Logo of jester cap with thought bubble.

Image source: The Motley Fool.

TrueCar Inc  (NASDAQ:TRUE)
Q3 2018 Earnings Conference Call
Nov. 06, 2018, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the TrueCar Inc Third Quarter 2018 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 like to turn the conference over to your host, Alison Sternberg, SVP of Investor Relations. Please go ahead.

Alison Sternberg -- Senior Vice President of Investor Relations

Thank you, operator. Hello, and welcome to TrueCar's third 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 fourth quarter and full-year 2018, including revenue growth and margin in the fourth quarter of 2018 and for 2019; management's beliefs and expectations as to future strategies, marketing campaigns and planned product offerings; including the timing and monetization of these offerings; our ability to expand or penetration of our extended affinity partner audiences; our ability to increase growth and productivity 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 network, customer base, revenue contribution and market coverage; the effect of additional marketing spend on any of the foregoing; our overall position in the retail new car market; completion of our technology replatforming initiative, its timing and impact on conversion, close rates, consumer satisfaction, engagement; and our ability to introduce new product innovations; as well as our ability to successfully transition from our legacy systems to the new platform and to manage any issues arising from that transition; our ability to improve and build out our consumer experience, increased brand awareness and identify and undertake necessary investments to accomplish these 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, our quarterly reports on Form 10-Q for the first and second quarters of 2018 filed with the SEC and our quarterly report on Form 10-Q for the third quarter of 2018, when filed with the SEC for the discussion of the factors that could cause our results to differ materially. The forward-looking statements on this call are based on information available to us as of today's date, and we disclaim any obligation to update any forward-looking statements except as required by law.

In addition, we will also discuss GAAP and certain non-GAAP financial measures. Reconciliations of all non-GAAP measures to the most directly comparable GAAP measures are set forth in the Investor Relations section of our website at true.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.

Now, I will turn the call over to Chip.

Chip Perry -- President and Chief Executive Officer

Thank you, Alison. And good afternoon, everyone. Operationally, TrueCar had a strong third quarter in line financial results on revenue and adjusted EBITDA. Today, you'll hear about the great progress that we're making on the key initiatives to drive our future growth. Now that we are in the second half of the year with third quarter revenue growing at 14% year-over-year on the strength of our dealer and OEM business, we believe we will post even faster revenue growth in the fourth quarter and a higher margin than we posted last year. We remain laser focused on implementing the changes in our business that we believe will enable us to further accelerate growth next year and deliver on key unmet market needs, as part of our end-to-end vision. As we said before, we expect this growth to flow from our upcoming powerful new consumer experience, the continued growth of our trade and OEM products and the expansion and increased productivity of our dealer network, all benefiting from the accelerant of the larger and efficiently deployed marketing spend. We continue to see new car marketing dollars paid by OEMs and dealers shifting toward our platform, allowing us to grow our share of marketing spend and reach a record high of 5.2% of the retail new car market. This share gain reflects the strong efficiency of the marketing solutions that we provide to dealers and OEMs. We believe this market share demonstrates TrueCar's number one position in new car sales among the automotive industry's third-party players. John will give you more details on our financial and operating metrics later in the call, but I would now like to dig into the progress we saw in the third quarter, our plans for continued traction against our key strategies for the balance of the year and how this sets us up for 2019 and beyond.

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, and over the course of the first half of this year was the level of unit volume coming from our largest affinity partner, USAA. As you will recall, units of our USAA channel started to show improvement in year-over-year comparisons during the first half of 2018, even though they were still behind the prior year. I'm pleased to report that as we expected, in the third quarter, we generated positive growth in terms of USAA unit volumes, which were up 11% year-over-year. Even more notable is that our third quarter unit volumes were very close to the levels of USAA unit volume in Q2 2017, before they changed their site experience.Our continued recovery with USAA throughout this year and into this quarter has been largely driven by continued collaboration between USAA and TrueCar around the optimization of the USAA site and marketing to USAA members. We have been able to do this together while at the same time USAA has successfully woven into its experience, from device-related tools and content that help its members make smarter purchasing decisions. We're very pleased with the recovery of the channel and our ability to partner with USAA to drive performance to the car buying service, while also supporting its mission to serve the military community in an exemplary way.

Turning to our extended partner channel. This channel showed continued strong performance in the third quarter with unit growth at 13% year-over-year, driven by the expansion of high growth partners in our membership, finance and publisher segments. As we've mentioned previously, our focus is on the digital activation of these member bases. We believe there are significant potential to more deeply penetrate these partner audiences through multiple tactics, including the continued expansion of our trade pilot and our OEM product offerings. As a reminder, the reach of our affinity partner network with car buyers is significantly greater than unique visitors, we publicly report. In fact, our affinity partners serve over 300 million members in America. This gives us the opportunity to leverage the brand loyalty within these audiences to acquire varying market consumers. Our unsurpassed reach with new car buyers, provided by our partners and the TrueCar brand is highlighted in the latest JD Power New Autoshopper Study where TrueCar is the far and away leader among our third party peers in terms of total usage from our new car buyers. As you've heard me say before the JD market leadership requires a superior value proposition for both sides of the marketplace, being in 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 supply side of the marketplace, our strong dealer coverage enables us to provide a better experience to our growing consumer base and creates the capacity to efficiently absorb future traffic growth, resulting from increased brand awareness, higher organic traffic and increased marketing efforts.

