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TrueCar, Inc. (NASDAQ:TRUE)

Q2 2014 Earnings Conference Call

August 7, 2014 4:30 PM ET


Alison Sternberg – Vice President-Investor Relations and Administration

Scott Painter – Founder and Chief Executive Officer

John Krafcik – President

Michael Guthrie – Chief Financial Officer


Douglas T. Anmuth – JPMorgan Securities LLC

John R Blackledge – Cowen & Co. LLC

Debra Schwartz – Goldman Sachs

Mark Mahaney – RBC Capital Markets

Ronald V. Josey – JMP Securities LLC


Greetings, and welcome to the TrueCar Second Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Alison Sternberg, VP, Investor Relations. Thank you. Ms. Sternberg, you may begin.

Alison Sternberg

Thank you, operator, Hello and welcome to TrueCar’s second quarter earnings conference call. Joining with me today are Scott Painter, TrueCar’s Chief Executive Officer; Michael Guthrie our Chief Financial Officer; and John Krafcik, President.

Before we start this call, as a reminder this call includes statements which may be considered forward-looking including statements regarding our growth and that of our dealer network, growing our brand, adoption of our mobile solution, marketing and advertising expenditures going forward, amount of restricted cash on our balance sheet, the future results of our operation including adjusted EBITDA, gross margin and revenue as well as comments regarding business strategies, future product overall automotive sales and our market share.

We caution you to consider the risks associated with forward-looking statements. Our expectations and believes regarding these matters may not materialize. Actual results in future periods are subject to risks and uncertainties including those detailed in the Risk Factors section of the company’s registration statement on Form S-1 filed with the Securities and Exchange Commission and quarterly report on Form 10-Q to be filed with the SEC. Such risks could cause actual results to differ materially from those projected.

All forward-looking statements made today are based on current information currently available to us and we assume no obligation to update these forward-looking statements which speak only as of their respective dates. In addition, we will also discuss GAAP and certain non-GAAP financial measures. Reconciliations of our non-GAAP measures to the most comparable GAAP measures are set forth in the Investor Relations section of our website at 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 Scott.

Scott Painter

Good afternoon and welcome to TrueCar’s first quarterly earnings call as a publicly traded company. I’m going to run through a few financial and operating highlights, share some exciting secular trends that will benefit our business over the long-term and then turn it over to

John Krafcik, TrueCar’s President to talk about some industry trend and the strength of our relationships with our dealer partners. Then Mike Guthrie will cover the financial results and operating metrics in detail.

Simply put Q2 was an outstanding quarter for TrueCar and we are reporting all-time record financial and operating results across virtually every metric in the business for the eighth consecutive quarter. While we’re growing we are scaling at a multiple of the industry, our category and our peers.

TrueCar’s second quarter revenue was $50.5 million, up 62% over Q2 of 2013. Revenue growth was predominantly driven by strong in units. That’s the number of vehicles that our users purchased from our national network of TrueCar Certified Dealers.

Total unit sales were 150,000 for the quarter, an increase of 55% over the same period last year. More importantly, the number of units that came directly through our TrueCar branded channel was just over 56,000 or 38% of total unit sales. That represents 168% year-over-year growth for our branded channel and marked the first time that originate units were our largest source of sales.

As John will discuss in a moment, the fundamentals of the auto industry in the U.S. remain very strong with size of 60 million units and that means that consumers are going to dealerships and they’re buying new cars. And in the second quarter while the industry grew units by 7% we grew overall units by 55% and the units related to just our business grew by 168%. Clearly we are increasing our relevance within the industry.

We’ve been able to produce such outsized growth because TrueCar is quickly becoming an established and recognized mark. In the second we grew traffic to our branded site by 107%. Over the same timeframe according to the traffic on the four largest automotive third-party regeneration sites collectively are down 3.4%.

The heart of the problem TrueCar is solving is that consumers find the car buying experience to be both frustrating and stressful. A significant trust gap exists as evidenced by the fact that consumers believe that dealers make as much as 20% profit on the sale of a new car when in reality then make somewhere around 2% to 3%. And many new cars are sold at an actual loss. TrueCar exists to close that trust gap and remove friction from the process to enable more sales for dealers and more satisfied consumers.

TrueCar is the first and only company to provide consumers with accessible price confidence via hyper accurate visualizations about what others pay for a particular new car and transparent price discovered in the form of competitive, negotiation-free, upfront pricing information from TrueCar Certified Dealers. It is this commutation that enables TrueCar as an objective third-party to reintroduce trust into that discussion. And that’s why our brand is resonating. We’re reintroducing trust and transparency into a discussion that is filled with fear and friction.

