TrueCar Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2024

There are 7 speakers on the call.

Operator

Good day, and welcome to the TrueCar Third Quarter 2024 Financial Results Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Jantoon Ragersman, President and Chief Executive Officer of TrueCar. Please go ahead.

Speaker 1

Thank you, operator. Hello, everyone, and welcome to the TrueCar's Q3 2024 earnings conference call. Joining me today is Oliver Foley, our Chief Financial Officer. I hope you've all had the opportunity to read our most recent stockholder letter, which was released yesterday after market closed and is available on our Investor Relations website at ir.trugar.com. Before we get started, I need to read our safe harbor.

Speaker 1

I want to remind you that we will be making forward looking statements on this call, including statements regarding our revenue growth and positive free cash flow as well as aspirational goals regarding 2026 revenue and free cash flow margin. Forward looking statements can be identified using 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 ks, our quarterly report on Form 10 Q and our other reports and filings with the Securities and Exchange Commission for a discussion of the risks 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.

Speaker 1

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 measure are set forth in the Investor Relations section of our website at ir. Trucar.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. Let us get into the fun part.

Speaker 1

As we continue to navigate the turnaround of TrueCar's legacy business, while simultaneously laying the foundation for what TrueCar aims to become, we acknowledge that the TrueCar story is nuanced and requires investors to evaluate and underwrite the distinct opportunities that exist for both our legacy and future businesses. Driving strong near term growth of the legacy business requires that we embrace and learn and lean into the unique competitive advantages that over nearly 2 decades have helped TrueCar forge its identity as a leading vehicle listings and lead gen provider. However, for us to effectively innovate and carve out our role in the future of automotive retail, we must be willing to evolve the identity we have long embraced. This year alone, we have launched a broad suite of digital marketing solutions for both dealers and OEMs. And this past quarter, we've become the 1st and only digital marketplace that enables consumers to buy a new certified pre owned or used vehicle entirely online.

Speaker 1

Furthermore, we have taken steps to begin monetizing our rich proprietary data sets, recognizing the potential to unlock powerful insights for our partners and enable an increased level of personalization across the consumer buying journey. While these initiatives represent a natural extension of our unique competitive strength, they also represent a departure from the traditional role of just a third party listing and lead gen provider. While our shareholder letter elaborates on TrueCar's unique advantages, which we are leveraging to drive near term growth and position TrueCar for a much larger role in the future of automotive retail, I will use this call to highlight our Q3 results, which we believe demonstrates strong traction against those near term and long term goals. Turning now to a summary of Q3 financial and operational highlights. Total revenue in Q3 was $46,500,000 representing a 13.1% increase from the same period last year and a 11.4% increase from the prior quarter.

Speaker 1

Our Q3 net loss decreased to $5,800,000 from $7,900,000 in Q3 2023, and we achieved adjusted EBITDA profitability of $200,000 Our core franchise dealer business continued to strengthen in Q3 with franchise dealer revenue growing 12.7% year over year and 5.5% quarter over quarter. Most importantly, despite the industry's 1.3% year over year decline in new vehicle retail sales in Q3, TrueCar grew new sales by 16 new car sales by 16.3% year over year, driven in part by the incremental marketing investments we've made over the last 6 months. This equates to nearly 7 new unit sales per franchise dealer, which is the highest level since Q3 2021. As we have previously articulated, a key building block for achieving our long term growth objective is to regain share of franchise dealers through activating new dealers and minimizing churn. And in order to achieve that, we will demonstrate TrueCar's ability to capture share of total new vehicle sales by delivering strong new unit growth in excess of the overall industry growth.

Speaker 1

Another sign of the strengthening of our core franchise dealer business is the adoption of TrueCar Marketing Solution, also called TCMS. And in Q3, this relatively new product offering contributed $1,000,000 of dealer revenue. Even more encouraging is the performance being achieved by this suite of marketing products. By leveraging our first party data to help dealers reach highly targeted audiences across a variety of channels, TrueCar is helping dealers achieve significant improvements in their marketing efficiency, while growing their overall sales volume. Given that growing revenue per sales is another core building block for achieving our 2026 revenue target, TCMS is allowing us to capture great share of wallet and drive real traction against this building block.

