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TrueCar Inc (NASDAQ:TRUE)
Q2 2020 Earnings Call
Aug 7, 2020, 8:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to TrueCar's Second Quarter 2020 Earnings Conference Call. [Operator Instructions]

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

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

Thank you, operator. Hello, and welcome to TrueCar's Second Quarter 2020 Earnings Conference Call. Joining me today is Mike Darrow, our 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. These forward-looking statements can be identified by their use of words such as believe, expect, plan, anticipate, becoming, toward, will, intend, confident and similar expressions and are not and should not be relied on as a 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 or 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 the 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 -- President and Chief Executive Officer

Thank you, Danny, and good afternoon, everyone. Before jumping into the details of the quarter, I'd like to say a few words on today's announcement regarding the sale of our ALG business. Over the past six months, we've been deeply engaged with multiple parties who expressed interest in ALG. A sale to J.D. Power is an exceptional outcome, both in terms of the $135 million sale price and the potential ALG has with its new owner. Given the complementary nature of their portfolio of automotive data assets, it became clear early on that J.D. Power was the right home for ALG. TrueCar already had a broad data-driven relationship with J.D. Power, and this transaction will serve to further deepen that relationship. It's been a privilege for me to work with the ALG team for the past four years, and I look forward to watching them thrive under new ownership. Noel will provide additional commentary on the transaction later in the call.

Now let's turn to Q2 performance. We just turned the corner on what was truly an unprecedented second quarter. From the initial government-mandated lockdowns to the closure of thousands of our customer outlets, the impact has been both profound and unpredictable. I remain extremely proud of my TrueCar colleagues, who continue to demonstrate compassion and resolve in the face of much adversity. Since transitioning to a fully remote work environment in late March, productivity and collaboration have remained at peak levels. As you'll hear on this call, we had a very busy and productive Q2. In light of the situation around us, we are pleased by our results, highlighted by revenue and adjusted EBITDA well above expectations. During the quarter, we successfully navigated the onset of COVID-19, executed a transformative strategic restructuring and formalize numerous cross-functional initiatives to support the USAA transition.

I'll now touch on our Q2 performance in more detail. Traffic to the site recovered quickly in April and continued to accelerate throughout the quarter, ending June up 30% versus the prior year. We ended June with over nine million monthly unique visitors, an all-time high. Our truecar.com branded channel is responsible for the majority of this lift as we continue to benefit from ongoing SEO investments and improved digital marketing performance. We saw resilience in our dealer count, which quickly recovered from April lows, ending the quarter at 15,398, down just 1% from the end of March. A significant portion of the dealers who had suspended our services in early April reactivated in May and June as they look to take advantage of the growing volume coming through the demand side of our marketplace. Consistent with the expectations we set out on our Q1 call, we discounted April and May subscription rate for dealers in subscription states by 50% and extended that financial relief into June, offering a 25% discount. This level of support was more than any other third-party marketplace. In total, our actions saved our dealer network over $15 million and reinforced our commitment to helping our retail partners navigate through COVID-19.

On the cost side, meaningful sales and marketing efficiencies drove significant adjusted EBITDA outperformance in the quarter. Noel will provide additional commentary later in the call, but the takeaway here is certainly encouraging. And finally, in late May, we announced a strategic restructuring to support a leaner operating model and reinforce our ongoing focus on the consumer experience. As part of the restructuring, we initiated a companywide workforce reduction, which represents about $35 million of annualized fixed cost savings. These actions were certainly painful. But I am proud of our organization's response, which included a concerted effort to help our departing teammates find new opportunities within the industry. I'd now like to reflect on the unintended opportunity COVID-19 created and comment on our progress toward providing real solutions for the challenge as this pandemic has intensified for consumers and retailers. Over the past three months, we continued to clearly see an acceleration in the demand for digital car-buying solutions.

