TrueCar (TRUE) Q4 2020 Earnings Call Transcript

TrueCar (TRUE -2.39%)
Q4 2020 Earnings Call
Feb 24, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to TrueCar's fourth-quarter 2020 financial results conference call.[Operator Instructions]. I would now like to turn the conference over to Danny Vivier. Please, go ahead.

Danny Vivier -- Vice President, Investor Relations

Thank you, operator. Hello and welcome to TrueCar's fourth-quarter 2020 earnings conference call. Joining me today are Mike Darrow, our president and chief executive officer; and Jantoon Reigersman, 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 belief, 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, Danny, and good afternoon, everyone. I'm pleased to report that the turnaround story here at TrueCar continues to gain momentum. It's amazing to think that just a short 12 months ago, we were hit by two existential threats at nearly the exact same time; the non-renewal of a major affinity partner in the onset of a global pandemic. Many doubted that we could recover, however, in the face of adversity this organization has a history of rising to the occasion.

And yet again, I believe today's results speak to that very resilience and to the things you can achieve when a team of exceptionally bright and talented professionals bonds together in pursuit of a common goal. I'll start my remarks today with a brief review of Q4, a critical quarter that marked the first period following the transition of USAA. I'll then remind everyone of where we're headed as an organization with specific emphasis on where we play in the ongoing digital transformation of the automotive vertical. And finally, I'll close with our key initiatives for 2021, including commentary on our recently announced and highly anticipated partnership with Navy Federal Credit Union.

Let's start with Q4. We closed the year with quarterly revenues of $64 million, and adjusted EBITDA of $6 million, both metrics coming in well ahead of expectations. More importantly, as I've said before, the fourth-quarter underscored the stand-alone viability of our business model. We operate an asset-light business with high gross margins in the room for meaningful margin expansion.

Thanks to the many decisive actions we took throughout 2020, including a strategic restructure of our workforce and developing significant marketing efficiencies across our branded channel, we delivered a strong fourth quarter upon which we will build. And further, as we seek to reaccelerate topline growth in 2021, we'll be doing so from a position of strength with more than $270 million of cash and equivalents on the balance sheet as of year-end, thanks to the closing of our ALG divestiture in November. Before I touch on our tactical priorities for the coming year, I'd like to take a step back and remind everyone of the significant opportunities before us. At the highest level, the U.S.

automotive market is massive. Every year franchise and independent dealers sell roughly 55 million new and used cars generating more than $1 trillion in retail sales. Billions more are spent on manufacturing, advertising, insuring, and financing cars. Not only is the industry massive, but it's also highly fragmented with the largest retailers accounting for less than 3% of the overall market.

And perhaps most importantly, the automotive industry is changing rapidly with the acceleration of online retailing opening up new opportunities to extract value from different parts of the transaction. We've spent the last 12 months here at TrueCar acting decisively to navigate a series of unforeseen circumstances. We've made the tough decisions, focused on executing against the things within our control, and now find ourselves well-positioned to capitalize on the transformation around us. Since taking over as CEO in mid-2019, I remain steadfast in my vision for TrueCar; to leverage our established marketplace differentiators and build a car buying experience that seamlessly bridges the online to off-line transition, empowering consumers with the flexibility they've come to expect from modern-day marketplaces.

Of course, as a two-sided marketplace, addressing both supply and demand building this car buying experience requires the active participation of our retail partners. Our job is to create the parameters within which consumers and retailers engage bringing to the process much-needed transparency and efficiency. We were the first to articulate this vision of a modern automotive marketplace that would support online retailing at scale. We made investments in this direction as early as 2018 with the acquisition of DealerScience one of the pioneers in digital retailing and dealership desking tools and our investment in Accu-Trade.

These investments are the foundation upon which we've built our end-to-end platform. In 2020, despite the challenges we, faced we made great progress toward our vision a bit of which I will touch on today. And in 2021 we intend to continue to solidify our market-leading position. On our last earnings call in November, I discussed the rollout of our integrated payments and trade solution across over half of our franchise network.

Remember, when a dealer integrates with our payments and trade solution, we then have the inputs needed to generate Penny Perfect lease and loan payments on the inventory they list on our site. By the end of Q4, we reached the level of payments and trade adoption we deem necessary to release our consumer-facing experience referred to as TrueCar Deal Builder. Deal Builder is a TurboTax-like flow that guides a consumer through the process of configuring an accurate car deal personalized to them based on their trade-in valuation preferred lease or loan terms down payment preference credit profile and all other fees and taxes associated with the transaction. True to our vision, at any stage in the flow, a consumer can drop off and go into the dealership to complete the deal.