Speaker 1

In addition to the momentum of our franchise dealer business, our OEM business remains strong and positioned for near and long term growth. Despite being down 11.5% year over year, a decline attributed to 2 heavily marketed incentive programs during the same period last year, Q3 OEM revenue increased by 45% from the 2nd quarter, driven by strong performance of our long standing incentive program with Stellantis that was reactivating in June with a number of our affinity partners and is now experiencing a 3 year high in terms of performance. We continue to increase the number of affinity partners and OEMs on these programs including for example Detroit Trading, a growing affinity partner and INEOS, an OEM with which we recently launched an incentive offering available to military members and their families through TrueCar Military, Navy Federal Credit Union and PenFed Credit Union. Remember though that these programs are often predefined, customized and lumpy in nature with both partners and OEMs coming on and off the program at different points in time. For example, Amex is coming off the program in April after a very successful run-in order to focus on their core business, while we continue to enable and seek to expand similar offers to other of our prominent affinity programs including AAA, Navy Federal and others.

Speaker 1

Factors that impact the performance of incentive programs including include the incentive amounts being offered, the breadth of models eligible for incentives and the number or type of affinity partners started it through the program. Designing and executing these programs with our partners and OEMs is a successful proven model and remains one of our core competencies. And we are very excited about the continued growth prospects of the segment. Beyond OEM incentives, TrueCar signed up its first 2 OEM advertisers in Q3, marking the launch of a new advertising service to complement our incentive program capabilities and deepen our OEM partnerships. These deals were enabled by recent investments we've made to strengthen our MarTech stack through an integrated ad server capable of running dynamic targeted advertisements across a variety of on-site placements.

Speaker 1

Priced on a fee per impression basis, these placements offer OEMs an effective way to drive awareness and consideration among the millions of in market car shoppers and visit TrueCar each month and do it in a way that is effectively integrated into the superior shopping experience that TrueCar is known for. Furthermore, the launch of ad sales represents a high margin opportunity for TrueCar to incrementally monetize TrueCar's millions of unique visitors and opens us up to capture a share of the estimated $19,000,000,000 spent annually on digital marketing by OEMs. Now, TC Plus. The launch of the TC Plus pilot over the summer was an incredible milestone for the company. The excitement we felt at the launch was quickly eclipsed by the successful fulfillment of the 1st TC Plus used vehicle order followed soon by the fulfillment of the 1st new vehicle order.

Speaker 1

These orders were completed 100% online without any offline interaction between the dealer and consumer. The significance of this cannot be overstated as it represents a new way of buying and selling a vehicle that simply put has not been done before. With these orders successfully fulfilled, the pilot's primary objective has been achieved and each subsequent order has proven new learnings and insights that are driving the refinement of both the consumer and dealer experiences. In total, approximately 30 consumers have completed the entire process online, each culminating with the digital execution of a retail installment contract. And more importantly, those orders came from consumers across 13 different states, providing strong early evidence that TC Plus has the power to significantly expand a dealer's addressable market beyond its backyard.

Speaker 1

Many more consumers have become so called super leads. And while the total number of transactions might not seem significant at first, thus far TrueCar Plus has only been exposed to a subset of consumers within the specific flows on truecar.com that collectively account for a fraction of our audience and total monthly unit sales. In fact, over the past 30 days, TC Plus accounted for roughly half of the volume that the dealer pilot traditionally generates through these flows, suggested that when fully enabled TC Plus can account for significant share of dealers' total revenue or revenue or total volume. This deliberate and controlled approach to opening up to the consumer aperture and expanding the number of shoppers going through the TC Plus flow has allowed the team to closely measure and monitor each step of the process for insights and opportunities that have already helped us refine and improve the product and remove friction from both the consumer and dealer experience. Now in the next phase of the pilot, we are preparing to introduce TC Plus on certain affinity partner order buying sites, which will significantly expand access to the TC Plus flow and should allow TrueCar to observe key differences in consumer adoption across a diverse set of audiences.

Speaker 1

Beyond expanding consumer across GC Plus, our focus and objectives for the pilot in Q4 include integrating AI powered tools that will strengthen our ability to detect and mitigate the risk of consumer fraud and continue to enhance our integration with our dealers' back end systems for further streamline the TC Plus buying process on the dealer side. The aim for the end of the quarter is for the dealer to only have to conduct 4 actions: 1, update inventory and pricing 2, approve the completed deal 3, approve payment and 4, get the car ready for pickup. These 1st 90 days have been virtually rewarding through the validation and learnings they've offered us. As we look ahead, the team is incredibly excited and energized by the opportunity that TC Plus presents. Finally, we're extremely grateful for the partnership shown by the dealer group piloting our product and are looking forward to adding additional dealers throughout California and beyond over the next several months.