Now, I'll provide more detail across our key initiatives that we laid out at the beginning of the year. Our first key initiative is dealer revenue growth and monetization. Over the course of this year, we have 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 have been delivering based on our unique closed loop attribution model. Second, further enhancing our dealer acquisition strategy to strategically fill coverage gaps across the networks and third, rolling out a new strategy around independent dealers designed to grow our independent dealer base and increase used car inventory. I'm pleased to say that these investments continue to bear fruit as not only has our dealer network reached record size of 16,031 dealers with 497 net additions during the quarter. But we've also seen growth in revenue per franchise dealer of 6% year-over-year, along with a meaningful reduction in churn. All of this comes as a result of our more surgical approach to renewals and confirms the strength of our value proposition. This being said, John will be providing more detail about what's happening in the fourth quarter, which is not starting off as strongly as we performed in Q3.

Our second key initiative is OEM. As we 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 employed by our competitors. Our capability to efficiently deliver OEM Incentive offers behind registration walls in ways that help OEMs avoid brand and residual value dilution is truly unique in the auto industry. In Q3, OEM incentive revenue more than doubled over Q3 of last year. This exciting growth was driven by the addition of new OEM programs that were not in place during Q3 of last year, coupled with the 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. As a reminder, OEMs spent upward $18 billion annually advertising new cars. This spend is significantly higher than the cumulative new and used car advertising budgets of franchise and independent dealers. The vast majority of this OEM advertising spend is going to traditional media and display advertising and paid search channels to charge based on audience reach, clicks and impressions without any mechanism in place to clearly demonstrate attribution.

The rapid growth in our OEM revenue over the past few quarters demonstrates that OEMs are beginning to recognize the value of TrueCar's unique closed loop attribution model and as a result, they are leaning into our marketplace. Needless to say, we're very pleased with the growth of our OEM business as we are on track to grow revenue by more than 90% year-over-year in the second half of 2018 and we remain confident that OEM revenue will experience over 35% growth for the full year.

All of this being said, we are still in the early days of getting OEMs to understand and embrace our value proposition and we believe this category has significant growth potential in 2019 and beyond. Our third key initiative is our national roll out of trade. We continue to see positive momentum with our exciting new car TrueCar trade product. As we roll out this offering nationwide, we are introducing a new form of transparency 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.

In contrast, our competitors provide static forms that generate a single output or range of values without any clarity or context with the consumer around how the car's value was derived. Our product actually does this, and that's why consumers and dealers like it. We now have approximately 600 dealers activated on our program or in on-boarding and we continue to add more through a highly targeted dealer acquisition effort to ensure that we obtain the right distribution of dealers and OEM brands in specific markets.

To date, we've gone live in 45 markets, covering two thirds of TrueCar users. Many of these markets were added during the quarter, including Miami, San Antonio, Washington DC, Detroit and St. Louis. Consumer and dealer feedback from our initial market roll outs have been excellent and we are on track to enable 80% of truecar.com visitors to have access to our trade products by the end of the year. In Q3, we tested local TV and radio marketing campaigns in three markets, Seattle, Phoenix and Chicago. Based on very positive consumer and dealer response in these markets, we have decided to move up the launch of our national marketing campaign to later this month instead of early next year as previously planned.

Recall, we expect to generate small revenues from trade this year, but this starting point is the foundation for a larger customer base and a much more significant revenue contribution in 2019 as we look to unlock opportunities to turn on this product across our affinity network. 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 prepayment.

In addition to our trade-in product, we are continuing to investigate product improvements and investments required to enable consumers to obtain penny perfect monthly payment offers from dealers that include lease and loan terms and F&I products, which will unlock a further puzzle piece of our full end-to-end vision. Our fourth key initiative is Capsella. I'm very pleased to report that our major replatforming initiative is on track for completion this year. Behind the scenes, we have been actively testing and migrating all of our underlying data, infrastructure, consumer, dealer OEM and mobile experiences to the new technology stack running on Amazon Web Services. We expect a fully seamless transition as we cut over the final portions of the platform later this year.

We're already starting to read many of the benefits of the new platform, including significantly faster site speed and faster product cycle times with continuous integration and deployment capabilities. Our used car product team has been leveraging its capabilities to launch a fully redesigned used car search experience and rapidly iterate based on performance data and consumer feedback. We are seeing very positive improvements in our used car funnel metrics as a result.

Completing our replatforming project, will enable new and faster product innovation that we expect will unlock higher consumer conversion and close rates, higher consumer satisfaction 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 future research and discovery product and market differentiated digital retailing tools. In closing, as you can see, we continue to make good progress across all of the key initiatives we set forth for 2018 and we expect to exit the year with a strong double-digit top line growth rate.

