Q2 2019 Earnings Call
Greetings and welcome to the true Cross second quarter 2019 earnings Conference call.
At this time all participants are in listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to your host Alison Sternberg VP of Investor Relations. Please proceed.
Thank you operator.
Hello, and welcome to Truecars second quarter 2019 earnings Conference call. Joining me today are Mike Darrell interim President and Chief Executive Officer, and Noel Watson Chief Financial Officer.
As a reminder, we will be making forward looking statements on this call. In addition to our guidance for the third quarter and full year 2019. These forward looking statements can be identified by the use of words, such as believe expect anticipate will intend confident and similar expressions.
These forward looking statements are not and should not be relied upon as a guarantee of future performance or results.
Actual results could differ materially from those contemplated by our forward looking statements.
We caution you to review the risk factor section of our annual report on Form 10-K , our quarterly reports on Form 10-Q , and other reports and filings with the Securities and Exchange Commission for a discussion of the factors that could cause our results to differ materially.
The forward looking statements on this call are based on information available to US as of today's date and we disclaim any obligation to update any forward looking statements, except as required by law.
In addition, we will also discuss GAAP and certain non-GAAP financial measures reconciliations of all non-GAAP measures to the most directly comparable GAAP measures are set forth in the Investor Relations section of our website at true dotcom.
The non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP.
Now I'll turn the call over to Mike.
Thank you Allison and good afternoon, everyone I'm excited to be here for my first earnings call I want to thank chip for his leadership over the past four years. During his time, we rebuilt our dealer network and completed our technology Replatforming effort, which we believe will allow us to innovate and achieve our vision to build a best in class online automotive marketplace.
As it Evan as is evident on this call we have a new management team. We've made a number of changes at the senior level to best position the company to capture the opportunities in front of US. We are confident that this was the right move for the company at this time.
As you know I am currently acting as the interim President and CEO , while a committee of our board of directors is evaluating a strong pipeline of candidates which includes myself.
We don't have a specific timeline for concluding the search but are focusing on identifying the right CEO for true car.
Let me start with some themes that are likely top of mind for you.
First we continue to innovate on the consumer experience last year's technology rebuild is enabling multiple AB tests of our user experience on the site now.
We have run 65 test year to date, including 94 unique test variance.
Second we are marching toward an anticipated early 2020 launch of our new consumer experience across Truecars dot com that will be supported by an all new brand and TV campaign.
Third we have made great progress towards laying the foundation of future organic traffic growth.
Examples include make bottle pages that went live across 100% of our traffic addressing one of the largest segments I'm organic search demand in the industry.
A new home page personalization module and thousands of permutations of New search result page.
And fourth USA negotiations continue and we are pleased with our progress.
Let me now summarize our key financial metrics for the quarter revenue came in at 88.1 million for the quarter roughly flat year over year and slightly below the low end of our guidance range.
Our core auto buying program performed inline with expectations, However, new business revenue within our OEM segment fell short of expectations.
Adjusted EBITDA came in at 3.7 million or approximately 4% of revenue also just below the low end of the guidance range [laughter] Noel will cover the financial performance of the quarter in more detail as well as the expectations for the remainder of the year later in this call.
We have confidence in our strategic direction, the board and the executive team have taken the time to examine the market and our competitive positioning.
And as a result, reconfirmed and rededicate ourselves to Truecars missions.
We exist to be the most transparent brand in automotive to serve as a catalyst that dramatically improves the way people discover buy and sell cars.
We will continue to leverage our core strengths, which include upfront pricing and price transparency.
Our accountable close loop sales matching.
Unrivalled scale and reach of our affinity partners.
Our strong dealer network targeted OEM incentives and LG is industry thought leadership brand and relationships.
We continue to believe that we can leverage these key strengths to deliver the industry's leading digital end to end marketplace experience in automotive.
So how are we doing against this goal.
We have reassessed our progress against our goal and see an enormous opportunity to better leverage our strengths and to do this more quickly with our new technology platform.
Let's start with our used car marketplace, which transition to capsella six months earlier than our new car experience. It is a great example of our post capsella velocity and progress.
