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TrueCar Inc (NASDAQ:TRUE)
Q1 2019 Earnings Call
May. 9, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings. Welcome to the TrueCar, Inc. First Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note, this conference is being recorded.

I will now turn the conference over to your host, Alison Sternberg, Senior Vice President of Investor Relations. Ms. Sternberg, you may begin.

Allison Sternberg -- Senior Vice President of Investor Relations

Thank you, operator. Hello, and welcome to TrueCar's First Quarter 2019 Earnings Conference Call. Joining me today is Chip Perry, President and Chief Executive Officer. As a reminder, we will be making forward-looking statements on this call, including, but not limited to, statements regarding our guidance and outlook for the second quarter and full year 2019, management's beliefs and expectations as to future strategies, events and planned product offerings, future trends and our unit growth, our ability to leverage our DealerScience acquisition to enhance the capabilities of our auto buying program, our ability to enhance our TrueCar Trade products, integrate it into our core offerings and expand the TrueCar Trade dealer network, our ability to forecast and grow our OEM revenues and address volatility in those revenues in the aggregate and in revenues from individual OEMs, our ability to attract new OEM customers and maintain or expand our existing customers' participation in our OEM program, our ability to improve our consumer experience and innovate our products, the identity of specific planned innovations and the time frame within which we introduce them, the effect of our making such improvements and innovations on our financial performance, audience monetization, organic traffic, close rates and user registration and satisfaction, our efforts to boost our search rankings and improve user engagement, our ability to lead the industry by creating an end-to-end car buying experience that benefits all market participants and the outcome of outstanding litigation.

These forward-looking statements are not and should not be relied upon as guarantee 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 2018 filed with the Securities and Exchange Commission and our quarterly report on Form 10-Q for the first quarter of 2019 when 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 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'll turn the call over to Chip.

Victor Anthony Perry -- President, Chief Executive Officer and Director

Thank you, Allison, and good afternoon, everyone. I'm here to report that TrueCar performed in line with our financial expectations in Q1 2019, while we continue to make significant progress on product improvements during our first full quarter post-Capsella, which was completed in November. Revenue for the quarter of $85.6 million came in at the top end of our guidance range, and adjusted EBITDA of $5.1 million was slightly above guidance. All of our major revenue streams, including franchise dealer, independent dealer, OEM incentives, trade and forecast consulting and other revenue performed on plan for the quarter.

More specifically, dealer revenue performed in line with our expectations. We added approximately 200 dealers primarily on the independent side. OEM also came in on plan, posting $4.2 million in revenue for the quarter. And we continue to make solid progress in our trade business, which accounted for $1.4 million of revenue in Q1, as we added over 220 dealers during the quarter.

We ended the quarter with a trade dealer count of 866 rooftops. Before turning to the details of our progress this quarter, I want to address the headwinds we mentioned on our last call and the implications they have for the second quarter and the remainder of the year. Organic traffic issues on our branded channel persisted throughout Q1, contributing to a 15% year-over-year decline in unique visitors to truecar.com.

We're actively working to strengthen our core experience through Capsella-enabled product changes that focus on engagement and discoverability. During Q1, we released a number of product improvements to drive traffic and increase engagement. We recently added 1.9 million vehicle landing pages, preregistration. Additionally, we have built out multiple personalized email templates to entice consumers back to the TrueCar product experience. We've also released a personalized return visitation experience, which enables returning users to instantly see the actions they took during previous visits with shortcuts to quickly jump back to vehicles viewed and/or saved.

This will help consumers more quickly rediscover vehicles of interest, which we expect will increase conversion. In the next few months, we'll be taking a two-pronged approach to improving organic traffic. We'll be launching a series of shopping tools and landing pages aligned with user search demand, giving consumers confidence in their vehicle selection decisions. These experiences will blend together rich vehicle content, market pricing data and owner-generated reviews to delight of consumers and ultimately compel them to register and purchase a vehicle through a TrueCar-certified dealer.