All of their information is stored with their profile and seamlessly integrates with the dealer's back-end software. When the consumer walks into that very dealership, days or even weeks later they'll be greeted by a trained rep equipped with all the information they've submitted earlier online. In many ways, the launch of Deal Builder is the culmination of a multi-year effort. We are now the only online site where you can configure and compare accurate deals across millions of new vehicles, all from the comfort of your home.

And soon, once we expand Deal Builder to our nearly one million used car listings, we expect to be the only site, where you can configure deals across both new and used cars cementing our position well ahead of our marketplace peers. While this initial release is a major milestone in and of itself we have elected a phased rollout by presenting the primary entry point into this new consumer flow within our post-prospect experience on truecar.com. As a result, approximately 11% of truecar.com's new car prospects currently engage with Deal Builder. While the sample size continues to grow and mature test results continue to show meaningful improvements to close rates and customer satisfaction, leading indicators of unit growth, the key financial drivers of this business.

Expanding the use of Deal Builder is therefore our first and most important strategic initiative in 2021. Let me outline our approach here. First, to complement our product evolution, it's critical that we evolve our brand promise beyond just price context and toward deal confidence. With Deal Builder live on the site, we are now bringing transparency to all major components of the car deal, trade-in equity vehicle pricing as well as leasing and financing.

We've taken our core competency of transparent pricing that helped build this company and build on top of it. What that creates is an experience that elevates affordability, empowering consumers with the tools they need to understand the best vehicles for them based on their unique situation. In doing so, we are alleviating a major source of anxiety so many of us feel when buying a car. As we reimagine our brand promise, we are in parallel working to introduce deal-building features, earlier in the shopping experience.

We know a large majority of consumers don't make it through the point of registration. Our belief is that by providing our users with tools to research and compare vehicles based on what they can actually afford rather than simply on the car selling price, we will offer them more value earlier in their journey, encouraging them to continue with TrueCar through registration. And finally, in the second half of the year, we'll look to roll out Deal Builder across our complete portfolio of affinity partners, effectively doubling the number of users engaging with the feature. You may now be wondering, where this puts us on our road map to an end-to-end online car buying experience.

In our view, Deal Builder solves most of the challenging parts of online retailing, namely the creation of accurate deals across millions of cars. Building this capability in a scalable way that ensures accuracy, while still protecting the dealer's bottom line is no small feat. However, once a deal is configured, there are a few remaining steps to complete the purchase. We refer to these final steps as the checkout flow, which includes a credit application, positioning of insurance products, the processing of documents, and vehicle delivery for the subset of consumers, who choose not to pick up the vehicle at the dealer's lot.

Solving for checkout is our second key initiative for 2021. Today, the majority of dealers lean on SaaS platforms like Roadster, Gubagoo, AutoFi, CarNow, and others to help power their digital retailing experience. These platforms have built clean user interfaces that enable complete online deal building and require deep integration with the dealers' back-end tools and CRM. Like many parts of the auto industry, space is highly fragmented with many competing vendors servicing networks of fewer than 1,000 dealers.

However, following the onset of the pandemic, demand for these platforms increased dramatically with the latest estimates suggesting more than half of franchise dealers have already integrated with their provider of choice. So what does this mean for TrueCar? Well, a few things. First, it's important to remember that these digital retailing providers are not marketplaces. They do not help dealers efficiently acquire in-market consumers.

Instead, they power the desking software that enables a dealer's website and walk-in traffic to build virtual deals and complete the car deal in a transparent way with seamless transitions from online to in-store. As such, we do not view these providers as competitors but rather as strategic partners who will help us deliver an end-to-end experience. Second, the fractured state of the industry means that flexibility is key. We plan to build our technology using actual dealer data in a way that seamlessly integrates with the dealer's digital retailing provider.

This is critical to ensuring active dealer participation in our marketplace, which ultimately improves the consumer experience. And finally, for the consumers who desire a complete end-to-end experience on the TrueCar platform, and for our smaller franchise and independent dealers who perhaps don't have the resources to invest in a more comprehensive digital retailing infrastructure we plan to continue expanding our own checkout tools and software solutions solving for the final pieces of the end-to-end journey ourselves. In late 2020, we started the dialogue with various digital retailers and will look to transition to a more formal pilot in 2021. Meanwhile, our product and engineering teams are well under way building API-based integrations to standardize the transfer of data from our auto buying platform to our dealers' digital retailing platforms, technology to enable the smooth transition through a complete digital retail experience.

