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TrueCar Inc (NASDAQ:TRUE)
Q3 2020 Earnings Call
Nov 5, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to TrueCar's Third 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 and Strategic Finance

Thank you, operator. Hello, and welcome to TrueCar's Third Quarter 2020 Earnings Conference Call. Joining me today are 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 the 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 upon 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, 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.

Mike Darrow -- President and Chief Executive Officer

Thank you, and good afternoon, everyone. While the world around us continues to battle with a series of unprecedented obstacles, the team here at TrueCar remains hyper-focused -- opportunity before us. I cannot thank enough all of our team members for their amazing focus and unrelenting efforts to build the first truly modern automotive digital marketplace. The momentum we've been building over the past few quarters continued in the third quarter. We delivered strong sequential revenue growth and record-setting adjusted EBITDA of $20 million. We accelerated the rollout of TrueCar Military, supported by an all-new brand campaign, and the expansion of key strategic partnerships. We launched our trade and payment solution across our franchise network, and adoption is facing well ahead of internal targets. And finally, we pushed further ahead on our digital retailing road map, rapidly developing online deal-building functionality and dealer facing tools that leverage our unique position as a marketplace to bring increased transparency and efficiency to the point of retail. I will provide additional commentary on the quarter later in the call, but would first like to highlight the arrival of two new executive team members, Kristin Slanina, our Chief Operating Officer; and Beth Mach, our Chief Consumer Officer. Kristin joins us from Thirdware, where she served as Chief Transformation Officer, overseeing the implementation of emerging technologies and bringing with her over 20 years of experience at automakers' board and FCA. She will oversee our dealer and OEM sales and service teams and will be responsible for driving growth with new and existing business-to-business partners. Beth has over two decades of experience leading media planning, buying and strategy for Fortune 500 companies around the world and has been a leader at global digital agencies, including Starcom, Mindshare and Dentsu.

She will oversee our product and marketing communications function, and will be responsible for unifying and evolving the way in which we meet the needs of the modern consumer. Both of these leaders have hit the ground running and are making an immediate impact. I'm thrilled to welcome them to the TrueCar family and look forward to working with them to elevate this company to a new level. Now back to details of the quarter and our priorities for the end of the year. We continued the broad-based discounting of subscription rates in June, which helped to drive $18.6 million sequential improvement in our total revenues, ending the period at $77.2 million. Traffic to our site continues to grow, with monthly unique visitors up 24% year-over-year on significantly lower paid media budget. An outcome that speaks to the success of our rebrand earlier this year, the enduring efficiencies we've gained across our digital campaigns and the impact of growing organic traffic. We're also seeing a steady recovery in retail activity as dealerships across the country are reopening their doors, more motivated than ever to test and implement new ways of reaching the growing majority of digital-first customers. We saw a strong 20% sequential increase in our non USAA unit volume in the third quarter, and remain optimistic that units will continue to recover as prospect conversion and close rates benefit from ongoing COVID recovery and other TrueCar-specific product enhancement. To that point, product development sustained its rapid pace in the third quarter as we march closer toward enabling a flexible and complete online car buying experience. In late September, we launched our consolidated payments and trade solution across our franchise network, equipping dealers with a complementary best-in-class digital retailing offering that will help them appeal to a broader consumer base while maintaining full control over their back-end profit centers. As we said before, dealer engagement with these tools is absolutely critical in helping to facilitate a modern online car buying experience.