As you've heard me say before, change in the automotive industry can be slow. Our industry has watched from the sidelines as similar verticals, like real estate and travel, which are also based on high-consideration purchases, embrace new digitally native ways of doing business that brought increased transparency and efficiency to the point of retail. Sometimes you need extraordinary circumstances to bring about extraordinary change. I believe that's what we're seeing now. To take advantage of our changing environment, here at TrueCar, we're building a flexible online car-buying experience that removes friction, saves time and provides differentiated value for both sides of our marketplace. For consumers, the vast majority of whom remain dissatisfied with the car-buying process, our vision is to inspire confidence. You should be able to visit truecar.com undecided on the car you want. We will help you find the car that's right for you based on your needs and budget.

Then the sight will help you determine the market value of your existing vehicle, understand pricing context based on actual recent transactions in your local market, discover incentives and savings unique to you, and navigate the deal configuration process on your terms with complete transparency. Ultimately, he will be seamlessly connected with one of our certified dealer partners buying an omnichannel communication platform available through the web, our apps or through SMS with tooling to help dealer salespeople efficiently and effectively answer your questions and guide you through the remaining steps in the buying process, an easy car-buying experience that removes anxiety and leaves consumer confident they received a good deal. We recognize that in order to achieve this vision, we must inspire the active participation of our dealer partners. Given the inherent complexity of buying a car, dealers play an integral role in guiding consumers through the purchasing process. This may involve coordinating a vehicle test drive, answering basic questions, navigating more complex financial scenarios or facilitating the final contracting in vehicle pickup or delivery.

Ultimately, human interaction has been and will likely remain a critical piece of the car-buying journey for many buyers. We want to enable consumers to complete as much of the deal online as they choose and, then at the right time and on their terms, connect them to the right dealer while continuing to support both sides with a communication platform that adds value to the conversation. Achieving this will require an ongoing emphasis on developing, evangelizing and training on tools that empower dealers to provide an excellent consumer experience. And further, in an environment where dealer resources are limited, our tools and systems will bring increased efficiency to the point of retail helping them do more with less. As I hope you will agree, our North Star is very clear. We just need to execute. It'll take time to get it right, and we know that, but we have the team in place and the focus that's required to turn our vision into reality.

On the call in May, I laid out a 3-phased approach to building a true end-to-end online car-buying experience. Phase 1, the integration of TrueCar trade within our auto-buying program and the introduction of our buy-from-home program was a step in the right direction. Now we need to accelerate our digital retailing tools to enable more of the deal configuration process online. In Q2, we made significant progress toward that end and remain on pace to introduce all three phases by year-end. On today's call, I'd like to spotlight Phase two of 3, our payments product, which launched its first version in early May and represents yet another major step forward in our digital retailing road map.

A recent survey of 1,000 in-market consumers, led by our internal research team, revealed that over 3/4 or 76% of car shoppers would like to calculate and compare monthly payments online while searching for a vehicle. By contrast, in that same survey, less than 1/4 or just 18% of car buyers actually did so. What this tells us is that there's a need among consumers for tools and experiences that help them understand, not just pricing, but more importantly, affordability, which is more relevant now than ever. TrueCar has always been the leader in helping consumers understand the relative price of a vehicle. The Truecar curve pioneered transparency in the industry, equipping shoppers with the data they needed to understand whether a car was priced above, below or at the market average. We've now taken our core competency one step further by building a dynamic self-service experience that enables the consumer to configure a personalized lease or loan payment based on upfront dealer pricing, considering applicable incentives, fees and taxes, empowering our users with the information they need to truly understand what type of vehicle they can afford.

I want to emphasize that our payment engine is not a simple payment calculator, like you can find on so many websites. Unlike a simple calculator, our payment engine is built on a back-end integration with the dealers' actual lending solutions and testing configurations. The approach requires complex execution, but these better inputs yield dramatically better outputs. Put simply, our payment engine builds realistic expectation about financing options actually available at the dealer before the consumer steps foot on the lot. Early testing showed that consumers who engage with our payment experience are much more likely to purchase a vehicle from a dealership in our network. In the near term, our team is focused on increasing our payment coverage and consumer engagement by highlighting deal-building features throughout the post-prospect experience in onboarding more dealers onto our payment platform, which also includes TrueCar trade solution. As we continue onboarding dealers over the coming months, the number of vehicles that allow payment configuration will increase as we in parallel work to make deal-building a more prominent part of the consumer journey.