During the 2019, we released more than 150 features to our used car platform and our increase product velocity has helped us achieve significant improvements in M. P S and consumer engagement and as a result, our used car units grew double digits year over year.
As a company we are working on four key initiatives all of which are designed to substantially improve our customer experience.
As described on previous calls these are one our consumer control engagement model.
To pricing.
Three used car marketplace and for trade.
Most important of the four is our consumer control engagement model. Let me now provide an update on how our testing is proceeding.
As a general reminder, the goal of the consumer control engagement model is to provide consumers with a greater level of control as they navigate our experience since the beginning of the year.
Our technology re platforming has enabled us to run parallel AB test nationally across a portion of our audience.
We've made a lot of progress to date and we feel confident that by early 2020, our new consumer control engagement model will be alive across our truecar dot com audience with the objectives.
One a higher net promoter score for our consumers.
To higher consumer and get your engagement metrics, including time onsite and return visitation.
And three setting us up for improved financial performance in 2020.
As well as a result of what we've learned from testing and our confidence in being able to positively improve these metrics our approach on the consumer controlled engagement model has evolved away from conducting isolated geographic test.
Instead, we are now entering simultaneous HIV test nationally on a small percentage of our traffic and will not have to test an isolated geographic markets. We believe this change in approach allows us to move more quickly with the least amount of disruption to our business.
So whats our plan to get back to revenue growth.
Let me outline this for you now.
First let's start with our core auto buying program.
At a fundamental level the financial performance of our core auto buying program is rooted in our ability to drive value to the dealers on our platform.
Adding new dealers onto the platform is a tactic to grow revenue, but that alone does not create long term sustainable growth.
Long term sustainable growth in our core auto buying program comes through driving more attributable sales to our dealer customers.
Since our IPO five years ago, Truecar has nearly doubled the number of dealers on the platform and the number of units, but the value we've driven to our dealer customers at the individual level has not changed.
Now, let's not forget why that has been the case for one our legacy technology stack did not allow for the kind of rapid innovation characteristic of a disruptive digital marketplace.
As a result, our consumer experience remain static as the world around us moved forward.
Second given our static consumer experience, we made the decision to invest in our growing dealer sales and service team in lieu of our brand.
This investment powered the growth of our dealer network and consequently revenues, but it did not deliver a higher value to our existing customers.
Sitting here now more than halfway through 2019, I firmly believe we are better positioned than ever to drive sustainable value to our dealer customers.
As we innovate towards the consumer experience that drives higher levels of on site engagement and return visitation.
And supplement these efforts with a refreshed brand campaign, we believe more perspective car buyers will visit Truecar dot com.
As the traffic to our branded channel grows in parallel to the efficiency of our product experience. We're confident we will then begin to deliver significantly increased value to our dealer customers in the form of additional attributable sales and increased brand exposure and ultimately we will leverage our best in class dealer sales and service team to monetize this value and drive business results.
Second let me highlight our OEM business.
Well, the softening SAR and a pullback in OEM incentive spend we recognize our legacy go to market approach needs revision.
The OEM business will continue to be unpredictable, but our relationships continue to deepen and grow as we look for solutions to current market challenges.
Going forward, we tend to more aggressively leverage algae to position. This project this product in the minds of the Oems as a strategy for planning and not exclusively a tactic to react to a singular market issue.
What this means is first being proactive versus reactive as part of the Oems marketing strategy and second looking to get more embedded in the Oems plant annual planning process.
In addition, we are actively managing our pipeline and working to expand existing relationships.
Ultimately as a result of our planning discussions with Oems, we will evolve our product set in a way that we believed dresses their needs and drives adoption.
Now, let me discuss our trade business as we mentioned on our last call. We modified our go to market approach with a freemium model that we call via vehicle of interest or via ally and continue to add dealers at a healthy pace.
As a reminder, the O I helped consumers, who start down our trade path by connecting them with a nearby dealer who stocks a vehicle that matches what they intend to buy these leads convert at a high rate, creating a true win win for both consumers and dealers.
In addition trade remains a vital component of our end to end consumer strategy, enabling Ari our users to configure their personalized card deal online, including calculating the equity they have in their current vehicle.
