TRUE - NASDAQ

Good day, and welcome to the TrueCar First Quarter 2022 Financial Results Conference Call. Please note that today's event is being recorded. I would now like to turn the conference over to

Thank you, operator. Hello, and welcome to TrueCar's first quarter 2022 earnings conference call. Joining me today are Mike Darrow, our President and Chief Executive Officer; and Jantoon Reigersman, our Chief Financial Officer and Chief Operating Officer. By now, I hope you've all had the opportunity to read our first quarter stockholder letter, which was released on Monday, May 9, after market closed and is available on our Investor Relations website at ir.truecar.com. Before we get started, I want to remind you that we will be making forward-looking statements on this call. These forward-looking statements can be defined 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 a guarantee 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 Factors 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 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 will turn the call over to TrueCar's President and Chief Executive Officer, Mike Darrow, for some opening comments. Mike?

Thanks,

Thanks, Mike. I'll start with a question that has 2 parts. First, can you provide more details about the capabilities that have been added to TrueCar+ and why these are noteworthy? And secondly, you mentioned the commercial launch of TrueCar+. Can you provide more details around what that means?

Thanks,

Thanks, Mike. So as Mike mentioned, now that we can really commercialize TrueCar+, we're focused on growing inventory across the state of Florida for new, used and certified pre-owned vehicles. And we build up this - as we build up this inventory, we plan to start driving more and more traffic and get shoppers through the flow into TrueCar+. At the end of April, we had dealers representing 19 different brands already participating in our marketplace in Florida, and we're adding higher volumes and dealers onto the platform as we look to expand in both the market and brand coverage across Florida in the next couple of weeks and months. We'll remain focused on Florida for at least the remainder of Q2 and starting in Q3, we'll look to transition into a state-by-state rollout for new and a nationwide rollout for used cars. What's the next question,

Thank you, both. Mike, the next question is for you. You've added many great features and capabilities into TrueCar+. What do you still need for your product road map? And how are you thinking about build versus buy to advance this road map?

Thanks,

Thanks, Mike. Jantoon, the next question is for you. You're not expecting much improvement for new vehicle production and dealer inventories in 2022. While you're not providing guidance, how should we be thinking about your business and the expected investments for TrueCar+ in this backdrop?

Thanks,

Thank you, Jantoon. I have one more question for you, Mike, before we open up the lines to the audience. How is TrueCar thinking about the EV space? And does the shift to electric vehicles pose a risk to TrueCar?

Thanks,

Thanks, Mike and Jantoon. Now operator, let's open up the call for questions from the audience.

We will now begin the question-and-answer session. [Operator Instructions] Today's first question comes from Tom White with D.A. Davidson. Please proceed.

Great, good morning. Thanks for taking my questions. Maybe just two clarifying ones on TrueCar+ and then one on the outlook commentary, Jantoon. I guess on the timetable for the rollout of Plus by year-end, like what's your best guess on sort of where you guys are? Like how many states can you have the new offering rolled out in? And can you - is it possible that you could be nationwide for the used offering by the end of this year. And then there's a comment in the letter about inventory levels in the TrueCar+ marketplace. Just curious, do participating dealers put all of their inventory in the marketplace or just sort of select inventory? And maybe just touch on the extent to which participating dealers, what's the integration process like? Like how difficult is it for dealers to onboard?

Absolutely. So this is Jantoon, thanks for the questions. The first - let me start with the first piece. So we obviously have a huge opportunity nationwide, as well as in the different states. So it's really about how deep do you go, how fast? So yeah, used will go by the end of this year, we aim to be nationwide. Obviously, that means that you can still then go deeper and deeper because obviously, you have - you'll spend the coverage of x amount of dealers per salesperson. And so there's a lot of runway for us to add dealers as we go over, frankly, in the next many, many quarters. But yeah, so we want to make sure that for both consumers and dealers alike, there's a nationwide offering available. Before the end of the year, and we'll go new state by state. I think it's fair to say that like –should we be able to add like two, three, four states before the end of the year on the new side, absolutely, that sound something that's definitely in the plans and essentially in the works. It's really about how deep do you go at that point in time. So we're going to - we're still refining in Florida and just running further tests, running this through and as we go and are ready with our prioritization in the different states, then we'll start rolling out in the second half of this year. So we're very bullish. And by the end of this year, we'll have very good traction with this product overall. Your second question is on the dealers in Florida, yes, they put their inventory on. This is something that obviously is interesting for them to have. It's an extended sales funnel effectively. It means that, one, you go from a much more localized TAM for the average dealer to effectively, in this case, a state-wide TAM, number one. Number two, it's obviously an additional funnel. Number three, it means that they don't need to do any marketing expenses. They don't need to actually have any infrastructure, et cetera, et cetera. So this is a very interesting value proposition. Onboarding has been refined and will continue to be refined as we go. And so this is something that we effectively sign up the dealer. We have a team go out to the onboarding process with the dealers, we train them accordingly. Is there always room for improvement? The answer is yes. But so far, this has gone very, very efficiently, and we'll continue to make this easier and easier as we go along and over time, even potentially seek to automate this in efficient ways.

