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

Thank you, Nick. Hello, and welcome to TrueCar's Fourth Quarter 2022 Earnings Conference Call. Joining me today are Mike Darrow, our President and Chief Executive Officer; Jantoon Reigersman, our Chief Financial Officer; and Teresa Luong, our Chief Financial Officer. By now, I hope you've all had the opportunity to read our fourth quarter stockholder letter, which was released yesterday after market close 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 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 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. Reconciliations 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. During Q4, we continue to see the supply of new vehicles rise across the industry. This is an encouraging start. But since this recovery is from a very low base, much more progress is needed in the quarters ahead. Vehicle affordability is still a concern for many consumers who are struggling to manage their monthly payments while interest rates continue to tick higher. This has continued to pressure our close rates, and we believe it will be several months before we return to a more balanced environment across our industry. That dealer counts for our core leads based business increased during Q4, driven by growth in franchise dealers. During Q4, dealers had left our platform when new vehicle inventories were in decline started to return. We saw some attrition amongst independent dealers in Q4 and in light of softening demand and other dynamics impacting the used side of the market. We expect some churn in independent dealers in the coming quarters. Despite these near-term issues, we remain firmly committed to the used side of the market. Wherever we travel across the country, dealers tell us that they need more and more used cars. It is clear to us that the limited availability of new vehicles over the past few years is creating some scarcity, particularly for one to three-year-old vehicles, and we intend to step-up efforts to help our dealers source used vehicles. During the fourth quarter, we continued to enhance our TrueCar+ marketplace. We upgraded our TC+ credit offering and expanded our coverage of auto lenders from fewer than 15, sorry, fewer than 50 to more than 1,500 lenders nationwide by replacing a third-party provider with our own credit engine. This is a huge feed by the team. As a result of this upgrade, TC+ dealers can easily find and configure their preferred lenders, which makes on boarding new dealers much simpler and may potentially support higher approval rates for consumers with a broader group of preferred lenders available for each dealer. Additionally, we more than doubled the size of our accessories catalog in TC+, which let dealers offer a broad-based, broad set of accessories throughout our marketplace and also help simplify the dealer on boarding process. In addition to the great dealer consumer factory upgrades, we modernized our entire cloud infrastructure, an upgrade that will allow us to reduce costs while increasing our development speed and flexibility to respond to change. We also launched our AI recommendation engine, which will be used to power some of the exciting new features planned in the near-term, product road map for both TC+ and our core business. After establishing a solid foundation in Florida, we announced the expansion of TC+ into five additional Southeastern states throughout Q4 and have either signed up dealers or are in the on boarding process with them in each of these states. It is important to note that as we expand our footprint for TC+, we intend to focus on adding digitally forward dealers to our marketplace and help them broaden their market reach and impact to drive higher sales. The dealer network for TC+ will therefore be much more curated than our leads business and will be mostly focused on inventory. We're also launching -- we've also launched a new subscription packages for 2023 that are aligned to the value that our products can deliver to our dealers. Over the course of '23, we plan to move away from the legacy pay-per-sale model and focus on growing monthly recurring revenue. We're also committed as ever to helping our dealers grow their unit volumes, especially as the market starts to shift from a purely supply-driven market to one where demand generation and a robust digital presence will increasingly be important. I'll give -- I'll turn it back to our CEO, Mike.

Thanks, Jantoon. There are many other areas where we're making strong progress that we'll continue to share with you over the coming year. I'll touch on a couple of significant examples that demonstrate the resurgence of the TrueCar brand in the affinity and OEM space. We launched a new partnership agreement with NerdWallet, a leader in the personal finance space with approximately 20 million monthly unique users of their sites for education, insights and information about life's financial decisions. We believe this program will help bolster brand awareness for TrueCar and TrueCar+ is set to be active on the partner site at launch. We also expect to significantly expand our OEM program with Mercedes-Benz on March 1. This program and expansion will provide targeted Mercedes-Benz offers to some of our most robust affinity platforms. We're excited to combine the power of a world-class automotive brand like Mercedes-Benz, with the membership and purchasing power of our exclusive affinity network. Our balance sheet remains healthy, and we believe our cost structure is in a good place. We're encouraged by the signs that new vehicle inventories are starting to rebuild. We will not be providing detailed guidance on this call. However, based on our current plan, we expect to achieve double-digit year-over-year revenue growth and return to breakeven or positive EBITDA by the fourth quarter of 2023. I'm very encouraged by our progress during the fourth quarter and in the weeks that have followed. I wanted to thank the entire TrueCar crew for their hard work, dedication and commitment to our vision of bringing something new and unique to the market and doing at a time of rapid change as we embrace what we expect to be increasingly digital future for automotive retail. Before we open the call -- before we open the call for live questions, we're going to address some questions around key topics.