We continue to expect to have trade fully integrated in our auto buying program experience by the end of the year.
Finally, let me highlight our new dealer advertising products.
In Q2, we successfully piloted to new dealer advertising products to complement our core offerings and allow dealers to pay for exposure into our expanded audience.
These products include sponsored listings, which you can see live on the site at the top of the use search results page in which enable a dealer to get incremental exposure of their inventory to consumers.
We've also piloted what we refer to as true car reach this re targeting product enables dealers enables local dealers to nurture car shoppers have the same brand to ultimately buy from them.
Both products allow us to present, our dealer partners in differentiated ways to our consumers, while operating within the goals and principles of our consumer control engagement model.
Before I wrap up let me provide a quick update on USA. We know the USAA contract is top of mind for all of you and it's clearly top of mind for US USAA is a longstanding valued partner and our relationship as strong as it's ever been highlighted by very healthy growth in total USAA units year over year. We are pleased with our progress on our renewal discussions with USAA.
As a reminder, we can't publicly comment on the status of ongoing negotiations. So we will not have further comment on these discussions until a definitive contract is signed.
I'm now very excited to introduce you to Noel Watson, who recently joined US from trip advisor after working with him for the past two months I can tell you he's going to be a steady hand is going to help guide the company through our next chapter.
And with that I'll now turn the call over to Noel our Chief Financial Officer.
Thank you, Mike and good afternoon, everyone first I'd like to start by saying how excited I am to be joining truecar at such a pivotal point in its history.
I believe truecars differentiated value proposition for both consumers and dealers as well it has its diverse set of partnerships and new technology platform create a unique market opportunity and I look forward to helping the company realize its potential.
As I settle into my second month here I am encouraged by the depth of talent level of commitment and collaboration that I see within this organization.
Now I'd like to walk you through our financial results for the quarter and our outlook for Q3 and the remainder of the year.
During the second quarter total revenue of $88.1 million was roughly flat to Q2 of 2018 and slightly below the low end of our guidance.
Franchise dealer revenue was also flat year over year with quick franchise dealer count of 3% to 12681 dealers.
Monthly revenue per franchise dealer decreased by 3% during the quarter.
Independent dealer revenue was up 12% compared to the prior year and independent dealer count increased 27% to 4014 dealers with monthly revenue per independent dealer decreasing pro per se as we continue to add smaller dealerships.
New dealer product revenue, including revenue from trade and dealer science was approximately $2.8 million during the quarter.
Oh I am revenue of 4.1 million was down 48% from Q2 of 18.
As mentioned on our prior calls this decrease was primarily driven by the lack of recurring revenue from one of our larger OEM clients.
Forecast consulting and other revenue was $5 million this quarter up 7% year over year.
Turning to units our total units were 249856, roughly flat year over year and in line with our forecast.
Units in the Truecar branded channel were down 10% year over year.
The pressure on our Truecars Dot Com channel was driven by traffic weakness with monthly unique visitors also down 10% in the quarter. Our traffic decline is primarily the result of a significant loss of organic traffic beginning in late September of last year.
Despite the recent headwinds we are confident that the net effect for consumer experience improvements combined with a simultaneous launch of our national branding campaign will position us for future growth in this channel.
In our extended partner channel units were up 4% year over year.
This growth reflects strong performance in our membership and financed categories and an increase in used car unit.
USAA channel units were up 8% from last year, we continue to see positive momentum in this channel fueled by strong used car performance following the cut over from Capsella.
Total new units were down 7% year over year, while units were up 14%.
As I just mentioned weakness in the branded channel is driving the decline in new and total new car units.
Product innovation in the used car channel has enabled us to consistently grow consumer engagement invest units.
Monetization in Q2 of 19 was $333 per unit roughly flat to last year with an increase in revenue from new dealer products for which no incremental LP units are recognized and an increasing mix of used car units being offset by the decline in OEM revenue.
Now turning to expenses and margins for all of the following metrics on a non-GAAP basis, unless otherwise stated.
