TrueCar(TRUE) - 2023 Q2 - Quarterly Report

FORM 10-Q Cover Page This section provides the filing details for TRUECAR, INC.'s Quarterly Report on Form 10-Q for the period ended June 30, 2023, including incorporation state, executive offices, and outstanding common stock shares - TRUECAR, INC. filed its Quarterly Report on Form 10-Q for the period ended June 30, 2023[1][2] - The registrant is incorporated in Delaware, with principal executive offices in Santa Monica, California[2] - As of August 2, 2023, 90,060,682 shares of common stock were outstanding[2] Index This section outlines the report's structure, dividing it into PART I - FINANCIAL INFORMATION and PART II - OTHER INFORMATION - The report is structured into PART I - FINANCIAL INFORMATION (Items 1-4) and PART II - OTHER INFORMATION (Items 1, 1A, 2, 6, and Signatures)[3] Special Note Regarding Forward-Looking Statements This section cautions readers that the report contains forward-looking statements involving substantial risks and uncertainties, with actual results potentially differing materially from projections - This section highlights that the Quarterly Report on Form 10-Q contains forward-looking statements, which involve substantial risks and uncertainties[4] - Forward-looking statements relate to future financial performance, strategic restructuring, market trends, product offerings (e.g., TrueCar+), relationships with industry participants, and the impact of macroeconomic conditions[4] - Readers are cautioned not to place undue reliance on these statements, as actual results may differ materially due to factors discussed in the 'Risk Factors' section[5] Summary of Risks Affecting Our Business This section summarizes key risks including business restructuring effectiveness, adverse impacts from low automobile inventory, declining lead quality, and challenges with the TrueCar+ offering - Key risks include the effectiveness of business restructuring, adverse impacts from low automobile inventory, and potential declines in lead quality or quantity[7] - Challenges in rolling out and monetizing the TrueCar+ offering, maintaining dealer relationships, and risks related to the broader automotive ecosystem (e.g., interest rates, inflation) are also highlighted[7] - Other risks involve the loss of significant affinity partners, negative perceptions from industry participants, executive turnover, reliance on data providers, and marketing effectiveness[7] PART I - FINANCIAL INFORMATION This section presents TrueCar's unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Item 1. Condensed Consolidated Financial Statements (unaudited) This section presents TrueCar's unaudited condensed consolidated financial statements, including balance sheets, statements of comprehensive loss, stockholders' equity, and cash flows, along with detailed notes Condensed Consolidated Balance Sheets This section presents TrueCar's condensed consolidated balance sheets, detailing assets, liabilities, and stockholders' equity as of June 30, 2023, and December 31, 2022 Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2023 | December 31, 2022 | Change | | :----------------------------------- | :------------ | :---------------- | :----- | | Cash and cash equivalents | $142,405 | $175,518 | $(33,113) | | Total current assets | $167,414 | $197,835 | $(30,421) | | Total assets | $216,704 | $251,527 | $(34,823) | | Total current liabilities | $32,705 | $30,779 | $1,926 | | Total liabilities | $52,395 | $54,260 | $(1,865) | | Total stockholders' equity | $164,309 | $197,267 | $(32,958) | Condensed Consolidated Statements of Comprehensive Loss This section presents TrueCar's condensed consolidated statements of comprehensive loss, detailing revenues, operating expenses, and net loss for the three and six months ended June 30, 2023 and 2022 Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenues | $39,293 | $42,275 | $76,273 | $85,808 | | Total costs and operating expenses | $61,440 | $56,243 | $119,587 | $113,909 | | Loss from operations | $(22,147) | $(13,968) | $(43,314) | $(28,101) | | Net loss | $(20,424) | $(11,019) | $(39,989) | $(23,433) | | Net loss per share, basic and diluted | $(0.23) | $(0.12) | $(0.45) | $(0.25) | Condensed Consolidated Statements of Stockholders' Equity This section presents TrueCar's condensed consolidated statements of stockholders' equity, showing changes in equity from December 31, 2022, to June 30, 2023 Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Metric | Dec 31, 2022 | Mar 31, 2023 | June 30, 2023 | | :----------------------------------- | :----------- | :----------- | :------------ | | Balance at period start | $197,267 | $181,626 | $181,626 | | Net loss | $(19,565) | $(20,424) | $(39,989) (cumulative for 6 months) | | Stock-based compensation | $4,930 | $4,116 | $9,046 (cumulative for 6 months) | | Shares issued (net of taxes) | $(1,006) | $(1,009) | $(2,015) (cumulative for 6 months) | | Balance at period end | $181,626 | $164,309 | $164,309 | - For the six months ended June 30, 2022, the company repurchased $25.1 million of common stock, which did not occur in the same period of 2023[18] Condensed Consolidated Statements of Cash Flows This section presents TrueCar's condensed consolidated statements of cash flows, detailing operating, investing, and financing activities for the six months ended June 30, 2023 and 2022 Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :----------------------------------- | :--------------------------- | :--------------------------- | | Net