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TrueCar (TRUE) Q2 2018 Earnings Conference Call Transcript

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TrueCar (NASDAQ: TRUE)
Q2 2018 Earnings Conference Call
Aug. 9, 2018 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the TrueCar second-quarter 2018 earnings conference call. [Operator instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Alison Sternberg. Thank you.

You may begin.

Alison Sternberg -- Investor Relations

Thank you, operator. Hello, and welcome to TrueCar's second-quarter 2018 earnings conference call. Joining me today are Chip Perry, president and chief executive officer; and John Pierantoni, interim chief financial officer. As a reminder, we will be making forward-looking statements on this call, including, but not limited to, statements regarding our guidance or outlook for the third quarter and full-year 2018, including revenue growth in the fourth quarter of 2018, for 2019 and in the longer term; management's beliefs and expectations as to future strategies, planned product offerings and marketing campaigns; our ability to bring the USAA channel to double-digit unit growth in the second half of 2018; our ability to expand our penetration of our extended affinity partner audiences and to continue double-digit unit growth in this space; our ability to increase growth in our core dealer business, including our efforts to align pricing, grow our dealer base and expand unit monetization; our ability to rapidly scale our OEM business and achieve OEM revenue growth targets; the timing and expansion of TrueCar Trade, its dealer networks, customer base, revenue contribution, market coverage and product features; completion of our technology replatforming initiatives, its timing and impact on conversion rates, engagement and our ability to introduce new product innovations; our ability to improve and build out our consumer experience and the timing of rolling out these concepts; and the outcome of outstanding litigation. These 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 2017 and our quarterly reports on Form 10-Q for the first and second quarters of 2018 filed with the SEC for a discussion of the factors that could cause our results to differ materially. The forward-looking statements on this call are based on information available to us as of today's date, and we disclaim any obligation to update any forward-looking statements, except as required by law. In addition, we will also discuss GAAP and certain non-GAAP financial measures. Reconciliations of all non-GAAP measures to the most directly comparable GAAP measures are set forth in the Investor Relations section of our website at www.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.

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Now I'll turn the call over to Chip.

Chip Perry -- President and Chief Executive Officer

Thank you, Alison, and good afternoon, everyone. TrueCar continues to build momentum across all of the key components of our 2018 plan with record results in the second quarter that are in line with our guidance. Our execution to date sets us up to continue to perform against each of our key strategies in the back half of the year, unlocking solid double-digit top-line second-half growth. As such, we are reaffirming our revenue and EBITDA guidance for the year. We continue to be laser-focused on implementing the changes in our business that will enable us to return to a 20% growth rate next year. We expect this growth to flow from our upcoming powerful new consumer experience supported by a larger marketing spend, the accelerating growth of our trade and OEM products and the ongoing expansion of our dealer network. We continue to see OEM and dealer new car marketing dollars shifting toward our platform, which has allowed us to generate significant growth in OEM revenues and reach a record 4.9% retail market share of new units, representing a 6% year-over-year gain despite continued softness in the SAAR.

We believe this makes TrueCar the No.1 leader for new car sale among third-party players. John will give you more detail on the financial and operating metrics later in the call, but I would like now to dig into the progress we saw in the second quarter and how we plan to continue to make traction across each of these strategies for the remainder of the year. Let me begin with an update on USAA and our broader affinity partner channel. One of our primary areas of focus coming out of 2017 was the level of unit volume coming from our largest affinity partner, USAA. As you will recall, units in our USAA channel started to show improvement at the end of the fourth quarter 2017 and into Q1 of 2018.

I'm pleased to report that we're seeing this trend continue into the second quarter. While units in the overall quarter were down 5% year over year and flat to Q1, in June, year-over-year unit volume improved to down 3%. This recovery was driven by continued site improvements that made the USAA car-buying experience easier for members to access as well as by marketing support from this important partner. The USAA channel continues to recover, and we remain on track to see double-digit unit growth in the last two quarters of the year.

