TrueCar, Inc. (NASDAQ:TRUE) Q3 2020 Earnings Conference Call November 5, 2020 4:30 PM ET Company Participants Danny Vivier - Vice President of Investor Relations Mike Darrow - President and Chief Executive Officer Noel Watson - Chief Financial Officer Conference Call Participants Lee Krowl - B. Riley Securities Rajat Gupta - JPMorgan Marvin Fong - BTIG Nick Jones - Citigroup Operator Greetings, and welcome to TrueCar's Third Quarter 2020 Earnings Conference Call. [Operator Instructions]. I will now turn th ...

PART I - FINANCIAL INFORMATION [Item 1. Condensed Consolidated Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) This section presents the unaudited condensed consolidated financial statements of TrueCar, Inc, including balance sheets, statements of comprehensive income, stockholders' equity, and cash flows [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The company's total assets and stockholders' equity slightly decreased from December 2019 to September 2020, alongside a reduction in total liabilities | Metric | Sep 30, 2020 (in thousands) | Dec 31, 2019 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Total Assets | $397,549 | $421,687 | $(24,138) | -5.72% | | Total Liabilities | $75,646 | $94,416 | $(18,770) | -19.88% | | Total Stockholders' Equity | $321,903 | $327,271 | $(5,368) | -1.64% | | Current Assets | $259,803 | $239,741 | $20,062 | 8.37% | | Current Liabilities | $39,832 | $54,170 | $(14,338) | -26.47% | | Current assets of discontinued operations | $27,280 | $6,777 | $20,503 | 302.53% | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) TrueCar reported net income for Q3 2020, a significant improvement from a net loss in the prior-year period, driven by reduced operating expenses despite lower revenues | Metric (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenues | $77,247 | $85,785 | $214,718 | $250,162 | | Total Costs & Expenses| $67,512 | $94,987 | $226,467 | $301,140 | | Income (Loss) from Operations | $9,735 | $(9,202) | $(11,749) | $(50,978) | | Net Income (Loss) | $11,589 | $(7,652) | $(10,322) | $(46,077) | | Net Income (Loss) per Share, Basic (Continuing Operations) | $0.09 | $(0.08) | $(0.11) | $(0.46) | [Condensed Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity slightly decreased due to net losses and common stock repurchases, partially offset by stock-based compensation | Metric (in thousands) | Dec 31, 2019 | Sep 30, 2020 | | :-------------------- | :----------- | :----------- | | Total Stockholders' Equity | $327,271 | $321,903 | | Net Loss (9 months) | N/A | $(10,669) | | Stock-based Compensation (9 months) | N/A | $6,559 | | Repurchase of Common Stock (3 months) | N/A | $(11,677) | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The company generated significantly more cash from operations in the first nine months of 2020 compared to 2019, while financing activities shifted to a use of cash | Metric (in thousands) | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Net Cash Provided by Operating Activities | $23,694 | $7,251 | | Net Cash Used in Investing Activities | $(9,158) | $(31,324) | | Net Cash (Used in) Provided by Financing Activities | $(17,371) | $408 | | Net Decrease in Cash and Cash Equivalents | $(2,835) | $(23,665) | | Cash and Cash Equivalents at End of Period | $178,699 | $172,463 | [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section details the company's accounting policies, the divestiture of ALG, fair value measurements, goodwill impairment, and other key financial disclosures [Note 1. Organization and Nature of Business](index=12&type=section&id=Note%201.%20Organization%20and%20Nature%20of%20Business) TrueCar operates a digital automotive marketplace connecting consumers with dealers and OEMs, and is divesting its ALG subsidiary to focus on core operations - TrueCar is a digital automotive marketplace offering pricing transparency, connecting consumers with Certified Dealers, and enabling OEMs to target incentives[25](index=25&type=chunk) - ALG, a subsidiary providing residual value forecasts and automotive purchase data, is being sold to J.D. Power, with the transaction expected to close by the end of 2020[26](index=26&type=chunk) - TrueCar's Retail Solutions, offered through TCDS, combine TrueCar Trade (trade-in vehicle valuation) and Payments (monthly payment calculation via DealerScience technology)[27](index=27&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=12&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines key accounting policies, the impact of the COVID-19 pandemic, and the adoption of new guidance for credit losses and income taxes - The unaudited condensed consolidated financial statements are prepared in conformity with GAAP and SEC regulations, with ALG's historical results reported as discontinued operations due to its planned divestiture[28](index=28&type=chunk) - The **COVID-19 pandemic** has negatively impacted TrueCar's operations and customer base, leading to decreased demand for cars and potential delays in receivable