We set ambitious operational goals at the outset of the year, there were key drivers to unlock our long-term growth potential. And we are pleased by the progress we have made so far this year. We have three quarters of good execution behind us and we believe that the cumulative effort to date had positioned us well both to attract more consumers into an improved experience enabled by a more agile and flexible technology platform and to fulfill demand with our growing and increasingly productive dealer network and an expanding OEM client base. Based on the progress we made this year, we believe we can significantly accelerate our revenue growth in 2019 and we have created the foundation for building what we believe 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, Chief Accounting Officer

Thank you, Chip and good afternoon, everyone. As Chip highlighted in his early remarks, the third quarter of '18 was a strong quarter for TrueCar with revenue totaling $93.6 million, up 14% over last year. This was in line with our revenue guide of $93 million to $95 million and it reflects strong execution across all of our key business initiatives. In our OEM business, revenue totaled $9.5 million, up 129% from $4.1 million last year and up 19% sequentially. This strong growth was due to revenue from newer OEM incentive programs, as well as strong performance from our longer-term OEM customers. Turning to our core dealer business. Revenue from franchise dealers totaled $70.2 million, which was up 8% over Q3 of last year.

During the quarter, we continued to demonstrate success with our dealer go-to-market strategies, resulting in continued reductions in dealer churn and a 6% year-over-year increase in monthly revenue per franchise dealer, which totaled $1,878 in the quarter and sequentially franchise dealer count increased by 181 to 12,549 dealers. We also continued to show momentum in our independent dealer channel. Revenue from our independents was $9 million in the quarter up 9% over last year. Independent dealer count was up 19% year-over-year to 3,482 and it increased by 10% or 316 dealer sequentially. Monthly revenue per independent dealer declined 5% both year-over-year and sequentially to $907. This decline was in line with our expectations due to the shift in our sales strategy toward more small to mid size independent dealers. Our strategy is designed to diversify our inventory to better meet consumer shopping needs. Overall, we are pleased with the progress we've made to-date within our franchise and independent dealer businesses.

However, we set aggressive goals for ourselves at the outset of the year. And while we've made meaningful traction against our targets. We started the fourth quarter a bit slowly and therefore we may not see the same level of net dealer adds in the fourth quarter. I'll provide more details on this later. Moving on to trade. During the third quarter, we generated $1 million of trade revenue and to-date have approximately 600 dealers active or on boarding. And finally, forecast consulting and other revenue was $4.9 million in the quarter, which is flat year-over-year.

Units in the quarter totaled 268,026 up 6% year-over-year, which is approximately 6,000 units below our unique guidance range of 274,000 (ph) to 279,000 units. Breaking it down, in our TrueCar branded channel, we generated 105,616 units, down 3% year-over-year. In our USAA channel, we produced 71,660 units, an increase of 11% year-over-year and in our extended partner business we achieved 90,750 units, which was up 13% year-over-year. And as for the new used mix, we noted a mix of 70.6% new, 29.4% used in Q3 of '18 as compared to 68.2% new, 31.8% used this time last year. As Chip mentioned earlier, on the new car side of the business, we continue to demonstrate strength including an all time high new car market share of 5.2%, which was up 13% year-over-year, while retail SAAR declined 4% in the same period. Monetization also experienced positive trends hitting $331 per unit in Q3 of '18, which is up 8% from $306 last year. This increase was due to the growth in our OEM and trade businesses and we're pleased to see the diversification of our revenue streams contribute to monetization expansion. And 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 on a non-GAAP basis unless otherwise stated.

Gross profit in Q3 of '18 was $86.3 million which was up 14% from last year and gross margin was 92.2% in Q3 of '18 up from 91.8% last year. Technology and product expenses totaled $12.5 million, which decreased by 2% year-over-year. We are very pleased with the operating efficiencies that our product and tech teams are generating, even as we continue to invest in our technology replatforming initiative. Our sales and marketing expenses were $53.2 million or 56.8% of revenue in Q3 of '18 as compared to $45 million or 54.6% of revenue last year. The increase in sales and marketing expenses reflected growth in our partner businesses, and investment in expanding our dealer sales and service teams. Breaking it down further, in our TrueCar branded channel, we spent $16.3 million on customer acquisition costs, which is flat year-over-year and our branded channel cost per sale modestly increased from $151 per unit in Q3 last year to $150.4 per unit this year.

As a reminder, branded media spend has remained flat for the past three years, as we've intentionally redeployed incremental dollars toward investment in trade, OEM and scaling our dealer network. As we move into 2019 and are able to innovate on the product experience after the completion of Capsella and continue to realize the benefits of our trade and OEM investments. We will begin to more aggressively deploy branded media spend. In our partner channels, marketing expenses totaled $17.9 million as compared to $13.1 million last year. Our affinity partner cost per sale increased 22% year-over-year from $90 to $110 per unit. This increase was primarily driven by increased revenue share in our extended partner in USAA channel. In addition, we increased digital marketing expense with some of our high growth partners where we continue to invest in expanding these programs. And finally, sales and marketing related headcount and other costs were $19 million, up from $15.5 million last year as we continue to grow the team to support our new products and offerings.