Additionally, we will enhance our core pricing configuration and vehicle search experiences with improved content and user-friendly navigation. Together, all of these enhancements will improve the consumer experience, which we believe will lead to increased traffic growth. The second headwind noted on our last call was the volatility in our quarterly OEM revenues. Although we are reporting in-line Q1 results, our OEM business is performing below plan in the second quarter because one of our larger OEM clients is not offering incentives on our platform during Q2. As I've highlighted before, our OEM revenues remain lumpy at our current scale, resulting in difficulty projecting consistent revenue contributions from this business. Our OEM client tell us that we have a product that is truly differentiated from those offered by our competitors.

This year, we are developing additional product opportunities to improve OEM targetability and reach to help us enter into a larger marketing budget conversations. As a result, we remain confident in our ability to deliver solid OEM growth over the long term. Nevertheless, the lower-than-planned OEM revenues, along with continued challenges in our TrueCar channel, have caused us to revisit our full year guidance and we believe it is appropriate to lower our forecast for the remainder of 2019. I will provide more specifics later in the call.

Despite these challenges, we have made significant progress against our 4 key product initiatives, including the consumer-controlled engagement model, pricing, used car and trade, all of which are accelerating us toward our vision of providing the only seamless, transparent, end-to-end consumer experience in automotive. First, let me share with -- what's going on with our consumer-controlled engagement model.

As you'll recall, the next major evolutionary step for our marketplace is to give consumers more control over their interactions with dealers and unlock new ways of monetizing a higher percentage of our audience. Since its inception, TrueCar has asked consumers to register to receive an upfront discounted price offer on new cars from local certified dealers. Once consumers provide their personal information, we send lead to the dealers' CRMs, and our consumers quickly receive multiple emails and phone calls. This experience often moves consumers through the car buying funnel faster than they expect, sometimes resulting in premature introductions to our certified dealers.

This creates a suboptimal experience for both consumers and dealers. To fix this problem, we begun testing components of our new consumer-controlled engagement model, the goals of which are two-fold. First, we will enable consumers to view discounted upfront price offers, see dealer contact information and receive many other benefits without having dealers contact them before they're ready. We believe this will result in a significantly higher level of user registration and satisfaction with TrueCar, as measured by consumer Net Promoter Scores, which we track very closely.

The second goal of this new model is to enable stronger monetization with dealers through a significantly higher level of attributed sales, measured and captured by our unique closed-loop attribution model. Also as a part of these upcoming tests, for the first time, we will enable consumers to browse and search new car inventory at the VIN level, in addition to configuring and pricing new cars as they have traditionally done at TrueCar. By enabling both styles of new car shopping, we will be able to meet a broader set of new car shoppers' needs than we have historically.

Let me provide 2 examples of the new features that we're actively testing with live traffic, both of which provide the consumer with more control over, if and when their contact information is shared with our dealers. The first feature allows consumers to indicate their time frame to purchase, which will personalize the shopping experience based on their timeline. Second, we are testing giving consumers the ability to limit which dealers receive their contact information, while also allowing them to browse local inventory, view market average prices and, when ready to buy, access VIN-level upfront pricing.

We're also creating features to be tested in the coming months designed to provide more value to consumers who register with us by enabling them to receive customized pricing alerts on saved vehicles, sold vehicle alerts, in-stock offer notifications, vehicle recommendation and custom offers from participating dealers. Our closed-loop attribution model allows us to tie each of our registered users who buy a car at one of our participating dealerships, regardless of whether or not they elect to share their personal information with the dealer through an actual vehicle sale and the dealer's dealer management system.

So as we nurture a measurably greater number of registered consumers down the path to purchase, dealers will be able to tangibly attribute a higher percentage of their sales to our platform and we will have a solid basis for obtaining a larger share of dealers' marketing budgets. Let me remind you that this is something that none of our competitors can currently do. Stay tuned for feedback from our upcoming market tests in the coming quarters. These will be important as they will take the company on a new, more consumer-concentric direction, while putting us on a much stronger growth trajectory with our dealers.

Our second key product initiative is improving pricing tools and information. One of our core value propositions to consumers is that we provide them a transactable upfront price that is easily comparable to what others have recently paid for the same car by using our market-leading transaction data capabilities. We have a number of improvements in the works, such as enhancements to our pricing management tools for dealers that enable them to price vehicles at the VIN level based on an offset from either MSRP or invoice. Historically, we have only allowed dealers to price based on offset from invoice.

