TrueCar Inc (TRUE) 2015 Q1 法說會逐字稿

Greetings and welcome to the TrueCar first-quarter 2015 earnings call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce Alison Sternberg, Vice President, Investor Relations. Thank you. You may begin.

Thank you, Operator. Hello and welcome to TrueCar's first-quarter 2015 earnings conference call. Joining me today are Scott Painter, TrueCar's Chief Executive Officer; John Krafcik, President; and Mike Guthrie, Chief Financial Officer.

As a reminder, we will be making forward-looking statements on this call including, but not limited to, statements regarding our Outlook for the second quarter and full-year 2015, the performance of our TrueCar branded channel, the performance of our Affinity group partner marketing channel including the opportunity to grow this channel generally and with USAA in particular, adoption of our products, building the industry benchmark for automobile pricing, and our financial and operational metrics, plans, and strategies. Actual results could differ materially from those contemplated by our forward-looking statements, and reported results should not be considered as an indication of future performance.

We caution you to review the risk factors sections of our Annual Report on Form 10-K for 2014 filed with the Securities and Exchange Commission and our subsequent quarterly report to be filed for a discussion of the factors that could cause our results to differ materially. The forward-looking statements on this call are based on information available to us as of today's date, and we disclaim any obligation to update any forward-looking statements except as required by law.

In addition, we will also discuss GAAP and certain non-GAAP financial measures. Reconciliations of all non-GAAP measures to the most comparable GAAP measures are set forth in the investor relations section of our website at www.true.com. The non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. Now, I'll turn the call over to Scott.

Thanks, Alison, and good afternoon, everyone. It's great to be here to kick off FY15. This is going to been important year for TrueCar. Over our first 10 years in existence, we've enjoyed several major accomplishments. We are a unique and online automotive as the only pay-for-performance business model that enables our dealer partners to pay for sales not for leads or impressions. We work with over 10,000 dealers including over 9,100 franchise dealers representing nearly 30% of stores across the US and over 1,500 non-franchise dealers.

Each month over 5.5 million consumers visit TrueCar in a domestic market that accounts for nearly 1.3 million transactions. We have grown our TrueCar-branded business from 9,000 units in the fourth quarter of 2012 to 70,000 units in the first quarter of 2015. That represents 25% growth per quarter over the last two years-plus. Overall, our users across our affinity channels and our own branded experience account for approximately 4% of all new car sales across the country. We have migrated our experience to mobile, and now over 50% of our traffic comes from individuals accessing TrueCar via a phone or a tablet device. So, it has been a very satisfying decade for the Company and for me as a founder and entrepreneur.

But, now TrueCar is embarking on its most significant evolution since we started the Company, and I'm more excited about what we can achieve than I've ever been. In short, TrueCar is evolving from being a participant in the online marketplace for cars to becoming a platform, or more precisely, the platform for online and mobile automotive benefiting consumers, dealers, and manufacturers. We are becoming a better way to acquire, dispose of, market, offer incentives, sell, and finance automobiles.

The hardest part of building a consumer brand in automotive is establishing trust. In our first 10 years at TrueCar, we've worked very hard to become the objective standard for trusted pricing information. And, now that we've built that foundation, we can focus on solving the entire problem. As we like to say, we are on our own one-yard line with lots of running room in front of us.

It all starts with data. TrueCar is building the industry benchmark for automobile pricing. We have data on virtually every car on the road today. We collect and analyze massive amounts of automotive transaction data, and we know more about automotive consumers and how they shop for and buy cars than just about anyone. We generate our own proprietary data and digest over 10,000 third-party data feeds every day.

Here's just a sense of the scale and the sophistication of our data infrastructure. There are over 450 billion behavioral vehicle consumer dealer and OEM facts on our data platform. We have over 100 million car buyer profiles. We have over 200 million vehicle images, and that number grows 50% every six months and we track 8 million VINs every day. Long-term, we want to be able to use our proprietary analytics and the massive amount of automotive data that we collect to tell consumers what a car is worth. New, used, now and in the future.

We also want to use our behavioral analytics and pattern recognition capabilities to accurately predict what car a given consumer is likely to buy, where she is likely to buy it, and the price that she'll ultimately be willing to pay. We now also deliver targeted OEM incentives exclusively to consumers based on this data, and we're in the earliest stages of leveraging our data to value used cars and power our trading solution.

In January, I addressed the Automotive News World Congress and gave an advanced demo of our new product. The experience I demonstrated that day had three unique attributes. One, it's mobile, and it's and it's simpler to use. Two, it presents an OEM's product in the most compelling and visually appealing manner possible. And, finally, building on TrueCar's data and analytics, it delivers real-time, targeted incentives from OEMs.

Today, I'm pleased to announce that major elements of all three phases of the experience I described in January in Detroit are going live with select manufacturers. First, this week, we launched something we call the model showcase. If you download our app today, or go to www.TrueCar.com on your desktop, you will see an entirely different visual experience using high-resolution photography, embedded video, and other high-quality content provided by the OEMs at no cost to them. This visually compelling experience helps manufacturers present their brands in our environment in the best way possible.

