TrueCar Inc (TRUE) 2016 Q1 法說會逐字稿

Greetings, and welcome to the TrueCar Inc first-quarter 2016 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Ms. Alison Sternberg. Thank you, Ms. Sternberg. You may begin.

Thank you, operator. Hello, and welcome to TrueCar's first-quarter 2016 earnings conference call. Joining me today are Chip Perry, President and Chief Executive Officer; 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 2016, Management's beliefs and expectations as to future events, plans and strategies, our ability to improve our relationships with and perception among dealers, changes to our product offerings, planned advertising expenditures, and the effects of operational initiatives, including investments intended to improve close rates, our technology infrastructure, internal research, the productivity and coverage of our dealer network, dealer training and service, and the core experience for consumers and dealers.

Forward-looking statements are not, and should not be relied upon as, guarantees of future performance or results. Actual results could differ materially from those contemplated by our forward-looking statements. We caution you to review the risk factors sections of our annual report on Form 10-K for 2015, filed with the Securities and Exchange Commission, and our quarterly report for the quarter ended March 31, 2016, to be filed with the SEC, 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 statement, 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 directly comparable GAAP measures are set forth in the investor relations section of our website, at 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 Chip.

Thank you, Alison. Good afternoon, everyone on the call today. Before Mike can walk you through our final results for the quarter, I'd like to update you on our progress since our last call.

At the time, you will recall that I outlined our plan to take the Company forward by refining how our marketplace works so they can provide the best overall value proposition to car buyers, dealers and OEMs. As I outlined on our last call, TrueCar has four important strengths and leveragable assets that give us some clear sources of differentiation in the market.

First, our new car pricing transparency model, second, our powerful value proposition for dealers through our fully accountable cost reaction model. Third, our close relationships with our affinity partners, and fourth, our rapidly growing brand, which has a very positive image with consumers.

With another quarter of operating the Company under my belt, I believe even more strongly in the value of the unique assets and in our ability to reenergize the growth of our Company. In fact, the latest March 2016 comScore audience data supports my confidence in our brand.

According to comScore, TrueCar's year-over-year traffic growth is again by far the highest in our competitive set. While consumer traffic actually declined for a few of our major competitors, including cars.com, Kelley Blue Book and Edmunds. On our last call, I also outlined some shortcomings in the execution of our model. Clearly, the first and highest priority is to turn around the negative sentiment that some dealers feel today towards TrueCar.

Dealers are our paying customers, and we must continue to focus on creating a more balanced marketplace, benefiting both consumers and dealers alike. I'm very happy to report we have made some good progress on this front. Our major accomplishment in the first quarter of 2016 was the creation of our Dealer Pledge, which articulates a wide range of changes across our business, aimed at addressing the concerns we've been hearing from our dealers over the past couple of years.

We rolled out the Dealer Pledge on March 27, and we promoted it at the annual National Automotive Dealers Association convention in early April. A variety of content regarding the Pledge is on our truecar.com/Pledge landing page, and I encourage all of you to read through it. Importantly, the Pledge has been deeply embraced and internalized by every member of the TrueCar team, and has reset our Company's internal compass, aligning it towards customer service and marketplace balance.

The Dealer Pledge addresses three major areas in which TrueCar is working to improve the dealer experience, while also improving our value proposition to consumers. First, we are moving to reduce the use of TrueCar as a purely price-driven shopping tool, and enabled dealers to compete on factors other than just price. We're making major changes in our product offering to address concerns that TrueCar does some things that hurt dealer profitability and puts sand in the gears of car transactions.

The product changes we've made include moving move towards VIN based presentations of TrueCar's certified dealer inventory to consumers, eliminating the anonymous dealer list page, which entailed removing an unbranded dealer pricing page that came before consumers submitted their contact information to TrueCar certified dealers, and adding more dealer specific branding to our environment.