This aligns with how we believe the majority of dealers think about pricing their vehicles today. We expect that this change will result in a higher percentage of vehicles presented to consumers with an upfront discounted price offer as well as dealers having a better understanding of how consumers will see their vehicles in the context of the TrueCar price curve. We are also updating and refreshing our user experience around new car pricing by clarifying the meaning of key pricing terms that are highlighting the typical pricing discounts from MSRP that consumers will see after they register and making it easier for consumers to understand how options, packages and incentives impact their discounted price offers.

Third, on the used car side of our marketplace, we're making great progress toward building a compelling used car experience. In Q1, we improved in-session and registered user engagement, filtering capabilities and the presentation of vehicle data to help consumers better find the vehicles they are looking for and enhance their understanding of vehicles and their features. As noted earlier, we'll continue launching features designed to incentivize more consumers to register and enable us to engage them more deeply throughout their shopping process.

These features include price alerts on saved vehicles, sold vehicle alerts and vehicle recommendations. Our fourth major product initiative is trade. Trade is one of our fastest growing revenue streams and we are working on several product and sales fronts to accelerate its growth. First, we are working with our partner, Accu-Trade, to improve the front end consumer experience so that we can fully integrate the trade product with our core auto buying program by the end of the year. This will take us one step closer to enabling consumers to configure their entire car deal online.

Second, we are enabling our trade-in product offering to better align with the needs of consumers who's on rent to car buying starts with an evaluation of their trade-in. We know that when we match trade consumers with a nearby franchise dealer who sells the same brand of car they want to buy, they close at a dramatically higher rate. This understanding led us to create a freemium version of our trade product that will enable more rapid adoption by our existing certified dealers and provide more convenient trade-in locations for our consumers. The subscription is free for the dealer and they pay us a transaction fee for any vehicle bought or sold. The consumer wins with increased convenience if they can buy and trade-in at the same dealership.

The dealer wins with a better quality lead and it provides our sales team with an entree to sign that dealership up on a full subscription version of the product. To date, we have over 940 rooftops on Trade with our recent growth aided by this new freemium product. We conducted a regional pilot test of the freemium version of Trade over the last few months. And based on the success of that pilot, we are moving quickly to rollout this product nationwide. In parallel with these 4 major strategic initiatives, we have developed new consumer engagement products that allow dealers to get their brand in inventory in front of our end-market car shoppers that we believe will provide a modest boost in revenue in the second half of the year.

As you can see, there's a tremendous amount of innovation going on across the company, and we continue to make significant progress on product improvements empowered by the completion of Capsella that are designed to enhance the consumer experience, increase engagement and grow transaction volume through our dealers. We said that finishing Capsella would open up a new chapter of innovation at TrueCar, and it's exciting to see that's happening in real-time.

Now I'd like to walk you through our financial results for the quarter, our outlook for Q2 and our outlook for the remainder of the year. During the first quarter, total revenue was up 6% over Q1 of 2018, near the top end of our guidance coming in at $85.6 million. Franchise dealer revenue increased 3% year-over-year. Franchise dealer count was also up 4% to 12,675 dealers, and monthly revenue per franchise dealer decreased by 1%. Independent dealer revenue was up 1% compared to the prior year.

Indie dealer count increased 28% to 3,854 dealers, and monthly revenue per independent dealer decreased 20% as we continued to focus on adding smaller independent dealers. New dealer product revenue, including revenue from trade and dealer signs, was approximately $2.4 million during the quarter. Dealer adoption of our Trade product continued on pace, increasing to 866 rooftops by the end of the quarter.

The growth in trade rooftop count was aided by our new go-to-market strategy to increase brand coverage in local markets. We also made good progress integrating our DealerScience acquisition into our business, and we intend to enhance our core auto buying program with new capabilities enabled by DealerScience in the second half of 2019. OEM revenue of $4.2 million was down 5% over Q1 of '18. The slight decrease was driven by macro issues within one of our large recurring customers. Forecast, consulting and other revenues was $4.6 million in Q1 of '19, up 6% year-over-year.

