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TrueCar Inc (NASDAQ:TRUE)
Q4 2019 Earnings Call
Feb 20, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the TrueCar's Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Danny Vivier, Vice President of Investor Relations. Thank you, sir. You may begin.

Danny Vivier -- Vice President, Investor Relations and Strategic Finance

Thank you, operator. Hello and welcome to TrueCar's fourth quarter 2019 earnings conference call. Joining me today is, Mike Darrow, our Interim President and Chief Executive Officer; and Noel Watson, our Chief Financial Officer.

As a reminder, we will be making forward-looking statements on this call. In addition to our guidance for the first quarter and full-year 2020, these forward-looking statements can be identified by the use of words such as believe, expect, plan, anticipate, will, intend, confident and similar expressions. These forward-looking statements are not and should not be relied upon as a guarantee for 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, our quarterly reports on Form 10-Q and our other reports and filings with the Securities and Exchange Commission for a discussion of the factors that could cause our results to differ materially. The forward-looking statements we make 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 certain GAAP and 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 Mike.

Michael Darrow -- Interim President and Chief Executive Officer

Thank you, Danny, and good afternoon, everyone. 2019 was a year of great achievement across all areas of the business. In just one year, we transformed our brand identity, dramatically improved our consumer experience, returned to traffic growth and maintained our robust network of nearly 17,000 certified dealers. All of these achievements would not have been possible were it not for the unwavering belief and commitment of our employees. I am beyond privileged to come to work each day alongside this group of talented, thoughtful and driven professionals, united by the common goal of dramatically improving the way people discover, buy and sell cars.

As of February 14, TrueCar has entered into a short-term extension of its partnership with USAA Federal Savings Bank in the form of a transition services agreement. Under this agreement, TrueCar will continue to power the USAA car buying service through September 30, 2020, after which the service will be discontinued. During this transition period, both companies will remain committed to running the car buying service without interruption. USAA site will continue to feature a car buying service for its members and TrueCar's network of dealers will see no difference in the way they interact with USAA customers. As it relates to the economics, the revenue share from TrueCar to USAA will remain the same as it was under the previous agreement. Additionally, there will be a separate $20 million transition services fee that TrueCar will earn throughout the duration of the agreement.

To be clear, this announcement does not reflect on the service TrueCar has provided to USAA members over the course of a long and successful 13-year partnership. Ultimately, USAA made it clear to us that they have decided to stop providing the car buying service to their members on October 1 in an effort to simplify their business and focus on core product offerings.

TrueCar was given very little notice of USAA's decision. In response, we initiated a thorough assessment of our business to identify additional near-term and long-term opportunities for growth and value creation. While we're still in the process of assessing the business impact, we are confident that the execution of the transition services agreement will enable TrueCar to maintain adjusted EBITDA margins in 2020. At the same time, as we think about the longer-term impact of this announcement beyond 2020, there are a number of audience segments and strategic partnerships that we are now able to pursue. We will go after these opportunities aggressively over the next few months, while in parallel, developing a plan to preserve the overall profitability of the business beyond this year regardless of the outcome of these strategic options. Today's announcement reinforces our conviction in continuing to invest in TrueCar's industry-leading position as the provider of the highest quality new and used car connections.

I'd like to now identify how we make progress in 2019 toward solidifying this position. First and foremost, over the past three years, we made significant investments in our technology platform that enabled us to more rapidly innovate our consumer experience to address major pain points in the car buying journey. The velocity of product innovation in 2019 was unprecedented in the Company's history. For those of you who have explored the site since our announcement of the new consumer experience in late January, you'll appreciate just how much progress we've made. In 2019, we built out an enriched shopping content and vehicle discovery experience, evolved the way in which we communicate pricing context, enhanced our inventory discovery across both new and used and introduced an entirely new personalized dealer connection page.

Let me take a moment to explain why the latter, the personalized dealer connection page, is so critical to TrueCar's future. As a reminder, in our legacy experience, once consumers' completed a lead form, their personal information was automatically passed to up to three dealers. This lead gen model often move consumers through the car buying funnel faster than they had intended, sometimes resulting in premature introductions to our dealers, creating a suboptimal experience for both sides of the marketplace.

In the new experience, we evolved past a lead gen model in favor of empowering consumers with control over the number of dealers with whom they share their information. This evolution marks a critical moment in TrueCar's history, accelerating us toward fulfilling what consumers have come to expect from any modern marketplace. As a result of this change, we're seeing a significant improvement in customer satisfaction with Net Promoter Scores up nearly 100%. From the dealer's perspective, the connections we are making are much higher quality, in many cases, exclusive and are driving a significant lift in overall close rates. At this time, the personalized dealer connection page is live across 100% of our truecar.com traffic and we expect to complete the rollout across our extended partnering network in 2020. Rest assured, this is just the beginning. In parallel to the full rollout, we have a roadmap for follow-up enhancements and optimizations that will continue to empower consumers with more control over how and when they connect with our dealers.

Now, we recognize that high-quality connections in isolation are not the only element of a healthy two-sided marketplace. In order to grow the volume of high-quality connections, we need to continue attracting more in-market consumers to our experience. Let me now outline the progress we've made toward that end across both our brand and extended affinity channels. In 2019, we reaccelerated our truecar.com traffic, highlighted by 26% year-over-year growth in Q4 2019. Much of the growth was driven by the investments we've made in SEO to generate more organic traffic. Throughout the year, we launched a variety of research and discovery experiences such as best of vehicle rankings, make level incentive pages and model overviews, that are just beginning to show up in our numbers.

On the heels of a strong Q4, in late January, we launched a complete refresh of TrueCar's brand identity, featuring an all-new logo, website and app design, advertising collateral in B2B marketing campaign. The new TrueCar brand appeals to a wider audience of consumers beating out the competition in terms of likeability across all demographic segments. We are encouraged by the momentum we are seeing here and remain committed to growing our branded channel audience into 2020.

