarter, whereas this seems to be much more pronounced. And goals will take longer to resolve and probably will extend into next year. And so it's something we're just preparing for and ready for. Obviously, at these inventory levels, what happens in our business model is that there's a strong correlation between the level of inventory and our close rates, and therefore directly, in fact, affects our financials, in particular, our paper sale. The close rates are infected not only by purely inventory levels, but obviously at lower inventory levels also market pricing adjustments happen on a per vehicle basis at the dealerships, which makes obviously our business model slightly more susceptible at the paper sale level. Regarding your question on guidance, so given the continued uncertainty in the market, we're not providing any guidance for the fourth quarter. Although we believe these headwinds are temporary, we expect little change in the macro for the balance of 2021 and possibly into 2022 until at least the inventory start rebuilding. Many of the metrics throughout our product flow are holding up really well. It's really isolated towards the close rate at the end of the day of people walking into the dealership and then effectively buying the car or not. And so we'll continue managing our business super prudently, like the way we have and we've proven over the last couple of quarters. One really good example is how we've obviously scaled back our performance marketing spend as we saw the inventories decrease pretty dramatically. And so we were very responsive towards the business overall. Over the long term, however, we expect conditions and inventories to improve, and the pendulum of the inventory will swing back. And so to prepare for that, we continue to lean in. We invest in both our core business as well as the Trucar Plus business. And we see huge potentials for the business long term. And obviously, Trucar Plus gives us a really nice opportunity to focus on the car buying and car buying and selling experience really as it shifts more online. So we will continue to manage our business prudently, invest in strategical initiatives that will position us for growth and increased monetization once we see a more meaningful recovering in inventories overall. So thank you for the question.
spk09: Thanks, Jantoon. Thanks, Jantoon. Mike, the next question is for you. It seems that inventory shortages have been more prevalent on the new side versus the used vehicle side. How has the used side of your business been trending?
spk03: Great question, Zainab. We're pleased with the progress we've been making on the used car side of the business. I think many investors think of TrueCar as is mainly focused on new, so we're happy to highlight the used vehicle side of our business. During Q3, used vehicles as a percent of total units accounted for 45 percent, up from 38 percent in Q2 and 41 percent a year ago. Our independent dealer count also increased year over year when compared to Q2. We are strengthening our used car business by fast-tracking solutions. In our stockholder letter, we discussed the Q3 launch of our pre-qualification experience. In Q4, we expect to launch our home delivery pilot, which we believe will help level the playing field for traditional dealers competing with digital dealers. And finally, we expect to launch a new sell-your-car experience in Q4 to help dealers source vehicles directly from consumers.
spk09: Thanks, Mike. Now, operator, let's open up the call for questions from the audience.
spk05: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble the roster. The first question comes from . Gupta from JP Morgan. Please go ahead.
spk07: Hi, good morning. Thanks for taking the questions. Just had a couple here. So on TrueCard Plus, you know, could you give us a sense, you know, of just the cost to dealers on a per transaction basis? You know, what's the margin tradeoff for the dealer, you know, by, you know, using the TrueCard Plus platform? Yeah.
spk00: and how you how have you seen the traction you know in the Florida group you know given like the tight inventory environment you know in terms of adoption of that platform and I have a couple follow-ups thanks so thank you for the question so we have not disclosed anything around the economics yet we will do so at the right time but we'll not at the moment we have not this is not done anything around that this is really focused on the pilot program so this is really Making sure we do all the right testing, really product focus, et cetera. really good traction on the top end of the funnel. We have really good visibility on the flow through the funnels, etc. So we're learning a lot and we're adjusting a lot. And those are really interesting pilots for us to run in anticipation of the bigger launch, obviously, in Q1. So things are going really, really well. We identified a series of tests and we're all on track of doing these tests. And so overall, we're in a really good place. What we really wanted to do with the purpose of this letter was lean forward and articulate to the market all the things we're working on. At the right time, we've come forward with much more clarity around unit economics potentials and scalability around TrueCard Plus over the course of 2022. Understood.
