TrueCar Inc. board members, analysts say, were impatient with the company’s pace of innovation and efforts to reverse anemic financial results when they named a new CEO this week amid a restructuring that will trim 24 percent of its work force.
“Fourteen out of the last 15 quarters they’ve had declining year-over-year revenue,” Tom White, managing director at D.A. Davidson Cos., told Automotive News. “I think the board just decided it was time for a change.”
The vehicle listings company said it will cut 102 positions and replaced CEO Mike Darrow, 66, with COO Jantoon Reigersman, 41, who previously was TrueCar’s CFO.
Barbara Carbone, incoming board chair, framed the restructuring as something to help better align costs with revenue and make TrueCar “a nimbler, more efficient” operation. She said the “difficult decision” came after an “extensive review.”
A TrueCar spokesperson said the company would not comment “at the moment” beyond its press release and regulatory filing last week. Darrow, who had led the company since 2019, had not returned a message seeking comment as of press time.
TrueCar said it will incur $7 million in charges, excluding stock-based compensation, in the second and third quarters.
The company said the job cuts and a leadership structure realignment will slash employment expenses by more than $20 million annually, excluding stock-based compensation.
At the end of May, TrueCar had cash and equivalents of $146.5 million. It expects its aggregate cash balance could drop below $125 million.
But TrueCar expects breakeven or positive adjusted earnings before interest, taxes, depreciation and amortization in the fourth quarter, for which it also predicts double-digit percentage year-over-year revenue growth.
The company has suffered financial losses, and this year has been no different. Its first-quarter net loss widened to $19.6 million from $12.4 million in the year-earlier period and an $18.1 million loss in the fourth quarter.
During the company’s May 9 first-quarter earnings call, Darrow highlighted some of the actions the company had taken that he said would reverse TrueCar’s sagging finances. Those included the April launch of TrueCar Wholesale Solutions, a subsidiary focused on providing market-based valuation for used cars, an ongoing expansion of the TrueCar+ digital platform and efforts to convert more traffic into dealership sales.
Restructuring will create a “leaner, meaner” TrueCar, Marvin Fong, e-commerce analyst at BTIG, said in a note to investors.
Darrow “has been dealt a tough hand over the years” with challenges such as COVID-19 and vehicle inventory shortages, Fong said. He noted, however, that TrueCar “has been delivering soft results” even as those challenges have begun to subside.
“Execution in general has room for improvement in our view,” Fong wrote.
TrueCar has restructured before, under Darrow, eliminating more than 30 percent of positions in 2020.
After talking with the company last week, Fong said he believes TrueCar’s strategy will remain “relatively unchanged” but that the company will be “a nimbler, more focused organization.”
He added that TrueCar’s actions appear partially connected to its annual shareholders meeting set for Thursday, June 22, “along with a general desire by the board to accelerate its succession plan.”
Reigersman began the COO job in March 2022 and was CFO from January 2021 to February this year.
J.P. Morgan analyst Rajat Gupta agreed that the CEO switch seemed to stem from board member impatience.
“The timing was abrupt in our view, suggesting urgency from the board of directors to move forward with restructuring,” Gupta wrote in a note last week.
He added that the company also appeared to be “headed in the right directions in terms of inventory and incentives,” which should help boost revenue in future quarters.
The restructuring is positive, D.A. Davidson’s White said, considering the company’s relatively slow pace of launching innovations such as TrueCar+.
“It just sort of took awhile to get it out, and now that it’s out, it seems like it’s a pretty slow, protracted kind of rollout,” he said. “Maybe execute it with a little bit more speed, a little bit more urgency.”
Lean and nimble may follow, White said, but TrueCar will still face challenges.
“The backdrop in which TrueCar was trying to execute on this kind of recovery in their business was challenging for everyone, and it’s still going to be challenging for Jantoon,” he said.
