TrueCar, Inc.

Good day and welcome to the Truecar first quarter 2025 financial results conference call. Please note that this event is being recorded. I would now like to turn the conference back over to Jan Toon Rijgersman, president and chief executive officer of Truecar. Please go ahead.

Thank you, operator. Hello, everyone, and welcome to Truecar's first quarter 2025 earnings conference call. Joining me today is Oliver Foley, our chief financial officer. I hope you've all had the opportunity to read our most recent stockholder letter, which was released yesterday after market close and is available on our investor relations website at ir.trucar.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, including statements regarding the potential impact of newly implemented tariffs, including those impacting the automotive sector. 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 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 the score 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.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. Let us begin. We're pleased to report continued strong performance for the first quarter of 2025, especially in light of the volatile macro environment. Highlights from the first quarter, include total revenue of 44.8 million, grew by 3.8 million, or 9.2% year-over-year, with adjusted EBITDA of negative 3.8 million. New unit sales volume saw a significant increase of 23% year-over-year, substantially outpacing the industry's 6.8% growth in new vehicle retail sales for the quarter. We expanded our affinity network with the additional notable partners, including DoorDash, GasBuddy, and GovX. The transition of certain OEM incentives from American Express to the AAA auto buying site progressed rapidly, with AAA program revenue in March approaching previous levels seen with American Express. Our restructured performance marketing campaigns continue to enhance efficiency, achieving the lowest cost per sale since 2022, and effectively driving unit sales growth for our dealer partners. In addition to delivering solo performance in the first quarter, we're excited about the progress we continue to make with TC+. A product we believe can fundamentally change the car buying experience for consumers and dealers. The approach we have adopted in pursuit of this vision has been built around a highly focused pilot with a singular dealer group committed to collaborating with us on the co-creation of tools and solutions that will pave the way for a broader rollout of the product. These optimizations combined with expanding the volume of consumers entering the DC Plus purchase flow have allowed us to steadily grow volumes while maintaining our discipline and iterative approach to scaling the product. Since launch, Roughly a third of the pilot dealer group's Truecar-enabled sales were driven by TC Plus consumers that completed the entire transaction or a significant portion of the purchase process online before finalizing the transaction at the dealership. We not only allowed consumers to move to an online purchase, but also expanded the sales volumes to this dealer group. A super exciting case study and a clear validation of our hypothesis so far that TC Plus not only enables a dealer to move completely online, but most certainly also expands their volumes and sales. As we seek to make TC Plus broadly scalable by year end, the most critical work stream that remains in process is the backend integration with two dealer management systems, DMS providers, namely CDK and TechEel. that will fully automate deal documentation and desking activities currently performed by the dealer. While completion of this work has been delayed by the prioritization of external resources outside our control, we aim to have both integrations substantially complete by the end of July. In spite of this, the rate at which we continue to advance the product and ready it for scale has not slowed. To this end, we're excited to have recently onboarded a second pilot dealer group with franchise stores in and around Sacramento markets, with a third expected to be onboarded later this month. The addition of these groups marks a key milestone in the growth of TC Plus that will bring new franchise brands onto the platform, broaden the inventory eligible for purchase online, and allow us to expand consumer access to TC Plus in another major market. Turning now to our views on the potential impacts from the automotive sector tariffs and how we are responding. The 25% tariffs applied to imported vehicles and component parts that were announced in March and which became effective April 3rd with respect to vehicles and May 3rd with respect to parts has created a tremendous amount of uncertainty. Given that approximately 50 percent of new vehicles retailed in the United States are imported, and among vehicles produced domestically, 40 to 50 percent of their component parts originate outside of the U.S., the tariffs as currently in effect are estimated to add up to approximately $4,500 of additional cost for new vehicles sold in the United States, equal to roughly 10 percent of the average pre-tariff new vehicle MSRP. While undeniably a headwind for the retail ecosystem, the impact on dealers and consumers is difficult to predict without greater clarity around OEM's operational response, which will ultimately dictate changes in new vehicle supply and pricing, two of the most important factors that impact retail sales volumes. Nevertheless, in the near term, we do not expect to see a material impact to the strong and stable demand that drove year-over-year unit growth in both Q1 and April as dealers sell through pre-tariff inventory and OEMs reformulate their strategies in response to the tariffs. In the median term, we believe there is an increased probability that new vehicle supply tightens and prices go up. However, potentially mitigating the magnitude of these shifts is the fact that tariff-imposed costs will not be uniform across the markets, and certain OEMs that are less impacted by the tariffs due to their supply chain footprint will emerge with a competitive pricing advantage. This dynamic, we believe, should support stable inventory levels and reduce the likelihood of gold-based consumer price increases because OEMs and dealers alike will seek to protect their market share by maintaining volumes and taking steps to keep average transaction prices stable. As such, we do not foresee new vehicle supply and retail sales volumes approaching the levels experienced during the chip shortage of 2021-22 and believe both dealers and OEMs will continue to rely on Trucar to support their customer acquisition and incentive strategies. Despite this view, we are nevertheless taking steps to mitigate the impact of a potential slowdown in growth and provide us with the greatest flexibility to manage the business to positive free cash flow in any scenario that prevails over the next several quarters. Finally, lacking a clear outlook on the near and midterm market dynamics that impact our business, we believe it is prudent not to provide financial guidance for the second quarter and beyond. Despite solid performance in April, which saw strong year-over-year revenue growth driven by healthy consumer demand and OEM incentives, We cannot credibly extrapolate this performance throughout the remainder of the quarter until a majority of pre-tariff inventory has been sold and we start to observe trends in vehicle supply and pricing, which can have near-term impacts on the revenue we earn from both the dealers and OEM incentives. Nevertheless, despite it being inherently difficult for us to collect and to credibly predict our performance in Q2 and beyond, we firmly believe that the value we are delivering to our dealers and OEM partners, combined with the flexibility we have in our cost structure, will help mitigate the impact of a potential slowdown in growth and allow us to effectively manage our cash flow in any scenario that prevails. Now, operator, let's open the call for questions from our analysts.

