Image source: Getty Images.

TrueCar, Inc. (NASDAQ:TRUE) investors have grown accustomed to holding their breath when the company's quarterly earnings webcast cuts the soft background music and begins. That's because the previous quarters' results have been hit or miss -- and that's putting it nicely. Fortunately, within a few minutes of the music ending, investors breathed a sigh of relief because this was a strong step forward in many aspects of TrueCar's business.

Without further ado, let's look at results compared to estimates, a graph proving the dealer pledge is working, critical things management is working on, and why comparisons could be wonky this year.

By the numbers

Before getting to the more interesting details, here's a look at the basic quarterly numbers. TrueCar's second-quarter revenue increased 2% to $66.4 million, which was higher than analysts' consensus estimate of $65.52 million. TrueCar also beat expectations on the bottom line with second-quarter earnings per share checking in at a loss of $0.05, better than the dime-per-share loss analysts predicted.

"In the second quarter, we continued to make progress against our turnaround plan, and we exceeded guidance on our key financial and operational metrics," said Mike Guthrie, TrueCar's Chief Financial Officer, on the conference call.

Funnel efficiency

To highlight the first part of what Guthrie noted, here's a look at a key graph.

Data source: TrueCar, Inc. Chart by author.

What's important about this graph is that it shows TrueCar is improving its ability to generate revenue from dealerships at a higher rate during the recent quarter. For instance, in Q2 of 2015, you can see that revenue per dealership spiked because the dealership count shrank, yet the number of TrueCar website customers remained roughly the same -- thus the same revenue potential was spread among fewer dealerships.

During the second quarter, TrueCar's dealership network hit a record high and had a significant sequential jump from the prior quarter. I wouldn't have been surprised to see its revenue per dealership dip as a result. It didn't, and that's a sign TrueCar is getting more revenue out of each dealership, or improving its conversion rate of existing customers.

In fact, it sounds like TrueCar has helped improve conversion rates with the former's dealerships during the second quarter. According to Automotive News, citing AutoNation Chief Marketing Officer Marc Cannon, the close rate, quality of traffic, and value/pricing equation all vastly improved from when the partnership previously dissolved. 

Lastly, the driving force behind the jump in dealerships is in part thanks to the mended relationship with AutoNation that brought 78 stores back into the fold -- the remaining of the 260 stores should be counted by year end. It's also true that smaller dealerships are joining thanks in part to AutoNation being willing to join forces with TrueCar again, and the fact that TrueCar's dealership pledge is fixing some of the concerns and doubts many dealerships previously had. 

What's next?

It became clear on the conference call that CEO Chip Perry saw an opportunity to further improve TrueCar's conversion rate. Consider that since late 2014, only about 5% of unique visitors on TrueCar gave their name, address, phone number to become fully registered, or "prospects." While it's not yet clear how TrueCar can increase that percentage, it's not difficult to think a few simple adjustments to the website, or an offering of an additional service of some type for a visitor's registration, that could significantly improve that percentage. That, in turn, would build up the prospect coffers and help increase the number of sales transactions.

One huge bright spot, at least in my opinion, was the note about new affinity partnerships. These partnerships are between TrueCar and other large organizations of members -- think USAA or Sam's Club, both of which do business with TrueCar. These affinity partners generate roughly 30% of TrueCar's unique visitors, but a higher 50% of prospects and 60% of unit sales. The good news is that management noted the company is working on a significant new affinity partnership that it expects to announce in the back half of this year.

Bumpy comparisons

This year will be normal when investors compare TrueCar's results to analyst estimates, but it will be a much more unique year when comparing the company's results to the prior year. Looking toward the third quarter, it will be a difficult top-line comparison because last year's third-quarter had a large, targeted OEM incentive trial worth about $2 million that will not be in this year's figures. Further, the fourth quarter will be TrueCar's best performance of the year and also the easiest year-over-year comparison, as this year will likely have the near-full impact of AutoNation stores back into the mix, where 2015's fourth quarter did not.

Essentially, expect headlines touting huge percentages of declines or increases, but in reality, it's just wonky comparisons. On that note, TrueCar is maintaining its top-line guidance for full-year units to reach 780,000 and revenue to reach $270 million. Management is increasing its adjusted EBITDA from breakeven to between $5 million and $6 million for the year.

Make no mistake: Investors can breathe a sigh of relief because the second quarter was much better than expected. If management can continue to improve its pool of prospects, increase the conversion rate, improve revenue per dealership, and announce a new large affinity partner, the back half of 2016 should be a huge step forward.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.