Q4 2019 Earnings Call
Greetings and welcome to be Trocars fourth quarter 2019 earnings conference call.
Hi, I'm all participants are any listen only mode. If any what's your fire operator systems. During the conference. Please press Star zero on your telephone keypad. Please note. This conference is being recorded.
Now I'll turn the conference over to your host Danny the very Vice President Investor Relations. Thank you Sir you may begin.
Thank you operator, Hello, and welcome issue cars fourth quarter 2019 earnings Conference call. Joining me today is my Garo, our interim President and Chief Executive Officer, and Noel Watson, Our Chief Financial Officer, as a reminder, who will be making forward looking statements on this call. In addition to our guidance for the first quarter in full year 2020. These forward looking statements can be.
Identified by the use of words, such as believe expect plan anticipate well be 10 competent and similar expressions.
These forward looking statements are not it should not be relied upon at the guarantee for future performance or results.
Actual results could differ materially from those contemplated by our forward looking statements. We caution you to review the risk factor section of our annual report on form 10-K, our quarterly reports on form 10-Q, and our other reports and filings with the Securities and Exchange Commission for a discussion of the factors that could cause the results to differ materially.
The forward looking statements we make 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 certain GAAP and 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 <unk> Dot Com and non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with guy.
Now I'll turn the call over to Mike.
Thank you Dan and good afternoon, everyone 2019 was a year of great achievement across all areas of the business in just one year, we transformed our brand identity dramatically improved our consumer experience returned to traffic grows and maintained our robust network of nearly 17000.
Certified dealers.
All of these achievements would not have been possible were it not for the unwavering belief and commitment of our employees.
I am beyond privileged to come to work each day alongside this group of talented thoughtful and driven professionals United by the common goal of dramatically improving the way people discover buy and sell cars.
As of February 14, Truecar has entered into a short term extension of its partnership with USAA Federal savings bank in the form or transition services agreement.
Under this agreement Trocar will continue to power the USA car buying service through September Thirtyth 2020, after which the service will be discontinued.
During this transition period, both companies will remain committed to running the car buying service without interruption.
USAA site will continue to a feature a car buying service, where its members and Truecars network of dealers will see no difference in the way they interact with USAA customers.
As it relates to the economics the revenue share from true card to USAA will remain the same as it was under the previous agreement.
Additionally, there will be a separate 20 million transition services fee. The true car will earn throughout the duration of the agreement.
To be clear this announcement does not reflect on the service Truecar has provided to USAA members over the course of along and successful 13 year partnership.
Ultimately USAA made it clear to us that Theyve decided to stop providing the car buying service to their members on October 1st in an effort to simplify their business and focus on core product offerings.
True car was given very little notice of USA is decision.
In response, we initiated a thorough assessment of our business to identify additional near term and long term opportunities for growth and value creation.
While we're still in the process of assessed assessing that business impact we are confident that the execution of the transition services agreement will enable true car to maintain adjusted EBITDA margins in 2020.
At the same time as we think about the longer term impact of this announcement beyond 2020, there are a number of audience segments and strategic partnerships that we are now able to pursue.
We will go after these opportunities aggressively over the next few months, while in parallel developing a plan to preserve the overall profit of profitability of the business beyond this year, regardless of the outcome of these strategic options.
Today's announcement reinforces our conviction in continuing to invest in truecars industry, leading position as the provider of the highest quality new and used car connections.
I'd like to now identify how we made progress in 2019 towards solidifying disposition.
First and foremost over the past three years, we made significant investments in our technology platform that enabled us to more rapidly innovate our consumer experience to address major pain points in the car buying Jeremy.
The velocity of product innovation in 2019 was unprecedented in the company's history.
For those of you have explored the sites since our announcement of the new consumer experience in late January you'll appreciate just how much progress we've made.
In 2019, we build out and enrich shopping content and vehicle discovery experience.
Evolve the way in which we communicate pricing context enhanced our inventory discovery across both new and used introduced an entirely new personalized dealer connection page.
Let me take a moment to explain why the latter the personalized dealer connection page is so critical to truecars future.
As a reminder, in our legacy experience once consumers completed a lead form their personal information was automatically passed to up to three dealers.
This lead Gen model, often move consumers through the car buying funnel faster than they had intended sometimes resulting in premature introductions to our dealers.
Creating a sub optimal some optimal experience for both sides of the marketplace.
In the new experience, we have ball evolve passed a lead gen model in favor of empowering consumers with control over the number of dealers with whom they shared or information.
This evolution March a critical moment in Truecars history.
Accelerating us towards fulfilling with consumers have come to expect from any modern marketplace.
As a result of this change we're seeing a significant improvement in customer satisfaction with net promoter scores up nearly 100%.
From the dealers perspective connections, we are making are much higher quality in many cases exclusive and are driving a significant lift in overall close rates.
At this time, the personalized dealer connection page as live across 100% of our true car Dot com traffic and we expect to complete the rollout across our extended partner network in 2020.
Rest assured this is just the beginning.
In parallel to the full rollout we have a roadmap for follow up enhancements and optimizations that we'll continue to empower consumers with more control more control over how and when they connect with our dealers.
No we recognize that high quality connections in isolation are not the only element of a healthy two sided marketplace.
In order to grow the volume of high quality connections, we need to continue attracting more in market consumers to our experience.
Let me now outlined the progress we've made toward that end across both our brand and extended affinity channels.
In 2019, we re accelerated our truecars dot com traffic highlighted by 26% year over year growth in Q4 2019.
Much of the growth was driven by the investments we've made in FCO to generate more organic traffic.