cash used in operating activities | $(22,092) | $(13,550) | | Net cash used in investing activities | $(7,098) | $(5,173) | | Net cash used in financing activities | $(3,923) | $(26,813) | | Net decrease in cash, cash equivalents and restricted cash | $(33,113) | $(45,536) | | Cash, cash equivalents and restricted cash at end of period | $142,405 | $199,681 | - Cash used in operating activities increased by $8.5 million YoY, primarily due to a higher net loss[21][120] - Investing activities in 2022 included $12.8 million from the sale of an equity method investment and $12.1 million for an acquisition, which were not present in 2023[21][123] - Financing activities in 2022 included $25.1 million for common stock repurchases, which did not occur in 2023[21][124] Notes to Condensed Consolidated Financial Statements This section provides detailed notes supporting TrueCar's condensed consolidated financial statements, covering organization, accounting policies, fair value measurements, and other financial disclosures Note 1. Organization and Nature of Business This note describes TrueCar's business as a digital automotive marketplace providing pricing transparency and connecting consumers with dealers, including its platform and subsidiary offerings - TrueCar is a digital automotive marketplace providing pricing transparency, connecting consumers with Certified Dealers, and enabling OEMs to target incentives[27] - The company's platform is accessible via TrueCar.com, mobile applications, and co-branded sites for affinity group marketing partners[27] - Subsidiaries like TCDS offer Trade and Payments solutions, including vehicle valuation and guaranteed trade-in prices[28] Note 2. Summary of Significant Accounting Policies This note outlines TrueCar's significant accounting policies, including GAAP compliance, estimates, operating segment, and cash equivalent definitions - Financial statements are prepared under GAAP, with estimates impacting sales allowances, asset valuations, and stock-based compensation[29][31][33] - TrueCar operates as a single operating segment, with the CODM reviewing consolidated financial information[34] - Cash equivalents include highly liquid investments with original maturities of three months or less; $2.2 million was restricted cash at June 30, 2023[35] Changes in Allowance for Doubtful Accounts and Sales Allowances (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Allowances, at beginning of period | $1,091 | $2,513 | $1,073 | $3,099 | | Charged as a reduction of revenue | $791 | $679 | $1,496 | $1,469 | | Charged to bad debt expense | $245 | $18 | $340 | $178 | | Write-offs, net of recoveries | $(955) | $(1,605) | $(1,737) | $(3,141) | | Allowances, at end of period | $1,172 | $1,605 | $1,172 | $1,605 | Note 3. Fair Value Measurements This note details TrueCar's fair value measurements, categorizing inputs into a hierarchy and discussing contingent consideration for the Digital Motors acquisition - Fair value hierarchy categorizes inputs into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[40] - Contingent consideration for Digital Motors acquisition was a Level 3 measurement, but targets were considered 100% achieved in Q2 2023, removing significant unobservable inputs[41] Assets and Liabilities Measured at Fair Value (in thousands) | Metric | June 30, 2023 (Total Fair Value) | December 31, 2022 (Total Fair Value) | | :----------------------------------- | :------------------------------- | :----------------------------------- | | Cash equivalents | $127,204 | $57,518 | | Contingent consideration, current | $1,885 | $1,983 | | Contingent consideration, non-current | $3,431 | $4,678 | | Total contingent consideration | $5,316 | $6,661 | Contingent Consideration Obligations (in thousands) | Metric | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2023 | | :----------------------------------- | :--------------------------- | :--------------------------- | | Fair value, beginning of period | $5,252 | $6,661 | | Cash payments | — | $(2,000) | | Changes in fair value | $64 | $655 | | Fair value, end of period | $5,316 | $5,316 | Note 4. Property and Equipment, net This note provides details on TrueCar's property and equipment, net, including computer equipment, internally developed software, and associated depreciation and amortization expenses Property and Equipment, net (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :----------------------------------- | :------------ | :---------------- | | Computer equipment and internally developed software | $90,615 | $88,638 | | Total property and equipment, net | $20,308 | $18,902 | - Capitalized software not yet in service accounted for $2.3 million at June 30, 2023, up from $1.5 million at December 31, 2022[48] - Total depreciation and amortization expense for property and equipment was $5.9 million for the six months ended June 30, 2023, down from $6.4 million in the prior year period[49] Note 5. Commitments and Contingencies This note details TrueCar's commitments, including a June 2023 restructuring plan incurring $7.1 million in costs, and confirms no material legal proceedings - TrueCar committed to a restructuring plan in June 2023 to enhance productivity and efficiency, incurring $7.1 million in costs in Q2 2023[50] Restructuring Plan Costs Liability (in thousands) | Metric | Amount | | :----------------------------------- | :----- | | Accrual at December 31, 2022 | $— | | Expense | $7,141 | | Cash Payments | $(3,731) | | Accrual at June 30, 2023 | $3,410 | - The