In the second key component of our Pledge, we are addressing concerns about how we treat dealers as customers by redesigning our data policy, modifying our billing models and practices, and significantly enhancing our ability to have live one-on-one interactions with our dealer customers. As part of the Pledge, we clarified our data usage and deletion policy and committed to a commissioning a Big Four auditing firm to validate our strict adherence to these policies. We also committed to begin offering subscription billing options in current pay per action space, and clarified our policy around offering sales credit.

And finally, we plan to hire approximately 100 Field Service Consultants, so that each dealer can receive a monthly visit from a TrueCar representative, thereby helping dealers make better use of our tools and close more sales. In the third component of our Pledge, we're making changes to the consumer facing advertising and website messaging, without abandoning our position on transparency. To that end, we're creating more balanced messaging that portrays dealers in a positive light.

We removed Never Overpay from our messaging, as it could be taken to imply that dealers over-charge consumers. We're also beginning to highlight more prominently in our advertising the importance of TrueCar certified dealers in delivering a transparent car buying experience. Finally, in the Pledge, we also clarified our intentions regarding TrueCar's potential future involvement in other key parts of the car buying process.

In the Pledge, we have said that we'll only support indirect finance, and thus will not offer third-party direct finance products through truecar.com. And any trade-in product we introduce will be based on well-accepted wholesale valuations, and will be offered on a dealer opt-in basis. Over the course of the year, we're going to publish progress reports on our Pledge to the industry, to hold ourselves accountable to the commitments we made.

At NADA, we received very positive feedback on the Pledge from many TrueCar and non-TrueCar dealers. TrueCar's dealer count and dealer coverage are now beginning to improve, reflecting dealers' willingness to work with us. Importantly, I believe it is this new approach that is enabling us to build a bridge back to car dealers who left us last year, including AutoNation, which last week agreed to begin testing TrueCar at 55 of its dealerships.

It will take some time before any of this translates into concrete financial improvement, but I feel confident that we have laid the foundation for our future growth. In addition to rolling out the Dealer Pledge, in the first quarter 2016, we significantly strengthened the leadership of our dealer sales and service teams.

First, we hired Brian Skutta as our Executive Vice President of Dealer Sales and Service, effective February 29. Brian and I worked together at autotrader.com, and he has an outstanding track record of building innovative digital marketing solutions for dealers, and helping them maximize their results from these solutions through strong customer service.

Brian joined TrueCar from AutoAlert, where he was the President and CEO. Prior to his work at AutoAlert, Brian was the Vice President and General Manager at VIN Solutions and Haystack Digital Marketing, where he led both companies' rapid growth following their acquisition by autotrader.com. He also served as the first General Manager of autotrader.com's trade-in marketplace, where in 2009 he led the launch of a first-of-a-kind service that enabled consumers to receive liquid sight-unseen offers for their used cars, and redeem these offers from participating auto dealers. We're very excited to have Brian on the TrueCar team.

In addition to Brian, Jim Menard has joined the TrueCar team as our Senior Vice President of Sales, a position that will contribute directly to strengthening dealer relationships across the TrueCar certified dealer network. Jim and I also worked together at autotrader.com, where he had a great career and was ultimately the Senior Vice President in charge of the entire 800 person dealer sales team. He joins TrueCar after spending nearly 20 years in the auto industry, fostering partnerships with dealers all across America.

On the product and technology side of the Company, as we discussed on the last call, we are taking steps to significantly improve our data and product platforms. This will enable us to improve both product quality and increase product velocity, so that we can be more responsive to dealers, manufacturers and consumers. This summer, we will begin testing alternative treatments of our user experience that include different combinations of the placement of user registration and different and stronger messaging on the benefits to consumers from proceeding all the way to releasing their contact information to dealers.

We believe the insights derived from this testing will enable us to pull more car buyers completely through our online experience and dealer introduction process, thereby improving conversion and close rates. Finally, we continue to develop our internal research capability. We are now conducting focus groups across the country, along with significant direct input from dealers, in order to assess ways in which we can be a catalyst for improving the overall automotive retail experience for both dealers and consumers.