Turning to units. Our total units were 232,781, up 1% year-over-year. These results and the breakdown of our units by channels reflected the opportunities and risks that we highlighted leading into the quarter. The TrueCar-branded channel was down 11% year-over-year. This decrease was largely driven by a decrease in organic traffic, specifically in the new car segment. Within the quarter, we started to see organic traffic recovery in the branded channel on our used car traffic.

Our used car platform has operated on our new technology stack longer than our new car platform, and we believe that the earlier recovery of our used car channel could forecast future recovery in the new car channel, driven by improved site and product performance on our new technology stack. Extended partner channel units were up 12% year-over-year. This growth reflects strong performance in our membership and finance segments and an increase in used car units. USAA channel units were up 7% from last year.

The growth in the USAA channel was fueled by strong used car performance as a result of enhanced user experience. USAA continues to be a strong partner with whom we are able to successfully pilot new products offerings like Trade, deepen our integration within their site product flows and provide the best car buy experience to their member base. A few other things to mention are, new units were down 7% year-over-year, while used units were up 19%. As a result, the new/used unit mix was 61.2% new and 38.8% used in Q1 of '19, as compared to 66.9% new and 33.1% used in the prior year.

Monetization in Q1 of '19 was $348 per unit, up from $334 per unit in Q1 of last year. The increase in year-over-year monetization was primarily due to the addition of new products for a dealer customer base for which no incremental units are generated. Now turning to expenses and margins where all of following metrics are on a non-GAAP basis, unless otherwise stated. Gross profit was up 5% from Q1 of '18, while gross margin was 90.6% in Q1 of '19 versus 91.2% in Q1 of last year. Sales and marketing expenses were $50.2 million or 58.6% of revenue in Q1 of '19, as compared to $45.3 million or 55.9% of revenue in Q1 of last year.

Within sales and marketing, we spent $14.9 million on television, radio and digital to drive TrueCar channel customer acquisition. This compares to $13.9 million in spend this time last year. And cost per sale for Q1 increased by 19.6% from $149 per unit last year to $178 per unit this year, primarily driven by $1.5 million in trade marketing during the quarter as well as organic traffic headwinds resulting in lower overall TrueCar unit volumes. Excluding trade marketing, cost for sale in Q1 increased from $147 per unit last year to $160 per unit this year. Partner rev share and other expenses totaled $16 million in Q1 of '19, as compared to $14.8 million in Q1 of last year. The increase in expenses was driven by the growth in extended affinity and USAA units.

And our affinity partner cost per sale decreased 1% year-over-year to $107 in Q1 of '19. Finally, our sales, headcounts and other costs were $19.3 million in Q1 of '19, up 15% from $16.8 million this time last year. The increase in cost reflects the expansion of our dealer sales and service teams to support our larger dealer network and our plans for new product offerings. Moving to G&A. Q1 2019 expenses totaled $10.2 million or 11.9% of revenue as compared to $9.4 million or 11.6% of revenue in Q1 of '18. Adjusted EBITDA was $5.1 million or 6% of revenue in Q1 of '19, as compared to $6 million or 7% of revenue in Q1 of '18. The items excluded from adjusted EBITDA for Q1 of '19 included depreciation and amortization of $6.4 million, stock-based compensation of $8.6 million and severance cost associated with a reduction in force in January of 2019 of $3.3 million. GAAP net loss for the period was $14.4 million or $0.14 per basic and diluted share as compared to $9.1 million or $0.09 per basic and diluted share in the prior year.

Non-GAAP net loss was $0.4 million or a loss of $0 per share compared to non-GAAP net income of $0.8 million or $0.01 per share this time last year. Our balance sheet remains healthy with approximately $180 million in cash and no outstanding debt. Now turning to guidance. In light of the ongoing challenges we are experiencing in our TrueCar channel, combined with lower-than-expected OEM revenue, we are guiding to Q2 revenue of $88.5 million to $90.5 million, or 1% to 3% growth year-over-year. For the full year, we're guiding to a revised range of $361 million to $375 million or 2% to 6% revenue growth.

As a reminder, because we haven't yet seen the effects of the many consumer experience improvements we are introducing, we haven't factored the potential positive financial impact into our guidance. The lower end of our revenue guidance range assumes that the reduced OEM revenue and truecar.com unit volumes that we anticipate in Q2 will persist through the remainder of the year. The higher end of the range assumes that we are able to generate higher OEM revenue in the second half of the year and capture incremental new dealer product revenues.