Gross profit was flat from Q2 of 18 in gross margin was 91.2% in Q2 of 19 versus 91.7% in Q2 of last year.
Technology and product expenses totaled $11.7 million or 13.3% of revenue in Q2 of 19 as compared to $13 million or 14.8% of revenue in Q2 of last year.
Sales and marketing expenses were $55.1 million or 62.5% of revenue in Q2 of 19 as compared to $48.5 million or 55.2% of revenue in Q2 of last year.
Our blended cost per sale in Q2 increased from $124 per unit last year to $139 per unit largely driven by both a decrease in organic traffic and a higher level of spend for marketing of our new trade product.
Our sales headcount and other costs were 20.3 million in Q2 of 19 up 14% from $17.8 million. This time last year.
This increase in cost reflects the expansion of our dealer sales and service teams to support our larger dealer network and our new product offerings.
Moving to DNA Q2, 2019 expenses totaled 9.9 million or 11.2% of revenue as compared to $10.3 million or 11.8% of revenue in Q2 of 18.
Adjusted EBITDA was $3.7 million or 4.1% of revenue in Q2 of 19 as compared to $8.7 million or 9.9% of revenue in Q2 of 18.
The items excluded from adjusted EBITDA for Q2 of 19, primarily include depreciation and amortization of 6.8 million stock based compensation of 15.6 million of which $7.2 million was associated with termination benefits related to the departures of certain executives, including our former CEO .
And $4.7 million in severance costs related to the same departures.
GAAP net loss for the period was 24.1 million or 23 cents per share as compared to a loss of $6.6 million or seven cents a share in the prior year.
non-GAAP net loss was $2.2 million or a loss of two cents per share compared to non-GAAP net income of 3.2 million or three cents per share. This time last year.
Our balance sheet remains healthy with approximately 177 million in cash and no outstanding debt.
Now turning to guidance, we are guiding to Q3 revenue of 87 million to $89 million or a negative 7% to negative 5% growth year over year.
For the full year, we are guiding to a revised range of $345 million to 350 million or negative 2% to negative 1% revenue growth.
Our updated revenue guidance reflects the following.
Removal unsigned OEM business tempered expectations around the adoption of a new dealer products.
Continued weakness in Truecar dot com traffic consistent with recent performance.
And additional flexibility to test traffic against our consumer controlled engagement model at greater levels than what we've been testing so far this year.
Turning now to adjusted EBITDA.
We are guiding to Q3, adjusted EBITDA of 1 million to $3 million or 1% to 3% adjusted EBITDA margin.
For the full year, we are guiding to a revised range of 10 million to $14 million or 3% to 4% adjusted EBITDA margin.
This revision to adjusted EBITDA is primarily the result of the lower revenue guidance, particularly in our high margin OEM revenue.
I will now turn it back over to Mike for final comments.
Thanks, Noel in conclusion, I feel very strongly that we have made the necessary changes to stabilize the business and set us up for growth in the future. We are re energized as an organization and remain excited by the opportunities in front of us and with that let's go to questions.
Thank you at this time, we will conduct a question answer session.
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One moment, while we poll for our first question.
Our first question comes from Ron Josey with JMP Securities. Please proceed with your question.
Great. Thanks for taking the question if I could to please.
Mike in your prepared remarks, you talked about the investment in the dealer network over the past several years came at the expense of the brand and as you prepare to relaunch the brand as well as web site in the first half or early 2020 can you just talk about how you balance dealers and consumers like the value between the two I think thats, a really important sort of understanding in terms of how you. How you move forward and then when you talked about adding advertising. This site sponsored listings and re targeting just I'd love to understand little bit more around the decision that there I believe we haven't really seen any advertising onto card before so it's a little bit of a change in approach. Thank you very much.
Yes, Thank you Ron.
We are certainly very focused right now.
On fixing the consumer experience, we understand that's a priority for us.
The consumer engagement.
Model that we're working on has been in development now for a period of time and we know we've got to make some strides in that.
We're focused very heavily on doing that.
Eliminating some of the.
Problems Weve had with consumers coming through the funnel to quickly we're excited about what some of the testing we've seen.
We're seeing positive results.