restructuring costs were allocated across cost of revenue ($0.2 million), sales and marketing ($2.2 million), technology and development ($2.7 million), and general and administrative expenses ($2.0 million)[50] - The company is not currently a party to any material legal proceedings[52] Note 6. Stock-based Awards This note details TrueCar's stock-based award activity, including stock options and restricted stock units, and the total stock-based compensation expense for the periods presented Stock Option Activity (6 Months Ended June 30, 2023) | Metric | Number of Options | Weighted-Average Exercise Price | | :----------------------------------- | :---------------- | :------------------------------ | | Outstanding at December 31, 2022 | 5,114,490 | $9.50 | | Exercised | (23,989) | $2.68 | | Forfeited/expired | (1,164,846) | $8.14 | | Outstanding at June 30, 2023 | 3,925,655 | $9.95 | Restricted Stock Units Activity (6 Months Ended June 30, 2023) | Metric | Number of Shares | Weighted-Average Grant Fair Value | | :----------------------------------- | :--------------- | :-------------------------------- | | Non-vested — December 31, 2022 | 10,007,869 | $4.04 | | Granted | 5,826,001 | $2.47 | | Vested | (2,348,164) | $3.67 | | Forfeited | (4,023,775) | $3.37 | | Non-vested — June 30, 2023 | 9,461,931 | $3.45 | Total Stock-based Compensation Expense (in thousands) | Category | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Cost of revenue | $54 | $46 | $104 | $83 | | Sales and marketing | $827 | $1,233 | $2,722 | $2,408 | | Technology and development | $980 | $1,056 | $1,997 | $1,956 | | General and administrative | $2,030 | $2,152 | $3,776 | $3,538 | | Total stock-based compensation expense | $3,891 | $4,487 | $8,599 | $7,985 | Note 7. Income Taxes This note discusses TrueCar's income tax expense, the tax benefit from the Digital Motors acquisition, and the maintenance of a full valuation allowance against deferred tax assets - TrueCar recorded less than $0.1 million in income tax expense for the six months ended June 30, 2023, primarily for state income taxes[62] - For the six months ended June 30, 2022, the company recognized a $2.5 million income tax benefit due to the release of a valuation allowance from net deferred tax liabilities in the Digital Motors acquisition[62] - A full valuation allowance is maintained against net deferred tax assets, as their realization is not considered more likely than not[62] Note 8. Net Loss Per Share This note presents TrueCar's net loss per share calculations, including basic and diluted figures, and details the exclusion of anti-dilutive securities Net Loss Per Share (in thousands except per share data) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss | $(20,424) | $(11,019) | $(39,989) | $(23,433) | | Weighted average common shares outstanding, basic and diluted | 89,383 | 91,016 | 89,017 | 93,457 | | Net loss per share, basic and diluted | $(0.23) | $(0.12) | $(0.45) | $(0.25) | - Options to purchase common stock and non-vested restricted stock unit awards totaling 13.4 million shares were excluded from net loss per share calculations at June 30, 2023, as their inclusion would be anti-dilutive[65] Note 9. Related Party Transactions This note describes TrueCar's related party transactions, specifically the sale of its ownership in Accu-Trade and the resulting contra-revenue and cost of revenue impacts - TrueCar sold its 20% ownership in Accu-Trade on March 1, 2022, terminating a software and data licensing agreement[67] - The transaction resulted in $0.1 million contra-revenue and $1.1 million cost of revenue for the two months ended March 1, 2022[67] Note 10. Revenue Information This note provides a breakdown of TrueCar's revenue categories, including dealer revenue and OEM incentives, and explains the drivers behind their changes Revenue Categories (in thousands) | Revenue Stream | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Dealer revenue | $35,654 | $40,705 | $71,485 | $82,991 | | OEM incentives revenue | $3,507 | $1,396 | $4,546 | $2,424 | | Other revenue | $132 | $174 | $242 | $393 | | Total revenues | $39,293 | $42,275 | $76,273 | $85,808 | - Dealer revenue decreased by $5.0 million (12.4%) for Q2 2023 and $11.5 million (13.9%) for the six months ended June 30, 2023, primarily due to pressure on independent dealers from elevated vehicle prices and rising interest rates[69][97][98] - OEM incentives revenue increased by $2.1 million (151%) for Q2 2023 and $2.1 million (87.5%) for the six months ended June 30, 2023, driven by new incentive programs[69][97][98] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's discussion and analysis of TrueCar's financial condition and results of operations, highlighting macroeconomic impacts, key operating metrics, and liquidity Overview This section provides an overview of TrueCar's business as a digital automotive marketplace and summarizes its financial performance, including revenues and net loss - TrueCar is a digital automotive marketplace focused on creating a personalized and efficient online car buying experience[74] - The platform provides market-based pricing data and connects consumers with TrueCar Certified Dealers, also enabling OEMs to deliver targeted incentives[74] Financial Performance (in millions) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenues | $39.3 | $42.3 | $76.3 | $85.8 | | Net Loss | $(20.4) | $(11.0) | $(40.0) | $(23.4) | - The net loss for Q2 and H1 2023 includes approximately $7.1 million in charges related to a