As more and more dealers adopt payments and trade, the majority of the two million new and used vehicles on the site will become eligible for personalized and transactable deal configuration, enabling consumers to quickly gain insight on accurate monthly payments, customized to their loan or lease term preferences, down payments, trade in equity and credit score. To date, no other destination exists, whether online or in-store, where a consumer can select from millions of new and used vehicles to quickly and easily build and compare transactionable car deals customized to them and honored at the point of retail. We're well on our way to bringing the automotive sector the modern marketplace experience is so desperately needs. Through the end of October, over half of our franchise network has adopted our payments and trade solution, which is enabling a meaningful uptick in the number of consumers who are engaging with deal-building features on the site. Those who engage demonstrate significantly higher purchase intent as measured by lower days to sale and higher close rates, and show a meaningful improvement in overall satisfaction. Most importantly, feedback from major dealer groups have been very positive, as evidenced by the expansion of our partnership with AutoNation, which has on-boarded all 300 franchises with payments and trade. In summary, we're very pleased with the early adoption of our digital retailing tools across our franchise network, and we will continue to expand coverage over the coming quarters. Next, I'd like to provide an update on the great progress we've made in the third quarter to drive awareness of our TrueCar Military experience, which we continue to view as a key lever for growth over the coming quarters. In the third quarter, we announced a dedicated marketing campaign and partnered with NASCAR driver and Naval Officer, Jesse Iwuji, to be TrueCar's Military first brand ambassador.

Iwuji will be featured in the new campaign, which will help to build brand awareness through emotional storytelling that engages and empowers the military audience. He was awarded NASCAR's Diverse Driver of the Year Award in 2017 and 2018, and brings a unique perspective as the only NASCAR driver currently racing at the national level who has ever served in the military. As awareness of our military offer grows, our OEM, affinity and dealer partners are taking notice and leaning into the program. Audi and BMW, for example, recently extended targeted incentive offers up to $4,000 to verified military consumers. Partners such as Sam's Club have also embraced the program, enhancing our military offer with exclusive rewards to members who validate their military status before purchasing at a TrueCar-certified dealer. Most importantly, the promotional push has accelerated our business development pipeline, presenting new opportunities to rapidly expand awareness among the military community. Dealers, many of whom are located in geographic areas with large military representation, are seeing the investments we are making and looking for ways to participate. Doug Dogger, an operations Director at Horsman Automotive Group, which owns a large number of franchise dealerships across the Washington, D.C. metro, had this to say about the TrueCar Military program, "We've been a customer of TrueCar for a long time now, and USAA leads through the TrueCar program have always been a material part of our business. When we learned their decision to end the car-buying service, we were concerned about the impact it would have on our sales." "Fortunately, TrueCar acted quickly to stand up a whole new experience to reach the large community of military members and their families here in the D.C. market. Since the program launched just a few months back, the verified TrueCar Military customers who have visited our store are always ready and willing to transact. It's reassuring to know that we still have a scalable way to reach these high-intent buyers.

The goal now is to work with the TrueCar team to grow the number of customers coming through this channel. We are committed and eager to do our part to make this program as successful as it can be." Given the excitement we're seeing from folks like Doug, we're actively looking to expand our in-store footprint by rolling out a TrueCar-branded military showroom experience at selected dealerships. As we look toward the future, we view TrueCar Military not simply as a new acquisition channel, but more importantly, as a platform that extends our differentiated value proposition to the military audience, made possible by the active participation of our retailers. We're excited by the significant progress we've made in such a short period of time and remain focused on rapidly growing the program over the coming quarters. And finally, I'll share a few words regarding the CFO transition before handing the call over to Noel to take you through the numbers. Noel has been a highly effective CFO for TrueCar during a very challenging period in the company's history. He's a collaborative leader who helped us redefine the culture here at TrueCar and embraced an environment of inclusivity and openness. I'm grateful for all his contributions and wish him all the best in his future endeavors. Noel has agreed to remain with the company for the next few weeks, at which point, our controller, Charlie Thomas, will take over as our interim principal financial officer. I have the utmost confidence in Charlie and the rest of our talented finance leadership team to support the organization during this interim period. That said, filling the permanent CFO seat is a top priority for me.