Thanks, Mike. The first question is for you. We've highlighted several updates to TrueCar+ in the stockholder letter, including an updated credit experience and an expanded accessories catalog. Can you explain why these are important within the overall product flow for TrueCar+ and what is next?

Thanks,

Thank you, Mike. I'll direct the next question to Jantoon. Jantoon, how do the new subscription packages compared to our past ones? And how are dealers reacting to this change?

Yes. Thanks,

Thank you. The next question is for Teresa, our Chief Financial Officer who I want to congratulate and welcome to the call. Teresa, can you explain what drivers will help TrueCar achieve double-digit revenue growth and return to breakeven or positive adjusted EBITDA by the fourth quarter of 2023. And secondly, what could the revenue cadence look like?

Thanks,

Thank you, Teresa. Our final question before we open up the line is for both Mike and Jantoon. First, Mike, you mentioned that bringing dealers back to the TrueCar platform is a priority for 2023. But given our expectations for some churn with independent dealers, what do you expect for TrueCar dealer counts? And secondly, for Jantoon. If TrueCar+ dealer group is more curated, what should we be looking to gauge our progress there?

Thanks,

Absolutely, and I'll keep it short. We expect our TrueCar+ dealers to be more of a curated group. Remember, TrueCar+ is best suited for digitally forward dealers. We're committed to the digital channel to increase their sales and expand our market reach. For the core business and our lead business model, dealer density and [indiscernible] are an important factor. While for TrueCar+, it's much more about having the right inventory for national coverage. So our new subscription plans encompasses both our core TruCar [ph] offering and TrueCar+, so signing up dealers to our elite package is one indicator for TrueCar+, it is important. Growing sales volumes for dealers and driving MRR higher will be some of the indicators of our progress.

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

Thank you. We'll now begin the question-and-answer session. [Operator Instructions]. First question will be from Rajat Gupta, JPMorgan. Please go ahead.

Great. Thanks for taking the question. I just wanted to follow-up on some of the commentary around the dealer churn that you're seeing after launching the subscription packages. Are you able to put some numbers around that on what you're already seeing since these packages have been launched, including like what the monetization has been for those packages? If you could just help us with that. What's governing your 2023 guidance in terms of dealer count and just like monthly dealer revenue or how we want to look at it in terms of metrics going forward? Thanks.

Thanks, Rajat. So there's little guidance to give so far. Remember, we've started the new packages as of January 1. So we're now effectively what six or seven weeks in. The -- what has been very positive is that there is an understanding by the dealer base of the broader value we provide. There obviously is some churn related to that, especially with some smaller dealers that are saying, hey, let's see whether they can do this ourselves or if you're an independent smaller use player, now you're struggling a little bit more on your P&L side. There's also obviously a lot of movements happening in the marketplace. There's consolidation happening. A good example of a player that came off our platform was tread, right, acquired by COGs. And so as a result, it will not participate in our program anymore. So those are -- there's a little bit of give and take. Overarching though, we've been successful in getting the revenue up. Really, if you remember, we've not increased our prices in any shape or form for a long period of time. And so really moving from a pay-per-sale model to a much more value-based selling approach is key. This is not about just giving a single lead. This is about giving the opportunity to really to be a subscriber to a large value set that we provide. One example of that is, for example, the delivery aspect, right? So we now provide dealers to actually have deliver even on non-TrueCar deals that we can provide for them. The other one is obviously, right, so the offerings that we said around the accessories, the prioritization on TC+ around the accessories, their captive lenders, et cetera, et cetera. So there's a lot of value that we can subscribe to the dealers. It's too early to really give big indications. But overarching, I think we're trending nicely, and we're happy with where the numbers are so far.

Got it. And so as this churn occurs or started to occur, is the monthly revenue per dealer already starting to pick up with those packages? Or is that something you would expect to blend over time? I'm just curious like what's the new algorithm to look for in terms of growth?

Absolutely. It will be the latter. It will be -- it will -- because this is a transition we'll do over the course of the year. So this is not something that you'll see immediately pick up over the course of the next quarter or two. This is much more something that we'll do gradually over the course of the year, especially as we're focusing initially mostly on the pay-per-sale side and then start moving into the subscription states. And then obviously, any new dealer coming on to the platform will be on the new package, but we're slowly but surely transiting legacy dealers onto the new system. And so this will take some time. So don't expect any immediate upticks, but obviously, over the course of the year, this will start having a greater impact.