Now, turning to the affinity side of our business. As I alluded to earlier in this call, our relationship with USAA limited our ability to actively target one of the most engaged consumer segments in the US, namely active and retired military members and their immediate families. For context, our research suggests there are more than 40 million individuals within this segment. Compare this figure to a relatively small number of USAA members who bought a car through our dealer network in 2019 and you'll quickly recognize the potential opportunity in front of us. Our history serving this community, brand recognition and deep understanding of this audience positions us to extend well beyond the USAA membership base to deliver a differentiated car buying service to a broader audience of military professionals and their families.

In parallel to exploring ways to more deeply engage the military community, we will also continue to scale our new and existing high opportunity affinity partners, including world-class brands such as American Express, Sam's Club and GEICO, whose members collectively represent the majority of US households.

To summarize, while the loss of USAA is a clear headwind, we believe there are a number of near-term actionable opportunities to appeal to additional segments of in-market car buyers. With positive changes to our consumer experience and an acceleration of traffic growth across our non-USAA acquisition channels driving the demand side of our marketplace, we'll look to service this demand by maintaining a healthy dealer network. Let me remind, you over the past three years, we've worked hard to build a network of nearly 17,000 dealer customers who have looked at TrueCar as an efficient, highly accountable, high-quality source of new and used car sales.

Coming out of our largest industry conference, NADA, just last weekend in Las Vegas, dealers are excited by the changes we are making to our product experience and brand identity, all of which are in support of driving higher-quality connections into their showroom. As traffic sources change in our ecosystem, we will continue to manage our network to ensure our dealer customers receive the industry's highest quality consumer connections that also represent a significant portion of their monthly sales.

I'll now turn the call over to Noel to walk you through Q4, full-year 2019 results, as well as our expectations for 2020.

Noel Watson -- Chief Financial Officer

Thank you, Mike, and good afternoon, everyone. Before turning to the rest of our call, the Chair of our Board, Chris Claus, has asked me to read the following statement on his behalf to update you on the status of the Company's search for a new CEO. TrueCar's Board of Directors is extremely pleased with the performance of the TrueCar team under Mike's leadership since June of 2019, a time in which the Company has faced many difficult challenges. Despite those challenges, Mike and the reconstituted leadership team have made significant strides in improving the operations of the business to better serve all of the Company's constituent interests: consumers, dealers, affinity partners, and OEMs. Against that backdrop, the Board remains committed to bringing the CEO search process to a conclusion in the very near future and expects to be in a position to make an announcement on or before the end of the first quarter.

Now, I'd like to take you through our fourth quarter financial results, which reflect performance above the high-end of our expectations for the second consecutive quarter, as well as an update on our guidance for 2020. During the fourth quarter, total revenue of $89.7 million was approximately $1 million above the high-end of our guidance range and down 2% year-over-year. For all of 2019, revenue was $353.9 million, roughly flat from the prior year. Franchise revenue totaled $66.3 million in Q4 of '19 and was down 2% year-over-year, with franchise dealer count down 1% to 12,565 dealers. In all of 2019, franchise dealer revenue totaled $266.2 million, which was flat year-over-year.

Independent dealer revenue in Q4 of '19 was up 20%, compared to last year. And independent dealer count increased 20% to 4,395 dealers. For all of 2019, revenue from independent dealers was $39.7 million, up 12% over 2018.

New dealer product revenue, including revenue for Trade, DealerScience, Sponsored Listings and TrueCar Reach was approximately $4 million during the quarter, up from $1.5 million in Q4 of last year. For all of 2019, new dealer product revenue totaled $12.1 million, up from $3 million in 2018. We're pleased by the way dealers have embraced these new product offerings and expect this momentum to continue into 2020.

OEM revenue of $3.8 million in Q4 of '19 was down 53% from Q4 of '18. For all of 2019, OEM revenue was $16.6 million, down 45% year-over-year from $30 million in 2018. As we've noted previously, this decrease was primarily driven by the lack of recurring revenue from two of our larger OEM clients. We will begin to lap easier comparisons on this revenue line beginning Q1 of this year.

Forecast, consulting and other revenue was $4.9 million this quarter and down 4% year-over-year. For the full-year of 2019, our forecast, consulting and other revenue was up 2% year-over-year to $19.3 million.

Now, turning to units. Our total units in the quarter were 248,037, down 3% year-over-year. For all of 2019, units totaled 998,495, down 1% year-over-year. In our TrueCar branded channel, we generated 91,452 units in Q4 of '19, down 6% compared to Q4 of '18. For the full-year of 2019, we generated 360,224 units, down 9% year-over-year. Despite a challenging 2019, we are optimistic about our branded channels ability to return to unit growth in 2020, given the lift we expect from continued site optimizations following the recent launch of our new consumer experience, as well as the impact of our new brand campaign.

In our USAA channel, we generated 71,917 units, up 4% year-over-year. For the full-year 2019, we generated 293,142 units, up 8% compared to 2018. Given the execution of a transition services agreement, which again runs through September 30, 2020, we expect the USAA channel to remain a significant source of unit volume through the end of Q3. However, we anticipate some near-term pressure as a result of USAA's decision to pull back marketing spend during that transition period.

In our extended partner channel, we generated 84,668 units in Q4 of '19, down 7% year-over-year. We expect the extended partner channel to return to growth in 2020, as we activate a handful of recently signed partners and identify opportunities to scale our existing high potential partners. For the full-year of 2019, we generated 345,129 units, up 2%.

The new used unit mix in Q4 of '19 continue to shift toward used with 63% new and 37% used. For the quarter, total new car units were down 12% year-over-year, while used car units were up 15%. Consistent with earlier quarters, the weakness in the branded channel is driving the decline in total new car units. Meanwhile, throughout 2019, improvements to our used car product experience have fueled significant growth across all channels. Monetization in Q4 of '19 was $342 per unit, up $7 per unit from last year, driven by an increasing mix of used car units and the adoption of new dealer products, where revenue is generated through subscriptions without an associated unit count. Monetization for the year was $335 per unit versus $333 per unit in 2018.

Now, turning to expenses and margins, where all of the following metrics are on a non-GAAP basis unless otherwise stated. Gross profit of $82.5 million in Q4 of '19 was down $0.9 million from Q4 of '18, and gross margin was 92% in Q4 of '19 versus 91.5% in Q4 of last year. For all of 2019, gross profit of $323 million was down $1.1 million from prior year.