The output of that research will help inform the future direction of our consumer and dealer value propositions. We still have plenty of work to do, and while we are starting to see the benefits of the changes we're making, I don't expect to see improved financial momentum until later in the year. Mike's going to give you more details on this.

Regardless, I'm very excited about the early progress we're making, and about the plan we have in place to position TrueCar as the category winner in this market, and for much stronger growth in 2017 and beyond. I'll now turn the call over to Mike, who will explain our financial performance in more detail.

Thanks, Chip, and good afternoon, everyone. In the first quarter of 2016, we basically did what we set out to do. With revenue hitting the high end of our $60 million to $62 million guidance, units also hitting the high end of our 170,000 to 175,000 unit guidance, and adjusted EBITDA exceeding our guidance of break-even.

In the second quarter, we have started to make more significant investments in our three major focus areas, dealer sales and service, our product and technology platform, and consumer and dealer research. We'll feel the impact of these investments more fully in the second quarter, but we'll likely not see the top line benefits until later in the year. Revenue in the first quarter of FY16 totaled $61.9 million, compared to $58.6 million this time last year, or 6% growth.

Transaction revenue also grew 6% year over year, to $57.4 million in Q1 of 2016, compared to $54.3 million in the first quarter last year. Units grew 4% to 175,000 in Q1 of FY16, from 169,000 in Q1 of FY15. We ended the first quarter with 9,281 franchise dealers, up from 9,108 at the end of Q1 2015, and up sequentially from 9,094 at the end of Q4 2015.

The Q1 2016 total does not include the 55 AutoNation stores that began a new trial with us starting on April 29. Our non-franchise or independent dealer count at the end of the first quarter, 2,321, up from 1,578 at the end of Q1 2015 and up sequentially from 2,082 at the end of Q4. We ended the first quarter with a total dealer count of 11,602, which is an all-time high for TrueCar.

Our sales [funnel] experienced similar dynamics in Q1 of 2016, as it has over the past three to four quarters, with high growth in the top of the funnel unique visitors, slightly slower growth in mid-funnel prospects, and much slower growth in actual units. In Q1, we actually grew TrueCar prospects at 25% year over year and USAA prospects at 24% year over year.

And so while Q1 of 2016 marks the third consecutive sequential decline in close rates, given the recent improvements we are seeing in the dealer network and network coverage, I believe that close rates will begin to show sequential improvement in the second quarter. Also, we are starting to see enough positive trends to support our belief that we'll return to healthier year-over-year top line growth, and some margin expansion, by the fourth quarter.

Looking at the Q1 funnel and other metrics in more detail, unique visitors were 6.7 million, up 21% year over year. Prospects totaled 953,000, up 18% year over year, and units were 175,000, up 4% year over year. The new/used mix was 70% new, 30% used.

Monetization in the first quarter was $328 per unit, which was up 1% sequentially and 2% year over year. Transaction revenue per franchise dealer in the first quarter of 2016 was $6,249, up 1% from $6,164 in Q1 of 2015. Net Funnel Efficiency was 0.9% in the first quarter of 2016, versus 1.02% in Q1 of 2015.

In the first quarter of 2016, given our close rates, we reduced acquisition spend in the TrueCar branded channel by 5% year over year, and drove costs per sale down to $176, or roughly 9% lower than in Q1 of last year. Given our improving network and the seasonality of the industry, however, we expect to ramp TrueCar branded acquisition spend by nearly $3 million sequentially in Q2, while generating better close rates.

Turning to the expenses and margins, all of the following financial metrics are on a non-GAAP basis, unless I state otherwise. Gross profit for the quarter was $55.9 million and gross margin was 90.3%.

Technology and product expenses were $12.1 million, or 19.5% of revenue, in Q1 of 2016. That compares to Q1 of 2015, when tech and product expenses were $8.8 million, or 15.1% of sales. The year-over-year growth in expenses is related to investments in our product and technology teams that began in Q2 of last year, and to incremental investments related to our re-platforming project.

