TrueCar, Inc.
Q1 2019 Earnings Call Transcript

Published: 10 May 2019

[Operator:]

Greetings, welcome to the TrueCar Incorporated First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Alison Sternberg, Senior Vice President of Investor Relations. Ms. Sternberg, you may begin.

[Alison Sternberg:]

Thank you, Operator. Hello and welcome to TrueCar's first quarter 2019 earnings conference call. Joining me today is Chip Perry, President and Chief Executive Officer. As a reminder, we will be making forward-looking statements on this call including, but not limited to

[Chip Perry:]

Thank you, Alison, and good afternoon, everyone. I'm here to report that TrueCar performed in line with our financial expectations in Q1 2019 while we continue to make significant progress on product improvements during our first full quarter post Capsela, which was completed in November. Revenue for the quarter of $85.6 million in at the top end of our guidance range, and adjusted EBITDA of $5.1 million was slightly above guidance. All of our major revenue streams including franchise dealer, independent dealer, OEM incentives, trade and forecast consulting, and other revenue performed on plan for the quarter. More specifically, dealer revenue performed in line with our expectations. We added approximately 200 dealers primarily on the independent side. OEM also came in on plan, posting $4.2 million in revenue for the quarter, and we continue to make solid progress in our trade business, which accounted for $1.4 million of revenue in Q1 as we added over 220 dealers during the quarter. We ended the quarter with the trade deal account of 866 rooftops. Before turning to the details of our progress this quarter, I want to address the headwinds we mentioned on our last call and the implications they have for the second quarter and the remainder of the year. Organic traffic issues on our branded channel persisted throughout Q1 contributing to a 15% year-over-year decline in unique visitors to truecar.com. We are actively working to strengthen our core experience through Capsella-enabled product changes that focus on engagement and discoverability. During Q1, we released number of product improvements to drive traffic and increase engagement. We recently added $1.9 million vehicle landing pages pre-registration. Additionally, we have built out multiple personalized email templates to entice consumers back to the TrueCar product experience. We've also released a personalized return visitation experience, which enables returning users to instantly see the actions they took during previous visits with shortcuts to quickly jump back to vehicles viewed and/or saved. This will help consumers more quickly rediscover vehicles of interest, which we expect will increase conversion. In the next three months, we'll be taking a two-pronged approach to improving organic traffic. We will be launching a series of shopping tools and landing pages aligned with user search demand, giving consumers' confidence in their vehicle selection decisions. These experiences will blend together rich vehicle content, market pricing data, and owner-generator reviews to delight consumers and ultimately compel them to register and purchase a vehicle through a TrueCar certified dealer. Additionally, we will enhance our core pricing configuration and vehicle search experiences with improved content and user friendly navigation. Together, all of these enhancements will improve the consumer experience, which we believe will lead to increased traffic growth. The second headwind noted on our last call was the volatility in our quarterly OEM revenues. Although, we are reporting in line Q1 results, our OEM business is performing below plan in the second quarter because one of our larger OEM clients is not offering incentives on our platform during Q2. As I've highlighted before, our OEM revenues remain lumpy at our current scale, resulting in difficulty projecting consistent revenue contributions from this business. Our OEM clients tell us that we have a product that is truly differentiated from those offered by our competitors. This year we are developing additional product opportunities to improve OEM target ability and reach to help us enter into larger marketing budget conversations. As a result, we remain confident in our ability to deliver solid OEM growth over the long-term. Nevertheless, the lower than planned OEM revenues along with continued challenges in our TrueCar channel have caused us to revisit our full-year guidance, and we believe it is appropriate to lower our forecast for the remainder of 2019. I will provide more specifics later in the call. Despite these challenges, we have made significant progress against our four key product initiatives, including the consumer controlled engagement model, pricing, used car and trade, all of which are accelerating us toward our vision of providing the only seamless, transparent, end-to-end consumer experience in automotive. First, let me share with what's going on with our consumer controlled engagement model. As your recall, the next major evolutionary step for our marketplace is to give consumers more control over their interactions with dealers and unlock new ways of monetizing a higher percentage of our audience. Since its inception TrueCar's as add consumers to register to receive an upfront discounted price offer on our new cars from local certified dealers. Once consumers provide the personal information, we send lead to the dealers CRMs and our consumers quickly receive multiple emails and phone calls. This experience often moves consumers through the car buying funnel faster than they expect, sometimes resulting in premature introductions to our certified dealers. This creates a suboptimal experience for both consumers and dealers. To fix this problem, we have begun testing components of our new consumer controlled engagement model, the goals of which are twofold. First, we will enable consumers to view discounted upfront price offers, see dealer contact information and receive many other benefits without having dealers contact them before they're ready. We believe this will result in a significantly higher level of user registration and satisfaction with TrueCar as measured by consumer Net Promoter Scores, which we track very closely. The second goal of this new model is to enable stronger monetization with dealers to a significantly higher level of attributive sales measured and captured by our unique close with attribution model. Also as a part of these upcoming tests, for the first time, we will enable consumers to browse and search new car inventory at the vendor level in addition to configuring and pricing new cars as they have