TrueCar Inc (TRUE) 2018 Q1 法說會逐字稿

Greetings, and welcome to the TrueCar First Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Alison Sternberg.

Thank you, operator. Hello, and welcome to TrueCar's First Quarter 2018 Earnings Conference Call. Joining me today are Chip Perry, President and Chief Executive Officer; and John Pierantoni, Interim Chief Financial Officer.

As a reminder, we will be making forward-looking statements on this call, including, but not limited to, statements regarding our guidance or outlook for the second quarter and full year 2018, 2019 and longer term; management's beliefs and expectations as to future strategies, planned product offerings and marketing campaigns; our ability to return the USAA channel to high single-digit unit growth in 2018; our ability to reaccelerate growth in our core dealer business, including our efforts to align pricing and grow our dealer base, our ability to balance dealer network growth while maintaining proper monetization and subscription rate integrity, our ability to rapidly scale our OEM business and achieve OEM revenue growth targets and increase our unit monetization and profit contribution per unit, the timing and expansion of TrueCar Trade, its dealer network, customer base and revenue contribution, completion of our technology replatforming initiatives, its timing and impact on conversion rates and engagement and our ability to innovate, our ability to build an end-to-end experience and the timing of rolling out these concepts and the outcome of outstanding litigations. These 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 section of our annual report on Form 10-K for 2017 and our quarterly report on Form 10-Q for 2018 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 our 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 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, and good afternoon, everyone. Our results in the first quarter are in line with our guidance and demonstrate continued progress against the key components of the 2018 plan that I laid out on our year-end call. While we still have plenty of work to do, I am pleased to say that we are starting 2018 on track and given our Q1 results, we are reaffirming our guidance for the full year. John will give you more details later in the call, and here are some highlights from the first quarter.

Units were up 6% year-over-year to 230,000. Revenue was up 7% year-over-year to $81 million. Dealer count grew 5% year-over-year to 15,211 franchise and independent dealers, and adjusted EBITDA was $6 million or 7.4% of revenue versus $6.1 million or 8% of revenue in Q1 of last year. Monetization came in at $334 for the quarter, up 3% year-over-year and 2% sequentially. We also continued to grow our new car retail market share, posting a 5% year-over-year gain to 4.6% in a flat SAAR environment.

On our Q4 year-end call, I was very explicit about the key initiatives in 2018 that we believe will position us for revenue growth and margin expansion in 2019 and beyond. I would now like to review our progress to date against those same initiatives.

Let me begin with an update on USAA and the broader affinity partner channel. One of our primary areas of focus coming out of 2017 was the level of unit volume coming from our largest affinity partner, USAA. As you'll recall, units in USAA channel started to show improvement at the end of the fourth quarter 2017, and I'm pleased to report that we're seeing that trend continue into the first quarter 2018 with units down 5% year-over-year for the quarter, a significant improvement over the 14% year-over-year decline we experienced in Q4 2017 as compared to Q4 2016. This recovery was driven by continued site improvements that made USAA car buying experience easier for members to access as well as marketing support from this important partner. We remain on track to return the USAA channel to high single-digit unit growth in 2018, and we look forward to continuing to partner with USAA in support of their mission to serve the military community.

Quickly turning to our non-USAA partners. Our extended affinity partner channel showed strong performance in the quarter with unit growth at 23% year-over-year, driven by the expansion of our Chase, Sam's Club and U.S. News business. Collectively, the organizations and TrueCar's exclusive affinity partner network include over 350 million members in the United States, including a significant portion of the U.S. adult population, highlighting the unprecedented reach of the TrueCar marketplace. Even though we are pleased with the 23% growth in this channel, we believe there is significant potential to much more deeply penetrate these partner audiences.

Our focus, as we seek greater audience penetration with our partners, is on digital activation of member bases. The organizations in our affinity partner network have digital relationships with their members, enabling TrueCar to work with our partners to reach members through a variety of digital channels. These efforts have helped fuel our recent extended affinity partner growth. We expect continued strong double-digit unit growth in our extended affinity partner channels in 2018.