Sales and marketing expenses were $31.3 million, or 50.7% of revenue, in Q1 of 2016. That compares to Q1 of 2015, when sales and marketing expenses were $30.5 million, or 52% of sales. Within sales and marketing spend, customer acquisition costs for the TrueCar branded channel in the first quarter totaled $12.8 million, with a resulting cost to acquire of $176 per unit.

Partner revenue share and other partner marketing expenses totaled $8.9 million, and sales and marketing headcount and other costs were $9.7 million for the quarter. General and administrative expenses were $11.4 million for the quarter, or 18.4% of revenue, compared to $9.4 million, or 16% of revenue, in Q1 of 2015.

The growth in spend reflects primarily our year-over-year investment to scale our human resources organization, and investments in our accounting team to support the first year of our SOX compliance program. For the first quarter, adjusted EBITDA was $1.1 million, or 1.7% of revenue. The primary non-cash expense items for the quarter were depreciation and amortization of $5.9 million, and stock-based compensation of $5.9 million. In our adjusted EBITDA calculation, we also added back $272,000 of litigation costs.

GAAP net loss for the quarter was $11.7 million, or a net loss of $0.14 per share, and includes $700,000 of accelerated software depreciation, as we shortened the useful lives of some of our capitalized software in conjunction with our re-platforming project. We expect similar levels of accelerated depreciation for the remainder of the year. Our non-GAAP net loss for the quarter was $5.5 million, or a non-GAAP net loss of $0.07 per share, and that compares to Q1 of last year, when our non-GAAP net income was $0.1 million, or basically break-even non-GAAP net income per share.

Quickly turning to our balance sheet, as of March 31, 2016, our networking capital was $111.4 million, with cash balances totaling $106 million, and no draw-downs on our $30 million line of credit. So we remain very liquid. Now I'd like to turn to guidance and share our outlook regarding the second quarter of 2016 and the year as a whole.

We are starting to make investments in the following three areas of operational emphasis. Number one, bolstering our dealer sales and support team; two, enhancing our product and technology platform; and three, building a world-class internal research team. These will continue to be the areas of primary investments throughout 2016.

As we have cited previously, in order to increase Net Funnel Efficiency, we need to improve both the conversion rate and close rate by pulling more car buyers through our experience and increasing overall dealer network productivity. These will be the areas of major focus this year. With that as a backdrop, we are going to keep full-year 2016 guidance consistent with our last earnings call, 4% to 6% annual revenue growth, with breakeven adjusted EBITDA.

Sequential investments in operating expenses in Q2 over Q1 will be as follows. An increase in acquisition marketing spend of nearly $3 million; incremental partner marketing costs of $1.5 million, primarily to support the increased level of forecasted revenue, but also due to targeted spend to support both USAA and Sam's Club; and $1.5 million of headcount-related costs over Q1, focused primarily in our dealer and technology organizations.

With those investments in mind, for the second quarter of FY16, guidance is as follows. Units of 185,000, to 190,000; total revenue of between $64 million and $66 million, which roughly flat year over year; and adjusted EBITDA of a loss of between $2 million and $3 million. We are clearly building a financial bridge back to more attractive top line growth and better margins, which we expect to see by Q4.

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

(Operator Instructions)

Our first question comes from the line of Suneet Sinha, B. Riley. Please proceed with your question.

Thank you very much. Can you speak about the subscription model? I know you were opening it up to your dealer network to -- for them to opt in, into that, in case that they prefer that versus the CPA model.

Second question is, if you can talk about traffic at your competitors. Any sense of why that is declining? Is it because of your brand and your advertising gaining significant traction? Thank you.

Thank you, Suneet. Chip Perry here. Yes, we are moving to enable dealers to opt in to using a subscription model, in states where we use what we call a pay per action approach. We believe very strongly in pay per action, because it enables dealers to see us as an accountable marketing medium, in which they only pay us when a car gets sold and we influence the sale of that car. So as we offer a subscription option to dealers, what we'll be doing is maintaining the pay per action, underpinning the need for that subscription approach.