Turning now to adjusted EBITDA. We are guiding to Q2 adjusted EBITDA of $4 million to $6 million, or 4.5% to 6.5% adjusted EBITDA margin. For the full year, we are guiding to a revised range of $27 million to $36 million, or 7.5% to 9.5% adjusted EBITDA margin. This revision to adjusted EBITDA is primarily the result of less revenue from high-margin OEM programs.

And now, we'll open up for questions.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from Ron Josey, JMP Securities. Please proceed with your question.

Ron Josey -- JMP Securities -- Analyst

Great thanks for taking the question. Chip, I had Two. One is just on the guidance, and understood that you're not including any deposit factors of the changes you might make to the consumer side. But given the challenges in the OEM in the quarter and the true channel, do you think you factor in enough risk in guidance? Meaning, you think it's ensured enough going forward just on the downside, understanding there could potentially be upside. And speaking of the upside, you started the call talking about a lot of the new engagement opportunities and experiences for consumers, the consumer control engagement, new SEO landing pages. Can you put a timing on those? That would be helpful.

Victor Anthony Perry -- President, Chief Executive Officer and Director

Thank you, Ron. Appreciate the questions very much. Regarding our guide, we've assumed, like I said on the low end, that we continue to see the same kind of outperformance that we saw in Q1 and we're going expect to see in Q2 for the rest of the year. So we believe that we have an appropriately calibrated lower end of our guide. On the higher end of the guide, we have more OEM revenue based upon the possibility of at least 1 OEM increasing their participation with us -- participating and others increasing their participation with TrueCar in the second half of the year.

I think we're pretty well-bracketed there on upside and the downside relative to OEM revenue. Now with respect to timing on the various product initiatives I described in the call, there are a number of things that are being tested today, live on-site with a portion of our traffic, such as improvements related to enabling consumers to have more control over when their name goes to the leadership. And we have a number of things that are live around enabling new car inventories to be viewed by all our traffic, that's live today.

Going forward, over the next quarter, we have a significant number of enhancements happening in this quarter, Q2, that will be live, both parts of our traffic and for all of our traffic. And then we will be launching, in selected markets, our new consumer-controlled engagement model early in the third quarter. And so we'll be proceeding with that very important evolution of our product experience. It's a centerpiece of our plans for the year and a key -- and an element of our growth strategy for the future. So I'd be happy to provide you and other analysts with more a detailed roadmap of what's coming in Q2 as well Q3 and 4.

Ron Josey -- JMP Securities -- Analyst

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

Victor Anthony Perry -- President, Chief Executive Officer and Director

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

Ron Josey -- JMP Securities -- Analyst

Thank you guys, thanks Chip.

Operator

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

Daniel Powell -- Goldman Sachs -- Analyst

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

Victor Anthony Perry -- President, Chief Executive Officer and Director

Sure. Thank you, Dan, for the question. So we made a number of product improvements on the used car side, which are enabling very nice unit growth, like you heard, of 19% in the first quarter year-over-year. And they are -- that's resulting in both increased traffic flowing from organic traffic sources as well as conversion improvements once our car buyers reach our used car experience.

On the -- the product improvements are helping in both fronts, both traffic and conversion. The product groups we made are improved filtering and search tools as well as more detailed, easy to access and understand detailed information about used cars on our vehicle detail page. So those are the improvements we're making. And it really shows the potential of our company at a high level to grow in the face of fairly modest traffic growth.

So we -- this company -- TrueCar does represent a company that has tremendous conversion rate and unit growth opportunity by enabling our existing audience to proceed more deeply through our experience, get registered in our marketplace and proceed to buy a car from one of our certified TrueCar dealers. And the used car side, because it's been on our tech stack longer, we're really starting to see the fruit of the labors of our teams happen there, even before the improvements we expect to see similarly in new car over time.

