DealerTrack Holdings Reports Results for Fourth Quarter and 2010 and Issues Guidance for 2011

Attachment (1) Actual Results

Three-Month Period

DEALERTRACK HOLDINGS, INC.

Consolidated Statements of Operations

(Dollars in thousands, except per share data)

(Unaudited)

Three Months Ended

December 31,

2010

2009

Net revenue

$      62,006

$      53,247

Cost of revenue

30,404

27,237

Product development

3,095

2,957

Selling, general and administrative

25,368

25,638

     Total operating expenses

58,867

55,832

Income (loss) from operations

3,139

(2,585)

Interest and other income, net

211

867

Income (loss) before (provision for) benefit from income taxes

3,350

(1,718)

(Provision for) benefit from income taxes

(29,797)

1,037

 Net loss

$    (26,447)

$         (681)

Basic net loss per share

$        (0.65)

$        (0.02)

Diluted net loss per share

$        (0.65)

$        (0.02)

Weighted average shares outstanding (basic)

40,595,939

39,787,985

Weighted average shares outstanding (diluted)

40,595,939

39,787,985

Adjusted EBITDA (non-GAAP) (a)

$      14,463

$        8,177

Adjusted EBITDA margin (non-GAAP) (b)

23%

15%

Adjusted net income (non-GAAP) (a)

$        7,787

$        4,820

Diluted adjusted net income per share (non-GAAP) (c)(d)

$          0.19

$          0.12

Stock-based compensation expense was classified as follows:  

Cost of revenue

$           361

$           525

Product development

$           143

$           153

Selling, general and administrative

$        2,050

$        2,322

(a)     See Reconciliation Data in Attachment 4.

(b)     Represents adjusted EBITDA as a percentage of net revenue.

(c)     For the three months ended December 31, 2010, the adjusted net income per share of approximately $0.19 is based on 41,774,695 diluted weighted average shares outstanding.

(d)     For the three months ended December 31, 2009, the adjusted net income per share of approximately $0.12 is based on 40,898,826 diluted weighted average shares outstanding.

Attachment (1) Actual Results

Twelve-Month Period

DEALERTRACK HOLDINGS, INC.

Consolidated Statements of Operations

(Dollars in thousands, except per share data)

(Unaudited)

Twelve Months Ended

December 31,

2010

2009

Net revenue

$    243,826

$    225,626

Cost of revenue

124,070

113,875

Product development

13,386

13,994

Selling, general and administrative

105,715

108,707

     Total operating expenses

243,171

236,576

Income (loss) from operations

655

(10,950)

Interest and other income, net

1,527

1,704

Realized gain on securities

582

1,393

Income (loss) before (provision for) benefit from income taxes

2,764

(7,853)

(Provision for) benefit from income taxes

(30,597)

3,519

 Net loss

$    (27,833)

$      (4,334)

Basic net loss per share

$        (0.69)

$        (0.11)

Diluted net loss per share

$        (0.69)

$        (0.11)

Weighted average shares outstanding (basic)

40,322,939

39,524,544

Weighted average shares outstanding (diluted)

40,322,939

39,524,544

Adjusted EBITDA (non-GAAP) (a)

$      42,070

$      34,438

Adjusted EBITDA margin (non-GAAP) (b)

17%

15%

Adjusted net income (non-GAAP) (a)

$      21,943

$      19,967

Diluted adjusted net income per share (non-GAAP) (c) (d)

$          0.53

$          0.49

Stock-based compensation expense was classified as follows:  

Cost of revenue

$        1,640

$        2,354

Product development

$           614

$           755

Selling, general and administrative (e)

$        8,979

$      13,880

(a)     See Reconciliation Data in Attachment 4.

(b)     Represents adjusted EBITDA as a percentage of net revenue.

(c)     For the twelve months ended December 31, 2010, the adjusted net income per share of approximately $0.53 is based on 41,299,993 diluted weighted average shares outstanding.

(d)     For the twelve months ended December 31, 2009, the adjusted net income per share of approximately $0.49 is based on 40,509,324 diluted weighted average shares outstanding.