We look forward to continuing to partner with USAA in support of their mission to serve the military community and their families. Turning to our extended partner channel. The extended affinity partner channel showed strong performance in the quarter with unit growth at 18% year over year, driven by the expansion of high-growth partners in our membership, finance and publisher segments. As we referenced in our prior call, our focus is on the digital activation of member bases. We believe there is significant potential to deeply penetrate these partner audiences through multiple tactics, including the continued expansion of our OEM product offerings. Even though we face tough year-over-year compares in the next two quarters, we expect strong continued double-digit unit growth in our extended affinity partner channel.

It's important to note that the reach of our affinity partner network is significantly greater than the unique visitors we publicly report. In fact, our affinity partners serve over 300 million members in America and the TrueCar new car buying experience is exclusively delivered in all of their online portals, giving us massive reach into this audience. Now turning to more detail across our key initiatives for the year. Our first key initiative is dealer revenue growth and monetization. Over the course of our last two quarters, we've highlighted growing our core dealer business through investments focused on three key go-to-market strategies designed to balance network growth while maintaining strong rate integrity.

Specifically, first, aligning pricing with the value we've been delivering based on our unique, closed loop attribution model; second, further enhancing our dealer acquisition strategy to strategically fill coverage gaps across the network; and third, rolling out a new strategy around independent dealers designed to grow our independent dealer base and increase used car inventory. As we've executed across these three strategies, we are pleased with our progress to date. Dealer count has begun to reaccelerate, reaching an all-time high of 15,534 dealers as of the end of the second quarter. We've seen an improvement to franchise dealer monetization of 5% year over year. Our more surgical approach to renewals in the most recent quarter has yielded a 5% increase in revenue per franchise dealer year over year and a sequential reduction in dealer churn.

Our ability to simultaneously grow dealer count and revenue per dealer highlights the strength of our value proposition. This shift in our independent dealer strategy has led to an increase in gross additions, specifically with small to midsize independent dealers. This strategy is designed to diversify our inventory to better meet consumer shopping needs. As you heard me say before, achieving market leadership requires a superior value proposition for both sides of the marketplace, meaning, the consumer demand side and the dealer and OEM supply side.

Our unique new car pricing transparency is the current centerpiece of our consumer value proposition, which, we believe, gives us a durable competitive advantage and a key point of leverage for building out our upcoming end-to-end consumer experience. On the dealer side of the marketplace, our strong dealer coverage enables us to provide a better experience to our growing consumer base and creates capacity to absorb traffic growth through efficient marketing efforts. Our second key initiative is OEM. As we've said on earlier calls, we believe our efficient success-based attribution model is growing in appeal to OEMs relative to the traditional impression-based display ad model. Our capability to deliver OEM incentive offers behind registration walls in ways that help OEMs avoid brand and residual value dilution is truly unique in the industry.

In Q2, OEM incentive revenue was $7.9 million, an increase of 1% over Q2 of last year. Excluding isolated nonrepeatable revenue in Q2 of 2017 of approximately $3.7 million, our OEM incentive revenue increased 91% year over year in Q2, driven by the addition of new OEM programs and expansion of existing OEM programs. We continue to expand our business with our existing long-term OEM clients through ongoing marketing optimization and deeper extended partner penetration and activation. Additionally, the large-scale OEM program announced on last quarter's call remains in place and is now joined by another new major OEM, who tested our platform in Q4 2017. We are very pleased with the growth of our OEM business as we are on track to grow revenue by more than 85% year over year in the second half of 2018.

And we remain confident that OEM revenue is on track to experience over 30% growth for the full year.Our third key initiative is our national rollout of Trade. We continue to see positive momentum with our exciting, new TrueCar Trade product. As we roll out this offering nationwide, we're introducing a new form of transparency and liquidity into one of the greatest sources of consumer dissatisfaction with the car-buying process, which is the trade-in component of the deal. Our product provides market-leading transparency and competitively differentiated valuation insight through a dynamic interface, backed by the third-party credibility of the TrueCar brand.

This product addresses a major unmet need in the industry and history has shown that truly sustainable growth in our industry flows from meeting unmet needs, not from just tweaking established value propositions and business models. To date, we have over 450 dealers activated or in onboarding and we are well on our way to our year-end target of approximately 1,000 dealers on the Trade program. We've activated over 30 markets from coast to coast, including New York, Los Angeles, Chicago and San Francisco, among others. The current footprint of active markets represents regions comprising more than half the population of the United States, meaning, this product is off to the rates.