As for G&A expenses, total costs were $10.6 million or 11.3% of revenue in Q3 of '18. We continue to see operating efficiencies in G&A where we decreased our spend as a percentage of revenue by 70 basis points year-over-year. And adjusted EBITDA for the third quarter of '18 was $10 million or 10.7% of revenue. This compares to $8 million or 9.7% of revenue last year and was within our adjusted EBITDA guidance range of $10 million to $11 million. The non-cash expense items excluded from this quarter's adjusted EBITDA were depreciation and amortization of $6 million, stock-based comp of $10.2 million and $300,000 of certain litigation costs.

GAAP net loss for the quarter was $6.3 million or a net loss of $0.06 per share. This compares to a GAAP net loss of $9.5 million or a net loss of $0.10 per share last year. Our non-GAAP net income for the quarter was $4.3 million or $0.04 per share, which compares to non-GAAP net income of $1.9 million or $0.02 per share last year. And on our balance sheet, we continue to maintain strong cash balances which totaled $218 million at the end of the quarter. Before turning to our guidance for the fourth quarter and full year, I'd like to highlight a few considerations regarding our business execution and financial results. When we started the year, we implemented an operating and financial plan that required significant business execution. We've been focusing our efforts on simultaneously working to complete Capsella, build out our trade business, grow our OEM business, refocus our dealer go-to-market strategies and return USAA to growth. As Chip and I both reported earlier, all of these business initiatives are on track for strong execution in 2018 and they are helping us to build the strong foundation for accelerated growth next year.

During the first half of the year, we generated, single-digit top line growth as we began these efforts amid headwinds from our USAA channel. During the third and the fourth quarters, we planned for mid to high-teen top line growth reflecting improved performance in all parts of the business, including significant growth in our OEM business and contributions from our new trade-in offering. We are encouraged that we achieved our plans in the third quarter realizing 14% year-over-year revenue growth. While we still expect revenue acceleration in Q4, we are lowering our fourth quarter revenue range modestly to account for potential unit softness and fewer net dealer adds in the fourth quarter due to slower than expected hiring in our dealer sales and service teams. And now for more details on guidance. In the fourth quarter, we expect revenue to be in the range of $95.5 million to $97.5 million, which represent 16% growth at the midpoint of the range.

A couple of areas to highlight include our OEM business where we expect greater than 70% year-over-year growth driven by the continued performance from new and recurring OEM programs and our trade business, where we continue to rollout our trade offering nationwide with the national advertising campaign beginning later this month. We expect approximately $1.4 million of trade and revenue in the fourth quarter. During the fourth quarter, we expect units to be in the range of 262,000 to 267,000, which represents 10% year-over-year growth at the midpoint of the range. Breaking it down by channels. We expect our TrueCar branded channel to be slightly down year-over-year and we will continue to hold our acquisition spend steady in Q4. We expect our extended partner channel to experience double-digit unit growth. This will be driven by high growth partners in our membership, finance and publisher segments.

And we expect the USAA channel to achieve greater than 20% unit growth as this channel continues to regain momentum with user experience improvements from the product changes they made last year. Adjusted EBITDA is expected to be in the range of $10 million to $11 million or 10.9% EBITDA margin at the midpoint of the range. Full year metrics reflect the reductions that we made to Q4 expectations. For annual revenue, we estimated range of $358 million to $360 million and adjusted EBITDA is estimated at a range of $34.7 million to $35.7 million. And as for units, we estimate of a range of 1,010,000 to 1,015,000 units, which would represent the first time that we surpassed the 1,000,000 unit mark. As we move into the last quarter of the year, we continue to drill into all of our key metrics and operational goals, so that we can deliver on expectations next year. We have strong conviction that our accelerated fourth quarter growth along with the completion of Capsella will help us build the foundation for further topline revenue acceleration in 2019. Chip and I would like to personally thank all of the employees of TrueCar for their continued hard work and execution, throughout the year.

And now, we'll open it up for questions.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from the line of Mark Mahaney with RBC Capital Markets. Please proceed with your question.

Mark Mahaney -- RBC Capital Markets. -- Analyst

Okay, thank you very much. Just wanted to ask about the kind of the tempering a little bit in your outlook for both Q4 next year. And I know you referred to this slower than expected hiring in dealer sales in your dealer sales teams. Are there any other material factors and how do you think about that is, is that kind of part of the challenge of doing business and these things -- so these kind of challenges come up from time to time, is there any structural change here that you really need to pivot materially against, so how do we think about how, how -- is this a temporary or a longer-term problem, just give us some context around that. Thank you very much.