Sales and marketing expenses were $53.9 million, or 60% of revenue in Q4 of '19, compared to $52.5 million, or 58% of revenue in Q4 of last year. Within our sales and marketing expenses, our truecar.com acquisition and partner marketing costs were $34.3 million in Q4 of '19, roughly flat year-over-year. Our blended cost per sale in Q4 ticked up slightly from $132 per unit last year to $138 per unit this year. Our sales headcount and other costs were $19.6 million in Q4 of '19, up 6% from $18.6 million this time last year. The increase in cost reflects charges associated with the recent rebranding campaign, as well as higher consulting fees. For all of 2019, our sales and marketing expenses totaled $214.4 million, or 61% of revenue, as compared to $199.5 million, or 56% of revenue in 2018.

Technology and development expenses totaled $11.2 million, or 13% of revenue in Q4 of 2019, compared to $12 million, also 13% of revenue in Q4 of last year. For all of 2019, our technology and development expenses totaled $46.4 million, or 13% of revenue, as compared to $50.8 million, or 14% of revenue in 2018.

Moving on to G&A, where Q4 2019 expenses totaled $13 million, or 14% of revenue compared to $10.1 million, or 11% of revenue in Q4 of '18. For the full-year 2019, G&A spend totaled $43.3 million, or 12% of revenue as compared to $40.4 million, or 11% of revenue in 2018.

GAAP net loss for Q4 of '19 was $8.8 million, or $0.08 a share compared to a loss of $6.4 million, or $0.06 a share in Q4 of '18. Non-GAAP net loss was $1.3 million for Q4 of '19, representing a loss of $0.01 per share compared to non-GAAP net income of $3.3 million, or $0.03 per share in Q4 of 2018.

For the full-year of 2019, GAAP net loss was $54.9 million, or $0.52 per share, compared to a loss of $28.3 million, or $0.28 per share in 2018. Non-GAAP net loss was $3.5 million in 2019, representing a loss of $0.03 per share, compared to non-GAAP net income of $11.7 million, or $0.11 per share in 2018.

Adjusted EBITDA was $4.3 million, or 4.8% of revenue in Q4 of '19, compared to $8.7 million, or 9.6% of revenue in Q4 of '18. The items excluded from adjusted EBITDA for Q4 of '19, primarily include depreciation and amortization of $6.3 million and stock-based compensation of $6.6 million. For the full-year of 2019, adjusted EBITDA was $18.9 million, or 5.3% of revenue compared to $33.5 million, or 9.5% of revenue in 2018.

Now, turning to guidance. For the full-year 2020, we expect to generate revenue of $335 million to $355 million, or negative 5% to flat year-over-year growth. We estimate adjusted EBITDA to be in the range of $15 million to $20 million, maintaining a margin of 4% to 6%. For the first quarter of 2020, we expect to generate revenue of $87 million to $89 million, or 2% to 4% revenue growth year-over-year. We estimate adjusted EBITDA for the first quarter of 2020 to be in the range of $3 million to $4 million, producing a margin of 3% to 4%.

As I mentioned earlier, the execution of the transition services agreement with USAA will help us to ensure that our dealer customers continue to receive a significant volume in USAA units for the first three quarters of 2020. Further, the economic terms in the TSA, including a go-forward of the legacy revenue share and a $20 million transition services fee. All of these considerations are embedded into our financial guidance. That said, we do appreciate that this development could lead to a wider range of revenue outcomes and have attempted to reflect that in our expanded top line guide.

Notwithstanding our confidence in near-term financial health of the business, we will be conducting a thorough assessment of the business to identify additional near-term and long-term opportunities for growth and value creation. In any event, the management team remains committed to preserving profitability for our shareholders in 2020, and as we look ahead into 2021.

And with that, let's go to questions.

Questions and Answers:

Operator

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Lee Krowl with B. Riley FBR. Please proceed with your question.

Lee Krowl -- B. Riley FBR -- Analyst

Great. Thanks for taking my questions, guys. First just a point of clarification on the USAA separation agreement. You guys talked about a large opportunity, which you were handcuffed as part of the USAA agreement. Are you allowed to go target that 40 million user opportunity effective today, or is that opportunity only become available once the USAA agreement rolls off at the end of Q3?

Michael Darrow -- Interim President and Chief Executive Officer

Hey, Lee, it's Mike. Thanks for the question. That opportunity is going to open up to us very, very quickly here and we've already put some things in place to understand how to service that broader community. We'll continue to provide the USAA service that we're providing. It'll be uninterrupted through September. But we will be able to look to service a larger group of that as we transition through the agreement we have with USAA.

Lee Krowl -- B. Riley FBR -- Analyst

Got it. And then my second question, does the USAA announcement and your commentary with the commitment to EBITDA margins for the full-year, does that impact your marketing strategy and budget for the full-year, or is it the same strategy you guys had kind of going into the end of the year and with the rollout? Just curious how to think about marketing expenses for the year and whether that's changed as of this agreement?

Noel Watson -- Chief Financial Officer

Hey, Lee, this is Noel. Thanks for the question. So as we exited the year we were talking about seeking efficiencies in our paid marketing spend. We spent in Q4 around testing in some different channels to try to learn and improve our algorithms and feed some data into them. And we took some of those learnings into Q1 and it coincidentally timed well with the launch of our new rebrand. And so, we're expecting through Q1 to continue to spend in support of the rebrand, which has been very well received and we're building in and expecting efficiencies in our marketing spend throughout the year. So I would think of it right now is in line with the spend from prior year. We are going to sort of refocus on the spend as we look to service the military community. We will be fluid as well. Obviously, we're looking to see how things unfold. And that's one of the areas where we can gain efficiencies and one of the levers that we can pull should we need to in order to preserve profitability. But for now the strategy remains essentially intact.

Lee Krowl -- B. Riley FBR -- Analyst

Got it. And then just last question. I noticed kind of the franchise-dealer adds tailed off toward the end of the year. Any additional commentary there? And, I guess, any changes or expectations for additions, especially now that you have this new product fully rolled out in Q1?