Again, all of this product development is in pursuit of enabling a frictionless online to salesperson transition and deal confidence for the consumer. Consumers want to complete many parts of their car deal online, but we know that a large percentage ultimately want to engage with our retail partner and potentially visit the dealership before finalizing the purchase. As a marketplace that sits between demand and supply, we are best positioned to help make this process easy, equipping consumers with the tools they need to create and make sense of deal structures that are informed by pricing and trade-in valuations that dealers will honor. As we continue to innovate on the product experience, we are in parallel mobilizing to aggressively and proactively support our dealer customers through the ongoing USAA transition. Given its strategic importance, I'd like to provide a bit of commentary on our approach, which I am confident will drive a favorable outcome for both TrueCar and our retail partners. First, it's important to remember that the influence of the military community is geographically concentrated. In cities where the military communities influence is relatively small, for example, New York and Chicago, USAA accounts for just 10% of our total unit volumes. The remaining 90% is driven by our branded channel and extended affinity network. Moreover, at an individual dealer level where the average same-size dealer sells six cars per month through our auto buying service, USAA counts were just 1/2 of one sale per month. To a large extent, in these geographies, we anticipate very little disruption.

Clearly, a one-size-fits-all approach is not going to work, and we recognize that. Instead, in geographies with greater military representation, we have been testing and will continue to deploy an optimized combination of targeted product, marketing and operational strategies to best support our dealer community through this transition. In doing so, we will work to ensure that our monetization is appropriately aligned to the value delivered through our marketplace. Second, we will continue to invest in the early success of our TrueCar military channel. Since launching in May, the military channel has driven over 5,000 units, many of which were in geographies with an active military community. We've leveraged our more than 13 years of direct experience and raised high praise from both dealers and military personnel as we've expanded our legacy relationships with nonprofits such as DrivenToDrive and Team RWB.

The positive response is confirmed by the data with 90% of consumers who engage with the TrueCar military site rating the value proposition as good or excellent. Now it's important to acknowledge that this channel will not match USAA's scale in 2020. That was never the expectation. However, the potential here is very real. In fact, our military channel reached over 1,000 units in the first 30 days after launch, the fastest segment-specific channel to reach that milestone in TrueCar history. And as you've heard me say before, there's a huge population of 40 million active and retired military members and their families that need help finding a vehicle. We're truly just getting started.

And finally, before turning the call over to Noel, I'd like to take a moment to comment on the social justice movement sweeping across our nation. TrueCar was founded 15 years ago on the principles of fairness and transparency. This identity has withstood the test of time and remains at the core of everything we do. As such, we are committed to being a part of the solution and to going the extra mile to invest our time and resources toward the common goal of fighting for a socially just society. To that end, we recently formed a diversity equity inclusion committee with companywide representation across all levels of the organization. The committee will provide institutional accountability, serving as an incubator for new ideas and acting as a change agent within the company. In the short time since being formed, the committee has spearheaded the implementation of an employee donation matching program and identified opportunities to elevate multicultural and inclusive marketing across our advertising campaigns.

Further, we remain committed to our ongoing partnership with the National Association of Minority automobile dealers, NAMAD, and their request to improve diversity in automotive retail. Plus we are partnering with Car Biz Today, CBT, on a series of shows that will center on the topic of diversity in automotive. More importantly, over the long term, we're committed to using our platform to help make the auto industry more diverse, equitable and inclusive.

And with that, I'll turn the call over to Noel.

Noel Watson -- Chief Financial Officer

Thanks, Mike, and good afternoon, everyone. Before jumping into our Q2 results and second half financial commentary, I'd like to first provide some additional color at today's announcement regarding ALG. As Mike mentioned, we entered into an agreement to sell ALG for up to $135 million in total consideration to J.D. Power. The total consideration includes an upfront cash payment of $112.5 million at closing and total deferred payments of up to $22.5 million. This deferred consideration is divided into two payments, with one payment of up to $7.5 million payable in early 2021 based on ALG's 2020 revenues and another payment of up to $15 million payable in 2023 based on 2022 revenue.

