Q2 2020 TrueCar Inc Earnings Call
[music] greeting.
And a block them teach requires second quarter 2020 earnings Conference call. Please note. This conference as being recorded I will now it's in the conference over to your House, Danny Vivere, Vice President of Investor Relations. Mister Viv you you may begin.
Thank you operator, Hello, and welcome to Truecar second quarter 2020 earnings Conference call. Joining me today is Mike Zero, our President and Chief Executive Officer, and dwell Watson, our Chief Financial Officer. As a reminder, we will be making forward looking statements on this call. These forward looking statements can be identified by their use of words such as believe.
[noise] expect plan anticipate they're coming toward well intend confident in similar expression and or not and should not be relied on as a guarantee a future performance or results.
Actual results could differ material Ethan goes contemplated by our forward looking statements precaution used to review the risk factors section of our annual report on foreign Pen K, a quarterly reports on foreign 10-Q, and our other reports an filings with the Securities and Exchange Commission for a discussion of the factors that could cause the results did that for a materially the forward.
[noise] statements, we make on this call are based on information available to us as in 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 a certain gap and non got financial measures.
Conciliations of all non guy measures to the most directly comparable got measures are set forth in the Investor Relations section of our website at true Dot com.
Non got financial measures are not intended to be considered an isolation or as a substitute for results prepared in accordance with that now I'll turn the call over to Mike.
Thank you Danny and good afternoon, everyone before jumping into the details of the quarter I'd like to say a few words on today's announcement regarding the sale or a L. G business.
Over the past six months, we've been deeply engaged with multiple parties, who expressed interest in a L. G.
L D. J D power is an exceptional outcome most in terms of the 135 million dollar sale price.
And the potential a L. G has with its new owner.
Given the complimentary nature of their portfolio of a automotive data assets.
Became clear early on the J D power was the right home for a L. G.
[noise] Truecar already had abroad data driven relationship with J D power and this transaction will serve to further deep in that relationship.
It's been a privilege for me to work with D. A L. G team for the past four years and I look forward to watching them thrive under new ownership.
Oh, well, we'll provide additional commentary on the transaction later in the call.
No, let's turn to cute too performance, we just turned the corner on what was truly an unprecedented second order.
From the initial government mandated locked down to the closure of thousands of our customer outlets impact has been both profound and unpredictable.
I remain like extremely proud of my Truecar colleagues, who continue to demonstrate compassion and resolved in the face of much adversity.
Since transitioning to a fully remote work environment in late March productivity and collaboration have remained at peak levels.
And she'll here on this call, we had a very busy and productive cute too.
In light of the situation around US we are pleased by our results highlighted by revenue and adjusted EBITDA well above the expectations.
During the quarter, we successfully navigated the onset of Kobe 19.
Executed a transformative strategic restructuring and formalized numerous cross functional initiatives to support the USAA transition.
I'll touch on or two two Q2 performance in more detail.
Traffic to the site recovered quickly in April and continued to accelerate throughout the quarter.
Ending June up 30% versus the prior year.
We ended June with over 9 million monthly unique visitors and all time high.
Our Truecar Dot Com branded channel is responsible for the majority of this list as we continue to benefit from ongoing S. C O investments and improved digital marketing performance.
We saw resilience in our dealer count, which quickly recovered from April lows ending the quarter at 15398 down just one per cent from the end of March.
A significant portion of the dealers who had suspended our services and early early April reactivated in May and U as they looked at take advantage of the growing volume coming through the demand side of our marketplace.
Consistent with the expectations, we set out on our Q1 call. We discounted April and May subscription rate for dealers and subscription states by 50 per cent.
An extended that financial relief into June offering a 25% discount.
This level of support was more than any other third party marketplace.
In total our actions saved art dealer network over 15 million and reinforced our commitment to helping or retail partners navigate through cobin 19th.
On the car side meaningful sales and marketing deficiencies drove significant adjusted EBITDA outperformance in the corner.
Noel provide additional commentary later in the call but to take away here is certainly encourage you.
And finally in late May we announced the strategic restructuring to support a leaner operating model and reinforced are ongoing focus on the consumer experience.
