TrueCar, Inc.
Q3 2015 Earnings Call Transcript

Published: 6 Nov 2015

[Operator:]

Greetings and welcome to the TrueCar Third Quarter 2015 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]. As a reminder this conference is being recorded. I would now turn the conference over to your host. Ms. Alison Sternberg Vice President of Investor Relations. Thank you Ms. Sternberg, you may now begin.

[Alison Sternberg:]

Thank you, operator. Hello, and welcome to TrueCar’s third quarter 2015 earnings conference call. Joining me today is Mike Guthrie Chief Financial Officer and Interim Chief Operating Officer. As a reminder, we will be making forward-looking statements on this call, including but not limited to, statements regarding our outlook for the fourth quarter and full year 2015, management’s beliefs and expectations as to future events, our future growth, the status of our dealer network, future incentive program, dealer tools, consumer experience and close rate improvement and our financial and operational metrics plans and strategies. Forward-looking statements are not and should not be relied upon as guarantees of future performance or results. Actual results could differ materially from those contemplated by our forward-looking statements. We caution you to review the Risk Factors section of our annual report on Form 10-K for 2014 and our subsequent quarterly report on Form 10-Q filed with the Securities and Exchange Commission and our quarterly report for the quarter ended September 30, 2015 to be filed for discussion of this factors that could cause the 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.com. The non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. Please note that these preliminary results are based on current expectations and are subject to quarter-end closing adjustments, actual results may differ. Now, I’ll turn the call over to Mike.

[Michael Guthrie:]