traditionally done a TrueCar. By enabling both styles of new car shopping we will be able to meet a broader set of new car shoppers needs than we have historically. Let me provide two examples of the new features that we are actively testing with live traffic, both of which provide the consumer with more control over if and when their contact information is shared with our dealers. The first feature allows consumers to indicate their timeframe to purchase, which will personalize the shopping experience based on their timeline. Second, we are testing giving consumers the ability to limit, which dealers receive their contact information, while also allowing them to browse local inventory, view market average prices and when ready to buy access dim level upfront pricing. We are also creating features to be tested in the coming months to guide to provide more value to consumers who register with us by enabling them to receive customized pricing alerts on safe vehicles sold vehicle alerts, in-stock offer notifications, vehicle recommendations and custom offers from participating dealers. Our closed loop attribution model allows us to tie each of our registered users who buy a car at one of our participating dealerships, regardless of whether or not they elect to share their personal information with the dealer to an actual vehicle sale and the dealers' dealer management system. So as we nurture a measurably greater number of registered consumers down the path to purchase, dealers will be able to tangibly attribute a higher percentage of their sales to our platform and we will have a solid basis for obtaining a larger share of dealers marketing budgets. Let me remind you that this is something that none of our competitors can currently do. Stay tuned for feedback from our upcoming market tests in the coming quarters. These will be important as they will take the company a new more consumer concentric direction, while putting us on a much stronger growth trajectory with our dealers. Our second key product initiative is improving pricing tools and information. One of our core value propositions to consumers is that we provide them a transactional upfront price that is easily comparable to what others have recently paid for the same car by using our market leading transaction data capabilities. We have a number of improvements in the works such as enhancements to our pricing manager tools for dealers that enable them to price vehicles at the win level based on an offset from either MSRP or invoice. Historically, we have only allowed dealers to price based on offset from invoice. This alliance with how we believe the majority of dealers think about pricing their vehicles today. We expect that this change will result in a higher percentage of vehicles presented to consumers with an upfront discounted price offer as well as dealers having a better understanding of how consumers will see their vehicles in the context of the TrueCar price curve. We are also updating and refreshing our user experience around new car pricing by clarifying the meaning of key price in terms that are highlighting the typical pricing discounts with MSRP that consumers will see after they register and making it easier for consumers to understand how options, packages and incentives impact their discounted price offers. Third, on the used car side of our marketplace, we are making great progress toward building a compelling used car experience. In Q1 we improved in session and registered user engagement, filtering capabilities and the presentation of vehicle data to help consumers better find the vehicles they are looking for and enhance their understanding of vehicles and their features. As noted earlier, we will continue launching features designed to incentivize more consumers to register and enable us to engage them more deeply throughout their shopping franchise. These features include price alerts and say vehicles, sold vehicle alerts and vehicle recommendations. Our fourth major product initiative is trade. Trade is one of our fastest growing revenue streams and we're working on several product and sales fronts to accelerate its growth. First, we are working with our partner Accu-Trade to improve the front-end consumer experience so that we can fully integrate the trade product with our core Auto Buying program by the end of the year. This will take us one step closer to enabling consumers to configure their entire car deal online. Second, we are enabling our trade and product offering to better align with the needs of consumers who's on ramp to car buying starts with an evaluation of their trade in. We know that when we match trade consumers with a nearby franchise dealer who sells the same brand of car they want to buy, they close at a dramatically higher rate. This understanding led us to create a freemium version of our trade product that will enable more rapid adoption by our existing certified dealers, and provide more convenient trading locations for our consumers. The subscription is free for the dealer and they pay us a transaction fee for any vehicle bought or sold. The consumer wins with increased convenience as they can buy and trade in at the same dealership. The dealer wins with a better quality lead and it provides our sales team with an entree to sign that dealership up on a full subscription version of the product. To-date we have over 940 rooftops on trade with our recent growth aided by this new freemium product. We conducted a regional pilot test of the freemium version of trade over the last few months, and based on the success of that pilot we are moving quickly to rollout his product nationwide. In parallel, with these four major strategic initiatives, we have developed new consumer engagement products that allow dealers to get their branded inventory in front of our end-market car shoppers that we believe will provide a modest boost in revenue in the second-half of the year. As you can see, there's a tremendous amount of innovation going on across the company and we continue to make significant progress on product improvements empowered by the completion of Capsela that are designed to enhance the consumer experience, increase engagement and grow transaction volume through our dealers. We said that this finishing Capsela would open up a new chapter of innovation to a TrueCar, and it's exciting to see that happening in real-time. Now I like to walk you through our financial results for the quarter outlook for Q2 and our outlook for the remainder the year. During the first quarter, total revenue was up 6% over Q1 of 2018 near the top end of our guidance coming in at $85.6 million. Franchise dealer revenue increased 3% year-over-year. Franchise