We now begin the question and answer session. To ask questions, please press star and 1. The first question comes from Navit Khan from BeReady Securities. Please go ahead.

Thank you very much. I appreciate your thoughts on the industry trends here, Shantoon. Just a couple of clarifications. In your letter, you mentioned accelerating certain product enhancements that can yield some comparative advantages for a true car. Can you give us a sense of what these enhancements can be? And then the second question I have is around the incentive ad spending by OEMs. As these OEMs look to stay competitive on price and keep their share, how should we be thinking about the changes to the incentive ad spending? Could some of those dollars be used to bring down MSRP and net reduction in incentive? Thank you.

Yeah, absolutely, Hannah, but thanks for the question. So number one, I think a good example is, for example, the utilization of Gen AI that we've used for email campaigns as one sample of a driver, right? At the end of the day, what we try to do is really personalize the experience for consumers as they go through the flow. And so being able to retarget them in a personalized manner and in an automated manner actually is very effective. Remember, we have access to a lot of data, both historical purchasing data as well as data on the consumers themselves as they behave on the site. And so automating that and utilizing our AI tools more and more to really make this a much more personalized experience seems to be yielding very attractive results. So that's just one example of the many. At the end of the day, it's really about the consumer journey and the dealer journey. Those are the two pieces where all the product development is focused. And vis-a-vis your OEM question, yeah, I think the hard part for us to determine and to predict is I think you could make a very good argument that OEMs will need to support effectively their their vehicle sales more. And as a result, we could be well positioned to actually benefit from that. It's just really hard to say because at the end of the day, in a world of greater uncertainty, people are just reluctant to engage. But overarching in a world of higher tariffs and obviously trying to push consumers to make a purchasing decision on the car, I think there are a lot of tools that the OEMs have at their disposal, of which many could come through Truecar. So it's a reason why we're so delicate also in our language, because obviously uncertainty is never good for the market, but we're very confident that we can actually be really helpful to both audience and dealers.