We expect to continue to aggressively activate new additional markets over the next two quarters as we move toward rolling out a nationwide marketing campaign for our trade product early next year. Recall that we expect to generate small single-digit million dollar revenues from this product this year. But this starting point is the foundation for our larger customer base and a much more significant revenue contribution in 2019. Trade is also a vital element of our upcoming end-to-end shopping-to-showroom consumer experience, because it provides an upfront transactional component that is needed to calculate an accurate monthly payment.

Our fourth key initiative is Capsella. In Q2, we continued making significant progress on our replatforming effort and we remain confident that we will finish this project by the end of the year. While the priority for the second half of the year remains focused on the completion of Capsella, we are also beginning to test components of our new consumer experience, which we expect to launch in 2019. We anticipate that these product innovations will unlock higher conversion rates and stronger consumer engagement with dealers.

It will also enable us to further build out the major components of our end-to-end experience, including our new upper funnel research and discovery product and our market-differentiated digital retailing tools in our post-prospect experience. In closing, as you can see, we continue to make good progress across the key initiatives we set forth for 2018 and we expect to exit 2018 with a strong double-digit top-line growth rate. With continued to focus on the strategic expansion of our dealer network, the completion of Capsella, the full rollout of Trade and continued growth of our -- in our OEM business, we believe we are well positioned to achieve healthy 20% growth rates in 2019. And we will have created the foundation for building what we expect will be the industry's only true end-to-end online shopping-to-showroom experience.

I'm now going to hand it over to John to walk you through the numbers and discuss our financial performance in more detail.

John Pierantoni -- Interim Chief Financial Officer

Thank you, Chip, and good afternoon, everyone. Revenue in the second quarter of 2018 totaled $87.9 million, up 7% over last year. This is in line with our revenue guide of $87 million to $89 million.Revenue from franchise dealers totaled $66.5 million, which is up 8% over Q2 of last year. During the quarter, we gained traction with our dealer go-to-market strategy that Chip described earlier.

And sequentially, franchise dealer count increased by 163 dealers to 12,368. In addition, monthly revenue per franchise dealer was $1,803 in the quarter, increasing 5% year over year and 4% sequentially. We also gained momentum in our independent dealer channel. Revenue from our independents was $8.8 million in the quarter, up 10% over last year.

Independent dealer count was up 11% year over year to 3,166 dealerships and has increased by 5% or 160 dealers sequentially. Monthly revenue per independent dealer remained flat year over year at $951. This represented a 3% sequential decrease, which was very much in line with our strategy of pursuing smaller dealers to further build out our independent dealer base and improve our consumer experience with increased used-car inventory. OEM incentive revenue was $7.9 million in Q2, slightly up from last year.

If you exclude the nonrepeatable business that Chip referred to earlier, our OEM business grew by 91% year over year. And finally, forecast, consulting and other revenue was $4.7 million in the quarter, also up slightly from last year. Units in the quarter totaled 250,269, up 3% year over year, which is above our unit guide of 243,000 to 248,000. Breaking it down.

In our TrueCar branded channel, we generated 97,777 units, down 2% year over year. In our extended partner business, we achieved 83,932 units, which was up 18% year over year. And in our USAA channel, we produced 68,560 units, which was down 5% year over year. As for the new use mix, we noted a mix of 68.7% new and 31.3% used in Q2 of '18 as compared to 68.3% new and 31.7% used this time last year. Monetization also experienced positive trends, hitting $332 per unit in Q2 of '18, which was up 4% from $319 last year.

This increase was driven by improvements in our service delivery and our focus on price optimization across the franchise dealer network. Now turning to expenses and margins, where we're demonstrating operating efficiencies in most of our expense categories and profit measures. As a reminder, all of the following metrics are in a non-GAAP basis, unless otherwise stated. Gross profit in Q2 of '18 was $80.5 million, which was up 7.5% from last year. And gross margin was 91.7% in Q2 of '18, up from 91.6% last year. Technology and product expenses totaled $30 million, which increased by 4% year over year, but was lower by 50 basis points as a percentage of revenue. We're pleased to show operating leverage in this area even as we continue to invest in our technology replatforming initiative. Sales and marketing expenses were $48.5 million or 55.2% of revenue in Q2 of '18 as compared to $44.8 million or 54.7% of revenue last year.