(e)     Included in stock-based compensation expense for the year ended December 31, 2009 was $3.9 million of stock-based compensation expense related to the realignment of our workforce and business on January 5, 2009, which was primarily allocated to selling, general and administrative expenses.

Attachment (2) Condensed Consolidated Balance Sheets

DEALERTRACK HOLDINGS, INC.

Condensed Consolidated Balance Sheets

(Dollars in thousands)

(Unaudited)

December 31, 2010

December 31, 2009

ASSETS

Cash and cash equivalents

$               192,563

$               197,509

Short-term investments

490

1,484

Accounts receivable, net

24,273

17,478

Prepaid expenses and other current assets

17,929

9,620

Total current assets

235,255

226,091

Property and equipment, net

18,875

13,514

Software and website development costs, net

29,875

21,158

Intangible assets, net

23,163

41,604

Goodwill

136,408

134,747

Deferred taxes and other long-term assets

15,387

35,213

Total assets

$               458,963

$               472,327

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable and accrued expenses

$                 28,575

$                 26,960

Deferred revenue

5,010

4,992

Due to acquirees and other current liabilities

728

2,245

Total current liabilities

34,313

34,197

Long-term liabilities

15,733

17,244

Total liabilities

50,046

51,441

Total stockholders' equity

408,917

420,886

Total liabilities and stockholders' equity

$               458,963

$               472,327

Attachment (3) Consolidated Statements of Cash Flows

DEALERTRACK HOLDINGS, INC.

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

Twelve Months Ended

December 31,

2010

2009

Operating activities:

Net loss

$ (27,833)

$   (4,334)

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization

36,753

35,060

Deferred tax provision (benefit)

29,174

(7,262)

Stock-based compensation expense

11,233

16,989

Provision for doubtful accounts and sales credits

5,488

7,698

Loss (gain) on sale of property and equipment

23

(184)

Reversal of pre-acquisition accrued contingency

-

(609)

Amortization of bond premium

-

55

Amortization of deferred interest

68

152

Deferred compensation

-

300

Stock-based compensation windfall tax benefit

(1,714)

(673)

Realized gain on securities

(582)

(1,393)

Changes in operating assets and liabilities, net of effects of acquisitions:

Accounts receivable

(12,059)

(6,342)

Prepaid expenses and other current assets

(9,627)

3,725

Accounts payable and accrued expenses

(1,403)

3,025

Deferred revenue and other current liabilities

7

14

Other long-term liabilities

(1)

(642)

Deferred rent

195

145

Other long-term assets

(10,574)

(257)

Net cash provided by operating activities

19,148

45,467

Investing activities:

Capital expenditures

(10,801)

(5,360)

Restricted cash

-

142

Sale of investments

2,519

44,569

Capitalized software and website development costs

(16,899)

(13,021)

Proceeds from sale of property and equipment

1

109

Payment for acquisition of business and intangible assets, net of acquired cash

(3,028)

(34,722)

Net cash used in investing activities

(28,208)

(8,283)

Attachment (3) Consolidated Statements of Cash Flows (cont'd)

DEALERTRACK HOLDINGS, INC.

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

Financing activities:

2010

2009

Principal payments on capital lease obligations

(513)

(414)

Proceeds from the exercise of employee stock options

2,270

2,202

Proceeds from employee stock purchase plan

697

875

Purchase of treasury stock

(643)

(379)

Principal payments on notes payable

-

(848)

Stock-based compensation windfall tax benefit

1,714

673

Net cash provided by financing activities

3,525

2,109

Net (decrease) increase in cash and cash equivalents

(5,535)

39,293

Effect of exchange rate changes on cash and cash equivalents

589

2,760

Cash and cash equivalents, beginning of period

197,509

155,456

Cash and cash equivalents, end of period

$ 192,563

$ 197,509

Twelve Months Ended

December 31,

2010

2009

Supplemental disclosure:

Cash paid for:

Income taxes

$     6,776

$     4,961

Interest

$          57

$          60

Attachment (4) Reconciliation Data 

DEALERTRACK HOLDINGS, INC.