Throughout the year, we launched a variety of research and discovery experiences such as best of vehicle rankings make level incentive pages and model overviews that are just beginning to show up in our numbers.
On the heels of a strong Q4 in late January we launched a complete reshape refresh of Truecars brand identity, featuring an all new logo website, Enap design advertising collateral and B to B marketing campaign.
The new Truecar brand appeals to a wider audience of consumers, beating out the competition in terms of like ability across all demographic segments. We are encouraged by the momentum we're seeing here and remain committed to growing our branded channel audience into 2020.
Now turning to the affinity side of our business.
As I alluded to earlier in this call our relationship with USAA limited our ability to actively target one of the most engaged consumer segments in the U.S., namely active in retired military members and their immediate families.
For context, our research suggests there are more than 40 million individuals within this segment.
Compared this figure to a relatively small number of USAA members, who bought a core our cars through our dealer network in 2019 annual quickly recognize the potential opportunity in front of us.
Our history, serving this community brand recognition and deep understanding of this audience positions us to extend well beyond the USA membership base to deliver a differentiated carbine service to a broader audience of military professionals and their families.
In parallel to exploring ways to more deeply engaged the military community. We will also continue to scale, our new and existing high opportunity affinity partners, including World class brands, such as American Express Sam's club and Geico, whose members collectively represent the majority of us households.
Yes.
To summarize while the lots of USAA is a clear headwind. We believe there are a number of near term actionable opportunities to appeal to additional segments of end market car buyers.
With positive changes to our consumer experience and an acceleration of traffic growth across our non USA acquisition channels driving the demand side of our marketplace will look to service this demand by maintaining a healthy dealer network.
Let me, let me remind you over the past three years, we've worked hard to build a network of nearly 17000 dealer customers, who have looked at truecar as an efficient highly accountable high quality source of new and used car sales.
Coming out of our largest industry conference and 88, just last weekend in Las Vegas.
Dealers are excited by the changes, we're making to our products experience and brand identity.
All of which are in support of driving higher quality connections into their showroom.
As traffic sources change in our ecosystem, we will continue to manage our network to ensure our dealer customers received the industry's highest quality consumer connections that also represent a significant portion of their monthly sales.
I'll now turn the call over to Noel to walk you through Q4 full year 2019 results as well as our expectations for 2020.
You might be and good afternoon, everyone before turning to the rest of our call. The chair of our Board. Chris Clause has asked me to read the following statement on his behalf to update you on the status of the company's search for a new CEO.
Truecars Board of directors is extremely pleased with the performance of the Truecar team under Mike's leadership since June of 2019, a timing, which the company has faced many difficult challenges. Despite those challenges, making the reconstituted leadership team have made significant strides in improving the operations of the business to better serve all of the company's constituent interest.
Tumors dealers affinity partners and Oems against that backdrop. The board remains committed to bring the CEO search process to conclusion in a very near future and expects to be in a position to make an announcement on or before the end of the first quarter.
Now I'd like to take you through our fourth quarter financial results, which reflect performance above the high end of our expectations for the second consecutive quarter as well as an update on our guidance for 2020.
During the fourth quarter total revenue of 89.7 million was approximately $1 million above the high end of our guidance range and down 2% year over year for all of 2019 revenue was 353.9 million roughly flat from the prior year.
Franchise revenue totaled 66.3 million in Q4, 19 was down 2% year over year, it's franchise dealer count down 1% to 12565 dealers and all of 2019 franchise dealer revenue totaled 266.2 million, which was flat year over year.
Independent dealer revenue in Q4, it 19 was up 20% compared to last year and independent dealer account increased 20% 4395 dealers for all of 2019 revenue from independent dealers was 39.7 million up 12% over 2018.
New dealer product revenue, including revenue from trade daily assigns sponsored listings interim cartridge was approximately $4 million during the quarter up from 1.5 million in Q4 last year.
For all of 2019, new dealer product revenue totaled 12.1 million up from 3 million in 2018, we're pleased by the way dealers have embraced these new product offerings and expect this momentum to continue into 2020.
OEM revenue of 3.8 million in Q4 of 19 was down 53% from Q4 of 18 for all of 2019, OEM revenue was 16.6 million down 45% year over year from 30 million in 2018.
As we've noted previously this decrease was primarily driven by the lack of recurring revenue from two of our larger OEM clients. We will begin to lap easier comparisons on this revenue line beginning in Q1 this year.
Forecast consulting and other revenue was 4.9 million this quarter and down 4% year over year for the full year 2019, our forecast consulting and other revenue was up 2% year over year to 19.3 million.
Now turning to units our total units in the quarter were 248037 down 3% year over year for all of 2019 units totaling 998495 down 1% year over year.
And our Truecar branded channel, we generated 91452 units in Q4, and 19 down 6% compared to Q4 of 18 for the full year 2019, we generated 360224 units down 9% year over year.
Despite the challenging 2019, we are optimistic about our branded channel's ability to return to unit growth in 2020, given the lift we expect from continued site optimization song. The recent launch of our new consumer experience as well as the impact of our new brand campaign.
And our USA channel, we generated 71917 units up 4% year over year for the full year 2019, we generated 293142 units up 8% compared to 2018.
Given the execution of a transition services agreement, which again runs through September Thirtyth 2020, we expect the USA channels remain a significant source of unit volume through the end of Q3. However, we anticipate some near term pressure as a result of USA decision to pullback marketing spend during that transition period.
And our extended partner channel, we generated 84668 units in Q4, 19 down 7% year over year, we expect the extended partner channel to return to growth in 2020, as we activate a handful of recently signed partners and identify opportunities to scale, our existing high potential partners.