payments[32](index=32&type=chunk) - Effective January 1, 2020, TrueCar adopted new accounting guidance for measuring credit losses based on expected losses, considering historical, current, and forecast information[35](index=35&type=chunk)[37](index=37&type=chunk) | Metric (in thousands) | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2020 | | :-------------------- | :-------------------------- | :-------------------------- | | Allowances, at beginning of period | $10,304 | $6,591 | | Charged as a reduction of revenue | $1,581 | $6,939 | | (Reduction of) charged to bad debt expense | $(680) | $2,805 | | Write-offs, net of recoveries | $(2,752) | $(7,882) | | Allowances, at end of period | $8,453 | $8,453 | - TrueCar early adopted new FASB guidance on income taxes (ASU No. 2019-12) effective January 1, 2020, eliminating the exception for intraperiod tax allocation[41](index=41&type=chunk) [Note 3. Discontinued Operations](index=17&type=section&id=Note%203.%20Discontinued%20Operations) TrueCar agreed to sell its ALG subsidiary to J.D. Power for **$112.5 million** in cash, with potential earnouts, shifting focus to its core marketplace business - TrueCar agreed to sell its ALG subsidiary to J.D. Power for **$112.5 million cash** at closing, with potential earnouts of up to **$22.5 million** based on ALG's revenue metrics in 2020 and 2022[45](index=45&type=chunk) | Metric (in thousands) | Sep 30, 2020 | Dec 31, 2019 | | :----------------------------------- | :----------- | :----------- | | Total Assets of Discontinued Operations | $27,280 | $30,895 | | Total Liabilities of Discontinued Operations | $754 | $755 | | Metric (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenues | $5,221 | $4,770 | $13,961 | $14,050 | | Total Costs & Operating Expenses | $3,199 | $3,555 | $12,409 | $11,008 | | Income from Discontinued Operations, net of taxes | $2,000 | $1,157 | $1,853 | $2,555 | [Note 4. Fair Value Measurements](index=18&type=section&id=Note%204.%20Fair%20Value%20Measurements) The company measures financial assets and liabilities at fair value, with cash equivalents classified as Level 1 and contingent consideration as Level 3 - Fair value is defined as the exchange price in an orderly transaction between market participants, categorized into Level 1 (quoted prices), Level 2 (observable inputs), and Level 3 (unobservable inputs)[49](index=49&type=chunk)[50](index=50&type=chunk) | Metric (in thousands) | Sep 30, 2020 (Level 1) | Dec 31, 2019 (Level 1) | | :-------------------- | :--------------------- | :--------------------- | | Cash Equivalents | $167,658 | $174,429 | | Metric (in thousands) | Sep 30, 2020 (Level 3) | Dec 31, 2019 (Level 3) | | :-------------------------------- | :--------------------- | :--------------------- | | Contingent Consideration, current | $2,428 | $2,441 | | Contingent Consideration, non-current | $0 | $2,336 | | Total Liabilities | $2,428 | $4,777 | - Contingent consideration liabilities are measured using a discounted cash flow valuation technique, with unobservable inputs including the probability of achievement and discount rate[55](index=55&type=chunk) [Note 5. Goodwill](index=19&type=section&id=Note%205.%20Goodwill) TrueCar recognized an **$8.3 million** non-cash goodwill impairment charge in Q1 2020, triggered by market volatility, COVID-19, and the USAA partnership termination | Metric (in thousands) | Goodwill | | :-------------------- | :------- | | Balance at Dec 31, 2019 | $59,469 | | Impairment | $(8,264) | | Balance at Sep 30, 2020 | $51,205 | - A goodwill impairment test was performed as of March 31, 2020, due to stock price volatility, declining market capitalization, COVID-19 economic disruption, and the USAA partnership extension agreement[56](index=56&type=chunk)[57](index=57&type=chunk) - The impairment test resulted in a non-cash impairment charge of **$10.2 million** (including discontinued operations) during the three months ended March 31, 2020[57](index=57&type=chunk) [Note 6. Property and Equipment, net](index=20&type=section&id=Note%206.%20Property%20and%20Equipment,%20net) Net property and equipment decreased to **$23.8 million** at September 30, 2020, primarily due to accumulated depreciation | Metric (in thousands) | Sep 30, 2020 | Dec 31, 2019 | | :------------------------------------------ | :----------- | :----------- | | Computer equipment, software, and internally developed software | $64,411 | $55,844 | | Furniture and fixtures | $4,719 | $4,927 | | Leasehold improvements | $16,059 | $15,839 | | Less: Accumulated depreciation | $(61,400) | $(48,829) | | Total property and equipment, net | $23,789 | $27,781 | - Total depreciation and amortization expense for property and equipment was **$13.5 million** for the nine months ended September 30, 2020[58](index=58&type=chunk) [Note 7. Credit Facility](index=20&type=section&id=Note%207.