The transaction is subject to regulatory review and approval. However, we anticipate closing prior to year-end. The total consideration of $135 million, represents a strong seven times multiple of ALG's last 12 months revenues, which we have recorded in our forecast consulting and other revenue line items. As part of the deal, TrueCar will receive a five year license back overall ALG data and will actively participate in a transition services arrangement to ensure a smooth handoff. The sale will impact approximately 40 of our employees or roughly 10% of our current workforce. On the heels of this transaction and given the value we see in our stock at current levels, our Board has authorized a $75 million share repurchase program, and we intend to begin repurchasing shares in the near term. The remaining proceeds serve to further fortify our balance sheet, and along with existing cash, will be used to support ongoing business operations and to expand our strategic flexibility.

Now I'd like to take you through our second quarter financial results, which reflect strong execution amid a challenging backdrop, driving performance well above revenue and adjusted EBITDA expectations. Due to a combination of unit pressure and broad-based subscription rate discounting, both of which were expected heading into the quarter, total revenue came in at $62.7 million, down 29% year-over-year. Franchise dealer counts recovered from April lows to end the quarter at 11,267 dealers, down 1% from Q1, a very strong outcome in light of the dip we saw in April and the uncertainty that persisted throughout the quarter. Given the unit pressure and proactive subscription rate relief, Q2 monthly franchise revenue for the dealer came in at $1,241, down 29% versus prior year.

Independent dealer counts also recovered from its April lows, ending June at 4,131, down just 62 dealers sequentially from Q1. Since the vast majority of our independent dealers are on a subscription billing model, independent revenue per dealer was more impacted by the discounting, ending the quarter down 44% year-over-year. New-dealer product revenue, which was also impacted by the broad-based discounting, was approximately $2.1 million during the quarter, down 25% year-over-year. OEM revenue came in at $4.8 million, a 15% year-over-year improvement, driven by the expansion of certain luxury brand programs that have shown more resilience during COVID-19. We do not expect this level of growth to continue in the second half of the year and particularly in the fourth quarter as USAA program, a large driver of our OEM revenue, continues to wind down.

And finally, forecast consulting and other revenues ended the quarter at $7.9 million, which includes approximately $4.1 million of ALG revenue and $3.7 million attributable to the USAA transition services agreement. As Mike mentioned, traffic to our site continues to grow with monthly unique visitors for the quarter at $8.3 million, up 15% year-over-year. The growth continues to be driven by SEO traffic and improved efficiency in our direct response marketing. Total units in the quarter were approximately 189,000, down 24% year-over-year. A couple of comments here. First, the second quarter got off to a very slow start with April units down 41% year-over-year. However, we saw a strong recovery in May and June with units ending down 19% and 14%, respectively. Second, our branded channel continues to outperform relative to USAA and extended affinity. TrueCar economy units declined just 15% year-over-year in the quarter, while USAA was down 34%. This is yet another silver lining in the quarter, particularly when you take into account a material reduction in branded media spend. I'll touch on this more in a bit. Third, we continue to see divergence between new and used-car performance with used cars representing 45% of the total units in the quarter, up from a 36% share in the same period last year. There are multiple factors at play here.

First, much of this can be explained by the continued growth of SEO traffic, which currently tends to bring a higher proportion of used-car intenders to the site. Growing used-car traffic combined with ongoing optimizations to our used-car marketplace has fueled six straight quarters of year-over-year growth in our truecar.com used-car unit volumes, and we expect that trend to continue in the back half of this year. The second short-term factor is the shortage of new-car inventory resulting from supply chain disruptions during the initial wave of shutdowns in the spring. In the second half of this year, we anticipate new-car inventory levels to normalize. And finally, since the financial relief we extended to our dealer customers exceeded the decline in total used volumes, Q2 transaction monetization was $290 per unit, down 13% compared to the prior year, a worthy investment in our network. We expect monetization to return to more normalized levels in the second half of the year as we end broad-based discounting. Now turning to expenses and margins, where all of the following metrics are on a non-GAAP basis, unless otherwise stated. Gross margin was relatively unchanged from prior periods, ending the quarter at 91%. Technology and development and general and administrative costs came down quarter-over-quarter from Q1 on an absolute dollar basis, driven by the strategic restructuring at the end of May. And finally, we reduced sales and marketing expenses by 53% year-over-year, a key driver in our adjusted EBITDA outperforming. Within sales and marketing, the bulk of the savings is driven by an approximate 70% reduction in branded media spend. We continue to remove all off-line campaigns and saw significant efficiencies in our digital acquisition channels. Partner marketing costs, largely variable in nature and benefiting from the USAA TSA were also down mature year-over-year. In total, cost per sale during the second quarter was $66, down 53% year-over-year. We are pleased by the outcome and believe it speaks to the inherent leverage and flexibility within our operating model. We do, however, expect a gradual increase in cost per sale throughout the second half of the year.

