TrueCar, Inc.

and welcome to the Truecar Second Quarter 2024 Financial Results Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Jenton Regevman, President and Chief Executive Officer. Please go ahead.

Thank you, Operator.

Hello, everyone, and welcome to the Truecar Second Quarter 2024 Earnings Conference Call. Joining me today is Oliver Foley, our Chief Financial Officer. I hope you have all had the opportunity to read our most recent stockholder letter, which was released yesterday after market close and is available on our Investors Relations website at ir.trucar.com. Before we get started, I need to read our usual safe harbor. I want to remind you that we will be making forward-looking statements on this call, including statements regarding our revenue growth, expected free cash flow margin, as well as aspirational goals for the year 2026. Forward-looking statements can be identified by the use of words such as believe, expect, plan, target, anticipate, become, seek, will, intent, 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 and our quarterly reports on Form 10Q, 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, 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. So now to the fun part. With that, I'll provide a summary of the quarters highlighted in our shareholder letter. Given the broad broader market developments. I'm assuming not everybody has read the letter yet, so I will repeat some paragraphs below, as well as add some more color and exciting statistics on our TC Plus initiatives before opening for questions. As we review the results of our second quarter performance, we have taken the opportunity to reflect on our exciting long-term goals for Truecar and the progress we are making towards our target. We have established ambitious goals for our organization, and we remain steadfast in our commitment to achieving them. This does not happen overnight, and we will encounter inevitable operational challenges on our journey, but we believe we are making the right progress and forming the right habits while pursuing the right priorities to achieve our strategic and financial goals. This is a super exciting time for the company. In Q2, total revenue, was 41.8 million, which represents growth of 6.4% year-over-year and 1.8% quarter-over-quarter. We achieved adjusted EBITDA profitability of 0.1 million, a 5.4 million improvement year-over-year. We estimate that the CDK global malware attack contributed to approximately 750,000 of lost revenue during the quarter, details of which can be found in the shareholder letter. First, we want to acknowledge some super important progress that was made during the quarter and to date in Q3. On July 17th, we proudly announced the launch of our Trucar Plus pilot, which now empowers consumers for the first time to purchase from over 3,000 new used and certified pre-owned vehicles from start to finish completely online. Launching TC Plus is a big deal and a huge accomplishment by the team. Furthermore, we're not only strengthening our core business by regaining important dealers on our platform, but by working to commercialize new value drivers, including but not limited to our unique data sets and predictive AI capabilities, our newly designed marketing tech stack, and of course, TC Plus. In doing so, we're becoming a better version of Truecar, that more effectively addresses the evolving needs of consumers, dealers, and OEMs alike, positioning the business for what we believe will be a sustained period of growth and market share gains. There were a number of factors that temporarily limited growth in Q2, one of which was the broad impact of the CDK global malware attack. We are laser focused on our execution in order to grow the business at our long-term revenue growth targets of 20% plus. As discussed in the past, there are four key building blocks we must successfully execute against in order to achieve our desired long-term growth. One, activate new dealers with a focus on regaining many of the franchise dealers that churned while new vehicle supply was constrained. Two, reduce dealer churn by doubling down on our commitment to help them drive incremental sales and by providing them with unmatched support and service. Three, Continue to grow average revenue per dealer through our true car marketing solutions product offering and eventually through TC+. And four, grow revenue from our OEM business by expanding our OEM partnerships and continuing to invest in highly effective incentive programs across our network of affinity partners. The building blocks we set forth to meet our targets remain unchanged. as do our long-term goals, and we're not wavering on our goal to return to 300 million in revenue by 2026. During Q2, we expanded our franchise and independent dealer network thanks to strong growth in our new dealer activations. Moreover, we're now entering a market environment that is much different versus recent years. Our business model has been constrained by the lack of new vehicle supply, but that is now changing. Vehicle supplies returning at a time when demand is patchy. This is a very positive backdrop for Trucar. To be clear, there may still be some choppiness in the short term as some dealers look for cost-saving measures. However, it is imperative for every dealer that they continue to drive sales. In a more challenging sales environment, Trucar becomes much more valuable as a superior demand generation partner that can drive incremental sales. Trucar is counter cycle in this way, and therefore it is time for us to lean in. We started to do this in Q2, growing marketing spend by 3.2 million or 24% quarter over quarter, which contributed to 19.5% quarter over quarter growth in new vehicle sales versus 8.9% industry-wide, and 9% growth versus the same quarter last year compared to flat industry-wide. We believe we have a unique ability to power targeted OEM incentive programs across our affinity network, and we are poised to capitalize on this ability. The rise in new vehicle inventory levels combined with the growing price sensitivity of consumers has created a challenge for many OEMs that Trucar is uniquely positioned to solve through the delivery of private targeted offers across our network of 300 plus affinity partners. Nevertheless, our Q2 OEM incentives revenue