Q1 2024 Earnings Summary
- TrueCar is launching TrueCar+ (TC+), a platform that allows consumers to buy new, certified pre-owned, or used cars entirely online, with plans to begin scaling TC+ more broadly in Q4 2024. This innovation could unlock new monetization opportunities and expand their market reach. ,
- The company is experiencing strong revenue growth, with Q1 revenue increasing by 11% year-over-year and projecting Q2 revenue growth of 13% year-over-year. They expect revenue growth to accelerate to the high teens in the second half of the year, demonstrating operating leverage and aiming for positive free cash flow in Q4. , ,
- Over 350 dealers have adopted TrueCar Marketing Solutions (TCMS) products, which are expected to increase average revenue per dealer (RPD) and improve dealer retention. The company anticipates sequential gains in RPD each quarter, contributing to higher revenue growth. ,
- Decline in Franchise Dealer Count and Dealer Churn: TrueCar reported a sequential decline in their franchise dealer count. Management acknowledged that they have "not been serving good enough in some areas of the country," leading to higher dealer churn. They emphasized the need to improve dealer support and service to retain and regain dealers. ,
- Dependence on Increased Marketing Spend with Limited Profitability: Despite projecting 13% year-over-year revenue growth in Q2, TrueCar plans to increase marketing spend, resulting in a breakeven adjusted EBITDA target. This indicates that profitability may be constrained, relying on higher marketing expenses to drive revenue growth. , ,
- Uncertainty in OEM Incentive Revenue and New Product Adoption: Management stated that OEM incentive revenue is hard to predict due to its "bulky" and "finite" programs, leading to fluctuations. Additionally, the adoption rates and financial impact of new products like TrueCar+ and TrueCar Marketing Solutions (TCMS) are uncertain, with management unable to provide specific guidance on revenue contribution or increases in average revenue per dealer. , , ,
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Revenue Growth Outlook
Q: Will revenue growth accelerate in the second half of the year?
A: Management anticipates an acceleration in revenue growth, projecting 13% growth in Q2 with incremental marketing spend, aiming for high teens growth in the back half of the year. They expect increased marketing spend will drive more incremental units to dealer partners and continue growth in RPD through their expanded product offerings.
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Increased Marketing Spend
Q: How will increased marketing spend affect EBITDA and margins?
A: They plan to increase marketing spend to 34%-36% of revenue, up from 31% in Q1, aiming to reach closer to 35%. Management believes this will lead to strong operating leverage and flow-through to EBITDA, leveraging the efficiency in deploying marketing dollars as inventory returns to normal levels. ,
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Franchise Dealer Count and Churn
Q: Why did franchise dealer count decline, and how will it trend going forward?
A: The slight decline in franchise dealer count was due to some dealers feeling they were not being sufficiently served, particularly in areas where the company hadn't provided enough leads. Management acknowledges this and is focusing on improving dealer service to recapture market share lost over the past couple of years. They believe they are through the worst and expect to improve retention by enhancing their service and support. ,
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TrueCar Marketing Solutions Adoption
Q: What are expectations for TCMS adoption and its impact on financials?
A: Over 350 dealers have adopted one or more TCMS products. Management expects adoption to grow, aiming for a majority of dealers to leverage these products over the course of the year. They believe TCMS will enhance dealer ROI by providing additional visibility and stronger lead quality, monetized through higher RPD. ,
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OEM Incentive Revenue Outlook
Q: How do you view the growth prospects for OEM incentive revenue?
A: Management is bullish on OEM incentive revenue in the long term, believing it will surpass pre-pandemic levels. However, they note that OEM revenue is volatile, coming from finite, bulky programs that are hard to predict in the near term. They are confident in the strong pipeline but acknowledge fluctuations due to program timing and OEM support levels.
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TrueCar+ Development and Partnerships
Q: Can you provide more color on TrueCar+ partnerships and expansion plans?
A: TrueCar+ is a separate business line currently in pilot phase, working with a specific progressive dealer group. They are focusing on new car sales in California initially to refine the technical deployment. Scaling is expected to happen with midsize to larger dealer groups (e.g., 25 to 50 stores) towards the end of the year and into next year. All stakeholders, including OEMs and dealers, are engaged and excited, although some reluctance exists in the industry.
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Website Conversions and Marketing Efficiency
Q: How have website conversions been trending, and what about marketing efficiency?
A: Website conversions have been improving and continue to do so. As the market normalizes, they are utilizing more tools to drive end-to-end funnel efficiencies. Management notes that marketing strategies that worked 2–3 years ago are not as effective now, and they are becoming more sophisticated in their marketing approaches, focusing more on direct channels. ,
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Independent Dealer Channel Trends
Q: What are the trends in the independent dealer channel?
A: Management sees signs of the independent dealer channel bottoming and the world stabilizing. However, due to volatility and factors like bankruptcies and consolidation, it's harder to predict month-to-month fluctuations. The overarching trend is positive, but variability remains.