Operator: Good day and welcome to the TrueCar Fourth Quarter 2023 Results Financial Call. Please note this event is being recorded. I would now like to turn the conference over to Jantoon Reigersman, President and Chief Executive Officer of TrueCar. Please go ahead.

Jantoon Reigersman: Thank you, operator. Hello, everyone and welcome to TrueCar’s fourth quarter 2023 earnings conference call. Joining me today is Oliver Foley, our new Chief Financial Officer. I hope you have all had the opportunity to read our 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 need to read our Safe Harbor. I want to remind you that we will be making forward-looking 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 report and filings with 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’ll provide a brief summary of the quarter. We continue to deliver as promised. In Q4, we achieved 13% year-over-year revenue growth and achieved adjusted EBITDA profitability of $2.1 million, a $12.1 million improvement year-over-year. Meanwhile, we saw encouraging signs of a potential bottoming in our total active dealer count, which was flat quarter-over-quarter with 11,500 active dealers at the end of Q4 versus 11,503 at the end of Q3, driven by the net addition of 135 franchise dealers offset by the net loss of 138 independent dealers in Q4. This is consistent with our viewpoint that while independent dealers continue to be challenged by today’s high interest rate environment, franchise dealers in particular are increasingly in need for TrueCar services to help them cope with growing new car inventories.

Further highlighting this trend, new vehicle sales compromised 59% of the total units sold on TrueCar in Q4, which is up from 50% of total units sold in Q4 2022 and up from 56% of total units sold in Q3 2023. We believe TrueCar’s leverage towards franchise dealers combined with our unique ability to offer targeted OEM incentives to our 250-plus affinity partner audiences positions us to capitalize on the growing focus on new vehicle sales. Coinciding with our presence at the National Automobile Dealers Association, also called NADA, we launched a new suite of dealer products called TrueCar Marketing Solutions, also known as TCMS. The development and launch of TCMS was informed by and in response to feedback shared by many of our dealer partners related to their most common challenges around one, identifying and reaching targeted audiences of in-market consumers; two, standing out from the sea of competing dealers in a consumer environment lacking the brand loyalty of the past and three; cost effective ways to showcase and promote inventory not being surfaced by the more common search algorithms.

A close up view of a person's hands typing on a computer keyboard, emphasizing internet-based information technology services.

The result is a new offering that is not only highly complimentary and accretive to the core listings lead gen business for which dealers have come to know us, but also represents a new cost effective alternative to the traditional digital marketing channels that presently capture a significant share of dealers’ digital marketing budgets. Therefore, we’re confident that the rollout and adoption of our TCMS products will serve as a key building block for our near term growth objectives by helping us attract and retain key dealer partners while growing revenue per dealer. Let us also briefly turn to TrueCar+. To be clear, the launch of TCMS is in no way a deviation in strategy and our singular focus remains on our pursuit of what we believe to be the holy grail of automotive retail, the ability to buy a new certified pre-owned or used car with or without a trade in from the comfort of your couch through an entirely digital online transaction.

For consumers, that means an experience build upon the trust and transparency we’ve always offered where they can; number one, shop millions of listings nationwide to find the right deal for them. Two, select between a range of aftermarket products offered by the dealer; three, receive offers and secure financing from a range of competitive lenders, regardless of their credit score; four, receive a firm offer on the trade in that is directly incorporated into the value of the deal; five, build out a fully transparent deal that includes all taxes, fees, and rebates; six, digitally execute a retail instalment contract, and seven, schedule pickup or delivery of their vehicle all from the comfort of their couch. For dealers who want to offer, one, an expansion of their addressable market and the ability to compete for consumers nationwide; two, superior attachment rates across the dealer’s customizable F&I menu; three, a significant improvement in sales volume and efficiency by delivering a completed transaction ready for fulfilment; and four, access to a risk-free trade-in.