Thanks, Alison and good afternoon, everyone. This was a productive quarter for TrueCar, following disappointing Q2 we needed to execute better and we did. While the quarter was not without its challenges overall I am pleased with our financial performance. First I want to review some of the highlights from the third quarter. TrueCar reported all time record on unique visitors, prospects and units across all three channels USAA, TrueCar Branded and other partner. Total unique visitors reached 6.6 million in Q3 with year-over-year growth of 43% in line with Q1 and Q2 of this year when traffic growth was 40% and 42% respectively. Traffic in the TrueCar branded channel was $4.6 million up 55% over last year and traffic in our USAA channel grew by 32% year-over-year versus just 3% growth last quarter. We are working better than ever with our partners at USAA and the co-branded marketing, which started over the Memorial Day weekend has continue to be productive. Traffic in our other partner channel also exhibited strong improvement in growth with UVs of 1.4 million for the quarter up 18% year-over-year versus 8% traffic growth in Q2. Our prospect levels crafted 1 million for the first time in Q3 and grew year-over-year by 29% and acceleration in growth over Q1 and Q2 of this year with the prospect growth rates were 21% and 20% respectively. Prospects are the deep internal customers who received upfront pricing information from our dealer partners. These are the end market consumers who are engaging with our TrueCar certified dealership. Units hit a record 208,034 up 21% from Q3 of last year. USAA units grew by 19% year-over-year and that’s an acceleration of growth over the past two quarters when unit growth was 10% and 14% respectively. Cost for sale in the TrueCar channel declined by 11% sequentially to a near record low of $193, while our units grew to just under $90,000 units up 28% year-over-year. Monetization grew to $324 per unit booed by a mix shift toward used car sale and increase in revenue across our non-franchise dealers and strong growth in OEM targeted incentive. We completed a very successful targeted incentive trial with a major brand during the quarter. During the trial an average incentive of $625 across the vast majority of this OEM’s product line within our USAA and employee benefits channel drove impressive results. This OEM grew its share of searches on the TrueCar platform by 47% and its share of sales by 38% against its competitive set of brand. The trial which started in mid-July and ended at the end of September help to drive incentive revenue growth of nearly 100% over Q3 of last year. We are in discussions with this OEM and others to run similar programs in 2016. And finally as a result of healthy revenue growth and more disciplined expense management we grew adjusted EBITDA from $0.5 million or 0.7% of revenue in Q2 of 2015 to $2.7 million or 3.7% of revenue. We did however have some challenges during the quarter. After 13 quarters of consistent growth in our franchise dealer network we had a net dealer decline in Q3. AutoNation the largest automotive retailer and formerly our largest customer hold all of its 279 stores from our program starting in July. For the overall quarter we had a net dealer loss of 600 franchises or about 6.4% of the network. We believe these challenges represent learning opportunities however and we are determined to work harder and to better serve our dealer partners as we move forward. And so while we are pleased with the quarterly reported we miss the opportunity to have an even better quarter. As a 10 year old company, build to serve car buying consumers and dealers we need to continue to execute better. Having said that, we have reached an interesting inflection point in our business. Through our branded channel and our partner channel, we are approaching 7 million unique visitors every month and we have over 1 million prospect per quarter. This is an enormous number of automotive consumers, which we believe represents enough traffic and prospects to meaningful grow unit and revenue. In certain situation some of our dealers are actually receiving more introduction than they handle efficiently. And that’s a loss for our dealer partners, our consumers and for TrueCar. So we now need to more intelligent and focused on helping our dealer partners close more effectively. This focus on improving our dealers’ close rate will require us to be several things better. First we will soon rollout a suite of mobile dealer tools that enable dealers to work directly with consumers to better ensure that consumers’ expectations are met once they walk on to the lot. This project started in 2015 and has received substantial dealer input. Second, within our current product flow working with manufacturers to help them feature their brands more effectively to TrueCar consumers through our model showcase. We are now also working on ways to help dealers better present their brands in our environment as well. Third, we are working more collaboratively with our dealer council and they have become a critical source of feedback to a team. They are particularly focused on how we can serve dealers well while giving consumers a better experience. And finally, we are redoubling our efforts on dealer outreach and retention. Our sales organization is in the field listening to our dealer partners and working hard to improve the level of service we provide. We have also added some key executives to our team, David Green joined us in August as the VP of Major Accounts. David has a nearly 20 year track record in automotive retail, having worked with leading groups such as Sonic Automotive and Berkshire Hathway Automotive. In his new role he will bring his unique experience and focus to the needs of the 20 largest consolidated dealer group. Kerri Wise joined us VP of Dealer Engagement and Communication, Kerri has been in the industry for 17 years and formally worked at both Edmunds and J.D. Power. Among other things, Kerri is responsible for outreach and coordination with our dealer council. These efforts are paying off, we have begun to turn the tide and the dealer network of growing again and coverage have improved. I want to take just a bring moment to thank the dealer sales and operations team for their