Our first key initiative for the year is dealer pricing and monetization. We highlighted in our last earnings call our focus on growing our core dealer business through 3 key go-to-market strategies. Under the leadership of Brian Skutta, our dealer sales and service team has been focusing on, first, aligning pricing with the value we've been delivering based upon our fully accountable business model; second, further enhancing our dealer acquisition strategy to strategically fill coverage gaps across the network; and third, rolling out a new strategy around independent dealers designed to grow our independent dealer base and increase used car inventory. As we've executed across these 3 strategies, we are pleased with our progress to date and have identified further refinement to our sales and service approach that we believe will reaccelerate revenue growth over the rest of the year and into 2019.

Regarding pricing, we have pursued aggressive rate renewals over the past 3 quarters with a large cohort of subscription dealers to raise monetization and monthly revenue per dealer to be more commensurate with the larger lead volume that our marketplace generated over the past 2 years. While this process produced higher-than-normal churn, as we expected, these efforts did result in higher monetization and have established more correct subscription integrity at the local market and dealer level. As an example, for the 1,164 dealers that renewed at new subscription rates in the first quarter, monthly revenue per dealer increased by 11%.

As we move forward, we believe that we're now in a position to better balance network growth while maintaining proper monetization and rate integrity across our dealer network. This foundation is critically important as our core dealer customer base is the vital supply side to our marketplace. And as we know, based on our historical results, having a larger dealer network with proper monetization is a key driver of our revenue growth because better coverage enables our dealers to close more unit sales as our marketplace generates higher lead volume. Our dealer penetration now stands at 38%, and our backyard coverage is at 55%. We still believe we can add at least 3,000 new, productive franchise dealers to our network, and we have the right strategies and resources to do this over the next 12 to 24 months.

In order to more effectively do this, we will be further investing in 3 key areas: We will be adding service reps in underserved markets and more surgically renewing dealers to reduce churn based on learnings from the past 3 quarters of rate renewals. We will be adding sales reps in underpenetrated markets to increase our network reach. And we'll be expanding our independent sales and service teams to drive accelerated dealer count growth and reduce churn. Each of these 3 investments and the anticipated ROI is based upon historical metric performance and will serve as a catalyst for continued growth.

The growth in our dealer network over the past 2 years, coupled with an all-time high dealer Net Promoter Score, is enabling us to layer in strong growth in OEM and trade revenues that significantly strengthen our business model and improve our fundamental unit economics. This will allow us to exit 2018 with our highest ever unit monetization and continued expansion of profit contribution per unit across all channels.

Our second key area of emphasis this year is our OEM business. We remain confident that this revenue stream is positioned to experience over 30% growth in 2018. As a reminder, as we grow this business line, the sales cycle with OEMs can vary in duration, with OEMs performing 2- to 3-month pilot of our unique incentive program offering before committing to longer-term agreements, which, of course, makes this revenue source more variable than our other sources of revenue.

During Q1, OEM incentive revenue was $4.4 million, nominally down 16% versus Q1 of last year. However, in Q1 2017, our OEM business benefited from approximately $2 million of isolated, non-repeatable revenue. Excluding this nonrecurring revenue, our overall OEM incentive revenue grew approximately 40% year-over-year in Q1, driven by adding new OEM partner program and growing our business with existing OEM clients. Ford and Hyundai continue to contribute OEM revenue in early Q1, and both of these clients are evaluating results of their test programs to decide when and how to leverage our platform going forward.

Today, I'm announcing that on May 1, we launched an exciting new, large-scale OEM incentive program with the big 6 OEM clients across truecar.com, USAA and other affinity partners. This OEM began testing our platform in Q1 on a lower volume model, and they were so pleased with the results of their test that they decided to immediately begin a broad-based incentive program that involves the vast majority of their vehicle volume. Our broader Q1 and Q2 2018 performance and robust pipeline of new business prospects will set us up well for 30%-plus OEM incentive revenue growth for the full year 2018.

To support accelerating growth of our OEM affinity partner and ALG businesses, we recently consolidated the leadership of these teams under Mike Darrow. ALG is the automotive industry's leading authority on automotive residual value projections in both United States and Canada, providing auto industry and financial services clients with market and industry insight, residual value forecast, consulting and vehicle portfolio management and risk services. Consolidating leadership of our affinity partner OEM incentive and ALG team will help us rapidly scale our OEM incentive business. Our affinity partner business provides a unique, differentiated marketing platform for OEM incentives that TrueCar can deliver exclusively, in all cases behind TrueCar and partner registration walls. Very importantly, our ALG business provides trusted automotive analytics that can demonstrate the efficiency and cost savings that OEMs stand to gain if they rely on TrueCar's OEM incentive products to deliver incremental sales volume for them. Our OEM incentive program delivers strong sales volume and share gains to our clients on a fully accountable, pay-per-sale basis. We provide concrete business solutions to some of their hardest problems, including the inefficiencies embedded in $20 billion of OEM marketing spend and $63 billion of OEM incentive spend. In 2018, next year and beyond, TrueCar will develop an established OEM client base and rapidly scale our OEM incentive business.