We've launched the model showcase with several manufacturers including BMW, Chrysler, Dodge, Fiat, Hyundai, Jeep, and Ram. And, additionally, Mercedes will launch in early next week. We are in discussions with others to get them on the platform as well. If you want to see the model showcase in its full, feature-rich glory, update the TrueCar app on your mobile device or visit www.TrueCar.com on your desktop and navigate to the Fiat 500 page. Fiat was the first manufacturer that we went live on with this, and we're extremely proud of the presentation and functionality that model showcase delivers.

Second, with this new release we're also introducing TRUECash. We're excited to announce the launch of TRUECash. TRUECash is our new product designation that consolidates the entire targeted incentives business including the historical distribution of incentives for our Affinity group members. The incentive delivery capabilities of the live prospect product and the specialized incentive delivery capability that we have to target the right incentive to the right consumer at the right time.

With the launch of TRUECash across the TrueCar platform within both our Affinity environment as well as our TrueCar branded environment, automakers are now able to use TRUECash to offer consumers special incentive offers based on demographic, psychographic, geographic and other behavioral data and only pay when those incentives have resulted in a successful sale. We expect this first-of-its kind capability to drive incremental sales with a step function increase in economic efficiency for the manufacturers.

And finally, our new app and mobile web experiences include a host of new features including mobile communications enhancements that give consumers more transparency and confidence in their buying experiences and empower the dealers with better closing tools. All of these are designed to improve the overall at-the-dealer experience for both the consumer and the dealer. Taken in their entirety, these new capabilities set the stage for TrueCar to serve better the needs of the entire ecosystem -- the car-buying public, the retailers, and the OEMs.

We expect that these will translate into significant improvements in our key operating metrics such as net funnel efficiency and monetization and will help us to continue to accelerate top line growth at TrueCar. We are incredibly excited about this next phase in our development, and I want to thank personally the TrueCar teams across the Company that have been working so hard to bring these initiatives to life and commercial viability.

Before turning it over to Mike to review the financial performance in Q1 and give guidance, I want to comment on one challenge in an otherwise productive quarter. As most of you know, we've had an incredible relationship with USAA for over seven years. It's fair to say that without the financial and other support of USAA, TrueCar would not have achieved our current level of scale and prominence in the market. We at TrueCar, however, have been very focused recently on building our OEM products, advancing our OEM relationships and continuing to grow our TrueCar-branded business at the highest possible rates.

As a result, we simply have not given USAA the focus it deserves given the quality of the partnership and the growth of the opportunity in front of us. So, I've personally been spending a lot of my time recently in San Antonio meeting with the senior team at USAA discussing ways that we can serve their members better and grow the car-buying service. TrueCar sales still account for just over 10% of auto purchases by USAA members. So, we both agree that there is a lot of room for growth. And, I'm really excited and pleased to announce that TrueCar and USAA are launching a new, integrated marketing effort that will include the first-ever co-branded television advertising campaign between USAA and a partner.

The TV campaign will be supported with online and off-line marketing initiatives including print, digital, email, and mobile as well as deeper integration into USAA's auto loan process to provide special financing options for USAA members. Our respective teams have been working diligently together, and the program is set to kick off in advance of the Memorial Day weekend holiday. USAA has been an essential and dependable part of our business, and we anticipate a return to healthy growth in the USAA channel as we head into our seasonally strongest quarters.

On our last few earnings calls, John Krafcik has provided additional updates on our OEM, dealer, and partner channels and provided an industry forecast update. You will hear from John in Q&A today so that we can shorten the prepared remarks section of our call. Suffice it to say, the auto industry remains very healthy and our current estimate of a total new car unit sales is for 17.1 million. I'm now going to turn over to Mike to walk you through the numbers.

Thanks, and hello, everyone. As Scott has already highlighted, we had a strong start to 2015 and feel really confident about the momentum we are carrying into the seasonally strongest part of our fiscal year. TrueCar delivered record total revenue of $58.6 million in Q1 of 2015. Transaction revenue was also a record at $54.3 million representing 36% growth over Q1 of FY14. We continued to enjoy healthy unit growth with total unit sales coming in at 168,559 units, up 34% year-over-year against the backdrop of overall industry unit sales which grew at only 4.6%. New-car market share grew to 3.9% in Q1 of 2015 from 3.1% at this time last year.

Breaking down unit sales in a little more detail, the TrueCar branded channel accounted for approximately 70,000 unit sales, or 41% of the total. This represented 56% year-over-year growth. Cost per sale continued to decline reaching $194 down 14% from Q1 of last year and down 4% sequentially from Q4 of 2014. We were very pleased with the efficiency of our marketing spend and the continued signals that we are building brand.

Monetization grew above our prior guidance to a record $322 per unit. Monetization in Q1 was bolstered by traction within our non-franchise dealer network and a modest mix shift toward used sales. About 24% of units sold were used in Q1 versus just 22% in Q4. Monetization will be a key metric for us for the balance of the year and next year, particularly as we continue to grow our non-franchise dealer network and as more OEMs partner with us on TRUECash.

Turning to expenses and margins. Our gross margin declined from 91.3% last quarter to 90.4% this quarter. The primary drivers were certain upfront investments in data sources to supplement our sales matching capabilities and support future product initiatives. These costs are nonrecurring in nature, and so we expect the gross margin to bump back up to 91% next quarter.