I'd like to now highlight our third and final key initiative for 2021 TrueCar Military. TrueCar boasts the industry's most robust portfolio of affinity partnerships that collectively represent nearly half of the units sold through our marketplace. Partnerships have always helped us reach specific demographics at scale supported by favorable customer acquisition costs to TrueCar. These arrangements allow us to focus on what we do best powering customer experiences that make car buying easy.

Furthermore, we know from the onset that scaling TrueCar Military would require the right mix of organic brand building and inorganic business development. In 2020, the bulk of our effort was focused on standing up the branded military channel and curating an experience that provided differentiated value to our American heroes. The channel's launch was a huge success and continued to grow steadily. However, our efforts have reached a new inflection point earlier this month when we onboarded our newest affinity partner Navy Federal Credit Union.

The significance of this announcement cannot be overstated. Navy Federal has more than 10 million members nationwide just shy of USAA's 13 million with a similar composition of highly loyal members spanning all breaches of the Armed Forces, the Department of Defense, veterans, and their family members. The program is expected to officially launch in March and we will be looking to augment the launch with targeted PR and marketing campaigns in partnership with Navy Federal. Most importantly their participation is a major step forward in our goals to reach and serve the more than 40 million members of the military community and builds on our existing partnerships with Military AutoSource, GovX, veteran service organizations like DAV and Team RWB, and OEMs such as FCA, Audi, and BMW.

To be certain, it will take time to bring this partnership to scale. Still, we believe the potential here is undeniable and we look forward to leveraging our product infrastructure, history of serving the military community, and nationwide dealer network to grow this partnership as quickly as possible. I also think it's important to recognize the impressive business development feat that was accomplished by our team in a largely virtual environment. Establishing a new affinity partner relationship with a major banking institution, serving the military community in less than a year speaks volumes about how our affinity partner value proposition resonates with the market.

These agreements are complex and require months of back and forth communication to wrestle to the ground. I could not be more proud of everyone involved in this effort. Finally, I'm excited to hand the call over to our new chief financial officer, Jantoon Reigersman. Jantoon brings to the executive team deep experience, leading the strategy and finance function for tech-led public companies.

He's a quick study, already well-integrated into the organization and making an immediate impact. His addition rounds out a strong executive team with diverse backgrounds, spanning the core disciplines of our business. The pieces are set and the tailwinds are in motion. We are full speed ahead here at TrueCar.

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

Jantoon Reigersman -- Chief Financial Officer

Thank you, Mike. Let me start by thanking the entire TrueCar team for so graciously welcoming me and for helping to accelerate the onboarding process into just a few short weeks. I've been so impressed by the depth of talent across all parts of the organization, and I'm really excited to partner with you all to build a best-in-class automotive marketplace. I joined TrueCar because I believe in the vision you've heard Mike articulate.

This company has a unique opportunity to be a leading voice in an industry undergoing rapid transformation. The team did an excellent job in 2020, stabilizing the current core business. Most importantly the business is built on a number of competitive moats that I believe are underappreciated. These assets include one, a strong consumer-focused brand with lots of growth opportunity; two, relationships with over 14,000 franchise and independent dealers as well as a diversified partnership network; three, a healthy balance sheet allowing for strategic investments to further accelerate the business; and four, a talent base eager and ready to lead the industry.

From the outside looking in, I saw what I believe to be a significant dislocation between the current value ascribed to this company and its true intrinsic value as measured by its existing assets and its long-term growth potentials, assets that are especially valuable in a rapidly changing industry. Since joining the team, I've become even more convinced in that view and look forward to supporting the business in realizing its full potential. I'll now review the financial and operating results for the fourth quarter of 2020. Revenue in the fourth quarter came in at $64 million, down 25% year over year.

The year-over-year decline was expected. The largest driver being the loss of USAA unit volumes, following the end of the partnership in September of last year. This unit loss is best reflected in our franchise revenue line item, which ended the period at $47.7 million, down 28% year over year. Independent and new dealer product revenues were less directly impacted by the USAA transition, and therefore, remained roughly flat to Q3 levels coming in at $9.9 million and $3.3 million respectively.