As part of the restructuring we initiated a company white workforce reduction, which represents about 35 million of annualized fixed cost savings <unk>.
These actions were certainly painful, but I am proud of organizations response, which included a concerted effort to help out at a party teammates find new opportunities within the industry.
I'd like to reflect on the unintended opportunity Cobin 19 created and comment on our progress towards providing real solutions for the challenges is pin damage has intensified for consumers and retailers.
Over the past three months, we continued to clearly see an acceleration in the demand for digital car buying solutions as you've heard me say before changing your automotive industry can be slow our industry has watched from the sidelines is similar verticals like real estate and travel which are also based on high.
[noise] consideration purchases embrace new digitally native ways of doing business that brought increase transparency inefficiency to the point of retail.
Sometimes you need extra ordinary circumstances to bring about extra ordinary change I believe that's what we're seeing now.
[noise] [noise] to take advantage of our changing environment here at Truecar, We're building a flexible online car buying experience that removes friction saves time and provides differentiated value for both sides of our marketplace.
For consumers the vast majority of who remain dissatisfied with the car buying process, our vision as to inspire confidence.
You should be able to visit Truecar dog <unk> dotcom undecided on the car you want we will help you find the car that's right for you based on your needs and budget.
And then our site will help you determine the market value of your existing vehicle understand pricing context based on actual recent transactions in your local market <unk>.
Discover incentives and savings unique to you.
And navigate the deal configuration process on your terms with complete transparency.
Ultimately he will be seamlessly connected with one of our certified dealer partners lying in Omnichannel communication platform available through the web are apps or through S. M. S with tooling to help dealer salespeople efficiently Ineffectively answer your questions and guide you through the remaining steps into buying process.
And easy car buying experience that removes anxiety and leaves consumer confident they received a good deal.
We recognize that in order to achieve this vision, we must inspire the active participation of art dealer partners.
Given the inherent complexity of buying a car dealers playing in a rule role in guiding consumers through the purchasing process.
This may involve coordinating a vehicle test drive answering basic questions.
<unk> more complex financial scenarios or facilitating the final contracting and vehicle pick up or delivery.
Ultimately human interaction has been and will likely remain a critical piece of the car buying journey for many buyers.
We want to enable consumers to complete as much of the deal online as they choose and then at the right time and on their terms connect them to the right dealer, while continuing to support both sides with a communication platform that adds value to the conversation.
But shaving this will require an ongoing emphasis on developing evangelizing and training on tools and empower dealers to provide an excellent consumer experience and further in an environment, where dealer resources Sorta limited our tools and systems will bring increased efficiency to the point of retail helping them do.
More with less.
As I Hope you will agree are northstar's very clear, we just need to execute it'll take time to get it right and we know that but we have the team in place and the focus is required to turn our vision into reality.
On the call and May I laid out of three phased approach to building, a true and and online car buying experience.
Phase one the integration of Truecar trade within our auto buying program and the introduction of our by from home program was a step in the right direction.
Now, we need to accelerate or digital retailing tools to enable more of the deal configuration process online.
Q too we made significant progress towards that end and remain on pace to introduce all three phases by ear and.
[noise] on today's call I'd like to spotlight phase two of three are payments product, which launched its first version in early may and represents yet another major step forward and our digital retailing roadmap <unk>.
A reason survey of 1000 in market consumers led by our internal research team revealed that over three quarters or 76% of car shopper you'd like to calculate and compare monthly payments online while searching for a vehicle.
By contrast in that same survey less than a quarter. We're just 18 per cent of car buyers actually did so.
What this tells US is that there's a need amongst consumers for tools and experiences that help them understand not just pricing, but more importantly, affordability, which is more relevant now than ever <unk>.
Two car has always been the leader in helping consumers understand a relative price of a vehicle.
The truecar curved pioneered transparency in the industry.
Flipping shoppers with the day to day needed to understand whether a car was priced above <unk>.
Hello are at the market average.
We've now taken our court competency one step further by building a dynamic self service experience that enables a consumer to configure a personalized lee sort of loan payment based on upfront dealer pricing, considering applicable incentives fees and taxes empowering our users with the information they need.