Daniel Powell -- Goldman Sachs -- Analyst

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

Victor Anthony Perry -- President, Chief Executive Officer and Director

Sure. So we're working very closely with our affinity partner across the board to activate the digital audiences that are engaged with them on their own portals. So both through email campaigns and stronger integrations within their experiences, we're able to attract to the car buying service, the TrueCar car buying service more of their members. And so we're seeing that work its way through nicely with our affinity partners, and we saw nice growth with USAA and as well as our extended affinity partner channel. And it's mainly from those 2 things. It's stronger digital activation of their members through email campaigns and more effective digital integrations with their own portals.

Daniel Powell -- Goldman Sachs -- Analyst

Great. Thanks for the color. Appreciate it.

Operator

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

Kyle Evans -- Stephens -- Analyst

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

Victor Anthony Perry -- President, Chief Executive Officer and Director

Sure. Thank you for the question, Kyle. It is very important for us to be begin gauging that. It will be one of the very early indicators of the success of this important strategic initiative for our company. Right now, I can't really quote numbers, but as we begin to move into in-depth local market tests beginning in the third quarter, we're going to see -- and that's right on time, by the way. We said we would be testing in the first half of the year and launching in the second half of the year.

And so as we launch these initial market installations of our new user experience, we'll observe first the increased rate of registration and then we'll also then begin to observe a higher level of matched sales based upon the higher levels of registration. So it will be next quarter, we'll start to be able to, I think, share some early findings from those first stage market rollouts. And I'm excited about the prospect here. Our team is very excited, our product team is energized, our sales team is energized. We're ready to hit the beaches with this new user experience in full force beginning in the second half of the year.

Kyle Evans -- Stephens -- Analyst

In your best estimation, when you have an OEM shut off, what's behind that decision on the incentive business?

Victor Anthony Perry -- President, Chief Executive Officer and Director

When you have -- our OEM clients pulse on and off. It often has to do with funding mechanisms that they are using to fuel their incentive programs with TrueCar. Like I said on earlier calls, there are new form of digital marketing for OEM incentive programs. The product we provide enables them to place an incentive offer behind the registration wall and motivate a car buyer into their brand or accelerate their interest in buying the car in a way that they only pay when the car gets sold.

This is in contrast to their normal go-to-market approach, which is digital display ads and search that's pay per an impression basis. So the funding mechanism for our kind of a product is very early days being established inside the OEM clients. So we got some strong anchor clients like FCA and Mercedes. We're well-established with them. Others, I would say, the funding mechanism haven't yet been solidified. And that's why they pulse on and off. And so we're working hard to deepen our presence with them and work with them to solidify a strong view of positive ROI that we always hear about from our clients that flow from our -- from the programs they do with us.

So we're looking hard to tap into these larger budgets. We just haven't been able to do it consistently enough so far, but I'm quite positive we'll get there. We had such positive feedback from our clients about the program, but because it's so new to them in terms of the way they typically spend their marketing dollars, it's been a challenge for us to get firmly established with multiple OEM clients simultaneously. But we're making headway. And over time, like I said, this will be a strong growth revenue stream for our company.

Kyle Evans -- Stephens -- Analyst

Okay. Last one. Glad that you launched the freemium Trade. I think that's a great approach. Did you put some brackets around the transactional pricing? And what do you think the dealership returns are in that mode?

Victor Anthony Perry -- President, Chief Executive Officer and Director

Sure. So our Trade freemium product is a little bit like the TrueCar new car program in that the leads are free and they pay when a car gets sold. So it's the best way to think about it. So a dealer who is on our system today, not that it's getting Trade through the normal subscription product. Subscription products enables them to put our Trade widget on their website, enables them to use it in their store to provide more transparency and capture more gross profit through their normal trade-in process and provide greater customer satisfaction.

That's the normal subscription product. So what we've done is we created a version of this product that enables the dealer with our -- on our core product to receive trade-in leads from consumers who want to sell a car who had indicated an interest in the branded car they want to buy. We're matching the consumer who has a car to sell with the brand of the dealer that is the same as they want to purchase. So a lead is a very strong lead. And we're asking the dealer to compensate us, because they're not paying a subscription, when a transaction occurs. So if there's -- if a situation happens in which the consumer buys a car, they pay us once.