As a result, TrueCar is able to acquire in-market car buyers more efficiently than any other channel. And unlike third-party lead gen providers we are economically accountable to our dealer partners. We are only one of the very few Internet platforms in any market that can track a customer all the way through to a sale and then charge only when that sale occurs. As a result, with TrueCar dealers get a completely accountable marketing channel that delivers actual sales rather than just leads.

Thus we turn a variable marketing expense for the dealer into a cost of goods sold and we charge the dealers $2.99 for the sale of a new car versus the $600 plus they spend to acquire customers through traditional unaccountable marketing channels.

We’re pleased that various large dealer groups are very publicly moving away from commodity third-party lead generation. It’s a good business decision by dealers and it’s good for TrueCar because that’s not what we do. Our performance over the past two years indicate emphatically that dealers are reallocating their $10 billion in annual marketing budget towards TrueCar’s accountable marketing solutions and out of third-party lead gen. This is a secular trend that we believe will benefit TrueCar Certified Dealers for many years to come.

At the end of Q2 there were 7,682 franchise dealers on the TrueCar network, comprising nearly one out of every four franchise dealers in the U.S. More importantly, transaction revenue per franchise dealer grew to over $6,000 this quarter, a year-over-year increase of 36%. TrueCar introductions now account for over 14% of the unit sales at the average TrueCar Certified Dealer.

Across the entire new car channel, TrueCar introductions transacting TrueCar Certified Dealers accounted for 3.4% of all new cars sold at retail in the U.S. and while that’s an impressive number, and an increase of 43% from our market share last year, it is clear that we’re in the early innings. As we continue to deliver unique value to our dealer partners and the car buying public, we have a lot of growth in front of us.

So how are we going to continue to add value to the ecosystem in order to deliver that growth? The answer is by growing our brand so that more consumers and dealers know about the benefits of TrueCar and by investing in products centered around mobile devices that reduce friction in the car buying and car ownership experiences. Over the past two years, we have seen dramatic growth of the business directly related to our TrueCar brand.

Back in Q1 of 2013, just five quarters ago, we invested $2.2 million on television and digital to acquire customers and build the brand. That quarter we generated about 6,000 incremental sales on In the quarter that we just completed we scaled that investment to $14.7 million across TV, digital and radio and reproduced over 56,000 unit sales. Based on Google Trends data, TrueCar has enjoyed a 300% jump in unaided brand awareness over the last 18 months or the brand awareness of the vehicle shopping category has remained unchanged.

On the product side, we have seen rapid adoption of mobile usage of our service. We believe that car buying is a unique mobile experience and that taking TrueCar with ease of the dealer improves the experience and drives higher close rates between consumers and dealers with greater customer satisfaction.

Approximately 40% of all TrueCar visitors engage our service on mobile devices. We intend to enable the migration of shop online buy offline to an experience where consumers can manage transactions entirely on their mobile devices, including [wireless] (ph) the dealership. As we report mobile adoption trends going forward we will also preview product and experience enhancements that are fundamentally enabled because of this transition.

Ultimately, we believe that the TrueCar experience will be transactional and therefore by definition mobile. As many of you know, in addition to, we manage the car buying programs for some of the world’s leading affinity brands. Groups such USAA, AAA, Consumer Reports, AARP and the Pentagon Federal Credit Union, all have car buying programs that are powered by TrueCar either on a white label or a co-branded basis. These partnerships are unique to TrueCar and the second quarter was marked by a series of positive developments.

We extended our agreement to power the car buying service for USAA through 2020. USAA is our largest partner and we have a fantastic seven-year relationship with the organization. We look forward to the next stage of that partnership. AARP, a partner with 35 million members that launched with us in the fourth quarter of 2013, is already one of our top 10 volume partners. We kicked off the Auto Buying Program for Farmers Insurance with a marketing campaign targeting 3 million policyholders, 50,000 agents and 24,000 employees. In short, the partner channel remains a key differentiator for TrueCar and the channel’s performance in Q2 was rock solid.

Before I turn it over to John, I want to reiterate a few points. First, the financial and operating fundamentals of our business are as strong as they have ever been. Second, our business model is unique and difficult to replicate. Third, our brand based on truth and transparency is quickly becoming a standard reference in the consumer Lexicon. Fourth, our product is constantly improving and becoming increasingly mobile. And fifth, and most importantly, TrueCar is working for dealers.

As the Founder and CEO of TrueCar, I could not be more pleased about the momentum in the business, the opportunity in front of us and the team that we’ve assembled. As a result of what we’re seeing, I’m optimistic about the back half of 2014 and the guidance that Mike provide will reflect that.

