TrueCar, Inc. (TRUE) Q3 2022 Earnings Call Transcript

TrueCar, Inc. (TRUE)

Q3 2022 Earnings Conference Call

November 8, 2022 09:00 ET

Company Participants

Zaineb Bokhari - Vice President of Investor Relations

Mike Darrow - President & Chief Executive Officer

Jantoon Reigersman - Chief Financial Officer & Chief Operating Officer

Conference Call Participants

Rajat Gupta - JPMorgan

Marvin Fong - BTIG

Chris Pierce - Needham

Vincent Sengelmann - Truist Securities

Presentation

Operator

Hello and welcome to the TrueCar Third Quarter 2022 Financial Results Conference Call. Please note, this event is being recorded.

I would now like to turn the conference over to Zaineb Bokhari, Vice President, Investor Relations. Please go ahead.

Zaineb Bokhari

Thank you, operator. Hello and welcome to TrueCar's third 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 third 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?

Mike Darrow

Thanks, Zaineb. Good morning, everyone and thanks for joining us. We issued our Q3 stockholder letter yesterday and highlighted some of the great progress we've made with TrueCar+ as we prepare to expand coverage outside of Florida.

During Q3, we continued to sign and curate dealers for TrueCar+ and grow the available inventory of new, used and certified preowned vehicles to nearly 10,000 units while driving materially more traffic to the TrueCar+ marketplace. Approximately 27% of our Florida-based visitors were exposed to TrueCar+ during the third quarter and more than 7,000 of them went on to the deal engagement stage. We knew we had 2 fundamental questions to answer when we launch a TrueCar+ pilot. Number one, would consumers want to use it? And two, would retailers want to participate in it? We believe the results indicate the answer to both of these questions is emphatically yes. Consumers want to use TrueCar+ and dealers want to participate in it. We will be expanding TrueCar+ into 5 additional Southeastern states in the coming weeks.

Now, I'd like to take a moment to comment on some of the macro industry dynamics we are seeing and how we think about our business in this context. At this point in the Q3 earnings cycle, you've already heard from a number of the key players across the automotive industry. Used car sales rates in certain segments are slowing and this is exerting downward pressure on used vehicle prices. Overall, consumer demand is slowing in the face of high interest rates, significant inflation and the fear of a recession. The combination of these factors may put pressure on the record profits retailers have been posting over the past several quarters.

New car inventories are starting to build for several brands and reached approximately 1.5 million at the end of October. In our view, the supply-driven market we've been experiencing is beginning to shift to a more balanced supply-demand ratio. We believe that as inventory grows on the new side and becomes more affordable on the used side, retailers will again need to roll up their sleeves and compete for customers.

TrueCar is well prepared to support retailers as the automotive industry slowly shifts from a supply-constrained environment to a more balanced demand-driven one. It's challenging to predict the exact timing of this market transition and there will be some lags before the full impact of such improvements are seen across our business. We are seeing signs of stabilization emerge in our core business as new vehicle inventories have risen across our dealer network. And while it has fluctuated over the past several quarters, our net dealer count in October was positive when compared to the end of Q3.

Over the past several quarters, we've remained laser-focused on delivering the automotive industry's first transactable digital marketplace with TrueCar+. We have also enhanced our core offering -- TrueCar offerings with consumer-facing tools and an expanded used car product portfolio with capabilities like Sell Your Car and Distance Retailing that have helped us balance our mix of new and used units. In addition, at a time where affordability is a concern for consumers and loyalty to brand is low. We offer industry-leading tools and programs to help OEM partners effectively target incentives, promote their core brands and launch their EV platforms. Our balance sheet remains strong and we have maintained -- we have managed our business prudently through a supply-constrained market.

Based on our current plans for 2023, we expect to have well in excess of $125 million in cash by the time we return to breakeven or positive adjusted EBITDA which we expect to be no later than the fourth quarter of 2023. I'm very encouraged by our progress during Q3 and in the weeks that have followed. I want 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 it at a time of rapid change as we embrace what we expect will be an increasingly digital future for automotive retail.

Before we open up the call for live questions, we're going to address some questions around key topics.

Zaineb, what's the first question?

Zaineb Bokhari

The first question is for Jantoon. Jantoon, can you provide a framework for thinking about our planned return to neutral or positive adjusted EBITDA by the end of 2023?

Jantoon Reigersman

Absolutely. Thanks, Zaineb. As Mike mentioned, we're seeing signs of stabilization emerge in our core business as new vehicle supply slowly started to rebuild across our dealer network. Our dealer counts are also starting to show stability based on the recent trends for October as an example. We expect some lag before improving industry trends are fully reflected across our business and there will be likely some choppiness in the months ahead. We expect more balanced return to the market as 2023 progresses and expect our core business to benefit as this happens as well.

Our balance sheet is strong. And over the last 18 months, we have launched and expanded our product portfolio, creating opportunities for ourselves including, on the used car side, Sell Your Car, Distance Retailing that Mike mentioned before. These offerings are important building blocks for TrueCar+ and we expect our contributions to grow in '23. We also intend to start monetizing TrueCar+ in early '23 and its potential contribution will likely start small and build as we expand inventory and market coverage.

On the expense side, we will continue to maintain tight control of run rate expense while investing to broaden coverage for TrueCar+ and other offerings that we have introduced. We have expanded our engineering staff over the past year, including through the acquisition of Digital Motors and are comfortable with the level of investment we have made across product and tax to date. The speed with which we have been able to bring out new offerings supports this view in our opinion....

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