dealer count was also up 4% to 12,675 dealers and multi-revenue per franchise dealer decreased by 1%. Independent dealer revenue was up 1% compared to the prior year. Indi dealer count increased 28% to 3,854 and monthly revenue per independent dealer decreased 20% as we continued to focus on adding smaller independent viewers. New dealer product revenue including revenue from trade and DealerScience was approximately $2.4 million during the quarter. Dealer adoption of our trade product continued apace increasing to 866 rooftops by the end of the quarter. The growth in trade rooftop count was aided by our new go-to-market strategy to increase brand coverage in local markets. We also made good progress integrating our dealer sites acquisition into our business and we intend to enhance our core auto buying program with new capabilities enabled by DealerScience in the second-half of 2019. OEM revenue a $4.2 million was down 5% over Q1 of 2018. The slight decrease was driven by macro issues within one of our large recurring customers. Forecast, consulting and other revenues was $4.6 million in Q1 of 2019 up 6% year-over-year. Turning to units, our total units were 232,781 up 1% year-over-year. These results in the breakdown of our units by channel reflected the opportunities and risks that we highlighted leading into the quarter. The TrueCar branded channel was down 11% year-over-year. This decrease was largely driven by a decrease in organic traffic, specifically in the new car segment. Within the quarter we started to see organic traffic recovery in the branded channel on our used car traffic. Our used car platform has operated on our new technology stack longer and our new car platform, and we believe that the earlier recovery of our used car channel could forecast future recovery in the new car channel driven by improved site and product performance on our new technology stack. Extended partner channel units were up 12% year-over-year. This growth reflects strong performance in our membership and finance segments and an increase in used car units. USAA channel units were up 7% from last year. The growth in the USAA channel was fueled by strong used car performance as a result of enhanced user experience. USAA continues to be a strong partner with whom we are able to successfully pilot new products offerings, like trade, deepen our integration within their site product flows and provide the best car by experience than ever base. A few other things to mention our new units were down 7% year-over-year, while used units were up 19%. As a result, the new used unit mix was 61.2% new and 38.8% used in Q1 of 2019 as compared to 66.9% new and 33.1% used in the prior year. Monetization in Q1 of 2018 was $348 per unit, up from $334 per unit in Q1 of last year. The increase in year-over-year monetization was primarily due to the addition of new products for a dealer customer base for which no incremental units are generated. Now, turning to expenses and margins, where all of the following metrics are on a non-GAAP basis unless otherwise stated. Gross profit was up 5% from Q1 of 2018, while gross margin was 90.6% in Q1 of 2019 versus 91.2% in Q1 of last year. Sales and marketing expenses were $50.2 million or 58.6% of revenue in Q1 of 2019, as compared to $45.3 million or 55.9% of revenue in Q1 of last year. Within sales and marketing, we spent $14.9 million on television, radio, and digital to drive TrueCar channel customer acquisition. This compares to $13.9 million in spend this time last year. And cost per sale for Q1 increased by 19.6% from a $149 per unit last year to $178 per unit this year, primarily driven by $1.5 million in trade marketing during the quarter as well as organic traffic headwinds resulting in lower overall TrueCar unit volumes. Excluding trade marketing, costs for sale in Q1 increased from $147 per unit last year to $160 per unit this year. Partner rev share and other expenses totaled $16 million in Q1 of 2019, as compared to $14.8 million in Q1 of last year. The increase in expenses was driven by the growth and extended affinity and USAA units, and our affinity partner cost per sale decreased 1% year-over-year to $107 in Q1 of 2019. Finally, our sales headcount and other costs were $19.3 million in Q1 of 2019 up 15% from $16.8 million this time last year. The increase in cost reflects the expansion of our dealer sales and service teams to support our larger dealer network and our plans for new product offerings. Moving to G&A, Q1 2019 expenses totaled $10.2 million or 11.9% of revenue as compared to $9.4 million or 11.6% of revenue in Q1 of 2018. Adjusted EBITDA was $5.1 million or 6% of revenue in Q1 of 2019, as compared to $6 million or 7% of revenue in Q1 of 2018. The items excluded from adjusted EBITDA for offer Q1 of 2019 included depreciation and amortization of $6.4 million, stock-based compensation of $8.6 million and severance costs associated with our reduction in force in January of 2019 of $3.3 million. GAAP net loss for the period was $14.4 million or $0.14 per basic and diluted share, as compared to $9.1 million or $0.09 per basic and diluted share in the prior year. Non-GAP net loss was $0.4 million or a loss of $0.00 per share compared to non-GAAP net income of $0.8 million or $0.01 per share this time last year. Our balance sheet remains healthy with approximately $180 million in cash and no outstanding debts. Now turning to guidance in light of the ongoing challenges we are experiencing in our TrueCar channel combined with lower than expected OEM revenue, we are guiding to Q2 revenue of $88.5 million to $90.5 million or 1% to 3% growth year-over-year. For the full-year, we are guiding to a revised range of $361 million to $375 million or 2% to 6% revenue growth. As a reminder, because we haven't yet seen the effects of the many consumer experience improvements we are introducing, we haven't factored the potential positive financial impact into our guidance. The lower end of our revenue guidance range assumes that the reduced OEM revenue and truecar.com unit volumes that we anticipate in Q2 will persists through the remainder of the year. The higher end of the range assumes that we are able to generate higher OEM revenue in the second-half of the year and capture incremental new dealer product revenues. Turning now to adjusted EBITDA, we are guiding to Q2 adjusted EBITDA of $4 million to $6 million or 4.5% to 6.5% adjusted EBITDA margin. For the full-year, we're guided to a revised range of $27 million to $36 million or 7.5% to 9.5% adjusted EBITDA margin. This revision to adjusted EBITDA is primarily the result of less revenue from high margin OEM programs. And now, we'll open up for questions.