Technology and product expenses were $8.8 million, or 15.1% of revenue in the first quarter. That compares to Q1 of 2014 when tech and product expenses were $6.6 million, also 15.1% of sales, and to Q4 of last year when we spent a $8.7 million, or 15.7% of sales. We are emphasizing growth in our technology team as we continue to improve our mobile app and overall experience. The most tangible outputs of that effort to date are the release of the model showcase and TRUECash which both launched this week. We also continue to design new products for dealers and OEMs. We opened our new San Francisco office last month and are busy filling it with qualified developers and designers. You should expect to see continued significant investments in this area for the rest of the year.

Sales and marketing expenses were $30.5 million, or 52% of revenue in the first quarter of 2015. That compares to Q1 of 2014 when sales and marketing expenses were $23.6 million, or 53.7% of sales and to Q4 of last year when we spent $28.6 million, or 51.6% of sales. Within sales and marketing spend, customer acquisition costs for the TrueCar-branded channel total $13.5 million, and as I already mentioned, our resultant cost to acquire was $194. That compares favorably to last quarter when acquisition spend total $12.8 million, and our cost to acquire was $201.

We continued to see improvement in our ability to acquire, convert, and close consumers within the TrueCar channel. The unit economics are very appealing. So, for the balance of the year, we will attempt to broaden our reach by advertising in higher CPM modalities in order to continue expanding the brand's reach. You should expect to see continued aggressive growth in investment and sales and marketing for the balance of 2015 as we lean more heavily toward unit growth rather than continued optimization of customer acquisition costs. In fact, customer acquisition spend may increase sequentially by 50% in Q2.

General and administrative expenses totaled $9.4 million, or 16% of sales in Q1 of 2015. That compares to Q1 of 2014 when G&A expenses were $9 million, or 20.6% of sales. As expected and as we've guided, we are seeing significant operating leverage across G&A. We largely built out accounting, finance, and legal in anticipation of our initial public offering last year and so expect to see continued improvements as a percent of revenue for the balance of 2015.

Adjusted EBITDA for the quarter was $4.3 million, or 7.3% of revenue. This compares favorably with our guidance of 6.5% adjusted EBITDA margin and is the second consecutive quarter with adjusted EBITDA margin of greater than 7%. Non-GAAP net income for the quarter was basically breakeven at $126,000 of profit. While GAAP net loss was $11.6 million, or a loss of $0.14 per share. Both numbers were basically on top of consensus and so we continue to do well against our profitability metrics.

The primary non-cash expense items in the quarter were depreciation and amortization of $3.9 million and stock-based compensation of $9.5 million. In addition to stock-based compensation in reconciling GAAP net income to non-GAAP net income, we added back $2.4 million of certain legal costs. We finished the quarter with nearly $143 million of cash and a $50 million credit facility.

Now, let's walk through some of the key metrics that I haven't already referenced. Average monthly unique visitors were 5.5 million representing year-over-year growth of 40%. UVs in the TrueCar channel alone were 3.8 million representing year-over-year growth of nearly 60% and a slight uptick from UV growth last quarter.

We continued to add to our franchise dealer network in the first quarter. In fact, our Q1 net adds were an all-time record of 607 bringing us to a total franchise dealer count of an all-time record of 9,108 representing nearly 30% of all new car franchises. The number of net dealer adds exceeded our expectation. And, while we will continue adding dealers to fill out coverage holes, we do not expect to see this level of net adds in Q2. Our non-franchise dealer count was 1,572 as of the end of the first quarter. Net funnel efficiency was 1.02% in the first quarter, a healthy number considering seasonality and the mix shift towards TrueCar and away from USAA.

Now, I'd like to summarize our Outlook regarding the second quarter of 2015 and the year as a whole. Again, we are pleased with the momentum we are carrying into Q2. For the balance of the year, the focus is going to be on accelerating revenue growth. In addition to the tailwinds of seasonality and a strong new-car market, we are optimistic for the following reasons. First, we will be launching what we expect to be a very successful joint marketing program with USAA. We believe that we will get traffic back up to our forecasted numbers and assuming reasonable NFE will help us deliver strong incremental revenue and adjusted EBITDA in Q2 and Q3.

Second, we have launched model showcase and have made a number of important improvements within the app experience that we expect to drive lifting conversion and close rates this quarter and for the rest of 2015. And, finally, we are rolling out TRUECash, exclusive targeted manufacturer incentives across the entire TrueCar platform. In addition to improving close rates, the success of these programs would be completely incremental to our monetization and to our overall revenue guidance.

With that as a backdrop, at this point we are going to keep full-year 2015 guidance consistent with our last earnings call. $280 million to $290 million in revenue with adjusted EBITDA margins in the 9.5% to 10% range. For the second quarter, we anticipate units to be between 205,000 and 210,000 and monetization of approximately $310. Thus, we expect revenue to be in the range of $67 million to $69 million with adjusted EBITDA of $5.5 million to $6.5 million or approximately 8% to 9% of sales. We have a lot of exciting new initiatives starting in Q2 that could have material impacts on the go-forward model. Without seeing tangible results quite yet, however, it still too early to reset our expectations.

And now, I'll open it up for questions.

(Operator Instructions)

Douglas Anmuth, JPMorgan.