The full year 2019, we generated 345129 unit up 2%.
The new use unit mix in Q4 of 19 continue to shift towards use with 63% new 37% use.
For the quarter total new car units were down 12% year over year by used car units were up 15%.
System with earlier quarters, the weakness in the branded channel is driving the decline until the new car units.
Meanwhile, throughout 2019 improvements to our used car product experience have fueled significant growth across all channels.
Monetization in Q4, 19 was $342 per unit up $7 per unit from last year, driven by an increasing mixed of used car units and the adoption of new dealer products, where revenue is generated through subscriptions without an associated unit count.
Monetization for the year was $335 per unit versus $333 per unit in 2018.
Now turning to expenses and margins were all of the following metrics on a non-GAAP basis, unless otherwise stated.
Gross profit at 82.5 million in Q4, 19 was down point 9 million from Q4 of 18 in gross margin was 92% in Q4 of 19 versus 91.5% in Q4 of last year.
For all of 2019 gross profit of 323 million was down 1.1 million from prior year.
Sales and marketing expenses were 53.9 million or 60% of revenue in Q4 of 19 compared to $52.5 million, 58% of revenue in Q4 of last year within our sales and marketing expenses are truecar that Tom acquisition and partner marketing costs were $34.3 million in Q4 of 19 roughly.
Flat year over year, our blended cost per sale in Q4 ticked up slightly from $132 per unit last year to $138 per unit this year.
Our sales head count and other costs for 19.6 million in Q4, 19 up 6% from 18.6 million. This time last year.
Increasing costs reflects charges associated with the recent rebranding campaign as well as higher consulting fees.
For all 2019, our sales and marketing expenses totaled $214.4 million, 61% of revenue as compared to 199.5 million or 56% of revenue in 2018.
Technology and development expenses totaled 11.2 million or 13% of revenue in Q4 of 19 compared to 12 million also 13% of revenue in Q4 of last year.
For all of 19, our technology and development expenses totaled 46.4 million by 13% of revenue as compared to $50.8 million or 14% of revenue in 2018.
Moving on to DNA, where Q4 2019 expenses totaled 13 million or 14% of revenue compared to 10.1 million or 11% of revenue in Q4 of 18, but a full year 2019, gionee spend totaled 43.3 million or 12% of revenue as compared to 40.4 million or 11% of revenue in two.
2018.
GAAP net loss for Q4 of 19 was 8.8 million or eight cents a share compared to a loss of 6.4 million or six cents a share in Q4 of 18.
Non-GAAP net loss was $1.3 million for Q4 of 19, representing a loss of one cents per share compared to non-GAAP net income of 3.3 million or three cents per share in Q4 of 18.
For the full year 2019, GAAP net loss was 54.9 million or 52 cents per share compared to a loss of 28.3 million or 28 cents per share in 2018.
Non-GAAP net loss was 3.5 million in 2019, representing a loss of three cents per share compared to non-GAAP net income of 11.7 million or 11 cents per share in 2018.
Adjusted EBITDA was 4.3 million or 4.8% of revenue in Q4 of 19 compared to $8.7 million or 9.6% of revenue in Q4 18.
Items excluded from adjusted EBITDA for Q4 of 19, primarily include depreciation and amortization of 6.3 million and stock based compensation of 6.6 million.
For the full year 2019, adjusted EBITDA was 18.9 billion EUR, 5.3% of revenue compared to $33.5 million or 9.5% of revenue in 2018.
Now turning to guidance for the full year 2020, we expect to generate revenue of 335 million to 355 million or negative 5% to flat year over year growth. We estimate adjusted EBITDA to be in the range of 15 to 20 million, maintaining a margin of 4% to 6%.
The first quarter 2020, we expect to generate revenue of 87 to 89 million or 2% to 4% revenue growth year over year, we estimate adjusted EBITDA for the first quarter 2020 to be in the range of three to 4 million producing a margin of 3% to 4%.
As I mentioned earlier the execution of the transition services agreement with USAA will help us to ensure that our dealer customers continue to receive a significant volume of USA units for the first three quarters of 2020.
Further the economic terms and the TSA included roll forward in the legacy revenue share any $20 million transition services.
All of these considerations are embedded into our financial guidance.
That said, we do appreciate that this development could lead to a wider range of revenue outcomes and have attempted to reflect that in our expanded topline guide.
Notwithstanding our confidence in the near term financial health of the business, we will be conducting a thorough assessment of the business to identify additional near term long term opportunities for growth and value creation.
In any event the management team remains committed to preserving profitability for our shareholders in 2020 and as we look ahead into 2021 and with that let's go to questions.
Thank you we will now be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad confirmation Tony will indicate your line is in the question Q.
Start to if you like some of your question from the Q for participants you think speaker equipment may be necessary to pick up your handset before pricing Mr. Keith.
On the please only pull for your question.
Our first question comes from the line of we crowded with B. Riley FBR. Please proceed with your question.
Great. Thanks for taking my questions guys.
First just on point of clarification on the USAA separation agreement.
You guys talked about a large opportunity, which you are handcuffed as part of the USA agreement are you allowed to go target that 40 million.
User opportunity effective today or is that opportunity.
Only become available once the USA agreement rolls off at the end of Q3.
Haley it's Mike Thanks for the question.
That opportunity is going to open up to us very very quickly here and we've already put some things in place.
To understand how to service that broader community.
We'll continue to provide the USAA service that we're providing it will be uninterrupted.