That are going to have a positive impact on both our MPS scores.
And our engagement source scores from consumers. So we're laser focused as a number one priority on fixing the consumer experience.
In regards to our investment in the dealer network.
We see the a lot of value in our dealer network. They do a great job of calling on our dealers and and providing value to our dealer network. During a time period, where we had very little innovation and product innovation. So.
We'll work exclusively now focused on coming up with the right consumer product and we feel confident that we've got the dealer network in place to help us monetize that once we are we're ready to launch.
Did you have another what was your second question Yeah Ron.
Yeah. Thanks, Mike just was asking about the advertising was sponsored listings and Retargeting I've just never heard you will actually have advertising on the site and so it seems like a change in Tac and one understand a little bit more. Thank you, yes, we launched up a sponsored listing products, which is pretty traditional in the industry. It's not really an AD unit not a traditional I a b type AD unit, it's more of a marketing slot.
For our dealers to move themselves up in the listing process you can see that.
On our used car pages now.
And it's an opportunity for dealers to spend additional dollars on marketing certain products not really a traditional ad.
Type products, so that end the.
Truecar reach program is an opportunity that we've built for these.
Registered users, who are pre prospect and have not been handed off to a dealer.
For our dealers to connect with them and engage and it's a it's the beginning tests on some of our.
Additional monetization efforts, we see around the consumers coming through our site.
Got it thank you.
Our next question comes from Kyle Evans with Stephens. Please proceed with your question.
Hi, Thanks.
I guess.
I know, beating this horse to death, but I guess I'm just curious are you.
Determine to give the consumer.
If when and how controls on.
Dealership access and in one step further then that would you be willing to give them just in level access to dealers.
Yes, Kyle thanks for the question.
We're exploring all of those opportunities in the testing we're doing right now you heard some of the numbers.
For the different iterations of tests, we've been able to run.
We we run these tests with with goals in mind, and then we reiterate and get a chance to adjust off of that but we are committed to giving the consumers more control of the engagement process. There's a million new cars delivered every month through our French through franchise dealers to consumers and we feel we can be the solution to that so we are working towards the ultimate consumer product.
Giving them the right amount of control to engage with our dealers.
And and push them through our core program. There is an other products that were looking at the reach product is an example of that where we're going to work with consumers pre prospect to aren't ready to be connected with the dealer.
To continue to engage them bring them back to the site allow our dealers to send that marketing messages.
But not to be.
Deepen the prospect process. So we're looking at all those things we've seen good things coming out of the testing we're learning a lot and we're entering quickly.
Okay, what can we expect to see.
On the site in terms of changes and testing between now and in the launch of a new.
Consumer user interface and you said early 2020 can you be.
Can you commit to.
First quarter can you give us some something a little firmer than early.
Yes, so you won't see a lot of the things we're doing on the site because were taking about 5% of the traffic nationally and doing our testing across that sliver. It gives us enough volume.
To get the type of data, we need to understand the test, but it's not disruptive.
To our core business or our dealers as we do that so you won't see a lot of the things one of the recent things we've done that I can use as an example is when we came out of of Capsella, we eliminated the configurator process.
Two our prospect chain, we've now put configurator back in the process. So you can see that on the site. We asked the consumers a few very simple questions. So that when we land them on a vehicle we make sure. It's a vehicle that they're interested in.
So youll begin to see some of those things.
Show up on the site, but most of the testing were being Thats being done is done in a way where you won't notice it.
Until we stitch that all together.
And you know are ready to to move to the new new a process as far as when.
We are definitely pushing for Q1.
We are we would like to be out in the marketplace.
With this new product at that period of time.
Great last one you had a big jump in sales and marketing how much of that was trade.
Hi, Kyle this is noel thanks for the question.
So we are breaking out our marketing at that level, but we will say trade was a significant portion of the uptick in marketing spend in the quarter year over year.
We also had some increase in our TC DC channel.
As well as in our partner marketing on higher units in that channel and CFO as you know trades, a new product for US were excited about it and we will continue to do some market makes a marketing investments in that product.
As we continue to get traction with our dealer network.
Okay. Thank you.