Now, I’d like to turn it over to John.

John Krafcik

Thanks, Scott and hello everyone. Like Scott, I am thrilled with the way that we are operating and I’m even more excited about our potential. I’d like to take a few minutes to provide you with an update on the state of our industry and then talk about the health of our dealer network, all from the perspective of my first 100 days on the TrueCar’s team.

Well, let’s start with the industry. As Scott alluded to, we’ve seen strong new vehicle sales this year and increased our full year forecast to 16.35 million units late last month, up from 16.1 million units. Average industry transaction prices are now at a five-year high, reflecting strong consumer demand in most key market segments. Truck, sport-utility and crossover sales have been especially robust. Growth in these high margin segments has helped fuel strong OEM possibility in the first half of the year.

We’re seeing similar strength versus historical standards on the used vehicle side of the business, with our latest full year forecast calling the used market at 38.6 million units. Significantly, our data indicates June 2014 marked a recent low point in used vehicle supply. The hangover from low new car sales in 2009, this shortage of used vehicles has been a persistent challenge to dealer profitability as used vehicle sales represent significantly higher per unit margins than new vehicles.

We’ll see continuing improvements in used vehicle supply over the next several years and while reductions in both used vehicle wholesale and retail pricing will come with that this should be a per unit margin neutral transition period for dealers that will drive opportunity for increased – over our dealer profitability through those higher volumes.

So the state of the industry is strong. Organic consumer demand is high. Many are stepping up and buying more cars. Manufacturers are showing appropriate levels of incentive spending discipline and the great used car shortage of the past several years is finally easing. It’s a great time for us at TrueCar to really scale our business.

As TrueCar continues to redefine a process of how cars are bought and sold we are literally at the beginning of helping both dealers and OEMs, and improve the efficiency of their massive marketing and incentive budgets. In 2013, dealers and the OEMs spend over $26 billion on marketing expenditures, where OEM spend another $40 billion on incentives. We’re incredible motivated to work with our partners to improve the efficiency of those expenditures. And we’re making progress, but it’s still newly orient again.

Let me give you a few samples starting with strength of the TrueCar’s Certified Dealer Network. The headline is that dealers continue to approach TrueCar. As Scott mentioned, we have 7,682 franchise dealers in place at the end of Q2. We added approximately 1,000 dealers in the first half of 2014, which roughly averages out operating 40 new dealers per week. At present we work with nearly 25% of our new car franchise dealers, representing all major brands.

We also have 713 non-franchise used cars dealers in our network, bringing the total number of TrueCar Certified Dealers to 8,395 as of the end of the second quarter. The TrueCar’s Certified Dealer network is nationwide in its reach. We have dealers in every major metropolitan area and 75% of American car buyers are within 30 miles of a TrueCar’s Certified Dealer.

Even while we are growing network coverage so expansively we are also focused on delivering at the LIFO negotiation-free TrueCar customer experience. This is the very foundation of our business model and we’re making progress. Our net promoter score of 68% is on par with Apple iPhone at 70% and at 69%. Clearly, TrueCar users are satisfied and working with our Certified Dealer Network. We’ll keep it that way.

So while we’ve grown our network in terms of reach, geographic coverage and customer experience we have also grown in relevance to our dealers. Our average revenue per dealer grew by 36% this quarter to over $6,000. That means that TrueCar now accounts for over 14% or 107% of the new cars sold by our dealer partners. And one of the key trends driving our growth in relevance is the new buy dealers away from traditional, lead gen-oriented marketing and toward our performance business model.

Our model really resonates with the partners I have spoken with, because they only pay us, if they are selling cars. We took out platforms and had a meaningful impact on even a large dealership very quickly. I’ll share an anecdote with you from early in my tenure here at TrueCar to highlight that point. During my first week at TrueCar, I was traveling with a few members of our management team in New Jersey, near Brad Benson’s Hyundai dealership in South Brunswick.

I knew Brad and his team from my days we’re in Hyundai. His store is one of the top selling Hyundai dealerships in the country. We stopped into to say hello and I was frankly surprised to find out that they were not in the TrueCar Certified Dealer Network. After we spent time with Brad and his partner Dave Cantin, explaining the benefits of the TureCar model, they told us they did TrueCar try. That’s why we’re three months later and they are one of our top performing new dealers, selling over 40 cars last month using the platform, up and zero just three months before.