Through September we will be able to look to service a larger group of that as we transition through the agreement we have with USA.
Got it and then my second question.
Does.
The USA announcement.
And your commentary with a commitment to EBITDA margins for the full year.
Does that impact to your marketing strategy and budget for the full year or is it. The same strategy you guys had kind of going into the end of the year end with the rollout just curious how how to think about marketing expense for the year and whether that's changed as of this agreement.
Hey, Lee this is a while thanks to the question.
So as we exited the year, we were talking about.
Seeking efficiencies in our paid marketing spend we spend in Q4 around testing and some different channels to try to learn.
And improve our algorithms and feeds and data into them and we took some of those learnings into Q1 and a coincidence, we timed well with the launch of our of our new rebrand and so we're expecting through Q1 to continue to spend in support of the rebrand which has been very well received and one.
Building in and expecting efficiency in our marketing spend throughout the year. So I would think of it.
Right now is in line with.
With the spend from prior year, we are going to sort of refocus some of that spend as we look to service the military community.
We will be fluid as well, obviously, we're looking to see how things unfold and that's one of the areas, where we can gain efficiencies in one of the levers that we can pull should we need to in order to preserve profitability, but for now the strategy remains essentially impact.
Got it and then just last question notice kind of the franchise dealer adds tailed off towards the entity or.
Any additional color commentary, there and I guess.
The changes or expectation for additions, especially now that you have this new product fully rolled out in Q1.
Yes, well our unit volume.
As you know it was kind of flat last year. So we felt our network. Our franchise network was right size to service that level of volume.
We continue to judge whether we're delivering.
Value to those consumers and as as our as our branded channel starts to grow this year.
We will certainly lean into the opportunity to add dealers to service that piece of the business.
Got it. Thank you for taking my question guys.
Thank you.
Thank you. Our next question comes from the line of sweater criteria with RBC capital markets. Please proceed with your question.
Okay. Thank you.
Two questions. Please first is on the opportunity for potential strategic partnerships now that.
Once the USA partnership comes again, both Q3 can you talk a little bit more about that what's your thinking how you will be investing or thinking about setting yourself up for that and second is on just a few modeling questions. One is does the 20 million service fee is that included in your 15 did.
20 million EBITDA guide.
And second is.
The full year died before dawn on revenue that came in a little bit light of for the street is the difference basically USAA and bad.
Mainly thanks.
Thanks weather and let me take the first part of that question and then I'll turn it over to Noel.
For the second part.
There are a number of other.
Membership providers that service the military community.
We'll be reaching out to them.
In order to build relationships we've also.
We've got a tremendous amount of learning that we've gathered from our relationship with USAA were 13 years.
In understanding of that.
That customer demographic in that type of ways to reach those folks. So we'll quickly look at all the options.
That are available to us to pursue that group we've looked at some design on our own site to potentially build out of military channel.
Service.
Oh, a broader Swat of the military base than we had been able to in the past so.
A number of opportunities there, we've got a lot of experiences that space.
And.
We will continue to pull all the levers we can as we get through this year to make sure we're continuing to service.
The folks in the military.
And whether this is no out with regards to the $20 million transition services the in the TSA.
That is fully included in our EBITDA guide.
That transition services revenue will first be offset by.
The Rev share amounts owed to USAA and the remainder will be recorded into our forecast consulting and other revenue.
As far as our total revenue guide for the full year, Yeah, you're right that's primarily the.
The impact from USA.
Our entirely the impact from USA, where we've modeled in the expiration of the transition services agreement as of 930 as well as some headwinds in that channel. During the first recorded as the year as they will no longer be actively marketing externally the.
Car buying service.
And then there's some conservative assumptions we have around.
Network effects related to USA that we've modeled into it as well.
Okay very helpful. Thank you Mike Thanks Noel.
Welcome.
Thank you. Our next question comes from the line of Kyle Evans with Stephens Inc. Please proceed with your question.
Thanks, a little bit of a follow up.
Thank you just could you help us think about phasing of the topline guide over the rest of the year and I want to make sure that I understand what you said there.
On the.
Transition service agreement and the $20 million, what I heard you say was that goes against the Rev share.
Anything leftover goes into the other segment.
I mean that only kick in.
Fourth quarter.
Question.
Okay.
Thanks.
So just to be clear around that the transition service fees right, we recognize over the service period.
So think about that as.
Ratably.
With the.
The expectation that you might allowed around what would be our own earned by USA in terms of our ishare netting against that in that line. So at the end today I'll end with lower marketing costs and some some level of revenue in that forecast smelting and auto line item throughout this service period.
Yes. It does the first further question I guess.
He is what's that top line it looks like in the fourth quarter, 130% of the units fall out of the model.
A follow up.
Okay.
Yes, so there isn't theres obviously a.
A pretty steep drop off USA is a significant channel for us and so as we.
Pull that out of the model in the fourth quarter. There is a is a fairly steep decline obviously as Mike talked about his prepared remarks. There are some near term strategies that were going to aggressively go after in order to to fill that volume.
As well as continue to.
To invest in the other areas of the business that we've seen strong growth behind and so.
I think right now that what we've modeled is essentially pulling the USA units out entirely.
But again I'm not going Friday detail around in Q4 number specifically at this time, because I think we have some opportunities to backfill that volume.
And on top of the Kyle This is Mike as you know we've been investing heavily in our consumer experience on DC DC, we've seen great results since the launch.
At the end of January both from the consumer satisfaction side, the MPS side as well as close rate and things along that line. So Fortunately we were building out our other channels as we were going through the final throws of this USA negotiation and we expect growth out of the other channels you know still working with big Brown.