Our next question comes from Novid Khan with Suntrust. Please proceed with your question.
Yes, Thanks a lot.
Good question.
Maybe just on the on the on the.
Updated guidance, having known.
You bet.
The EBITDA outlook is.
You mentioned how OEM.
Is kind of.
But part of the take down and EBITDA outlook.
Maybe.
Help us kind of think about it and they put a finer point on it.
Well, how should we be thinking about the OEM revenues in the back half of the year.
And then I got a couple of.
Article it good questions.
Sure. Thanks for the question the.
So I think when you tried to break down for you a little bit in my earlier remarks, but just when we think about how we formulated the guidance for the full year.
Our OEM revenue stream has been very unpredictable and very challenging for us to forecast.
Given the relative size of the opportunities and the binary nature of the outcomes.
It is.
We've decided to take a very conservative approach here and essentially we removed any of the pipeline for OEM from our current forecast.
What that does is that means that our OEM business for the back half of the year is essentially relatively flat from where we are in Q2.
The other thing that we did in the forecast is related to our new dealer products.
Those are early stage would have been well received in the market. Thus far we still expect strong growth there in the back half of the year, but we are tempering the ramp that we had expectations with regards to those products.
The one other piece in our current guidance to call out is Weve extrapolated. The recent performance that we've seen in our our Truecars dot com.
Channel with regards to traffic, we haven incorporated any significant lifts from product enhancements FCO benefits or our marketing efficiency gains.
And have incorporated some flexibility.
Around the testing that we're doing to give us our give ourselves some room to be more aggressive in Ics, if we can find avenues to.
To accelerate our progress against our enhanced consumer experience so.
In terms of the full year guidance, that's how we came to the revenue.
Composition.
I think its a very measured and balanced approach for the year. The OEM revenue is a very high margin business for us and so you do see a lot of that flow down through EBITDA and it creates some margin compression on the business. Obviously once were able to re grow that revenue stream will start to see some leverage.
Against the expense the operating expenses.
Thanks that.
That's helpful and just maybe.
On the product side.
I think previously.
You guys have spoken about how.
You can with David kept seller lower the and themselves just how you're thinking about the consumer experience, thus lowering the hurdle.
Focusing on integration and how.
Not necessarily exposing the consumer to a data.
Until they literally at any too.
Closer to the car buying process of how much of that is happening are you still thinking along those lines that has anymore.
Since then and then.
On the on the conversion side I guess that's it.
Taking a test and learn approach with AB testing.
But.
The pipe in the 5%, Okay, I think experimenting with how.
Do you think thats.
Going to be there and the the sandbox are going to be experimenting with crew that yet.
Randy.
You can actually grow that based on what you're seeing.
Yes, Thank you know that the.
Consumer testing, we're doing does involve expanded registration.
We are looking to have consumers.
Register during the process.
And then were made we're running different scenarios as to how we pass them through the funnel down to a dealer.
Or when when we keep them in a nurturing state where we provide the more information to help them deal with the shopping process.
Before we we send them through the funnel. So we are looking to grow registration.
And then b.
Smart and give consumers control of how they end up passing and connecting with the dealer.
Regarding the 5% testing of traffic.
It appears to be sufficient now.
To give us that type of information, we need but as.
As Noel mentioned, we have given ourselves some room in the back half.
To raise that rate if it will help us accelerate to a conclusion so.
5% seems to be working at the time were happy with that we're getting that type of data, we need we're able to run through tests.
Fairly quickly.
And we will probably stick with that until we find a need to accelerate but but right now 5% sufficient.
Okay. That's helpful last question if I may.
I guess.
On the.
On the on the partner side it seems like those volumes are holding up.
Yes, hi, so.
With the appeal sort of ahead.
Can you just remind us about.
How the Seo traffic has evolved so I remember there was a little bit of northern change.
Back in March was that.
Positive or negative change and.
And then on the on the thing on incomes are things that you can do to help decile traffic I think you mentioned about sort of vehicle listing pages and how.
That can have how long does that effort tag and where are you in that process.
As Weve tongue think between now and year end.
Ivy This is noel.