As more and more dealers and consumers are introduced to the TrueCar business model, we’re seeing more and more similar success stories. So where do we see our share of the 31,500 U.S. franchise dealers going. Over the next four to five years we believe we can grow the TrueCar certified dealer network to more than one- third of all dealers in the U.S. interestingly we can grow our relevance at those dealers to one-third of their new car sales volume over that same period. TrueCar is quickly becoming the single largest and most reliable source of new car customers for the nation’s car dealers. And we believe that TrueCar can represent greater than 10% of U.S. sales within the next five year to five years.

And with that, I’ll hand it over to Mike to walk through our financial performance in detail.

Michael Guthrie

Thanks, John. We’re very pleased with the financial performance in the second quarter. All of our key performances indicators grew significantly over this time last year. The big headline is that transaction revenue, which is consistently paid primarily by TrueCar Certified Dealers, was $46.1 million in the quarter. This represents 68% growth over the second quarter of fiscal 2013 and is driven by 55% growth in units and growth in monetization. Total revenue was $50.5 million or annual growth of 62%.

I’m going to take you to the key metrics and tell you how we drove that growth and then we’ll go through the P&L in detail. Our average monthly unique visitors totaled 4.2 million in the quarter and represented 72% growth over Q2 of last year. UV growth was driven by increased investment in acquisitions across television, radio and digital. Within the quarter we tested new marketing modalities and also launched and tested new creative campaigns.

Further, we continued to refine our acquisition spend strategy. At the bottom of the funnel cost to our action business model, we focus more on quality of traffic than sheer quantity. That is evident by focusing on our revenue per unit visitor. While led gen and impression based monetization models produced revenue at very low rates for unique typically between $0.30 to $0.40 per month the value of UV to us is significantly higher. In the second quarter, for example, although we grew traffic aggressively our monetization per UV remained at $3.67.

Total unit this quarter were 149,527 and represented 55% growth over Q2 of last year. Unit growth was driven by increased UV traffic as well as high overall conversion and close rates. The strength in our conversion and close rates was primarily the result of product optimization, growth in brand awareness, more intelligent media buying and growth in our dealer network.

Monetization or transaction revenue per unit was $308, right in line with our expectations of $305 to $310. At this point, movement in this number will generate greater results of mix shift between new cars that we monetize at $299 million and used cars that we monetize at $399.

We continue to make great progress both in terms of adding to our franchise dealer network and increasing our level of penetration within those dealers. As of the end of the second quarter we had 7,682 TrueCar Certified Dealers across the U.S. representing 24.4% of our new car franchisees. We believe that our increasing media spend in addition to driving more consumers to TrueCar was instrumental in driving growth in the TrueCar Certified Dealer Network. At the current rate of growth we should comfortably reach our long-term target of about 11,000 dealers.

In Q2 transaction revenue per franchise dealer jumped 36% to $6,195. We view the continued growth of revenue per dealer to be a key indicator of deeper adoption of TrueCar within our dealer partners.

Now let’s turn to the income statement. As I already mentioned, transaction revenue grew 68% to $46.1 million. Total revenue, which consists of transaction revenue and data and other revenue, was $50.5 million, an increase of 62% over the same quarter last year. Data and other revenue was $4.4 million, consisting primarily of residual value, consulting services and data sales from our ALG subsidiary. All of the following financial metrics are on a non-GAAP basis unless I state otherwise.

Gross profit for the quarter was $46.5 million and gross margin was 92%. Technology and development costs were $7.4 million or 14.6% of revenue, compared to $5.2 million or 16.6% of revenue last year. During the quarter we prioritized investments in platform improvement, our mobile experience and new product initiatives.

Given our robust product pipeline, we will continue to invest aggressively in technology and development over the next few quarters, but believe that these costs a percent of sales should continue to decline.

Sales and marketing expenses were $28.7 million or 56.9% of revenue in Q2 of 2014, compared to $14.2 million or 45.4% of revenue in Q2 of last year. The increase in spend was primarily related to customer acquisition and branding efforts to support TrueCar and

We also saw increased needs to our affinity partners related to the growth in units in those programs.

Given the seasonal strength of the second quarter we decided to text a number of new creative messages and that resulted in some valuable learning. Some of our new creative is exhibiting lower cost per visitor than we have ever seen. We expect to see the benefits of those lower cost per visitor in the second half of the year. And we will discuss and I give guidance, I anticipate sales and marketing costs to come down as a percent of revenue by 200 basis points to 300 basis points in the third quarter and most of that will go straight to EBITDA.

General and administrative expenses were $8.9 million or 17.6% of revenue this past quarter, compared to $5.6 million or 18% of revenue in Q2 of last year. We expect to see reductions in legal compliance and other outsource services in the ensuing quarters and as revenue rises, we expect to see reductions in G&A as a percentage of revenue. Adjusted EBITDA for the quarter was $1.5 million. We have three non-cash expenses that flow through our P&L.

