TrueCar, Inc.
Q1 2021 Earnings Call Transcript

Published: 8 May 2021

[Operator:]

Good day, ladies and gentlemen, and welcome to your TrueCar First Quarter 2021 Financial Results Call. All lines have been placed on a listen-only mode and the floor will be open for your questions and comments following the presentation. At this time, it is my pleasure to turn the floor over to Scott Watkinson. Sir the floor is yours.

[Scott Watkinson:]

Thank you operator. Hello and welcome to TrueCar's first quarter 2021 earnings conference call. Joining me today are Mike Darrow, our President and Chief Executive Officer; and Jantoon Reigersman, our Chief Financial Officer. As a reminder, 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, anticipate becoming, toward, will, intend, confident and similar expressions, and are not and should not be relied upon as a guarantee of future performance or results.

[Mike Darrow:]

Thank you, Scott, and good afternoon, everyone. I'll start my remarks today with a brief review of Q1. I'll then remind everyone of where we're headed as an organization with a specific emphasis on where we play in the ongoing digital transformation of the automotive vertical. And finally, I'll close with some industry observations. I'm pleased to report that through the unwavering and tireless efforts of the entire TrueCar team, Q1 is another strong quarter for TrueCar. Overall, we ended Q1 above both guidance and consensus forecast with revenue of $65.1 million and adjusted EBITDA of a positive $2.1 million, quarter-over-quarter revenue increased by 2%. Unit growth driven by a 26% increase from truecar.com and an 8% increase in affinity partner units was up 17% year-over-year excluding USAA. Throughout the first quarter, we continued to see slightly better-than-forecasted dealer churn in spite of the recent macroeconomic headwinds from chip shortages, which I'll come back to at the end of my section. And finally, due to the focused efforts of our field sales team, we saw quarter-over-quarter revenue growth generated through additional dealer products of 15% in Q1. I would now like to highlight three of our key initiatives starting with our deal-building capabilities. As I mentioned in our last call in November 2020, we launched the ability for consumers to build their ideal deal online from the comfort of their homes, which we refer to as Deal Builder. TrueCar Deal Builder is a flexible experience that guides a consumer through the process of configuring an accurate car deal, personalized to them based on their trade-in valuation, preferred lease or loan terms, down payment preferences, credit profile and all taxes and dealer-reported fees and accessories associated with the transaction.

[Jantoon Reigersman:]

Thank you, Mike. Let me start by underlining how impressed I am with the team continuing to operate so effectively in an ever-changing market environment. The TrueCar team continues to push forward and focus on our transformation as we keep gaining momentum. Before we touch on our first quarter performance, I would like to take a step back and remind everyone of the significant addressable market opportunity in front of us. By 2025 the total addressable market of car sales is expected to reach 57 million units and according to industry reports, 40% of which is anticipated to be purchased – by 2025 the total addressable market of car sales is expected to reach 57 million units. And according to industry reports, 40% of which is anticipated to be purchased digitally, a total of 22 million. This represents roughly six million new and 17 million used cars.

[Operator:]

Thank you. Ladies and gentlemen, the floor is now open for questions. We'll take our first question from Steve Dyer with Craig-Hallum. Please go ahead, sir.

[Steve Dyer:]

Thanks. Good afternoon guys. Just a question on dealer count. You talked about some of the challenges around inventory and so forth. But with that said, we've seen maybe a couple of your other competitors, I guess, modestly add dealers nothing enormous. But I'm wondering if there was some residual maybe dealer falloff from USAA that you feel like maybe is contributing to the dealer softness?

[Mike Darrow:]

Yes, Steve thanks for the question. And what we said in the call and I think what we saw in Q1 was clearly we did see a small dropoff in dealer count, but it was actually slightly better than we had forecasted anticipating that there might be some residual fallout still from the USAA transition. So, we actually came in a little bit above where we had projected our dealer count to be which was virtually flat for Q1. There are some additional headwinds that everybody is mentioning in their calls around new-car inventory and some of the things that are starting there to be discussed, but we see our dealer count as fairly stable and we're working on it on a day-to-day basis to make sure we're delivering value to our network as we see it.

[Steve Dyer:]

Got it. Okay. And then just a question on Roadster. Is the idea with that from a monetization perspective that that's a separate -- almost a SaaS solution or a separate, I guess, subscription versus the monetization you get from actually selling a vehicle, or how do some of these extras get monetized?

[Mike Darrow:]

We haven't completely finalized all the monetization thoughts around that pilot program. The key was to get it out there and test the consumer experience and give our consumers a chance to fully build the deal out on our site and then smoothly transition them into the Roadster checkout process and let them finish the deal there. So we think there'll be a number of different ways to monetize that one. You mentioned potentially as an additional product. The other would be we're hoping to see a better -- because of the better consumer experience, we're hoping to see a higher close rate. So we think there'll be a lot of good outcomes that come out of this test. We do have consumers flowing through the process already. Not really enough data yet to talk about but we're excited with what we've seen so far. And we truly believe this is another big step for us in bringing more and more digital capabilities onto our platform and being the first real digital marketplace modern-day marketplace in the automotive vertical.