[noise] to truly understand what type of vehicle they can afford.
I want to emphasize that are payment engine is not as simple payment calculator like you can find on so many websites.
Unlike a simple calculator our payment engine is built on the back end integration with the dealers actual lending solutions and desk and configurations.
The approach requires complex execution, but these better inputs, you'll dramatically better outputs put simply our payment engine built realistic expectation about financing options actually available at the dealer before the consumer steps foot on a lot.
[noise] testing shows that consumers, who engage with our payment experience are much more likely to purchase a vehicle from a dealership in our network.
In the near term our team is focused on increasing our payment coverage and consumer engagement by highlighting deal building features throughout the post prospect experience and Onboarding more dealers onto our payment platform, which also includes true Cartwright solution.
As we continue onboarding dealers over the coming months the number of vehicles that'll allow payments configuration will increase as we in parallel work to make deal building a more prominent part of the consumer journey.
Again, all of this product development is in pursuit of enabling of frictionless online to salesperson transition and deal confidence where the consumer.
Consumers want a complete many parts of their cardio online.
But we know that a large percentage ultimately went to engage with our retail partner and potentially visit the dealership before finalizing the purchase.
As a marketplace that sits between demand and supply we are best position to help make this process easy equipping consumers with the tools they need to create and makes sense of deal structures that are informed by pricing and trading valuations that dealers will honor.
As we continue to innovate on the product experience, we are in parallel mobilizing too aggressively and proactively support art dealer customers through the ongoing USAA transition.
Given at strategic importance I'd like to provide a bit of commentary on our approach, which I am confident will drive a favorable outcome for both true car and our retail partners.
First it's important to remember that the influence of the military community is geographically concentrated.
In cities, where the military communities influence is relatively small for example in New York in Chicago.
He was a accounts for just 10% of our total unit falling.
The remaining 90% is driven by a brand new channel and extended affinity network.
[noise] Rover at an individual dealer level, where the average franchise dealer cells six cars per month through our auto buying service.
USAA accounts for just one half of one sale per month.
To a large extent in these geography's, we anticipate very little disruption.
Clearly are one size fits all approach is not going to work and we recognize that.
Instead, and Geography's with greater military representation, we have been testing and will continue to deploy and optimize combination of targeted product marketing and operational strategies to best support our dealer community through this transition.
In doing so we will work to ensure that aren't monetization is appropriately aligned to the valued delivered through our marketplace.
Second we will continue invest in the early success of our Truecar military channel.
Since launching and May the military channel has driven over 5000 units many of which orange geography's with an active military community.
We've leveraged I'm more than 13 years of direct experience and raised high praise from both dealers and military personnel as we've expanded our legacy relationships when nonprofits, such as driven to drive and T. Margaret RW B.
The positive response is confirmed by the data with 90% of consumers, who engage with the Truecar military site rating the value proposition as good are excellent.
Now it's important to acknowledge that this channel will not match USAA scale in 2020 that was never the expectation. However, the potential here is very real in fact, our military channel reached over 1000 units in the first 30 days after lunch the fastest.
<unk> specific channel to reach that milestone in Truecar history.
And as you've heard me say before there's a huge population of 40 million active and retired military members and their families that need help finding a vehicle.
We're truly just getting started.
And finally before turning the call over to Noel I'd like to take a moment to comment on the social justice movement sweeping across our nation.
[noise] Truecar was founded 15 years ago on the principles of fairness and transparency.
This identity has withstood the test of time and remains as decor of everything we do.
As such we are committed to being a part of the solution into going the extra mile to invest our time and resources toward the common goal of fighting for a socially just society.
To that and we recently formed a diversity equity inclusion committee with companywide representation across all levels of the organization.
The committee will provide institutional accountability, serving as an incubator for new ideas and acting as a change agent within the company.
In the short time since being formed the committee has spearheaded the implementation of an employee donation matching program and identified opportunities to elevate multicultural inclusive marketing across our advertising campaigns.