And lastly, OEM revenues ended the period at $2.7 million, down 29% year over year, but well ahead of the original guidance we had signaled of $1 million to $2 million. These results reflect favorably on our ongoing effort to transition clients onto our TrueCar Military platform. We ended 2020 with 14,383 dealer customers, down just 1.5% from the end of Q3. We saw less churn in the fourth quarter than we had anticipated as dealers continue to lean into digital solutions to capitalize on strong consumer demand.

However, new additions and reactivations remain challenged by depressed new car inventory and continued state-level restrictions on retail activity brought on by the pandemic. Total units for the fourth quarter ended just above 166,000, down 33% year over year. Truecar.com units, however, were down just 3%, a good outcome, particularly given the 22% drop in branded acquisition spend, which I'll touch on shortly. Monetization for the fourth quarter came in at $382, up 12% compared to the same period last year.

We had signaled this increase, which is the result of a large base of subscription revenue that does not immediately readjust with lower unit volumes. While we do expect gradual downward pressure on the monetization over the course of 2021 as we anticipate growth will outpace rate recapture, the fourth quarter results demonstrate how subscription billing hedges against periods of volatility leading to more predictable revenue outcomes. Now turning to expenses and margins for the fourth quarter of 2020, where all of the following metrics are for continuing operations and reported on a non-GAAP basis unless otherwise stated. The business generated $58.9 million of gross profit in Q4, a gross margin of 92% and in line with prior quarters.

Technology and development spend of $8.8 million, was in line with the third quarter and down significantly year over year as a result of the strategic restructuring effective June 1, 2020. General and administrative spend was $9.5 million in the fourth quarter, up slightly from Q3 but also down materially year over year. In 2021, we expect both of these line items to annualize to their current Q4 run rate with typical seasonality pushing a slightly larger portion of the expense into the first quarter of the year. Sales and marketing spend in our largest expense category, ended up $34.5 million, down 35% year over year.

As a percentage of revenue, sales and marketing improved nearly 900-basis-points as compared to Q4 of 2019. Within sales and marketing, truecar.com acquisition spend was down 22% year over year, ending the quarter at $13.3 million. Despite the significant reduction in spending, truecar.com units were down just 3%, resulting in a cost per sale of $149, 20% below the prior year. We believe much of the efficiency, you're seeing here is a result of ongoing investments in our technology and machine learning algorithms that enable much more effective audience targeting throughout 2020.

Our 2021 forecast does contemplate a return to a more competitive marketing environment throughout the year as retail activity continues to recover. Product and marketing spend was $10.1 million in the fourth quarter, down 42% year over year due to the removal of USAA revenue share and lower extended affinity unit volumes. As a reminder, going forward much of this line is variable in nature and tied to affinity partner unit performance. Sales headcount and other, the final category within sales and marketing ended the fourth quarter at $11.2 million in line with the prior period and underscoring the positive impact of the strategic restructuring.

In summary, though Q4 revenue fell 25% year over year, significant efficiencies across all categories of our sales and marketing spend drove a 30% reduction in non-GAAP expenses resulting in adjusted EBITDA of $6.1 million or 9.5% of revenue, well ahead of expectations. Much of this can be attributed to flow through from our revenue beat, which was driven by less than expected churn across our dealer network and better than expected OEM revenues. GAAP net loss for the fourth quarter of 2020 was $7.7 million or $0.07 per share compared to a loss of $9.7 million or $0.09 per share in Q4 of 2019. In the fourth quarter, we continued to execute against our share repurchase program, buying a total of 6.9 million shares at an average price of $4.44 for a total of $30.6 million.

We continued repurchasing shares in early 2021 deploying a total of 50 million since the program's inception. At this time we do not intend to repurchase shares over and beyond the 50 million already deployed as we believe maintaining a healthy cash position affords the business more flexibility as we look to accelerate against our product road map and strategic opportunities with an attractive return on capital deployed. I'd now like to provide commentary on our expectations for 2021. Despite an improved retail environment and indications that widespread vaccinations may precede a broader reopening of the economy later this year, there remains a heightened level of uncertainty.

As such, we will not be providing formal full-year guidance at this time. However, as we think about the year-over-year comparisons, the first three quarters of 2021 will be complicated by the USAA transition and the impact of the pandemic, specifically, the significant drop in unit volumes beginning in March of 2020 and the broad-based subscription discounts provided throughout the second quarter. Given the complexity, we'll be providing a range for our expected revenue performance in the first quarter of this year and we would expect to grow revenue sequentially from there with a bit less sequential improvements from the third quarter to the fourth quarter as a result of typical seasonality. For the first quarter of 2021, we expect revenues to be in the range of $60 million to $62 million.