Michael Darrow -- Interim President and Chief Executive Officer

Yeah. Well, our unit volume, as you know, Lee, was kind of flat last year. So, we felt our network -- our franchise network was rightsized to service that level of volume. We continue to judge whether we're delivering value to those consumers. And as our branded channel starts to grow this year, we will certainly lean into the opportunity to add dealers to service that piece of the business.

Lee Krowl -- B. Riley FBR -- Analyst

Got it. Thank you for taking my questions, guys.

Danny Vivier -- Vice President, Investor Relations and Strategic Finance

Thank you.

Operator

Thank you. Our next question comes from the line of Shweta Khajuria with RBC Capital Markets. Please proceed with your question.

Shweta Khajuria -- RBC Capital Markets -- Analyst

Okay. Thank you. Two questions, please. First is on the opportunity of potential strategic partnerships now that -- or once the USAA partnership comes to an end post Q3. Can you talk a little bit more about that? What you're thinking? How you will be investing or thinking about setting yourself up for that?

And second is on just a few modeling questions. One is, does the $20 million service fee, is that included in your $15 million to $20 million EBITDA guide? And second is, the full-year guide for total revenue, that came in a little bit lighter for The Street, is the difference basically USAA impact primarily? Thanks.

Michael Darrow -- Interim President and Chief Executive Officer

Thanks, Shweta. And let me take the first part of that question and then I'll turn it over to Noel for the second part. There are a number of other membership providers that service the military community. We'll be reaching out to them in order to build relationships. We've also -- we've got a tremendous amount of learning that we've gathered from our relationship with USAA over 13 years. And understanding of that customer demographic and the type of ways to reach those folks. So, we'll quickly look at all the options that are available to us to pursue that group. We have looked at some design on our own site to potentially build out a military channel to service a broader swath of the military base than we had been able to in the past. So, a number of opportunities there. We've got a lot of experience in that space. And we'll continue to pull all the levers we can as we get through this year to make sure we're continuing to service the folks in the military.

Noel Watson -- Chief Financial Officer

And Shweta, this is Noel. With regards to the $20 million transition services fee in the TSA, that is fully included in our EBITDA guide. That transition services revenue will first be offset by any rev share amounts owed to USAA and the remainder will be recorded into our forecast, consulting and other revenue.

As far as our total revenue guide for the full-year, yeah, you're right, that's primarily the impact from USAA or entirely the impact from USAA where we've modeled in the expiration of the transition services agreement as of 9/30, as well as some headwinds in that channel during the first three quarters of the year as they will no longer be actively marketing externally, the car buying service. And then there's some conservative assumptions we have around network effects related to USAA that we've modeled into it as well.

Shweta Khajuria -- RBC Capital Markets -- Analyst

Okay. Very helpful. Thank you, Mike. Thanks, Noel.

Michael Darrow -- Interim President and Chief Executive Officer

You're welcome.

Operator

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

Kyle Evans -- Stephens Inc. -- Analyst

Hi, thanks. A little bit of a follow-up to Shweta's I think. Just -- could you help us think about the phasing of the top line guide over the rest of the year? And I want to make sure that I understand what you said there Noel on the transition service agreement and the $20 million. What I heard you say was that goes against the rev share and anything left over goes into the other rev segment. Does that mean that will only kick-in in the fourth quarter? And then I have a follow-up question.

Noel Watson -- Chief Financial Officer

Thanks, Kyle. So just to be clear around that, the transition service fees will be recognized over the service period. So think about that as ratably with the expectation that you model out around what would be owned or earned by USAA in terms of rev share netting against that in that line. So, at the end of the day, you'll end with lower marketing costs and some level of revenue in that forecast, consulting and other line item throughout this service period. Does that help?

Kyle Evans -- Stephens Inc. -- Analyst

Yeah, it does. The first part of that question, I guess, what I'm asking is, what's that top line is going to look like in the fourth quarter when 30% of the units fall out of the model? And then I have a follow-up.

Noel Watson -- Chief Financial Officer

Yeah. So there's obviously a pretty steep drop off. USAA is a significant channel for us. And so, as we pull that out of the model in the fourth quarter, there is a fairly steep decline. Obviously, as Mike talked about in his prepared remarks, there are some near-term strategies that we're going to aggressively go after in order to fill that volume, as well as continue to invest in the other areas of the business that we've seen strong growth behind. And so, I think right now that what we've modeled is essentially pulling the USAA units out entirely. But again, I'm not going to provide any detail around the Q4 numbers specifically at this time, because I think we have some opportunities to backfill that volume.

Michael Darrow -- Interim President and Chief Executive Officer

And on top of that, Kyle, this is Mike. As you know, we've been investing heavily in our consumer experience on TC/DC. We've seen great results since the launch at the end of January both from a consumer satisfaction side, the NPS side, as well as close rate and things along that line. So, fortunately, we were building out our other channels as we were going through the final throws of this USAA negotiation and we expect growth out of the other channels. We're still working with big brands like American Express, Sam's Club, GEICO. We'll now have more time to focus and service on some of our other affinity partners. And there is a clean line of sight for us. We believe in using all the understanding we've accumulated in servicing this military community through USAA to expand that and potentially get at a larger group of buyers who we actually, I think we can expand our reach into.

Kyle Evans -- Stephens Inc. -- Analyst

Got it. And that's a good segue into my last question. You mentioned close rates and Net Promoter Scores since January. Could you dive down a little bit into the visitors to prospect conversion ratios that you've seen? And as those hopefully have turned it up, have you seen any change in the prospect of sales conversions? Thank you.

Michael Darrow -- Interim President and Chief Executive Officer

Yeah. A lot of that data, Kyle, is just coming in. But what I can tell you is, we've seen some real positive signs for folks engaging with the final stage of the process, which is our consumer-controlled connection. And we're delivering leads -- I'm sorry connections to our dealers at a very high quality from that. The NPS scores are just starting to come in from those consumers. I mentioned the 100% growth. We've seen some numbers recently that are indicating it's going up from there. So, all the early signs around the new product have been very positive. And the new branded campaign will allow us to now as we see good signals pour more and more traffic into that channel.