Breaking it down further. In our TrueCar branded channel, we spent $15.1 million on customer acquisition costs as compared to $15.6 million last year. Our branded channel cost per sale declined by 2% from $157 per unit in Q2 last year to $154 per unit this year. In our partner channels, marketing expenses totaled $15.6 million as compared to $12 million this time last year. Our affinity partner cost per sale increased 22% year over year from $84 to $102 per unit.

This increase was primarily driven by three things. One, increased revenue share due to growth in our extended partner channel; two, increased revenue share related to our OEM business; and three, increased digital marketing expense with some of our high-growth partners. We continue to invest in these high-opportunity partners, which helps lay the foundation for expanded monetization with the introduction of the trade and OEM initiatives. Finally, sales and marketing-related headcount and other costs were $17.8 million, up from $17.2 million last year. G&A expenses totaled $10.3 million or 11.8% of revenue in Q2 of '18.

We continue to see operating efficiency in G&A, where we reduced our spend as a percentage of revenue by 70 basis points year over year. Adjusted EBITDA for the second quarter of '18 was $8.7 million or 9.9% of revenue as compared to $7.4 million or 9% of revenue last year. This was at the high end of our adjusted EBITDA guidance range of $8 million to $9 million. The noncash expense items excluded in this quarter's adjusted EBITDA were depreciation and amortization of $5.6 million, stock-based comp of $9 million and $0.9 million of certain litigation costs. GAAP net loss for the quarter was $6.6 million or a net loss of $0.07 per share. This compares to a GAAP net loss of $8.1 million or a net loss of $0.09 per share this time last year.

Our non-GAAP net income for the quarter was $3.2 million or $0.03 per share, which compares to non-GAAP net income of $1.1 million or $0.01 per share last year. And on our balance sheet, we continue to maintain strong cash balances, which totaled $198 million at the end of the quarter. And now turning to guidance, where we're reaffirming our full-year guidance for revenue and adjusted EBITDA as follows. Annual revenue is estimated at a range of $360 million to $365 million and adjusted EBITDA is estimated at a range of $36 million to $40 million. As for units, you'll see that we're tightening our annual unit range to 1,030,000 to 1,040,000 units. As we continue to unlock additional revenue opportunities on OEM and trade that don't always result in recordable unit through our dealer network, improvements in our per unit monetization will play a stronger role in driving our future revenue and EBITDA growth. And for the third quarter of '18, we expect units to be in the range of 274,000 to 279,000, which represents 9% year-over-year growth at the midpoint of the range.

Breaking it down by channels. We expect the USAA channel to achieve double-digit unit growth as this channel regains momentum with user experience improvements from the product changes they made last year. Our extended partner channel is expected to maintaining double-digit unit growth, driven by our high-growth partners in our membership, finance and publisher segments. And our TrueCar branded channel is expected to be flat year over year as we continue to hold our acquisition spend steady.

Revenue in the third quarter is expected to be in the range of $93 million to $95 million, which represents 14% growth at the midpoint of the range. A couple of areas to highlight include our OEM business, where we're excited that our revenue is expected to almost double from prior year. Additionally, we're also very positive about the national rollout of our trading business, where we estimate approximately $1 million of revenue in the third quarter. Finally, adjusted EBITDA is expected to be in the range of $10 million to $11 million or 11.2% EBITDA margin at the midpoint of the range. As we look to the back half of the year, we acknowledge that our projected growth in the fourth quarter is higher than that of the third with nearly 20% year-over-year revenue growth in Q4.

We believe we have the resources and strategies in place to achieve these results and inside the company, I can't tell you how excited we are about our opportunity to build a strong foundation for 20% growth in 2019. And now we'll open it up to questions.

Questions:

Operator

[Operator instructions] Our first question is from Mark Mahaney from RBC Capital Markets. Please go ahead.

Mark Mahaney -- RBC Capital Markets -- Analyst

[Inaudible] color on why traffic growth accelerated in the quarter -- in the June quarter to 8%, and then one negative question. It looks like you're trimming down your unit-growth expectations for the full year. It looks like you just trimmed down by 10,000, I think that's right. The high end of your guidance just explained that.