Great. Thank you, Danton.

The next question comes from Ryan Myers, Lake Street. Please go ahead. Hey, good morning, guys.

First question for me, you know, without the kind of headcount investments, now going forward, you know, how should we think about the margins across the business and maybe, you know, what are the biggest levers that you can pull across the cost structure?

Yeah, I mean, I think the, yeah, I'll go, like, remember, yeah, there are three main buckets and then Oliver can take it. But remember that there are three main buckets that I've mentioned many times on these calls, which is really it's headcount, it's marketing expense, And then it's like effectively our overhead charge and includes a lot of like the data costs and effectively the infrastructural costs. So a headcount is always important because you obviously want to make sure that you're well balanced and efficient as an organization. there's obviously on the marketing side there are two main buckets one is performance marketing the other one is partner marketing one emphasis we also did here is obviously the efficiencies we've been achieving through our marketing campaigns and so that's obviously a very important lever where as we have greater efficiencies there are obviously interesting things we can do there and then obviously we are continually looking at potentially right sizing the business at the right time in the right forms as the world navigates right this level of uncertainty. Oliver, go ahead.

Yeah, that's the only thing that I'll add there, Ryan. It's like, it's, you know, what's going to drive margins over the next couple quarters is sort of the revenue mix, as well as sort of the flexibility we have in the cost structure. So the revenue mix, ultimately, you know, OEM revenue tends to have the highest margin. And so, you know, how much of our total revenue comes from OEMs certainly impacts margins. Conversely, you know, true car marketing solutions or some of our vehicle sourcing products around true car wholesale solutions, you know, those have lower margins. And so, you know, depending upon the mix, ultimately that will impact margins. On the cost structure side, we're really focused right now on on flexibility, right? Given the uncertainty, it's about how can we adapt, you know, under any scenario to manage cash flow effectively and ultimately be cash flow break even. And so we're pretty confident we've got a decent amount of flexibility across the cost structure. So across all three of those buckets, both, you know, headcount, marketing, and sort of overhead. And so whether it's sort of outsourced services, or it's continuing to lean into marketing campaigns that have the highest return, really quick payback. That's really where we're focused so that we can manage in any scenario that prevails over the next couple of quarters.

Okay, got it. And then just one sort of clarification question. I think you guys had said this in your prepared remarks, but It sounds like with the loss of the American Express business, that's now been filled and picked up by the business that you guys are working with, AAA. Is that the right way to understand that?

Yeah, it's on its way. So I wouldn't say that it's 100% filled up, but it's obviously because these programs take time to ramp up, but it's getting very close to those levels.

Got it. Thanks for taking my question, guys.

The next question comes from Tom White, DA Davidson. Please go ahead.

Great. Good morning. Thanks for taking my questions. Two, if I could, I guess just first on tariffs. Gentoon, in the letter, you kind of touch on how not all OEMs will be kind of impacted the same. I was hoping you could just kind of update us on your franchise dealers, like sort of what is your kind of exposure to different OEMs. I think you guys skew a little bit more towards kind of the Asian OEMs, some of the Japanese brands. I'm just curious, like, is there a reason to think that, you know, your specific mix of certified dealers will, you know, be better or worse able to kind of navigate what's happening? That's my first one. And then second one is just on kind of uses of capital. Just curious if you're giving any more serious consideration about buying back stock here. Thanks.