Noel Watson -- Chief Financial Officer

And Kyle, I think a way to think about it with regards to prospects and is that the new experience we're improving the quality of the connections that we're sending to dealers. So the level of prospecting goes down, but a close rate that we're seeing is going up and offsetting that. So, overall a better experience for the consumers because we're seeing higher NPS and a better experience for our dealer customers, because they have to spend less time in order to sell the same number of cars.

Kyle Evans -- Stephens Inc. -- Analyst

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Tom White with D.A. Davidson. Please proceed with your question.

Thomas White -- D.A. Davidson & Co. -- Analyst

Great. Thanks for taking my question. On USAA, we've heard from dealers that lead quality and conversion rate was highest in that channel. Can you maybe talk a bit about kind of the conversion rate difference between the USAA channel and your other channels and how you might be able to narrow that over time? And then is there anything we can or should it for about your separation with USAA and their equity stake in TrueCar? Is that referenced at all in the separation? And then I have a quick product follow-up if I could.

Michael Darrow -- Interim President and Chief Executive Officer

Yeah. So we don't spend -- actually talk about conversion rates through our channels and those sort of things. We did generate high-quality connections through that USAA channel. And we think that's -- the opportunity that exists there in order to service those folks. The USAA agreement wasn't really a demand-generating agreement it was a service agreement. So we know those folks will still be going into the community to buy cars. We've got a lot of understanding about where the value of that relationship is centralized. We've looked at it at a geographic level and we're beginning to -- their arms around the way we can generate and replace that volume for the dealers who are most affected by this but with the high-quality consumers that we'll be reaching out for.

Noel Watson -- Chief Financial Officer

And with regard to USAA's equity stake in TrueCar that is not a thing that we've discussed with them. That's an internal decision that they have to make that we have no insight into at this point.

Thomas White -- D.A. Davidson & Co. -- Analyst

Okay. Great. And then just on the consumer control connection piece of the new product, which I agree is great and the critical part. I just wanted to confirm. Did I hear that that part hasn't been rolled out nationally yet? Could you sort of talk to the timeline of when that specific piece will kind of be broadly deployed?

Michael Darrow -- Interim President and Chief Executive Officer

Yeah. Tom that's been rolled out 100% on TC/DC, our branded channel and we've begun to roll it out across our affinity -- extended affinity network and have the plan to be completely rolled out by the end of 2020. And we'll be continuing to iterate on that product and improve it as we go through the year. We've seen some really good early signs both from the consumer side and the dealer side and we're very excited about it.

Thomas White -- D.A. Davidson & Co. -- Analyst

Great. Thank you, guys.

Operator

Thank you. Our next question comes from the line of Andrew Boone with JMP Securities. Please proceed with your question.

Andrew Boone -- JMP Securities LLC -- Analyst

Thanks for taking my question. So I've got two please. First on USAA, can you just help us understand the impact on the dealers? How are you guys communicating just USAA going away? Is there anything you guys need to do on that end?

And then secondarily with TrueCar traffic up 26% and a new brand out there. Can you talk about the drivers behind that growth? And then looking forward kind of what additional levers do you have to see that continue? Thanks.

Michael Darrow -- Interim President and Chief Executive Officer

Sure. Thanks. We spent a lot of time with our dealer team to make sure we're communicating USAA message out to our dealer team. The TSA, the Transition Service Agreement allows us to smooth that over the year and we think we'll kind of mute the impact of that business as we go forward. So we're talking to all our dealers who are in centralized area where we think will be some effect of that change and we're going to work quickly to like we say talk about replacing that volume and doing the type of things we need to do to continue to service that community. And the second question again, I'm sorry?

Noel Watson -- Chief Financial Officer

It's on traffic. I can take that one. So with regards to traffic, primarily where we're seeing the increased traffic in our used channel and primarily driven by the improvements we've made around SEO. So in part if you remember in September of 2018 there was a Google algorithm change that negatively impacted our organic traffic. So we've now lapped that. So we're seeing the benefit there as well as the market improvements that we've made in SEO with regards to our technical proficiency and the content that we've added to the site. We talked in our earlier remarks about the success we've had with our best out pages and our model overview pages. Those continue to rank higher and drive growth in SEO and we're also seeing positive signs with consumers where we're seeing increases in sessions per user as well as return visitation. So we think there's a lot more room to grow on the SEO side and we think that's going to be a big part of our success in 2020.

Andrew Boone -- JMP Securities LLC -- Analyst

Thank you.

Operator

Thank you. Our next question comes from the line of Daniel Powell with Goldman Sachs. Please proceed with your question.

Daniel Powell -- Goldman Sachs -- Analyst

Great. Thanks for taking the question. I've got one and then a follow-up. Just wanted to ask around kind of the discrepancy that we saw between traffic growth particularly in the branded channel and unit volumes being down year-over-year. Realized there was a lapping dynamic in the branded channel related to the Google change you just spoke about. But it's the 26% growth there versus the down move in units. Just curious kind of where now that moved versus your expectations? And then a follow-up if I could.

Noel Watson -- Chief Financial Officer

Sure. This is Noel, I'll take that one. So yeah that is certainly one factor is the lapping of the Google algorithm change. And so the organic traffic is inherently lower converting. We're finding people that are higher up in the funnel and that's why the metrics around sessions per user, repeat visitation, duration on-site and our capabilities that we've been building out around reengagement through email is really important so that we can nurture those consumers through the funnel to the point where they're ready to buy a car. The other is that we regularly make changes to our experience that are for the benefit of the consumer. An example is related to our new car configurator, change we made that didn't fully rollout until late in Q3 where we made enhancements to that configurator, which essentially provided a better consumer experience and a more qualified consumer that we could connect with dealers. But net-net was a negative in the near-term for commerce. We make those trade-offs regularly that we think are going to have long-term benefit for the business and the experience but may have a short-term headwind. So that was the other factor driving that diversion.

Daniel Powell -- Goldman Sachs -- Analyst

Got it. That's helpful. And then as it relates to USAA and the opportunity to market to those customers outside of that closed user group. Just curious how much data or feedback were you getting from USAA or are you still getting from USAA at this time versus what's going to get turned off after the TSA? And how does that impact your ability to market to those types of military users and families?