Sounds like American Express Sam's club Geico will now have more time to focus and service on some of our other affinity partners and.
There is a clean line of sight for US we believe in using all the understanding we've accumulated in servicing this military community through USA to expand that and potentially get into a larger group of of buyers, who we actually think we can expand our reach into.
Got it and that's a good segue into my last question, you mentioned close rates and net promoter scores.
Could you could you dive down a little bit into the.
Visitors to prospect conversion ratios that you've seen in.
As those hopefully have turned up have you seen any change in that prospect.
Thank you.
Yes.
A lot of that data Kyle is just coming in but what I can tell you is we've seen some real positive signs.
For folks engaging with our the final stage of the process, which is our.
Consumer controlled connection.
And we're delivering leads I am sorry connections to our dealers.
Very high quality from that the NPS scores are just starting to come in from those consumers.
I mentioned, 100% growth we've seen some numbers recently that are indicating it's going up from there. So all the early signs around the new product have been very positive.
And the new branded campaign will allow us to now as we see good signals for more and more traffic into that channel.
Well I think our way to think about it with regards to prospects and.
Is that the new experience, we're improving the quality of the connections that were sent into dealers. So prospect the level of prospecting goes down but the close rate that we're seeing is going up in offsetting that so overall, a better experience for the consumers come to seeing higher MPS and a better experience for our dealer customers.
Because they have to spend less time in order to sell the same number of cars.
Okay. Thank you.
Thank you. Our next question comes from the line of Tom White with da Davidson. Please proceed with your question.
Great. Thanks for taking my question on USAA, we've heard from dealers that.
Lead quality.
And conversion rate was highest in that channel can you maybe talk a bit about kind of the the conversion rate difference between USAA channel and your other channels and how you might be able to narrow narrow that overtime and then is there anything we can or should infer that your separation with USAA in there and their equity stake in Truecar is that.
The reference at all in and the separation and then I have a quick product follow up if I if I could.
Yes, so we don't spend we don't actually talking about conversion rates through our channels and those sort of things.
We we did generate high quality connections through that USAA channel.
And we think thats the opportunity that exists there in order to service those folks the USA agreements.
Wasn't really a demand generating agreement it was a service agreement. So we know those folks will still be going into the community to buy cars Weve got a lot of understanding about.
Where are the.
The value of that relationship with centralized we've looked at it at a geographic level.
We are beginning to.
Get our arms around the way, we can generate and replace that volume for the dealers who are most affected by this by with the high quality consumers that will be reach an outward.
And with regards to USAA is equity stake in Truecar.
That is not something that.
We discuss with them that's a an internal decision.
They have to make that we have no insight into at this point.
Okay, Great and then just on the consumer control connection piece of the new product, which which I agree is great and the critical.
Part I just wanted to confirm did I did I hear that that part hasn't been rolled out nationally.
Yet can you sort of talk to that the timeline of when that specific piece will kind of be broadly deployed.
Yes.
Tom that's been rolled out a 100% on Tc DC our branded channel.
We've begun to rollout across our affinity extended affinity network and have the planned to be completely rolled out.
By the end of 2020.
And we'll be continuing to iterative on that product and improvement as we go through the year, we've seen some really good early signs.
From the consumer sign the dealer side, we're very excited about it.
Great. Thank you guys.
Thank you. Our next question comes from the line of Andrew Byrne with JMP Securities. Please proceed with your question.
Thanks for taking my question. So I've got two please.
First on USA.
Can you just help us understand the impact on the dealers. How are you guys communicating just USA going away is there anything you guys need to do on that and then secondarily with true car traffic up 26% and a new brand out there.
Can you talk about the drivers behind that growth and then looking forward kind of what additional levers do you have to see that continue thanks.
Sure. Thanks.
We are.
We spent a lot of time with our dealer team to make sure we're communicating USAA message.
Out to our dealer team.
The the USA the transition service agreement.
Allows us to smooth that over the year and we think we'll kind of mute the impact of that business. As we go forward. So we're talking to all our dealer too.
Our in centralized area, where we seek will be some effect of that that change.
And we're going to work quickly to like we say talk about by replacing that volume and doing the type of things we need to do to continue to service that community.
In the second question again Im sorry.
It's on traffic I can take that one.
So with regards to traffic.
Primarily where we're seeing the increased traffic is in our U.S channel.
Primarily driven by the improvements we've made around FCO.
So in part if you remember in September 2018, those a Google algorithm change that negatively impacted our organic traffic. So we've now lapped that so we're seeing the benefit there as well as the market improvements that we made in FCO with regards to our technical.
Proficiency and the content that we have abbott's insight we talked in our earlier remarks about the success, we've had with our best out pages in our model overview ages, those continue ranked higher and drive growth.
We're also seeing positive signs with consumers wherever seeing increases in sessions per user as well as we turn visitation.
So we think theres a lot more room to grow.
On the auto side, and we think thats and be a big.
Our success in 2020.
Thank you.
Thank you. Our next question comes from the line of Daniel Powell with Goldman Sachs. Please proceed with your question.
Great. Thanks for taking the question I've got one and then a follow up.
Just wanted to ask around.
The discrepancy that we saw between traffic growth, particularly in the branded channel and unit volumes being down year over year realize there was a lapping dynamic in the branded channel related to the Google change you just spoke about.
That's the 26% growth there versus the the down move in units, just curious kind of where and how that moved versus your expectations.
And then a follow up if I could.
Sure. This is though I'll take that one so yes that is certainly one factor is the lapping of the Google algorithm change and so the organic traffic.