tired less work. And now let’s go through the financial performance before opening it up to questions. TrueCar delivered record revenue of $72.4 million in Q3 of 2015. Transaction revenue was $67.4 million representing 30% growth over Q3 of fiscal 2014. TrueCar certified dealers transacted 208,034 units on our platform in the third quarter, up 21% year-over-year against the backdrop of industry retail unit sales growth of 7%. The units sold by our dealer partners represented 4.1% retail new car market share for Q3 of 2015. Breaking down unit sales in a little more detail, the TrueCar branded channel accounted for just under 90,000 unit sales or 43% of total unit. This represented 28% year-over-year growth. Cost per sale improved by 11% in last quarter to $193. USAA members accounted for 65,000 unit sales, up 19% over the last year. Again the co-branding campaign that we launched with USAA of Memorial Day continues to bear fruit and we are pleased that more USAA members are having car buying experiences at TrueCar Certified Dealers. We were also pleased with the performance of our other partner channels where units totaled approximately 54,000 in the quarter, up 14% year-over-year. With new partners such as Sam’s Club coming online and the accelerating growth of USAA we believe our dealer partners will see significant demand from affinity channels in Q4 and into 2016. Monetization came in at $324 per unit, up from $317 in Q2 and $303 in Q3 of last year. About 24% of units sold were used cars in Q3 versus 21% in Q2 and we also grew our independent dealer revenue on a sequential basis. Turning to the expenses all the following financial metric on a non-GAAP basis unless I say it otherwise. Our gross margin increased by 90 basis points this quarter to 92.1%, technology and product expenses were $11.5 million or 15.8% of revenue Q3, that compares to Q3 of 2014 when tech and product expenses were $8.8 million or 15.6% of sales. Sales and marketing expenses were $43 million or 59.3% in Q3 of 2015 that compares to Q3 of last year when sales and marketing expenses were $31.3 or 55.2% of sales and to Q2 of this year when we spent $39.6 million or 60.6% of sale. To breakdown the $43 million of sales and marketing expenses in more detail we spent $17.3 million across television, radio and digital focused on consumer acquisition for our TrueCar branded channel. That’s a 17% increase in last year driving a 28% increase in unit. Additionally, we spent $13.2 million towards revenue share, loans invention and Other Partner marketing expenses and lastly headcount and other costs were $12.5 million for the quarter. General and Administrative expenses totaled $9.6 million or 13.3% of sales in Q3 of 2015 that compares of Q3 of 2014 when G&A expenses were $8.2 million or 14.5% of sales. Adjusted EBITDA for the quarter was $2.7 million or 3.7% of revenue. GAAP net loss for the quarter was $11.1 million or a loss of $0.13 per share, that compares to the second quarter when GAAP net loss was $14.7 million or a loss of $0.18 per share. Our non-GAAP net loss for the quarter was $2.1 million or a loss of $0.03 per share and that compares Q2 of this year where non-GAAP net loss was $3.8 million or a loss of $0.05 per share. The primary non-cash expense items for the quarter were depreciation and amortization of $4.5 million and stock based compensation of $7.5 million. Also in our adjusted EBITDA calculation we added back $1.2 million of litigation cost and $0.6 million of severance. Cash flow from operating activities in the third quarter was $2.7 million compared to $1.5 million in the third quarter of 2014. Now, I’ll walk to some of the key metrics. Franchise dealer count totaled 8,702 as of September 30, while our non-franchise dealer count was 2,007. Transaction revenue per franchise dealer was a record $7,493 up 14% year-over-year as revenue grew significantly faster than we had a dealers. This metrics will typically decline in Q4 due to seasonality. Net funnel efficiency was 1.05% in the third quarter roughly flat versus the first two quarters of this year. Quickly turning to our balance sheet, as of September 30, 2015, our tax balances totaled $124 million and we have no debt but we remain very liquid. Now, I’d like to summarize our outlook regarding the fourth quarter of 2015 and the year as a whole. A few notes about Q4 versus the quarter we just reported. First remember that this is a seasonally quarter in the industry and so we generally expect about 5% decline in units and revenue over Q3. Second, we will not have the benefit in Q4 of the targeted incentive trials that we mentioned earlier. That trial contributed approximately $2 million of revenue to the third quarter results. And finally, we are taking a conservative approach to dealer count and even though dealer count has begun to grow again and many dealers may want to join to lean into the holiday selling season and to benefit from the improved growth in our partnered channels we assume flat dealer count from the end of Q3 throughout Q4. For the quarter we anticipate revenue to be in the range of $64 million to $65.5 million with units in the range of 185,000 to 190,000. Adjusted EBITDA for the quarter will be approximately $0.5 million to $1 million. For the full year 2015, we are guiding to $260.2 million to $261.7 million of revenue on units of 752,000 to 757,000. Adjusted EBITDA for the year is expected to be in the range of $8 million to $8.5 million. Before I take questions, I will make a brief statement about the status of our CEO search. As you all know approximately three months ago our Board of Directors formed a Search Committee to find TrueCar’s next Chief Executive Officer. They retain confident and experience advisors to assist in the search process. That process has identified some very qualified candidates with broad backgrounds and experiences in automotive both OEM and retail, consumer internet, software and other parts of the technology landscape. The members of the search committee have interviewed several of the candidates. We believe the process is going well, but it is still ongoing. And so we won’t comment on the search process until it’s complete and we are prepared to announce the new CEO of TrueCar. And with that I’d like to open it up to questions.