[Operator:]

At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Ron Josey, GMP Securities. Please proceed with your question.

[Ron Josey:]

Great, thanks for taking the question. Chip, I have two. One is just on the guidance and I understood that you're not including any of the positive factors of the changes you might make to the consumer side, but given the challenges in the OEM in the quarter and the True channel, do you think you fashioned [ph] enough risking guidance, meaning, I think it's conservative enough going forward just on the downside understanding that creates potentially be upside, and speaking of the upside you started the call talking about a lot of the new engagement opportunities and experiences for consumers, the consumer control engagement in U.S., your landing pages, can you put a timing on those that would be helpful? Thank you very much.

[Chip Perry:]

Thank you, Ron. Appreciate the questions very much. Regarding our guide, we've assumed I guess set on the low-end that we continue to see the same kind of performance that we saw in Q1, and we then expect to see in Q2 for the rest of the year. So, we believe that we have an appropriately calibrated lower-end of our guide. On the higher-end of the guide, we have more OEM revenue based upon the possibility of at least one OEM increasing their participation with us -- participating and others increasing the participation with TrueCar in the second-half of the year. I think we're pretty well-bracketed there on the upside and the downside relative to OEM revenue. With respect to timing on the various product initiatives that I described in the call, there are number of things that are being tested today live on site with a portion of our traffic, such as improvements related to enabling consumers to have more control over when their name goes to dealership, and we have a number of things that are live around enabling new car inventory to be viewed by all our traffic that's live today. Going forward, over the next quarter, we have a significant number of enhancement happening in this quarter Q2, that will be live both parts of our traffic and for all our traffic, and then we'll be launching in selected markets our new consumer-controlled engagement model early in the third quarter. And so, we'll be proceeding with that very important evolution of our product experience. It's centerpiece of our plans for the year and a key element of our growth strategy for the future. So, I'm happy to provide you and other analysts with a more detailed roadmap of what's coming in Q2 as well as Q3 and Q4.