%20Credit%20Facility) The company maintains a **$35.0 million** revolving credit facility, with **$31.9 million** available and no outstanding amounts as of September 30, 2020 - TrueCar has a **$35.0 million** revolving credit facility, with a **$10.0 million** subfacility for letters of credit, expiring on February 18, 2021[59](index=59&type=chunk) - The credit facility's interest rate is based on the prime rate or LIBOR, plus a spread determined by the company's adjusted quick ratio[60](index=60&type=chunk)[61](index=61&type=chunk) - As of September 30, 2020, TrueCar had no outstanding amounts under the credit facility and **$31.9 million** available, after accounting for **$3.1 million** in outstanding letters of credit[64](index=64&type=chunk)[66](index=66&type=chunk) [Note 8. Commitments and Contingencies](index=22&type=section&id=Note%208.%20Commitments%20and%20Contingencies) The company committed to a restructuring plan incurring **$8.3 million** in costs and is involved in various legal proceedings, most of which are resolved or not expected to result in a loss - TrueCar initiated a restructuring plan in May 2020, incurring approximately **$8.3 million** in costs during the nine months ended September 30, 2020, to enhance productivity and efficiency[67](index=67&type=chunk)[69](index=69&type=chunk) - The Milbeck Federal Securities Litigation was resolved in May 2020, with the **$28.25 million** settlement fully covered by insurance[71](index=71&type=chunk) - The California Derivative Litigation and Delaware Consolidated Derivative Litigation were resolved in October and September 2020, respectively, with **no anticipated loss** for TrueCar[72](index=72&type=chunk)[73](index=73&type=chunk)[74](index=74&type=chunk) - The Lee Derivative Litigation and Trademark Litigation are ongoing, but TrueCar does not believe a loss is probable or reasonably estimable as of September 30, 2020[75](index=75&type=chunk)[77](index=77&type=chunk) [Note 9. Stock-based Awards](index=26&type=section&id=Note%209.%20Stock-based%20Awards) Stock-based compensation expense decreased for the nine months ended September 30, 2020, with significant remaining expense to be recognized over the next few years | Metric | Sep 30, 2020 | Dec 31, 2019 | | :-------------------------------- | :----------- | :----------- | | Stock Options Outstanding | 10,906,883 | 10,625,980 | | Weighted-Average Exercise Price | $9.56 | $11.22 | | Non-vested Restricted Stock Units | 8,079,873 | 5,890,992 | | Metric (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Stock-based Compensation Expense | $5,607 | $6,805 | $17,632 | $30,260 | | Amount Capitalized to Internal Software Use | $293 | $394 | $992 | $1,304 | - Remaining stock-based compensation expense for unvested stock options was **$8.8 million** and for non-vested restricted stock units was **$33.4 million** as of September 30, 2020[80](index=80&type=chunk)[81](index=81&type=chunk) [Note 10. Income Taxes](index=27&type=section&id=Note%2010.%20Income%20Taxes) The company's income tax provision reflects goodwill amortization and impairment, while a 2019 ownership change limited the use of net operating loss carryforwards - TrueCar early adopted ASU No. 2019-12 on January 1, 2020, eliminating the intraperiod tax allocation exception, which resulted in **no tax benefit** recorded in continuing operations for Q3 2020[85](index=85&type=chunk) | Metric (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Provision for (benefit from) income taxes | $38 | $(263) | $(132) | $(1,080) | - An ownership change as of December 31, 2019, is estimated to cause up to **$86.8 million** of federal and **$2.5 million** of state net operating loss carryforwards to expire unused[88](index=88&type=chunk) - The CARES Act and California legislation suspending NOL deductions for 2020-2022 did not materially impact TrueCar's results for the three and nine months ended September 30, 2020[89](index=89&type=chunk) [Note 11. Net Income (Loss) Per Share](index=28&type=section&id=Note%2011.%20Net%20Income%20(Loss)%20Per%20Share) TrueCar reported net income per share of **$0.09** from continuing operations for Q3 2020 and authorized a **$75 million** share repurchase program | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Income (Loss) | $11,589 | $(7,652) | $(10,322) | $(46,077) | | Net Income (Loss) per share, basic (Continuing operations) | $0.09 | $(0.08) | $(0.11) | $(0.46) | | Weighted-average common shares outstanding, diluted | 110,011 | 106,239 | 107,418 | 105,510 | - As of September 30, 2020, **13.9 million anti-dilutive shares** were excluded from diluted EPS calculation[91](index=91&type=chunk) - In July 2020, the board authorized a **$75 million** open market stock repurchase program; for Q3 2020, **2.4 million shares** were repurchased for **$11.7 million**[92](index=92&type=chunk) [Note 12. Related Party Transactions](index=29&type=section&id=Note%2012.