Yeah. So let me, on the first one, the comment was less about alluding to whether we're better or worse positioned. I think it's just hard to say at this stage. I think it was more intended to say long-term probably not all OEMs are impacted equal. And so what we do is obviously we're very focused on helping OEMs with their respective issues to help solve those through our programs. And so what we mean with that is obviously if somebody is more impacted or needs a specific type of help, then obviously we'll jump in and we feel that there are opportunities there. And so it really depends on the type of impact that each of these OEMs have. We indeed skew a little bit more Asian mix more broadly, but this also shifts very much throughout the year. So that really depends. And at the end of the day, it also really depends on like inventory mix. And then eventually, obviously the type of incentives the OEMs are willing to put on these cars. So I think it's less about whether we're better or worse positioned because I don't really think there is such a thing currently within the new space. However, I do think that the adaptability to really help the OEMs where they would like to emphasize and where they would like to like effectively adjust some of their pain points is something that we are very capable and we've proven to be very capable. So we obviously have to navigate that somewhat smartly as we go through this. And on your second question on the capital allocation, the answer is always yes. I think this is right, like we've always been asked this a lot and we have a significant cash balance in play. We very often review, almost continuously review our capital allocation strategies and do that the right way. And share buybacks are always one tool in that effectively basket of tools that we have. And so that is something that we always consider and at the right time will consider.

Okay, thank you.

The next question comes from Chris Pierce, Needham. Please go ahead.

Hey, good morning. On TC Plus and the dealer you cited, is there a way to know if these units are additive to units they wouldn't have sold? And then can you remind us, is there an increased economic benefit to Trucar from these units, given I think the dealer probably makes a higher margin, given less sales commission in these units? What's the push and pull there?

Yeah. Chris, absolutely. So on the first, the answer is yes. And this is what's really exciting about this. And at some point, I would love to actually provide you guys with a lot more detail on it and actually literally present you guys with a case study on it. But long story short is yes. So there are two things that have really happened there in the case study, which is one is clearly a shift from people that historically were obviously just leads basically becoming fully online purchasers, number one. And then number two, also significantly increasing the volumes that we were bringing to that dealer. And so there are really two things happening, right? Both makeshift to online as well as increased volumes. And so I think as a case study, that's a really good good case study that we're really excited about. And obviously now we feel we should add a couple more dealers on to effectively run similar case studies, both because they're slightly different TMAs and see how that behavior is or whether the behavior is any different. And two, also adding more brands, because obviously that also will then increase inventory, but also obviously we'll see the behavior and different behaviors that are happening online. And so these are, we're almost like, for lack of a better word, and as one of our board members often tells me, it's we're kind of going slow in order to go fast, which is really honing in on to understanding this in detail. And then as soon as these DMS providers are kind of up-to-date and ready for us to automate these things, then we can really start pushing the scaling much faster and much harder. But I think so far, these results are effectively confirming all the hypotheses and the thesis we had in the past. And then, Chris, what was your second question again on the... Oh, the economic... Monetization. Yeah. Monetization. So currently, we're not doing... The monetization is just as if it's a lead. This is really because we're focused on We're obviously asking a lot from these dealers at this stage because obviously there's close integration happening. We're learning a lot. There's a lot of things we're doing. So we're monetizing it as if it's a regular lead at this point. We're not yet monetizing it really yet. at a two-car plus basis. And we only want to start doing that once we properly start scaling because we don't want the monetization to be affecting any of the testing and trial and error we're doing today.

Okay. And then just lastly for me, on the pause of the sales headcount, are you anticipating that there's going to be uncertainty from the dealers and the OEMs, or are you actually hearing that from dealers right now and it's kind of affecting what you had thought was going to be your go-to-market, or are you just sort of building it in because of the elevated uncertainty?

Yeah, elevated uncertainty, we're just building it in. There's no reason to go, like, let's peel out the market a little bit more, let's be a little bit more efficient first, see kind of how this is going to play out be there to be helpful for the dealers. That's really the main focus right now. So it's really in anticipation also. It's not necessarily because we're reacting to something specific.

Okay, perfect. Thanks for the clarification. Thanks.

The next question comes from Ayat Gueta, JP Morgan. Please go ahead.