And then, Chip, could you just a little bit more on the powerful new consumer experience. I know -- I've heard you talk a little bit about what you're trying to solve for in the past -- or in the past, I've heard you talk about what you want to try to solve for. But just explain a little bit more how consumer coming to TrueCar, what differences they would notice? And how is this going to be better for them starting next year? Thank you.

Chip Perry -- President and Chief Executive Officer

Sure. Thank you, Mark. Let me start with the consumer experience, and then John will comment on guidance.

John Pierantoni -- Interim Chief Financial Officer

OK.

Chip Perry -- President and Chief Executive Officer

So our powerful new consumer experience is based upon our understanding of what causes consumers to not want to register with TrueCar and to fully experience all the benefits of being a registered user on our marketplace. Today, after people register, they have a chance to see upfront transparent pricing offers from dealers that are presented in the context at the individual car level compared directly with what other people paid for the car. So they answer the question for the consumer, is the offer a good price offer from the dealer? In order to receive this information, consumers are asked to register. Before that point, they are able to see market-based pricing information.

It helps them understand overall market context of what other people are paying for cars, including the market average price of the car they're interested in purchasing. We've reached the stage of our understanding of how consumers look at TrueCar. And to the point that we now know that consumers who proceed all the way through the experience are quite delighted with the information they receive from TrueCar and the experience that they get at the dealership. We see that through very high Net Promoter Scores of consumers who proceed all the way through our experience and buy a car from a certified TrueCar dealer.

And experience is what truly differentiates TrueCar from other third parties, which are more purely informational sites. To date, consumers have resisted -- many consumers have resisted registration, because they are concerned about what happens after they provide their name to our marketplace. There's considerable consumer angst about how they are pursued by car dealers post registration. So what we're working on is a new user experience, which will launch post Capsella.

We'll be testing this new user experience in the second half of the year in selected cities across America. What we will essentially enable consumers to do is to have more control over when their name is transmitted to the dealership through TrueCar. They will still, after registration, be able to see this significant attractive upfront new car pricing information, but they'll have more control over how their name gets submitted to the dealership. We believe that making this change will result in a significant rise in our registration rate.

Today, our blended average registration rate is about 6%. So 94% of consumers who encounter the TrueCar marketplace leave without registering. We believe there's a tremendous opportunity to raise that percentage, because we know that TrueCar already serves a very large share of the new car buyer market. According to the latest J.D.

Power survey, TrueCar touches and our experience is used by more than half of new car buyers in America. So we believe there's a great opportunity here to improve the flow through in our marketplace and to enable many more consumers to get a great experience while they buy a car after they've registered in our system. So the new user experience will focus on that. It will also provide many other improvements around the kind of engagement, post registration, information we provide consumers, how useful and relevant the updates we give them are as well as using them to more relevant inventory about their car more quickly.

And then beyond that, post Capsella, we will be significantly improving the research and discovery part of the consumer-buying process through our upper funnel research and shopping tools, which will make great progress in 2019. So when I talk about our powerful new consumer experience, it includes all those things. Thank you for asking, Mark.

John Pierantoni -- Interim Chief Financial Officer

And Mark, in response to your question, the first one in regards to traffic growth of 8% for the second quarter, growth is driven largely by the extended partner channel, where we're up in the teens. You have a little bit of softness in USAA as that channel recovers, and the TrueCar channel is up single digits. As it relates to the unit guide, we did tighten the range by 10,000 units. We brought the top end down.

We maintained the bottom end of the range. No particular weakness in any of the channels. What we are seeing is a greater extent of our revenue is coming from the OEM and in part, some of the trade business, and those revenue changes don't necessarily come with units that go through the auto buying platform. And that's the reason for that.

Mark Mahaney -- RBC Capital Markets -- Analyst

OK. Thank you both.

Operator

Our next question is from Chris Merwin from Goldman Sachs. Please go ahead.

Chris Merwin -- Goldman Sachs -- Analyst

OK. Thank you very much. Two questions, if I could. First, it sounds like you're very much on track to finish Capsella by the end of the year.