As it relates to adjusted EBITDA, it is management's view that accelerating unit growth takes priority over near-term profitability for Q1. However, we expect a healthy adjusted EBITDA for the remainder of the year. We are keenly aware of the marginal unit economics for both truecar.com and extended affinity channels and will deploy ad spend more aggressively to take advantage of improvements to on-site conversion, monetization, or customer acquisition cost. And briefly, as Mike mentioned, we recently disclosed through an 8-K the Navy Federal partnership, which we expect to formally announce and launch in March.

We'll have a better sense of the near-term impact of this partnership post-launch but we're excited about the long-term potential. And with that let's go-to questions.

Questions & Answers:

Operator

We will now begin the Q&A session. [Operator instructions]. The first question comes from Andrew Boone with JMP Securities. Please go ahead Hi.

Andrew Boone -- JMP Securities -- Analyst

Hi. Thanks for taking my question. As I think about traffic and its improvement in 4Q, and I understood that was across kind of all channels but I'm assuming the majority of that was TCDC. To that point, as we think about TCDC units, down 3% year over year and broadly kind of trailing traffic growth through 2020, how do we think about Deal Builder and digital retailing more broadly improving conversion and I -- is there a possibility that units can begin to grow faster than traffic overall? And then on maybe federal, that was a really big announcement.

Understood, it starts in March and it's still really early there, but can you talk about kind of the levers and your ability to grow that to USAA size? And just any details you can provide today on the size of that opportunity? Thank you.

Mike Darrow -- President and Chief Executive Officer

Yes. Thank you, Andrew. This is Mike. Thank you for the question.

Regarding the TCDC unit growth or situation for Q4, down 3%. It was driven some by the macro elements of what's going on out there with new car inventory. Some of our retail partners, big retail partners reported their Q4 unit numbers not too dissimilar from what we saw in TCDC. So we're excited to see the traffic's up.

We're working on moving Deal Builder deeper and deeper across the site. We're excited by the data we've seen from Deal Builder. And the early signs are we'll have a positive -- certainly having a positive impact on conversion rate and also NPS, which are both really key signs for us in executing that product. It exists now post prospect on truecar.com.

So I mentioned some of the steps we're going to take to push it out across our site into our marketplaces on new and used cars and then across our affinity partner network. So we're excited about the early data we're seeing for Deal Builder around conversion and we definitely think, it will be one of the tools we can use to grow conversion in 2021. Regarding Navy Federal, we were really excited to make that announcement. You'll see us do more and more PR around that as we get closer to the launch as we want to be respectful to the transition of their current channel.

But the size and member affinity to that brand is similar to what we saw at USAA. So we're excited about the ability to grow that channel. We think we can take all the learnings from our long-standing relationship with USAA and begin to implement tactics to grow that channel very quickly. How -- exactly how fast that will happen is a little bit hard to say, but it certainly has the capabilities of being of equal size.

And remember we've also launched our military channel, which we can work in tandem with that to continue to reach that audience. So we're excited. We'll -- we're looking forward to the launch in early March. And then I think you'll see us spend a lot of energy against that relationship doing everything we can to grow it.

Andrew Boone -- JMP Securities -- Analyst

Great. Thank you.

Operator

The next question comes from Steve Dyer with Craig-Hallum. Please go ahead.

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

Thanks. Good afternoon, guys. A couple for me. First just looking at your dealer churn in Q4 over Q3, I guess, I would have expected that to stabilize if not actually add net dealers in Q4 as the inventory situation improved following the COVID shutdowns early in the year.

Did you see something different? Or were you surprised? And would you expect that you'd be net dealer adds here Q1?

Mike Darrow -- President and Chief Executive Officer

Yeah. Thanks, Steve for the question. I think the churn situation on our dealer network is certainly under control. We were unsure what to expect in Q4 from dealer churn being our first quarter without USAA, and at 1.5% we were glad to see it stabilize.

Part of our efforts there will be to begin to bring on new dealers onto our platform. We spent much of Q3 and Q4 getting our Deal Builder toolset out across our existing network and using our sales team to do that. So, you'll see us shift our focus a bit. The churn numbers are at a very manageable level and we'll start to add new dealers specifically with the announcement of USAA -- or I mean with Navy Federal as a new partner, we expect that new dealer adds the number to grow quickly.

So, we do plan to get back to dealer growth in 2021.

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

Yeah. Perfect. And then over the last, I think a couple of quarters we've seen a lot of the automotive OEMs announce some of their own sort of homegrown digital retailing solutions be it new or used. Do you have a viewpoint on that? I think there's been probably a half dozen of them or so.