Speaker 1

Finally, and to summarize, we remain committed to the 3 year target that we set last year to grow revenue back to 300,000,000 with a 10% free cash flow margin by the end of 2026. Achieving that goal requires strong execution against the 4 key building blocks we have discussed and for us to continue pushing to build a better version of TrueCar that deserves to play a key role in the automotive retail ecosystem. To that end, in Q4, we aim to accelerate year over year revenue growth beyond this third quarter's growth and we seek to deliver positive free cash flow in the quarter. Now operator, let's open the call for questions from our analysts.

Operator

We will now begin the question and answer session. The first question comes from Marvin Fong of BTIG. Go ahead please.

Speaker 2

Great. Good morning, everyone. Thanks for taking my questions. Just to start with on the guidance about revenue guidance, could you give us a little more detail in terms of how you're thinking about the separate line items and how we should think about that for the Q4? So specifically, I think you're breaking now breaking out TCMS as well as wholesale and then OEM as well.

Speaker 2

Just how should we think about what that looks like in the Q4? And then I have a follow-up.

Speaker 1

Yes. I think I'll start hi, Marvin. This is Jim Ju and I'll start and then I'll have Oliver take on. I think what's most important to remember is our main focus is obviously driving effectively our dealer revenue and especially focus obviously on the franchise side. And so as the main building block, I think on the wholesale side, I think that has been really important for us to continue to enable TC Plus and oil the machine for obviously online trades to occur.

Speaker 1

But I don't think we'll grow the wholesale side significantly more from here on and we'll probably keep that running as is until we prove much more traction on the Tc plus side. And many of the other revenue lines we see go up to the right, but we're probably unwilling to give a lot of guidance at this point in time in terms of each one of them specifically. It's really about the building blocks with the revenue overall and then obviously penetrating the revenue per dealer as we go back and deeper into the franchise dealer network. Oliver, I don't know whether you want to add anything.

Speaker 3

Yes. No, I think the only other thing I would add is we wanted to provide this quarter a little bit of color around what drove the increase in dealer revenue and specifically call out TCMS, which has shown some really exciting traction for us. I don't expect us to be breaking out the different components of dealer revenue more granularly than that. But I will say, I'll just reiterate what Shantoon said is, wholesale is not considered a growth driver for us. It's more of an enablement component for the online transaction.

Speaker 3

TCMS on the other hand, we do believe can be a really strong growth driver of our dealer revenue line. So that in addition to our core franchise dealer revenue is sort of where we are really leaning into heavily to drive Q4 growth and beyond.

Speaker 2

Okay, understood. That's all fair. Thanks for that. And then my follow-up question just on TC Plus obviously exciting things going on there. So you've been in 13 states.

Speaker 4

I guess, can you give us

Speaker 2

an idea? I mean, do you have are you still working on aligning your systems with all fifty states or is that kind of completed and you feel like these are just happened to be the transactions that occurred? Just kind of maybe update us on where you feel TCM Plus stands in terms of being able to deal with all the paperwork on a national basis? And then just in terms of like how you're thinking about monetizing TC Plus I know that's something you've kind of alluded to, but maybe you can provide a little more detail now on how you think about what you might be able to realize in terms of monetization there? Thanks.

Speaker 1

Yes, absolutely. So, Maher, let me spend a little bit of time on this just to make sure that I'm really clear. On the monetization side, we won't provide a lot of details now. I mean, over time, obviously, TC Plus will be part of the overall subscription effectively to the dealership base. And it's one of the offerings that we want to make sure we enable for dealers in order for them to expand their radius, not only expand their radius, but also effectively sell cars when they sleep, right, sell cars and meet the consumer to where the consumer wants to acquire cars.

Speaker 1

Vis a vis where it stands in the pilot right now, I think that's just going to be super clear. So remember, we currently have 1 dealer group on the platform for TC Plus residing in California. So that's the group in California itself. So it's a limited amount of inventory that is in California where we are effectively geofencing any new buyers to California. But as a used buyer, you can already buy from the rest of the country with the exception of Hawaii, Alaska, State of New York, State of Massachusetts.