[Ron Josey:]

That's super helpful, Chip. Thank you. And then just on the consumer control, that's great to see it launch in early 3Q, I'm assuming in certain markets, is that timing sort of lines up perfectly with like the new model years coming out, or is it just coincidence, and -- thanks again.

[Chip Perry:]

Sure. It's really just a coincidence honestly, Ron, post-Capsela we had to do a significant amount of preparatory work to launch this new experience, and we're launching in a phase sequential phase basis beginning with [indiscernible] markets early in Q3. We will observe the performance of the experience in those markets for a few months and then as I said on the call, begin to have conversations with dealers around how they perceive the value of the new experience, and then discuss how we will monetize that experience over time. As we learn from that first set of market roll-outs, we will then build our overall national roll-out strategy, which we would expect to happen in early 2020.

[Ron Josey:]

Thank you, guys. Thanks, Chip.

[Operator:]

Our next question comes from Daniel Choe, Goldman Sachs. Please proceed with your question.

[Daniel Choe:]

Thanks. Thanks for taking the question. I wanted to dig into some of the strength you saw on the used car side of things this quarter. I know you'd mentioned that some of the technology changes in Capsela benefits had been on that side of things for a little bit longer. Wondering if you could just give us some more specifics around the changes or benefits that you're seeing there specifically in the used car channel, just to give us a sense of how those could play out over a longer period of time? And then, a follow-up. Thanks.

[Chip Perry:]

Sure. Sure. Thank you, Dan for the question. So, we made a number of product improvements on the used car side, which are enabling a very nice unit growth like you heard a 19% in the first quarter year-over-year. And they, and they are -- that's resulting in both increased traffic, flowing from organic traffic sources as well as conversion improvement once our car buyers reach or used car experience, on the product improvements are helping in both fronts, both traffic and conversions. Since the product growth we made are improved filtering and search tool as well as more detailed, easy to access, and understand detailed information about used cars on our Vehicle Detail page. So those are the improvements we're making and it really shows the potential of our company at a high level to grow in the face of fairly modest traffic growth. So this company, TrueCar does represent a company that has tremendous conversion rate and unit growth opportunity by enabling our existing audience to proceed more deeply through our experience get registered in our marketplace and proceed to buy a car from one of our certified TrueCar dealers. And the used car side because it's been on our tech stack longer, we're really starting to see the fruit of the labors of our team has done there even before the improvements we expect to see similarly a new car over time.

[Daniel Choe:]

Great. Thank you. And then, just on the affinity side of things, realize you're having some headwinds on the traffic side in your branded channel. Just curious if you could give us a sense of the levers you feel like you have for driving growth through the affinity channels and those closed-end groups in -- while the branded channel is facing some of those headwinds?

[Chip Perry:]

Sure. Sure. So we're working very closely with our affinity partner across the board to activate the digital audiences that are engaged with them on their own portals. So both through email campaigns and stronger integrations within their experiences we're able to attract to the car buying service the TrueCar car buying service more of their members. And so we're seeing that work its way through nicely with our affinity partners and we saw a nice, nice growth with USAA and as well as our extended affinity partner channels. And it's mainly from those two things. It's stronger digital activation of their members to email campaigns and more effective digital integrations with their own portals.

[Daniel Choe:]

Great. Thanks for the color. Appreciate it.

[Operator:]

Our next question comes from Kyle Evans, Stephens. Please proceed with your question.

[Kyle Evans:]

Hi. Thanks for taking my questions. Chip is it too early to get any kind of a read on the consumer experience that you're getting with the testing of the consumer control? Any, any kind of early data on satisfaction or conversion lift? And I've got a few other follow-ups. Thanks.