But if -- as the Trade-only lead with a vehicle of interest, they only end up selling their car to the dealer and not buying the car, we still receive a transaction fee. The real benefit of this is that it enables our network to produce a significantly closer trade-in location for the consumer when they book their car with TrueCar. And it enables our sales team to introduce in a more in-depth way this very attractive trade-in product to dealers -- our core dealers who are not currently on our subscription product. So we've launched this as a pilot in the critical region, great success. We've already seen some nice take rates moving to the full subscription product. And so like I said, nationwide, we're going to roll this out quickly nationwide and it will fuel some nice growth for this program as the year goes on.

Kyle Evans -- Stephens -- Analyst

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

Victor Anthony Perry -- President, Chief Executive Officer and Director

Yes, I'm sorry. It's 2 99 per car if they sell a car -- the consumer sells the dealer a car in this situation and a case when the consumer hasn't bought a car from the dealer.

Kyle Evans -- Stephens -- Analyst

Got it. Thank you.

Operator

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

Dan Kurnos -- The Benchmark Company -- Analyst

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

Victor Anthony Perry -- President, Chief Executive Officer and Director

Well, we're not naming clients on -- in the public like this, but they have been one of our clients in the past and we're hopeful they will be returning.

Dan Kurnos -- The Benchmark Company -- Analyst

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

Victor Anthony Perry -- President, Chief Executive Officer and Director

Sure. So over the past couple of years, as you know, we've held our marketing budget quite flat. We've been able to maintain our audience reasonably well, quite well actually up until the recent softness organically with the TrueCar channel. What we've been doing over the last few quarters is leaning more deeply into digital spend versus traditional spend for our TrueCar channel.

That's continuing. So we haven't really made any fundamental changes in how we think about acquiring audience. We have really well-defined criteria on acquisition digitally. We'll buy traffic as long as it produces registered users prospects to our system at the lower threshold of expense -- threshold of per user expense. That's well-established. And we are constantly testing a wide range of different kinds of search strategies to optimize our spend. So we believe that we're at a stage right now where we're in pretty good balance, we're able to maintain our audience.

What we're doing though is we're setting the stage for as I mentioned, one of the important growth levers of this company, I've said this in the past, as our user experience improves and we have more registration, we can tract more units, more productive funnel, we'll have green light -- economic green light to increase our marketing spend. And so we're anticipating us moving in that direction as soon as we can see -- get clear visibility of improved funnel efficiency through product improvements. As it relates to franchise dealers, I mentioned that our dealer count is up mainly due to independents.

Doing quite well with independent dealers. We're modest -- we expect to be modestly up this year with franchise dealers. And so in the environment we're in right now with modest unit growth, that's a good outcome. I would love to be growing franchise dealers more, we hope to in the future. But right now, we're getting our traffic levels and the feedback we're receiving from customers, we believe this is on a good path to maintain a good, solid franchise dealer base this year. Modestly up. Independent dealers quite a bit stronger. We're doing quite well with used car. You saw our unit growth in the first quarter.

And we're adding new dealers at a good clip. And we're able to realize some higher subscription rates in this quarter and upcoming quarters because as we've been growing lead volume the past few quarters, we're now -- we're trying to catch up with rates that reflect the value the dealer -- independent dealers are receiving. So we expect to see good, solid double-digit growth in our independent revenues for the rest of the year.

Dan Kurnos -- The Benchmark Company -- Analyst

Got it. Thanks for all the color Chip.

Operator

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

Nate Mitchell -- SunTrust -- Analyst

Hi. Yes This is Nate Mitchell on Naved. Thank you for taking my question. First one, just a clarification more than anything else. Google made an algorithm change in March. Was this an impact on you guys? Or is the organic traffic headwind is a result of still the tech platform? That's #1. And then #2, any update on the hiring of a new CFO?

Victor Anthony Perry -- President, Chief Executive Officer and Director

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

Nate Mitchell -- SunTrust -- Analyst

Great. Thank you.

Operator

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

Nick Jones -- Citi -- Analyst

Hi, Two quick ones on, I guess, SEO again. What do you think TrueCar can do to kind of close the gap against some of your competitors on maybe ranking better organically? And then second, just on kind of independent dealers, the revenue per dealer has been decreasing kind of quite a bit this quarter compared to last quarter. Is there any commentary on that you can add?