Speaker 1

And so what you've already seen is that 13 of these transactions were from out of state. So those are all used cars from out of state where people were willing to ship their cars, buy them steam from obviously and ship it to their own states. So that shows you clearly this notion of expanding the addressable market. The near term focus of this quarter really is on 2 sides. 1 is making sure we have the full fraud detection applied within the actual online flow And it's something we're doing in short order.

Speaker 1

And that's really on the consumer journey side. So as you guys know, there's a lot of fraud that happens within the car buying market. Obviously, online, that is a very big deal. And so we want to make sure we have all the latest technologies applied there that will allow us to shift through that very, very quickly and effectively limit any form of noise. And then on the dealer side, it's really important that the dealer doesn't have to do a lot of work vis a vis TC Plus so that there's no incremental work and really focus on those four actions that we described on the call earlier, which is around inventory and pricing update.

Speaker 1

It's around approving the final deal. And remember, the deal is still established based on the menu of the dealership. So the full profit margins effectively at the dealers are still included there. So second one was the approval of the deal. 3rd one is making sure the payment has happened or confirmation of payment.

Speaker 1

That is a step that in the future will also digitize. And then number 4 is get the car ready. So those are really big steps that we're making in this quarter. In the interim, we're going to add more dealers to the platform as well as expand the aperture on the top end. So, so far we've had a fraction of the audience actually see this when you go through a particular flow, which internally we call the marketplace flow.

Speaker 1

And we have not yet expanded it through our build flow in some of our other areas. And so we're doing that in parallel as well as add more inventory to the platform. So even though at face value, the number itself doesn't look very big, actually from if you look at it from the way we've been conducting experiments and the way we're developing the product right now, This is a huge, huge deal and it's a real improvement and we're actually now pushing the boundaries to opening up the different parts and also making sure that the product is in such a state. To your question on doing the paperwork, we're already being able to do the paperwork in all of those states that I mentioned before. So effectively, Continental U.

Speaker 1

S. Minus State of New York, State of Massachusetts. And so we've already been doing that. So the infrastructure works, the deliveries work, all that was already in place. So this is really about the customer journey and the ability to do that well and then obviously the tech enabling it for the dealer.

Speaker 1

So this is exciting, exciting stuff.

Speaker 2

Got it. That's super helpful. Thanks. Thanks both of you.

Operator

The next question comes from Ryan Myers of Lake Street. Go ahead please.

Speaker 4

Hey guys, thanks for taking my questions. First one for me, so it sounded like the wholesale business isn't necessarily a focus for the future of the business, but more so used here in impact on gross margins here over the next couple of quarters?

Speaker 3

Yes. I don't like we said, it's we don't expect wholesale as a percent of revenue to really grow in the near term beyond the level it hit in Q3. And again, the primary reason that it exists, it's less about activating dealers, but it's actually in order for TrueCar to enable the online transaction, we have to be able to do a few things on the wholesale front. We need to be able to digitally appraise a consumer's trade in. We need to be able to inspect it, transport it, handle the title and registration and then ultimately liquidate it.

Speaker 3

And so being able to really refine those capabilities in advance of scaling up TC Plus is what we've been focused on over the past couple of quarters with wholesale. But I don't expect it to grow sort of beyond the level that it was in Q3. And so given that it has this impact on gross margins, I don't expect gross margins to continue to go down. I think the level that we hit in Q3 is sort of where I would expect it to be in Q4.

Speaker 4

Okay. Got it. That's helpful. And then thinking about just dealer activations as a whole, it

Speaker 1

seems like that sort of

Speaker 4

year over year decline there is sort of starting to stabilize a little bit. It's basically flat with last year, kind of flat sequentially. So maybe what are you seeing here so far in Q4? And then how you guys are thinking about sort of the dealer activations in 2025?

Speaker 3

Yes. It's interesting. It's a very difficult metric for us to predict. And it's a little bit lumpy, right? And I would say that what we've seen is like really consistent steady growth in franchise dealer count.

Speaker 3

But then each quarter, whether or not we're up on total dealers, it really comes down to how many indies we lose. And so we are focused on really stabilizing the indie dealer count, making sure that we're supporting them with the right product and the right pricing. And so our hope is that we can really get that independent dealer count to stabilize. But where we are differentiated from other 3rd party listing sites is really on the way that we serve franchise dealers. And that's what we're really leaning into to drive our growth in Q4 and beyond.