Our third key initiative for the year is our TrueCar Trade product. In Q1, we continued progress towards solving for one of the most significant challenges that consumers and dealers face during the car buying process, which is the trade-in component of the deal. We are excited about the results of our TrueCar Trade pilot and the great opportunities in front of us for providing market-leading transparency, competitively differentiated valuation insight, and third-party credibility.

At NADA in March, we announced our national launch of the TrueCar Trade product, which enables dealers nationwide to provide a transparent trade-in process starting online and extending into their showrooms. While at NADA, we received significant inbound interest and spent time with many of our dealer customers to show them the product and better understand how it fits into their respective operation. We've strategically identified a minimum viable dealer network to enable a positive experience with consumers. This framework lays out the blueprint for hitting our goal of having approximately 1,000 dealers signed up by the end of the year.

In a targeted market-by-market approach, including distribution of dealer brands and location, we intend to aggressively activate TrueCar traffic to our trade-in product over the next few quarters. Dealers nationwide are now signing up for the TrueCar Trade tool and dealer website integration as we ramp up our sales efforts across the country. To support our roll-out, we spent much of the first quarter working to ensure success by hiring and training, regionally based field personnel who specialize in the trade product and ensure the success of our customers on the platform by educating our existing sales and service teams through a series of high-touch training modules that range from high-level strategy to execution at the dealership level and by soliciting dealer and consumer feedback in order to drive innovation at the product level.

Our dealer customers and the industry at large will continue to hear more about the TrueCar Trade product offering through traditional and digital B2B marketing channels, which our marketing team is already activating. National promotion of the product across consumer-facing media channels and affinity partners is on target to begin activation by early next year. Again, we expect to generate small, single-digit million dollar revenues from this product this year, but this will lay the foundation for a larger customer base and a much more significant revenue contribution in 2019. Trade is also a vital ingredient towards building out our end-to-end consumer experience.

Our fourth major initiative this year is Capsella, where we are making significant progress on our replatforming project, and we remain confident we will finish this project by the end of the year. 80% of our technology and product resources are now dedicated to the initiative, and we've merged our product and tech organizations under the leadership of our CTO, Tommy McClung, in order to fully align the teams. As these teams complete their replatforming mandate, we expect to begin to redeploy those resources toward additional revenue-generating projects.

Year-to-date, we've already achieved several major milestones, including the shutdown of a data center as we migrate more systems over to AWS, the successful introduction at NADA of a VIN-based pricing management system for our dealers, the migration of our lead routing and dealer selection system to the new technology platform, and the roll-out of our rewritten sales matching system. The progress we've made to date has also enabled us to be nimble with launching and expanding new and existing OEM programs. As I said on our last earnings call, finishing Capsella will provide the foundation for building out our upcoming new consumer experience, which we believe will unlock higher conversion rates and stronger consumer engagement with dealers. It will also enable us to further build out the major components of our end-to-end experience, particularly our new upper-funnel research and discovery product in addition to incorporating new, leading-edge digital retailing tools in our post-prospect experience. While we are finishing the Capsella replatforming effort in 2018, we will be testing and validating our new consumer experience concept, and we anticipate rolling this out beginning in 2019.

As you can see, we're making good progress across all the key initiatives we set forth for 2018, and we expect to exit the year with a strong double-digit top line growth rate in Q4. With continued focus on the strategic expansion of our dealer network, the completion of Capsella, the full roll-out of trade and continued growth in our OEM business, we believe we are well positioned to achieve healthy, 20-plus-percent growth rate in 2019, and we will have created the foundation for building what we believe to be the industry's only true end-to-end online shopping to showroom experience.

I'm now going to hand it over to John to walk you through the numbers and discuss our financial performance in more detail.

Thank you, Chip, and good afternoon, everyone. Revenue in the first quarter of 2018 totaled $81.1 million, up 7% over Q1 of '17, and just over the midpoint of our revenue guide of $80 million to $82 million.