%20Related%20Party%20Transactions) The company's partnership with USAA, a significant affinity partner, ended on September 30, 2020, while an equity method investment in Accu-Trade continues - TrueCar's partnership with USAA Federal Savings Bank (USAA FSB) for its Car Buying Service ended on September 30, 2020, for which USAA FSB paid a **$20 million** transition services fee[93](index=93&type=chunk) | Metric (in thousands) | Sep 30, 2020 | Dec 31, 2019 | | :-------------------- | :----------- | :----------- | | Accounts Receivable from USAA | $10,013 | $209 | | Revenue from USAA (3 months) | $3,500 | N/A | | Revenue from USAA (9 months) | $9,100 | N/A | | Sales and Marketing Expense (9 months) | $2,000 | $17,501 | - TrueCar holds a **20% equity method investment** in Accu-Trade, with ongoing software and data licensing agreements[95](index=95&type=chunk) [Note 13. Revenue Information](index=30&type=section&id=Note%2013.%20Revenue%20Information) The company disaggregates revenue into dealer, OEM incentives, and other categories, with dealer revenue decreasing and OEM incentives revenue increasing in Q3 2020 | Revenue Category (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Dealer revenue | $68,229 | $81,270 | $192,076 | $237,061 | | OEM incentives revenue | $5,815 | $4,383 | $14,109 | $12,727 | | Other revenue | $3,203 | $132 | $8,533 | $374 | | Total revenues | $77,247 | $85,785 | $214,718 | $250,162 | - Contract asset balance for estimated variable consideration was **$2.8 million** at both September 30, 2020, and December 31, 2019[98](index=98&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes TrueCar's financial performance, highlighting the impact of COVID-19, key business metrics, non-GAAP measures, and results of operations [Overview](index=31&type=section&id=Overview) TrueCar operates a digital automotive marketplace, focusing on enhancing the online car buying experience while divesting its ALG subsidiary - TrueCar is a leading automotive digital marketplace aiming to personalize and streamline the car buying experience by bringing more of the process online[101](index=101&type=chunk) - The platform provides market-based pricing data and connects users with TrueCar Certified Dealers, also enabling OEMs to target incentives[101](index=101&type=chunk) - TrueCar's Retail Solutions, including Trade and Payments, are key offerings, while the ALG subsidiary is being sold to J.D. Power[101](index=101&type=chunk) | Metric (in millions) | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2020 | | :------------------- | :-------------------------- | :-------------------------- | | Revenues | $77.2 | $214.7 | | Net Income (Loss) from Continuing Operations | $9.6 | $(12.2) | [COVID-19 Pandemic](index=32&type=section&id=COVID-19%20Pandemic) The COVID-19 pandemic significantly disrupted business, leading to reduced revenues and operational uncertainties, prompting a shift to digital retail solutions - The COVID-19 pandemic has caused significant disruptions, including quarantines and business closures, negatively impacting TrueCar's operations, revenues, and cash flows[103](index=103&type=chunk)[105](index=105&type=chunk) - TrueCar implemented **'Buy from Home'** badging for dealers offering remote services and is accelerating investment in digital automotive retailing[104](index=104&type=chunk) - Uncertainties include the pandemic's duration, government actions, economic conditions, and vehicle inventory shortages, which could further impact future results[105](index=105&type=chunk) [Key Metrics](index=33&type=section&id=Key%20Metrics) Key metrics show increased user traffic but decreased unit sales and dealer counts in Q3 2020, primarily due to COVID-19 and the USAA partnership termination | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Average Monthly Unique Visitors | 9,505,721 | 7,695,650 | 8,512,563 | 7,341,470 | | Units | 213,869 | 267,821 | 599,939 | 750,458 | | Monetization | $346 | $320 | $344 | $333 | | Franchise Dealer Count | 10,745 | 12,711 | 10,745 | 12,711 | | Independent Dealer Count | 3,858 | 4,242 | 3,858 | 4,242 | - Average Monthly Unique Visitors **increased by 23.5%** (QoQ) and **16.0%** (YoY) due to improved search engine optimization and a surge in online browsing during COVID-19[109](index=109&type=chunk) - Units **decreased by 20.1%** (QoQ and YoY) due to the COVID-19 pandemic and the wind-down of the USAA partnership[110](index=110&type=chunk)[111](index=111&type=chunk) - Monetization **increased by 8.1%** (QoQ) and **3.3%** (YoY) driven by growth in OEM incentives revenue and pricing optimization[112](index=112&type=chunk) - Franchise and Independent Dealer Counts decreased due to the COVID-19 pandemic and the USAA partnership termination[114](index=114&type=chunk)[115](index=115&type=chunk) [Non-GAAP Financial Measures](index=35&type=section&id=Non-GAAP%20Financial%20Measures) The company uses Adjusted EBITDA and Non-GAAP net income to assess operating performance, excluding items like stock-based compensation and certain one-time costs - Adjusted EBITDA and Non-GAAP net income (loss) are non-GAAP measures used by management to assess operational performance and make strategic decisions[117](index=117&type=chunk) - Adjusted EBITDA excludes interest income, depreciation and amortization, stock-based compensation, and certain