Speaker 3

So that's where I would expect, I'd say, we're committed to continuing to grow steadily and hopefully see some sort of inflection in the growth of franchise dealer counts next year. And what gives us some hope that we'll see that kind of inflection is that number 1, we're driving more new unit sales per franchise dealer than we have since 2021. And that's a really important part of our strategy, which is let's capture share of the new vehicle market, let's drive more new units per franchise dealer and in doing that, we'll hopefully drive down churn. And then I do think that with new vehicle demand steadily increasing next year, hopefully in part catalyzed by better affordability either through new vehicle incentives coming from OEMs or lower interest rates. I think franchise dealers will no longer feel like they're treading water so much, but sort of get back into growth mode.

Speaker 3

And I think once that happens, we'll hopefully see this acceleration in our franchise dealer count next year.

Speaker 4

Got it. That makes sense. Thanks guys.

Operator

The next question comes from Rajat Gupta of JPMorgan. Go ahead please.

Speaker 5

Great. Thanks for taking the question. Clearly, good acceleration in revenue growth in Q3 and also expecting in Q4. How should we think about the EBITDA drop through from this acceleration revenue? You would have expected a better drop through here in the Q3.

Speaker 5

It looks like you're reiterating the free cash positive guide. So it looks like some of the incrementals likely get better in the Q4. But if you can help us think through like a framework on some of the drop through from these initiatives would be helpful. I have one quick follow-up. Thanks.

Speaker 2

Yes. I think

Speaker 1

I'll take a little more. So the I think the short answer to this is really simple is it's really important for us to continue to have positive adjusted EBITDA profitability and also in obviously in the near term to become positive on the free cash flow line. So and that's actually a personal thing. I think businesses should be free cash flow positive and cannot be negative free cash flow for too long purely for a reason of existence of the business model itself. So just to leave it out, profitability is important to us.

Speaker 1

However, we also and I think we've mentioned this in the past, we also know that our business is very has a it can have a lot of positive impact if we deploy more on the marketing side. We have obviously been very constrained, side. We have obviously been very constrained on the marketing side in the last couple of years. And we know that we can deploy more and we know that it has a good positive impact on the business overall. And so we're probably going to straddle somewhat the balance over the next couple of quarters where we're going to deploy more on the marketing side, even if that means having slightly lower EBITDA margins.

Speaker 1

Obviously still positive, but obviously be willing to push the boundary of the business a little bit more, especially because the marketing deployments we're doing now have a broader halo effect, not just to drive units in the near term, but also really the ability to start repositioning TrueCar overall as a platform where people can also buy cars online. And so straddling that somewhat is important. We also understand that for the market there has to be some more clarity, which is the reason why we gave the 2026 guidance of the 10% free cash flow margin because that really was for us was important to indicate like, yes, it's a really important metric that we have our eyes on. But if you think over the next couple of quarters, adjusted EBITDA profitability is key, but most importantly, it's also just continue driving the business and effectively provide oxygen back into the business.

Speaker 5

Got it. Got it. That's helpful color. And then just as a follow-up on the AIMO and data monetization initiatives. Can you maybe give us a sense of the ramp curve here?

Speaker 5

How quickly could we expect to see contribution from these initiatives? Any guardrails you could provide around revenue in the near term that would be helpful? Thanks.

Speaker 1

Yes. I think this is more a matter of like over the course of the next year, we can start seeing the contributions. This is not a matter of the next quarters. But if you think of, for example, this being a building block within the planned course, right, the €300,000,000 in 2026, then this is obviously then this is one of the building blocks that we feel we have real opportunity. Now what's a little bit tricky is obviously there are different forms of monetization and some are more obvious than others.

Speaker 1

One of them, right, is for example is the OEM ad sales as one example. And it's also not just purely the monetization that becomes important here, but also utilization of these tools to create a much more personalized buying experience for the consumers or our ability, frankly, to identify the consumer and the type of consumer much earlier on in the journey, which then not only allows us to personalize the buying the shopping journey effectively, number 1, but also number 2, allow them to be much more targeted in approach. And this could be targeted from an OEM ad sales perspective, but it could also be targeted from becoming much more dynamic in the way you present incentives, for example, for the OEMs and things like that. And so I think the answer is if you start looking over the course of the next 4 quarters, then I think you'll start seeing real impact in growth there. But if you think over the next couple of quarters, it will be very positive.