Revenue from franchise dealers totaled $63.5 million in Q1 of '18, up 10% over Q1 of last year. Franchise dealer count grew 4% year-over-year to 12,205, and monthly revenue for franchise dealer was $1,740 in the quarter, up 3% year-over-year.

Revenue from our independent dealers, almost all of whom are on subscription billing plans, was $8.8 million in the quarter, up 19% over Q1 last year. Independent dealer count was up 11% year-over-year to 3,006 dealerships, while monthly revenue per independent dealer was up 6% year-over-year to $980.

OEM incentive revenue was $4.4 million in Q1, down from $5.3 million this time last year, primarily related to the structural change from one of our OEM incentive programs in '17 that Chip referred to earlier. Excluding non-repeatable revenue from this program in Q1 of '17, our OEM incentive revenue grew approximately 40%, reflecting growth from a broadening of affinity partners working with that OEM.

Finally, forecast, consulting and other revenue was $4.3 million in Q1 of 2018, down from $5.3 million in Q1 of '17, driven by large consulting arrangement delivered by our ALG business in Q1 of '17 that, as expected, did not repeat in Q1 of '18.

Units in the quarter totaled 229,717, up 6% year-over-year and a smidge below our unit guidance range of 230,000 to 235,000. In our TrueCar branded channel, we generated 93,420 units, up 2% year-over-year. Extended affinity partner, driven by strong growth at Chase, Sam's and U.S. News, contributed 73,947 units, up 23% year-over-year. And USAA produced 62,350 units, down 5% year-over-year, as compared to a 14% decline in the fourth quarter of 2017. We are pleased with the recovery of the USAA business and expect it to return to high single-digit growth for the year. The new/used mix was 66.9% new and 33.1% used in Q1 of '18, as compared to 67.1% new and 32.9% used this time last year.

Monetization in Q1 of '18, was $334 per unit, up from $324 per unit in Q1 of '17, and up from $328 per unit in Q4 of '17. The year-over-year increase was primarily a result of our focus on improving subscription pricing optimization, including our subscription renewal efforts.

Turning to expenses and margins. All of the following metrics are on a non-GAAP basis unless otherwise stated. Gross profit in Q1 of '18 was $73.9 million, up 6% from Q1 of '17; and gross margin was 91.2% in Q1 of '18, compared to 91.8% in Q1 last year.

Technology and product expenses were $13.2 million or 16.3% of revenue in Q1 of '18, compared to $12.3 million or the same percentage of revenue as of last year.

Sales and marketing expenses were $45.3 million or 55.9% of revenue in Q1 of '18, as compared to $40.4 million or 53.4% of revenue in Q1 last year. Within our sales and marketing expenses, we spent $13.8 million on television, radio and digital to drive TrueCar channel customer acquisition versus $14.1 million this time last year. Cost per sale declined by 4% from $153 per unit in Q1 last year to $147 per unit this year. Partner marketing expenses were $14.8 million versus $10.7 million in Q1 last year. Partner marketing expenses included increased revenue share due to growth in our extended affinity partner channel as well as increased digital marketing expenses directed towards some of our high-growth partners. Finally, sales and marketing-related headcount and other costs were $16.8 million, up from $15.7 million this time last year.

G&A expenses in Q1 of '18 were $9.4 million or 11.6% of revenue, compared to $10.8 million or 14.2% of revenue in Q1 of '17.

Adjusted EBITDA for the first quarter of '18 was $6 million or 7.4% of revenue, as compared to $6.1 million or 8% of revenue in Q1 of '17, and at the low end of our $6 million to $7 million guidance range. During the quarter, adjusted EBITDA was negatively affected by severance charges of $0.5 million related to the merging of our product and technology teams. We believe the reorganization of the product and tech teams sets us up for a more timely and effective completion of our Capsella replatforming project later this year. The noncash expense item excluded from adjusted EBITDA for Q1 of '18 were depreciation and amortization of $5.2 million, stock-based compensation of $9.1 million, and $0.8 million of certain litigation costs.

GAAP net loss for the quarter was $9.1 million or a net loss of $0.09 per share, as compared to a GAAP net loss of $6.8 million or a net loss of $0.08 per share in Q1 of last year. Our non-GAAP net income for the quarter was $0.8 million or $0.01 per share, as compared to a non-GAAP net loss of $0.7 million or a loss of $0.01 per share in Q1 of '17.