Is your view their sort of trying to cut out the middleman so to speak? Or can you work in tandem? Or what's sort of your thoughts about that?

Mike Darrow -- President and Chief Executive Officer

Well, many of the digital retailing capabilities you talked about on the OEM side are the same ones that are working at the dealer level to build out the dealer capability. So, we're in conversations with all those software providers. We think our ability to integrate with them is going to be key to our success as we go forward. There's a growing percentage of folks who are saying they want to go end-to-end, but the large majority of shoppers want to just bring more of the transaction online in a digital way and then transition to completing the deal at the dealership.

So we're working with all the providers. There's a lot of really good software out there. And the key to that integration is the data. And because we are working deeply with our partners on Deal Builder on getting their pricing data, their financing data, and all the data we need we think integration into the dealer platforms and the OEM platforms in some extent if that evolves into something bigger will be something that's very easy for us.

So we're staying close to the software providers out there. There are a lot of good tools being developed. And we think what dealers will quickly turn to once they've made their choices is how do they fill those new systems up with traffic. And we think we can be the key player as a third-party marketplace to feed those new systems with buyers who are partway through the journey and then can be connected into the dealership to finish it out in a very efficient way.

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

Got it. Ok. And then lastly for me and I'll toss it back in the queue, as it relates to your balance sheet, it's obviously substantial. You bought back a little bit of stock.

It sounds like you're putting the brakes on that. What is sort of the thoughts going forward with that balance sheet in terms of reigniting growth? I mean, is it technology? Where do you sort of look to put that money?

Jantoon Reigersman -- Chief Financial Officer

Hi Steve. It's Jantoon. I think it's all of the above. Really it's the optionality that we have.

I think the balance sheet is a strong balance sheet. The company has a lot of opportunities going forward both internally and potentially and externally. And so our ability to deploy that capital efficiently is -- we have various opportunities. And obviously, as we're moving toward that greater completer end-to-end experience, there are obviously various opportunities to innovate and we can do this in various ways.

So, we'll utilize that cash to that extent.

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

OK. Thank you.

Operator

The next question comes from Nick Jones with Citi. Please go ahead.

Nick Jones -- Citi -- Analyst

Great. Thanks. I guess, two for me. One, what percent of dealers -- or what kind of disclosure do you give on the dealers that are really engaging with the kind of digitizing their business, performing a bigger piece of the transaction online maybe all of it online? And then the follow-up is really just on -- I think you gave a percentage of what kind of consumer engagement you're seeing with Deal Builder.

Could you expand a little bit on the kind of engagement you're seeing with that product launch? Thanks.

Mike Darrow -- President and Chief Executive Officer

Yeah. Thanks, Nick, and I'll start with that question. We've seen a major shift and a major acceleration from the dealer's perspective on digital retailing and the processes they need to put in place. And that was one of the residual effects of the COVID pandemic.

There was certainly acceleration that went on there. And I think as dealers begin to experiment with the digital retailing platforms, they saw that many of the fears they had prior to implementation were dealt with in a very efficient way regarding the protection of gross and those type of things. So there's a very high -- very different percentage post-COVID than pre-COVID. And I think the data shows probably 70% to 80% of dealers are leaning into digital retailing.

I could tell you from a personal perspective, we just recently had our dealer advisory board together, and we asked them what percent of them were heavily invested and heavily leaning into digital retailing. A meeting ago when we asked that question, the number came in at about 60%. And the last meeting, which was just recently it was 100% of the dealers. So dealers are very quickly gravitating to these software systems that are out there.

They're seeing efficiency in their dealerships and improvement in their customer satisfaction numbers. So I think you'll continue to see that grow. We've been continuing to work to get our Deal Builder capabilities out across our network. I think the last time we chatted we were at 50%.

I believe the number now is approaching 80% or above of our dealers of -- who are using our -- franchise dealers who are using our Deal Builder capabilities. So that's important to us. We didn't charge dealers for it. We wanted to get it out there and mass adoption and get it out there so that we could launch Deal Builder on the site.

So the dealers have embraced us and get it launched and they're encouraged by the results they're seeing that we've mentioned. So, we think those numbers will stay very, very high from a penetration point of view.

Nick Jones -- Citi -- Analyst

Great. Thank you.

Operator

The next question comes from Rajat Gupta with J.P. Morgan. Please, go ahead.