Hello. This is Diana Kluger on for Doug. Two quick questions if that's possible. Just wanted to get a little bit more detail on the USAA campaign. Assuming the spend for that is included in the EBITDA guidance that you've given. Just more details on how the campaign will roll out over the course of the year, and since you didn't change full-year guidance if that was planned before? And then, I'll follow up after that.

Diana, I'm sorry I didn't get the second part, but the USAA campaign in terms of spend is included in our forecast. We are effectively splitting the cost with USAA and will be launching right before Memorial Day and the plan right now is to run all the way through Labor Day and then into the fourth quarter depending on the results that we're seeing. What was the second part of your question?

Just for the full year, since numbers haven't changed some of these new things that have progressed. What that means about reiterating. Both on the spend side and then also on some of the newer product launches.

We looked carefully at the numbers and the forecast for the rest of the year. We have a lot of new things flowing into the business right now. So, we thought it probably most prudent to keep guidance where it is. I think we're very excited about the USAA program. We clearly could have had some more units and traffic in the first quarter. So, we want to get those numbers back up to where they -- the growth rates back up to back where they have been over the last two years and clearly -- or, the penetration rate where that's possible. Anyway, I think we are going to learn a lot more here in the next few weeks and months, and then we'll come back and talk when we have some more data.

Great. Thank you.

Mark Mahaney, RBC Capital Markets.

Okay. Thanks. Two questions please. One is the sustainability of monetization. That number is that something that if it's mix shift and improved conversion? Improved -- improvements on your part? Should we model it out at that level going forward?

And then, I think you said customer acquisition costs should increase by 50% in Q2? Just a little more color around that? I assume that's not [CAC], but it's the total customer acquisition dollars? Your thoughts on the efficacy of that kind of pretty major ramp? Or, is that seasonally to be expected? Thank you.

Thanks, Mark. On the second question about its customer acquisition spend so it's the marketing spend. It's not the cost to acquire. And so, we are -- it is partly seasonality. And, partly a realization that we continue to have really healthy unit economics within the TrueCar channel. And so, we feel like in the balance between continuing to lower cost versus growing the units more aggressively, we want to lean a little more into the growth. That's also combined with our expectation that we're going to see a nice lift in USAA. That carries with it fairly high incremental margin, gives us more freedom to spend around the consumer brand and the TrueCar-branded business.

In terms of monetization, Q2 is generally down from Q1 in monetization, and that's what I guided I said about $310. We are seeing lift from non-franchise dealers, and obviously, we rolled out a lot of things this week. We expect to see monetization pick up from some of those things. We just don't really have it modeled in right now. What tends to happen in the second quarter and it is a little counterintuitive is, you have such a seasonally -- so much seasonally pent-up demand when you go out to set subscription rates, you have this issue of do they really believe you're going to generate that many units. And so, we tend to generally under-monetize just a little bit in Q2 vis-a-vis Q1. So, that's why you're seeing there. But, to the extent we have better than forecasted traction within TRUECash, within our incentive business, you would see that incremental to monetization in Q2.

Okay. Thank you, Mike.

Debra Schwartz, Goldman Sachs.

I was wondering if you could just talk about net funnel efficiency a little bit more. In terms of the decline that you saw in Q1, how much of it is the negative impact from USAA versus the mix shift to TrueCar? And, are there any other factors we should consider? And then, similarly thinking about your Q2 guidance. What are you embedding in terms of an improvement from USAA?

So, Debra, on NFE, what you described were two things that together are both the issues with NFE for the quarter and still was a perfectly positive quarter. But, when you have a mix shift away from USAA, which is the highest NFE channel, and a mix shift towards TrueCar, which has always been the lowest NFE channel, you're going to see overall NFE come down a little bit. Again, for us at the end of the day, when we get down to the margin line if we're where we want to be, we don't worry too much about that number. Had we had a more normal mix shift in the quarter, then obviously, we would've seen a little bit of increment in NFE because most of that would've come from USAA.

In terms of the guidance in the quarter, this is a big campaign. I'm going to let Scott talk a little bit about the campaign and what we're doing with USAA, but our expectations are that it is going to really drive a lot of attention within the channel. So, as a result, we probably have unit growth in Q2 from USAA the highest we've had it in about four or five quarters.

Great. Deb, this is Scott. Just to give you a little bit of color on USAA. I think that if you look at what we see in the system in terms of [KPIs] and early indicators of performance, we're very aware of how that channel performs. We don't report and call it out separately. But, we have seen that there is an opportunity there to do something quite a bit bigger than we have in the past.

And so, the combined marketing effort is a pretty groundbreaking initiative where we're going to be going on television where we've proven our ability to actually acquire customers at almost a direct response level. We understand the unit economics of acquiring a unique visitor based on direct response television and radio. Being able to apply that to USAA, and then obviously assuming that USAA has greater brand equity with their audience, we think we've modeled it pretty accurately.

We are, of course, always juggling between whether or not you want to predict the future or you want to just report the results. And, I think that we're a little bit more conservative, and we want to take the approach where we want to see how these campaigns -- given that they've never been launched before or done before -- how they perform. But, I would expect we'll have some good answers to that here at the Memorial Day holiday.