[Chip Perry:]

Sure. Thank you for the question, Kyle. It is very important for us to begin gauging that and it'll be one of the very early indicators of the success of this important strategic initiative for our company. Right now, I can't really quote numbers, but as we begin to move into in-depth local market tests beginning in the third quarter, we're going to see next right on time by the way. We said we would be testing in the first-half of the year and launching in the second-half of the year. And so, as we launch these initial market installations of our new user experience, we'll observe first the increased rate of registration and then we'll also then begin to observe a higher level of match sales based upon the higher level of registration so. So, it will be the next quarter, we'll start to be able to I think share some early findings from those first stage market rollouts. And I'm excited about the prospect here. Our team is very excited, our product team is energized, our sales team is energized. We're ready to hit the beaches with this new user experience full force beginning in the second-half of the year.

[Kyle Evans:]

Thanks. In your best estimation, when you have an OEM shut off, what's behind that decision? I mean it's in a business.

[Chip Perry:]

So, when you have -- our OEM clients pulse on and off it often has to do with the funding mechanisms that they are using to fuel their incentive programs with TrueCar. Like I said on earlier calls we are a new form of digital marketing for OEM incentive programs. That the product we provide enables them to place an incentive offer to the high the registration wall and motivate the car buyer into their brand or accelerate their interest in buying the car in a way that they only pay when a car gets sold. This is in contrast to their normal go-to-market approach which is digital display ads and search that's pay for an impression basis. So you know the funding mechanism for our kind of a product is very early days being established inside the OEM clients. So, we got some strong anchor clients like FCA and Mercedes we're well established with them. Others I would say the funding mechanism haven't yet been solidified and that's why they pulse on and off. And so, we're working hard to you know, and so we're working hard to deepen our presence with them and work with them to solidify the strong dealer positive ROI that we always hear about from our clients as well from our programs that we advertise. So, we're working hard to tap into these larger budgets we just haven't been able to do it consistently enough so far, but I'm quite possible, we'll get there and. We get such positive feedback from our clients about the program because it's so new to them in terms of the way they typically spend their marketing dollars. It's been a challenge for us to get firmly established with multiple OEM clients simultaneously, but we're making headway and over time I can't said this to be a strong growth revenue stream for our company.

[Kyle Evans:]

Okay. Last one. I'm glad that you launched premium trade; I think that's a great approach. Did you put some brackets around the transactional pricing and what you think the dealership returns are in that mode? Thank you.

[Chip Perry:]

Sure. So, our trade premium product, it's a little bit like the TrueCar new car program and that lead to free and you pay when a car gets sold. So its a way to think about it, so dealer who is on our system today not a leading trade through the normal subscription product, description products enable them to put our trade widget on their Web site enable them to use it in their store to provide more transparency and capture more gross profit through their normal trading process and provide greater customer satisfaction. That's the normal subscription product. So what we find is he created a Web version of this product that enables a dealer who is on our core product to receive trade and leads from consumers who want to sell the car, who had indicated an interest in the branded car they want to buy. We're matching the consumer, who had branded video that is the same as they want to purchase. So the lead is a very strong lead and we're asking the dealer to compensate us because they're not paying a subscription, when a transaction occurs. So if there's -- if the situation happens in which the consumer buys a car, they pay us one. But if it - as a trade only lead with a vehicle venture, if they only end up selling the car to the dealer or not buying the car, we still receive a transaction fees. But the real benefit of this is that it enables our network to produce a significantly closer trading location for the consumer when they book their car with TrueCar and it enables our sales team to introduce in a more in-depth way this very attractive trading product to dealers, our core dealers who are not currently on our subscription product. So we've launched this as a pilot in the -- this particular region, we got great success; we've already seen some nice take rates moving to the full subscription product. And so, like I said, nationwide we're going to roll this out quickly nationwide and it will feel some nice growth for this program as the year goes on.

[Kyle Evans:]

You're not going to give me the transaction pricing?

[Chip Perry:]

Oh, yes. I'm sorry. Its $299 per car, if they sell a car if the consumers sell the dealer car and in the case, in this situation indicates when the consumer hasn't bought a car from the dealer.

[Kyle Evans:]

Got it. Thank you.

[Operator:]

Our next question comes from Dan Kurnos, The Benchmark Company. Please proceed with your question.