Rajat Gupta -- J.P. Morgan -- Analyst

Hey, good afternoon. Good evening. Thanks for taking my questions. I just had the first one on the first quarter of EBITDA guidance.

I mean, you had $6 million in EBITDA in the fourth quarter. And that kind of excludes the USAA more of a baseline number to work off of. You talked about some additional expenses here in the first quarter and seasonality. But as we think through the rest of the year in terms of what you're expecting from a revenue progression and an EBITDA progression perspective from a margin perspective like should we think about the $6 million in the fourth quarter as like a base run rate in an annualized way? Or are expenses going to outgrow to an extent that we might be somewhere below that? I just wanted some clarification of that.

And I have a follow-up. Thanks.

Jantoon Reigersman -- Chief Financial Officer

Sure. Let me -- thanks for the question. So let me start with the four -- so Q1 to Q4. So, from Q4 to Q1 you effectively have a sequential decline consistent with typical seasonality, so it's number one.

And if you then think about your expenses being variable and fixed right then fixed really in Q1 you have -- you can anticipate a little bit of an increased annual reset and non-recurring benefits that you have in your first part. But really Q4 is probably a good run rate for your fixed costs throughout the year. And so -- and then really the variable element is the part that we're going to be a little bit more flexible on. There's obviously a lot of opportunities for us to invest in the business, even though adjusted EBITDA is really important to us.

We're also coming out of a rapidly changing year and we want to maintain flexibility to accelerate the business and opportunities that we see prevailing around us. So I think the answer is that the business is a healthy business. We're pursuing healthy adjusted EBITDA, but we're also feeling that there are plenty of opportunities to invest in No.1. And then, I would argue for a fixed cost base Q4 is probably the right run rate to assume for the remainder of the year.

Rajat Gupta -- J.P. Morgan -- Analyst

Got it. And just as a follow-up to that, can you remind us what's the mix today fixed versus variable based on the restructuring you've done so far?

Jantoon Reigersman -- Chief Financial Officer

Well, I would argue that probably the largest part of the variable is sales and marketing.

Rajat Gupta -- J.P. Morgan -- Analyst

Got it. Ok.

Danny Vivier -- Vice President, Investor Relations

Yeah. Rajat, this is Danny. And I can quickly clarify that. The two-line items that you could think of as primarily variable would be the truecar.com acquisition spend, and the partner marketing both of which, we disclosed and you can use those more on the variable side.

Rajat Gupta -- J.P. Morgan -- Analyst

Got it. Ok. That's, that's very helpful. And just on the capital deployment with the cash on hand just to follow up on one of the previous questions. One of your competitors recently made an acquisition in the online wholesale space.

Is that something or something along those lines that would be of interest to TrueCar? Would you be looking to get into that kind of adjacency, or it's going to be more in and around like the current business profile? That would be all. Thank you.

Mike Darrow -- President and Chief Executive Officer

Thanks for the question, Rajat. Rajat, this is Mike. Regarding the potential investment opportunities, we kind of got a jump on our competitors with two of the investments we made back in 2018 around DealerScience and our Accu-Trade investment which we've been working on for two years kind of enabled us to get to where we are today. And as we look out over the horizon, I think we'll keep a keen focus on enhancing our consumer capabilities and accelerating our opportunity to get to a complete end-to-end solution on truecar.com.

And there's a number of areas you can look at in the work, we have yet to do around financing, insurance, and those sort of things. So we'll look out across the industry and be selective, but we want to keep an eye on acceleration. And if those opportunities are out there we'll be aggressive and make moves as we did with DealerScience and Accu-Trade back in 2018.

Rajat Gupta -- J.P. Morgan -- Analyst

Got it. Ok. That's super helpful. Thanks and good luck.

Jantoon Reigersman -- Chief Financial Officer

And I just want to add one thing. We just like -- remember also we're very disciplined as an organization so this will be -- focus on return on capital for us, is a very important element. So we're very patient operators at the end of the day for the business. So I just want to make sure that everybody is aware of that as well.

Rajat Gupta -- J.P. Morgan -- Analyst

Fair enough. Thank you.

Operator

[Operator Instructions] Next question comes from Marvin Fong with BTIG. Please go ahead.

Marvin Fong -- BTIG -- Analyst

Great. Thanks for taking my questions and welcome Jantoon. Congratulations on your new role. So a lot of my questions have already been covered.

