TrueCar, Inc. (NASDAQ:TRUE)
Q1 2015 Earnings Conference Call
May 07, 2015 04:30 PM ET
Executives
Alison Sternberg – VP, IR
Scott Painter – Founder and CEO
John Krafcik – President
Michael Guthrie – CFO
Analysts
Diana Kluger – JPMorgan
Mark Mahaney – RBC Capital Markets
Debra Schwartz – Goldman Sachs
Ronald Josey – JMP Securities
John Blackledge – Cowen & Company
Steven Dyer – Craig-Hallum
Sameet Sinha – B. Riley & Company
Blake Harper – Wunderlich Securities
Kyle Evans – Stephens
Operator
Greetings and welcome to the TrueCar First Quarter 2015 Earnings Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder this conference is being recorded.
It is now my pleasure to introduce Alison Sternberg, Vice President, Investor Relations. Thank you. You may begin.
Alison Sternberg
Thank you, operator. Hello and welcome to TrueCar’s first quarter 2015 earnings conference call. Joining me today are Scott Painter, TrueCar’s Chief Executive Officer; John Krafcik, President; and Mike Guthrie, Chief Financial Officer.
As a reminder we will be making forward-looking statements on this call, including, but not limited to, statements regarding our outlook for the second quarter and full year 2015, the performance of our TrueCar branded channel, the performance of our affinity group partner marketing channel including the opportunity to grow this channel generally and with USAA in particular, adoption of our products, building the industry benchmark for automobile pricing, and our financial and operational metrics, plans and strategies. Actual results could differ materially from those contemplated by our forward-looking statements, and reported results should not be considered as an indication of future performance. We caution you to review the Risk Factors sections of our annual report on Form 10-K for 2014 filed with the Securities and Exchange Commission and our subsequent quarterly report to be filed for a discussion of the factors that could cause our results to differ materially. The forward-looking statements 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 statement except as required by law.
In addition, we will also discuss GAAP and certain non-GAAP financial measures. Reconciliations of all non-GAAP measures to the most 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 Scott.
Scott Painter
Thanks, Alison, and good afternoon, everyone. It’s great to be here to kick off fiscal 2015. This is going to be an important year for TrueCar. Over our first 10 years in existence, we’ve enjoyed several major accomplishments. We’re unique in online automotive as the only pay-for-performance business model that enables our dealer partners to pay for sales, not for leads or impressions. We work with over 10,000 dealers, including over 9,100 franchise dealers representing nearly 30% of stores across the U.S. and over 1,500 non-franchise dealers. Each month, over 5.5 million consumers visit TrueCar; in a domestic market, that accounts for nearly 1.3 million transactions. We have grown our TrueCar branded business from 9,000 units in the fourth quarter of 2012 to 70,000 units in the first quarter of 2015. That represents 25% growth per quarter over the last two-plus years.
Overall, our users across our affinity channels and our own branded experience account for approximately 4% of all new car sales across the country. We have migrated our experience to mobile, and now over half of our traffic comes from individuals accessing TrueCar via a phone or a tablet device. So it’s been a very satisfying decade for the company and for me as a founder and entrepreneur.
But now TrueCar is embarking on its most significant evolution since we started the company, and I’m more excited about what we can achieve than I’ve ever been. In short, TrueCar is evolving from being a participant in the online marketplace for cars to becoming a platform, or more precisely, The Platform for online and mobile automotive benefiting consumers, dealers and manufacturers. We are becoming a better way to acquire, dispose of, market, offer incentives, sell, and finance automobiles. The hardest part of building a consumer brand in automotive is establishing trust. In our first ten years at TrueCar we’ve worked very hard to become the objective standard for trusted pricing information. And now that we’ve built that foundation, we can focus on solving the entire problem. As we like to say we’re on our own one-yard line with lots of running room in front of us.
It all starts with data. TrueCar is building the industry benchmark for automobile pricing. We have data on virtually every car on the road today. We collect and analyze massive amounts of automotive transaction data and we know more about automotive consumers and how they shop for and buy cars than just about anyone. We generate our own proprietary data and digest over 10,000 third party data feeds every day. Here’s just a sense of the scale and the sophistication of our data infrastructure. There are over 450 billion behavioral, vehicle, consumer, dealer and OEM facts on our data platform.
We have over 100 million car buyer profiles. We have over 200 million vehicle images, and that number grows 50% every six months and we track eight million VINs every day. Long term we want to be able to use our proprietary analytics and the massive amounts of automotive data that we collect to tell consumers what a car is worth; new, used, now and in the future.
We also want to use our behavioral analytics and pattern recognition capabilities to accurately predict what car a given consumer is likely to buy, where she is likely to buy it, and the price that she’ll ultimately be willing to pay. We now also deliver targeted OEM incentives exclusively to consumers based on this data, and we’re in the earlier stages of leveraging our data to value used cars and power our trading solutions. In January, I addressed the Automotive News World Congress and gave an advance demo of our new product. The experience I demonstrated that day had three unique attributes: one, it’s mobile, and it’s simpler to use. Two, it presents an OEM’s product in the most compelling and visually appealing manner possible; and finally, building on TrueCar’s data and analytics, it delivers real-time targeted incentives from OEMs.
Today, I’m pleased to announce that major elements of all three phases of the experience I described in January in Detroit are going live with select manufacturers. First, this week we launched something we call the Model Showcase. If you download our app today, or go to truecar.com on your desktop, you will see an entirely different visual experience using high-resolution photography, embedded video and other high-quality content provided by the OEMs at no cost to them. This visually compelling experience helps manufacturers present their brands in our environment in the best way possible.