As far as CEO in terms of the March algorithm change, we did see a benefit on our used car channel during that time, we're still lapping headwinds from the September .
Algorithm change.
That impacted our new or new car channel and we will.
Well, obviously look to lap that.
At the tail end of this quarter right.
And then when we look at as CEO as just a part of our broader organic traffic strategy. We know we have to grow our organic traffic.
That starts with delivering a better product to consumers in the marketplace. It will be energized by our new brand campaign and all of the things we have in place. There. So we are addressing all the FCO things, we can do I mentioned a number of those.
We created landing pages Weve got a home page carousel that we've introduced for returning traffic.
And we're doing the fundamental things to help our LTL business, but we know thats all correlated to delivering a better product to the marketplace and getting back out in front of consumers in and telling them. The story of our brand and the value. We bring so we're going to be aggressive in that area and.
And stay very focused on it.
Thank you.
Our next question comes from Doug Anmuth with JP Morgan. Please proceed with your question.
Hey, guys. This is Dylan haber on for Doug.
Can you provide some more color on units and how you expect unit growth to trend over the next two quarters are there any competitive headwinds at play here or are you really just waiting for the launch of the new consumer model to serve as a catalyst and then following the recent management changes Mike How do you think about truecars relationship with the dealer industry and just in terms of your franchise dealer growth what are you seeing there. Thanks.
Thanks for the question, Doug and let me, let me address the second one first.
I think we're in a good position with the dealer industry.
Much of my background in history I was on the OEM side, calling on dealers and in my previous.
Third party space experience I directly manage the dealer network. So I understand the importance I've been out to see many of our key big dealer groups.
And they are.
They're very happy with where we are they want to see some more growth just like we do.
But they describe us as their their primary new car partner and we want to hold that position and grow it.
And at the end of the day, we all bring value to the relationship with our personal brands, but they do business with Truecar, because we provide value and we provide a good value on the used car side.
But.
We've got to grow that on the new car side.
And doing as apart.
As regards to your question regarding unit growth in the back half, we don't actually forecast or guide to unit growth.
I should say.
Obviously unit growth was flat year over year in Q2, we saw a different trend between new and used you would expect that trend to continue in the back half of the year.
I will say our deal from a dealer count standpoint.
We're expecting dealer count to stay relatively flat from from here through the end of the year.
And we haven't seen any significant uptick in.
Churn related to our dealer are doing network.
Great. Thank you.
Our next question comes from Lee ground with B. Riley. Please proceed with your question.
Great. Thanks for taking my questions just a quick clarification on the OEM incentive business.
You guys have obviously kind of de risked the pipeline, but I just kind of wanted to double check on.
Obviously, you're taking a more conservative approach, but just maybe talk about the opportunity set within OEM incentive.
And whether in fact, that's also deteriorated or if it's more that from a modeling perspective, you are taking a conservative approach, but the opportunity still exists with the dealer groups here are the Oems you are still targeting.
Thank you for the question.
We're still very bullish on our OEM business.
We've been out as as quite a few folks have talked about this week in our industry. There is a slight softening of the SAR.
And the Oems are pulling back a bit on their OEM spending and what that's caused us to do is change our approach.
With some of the OEM opportunities, we have we've been out.
Spend a lot of time with our OEM partners as they transition through this phase of of the industry and I'm still very very bullish on that business, we have a a large active pipeline.
But its unsigned contracts at this point and we've come to the conclusion that until those contracts are signed we're not going to put them into the.
End of the guidance. So we're still excited about the business were our relationships with Oems are probably stronger and deeper than they've ever been and.
We've just we've just de risk that business.
And so we havent fully.
Formally.
Signed.
Got it and then.
Probably getting a little bit ahead of us.
The initiative, but maybe just talk about.
You guys have done some branding campaigns in the past and investment pretty significantly in marketing So I guess.
As we go into this.
Next round of branding strategy around the newer products, maybe talk about what you guys are potentially doing differently.
Maybe the shift from branding to performance marketing like we've seen with some of your peers.
I guess, maybe just talk about some of the changes in strategy versus prior marketing initiative.
Yes, we're very excited I'm very excited about.