Is inherently lower converting we're finding people that are higher up in the funnel and thats why the metrics around.
Tons per user repeat visitation duration on site and our capabilities that we've been building out around reengagement through your email is really important so that we can nurturing those.
Those consumers through the final until the point, where they're they're ready to combine car.
The other is that we regularly made changes to our experience that are for the benefit of the consumer.
In example is related to our new car Configurator change, we made that didnt fully rolled out until late in Q3, where we made enhancements to that configurator, which essentially provided the better consumer experience and a more qualified.
Consumer that we could connect with dealers, but net net was a negative in the near term for commerce make those trade offs regularly that we think are going to have long term benefit for the beer business in the experience, but may have a short term headwinds. So that was the other factor driving that divergence.
Got it thanks that's helpful.
And then as it relates to USA and sort of the opportunity to two market too.
Yes, those customers kind of outside of that.
That closed user group just just curious.
How much data or feedback were you getting from USAA, where are you still getting from USA at this time versus what's going to get turned off.
After the key assai and sort of how does that impact your ability to market to those types of military users and families.
Yes. Thanks, Dan This is Mike it's less about the data I think we got from USAA than the understanding of that community through supporting them for 13 years and providing the car buying service to them. So we'll rely a lot of that learning.
We've also been able to accumulate a lot of our own data around the pockets in the areas of the country.
Where the military communities tend to live in thrive and and by their vehicles. So.
We've got a pretty good base of understanding and we think that will be the key for us.
Going forward and creating products that are interesting.
In exciting and continue to service that group buyers.
Great. Thanks.
Okay.
Our next question comes from the line of Naved Khan with Suntrust Robinson Humphrey. Please proceed with your question.
Yes, thanks for your questions.
Just on the.
I got to Q1 outlook cost for 2% to 4% growth on revenue.
At the same thing and talked about how USA might be.
Pulling back on its on marketing spend so maybe.
Fewer leads coming through that channel can you unpack for us.
The growth.
In different channels, you are on branded channel versus affinity and maybe yes.
How do you get to the 2% to 4%.
And maybe talk a little bit about OEM, what should we expect for OEM revenue. This year, how are you kind of conversations going with the color companies.
Yes pain of Ed This is no.
So I think the first thing to call out is that USAA with USA is that the agreement continues right. We're going to continue to provide the carbine service with them through the end of September. So we really expect the impact on the first three quarters to be.
To be muted, yes, there there were pulled back some marketing marketing in that channel and so we'll have a little bit of softness there but.
Overall, we still think that the success that we're having primarily in our new dealer products, where we've seen some some strong early adoption.
If any da's. Any example, we had a very successful event there with as much when traffic in new registration sign ups that we've ever had.
So we're seeing strong performance out of our new product revenue and then some of the earlier traffic comments I made earlier around FCO as well as the.
The new consumer experience in the lift that we're getting from our newly or new rebrand that we've launched and with those both still being at early stages of optimization those are more than ups offsetting any of the headwind from USA in the first quarter.
Okay.
And then the OEM what do you what are you hearing and what are you baking in a forecast.
Yes, I would say a similarly with OEM OEM is impacted by USA as well, but again the service continues through 930. So we would expect muted impact on OEM revenue through the first three quarters and then we are expecting a drop off in Q4.
Got it. So this is this is how to put it maybe a quick follow on for Mike.
I can you maybe just given the sense of what we're turning you are in regards to testing and depending on.
More.
Features functionality in the auto and consumer experience.
This timna.
Overall my head.
Sure. Thank you for the question.
I would say we're in the early innings I don't know if it's the.
The bottom in the first are the top of the second but we've we think we've made some significant moves were getting seeing really good signs from what we've done on both sides of the marketplace now the consumer.
Side of it has been very very positive.
And the way we've been able to have the consumer engage in our consumer control connection.
Product is generating quality leads.
Many of them 40 connections.
Many of them.
Our ours.
Unique to a dealer and we're excited about how both sides of the marketplace are responding to that in addition, we've got some exciting testing going on around.
Around SMS SMS texting applications, we've got that in a pilot market right now and we're also working within a chat but.
That we want to get into our process as well so you know consumers.
Overtime, and then a modern marketplace want to control that connection and that mechanism and we feel good about what we've been able to accomplish but realize there certainly is a long long way to go forward. The next big step you'll see.
As we are adding our trade product into our core buying channel, we're running that at about 30% of our traffic right now excited by those results. We've seen so we'll not only be able to.
Get a consumer on the vehicle they want at the price they understand well to put a value on their trade and so you know we're progressing nicely we're still in the early innings, but.
There's a lot of headroom and we're excited about where that can go as we grow that channel.
Great. Thank you.
Thank you. Your next question comes from the line of Dan Kurnos with the Benchmark Company. Please proceed with your question.
Thanks.
Mike usually exclusive leads typically drive or command premium pricing I'm. Just curious if this trend kind of continues how you're thinking about that and on the flip side. Obviously, you know with select you run the risk of reducing lead volume in at least maybe the near term.
As you work through some of the traffic and then conversion so.
Dealers can respond.
Negatively to that so just kind of think how you're thinking about that balance and then you talked about some marketing efficiencies you're seeing.
Heading into the brand campaign, just curious overall, if you could give us.
An update on what you're seeing on customer acquisition costs and just how fluid is the marketing in terms of top versus bottom of funnel given what you're seeing on the conversion side.
Thanks, Dan let me handle the I'll take the first question regarding the exclusive leads.
About one third of our lead volume our connection volume right now is going through and dealer in an exclusive relationship.