restructuring plan[74] Market Environment This section discusses the macroeconomic factors impacting TrueCar's business, including inventory shortages, rising vehicle costs, and increasing interest rates - Macroeconomic factors, including the coronavirus pandemic, limited new vehicle inventories, rising vehicle costs, and the automotive chip shortage, have caused significant disruptions and revenue decline for TrueCar[76] - OEMs have cut production due to supply-chain issues and chip shortages, leading to unmet demand and presold new car shipments[76] - Rising interest rates and inflation are making vehicle financing more expensive, reducing consumer demand and potentially discouraging dealer and OEM participation[76] Key Metrics This section presents TrueCar's key operating metrics, including unique visitors, units, monetization per unit, and dealer counts, highlighting trends and drivers Key Operating Metrics | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Average Monthly Unique Visitors | 8,323,311 | 7,207,807 | 8,495,195 | 7,236,588 | | Units | 82,656 | 90,112 | 159,114 | 181,712 | | Monetization | $474 | $467 | $478 | $470 | | Franchise Dealer Count | 8,152 | 7,908 | 8,152 | 7,908 | | Independent Dealer Count | 3,489 | 4,178 | 3,489 | 4,178 | - Average monthly unique visitors increased by 15.5% (QoQ) and 17.4% (YoY H1) due to optimized acquisition spend[80] - Units decreased by 8.3% (QoQ) and 12.4% (YoY H1) due to elevated vehicle prices, rising interest rates, and lingering dealer inventory constraints[81] - Monetization per unit increased to $474 (QoQ) and $478 (YoY H1), primarily driven by higher OEM incentives revenue[83] - Franchise dealer count increased to 8,152 (YoY) due to increased new vehicle inventory and dealers increasing marketing spend[84] - Independent dealer count decreased to 3,489 (YoY) due to industry consolidations and higher interest rates impacting dealers[85] Non-GAAP Financial Measures This section defines and reconciles TrueCar's non-GAAP financial measure, Adjusted EBITDA, to net loss, explaining its use in assessing operational performance - Adjusted EBITDA is a non-GAAP measure used to assess operational performance, excluding interest income, depreciation, stock-based compensation, and restructuring charges[87] Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss | $(20,424) | $(11,019) | $(39,989) | $(23,433) | | Interest income | $(1,730) | $(279) | $(3,338) | $(306) | | Depreciation and amortization | $4,091 | $3,785 | $8,282 | $7,445 | | Stock-based compensation | $3,891 | $4,487 | $8,599 | $7,985 | | Impairment of right-of-use ("ROU") assets | $1,702 | $— | $2,053 | $— | | Restructuring charges | $7,141 | $— | $7,141 | $— | | Adjusted EBITDA | $(5,258) | $(4,980) | $(16,584) | $(11,242) | - Adjusted EBITDA for the six months ended June 30, 2023, was $(16.6) million, a decrease from $(11.2) million in the prior year, reflecting increased net loss and restructuring charges[89] Components of Operating Results This section describes the various components of TrueCar's operating results, including revenue recognition, cost of revenue, and different expense categories - Revenues are primarily derived from dealer revenue and OEM incentives, recognized when introductions and incentives are delivered[91] - Cost of revenue includes data costs, licensing fees, hosting, and employee costs, excluding depreciation and amortization[92] - Sales and marketing expenses cover advertising, media production, affinity partner fees, and employee-related costs[92] - Technology and development expenses include employee-related costs, contractor fees, software costs, and product development[92] - General and administrative expenses comprise executive, finance, legal, and HR employee costs, professional service fees, and bad debt[92] - Depreciation and amortization cover property, equipment, intangible assets, capitalized software, and leasehold improvements[92] - Income tax provision is influenced by state taxes and a full valuation allowance against net deferred tax assets[92] Results of Operations This section analyzes TrueCar's results of operations, detailing changes in revenues, costs, and operating expenses for the periods presented Revenues This section analyzes TrueCar's total revenues, detailing changes in dealer revenue and OEM incentives and their underlying drivers for the periods presented Total Revenues (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Change (%) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change (%) | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------------------------- | :--------------------------- | :--------- | | Total revenues | $39,293 | $42,275 | (7.1%) | $76,273 | $85,808 | (11.1%) | - Dealer revenue decreased by 12.4% for Q2 2023 and 13.9% for H1 2023, primarily due to pressure on independent dealers from elevated vehicle prices and rising interest rates[97][98] - OEM incentives revenue increased by 151% for Q2 2023 and 87.5% for H1 2023, driven by the activation of new incentive programs[97][98] Costs and Operating Expenses This section analyzes TrueCar's costs and operating expenses, including cost of revenue, sales and marketing, technology and development, general and administrative, and depreciation and amortization Cost of Revenue (exclusive of depreciation and amortization) This section analyzes TrueCar's cost of revenue, detailing changes and drivers for the three and six months ended June 30, 2023 and 2022 Cost of Revenue (exclusive of depreciation and