There are three factors driving this increase. First, we need to reintroduce an appropriate level of brand spend to support sustainable top line growth; third, we expect partner marketing costs will increase with higher Q3 unit volumes, and we will lose the temporary benefit of the USAA TSA in the fourth quarter. Finally, sales headcount and others, the largest component of our sales and marketing line item, is down 34% year-over-year, driven by the contraction of our dealer sales and services team as well as strategic restructuring.

In summary, through a combination of revenue upside and strong expense controls, Q2 financial results were significantly better than our internal expectations when we last spoke with you in early May. We ended Q2 with $10.9 million of adjusted EBITDA and 17% of revenue, up from $3.7 million or 4% of revenue in the same period last year, a very strong outcome under the circumstances. GAAP net loss in the second quarter of 2020 was $11.2 million or $0.10 per share compared to a loss of $24.1 million or $0.23 per share in Q2 of 2019. The non-GAAP net income was $4.4 million or $0.04 per share in the quarter compared to a net loss of $2.2 million or $0.02 per share this time last year. We ended the second quarter with $173 million in cash and cash equivalents on the balance sheet. As we look at the second half of 2020, there are a number of uncertainties, not the least of which is the continuing global pandemic that seems to change in form day by day. However, we recognize the sale of ALG and the upcoming transition of USAA requires a bit of commentary that helps set the right execution.

I'll start with Q3. We expect a strong quarter-over-quarter rebound in our total revenues as we end the broad-based discounting of subscription invoices and continue to see a gradual recovery in unit volumes. Still, given the ongoing impact of COVID-19 and the wind-down of our USAA channel, we expect dealer revenues to be down year-over-year in Q3. As it relates to OEM revenues, we expect that line item to be roughly flat to prior year levels. The third quarter will be the final period, which we recognize revenue from the USAA TSA. We will remove ALG financial performance from continuing operations beginning July 1. Therefore, our forecast consulting and other revenue will only include TSA revenue in the third quarter, which we estimate will be approximately $4 million. With regard to adjusted EBITDA, we expect another strong quarter in Q3, driven by continued year-over-year sales and marketing efficiency. Despite the year-over-year efficiency, we do expect sales and marketing costs to increase significantly quarter-over-quarter given the reasons mentioned in our earlier cost per sale commentary. We also expect a slight uptick in our gross margin as we remove ALG, a lower gross margin business from continuing operations. In total, we anticipate mid-teens absolute adjusted EBITDA in the third quarter.

Now on to Q4. Let me start by saying there's a wider range of potential outcomes in the fourth quarter given the number of moving pieces. As with all forward-looking commentary we provided, we are assuming a modest but improving economic backdrop as the U.S. continues to recover from the peak of shutdowns and unemployment in the spring. Should we see expansion or extension of widespread closures, we may see our financial performance impacted beyond what we've described today. As Mike mentioned, we'll continue to work in lockstep with our dealer customers leading up to the start of the fourth quarter. We're prepared to support our customers by driving additional volume in geographies with large military representation. We're also committed to aligning TrueCar's monetization to the value we deliver made possible by our industry-leading sales-based attribution engines. Many of the actions we've taken so far in 2020 were pursuit of transforming through car into a profitable enterprise with or without USAA. In the fourth quarter, we will lose the benefit of the USAA TSA. However, building on a series of strategic adjustments to our cost structure since the start of the year, we are focused on delivering breakeven adjusted EBITDA in the fourth quarter, a good outcome that positions TrueCar well for 2021

And with that, let's go to questions.