So we'll make a forecast for our dealers of what their results will be in these pay per action states, and then agree to a subscription fee and we'll also continue to conduct our normal sales matching process with these dealers, so that they know which of their sales that we were influential in. And then we'll enable the dealers, then, to have that ability to potentially budget themselves, budget their expenses, in a more methodical way.

This is an approach that many dealers have come up to us and suggested, hey, let us budget ourselves. We're fine with the pay per action underpinning, we just want to be able to budget our expenses.

So that's why we made that move, and we've already experienced and felt quite a few positive reaction. We're going to be testing this, actually piloting it in the state of Georgia here very soon. And we'll be rolling it out later this year across the whole country. So we're expecting many dealers who have been on the sidelines to want to take another look, because that's something they've been asking for.

And many dealers will remain on a pay per action model, as well. So there will be plenty of dealers, when we roll this out in Georgia, who will prefer to be a straight paper sale, and we'll continue to do that for them.

By no means will all dealers opt in for the subscription model. And so our business model is different than other third parties, because we connect the top of the funnel unique visitor all the way through to the sale. So that gives us many opportunities to both market more surgically and target effectively and efficiently, to find real car buyers. And it also creates a lot discipline within our marketplace, to provide the kind of quality experience that enables consumers to get what they need, and thus to be able to want to make contact with and do business with one of our dealers.

So the accountability aspects of the model create a lot of internal discipline that is very positive for our marketplace and for our customers. And with respect to your question around traffic and competitors, we study the comScore data like everybody does. And we're pleased to see that, as we have for the past several months, have the fastest growth in our category, compared to all the other major third parties, some of which, as I noted, are actually in decline mode and the reasons for that, I can't really speak to.

All I know is that the feedback we get from the marketplace, consumers and dealers, is that our site is very appealing. We won an award recently from J.D. Power, where we were named the most useful consumer shopping service on the Internet for new car buyers. Our mobile experience was rated number one by J.D. Power. So I think it speaks to the qualities of the user experience, as well as to the effectiveness of our marketing team and very efficiently targeting our marketing spending in ways that enables us to attract in-market car shoppers.

Thank you. If I can have one follow-up question. Used car as a percentage of total units, up to 30% now, versus like 20% a year ago. Is that by design? Or is that just as a proportion, as new car sales have slowed on your side? Or is it -- you think it's an industry trend, where used cars are potentially cannibalizing on new car sales?

If you look at our business over the past couple of years, you've seen used cars grow every quarter. And what we've been doing is both enhancing the quality of the listings, and the way in which they are managed and presented to consumers. And we've also improved their access to them, through our site and our various tools. So I would say it's more a matter of us making changes that enable us to meet the needs of the used car shoppers who happen to use TrueCar.

As you know, we are mainly a new car shopping and marketplace destination for consumers. But when you attract, as we do, 6 million monthly visitors and there are only 1.5 million, roughly -- 1.7 million new cars purchased a month, 2.5 to 3 times as many used cars as new cars are purchased in America. Naturally, you're going to attract a large number of used car shoppers. And we're happy to serve them, happy to introduce them to our dealers, and it's been a growing part of our business. And we're glad to see it, but we're going to keep stimulating that side of the marketplace, because we think it has significant growth potential for the future.

Thank you very much.

Our next question comes from the line of Ron Josey, JMP Securities. Please proceed with your question.

Great. Thanks for taking the question. Mike, I think you -- when talking about full-year guidance, you mentioned top line growth rate should improved and margins expand, maybe, in 4Q. Could you just review what gives you confidence here? You mentioned continued strong growths in prospects, but anything else would be helpful.

And then Chip, with AutoNation now re-testing the platform, have you seen other dealers follow suit here? And any additional details about AutoNation's renewal would be helpful. Perhaps around maybe cost per car sold or data sharing, which I think might have been some of the issues last summer? Thank you.

Thanks, Ron. It really has to do with improving network, improving dealer network. And just the earlier signs of our seeing that close rate will actually start to improve. And so it's really a forecast, on our part.