We’ve launched the Model Showcase with several manufacturers, including BMW, Chrysler, Dodge, Fiat, Hyundai, Jeep and Ram and additionally, Mercedes will launch in early next week. We are in discussions with others to get them on the platform as well. If you want to see the Model Showcase in its full feature-rich glory, update the TrueCar app on your mobile device or visit truecar.com on your desktop, and navigate to the Fiat 500 page. Fiat was the first manufacturer that we went live on with this, and we’re extremely proud of the presentation and functionality that Model Showcase delivers.
Second, with this new release, we’re also introducing TrueCash. We’re excited to announce the launch of TrueCash. TrueCash is our new product designation that consolidates the entire targeted incentives business, including the historical distribution of incentives for our affinity group members, the incentive delivery capabilities of the Live Prospect product, and the specialized incentive delivery capability that we have to target the right incentive to the right consumer at the right time.
With the launch of TrueCash across the TrueCar platform, within both our affinity environments as well as our TrueCar branded environment, automakers are now able to use TrueCash to offer consumers special incentive offers based on demographic, psychographic, geographic and other behavioral data and only pay when those incentives have resulted in a successful sale. We expect this first of its kind capability to drive incremental sales with a step function increase in economic efficiency for the manufacturers.
And finally, our new app and mobile web experiences include a host of new features, including mobile communications enhancements that give consumers more transparency and confidence in their buying experiences and empower the dealers with better closing tools. All of these are designed to improve the overall at the dealer experience for both the consumer and the dealer. Taken in their entirety these new capabilities set the stage for TrueCar to serve better the needs of the entire ecosystem the car buying public, the retailers and the OEMs. We expect that these will translate into significant improvements in our key operating metrics, such as net funnel efficiency and monetization and will help us to continue to accelerate top line growth at TrueCar.
We are incredibly excited about this next phase in our development, and I want to thank personally the TrueCar teams across the company that have been working so hard to bring these initiatives to life and commercial viability. Before turning it over to Mike to review the financial performance in Q1 and give guidance I want to comment on one challenge in an otherwise productive quarter.
As most of you know we’ve had an incredible relationship with USAA for over seven years. It’s fair to say that without the financial and other support of USAA, TrueCar would not have achieved our current level of scale and prominence in the market. We at TrueCar however have been very focused recently on building our OEM products, advancing our OEM relationships and continuing to grow our TrueCar branded business at the highest possible rates. As a result we simply have not given USAA the focus it deserves, given the quality of the partnership and the growth of the opportunity in front of us.
So I’ve personally been spending a lot of my time recently in San Antonio, meeting with the senior team at USAA, discussing ways that we can serve their members better and grow the car buying service. TrueCar sales still account for just over 10% of auto purchases by USAA members, so we both agree that there’s a lot of room for growth. And so I’m really excited and pleased to announce that TrueCar and USAA are launching a new, integrated marketing effort that will include the first ever co-branded television advertising campaign between USAA and a partner. The TV campaign will be supported with online and offline marketing initiatives including print, digital, e-mail and mobile, as well as deeper integration into USAA’s auto loan process to provide special financing options for USAA members.
Our respective teams have been working diligently together and the program is set to kick off in advance of the Memorial Day weekend holiday. USAA has been an essential and dependable part of our business and we anticipate a return to healthy growth in the USAA channel as we head into our seasonally strongest quarters. On our last few earnings calls, John Krafcik has provided additional updates on our OEM, dealer and partner channels, and provided an industry forecast update. You will hear from John in Q&A today so that we can shorten the prepared remarks section of our call. Suffice it to say the auto industry remains very healthy and our current estimate of the total new car unit sales is for 17.1 million.
I’m now going to turn it over to Mike to walk you through the numbers.
Michael Guthrie
Thanks and hello, everyone. As Scott has already highlighted we had a strong start to 2015 and feel really confident about the momentum we are carrying into the seasonally strongest part of our fiscal year. TrueCar delivered record total revenue of $58.6 million in Q1 of 2015. Transaction revenue was also a record at $54.3 million, representing 36% growth over Q1 of fiscal 2014. We continued to enjoy healthy unit growth, with total unit sales coming in at 168,559 units, up 34% year-over-year, against the backdrop of overall industry unit sales which grew at only 4.6%. New car market share grew to 3.9% in Q1 of 2015 from 3.1% at this time last year. Breaking down unit sales in a little more detail, the TrueCar branded channel accounted for approximately 70,000 unit sales or 41% of the total. This represented 56% year-over-year growth. Cost per sale continued to decline, reaching $194, down 14% from Q1 of last year and down 4% sequentially from Q4 of 2014. We were very pleased with the efficiency of our marketing spend and the continued signals that we are building a brand.
Monetization grew above our prior guidance to a record $322 per unit. Monetization in Q1 was bolstered by traction within our non-franchise dealer network and a modest mix shift toward used sales. About 24% of units sold were used in Q1 versus just 22% in Q4. Monetization will be a key metric for us for the balance of the year and next year, particularly as we continue to grow our non-franchise dealer network and as more OEMs partner with us on TrueCash.
Turning to expenses and margins, our gross margin declined from 91.3% last quarter to 90.4% this quarter. The primary drivers were certain upfront investments in data sources to supplement our sales matching capabilities and support future product initiatives. These costs are non-recurring in nature and so we expect the gross margin to bump back up to 91% next quarter. Technology and product expenses were $8.8 million or 15.1% of revenue in the first quarter. That compares to Q1 of 2014 when tech and product expenses were $6.6 million, also 15.1% of sales, and to Q4 of last year, when we spent $8.7 million or 15.7% of sales.