Chip Perry -- President and Chief Executive Officer

Mark, and thank you for the question. Chip Perry here. We did take down our guidance a bit in the fourth quarter. And there are a few factors at play here we cited in our prepared remarks, hiring and with our dealer team. Overall, with our dealer team's efforts in the field, we've been able to significantly grow our dealer count this year as well as raise revenue per dealer and reduce churn. So we're quite pleased with the acceptance of our value proposition in the field. We did have some challenges with hiring the right people in the -- toward the end of the third quarter, we had some attrition to try to raise the quality of our team in the third quarter and we weren't able to catch up with the hiring to the level that will allow us to have growth dealer additions that we had earlier hoped for in our original plan. So, we're little bit behind there but not discouraged at all and very positive about our outlook for continuing to grow our dealer business quite strongly. The other factors that are at play here, John mentioned modest weakness in units. We have encountered some challenges with Google's latest algorithm update and so that's affected some of our direct traffic, but we also have plans in place to next year address this kind of a challenge as I mentioned, we have our research and discovery product in development. We have a strong offering with very appealing make model pages that we believe will be attractive in the Google organic search world, so we're addressing that issue. And then the other aspect is that our traffic overall is soft in the fourth quarter. We have that, reallocated some of our marketing spend toward this trade product launch, which we think will be a great boon for that product. But we do feel a modest effect of that from our audience. Overall, conversion though it's going quite nicely. I mentioned that our used car conversion rates are up and that's a result of the great work our product and tech teams are doing. So, we have -- we always have movement in various metrics, but I'm certainly not discouraged or I don't see any fundamental or systemic issues with respect to our dealer efforts, our dealer team and our ability to grow that part of our business, but I did want to signal and be transparent that this, this is an operational challenge that we're working our way through. But as you said, Mark, we kind of like, you hit these situations and you work through them, but it's not systemic and so we're pleased with overall about how the company is performing and the fact that we can accelerate in the fourth quarter beyond what we even done here in the third quarter and our outlook remains very positive for further acceleration in 2019 over 2018.

John Pierantoni -- Interim Chief Financial Officer, Chief Accounting Officer

Thank you, Chip.

Operator

Our next question comes from the line of Steve Dyer with Craig-Hallum. Please proceed with your question.

Steve Dyer -- Craig-Hallum. -- Analyst

Thanks, good afternoon. Just like to dig into OEM, a little bit, obviously, a strong quarter as you've signaled and it looks like you expect another strong one in Q4, maybe just a little bit more texture, I guess around that. Just in terms of, are you seeing a lot of new interest from new OEMs. Are you seeing sort of follow up deals with those you've gotten engaged earlier maybe just any color and then again, maybe how we should think about that specific area next year.

John Pierantoni -- Interim Chief Financial Officer, Chief Accounting Officer

Thanks, Steve. This is John. I can take this one. In regards to the OEM business as you know in the quarter, third quarter, we had quite significant growth and we're also expecting a very strong fourth quarter as well. It comes from a mix of both the core customer dealer -- customer OEM that we have as well as some of the newer programs too. So some of the prior ones that we've announced that have tried pilots, they're back onto recurring programs, there are a couple of additional OEMs that we're talking to, and we're also doing some pilot in the fourth quarter as well. So it's really a mix of both the core anchor tenants that we have in the platform. Some of the newer programs that are starting to stick a little bit longer and then we also have some new pipeline and other things that we're looking forward to doing in '19 as well.

Steve Dyer -- Craig-Hallum. -- Analyst

Okay, great. And then just wondering if you could kind of refresh us on TrueTrade, obviously a big potential. That said, over the course of the last six months, there's a lot of people sort of instituting VIN based valuation and or purchasing, can you just kind of, again, walk us through your monetization and model there and how that works?

Chip Perry -- President and Chief Executive Officer

Sure thing. Our trade product is highly differentiated in the market today, because it gives consumers a good understanding of why their car is worth what it's worth through a dynamic interface that changes the value based on inputs provided by this consumer. Consumers like that because the traditional process tends to be very opaque and all of our competitors have static form. So you're right, there is a lot of, there's a lot of activity in the space, but we do have a unique and a very powerful product that we're bringing to the market. And dealers, like it too because it enables them to be transparent with their customers on why their car is -- has the value it has and helps both of -- both parties, the buyer and the seller establish a good basis for understanding what a fair market value for the vehicle is. And the way we monetize this is through subscription fees with dealers who use this product to capture potential trades that are coming in from TrueCar sellers, as well as a tool that they can place on their website and using their store to improve the quality and customer satisfaction of their trade-in process and to create the basis for good solid used car trading trading economics on their end.

So the product is doing quite well. It also -- our product is also strong and unique with respect to how it provides the dealer a backstop for the value that the tool present to the consumer, our tool shares with the consumer a guaranteed value sight unseen for their used car that they desire to trade in as part of their purchase transaction. When you value used car sight unseen, it has to be done based on the disclosures of key information by the seller, by the consumer seller about their car. Our tool enable the consumer to very quickly work through the factors that are most important to drive the value and as long as they've disclosed information correctly about their car, they are guaranteed to receive that price. When a dealer receives that car and pays that price, the dealer has the opportunity or the option to sell it back to us. If they don't choose to retail it in their local market. So this form of transparency is very powerful for the consumer, it also is very useful and exciting for the dealer to know that they can receive a car and if they feel like the algorithm produces a price that's too high, they are protected on their end.

We are -- we also receive a very small percentage of these cars turned in, so it's -- the call to market very accurately. That's a good solid wholesale number that the consumer can be quite pleased with and obviously if the wholesale number enables dealers to take cars in at a price point that allows them to turn them around the retail at a reasonable margin on the other end. So it's a great product and we very excited about it and the fact we're able to pull forward our national launch, we weren't going to do this into early next year, but the reception has been so positive and the test that we conducted in the third quarter in those three cities resonated quite strongly with consumers and dealers. We saw a nice bounces in traffic, we saw big lifts in the number of consumers who are booking their cars into our system and bringing them into dealerships, so we decided to decide to move up the launch and that I believe will also help facilitate a pickup in dealer sign-ups because they're going to start seeing our ads for our new TrueCar trade product on national television very soon.