Hi, good morning. This is Josh Patwa on for Rajat Gupta. Thanks for taking our questions. I was just hoping to get some further color on your decision to not provide guidance for the second quarter, despite the subscription nature of the business and also since most manufacturers have held pricing stable on model year 25 vehicles through early June. Along the same line of thought, would you be able to share an update on the dealer revenue split between subscriptions and paper sale? Thanks, and have a follow-up.

Yeah, I'll... I'll take the first one. I'll have Oliver answer you the second one. So the guidance really is very simple, is that if we were to provide some form of guidance and then there's some crazy news that comes out in some shape or form, then suddenly you get into all those triggers where you've guided to something and then how does that affect and then how do you then speak to the market about that? And it just makes life a lot more complicated, I think, If there's nothing strange coming further in the next couple of months and quarters, and I think things become relatively predictable in a way that we've always been able to relatively well predict, but the real reason to pull back on any form of guidance is really just because of the height level of uncertainty. So it's less about the business model. It's more that if tomorrow tariffs get doubled, then it's really hard to assess exactly what the impact is at this stage. So that level of uncertainty just makes it that it's easier to just refrain from providing any guidance. And then Oliver can take question number two.

Yeah, I'd say, you know, if you just look at our dealer revenue, about 20% of it comes from paper sale, you know, with the remaining 80% being sort of recurring subscription-based. But then I think OEM obviously is the other sort of variable revenue component, right? And that can move up or down quite significantly depending upon sort of how OEMs recalibrate their incentive strategies going forward. So, you know, I think when you've got a relatively small revenue base, you know, with I think a decent chunk of it that's nonsubscription revenue, You know, the volatility that we've seen makes it very difficult to sort of predict those non-subscription-based revenue lines, and they can have a material impact as a result.

That's very helpful. Thank you. As a follow-up, you know, there were a lot of great details in the prepared remarks and shareholder letter around the progress of the TrueCar Plus offerings. which we really appreciate. And maybe just following up to Chris's question, could you also discuss the potential cost savings realized at the pilot dealer group with a larger proportion of volumes now being transacted through the DC Plus channel? Additionally, has there been any cultural pushback at the stores considering that transactions through end-to-end online channels might impact the store associates' variable pay? Thank you.

Yeah. These are all good questions. I'm trying to think how to answer them concisely. So yeah, so there are a lot of savings that are important. So number one, you can start selling as a dealership 24-7, right? So that's really important. So in other words, At night, when people are sleeping, you arrive in the office the next morning, you effectively have sales happening throughout the night. So that's number one. Number two is obviously they're able to expand almost their geographical footprint effectively. Number three is obviously people at leisure at their home looking at attaching products feel more confident, feel more confident. with peer reviews, et cetera. And so there's a different group of customers that effectively the dealer is able to address and serve that have different type of needs than the ones that really enjoy going into a dealership. So the answer is, yeah, so it's not just purely by volume, but it's also by the type of consumers they're obviously pursuing. Then you go into the backend side of things. So really now suddenly you can be much more efficient with your sales team throughout the day and really serve the people that are in the store and have effectively your sales team fewer on the phone per se chasing potential leads. And so as a result, I think you can become much more efficient on that side. Over time, obviously, depending on the type of dealerships, they could even consider whether sales commissions should even be part of the online sales. And then you can then, once you start moving to the next phase, you really start thinking about, you can even start thinking about real estate costs and location costs effectively. It's like how much inventory do you actually need to have on a prime real estate location? Or can you actually use a secondary location, et cetera? I think the complexity that always comes from scaling a product like 2 per plus is that And it's both the complexity as well as an opportunity. As a dealership, when you run multiple stores, how are you going to actually deal with online sales from an operational perspective? So do you have a single person in all different stores being responsible for online sales? And do they then carry multiple brands? Where, like, If somebody from an online sale comes and wants to pick up the car, do they pick that up on a centralized location or one of the brand dealerships? All these type of little nuances actually really matter. And they matter a lot. And also then the cost burden to the dealership. So it all comes down to either efficiencies or inefficiencies. And so the ability to start selling more with less friction, less logistical complexity is something that's super attractive. And more importantly, also start selling in off hours or sell to people that otherwise would have been reluctant to walk into a store or would have walked in by necessity or would have taken a lot of time in the store. Now suddenly you can run all the operations much more efficiently. So net-net, I think there are a lot of cost savings to be had. for the dealerships. And I think as we go forward with every one of the dealerships, it's going to very depend on what they're very focused on themselves. But it's very obvious that for the dealerships, this is a really interesting value proposition. And obviously, it will allow for the pie to effectively be split in a different form and for us to be able to monetize this in an attractive way.