We are emphasizing growth in our technology team as we continue to improve our mobile app and overall experience. The most tangible outputs of that effort to date are the release of the Model Showcase and TrueCash, which both launch this week. We also continue to design new products for dealers and OEMs. We opened our new San Francisco office last month and are busy filling it with qualified developers and designers. You should expect to see continued significant investment in this area for the rest of the year.
Sales and marketing expenses were $30.5 million or 52% of revenue in the first quarter of 2015. That compares to Q1 of 2014, when sales and marketing expenses were $23.6 million or 53.7% of sales, and to Q4 of last year when we spent $28.6 million or 51.6% of sales. Within sales and marketing spend customer acquisition cost for the TrueCar branded channel totaled $13.5 million and as I already mentioned, our resulting cost to acquire was $194. That compares favorably to last quarter, when acquisition spend totaled $12.8 million and our cost to acquire was $201. We continued to see improvement in our ability to acquire, convert and close consumers within the TrueCar channel. The unit economics are very appealing.
So for the balance of the year we will attempt to broaden our reach by advertising in higher CPM modalities in order to continue expanding the brand’s reach. You should expect to see continued aggressive growth in investment in sales and marketing for the balance of 2015, as we lean more heavily toward unit growth rather than continued optimization of customer acquisition costs. In fact, customer acquisition spend may increase sequentially by 50% in Q2.
General and administrative expenses totaled $9.4 million or 16% of sales in Q1 of 2015. That compares to Q1 of 2014 when G&A expenses were $9 million or 20.6% of sales. As expected, and as we’ve guided, we are seeing significant operating leverage across G&A. We largely built out accounting, finance and legal in anticipation of our initial public offering last year, and so expect to see continued improvements as a percent of revenue for the balance of 2015.
Adjusted EBITDA for the quarter was $4.3 million or 7.3% of revenue. This compares favorably with our guidance of 6.5% adjusted EBITDA margins, and is the second consecutive quarter with adjusted EBITDA margins of greater than 7%. Non-GAAP net income for the quarter was basically breakeven at $126,000 of profit, while GAAP net loss was $11.6 million or a loss of $0.14 per share. Both numbers were basically on top of consensus, and so we continued to do well against our profitability metrics.
The primary non-cash expense items in the quarter were depreciation and amortization of $3.9 million and stock-based compensation of $9.5 million. In addition to stock-based compensation, in reconciling GAAP net income to non-GAAP net income, we added back $2.4 million of certain legal costs. We finished the quarter with nearly $143 million of cash and a $50 million credit facility.
Now let’s walk through some of the key metrics that I haven’t already referenced. Average monthly unique visitors were 5.5 million, representing year-over-year growth of 40%. UVs in the TrueCar channel alone were 3.8 million, representing year-over-year growth of nearly 60% and a slight uptick from UV growth last quarter. We continued to add to our franchise dealer network in the first quarter. In fact, our Q1 net adds were an all-time record of 607, bringing us to a total franchise dealer count of an all-time record of 9,108, representing nearly 30% of all new car franchises. The number of net dealer adds exceeded our expectations. And while we will continue adding dealers to fill out coverage holes we do not expect to see this level of net adds in Q2.
Our non-franchise dealer count was 1,572 as of the end of the first quarter. Net funnel efficiency was 1.02% in the first quarter, a healthy number, considering seasonality and the mix shift towards TrueCar and away from USAA.
Now I’d like to summarize our outlook regarding the second quarter of 2015 and the year as a whole. Again, we are pleased with the momentum we are carrying into Q2. For the balance of the year the focus is going to be on accelerating revenue growth. In addition to the tailwinds of seasonality and a strong new car market we are optimistic for the following reasons. First, we will be launching what we expect to be a very successful joint marketing program with USAA. We believe that we will get traffic back up to our forecasted numbers and, assuming reasonable NFE, will help us deliver strong incremental revenue and adjusted EBITDA in Q2 and Q3.
Second, we have launched the Model Showcase and have made a number of important improvements within the app experience that we expect to drive lifting conversion and close rates this quarter and for the rest of 2015. And finally, we are rolling out TrueCash, exclusive targeted manufacturer incentives across the entire TrueCar platform. In addition to improving close rates, the success of these programs would be completely incremental to our monetization and to our overall revenue guidance.
With that as a backdrop, at this point we are going to keep full year 2015 guidance consistent with our last earnings call; $280 million to $290 million in revenue, with adjusted EBITDA margins in the 9.5% to 10% range. For the second quarter we anticipate units to be between 205,000 and 210,000 and monetization of approximately $310. Thus we expect revenue to be in the range of $67 million to $69 million, with adjusted EBITDA of $5.5 million to $6.5 million or approximately 8% to 9% of sales.
We have a lot of exciting new initiatives starting in Q2 that could have material impact on the go-forward model. Without seeing tangible results quite yet however, it’s still too early to re-state our expectation. And now I’ll open it up to questions.
Question-and-Answer Session
Operator
Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from Douglas Anmuth with JPMorgan. Please proceed. Your line is live.
Diana Kluger
Hi, this is Diana Kluger on for Doug. Two quick questions if that’s possible. Just want to get a little bit more detail on the USAA campaign; assuming the spend for that is included in the EBITDA guidance that you’ve given, so kind of just more details on how the campaign will roll out over the course of the year, and since you didn’t change full year guidance, if that was planned before. And then I’ll follow up after that.
Michael Guthrie
So Diana, I’m sorry, I didn’t get the second part, but the USAA campaign in terms of spend, yes, is included in our forecast. We are effectively splitting the cost with USAA, and we’ll be launching right before Memorial Day, and the plan right now is to run all the way through Labor Day and then into the fourth quarter, depending on the results that we’re seeing. What was the second part of your question?