Questions and Answers:

Operator

[Operator Instructions] our first question comes from the line of Lee Krowl with B. Riley FBR. Please proceed with your question.

Lee T. Krowl -- Analyst

Great, thanks for taking my questions and Congrats on the solid results, all things considered. I wanted to start off just on the quarter-to-date trends around dealers. Obviously, they had a fairly significant benefit from the promotions in discounts in Q2. But how has dealer retention trended quarter-to-date? And I guess, what is kind of the expectation for that retention against the backdrop of perhaps some inventory issues across the industry?

Michael Darrow -- President and Chief Executive Officer

See, I I'll start on that. Noel will jump in after that. First, we saw a dip at the end of March, certainly, and early into April with suspensions, and we quickly saw that start to come back through the rest of the quarter that really stabilized and returned the dealer network to end of March levels. So we've seen a good rebound from our dealer network. We still have some dealers in a suspension file, but most of those are dealing with what you mentioned, which is the limited new-car inventory that are out there. So we're encouraged. We had very few cancellations through this process. And we've been successful in bringing the dealers back onto the system as their states loosened up regulations on their retail activities. And then I think we'll see another lift when inventory on the new-car side rebuilds.

Noel Watson -- Chief Financial Officer

Yes. I think Mike sort of captured it there. I would say we have a number of the dealers that are currently suspended that we expect them coming back to the platform has been delayed with some of the inventory shortfall and also sort of a resurgence of COVID. However, we haven't seen any reacceleration of inbound COVID-related suspensions or cancellations related to that second wave. So that's pretty good. But obviously, overall, the macro environment creates more pressure than tailwind.

Lee T. Krowl -- Analyst

Got it. And then my second question, you guys kind of walked through the Phase two of the digital retailing initiative. Could you maybe quantify the number of dealers or maybe qualitatively speak to the number of dealers that have been onboarded and perhaps the timing or time line to which you expect to get critical mass with Phase II across the dealer base?

Michael Darrow -- President and Chief Executive Officer

Yes. We crossed the 3,000-dealer plateau, Lee, with our digital retailing recent digital retailing assets, and that would be the payment calculator and our true trade products. So we're excited about that. We see that as an absolute extension of the digital retail process. You'll see a lot of focus from our sales team to grow that and increase the penetration of those tools across our dealer body. We've seen real good signs of improved outcomes from consumers who use those two products and end up buying a vehicle from one of our participating dealers. So we've crossed 3,000. We are accelerating and adding more. And you'll continue to see us do more and more on our website to make those product offerings available to consumers in the shopping process. So all and all, we're excited and trying to accelerate as fast as we can.

Lee T. Krowl -- Analyst

Got it. Thanks for taking my questions guys.

Michael Darrow -- President and Chief Executive Officer

Thank you.

Operator

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

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

Congratulations, guys. Wondering just to start, if you could talk a little bit about the OEM incentive in the quarter. I think it performed very well. It seems like an odd quarter for it given the inventory constraints that you already talked about. But maybe a little more color there. And is that sort of a new program? Is it something you expect to persist? Is it primarily one OEM? Or any color there would be great.

Michael Darrow -- President and Chief Executive Officer

Yes. Thanks for the question, Steve. And what we've seen is we added if you remember, we added some luxury OEMs to our portfolio at the end of 2019. They've carried that business over into 2020, and we're starting to hit our stride in optimizing those programs. We've also seen FCA and BMW embrace our TrueCar military platform with OEM incentives, and we fully expect to transition all of our OEM partners when we sunset the USAA program over to our military channel. So we're excited about the OEM business. We know we're going to have to make some changes to it and modify it. And we think there'll be plenty of opportunity to do that on our TrueCar property.