Michael Darrow -- Interim President and Chief Executive Officer

Yeah. Thanks Dan. This is Mike. It's less about the data, I think we got from USAA than the understanding of that community through supporting them for 13 years and providing the car buying service to them. So we'll rely a lot of that learning. We've also been able to accumulate lot of our own data around the pockets and the areas of the country where the military communities tend to live and thrive and buy their vehicles. So we've got a pretty good base of understanding. And we think that will be the key for us going forward and creating products that are interesting and exciting and continue to service that group of buyers.

Daniel Powell -- Goldman Sachs -- Analyst

Great. Thanks.

Operator

Our next question comes from the line of Naved Khan with SunTrust Robinson Humphrey. Please proceed with your question.

Naved Khan -- SunTrust Robinson Humphrey -- Analyst

Yeah. Thanks A few questions. Just on the, I guess your Q1 outlook cost for 2% to 4% growth on revenue. And at the same time you talked about how USAA might be pulling back on its own marketing spend, so maybe fewer leads coming through that channel? So can you unpack for us the growth in different channels, your own branded channel versus affinity and maybe USAA and how do you get to the 2% to 4%? And maybe talk a little bit about OEM, what should we expect for OEM revenue this year? How are your conversations going with the car companies?

Noel Watson -- Chief Financial Officer

Yeah, hey Naved this is Noel. So I think the first thing to call out is with USAA, is that the agreement continues, right? We're going to continue to provide the car buying service with them through the end of September. So we really expect the impact on the first three quarters to be muted. Yes they will pull back some marketing in that channel and so we'll have a little bit of softness there. But overall we still think that the success that we're having primarily in our new dealer products where we've seen some strong early adoption. If NADA is any example, we had a very successful event there with as much foot traffic in new registration and sign-ups that we've ever had. So we're seeing strong performance out of our new product revenue. And then some of the earlier traffic comments I made earlier around SEO as well as the new consumer experience and the lift that we're getting from our new rebrand that we've launched. And with those folks still meeting at early stages of optimization those are more than offsetting any of the headwind from USAA in the first quarter.

Naved Khan -- SunTrust Robinson Humphrey -- Analyst

And then the OEM, what are you hearing? And what are you making in your forecast?

Noel Watson -- Chief Financial Officer

Yeah, I would say similarly with OEM, OEM is impacted by USAA as well. But again the service continues through 9/30, so we would expect muted impact on OEM revenue through the first three quarters. And then we are expecting a drop-off in Q4.

Naved Khan -- SunTrust Robinson Humphrey -- Analyst

Got it. So this is helpful. And maybe a quick follow-on for Mike. Mike, can you maybe just give us a sense of what -- which inning you are in with regards to testing and iterating on like maybe more features functionality and overall consumer experience? Do you think there's still a lot of room ahead?

Michael Darrow -- Interim President and Chief Executive Officer

Sure, Naved. Thank you for the question. I would say we're in the early innings. I don't know if it's the bottom of the first or the top of the second, but we think we've made some significant moves. We're seeing really good signs from what we've done on both sides of the marketplace. The consumer side of it has been very, very positive, and the way we've been able to have the consumer engage in our consumer control connection product is generating quality leads, many of them quality connections. Many of them are unique to a dealer, and we're excited about how both sides of the marketplace are responding to that. In addition, we've got some exciting testing going on around SMS texting applications. We've got that in a pilot market right now. And we're also working with an AI chatbot that we want to get into our process as well. So consumers over time and in a modern marketplace want to control that connection in that mechanism. And we feel good about what we've been able to accomplish, but realize there certainly is a long way to go forward.

The next big step you'll see is we are adding our trade product into our core buying channel. We're running that at about 30% of our traffic right now. Excited by those results we've seen. So, we'll not only be able to get a consumer on the vehicle they want at the price they understand, but we'll be able to put up a value on their trade-in. So we're progressing nicely. We're still in the early innings, but there's a lot of headroom and we're excited about where that can go as we grow that channel.

Naved Khan -- SunTrust Robinson Humphrey -- Analyst

Great. Thank you.

Operator

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

Daniel Kurnos -- The Benchmark Company -- Analyst

Thanks. Mike, usually exclusive leads typically drive our command premium pricing. I'm just curious if this trend kind of continues how you're thinking about that? And on the flip side obviously with select, you run the risk of reducing lead volume in at least maybe the near-term as you work through some of the traffic and then conversion. So, dealers can respond negatively to that. So, I'm just kind of how you're thinking about that balance?

And then you talked about some marketing efficiencies you're seeing heading into the brand campaign. Just curious overall if you could give us an update on what you're seeing on customer acquisition costs? And just how fluid is the marketing in terms of top versus bottom of funnel given what you're seeing on the conversion side?

Michael Darrow -- Interim President and Chief Executive Officer

Thanks, Dan. Let me handle the -- I'll take the first question regarding the exclusive leads. About one-third of our lead volume, our connection volume right now is going through a dealer in an exclusive relationship. We want to make sure we get the right data around that to understand that value delivery. We're signaling to the dealer that they are the first dealer that's been chosen and connected with the consumer. So, we'll track that performance, and it will be a major part of our portfolio going forward. But we tend to look at the basket of connections we provide to a dealer and the number of sales they have out of it. We have seen a bit of a drop in lead count. But we had a lot of conversations with our dealers about that at NADA. And as long as the leads are getting are high quality, they're able to have good conversations with the consumers. I think many dealers would tell you right now, they've got all the leads they need, they need more customers and they need more connections to deliver real value. So, we are more than convinced that the improvement in close rate and the improvement in NPS on the consumer side will help us grow that business to offset any decline in leads. And then, I think the --

Noel Watson -- Chief Financial Officer

Can you repeat the third question?

Daniel Kurnos -- The Benchmark Company -- Analyst

Yeah. The second question was just on marketing. You talked about marketing efficiencies you're seeing from some of the testing you did in Q4. Just curious if you could give us an update just overall what you're seeing on cost of customer acquisition. And just as you go into the year with the refresh here, just how fluid maybe the marketing is on brand versus bottom of funnel given what you're seeing on the conversion side?