We continue to maintain a strong balance sheet with cash balances totaling $196 million at the end of the quarter.

And now turning to guidance. As Chip mentioned earlier, given our on-track performance this quarter and our expectations for the remainder of the year, we are reaffirming our annual guidance with units estimated at a range of 1,030,000 to a 1,050,000 units, revenue estimated at a range of $360 million to $365 million, and adjusted EBITDA is estimated at a range of $36 million to $40 million.

We will continue to invest in 4 key areas: one, investing in our technology team to ensure we complete Capsella; two, launching new OEM incentive programs like the one we just launched earlier this month with the big 6 OEM clients; three, continuing our plans for the roll-out of our trade-in product nationally; and four, executing on key strategies to grow our core dealer business, including the hiring of additional service reps in underserved markets and further building out our sales teams.

For the second quarter of 2018, we expect units to be in the range of 243,000 to 248,000, representing 1% year-over-year growth at the midpoint of the range. Our modest unit growth estimate reflects a tough comp to the year earlier period due to product improvements that favorably affected conversion in all of our channels in the second quarter of last year. Additionally, we estimated small year-over-year declines in USAA units in Q2 of '18, as the USAA channel is still in a period of recovery. As we start to a annualize against weak USAA performance in the second half of last year and we continue to achieve strong unit growth in our extended affinity partner channel, we expect to return to double-digit unit growth in the back half of this year relative to last year.

Revenue is expected to be in the range of $87 million to $89 million, representing 8% growth at the midpoint of the range. We expect our OEM revenue to be roughly flat year-over-year at approximately $8 million, as revenue from our new incentive program with the big 6 OEMs along with growth from our expanded program with other OEMs will offset revenue declines due to the non-repeatable revenue in Q2 of '17 that Chip and I described earlier. Excluding the non-repeatable revenue from this program in Q2 of '17, we expect our OEM revenue to grow over 100% in Q2 of '18, as compared to the prior year.

Finally, adjusted EBITDA is estimated to be in the range of $8 million to $9 million or 9.7% EBITDA margin at the midpoint of the range.

We recognize that our growth numbers for the year are stronger in the second half, and we are confident that we have the resources and strategies in place to achieve these results. As Chip and I discussed earlier, we will continue to focus on our 4 key initiatives, and we believe that we will exit 2018 with a strong foundation for healthy growth in 2019.

And now we will open it up to questions.

(Operator Instructions) Our first question comes from the line of Mark Mahaney from RBC Capital Markets.

Just one question. In terms of getting that recovery to unit growth back to double digits in the second half of this year and going into 2019, beyond the kind of easy comps advantage that will happen at the back half of the year, could you just detail what are going to be the 1, 2 or 3 things that will cause that unit growth to kind of get back up there and hopefully sustainably back to double-digit levels?

Yes, Mark, thank you for the question. You're right. We do have some relatively easy compares in the second half of last year. So what we've been doing beyond that is continuing to grow our other partner channel quite strongly. We're investing in that significantly this year, as well as continue investing in our TrueCar channel to produce solid results in that piece of our business. We're also continuing to work on ongoing conversion rate improvements in the business that we'll start to see some results from the second half. And as our dealer count rises in the second half of the year, we'll be able to see some improvements, we believe, in close rates because if our dealer count rises, we'd be able to capture more unit sales from the prospects that are generated through our marketplace by virtue of having more local, easily accessible sales points ready for our consumers to access.

Our next question comes from the line of Ron Josey from JMP Securities.

Maybe as a follow-up to Mark's question just there. Chip, you talked about investing in the True channel in the back half of this year as well as some conversion improvements. For the True channel investment, does that mean more marketing to drive top line or what you're talking about in terms of dealer representatives and sales? And any insights on conversion improvements and what you're planning here would be helpful. And then, I guess, the other question just on OEMs, you talked about the new, big 6 OEM coming onboard and testing across all distribution channels. Wondering if this new go-to-market approach can be replicated across all OEMs. Why not do this for everybody? Why didn't you start doing that for everyone from the beginning? And I'll stop there.