Debra, one last thing on NFE. A little bit driven by the fact that we actually had a lot of traffic this quarter. So, we had a few quarters where people were asking us why our unique visitors weren't higher, and we've always talked about quality of the traffic. We did have a fair amount of traffic this quarter. So, it probably bumped up higher than we had expected ourselves. And, that is probably a little bit of us reaching more into higher CPM modality than our marketing and bringing more traffic into the TrueCar-branded experience.

Great. And then, one follow-up on marketing. You mentioned the quarter-to-quarter change from Q1 to Q2 having to do with both seasonality as well as the USAA campaign. Curious how much of your marketing message in Q2, or even the lighter Q1 going into heavier Q2, had to do with waiting for TRUECash to launch and whether or not the marketing campaign will be inclusive of that?

Yes, this is Scott. I think that the marketing campaign was really more about the overall market. We had sort of a cold Q1 and so there's a lot of pent-up demand. I think that we are quite bullish on not just the regular seasonality of Q2, Q3, but in particular this year.

I think that we're also excited by the launch of TRUECash. For any of you who really want to see how the OEM incentive platform and the model showcase and TRUECash all work as an integrated offer -- use the app and use the Fiat 500. That will give you the best full overview of how we are really repositioning around a brand.

There is significant incentive. Those TRUECash offers, and this is a remarkable new dimension to the incentive platform, are eligible at all Fiat Studios or dealers across the country even if those studios or dealers are not on the TrueCar platform. So, for the first time, we will actually be generating monetization from non-TrueCar-certified dealers which is I think a pretty good big breakthrough for us. So, spend a little bit of time really playing with that experience and what you'll see over the next month is as those experiences propagate with the other manufacturers that we've mentioned, you'll begin to see our pipeline.

So, Mark, even your comment about how are we viewing these new product lines and how are they going to change our guidance? We really dated debated whether or not we should change anything, and I think that we again want to come down on the side of being conservative. We understand that these things have a long pipeline. That these are long-term relationships, and we are really doing things that have not been done before.

I think in a lot of these conversations that we're having with the OEMs they're very positive. They're very enthusiastic, and they're just not used to doing the things that we're asking them to do. So, I think as we lay down all of that new experience and really see how it propagates on our environments, we're going to be able to predict the results. And, that will start to happen in Q2. We'll have results after this Memorial Day holiday. And, you should look for that to affect our view of how the balance of the year turns out.

Great. Thank you.

Ron Josey, JMP Securities.

Great. Thanks for taking the question. I wanted to follow up on the TRUECash comments just now. Good to see everyone again. How many OEMs are on the platform now? Is it the same amount that were on with USAA? Or, maybe a little bit more? And then, can you talk to us a little more about what the OEMs need to see for more of them to join the platform? Thank you.

Sure, this is Scott. Thanks, Ron. The announcement that we made at the end of Q1 around live prospect -- that has actually gone live now. So, live prospect, which is much more of a deep, in-channel experience -- it is not as intuitive for you to find as an observer. You can't just go in and find a live prospect engagement because it requires that you come into our system, register as a user, and then engage with us and communicate with us over time to witness that. The model showcase is a little bit more surface level.

The announcement that we made today around model showcase, live prospect, and the TRUECash are all additive to what we have been doing in the past historically with just the affinity groups. One of the things we're going to begin to report on, and we don't actually have a number, obviously, for you today. But, what you should hear from us at the end of Q2 is the total amount of TRUECash redemptions which will be a collective of all of those numbers so that we can begin to report on the exclusive savings that we're delivering to TrueCar users. But, all of those folks that we mentioned today whether it's BMW, Mini, Hyundai, all of the FTA brands -- Fiat, Chrysler, Dodge, Ram. All of those are part of either the model showcase, the live prospect tool, or TRUECash.

Got it. Thank you.

John Blackledge, Cowen and Company.

Great. Thank you. Three questions. The unique visitor growth was much better than we had expected. Can you talk about the traffic growth? And, then thoughts for UV growth for the rest of the year. That's one.

Two, on TRUECash. Just wondering how the economics work for TrueCar? And, any thoughts -- ballpark incremental revenue contribution this year? And then, lastly, Google came out with automobile ads earlier this week. It's a new search add that includes images of a car and link to dealers. Scott, maybe if you have any thoughts on competitive pressure from that offering? If any at all? Thank you.

Yes. Thanks, John. I'll take the last one first. The Google announcement, I think, is entirely upstream of us. I think again as a lower funnel experience where we're giving actual out-the-door pricing that's actionable to consumers, we tend to be that last stop. So, even if they do that information search at the top of their experience or they're using search tools or they're even using OEM websites -- we tend to see that the end market buyers tend to ultimately come to TrueCar to ultimately verify that they are getting the right price and the guaranteed savings.

I think with respect to whether or not we see that put a dent in our ability to acquire customers, we are predominantly a mass media brand. So, we are not reliant on a Google search algorithm or any search algorithm for that matter to acquire our customers. We're advertising on television and radio. And, as a result, we tend to be a little bit inoculated from that kind of an effect. But, I think anything that adds to engaging consumers with more robust inventory is additive to the whole process. What we want is we want to see consumers buy cars. We're thrilled when we see big folks like Google investing in making that experience a little more robust because it engages consumers.

