TrueCar, Inc.

and welcome to the true car fourth quarter 2023 results financial call please note this event is being recorded oh now i turn the conference over to gentoon riggersman president and chief executive officer of true car please go ahead thank you operator

Hello, everyone, and welcome to Truecar's fourth quarter 2023 earnings conference call. Joining me today is Oliver Foley, our chief financial officer. I hope you have all had the opportunity to read our stockholder letter, which was released yesterday after market close 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 are not 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 report on Form 10-Q, and our other report and filings with the Securities and Exchange Commission for a discussion of the factors that could cause our results to defer 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. Reconciliation 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.truecar.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'll provide a brief summary of the quarter. We continue to deliver as promised. In Q4, we achieved 13% year-over-year revenue growth and achieved adjusted EBITDA profitability of 2.1 million, a 12.1 million improvement year-over-year. Meanwhile, we saw encouraging signs of a potential bottoming in our total active dealer count, which was flat quarter over quarter with 11,500 active dealers at the end of Q4 versus 11,503 at the end of Q3, driven by the net addition of 135 franchise dealers offset by the net loss of 138 independent dealers in Q4. This is consistent with our viewpoint that while independent dealers continue to be challenged by today's high interest rate environment, Franchise dealers in particular are increasingly in need for true car services to help them cope with growing new car inventories. Further highlighting this trend, new vehicle sales compromised 59% of the total units sold on true car in Q4, which is up from 50% of total units sold in Q4 2022 and up from 56% of total units sold in Q3 2023. We believe Trucar's leverage towards franchise dealers, combined with our unique ability to offer targeted OEM incentives to our 250-plus affinity partner audiences, positions us to capitalize on the growing focus on new vehicle sales. Coinciding with our presence at the National Automobile Dealers Association, also called NADA, we launched a new suite of dealer products called Trucar Marketing Solutions, also known as TCMS. The development and launch of TCMS was informed by and in response to feedback shared by many of our dealer partners related to their most common challenges around, one, identifying and reaching targeted audiences of in-market consumers, two, standing out from the sea of competing dealers in a consumer environment lacking the brand loyalty of the past, and three, cost-effective ways to showcase and promote inventory not being surfaced by the more common search algorithms. The result is a new offering that is not only highly complimentary and accretive to the core listings lead gen business for which dealers have come to know us, but also represents a new cost-effective alternative to the traditional digital marketing channels that presently capture a significant share of dealers' digital marketing budgets. Therefore, we're confident that the rollout and adoption of our TCMS products will serve as a key building block for our near-term growth objectives by helping us attract and retain key dealer partners while growing revenue per dealer. Let us also briefly turn to Truecar+. To be clear, the launch of TCMS is in no way a deviation in strategy, and our singular focus remains on our pursuit of what we believe to be the holy grail of automotive retail, the ability to buy a new certified pre-owned or used car with or without a trade-in from the comfort of your couch through an entirely digital online transaction. For consumers, that means an experience built upon the trust and transparency we've always offered, where they can, number one, shop millions of listings nationwide to find the right deal for them. Two, select between a range of aftermarket products offered by the dealer. Three, receive offers and secure financing from a range of competitive lenders regardless of their credit score. Four, receive a firm offer on the trade-in that is directly incorporated into the value of the deal. Five, build out a fully transparent deal that includes all taxes, fees, and rebates. Six, digitally execute a retail installment contract. And seven, schedule pickup or delivery of their vehicle, all from the comfort of their couch. For dealers, we want to offer, one, an expansion of their addressable market and the ability to compete for consumers nationwide. Two, superior attachment rates across the dealer's customizable F&I menu. Three, a significant improvement in sales volume and efficiency by delivering a completed transaction ready for fulfillment. And four, access to a risk-free trade-in. We believe this is what a true online buying experience looks like. We are hopeful that Truecar will enable the first true online purchase of a new car within the first half of this year, and we're partnering with several key external stakeholders to make this happen. This is no trivial work, and even though we have a clear product development roadmap, we know the significant level of effort and coordination this takes, including some out of our control. Once completed, the current TC Plus product, effectively still a super lead, will be replaced with the complete online transaction. And at that point, only cars that are fully transactable online will be classified as TC Plus. TC Plus to date has been a vital learning platform for us to get to the product development and experiences we have today. Lastly, our outlook for this quarter and beyond. As a reminder, our goal is to return the business to 300 million in revenue with 10% free cash flow margin by the end of 2026, implying a compound annual growth rate of 24% from 2023 to 2026. We believe we can achieve this goal by focusing on the following four building blocks. Number one, activate new dealers. Number two, limit dealer churn. Number three, grow average revenue per dealer through our expanded product offering. And four, continue to grow our OEM partnerships. Progress against each of these building blocks will take time, but should have a compound effect over the course of the year. We aim for 10% year-over-year growth in revenue growth in Q1 and around break-even adjusted EBITDA. As a reminder, Our first quarter of the year adjusted EBITDA flow through is typically seasonally lower due to payroll related and NADA expenses. Looking beyond Q1, we anticipate an acceleration of our revenue and EBITDA growth and are confident that we can achieve positive free cash flow in the second half of the year. Now, operator, let's open the call for questions from our analysts.

Yes, thank you. 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 are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press star then two. At this time, we will pause momentarily to assemble the roster. And today's first question comes from Navid Khan with B. Riley Securities.