Sure thing, Ron. So with truecar.com, we're going to be maintaining a relatively steady marketing budget year-over-year. So the main growth will be coming, like I said, from improvements in how the marketplace works, meaning conversion rate and close rate. A larger, stronger, more vibrant dealer network will help us produce more units in the second half of the year and create strong momentum into 2019. And so we're making those investments in our service and sales teams in the second half. As it relates to OEM, we're very pleased that this OEM client has jumped onboard. And it takes time for these clients to test and evaluate and then proceed with full-bore programs. So we aspire to do that with all the clients that we work with. Some adopt different strategies. We're excited about this one deciding to use TrueCar as well as USAA and a couple of other major partner channels in order to promote their target incentive offers.

Our next question comes from the line of Tom White from D.A. Davidson.

On Capsella and kind of upgrading the kind of consumer experience, it sounds like 2019 is kind of more now the time line for making kind of the big conversion kind of focused enhancement. Is that -- can you remind me, is that kind of the same time line as you guys have had kind of the last time we talked last quarter? Specifically, I'm curious about kind of that pre-prospecting element of the consumer experience. Kind of when is the time line for the changes there? And just second, on the pricing kind of negotiation, discussion you guys are having with dealers who use the subscription-based offering, I guess are you sort of -- is that sort of a -- was that a finite exercise and you're kind of done with that? Are there still kind of a bunch of subscription base dealers that you expect to kind of renegotiate with here over the next couple of quarters?

Thank you, Tom. Good questions. So with Capsella, we did say last quarter that we plan and are determined to complete this project by the end of the year and that doing so would -- is critical to unlocking the user experience improvements and conversion rate step function improvements that we believe we'll be able to see in this business. So that time line is still intact. I'm very confident we can achieve it. I'm very excited about what's on the other side of completing Capsella from the standpoint of enabling much stronger engagement with -- by consumers in our marketplace, the -- and the generation of higher levels of lead volumes and net sales at our dealership clients. With respect to pricing negotiation, we went through 3 cycles essentially in the last 3 quarters where we have adjusted subscription rates, where applicable, with dealers who had seen very large growth in prospects and unit sales as a result of the conversion rate improvements that we instituted in late 2016 and early 2017. We've made good headway there. We've -- like I said, we've come out of it with a healthier network with very strong monetization. We accomplished our goals of strengthening rate integrity across our network albeit at the expense of some churn, like I mentioned. However, we feel like we're in good shape now to grow our revenues for the rest of this year as we put in place some sales strategies, some of which involve enhancements to how we conduct the renewals but also adding staff and service and sales that will increase the number of dealers we're able to sign on to the network and also the number of clients we can attain through higher levels of service. So the ongoing negotiation part of pricing will be less intense in the next few quarters compared to last few quarters because there was -- there were actually 3 cycles we've been able to work through. The vast majority of the dealers were under-monetizing as a result of the growth in prospect and unit volume they saw in late '16 and early '17.

Our next question comes from the line of Sameet Sinha from B. Riley FBR.

A couple of questions. Chip, as you speak about these investments into the sales and marketing team, I'm trying to get a sense -- so you kept your full year guidance the same. So where are you seeing some of the cost benefits? Or maybe you're seeing incremental, higher gross profit from USAA and you're able to reinvest that. Can you help us think about kind of the puts and takes on the operating expense line as the year progresses and especially as you exit the year? And the second question is -- John, you mentioned increasing revenue share on the affinity channel. Once again, can you talk about a number of new partners who are coming onboard? They might be on different sort of monetization models. Can you elaborate on that? And how should we think about that sort of revenue share as you bring on more partners?