Some of the early branding rebranding that were about to do.
We we are convinced you need a balanced marketing program that has both branding elements and direct targeted SCM type activities as well as a solid foundation and FCO. So we're working hard.
To get all of those things in place.
We will we're excited about where the new brand campaign will take us probably premature for me to talk specifically about any of that but we're excited about it and it will be a part of our media mix come the first of the year, we'll stay aggressive in the FCM space.
And and continue to compete there.
And hope to build both of those building on top of a.
Stronger organic flow to our traffic.
Got it. Thank you for taking my question guys.
Our next question comes from Nick Jones with Citi. Please proceed with your question.
Hi, This is Jackson Rick.
Most of my questions last I just had one on the sponsored listing product what the attach rate for.
Okay.
Oh, I'm sorry, Nick.
Our Jack could you repeat the question.
On the new sponsored listing product what does the attach rate look like for that yeah.
Yeah, It's it's probably early to come up with those exact numbers. We really are just coming out of the pilot phase of that.
It is a it's been understood product in the marketplace. Many of our competitors offer something very similar so we expect a fairly quick ramp, but it literally just got out into the marketplace and probably too early to CAC calculator real tight attach rate.
Understood. Thank you.
Once again to ask a question. Please press star one on your telephone keypad. Our next question comes from Marvin Fung with BTI Ji. Please proceed with your question.
Thanks, and good evening, Thanks for taking my question.
Just one on just the drill down I I apologize. If you described as before I jumped on a little late but just on on turning trade into a freemium model could you just.
Ill elaborate on on why you decided to do that what where are you seeing with the original subscription model that you did you decide that you want to change.
And just the second part of that question. So I think you talked about sort of.
Uh huh.
So it was still expecting some new deal and that the new products to contribute to revenue growth. So should I take that I mean that you know trade will.
Be less but that you like the the target the re targeting and some of the new products that that's going to pick up the flat because that is that part of your guidance. Thanks.
Well, let me.
Thank you Marvin let me take your your first question first as far as our evolution to a freemium model what we've realized in the the early phase of that product, it's very important for the consumer.
Do you have a network.
In order to deliver that trade experience into and the speed at which you build that network allows us to accelerate the benefits that we provide to the consumers using that product. So.
It's been delivering very high quality leads when we can attach.
On the new product that the consumer wants to buy with the dealer who sells that product in the marketplace. So.
We felt accelerating this product.
You know it to some extent our current HBP core program as a freemium product in that we put it in there and then we we work with the dealer on the performance and that's kind of what we adopted would trade we want our core dealers representing the trade products. So that we have a solid network in order to deliver consumers, who who use that product into.
As far as our new product revenue projections and those sort of things.
We're bundling all of that stuff together at this point it seems to make sense for us to do that rather than putting them all out there as individual products.
They're all very very early in the launch stage both of the new marketing products and the trade product, which we launched.
And we will have much more data on that is as we progress. We're excited about all of them or dealers are receiving them well.
And we expect.
Good results as we go forward.
Great and a follow up if I may just I think you talked about that you finally have the new make model pages up and running I know, it's probably very early in the process and and the benefits in terms of algorithmic search will come later, but are you seeing any any actual changes in how consumers are shopping on the site or the <unk> engagement stronger. They are they are visiting more more pages anything like that thanks, yeah, those pages Marvin or are so new.
We haven't directly integrated them into the site flow yet. So we're excited about the FCO lift they'll provide for US like you said it takes quite a while for the the algorithmic searches to get out there and crawl those pages, but you know we're in the FCO game for the long haul. We know you have to make those type of investments you have to stay committed to it.
And you know we are committed to do that.
Great. Thanks, Thanks, a lot Mike.
Thank you there are no further questions in queue at this time I would like to turn the call back to management for closing comments.
Okay. Thank you.
Thanks for making the time for our Q2 earnings call I just wanted to take a moment to thank our employees for their continued hard work and dedication and thank you for your time and questions. Today I look forward to speaking with all of you over the coming weeks.
Thank you. This does conclude today's teleconference. You may disconnect. Your lines at this time and thank you for your participation.