Diana Kluger
Just for the full year, since numbers haven’t changed, some of these new things that have progressed, what that means kind of about reiterating, both on the spend side and then also on some of the newer product launches.
Michael Guthrie
Yes, I mean look, we look carefully at the numbers in the forecast for the rest of the year. We have a lot of new things flowing into the business right now, and so we thought it probably most prudent to keep guidance where it is. I think we’re very excited about the USAA program. We clearly could have had some more units and traffic in the first quarter. So we want to get those numbers back up to where they — the growth rate back up to where they’ve been over the last few years and we clearly are at a penetration rate where that’s possible. So anyway, I think we’re going to learn a lot more here in the next few weeks and months, and then we’ll come back and talk when we have some more data.
Diana Kluger
Great. Thank you.
Operator
Our next question comes from Mark Mahaney with RBC Capital Markets. Please proceed. Your line is live.
Mark Mahaney
Okay, thanks. Two questions please. One is the sustainability of monetization. That number, is that something that — if it’s mix shift and improved conversion, improved, improvements on your part, should we model it out at that level going forwards? And then I think you said customer acquisition costs had increased by 50% in Q2. Just a little bit more color around that. I assume that’s not CAC but it’s the total customer acquisition dollars and your thoughts on the efficacy of that kind of a pretty major ramp, or is that kind of sort of seasonally to be expected? Thank you.
Michael Guthrie
Thanks Mark. On the second question about — it’s customer acquisition spend, so it’s the marketing spend. It’s not the cost to acquire. So we are — it is partly seasonality and partly a realization that we continue to have really healthy unit economics within the TrueCar channel, and so we feel like in the balance between continuing to lower cost versus growing the units more aggressively we want to lean a little bit more into the growth. That’s also combined with our expectation that we’re going to see a nice lift in USAA. That carries with it fairly high incremental margin, gives us more freedom to spend around the consumer brand and the TrueCar branded business.
In terms of monetization, Q2 is generally down from Q1 in monetization and that’s what I guided, I said about $310. But we are seeing lift from non-franchise dealers, and obviously we rolled out a lot of things this week and we expect to see monetization pick up from some of those things. We just don’t really have it modeled in right now.
What tends to happen in the second quarter, and it’s a little counterintuitive is, you have such a seasonally — so much seasonally pent-up demand, when you go out to set subscription rates, you sort of have this issue of do they really believe you’re going to generate that many units. And so we tend to generally under-monetize just a little bit in Q2 vis-à-vis Q1. So that’s all you’re seeing there. But to the extent we have better than forecasted traction within TrueCash, within our incentive business, you would see that incremental to monetization in Q2.
Mark Mahaney
Okay. Thank you, Mike.
Operator
Our next question comes from Debra Schwartz with Goldman Sachs.
Debra Schwartz
Great, thanks. I was wondering if you could just talk about net funnel efficiency a little bit more. In terms of the decline that you saw in Q1, how much of it is the negative impact from USAA versus the mix shift to TrueCar, and are there any other factors we should consider? And then similarly, thinking about your Q2 guidance what are you embedding in terms of an improvement from USAA?
Michael Guthrie
So Debra, on NFE, what you described were two things that together are both — the issues with NFE for the quarter. It still was a perfectly positive quarter. But when you have a mix shift away from USAA, which is the highest NFE channel, and a mix shift towards TrueCar, which has always been the lowest NFE channel you’re going to see overall NFE come down a little bit. Again for us, at the end of the day, when we get down to the margin line, if we’re where we want to be, we don’t worry too much about that number. Had we had a more normal mix shift in the quarter then obviously we would have seen a little bit of increment in NFE because most of that would have come from USAA.
In terms of the guidance, in the quarter, we’re — this is a big campaign. I’m going to let Scott talk a little bit about the campaign and what we’re doing with USAA, but our expectations are that it is going to really drive a lot of attention within the channel. And so as a result we probably have unit growth in Q2 from USAA, the highest we’ve had in about four or five quarters.
Scott Painter
Right, Deb. This is Scott. Just to give you a little bit of color on USAA. I think that if you look at sort of what we see in the system, in terms of KPIs and early indicators of performance we’re very aware of how that channel performs. We don’t report and call it out separately, but we have seen that there is sort of an opportunity there to do something quite a bit bigger than we have in the past. And so the combined marketing effort is a pretty groundbreaking initiative where we’re going to be going on television, where we’ve proven our ability to actually acquire customers at almost a direct response level.
We understand the unit economics of acquiring a unique visitor based on direct response television and radio, being able to apply that to USAA and then, obviously assuming that USAA has greater brand equity with their audience. We think we’ve modeled it pretty accurately. We are of course always sort of juggling between whether or not you want to predict the future or you want to just report the results, and I think that we’re a little bit more conservative and we want to take it — the approach where we want to see how these campaigns, given that they’ve never been launched before or done before, how they perform, but I would expect we’ll have some good answers to that here at the Memorial Day holiday.
Michael Guthrie
And Debra, one last thing on NFE; a little bit driven by the fact that we just actually had a lot of traffic this quarter. So we’ve had a few quarters where people are asking us why our unique visitors weren’t higher, and we’ve always talked about quality of the traffic, we did have a fair amount of traffic this quarter. So probably bumped up higher than we had expected ourselves, and that’s probably a little bit of us reaching more into higher CPM modalities in our marketing and bringing more traffic into the TrueCar branded experience.