We believe this is what a true online buying experience looks like. We are hopeful that TrueCar will enable the first true online purchase of a new car within the first half of this year and we’re partnering with several key external stakeholders to make this happen. This is not trivial work, and even though we have a clear product development roadmap, we know the significant level of effort and coordination this takes, including some out of our control. Once completed, the current TC+ product, effectively still a super lead, will be replaced with a complete online transaction and at that point, only cars that are fully transactable online will be classified as TC+. TC+ to date has been a vital learning platform for us to get to the product development and experiences we have today.

Lastly, our outlook for this quarter and beyond; as a reminder, our goal is to return the business to $300 million in revenue with 10% free cash flow margin by the end of 2026, implying a compound annual growth rate of 24% from 2023 to 2026. We believe we can achieve this goal by focusing on the following four building blocks. Number one, activate new dealers. Number two, limit dealer churn. Number three, grow average revenue per dealer through our expanded product offering. And four, continue to grow our OEM partnerships. Progress against each of these building blocks will take time, but should have a compound effect over the course of the year. We aim for 10% year-over-year revenue growth in Q1 and around breakeven adjusted EBITDA. As a reminder, our first quarter of the year adjusted EBITDA flow through is typically seasonally lower due to payroll related and NADA expenses.

Looking beyond Q1, we anticipate an acceleration of our revenue and EBITDA growth and are confident that we can achieve positive free cash flow in the second half of the year. Now operator, let’s open the call for questions from our analysts.

Operator: [Operator instructions] And today’s first question comes from Naved Khan with B Riley Securities.

UnidentifiedAnalyst: Hi, this is Ryan on behalf of Naved. Thank you for taking my question. Two if I may. First, incentive revenue has grown pretty materially. How do you expect the growth trend to look in 2024? And then second, in the shareholder letter you alluded to the opportunity to incorporate TrueCar marketing solutions in subscription packages. Can you talk about the timeline for that? Thank you.

Jantoon Reigersman: Absolutely, so I think we so this is Jantoon, in terms of the revenue growth, as we outlined, we are obviously very focused to return to the $300 million revenue target set by the end of 2026. So that’s a compound annual growth rate of roughly 24%. So remember in Q3 we had single digit growth. Q4 now we’ve had double digit growth. Obviously growth is up to the right, never is perfectly linear and we are confident that we’re building up the building blocks required to get to this effectively compound growth rate that we’re seeking over the course of the next three years. So I think we know what we need to do and we have the building blocks, but also remember we’re just coming out of the trough of the first time that we were actually growing again in Q3 and we’ll be accelerating and building that up over the course of this year.

Vis-à-vis TCMS, so we have launched this at NADA, which was a couple of weeks ago and some of these products are currently being launched, others are being finalized, but I would argue that the real impact should be seen over the course of Q2 and going forward, although there will be some marginal ability for dealers to already effectively sign up in Q1 and some revenue will flow in Q1, but you’ll see or you should be seeing an increase in revenue per dealer over the course of this year as these products will roll out more widely.

Oliver Foley: Ryan, this is Oliver. I’ll just chime in on that second question. If you look at the description that we provided on each of the TCMS products, you’ll see that some of them are I think very programmatic and they’re really good candidates to be incorporated into our existing subscription bundles. Others are more bespoke where we’re effectively running targeted campaigns on the dealer’s behalf, right, and really trying to capture some of their digital marketing spend that would go to more traditional channels. And so our hope is that by the very beginning of Q2, our subscription tiers will reflect some of these more programmatic TCMS products, the ones that really are designed to provide incremental on-site awareness for dealers, branding opportunities, and additional — being an additional traffic driver for them.

Operator: And the next question comes from Tom White with DA Davidson.

UnidentifiedAnalyst: Hey, this is Wyatt on for Tom. Thanks for taking our questions. Could you talk a little bit about what your outlook assumptions are around TrueCar+ for 2024? Is there an explicit monetization benefit from TrueCar+ this year and if not, when do you think it could impact TrueCar’s revenues in a more meaningful way? Thank you.