spk07: Is there an opportunity for higher monetization here? Absolutely.
spk00: And I would argue significantly higher monetizations is probably the right word to use. Yeah.
spk07: Is that coming from maybe getting more share of the F&I, or is there any other part of the transaction that allows you to get that, apart from just the overall experience? Just curious as to where...
spk00: where what buckets you should be thinking i think you allow through online through by helping dealers lean into your online sales i think you're you're allowing them to think through the reshaping of the pie in its entirety and we want to help them really be able to compete with a lot of the other online platforms out there that do obviously do direct sales and so As a result, I think there is a lot of opportunity for all of us to reshape some of those economics, which obviously would be beneficial to us as well.
spk07: Understood. And you mentioned that TrueCalculus expands the dealer's reach beyond a certain zip code, providing more national audience. How do you tackle that for new vehicles? Are you seeing the moving of restrictions there in terms of supplying new vehicles to different zip codes, different states? How do you manage that just as two car plus gains more traction?
spk00: Sure. So this will be very much zip code based at the end of the day. This is obviously, as you start thinking about it for the longer term rollout, so we'll obviously be in compliance. It goes without saying that At the end of the day, the great thing that we have currently is obviously a very vast network of dealers that are across the country. So we can then really think through both national and localized offering and depending on the different states and the different locations and zip codes, there are more or less restrictions, but we are able to adapt to that accordingly given the vast amount of dealers we obviously have on our network as well as obviously the large amount of inventory we would have available on the site.
spk03: Hey, Rajat, this is Mike. I would just add to Jantoon's comments, you know, that we're really focusing in Q4 on getting the consumer product dialed in and really lined up the right way. We believe the winner in this space will be the ones who deliver the best consumer experience. And we're working closely with our dealers in the market to make sure we're achieving that. We think the rest of these things will all fall in place as we show that we can deliver a really high-quality consumer experience and something that the dealers are excited to lean into. So, you know, we'll have more information on the aspects of, you know, what we'll be able to charge for this and what the value exchange will be as we learn more. But we're really dialed in now on making sure we get the product right.
spk07: Understood. Great. Thanks for all the color. I'll jump back into you for any more follow-ups. Thanks.
spk05: The next question comes from Nick Jones from Citi. Please go ahead.
spk01: Great. Thanks for taking the questions. I guess just a couple just on kind of traffic trends. In the shareholder letter, some of the channel partners are seeing kind of more, I guess, prospects. They're growing faster than the actual traffic volumes. Can you speak to that? I mean, is there enhancements through the partner channels where they're kind of highlighting the Trucar offering a little bit more? Are there things you're doing that are kind of driving prospect growth faster than traffic growth?
spk03: I think, thanks for the question, Nick, and I think what we're seeing there is there's a lot of interest for folks to try to find the vehicles that are out there, so our upper funnel metrics around the business are extremely strong. You know, our traffic numbers are great, our conversion rates The prospects are good. You know, the challenges are coming in the close rate. So, you know, our partner networks always are leaning into our buying channels, and we're continuing to see that happen. And, you know, we expect it to continue. There's really strong signals from the demand side of the business across all of our aspects of our business, our partner business, our TCDC Plus channel. It's just with the limited supply out there, you know, we're facing some challenges with close rates.
spk01: Got it. And then when I look at kind of overall traffic, I think I like page two. Traffic was down kind of sequentially. You know, what do you think is underpinning that? Is it just a strained environment and consumers are struggling to kind of find cars and they're discouraged and not kind of as engaged as an upper funnel content challenge that you're kind of continuously working on any color? on just how you're thinking about the top-level traffic to kind of Truecar.com?
spk00: I think you can look at it as two different drivers. One is we've obviously pulled back on performance marketing as well, so that has one driver obviously on the marketing side, which is pretty much a direct consequence of our own pullback. The other one is also one of the things we see is that discretionary buyers are effectively more and more out of the market. And so you'll have – so then also you're going to deploy less marketing dollars at the end. So it's a little bit of a vicious circle that you have to be mindful of. But those are the two main drivers for the traffic.