Noel Watson -- Chief Financial Officer

Yes. And one thing just to add to that, Steve, as it relates to our OEM business. And as we do sort of port those relationships into our military channel, it is much smaller than kind of in our USAA military channel, and a lot of our OEM incentives are targeted at USAA. So we will see pressure on that revenue line, primarily in Q4 as the USAA relationship winds down.

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

Got it. That's helpful. And then sort of along those lines, after USAA winds down, you obviously did a big restructuring. Is the cost base sort of where you expect it to be right now? Have you made those cuts? Or would you expect some more cost to come out after USAA officially rolls off?

Noel Watson -- Chief Financial Officer

No, we were very proactive with regard to that, and we believe that the strategic restructuring that we did midway through the second quarter here really was to align our cost structure with where it needed to be to support the business on a go-forward basis. So we expect this cost structure is all that we need to support the business kind of beyond through and beyond the USAA transition.

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

Got it. Last one for me, and I'll hop back in queue. The cash offer tool and the buy-at-home functionality, obviously, probably a big unintended benefit of COVID. Can you give any color sort of how you're seeing that, how consumers are responding and what you're hearing from dealers?

Michael Darrow -- President and Chief Executive Officer

Yes. We've seen certainly, seen a lot of consumer attraction to that product and a much higher engagement rate and a higher intent from consumers who use that product with our dealers. So it's become a guiding principle for us in accelerating the buildout of our true end-to-end experience. We know consumers are leaning toward the safety, particularly in a COVID environment of a low-contact kind of transaction. So we're very focused on that. The signs from buy-from-home have been very positive, both on the dealer side and the consumer side of that equation.

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

Thank you.

Michael Darrow -- President and Chief Executive Officer

Thank you.

Operator

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

Andrew M. Boone -- JMP Securities LLC -- Analyst

Thanks for taking my questions. Two, please. So to start with, Noel, you talked about kind of building marketing back up in the second half of the year, but given the fact that you guys brought marketing down marketing spend down 70% in the quarter, can you talk about your learnings and your thoughts on rebuilding marketing as you bring that back?

And then secondly, Mike, in your prepared comments, you talked about helping consumers find the right car. Can you talk about more of your top-of-funnel initiatives as consumers are more figuring out what they want to buy?

Noel Watson -- Chief Financial Officer

Thank Andrew. This is Noel. I'll take the first one here. So with regards to the significantly lower marketing spend in Q2, Q2 was certainly an anomaly. There is a bit of a shock reaction to COVID, where we essentially shut down and removed all of our brand spend. So I think TV, radio, podcast. We also had significantly lower partner marketing costs, which are tied to the broad-based discounting that we did in Q2. And we believe that, overall in the segment, the competitive landscape change where everybody was essentially pulling back at the same time, and so it created a lot of efficiencies for us. So those are all sort of nonrecurring factors. We as we think forward, there is our team, and we talked about this for several quarters, has been driving a lot of efficiencies from the work that we're doing. So we do believe that we have established a better process and tools around our marketing. So we expect some of those efficiencies to carry forward.

And we are going to start to modestly and gradually rebuild into some of our brand advertising. We can't keep that at 0 forever. And so we do expect the competitive landscape to also start to normalize in Q3. And all those factors will drive a significant increase in our marketing from Q2 to Q3. We're also going to continue to invest in heavily into our military channel because we're seeing some really positive signals there. And we're going to lean into that. So all those factors are leading to an increase, and I look at Q2 as more of an anomaly. Will we be back to kind of 2019 levels this year? Certainly not, but a substantial increase sequentially into Q3 and Q4.

Michael Darrow -- President and Chief Executive Officer

Andrew, it's Mike, and thanks for the question. You remember on the last call, we talked about some of the upper funnel new-car content that we introduced. We've built out vehicle detail pages for much of our new-car content in the upper funnel that's been getting some interesting shopping activity. You'll also remember that we introduced a data-driven category comparison and ranking kind of across different categories to help consumers understand, based on the data, how certain vehicles stack up against one another. So we've made some investments in the upper funnel, and what we're really excited about is the ability to introduce our payment capabilities up there. All of it is about is the ability to introduce our payment capabilities up there. All of the research tells us that consumers are very interested in understanding real payments as they're building their shopping set, so we're excited about using those pages we've built, beginning to introduce payment calculations in there and allow consumers to get a real apples-to-apples comparison as they shop across brands and even across segments, if that's what they choose to do. So we're very focused on getting the transaction part of it right, but we've also made and we'll continue to make an investment in the upper funnel part so the consumers can come to us from the jump and find the vehicle they want.

