TrueCar, Inc. (NASDAQ: TRUE) is a leading automotive digital marketplace that enables car buyers to connect with its nationwide network of Certified Dealers. The company has established a diverse software ecosystem on a common technology infrastructure, powered by proprietary data and analytics. TrueCar's platform is available on its TrueCar website and mobile applications, as well as through customized and co-branded platforms for its many affinity group marketing partners.

In the fiscal year 2023, TrueCar reported annual revenue of $158,706,000, a decrease of 1.7% compared to the previous year. The company's net loss for the year was $49,766,000. TrueCar's annual operating cash flow was -$22,414,000, and its annual free cash flow was -$34,223,000.

For the first quarter of 2024, TrueCar reported revenue of $41,052,000, an increase of 11.0% year-over-year. The company's net loss for the quarter was $5,848,000. TrueCar's operating cash flow for the quarter was $2,049,000, and its free cash flow was -$2,560,000.

Business Overview

TrueCar's business model is centered around providing consumers with market-based pricing data on new and used cars, and connecting them with its network of TrueCar Certified Dealers. The company benefits consumers by providing information related to what others have paid for a make, model and trim of car in their area and price offers on actual vehicle inventory, which it refers to as VIN-based offers, from its network of TrueCar Certified Dealers. VIN-based offers provide consumers with price offers for specific vehicles from specific dealers.

TrueCar benefits its network of TrueCar Certified Dealers by enabling them to attract these informed, in-market consumers in a cost-effective, accountable manner, which the company believes helps them to sell more cars profitably. TrueCar also benefits automobile manufacturers (OEMs) by allowing them to more effectively target their incentive spending at deep-in-market consumers during their purchase process.

TrueCar's network of TrueCar Certified Dealers consists primarily of new car franchises, representing all major makes of cars, as well as independent dealers selling used vehicles. TrueCar Certified Dealers operate in all 50 states and the District of Columbia. The company's subsidiary, TCDS, provides its Trade and Payments solutions, which give consumers information on the value of the vehicle they wish to sell or trade-in and enables them to obtain a guaranteed trade-in price before setting foot in the dealership.

Outlook

For the second quarter of 2024, TrueCar expects to grow revenue by 13% year-over-year, while maintaining an adjusted EBITDA target of breakeven. The company plans to increase its marketing spend in the quarter to capture a greater share of new vehicle shoppers for its franchise dealer network, which it believes will further accelerate revenue growth in the second half of the year and put it on a path to achieving positive free cash flow in the fourth quarter.

TrueCar's long-term goal is to return the business to $300 million in revenue and a 10% free cash flow margin by the end of 2026. The company plans to achieve this by focusing on four key building blocks: 1) continuing to activate new dealers, with a focus on regaining many of the franchise dealers that left the platform during the recent inventory constraints; 2) reducing dealer churn by doubling down on its commitment to help them drive incremental sales and providing them with unmatched support and service; 3) continuing to grow average revenue per dealer through its TrueCar Marketing Solutions (TCMS) product offering; and 4) growing OEM revenue by expanding its OEM partnerships and continuing to invest in highly effective incentive programs across its network of affinity partners.

Risks and Challenges

TrueCar's business is subject to risks related to the larger automotive ecosystem, including recent low automobile inventory supply levels, which have adversely impacted the company's business, results of operations and prospects. The company's lead quality or quantity could decline, which could result in a decline in unit volume, dealers leaving its network or insisting on lower subscription rates, thereby reducing its revenue and harming its business.

Additionally, the success of TrueCar's TrueCar+ offering, which aims to provide an end-to-end car-buying experience, is critical to the company's long-term success. If TrueCar is not successful in rolling out this offering, providing a compelling value proposition to consumers and dealers using it, integrating its current and future offerings into such experiences or appropriately monetizing them, its business and prospects could be adversely affected.

TrueCar also faces competition from a variety of companies that provide vehicle inventory listings, vehicle information, lead generation and car-buying services designed to reach consumers and enable dealers to reach these consumers. The company's ability to maintain and grow its dealer network, increase the number of transactions between its users and TrueCar Certified Dealers, and derive revenue from dealers in its network are all critical to its success.

Financial Analysis

TrueCar's financial performance has been impacted by the broader challenges in the automotive industry, including the inventory shortages and the termination of its partnership with USAA Federal Savings Bank in 2020. The company's annual revenue decreased by 1.7% in 2023 to $158,706,000, while its net loss for the year was $49,766,000. TrueCar's annual operating cash flow was -$22,414,000, and its annual free cash flow was -$34,223,000.

In the first quarter of 2024, TrueCar's revenue increased by 11.0% year-over-year to $41,052,000, driven by growth in its core dealer business and the continued strength of OEM incentive revenue. The company's net loss for the quarter was $5,848,000, while its operating cash flow was $2,049,000 and its free cash flow was -$2,560,000.

TrueCar's financial ratios reflect the challenges it has faced in recent years. The company's current ratio and quick ratio are both 5.8, indicating a strong liquidity position. However, its debt ratio is 0.07, and its debt-to-equity ratio is 0.09, suggesting a relatively low level of leverage. TrueCar's return on assets and return on equity are both negative, at -0.19 and -0.23, respectively, reflecting the company's ongoing losses.

Liquidity

As of March 31, 2024, TrueCar had cash, cash equivalents and restricted cash totaling $133,687,000. The company has incurred cumulative losses of $568,146,000 from its operations through March 31, 2024 and expects to incur additional losses in the future.

TrueCar generates cash inflows from operations primarily from selling services to dealers participating in its network of TrueCar Certified Dealers, and cash outflows to enable its business operations, develop new services and core technologies, and fund repurchases of its common stock. The company believes that its existing sources of liquidity and cash expected to be generated from operations will be sufficient to fund its operations for at least the next 12 months.

TrueCar has an open market stock repurchase program that allows for the repurchase of up to $100 million of its common stock through December 31, 2026. As of March 31, 2024, the company had a remaining authorization of $100 million for future share repurchases.

Conclusion

TrueCar is navigating a challenging automotive landscape, marked by inventory shortages and broader macroeconomic headwinds. The company's focus on expanding its dealer network, reducing churn, growing average revenue per dealer, and increasing OEM revenue represents a strategic path forward. However, the success of its TrueCar+ offering and the ability to provide a compelling value proposition to both consumers and dealers will be critical to the company's long-term growth and profitability.

TrueCar's financial performance has been impacted by these industry-wide challenges, as evidenced by its declining revenue and ongoing losses. The company's strong liquidity position and stock repurchase program provide some financial flexibility, but it will need to execute on its strategic initiatives to return to sustainable profitability and growth. Investors should closely monitor TrueCar's progress in implementing its key initiatives and its ability to adapt to the evolving automotive landscape.