But given what we have seen, post NADA and post the pledge, the number one metric for health and well-being has been the response of dealers coming back onto the platform. So given that issue primarily, we believe close rates should start to improve here and as a result, that starts to give us the visibility to feel confident that we'll maintain the guidance, but be able to grow faster towards the back half of the year.

The other thing, Ron, just practically, in targeting Q4, is that remember, Q3 last year was unusually strong. We had a large incentives trial with a manufacturer. We don't currently have that in our forecast now. So the comparisons in the third quarter on top line revenue will be affected by that, and that doesn't happen in the fourth quarter. So there's even more time to see close rate and [NFE] improvements flowing through the business.

As Chip said in his remarks, we're also, I think, planning on the products side. So we expect to see those conversion improvements and close rate improvements and so when you add those up, you start to feel a little bit better about top line growth in the back half of the year.

And Ron, here is Chip commenting on your question about AutoNation.

Thanks.

We're very excited to be able to have them participate again in our marketplace. They are the largest automotive retailer in America; they've got the biggest brand. They are the anchor of all anchors, and we're excited to have them back. It was one of the first things that I did when I came to the Company, was fly directly from Los Angeles to Fort Lauderdale, to figure out how we could build a bridge that they would be willing to cross.

It took a lot of meetings, and we reached an agreement late in April -- later in March -- I'm sorry, late in April, that resulted in them beginning their trial of 55 stores on the 29th. Since then, we have seen -- actually since the launch of our pledge, which I believe had a huge impact, with a major contributor to AutoNation even to consider coming back into our fold. Since we launched the pledge, we've noticed a good uptick in interest, on the part of dealers all across the country, in working with us and since the AutoNation announcement, we have seen that uptick continue.

Our dealer sales team is excited to be able to walk into a dealer now and say, you told us about your concerns, and we've addressed them and we go point by point by point, and we get a lot of head nodding from dealers now that, yes, you have listened to us and yes, you have made the changes that we felt were needed. In AutoNation's case particularly, they are very vocal, as you just mentioned, about data policies and we made a number of changes in our pledge that were acceptable to AutoNation, made it possible for them to come back. And we've gotten really positive feedback from many other dealers that they liked those changes.

Among which were that we'd delete all of the information about consumers who bought cars from their stores who were not users of the TrueCar system in any way. That was information we were keeping in our servers and our storage previously. We've now implemented an approach where we delete all that information. The dealers really like that, because from their perspective they own that customer relationship and the data around it, and we agree with them. They own it, and we shouldn't keep it.

So that's the kind of change that enabled AutoNation, along with others, including changes in our website, that enable dealers' brands to be better presented, and less of a focus on just price competition in our marketplace. Those are the kind of changes that AutoNation felt were important for us before they would be willing to come back.

And it's related to the economics of our relationship. We don't disclose the details of any individual deal, but what I can say is that they were happy with the economics, and I know that AutoNation is happy. We're an efficient -- we believe we're an efficient source of prospects and sales to them, otherwise they wouldn't consider coming back, because if it's not efficient, they're not interested.

But we're happy with the deal. It definitely will not be dilutive to our overall monetization, going forward and so we're excited to have those guys back, and look forward to hopefully expanding the relationship. It was really great to hear Mike Jackson say the word partnership when he mentioned that -- when he announced that they were joining our network. We aspire for our dealers to see us as partners, so that was quite gratifying.

That's great. Thank you very much.

Our next question comes from the line of Dean Prissman, Morgan Stanley.

So Chip, just following up on the used car question, I was wondering if you had any updated thoughts on how you further differentiate your offering? For example, the product experience across your competitors seems pretty homogenous.

Yes, Dean, the whole used car search experience, is fairly standardized now and I would say that ours is more in line with all the rest, and standing out in much different way. But we have the ability, because we work with affinity partners like USAA and others, as well as the fact that our dealer network represents dealers who are quite transparency-oriented and we have the ability to, over time, to create a differentiated value proposition on the used car side of our business. We are in, I would say, in the research mode on that now, but are excited about the possibilities there.