Reconciliation of GAAP Net Loss to Non-GAAP Adjusted EBITDA

(Dollars in thousands)

(Unaudited)

Three Months Ended

December 31,

2010

2009

GAAP net loss

$ (26,447)

$    (681)

Interest income

(144)

(144)

Interest expense

20

68

Provision for (benefit from) income taxes

29,797

(1,037)

Depreciation and amortization

4,678

3,824

Amortization of acquired identifiable intangibles

4,600

4,948

EBITDA (non-GAAP)

12,504

6,978

  Adjustments:

  Acquisition related and other non-recurring professional fees

1,180

1,808

  Reversal of pre-acquisition accrued contingency

-

(609)

  Contra-revenue

779

-

Adjusted EBITDA (non-GAAP)

$  14,463

$   8,177

Attachment (4) Reconciliation Data

DEALERTRACK HOLDINGS, INC.

Reconciliation of GAAP Net Loss to Non-GAAP Adjusted Net Income

(Dollars in thousands)

(Unaudited)

Three Months Ended

December 31,

2010

2009

GAAP net loss

$ (26,447)

$    (681)

Adjustments:

Deferred tax asset valuation allowance (non-taxable)

28,406

-

Stock-based compensation

2,554

3,000

Amortization of acquired identifiable intangibles

4,600

4,948

Acquisition related and other non-recurring professional fees

1,180

1,808

  Reversal of pre-acquisition accrued contingency

-

(609)

Contra-revenue

779

-

Tax impact of adjustments (a)

(3,285)

(3,646)

Adjusted net income (non-GAAP)

$    7,787

$   4,820

(a)      The tax impact of adjustments for the three months ended December 31, 2010, are based on a U.S. statutory tax rate of 36.9% applied to taxable adjustments other than amortization of acquired identifiable intangibles and stock-based compensation expense, which are based on a blended tax rate of 35.3% and 36.7%, respectively. The tax impact of adjustments for the three months ended December 31, 2009, are based on a U.S. effective tax rate of 37.8% applied to taxable adjustments other than amortization of acquired identifiable intangibles and stock-based compensation expense, which are based on a blended tax rate of 37.0% and 37.8%, respectively.

Attachment (4) Reconciliation Data

DEALERTRACK HOLDINGS, INC.

Reconciliation of GAAP Loss to Non-GAAP Adjusted EBITDA

(Dollars in thousands)

(Unaudited)

Twelve Months Ended

December 31,

2010

2009

GAAP net loss

$ (27,833)

$ (4,334)

Interest income

(525)

(1,081)

Interest expense

175

221

Provision for (benefit from) income taxes

30,597

(3,519)

Depreciation and amortization

17,329

14,719

Amortization of acquired identifiable intangibles

19,424

20,341

EBITDA (non-GAAP)

39,167

26,347

  Adjustments:

Restructuring costs (including stock-based compensation) (a)

-

6,686

  Acquisition related and other non-recurring professional fees

1,905

2,407

  Realized gain on securities

(582)

(1,393)

Reversal of pre-acquisition accrued contingency

-

(609)

Acquisition related earn-out compensation expense

-

1,000

  Contra-revenue

1,580

-

Adjusted EBITDA (non-GAAP)

$  42,070

$ 34,438

(a)      Includes $3.9 million in non-cash costs related to a reduction in workforce.

Attachment (4) Reconciliation Data 

DEALERTRACK HOLDINGS, INC.

Reconciliation of GAAP Net Loss to Non-GAAP Adjusted Net Income

(Dollars in thousands)

(Unaudited)

Twelve Months Ended

December 31,

2010

2009

GAAP net loss

$ (27,833)

$ (4,334)

Adjustments:

Deferred tax asset valuation allowance (non-taxable)

28,406

-

Stock-based compensation (excluding restructuring costs)

11,233

13,104

Amortization of acquired identifiable intangibles

19,424

20,341

Acquisition related and other non-recurring professional fees

1,905

2,407

Realized gain on securities (non-taxable)

(582)

(1,393)

Amended state tax return impact (non-taxable)

101

(1,070)

Restructuring costs (including stock-based compensation) (a)

-

6,686

Reversal of pre-acquisition accrued contingency

-

(609)

  Acquisition related earn-out compensation expense

-

1,000

Contra-revenue

1,580

-

Tax impact of adjustments (b)

(12,291)

(16,165)

Adjusted net income (non-GAAP)

$  21,943

$ 19,967

(a)  Includes $3.9 million in non-cash costs related to a reduction in workforce.