Okay. That's great. Thanks. And then just a quick follow-up on the outlook commentary. Just trying to kind of get a sense of how to think about like the cadence of quarterly EBITDA here for the balance of the year. Jantoon, I think you said maybe adjusting for seasonality and presuming no kind of material deterioration in the macro that kind of annualizing the first quarter revenue number wasn't a horrible place to kind of start our models. Does that imply that kind of the magnitude of the absolute EBITDA dollar loss kind of gets a little bit worse relative to the first quarter levels, presumably as you kind of continue to ramp investments around TrueCar+?

Yeah, I think those are very fair assumptions. That's exactly where we're - what is probably the right frame is like this is somewhat of a baseline. And we'll obviously, as you can see, even in the detailed financials is we've only leaned into DC+ to a limited extent, and we see a lot more room for that. So yes, we will continue to lean in and increase the way we lean in. And then on the core side, we'll pretty much remain our cost basis flat or marginally improve that, but that will obviously be offset by how much we lean on the DC+ side.

Okay, great. Appreciate the color. Thank you.

Our next question comes from Marvin Fong with BTIG. Please proceed.

Hi, great. Good morning. Thanks for taking my questions. One was already covered, but I just wanted to ask about the pilot and TrueCar+. I appreciate that it's early days. I think some others in the space that have been experimenting with a digital retailing solution I've seen their conversion rates go up. And just wondering what you - if anything, you've seen in your pilot in terms of close rates attributable to TrueCar+? Thanks. And I have a follow-up.

Yeah. Thanks, Marvin. I think it's hard to say at this stage still. So at the end of the day, if you think of where we have not yet been to place long enough where we've laid all the pipes to actually make it fully online from finding a car all the way to the buyers order. And so that's something that we've now recently connected. So we have a lot of data on the different parts and where people have been interacting with the different elements of that flow. But we've only recently connected everything altogether. And so we don't have enough data to really make any like statistical significant statements on that. What we do have seen is that the behaviors online are obviously slightly different than you're used to in the real world. And there are a lot of preconceived notions that people have around how people behave car buying process actually do not necessarily seem to apply online to the benefit of actually the experience. Consumers seek clarity. They don't want to haggle. They like the transparency. So there's a lot of really interesting elements that are going forward. But in terms of close rates, et cetera, it's still too early to tell, but we hope that in the next call, we have more data around this to provide.

That's great. Thanks, Jantoon. And I just wanted to drill down a little deeper, I guess, and you're thinking about the macro environment. I guess, an optimistic, say, despite all the headwinds that you highlighted, and I think we all appreciate that because of the supply shortage that we're already basically at recession levels and that if we get any improvement in terms of inventory and car availability, maybe we can see improvement there. I think you're alluding that interest rates have not been fully factored in. But just wanted to get your thoughts on sort of that line of thinking and just wanted to see if you could expand a little bit more on your thoughts on the macro? Thanks.

Yeah. I think what we're seeing, Martin, is that the pricing has gotten to a point where it's begun to slow down the turn rate. And that's going to be one of the things that we look at going forward is affordability for many consumers is becoming a real issue. And even though we may get a slight increase in inventory until prices start to adjust. And until we can get the sold orders out of the system, we don't see a big response to the pricing situation that's going on out there. And it's really squeezed many of the discretionary buyers, we think out of the marketplace. So there's a chance we'll see an uptick, but it's going to take a while to get enough inventory out there to begin to affect pricing and affordability. Finance rates are starting to extend on things like that, that we haven't seen for a while. So we're watching all of those factors and are hopeful that in the second half of this year, we'll begin to see some positive signs in that area.

Perfect. Thanks for the commentary. Appreciate it.

Our next question comes from Rajat Gupta with JPMorgan. Please proceed.

Great. Thanks for the question. I hop on a little late. So curious if you touched upon capital allocation at all. Just given the balance sheet flexibility, you mentioned tuck-in acquisitions in the past to help accelerate the road map or the product road map. Could you give us a sense of what's your latest thinking around capital allocation literally in the context of the current macro? We would love to hear that and have a follow-up.

Thanks for the question, Rajat. I'll start the answer, and then I'll let, excuse me, I'll let Jantoon jump in as he sees fit here. But we love our cash position. We're looking hard at a number of opportunities to really accelerate what we're doing on TrueCar+. We think coming out of NADA just recently, there's some interesting tuck-in type opportunities that we're taking a look at, all aligned to help us accelerate getting to market accelerate some of the knowledge and know-how around a commerce-driven site. So we'll continue to look at those things. We'll continue to manage our expenses. We've been working on reducing our fixed expenses and trying to manage our way through that. So we think there's some opportunities there. We are out in the market actively looking, and it will all be focused around accelerating TrueCar+ with our own capabilities and then some of the things we've seen in the marketplace. Jantoon?