Sure. Thanks, Sameet. Thanks for the question. In regards to sales and marketing and the investment in the team, what we have found with respect to that is that when you have more individuals in the field with respect to both of your sales and your services for your renewals, it turns out to be profitable in a very short period of time. There is probably a 90-day-or-so curve for those folks to get up and running. And so we've had some success as we've gone through some more of these renewals. We've -- also, just in the context of our cost structure, there has been a little bit of shift between some of the expense levels on that tech side with respect to Capsella that we've been able to do more efficiently. So we've been able to lean in a little bit more heavily on the sales and marketing side, and we think it really is the right thing to do to build out the network. We feel that we've ironed out our process and we're ready to grow the dealer network again. In regards to revenue share for the affinity channel -- so there's a couple of things going on there. One, we started to -- for purposes of some of our membership groups like Sam's, for example, we've done some digital marketing campaigns. And we found them to be quite effective and unique because we can target the advertising to members. And so we have leaned in this quarter and we've started to do a little bit more there that is actually on top of what we would pay for revenue share. We think it's actually quite effective, the way that we've designed some of our relationships with these affinity partners. We have marketing funds and different opportunities for both us and the other partner to invest in some of these marketing efforts. So they've been quite effective. And as far as our ability to grow the affinity partner network, we believe we have a tremendous amount of growth within the current network itself. With USAA, obviously, the core and largest partner that we have, there's a lot of opportunity there given, one, the tough comps but also with respect to everything that they're doing for their members. We think there's opportunity for us to also help serve their members better. In addition, outside of USAA, there's tremendous growth with some of our larger affinity -- other affinity partners, like Chase and Sam's. We're also starting to take a look at some different types of affinity partners that we're in the process of doing some of the hunting and looking to create some other opportunities. So we think there's a -- there's new opportunities out there as well. For example, we've recently signed PNC Bank, which is a top 10 bank that's out there, and we think that's a good opportunity for us, small client right now but one with significant potential.

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

Your TV, radio and Internet spend on advertising in the quarter was down a little year-over-year. What do you envision that looking like on a quarterly or annual basis when you have the platform updated and you have the new user interface rolled out?

You're right, Kyle, that it is basically flat year-over-year and, I like I said in my prepared remarks, that we're going to be basically flat for the full year. As our new experience gets rolled out, we see the opportunity to significantly ramp up promotion really for 2 reasons. One is that the experience will be inherently more marketable and exciting for consumers. The second one is with the growth of our OEM and trade revenues next year, we will see expanding positive unit economics, which will enable us to profitably invest in marketing both for TrueCar and across our partner network. So we expect next year to have significantly higher marketing expenses and growth in our TrueCar channel as well as USAA and the other partners.

How do you plan to market the trade product? Does it need its own branding effort? It sounds like that was going to be very targeted. So it doesn't sound like a national ad campaign makes a lot of sense. Is there a way to piggyback that off the TrueCar brand as it exists today?

This year -- Kyle, you're correct. It won't be national this year. We're building the national network today as we speak. We're launching several new markets every month. Now we launched 3 new markets just in the last few weeks, more to come. So once we hit critical mass of local dealers, launch city by city by city, by the end of the year, we'll have, we believe, 1,000 dealers. And that would be sufficient enough to begin national promotion. We'll promote digitally, and we'll also consider doing some national television promotion for this as well, digital probably be the lead marketing source or marketing effort, but we'll consider all forms of marketing once this thing is ready to go. We're very excited about that because it solves for -- one of the big pain points in car buying, and we believe we've got a competitively differentiated and superior offering for consumers and dealers. We've gotten great feedback from both sides of the marketplace in our pilot and our early launch experience. And the product has great potential and is also a very important puzzle piece for our end-to-end experience. This year, it will just provide a few million dollars, but next year will be a much more significant part of our revenue base.

Lastly, congrats on the new OEM win incentive. Glad to hear that it's running across channels. Is this the biggest OEM that you've had running in branded TrueCar?

No, not yet, not yet, no. We have a long-standing, strong, successful program with FCA, and they're our anchor OEM client today. They are doing very well. And we have gotten great feedback from FCA, and they're leaning in to want to do even more with us. I can say -- since it will be fairly visible fairly soon, all you have to do is go look, that the big 6 OEM client we signed is Nissan. So we're very pleased to bring them onto the network, and you'll be seeing them on TrueCar as well as our affinity partners. They'll be promoting most of their volumes. They're very excited about the trial they did. And this is an example of how we team up with our partners, USAA and our other affinity channels as well as with ALG to really bring insights and results that are very compelling to the OEM. We think the OEM part of our business will grow significantly, like I said as -- in absolute terms, in relative terms and as a share of our business. And that, along with trade, enables us to produce, very importantly, positive -- extending positive economics going forward.

Our next question comes from the line of Ashwin Kesireddy from JPMorgan.

It's Doug Anmuth actually. Just on USAA, I know it's somewhat better than last quarter, but you're still kind of starting the year out in a little bit of a hole year-over-year. Just helping -- just hoping you could help us understand the trajectory exiting 1Q. And I know you've got the easier comps in the back half, but what gives you the confidence in the high single-digit unit growth? And then second, I know that clearly, there's secular growth here as you continue to gain share in the industry, but we have had some auto retailers and services companies caution at least about the used car market. Just curious about your view on the health of the overall market today.

