TrueCar(TRUE) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (unaudited) The unaudited condensed consolidated financial statements present TrueCar's financial position as of September 30, 2023, and its performance for the three and nine months then ended. Key statements show a decrease in total assets and stockholders' equity since year-end 2022. The company reported a net loss of $7.9 million for Q3 2023, a significant improvement from a $77.1 million loss in Q3 2022, primarily due to a large goodwill impairment charge in the prior year. Cash flow from operations remained negative Condensed Consolidated Balance Sheet Data (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $145,474 | $175,518 | | Total current assets | $167,381 | $197,835 | | Total assets | $211,942 | $251,527 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $33,662 | $30,779 | | Total liabilities | $52,068 | $54,260 | | Total stockholders' equity | $159,874 | $197,267 | Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $41,146 | $39,052 | $117,419 | $124,860 | | Loss from operations | $(9,580) | $(78,123) | $(52,894) | $(106,224) | | Goodwill impairment | $0 | $59,775 | $0 | $59,775 | | Net loss | $(7,875) | $(77,113) | $(47,864) | $(100,546) | | Net loss per share | $(0.09) | $(0.85) | $(0.54) | $(1.09) | Condensed Consolidated Statements of Cash Flows (YTD, in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(16,615) | $(20,212) | | Net cash used in investing activities | $(9,469) | $(4,680) | | Net cash used in financing activities | $(3,960) | $(27,346) | | Net decrease in cash | $(30,044) | $(52,238) | - In June 2023, the company initiated a Restructuring Plan, incurring costs of approximately $7.1 million in Q2 2023 to enhance productivity and streamline operations. As of September 30, 2023, a liability of $1.1 million remains[51][52] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's performance, highlighting a 5.4% revenue increase in Q3 2023 year-over-year, driven by OEM incentives, while YTD revenues decreased 6.0%. The company faces macroeconomic headwinds including low vehicle inventory, rising interest rates, and inflation. Key metrics show a 6.0% increase in average monthly unique visitors in Q3 2023, but a decrease in independent dealers. Adjusted EBITDA turned positive in Q3 2023 at $0.8 million, a significant improvement from an $8.7 million loss in Q3 2022. The company believes its liquidity of $145.5 million is sufficient for the next 12 months Key Metrics For Q3 2023, Average Monthly Unique Visitors increased by 6.0% YoY to 8.1 million, and Units sold saw a slight 0.8% increase to 82,851. Monetization per unit rose to $495 from $473. The franchise dealer count grew to 8,097, but the independent dealer count fell to 3,406, primarily due to industry consolidation and economic pressures Key Operating Metrics Comparison | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Average Monthly Unique Visitors | 8,058,367 | 7,600,847 | 8,349,586 | 7,358,008 | | Units | 82,851 | 82,206 | 241,965 | 263,918 | | Monetization | $495 | $473 | $484 | $471 | | Franchise Dealer Count (end of period) | 8,097 | 7,776 | 8,097 | 7,776 | | Independent Dealer Count (end of period) | 3,406 | 4,196 | 3,406 | 4,196 | - The number of units decreased 8.3% YTD due to elevated vehicle prices, rising interest rates, and lingering inventory constraints[82] - The decrease in independent dealer count is attributed to industry consolidations and business failures caused by higher interest rates on dealer floor plans and price volatility[85] Non-GAAP Financial Measures The company uses Adjusted EBITDA, a non-GAAP measure, to evaluate operating performance. For Q3 2023, Adjusted EBITDA was $832,000, a significant improvement from a loss of $8.7 million in Q3 2022. For the nine months ended September 30, 2023, the Adjusted EBITDA loss was $15.8 million, compared to a $19.5 million loss in the prior year period. The improvement is attributed to higher revenues and lower operating expenses, excluding items like stock-based compensation and restructuring charges Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(7,875) | $(77,113) | $(47,864) | $(100,546) | | Goodwill impairment | — | 59,775 | — | 59,775 | | Restructuring charges | 1,806 | — | 8,947 | — | | Stock-based compensation | 3,273 | 5,189 | 11,872 | 13,174 | | Depreciation & amortization | 4,894 | 4,284 | 13,176 | 11,729 | | Adjusted EBITDA | $832 | $(8,667) | $(15,752) | $(19,548) | Results of Operations Total revenues for Q3 2023 increased 5.4% YoY to $41.1 million, driven by a significant rise in OEM incentives revenue, which offset a decline in dealer revenue. For YTD 2023, revenues fell 6.0% to $117.4 million. Operating expenses decreased across Sales & Marketing, Technology & Development, and General & Administrative categories in Q3 2023 compared to Q3 2022, primarily due to reduced headcount and professional services fees, though partially offset by restructuring charges Revenue Disaggregation (in thousands) | Revenue Stream | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Dealer revenue | $36,068 | $37,722 | $107,553 | $120,713 | | OEM incentives revenue | $4,944 | $1,189 | $9,490 | $3,613 | | Other revenue | $134 | $141 | $376 | $534 | | Total revenues | $41,146 | $39,052 | $117,419 | $124,860 | - Sales and marketing expenses decreased by $2.0 million (7.9%) in Q3 2023 vs Q3 2022, mainly due to a $2.9 million decrease in employee-related expenses and a $0.6 million decrease in branded media spend[103] - Technology and development expenses decreased by $3.4 million (26.7%) in Q3 2023 vs Q3 2022, primarily due to a $3.0 million decrease in employee-related expenses and a $0.9 million decrease in professional services[105] - In Q3 2022, the company recognized