spk01: Got it. Thanks for the question.
spk05: The next question comes from Marvin Fong of BTIG. Please go ahead.
spk02: Good morning. Thanks for taking my questions. A couple of follow-ups on Trucar Plus. Any additional color you could provide, just sort of how many of your 13,000 dealers you think Trucar could be applicable to? Should we think about it as equal potential between your franchise and independent dealers, or is this mainly independent offering? And then I have some more questions.
spk00: So I think long term, it should be very attractive to everybody, right? So near term, you can imagine that obviously used independents are very interested because it allows them to do something faster. And obviously use is probably easier to transact with less legal complexities. But like franchises equally are super interested to lean in where these are all conversations we're having We're now piloting, as Mike said before, we're really focused on the consumer side of the product development. And so we've also obviously reconfirmed the launch of it fully commercially by Q1 of the coming year. And so these are conversations we're having, but the short version is it's broadly applicable for everybody. And it also really allows dealers to have a opportunity to really lean in on this shift to online car buying without having to make a lot of infrastructure expenses. So it's a very attractive proposition to them.
spk03: Good morning, Marvin. This is Mike. I would just add to that. You know, it's very important in the early phases of this product rollout that we get the right dealers in working with us. There are some service level agreements that we ask the dealers to commit to in order to deliver the type of product that we want. So I think early on you'll see, you know, a selective process as we find the right dealers in the marketplace to support a high level consumer experience like we're working towards. And then as we see success with that, I think you'll see a lot of dealers wanting to jump on board. And as Jan Toon mentioned, it really gives them an opportunity to participate in a digital marketplace without having to make that huge investment on their own. So we'll see separation probably of used and new. A lot of independents, a lot of franchise dealers looking to get their used cars on a out there in a digital kind of national sales basis and then new cars we're making sure we get the right dealers who will line up with the type of service we want to provide to the consumers as as they enter into this product with us the next question comes from chris pierce of needham please go ahead oh hey good morning when i think about a true car plus do you guys have the technology pieces
spk08: in place to get this off the ground or should we be looking at thinking about, you know, this cash balance being used for some sort of, you know, add on M and a spend as you kind of build it out. And then on that same vein, do you think you have, I guess the dealer network, if I look at the dealer network over the one year or two years, are there enough dealers out there that I guess at some point, if you have a, you said mentioned hundreds of thousands of cars, is that enough for consumers? Like do we need 200,000, 300,000 cars? Like what's,
spk00: like what do you think about historic inventory like a hundred thousand seems like plenty to me to get this thing started so I'm just curious what you're thinking about deal account going forward so let me start with the first question for so the answer is yes so I think we mentioned also on the previous couple of calls and Mike is read today reiterated this many times that building out the ability to do this well requires a lot of work and has been effectively ongoing for the last several years. And so there are several components that are really critical as you build out such a marketplace. One of them is obviously the deal building experience. So how does a consumer actually find the right car within a vast inventory of cars available? And how do you really make sure that you match the car that is present at the dealer with that that the consumer requires that in itself is a lot of complexity and we've solved that already some time ago and it took some time to to do and the other ones are also as an example elements like checkout flows etc so that has all been built and all the pieces were built so it was really tying out the last end-to-end piece, as it were, in this process. And then we're now just testing those final flows. But things like dealer science and the ODIFI partnerships, the dealer science acquisition, the AccuTrade partnerships, et cetera, are all pieces to this wider puzzle that help us enable this. On your second question, I think the short answer is there's going to be a ramp-up associated to this product, and we will articulate that more in the future. But over time, of course, one of the things that I think is amazing on the Truecar network is that we obviously have a very, very vast inventory level of both new and used. Remember that currently we're working in a constrained macro environment that also makes it a little bit of an anomaly. But once that pendulum swings, also the ability for a consumer to go in and effectively look at both new and used offerings and to be able to acquire the car that they really want from the comfort of their home is something that's very unique, rare, and we feel we have both the technology, the brand, the top of funnel, and the inventory through our dealers available to make that happen. So we're very excited. Looking forward to 2022.