I guess a couple still remain though. So on OEM incentives, nice to see that come in ahead of your expectations. Just curious how we should think about that going forward, I think you had indicated that USAA had caused some of the OEMs to step back yet, now we have Navy Federal to look forward to. But we also have a chip shortage hurting new car production.

Just thought -- if you could shed in a lot on your thoughts about that that would be great? And then a follow-up question just on the search -- or not -- sorry your web traffic. Could you just talk about how that trended within the new car -- within the TrueCar channel? Sorry if I missed that. And then just talk about how organic search traffic has been performing of late that would be great? Thanks.

Mike Darrow -- President and Chief Executive Officer

Yeah. Thank you, Marvin. And I'll start with the first question. And we -- I'm sorry hold on a minute.

I'm sorry Marvin, I dropped there for a minute. Just connecting back -- remind me of your first question again? I'm sorry.

Marvin Fong -- BTIG -- Analyst

Yeah. So just thoughts on how we should think about OEM incentive for the -- for 2021?

Mike Darrow -- President and Chief Executive Officer

Yeah. Yeah. The OEM business we did see good signals from it in Q4 and a lot of that was driven by the OEMs embracing our military channel the truecar.com piece of that that we launched in May and we brought a number of our OEM partners over there. If you look on our site right now we have 11 different brands with FCA and all of their brands Audi and BMW.

And I think we mentioned on one of our last calls, USAA was a fairly heavy percentage up to about 60% of our OEM revenue in 2019. So I can tell you our OEM partners are extremely excited about our new deal with Navy Federal. They're looking forward to that platform because they understand the similarities. And I don't think that the chip issue will affect the OEM spend in the military category.

They're pretty committed to providing discounts to that segment and have been really supportive of our efforts there. The chip shortage as it drags out could affect, I think mass-market incentives probably more specific than some of the things you see the OEMs doing with us where they get very targeted around military or conquest or some of those things. So we're hoping for the OEMs to -- suppliers to get caught up on the chips and inventory levels, in general, get back to their levels. But we haven't really seen any impact on our military.

And the OEMs have been leaning into TrueCar Military since we launched. And like I say they're very excited to see our Navy Federal Credit Union channel launch. And I think you'll see many of them move over to that channel. So we're looking for some really good opportunities with the OEMs in 2021 for sure.

Marvin Fong -- BTIG -- Analyst

That's great. Thanks so much.

Jantoon Reigersman -- Chief Financial Officer

Yeah.And Marvin, I can answer your second question about the traffic. So long story short, we anticipate significant growth in traffic growth in 2021. Yes, there was a slight dip ineffectively in the October, November timeframe, but that was really impacted because of the prolonged election season. So January seems to have already bounced back.

Also, remember USAA is not necessarily a large traffic contributor. So really the traffic you see in the past obviously mostly comes from our original two channels in truecar.com and extended affinity. Both -- obviously, growth in both channels is our top priority. And although, traffic is important, remember that units, effectively, are what drives our business.

So it's always a focus of us. And, obviously, we're making structural improvements on traffic acquisitions, as we already discussed in our other remarks as well. But, long story short, I think, we have ample opportunity in both channels.

Marvin Fong -- BTIG -- Analyst

That's great. Thanks, Jantoon. Appreciate that.

Operator

This concludes our Q&A session. I would now like to turn the conference back over to Mike Darrow for any closing remarks.

Jantoon Reigersman -- Chief Financial Officer

Mike, before -- this is Jantoon. Before I give the word to Mike, I just wanted to highlight one thing that came up as a separate question at some point, which is a question around the considered continued -- the discontinued operations in Q4 and the words around that. Basically, the discontinued operations represent the operating results for ALG through the sale date of 11-30-2020, plus the gain we recognized on the sale of ALG. So, I just wanted to make sure that that's clarified as a clarification to our release earlier today.

So, I'll give the word to Mike.

Mike Darrow -- President and Chief Executive Officer

Thanks for that, Jantoon. And thanks again everyone for joining the call today. We're really excited about the momentum that we're building and we're thrilled to have your support through this process, and we look forward to speaking to all of you again soon. So thanks, again, and look forward to chatting.

Operator

[Operator signoff]

Duration: 52 minutes

Call participants:

Danny Vivier -- Vice President, Investor Relations

Mike Darrow -- President and Chief Executive Officer

Jantoon Reigersman -- Chief Financial Officer

Andrew Boone -- JMP Securities -- Analyst

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

Nick Jones -- Citi -- Analyst

Rajat Gupta -- J.P. Morgan -- Analyst

Marvin Fong -- BTIG -- Analyst

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