As it relates to TRUECash, I think that we're just not going to take the bait on giving you any kind of uptick in guidance. We are excited about it. We think you should be excited about it. It certainly gives us a lot of confidence about the guidance that we have already given. And, we really want to study it this quarter. It just went live, and I think we've got a lot of learning to do. As with any launch, I think there's a whole bunch of things that we would even criticize about whether or not it was optimal. But, I think it is remarkable if you do good and download the app and use the Fiat 500 Fiat experience as I directed you, I think you'll see exactly how much different it is than we have been doing in the past.

Finally, as it relates to UV growth, I think this is just a general comment on the fact that we're building a brand. And, I think we are seeing a lot of really positive signs around consumer response to that brand, the cost structure of our business, the contribution margin, the leverage we have. And, I think that we feel we have a bit of an obligation given that we're so nascent to continue to grow. I think that we can be much more aggressive about our growth, and again, we come out of a place where we almost died as a Company and we were so capital-constrained that we just did not want to lose money.

I think that the discipline exists and persists today, and the good news about that is we're just very disciplined about where we spend money. And, like you, we get worried when our contribution margin goes down. And so, we are always looking to balance the equation of what does it cost us to grow the business versus growth overall, and I think we feel there's a lot more growth out there. We're so unique.

The things that differentiate us in the marketplace are very, very real. If you want to go and look at what anybody would consider to be our [mind share] competition -- at the highest level, we just don't have ads on our site. That should say everything about how we are different. It's not a shopping experience, it's a buying experience.

This shift to mobile is a really fundamental shift. It's not just about saying consumers are going mobile, it's about changing the nature of the dialogue from one of publishing content and publishing data, which is a very different business, than communicating with and engaging with and interacting with customers all the way through their buying process. And so, we see the value of the brand really plays a very big role in our ability to grow, and so that unique visitor growth doesn't surprise us. We are getting pretty experimental with new modalities, and we are going to continue to do that throughout the balance of the year.

Yes, and John, just looking at the first quarter and then to give a little guidance on UVs for the second quarter, we had really, really healthy unique visitor growth in the TrueCar-branded channel, and obviously, did it with $194 cost to acquire. So, it wasn't like we were just buying traffic. We produced really good units as well in the channel. So, we were really comfortable. And, in fact, on the traffic side, all of the other Affinity partners also had healthy growth in traffic. TrueCar actually accelerated growth in the top of the funnel. But, we did do a little bit better job with USAA in terms of traffic, and that's what Scott talked about with the new branding campaign. So, we-re excited about that.

As we look into Q2, I think on a sequential basis you have got seasonality at your back as well as the USAA program. So, we're thinking high-teens percentage growth sequentially in unique visitors with continued healthy growth really across all the channels. But, we will probably see a specific pick-up above and beyond from USAA.

Thank you.

(Operator Instructions)

Steve Dyer, Craig-Hallum.

Thanks. Good afternoon. A couple of quick questions. First, as it relates to OEM incentives, I think last quarter you had indicated 7% or so total revenue coming from that for the year. Is that going to be piled into TRUECash now, or is that different? And, if so, any update there? And then, secondly, maybe what led to the big onslaught of new dealers this quarter, and does that change what you view the optimal number to be going forward? Thanks.

Hello, Steve. This is Scott. I'm going to split this with John Krafcik who is here. I'll just say that at the highest level, TRUECash is going to consolidate everything that we have historically referred to in the OEM incentives line item. Whether that's the Affinity incentives, whether that's live prospect, or whether that's TRUECash. It's all going to be reported as a consolidated number under TRUECash.

Obviously, launching that program, promoting it heavily, means that we're going to see some kind of a bump or shift in where the revenue is coming from. Again, we haven't forecasted that. We do think the pipeline is long. The way that these relationships unfold is really to begin with helping the brands to position themselves in our environment, and the one thing that we're not doing is holding them hostage. We're actually giving them a free opportunity to come in and use their high-definition photography, high resolution photography, build data, incentive data, [sovention] data. So, we're really conveying accurately and in full Technicolor all of their offerings in our environments, and that would normally be an opportunity for us to up-charge the manufacturer. We're not doing that. So, I think that's going to be really the work of the next couple of quarters for us, and we are really going to study how that unfolds with respect to Fiat and some of these other brands that we're launching with.

I think that as it relates to the dealers what you are seeing is again the brand impact. We're spending a lot of money out there on television and radio. We are becoming a bigger and bigger part of every conversation about buying a car even where we're not sourcing or identifying the origination of a customer. If somebody goes into a dealership, and it may not even be a TrueCar dealer. And, it may not even be a TrueCar conversation. They're bringing in their TrueCar certificate, and they are looking at the TrueCar pricing index as a way of really having a baseline, objective understanding of how the market is behaving.

I think that that effect is what's really driving edge. We're now almost entirely inbound. We're starting to see waitlists in a number of areas. I think we are well beyond what we had forecasted as our long-term penetration. So, I think we are at a real inflection point where dealer adds for us and dealer coverage is no longer really an issue. We are now focusing on the quality of those relationships. Again, we look at the cohort analysis where if you are a dealer who's been on our program for longer than three years, your close rate is usually three times as high and your total amount of originations is about three times as high as the earlier cohort.