So how should we be thinking about you investing in marketing at that point to drive top of funnel? I think you've already guided to margin expansion in 2019. But as conversion improves post Capsella, does it make sense to push a bit more marketing to reaccelerate unit growth? And then just the second question, I think, for units in the TrueCar channel, I think if I have this right, they were down slightly year on year. You're showing us recovery in units for USAA and other partners, but maybe you can talk a bit about what's driving the slowdown in units for www.truecar.com. Is it traffic conversion or something else? Thank you.

Chip Perry -- President and Chief Executive Officer

Sure thing, Chris. Thank you. So yes, post Capsella, we will have a more productive user funnel that will enable us to lean more heavily into marketing. We've signaled we would do that on the better user experience and stronger conversion and close rates so that we'll be able to productively deploy more marketing dollars.

In addition, next year, we will have higher OEM and trade revenues, which will help us expand our unit monetization, leading to even stronger more positive unit economics than we have currently, which will also facilitate a higher marketing budget. So we think we're in a really good position and very well poised to spring forward into 2019, with a much stronger product fueled by a larger marketing budget with positive unit economics, which will be a strong element of the company's growth next year. As it relates to TrueCar units this year, we continue to moderate and hold steady our marketing spend in that channel. We're -- it's all according to plan.

We're taking our incremental revenues this year and investing it into our dealer and product teams so that we can build up the strength around our product and our dealer organization that we can capitalize on in 2019. So this is purely a short-term tactical decision. We believe this category merits, stronger marketing investment, and we're excited about doing that in the future. And we believe we'll be well positioned economically to throw more coals on the fire marketing-wise next year.

Chris Merwin -- Goldman Sachs -- Analyst

OK. Thank you, Chip.

Operator

Our next question is from Ron Josey from JMP Securities. Please go ahead.

Ron Josey -- JMP Securities -- Analyst

Great. Thanks for taking the question. I have two, please. First on just incentives.

Chip, following up on your incentive results here and specifically, this Nissan live, I believe, on May 1 and across www.truecar.com and all affiliates. Can you just talk about the benefits of being live across the True network? And whether the new partner that you announced that's coming on, will they have a similar experience sitting live across the network? Speaking of the new partner, any insights there would be helpful and wondering why guidance maybe didn't increase here if it is one of the big six. And then a follow-up after that.

Chip Perry -- President and Chief Executive Officer

Sure. Thank you, Ron. So Nissan is participating across our network and on some of our selected affinity partners, not all. But they're having good results, and they're giving us positive feedback.

So we're excited about continuing to work with them. The other OEM that joined us in the beginning of the third quarter, just now recently joined us, is Ford. They had tested us in the fourth quarter of last year, and they decided to rejoin. And they're initiating their presence within our marketplace on the USAA platform.

So we're excited about bringing them on and are hopeful that like other OEMs, over time, they will broaden their involvement with TrueCar. I'd like to say that we're going to be reporting less granular detail of revenue by individual OEMs going forward. But I'd like you to know that there are -- the factors that are -- there's three or four factors involved in how this category grows for us. First, when an OEM comes on, which specific vehicles they choose to promote.

Second, the number of partners that they actually participate with. Third, the number of -- the extent to which they're using the TrueCar platform for -- and the number of brands they're choosing to conquest across the TrueCar platform. These are the factors that determine the variability of this revenue stream. Our fourth one is the size of the incentive offers vary by month, by OEM.

So we're very excited that between the beginning of the year and the end of the year, we're seeing dramatic growth in this category. When we exclude the one-time unrepeatable revenues that we had with one major OEM in the first half of 2017, we're seeing a doubling of this business year over year. In fact, we've seen significant growth in the one OEM that had the issue that caused us to show the decline in revenues between Q2 and Q3 of last year. So this -- the growth of this segment of our business points to what I said in the remarks, which was that OEMs are leaning in, are excited, are probing, are interested in learning more about how they can exploit the capability to deliver -- efficiently deliver incentive offers behind registration walls through the TrueCar network both on our branded channel as well as our affinity partner channels.

I know you had another question?

Ron Josey -- JMP Securities -- Analyst

I did. I did. Just on USAA. I was just on -- not too long ago, I noticed a complete redesign of the car-buying experience that launched, I think it last week, actually.

Wondering if this is Capsella, the testing that you've seen from it and if there are any benefits that are baked into the guidance. And specifically, what I saw was make and model on the main car driver homepage. Thank you.