Jantoon Reigersman: Yeah, good question and I think it’s a similar question that was asked in the past and I’ll repeat what we said then too. I think for 2024, the focus really is around the four building blocks that we mentioned. So it’s getting dealers back on to the platform, limit churn, increase revenue per dealer by expanding the product offering, and really focus on the OEM opportunity. We’re not assuming a significant contribution of TrueCar+ throughout 2024. Obviously, that is a high focus for us from a product development perspective, but we’re also well aware that as we roll that out, there are always going to be some learnings that you’ll do as you commercialize that more fully and as you expand that and put more dealers on that program. So for this year, assume that there’s no real or limited financial contributions and that should kick in obviously in 2025 and beyond.

Oliver Foley: I’ll just chime in quickly and say that in my view, the number one way that TrueCar+ will be monetized in 2024 is by helping us attract new dealers and retain existing dealers. The reason I say that is because I do believe that once we do transact that first entirely digital online new car purchase, we have a very differentiated marketplace that provides a very unique value proposition to dealers and we sort of outline some of those key value props for the dealer, whether it’s expanding their addressable market, it’s improving their ability to drive F&I sales. And so once we do prove that we can execute that, hopefully in the first half of this year, I do think we have a marketplace that’s truly differentiated from all the others out there, and that’ll help us sort of regain our share of dealers and hopefully retain our existing dealers.

UnidentifiedAnalyst: And then just one follow-up; could you update us on your capital allocation priorities for 2024?

Oliver Foley: I’ll jump in quickly there. I think we’ve long said that once we get to free cash flow break-even, we will be sort of actively engaged in the capital allocation strategy. Right now, we still maintain over $135 million on our balance sheet and we’re very keen to sort of come up with a deliberate strategy for the second half of this year, given that we do expect to be free cash flow positive in the second half of this year. So, as we’ve said before, everything is on the table, whether it be strategic acquisitions, it be share repurchases, it be supercharging the growth of TC+ with a more robust marketing budget. All those things are on the table for the second half of this year.

Operator: And the next question comes from Chris Pierce with Needham.

Chris Pierce: Hey, good morning. On revenues specifically, can you talk about OEM incentive revenues? Is there any seasonality there? Or is there a pipeline that you can speak to there? I just want to get a sense of how to think about that, because there’s revenue lying into 2024.

Jantoon Reigersman: Yeah, Chris, so, I don’t think there’s any seasonality per se. It’s much more — these are effectively more to more project-based, and as a result, are a little bit more lumpy in nature and so, it’s less about consistent revenues, it’s more to do with project like, different programs that we’re effectively running with the different OEMs. We have multitude of conversations at any point in time. There are different forms of programs we’re often suggesting, and depending a little bit on the priorities of the OEM, some programs are more relevant at different points in time than others. And so, it’s a little bit hard to predict very well the future components of, okay, how is that revenue line growing exactly quarter-to-quarter, and it’s always a little bit fluctuating.

But overarching, we see a huge opportunity in the OEM side in general and so, we do feel that there’s a large, like, if you look at it on a yearly basis, for example, that there’s a large opportunity for us to obviously grow that revenue line and obviously, we as part of the longer-term trajectory that we’ve outlined, we obviously feel that we should get back to historical OEM numbers and beyond as we start looking in the outer years. But the short version is, yeah, we have active dialogues. We have different programs that are very interesting to pursue for the OEMs, but it’s hard to perfectly predict that or outline that forecast.

Oliver Foley: And, Chris, I’ll just add that I think that the seasonality in the OEM business is really just tied to new vehicle sales, right? So, because it is still very much a pay-for-performance type model, meaning these are rebates, they’re based on the volume of new car purchases and so, generally speaking, in Q4, you see seasonally higher volume because that’s generally when you see a ton of new car sales. Q1, it always seems to come down slightly and so, I would say that’s really sort of the seasonality behind the OEM side of the business. It’s really just tied to new vehicle sales.

Chris Pierce: Okay, perfect. And then on expenses, talking about building out TrueCar+ and the learnings from it, is this a good run rate for tech and development expenses or does there need to be further investment there? I just want to know the right way to think about that going forward because it’s come down pretty dramatically the past couple quarters.