[Dan Kurnos:]

Thanks. Good afternoon. Chip just to be clear it was Nissan that didn't come back on the OEM side?

[Chip Perry:]

Well, we're not naming clients in public like this, but they had been one of our clients in the past and we are hopeful they'll be returning.

[Dan Kurnos:]

Got it. Okay. And then just a couple other things just as you kind of go after sort of you know as Capsela gets rolled out and all of these new initiatives you got are you kind of rethinking a little bit your go-to-market strategy, which marketing channels you're pushing versus historically? And then if you could also just give us some color on how you're thinking and in sort of the franchise side which was I think flattish sequentially with revenue down again sequentially just sort of what caused some of the puts and takes are there even made making headway on the independent side? Thanks.

[Chip Perry:]

Sure. So, over the past couple of years as you know we've held our marketing budget quite flat. We've been able to maintain our audience reasonably well - quite well actually up until reducing softness organically with TrueCar channel. What we've been doing over the last few quarters is leaning more deeply into digital spend versus traditional spend for our TrueCar channel that's continuing. So, we haven't really made any fundamental changes and how we think about acquiring audience, we have you know really well-defined criteria on acquisition digitally well by traffic as long as it produces registered users prospects of our systems at the lower threshold of expense expects the threshold of per user expense that's well established and we are constantly testing a wide range of different kinds of search strategies to optimize our spend. So we believe that at a stage right now where we're in pretty good balance. We're able to maintain our audience, what we're doing though is setting the stage for as I mentioned one of the important growth levers of this company I'd say with the test because our user experience improves and we have more registration we contract more unit there is a more productive funnel we'll have green light economic green light to increase our marketing spend. And so we're anticipating that moving in that direction as soon as we can see and get clear visibility of improved funnel efficiency through product improvements. As it relates to franchise dealers, I mentioned that our dealer count is up mainly due to independents doing quite well with independent dealers. We're modest -- we expect to be modestly up this year with franchise dealers. And so in the environment where we're in right now with modest unit growth it's a good outcome. We'd love to be growing franchise dealers more we hope to in the future. But right now where given our traffic levels and the feedback we received from the customers we believe this is -- we're on a good path to maintain a good solid franchise dealer base this year modestly up independent dealers quite a bit stronger. We're doing quite well with used car you saw our unit growth in the first quarter and we're appled [ph] adding new dealers at a good clip and we're able to realize some higher subscription rates in this quarter and upcoming quarters because as we've been growing the volume the past few quarters we're now through -- we're starting to catch up with rates that reflect a value to dealer, independent dealers are receiving. So we expect to see good solid double-digit growth in our independent revenues for the rest of the year.

[Dan Kurnos:]

Got it. Thanks for all the color, chip.

[Operator:]

Our next question comes from Naved Khan, SunTrust. Please proceed with your question.

[Nate Mitchell:]

Hi. Yes. This is Nate Mitchell on for Naved Nevada. Thank you for taking my questions. First one just a clarification more than anything else; Google made an algorithm change in March; was this an impact on you guys or is this or is the organic traffic headwind as a result of still the tech platform. That's number one and number two any update on the hiring of a new CFO?

[Chip Perry:]

Thanks. Yes. So, we experienced some organic headwinds beginning in September and October last year which are -- we're still feeling the effects of our new car channel and use car channel. We did see some positive benefit from the changes that were made in mid-March particularly on used car side of our business. So that's one of the things that's fueling used car growth in the first quarter will get better in the second quarter it's more fully being seen and then over the course of the year, so that that's what's happening on the organic and used car side, and with respect to hiring CFO, it's been an important priority of mine, talking to candidates and expect to have resolution of that that matter here in the relatively new distant - relatively near future.

[Nate Mitchell:]

Great. Thank you.

[Chip Perry:]

Sure.

[Operator:]

Our next question comes from Nick Jones, Citi. Please proceed with your question.

[Nick Jones:]

Hi, two quick ones, I guess touching SCO again, what do you think TrueCar can do to kind of close the gap against some of the competitors, maybe ranking better organically? And then second just on kind of independent dealer revenue per dealer has been decreasing kind of quite a bit this quarter, [indiscernible] closed any commentary on that you can add?