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

Noel Watson -- Chief Financial Officer

Thank you, Mike, and good afternoon, everyone. It's been a privilege serving as the CFO of TrueCar for the past 1.5 years. I've enjoyed every minute of the experience and feel very grateful for the opportunity to help lead this organization alongside Mike and the rest of the executive team. I take comfort in knowing that I leave TrueCar well positioned to deliver on its strategic plan and to unlock its next chapter of growth. I'll now take you through the results for the third quarter of 2020, which reflects a strong sequential top line recovery, contributing to an all-time high adjusted EBITDA and GAAP profitability. All financials are from continuing operations unless otherwise stated. Revenue for the quarter came in at $77.2 million, a strong $18.6 million quarter-over-quarter increase, driven by the end of broad-based discounting and subscription invoices and the ongoing recovery of unit volumes. On a year-over-year basis, revenue was down 10% due to the impact of COVID-19 and the wind-down of the USAA program. Total dealer revenue, which includes franchise and independent revenue and revenues from our new dealer products, ended the period at $68.2 million, up 36% sequentially and down 16% year-over-year. OEM revenue outperformed expectations, ending the quarter at $5.8 million, up 22% sequentially and up 33% year-over-year. Finally, forecast, consulting and other revenues ended the quarter at $3.2 billion, nearly all of which is attributable to the USAA transition services agreement. Financials related to ALG have been moved to discontinued operations for all periods presented and discussed. On the demand side of our marketplace, monthly unique visitors for the third quarter came in at 9.5 million, up 24% year-over-year, driven by growth in our truecar.com branded channel. This marks TrueCar's fourth consecutive quarter of year-over-year traffic growth. We are continuing to take traffic share, which we believe positions us well to benefit from the ongoing recovery of retail activity and inventory levels over the coming quarters.

That said, based on early signals in October, we expect industry demand and TrueCar traffic growth to slow in the fourth quarter as online-based search activity normalizes to pre-COVID levels. Units in the third quarter came in at approximately 214,000, down 20% year-over-year. The wind-down of USAA weighed on our overall unit performance with the channel ending down 43% year-over-year. Excluding the impact from USAA, combined unit volumers for truecar.com and extended affinity ended the third quarter down 11% year-over-year. Total dealer count in the third quarter declined by approximately 5% sequentially, ending the period after 14,603. The decline was similar across our franchise and independent networks, and was primarily due to the impact of the COVID-19 pandemic. The pandemic-related supply chain disruption earlier this year has contributed to a tight inventory environment, particularly on the new car side, which weighed on our sales productivity in the third quarter. We also saw a slight uptick in churn in the lead up to the USAA sunset. However, in October, the first month with USAA completely transitioned, it has kind of stabilized, ending the month in line with where we ended September. The rollout of our payments and trade solution and growing awareness of our military program have helped to retain key accounts, and we believe the normalization of new car inventory levels will be a tail into sales productivity in the new year. As it relates to churn, there remains a moderate level of risk, particularly in the fourth quarter, as dealers adjust to the sunset of USAA, but we are encouraged by the October results. Now turning to expenses and margins, where all of the following metrics are on a non-GAAP basis unless otherwise stated. Cost of sales decreased by $300,000 quarter-over-quarter, while revenues rebounded, resulting in a 94% gross margin of 250 basis points sequentially. Technology and development expenses decreased by $900,000 sequentially, ending the quarter at 12% of revenue.

General and administrative expenses decreased by $700,000 sequentially, ending at 11% of revenue. Both of these line items benefited from a full quarter impact of the strategic restructuring that was effective June 1. Sales and marketing expenses increased by $9 million sequentially, ending the quarter at 45%. In the retail markets, total acquisition spend across our branded and extended affinity channels increased by $10.3 million sequentially, an increase we had signaled as we looked to take advantage of an improving retail environment. Part of this increase is also tied to the top line recovery, which drives a higher level of partner rev share. The $10.3 million acquisition spend increased was partially offset by a $1.3 million sequential decrease in our sales headcount and other line items, which reflects a full quarter benefit from a smaller dealer sales and service team following the strategic restructuring. All things considered, the $18.6 million sequential increase in third quarter revenue greatly outpaced the $7.1 million sequential increase in non-GAAP operating expenses, producing an all-time high adjusted EBITDA of $20.5 million or 27% of revenue. We'll comment on our expectations for the fourth quarter shortly, which will look very different given the transition of USAA, but we believe this quarter's significant profitability underscores the potential for our business model to produce long term, sustainable double-digit margins. GAAP net income for the third quarter of 2020 was $9.6 million or $0.09 per share compared to a loss of $8.8 million or $0.08 per share in Q3 of 2019. Non-GAAP net income was $15.3 million or $0.14 per share in the quarter compared to a net loss of $1 million or $0.01 per share this time last year. In the third quarter, we executed against our share repurchase program to buy a total of 2.4 million shares at an average price of $4.84 for a total of $11.6 million. We have continued purchasing shares in the fourth quarter and through October, we've now purchased over four million shares on a year-to-date basis. We ended the third quarter with nearly $180 million of cash and cash equivalents on the balance sheet.