litigation, restructuring, and transaction costs[117](index=117&type=chunk) | Metric (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Income (Loss) from Continuing Operations | $9,589 | $(8,809) | $(12,175) | $(48,632) | | Adjusted EBITDA | $20,489 | $3,056 | $36,026 | $6,458 | | Non-GAAP Net Income (Loss) | $15,347 | $(1,038) | $21,289 | $(6,082) | [Components of Operating Results](index=40&type=section&id=Components%20of%20Operating%20Results) Revenues primarily consist of dealer and OEM incentives, while operating expenses include cost of revenue, sales and marketing, and technology and development - Revenues are primarily derived from dealer revenue and OEM incentives revenue, with some revenue recognized based on expected vehicle sales[126](index=126&type=chunk) - Cost of revenue includes data costs, licensing fees, website operating expenses, and employee costs for dealer operations[127](index=127&type=chunk) - Sales and marketing expenses cover advertising, affinity group partner marketing fees, and employee-related costs[127](index=127&type=chunk) - TrueCar has a **full valuation allowance** against its net deferred tax assets, leading to an income tax expense significantly lower than the federal statutory rate[128](index=128&type=chunk) [Results of Operations](index=41&type=section&id=Results%20of%20Operations) The company's Q3 2020 results show improved operating income and net income compared to Q3 2019, driven by substantial reductions in operating expenses | Metric (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 19 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenues | $77,247 | $85,785 | $214,718 | $250,162 | | Total Costs & Operating Expenses | $67,512 | $94,987 | $226,467 | $301,140 | | Income (Loss) from Operations | $9,735 | $(9,202) | $(11,749) | $(50,978) | | Net Income (Loss) | $11,589 | $(7,652) | $(10,322) | $(46,077) | [Comparison of the Three and Nine Months Ended September 30, 2020 and 2019](index=42&type=section&id=Comparison%20of%20the%20Three%20and%20Nine%20Months%20Ended%20September%2030,%202020%20and%202019) Revenues decreased in Q3 and the first nine months of 2020 due to lower dealer revenue, but significant cost reductions led to improved operating results | Revenue Category (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Dealer revenue | $68,229 | $81,270 | $192,076 | $237,061 | | OEM incentives revenue | $5,815 | $4,383 | $14,109 | $12,727 | | Other revenue | $3,203 | $132 | $8,533 | $374 | | Total revenues | $77,247 | $85,785 | $214,718 | $250,162 | - Total revenues **decreased by $8.5 million (10.0%)** for Q3 2020 and **$35.4 million (14.2%)** for the nine months ended September 30, 2020, primarily due to a decline in dealer revenue[133](index=133&type=chunk)[134](index=134&type=chunk) | Expense Category (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Cost of Revenue | $4,664 | $6,982 | $16,403 | $21,558 | | Sales and Marketing | $36,254 | $57,430 | $115,366 | $171,122 | | Technology and Development | $10,162 | $12,782 | $34,861 | $43,899 | | General and Administrative | $11,315 | $12,842 | $36,252 | $48,938 | | Depreciation and Amortization | $5,117 | $4,951 | $15,321 | $15,623 | | Goodwill Impairment | $0 | $0 | $8,264 | $0 | - Operating expenses decreased across all categories, with sales and marketing seeing the largest reduction (**36.9% QoQ**, **32.6% YoY**) due to lower revenue share and media spend[138](index=138&type=chunk)[139](index=139&type=chunk) - A non-cash goodwill impairment charge of **$8.3 million** was recognized for the nine months ended September 30, 2020[147](index=147&type=chunk) - Income from discontinued operations, net of taxes, increased by **$0.9 million** for Q3 2020 but decreased by **$0.7 million** for the nine-month period[149](index=149&type=chunk)[150](index=150&type=chunk) [Liquidity and Capital Resources](index=46&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is supported by **$178.7 million** in cash and equivalents and a **$35.0 million** revolving credit facility - As of September 30, 2020, TrueCar's primary liquidity source was **$178.7 million** in cash and cash equivalents[152](index=152&type=chunk)[153](index=153&type=chunk) - TrueCar has a **$35.0 million** revolving credit facility, with **$31.9 million** available as of September 30, 2020[154](index=154&type=chunk) | Cash Flow Activity (in thousands) | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $23,694 | $7,251 | | Net cash used in investing activities | $(9,158) | $(31,324) | | Net cash (used in) provided by financing activities | $(17,371) | $408 | | Net decrease in cash and cash equivalents | $(2,835) | $(23,665) | - Cash provided by operating activities for the nine months ended September 30, 2020, was **$16.1 million** (continuing operations), driven by non-cash adjustments to net loss[156](index=156&type=chunk) - Cash used in financing activities for the nine months ended September 30, 2020, was **$17.4 million**, primarily due to **$12.1 million** in common stock