[Operator:]

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. Our first question is from Douglas Anmuth from JPMorgan. Please go ahead.

[Diana Kluger:]

Hi, this is Diana Kluger on for Doug. Maybe if you could give us a little bit more color on the assumptions and guidance you talked a little bit at the end, but maybe more so on the expense side if that’s an improvement traffic and what are you assuming going forward in terms of spend and the efficiency of that spend? Thanks.

[Michael Guthrie:]

Hey Diana it’s Mike. Next quarter we are actually assuming that cost per sale will go up seasonally by about $10 from where it is right now. Holiday its flow in the first few weeks coming out of the quarter and really picks up again towards Thanks Giving. So a little less efficient on the marketing spend in the direct channel. Pretty consistent in terms of other marketing expenses and certainly as it relates to the partner channel. So I don’t see any major changes there. We’ll probably see a little bit of a bump up of a little bit bump up in spend in G&A. we’ve added some heads and so we’ll see a little bit of expense increase there, flat to slightly up in tech and development. And then I again sales and marketing will probably come down because we just won’t spend as much at the beginning of the quarter. And then hit it again hard as we go into the holiday season. But net-net we’ll take spending down by I say $3 million to $5 million on sales and marketing.

[Diana Kluger:]

Great. And just one quick follow-up if I can, on the dealer count, it looks like there is more of an impact than just the AutoNation is there any way you can comment there?

[Michael Guthrie:]

Yeah we net down 600 dealers so it’s roughly half of the impact was AutoNation. I think the real probably the pretty obvious comment I start just a little bit in the prepared remarks is it’s not -- when you make that much noise in the industry it tend to have a ripple effect. Having said that the units came in. And so the nice thing about having a network that’s fairly well built and established is that the dealer scoring algorithm is working and we were able to pull in the units. And so on average the individual dealer on the program for the quarter had an all-time record in terms of units and revenue. And we’re already seeing in Q4 that the dealer network is coming back. So -- but yeah, and July was certainly a time that caused a lot of angst in the industry overall. And so we’re happy that that’s calm down and we’re trying to see dealers come back. I think in particular with the strength of partner channels, that’s very attractive and the overall level of traffic and prospects has gotten pretty significant. So we’re optimistic there.

[Diana Kluger:]

Thank you.

[Michael Guthrie:]

Thanks.

[Operator:]

Thank you. The next question is from Debra Schwartz of Goldman Sachs. Please go ahead.

[Debra Schwartz:]

Great, thanks. Two questions sort of along the lines of dealer count, can you give us an update on the litigation with the California Trade Association? And then second as it relates to monetization, which was up pretty significant in the quarter, how should we think about that going into Q4?

[John Krafcik:]

Hey Debra its Johnny, I’ll take the first part of that and give to Mike the second part. As I think most people know there were total of five law suits that were filed against the company between March and September of this year. Two of those five law suits have already been dismissed so there are now three pending one of the three that is pending is the CNCDA California New Car Dealer Association law suits we have I think as we mentioned previously filed a motion to dismiss in that case, those issues are fully breached and we have an oral argument scheduled on December 4th. So we may have news after the 4th about whether that law suit will also be dismissed or whether it moves forward. But that’s the status of that litigation.

[Michael Guthrie:]

Hey Deb its Mike. On the monetization everything was very healthy and statuesque as it relates to core car buying. We did well on the independent dealer side, but really the majority of the sequential bump in monetization was a result of the increase in targeted incentive? And so obviously you guys have heard us talked about target incentives for a while we ran a fairly major campaign in the third quarter it went really well. It contributed a good chunk of revenue and that ultimately bumped up in monetization. And so it was an early sign of what we’ve been talking about and what we expect to see which is things like incentives and trading becoming a bigger part of our business as we roll into ‘16 and that roll in monetization up a little bit so that revenue will grow faster than just the unit count. So that’s really the majority of it and the incentive program overall as I talked about in the prepared notes really did produce really healthy results. So we were quite pleased with it and we know the manufacture is also happy with the results and we’re sort of in constant discussion now with the view going into next year.

[Debra Schwartz:]

Great, thank you.

[Operator:]

Thank you. The next question is from Dean Prissman of Morgan Stanley. Please go ahead.

[Unidentified Analyst:]

Hi, this is John Lam [ph] coming on for Dean. Just two questions one about the prospect levels you guys were talking about over a million for the first time in the quarter and grew 29% year-over-year versus UVs which were growing 42% and units sold grew 21%, can you just talk about how these three of the growth in UVs prospects and units sold kind of relate to each other and some of the things you are doing to improve net funnel efficiency? And then the second question I have is on the UVs by channel, just looking at it looks like there was strong growth in all three channels can you just dig a little deeper into the partner channel kind of break it out if you can by adding new partners versus growth within existing partnerships? Thanks.