Oliver Foley: Yeah, so I’d say when you look at Q4, one thing to call out is that there were just over $1 million of sort of accrual reversals. So, we had sort of a one-time benefit in Q4 around certain headcount accruals that were reversed in the quarter. So, I would say the tech and dev expense in Q4 is slightly below what the run rate should be. I think something closer, maybe slightly above $7 million is sort of the run rate that I would expect, whereas we came in, I believe, at $6.4 million in Q4. So, that definitely does reflect sort of that non-recurring benefit that we had in Q4.

Operator: And the next question comes from Marvin Fong with BTIG.

Marvin Fong: Hi, good morning. Thanks for taking my questions. So, first question, apologies, I popped on a little late if this is already asked, but you just kind of speak to your expectations for the independent dealer channel? There was an uptick in the churn in the fourth quarter, and I understand that. I think the fourth quarter typically is seasonally a little bit higher, but do you expect independent dealer churn to continue throughout 2024, or how do you view that? And then on TC+, I know its super early days, but what sort of is the thought process behind your plans to roll that out? Do you plan to just keep that on the marketplace, or could it simultaneously roll out as a white-label solution for dealer websites or even OEM? Maybe you could expand a little bit more on your thinking there. Thanks.

Jantoon Reigersman: Absolutely. Hey, Marvin. So, on the independence, yeah, think of the independence, obviously, as almost — there are obviously many, many groups within that, but think about it as if you oversimplify it, you have smaller independents that obviously are going through a rough time with financing, high financing costs, and therefore, right, limited affordability for consumers and so, for them, it’s hard to acquire inventory as well as sell inventory and so, a lot of them are either going out of business, they’re being acquired and rolled up into effectively roll-ups, etcetera. So, there’s a lot of moving and shifting on the smaller independence space. We’re obviously very focused still on the larger independents, and we see good traction there, but they obviously run a very different business.

So, yes, we see a continued decline of smaller independents throughout the year, but obviously, a good traction with larger independents and good traction with franchises. So, I think that’s the answer. Any questions on that specifically before I go over on TC+?

Marvin Fong: No, that was a great answer. I got it.

Jantoon Reigersman: On TC+, yeah, I think there are two different parts to your question. One is how do you think about the rollout? Number one is I think TC+, we’re not going to have every single dealer partner on TC+ in the future. It’s really about making sure we have the right dealers on and then obviously really focused on supply demand. And so, there’s going to be a pre-qualification that’s going to happen around the dealers that can be on because obviously we want to make sure that that experience is a really good experience for both consumer and dealer, and that we’re really making sure we’re very thoughtful about consumers being able to find the right inventory and where the right inventory is available. And so, at the end of the day, it’s really about scaling that by identifying the right dealers and then making sure that they’re on and then doing it also in a very consistent manner.

So, it’s also not something that you’re going to flip a switch and have thousands of dealers on. You’re really thinking about tens of larger dealers on initially, having the right amount of inventory, and then start pushing from there. Vis-à-vis your question on white labelling, those are things that are absolutely very interesting opportunities for us. In particular, if you start thinking about our affinity network as an example. So, if you think about the online transaction space and you think about the entry point that every consumer has, then there are very interesting opportunities for us to already capture people at the earlier stage and think of, hey, you’re a lender and you have a very committed consumer who wants to lend with you and through you, but wants to find their car and already be effectively pre-qualified on your own side.

Then all those things should be possible and you should be able to navigate them then through almost like a different type of TrueCar+ experience, where they see very specific inventory for their lending as an example. So, the answer is yes, there’s a lot of opportunity to that. We obviously are in the near term very focused on getting the marketplace and the transaction enabled the way we’ve always envisioned it. And we finally broke the back of that candle in order to actually make that happen vis-à-vis paperwork, but opportunities like white labelling are big opportunities for us going forward.

Operator: And this concludes the question-and-answer session. I would like to turn the floor back over to TrueCar-‘s President and CEO, Jantoon Reigersman for closing remarks.

Jantoon Reigersman: Awesome. So, I would 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 continued dedication and perseverance. We have a huge opportunity ahead of us and the team is doing tremendous work. So, I’m really proud of them and want to thank them for all the contribution they’re making.

Operator: Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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