Yeah. And so I think what Mike was saying is absolutely correct tuck-in investments is something that we're looking at very actively. And also it seems that prices have come down of some of these type of acquisitions. So those has also become more reasonable. That was harder effectively a year ago, number one. Number two is we obviously are ready to really start leaning in on the TC+ side on the marketing side as well. Now that the pipes have laid effectively. We can really push people through. We want to do this in a strategically effective way. We haven't necessarily done that to date because we knew we were pushing people through only through phases of the flow and not yet for the entire flow. So we're now ready to actually start doing that. So there's - and then the other thing is obviously macro in general and obviously, the concept of credit working this will become important overall. So having a little bit of a war chest and a strong balance sheet is probably a good thing for a company like ours going into the next several quarters, especially in a world where creditworthiness is something that will become more prevailing as interest rates are going to rise. And so we want also be somewhat prudent there as we navigate these waters.

Got it. Got it. Great. Maybe just a follow-up on that. What - any color on the exact kind of capability you might be looking at? For example, cars deals with the car offer deal like Cars.com, did the Accu-Trade one recently, like those kind of capabilities, is that something you're looking at? Or is that something you're already building in-house with regard for us and [indiscernible] Just curious as to what kind of capabilities are you targeting?

Well, I think Rajat to speak specifically about some of the things you mentioned. We have an Accu-Trade deal in place for a guaranteed cash value on our site. So we've had that offering available for quite a while, and it's built into TrueCar+ as part of the flow. We also made an investment in DealerScience a few years back in that desking tool. I want to clarify at this point, there's a big difference between some of our competitors launching various digital products and what we're trying to build, which is a fully comprehensive digital marketplace end-to-end. So there's pieces of it. The interesting piece we announced just recently was the automated trade payoffs. So on a lot of sites, you can go out and get a value for your trade, but then the dealer or the consumer has to make a call to the bank, find out if there's still any money owed on that loan has to get worked into the deal, we've automated that process. You aren't hear many of our competitors talking about that. They leave that up to the dealer to do. So we're working at great lengths to bring a digital solution to the entire purchase process versus the introduction of RandomTools. And we think we're there. There's always ways to accelerate the work we did around VIN-based protection products was very important to us. Many of the offerings in the market are very generic around the vehicle. We now have protection products, individual dealer protection products at the VIN level with VIN level pricing. So those are the type of things we're working on and it will further perpetuate our ability to get to that full penny-perfect end-to-end transaction at the end of the day versus a series of random kind of tools that are being introduced to help consumers shop, right? We're trying to create an environment where they can come to our platform, shop new, used and certified pre-owned vehicles and actually go fully end-to-end with fulfillment happening either at the dealership. And now we're going to be delivering vehicles to consumers with our shipping program. So we're excited about what we've built. There are folks out there who have built interesting things that we can use to accelerate even further and get better at what we do. So we'll continue to look at those things.

Got it. Great. Thanks for the color.

[Operator Instructions] The next question comes from Chris Pierce with Needham. Please proceed.

Just curious on the Florida deals you guys are signing up for TrueCar+, are these new dealer relationships for you guys, dealers you had previously ship with kind of just kind of curious what's going on out there as far as dealer feedback and potentially growing the dealer network?

Absolutely. And good question. And the answer is both. And so what we've - we've also - similar to our product, we're also trying different forms of actually approaching this. So you can think of, do you approach your current dealer network that you have already have existing relationships with. Obviously, those are often good relationships that we have. But also what we do is will take a hub or take a city, and then you go and actually, this is a really interesting offering to approach dealers that are not necessarily on the network and start those dialogues. One thing you obviously see is, for example, a focus also on independent dealers. So we've been having where our TrueCar+ could be really interesting proposal to them as well. But also in a world where, obviously, as you see the mix shift happen from new to used overall. So with our somewhat greater focus on use in the current macro environment. But the short answer to your question is absolutely both, and we seem to get good traction with both. So yeah, we feel that overarching with the core offering, the cellular car, distance retailing and then over time, the TC+ as you go nationwide, and we feel we have a very good offering for the dealers and really to become their big partner in enabling a multitude of sales channels, both locally as well as regionally as well as nationally.

And you kind of touch on it there. I sell your car, who buys the car? Is the dealer much more likely to buy the car if that consumer is also looking to buy a car in TrueCar+? Or can you consume - consumer just wants to sell a car, I just want to kind of price check what's out there? Who would be the buyer of that car?

Yeah. The buyers are - our network of dealers are looking for acquisition opportunities all the time. So they get - they're getting pretty excited about consumers who either are reducing a family fleet or want to maybe sell a car now and come back into the market later. So we've had dealers very quickly rally to be part of our cellular car program and consumers are beginning to dispose of vehicles through that process and dealers love to have them and are excited about the opportunity to bring those cars into their used car inventory.

Does the dealer have TrueCar+ to buy - to be part of that car buying program from retail?

Well, currently, no, that's separate.

Okay, okay. Thank you.

This concludes the question-and-answer session. I would now like to turn the call back over to TrueCar's President and CEO, Mike Darrow, for closing remarks.

I'd like to thank everybody for taking the time to participate in the call today. I also want to thank the entire team here at TrueCar for all the hard work to help us take the commercial version of TrueCar+ to dealers across the state of Florida. It's an exciting time for our company, and we look forward to sharing our progress with you on our next call. So thanks, everyone, for participating.