We want to make sure we get the rate data around that to understand that value delivery.
We were we're signaling to the dealer that they are the first dealer.
That's that's been chosen and connected with the consumer So we'll track that performance and.
It will be a major part of our portfolio going forward, but we tend to look at the.
Basket of connections, we provide you a dealer and and the number of sales they have out of it.
We have seen a bit of a drop Italy, count, but we had a lot of conversation with our dealers about that at any da and as long as the leads they're getting our high quality.
And they're able to have good conversations with the consumers.
I think many dealers we tell you right now they're they've got all the leads they need they need more customers and any more connections to deliver real value. So.
Where we're more than convinced that the improvement in close rate in the improvement in.
MPS and the consumer side will help us grow that business offsetting decline in Leeds.
And then I think that can you repeat the third question.
Yes.
The second question Ron I was just on marketing you talked about marketing efficiencies you're seeing from some of the testing you did in Q4, just curious if you could give us an update just overall, what you're seeing on.
Cost of customer acquisition, and just as you go into the year with that with the with the refresh here just how fluid maybe the marketing is on brand versus bottom of funnel given what you're seeing on the conversions on.
Yes, Okay got it so.
With regards to to the efficiencies, we're driving I mean really it's across the board. So on sort of the lower funnel efficiencies, we're really getting down into the under the guts of our of our search engine marketing looking at a campaign level and breaking down profitability all the way down.
Through to the sale of a car and measuring it at that level rather than an aggregate so that we can.
Turn the dialogue between specific campaigns that are outperforming or underperforming also on the sort of higher reach television side, we're looking at opportunities to buy that higher reach audience at lower cpms.
Sometimes leveraging better technologies and partners to do that.
The other.
Area that we're working on is as we look at the combination of all the different channels that we're spending in.
Getting a better understanding and read on how the interaction across all of them impacts our overall ROI and performance and so we've been working on a multi touch attribution model to help us make those decisions on that the allocation of spend across channels and whether we're focused on higher reach.
Our lower final.
We have a fair amount of marketing spend when we think about our high reached spend obviously theres a level of brand awareness that's important and it is part of an empty a strategy. The if you were to pull lever on that the near term benefit to adjusted EBITDA, but then obvious.
That's at the sacrifice.
Of the longer term, but we do have some ability to pull to pull levers there should we need.
Hope that answers your question.
No. It does thanks very much appreciate the color guys.
Thank you. Our next question comes from the line as Nick Jonas with Citi. Please proceed with your question.
Hi, Thanks for taking the questions I guess the first one.
As on how you think about.
Balancing leaning into existing partnerships are starting new partnerships versus building a true brand.
Since I guess on the partnerships, you kind of or adding to the upper funnel live a little bit control.
And I guess off of that.
As you look to increase marketing efficiency and kind of cross channel interactions.
Let me kind of commentary on how you feel about Google is kind of return announcement of potentially moving third party cookies, and how that might impact your ability to increase efficiency.
Thanks.
Okay.
Yes, thanks, Nick.
From the perspective of will we lean into the branded channel or.
Or the affinity partner network, we're fortunate to have both of those so we're excited about both of those opportunities.
We've made some great progress on our branded.
Side of the house and we'll continue to lean in there.
Our new flexible tech stack allows us to iterative and to really advanced that product, but as we do we push that out on our affinity partner sites to and they get they get the benefit of that as well. So you know, we think theres a lot of opportunity to grow our branded channel.
As well as our affinity channel and add new partners and as we continue to solve for these consumer pain points.
And generate quality connections with our dealers, we think we'll be able to leverage both sides of that.
In the marketing question.
Yes, I don't think we're expecting any impact from that potential change by Google.
Great. Thank you.
Okay.
Thank you. Our next question comes from the line of Brad Erickson with Needham Company. Please proceed with your question.
Hi, thank.
You've already kind of cover that but just to be real clear.
Again at a high level talking about the cost structure that exists to support USA and just what the philosophy is on running with that intact. Maybe support. The addition of some of these other channel opportunities you're talking about in the future versus maybe rationalizing here in a bit as you right size. The go forward side of the company.
Okay.
So we don't provide any color on.
The revenue our contribution margin for a specific channels I will say USA.
A very important channel for us.
So I think that.
On.
I think that we will continue to lead into that relationship for as long as the TSA is in place.
I think it's important part of.
Providing value to our dealers today, along with everything that we do outside of the USA.
In terms of this can you repeat the second and then just margin question just add some color Brad on on.
No Al's comments.
The Ts say.
Provides kind of a muted effect to our business. This year and allows us to continue through the end of the year.
Into work.
Our different existing channels, our branded channel or other affinity partnerships as well as new strategic opportunities out there in the market.
But while we pursue these up these aggressively we recognize parallel we're going after running assessment of the business and we're going to continue to look to unlock shareholder value in any event, we're committed to preserving the profitability of the company. So we've got to plan. This was our recent development and.
Weve.
Put some plans in place very very quickly to react and we feel good about where we can take the business.
And we'll we'll keep a keen eye on profitability as we do that.
Got it and then just maybe one last follow up on the new opportunities. These channels here it sounds like you're targeting around the military.
Are these like aggregated organizations, where there may be an incumbent in place or you like going to them offering them something that's brand new for their their type of organization any any color on the pipe what the pipeline and there would be great. Yes.
Yes, we've already got.
Quite a bit of work done on the different ways to approach. This channel in this group. There certainly are other very strong USAA like size really partners out there who have deep relationships in this community that we will pursue.