amortization) (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Change (%) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change (%) | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------------------------- | :--------------------------- | :--------- | | Cost of revenue | $3,931 | $3,817 | 3.0% | $7,777 | $8,763 | (11.3%) | - Q2 2023 increase driven by $0.4 million in employee-related expenses, including $0.2 million from restructuring[100] - H1 2023 decrease due to $1.1 million reduction in Accu-Trade fees and $0.6 million in data licensing/hosting costs, partially offset by restructuring charges[101] Sales and Marketing Expenses This section analyzes TrueCar's sales and marketing expenses, detailing changes and drivers for the three and six months ended June 30, 2023 and 2022 Sales and Marketing Expenses (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Change (%) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change (%) | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------------------------- | :--------------------------- | :--------- | | Sales and marketing expenses | $27,180 | $26,324 | 3.3% | $53,946 | $53,405 | 1.0% | - Q2 2023 increase includes $2.2 million in restructuring charges within employee-related expenses[103] - H1 2023 increase driven by $1.1 million in branded media spend and $0.4 million in employee-related expenses (including restructuring), offset by a $1.6 million decrease in revenue share to affinity partners[104] Technology and Development Expenses This section analyzes TrueCar's technology and development expenses, detailing changes and drivers, including capitalized software costs, for the periods presented Technology and Development Expenses (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Change (%) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change (%) | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------------------------- | :--------------------------- | :--------- | | Technology and development expenses | $13,510 | $11,380 | 18.7% | $26,008 | $21,635 | 20.2% | | Capitalized software costs | $3,712 | $2,936 | 26.4% | $7,186 | $5,796 | 24.0% | - Increases driven by $2.6 million (Q2) and $5.0 million (H1) in employee-related expenses, including $2.7 million from restructuring charges[105][106] - Capitalized software costs increased by $0.8 million (Q2) and $1.4 million (H1) due to investments in TrueCar+ initiatives[105][106] General and Administrative Expenses This section analyzes TrueCar's general and administrative expenses, detailing changes and drivers, including impairment charges and restructuring costs, for the periods presented General and Administrative Expenses (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Change (%) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change (%) | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------------------------- | :--------------------------- | :--------- | | General and administrative expenses | $12,728 | $10,937 | 16.4% | $23,574 | $22,661 | 4.0% | - Q2 2023 increase primarily due to a $1.7 million impairment charge on ROU assets and $0.9 million net increase in employee-related expenses, including $2.0 million from restructuring charges[108] - H1 2023 increase reflects $2.1 million in ROU asset impairment charges and $0.7 million from fair value adjustment of contingent consideration liability, partially offset by a $1.5 million decrease in professional service fees[109] Depreciation and Amortization Expenses This section analyzes TrueCar's depreciation and amortization expenses, detailing changes and drivers, primarily from acquired technology, for the periods presented Depreciation and Amortization Expenses (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Change (%) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change (%) | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------------------------- | :--------------------------- | :--------- | | Depreciation and amortization expenses | $4,091 | $3,785 | 8.1% | $8,282 | $7,445 | 11.2% | - Increase primarily reflects additional amortization on acquired technology from the Digital Motors transaction[111] Gain from Equity Method Investment This section details the gain recognized from TrueCar's equity method investment, specifically from changes in fair value of a derivative asset related to the Accu-Trade investment sale Gain from Equity Method Investment (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Gain from equity method investment | $— | $96 | $— | $1,845 | - A $1.8 million gain was recognized in H1 2022 from changes in fair value of a derivative asset from the Accu-Trade investment sale[113] Provision for (Benefit from) Income Taxes This section details TrueCar's provision for income taxes, highlighting the benefit from the Digital Motors acquisition and the impact of valuation allowances Provision for (Benefit from) Income Taxes (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Provision for (benefit from) income taxes | $7 | $(2,574) | $13 | $(2,517) | - H1 2022 income tax benefit primarily reflects the release of valuation allowance from net deferred tax liabilities in the Digital Motors acquisition[114] Liquidity and Capital Resources This section discusses TrueCar's liquidity and capital resources, including cash position, cumulative losses, share repurchase program, and cash flow activities - TrueCar's liquidity at June 30, 2023, was $142.4 million in cash, cash equivalents, and restricted cash[116] - The company has incurred