All right. Thank you.

Our next question comes from the line of Kyle Evans, Stephens.

Thanks for taking my questions. I have a few of them. You have made some pretty significant changes to the funnel, with regard to consumer registration and the display of dealership prices, in your efforts to re-balance. Are you making similar changes to the USAA funnel? And what are some of the early results of the changes that you've already made in the branded funnel? And I have a few follow-ups.

Yes, you are right, we are making changes in the user experience. We have not really changed much with respect to how the registration process worked. We eliminated one page. We'll be testing, this summer, like I said, alternative treatments and where registration comes, and how we benefit message to consumers about the good reasons why they should proceed.

But we're making -- the changes we're making are affecting all of our channels, meaning USAA, all partners in the TrueCar channel. And we're seeing similar positive results in all of them. We've seen, actually, an uptick in our -- modest uptick in our conversion rate as a result of the user experience changes we have made. But we think there's a lot more improvement potential out there that we have not yet been able to put our hands on.

The uptick you just mentioned, I think we're looking at a low net funnel efficiency in the quarter? Is that -- am I reading that right?

Yes -- I don't know historically how far back. But you also have -- remember, you have got a mix shift of new and used, and the used experience has a lower funnel efficiency. So used has been growing much faster than the new side. So you've got -- when you net out the NFE on both sides -- and you will start to see a sequential increase next quarter.

That actually answered my next question, which was how do we have high monetization and low NFE. So that's good read-through.

Okay.

Last question, you reported $12.8 million in branded customer acquisition spend in the quarter, guided up $3 million for second quarter. Do you still see $65 million as the end-of-year number for that?

I think probably we'll come in a little bit below that. I don't think we'll have to spend $65 million to hit the revenue forecast, is a better way to say it.

Okay. Thank you.

I think we'll be able to get there on lower spend. We're doing better on cost per sales than is in the forecast.

Thank you.

Our next question comes from the line of John Blackledge, Cowen. Please proceed with your question, sir.

Great. Thank you. Just a couple of questions. Mike, could you talk about the unit mix between TrueCar, USAA and then other affinity? And then just general update on affinity partner relationships would be great. Thanks.

Sure. In the first quarter, we had about 72,400 unit sales in the TrueCar channel, 55,800 in USAA and 46,700 in our other partner.

And with respect to a general update on affinity relationships, I'd say they're quite strong. We are seeing by our partners as having the unique ability to bring to their members a transparent car-buying process. And the pricing tools and experience that they enable consumers to have is a strong benefit, compared to walking in off the street. And so -- and we had other partners that they could possibly work with. Our business model is very compatible, because of the way we share revenues from the revenues received from dealers back with our affinity partners.

So we have a very strong set of relationships there. And it's -- and particularly with USAA, where we're excited to see them putting a lot of emphasis on the automotive ownership and car-buying experience of their many millions of members, and they've got a lot of ideas for how to improve that and we're excited to be able to be partnering with them, to activate some of these ideas within their ecosystem. And so overall, I'm very pleased with the -- like I said earlier, they're one of the four big, huge foundation stones of our business model. They give us a chance to differentiate ourselves from all the other third parties, and grow and take share in our segment over time. So yes, the affinity relationships are going well.

Thanks so much.

Our final question comes from the line of Blake Harper, Topeka Capital Markets. Please proceed with your question.

I wanted to ask about the funnel conversion. I know that was a focus of yours, Chip, when you first came and it seemed that you wanted to improve that metric before ramping up some of the sales and marketing expense. Looks like you're doing that a little bit earlier. So I just wanted to see what was going on there? If there was a plan you had that you -- what you see there, that you think that that can improve, as you are ramping up some of the marketing expense?

Ryan, your line is live.

Can you hear me now?

Yes, we can hear you, Blake.

Okay. Sorry about that. I had asked -- wanted to ask about the bottom of the funnel conversion. I know, Chip, you talked about that being a focus of yours, and it seemed that you were going to try to focus on fixing that before ramping up the marketing expense. But just wanted to see what gives you some confidence, or what could change to improve that conversion? Because it seems like you are starting to step up the marketing spend here in the Q2.