Got it. So the unit guidance, the revenue guidance is more driven by like just traffic more than like just the monetization piece. Is that fair in 2023…?

Yes. It's fair. It's obviously an expectation that inventory will start building up and conversion rates will start improving. It's obviously opportunities around other revenue sources as well, but it's also overarching monetization improving vis-a-vis the end of the year. So -- but overarching, yes, it's units driven as well as other revenue sources.

Got it. And lastly, I might have missed this on the call, but you're reiterating the $125 million -- greater than $125 million cash guidance for the end of the year?

Yes, and -- the answer is yes. But obviously, I'll caveat that all day long with saying that, right, if there are opportunities to do attractive buybacks, et cetera. So yes, 125 absolutely in the ordinary course of business. But if there are attractive M&A opportunities or buyback opportunities, there are those type of things and definitely we'll execute upon those. So -- but the -- I think what's important for people to realize that we have a strong balance sheet, we'll continue to keep a strong balance sheet. So the $125 million is a good marker to have, but it's not written in stone.

Got it. Great. Thanks for all the color. I'll jump back in the queue.

Thank you. Next question will be from Chris Pierce of Needham. Please go ahead.

Hey, good morning everybody. I just wanted to get a sense. You kind of talked about building out the teams and kind of some hires as you launched TrueCar+. I wonder you guys see how we should think about on the path of OpEx in 2023 as you reiterate exiting the year positive or breakeven adjusted EBITDA? Thanks.

Yes. I'll take that for now, and then I'll have the anticipation of -- and then Teresa can take them going forward. But the -- so remember that we've said last time as well is OpEx is fairly stable for us. We're very focused on making sure that we keep OpEx under control. Remember, there are three large buckets on the operating side, it's human capital, right, it's marketing expense and then it's effectively our overhead charge. If you think of marketing expense, it's two buckets, partner and then it's effectively performance marketing. So the variable that we can play with very easily is obviously performance marketing. We've articulated clearly last time that we want to focus on conversion as a key theme for '23. We have a lot of unique coming to our site. So conversion is key. Adding another unique is not necessarily as valuable. And so conversion is key, which is obviously one of the great things of having Jay Ku come onboard. But so overarching the OpEx side, I think you can assume to be relatively flat, slightly increasing in the sense that we're looking at opportunities around dealer sourcing used vehicles, and we're doing some really interesting initiatives there, which will have some initial start-up costs associated with that. But I would argue, and yes, you could probably anticipate a slightly increased headcount costs. But overarching, OpEx is something that we want to keep reasonably flat for the course of the year. And so just keep that in the back of your mind, which I think makes also the molding a little bit easier.

Thank you very much.

Next question from Steve Dyer, Craig-Hallum Capital Group. Please go ahead.

Good morning. Ryan on for Steve. Just one for us. Curious following AutoNation's investment in November. Have there been any changes in the operational partnership there?

Ryan, thanks for the question. We continue to pay close attention to AutoNation. They're one of our biggest partners. We have ongoing dialogues with them. And I think we'll continue to work to make sure that their investment emphasizes where we believe we sit in the leadership position on digital retailing, and we'll continue to work with them to advance those opportunities. They have many of the same needs, all dealers have an acquiring used vehicles. So we're working with them to stay coordinated on all of our initiatives for 2023, and that partnership will continue to grow.

Maybe just a follow-up. Are they one of the TrueCar+ customers?

They are not yet, and that is really about timing because you want to make sure you get the right people on. So if you think about AutoNation over time, -- there are really several pillars upon which we can have really interesting collaborations, which we're working on with them. And so they're not yet on the platform, and that is by design, frankly, because we're looking at forward-leaning dealers now that are much more in the trenches with the product development. As we mentioned before, we've now changed from the credit piece, we've changed on the accessory piece. So now is the time that we actually have a product that can be rolled out across dealers. So this is something that is now a much closer -- focus for much more of the near-term.

Great. Thanks guys. Good luck.

Thank you.

Thank you. This concludes our question-and-answer session. I like to turn the call back over to TrueCar President and CEO, Mike Darrow, for closing remarks.

Thanks, operator. I'd like to thank everybody for taking the time to participate in our call today. I also want to thank the entire team at TrueCar for all their hard work over the past year and as we work to execute our priorities for 2023. This is an exciting time for our company, look forward to sharing more about our progress with all of you on the next call. Thanks for joining.