Steve Dyer -- Craig-Hallum. -- Analyst

Got it. That's helpful. And then I guess lastly housekeeping wise what was NFE in the quarter both kind of whole company as well as broken out with new and used? Thanks.

Chip Perry -- President and Chief Executive Officer

Sure, no problem. In regards to NFE, what we're seeing from a total company's perspective in the quarter it was about 1.12% and then if you go to new, it was 1.8% roughly and used was about 0.76%.

Operator

Thank you. Our next question comes from the line of Sameet Sinha with B. Riley FBR. Please proceed with your question.

Sameet Sinha -- B. Riley FBR -- Analyst

Thank you very much. Couple of questions. So first just talking about, Chip, you mentioned that used car conversion was up, I mean all media reports are indicating that used car seeing strong, strong kind of uptick unseasonally strong in the third quarter. Is there anything specific that you can point to, is it kind of an industry thing or maybe it was like you said Capsella is already producing results, so that could be it. Second thing talking about the partner CAC (ph) and if I'm looking at customer acquisition cost. And if I'm looking at it, it started to go up in fourth quarter of 2017 in the kind of the mid-20s range and has been continuing. So in a fourth quarter of '18, should we start to think about it kind of leveling off -- this growth leveling off and then you know that continuing into '19 as well or other sort of marketing plans and thresholds in place which could potentially drive this revenue share up further in '19?

Chip Perry -- President and Chief Executive Officer

Thank you, Sameet, appreciate your questions very much. On the used car side of our business. You've heard me say, that we had our used car platform loaded and up and running in our new Capsella environment for a number of months. While our team has been driving to the finish line to complete the overall transformation of our text back and get ourselves completely up into the cloud with AWS. To the past two or three quarters, we -- even though we had used car platform in the new environment, we weren't significantly innovating on it. In the last quarter or so and now as we speak, our team is working on that. We're starting to see some nice upticks in conversion particularly on the used car side of the business. So TrueCar remains very strongly a story of high potential for conversion rate improvement -- an NFE improvement across both the new and used car segments of our business. We're starting to see that in used and next year, I believe, (inaudible) we'll start to see it in new as we continue to optimize the experience and as we move toward our new consumer experience, which you've heard me describe in the past. John, why don't you talk little bit about consumer acquisition cost and how they're trending?

John Pierantoni -- Interim Chief Financial Officer, Chief Accounting Officer

No problem, Chip. And Sameet, in regards to TCDC (ph) what we did see was a very modest lift in acquisition costs. We see that going down a little bit in the fourth quarter with some of the conversion improvements that we're seeing in the business. As it relates to your affinity partner, we are seeing some increases in our acquisition cost there. As you may recall, we've been investing incrementally in some marketing programs on Facebook, with some of our high potential partners and so, we see a bit of that coming into play and that's consistent with prior quarters as well. So we're continuing to do that to really help to grow those programs and the bases of those programs and sharing those marketing events with the -- with Sam's and others as well, so that they can lean in further. We're also seeing some RevShare increase as it relates to growing the OEM business as well. So we see a little bit of that leaning in there too. And as it relates to Q4, we don't -- we don't see that increasing in Q4, we see probably a flat level of spend on a per unit basis in Q4.

Sameet Sinha -- B. Riley FBR -- Analyst

Excellent, thank you.

Operator

Our next question comes from the line of Doug Anmuth with JPMorgan. Please proceed with your question.

Doug Anmuth -- JPMorgan -- Analyst

Thanks for taking the questions. First, can you just talk about '19 and do you still expect 20% revenue growth next year and just, how do you get there? And then second, if you could talk a little bit about the impact of the higher marketing spend on financials next year after Capsella and the products innovation -- what that can do in terms of margins, thank you.

Chip Perry -- President and Chief Executive Officer

You bet, Doug. Thanks for the question. We have a -- we believe very strongly in our ability to accelerate further revenue growth in 2019 over '18. We're getting close to the end of the year and I think it's a bit early to providing specific guidance for next year. The key levers that will enable us to accelerate our growth, we've been speaking about. We still feel very strongly about them. They include ongoing improvements in our user experience, which will improve conversion rates and flow through into our marketplace. We have the addition of our ongoing trade product growth and our OEM product growth. And I should mention that with our trade product growth when I described it earlier, I used the term that we -- that said, we buy the car if the dealer doesn't want it. We actually have a partner that does that. So TrueCar isn't in the business of buying cars from dealers. On the OEM side, we have significant further growth potential. A lot of headroom there as OEMs are further embracing our value proposition. And then as we increase our marketing spend next year based upon our improved user experience and stronger conversion dynamics that will be another aspect of tailwind in our, in our revenue growth. So all those four factors are the key levers that we have been focused on all this year preparing ourselves for next year. So we're very excited about the potential next year. I'm just not going to call, specifically what the number will be until our guidance, which we'll deliver in February of next year after the fourth quarter has finished this year. Regarding the higher marketing costs. It will affect CAC to some extent, but we think it's -- it's going to be a overall positive thing for the business and we'll be able to do this in the context of improving unit economics based upon the growth in our core business as well trade and OEM contributing to improved monetization.