repurchases[159](index=159&type=chunk) [Critical Accounting Policies and Estimates](index=48&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Financial statements rely on key estimates, particularly for revenue recognition, goodwill, and stock-based compensation, with a **$10.2 million** goodwill impairment charge in Q1 2020 - The preparation of financial statements requires significant estimates and assumptions, including those related to revenue recognition, allowances, goodwill, and capitalized software development costs[163](index=163&type=chunk) - A non-cash goodwill impairment charge of **$10.2 million** was recognized in Q1 2020, triggered by stock price decline, COVID-19 disruption, and the USAA partnership termination[164](index=164&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=48&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company assesses its exposure to market risks and believes it has no material exposure requiring disclosure - TrueCar does not believe it has any material market risk exposure, including interest rate, inflation, or foreign currency exchange risk, that would require disclosure[166](index=166&type=chunk) - Cash and cash equivalents of **$178.7 million** at September 30, 2020, are primarily in bank deposits and short-term money market funds, carrying some interest rate risk[167](index=167&type=chunk) - Historically, TrueCar's operations are primarily in the United States, limiting foreign currency risk, though future international expansion could increase this exposure[170](index=170&type=chunk) [Item 4. Controls and Procedures](index=49&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2020 - As of September 30, 2020, TrueCar's disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level by management[171](index=171&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2020[172](index=172&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=50&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to the detailed disclosure of legal proceedings under Note 8, 'Commitments and Contingencies,' in the financial statements - Legal proceedings are detailed in Note 8, 'Commitments and Contingencies,' of the condensed consolidated financial statements[174](index=174&type=chunk) [Item 1A. Risk Factors](index=50&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant risks that could adversely affect the company, including the COVID-19 pandemic, the USAA partnership termination, and market competition [Risks Related to the Coronavirus Pandemic](index=50&type=section&id=Risks%20Related%20to%20the%20Coronavirus%20Pandemic) The COVID-19 pandemic has severely disrupted business, causing reduced unit sales, dealer network contraction, and marketing challenges - The COVID-19 pandemic has materially and negatively affected TrueCar's business, leading to a drastic reduction in car purchases, with **units declining ~22% YoY** in Q2 and Q3 2020[176](index=176&type=chunk) - TrueCar supported subscription dealers with discounts and experienced dealer suspensions/cancellations, impacting revenue and timely collection of accounts receivable[176](index=176&type=chunk) - The pandemic creates uncertainty for long-term marketing campaigns and forecasting, leading to the **withdrawal of 2020 financial guidance**[177](index=177&type=chunk)[180](index=180&type=chunk) - Remote work due to COVID-19 increases cybersecurity risks, and the potential illness of management team members could adversely affect the business[180](index=180&type=chunk)[181](index=181&type=chunk) [Risks Related to Our Business and Industry](index=57&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) The company faces significant risks from the USAA partnership termination, challenges in growing dealer revenue, intense competition, and complex regulations - The termination of the USAA partnership, which accounted for **29% of units in 2019**, has materially adversely affected TrueCar's business, revenue, and operating results[184](index=184&type=chunk)[186](index=186&type=chunk) - Failure to complete the ALG divestiture or realize the full **$22.5 million** in contingent consideration could negatively impact TrueCar's stock price and divert resources[188](index=188&type=chunk)[189](index=189&type=chunk)[190](index=190&type=chunk) - TrueCar's growth relies on maintaining and increasing dealer revenues, which is challenged by dealer churn and managing subscription rates[191](index=191&type=chunk)[193](index=193&type=chunk)[194](index=194&type=chunk)[195](index=195&type=chunk) - The company faces intense competition from various online automotive sites, manufacturers, and offline classifieds[214](index=214&type=chunk)[215](index=215&type=chunk)[216](index=216&type=chunk) - TrueCar is subject to a complex framework of federal and state laws concerning vehicle sales, advertising, brokering, and privacy[217](index=217&type=chunk)[218](index=218&type=chunk)[224](index=224&type=chunk) - Reliance on Internet search engines for traffic means that changes in search algorithms could reduce traffic and adversely