[Michael Guthrie:]

Yeah so let’s take the second question first. The traffic numbers were healthy and as it relates to the partner side it’s really this is really about penetration of existing partners really good results continuing with USAA and the other partner channel which had lagged in last few quarters we had some disappointments they really uptick up. And so I think our team did a great job and should also called out partner organization who did a great job getting the other partner channel to back to the growth that we would like to see there. So it really isn’t about new partners yet and so I think the obvious question that people is going to ask is how much of that was Sam’s Club and the answer is very little we’re just getting them online. And so we see that really as a growth trigger really into 2016 for that channel. So just we didn’t see much of it from them in the third quarter but we’re working really closely with them and are planning to launch and grow that partner in a much bigger way, obviously it’s a big number base. In terms of the growth across UVs and prospects and units, a lot of it has to do with mix shift and how we spend money this quarter. So we reduced the acquisition spend sequentially so we took traffic in the TrueCar channel down a little bit, but still mix shift is moving slightly in the direction of TrueCar so that tends to take NFE down or leave it fairly consistent from the first two quarters. Our conversion rates have been healthy so from traffic to prospects those numbers have been healthy I think what we really have found is that we could be doing a better job on close rate and you’ll hear a lot about -- hear us talking a lot about that because we are in fact we have so many prospects right now, traffic that converts on to prospects that in certain cases we’re actually a little bit overwhelming some of the dealers with the volume of the introductions. And so we need to have a little more intelligence around that and matching the right consumers to right dealers, to the right inventory at the right time to improve close rate. So we talk a lot with the dealer council about this idea about really getting close rate up and being more efficient. And so in a sense we’ve a little bit of a victim of our own success in terms of driving lots of traffic and a lot of prospects. Now we have got to do a better job on close rates. But overall I’d say given how much traffic grew by channel I think we’re pretty pleased with the funnel metrics this quarter. So conversion and close rates overall we are fairly happy with.

[Unidentified Analyst:]

Thanks.

[Operator:]

Thank you. The next question is from Mark Mahaney of RBC. Please go ahead.

[Unidentified Analyst:]

Thank you. This is Andrew [ph] on for Mark. In the past I know you’ve invested heavily in the mobile side and with your mobile app, wondering if you can give an update on where that investment has gone and how mobile converts as oppose to desktop and how many consumers are going just in a pure mobile channel? Thanks.

[Michael Guthrie:]

Yeah so our traffic is still about 50% mobile and 50% desktop and there is really been no meaningful change in the conversion rate over the last couple of quarters. So anything that you are seeing in the funnel has nothing to do with the shift from desktop to mobile or obviously wouldn’t go the other direction. So quite honestly nothing that exciting has happened this quarter in terms of that shift. We still have plenty of users who come to use through desktop and there is nothing about the conversion rate that really have changed meaningfully. We are making a lot of investments in products and in experience and we do think some of that will have a pretty good impact on conversion. But where we really expect to see it is on close rate. Again I think we feel like we have an awful lot of traffic, we certainly have a lot of prospects what we need to do is help dealers close better and get the close rates up and some of that will happen in products and some of that will happen in experience and training and other things. So you’ll see some changes in the product in Q4 and into ‘16 that really will be focused on primarily on close rate.

[Unidentified Analyst:]

Thank you.

[Operator:]

Thank you. The next question is from Ron Josey of JMP Securities. Please go ahead.

[Ron Josey:]

Great, thanks for taking the question. So just curious Mike if you could talk a little bit more about just advertising and if anything changed in the quarter or your approach. So I think in 2Q there were some issues around place sufficient ad spend on radio. And then just internally from a culture perspective with Scott and John moving on can you tell us little more about just how the culture is internally, how you are handling it as CFO and COO and maybe talk about attrition rates? That would be helpful. Thank you.

[Michael Guthrie:]

Thanks, Ron. In terms of the advertising and marketing I couldn’t be much happier with the quarter. We reduced spend sequentially in what is normally a stronger unit quarter cost per sale went down by about 11% sequentially. So again feel great about that. In addition I would say the team is certainly spending some money experimentally to try to learn and push it a little bit more. But I think they you have done a great job it think again quite honestly we have a lot of traffic, I don’t think acquisition is really that big of an issue right now. So I think we’ve gone a real great job and there is some new creative that is coming out Q4 and into next year. Some new messaging that we’ll be testing we’ve tested with our dealer partners. I’m very excited about it, I think it’s going to be great. So overall I would say I view that as really a core strength and I think the team the guys just had a great quarter in terms of that. And so the other question was about culture, look I think it’s been a really interesting 90 days and one thing I will tell you is I feel like the Senior Executive Team has really pulled together and are working really well. There is a tight group of folks, here that we all know each other well, we’ve worked together for quite a while and I think we are actually really well integrated. So anytime you get through something like last quarter, it’s an interesting challenge, but overall I’m pretty happy with it. We have not had any meaningful attrition in the business we hold amount of folks and actually we are hiring. So overall it’s hard to speak about the culture when you are one out of 550, but I think it’s quite positive and I will say people were really happy with this trend. The team did a great job Q2 was very disappointing. There is no getting around, that there is no hiding that and quite honestly I think in Q3 we really did a great job almost across the company. So this does wonders for the quite frankly.