declined 14% year-over-year and 13.7% sequentially due to the timing of activation of new OEM programs and the slowdown in new vehicle sales volumes among dealers impacted by the CDK global outage. We see this as a timing issue only. We have a strong pipeline of opportunities, and the revenue trajectory will predominantly be driven by the timing of activations. We remain confident in the growth profile of this part of our business, particularly given the fact that although incentives have grown substantially versus last year as a percentage of manufacturers suggested retail price, the average incentive amount per vehicle remains more than 30% below pre-pandemic levels, and we are uniquely positioned with a proven product market fit. During Q2, we also achieved some of our highest levels of revenue activation and upgrades. largely driven by strong growth in the onboarding of new franchise dealers and reactivation of dealers that have previously left our network. Despite this growth being partially offset by dealer cancellations, we saw strong improvement across our sales effectiveness metrics during Q2, which we attribute to the sales team reorganization slash realignment that began in the second half of 2023, as well as our commitments to the focused repetition of daily sales activities that we expect will allow us to grow our dealer accounts over the next few years. Another bright spot in our Q2 performance was the rate of adoption we saw of our suite of TCMS products. Recall that during Q1, we introduced eight unique products that leveraged TrueCars proprietary data and hyper-targeted audiences to help dealers more effectively reach and win in-market car shoppers. For most of Q2, these products were available for dealers as add-ons to their existing subscriptions. And during that time, we have quickly grown revenue from these products from zero to a 1 million quarterly run rate with a tremendous amount of opportunity to grow further. Moreover, during June, we incorporated certain TCMS products into our enhanced subscription offering. And over the subsequent weeks, we have observed a significant lift in the adoption rate, of the enhanced bundle among new dealers, as well as the number of existing dealers choosing to upgrade their subscription. Looking beyond Q2 and turning now to DC+. Despite being delayed by the disruption caused by the CDK cyber attack, we proudly announced the DC+, by the launch on July 17th. The launch represents a key milestone in our pursuit to become the first digital marketplace where consumers can buy a new certified pre-owned or used car with or without a trade from the comfort of their couch through an entirely digital online transaction. By partnering with the right dealer group whose vision for the future of automotive retail is closely aligned with our own, we developed an online car buying experience that is integrated with the dealer's backend systems to overcome the historical obstacles to an entirely online transaction. Initially spanning 10 new car brands with over 3,000 new certified grown and used vehicles in stock, consumers seeking the convenience and flexibility of shopping from home can search for the right car that is competitively priced, secure a loan from a range of lenders, receive a binding value for their trade-in that gets applied to their new purchase, choose from an extensive selection of compatible accessories, warranties, maintenance packages, and production products, and schedule the delivery of their new vehicle all on Trucar's website. While used vehicles are currently available for delivery anywhere throughout the contiguous United States, excluding Massachusetts and New York, delivery of new vehicles will initially only be available to consumers in California for the foreseeable future. Over the next several months, the pilot will enable us to validate and refine the technical solutions we have developed to address each stage of the consumer purchasing process, test and develop additional ways to eliminate friction from the consumer experience and identify and solve any dealer pain points that might emerge. Moreover, we aim to demonstrate strong consumer adoption of the online capabilities on TC Plus eligible vehicles, and the value we can deliver to dealers through sales efficiencies and expanding their addressable market. Even though we've gradually turned the service on since July 17th, the new car service has only been available since last Thursday, August 1, in the entirety of California. Within this brief period, we have already seen some cool statistics, including first new car order placed within 48 hours of launching the product. Conversion from vehicle detail page adding to cart to credit application submission of over 40%. 12 orders placed with orders placed in this pilot of DC Plus being defined as a consumer selecting a vehicle and a price accepting a 350 credit card hold or lender offer and uploading all the necessary documents. This is a big deal. And we have yet to open the proper top of funnel aperture for marketing. which we plan to do over the next several weeks. And yes, the cover page of the shareholder letter is an actual picture of a billboard between Silicon Valley and San Francisco. I've put here a smiley face, which you guys cannot see, but it has like big white teeth. It's really cool. Finally, we remain committed to the three-year targets that we previously set to grow revenue back to 300 million with a 10% free cash flow margin by the end of 2026. Achieving that goal requires strong execution against the four key building blocks we have articulated and for us to continue pushing to build a better version of Trucar that deserves to play a key role in the automotive retail ecosystem. While the path to 300 million will not be linear and will be subject to risks outside of our control, we are confident that the ultimate outcome will be achieved. Meanwhile, our balance sheet remains strong with no debt and approximately 180 million of cash and equivalents at the end of Q2, We repurchased 425,000 shares for 1.2 million during Q2 and have subsequently repurchased an additional 1.26 million shares for 4.5 million between July 1 and last Friday. Despite the broader market turbulence, this is an exciting time at the company and we are pressing full steam ahead.