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TrueCar Earnings Beat Expectations, but a Key Partner Is Departing

By John Rosevear - Feb 21, 2020 at 11:28AM

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The partner refers 29% of TrueCar's sales.

Online car-shopping service TrueCar (TRUE -4.63%) said on Feb. 20 that its fourth-quarter net loss widened to $8.8 million, from $6.4 million a year ago, as new-car purchases made via the company's services declined 3% from the year-ago period.

On a per-share basis, TrueCar lost $0.08 per share in the fourth quarter, beating Wall Street's expectations. Revenue of $89.7 million, down 2% from a year ago, also beat expectations. Analysts polled by FactSet had expected a loss of $0.11 per share on revenue of $88 million, on average.

The better-than-expected quarter helped push TrueCar's full-year revenue and adjusted earnings before interest, tax, depreciation, and amortization (adjusted EBITDA) above the guidance ranges it gave in November.

But the small earnings beat was overshadowed by news that a key partner has decided to discontinue its relationship with the company. TrueCar's stock fell sharply in after-hours trading after the news was released.

The raw numbers

Metric Q4 2019 Change vs. Q4 2018 2019 Change vs. 2018
Revenue $89.7 million (2%) $353.9 million 0%
Vehicles purchased (units) 248,037 (3%) 998,495 (0.7%)
Adjusted EBITDA $4.3 million (50.6%) $18.9 million (43.5%)
Net income (loss) ($8.8 million) ($2.4 million decline) ($54.9 million) ($26.6 million decline)
Adjusted net income (loss) ($1.3 million) ($4.6 million decline) ($3.5 million) ($15.2 million decline)
Net income (loss) per share ($0.08) ($0.02 decline) ($0.52) ($0.24 decline)
Adjusted net income (loss) per share ($0.01) ($0.04 decline) ($0.03) ($0.14 decline)

Data source: TrueCar. EBITDA = earnings before interest, tax, depreciation, and amortization. Non-GAAP "adjusted" figures exclude employee stock-option expenses and nonrecurring costs.

What happened at TrueCar in the fourth quarter?

  • Non-GAAP (adjusted) expenses, or expenses other than employee stock option costs, totaled $85.3 million in the fourth quarter, up from $82.3 million a year ago.
  • TrueCar's website had an average of 7.7 million unique visitors per month in the fourth quarter, up from 6.5 million per month in the fourth quarter of 2018.
  • In total, 248,037 vehicles were purchased via TrueCar's service, down 3% from a year ago.
  • Monetization, or the average fee collected by the company from dealers for each vehicle sold via its service, was $342 in the fourth quarter, up from $334 in the fourth quarter of 2018.
  • Average monthly transaction revenue per "franchise" dealer was $1,748, down 2% from $1,780 in the year-ago period. ("Franchise" dealers are those that hold a franchise from an automaker to sell new vehicles.)
  • TrueCar had 12,565 franchise dealer partners as of the end of the fourth quarter, down 1% from a year ago.
The entrance to TrueCar's corporate offices in Santa Monica, California.

Image source: TrueCar.

TrueCar is losing an important partner

TrueCar's results were overshadowed by the news that a longtime partner, USAA Federal Savings Bank, has decided to end the relationship as of the end of the third quarter of 2020.

That's a big deal: TrueCar has had a revenue-sharing relationship with USAA for 13 years, and customers referred to TrueCar by USAA account for about 29% of the vehicles sold via the service.

During TrueCar's earnings call, interim CEO Mike Darrow said that USAA gave TrueCar "very little notice" of the decision.

To be clear, this announcement does not reflect on the service TrueCar has provided to USAA members over the course of a long and successful 13-year partnership. Ultimately, USAA made it clear to us that they have decided to stop providing the car buying service to their members on October 1 in an effort to simplify their business and focus on core product offerings.

Darrow said that he's confident that the company will be able to maintain its adjusted EBITDA margins through 2020 despite the partnership's end and noted that the end of the relationship will free TrueCar to pursue new partnerships and audience segments.

TrueCar's 2020 guidance

For the first quarter of 2020, TrueCar said that auto investors should expect:

  • Revenue between $87 million and $89 million (2019 Q1: $85.8 million)
  • Adjusted EBITDA between $3 million and $4 million (2019 Q1: $5.1 million)

And for the full year:

  • Revenue between $335 million and $365 million (2019: $353.9 million)
  • Adjusted EBITDA between $15 million and $20 million (2019: $18.9 million)

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