[Chip Perry:]

Sure. So thank you, Nick. With respect to SCO ranking, we're working on a variety of fronts. But over time we think we'll improve our organic search. We are working on make model, landing pages, we're working on make model comparison pages. There are hundreds of permutations of those. Those are being built. They haven't yet been linked to our mothership site, and made indexable through to search engines. We're not that far away from doing that. And so we have a number of a number of good initiatives underway. Most important thing we can be doing is improving consumer engagement with TrueCar and all of the things we're doing to improve how pricing works on our site, how used car engagement is improving when we see used car registration rates, return rates, prospect rates raise those are all positive indicators that will ultimately got her back into the church world. So even though it's a long game we're playing we're quite optimistic that over time we'll begin to see some nice recovery in our search ranks and our organic traffic. Timing wise we're looking at not a quick snap back more likely progress being visible starting early next year. But you're making headway chipping away at it a little bit all the time and the fact that we did see a nice boost from that March algorithm update it is assigned and we're moving in right direction. With respect the independent dealer revenue declining, we've been as I've said on earlier calls adding more smaller dealers than we had in the past, that smaller dealers have had smaller inventories, they received a smaller quantity of leads, their subscription price -- their subscription rates are lower. So, we're going to -- we will see growth in the - in the segment overall as we start to have stronger monetization with independent dealers based upon the much higher level of lead volumes that we've been sending to them in the last two or three quarters. So I'm not worried about the revenue per dealer in the last quarter or two going down, because we have a smaller dealers in the mix. That's fine. It gives us a larger base to monetize over going forward particularly based upon our larger the volume that we've been producing for them in the last two or three quarters. So, that's why I'm quite confident, we'll be able to grow that segment nicely in the Q3 and Q4.

[Nick Jones:]

Got it. Thank you for taking my questions.

[Chip Perry:]

Sure.

[Operator:]

[Operator Instructions] Our next question comes from Marvin Fong, BTIG. Please proceed with your question.

[Marvin Fong:]

Hi. Thank you for taking my question. A lot of them have already been asked, but I'd like to drill into the USAA channel seemed like that they're quite well relatively speaking and I think you referenced some, that, that was due to some user enhancement. I was just wondering if you could kind of drill down a little more into that and how we should; number one, think about the channel for the rest of the year and if that growth can be sustained? And then secondly, can you apply some of those findings to say other affinity partner channel? And then I have a follow-up.

[Chip Perry:]

Yes. Sure. Thank you, Marvin. So when we launched Capsela, which we meant the new off of the old technology stack out of the environment we ran up into the cloud, we were able to modernize all of our extended affinity partner to the TrueCar. And at the same time, we made some nice improvements with inside the USAA portal. So, USAA continues to be an excellent partner, a great collaboration with them as we have been able to test for instance are not test to launch our new trade product within their network with their cooperation, which is producing good results for us. And so we're seeing nice solid -- I would call you know nice middle single-digit growth with them higher than that you know about 7% in the first quarter that was revised last year and with respect to our extended affinity partners we're going be a little bit better than that in the first quarter. So, we're going to continue to work on improving the integration and the digital activation of their member bases through your active e-mail campaigns which also include promotion of the OEM incentives that are targeted toward affinity members. That's one of the big advantages we have as a company is enabling an OEM to target its specific audience behind the registration law that has an affinity and a demographic that they're interested in attract targeting and attract them. So, we look to do more of that on as deal goes on.

[Marvin Fong:]

Thanks. And one follow-up just on you know the -- you have a very large cash balance. Have you given any thought to maybe deploying that given where the stock price is right now or do you think you want to keep that with you know dry powder for additional acquisition? Just how would you think about deploying your cash balance? Thank you.

[Chip Perry:]

Well, historically we've wanted to keep a nice cash balance available to address potential M&A opportunities and investments that make sense for the company. And that's our current perspective. We're always reviewing whether you know whether or how best to deploy that at the present time, no change expected.

[Operator:]

We have reached the end of the question-and-answer session. And I will now turn the call back over to management for closing remarks.

[Chip Perry:]

Thank you everyone for dialing in. First quarter was in line obviously, we're working hard here to evolve this company quickly through technology innovation. We're excited about the potential that our new user experience presents. So stay tuned, as we continue to pursue the growth of TrueCar and we're excited about being able to make those improvements and deliver stronger levels of growth in the future. Thank you everyone.

[Operator:]

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