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.