Depreciation and amortization expenses were $3 million in the second quarter of this year or roughly the same as $2.9 million in Q2 of last year. Stock-based compensation was $7.4 million in Q2, up from $2 million in the same quarter last year. The increase in stock-comp reflected pre-IPO advance of option and restricted shares as well as increases in the value of our equity post IPO.

Warrant expense was $2.3 million for the quarter, up from $0.9 million last year. The increase was primarily related to warrants earned by USAA as a result of increased unit sales delivered by the USAA car bank program and the increase in the value of our equity post-IPO.

Quickly turning to our balance sheet, we ended the quarter with $112 million in cash and cash equivalents and no debt. We anticipate that $2 million currently have this restricted cash will be released during the third quarter. Our liquidity is excellent and the balance sheet is strong.

Now I’d like to share our outlook regarding the upcoming quarter and the remainder of the year. We think the momentum we have seen over the past few quarters will continue for the balance of 2014. We expect revenues in the third quarter to be in the range of $51 million to $54 million. And based on seasonal strength, the efficiency of our marketing spend and other key factors, we expect adjusted EBITDA to be in the range of $2 million to $3 million or approximately 4% to 5.5% of revenue.

For the full year 2014, we are expecting revenue of $197 million to $202 million, which represents approximately 50% growth over 2013. And we expect adjusted EBITDA to be in the range of $6 million to $8 million. In the third and fourth quarters, we plan to continue to invest meaningfully in long-term value creation through doubling our brand and putting our platform and mobile experience and investing new product development.

Now I’ll turn the call over to Scott for closing remarks.

Scott Painter

Thanks Mike. I want to take this opportunity to thank the entire TrueCar team for their significant efforts to date. We had a record quarter, which would not have been possible without the remarkable efforts of every employee. I’m thrilled that TrueCar is now a public company. We take the task seriously and I know I speak for the entire team when I say that we’re looking forward to this chapter of our corporate life.

We are excited about the opportunities in front of us and we feel as though we’re on the right stage. Our opportunity is vast and we continue on our mission to solve more and more of the car buying and car ownership problem. We’re happy that we’ve crossed the milestone of becoming a publicly traded credit company and are pleased with our performance in the first quarter out of the gate.

We’ll now open up the call to questions.

Question-and-Answer Session


Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Our first question comes from Douglas Anmuth with JPMorgan. Please proceed.

Douglas T. Anmuth – JPMorgan Securities LLC

Great. Thanks for taking the question. A few things I wanted there. If you look at NSE, it looks like it’s probably at the highest level in a few quarters. Just wanted to understand better there dynamics and the drivers taking care a little bit given that the TrueCar brand side was stronger and to sell more – mix shift in that direction. And then, just secondly, sales and marketing per unit up both year-over-year and sequentially. Can you just talk to us more about how you’re thinking about the efficacy of that spend and the midpoint of ad spend by (indiscernible). Thanks.

Scott Painter

Hey, Doug, this is Scott. Thanks for the question. I’m going to answer the first part and then I’m going to have Mike talk a little bit about the sales and marketing expense and how that sort of transitioned into the second quarter and things that we learned there.

As it relates to the net funnel efficiency in the business there are a number of key performance indicators that we measure as the customers move through our experience and really is about analyzing from the very top of our funnel the source ID and how much it cost us to acquire that customer, how that particular source ID and that customer set expectations and relationship to the brand or the affinity group that they come through, then relates to their homepage experience, the conversion of the unique visitor into a registered user where they are actually registered with TrueCar’s upfront negotiation-free price from the TrueCar Certified Dealer. And then there’s of course the conversion from a registered user to a prospect, somebody who has actually walked in that guaranteed savings and then ultimately the close rate, which is that prospects going to the dealership.

And while that seems like a lot of different sort of performance indicators to measure, it provides us with a tremendous amount of throttle in the business to really optimize overall in that funnel efficiency. And depending on the source ID we do see very different behavior. And so, really the work that goes under the coverage here at TrueCar is to make sure that we are constantly optimizing site flow, site functionality, value proposition and pricing as it relates to the particular audience that we’re talking to if we get that optimal outcome.

I think the team is doing a remarkable job. We are seeing higher net tunnel efficiency than we’ve ever seen in the business. And probably most notably, we are seeing the most dramatic shifts in the net tunnel efficiency around the originations of our TrueCar branded customers, which I think has a lot to do with the present in the marketplace and the fact that TrueCar in fact becoming a recognized trust mark through the 1Q introduction of objective information about what others paid, followed by upfront negotiation-free pricing.