Doug Anmuth -- JPMorgan -- Analyst

Thank you, Chip.

Chip Perry -- President and Chief Executive Officer

Sure thing, Doug.

Operator

Our next question comes from the line of Kyle Evans from Stephens. Please proceed with your question.

Kyle Evans -- Stephens -- Analyst

Thanks for taking my questions. Could we -- could you please put some firmer timelines around Capsella maybe kind of bracket when you're going to test it. So we can start looking for it, when you're going to launch it and when you're going to start marketing the change all around kind of the user interface for dealer contact.

Chip Perry -- President and Chief Executive Officer

Sure Kyle. Thanks for the question. So as we have been saying, Capsella is a project that enables us to replicate all of our existing functionalities and business performance, in a new dynamic flexible agile environment in the cloud. Finishing Capsella by itself does not allow us to launch our new user experience. As I've said in the past, it creates a foundation for a tremendous amount of innovation that we'll be able to put in place next year. Historically, last couple of years, we've had 80% of our development team focused on rebuilding what we already have. Next year, we'll have 80% of our capacity building new stuff. We're very excited about that. And one of the key things we're examining right now is how are we going to deploy all of the scrum teams across all the different opportunity areas that we find so exciting in this business and that's something we're planning and nailing down as we speak.

So what you'll see next year then is a rolling series of improvements. We will finish Capsella before the end of the year. Our teams will get redeployed onto new projects that will drive consumer experience, improvements as well as dealer tool improvements, as well as fundamental improvements in how we present new vehicle and new vehicle information in our website in our current experience, so you'll see that roll out over the course of the year. You've heard me talk about a new user experience in which we will enable consumers to have more control over when their contact information goes through dealerships. We're very excited about that prospect. And the way that will roll out is in the first half of the year, we'll be doing tests in local markets to identify how our funnel and conversion metrics will change as a result of this experience -- new experience and we'll be testing new go-to-market strategies with dealers to determine the best way to monetize this increase in business will be driving into our dealership customers stores.

So, and then the second half of the year, we expect to take the learnings from the first half and begin rolling out a broader go-to-market strategy with our dealer body as these improvements and the way -- the best way to monetize and become better understood. So we will definitely move over to this cloud experience before the end of 2018 and I'm confident we can do that. Another piece of the puzzle next year will be our upper funnel experience, which we plan on launching pieces -- piece parts out and have it progressively grow over the course of the year. A big part of that will be significantly improved make model information pages that will be richly populated with strong user reviews and other content that we think will -- will have a -- provide a significant boost to our organic traffic, as well as begin to flush out our potential as an upper funnel player in the third-party industry. So we're very excited about that as well. So those are the markers that we're putting down now for how we expect to evolve our user experience, based upon the completion of Capsella this year.

Kyle Evans -- Stephens -- Analyst

You have a lot of development goals. Can I assume that the dealer contact user interface is at or near the top of the list of things you'd like to accomplish next year.

Chip Perry -- President and Chief Executive Officer

Absolutely, Kyle. I mentioned that testing in the first half of the year in selected local markets and then based upon the learnings there, we will determine what the best way to roll that out is across the country.

Kyle Evans -- Stephens -- Analyst

Okay, thank you.

Chip Perry -- President and Chief Executive Officer

Sure thing.

Operator

Our next question comes from the line of Dan Kurnos with The Benchmark Company. Please proceed with your question.

Dan Kurnos -- The Benchmark Company -- Analyst

Great, thanks, good afternoon. Just want to go back to some high level questions just around marketing and traffic trends. But first, Chips, since you did bring it up. We knew that there was kind of a big Google change back in August. And there were several companies impacted significantly with their organic search rankings. So I don't know if you can quantify that or give us some more color on exactly why you guys were impacted by the change. And then just high-level kind of brand versus paid channel. I know that you guys are waiting for the consumer experience to press more upper funnel type marketing, but by the same token, sort of the announcement of testing for trade in is pulling it up a little bit seems it's kind of it, it seems like an interesting trade off or decision at this point given where you are with Capsella and the developments you're making. So acknowledging that you have massive potential traffic in your affinity channels. Just can you talk about the balance near term of pushing more national spots versus paid channels given all the commentary you've made around ROI expectations and pay channels and how you think it will impact traffic over the next, call it three months to six months?

Chip Perry -- President and Chief Executive Officer

Okay, Dan. Very interesting question. A lot of interesting issues you bring up there. So first of all, TrueCar, it differs in our category from other players in many respects because we have -- we have less organic traffic in our mix and some of the other players do organically in SEO (ph) driven and we have -- this is the company that got established through strong partner-driven traffic, as well as brand driven traffic, which was built through effective offline and online advertising and marketing.