Debra Schwartz
Great; and then one follow-up on marketing, so you mentioned the quarter over quarter change from Q1 to Q2 having to do with both seasonality as well as the USAA campaign. Curious how much of your marketing message in Q2, or even the lighter Q1 going into heavier Q2, had to do with waiting for TrueCash to launch and whether or not kind of the marketing campaign will be inclusive of that.
Scott Painter
Yeah, this is Scott. I think that the marketing campaign was really more about the overall market. We had sort of a cold Q1 and so there’s a lot of pent-up demand. I think that we are quite bullish on sort of, not just the regular seasonality of Q2, Q3, but in particular this year. I think that we’re also excited by the launch of TrueCash. For any of you who really want to see how the OEM incentive platform and the Model Showcase and TrueCash all work as an integrated offer, use the app and use the Fiat 500. That’ll give you the best sort of full overview of how we’re really repositioning around the brand.
There is significant incentive. Those TrueCash offers, and this is sort of a remarkable new dimension to the incentive platform, are eligible at all Fiat studios or dealers across the country, even if those studios or dealers are not on the TrueCar platform. So for the first time, we’ll actually be generating monetization from non TrueCar-certified dealers, which is I think a pretty big breakthrough for us. So spend a little bit of time really playing with that experience, and what you’ll see over the next month is that, as those experiences propagate with the other manufacturers that we mentioned, you’ll begin to see our pipeline.
And so Mark, even your comment about how are we viewing these new product lines and how are they going to sort of change our guidance, we really debated whether or not we should change anything, and I think that, again, we want to come down on the side of being conservative. We understand that these things have a long pipeline; that these are long-term relationships that we’re — and we’re really doing things that have not been done before.
I think in a lot of these conversations that we’re having with the OEMs, they’re very positive, they’re very enthusiastic and they’re just not used to doing the things that we’re asking them to do. So I think as we sort of lay down all of that new experience and really sort of see how it propagates our environments, we’re going to be able to predict the results, and that’ll start to happen in Q2. We’ll have results after this Memorial Day holiday, and you should look for that to affect our view of how the balance of the year turns out.
Debra Schwartz
Great. Thank you.
Operator
And our next question comes from Ron Josey with JMP Securities.
Ronald Josey
Great, thanks for taking the question. I wanted to follow up just on the TrueCash comments just now. Good to see it rolling out. I’m wondering, how many OEMs are on the platform now. Is it the same amount that were on with USAA, or is it — or maybe a little bit more? And then can you talk to us a little more about what the OEMs need to see for more of them to join the platform. Thank you.
Scott Painter
Sure. This is Scott. Thanks, Ron. The announcement that we made at the end of Q1 around Live Prospect, that has actually gone live now, and so Live Prospect, which is much more of a deep in-channel experience, it’s not as intuitive for you to find as a sort of an observer. You can’t really just go in and find a Live Prospect engagement because it requires that you come into our system, register as a user and then engage with us and communicate with us over time, to sort of witness that. The Model Showcase is a little bit more surface level. The announcement that we made today around Model Showcase, Live Prospect and the TrueCash are all additive to what we have been doing in the past historically with just the affinity groups.
So one of the things we’re going to begin to report on, and we don’t actually have a number obviously for you today but what you should hear from us at the end of Q2 is the total amount of TrueCash redemptions, which will be a collective of all of those numbers, so that we can begin to sort of report on the exclusive savings that we’re delivering to TrueCar users. But all of those folks that we mentioned today, whether it’s BMW, Mini, Hyundai, all of the FCA brands, so Fiat, Chrysler, Dodge, Ram, all of those are part of either the Model Showcase, the Live Prospect tool or TrueCash.
Ronald Josey
Got it. Thank you.
Operator
Our next question comes from John Blackledge with Cowen and Company.
John Blackledge
Great. Thank you. Three questions, so the unique visitor growth was much better than we had expected. Maybe can you talk about the traffic growth and then thoughts for UV growth the rest of the year? That’s one. Two, on TrueCash, just wondering how the economics work for TrueCar and any thoughts, ballpark incremental revenue contribution this year. And then lastly, Google came out with automobile ads earlier this week. It’s a new search ad that includes images of a car and link to dealers. Scott, maybe if you have any thoughts on competitive pressure from that offering, if any at all. Thank you.
Scott Painter
Thanks, John. I’ll take the last one first. So the Google announcement, I think, is entirely upstream of us. I think, again, as a lower funnel experience, where we’re giving actual out the door pricing, that’s actionable to consumers, we tend to be that last stop. So even if they do that information search at the top of their experience or they’re using search tools or they’re even using OEM websites, we tend to see that the in-market buyers tend to ultimately come to TrueCar to ultimately verify that they’re getting the right price and the guaranteed savings.
I think with respect to whether or not we see that put a dent in our ability to acquire customers, we’re predominantly a mass media brand. So we are not reliant on a Google search algorithm, or any search algorithm for that matter, to acquire our customers. We’re advertising on television and radio, and as a result, we tend to be a little bit inoculated from that kind of an effect. But I think anything that adds to engaging consumers with more robust imagery is sort of additive to the whole process. What we want is we want to see consumers buy cars. So we’re sort of thrilled when we see big folks like Google investing in making that experience a little more robust because it engages consumers.
As it relates to TrueCash, I think we’re just not going to take the bait on giving you any kind of uptick in guidance. We are excited about it. We think you should be excited about it. It certainly gives us a lot of confidence about the guidance that we have already given, and we really want to study it this quarter. It just went live and I think we’ve got a lot of learning to do. As with any launch, I think there’s a whole bunch of things that we would even criticize about whether or not it was optimal. But I think it is remarkable. If you do go and download the app and use the Fiat 500 experience as I sort of directed you I think you’ll see exactly how much different it is than what we have been doing in the past.