And I think that that’s just something that as we proceed and go through quarter-after-quarter we’ll see that momentum because there is a very good virtual cycle that occurs that we notice in the business, which is when more customers come into the dealership, the dealers tend to be much more engaged. They tend to be much more receptive to those customer. That ends up in more customers buying cars. The satisfaction goes up. Dealer pricings become more competitive. All of these things put the flywheel motion in effect, which I think is very positive for the business and we are starting to see the effect of that. So net funnel efficiency is at an all-time high, but still we think there’s tremendous opportunity and we just got so much throttle. And each and every one of those key performance indicators has a lot of room to grow.

Michael Guthrie

Hey, Doug, it’s Mike. I think as it relates to sales and marketing expenses, you are correct. We did have purely on a per unit basis. We did spend a little bit more in the second quarter, but as I mentioned in the remarks we did a lot of testing on creative. We did a lot of testing on different modalities. We moved just in experiments in terms of where we buy and how we buy during different times of the month and of the week and we did a lot of earning in the second quarter. We had fantastic results. We’re starting to see the benefit of all that testing and right now we’re starting to see a certain spot and certain timing response rate and cost per views that are better than we’ve ever seen before. So that’s why it’s in our guidance that we expect the sales and marketing expenses as a percent of sales to come down 200 to 300 basis points in the third quarter.

Douglas T. Anmuth – JPMorgan Securities LLC

Okay, great. Thank you, guys.


Thank you. Our next question comes from John Blackledge with Cowen and Company. Please proceed.

John R Blackledge – Cowen & Co. LLC

Great, thanks. I just have two questions. In terms of upcoming service offerings, could you discuss the progress made on TRUE trade and when that service maybe widely available? And then on the NFE for the TRUE brand, let’s say, is it also a function of you guys doing a better job, identifying end market consumers and also a function of higher dealer penetration? Thank you.

Scott Painter

Sure. John, thanks. This is Scott. I tell or take the second question first. One of things that we know is that greater deal of coverage is going to result in a more likely sale. I think that there are a number of things that can affect NFE that all come from really optimizing each one of these KPIs. The things that manage each of those things are all very different. So the team of focus for example that’s managing the creative message is very different than the team that’s managing the prospects – our close rates at the dealership level and dealership training. And so, I think all of these things are areas where we tend to find another gear from time to time.

As it relates to media in particular I think that the thing that’s interesting about our business is that we buy very scientifically. We look at the media by analytically and we have many different creative brandings and currently in the market on different stations and different shows and different day parts and different times of the week because they work. And so, we will have at any given time, perhaps it doesn’t – different television messages that are out there in the marketplace and they’re running on very particular channels because that NFE is getting locked in. And so as that system gets smarter and smarter, I think we can anticipate that the stability of the NFE is really growing over time and we’re just sort of building and adding on to that momentum.

As it relates to first question about ancillary opportunity, I think first of all we do believe that consumer is prompted to the overall buying process one of three ways. They either want price confidence and price discovery on the cause that they’re thinking about buying. They want to know what they’re going to pay. They want to know how they are going to pay for it. So clearly there is about a third of the market that just really need the vehicle, but the category per se that they don’t know how much they can afford. And so starting their car or their vehicle search and shopping them and ultimately buying process with a credit application, we feel is a point of entry for them.

And then there is a whole another section of the market that begins their dialogue with a new car purchase or land a new car purchase with what is the existing car was. So to your point, we believe that TRUE trade and some of these other ancillary or adjacent products that we’re in development on are all incredibly important and exciting.

We gave pretty clear guidance while we were on the road initially that there was not going to be an expectation of real revenue in 2014 and 2015. We’re going to continue that and reiterate that. We’re going to invest heavily in those areas. We are in data on many different sub-components of all of that and we are seeing great traction. It’s a much deeper dive into sort of how do we sequence the development of a product like TRUE trade that begins within like Sell My Car and taking a very robust position report. That product, for example, is currently in the App Store and there is actual water running through those pipes.

We’re not calling it out and reporting on it separately. And finally just on that note, I would say what we would want to tell to you is we’re a 3.4% market share company. And we have a very unique and defensible business model that has not only been invested in heavily from a technology point of view, but has a committed dealer network that’s willing to play ball – a different set of rules. But we’ve also navigated the very complex regulatory and compliance environment where we’re really today the only company that can actually track and account for customers and then build dealers, based on performance. And we think that that is really what separates us from everybody in the space.

And the idea that today we’re a 3.4% market share company with about 25 % of dealers on the program, it means grow the number of dealers on the program, grow the relevance of the dealership. We’ve seen dramatic growth in that area. Just over the last couple of years that’s is nearly doubled where now today it’s nearly 14% of the average dealer in the program and all of their originations coming through TrueCar.