In some cases, we might see dealers where 20%, 30%, 40% of all of their originations are coming from TrueCar if they've been on the program for quite some time. And, that just takes time and learning and understanding how the program works to see that result manifest. But, I think that for some time we'll continue to see adds. We continue to have holes. If you look at our dealer coverage map, we still look like an early adopter technology map in the Midwest. We still have lots of coverage gaps, and we're looking to fill those.

Steve, we will not see that level of adds this quarter. That really was above our expectation. I do think that there is -- in addition to the advertising -- there is a scarcity value that drives dealers to join the program. As we've always said, we're not looking for every dealer. So, we definitely don't feel we'll have that many net adds this quarter.

And, just a little bit more on that, Steve. So, first quarter is typically our best quarter for dealer adds so that was part of it. We had a super big presence at NADA this year, and I think that was effective in bringing more dealers home. And, we had a really effective print campaign in Automotive News that brought more dealers to the party. I think all those things and the increasing power of our brand were really helpful in driving that dealer count.

Going forward, I think a number more like 150 to 300 per quarter, something like that is probably appropriate. And, it might be helpful in setting your expectations. On the TRUECash side, we've made a lot of progress the last couple of quarters. You've heard from Scott on some of those. I just want to repeat a couple of the things that are really important about what we're doing now that's different than what we have done in the past.

The first is, for the first time we're opening up the entire platform. So, previously, we might have partnered with just USAA or perhaps another Affinity partner. With our latest engagements with OEMs, for example, what we had called live prospect before which is now deepened funnel form of TRUECash. We're opening up the entire platform. Similarly, with fiat TRUECash deals.

So, that's really significant. It more than doubles the scope and the potential reach for the programs. And, the second point which we've had in place before, but I think bears repeating again and again is, these incremental incentive now are not just redeemable through TrueCar dealers. It's the entire network of the brands that we are representing. I think that's a really important point from a monetization standpoint going forward.

Great. Thank you.

Sameet Sinha, B. Riley.

Thank you very much. A couple of questions. Mike, you spoke about exceeding the total customer acquisition spend sequentially. Do you have a number? Maybe I missed that if you gave it earlier. You've done a good job of bringing down that customer acquisition cost per unit over a period of time. Could you give us the modality of what add units you're seeing most efficiently? And then, in case you can provide us with a [statistic] between TV, radio, and other media? That would be helpful. Thank you.

Hi, Sameet. We don't split the number out between the modalities. We consider how we do the acquisition and where we spend our dollars specifically to be intellectual property. But, we spent $13.5 million in the first quarter, and just as a good working estimate, we're looking to spend about $20 million in Q2.

Great. Thank you.

Blake Harper, Wunderlich.

Thanks for taking the questions. I wanted to ask a little bit more about the partnership that you have with USAA, and if that was exclusive or unique in any way? And, if you would pursue other types of partnerships in the future, and how you think about them? And then, secondly, if you are able to share any of the type of economics that would be associated with that partnership either from the revenue side or the expense side that you are doing for the marketing?

Yes. This is Scott. TrueCar today operates the largest Affinity auto-buying platform on a white label or co-branded basis in the US. Just on a pure, numerical basis, it's nearly 99% of all of the programs in operation today. So, it's well over 500 of those types of programs.

USAA, while the largest, is only one of very many. So, Consumer Reports, AAA, AARP -- some of the largest and most well known trustmarks in the US. We operate those auto-buying programs today. So, when we look at our business, it breaks down into roughly two buckets. It's the TrueCar-branded channel and then it's affinity, and of course USAA sticks out in that.

We are obviously talking about an initiative with a very prominent partner, USAA, where we are currently at about 10% penetration within their universe as measured by the number of consumers that they are dealing with that actually register vehicles. So, that's a very immediate proof point that one of their members have purchased a vehicle. We feel that there's just a lot of room to grow there. I think that it's pretty safe to say you could translate that opportunity across the entire Affinity landscape. And, we are adding Affinity partners all the time.

So, just over the last five or six months, we've had numerous announcements of large Affinity partners. We continue to fight for and win that business on a regular basis. You should look for those kinds of adds on an ongoing basis.

One of the big ones that we just announced was Sam's Club. That's obviously a pretty big national brand, and obviously, there are other auto-buying programs in the marketplace that are similar. And so, I think that we will continue to expand that business as aggressively as we can. Internally, the teams are looking to diversify as much as possible. So, the TrueCar-branded team is always looking to grow faster than the Affinity channel, and the Affinity channel is looking to grow as fast as they can. While we like the fact that the TrueCar channel is where our most growth comes from, we still see a lot of potential in that Affinity.

Yes. And, Blake, this is for the current quarter that we just reported on, the TrueCar- branded business was about 41% of all the units. Between USAA and all of the other partners taken in total, those numbers our almost equivalent at this point. We're getting close to where the other partners are almost as large in total as USAA is standalone.

Okay. Thanks.

Kyle Evans, Stephens.

Hello, thanks. Mike, could you talk a little bit about the pricing integrity around the subscription business. That $299 on new, and talk about maybe how that works with the used as well, please?

Yes. In the first quarter, we had -- we did a really good job of maintaining monetization in across subscription and pay-per-sales. So, we did not have any -- there was no lack of pricing integrity in the first quarter, and that's part of the reason we were at $322 overall. That plus some lift, as I said, from the non-franchise dealers.

