Q3 2024 Earnings Summary
- TrueCar is experiencing strong growth in unit sales from affinity partners, which is unique to TrueCar, providing a competitive advantage over other listings or lead generation providers.
- Management anticipates accelerated revenue growth in Q4 and is committed to achieving the 2026 target of $300 million in revenue with a 10% free cash flow margin, demonstrating confidence in their growth strategies.
- The company's TC+ platform is making significant progress, enabling consumers to buy vehicles entirely online across most states, thereby expanding dealers' addressable market and enhancing the consumer experience, positioning the company for future growth.
- American Express, a significant affinity partner contributing approximately 5% of partner units over the last 12 months, is ending its partnership with TrueCar in April. This could negatively impact revenue from affinity programs, and replacing this volume may be challenging.
- Dealer activations are flat or declining, particularly among independent dealers, and the company admits difficulty in predicting growth in dealer activations. This stagnation could hinder revenue growth from dealer-related services.
- Monetization from AI/ML and data initiatives is not expected in the next few quarters, with significant revenue impact anticipated over the next year, indicating limited near-term revenue growth from these initiatives. The uncertain timeline and impact of these initiatives could delay revenue contribution, affecting growth expectations.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue Growth | Q4 2024 | “double-digit year-over-year revenue growth” | “accelerate year-over-year revenue growth in Q4 2024 beyond the growth achieved in Q3 2024” | raised |
Free Cash Flow | Q4 2024 | “free cash flow breakeven by the end of Q4 2024” | “positive free cash flow in the near term and maintain positive adjusted EBITDA profitability” | raised |
Dealer Revenue | Q4 2024 | no prior guidance | “expected to be a strong growth driver through TrueCar Marketing Solutions (TCMS)” | no prior guidance |
Wholesale Business | Q4 2024 | no prior guidance | “will remain stable at the level achieved in Q3 2024” | no prior guidance |
Revenue Target | FY 2026 | “grow revenue to $300 million by 2026” | “grow revenue back to $300 million by the end of FY 2026” | no change |
Free Cash Flow Margin | FY 2026 | “10% free cash flow margin by the end of 2026” | “10% free cash flow margin by the end of FY 2026” | no change |
-
Revenue Guidance and Breakdown
Q: How should we think about revenue guidance and line items in Q4?
A: Management is focusing on driving dealer revenue, especially from franchise dealers. Wholesale revenue is important to enable TC+ but won't grow significantly more. Other revenue lines are increasing, but they are unwilling to provide specific guidance on each. The emphasis is on building overall revenue and increasing revenue per dealer. -
Dealer Activations and Growth
Q: What are you seeing in dealer activations, and how do you view 2025?
A: Dealer activations are stabilizing, with consistent growth in franchise dealer count. The total dealer count is affected by independent dealer churn, which they aim to stabilize. They're committed to growing franchise dealer count steadily and hope to see acceleration next year as new vehicle demand increases and dealers shift back into growth mode. -
TC+ Expansion and Monetization
Q: Can you update us on TC+ national rollout and monetization plans?
A: TC+ is currently in pilot with one dealer group in California, with plans to add more dealers and expand inventory. They're enhancing fraud detection and streamlining the dealer experience. While not providing specific monetization details now, over time TC+ will be part of the overall dealer subscription, helping dealers expand their market and sell cars where consumers want to buy them. -
EBITDA and Free Cash Flow Outlook
Q: How should we think about EBITDA drop-through from revenue acceleration?
A: Adjusted EBITDA profitability is important, but they're willing to invest more in marketing, even if it means slightly lower EBITDA margins, to drive growth. They are committed to being free cash flow positive in the near term and have guided to a 10% free cash flow margin by 2026. -
AI/ML and Data Monetization
Q: When will AI/ML and data monetization initiatives contribute to revenue?
A: Over the next four quarters, they expect to see contributions from these initiatives, which are part of the plan towards $300 million in 2026. Monetization will come from areas like OEM ad sales and enhancing the personalized buying experience for consumers. -
AmEx Partnership Ending
Q: Is AmEx cycling out as an affinity partner, and what’s the impact?
A: Yes, AmEx will end their partnership in April. While it's unfortunate, AmEx accounts for roughly 5% of partner units, so the impact is limited. They can shift that volume to other affinity partners and are in discussions with new partners to take up that volume. -
Wholesale Business Impact on Margins
Q: How should we think about the impact of wholesale business on gross margins?
A: Wholesale revenue won't grow beyond Q3 levels and serves to enable online transactions. They don't expect gross margins to decline further, anticipating that the level hit in Q3 will be maintained in Q4. -
Traffic Conversion and Unit Growth
Q: What are you doing differently to drive higher converting traffic?
A: They're focusing on attracting high-quality, intent-driven traffic at the top of the funnel and making product improvements to improve conversion mid- and lower-funnel. Enhancements ensure leads are high-intent, benefiting dealers. Strong unit growth from affinity partners, unique to TrueCar, correlates with their marketing efforts. -
Growth Expectations for 2025
Q: Can you provide color on growth expectations entering 2025?
A: While business growth isn't always linear, they believe they can accelerate growth. With groundwork laid, they expect accelerated growth to be a theme as they work towards their 2026 targets.