As a reminder, the divestiture of ALG remains on track to close by November 30, which would result in a significant inflow of cash proceeds before year-end. Now turning to guidance. The fourth quarter of 2020 will be the first period following the USAA transition. Our guidance assumes the economy continues to recover from the COVID-19 pandemic, and we do not see an expansion or extension of widespread closures. For the fourth quarter of 2020, we expect to generate revenue by $57 million to $59 million or a 32% year-over-year decline at the midpoint. We expect total dealer revenue, including new product revenue to decline by approximately 30% year-over-year. We expect OEM revenue of approximately $1 million to $2 million in the fourth quarter, a sequential decline given USAA was a large driver of our OEM revenue. And finally, we expect forecast, consulting and other revenue to be immaterial in the fourth quarter, as the USAA transition services agreement concludes and we continue to report ALG's financials and discontinued operation. Given a series of strategic adjustments to our fixed cost structure, including the workforce reduction completed earlier this year and improved efficiencies in our traffic acquisition spend, we expect adjusted EBITDA in the fourth quarter of 2020 to be in the range of minus $1 million to plus $1 million or breakeven at the midpoint.

Before we go to questions, I'll now turn the call back to Mike for final remarks.

Mike Darrow -- President and Chief Executive Officer

Thank you, Noel. I'd like to quickly take a moment to recap all that we've accomplished here at TrueCar in recent quarters. Since learning of USAA's decision not to renew our partnership just days before the February earnings call, we knew we had to move quickly and decisively. The challenges we faced as an organization were significant. It would have been easy to doubt our ability to get through it, especially when things got worse in late March as COVID-19 pandemic disrupted major sectors of the economy, including automotive. However, the belief here at TrueCar never wavered and the exceptional resilience of our team won out. I could not be more proud of what we've accomplished over the past nine months, a period in which the world around us was fraught with instability and risk. In such a short time, we've rapidly improved our consumer and dealer product experiences, moving further down the funnel as we launched innovative digital retailing solutions to bring more of the buying process online. We quickly stood up an all-new military offering, an exciting growth channel heading into 2021. We rightsized the organization as part of a holistic strategic restructuring. And finally, we anticipate further fortifying the balance sheet through the divestiture of a noncore asset at a premium valuation. I'm confident the fourth quarter of 2020 will represent a baseline for TrueCar, upon which we will build in 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 Securities. Please proceed with your question.

Lee Krowl -- B. Riley Securities -- Analyst

Great, thanks for taking my question guys. Wanted to just kind of start out on dealer count. Maybe could you kind of prioritize or weigh the impacts on dealer churn of reduced industry inventory and USAA? And I guess, maybe just talk through the third quarter and then kind of weigh, obviously, the churn metric in the fourth quarter. Just trying to understand the magnitude of impacts of both inventory and USAA.