I think the message you should hear from us is that for the foreseeable future we’re going to focus heavily on scaling and optimizing the core business. There’s no reason that in the near-term this isn’t a 10% market share company with a core product and that doesn’t mean we’re not excited about the adjacencies, the revenue we are not going to invest, but it does mean that we are going to be focused on that core business.

John R Blackledge – Cowen & Co. LLC

Thank you.


Thank you. Our next question comes from Deb Schwartz with Goldman Sachs. Please proceed.

Debra Schwartz – Goldman Sachs

Great, thank you. Two questions. First, I know Memorial Day tends to be a big car buying period for you. Just curious if you saw anything different this Memorial Day versus last year, particularly around your marketing campaign. And then second, Mike, I just wonder if you could comment on monetization? Came down a little bit sequentially. Were the mix related or graph related or is there something else that we should sort of think about as it relates to monetization as to that going forward? Thanks.

Michael Guthrie

Well, thanks, Deb. Memorial Day was fantastic. We did aggressive advertising. We looked very clear about getting out in front of the holiday and we thought strategically and had really great results over more of the holiday. So we are pleased with that. A lot of earnings went on there in our media strategy. We continue that in the first week of July and we’ll continue to do that around the active car buying season across the calendar.

In terms of monetization, and nothing to read into it. Certainly it was not write off. Mix shift was really the driver at this point. We are generally still very comfortable between $305 and $310 and so there’s really nothing to read into the $308 versus $310. I think it will tend towards $310 for the rest of the year, but we didn’t have any excessive write ups or anything like that. In fact write ups came down. So just modest percentage mix shifts between new and you.

Debra Schwartz – Goldman Sachs

Great. Thank you.

Michael Guthrie



(Operator Instructions) Our next question comes from Mark Mahaney with RBC. Please proceed.

Mark Mahaney – RBC Capital Markets

Okay, thanks. Two things. One, the share of vehicles, the sales that come through two car branded channels, is that something that you want to encourage going forward? Are you neutral towards different channels? It is better worth than that. But is that something you want to increase going forward? Should we expect that to rise? And then secondly, can you talk about any new learnings you got from your ability to sign up dealers to build up the franchise count? You talked about your marketing learnings, but could you just switch over and talk about the dealer learnings? Thank you.

Scott Painter

Great, Mark this is Scott. I will take your first question and the I’m going to have John Krafcik who has really been diving into the dealer in industry side of the business whole heartedly to take on the dealer question.

As it relates to our view of share with TC, I think, that the way we see it is, we have more control over the brand that we can invest in directly than some of the different affinity brands. I do think it’s a core of what makes TrueCar valuable, is our ability to acquire customers at a dramatically lower expense than the industry. So today, to give you a sense, we’re acquiring customers using radio, television and digital acquisition, predominantly for less than $2 per customer. Because of our unique business model and we’re not a lead generation business which traditionally, no matter what category you’re looking at, tends to monetize in the $0.20, $0.30, $0.40 range per unit visitor. We monetize as close to $3.67 per unit visitor.

So it’s just a very different sort of business. I think that, you could argue in either way, do you want to grow the TrueCar business, or do you want to grow the affinity business? And then in some cases we have even been criticized for the size of, for example, our USAA relationship.

We know, for example, that USAA has almost 150,000 plus monthly customers, just by their insurance rolls alone. We’re seeing just under 20,000 of our sales per month coming through USAA. We believe not only there’s a dramatic growth there, but the teams were managing that relationship or intensify to try the outpace TrueCar. And so internally, while we don’t want to have too much customer concentrations, at the same time, we’re trying to grow our business in every way that we can. So what I would tell is that we certainly look at the TrueCar brand as something that is growing in terms of its ability to acquire customers for months and months overtime and that has a direct correlation to the trust mark status that it has with consumers.

Clearly a brand like AAA, or Consumer Reports, or American Express, or USAA, or any of these great trust marks are really helpful in getting customers to feel comfortable about their car purchase experience and the price that they are given. And that goodwill is what has transferred the dealership and creates this opportunity to really reintroduce trust. I think that we’re starting to see that happen with TrueCar and it is obviously a really positive trend for us. We believe that what it means over the long term, is that our cost of customer acquisition at TrueCar will hit an inflection point, where we’re no longer looking at it as a direct response number, which we manage it through today. So that we have positive ROI. But yet it will sort of hit that brand zone where we see a much lower cost customer acquisition cost.