Speaker 5

Understood. Thank you.

Operator

The next question comes from Chris Pierce of Needham. Go ahead please.

Speaker 4

Hey, good morning guys. In the prepared remarks, did you say that did I hear you correctly that Amex is cycling out as an affinity partner?

Speaker 1

Yes. So indeed, so Amex will come off in April. So they've had a hugely successful run. And they decided to really focus more on their core business, which is around travel, dining, entertainment, those segments, which is obviously for us it's always frustrating when partners come up. But remember these are programs that are always predefined and we know are always with a finite amount of time effectively.

Speaker 1

So I see people cycle on and off. Yes, so they'll come off in April. And the good news is that we're recently having dialogues with the right parties to actually take up some of that volume and being able to put that in different programs. So the answer is yes, unfortunate because it's a great partner, but we also fully understand given their focus.

Speaker 4

And is there a way to quantify just roughly how many extended affinity units they tend to drive on a quarterly basis or on a yearly basis as a percentage of overall extended affinity units?

Speaker 1

Repeat the question.

Speaker 4

How should we think about what percentage of extended affinity units MX typically drives?

Speaker 3

Yes. So we provided a little bit of color in the queue, Chris, that you can find. But yes, over the last 12 months, it's been roughly about 5% of the partner units have got it and

Speaker 4

then it's related to Amex. Got it. So that's pretty fragmented in terms of there's not a lot of concentration within affinity partners or at least if there is Amex is not overly concentrated. Okay, got it.

Speaker 1

Yes. Yes. And also remember, it's a specific program, right? So we're like if you think about it, there's a and then this is what I tried to articulate in the pre remarks, which is these are programs that are relatively customized. But once they kind of click, we can deploy them on different affinity networks with different OEMs.

Speaker 1

So what's really important is the OEMs to be willing to provide incentives and then obviously we can deploy them across different affinity networks. And so that's really the key of it. So if one then goes away, it's not the end of the world for us because we can actually then effectively move that audience to other affinity partners. And so it's obviously an important partner for us, but the yes, they come and go. So for us to be able to shift it is something we can do in short order.

Speaker 4

Okay. And then just lastly, do you have any dealers that are taking only TCMS? Or like has that been a generator for you guys to get their lead gen product back into dealers that have maybe turned off during COVID? Or like how should we think about or is TCMS attracting different dealers? Like what's the kind of the go to market for both of those products?

Speaker 1

Yes. So this is the answer is no on the first and yes on the latter. And so this is really the idea of the approach of not just being a lead generator, but really becoming a much more of a full service provider and really helping the dealer sell more cars. And that can be done in different forms. And one of the things we realized very quickly is that obviously dealers come in many different shapes and sizes.

Speaker 1

And so there's no one glove that fits for all of them in terms of the issues they are facing and how we could potentially help them. So providing a suite of products that we can utilize is really important. But yes, in order for them to become get on TCMS, they have to be on the core side as well. And that has been a good driver for us because it actually enabled much more strategic and senior conversations with a lot of these dealer groups.

Speaker 4

Okay, perfect. Thank you.

Operator

The next question comes from Naved Khan of B. Riley Securities. Go ahead please.

Speaker 6

Hi, this is Ryan on for Naved. Thanks for taking my questions. So first, I was wondering what you're prioritizing and doing differently to drive higher converting traffic? And then secondly, related to TrueCar channel units, what's causing the slowdown in growth? And then also like how we plan to see unit growth in the future?

Speaker 6

Thanks.

Speaker 1

So I'll take the first and Oliver you can take the second, which is so the traffic side really is about 2 things, right? So if you really simplify it overarching because obviously there are many things at play, but if you go back to the 30,000 foot level, it's about where do you take and grab audience from, right? And because it's very easy to pull in audience and start showing numbers or saying like, oh, I have X amount of millions of uniques every month. Showing and growing uniques is not hard to do in this world. However, what is really important is to get good quality traffic already at the top of funnel and then start making product improvements that you can really convert them mid and lower funnel.