Mike Darrow -- President and Chief Executive Officer

Yes. Thank you, Lee. And I'll start with that question, and Noel, jump in if you choose to. You hit on the two key drivers to our dealer count change in Q3. Certainly, the macro issues of limited new car inventory. We had a number of dealers who went into a suspended category. We expected new car inventories to improve in Q3. And I think you heard from the major retailers who have reported publicly that it didn't, and that certainly slowed the -- some of the dealers we had in suspension coming back to the network and probably caused some additional suspensions on the new car franchise side. The other big piece of it was the USAA business winding down in Q3. That certainly had an impact. We tried to contain that geographically and respond to those markets to continue to provide acceptable value proposition to the dealers. And the good news on that front is October ended materially in line with where September finished. So we've seen a stabilization in October of the dealer count. And we take that as a good signal for Q4, although there's certainly still some uncertainty out there. The other piece, the third piece, that probably impacted it was when we launched the payment and trade product, when we completed those products from a product point of view, we prioritize that -- the rollout of those products across our dealer sales and service team. So we spent a little less time in Q3 prospecting and signing new dealers. We wanted to make sure that we got the payments tool and the trade tool out there. We knew it was critical to enhance our consumer proposition on the website, and we prioritized that for the sales team. So those are the three factors that kind of drove dealer count in Q3. We're hoping based on what we've seen in October that there's a stabilization there as we move forward.

Lee Krowl -- B. Riley Securities -- Analyst

Got it. And then just on the military channel, obviously, a pretty big step-down in units. Maybe just kind of at a high level, how quickly can you backfill those lost USAA units with the initiatives you've put in place? Can we expect the military channel to be a contributor to top line in the near term? Or is kind of the opportunity 2021, and we're still kind of just putting in the building blocks box in Q4?

Mike Darrow -- President and Chief Executive Officer

Yes. I think, first of all, I should state that we're extremely excited about what we've been able to get done with the TrueCar Military channel. We stood that up in May. It was our -- it's been our fastest-growing channel ever launched. We engaged with the military agency to help us deliver that brand into the marketplace. And we're really excited about our relationship with Jesse Iwuji. We have added some partners. We added Military AutoSource that has representation and exposure on all the military bases in the U.S. So we're working on all aspects of that to grow that quickly. I'd just remind everybody that it took us 13 years to get the USAA business to where it was. So it's going to take a minute to build this military channel, but we're really excited about the growth we're seeing. We're having some really active discussions with additional partners to bring into the channel. And we look at as a key growth lever for us in 2021.

Lee Krowl -- B. Riley Securities -- Analyst

Got it. Thanks for taking my questions.

Operator

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

Rajat Gupta -- JPMorgan -- Analyst

Hi, thanks for taking my questions. Just had a first question on the fourth quarter guidance, the approximately breakeven EBITDA. Could you help us just disaggregate that between like how the gross margins should look like versus like the cost structure? And then within the SG&A, how the different buckets are likely to play out. And then the reason I also ask that is like how -- given that's going to be post USAA, is that the kind of level we should be expecting going forward as well in terms of like just the s G&A levels? And I have a follow-up.

Noel Watson -- Chief Financial Officer

Rajat, this is Noel. I'll take that one. When we did the -- and we talked about this on our last call, when we did the restructuring in Q2, it was really with an eye to beyond the USAA transition. And so what we saw in Q3 was kind of the full impact of the downsizing that we did in Q2 and really a new baseline from a cost structure standpoint. We expect that to really continue into Q4 at a somewhat similar level. There'll be some puts and takes there. But one of the factors is the expiration of the transition services arrangement with USAA will impact us. So we'll see a lot of the lines stay pretty consistent. I think sales and marketing, given the lower unit volumes, will be kind of flat to slightly down from -- sequentially. We did see a benefit in Q3. We had really excellent receivables and collections against those receivables in the third quarter, which led to a pretty strong benefit from a bad debt expense as kind of retail started to improve in the third quarter. We don't expect that to carry forward into Q4. So I think from a G&A standpoint, some benefit in Q3. Q4 will look like more like the average of the first half, I would say. So largely, all in, expense cost structure very similar sequentially.

Rajat Gupta -- JPMorgan -- Analyst

Understood. Are you saying -- just to clarify, on the unit front, you mentioned it's going to be down slightly sequentially. I just want to make sure I got that correct.

Noel Watson -- Chief Financial Officer

No, we expect units to be down markedly in Q4 as USAA fully rolled off, yes. And so that's why you see the pretty significant step-down sequentially in the adjusted EBITDA guidance.