[Ron Josey:]

And if I could ask one follow-up just on it was good to hear the deals about the incentives business. On TrueTrade I think this past August you rebranded I think Sell My Car to TrueCar Sell. Wondering that program is now out of data and live or any updates there? And that’s it, thank you.

[Michael Guthrie:]

Yeah I know TrueCar Sell is about the seller side rather than just the trading side. Right so people that are trying to sell a car and create the condition report. So there is really nothing to be read into the changing of the brand. And quite honestly as I’ve said over the last few quarters, we’re very much on schedule with trade and sell only. And again we always talk about it’s a 16 business we already said it is. We did have revenue this quarter from mostly from sell only from people selling cars on the platform and everything there remains on schedule. I think incentive this quarter was great because we have the trail that went very well and it gives us real comfort that we can build that business going into ‘16 in an even bigger way. So all-in-all as it relates to the ancillary revenue stream I feel like we’re right on target and this quarter was really more than anything about very much focusing hard on the core business and getting it right, especially focusing on partner -- other partners and we’re happy what we saw there and then expense control, because obviously last quarter was -- we still have a lot of growth in the key metrics just didn’t have in the EBITDA. So it’s good get EBITDA back up and we’ll be focusing on generating a lot more EBITDA as we roll out our 2016 plan.

[Ron Josey:]

Great, thank you.

[Michael Guthrie:]

Thanks, Ron.

[Operator:]

Thank you. The next question is from Steve Dyer of Craig-Hallum. Please go ahead.

[Steven Dyer:]

Thanks, good afternoon. Couple of quick ones, one the auto OEMs are getting obviously very promotional into the end of the year. I was just wondering how things like Ford's kind of Friends and Neighbors, which is basically one low price, no hag [ph]. How does that either help you or hurt you going into the end of the year? And then with kind of some of the dealer shuffling this quarter is there any sort of change to what you feel like kind of the optimal number of dealers is? Thanks.

[Michael Guthrie:]

Thanks, Steve. I think in terms of the dealers promoting. I mean it’s fairly normal seasonal activity right. We had a great year, we are going into the holiday selling season and manufacturers are promoting. And so we think it’s going to be a good holiday selling season and there is nothing out of the ordinary. I don’t think we proceed any of the plans is having any more or less impact going into this holiday season as we did last year. I’m sorry what was the second question? Oh dealer shuffling, as we changed our idea on what the optimal number of dealers is, I don't think so I think it’s all about what we look very hard at is efficiency and coverage. And so right now obviously we rather have 600 more than 600 fewer. So I think we’re happy that the overall volume of sale units was productive in the quarter and the units per and revenue per dealer went up significantly because that’s certainly what we would have projected. So we just said that the number is starting to come back and I think our team is doing a great job, we’re investing a lot into that team we’ve hired some really important executives at the senior level, we’re focused on outreach with dealers and dealer council. We learned more heavily into our dealer council than we ever have before and we’re getting great feedback from the dealer council. So we really appreciate the time they spend with us. And on the product side, we continue to invest in dealer tools and even things again also come from not just what we think dealers are going to want, but the dealer council. What we’re hearing from our dealer partners in terms of what would be productive tools for them. And so I would say the engagements on the council is as high as it’s ever been before and that’s probably a positive outgrowth of what happened in July.

[Steven Dyer:]

Yeah I guess my question around the dealer count was more as you’ve seen the monetization for dealer going up I’m wondering if it’s the chicken or the egg. In another words are you getting better monetization because some of the -- some of your geographies are maybe necessarily so well covered or are you still aggressively trend at dealers as you go forward with kind of 12,000-13,000 be in that optimal number eventually?

[Michael Guthrie:]

Yeah, I don’t see we’ve ever had a 12,000 or 13,000 I think it’s a really good question. And look we still look at it as a geography brand exercise. And there is no doubt Steve in some markets we’re still underpenetrated. I think you bring up a pretty good point and we certainly heard it from dealers and the dealer council, which is it is probably beneficial in some markets that we reduce the number of dealers. And so the dealers that we have are more engaged in the program because they don’t feel as though we’re over populate. We definitely got some feedback from the dealer council and quite honestly similar geographies were over-populated. And so we take that to heart we listen to that. And I think it’s funny the only you can really test something like that is to sort of go through what we went through this year. Now we didn’t obviously intentionally do it. But it does give us some data and some feedback. So you are right in some markets I think the dealers that were remaining on the program clearly picked up some of that volume and they probably feel better about the program overall as a result.