cumulative losses of $552.5 million through June 30, 2023, and expects further losses, requiring potential future equity or debt financing[117] - The share repurchase program has a remaining authorization of $45.8 million as of June 30, 2023, with no repurchases made in the first six months of 2023[118] Consolidated Cash Flow Data (in thousands) | Metric | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :----------------------------------- | :--------------------------- | :--------------------------- | | Net cash used in operating activities | $(22,092) | $(13,550) | | Net cash used in investing activities | $(7,098) | $(5,173) | | Net cash used in financing activities | $(3,923) | $(26,813) | | Net decrease in cash, cash equivalents and restricted cash | $(33,113) | $(45,536) | Critical Accounting Policies and Estimates This section states that TrueCar's financial statements rely on management's judgments and estimates, with no material changes to critical accounting policies since December 31, 2022 - Financial statements rely on management's judgments, assumptions, and estimates, as outlined in Note 2 of the Annual Report on Form 10-K[127] - No material changes to critical accounting policies or estimates have occurred since December 31, 2022[127] Recent Accounting Pronouncements This section indicates that no new accounting pronouncements are expected to materially impact TrueCar's Condensed Consolidated Financial Statements - No new accounting pronouncements are expected to materially impact the Condensed Consolidated Financial Statements[128] Item 3. Quantitative and Qualitative Disclosures About Market Risk TrueCar does not believe it has material market risk exposure. A hypothetical 25 basis point decrease in interest rates would reduce annual interest income by approximately $0.3 million. Inflation has not materially affected the business, but significant decreases in consumer demand or inability to offset rising costs could harm results. Foreign currency exchange risk is currently insignificant due to primary operations in the U.S. Interest Rate Risk This section assesses TrueCar's exposure to interest rate risk, noting its cash holdings and the potential impact of interest rate changes on annual interest income - Cash, cash equivalents, and restricted cash totaled $142.4 million at June 30, 2023, primarily in bank deposits and short-term money market funds[130] - A hypothetical 25 basis point decrease in interest rates would reduce annual interest income by approximately $0.3 million[130] - TrueCar does not use derivative financial instruments for trading or speculative purposes to manage interest rate risk[130] Inflation Risk This section discusses TrueCar's exposure to inflation risk, noting no material impact to date but potential harm from decreased consumer demand or inability to offset rising costs - Inflation has not materially affected TrueCar's business, financial condition, or results of operations[131] - Significant decreases in consumer demand for vehicles or inability to offset higher costs due to inflation could harm the business[131] Foreign Currency Exchange Risk This section addresses TrueCar's foreign currency exchange risk, which is currently insignificant due to primary U.S. operations but would increase with international expansion - TrueCar has not faced significant foreign currency risk due to primary operations and sales in the United States[132] - International expansion would increase foreign currency risk, requiring a reassessment of risk management[132] Item 4. Controls and Procedures As of June 30, 2023, TrueCar's management, including its principal executive and financial officers, concluded that its disclosure controls and procedures were effective at a reasonable assurance level. There were no material changes in internal control over financial reporting during the period. Evaluation of Disclosure Controls and Procedures This section details management's conclusion that TrueCar's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2023 - Management concluded that disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2023[134] - Disclosure controls are designed to ensure timely recording, processing, summarizing, and reporting of information required by the Exchange Act[134] Changes in Internal Control over Financial Reporting This section confirms that no material changes in TrueCar's internal control over financial reporting occurred during the quarter ended June 30, 2023 - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2023[135] PART II - OTHER INFORMATION This section covers other information, including legal proceedings, risk factors, unregistered sales of equity securities, use of proceeds, exhibits, and signatures Item 1. Legal Proceedings TrueCar is subject to various legal proceedings and claims arising in the ordinary course of business, as disclosed in Note 5 "Commitments and Contingencies" of this report. The company is not currently a party to any material legal proceedings. - TrueCar is involved in various legal proceedings and claims in the ordinary course of business[137] - The company is not currently a party to any material legal proceedings[52][137] Item 1A. Risk Factors This section details significant risks associated with investing in TrueCar's common stock, encompassing business operations, industry dynamics, stock ownership, and general economic conditions Risks Related to Our Business and Industry This section outlines risks specific to TrueCar's business and the automotive