So when we see a modest softness in organic, it's not a huge factor for us. I just noted that it's something that we're working through. But it's not a major -- does have a major effect on our total traffic. And with respect to the balance of national and product-related spots and our trade campaign, we believe overall that next year will be when we lean into significantly higher brand-related marketing for TrueCar because, one of the stronger user experience to market. We also sitting here at a opportunistic moment in time when we have a very attractive new product to bring to market. So that's why you're -- and we're having initial success both with consumers and dealers who in the introductory phase of it, so. So when we move up the launch, it helps propel that that new product revenue stream. It also have some general positive rub off value for the TrueCar brand, even though it's a specific product related promotion. And I think what you'll see is next year us continuing to have a good balance between digital and offline brand related advertising. We think it's time after three years of holding our marketing budget, relatively flat as we invested our incremental revenue growth dollars into our product and dealer teams. We felt that was appropriate. We have been able to grow our traffic -- sorry, we have been able to grow our revenues significantly in the face of flat overall raw traffic and that's the testimony to the strong conversion rate opportunity that exists within this Company, which will continue to see that conversion rate opportunity next year where we have a lot of headroom, but it's going to be accelerated by a stronger marketing budget next year. We'll be more specific in our fourth quarter call in February, about what we'll be doing in marketing next year. But we're bullish about the future here and we think it's time to start amping it up with respect to brand driven traffic here at TrueCar.

Dan Kurnos -- The Benchmark Company -- Analyst

Got it, thanks. Chip.

Operator

Our next question comes from the line of John Blackledge with Cowen & Company. Please proceed with your question.

John Blackledge -- Cowen & Company -- Analyst

Thanks so much. Just going back to the trade product, could you talk about the -- what it costs to dealers the subscription cost growth. And I think you had mentioned in last quarter, maybe getting to like a thousand dealers by the end of the year. I think, you said, you're at 600. I'm just wondering like where that's going to be by the end of the year and then the trajectory of dealers next year or how we should think about it as we try to kind of model that segment out. And then, just another question which I think you just alluded to Chip, just on the marketing side, do you expect it to be a point of deleverage next year, or will it kind of grow in line with revenue growth. Just any way to frame that? Thank you.

Chip Perry -- President and Chief Executive Officer

On the second point, it will be more in line most likely, probably not above our revenue growth. But just still a nice incremental pop on our ability to promote the TrueCar brand across the country. And with respect to dealers, we said, we have about 1,000 that was a mix between franchise and independent. We're doing great with independents. We're a little bit light. We will be a little bit light in the fourth quarter. I signaled that. We had a good solid third quarter, we had acceleration in dealer count in the second quarter, after having some flatness in Q3 and Q4 of last year and Q1 of this year. So our new dealer market -- go-to-market strategies are improved, renewal approach with our dealer body, our larger sales and service staff are all paying off. So we feel pretty, pretty good actually about where we are with the dealer body. We'd love to have more staffing in the right places right now to be able to produce more growth in the fourth quarter. But like I said in answering Mark's question that's a temporary phenomenon, and will be -- we're working through it this quarter. We expect to be fully staffed entering early next year.

John Blackledge -- Cowen & Company -- Analyst

I was asking on trade, the dealer, the total dealers that will be I think 600 dealers on the -- for the trade product that was--

John Pierantoni -- Interim Chief Financial Officer, Chief Accounting Officer

No problem, so I can take that one. And so in regards to the trade dealers, that's right. It's about 600 right now. We'll probably closer to roughly 800 by end of year is what we're expecting on a rooftop basis . The pricing for the product varies but roughly it started around for the core product at the $600 range per month and grows up from there depending on the size of the dealership. There is also this core subscription fee and in certain jurisdictions, we also have a transactional charge for the number of trade-ins. So it does vary based upon those. And as we, as we launch the products, we're getting more details as to kind of where we think that monetization is going to end up. But it starts at the low end around 600 and grows from there.

John Blackledge -- Cowen & Company -- Analyst

Okay. Thank you.

Operator

Ladies and gentlemen, we have reached the end of the question and answer session. And I would like to turn the call back to management for closing remarks.

Chip Perry -- President and Chief Executive Officer

Thank you very much everybody for joining us for this call. You can tell, we're excited about the future here at TrueCar. We continue to execute on all the things we said we do at the beginning of the year and to be able to say that we're accelerating the way we said we would and a strong potential for even faster growth next year is something that gives this Company a big energy shot in the arm. So thank you to everyone at TrueCar who is enabling this progress, this performance and this potential. Look forward to talking to you in a few months. Thank you, bye.

Operator

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

Duration: 63 minutes

Call participants:

Alison Sternberg -- Senior Vice President of Investor Relations

Chip Perry -- President and Chief Executive Officer

John Pierantoni -- Interim Chief Financial Officer, Chief Accounting Officer

Mark Mahaney -- RBC Capital Markets. -- Analyst

Steve Dyer -- Craig-Hallum. -- Analyst

Sameet Sinha -- B. Riley FBR -- Analyst

Doug Anmuth -- JPMorgan -- Analyst

Kyle Evans -- Stephens -- Analyst

Dan Kurnos -- The Benchmark Company -- Analyst

John Blackledge -- Cowen & Company -- Analyst

More TRUE analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

Motley Fool Transcribers has no position in any of the stocks mentioned. The Motley Fool recommends TrueCar. The Motley Fool has a disclosure policy.