Andrew M. Boone -- JMP Securities LLC -- Analyst

Thank you.

Operator

Our next question comes from the line of Rajat Gupta with JPMorgan. Please proceed with your question. Please proceed with your question.

Rajat Gupta -- JPMorgan Chase & Co -- Analyst

Congrats on the quarter and the deal, pretty solid execution here. Just to follow up a little bit on the cost structure question asked previously. You gave us a $35 million savings that we executed. Just to clarify, was that a net number? Or is that the gross number, just to be sure on how we should be flowing that through?

Noel Watson -- Chief Financial Officer

I'm not sure what you mean by net or gross, Rajat?

Rajat Gupta -- JPMorgan Chase & Co -- Analyst

I mean, is there any offset to that, like with incentives or anything that comes back? Just curious, is that more headcount related? Or is it should we just?

Noel Watson -- Chief Financial Officer

Yes, that is directly tied to headcount-related expenses.

Rajat Gupta -- JPMorgan Chase & Co -- Analyst

Got it. Understood. And were there any temporary reductions here in the second quarter on top of that, which we think might come back here in the run rate in the second half in terms of just the overall cost structure?

Noel Watson -- Chief Financial Officer

No. I mean, we talked about the sales and marketing line with marketing jumping up pretty significantly sequentially. I think we had some a bit of lower cost in G&A in Q2. So we're seeing we're expecting that to step up a little bit sequentially into Q3 and Q4. But overall, as the cost structure changes that we implemented at the end of May are holding. We're not sort of reaccelerating hiring or anything along those lines.

Rajat Gupta -- JPMorgan Chase & Co -- Analyst

Understood. That's helpful. And just more of a long-term question. I mean, we are seeing some of the large public franchise dealers trying to move aggressively into the digital space. In some areas, they're doing it aggressively themselves. It looks like they're transferring a lot of their advertising spending toward internal channels on their own websites. Have you seen any impact related to that on your business yet? I mean, do you expect any impact longer term? Just curious if the conversations have changed at all with respect to the larger dealers out there? That would be all.

Michael Darrow -- President and Chief Executive Officer

Yes. Thanks, Rajat. I think we're seeing some of the things you mentioned. Certainly, almost all dealers, some of the large groups and dealers, in general, are investing heavily in retail solutions. We think that's very important and very positive for us. And in fact, with some of the large players, we're actually involved in many of those conversations to see if there's ways we can help them through that process. But because of our proximity to the transaction, we think we're in the best spot to engage with dealers and really evolve this digital retailing process in a way that's going to move the industry forward. So we think the more and more folks who lean into digital retailing, who invest in those type of things will see value in our platform, and we actually think that'll be kind of a tailwind for us.

Operator

Thank you. We have reached the end of our question-and-answer session. I'd like to turn the call back over to Mr. Darrow for any closing remarks.

Michael Darrow -- President and Chief Executive Officer

Thank you, and thanks, everyone, for taking the time to join us today. As we look at our second half, our priorities remain fairly clear. First, we must continue to proactively and aggressively support our dealer customers through Q4; and second, we'll continue to accelerate our product road map and delivering leading online car-buying experiences among third-party marketplaces. We continue to believe unwavering focus on our core business will drive a better balance of sustainable growth and profitability that maximizes long-term shareholder value. Our teams are excited about the challenge and look forward to delivering on these on these commitments. So thank you, and stay safe.

Operator

[Operator Closing Remarks]

Duration: 48 minutes

Call participants:

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

Michael Darrow -- President and Chief Executive Officer

Noel Watson -- Chief Financial Officer

Lee T. Krowl -- Analyst

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

Andrew M. Boone -- JMP Securities LLC -- Analyst

Rajat Gupta -- JPMorgan Chase & Co -- Analyst

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