And so I think we’re getting close to that, where we certainly assume evidence of that, but we’ve got incredible, I think, confidence that continuing to invest and scale in both where and how much we spend on the TrueCar brand. We’ll continue to bring that positive ROI customers and we certainly want to find that efficient trend we’re knowing near than yet.

John Krafcik

Mark it’s John Krafcik. On the growth of the growth of the dealer network, we’ve been in that state of a real sweet spot right now in terms of how the network is growing on. It’s really a couple of things we look at of course, we report in fact a lot about quantity and we’ve had great success with the 1,000 new dealers coming on just in the last six months, or so. What’s really encouraging to see there is the year-over-year interest in terms of inbound increase from new dealers who are considering us on comparing this drive, for example, the (indiscernible) like 60%.

So there’s a strong segment strong indication that a lot more dealers want to come on board. And I think that’s a function of some of things you’ve heard from us today. The strength of the TrueCar trust market is growing and I think dealers are feeling that facts. We’re bringing a lot of great customers into their showrooms, then it’s working from there. We’ve even had a couple of instances where dealers have reached out to us and asked for some in showroom TrueCar branding owners. And I think that is a real signal of the strength of the brand that we’re growing. So that’s working on.

One other thing I want to talk about is, although we’d increased the size of the new car franchise dealer by 24%, we’re also making headway in used car side with non-franchise dealers. And that’s been a focus for us, over the last six months or so, I’d say. Our non-franchise dealer account is about 600% over the last year or so. And that was our sales force, if you went on a monetization basis.

So lots of strengths both in new car and old car in terms dealer network. We see a term to find assumption like 11,000 we’ve talked a lot about that. We have about 32,000 new car franchise dealers in the U.S. So we stirred up some run rate together as we build out the network. One more statistic to keep in mind, we’ve got about right 75% of new car buyers that are going on 30 miles of the TrueCar dealer, was going to – we’re going to work to fill in those coverage, of course, we have a few coverage both here and there make up our target level.

Mark Mahaney – RBC Capital Markets

Thank you John, thank you Scott.


Thank you. Our next question comes from Ron Josey with JMP Securities. Please proceed.

Ronald V. Josey – JMP Securities LLC

Thanks for taking the question and great first quarter here. So a few, if possible, one on just dealer sales, it think John you talked about the share of unit sales of average dealers around 14% with a potentially reaching 33%. I wonder if you can remind us sort of how this has evolved over the past few years, and importantly may be breakout or compare how dealers on the network for the past two years are sort of seeing their share relative to say newer dealers. And then the next question I think, may be you eluded to it earlier, Mike just talking about brand awareness was it up around 300%. What level on aided brand awareness do you think you can feel comfortable on and may be like pull back that stand. Thank you.

John Krafcik

Well so Ron this is John. Just on the first part of your question. Again I think the key point I to make is we are getting a lot of inbound calls from potential dealers. So we don’t spend a whole lot of time, we are outbound focused there already in target markets and target brands in certain markets that we are going after. But for the most part we’re in this happy sweet spot of determining the best dealers to add to our network. So that is really good.

And in terms of relevance, you heard the $6,185 level of sales per dealer for us last quarter. That’s up substantially from our historical averages. In fact, if you look at where we were just same quarter last year, we were $4,551. In terms of transaction revenue for franchise dealers and going back to 2012 Q3 we were at bid for – I would say we bid for $3,700. So we’ve been able to grow that significantly. We think there’s quite a bit more upside as we move sales per dealer from the level of about 14% which we have now. And of course, closer to 20% and above.

Michael Guthrie

Ron Mike on according to foreign stand brand alone has, while we have three years for sharing brand awareness since we really started reinvesting in our brand campaign. Push through all that at an incredible low unaided brand awareness overall. So we are doing a lot of shares in the category, but we’re still in the single-digit range. And so there is an awful lot of wastage there to make sure that TrueCar is top of mind with consumers. Then it is we have really fantastic results with consumers going to our funnel and converting into sales for our dealer other partners. But second quarter point we are very much about getting your awareness out and allowing customer to understand what we do and what that’s about.

So we send you a car and takes a very sales delivery the chance of going our cars for sale even while we’re spending and inventing in the category. And so you’re going to see that starting next quarter. But I don’t think we are at the point where we will say there’s sort of constant leverage on sales and marketing as a percentage of sales. We still think that the brand awareness is very low and it’s cast really a point at 3.4% market share that’s a great number. But that is even often wider as there’s room to grow.

Ronald V. Josey – JMP Securities LLC

Great, thanks guys.


There are no further questions at this time. This does conclude today’s teleconference. You may disconnect your line and thank you for your participation.

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