We will look at social media will look at all the different ways to lean into this community.
We've been active in the military community with our driven the drive program.
For a number of years and we'll we'll really lean into this RTC DC platform, which now as flexibility we talked about the new brand.
Opening up an opportunity to tailor to millennials and women. We will now very quickly add a another demographic group that we want to provide service for and that will be military.
And their military members and their family. So we think our experience in having participated in this channel for 13 years gives us a leg up we already have some things in place in some thoughts as to how to go about this and you'll you'll see us moving very quickly in the in that direction.
Hey.
If I could the question really was centered around is the kind of greenfield as it pertains to the types of organizations are they already working with maybe like a competitive.
Player to you.
I think there's probably a couple of those theres probably both.
We think theres some greenfield opportunity.
To go out there we also know that.
There were players in that community that wanted to work with us that we didnt have time to focus on.
When we were deepen our USA agreements. So we'll take a two to two pronged approach to pursuing that market. Some of it will be wide open.
In some of it will be a new new opportunity for mode for folks, who maybe already ever been jail.
Got it that's great. Thanks.
Thank you. Our next question comes from the line of Marvin Phong with BTG. Please proceed with your question.
Thank you for sneaking me in here and.
So I just wanted to just drill further into the dynamics of if I think the majority of your dealers on subscription and I'll just one get your take on how those discussions might happen.
No dealers will now be aware the big change coming at the end of the year.
So does your guidance contemplate kind of a difficult process and in renewing dealers and then just a follow up on the on the full year guidance.
Are you guys anticipating or can you speak too. If you think you will be EBITDA positive in the fourth quarter. After after the transition happen. Thanks.
Okay.
Yes, I would let me handle the first question regarding our subscription subscription dealers.
We believe based on our transition services agreement that they're really be no change.
Or very little change to that relationship through the end of September that'll give us a bit of a runway.
To go out into those marketplaces and look at the opportunity to recapture that volume for those dealers.
Well, we also try to grow their share on our on our other two platform. So we're looking at it.
On subscription we're looking at it geographically, we understand challenges will face in some states, Texas in Virginia.
Colorado, Our states, where there's a heavy influence of military buyers and will be aggressive in in getting out there providing service, but we really don't think there will be much change to the current business through September.
Oh on the our question Martin regarding Q4, EBITDA, we're not going provide any additional color on Q4 at this time.
The full year guide as well as the the Q1 guide.
And that's all we're going to are going to give at this point time.
Okay, Great and just a quick follow up so is your current guidance full year just wanted to confirm so right now it doesn't really contemplate any.
Change to your operating cost structure I know you said you'd be reviewing that but does that begin anything from market or or is that we should stay tuned for that.
No. It does not and does not include any.
Significant change to our current cost structure that's correct.
Alright, great. Thank you both.
Thank you thanks Martin thank.
Thank you. Our next question comes from the line of Steve Dyer with Craig Hallum. Please proceed with your question.
Thanks, most of might have been answered at this point, but one previous point of emphasis has been sort of the cash offer buying buying vehicles, making offers to consumers.
Is that still sort of a focal point I haven't heard anything about that on this call sort of how's that going any color would be great.
[laughter].
Yes, we launched our Truetrade.
Product from our home page for consumers, who were interested in in disposing of vehicle and we began to get some traction.
From that product, we've now taken our trade.
Truetrade product in integrated into our core buying program and Steve We know.
50% to 60% of new and used car buyers have a trade of some sort. So we think by helping them identify the right car getting the right price and then being able to deliver a guaranteed cash value for their for their trade in will allow us to create even deeper connections.
Our retail partners. So we'll continue to it or eight on that you'll see us deliver.
Monthly payments.
Later in the year that will become another stage in this buying process, but.
Yeah, we're excited about our trade offering in and now that it's in our core shopping channel, we expect a lot more activity on that.
And can you just remind us sort of the revenue recognition.
Methodology for that as that is on a per vehicle as I, just sort of meant to be an enhancement for the dealer that ultimately gets a trend can you refresh us on that.
Hey, Steve This is no while it's primarily subscription.
Okay. So similar to the to the okay. So similar to the the car sales selling I guess.
Yes business.
And then I guess lastly from me you guys do have a very healthy balance sheet sort of I guess philosophically. How do you think about that are you sort of hunker down trying to see with this thing looks like after USAA or other acquisitions you'd look to make are you looking to potentially buy back stock how do you think about using that asset.
Yes, thanks for pointing that out we do have a very healthy balance you have over 180 million in cash and no outstanding debt.
Right now we're going to be we're going to be conservative.
In terms of.
Protecting and preserving capital just as we see how this thing plays out.
Again, we're confident that under the agreement that we have in place with USA for the transition through 930, and with the $20 million transition services fee that we will be financially healthy and have a healthy profit adjusted EBITDA profit in.
[music].
In 2020.
But we're still going to be.
Played a little bit conservative.
Got it okay. Thanks, guys.
Thank you there no further questions at this time I'd like to turn the call back over to Mr. Darrow for any closing remarks.
Thanks, everyone for your time today, we realize we've got a lot of hard work ahead of US rest assured Noel myself and the rest of our management team are prepared to face these head on.
We remind you truecar is no stranger to adversity.
If there is ever a company that has proven its resilience. It's us throughout the company's 15 years, we've been confronted by a number of obstacles yet weve persevered through them all I have zeroed out that our employees are prepared to rally confront our current challenge and as a result, the company will emerge stronger than ever before I look forward and speaking with you for.
Further, but each of you over the next coming weeks and thanks for participating today.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation have a nice day.