Speaker 1

And so we've done 2 things. 1 is we've started really becoming much more sophisticated in the type of traffic we attract top of funnel and become more yes, really think about in market shoppers and more intent driven, etcetera. And this is tricky because you live in an evolving world where, for example, like Google VLA is an important piece, etcetera. And so you need to start adapting to how people are how you capture audience effectively as they also utilize different tools to find their cars and what is the right way of doing that for us. So that's number 1.

Speaker 1

So it's really top of funnel. And then the continuous product improvements we're trying to make on the mid and lower funnel side vis a vis conversion for people to understand where they are, to understand and shift through quickly who is intent driven or not, etcetera. And then lastly, obviously also to then become really good at making sure that we provide leads to the dealers that they know are actionable and people that are very serious and very high intent driven so that the dealers also don't waste time calling people or chasing people that actually have no real intent. So working through that whole flow has been something that we do continuously. And I think these are the small signs of improvements that you'll start seeing of a lot of the product initiatives that we've been working on in the last many, many months as well as obviously the greater sophistication that we have on the top app.

Speaker 3

And Ryan, I'll just add that we get really excited when we see strong growth strong unit growth from our affinity partners. And the reason is because that's unique to TrueCar, right? Those are audiences that are closed membership audiences that we're bringing to our dealers that they really don't get access to through other listings or lead gen providers. And so we're excited to see that growth. And then the only other thing I'd say is that there's actually a pretty strong correlation between marketing dollars that we spend on call it truecar.com and the unit growth that we see on partner, meaning if we're investing in sort of near top of funnel, more awareness driven campaigns on the branded media side.

Speaker 3

We often see that that correlates with a strong lift in partner units because people see the TrueCar advertising, they go to their member benefit site where they get access to exclusive discounts or incentives. And that's where they convert. And that's where the volume growth comes from. So it's not like we're spending money on marketing to truecar.com and we're not seeing the unit growth. There is in fact correlation such that that unit growth is accruing to the partner channel.

Speaker 4

Got it. Thanks.

Operator

Our next question comes from Tom White of D. A. Davidson. Go ahead please.

Speaker 4

Hey, this is Wyatt on for Tom. Thanks for taking our questions. I'm sorry if I missed this, but with your expectation to drive accelerated top line growth in 4Q, could you maybe give some color as to your expectations for growth entering 2025?

Speaker 1

Well, so the 2 marks we've laid out is, so accelerated growth for Q4 from obviously where we are today and then obviously the targets of 2026. As you've seen in the last couple of quarters and going forward, like you like obviously in an ideal world, it would be perfectly linear and steady up to the right. But our business matter is perfectly linear. So it's hard to like perfectly predict what our growth obviously is in the subsequent quarters. But we feel we can accelerate this business.

Speaker 1

I think we've deployed and laid the groundwork for those building blocks that we've been articulating. And so over time, accelerated growth will be a theme that I think should come back in order for us to hit our 2026 target that we've laid out.

Speaker 4

Okay. Got it. That makes sense. And then given the election this week, we'd be curious to hear your views on how you think a Trump administration and the current balance of power in Congress might impact the automotive retail sector relative to some of the policies of the last administration. Is there anything that we should be keeping an eye on there?

Speaker 1

I mean, we are head downs in our business. We work like tirelessly to help our dealer network and for them to sell more cars and for consumers to have a really kick ass experience, both walking into a dealership as well as online. And so it's hard to predict what any changing administration has as an impact on the industry overall. What we do know is that obviously for the automotive at the moment, like one of the constraints there is, is the affordability notion. And so right, affordability adjustments will be beneficial, but overarching, I think it's really hard for us to comment nor is it our place.

Speaker 4

Got it. That's fair. All right. Thank you.

Operator

This concludes the question and answer session. I would like to turn the call back over to Jantoon for closing remarks.

Speaker 1

Thank you. I would like to thank everybody for taking the time to participate in our call today. With gratitude, thank you. And I think it's important to note that our dealers need us. We have strong OEM and TCMS programs in place.

Speaker 1

We're sitting on a trove of under monetized data and we have proven to be able to ship successful new products including being the 1st and only marketplace to buy new CPO and used cars online. So we're excited about the future. We've regained our momentum and we're moving steadily and consistently up to the right. So we'll close with the words that I love to say to infinity and beyond.

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Earnings Conference Call
TrueCar Q3 2024
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