a non-cash goodwill impairment charge of $59.8 million, which is the primary reason for the significant year-over-year improvement in net loss for Q3 and YTD 2023[112] Liquidity and Capital Resources As of September 30, 2023, TrueCar's principal source of liquidity was $145.5 million in cash, cash equivalents, and restricted cash. Management believes these funds are sufficient to support operations for at least the next 12 months. The company's share repurchase program, with a remaining authorization of $45.8 million, saw no activity in the first nine months of 2023. Net cash used in operating activities for the nine months was $16.6 million - Principal sources of liquidity at September 30, 2023, were cash, cash equivalents and restricted cash totaling $145.5 million[116] - The company believes existing liquidity is sufficient to fund operations for at least the next 12 months[117] - The company's share repurchase program has a remaining authorization of $45.8 million as of September 30, 2023. No shares were repurchased during the nine months ended September 30, 2023[118][67] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company does not believe it has material exposure to market risk. Interest rate risk is minimal; a hypothetical 25 basis point decrease in rates would reduce annual interest income by approximately $0.3 million. Inflation has not had a material effect but could harm business if it significantly decreases consumer demand or increases costs. Foreign currency risk is not significant as operations are primarily in the U.S. - A hypothetical 25 basis point decrease in interest rates on the company's cash balance of $145.5 million would result in an approximate $0.3 million decrease in annual interest income[129] - The company does not believe inflation has had a material effect, but acknowledges that significant inflation could harm business by reducing consumer demand or increasing costs[130] Item 4. Controls and Procedures Management, including the principal executive and financial officers, evaluated the company's disclosure controls and procedures as of September 30, 2023. They concluded that these controls were effective at a reasonable assurance level. There were no material changes to the company's internal control over financial reporting during the quarter - Based on an evaluation as of September 30, 2023, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level[133] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[134] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is not currently a party to any material legal proceedings. It may from time to time be involved in various legal proceedings arising from the normal course of business - The company is not currently a party to any material legal proceedings, but may be involved in various legal matters arising from the normal course of business[53][136] Item 1A. Risk Factors The company identifies numerous risks to its business. Key business and industry risks include the potential ineffectiveness of its recent restructuring, sensitivity to the automotive ecosystem (e.g., inventory shortages, labor strikes), reliance on dealer relationships and lead quality, and challenges with new product rollouts like TrueCar+. It also highlights risks from the loss of affinity partners like USAA, intense competition, and a complex regulatory environment. Ownership risks include stock price volatility and ownership concentration. General risks involve public company costs, reliance on technology infrastructure, and potential for natural disasters - The June 2023 Restructuring Plan, which included a 24% workforce reduction, may not be as effective as anticipated and could lead to unintended consequences like employee attrition, loss of institutional knowledge, and failure to meet operational targets[139] - The business is sensitive to the automotive ecosystem, including low inventory levels, supply chain disruptions (e.g., semiconductor shortages), and labor strikes (e.g., UAW strike), which can reduce dealer willingness to participate in the network[141] - The termination of the affinity partnership with USAA in 2020, which accounted for 29% of units in 2019, had a material adverse effect on the business, revenue, and operating results[162] - The business is subject to a complex framework of regulations concerning vehicle sales, advertising, and brokering, which could lead to claims, challenge the business model, or result in fines and penalties[190] - The company faces significant competition from internet search engines (Google), online automotive sites (Cars.com, CarGurus), online retailers (Carvana, CarMax), and OEM-operated sites[187] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the period. The company's board of directors has authorized a share repurchase program of up to $150 million, which was extended to September 30, 2024. However, the company did not repurchase any shares during the three months ended September 30, 2023 - The company's Board of Directors authorized a share repurchase program of up to $150 million, which is effective until September 30, 2024[262] - The company made no repurchases of its common stock during the nine months ended September 30, 2023[67][262] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q. Key exhibits include employment agreements for new executives, a separation agreement, and certifications by the Principal Executive Officer and Principal Financial Officer as required by the Sarbanes-Oxley Act - Exhibits filed with the report include: - Employment Agreement with Oliver M. Foley (CFO) - Separation Agreement with Teresa T. Luong - Employment Agreement with Jay Ku - Certifications pursuant to Section 302 and 906 of the Sarbanes-Oxley Act - XBRL interactive data files[265]