TrueCar(TRUE) - 2021 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (unaudited) This section presents TrueCar, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, income statements, cash flows, and notes, detailing financial position and key accounting events Condensed Consolidated Balance Sheets The balance sheet shows a decrease in total assets from $458.061 million at year-end 2020 to $442.271 million at the end of Q1 2021, primarily due to a reduction in 'Other current assets' Condensed Consolidated Balance Sheets ($ millions) | | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total current assets | $311.843 | $324.938 | | Total assets | $442.271 | $458.061 | | Total current liabilities | $39.291 | $42.877 | | Total liabilities | $70.079 | $75.279 | | Total stockholders' equity | $372.192 | $382.782 | Condensed Consolidated Statements of Comprehensive Loss For the three months ended March 31, 2021, revenues decreased to $65.105 million from $78.917 million in the prior-year period, resulting in a net loss of $8.418 million Condensed Consolidated Statements of Comprehensive Loss ($ millions) | | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Revenues | $65.105 | $78.917 | | Total costs and operating expenses | $73.740 | $89.535 | | Loss from operations | ($8.635) | ($10.618) | | Loss from continuing operations | ($8.418) | ($10.390) | | Net loss | ($8.418) | ($10.669) | | Loss per share, basic and diluted | ($0.09) | ($0.10) | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities was $5.479 million in Q1 2021, while investing activities provided $4.684 million, and financing activities used $8.904 million, primarily for stock repurchases Condensed Consolidated Statements of Cash Flows ($ millions) | | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5.479 | $5.550 | | Net cash provided by (used in) investing activities | $4.684 | ($3.505) | | Net cash used in financing activities | ($8.904) | ($0.724) | | Net increase in cash and cash equivalents | $1.259 | $1.321 | | Cash and cash equivalents at end of period | $274.573 | $182.855 | Notes to Condensed Consolidated Financial Statements The notes detail significant accounting policies and events, including the ALG divestiture, goodwill impairment, credit facility extension, stock repurchases, and litigation updates - On November 30, 2020, the Company completed the sale of its subsidiary ALG to J.D. Power for $112.5 million in cash, plus potential earnouts. The results of ALG are now reported as discontinued operations. A $7.5 million earnout was received in Q1 2021[39][40] - In Q1 2020, the company recognized a non-cash goodwill impairment charge of $10.2 million ($8.3 million from continuing operations) due to economic disruption from COVID-19 and the announced termination of its USAA partnership[53][130] - The company repurchased 1.7 million shares of common stock for $7.8 million during Q1 2021 under its authorized share repurchase program. As of March 31, 2021, $25.0 million remained available for future repurchases[85] Disaggregation of Revenue ($ millions) | Revenue Category | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Dealer revenue | $62.057 | $73.798 | | OEM incentives revenue | $2.797 | $3.523 | | Other revenue | $0.251 | $1.596 | | Total revenues | $65.105 | $78.917 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's Q1 2021 financial performance, highlighting a 17.5% revenue decline to $65.1 million, key metric changes, COVID-19 impacts, and a strong liquidity position Overview and COVID-19 Impact TrueCar operates a digital automotive marketplace, facing negative impacts from the COVID-19 pandemic, including vehicle inventory shortages and potential reductions in dealer demand for services - TrueCar is a digital automotive marketplace that connects consumers with Certified Dealers and provides data and analytics to consumers, dealers, and OEMs[95] - The business is negatively affected by the COVID-19 pandemic, particularly through supply-chain disruptions causing a global automotive semiconductor chip shortage, leading to automobile inventory shortages that may reduce dealer demand for services[97] Key Metrics In Q1 2021, Average Monthly Unique Visitors grew 18.4% to 9.2 million, while Units sold decreased 15.8% to 165,858, primarily due to the USAA partnership termination and inventory shortages Key Operating Metrics | Metric | Q1 2021 | Q1 2020 | Change | | :--- | :--- | :--- | :--- | | Average Monthly Unique Visitors | 9,175,703 | 7,751,696 | +18.4% | | Units | 165,858 | 197,002 | -15.8% | | Monetization | $391 | $392 | -0.3% | | Franchise Dealer Count | 10,446 | 11,356 | -8.0% | | Independent Dealer Count | 3,702 | 4,193 | -11.7% | - The decrease in units was primarily attributed to the termination of the USAA partnership, which ended on September 30, 2020, and lower automobile inventory levels from the global semiconductor chip shortage[101] Results of Operations Total revenues for Q1 2021 decreased by 17.5% to $65.1 million, mainly due to the USAA partnership termination, while operating expenses decreased across most categories, improving the loss from continuing operations - Revenues decreased by $13.8 million (17.5%) year-over-year, primarily due to an $11.4 million decrease in Auto Buying Program revenue resulting from the termination of the USAA partnership[119] - Sales and marketing expenses decreased by $6.0 million (13.0%) year-over-year, reflecting lower revenue share paid to affinity partners, reduced travel and conference expenses, and lower creative production costs[124] - General and administrative expenses increased by $0.6 million (4.9%) year-over-year, mainly because the prior year period included a $2.0 million insurance settlement payment received by the company, which offset legal expenses[127] Reconciliation of Net Loss to Adjusted EBITDA ($ millions) | | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net loss | ($8.418) | ($10.669) | | Loss from continuing operations | ($8.418) | ($10.390) | | Adjusted EBITDA | $2.093 | $6.725 | Liquidity and Capital Resources As of March 31, 2021, TrueCar's principal source of liquidity was $274.6 million in cash and cash equivalents, deemed sufficient to fund operations for at least the next 12 months - Principal sources of liquidity at March 31, 2021, were cash and cash equivalents totaling $274.6 million[135] - In April 2021, the company amended its credit facility, extending the maturity date to April 12, 2024, providing a $35.0 million revolving line of credit with no outstanding amounts as of March 31, 2021[137] - Cash used in financing activities was $8.9 million for Q1 2021, primarily due to $7.8 million in payments for the repurchase of common stock[143] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states it does not have material exposure to market risks, with interest rate, inflation, and foreign currency exchange risks deemed minimal - The company does not believe it has material exposure to market risk from changes in interest rates, inflation, or foreign currency exchange rates[148] - Cash and cash equivalents of $274.6 million are held in bank deposits and short-term money market funds, carrying some interest rate risk, but fluctuations have not been significant[149] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2021, with no material changes in internal control over financial reporting during the quarter - Based on an evaluation as of March 31, 2021, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[153] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[154] PART II - OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 8 of the financial statements for details on legal proceedings, including the resolution of certain derivative suits and ongoing litigation - The company refers to Note 8 of the condensed consolidated financial statements for information on legal proceedings[156] Item 1A. Risk Factors The company outlines significant risks related to the pandemic, business and industry challenges, and common stock ownership, including supply chain disruptions, partnership termination, and regulatory complexities Risks Related to the Coronavirus Pandemic The COVID-19 pandemic has materially and negatively affected the business through reduced car sales, dealer cancellations, operational disruptions, and increased forecasting difficulties - The COVID-19 pandemic has caused significant disruption, leading to reduced car sales, dealer suspensions, and a decline in units, which directly lowered revenue[158] - The pandemic has created forecasting difficulties, leading the company to withdraw its full-year 2020 guidance and provide only abbreviated guidance for Q1 2021[161] Risks Related to Our Business and Industry This section details numerous business and industry risks, including the adverse effects of the USAA partnership termination, low inventory levels, intense competition, and a complex regulatory framework - The termination of the partnership with USAA, which accounted for 29% of units in 2019, has had and will continue to have a material adverse effect on the company's business, revenue, and operating results[164][165][166] - Low automobile inventory levels, caused by factors like semiconductor shortages, adversely impact the business by reducing dealers' willingness to use marketing services and lowering manufacturers' incentive spending[178][179] - The company is subject to a complex framework of laws and regulations regarding motor vehicle sales, advertising, and brokering, which could subject it to claims, penalties, and challenges to its business model[193] - Evolving data privacy laws, such as the California Consumer Privacy Act (CCPA), impose significant compliance costs and potential liability, and could negatively impact business practices[203][204] Risks Related to Ownership of Our Common Stock Risks for stockholders include high stock price volatility, potential failure to meet public guidance, significant ownership concentration, and anti-takeover provisions, with no anticipated dividends in the foreseeable future - The trading price of the company's common stock has been and may continue to be volatile[236] - As of March 31, 2021, executive officers, directors, and holders of 5% or more of common stock beneficially owned approximately 60% of outstanding shares, allowing them to exercise significant control over corporate decisions[238] - The company has never paid cash dividends and does not anticipate doing so in the foreseeable future, intending to retain earnings for business expansion[242] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities and confirms no material change in the planned use of public offering proceeds, having repurchased 1.68 million shares for $7.8 million in Q1 2021 Share Repurchase Activity - Q1 2021 | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value of Shares that May Yet Be Purchased | | :--- | :--- | :--- | :--- | | Jan 1 - Jan 31, 2021 | 1,683,692 | $4.63 | $25,000,004 | | Feb 1 - Feb 28, 2021 | — | N/A | $25,000,004 | | Mar 1 - Mar 31, 2021 | — | N/A | $25,000,004 | Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including separation agreements, credit facility amendments, and CEO/CFO certifications Signatures The report is signed and duly authorized by Michael D. Darrow, President & Chief Executive Officer, and Jantoon E. Reigersman, Chief Financial Officer, on May 6, 2021