Further we remain committed to our ongoing partnership with a National Association of minority automobile dealers named Mad and they're request to improve diversity, an automotive retail plus we're partnering with carb is today C. P. T. On a series of shows that will center on the topic of diversity an automobile automotive.
More importantly over the long term, we're committed to using our platform to help make the auto industry more diverse.
<unk> and inclusive.
And with that I'll turn the call over to Noel.
Thanks, Mike and good afternoon, everyone.
Before jumping in July cute your results and second half financial commentary I'd like to first goodbye. Some additional Colorado today's announcement guarding a L. G.
Is Mike mentioned, we entered into an agreement yourself, a L G or up to you $135 million and total consideration to J D powers.
[noise] total consideration include it upside cash payment of 112.5 million at clothing, and total deferred payments live up to 22.5 billion.
Is preferred consideration divided into two paintings with one payment of up to 7.5 million cable in early 2021 based on a L. G 2020 remedy.
And another payment of up to 15 million cable in 2023 based on 2022 left.
The transaction a subject to regular toy.
<unk>, However, we anticipate clothing prior to your right.
Total consideration of 135 million represents a strong seven X multiple of a L. G. Last 12 months <unk>, what can we have reported in our forecast consulting and other revenue line item.
As part of the deal Truecar will receive a five year license back a all I L. G data will actively participate in a transition services arrangements to insure this mood handle.
Stay away and pack approximately 45 employees are roughly 10 per cent alright, well for us.
On the heels of this transaction and give them the value we see in a socket chili peppers or board has authorize a 75 million dollar Sherry purchase program and we intend to begin with purchasing chairs in the near child.
The remaining proceeds served a four by four to fire balance sheet and along with existing cash will be used to support I'm going business operations to expand our strategic flexibility.
Now I'd like to take you through our second quota financially thoughts with reflect strong execution and missed a challenging backdrop driving performance well about revenue and adjusted EBITDA expectation.
Do a combination of unit pressure and Broadbase, especially discounting both of which were expected have anything to the corner total revenue came in at 62.79, 29% you over here.
Franchise dealer town, the carpet or some April those to end the quarter at 11267 dealers down 1% Q1, a very strong I'll come in light of it yet we saw in April and the uncertainty that persisted throughout the corner.
Given the unit pressure proactive subscription lately B Q2 monthly French fries revenue for deal with it came in at $1221 down 29 per cent, there's just prior year.
Independent dealer town also a chocolate somebody's April though and in June at 4131 down just $62 potentially a Q1.
Since the vast majority of our into any dealers aren't a subscription doing model independent revenue for deal or was more impacted by they just counting ending the corner down 44 per cent you over here.
New dealer product Avenue, which was also in packing by the Broadbase discounting was approximately 2.1 million during the corner 25 per cent your ear.
Oh, Yeah I'm revenue came in at 4.8.
15% year over year improvement driven by the expansion at certain bunch of your Grand programs, and it's showing more resilient starting October 19th.
Do not expect this level of growth to continue the second half of the year and particularly in the fourth quarter as USAA program, a large drive of William revenue continues to wind down.
And finally forecast insulting and other revenues ended the corner at $799, which includes approximately $4.1 million a L. G revenue and 3.7 million attributable to the USAA transition services agreement.
Mike mentioned traffic to a site continues to grow monthly unique visitors for the corner at 8.3 million up to 15 per cent you over here.
Continues to be driven by S T O traffic and improve efficiency and our direct response marketing.
[noise] total units in the corner, where approximately 189000.
24% yoga here.
A couple of comments here first the second quarter I got off to a very slow start with April units down 41% you over here. However, we sorry strongly probably may and June the union, sending data 19 per cent and 14 per cent respectively.
Granted channel continues to outperform relative to USAA, an extended it's gonna be.
Extra card a comedy units declined just 15 per cent you over here at the corner by USAA was down 34, and you said.
This is yet another silver lining in the corner, particularly when you take into account and material reduction and granted media spent I'll touch on this morning it yet.
Third we continue to see divergence between new and used car performance, but he used cars, representing 45% of the total units in the corner up from a 36% sure at the same period last year. There are multiple factors that play here.