And then finally, as it relates to UV growth, I think this is just a general comment on the fact that we’re building a brand. And I think we’re seeing a lot of really positive signs around consumer response to that brand, the cost structure of our business, the contribution margin, the leverage we have, and I think that we feel we have a bit of an obligation, given that we’re so nascent, to continue to grow. I think that we can be much more aggressive about our growth and again, we come out of a place where we almost died as a company, and we were so capital constrained that we just did not want to lose money. And I think that discipline exists and persists today, and the good news about that is, we’re just very disciplined about where we spend money and like you, we get worried when our contribution margin goes down.
And so we are always looking to balance the equation of what does it cost us to grow the business versus growth overall, and I think we just feel there’s a lot more growth out there. We’re so unique that the things that differentiate us in the marketplace are very, very real. If you want to go and look at what anybody would consider to be our mindshare competition, at the highest level, we just don’t have ads on our site. That should say everything about how we’re different. It’s not a shopping experience. It’s a buying experience. And this shift to mobile is a really fundamental shift.
It’s not just about saying consumers are going mobile. It’s about changing the nature of the dialogue from one of publishing content and publishing data, which is a very different business than communicating with and engaging with and interacting with customers all the way through their buying process. And so we see the value of the brand really plays a very big role in our ability to grow, and so that unique visitor growth doesn’t surprise us. We are getting pretty experimental with new modalities, and we’re going to continue to do that throughout the balance of the year.
Michael Guthrie
Yeah, and John, just looking at the first quarter, not to give a little bit of guidance on UVs for the second quarter, we have really, really, healthy unique visitor growth in the TrueCar branded channel, and obviously did it with $194 cost to acquire. So it wasn’t like we were just buying traffic. We produced really good units as well in the channel. So we were really comfortable. And in fact, on the traffic side, all the other affinity partners also had healthy growth in traffic. TrueCar actually accelerated growth in the top of the funnel. But we just need to do a little bit better job with USAA in terms of traffic, and that’s what Scott talked about with the new branding campaign. So we’re excited about that.
As we look into Q2, I think on a sequential basis you’ve got seasonality at your back as well as the USAA program. So we’re thinking sort of high teens percentage growth sequentially in unique visitors, with continued healthy growth really across all the channels, but we’ll probably see a specific pickup above and beyond from USAA.
John Blackledge
Thank you.
Operator
[Operator Instructions]. Our next question comes from Steve Dyer with Craig-Hallum.
Steven Dyer
Thanks, good afternoon. A couple of quick questions. First, as it relates to OEM incentives, I think last quarter you had indicated 7% or so of total revenue coming from that for the year. Is that going to be sort of piled into TrueCash now, or is that different, and if so, any update there? And then secondly, maybe what led to the big onslaught of new dealers this quarter, and does that sort of change what you view kind of the optimal number to be going forward? Thanks.
Scott Painter
Hey, Steve. This is Scott. I’m going to split this with John Krafcik who’s here. I’ll just say that at the highest level, TrueCash is going to consolidate everything that we sort of have historically referred to in the OEM incentives line item, whether that’s the affinity incentives, whether that’s Live Prospect or whether that’s TrueCash. It’s all going to be sort of reported as a consolidated number under TrueCash. Obviously, launching that program, promoting it heavily, means that we’re going to see some kind of a bump or a shift in where the revenue is coming from. Again we haven’t forecasted that. We do think the pipeline is long.
The way that these relationships unfold is really to begin with helping the brands to position themselves in our environment. And the one thing that we’re not doing is holding them hostage. We’re actually giving them a free opportunity to come in and use their high definition photography, high resolution photography, build data, incentive data, subvention data. So we’re really conveying accurately and in full Technicolor all of their offerings in our environment and that would normally be an opportunity for us to upcharge the manufacturer. We’re not doing that.
So I think that’s going to be really the work of the next couple of quarters for us, and we’re going to really study how that unfolds with respect to Fiat and some of these other brands that we’re launching with. I think that, as it relates to the dealers, what you’re seeing is again the brand impact. We’re spending a lot of money out there on television and radio. We are becoming a bigger and bigger part of every conversation about buying a car, even where we’re not sourcing or identifying the origination of a customer.
So if somebody goes into a dealership, and it may not even be a TrueCar dealer, and it may not even be a TrueCar conversation, they’re bringing in their TrueCar certificate and they’re looking at the TrueCar pricing index as a way of really having a baseline objective, understanding of how the market’s behaving. I think that, that effect is what’s really driving adds. We are now almost entirely inbound. We’re starting to see waitlists in a number of areas. I think we’re well beyond what we had forecasted as our long term penetration. So I think we are at a real inflection point, where dealer adds for us and dealer coverage is no longer really an issue.
We’re now focusing on the quality of those relationships. Again we look at the cohort analysis where, if you’re a dealer who’s been on our program for longer than three years, your close rate is usually three times as high, and your total amount of originations is about three times as high as the earlier cohort. So in some cases we might see dealers where 20%, 30%, 40% of all of their originations are coming from TrueCar, if they’ve been on the program for quite some time. And that just takes time and learning and sort of understanding how the program works, to see that kind of result manifest.
But I think that for some time we’ll continue to see adds. We continue to have holes. If you look at our dealer coverage map we still look like an early adopter technology map. In the Midwest, we still have lots of coverage gaps and we’re looking to fill those.
Michael Guthrie
We will not see that level of adds this quarter. That really was above our expectation. I do think there’s — in addition to the advertising there’s the scarcity value that drives dealers to join the program. As we’ve already said we’re not looking for every dealer. So we definitely don’t feel we’ll have that many net adds this quarter.