Victor Anthony Perry -- President, Chief Executive Officer and Director

Sure. Thank you, Nick. With respect to SEO rankings, we're working on a variety of fronts that, over time, we think will improve our organic search. We're working on make, models, landing pages. We're working on make, model comparison pages, hundreds of permutations of those. Those are being built. They haven't yet been linked to our mothership site, and made indexable to search engines.

We are not that far away from doing that. And so we have a number of good initiatives under way. Most important thing we can be doing is improving consumer engagement with TrueCar and all other things we're doing to improve how pricing works on our site, how used car engagement is improving when we see used car registration rates, return rates, prospect rates rise, these are all positive indicators that will ultimately filter back into the search world. So even though it's a long game we're playing, we're quite optimistic that, over time, we'll begin to see some nice recovery in our search ranks and our organic traffic.

Timing-wise, we're looking at not a quick snapback, more likely projects being visible starting early next year. But we're making headway chipping away at it a little bit at a time, and the fact that we did see a nice boost from that March algorithm update is a sign we're moving in the right direction. With respect to independent dealer revenue declining, we've been, as I've said on earlier calls, adding more smaller dealers than we had in the past. So smaller dealers have smaller inventories, they receive smaller quantity of leads, their substitution price -- subscription rates are lower.

So we're going to -- but we will see growth in the segment overall as we start to have stronger monetization with independent dealers based upon the much higher level of lead volumes we'll be incenting to them in the last 2 or 3 quarters. So I'm not worried about revenue per dealer in the last quarter or 2 going down because we have smaller dealers in the mix. That's fine. It gives us a larger base to monetize over going forward, particularly based upon our larger lead volume that we had been producing for them in the last two or three quarters. So that's why I'm quite confident we'll be able to grow that segment nice in the next Q3 and Q4.

Nick Jones -- Citi -- Analyst

Got it. Thank you for taking my questions.

Victor Anthony Perry -- President, Chief Executive Officer and Director

Sure.

Operator

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

Marvin Fong -- BTIG -- Analyst

Hi, thank you for taking my question. A lot of them have already been asked. But I'd like to drill into the USAA channel. It seemed like that did quite well, relatively speaking. And I think you referenced some that, that was due to some user enhancements. I was just wondering if you could kind of drill down a little more into that and how we should, #1, think about the channel for the rest of the year, and if that growth can be sustained? And then, secondly, can you apply some of those findings to, say, other affinity partner channel? And I have a follow-up.

Victor Anthony Perry -- President, Chief Executive Officer and Director

Sure. Thank you, Marvin. So when we launched Capsella, that's meant to be moved off of the old technology stack, out of the environment we're in up into the cloud. We were able to modernize all of our extended affinity partner into TrueCar. And at the same time, we made some nice improvements with -- inside the USAA portal. So USAA continues to be an excellent partner.

Great collaboration with them as we have been able to test, for instance -- not test, but launch our new Trade product within their network with their cooperation, which is producing good results for us. And so we're seeing nice, solid, I would call, nice middle single digit growth with them, higher than that, about 7% in the first quarter but like that the rest of the year, and with respect to our extended affinity partners, even a little bit better than that in the first quarter.

So we're going to continue to work on improving the integrations and the digital activation their member base through active email campaigns, which also include promotion of OEM incentives that are targeted toward affinity members. That's one of the big advantages we have as a company is enabling an OEM to target a specific audience behind the registration wall that has an affinity and a demographic that they're interested in targeting and attracting. So we love to do more of that as the year goes on.

Marvin Fong -- BTIG -- Analyst

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

Victor Anthony Perry -- President, Chief Executive Officer and Director

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

Operator

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

Victor Anthony Perry -- President, Chief Executive Officer and Director

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

Operator

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

Duration: 56 minutes

Call participants:

Allison Sternberg -- Senior Vice President of Investor Relations

Victor Anthony Perry -- President, Chief Executive Officer and Director

Ron Josey -- JMP Securities -- Analyst

Daniel Powell -- Goldman Sachs -- Analyst

Kyle Evans -- Stephens -- Analyst

Dan Kurnos -- The Benchmark Company -- Analyst

Nate Mitchell -- SunTrust -- Analyst

Nick Jones -- Citi -- Analyst

Marvin Fong -- BTIG -- Analyst

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