First much of this can be explained by the continued growth a S. P O tracking which currently tends to bring a higher proportion you'd use pun intended to site.
Growing used car traffic combined with I'm going optimizations to a used car marketplace is fueled sixth street corner zero V. Your broken or <unk> Dot com used car unit bottoms, and we expect that trying to continue with the back half of this year.
Second short term factor is short any new car, Amy Choi, resulting from supply chain disruptions during the initial wave of shut down in the spring.
And the second half of this year, we anticipate new car inventory levels to normal hours.
And finally since the financial relief, we extended till idea with customer I succeeded decline in total you volumes Choo Choo transaction My information was $290 per unit down 13% compared to the prior year, a worthy invest medium out of network.
We expect monetization to returning to more normalised levels and the second half of the year as we N Broadbased is county.
Now I was wondering too expensive and margins for all of the following metrics on a non gap basis, unless otherwise stated.
Gross margin was relatively unchanged empire periods, ending the corner at 91 per cent.
Technology and development in general and administrative pass came down Cordova corner from two one and it absolutely dollar basis.
Driven by the strategic restructure them at the end of today.
And finally, we reduced sales and marketing expenses by 53 per cent year over year, a key driver in our adjusted EBITDA appointment.
Within sales and marketing the bulk of his savings is driven by an approximate 70 per cent reduction branded media said.
We continued to remove all offline campaigns and sauce significant inefficiencies digital acquisition channels.
Partner marketing cost largely variable in nature and benefiting from the USAA T S N or also down materially year over year.
And total cost for sale during the second quarter was $66 53 per cent you over here.
Paid by the outcome believe it speaks to the inherent leverage flexibility within our operating model. We do however, I expect a gradual increase in cost per se all throughout the second half of the year.
Three factors driving this increase.
We anticipate any more competitive digital media environment companies have had time to understand any just the message on T V on set October 19.
Second we expect to reintroduce an appropriate level a branch bed to support sustainable topline road.
Third we expect partner marketing costs will increase with higher to three unabomber's and we will lose the temporary debit card in the USA a T S a and the fourth quarter.
Finally sales head count another the largest component of our sales and marketing my name is down 34% Year-over-year, Kevin by the contraction a R. D O S T I as in services team as well as strategic restructuring.
In summary through a combination of revenue upside and strong expense controls Q2 financial results from significantly better than Orange no expectations. When we last spoke with even though you bet.
We ended cue to be 10, 49 million adjusted EBITDA and 17 per cent of revenue up up from 379 four per cent of Avenue in the same period last year.
Very strong how come and get circumstances.
Yep that lost in the second corner of 2020 was 11.29 or 10 cents per share compared to a loss of 24.1 or 23 cents for sure and two 219.
Non gap net income was 4.4 million a four cents per sharing a corner compared to a net loss of $2.2 million from two times per share. This time last year.
We ended the second quarter with $173 million in cash in cash equivalents on the balance sheet.
As we look into the second half of 2020, and a number of uncertainty not the least of which is the continuing global pandemic. It seems to changing form day by day.
However, we recognize the sale of ALG in the upcoming transmission of USAA requires a bit of commentary helps up the right extra cheese.
I'll start with two three.
We expect a strong cordova quota rebound you know total revenues as we end the Broadbase discount English subscription name voices and continue to see a gradual recovery in Utah.
Yeah. It was giving me ongoing impact October 19, and the wind down of our USAA channels, we expect daily <unk> to be down you over here at two three.
As it relates to OEM revenues, we expect that line item to be reference flat prior year levels.
The third quarter will be the final periods and what she recognized revenue from the U S. A T S S.
Remove ALG financial performance from continuing operations beginning July 1st.
Therefore, a forecast consulting another revenue will only include TSA revenue in the third corner, which we estimate will be approximately $4 million.
With regard to adjusted EBITDA, we expect another strong corner of two three driven by continued year over year sales and marketing efficiency.
Despite the year over year efficiency, we do expect sales and marketing cost to increase significantly quarter of a quarter given the reasons mentioned in our earlier cost Michelle <unk> commentary.
We also expect a slight uptake in our gross margin.