Michael Darrow -- Interim President and Chief Executive Officer

Yeah. Okay, got it. So, with regards to the efficiencies that we're driving, I mean really it's across the board. So, on sort of the lower funnel efficiencies, we're really getting down into the guts of our search engine marketing, looking at a campaign level and breaking down profitability all the way down through to the sale of a car and measuring it at that level rather than in aggregate, so that we can turn the dial between specific campaigns that are outperforming or underperforming. Also on the sort of higher reach television side, we're looking at opportunities to buy that higher-reach audience at lower CPMs. It's sometimes leveraging better technologies and partners to do that.

The other area that we're working on is as we look at the combination of all the different channels that we're spending in -- getting a better understanding and read on how the interaction across all of them impacts our overall ROI and performance. And so we've been working on a multi-touch attribution model to help us make those decisions on the allocation of spend across channels, and whether we're focused on higher reach or lower funnel. We have a fair amount of marketing spend. When we think about higher-reach spend obviously there's a level of brand awareness that's important and it is part of an MTA strategy. If you were to pull a lever on that this a near-term benefit to adjusted EBITDA. But then obviously that's at the sacrifice of the longer term. But we do have some ability to pull levers there should we need. I hope that answers your question.

Daniel Powell -- Goldman Sachs -- Analyst

No, it does. Thanks very much. Appreciate the color guys.

Operator

Thank you. Our next question comes from the line of Nick Jones with Citi. Please proceed with your question.

Nicholas Jones -- Citigroup -- Analyst

Hi. Thanks for taking the questions. I guess the first one is on how you think about balancing leaning into existing partnerships or starting new partnerships versus building a true brand. Since I guess in the partnerships, you kind of are adding to the upper funnel lose a little bit of control. And then I guess off of that, as you look to increase marketing efficiency and kind of cross-channel interactions, any kind of commentary how you feel about Google's kind of recent announcement of potentially removing third-party cookies and how that might impact your ability to increase efficiency? Thanks.

Michael Darrow -- Interim President and Chief Executive Officer

Yeah. Thanks Nick. From the perspective of will we lean into the branded channel or the affinity partner network we're fortunate to have both of those. So, we're excited about both of those opportunities. We've made some great progress on our branded side of the house and we'll continue to lean in there. Our new flexible tech stack allows us to iterate and to really advance that product. But as we do we push that out on our affinity partner sites too and they get the benefit of that as well. So, we think there's a lot of opportunity to grow our branded channel as well as our affinity channel and add new partners. And as we continue to solve for these consumer pain points and generate quality connections with our dealers, we think we'll be able to leverage both sides of that. And the marketing question --

Noel Watson -- Chief Financial Officer

Yes, I don't think we're expecting any impact from that potential change by Google.

Nicholas Jones -- Citigroup -- Analyst

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Brad Erickson with Needham & Company. Please proceed with your question.

Brad Erickson -- Needham & Company -- Analyst

Hi. Thanks. You've already kind of covered this but just to be real clear. Just again at a high level talk about the cost structure that exists to support USAA and just what philosophy is on running with that intact? Maybe support the addition of some of these other channel opportunities you're talking about in the future versus maybe rationalizing here in a bit as you right-size the go-forward size of the company.

Noel Watson -- Chief Financial Officer

So, we don't provide any color on the revenue or contribution margin for a specific channel. I will say USAA is a very important channel for us. So, I think that we will continue to lead into that relationship for as long as the TSA is in place. I think it's an important part of providing value to our dealers today along with everything that we do outside of the USAA.

In terms of -- can you repeat the second part of the question?

Michael Darrow -- Interim President and Chief Executive Officer

Just add some color Brad on Noel's comments. The TSA provides kind of a muted effect to our business this year and allows us to continue through the end of the year and to work our different existing channels, our branded channel, or other affinity partnerships, as well as new strategic opportunities out there in the market. But while we pursue these aggressively we recognize in parallel we're going to have to run an assessment of the business. And we're going to continue to look to unlock shareholder value. In any event, we're committed to preserving the profitability of the company. So, we've got a plan. This was our recent development and we've put some plans in place very, very quickly to react and we feel good about where we can take the business and we'll keep a keen eye on profitability as we do that.

Brad Erickson -- Needham & Company -- Analyst

Got it. And then just maybe one last follow-up on the new opportunities the channels here. It sounds like you're targeting along the military. Are these like aggregate organizations where there may be an incumbent in place or are you like going to them offering them something that's brand-new for their type of organization? Any color on the pipe what pipeline looks like there would be great. Thank you.

Michael Darrow -- Interim President and Chief Executive Officer

Yes. We've already got quite a bit of work done on the different ways to approach this channel in this group. There certainly are other very strong USAA like-sized partners out there who have deep relationships in this community that we'll pursue. We'll look at social media; we'll look at all the different ways to lean into this community. We've been active in the military community with our driven to drive program for a number of years. And we'll really lean into this on our TC/DC platform which now has flexibility. We talked about the new brand opening up an opportunity to cater to millennials and women. We will now very quickly add another demographic group that we want to provide service for and that'll be military and their military members and their families. So, we think our experience in having participated this channel for 13 years gives us a leg up. We already have some things in place and some thoughts as to how to go about this and you'll see us moving very quickly in that direction.

Brad Erickson -- Needham & Company -- Analyst

Just if I could the question really was centered around this kind of greenfield as it expands to these types of organizations or are they already working with maybe like a competitive player to you?

Michael Darrow -- Interim President and Chief Executive Officer

I think there's probably a couple of those. There's probably both. We think there's some greenfield opportunity to go out there. We also know that there were players in that community that wanted to work with us that we didn't have time to focus on when we were deep in our USAA agreement. So, we'll take a two-pronged approach to pursuing that market. Some of it will be wide open and some of it will be a new opportunity for folks who maybe already have a buying channel.

Brad Erickson -- Needham & Company -- Analyst

Got it. That's great. Thanks.

Operator

Thank you. Our next question comes from the line of Marvin Fong with BTIG. Please proceed with your question.