industry, including restructuring effectiveness, inventory levels, lead quality, and competition - The June 2023 restructuring plan, involving a 24% workforce reduction, may not achieve anticipated benefits and could lead to unintended consequences like employee attrition and damage to corporate culture[140] - Low automobile inventory levels, supply chain disruptions, and chip shortages adversely impact TrueCar's business by increasing competition for dealer marketing spend and reducing OEM incentive spending[140][142] - Declines in lead quality or quantity can reduce unit volume and cause dealers to leave the network or demand lower subscription rates[143] - Failure to successfully roll out, monetize, or integrate current and future offerings into the TrueCar+ experience could adversely affect the business[144][147] - The company's cash and cash equivalents are subject to risk if financial institutions fail, as a portion of cash is held in excess of FDIC insurance limits[148][150] - Growth relies on maintaining and increasing dealer revenues, which is challenged by managing subscription rates, retaining dealers, and optimizing geographic coverage and high-volume brands[151] - Loss of a critical mass of dealers could deprive TrueCar of essential data for key features, inventory supply, and TrueCar Deal Builder functionality, negatively impacting the business[154] - Inability to provide a compelling car-buying experience to users could lead to a decline in transactions and dealer participation[155] - The business is exposed to risks from the larger automotive ecosystem, including interest rates, consumer demand, global supply chain challenges, and macroeconomic issues like inflation[157][159] - Failure to attract or retain manufacturers in incentive programs could reduce growth, especially with current low inventory levels shifting incentives towards financing/leasing[160] - Loss of a significant affinity group marketing partner or reduction in units from these partners would reduce revenue and harm operating results, as seen with the USAA partnership termination[161][163] - Negative perception or strained relationships with key industry participants (dealers, affinity partners, OEMs) could damage TrueCar's growth and financial performance[164][166] - Executive turnover and inability to attract/retain qualified personnel, especially in engineering and product roles, could harm business development and growth[167][170] - Failure to adequately respond to changes in technology (e.g., self-driving, ride-sharing, direct-to-consumer sales) and evolving consumer demands could decrease demand for automobiles on the platform[171][173] - Limitations in enhancing current or growing complementary product offerings, or making product/investment decisions that don't prioritize short-term financial results, could negatively impact growth and financial performance[174][175][176] - The coronavirus pandemic and its effects (e.g., reduced demand, remote work, inventory shortages) have materially and negatively affected the business, with potential long-term impacts[176][177] - Failure to maintain or increase revenue, or to reduce expenses as a percentage of revenue, would adversely affect financial condition and profitability, especially given significant future investments[179] - Inability to maintain or grow the business by successfully responding to market changes, such as inefficient marketing expenditures or declining dealer belief in services, could harm results[180][182] - Reliance on third-party data providers (e.g., DMS, aggregators) means interruptions in data feeds could adversely affect product offerings, timely invoicing, and ability to attract/retain consumers and dealers[183][184] - Dependence on Internet search engines for traffic means failure to appear prominently in search results could lead to declining traffic and adverse business impacts[185] - The success of marketing and branding efforts is crucial, but increased user acquisition costs, inventory shortages impacting advertising messages, and privacy restrictions on digital marketing could negatively affect financial performance[186][187] - Negative consumer or dealer response to branding, or complaints/negative publicity, could diminish trust and adversely affect brand strength, growth, and operating results[188][190] - Intense competition from various online and offline automotive players, including new entrants and competitors with greater resources, could adversely affect TrueCar's business and operating results[191][193] - A complex and evolving regulatory framework (vehicle sales, advertising, brokering, insurance, financial products, privacy, antitrust) poses risks of claims, penalties, and business model challenges[194][195][197][198][199][201][202][203][204][206] - Climate change-related laws, regulations, and consumer behavior shifts (e.g., demand for EVs sold direct-to-consumer) could impact the automotive industry and TrueCar's business[207] - Failure to protect personal information and data, or actual/perceived security breaches, could damage reputation, brand, and operating results, especially with evolving privacy laws like CCPA[208][210][211] - Reliance on highly technical software means undetected errors or vulnerabilities could negatively impact user experience, delay products, or compromise data protection[223] - Dependence on maintaining and scaling technical infrastructure, including Amazon Web Services, means disruptions could damage reputation, lead to customer loss, and harm