Yes, so Blake, it's Mike. Let me start, and then I'll hand it over to Chip. There's two things that go on in the -- that are going on in the second quarter. The first is seasonality. So you just have the stronger seasonal quarter in auto retail, and so we'll always, on a sequential standpoint, ramp it up Q2 over Q1.

The second is what we talked about earlier, which is just, as we see the network improving, and more dealers coming back, we start to be a little more bullish in our forecast of close rate. And again, that allows us to make those incremental marketing expenditures with more confidence that the unit economics will be there for us.

Okay. Chip here, on the overall NFE, yes, I had the same point of view I had on our last call back in February, that we have a tremendous potential to improve the yield to our funnel. So today, only 5% of our 6 million unique visitors registered, meaning 95% don't and then of those 300,000 that do register, 20% we can track through to a sale, which means 80%, we don't. So we have a huge opportunity here to take that 1% NFE and move the needle of it over time.

And that's what we're working on, in a very conservative, deliberate and methodical way and we're attacking it from two angles. We're attacking it through adaptation of our user experience. Which, as I described, we're going to be doing some tests that address the obvious reasons why people don't proceed through our experience. Among them being they don't understand the benefit of fully proceeding through our experience, in order to be able to activate fully the benefit of TrueCar.

Which mean that the pricing that they see on our website will be honored by a dealer, and it will be honored by a dealer for any car that the consumer wants to purchase on the dealer's lot. That's a powerful benefit, and it's not often fully appreciated at the early stage in a consumer using our site, when they are looking at a pricing curve, and believing that they have gotten everything they needed. So the user experience testing was one angle. The other angle is -- and that will improve our conversion rate. That will improve our conversion rate of car buyers we fully register.

And then the other angle we're attacking this yield improvement opportunity with is through working more closely with our dealers, with our new service team. We're calling them customer success managers, or client success managers, who will be working closely with dealers to help them make good use of our tools. And we have very specialized tools that enable the dealers to communicate to TrueCar users through. As well as training them on the best practices that top performing TrueCar dealers are using to obtain much higher than average close rates. There's a wide range of close rates achieved by dealers in our marketplace.

And so we're working to understand what those best practices are, and we're training our people up on how to help dealers get the most out of the business we do send them. So it's too early to be calling what the results from our efforts to improve these metrics are. But I remain very confident there's significant improvement, potentially, we'll be able to realize and we'll start to show that in the second half of the year.

Okay. Great. Thanks for that color. And the second question I had, you actually touched on it there a little bit, was the client success managers, as I think you had said that you planned to have 100 of them. I just wanted to understand, have you hired them yet? Are they out there in the sales force? Or is that the plan to? And I know you would like them out there, I'm sure, as soon as possible. But what would be a realistic timeframe for getting them all out there and in front of your dealer customers?

We announced our dealer pledge at the end of March, and rolled it out officially at NADA, which is the April 1. So what I can say is, our recruiting team is feverishly looking for the right people to staff these open positions. And we have hired them, yes. We're beginning to ramp. And that's what -- when Mike talks about increasing our expenses in the second quarter, that's a component of what is driving our expense.

We're convinced this will be a good investment, because over time, these client success managers will help our dealers achieve higher close rates, improve our dealer customer satisfaction, and therefore enable our top line to go in a more attractive way. So we're excited about that -- making that kind of improvement in this business.

Okay. Thanks, Chip.

There are no further questions in the conference at this time. I'll turn the conference back over to Management for any closing remarks.

Nothing else from here. Thanks, everybody, for being on the call. And we appreciate all the questions, and we'll -- I think we've got a few follow-up calls scheduled. And otherwise, we'll talk to you again in three months.

Ladies and gentlemen, this does conclude today's teleconference. We thank you for your time and participation today. You may disconnect your lines at this time, and have a wonderful rest of your day.