Marvin Fong -- BTIG, LLC -- Analyst

Thank you for speaking me in here. So, I just wanted to just drill a little further into the dynamics of this. I think the majority of your dealers are on subscription and I just wanted to get your take on how those discussions might happen as dealers will now be aware of the big change coming at the end of the year. Does your guidance contemplate kind of a difficult process in renewing dealers?

And then just as a follow-up on the full year guidance. Are you guys anticipating or can you speak to if you think it will be EBITDA positive in the fourth quarter after the transition happens? Thanks.

Michael Darrow -- Interim President and Chief Executive Officer

Yes. Marvin, let me handle the first question regarding our subscription dealers. We believe based on our Transition Services Agreement that there'll really be no change or very little change to that relationship through the end of September. That will give us a bit of a runway to go out into those marketplaces and look at the opportunity to recapture that volume for those dealers, while we also try to grow their share on our other two platforms. Beyond subscription, we're looking at it geographically. We understand the challenges we'll face in some states Texas, and Virginia, Colorado are states where there's a heavy influence of military buyers and we'll be aggressive in getting out there providing service, but we really don't think there'll be much change to the current business through September.

Noel Watson -- Chief Financial Officer

On the question Marvin regarding Q4 EBITDA, we're not going to provide any additional color on Q4 at this time. You have the full year guide as well as the Q1 guide. And that's all we're going to give at this point in time.

Marvin Fong -- BTIG, LLC -- Analyst

Okay great. And just a quick follow-up. So the current guidance full year just wanted to confirm. So right now, it doesn't really contemplate any change to your operating cost structure? I know you said you'd be reviewing that. But does that bake in anything from that or is that -- we should stay tuned for that?

Noel Watson -- Chief Financial Officer

No. It does not include any significant change to our current car structure. That's correct.

Marvin Fong -- BTIG, LLC -- Analyst

All right. Great. Thank you both.

Noel Watson -- Chief Financial Officer

Thank you.

Michael Darrow -- Interim President and Chief Executive Officer

Thanks, Marvin.

Operator

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

Steven Dyer -- Craig-Hallum Capital Group -- Analyst

Thanks. Most of mine have been answered at this point, but one previous point of emphasis has been sort of the cash offer buying vehicles making offers to consumers. Is that still sort of a focal point? I haven't heard anything about that on this call sort of how is that going? Any color would be great.

Michael Darrow -- Interim President and Chief Executive Officer

Yes. We launched our TrueTrade product from our homepage for consumers who are interested in disposing of a vehicle and we began to get some traction from that product. We've now taken our TrueTrade product and integrated into our core buying program. And Steve, we know 50% to 60% of new and used car buyers have a trade of some sort. So we think by helping them identify the right car, getting the right price and then being able to deliver a guaranteed cash value for their trade-in will allow us to create even deeper connections with our retail partners. So we'll continue to iterate on that. You'll see us deliver monthly payments later in the year that will become another stage in this buying process. But yes, we're excited about our trade offering. And now that it's in our core shopping channel, we expect a lot more activity on that.

Steven Dyer -- Craig-Hallum Capital Group -- Analyst

And can you just remind us sort of the revenue recognition methodology for that? Is that a per vehicle or is that just sort of meant to be an enhancement for the dealer that ultimately gets that trade? Can you refresh us on that?

Noel Watson -- Chief Financial Officer

Hey, Steve this is Noel. It's primarily subscription.

Steven Dyer -- Craig-Hallum Capital Group -- Analyst

Okay. So similar to the car selling I guess the other piece of the business. And then, I guess lastly for me you guys do have a very healthy balance sheet. It sort of I guess philosophically, how do you think about that? Are you sort of hunker down trying to see what this thing looks like after USAA? Are there acquisitions you'd look to make? Are you looking to potentially buy back stock? How do you think about using that asset?

Noel Watson -- Chief Financial Officer

Yes, thanks for pointing that out. We do have a very healthy balance sheet. We have over $180 million in cash and no outstanding debt. Right now, we're going to be conservative in terms of protecting and preserving capital just as we see how this thing plays out. Again, we're confident that under the agreement that we have in place with USAA for the transition through 9/30 and with the $20 million transition services fee that we would be financially healthy and have a healthy profit, adjusted EBITDA profit in 2020. But we're still going to be -- play it a little bit conservative.

Steven Dyer -- Craig-Hallum Capital Group -- Analyst

Got it. Okay. Thanks guys.

Operator

Thank you. There are no further questions at this time. I'd like to turn the call back over to Mr. Darrow for any closing remarks.

Michael Darrow -- Interim President and Chief Executive Officer

Thanks everyone for your time today. We realize we've got a lot of hard work ahead of us. Rest assured, Noel, myself and the rest of our management team are prepared to face these head-on. Let me remind you TrueCar is no stranger to adversity. If there is ever a company that has proven its resilience, it's us. Throughout the company's 15 years, we've been confronted by a number of obstacles, yet we persevered through them all. I have zero doubt that our employees are prepared to rally, confront our current challenge and as a result the company will emerge stronger than ever before. I look forward to speaking with you further of each of you over the next coming weeks and thanks for participating today.

Operator

[Operator Closing Remarks]

Duration: 69 minutes

Call participants:

Danny Vivier -- Vice President, Investor Relations and Strategic Finance

Michael Darrow -- Interim President and Chief Executive Officer

Noel Watson -- Chief Financial Officer

Lee Krowl -- B. Riley FBR -- Analyst

Shweta Khajuria -- RBC Capital Markets -- Analyst

Kyle Evans -- Stephens Inc. -- Analyst

Thomas White -- D.A. Davidson & Co. -- Analyst

Andrew Boone -- JMP Securities LLC -- Analyst

Daniel Powell -- Goldman Sachs -- Analyst

Naved Khan -- SunTrust Robinson Humphrey -- Analyst

Daniel Kurnos -- The Benchmark Company -- Analyst

Nicholas Jones -- Citigroup -- Analyst

Brad Erickson -- Needham & Company -- Analyst

Marvin Fong -- BTIG, LLC -- Analyst

Steven Dyer -- Craig-Hallum Capital Group -- Analyst

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