TrueCar Cuts Guidance After Loss Widens

Online car-shopping service TrueCar (NASDAQ: TRUE) said on May 9 that its first-quarter loss widened to $14.4 million from $9.1 million in Q1 of 2018, as higher expenses more than offset a 6% year-over-year increase in revenue.

TrueCar's revenue and adjusted earnings before interest, taxes, depreciation, and amortization (adjusted EBITDA) both came in at or above the top end of its prior guidance. But the company lowered its forecasts for the remainder of 2019.

TrueCar results: The raw numbers

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

The entrance to TrueCar's headquarters in Santa Monica, California.

Image source: TrueCar.

Key points from TrueCar's first-quarter report

  • "Non-GAAP" expenses, or expenses other than employee stock-option costs, totaled $80.5 million in the first quarter, up from $75 million in the year-ago period, driven primarily by increased sales and marketing spending. That more than accounted for the year-over-year decline in net income. 
  • TrueCar's website had an average of 7.1 million unique visitors per month, down 9% from 7.8 million per month in the first quarter of 2018.
  • A total of 232,781 vehicles were purchased via TrueCar's service in the first quarter, up 1% from a year ago.
  • Monetization, or the average fee collected by the company for each vehicle sold via its services, was $348 in the first quarter, up from $334 a year ago.
  • Average monthly transaction revenue per franchise dealer was $1,723, down 1% from $1,734 in the first quarter of 2018. 
  • TrueCar's total number of franchise dealer partners rose 4% to 12,675 as of the end of the first quarter, up from 12,205 a year ago. 

Why TrueCar is cutting its full-year guidance

Some background: A portion of TrueCar's revenue comes from automakers who have agreed to pay TrueCar to promote the sale of their vehicles primarily through offering additional "incentives," the cash-back or cheap-financing deals that automakers use to adjust pricing from time to time. 

During TrueCar's earnings call, CEO Chip Perry said that as of right now, the company's second-quarter results are trailing its expectations because one major automaker (or "OEM," for "original equipment manufacturer") has decided not to offer incentives via the TrueCar platform this quarter. That has complicated the task of projecting the company's full-year revenue. Perry explained:

This year, we are developing additional product opportunities to improve OEM targetability and reach to help us enter into a larger marketing budget conversations. As a result, we remain confident in our ability to deliver solid OEM growth over the long term. Nevertheless, the lower-than-planned OEM revenues, along with continued challenges in our TrueCar channel, have caused us to revisit our full-year guidance and we believe it is appropriate to lower our forecast for the remainder of 2019.

The upshot is that TrueCar reduced its full-year expectations for revenue and adjusted EBITDA, and widened the ranges in its guidance. For the full year, the company now expects:

  • Revenue between $361 million and $375 million. (Prior guidance: Between $371 million and $378 million. 2018 result: $353.6 million.)
  • Adjusted EBITDA between $27 million and $36 million. (Prior guidance: Between $35 million and $40 million. 2018 result: $32.9 million.) 

For the second quarter of 2019, TrueCar now expects a modest increase in revenue and a decline in adjusted EBITDA from Q2 2018:

  • Revenue between $88.5 million and $90.5 million. (Q2 2018: $87.9 million.)
  • Adjusted EBITDA between $4 million and $6 million. (Q2 2018: $8.7 million.)

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John Rosevear has no position in any of the stocks mentioned. The Motley Fool recommends TrueCar. The Motley Fool has a disclosure policy.

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