[Steve Dyer:]

Got it. Makes sense. Last one from me, I guess, generally as you look around the industry you're seeing more I guess vertical e-commerce solutions whether that's from some of the big dealer groups themselves or some of your competitors and things like that. I mean as you go to market in what's a -- become a very, very kind of crowded marketplace and end-to-end is obviously the buzzword, how do you sort of intend to differentiate going forward? Thanks.

[Mike Darrow:]

Yes. I think we probably -- we talked about two solutions that we have to address that. Number one is, we want to build a very flexible format on our side and an open API, so that we can work with the folks out there hard in developing their own solutions. So the large dealer groups or even the fully integrated used-car players who are out there now are members of our platform. So we'll come at it from two approaches. We'll make sure we have a flexible process that feeds into the software and solutions that the large dealer groups and the verticals are building. And then we'll have our own native solution that we'll continue to pursue to give consumers a chance to go end-to-end fully on the TrueCar platform. And a lot of dealers out there are still figuring out what their digital retailing solution is going to be and we'll provide a solution for those dealers. So we're going to go at it from two different ways. We think this Roadster test is a big step in the first direction of integration into some of the effective platforms that are out there and then we'll continue to work on our own flow adding on to Deal Builder with a checkout process as we move through 2021.

[Steve Dyer:]

All right. Thanks, guys.

[Operator:]

We'll take our next question from Nick Jones with Citi. Please go ahead, sir.

[Nick Jones:]

Great. Thanks for taking my questions. I guess looking kind of throughout the rest of the year here, how should we be thinking about your kind of sales and marketing efforts both on driving more traffic and winning dealers if inventory is expected to be constrained. I think at least in the next quarter and probably throughout the rest of the year due to chip shortage and then the pressures that it puts on used cars, so dealers kind of have lower inventory? How does -- how are those conversations going and trying to regain dealers?

[Mike Darrow:]

Yes. Thanks for the question, Nick. And I'll start with the traffic side of the business. We're seeing good traffic growth both organic and efficiency on paid on our -- both our TrueCar.com platform and our affinity partner platform. We've added some new partners to the network. We've talked about Navy Federal Credit Union being added and some real record months from some of our affinity partners. So we really look at the demand side of our marketplace as being extremely strong right now. Traffic in the upper funnel is good and growing. Conversion to prospect is good. We've also due to our investment in the used-car space over the past quarters seen growth in our used-car business. So all the signals on both the demand side for new and our used car business are very, very strong. We'll continue to monitor the inventory situation and make sure that we're delivering value to our dealers and we're staying in line with what we're able to deliver to them. But we see the supply side issue being short term. Hard to guess what short term really is now. I've heard forecasts that we could begin to see improvements beginning as early as June. Other forecasts say that may be an issue that we're dealing with through Q3. So we'll continue to focus on the demand side. All those indicators are strong and good and we'll continue to drive value to our dealers. And if we have more of a shift to use during this low supply side on the new-car side we're prepared to deal with that.

[Nick Jones:]

Great. And maybe one more if I can. There's some reports that Google is testing maybe getting more involved in kind of classified listings of local autos. Any thoughts on how that could potentially challenge organic traffic, or is this something they've tried before and failed? Just any thoughts on those reports? Thanks.

[Mike Darrow:]

Yes. Any time you hear rumors of Google getting involved in something, it's something certainly worth paying attention to. We think what differentiates our site is not just the listings, but the comprehensive market data that we can provide around the vehicle listing and provide to consumers as they enter into the buying phase of the shopping experience. So we think our transparency around pricing and educating consumers around not only what vehicles are available, but what a fair price is for that vehicle? What vehicles similar to that are selling for in their marketplace will continue to differentiate us. And like I said all of our demand-side metrics are strong right now. So we're looking forward to the spring and summer selling season and we hope this supply-side pressure is short lived and that we find a correction for that.

[Nick Jones:]

Great. Thank you.

[Operator:]

Mr. Darrow, there appear to be no further questions at this time.

[Mike Darrow:]

Thank you, operator and thanks to everyone who took the time to join us today. I'd also like to thank -- again thank our TrueCar employees for their unwavering commitment and dedication to the transformation of the TrueCar to the first truly digital modern-day marketplace. So thanks for your time today and look forward to chatting to you again.

[Operator:]

Ladies and gentlemen, this does conclude today's teleconference. We thank you again for your participation. You may disconnect your lines at this time and have a great day.