[Steven Dyer:]

That's helpful. And then lastly from me is 2016 obviously you’re not giving guidance, but are we getting to a point where we can leverage OpEx as a percentage of revenue or are we still just based on the market share et cetera we still kind of in full-fledged investment mode there?

[Michael Guthrie:]

Yeah I think it’s somewhere in between. I think it’s definitely a year where we will show operating leverage and I think we need to. But it is also a year where we will continue to invest for growth. But I would suspect that when we rollout 2016 you will definitely see operating leverage in our model that’s certainly a fairly clear direction that we get from our Board of Directors and that we hear from investors around the road. So we’re not going to starve growth and starve investments, but nor are we going to ignore the fact that we really show some operating leverage in the business I think across all functional areas quite honestly even seeing G&A leverage, which is sort of expected and that’s the easy one to do. What we really need to see is obviously marketing leverage, if you saw a little bit of this quarter over last quarter. And then some leverage in the tech and product side because you’ve made some fairly significant investment in great resources in tech and product. And they’re busy on a lot of things, but those things need to get out the door and start to show some revenue growth and that will immediately show that kind of operating leverage that you’re talking about. So yeah, I think you’re going to see some leverage going into ‘16 for sure.

[Steven Dyer:]

Okay, thanks.

[Michael Guthrie:]

Thanks.

[Operator:]

Thank you. The next question is from Kyle Evans of Stephens. Please go ahead.

[Kyle Evans:]

Hi, thanks for taking my questions. Start off with used cars, if I heard you correctly that’s a 24%, is that an all-time high as a percent of units and where do you that goes going forward?

[Michael Guthrie:]

Hey, Kyle. I believe it is tied for all-time high. I think we were 24% two quarters ago. And I can’t give you a point estimate, but I think it definitely goes up without a doubt. I think that is an untapped and somewhat underappreciated business by TrueCar overtime so sometimes for logical reasons, but we like what we see on the used car side over the last few quarters and we’ll continue to make some investments in that area. So ultimately I think while currently it’s high for the record, I think we will certainly see growth in used as a percent of overall unit.

[Kyle Evans:]

And does your creative that’s launching later this quarter and into next year, does it reflect more emphasis on used? I mean I guess I am always surprised that you guys do 24% of your units in used because that’s not the creative messaging to the consumer that I see.

[Michael Guthrie:]

That’s right. And it won’t -- you won’t see that for a while that’s not really what we are rolling out in the near-term, but stay tuned I think there is some things on the product side that you will find interesting and we see the opportunity the truth of the matter is while our creative and most of our marketing is around the new experience it’s not as though we don’t advertise people that are in the market for used cars. Our USAA channel has always skewed more heavily towards used in our overall flow. And so it’s not like we’re just getting into the used business. But you’re right in pointing out that we really have not has bigger focus on it as you think you’ll see more of that overtime. But for right now the things that I talking about in terms of advertising is still focused on the new car experience. And so another messaging that we’re trying to get out.

[Kyle Evans:]

And you mentioned that you had a successful trial that generated $2 million in incentives in the quarter, what was incentive as a percent of transaction if you gave it I missed it.

[Michael Guthrie:]

I didn't give that number the average incentive was $675. So I don’t have the transaction value in front of me, but I can get back to you with that I know we have the data.

[Kyle Evans:]

Okay, fair enough. Lastly, this is not scientific…

[Michael Guthrie:]

Sorry $625 per car I apologize, I thought $625, it was $625 the average incentive was $625 and it was most of the OEM product lines.

[Kyle Evans:]

But you used to give incentive rev as a percent -- roughly as a percent of transaction I feel like it was 7%, 8% in prior quarter. So I was just wondering if that spiked up on the trial.

[Michael Guthrie:]

Let me look and get back to you it’s gone down to about 5%, but this quarter yeah this quarter it was actually just shy of 9%.

[Kyle Evans:]

Okay.