business[224][225][227] - Past revenue growth is not indicative of future growth, and the company's ability to grow revenue depends on successful TrueCar+ rollout, dealer network expansion, and managing various market factors[228][229] - TrueCar has a history of losses and may not achieve profitability in the future due to significant investments, slowing demand, and fixed costs[231] - Operating results fluctuate due to seasonality in consumer car buying patterns, which may become more pronounced in the future[232] - Failure to adequately protect intellectual property (patents, trademarks, trade secrets) could harm the business and operating results, and intellectual property disputes can be costly[233][235] - Impairment of goodwill or other intangible assets, as experienced in the past ($59.8 million in Q3 2022), could require future non-cash charges, materially affecting results[236] - Limitations on using net operating loss carryforwards and other tax attributes (e.g., due to ownership changes under Section 382/383) could reduce tax benefits[238] - Changes in applicable tax law (e.g., Wayfair decision, R&D capitalization) and resolutions of tax disputes could negatively affect financial results[239] Risks Related to Ownership of Our Common Stock This section details risks associated with owning TrueCar's common stock, including stock price volatility, concentrated ownership, potential dilution, and anti-takeover provisions - Failure to meet publicly announced guidance or other expectations could cause the stock price to decline, as experienced in the past[241] - The price of common stock has been and may continue to be volatile due to various factors, including market fluctuations, operating performance, and analyst recommendations[242][244] - Concentration of ownership (approximately 54% by executive officers, directors, and 5%+ holders) may prevent new investors from influencing significant corporate decisions[245] - Sales of substantial amounts of common stock by existing stockholders, or the perception of such sales, could depress the market price[247][248][249] - Anti-takeover provisions in the certificate of incorporation and bylaws, along with Delaware law, could delay or prevent acquisition attempts[250] - The exclusive forum provision in the certificate of incorporation designates the Delaware Court of Chancery as the forum for most disputes, potentially limiting stockholders' ability to choose a favorable judicial forum[251] - TrueCar does not expect to declare any dividends in the foreseeable future, meaning investors must rely on stock price appreciation for gains[253] - The share repurchase program does not obligate the company to repurchase shares, may not enhance long-term value, could increase stock price volatility, and will diminish cash reserves[254] General Risk Factors This section covers general risks, including public company compliance costs, stock price sensitivity to analyst research, catastrophic events, and the need for additional capital - Operating as a public company incurs substantial legal, accounting, and compliance costs, diverting management time[255] - Failure to comply with public company responsibilities (e.g., Sarbanes-Oxley Act Section 404) could lead to regulatory actions, stock price decline, and reputational harm[255] - Stock price and trading volume are influenced by securities analysts' research; adverse changes in recommendations or cessation of coverage could negatively impact the stock[257] - Natural disasters, public health crises, political crises, or other catastrophic events could damage facilities, disrupt operations, and impact consumer spending[258] - TrueCar may require additional capital for business objectives, and if not available on favorable terms, could harm operations and financial condition[259] - Future equity offerings to raise capital could result in dilution for existing stockholders and potentially superior rights for new equity securities[260] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds TrueCar made no unregistered sales of equity securities. The Board authorized a share repurchase program of up to $150 million, extended until September 30, 2024, but no repurchases were made during the six months ended June 30, 2023. - No unregistered sales of equity securities occurred during the period[262] - The Board authorized a share repurchase program of up to $150 million, extended to September 30, 2024[262] - No share repurchases were made during the six months ended June 30, 2023[66][118][254][262] Item 6. Exhibits This section lists documents incorporated by reference or filed with the Quarterly Report on Form 10-Q, including the Amended and Restated Certificate of Incorporation, Bylaws, various employment agreements, the 2023 Equity Incentive Plan, and certifications from executive officers. It also includes XBRL instance documents. - The report includes various exhibits such as the Amended and Restated Certificate of Incorporation, Bylaws, and employment agreements[265] - Certifications from the Principal Executive Officer and Principal Financial Officer are filed/furnished, along with XBRL instance documents[265] Signatures The report is signed by Jantoon E. Reigersman, President & Chief Executive Officer (Principal Executive Officer), and Teresa T. Luong, Chief Financial Officer (Principal Financial Officer), on August 4, 2023. - The report was signed by Jantoon E. Reigersman, President & Chief Executive Officer, and Teresa T. Luong, Chief Financial Officer, on August 4, 2023[268]