spk05: The next question comes from Navid Khan from Truist. Please go ahead.
spk06: Yeah, thank you, guys. Maybe a quick question on the dealer count and the decline you saw in Q3. Can you just maybe talk about the monthly trends, how you exited the quarter? Is that something that's continuing into Q4, or how should we be thinking about that?
spk00: Yeah, so the monthly trends for Q3 were very much As I mentioned earlier, the year was effectively tilt to tilt. So until the end of June or mid-June, the markets were very much on the rise. And then mid-June, it started turning. So the monthly trends have been effectively downwards. If you look into what has the couple of weeks now into October, call it the five weeks into Q4, Some of these elements seem to be stabilizing across the board if you look at some of the macro data that is coming out there. So you look at announcements of Toyota, GM, et cetera. Then you'll see some light signs of improvement, but it's really hard to say. And it's really like overall inventory is obviously very, very fickle at the moment. And also consumer behaviors are shifting a little bit in anticipation of this market. The other thing also to remember is that even if you hit a pure bottom, which hopefully will hit soon, there's still some time. It will take some time before inventory rebuilds. And so there's going to be somewhat of a lagging effect, which is why we don't anticipate any improvements really before the end of the year from a macro perspective.
spk03: Hey, Nived, this is Mike, too. I would add that we've shifted our sales focus a bit. And you saw that we've actually added to our independent dealer count in Q3. That's where the opportunities seem to be as the new car inventories remain challenged and the used car business remains extremely strong. So, you know, we've changed our focus. Our churn is actually below pre-COVID levels. The challenge you face is adding new dealers to the program, particularly on the franchise side. So we changed that focus. We're now looking to add independent dealers. We're working with our franchise dealer partners to accentuate their used car products and help them there. So there's been a bit of a shift in our focus that we saw a good result from on the used car side of the business in Q3.
spk05: The next question comes from Tom White of DA Davidson. Please go ahead.
spk04: Great. Good morning. And thanks for taking my questions. I got one on the balance sheet and one on a dealer account. So, you know, the balance sheet is obviously in strong shape. I think it's like over 50% of your market cap in cash, no debt. You're managing to kind of EBITDA break even. Can you maybe just share updated thoughts on how you're kind of weighing maybe using that cash in a more aggressive way maybe and when. And I guess specifically I'm curious about your view on maybe raising the buyback or M&A. Or maybe you just like having kind of the big cash balance there given the uncertain kind of inventory backdrop. And then I have a follow-up.
spk00: Yeah, absolutely. So we're thinking strategically through the cash balance on an ongoing basis. So we are opportunistic when it comes to M&A. We have healthy deal flows of M&A and we particularly look at where we could potentially accelerate some of our strategic initiatives that we have in the pipeline. So we continuously monitor that one of the issues to date around M&A has just been overpricing overpriced assets at the end of the day and so we're prudent to We're prudent acquirers, and so we're mindful of that, but it's something that we definitely and all continuously to monitor opportunistically. We have done some buyback throughout Q3. It's something that we also identified in the letter, and you'll see in our cash flow statement. So we utilize that somewhat around the edges. But overall, I think it's also important that we've now articulated in some more clarity and will continue to do so the opportunity that exists around Truecar Plus and obviously making sure that we really start leaning in into that product as the world is shifting more online. And that obviously will require investments over time as we start scaling that business or that side of the business. And so there will be investments that we'll maybe be making in that area as well.
spk05: This concludes our question and answer session. I would like to turn the call back over to Mike Darrow for closing remarks.
spk03: Thank you, operator. And I want to thank everybody for taking time to participate in our call today. And once again, thanks to the entire team at Trucar for all their hard work as we continue to optimize our core business while making strong progress on delivering Trucar Plus, which we believe will be a true automotive marketplace that will make the car buying and selling journey available to consumers in a digital environment. Thanks again for your time.
spk05: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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