Chip Perry -- President and Chief Executive Officer

Yes. USAA is continuing to evolve their experience. They're placing more upper-funnel shopping tools on the USAA site. They want to strongly advise their members on the car they should buy and give them good solid information and guidance.

So their experience is evolving. At the same time, compared to the second quarter and third quarter -- third and fourth quarters of last year, a number of improvements were made within their experience to make it much easier for the member who's ready to buy a car to get straight to the TrueCar buying experience. So that's why we're seeing the nice growth in the second half of the year and the improvement beginning in June, which we're down less than we were in Q1 and for the balance of Q2.

Ron Josey -- JMP Securities -- Analyst

Got it. Thank you.

Operator

Our next question is from Steve Dyer from Craig-Hallum. Please go ahead.

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

Thanks. Good afternoon. Just circling back on a previous question. You talked about putting more coals on the fire as it relates to marketing next year presumably to drive people to the new user experience.

Are you going to be able to do that in a way when you've been getting really increasingly impressive operating leverage? Are you going to be able to do that in a way that margins can still expand next year on the revenue growth?

Chip Perry -- President and Chief Executive Officer

Yes. We believe it'll be accretive. Our positive economics will be sufficiently expanded to enable this. We will probably see some increase in the branded channel cost per unit acquired, modest, but not enough to depress margins.

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

Got it. OK. And then the 6% conversion rate now obviously leaves tons of room for improvement. I mean, based on very early days in testing and sort of -- what are you guys thinking in terms of where you can get that number realistically over the next year, two years, three years? Is there an aspirational number and a realistic number? Or kind of help us think about think about the kind of changes you think this might drive.

Thanks.

Chip Perry -- President and Chief Executive Officer

That's a very hot topic within our company, Steve. I'm glad you raised it. We did have high aspirations and goals for that. We call them OKRs.

And I think this -- our head of product and technology, if I mentioned to you what he's aspiring to publicly, he would give me a good spanking. So it's a big number. I think, we should hold our fire to show the investment community the potential improvement until we have the results of some testing that we'll be doing in the second half of this year. But we're very excited about the potential here, because with 94% of car buyers -- consumers who use TrueCar leading, even modest improvements in that have huge leverage in the volume through our marketplace.

So a lot to wait until more results are known before we can be more descriptive in this area. But thank you for asking.

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

Fair enough. Thanks, Chip.

Operator

Our next question is from Kyle Evans from Stephens. Please go ahead.

Kyle Evans -- Stephens Inc. -- Analyst

Hi. Thanks. I guess I'd like to talk a little bit about the user experience as well. How do you -- the consumer side is obvious and intuitive to me.

How could this affect your dealership network? Are there state associations that might see anything wrong with this and push back on the changes? Are there any -- do you have any concerns on that side of the equation?

Chip Perry -- President and Chief Executive Officer

We don't see any concerns from any regulatory bodies or state-dealer associations, honestly. We're in good shape within across America. As it relates to how this will be seen by dealers, we believe the dealers will see this as a strong positive improvement in the value of the service we provide them. So when we send them more visitors that buy cars, that will be a positive thing, and we believe that will enable us to swing some of their marketing dollars more toward TrueCar, away from other less-efficient marketing providers.

How -- the details of how this is going to work are still being designed within our company. But all of our conversations with dealers so far about conceptually what we have on the drawing boards give us great optimism and a positive feeling about the changes coming. And we believe the dealers will be quite happy with these changes and -- through these changes, because they'll see an increase in volume provided in a way that will help them further significantly improve the efficiency of their overall marketing spend.

Kyle Evans -- Stephens Inc. -- Analyst

OK. I'd like to try a variation on Steve's question. What conversion lift do you need to get the 20% growth rates that you're -- you've laid out to the Street for next year?

Chip Perry -- President and Chief Executive Officer

You're trying to back in through a number here, I can see. It's a good question.

Kyle Evans -- Stephens Inc. -- Analyst

Well, we all are. That's what we do for a living.

Chip Perry -- President and Chief Executive Officer

Yes, I hear you. I hear you. Based upon the growth of our -- anticipated growth of our OEM and trade businesses, we do not need to see a huge growth in conversion rate or an outsized growth in dealer revenue next year to achieve the 20%.