A L G a lower gross margin business from continuing operations.
In total we anticipate mid teens absolute adjusted EBITDA and the third quarter.
Now onto Q for.
Let me start by saying, there's a wider range of potential outcomes and the fourth quarter getting the number of moving pieces.
With all forward looking commentary, we provided we're assuming a modest but improving economic backdrop. The U S continues to recover from the peak of shut down with unemployment stick in the spring.
T V C an expansion or extension of widespread closures, we may see our financial performance impacted beyond what we've described today.
Is Mike mentioned will continue to work in lock step we're gonna do you want our customers leading up to the starter the fourth quarter, we prepare to support our customers by driving additional volume Geography's with large military representation. We are also committed to aligning two cars my motivation to the value me deliver made possible by our industry D sales based.
<unk>.
Many of the actions were taking so far in 2020, where to proceed of transforming two parents profitable and a fries with or without USADA.
And the fourth quarter, we lose the benefit of the USA T S N.
However building on a series of strategic adjustments to our cost structure since the start of the year. We are focused on delivering breakeven adjusted EBITDA on the fourth court.
That positions two parallel 2021.
And with that let's go into questions.
Thank you will now be conducting a question that answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation code will indicate your line as in the question too.
Press start to if you'd like to move your question from the Q for participants using speaker equipment, maybe necessary to pick up your handset before pressing the star T as well I know that please away pull for your question.
My first question comes from the line of Lee crowd with be Riley FBR. Please proceed with your question.
Great. Thanks for taking my questions and congrats on the solid result, all things considered.
I wanted to start off just on the corner debate trends around dealers, obviously they had.
A fairly significant benefit from the promotions and and discounts and Q too, but how has dealer retention trended.
Quarter. Today, then I guess, what it's gonna be expectation for that retention against the backdrop of perhaps from inventory issues across the industry.
They leave it as.
<unk>.
I'll start on that I'd like.
Jump in.
After that first you know we saw dip at the end of March certainly an early into April with suspensions and we quickly saw that starts to come back through the rest of the quarter that really stabilize and returned the dealer network to end of March level. So you know what we've seen a good rebound.
From our dealer network, we still have some dealers in a suspension far but most of those are dealing with what you mentioned, which is the the limited new car inventory that are out there. So we're encouraged we had very few cancellations through this process and we'd been successful in bringing the dealers.
Back onto the system as the you know they are states loosened up <unk>.
Regulators on their retail activities and then I think we'll see another lift when when inventory on the new car side rebuilt.
Yeah, I think my sorta captured it there yeah I would say we have a a number of the dealers that are currently suspended that we expect.
And then coming back to the platform hasn't been delayed.
With some of the inventory shortfall and also sort of a resurgence.
<unk>.
Wherever we haven't seen any reacceleration the inbound covid related suspensions cancellations related to that second waited. So that's that's pretty good but obviously overall the macro environment.
Creates more more pressure and then P O N.
Got it and then my second question you guys kind of walked through the face to of the digital retailing initiatives.
Could you maybe quantify the number of dealers or maybe a quantitatively speak to the number of dealers that I've been on bordered and perhaps the timing or timeline to which you you expect to get.
Critical mass with faith to across with you I base.
Yeah, we <unk>, we cross the 3000 dealer plateau Lee with our with our digital retailing recent digital retailing assets and that would be their payment calculator and archery trade products. So we're excited about that we see that as an absolute extension of the digital retail process, you'll see a lot of folk.
From our our sales team to grow that an increase the penetration of those tools across our dealer body, we've seen real good signs.
Improved outcomes from consumers, you know, who you use those to products and ended up buying a a vehicle from one of our participating dealers. So you know we've cross 3000, we are accelerating and adding more and you will continue to see us do more and more on our website to to make those product offerings Avila.
Available to consumers and the shopping process. So all in all we're excited and and trying to accelerate as fast as we can.
Got it thanks for taking my questions guys.
Thank you. Thank you. Our next question comes on the line of Steve Dire with Craig Hallam. Please proceed with your question.
Thanks, Good afternoon, congratulations guys.