[Michael Guthrie:]

So -- but again it was a Q3 trial and so I would not expect in Q4 to see a similar high 8% which is where we were in Q3.

[Kyle Evans:]

Okay. And then lastly this is not scientific this is just kind of a general scent it seem to us like Auto Trader and Kelly Blueberg were getting a little bit more aggressive about with direct competitive offers can you make some general statements on the competitive landscape? Thanks.

[Michael Guthrie:]

Yeah I don’t really have any, I think we look at the numbers that we produced this quarter in terms of growth and market share, both in terms of our branded business and our affinity business and feel like we competed well, we don’t feel like we were losing share to those guys. So overall I still think that our brand is building the amount of traffic that we had the prospect growth that we had we’re very pleased with we don’t feel like there is anyone making a dent in that. I think the biggest concern that we had coming out of the quarter was just close rate and that somewhat tied to dealer count and also tied to this notion that I mentioned before, we’ve grown prospects so quickly and in some cases become very popular with consumers and with our partners that we were little bit overwhelmed some of the dealers and we got to be able to be smarter about that so they can be efficient and we can be efficient.

[Kyle Evans:]

Okay, thank you.

[Operator:]

Thank you. The next question is from John Blackledge of Cowen. Please go ahead.

[John Blackledge:]

Great, Thanks. So for the non-AutoNation dealer churn whether common reasons for getting off the program Mike and then when you say you are adding back dealers back, are they the dealers that churned off or are they new dealers that haven’t been on the program before? And just have one follow-up after that?

[Michael Guthrie:]

Sure, hey John. So some are dealers coming back and some are new dealers that have not been on the program before we obviously even before AutoNation we have a calling effort that we’re always in the market talking to dealers that are both on and not on the program. And so some of those were dealers that are brand new and others were those were dealers coming back on to the program. I’m sorry the first part of your question?

[John Blackledge:]

Common reasons for getting off the…

[Michael Guthrie:]

Common reasons, all over the place. I mean it’s just situation like that when you get into the autocraft it sort of has a negative effect to the community and to the customer base. And so some of that’s just probably a reaction to that, I mean honestly you’d have to ask the dealers themselves to find out exactly why they left, sometimes they’ll tell us and sometimes they won’t. But I would just argue given what we saw, it seem to be very much connected to what happen in July for some of them and again some of them have come right back on for a whole variety of reasons, some missed the volume and others just want to be back on the program. So anyway I don’t think there’s anything that we could draw that was absolute consistent across the other 300.

[John Blackledge:]

Okay, understood. And then just lastly as we think about franchise dealer count for ‘16 and even longer term how should we even model it out, should we model out flat, maybe up a little bit any sense there? Thank you.

[Michael Guthrie:]

Yeah we’re right now we’re modeling it for flat for Q4 even though we’ve already started to add back dealers. I think as it relates to ‘16 I’m going to give you guys ‘16 guidance here after the next quarter. And so we’re very much in the middle of modeling all of this out and looking at the impact. I would say what I’m most pleased about is that the algorithms that we’ve had in place around the dealers in moving prospects around we clearly picked up the units and that was good, we had a good unit quarter even on a declining dealer base. But having said that, we still are not done in terms of coverage and I talked to the very dealer sales team more frequently than ever before and we’re going to think hard about this before giving any guidance about how the dealer network grows again. And so in the next 90 days obviously you’ll see what we have for ‘16 and we can talk more about how you should think about it. But again the volume per dealer this quarter was good. Now next quarter because you are going to have a sequential decline expect that number to go back down again and I think we had the same discussion last year about Q3 to Q4 because you’re going to have some dealer growth and you are clearly going to have a sequential decline in units because of the seasonality. So anyway.

[John Blackledge:]

Okay, thank you.

[Michael Guthrie:]

Thanks, John.

[Operator:]

Thank you. We have no further questions at this time, I would like to turn the conference back to management for any closing comments.

[Michael Guthrie:]

No just thanks everybody, good to get back in front of everybody and talk about Q3 and we’ll be out at a few conferences and see a few of you over the next week or so. And if there are any other questions or follow-up you know Alison and I are around we’re happy to take calls and again we would be in New York next week in San Francisco so I think we’ll catch up with a bunch of you. So thanks a lot.

[Operator:]

Thank you. Ladies and gentlemen this does conclude today’s teleconference. You may disconnect your lines at this time. And thank you for your participation.