John Krafcik
Just a little bit more on that, Steve. So first quarter is typically our best quarter for dealer adds, so that was part of it. We had a super big presence at NADA this year, and I think that was effective in bringing more dealers home. And we had a really effective print campaign in Automotive News that brought more dealers to the party. I think all of those things, and the increasing power of our brand were really helpful in driving that dealer count.
Going forward, I think a number more like 150 to 300 per quarter, something like that, is probably appropriate and might be helpful in setting your expectations. On the TrueCash side, we’ve made a lot of progress the last couple of quarters. You’ve heard from Scott on some of those. I think — I just want to repeat a couple of the things that are really important about what we’re doing now that’s different than what we have done in the past. The first is, for the first time we’re opening up the entire platform. So previously we might have partnered with just USAA or perhaps another affinity partner. With our latest engagements with OEMs, we’re — for example, what we had called Live Prospect before, which is now a deepened funnel form of TrueCash. We’re opening up the entire platform. Similarly with Fiat TrueCash deal. So that’s really significant. It more than doubles the scope and the potential reach for the programs.
The second point, which we’ve had in place before but I think bears repeating again and again is, these incremental incentives now are not just redeemable through TrueCar dealers. It’s the entire network of the brands that we’re representing. I think that’s a really important point from a monetization standpoint going forward.
Steven Dyer
Great. Thank you.
Operator
Your next question comes from Sameet Sinha with B. Riley.
Sameet Sinha
Yes. Thank you very much. A couple of questions. Mike, you spoke about increasing the total customer acquisition spend sequentially. Do you have a number? Maybe I missed that if you gave it earlier. You’ve done a good job of kind of bringing down that customer acquisition cost per unit over a period of time. Can you give us more clarity on what sort of ad units you’re seeing most efficiency in, and in case you can provide us the breakdown [ph] between TV, radio and other media, that would be helpful. Thank you.
Michael Guthrie
Hey, Sameet. No, so we don’t split the number out between the modalities. We consider how we view the acquisition and where we spend our dollars specifically to the intellectual property. So we spent $13.5 million in the first quarter and just as a good working estimate, we’re looking to spend about $20 million in Q2.
Sameet Sinha
Great, thank you.
Michael Guthrie
Yeah.
Operator
Our next question comes from Blake Harper with Wunderlich.
Blake Harper
Yeah, thanks for taking the questions. I wanted to ask a little bit more about the partnership that you have with USAA and if that is exclusive or unique in any way. And if you would pursue other types of partnerships in the future, how you think about them? And then secondly, if you’re able to share any of the type of economics that would be associated with that partnership either from the revenue side or the expense side that you’re doing for the marketing.
Scott Painter
Yeah, this is Scott. So TrueCar today operates the largest affinity auto-buying platform on a white label or co-branded basis in the U.S. Just on a pure numerical basis, it’s nearly 99% of all of the programs in operation today. So it’s well over 500 of those types of programs. So USAA, while the largest, is only one of very, very many. So Consumer Reports, AAA, AARP, some of the largest and most well-known trust marks in the U.S., we operate those auto-buying programs today.
So when we look at our business, it sort of breaks down into roughly sort of two buckets. It’s the TrueCar branded channel, and then it’s affinity, and of course USAA sort of sticks out in that. We are obviously talking about an initiative with a very prominent partner, USAA, where we are currently at about 10% penetration within their universe, as measured by the number of consumers that they are dealing with that actually register vehicles.
So that’s sort of a very immediate proof point that one of their members has purchased a vehicle. So we feel that there’s just a lot of room to grow there. I think that it’s pretty safe to say you could translate that opportunity across the entire affinity landscape, and we are adding affinity partners all the time. So just over the last five or six months, we’ve had numerous announcements of large affinity partners. We continue to fight for and win that business on a regular basis, but you should look for those kinds of adds on an ongoing basis.
One of the big ones that we just announced was Sam’s Club. That’s obviously a pretty big national brand and obviously there are other auto buying programs in the marketplace that are similar. And so I think that we’ll continue to expand that business as aggressively as we can. Internally, the teams are looking to diversify as much as possible. So the TrueCar branded team is always looking to grow faster than the affinity channel and the affinity channel is looking to grow as fast as they can. So while we like the fact that the TrueCar channel is where our most growth comes from we still see a lot of potential at affinity.
Michael Guthrie
Yes, and Blake, just for the current quarter that we just reported on, the TrueCar branded business was about 41% of all the units. Between USAA and all the other partners taken in total those numbers are almost equivalent at this point. We’re getting close to where the other partners are almost as large, in total, as USAA standalone.
Blake Harper
Okay, thanks.
Operator
Our next question comes from Kyle Evans with Stephens.
Kyle Evans
Hi, thanks. Mike, could you talk a little bit about the pricing integrity around the subscription business, that 299 [ph] on new and talk about maybe how that works with the used as well, please?
Michael Guthrie
Yeah, I mean in the first quarter we had — we did a really good job of maintaining monetization in — across subscription and pay per sale. So we did not have any — there was sort of no lack of pricing integrity in the first quarter and that’s part of the reason we were at $322 overall. That plus, from what — as I said, from the non-franchise dealers, what I mentioned on the call, and the reason I guided down slightly in monetization in the second quarter is sometimes subscriptions — well look, the higher the volume, sometimes the harder it is to maintain your subscription pricing because you have so much volume that subscription rates look bigger and we tend to see, seasonally adjusted, the second quarter pricing comes down a little bit.