affect the business[209](index=209&type=chunk)[210](index=210&type=chunk) [Risks Related to Ownership of Our Common Stock](index=83&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Stock) TrueCar's common stock price has been volatile, and factors like substantial sales by existing stockholders and anti-takeover provisions could depress the price - The trading price of TrueCar's common stock has been volatile, fluctuating between **$1.98 and $6.47** in the nine months ended September 30, 2020[259](index=259&type=chunk)[260](index=260&type=chunk) - Sales of substantial amounts of common stock by existing stockholders, who collectively owned **~59%** as of Sep 30, 2020, could depress the market price[262](index=262&type=chunk)[263](index=263&type=chunk)[265](index=265&type=chunk) - Anti-takeover provisions in TrueCar's corporate documents and Delaware law could delay or prevent an acquisition[265](index=265&type=chunk)[266](index=266&type=chunk) - TrueCar does not expect to declare cash dividends in the foreseeable future, intending to retain earnings for business expansion[269](index=269&type=chunk) - The share repurchase program, authorized for up to **$75 million**, does not obligate the company to repurchase shares and may not enhance long-term stockholder value[269](index=269&type=chunk) [General Risk Factors](index=87&type=section&id=General%20Risk%20Factors) Operating as a public company incurs substantial costs, and the company may require additional capital, face disruptions from catastrophic events, and experience stock price impacts from analyst coverage - Operating as a public company incurs significant legal, accounting, and compliance expenses, requiring substantial management time[270](index=270&type=chunk) - TrueCar may need additional capital for growth, but funds may not be available on favorable terms[272](index=272&type=chunk) - Natural disasters, public health crises like COVID-19, and other catastrophic events could disrupt operations and negatively impact consumer spending[273](index=273&type=chunk) - Future equity offerings or convertible debt issuances could result in significant dilution for existing stockholders[274](index=274&type=chunk) - Changes in research or reports by securities analysts could cause TrueCar's stock price and trading volume to decline[274](index=274&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=89&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased **2.4 million** shares for **$11.7 million** in Q3 2020 under its **$75 million** share repurchase program - No unregistered sales of equity securities were reported[275](index=275&type=chunk) - Proceeds from public offerings have been invested in short-term, investment-grade interest-bearing securities[275](index=275&type=chunk) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | | :--------------------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :--------------------------------------------------------------------------------------- | | July 1, 2020 — July 31, 2020 | 0 | N/A | N/A | N/A | | August 1, 2020 — August 31, 2020 | 428,159 | $5.01 | 428,159 | $72,856,374 | | September 1, 2020 — September 30, 2020 | 1,974,651 | $4.81 | 1,974,651 | $63,359,067 | - TrueCar repurchased **2.4 million shares** for **$11.7 million** during Q3 2020, under a **$75 million** share repurchase program, with **$63.4 million** remaining[276](index=276&type=chunk) [Item 6. Exhibits](index=90&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the report, including organizational documents, employment agreements, certifications, and XBRL data files - Exhibits include the Amended and Restated Certificate of Incorporation and Bylaws, employment agreements, separation agreements, Section 302 and 906 certifications, and various XBRL taxonomy documents[278](index=278&type=chunk)[279](index=279&type=chunk) [Signatures](index=91&type=section&id=Signatures) The report is signed by the President & Chief Executive Officer and the Chief Financial Officer & Chief Accounting Officer on November 6, 2020 - The report was signed by Michael D. Darrow, President & Chief Executive Officer, and Noel B. Watson, Chief Financial Officer & Chief Accounting Officer, on November 6, 2020[283](index=283&type=chunk)

Financial Data and Key Metrics Changes - Total revenue for Q2 2020 was $62.7 million, down 29% year-over-year due to unit pressure and subscription rate discounting [33] - Adjusted EBITDA was $10.9 million, representing 17% of revenue, up from $3.7 million or 4% of revenue in the same period last year [41] - GAAP net loss was $11.2 million or $0.10 per share, compared to a loss of $24.1 million or $0.23 per share in Q2 2019 [41] Business Line Data and Key Metrics Changes - Franchise dealer counts ended the quarter at 11,267, down 1% from Q1, showing resilience despite the pandemic [33] - Independent dealer counts ended June at 4,131, down just 62 dealers sequentially from Q1, with revenue per dealer down 44% year-over-year [34] - OEM revenue was $4.8 million, a 15% year-over-year