Rajat Gupta -- JPMorgan -- Analyst

Got it. That's helpful clarification. And then just from a capital allocation perspective, you've already started to buy back. You're going to get more cash in later this month. I guess just curious as to how we should think about that given buyback going forward. And then any further capital allocation priorities beyond that, that you have in mind, maybe from like an acquisition perspective or just where you're seeing some opportunities. That would be all.

Noel Watson -- Chief Financial Officer

Sure, no problem. The -- we started repurchasing shares under our authorization in Q3. Obviously, that only represents a partial quarter of activity. We've noted in our prepared remarks that we continue to buy back shares in this quarter. And to date, we have now repurchased well over four million shares under the program. So we expect to continue this activity, especially at these share price levels. And then we will plan to regularly reevaluate the program. As far as it relates to capital allocation beyond the share repurchase into M&A., we're constantly evaluating opportunities in the space. We talked about this before. We're not going to overshare on that front, but we are regularly looking at opportunities and making sure that if we do anything there, it is extremely well thought out and we're going to be cost-conscious in cash-sensitive when it comes to M&A opportunities. And we're also, from an organic standpoint, just thinking about making sure we're making investments in our product as we speak. They might talk a lot about the product enhancements that we've made. But we -- once we see some final metrics improve beyond that, and right now we're getting strong adoption from our dealer network, we'll be able to spend behind that. So the buildup that we're doing right now is really important to determining any organic investment that we make beyond that because we still are quite focused on running the business at a profitable level.

Mike Darrow -- President and Chief Executive Officer

And Rajat, just to build on Noel's comments, the product that we launched on our website, the payment calculator and the guaranteed trade value, are based on acquisitions we had made earlier finally coming into the flow and being capitalized on. We're excited about those. We've rolled those tools out to over 6,000 dealers at this point and exposing it to a lot of our inventory. So we're excited about some of the investments we've made in the past. They're starting to really pay benefits for us, and we've got dealers leaning into those products at a really accelerated rate.

Rajat Gupta -- JPMorgan -- Analyst

Got it, that's great color. Thanks so much and good luck.

Operator

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

Marvin Fong -- BTIG -- Analyst

Thanks for taking my questions. First question, just on the guidance for OEM incentive revenue going down to, it looks like, $1 million to $2 million. Just curious on your thoughts on your ability to kind of refill that to the levels we've seen in the past given the USAA headwind? Is there -- and how much of that was also impacted just by the tight inventory situation? And then my follow-up question is just on -- I know that COVID has taken over the headlines, but the new buyer experience you guys rolled out early this year, now that we have several quarters now under our belt, just curious how that has compared to expectations. Any insight on that you could share that would be great.

Mike Darrow -- President and Chief Executive Officer

All right. So thank you, Marvin, and let me start with the OEM question. The results you're seeing in Q3 are a combination of the final quarter of the USAA platform still being in service and us expanding and growing many of those partners over to our military channel. So we kind of got a double benefit in Q3 as we were growing our military channel. About 65% or so of our OEM revenue was generated off the USAA platform. So it's always been a big contributor to that revenue. We're really excited about what we -- the military channel can do as it grows. One of the frustrations our OEM partners would have in that channel was the limited ability to market. So now that it's our channel on TCDC, on truecar.com, we have control over the marketing efforts there, and we're really excited. Almost all of our OEMs have moved over, and the ones that haven't are telling us they plan to when they get a new budget in January. So we're really excited about those outcomes. We're adding new OEM partners. I think you can look at the forecast for Q4 as kind of our baseline on OEM. And we'll go to build that sequentially in 2021 as rapidly as we can, and we are seeing some good signals. Like I say, our OEMs are leaning into military, and we think that's going to be a big part of the growth and the rebuild of that channel in 2021. I think your second question was about the product changes that we implemented early on. We have seen some good signs from that.