Kyle Evans -- Stephens Inc. -- Analyst

Excellent. Thank you so much.

Operator

Our next question is from Tom White from D.A. Davidson. Please go ahead.

Philip Rigby -- D.A. Davidson Companies -- Analyst

Hey. This is Philip Rigby on for Tom White. Just a quick question about if you've seen any OEMs cutting marketing [Inaudible] the back half of the year and what that -- what implications that could have for TrueCar. Thanks.

Chip Perry -- President and Chief Executive Officer

We're not seeing that kind of effect in the market right now. We serve the automotive industry differently than the display ad-based third parties and the impression-based search and social sites and click-based. So what we provide the industry is a very unique, efficient way to target end market car shoppers who understand about what kind of car they want to buy. And these incentive offers are delivered behind the registration wall.

They're incremental to the other public offers that are available. And they're often significantly motivating consumers toward making a purchase. And we've gotten really good feedback from manufacturers that not only do the consumers who receive these offers buy the cars that the offer was delivered on. They also buy many cars that are different than the exact vehicle they received the incentive for.

So they see this offer as a -- this capability as a strong market -- new marketing channel for them. We also do this in a very success-based way. We ask for compensation only when a vehicle gets sold. And that's different than all of the display and click-based and need-based new car systems that the OEMs are used to participating in.

Those -- that segment of the market is fairly mature now, and OEMs are on the lookout for new ways, particularly more efficient ways to go to market. So in our particular case, we haven't seen any slowdown in the market, and we're excited about the potential of this category for TrueCar.

Philip Rigby -- D.A. Davidson Companies -- Analyst

Thank you.

Operator

Our next question is from Doug Anmuth from JPMorgan. Please go ahead.

Ashwin Kesireddy -- J.P. Morgan -- Analyst

Hi. Thank you for taking my question. This is Ashwin on behalf of Doug. I wanted to ask about franchise dealer account.

I think, on the last call, you mentioned about adding 3,000 dealers in the next year or two. Just checking if that is still the plan. And when should we expect you to add more dealers, end of this year or next year?

Chip Perry -- President and Chief Executive Officer

Thank you, Ashwin. Yes, expanding the TrueCar dealer network is one of the key levers to our top-line revenue growth. And so we're continuing to put strong emphasis on doing that. Our dealer sales and service team has put in place some extra programs this year that are enabling us to increase our gross deal additions as well as reduce churn on the back end.

We're providing better service, more in-person service across more geographies, and we have more sales people in more local markets that weren't covered previously. And we have refined our renewal strategies in a way that encourage more dealers to stay, but also do so at a rate -- monetization rate, which is very competitive and appropriate for our marketplace. So we're doing a nice job of balancing network growth and monetization. It's pretty easy in this category to give up rate to drive dealer count.

We're being quite disciplined about maintaining the integrity of our rates while, at the same time, we're growing dealer count, which is a very positive thing. So I believe in the next few years, we'll have a good opportunity to add, like you just noted, about 3,000 dealerships. And this year, we expect to be adding about a third of that number between now and the end of the year.

Ashwin Kesireddy -- J.P. Morgan -- Analyst

Great. Thank you.

Operator

[Operator instructions] And if there are no further questions, I'd like to turn the floor back over to management for any closing comments.

Chip Perry -- President and Chief Executive Officer

Thank you, everybody, for joining us today. We appreciate your interest in TrueCar. We're excited about our future and look forward to hearing from you later today and as the weeks go forward. Take care, everyone.

Bye now.

Operator

[Operator sign-off]

Duration: 49 minutes

Call Participants:

Alison Sternberg -- Investor Relations

Chip Perry -- President and Chief Executive Officer

John Pierantoni -- Interim Chief Financial Officer

Mark Mahaney -- RBC Capital Markets -- Analyst

Chris Merwin -- Goldman Sachs -- Analyst

Ron Josey -- JMP Securities -- Analyst

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

Kyle Evans -- Stephens Inc. -- Analyst

Philip Rigby -- D.A. Davidson Companies -- Analyst

Ashwin Kesireddy -- J.P. Morgan -- Analyst

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