Now what would offset that in the second quarter would be incremental revenue from things that we’ve talked about today that are not currently in the model. So to the extent we have lift in monetization on TrueCash, that would just offset whatever we happen to lose in Q2. But overall, on our subscription business we’re maintaining price integrity, to use your term, very well, and we’ve seen no change. I mean that’s really the benefit of the bargain that we have with dealers, whether they’re pay per sale or subscription, we have a value prop that says you have to pay us $300 for a successful sale.
Kyle Evans
And the dynamic is the same between new and used.
Michael Guthrie
In terms of price integrity? Yeah, it is. It is.
Kyle Evans
Okay and a follow-up…
Michael Guthrie
Except that pricing for used is a $100 higher.
Kyle Evans
Right, right.
Michael Guthrie
Okay.
Kyle Evans
Kind of a follow-on to an earlier question on the 7% of transaction revenue being OEM incentive was that same in the quarter and kind of that’s where we should keep it in the model for the time being?
Michael Guthrie
It’s a good place to keep it in the model. It came down a little bit because of the USAA numbers. We had a slower quarter with USAA than the other channels. The other channels grew a lot faster, and so since the vast majority of our incentives are attached to the USAA programs today historically, certainly in Q1, then you saw the number come down, not a lot but a little bit. But obviously we expect it to tick back up here in the next couple of quarters because we’re just massively broadening the — under TrueCash, we’re massively broadening our incentive program.
Kyle Evans
And on Model Showcase, is there a revenue component to that? Is that a feature functionality that you’re offering to the OEMs that are willing to engage you on TrueCash? How does that work?
Scott Painter
Yeah, the Model Showcase is really the beginning of a much deeper dialogue with the manufacturer. And so the way that TrueCash ultimately works is, these are incentives that are offered by TrueCar to end users. They work in very much the same way that dealer cash works, for a car dealer, where one of the things we’ll be looking to do over time is be very intelligent about who gets what kinds of offers.
And so obviously if somebody is, as a consumer already committed to a particular vehicle, the goal is to keep them in channel. That’s very different than somebody who has perhaps chosen a competitive set vehicle and we’re trying to change their behavior. There’s going to need to be more incentive on that car. And so, one of the things that we referenced in the Q1 call is sort of this notion that we would become the AdWords of — or AdSense of automotive advertising. It’s only possible if you begin to intelligently apply, based on behavioral and sort of psychological and demographic cues, what we see from consumers. And so I think that this is just the beginning of being able to understand how and when we do that.
Initially coming out of the gate here we’re going to probably pass on, most if not all of that, benefit to consumers, and we’re going to just look to over time get much more selective about how and where we do that, based on what we learn.
Kyle Evans
Okay. Thank you.
Operator
And the final question is a follow-up from John Blackledge with Cowen and Company.
John Blackledge
Great, thanks. Just a couple of follow-ups. TrueTrade, I think it’s being tested with a couple dealership groups. Just wondering how it’s going, if you can provide some details on the learnings, from the consumer side and dealer side. And then, back to the USAA, so the units came in lower in the first quarter. Just again just to remind, what drove that again? Then for the joint marketing campaign, is the ad spend being split like evenly between USAA and True, or is True bearing more or less of the spend? Thank you.
Michael Guthrie
Yeah, so, John, on TrueTrade, on the last call, I had mentioned that we thought we would have about 3,000 condition reports filled out in the month of March, and that would translate into a couple of hundred unit sales. We actually are spot on top of that number in terms of condition reports and actually we’re significantly higher, almost 2X higher, in terms of actual trade-ins transacted. So I’d say overall we feel really good about where the program is.
We do have a handful of dealer groups that are engaging with us right now and looking at daily values and I think we’re — I’d say we’ve stayed ahead of the plans that we’ve been talking to you about in terms of being able to launch this as a meaningful revenue stream in 2016 which has always been our focus.
In terms of the USAA question, equal split, in terms of the economics and the cost. And then your last question was about units in the first quarter, is that what you asked me?
John Blackledge
Yeah, and just what drove the lower — I guess the — you came in a little bit light. I mean what was the key reason?
Michael Guthrie
Yeah, it’s just focus, I think more than anything. Every partner needs to be covered and focused, and we’ve been spending just an enormous amount of our time on the branded business, on OEMs, launching TrueCash, Model Showcase and things like that. With partners you have to be in front of them all the time with marketing programs and I think quite honestly over time it’s been such a dependable and reliable channel that maybe we haven’t pushed for more creative marketing programs.
So Scott’s been spending a lot of his time down there, I have as well. We’re launching the co-branded campaign in a matter of weeks. Lot of excitement behind that on both sides, and everybody really wants to get the unit numbers back up where they really think they should be. We thought we were in the quarter, based on our forecast, we were about a hundred thousand monthly uniques light of our forecast. And if you just look at that in terms of low incremental NFE of 2%, which is very low for the USAA channel, you’re talking about 2,000 units light per month, about 6,000 for the quarter. So that’s our miss, right, that was our problem. And we’re going to fix that in Q2.
John Blackledge
Okay, thank you. Thanks a lot.
Michael Guthrie
Yeah, thanks, John.
Scott Painter
Operator, this is Scott Painter. I just want to make one correction. Earlier I announced that we have got Sam’s Club. That is not an official announcement yet. So to correct that statement we, over the last quarter launched 23 new partner auto-buying programs, 14 of them employee buying programs, eight credit unions, one membership organization, AAA Northern California, Nevada and Utah, as well as Safeco, and stay tuned for any other announcement.
Operator
Thank you. Ladies and gentlemen, this concludes today’s teleconference. You may disconnect your lines at this time. Thank you all for your participation.