What I mentioned on the call and the reason I've guided down slightly in monetization in the second quarter is sometimes subscription is [when] the higher the volume, sometimes the harder it is to maintain your subscription price. And, you get so much volume the subscription rate is bigger, and we tend to see seasonally adjusted, the second-quarter pricing comes down a little bit. What would offset that in the second quarter would be incremental revenue from things that we've talked about today that are not currently in the model. So, to the extent we have lift in monetization on TRUECash, that would just offset whatever we happen to lose in Q2.

But, overall on our subscription business, we're maintaining price integrity -- to use your term -- very well. And, we see no change. That's really the benefit of the bargain that we have with the dealers whether they're pay-per-sale or subscription. We have a value prop that says you have to pay us $300 for a successful sale.

And, the dynamic is the same between new and used.

In terms of price and [terms]? Yes, it is.

Okay. And --.

Pricing for used is $100 higher.

Right. A follow-on to an earlier question on the 7% of transaction revenue being OEM incentive. Was that the same in the quarter, and that is where we should keep it in the model for the time being?

It's a good place to keep it in the model. It came down a little bit because of the USAA numbers. We had a slower quarter with USAA then the other channels grew a lot faster. Since the vast majority of our incentives are attached to the USAA program today.

Historically.

Historically. And, certainly in Q1. Then, you saw the number come down -- not a lot, but a little bit. But, obviously, we expect it to pick back up here in the next couple of quarters because we're massively broadening -- under TRUECash, we're massively broadening our incentive program.

On model showcase, is there a revenue component to that? Is that a feature functionality that you are offering at the OEMs that are willing to engage you on TRUECash. How does that work?

The model showcase is really the beginning of a much deeper dialogue with the manufacturer. The way that TRUECash ultimately works is these are incentives that are offered by TrueCar to end users. They work in very much the same way that dealer cash works for a car dealer where one of the things we will be looking to do over time is be very intelligent about who gets what kinds of offers. Obviously, if somebody is as a consumer already committed to a particular vehicle, the goal is to keep them in channel. That's very different than somebody who has perhaps chosen a competitive set vehicle, and we're trying to change their behavior. There's going to need to be more incentive on that car.

So, one of the things that we referenced in the Q1 call is this notion that we would become the AdWords or AdSense of automotive advertising. It's only possible if you begin to intelligently apply based on behavioral and psychological and demographic cues what we see from consumers. I think that this is just the beginning of being able to understand how and when we do that. Initially, coming out of the gate here, we're probably going to pass on most, if not all, of that benefit to consumers, and we are going to just look to over time get much more selective about how and where we do that based on what we learn.

Thank you.

John Blackledge, Cowen and Company.

Great, thanks. Just a couple of follow-ups. TrueTrade -- I think it's being tested with a couple dealer subgroups. Just wondering how it's going if you can provide some details on the learnings from the consumer side and dealer side? And then, back to the USAA. The units came in lower in the first quarter. Just again, remind what drove that again? And then, for the joint marketing campaign, is the ad spend being split evenly between USAA and True? Or, is True bearing more or less of the spend? Thank you.

Yes. So, John, on TrueTrade on the last call I had mentioned that we thought we would have about 3,000 condition reports filled out in the month of March, and that would translate into a couple of hundred unit sales. We actually are spot on top of that number in terms of condition reports, and actually, we're significantly higher almost 2x higher in terms of actual trade-ins transacted. I'd say, overall, we feel really good about where the program is. We do have a handful of dealer groups that are engaging with us right now and looking at daily values, and we're, I'd say, we've stayed ahead of the plans that we've been talking to you about in terms of being able to launch this as a meaningful revenue stream in 2016 which has always been our focus. In terms of the USAA question, equal split in terms of the economics and the cost. And then, your last question was about units in the first quarter? Is that what you asked me?

Just what drove the lower -- the unit came in a little bit light. What was the key reason?

It was just focus, I think, more than anything. Every partner needs to be covered and focused, and we've been spending just an enormous amount of our time on the branded business, on OEMs, launching TRUECash, model showcases, and things like that. With partners, you have to be in front of them all the time. With marketing programs, and I think quite honestly over time, it has been such a dependable and reliable channel that maybe we haven't pushed for more creative marketing programs.

So, Scott has been spending a lot of his time down there. I have as well. We are launching the co-branded program campaign in a matter of weeks. A lot of excitement behind that on both sides, and everybody really want to get the unit numbers back up where we think they should be. We thought we were -- in the quarter based on our forecast, we were about 100,000 monthly uniques light of our forecast. And, if you just look at that in terms of low incremental NFE of 2%, which is very low for the USAA channel, you're talking about 2,000 units light per month. So, about 6,000 for the quarter. So, that is our miss. That was our problem.

Okay.

We're going to fix that in Q2.

Okay. Thank you. Thanks a lot.

Thanks, John.

Operator, this is Scott Painter. I just want to make one correction. Earlier, I announced that we've got Sam's Club. That is not an official announcement yet. So, to correct that statement, we over the last quarter launched 23 new partner auto-buying programs. [14 number that employing by quarter was eight credit unions, one membership organization, AAA Northern California Nevada and Utah, as well as Safeco] and stay tuned for any other announcements.

Thank you. Ladies and judgment, this concludes today's teleconference. You may disconnect your lines at this time. Thank you all for your participation.