Wondering just to start if you could if you could talk a little bit about the O M incentive in the quarter too I think you'll perform very well it seems like an odd quarter forward given the.
The inventory constraints that you already talked about but maybe a little more color there and is that.
Sort of a new program is it something you expect to persist is primarily one OEM or any color there would be great.
Yeah. Thanks for the question, Steven and what we've seen as we added if you remember we added some luxury Oems to our portfolio at the end of 2019.
Carry that business over into 2020, and we're starting to hit our stride in optimizing those programs are we are also seen.
F C a N b M W.
Embrace are truecar military platform with OEM incentives.
And we fully expect the transition all of our OEM partners when we sunset the USAA program over to our military channels. So you know we're excited about the OEM business. We know we're gonna have to make some changes to modify it and we think there'll be plenty of opportunity to do that on our on our Truecar property.
Yeah, and one thing just add to that C. As it relates to R. O M business and as we do could import those relationships into our our military channel. It is much smaller than.
R U S. A military channel and a lot of R. O M incentives are targeted at USA. So we will see pressure on that revenue line.
Primarily in Q4 as the USA relationship winding down.
Oh, that's helpful and then sort of along those lines. After USA winds down you, obviously did a big restructuring.
Is the cost based sort of where you expect it to be right. Now have you made those those cuts or would you expect some some more cost to come out after USA officially Rosa.
No we were very proactive with regard to that and we believe that the strategic restructuring that we did midway through the second quarter here really was to align our cost structure with where it needed to be to support the business going to go forward basis.
So we expect this class structure.
Is all that we need to support the business and that'd be on through and beyond the USA transition.
Got it last one for me and I'll hop back in Q.
The cash offer tool to buy at home functionality, obviously, probably a big unintended benefit of cold, but can you give me the colors sort of both of how you're seeing that help.
Consumers are responding and what's your hearing from dealers. Thanks.
Yeah, we we've seen certainly seen a lot of consumer attraction to that product.
And a much higher engagement right in a higher intent.
From consumers, who used that product with our dealers.
So you know it's it's.
Become a guiding principle for us and accelerating into build out of our true and and experience.
We know consumers are leaning.
Towards the safety, particularly in a cove it environment of.
Low contact kind of transactions. So we're very focused on that the signs from by from home home I've been very positive both on the dealer side.
Side of that equation.
Thank you.
Thank you. Our next question. It comes from the line of Andrew Balloon with JMP Securities. Please proceed with your question.
Hi, guys. Good afternoon, and thanks for taking my questions.
Two please.
To start with no all you talked about kind of building marketing back up in the second half a year, but given the fact that you guys brought marketing down marketing spend down 70 per cent and a quarter can you talk about your learnings and your thoughts on rebuilding marketing as you bring that back and then secondly, Mike and you're prepared comments, you talked about helping consumers find the right <unk>.
Can you talk about more of your top a funnel initiatives as consumers are more figuring out what they want to buy thanks. So much.
Thank you Andrea this isn't a while I'll take the first one here so with regards to the significantly lower marketing spend and two two.
Two two is certainly an anomaly there is a bit of a shock reaction to covid, where we essentially shut down and removed all of our our brand spend.
So thank T V radio podcast.
We also had significantly lower partner marketing costs, which are tied to the broadbase discounting that we did in Q too and we believe that.
Overall in this segment that competitive landscape change, where everybody was essentially pulling back at the same time and so it created a lot efficiencies for us.
So those are all sort of.
Nonrecurring factors.
We as we think forward there is our team and we talked about this for several quarters hasn't been driving a lot of efficiencies from the work that we're doing so we do believe that we have established.
Better process and tools around our marketing. So we expect some of those efficiencies to carry forward and we are going to start to modestly.
And gradually rebuild into some of our our our brand advertising you can't keep that in zero forever and so we do expect the competitive landscape to also start to normalize in Q3 and all of those factors will drive a significant increase in our marketing from from Q2 Q.
Three they're also going to continue investing heavily into our military channel because we're seeing some really positive signal was there and I'm going to lead into that so all of those factors are leading to an increase and I look at two two as more of an an anomaly will we be back to kind of 2019 level of this year.