improvement, driven by the expansion of certain luxury brand programs [34] Market Data and Key Metrics Changes - Monthly unique visitors to the site reached 8.3 million, up 15% year-over-year, driven by SEO traffic and improved marketing efficiency [35] - Total units sold in the quarter were approximately 189,000, down 24% year-over-year, with a strong recovery in May and June [36] - Used cars represented 45% of total units, up from 36% in the same period last year, attributed to SEO traffic growth and inventory shortages [37] Company Strategy and Development Direction - The company is focused on building a flexible online car-buying experience to enhance consumer confidence and streamline the purchasing process [14][15] - A strategic restructuring was initiated to support a leaner operating model, resulting in approximately $35 million of annualized fixed cost savings [12][32] - The company plans to accelerate its digital retailing tools and aims to introduce all three phases of its online car-buying experience by year-end [18] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery in traffic and dealer engagement despite the challenges posed by COVID-19 [9][10] - The company anticipates a strong quarter-over-quarter rebound in total revenues as subscription discounts end and unit volumes recover [42] - There are uncertainties regarding the ongoing pandemic, but management is focused on supporting dealer customers and aligning monetization with value delivered [44][45] Other Important Information - The company announced the sale of its ALG business for up to $135 million, which includes an upfront cash payment of $112.5 million [31] - A $75 million share repurchase program was authorized to fortify the balance sheet and support ongoing operations [32] - The company formed a diversity equity inclusion committee to promote social justice and inclusivity within the organization [29] Q&A Session Summary Question: Dealer retention trends and inventory issues - Management noted a dip in dealer retention at the end of March but a strong recovery through the quarter, with few cancellations [47][48] Question: Progress on digital retailing initiative - Over 3,000 dealers have been onboarded to the digital retailing platform, with plans to increase penetration of these tools [49][50] Question: OEM incentives performance - OEM revenue performed well due to the addition of luxury brands and the transition of OEM partners to the military channel [51][52] Question: Cost structure post-restructuring - The strategic restructuring was proactive, aligning the cost structure with business needs, and no further significant cuts are expected [54][56] Question: Consumer response to buy-at-home functionality - There has been high consumer engagement with the buy-at-home product, indicating a shift towards low-contact transactions [56][57] Question: Marketing spend and rebuilding strategy - The company plans to gradually rebuild marketing spend, focusing on efficiencies learned during the pandemic [59][61] Question: Long-term impact of large dealers moving into digital space - Management sees this as a positive trend, believing that increased investment in digital retailing will benefit the company [68][69]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 001-36449 TRUECAR, INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number ...

TrueCar, Inc. (NASDAQ:TRUE) Q1 2020 Earnings Conference Call May 7, 2020 4:30 PM ET Company Participants Danny Vivier - VP, IR Mike Darrow - Interim President & CEO Noel Watson - CFO Conference Call Participants Lee Krowl - B. Riley FBR, Inc. Marvin Fong - BTIG Steve Dyer - Craig Hallum Rajat Gupta - JPMorgan Operator Greetings. Welcome to TrueCar's First Quarter 2020 Earnings Conference Call. Please note this conference call is being recorded. I would now like to turn the conference over to your host, Dann ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 001-36449 TRUECAR, INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Numbe ...

Financial Performance - Total revenue decreased by 2% year-over-year to $83.5 million in Q1 2020[3] - Adjusted EBITDA was $9.5 million, representing an 11.4% Adjusted EBITDA margin[3] - Non-GAAP net loss was $4.213 million in Q1 2020[39] Dealer Network - Total dealer count decreased by 6% year-over-year to 15,549 dealers[3] - Franchise dealer count decreased by 10% year-over-year to 11,356 dealers[3] - Independent dealer count increased by 9% year-over-year to 4,193 dealers[3] Revenue per Dealer - Monthly franchise revenue per franchise dealer was $1,634[3] - Monthly independent revenue per independent dealer was $854[3] Unit Sales - TrueCar users purchased 197,002 units from TrueCar Certified Dealers, down 15% year-over-year[3] - New car units decreased 23% year-over-year[22]

Table of Contents Securities registered pursuant to Section 12(b) of the Act: UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 001-36449 | --- | |--------------------------------------------------------------------------------------- ...