Great, Carlo.

Thanks a lot, John, Jude, and Oliver. Good luck.

As a reminder, if you wish to ask a question, please press star and 1. The next question comes from Marvin Fong, BTIG. Please go ahead.

Good morning. Thanks for taking my question. So first, you referenced you expect CDK and Techion to come online, I think, somewhere around July. How confident are you in that timeline? And could you just maybe clue us in? I think you mentioned that the delays are sort of outside of your control. I mean, is it that they're working on something related to macro that's kind of tying their attention? Just maybe some insight there would be great and I have a follow-up.

Yeah, absolutely. So the one that we've been working with mostly has been CDK. Techion we've just started engaging with. So we'll probably run through that timeline with them in relatively short order. For CDK, really, the issue has been twofold. So one is just resource allocation. And second of all, obviously, CDK is also a more complex, architecturally a more complex organization in the backend. As a result, for them to adapt accordingly is a little bit trickier. So as soon as we do something and we effectively then test it, often products are slightly buggy or have some issues and then kind of they need to pull the team back in and there's a little bit of an iteration that happens there. I think the good news is they're very focused on it. The tricky bit is that they also are looking to replatform as an organization. So there's always some delay that comes with that and obviously a loss of focus. But I think we're confident to have the right product development roadmap now with them to be able to do that. And in parallel, obviously, we're accelerating the integrations with Techium as well, which probably will be an easier and faster integration in any case, because obviously they do not carry the same tech as CDK does.

Got it. Thanks for that. And my follow-up, I mean, I think we all acknowledge the uncertainty here and I respect you're not providing guidance. It's just a higher-level question on what you're seeing in your dealership conversations and how they're behaving. I mean, should we just assume that there's this general paralysis in the sales channel or are there actually some signings going on? You know, this may be a bit deeper discussion. insight on what's going on in the field would be great.

Yeah, it's a good question. And the honest answer, Marvin, it's like so far so good, to be very honest. So there's just a lot of uncertainty. But I think that that's also what we try to relay in the letter, where we try to kind of walk the nuances, right? Where it's like Q1 was actually a pretty good quarter for April clearly held up accordingly as well. And so it's just hard to extrapolate because you just don't know what's coming from left field. But I think so far, so good to be the morale and just overarching the success of the relative dealers. and so now obviously like don't forget that like as as has been the case already for a couple of years i think independence will suffer right and and the smaller independence will continue to suffer um until affordability becomes obviously there's some easing there but i think from from the perspective of the the franchises and the new cars i i think they're holding up so far they're holding up strong and and obviously people are still buying It's hard to say whether this is a nervous buy and create tariffs or whether this is business as usual. We will see, and we'll see how this flows through. But so far, there's no red flag in the field itself.

Thanks so much, Chartier. Appreciate it.

This concludes our question and answer session. I would now like to turn the conference back over to Janton for closing remarks.

I just would like to thank everybody for taking the time to participate in our call. I want to thank the team. I know with all the macro volatility around us, it's amazing to see the team and firm keep steady, focused, and do what we need to do. So thank you, everyone, and thank you today for listening.