Certainly not but a substantial increase.
And chili.
2324.
Hey, Andrew it's Mike and thanks for the question you remember on the last call.
We talked about some of the upper funnel new car content that we introduced <unk>.
We built a vehicle detail pages for much of a new car content in the upper funnel.
That's been getting some interesting shopping activity. You'll also remember that we introduced a data driven category comparison, and <unk> and ranking kind of across different categories to help consumers understand based on the data how certain vehicles stack up against one another so we've made some investments in the upper funnel and what.
We're really excited about it has the ability to introduce our payment capabilities up there all of the research tells us that consumers are very interested in understanding real payments as they're building their shopping set. So we're excited about using those pages, we built beginning to introduce payment.
Calculations in there and allow consumers to get a real apples to apples comparison as they shop.
Cross brands and and even across segments. If that's what they used to do so you know we're very focused on getting the transaction part of it right. But we are also made in and will continue to make an investment in the upper funnel part so that consumers can come to us from the get from the jump and find the vehicle they want.
Okay.
Thank you.
Thank you. Our next question comes from the line or is that got that with J P. Morgan. Please proceed with your question.
Hey, good evening.
Good afternoon. Thanks for thanks for taking my question.
And the quarter and the deal.
Pretty pretty started aggregation here, just and you know just to follow up a little bit no on the cost structure a question.
Previously.
You can you give us a 35 million savings Deborah executed.
Just to gratify, we've got a <unk> number or that's a gross number distribute short and how we should before he got through.
I'm I'm not sure what you mean by another gross there's so I mean is there any all set to that like within 10 days or anything that comes back just curious if that more head calculated or is it shall we just couldn't yeah that does that is that is directly tied to head count related expenses.
Got it understood and an order any temporary reductions here in the second order a double bed, which we pink.
My might come back here and they run raped in the second huh.
In terms of the overall cost structure.
No I mean, we've talked about the sales and marketing line with marketing jumping up pretty significantly sequentially. I think we had some some a bit of lower cost and G&A inq too. So we will see we're expecting that to step up a little bit sequentially into two three and two four.
Sure, but overall the cost structure changes that we implemented at the end of May are holding we're not.
And that should agree accelerating hiring or or anything along those lines.
Understood. That's helpful Alright, and just just more of a longterm question.
I'm gonna be our see you know some of the large public franchisee dealers you know.
Trying to move aggressively into the digital space.
In some areas are doing it address would be themselves.
It looks like there.
Transferring a lot of their advertising spending two words in dunnell channels, you know on their own website.
Have you have you seen any in fact related to that on your business. Yet I mean do you expect any impact longer term you just curious if.
The conversations have changed at all with respect to.
With respect with large.
Large goes out there that would be all thanks.
Yeah. Thanks for shot no I think.
We're seeing some of the things you mentioned certainly.
Almost all deal or some of the large groups and dealers in general are investing heavily in retail solutions.
That's very important and very positive for us.
And in fact with some of the large players were actually involved in many of those combos conversations to see if there's ways, we can help them through that process, but because of our.
Proximity to the transaction, we think we're in the best spot to engage with dealers and really.
All this digital retailing process in a way that's that's gonna move the industry forward. So.
We think the more and more folks who lean into digital retail League you invest in those type of things will see value in our platform and we actually think that'll that'll be kind of a tailwind for us.
Understood.
Got a couple of color.
Thanks, a lot and good luck.
Thank you. Thank you for a job.
Thank you we have reached the end of our question and answer session I'd like to turn to call back over to Mister Dario for any closing remarks.
Thank you and thank you everyone for taking the time to join US today as we look at our second half our priorities remain fairly clear first we must continue to proactively and aggressively support our dealer customers through Q4, and second will continue to accelerate our product roadmap.
Delivering leading online car buying experiences among third party marketplaces, we continue to believe unwavering focus on our core business.
Drive a better balance of sustainable growth and profitability that maximizes long term shareholder value our teams or excited about the challenge and look forward to delivering on these common.
On these commitment so thank you and stay safe.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
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