I'll take -- this is John. I'll take the USAA question, and Chip will probably take the industry one. With respect to USAA, the -- we were down about 5% during the quarter, and that was exactly in line with our expectations and our forecast. And so there are a number of initiatives that we've been working through with the USAA team. And so we've had some good experience with respect to making some enhancements to get into the car-buying platform. And so there's a number of things with USAA that we feel that are well on track in addition to some of the comps, but we're also doing more coordinated efforts with the USAA leadership team. And we're much more aware of all of the various types of activities going on within their experience that impact our experience. So we're more coordinated than ever and feel very comfortable with respect to our return to growth in the back half of the year.

And with respect to our share in the industry, overall, we're expanding share this year. We have been for the history of this company and we expect that to continue. In a tight market, TrueCar does quite well because we're generally considered by dealers to be among their most efficient marketing sources with $300 roughly cost per car sold. So we're gaining share, as we speak. The overall SAAR environment is fairly soft. That works to our advantage. So there are seasonal patterns in the industry. Second, third and fourth quarter vary. We'll do quite well, I think, to continue to capture share as this year proceeds and then even more strongly in 2019.

Our next question comes from the line of Dan Kurnos from The Benchmark Company.

Most of my questions have been asked. So let me just, Chip, follow up with just one more kind of general industry question. If we do end up getting kind of a good push towards crossover and out of the sedan market, I'm just curious what you think the general impact both on units and from OEM incentive spend is and from your monetization standpoint since those type of units tend to carry kind of a higher gross profit. If you can then potentially see better pricing -- or get better marketing efficiencies out of that.

Well, thank you, Dan. The way our marketplace works is that we monetize all cars, whether they're crossovers or sedans or SUVs or trucks, basically the same way or $300 per car. The shift in the market that's happening is one that all the manufacturers are studying closely, the dealers are studying closely and responding to it by trying to have the right product in the right place at the right time. These kinds of shifts don't really affect our marketplace significantly in any way we can see. So we continue to ride the trends and waves of consumer demand regardless of what kind of vehicles they're interested in buying. So we just need to make sure that we have a supply side that is matching the demand side. And by virtue of having strong penetration with franchise dealers and a good, solid independent dealer cadre, we do have the supply side the people want. And I think that you have another thought on this, John.

Yes, I mean, I think some of the work that we're doing with the OEMs to help with their marketing effort as they started to use our platform more -- I think, also go in hand with that as well, too.

Our next question comes from the line of Steve Dyer from Craig-Hallum.

Ryan Sigdahl on for Steve. Just one here. So as it relates to the new OEM offering incentives across your platforms, we've talked a lot about it, but I think you said a small OEM in a single channel can generate something like $10 million annually. Any thoughts on how big of an opportunity a top OEM across all of your platforms could be?

Yes. I don't recall actually saying a small OEM but this -- the one we just brought on, Nissan, will be at least that large this year. And so we're very excited about that. We're also pursuing opportunities, like I said, with the ones that have kept us in the past, Ford and Hyundai. And we also have good opportunities with our other strong OEM clients led importantly by FCA but also Mercedes-Benz and Volvo. So all of these clients are getting a lot of attention from TrueCar these days. And we're excited about being able to work with them and having the opportunity to help them improve the fundamental efficiency of how they deliver incentives in the market because they spend billions doing this. From a marketing perspective, they spend billions of dollars in the -- in incentive discounts themselves. And what TrueCar does is enable them to target these offers behind registration walls at TrueCar and across our partners. And when they do that, the incentives, essentially discount offers, are not public. And when they're not public, they're much less likely to affect in a negative way the residual values of these vehicles. So we offer them the opportunity to deliver incentives efficiently but also in a way that is less damaging, much less damaging to their -- to an important operational metric of theirs, which is their residual values across all of their vehicles. So we're very excited about this part of the business.

(Operator Instructions) There are no further questions at this time, and I would like to turn the call back to Chip Perry for closing remarks.

Well, thank you, everyone, for joining our second quarter call -- first quarter call, actually. We're in the second quarter here. We look forward to having more conversations with you. We appreciate your interest in our company. And obviously, we're excited about the future of TrueCar and the results we can deliver for investors. Take care, everybody.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.