A lot of that data is hard to pull apart because of the impact of COVID so heavy in Q2 and then the rebound starting in Q3. We're most excited about some of the early signs we're seeing around our payment and trade launch. A very high percentage of new car shoppers or payment shoppers has been a deficiency for our site in the past, and we're now enabling consumers to calculate a real payment, a loan or a lease configured flexibly to meet their needs using their down payments, their terms. So we're really excited about that. We're excited about the integration of our guaranteed cash offer trade. 50% of consumers, the latest data tells us, bring a trade to a new or used car purchase, so certainly a big part there. So the early data is showing that when we can get consumers to engage in those products, we see a much deeper connection to the dealer and much better outcomes, faster days close, higher close rates, those sort of things. The data is really too new to really get into the numbers because we've got that lag and sales close rate that we have to wait for. But we're really excited from what we're seeing, from what consumers using the tools are telling us. We're excited about what dealers are saying when we deliver consumers into their dealerships with configured payments with a guaranteed trade value, it's a much richer, much deeper connection. So we think that's going to create a strong platform for us to grow our business going forward.

Marvin Fong -- BTIG -- Analyst

Terrific. Thanks, Mike, and good luck Noel on your future your next step.

Noel Watson -- Chief Financial Officer

Thank you.

Operator

[Operator Instructions] Our next question comes from the line of Nick Jones with CitiGroup. Please proceed with your question.

Nick Jones -- CitiGroup -- Analyst

All right, thanks for taking the questions. Great. I guess just one on traffic growth and conversion. You're showing great traffic growth. Can you talk about the quality of leads you're generating? Are they high-quality leads which you can't convert due to supply constraints? Are conversions declining? I guess can you talk about kind of what's going on with traffic growth, what kind of conversion you're seeing in leads? And then, I guess, how does that square with some of the dealer trends and churn we're seeing?

Noel Watson -- Chief Financial Officer

Yes. Thank you, Nick. Yes, we're really excited, as you mentioned, with the traffic growth that we're seeing. It all starts with traffic in some form or another in building out these numbers, and we're really excited about traffic growth that we're seeing to the site. We are seeing growth, material growth and prospects, and therefore, conversion on our TCDC channel and our extended affinity channel. We're seeing good sequential growth there coming out of Q2. So we're excited about that. We are facing some headwinds, as you mentioned, in the inventory selection side of the business. And the close rates are down a bit from what we traditionally see. But we expect that to correct itself. We had actually hoped that we'd begin to see inventories build up in Q3. At least looks like it's at least pushed to the end of this quarter, Q4. I've heard Mike speculate it will be potentially Q1 or maybe into Q2 before inventories get caught up. So some of the macro elements are affecting some of the unit volume coming out of that, but we're really encouraged by the real metrics we see, which is starting with traffic, conversion to prospect and then engagement with dealers. So we think when inventory catches up and we're able to get the OEMs back in the business with incentives and get back to a more normal market or pre-COVID market that those close rates will pick back up again.

Nick Jones -- CitiGroup -- Analyst

All right, thank you.

Operator

And with that, this seems to be no further questions up in the queue. And I would like to turn the call back over to Mike Darrow for the closing remarks.

Mike Darrow -- President and Chief Executive Officer

Thank you, operator, and thanks, everyone, for taking the time to join us today. There's certainly a lot going on in the world around us. We appreciate your participation in the call. To all the TrueCar team members on the line, thank you for your tireless efforts. You are rewriting the TrueCar story, and it's because of you that we've been able to accomplish what we have in 2020. So stay focused on the things within our control and keep pushing forward. I'm really proud of our results and of our organization. And thanks, everyone, for joining. Thank you.

Operator

[Operator Closing Remarks]

Duration: 41 minutes

Call participants:

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

Mike Darrow -- President and Chief Executive Officer

Noel Watson -- Chief Financial Officer

Lee Krowl -- B. Riley Securities -- Analyst

Rajat Gupta -- JPMorgan -- Analyst

Marvin Fong -- BTIG -- Analyst

Nick Jones -- CitiGroup -- Analyst

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