(b)  The tax impact of adjustments for the year ended December 31, 2010, are based on a U.S. statutory tax rate of 36.9% applied to taxable adjustments other than amortization of acquired identifiable intangibles and stock-based compensation expense, which are based on a blended tax rate of 35.4% and 36.7%, respectively. The tax impact of adjustments for the year ended December 31, 2009, are based on a U.S. effective tax rate of 37.8% applied to taxable adjustments other than amortization of acquired identifiable intangibles and stock-based compensation expense, which are based on a blended tax rate of 37.0% and 37.8%, respectively.

Attachment (4) Reconciliation Data

DEALERTRACK HOLDINGS, INC.

Reconciliation of Forward-looking GAAP Net Income to Forward-looking Non-GAAP Adjusted EBITDA

(Dollars in millions)

(Unaudited)

Year Ending December 31, 2011

Expected Range

GAAP net income

$        2.9

$       5.4

Net interest income

(0.1)

(0.1)

Provision for income taxes

4.0

5.5

Depreciation and amortization

23.0

23.0

Amortization of acquired identifiable intangibles

21.5

21.5

EBITDA (non-GAAP)

51.3

55.3

  Adjustments:

  Non-recurring costs (a)

2.0

2.0

  Contra-revenue

3.7

3.7

Adjusted EBITDA (non-GAAP)

$      57.0

$     61.0

(a)  Includes certain professional fees, integration costs and restructuring costs.

Attachment (4) Reconciliation Data 

DEALERTRACK HOLDINGS, INC.

Reconciliation of Forward-looking GAAP Net Income to Forward-looking Non-GAAP Adjusted Net Income

(Dollars in millions)

(Unaudited)

Year Ending December 31, 2011

Expected Range

GAAP net income

$        2.9

$       5.4

Adjustments:

Stock-based compensation charges

11.6

11.6

Amortization of acquired identifiable intangibles

21.5

21.5

Non-recurring costs (a)

2.0

2.0

Deferred tax asset valuation allowance (non-taxable)

1.5

1.5

Contra-revenue

3.7

3.7

Tax impact of adjustments (b)

(14.0)

(14.0)

Adjusted net income (non-GAAP)

$      29.2

$     31.7

(a)  Includes certain professional fees, integration costs and restructuring costs.

(b)  The tax impact of adjustments are based on a blended tax rate of 36.1% applied to taxable adjustments.  

Attachment (5) Summary of Business Statistics

DEALERTRACK HOLDINGS, INC.

Summary of Business Statistics (Unaudited)

Three months ended

Dec 31,

Sep 30,

Jun 30,

Mar 31,

Dec 31,

2010

2010

2010

2010

2009

Active U.S. dealers (a)

16,829

16,961

17,120

17,102

16,690

Active U.S. lenders (b)

970

921

891

847

823

Transactions processed (in thousands)(c)

11,997

13,296

12,239

11,841

10,114

Active U.S. lender to dealer relationships (d)

137,058

137,388

137,919

127,724

118,209

Subscribing dealers (e)

13,996

13,856

13,468

13,705

13,852

(a)     We consider a dealer to be active as of a date if the dealer completed at least one revenue-generating credit application processing transaction using the U.S. DealerTrack network during the most recently ended calendar month.  For the three months ended March 31, 2010, the number of active U.S. dealers was updated from the number originally reported (16,860).  For the three months ended June 30, 2010, the number of active U.S. dealers was updated from the number originally reported (17,343).   The number of active U.S. dealers is based on the number of dealer accounts as communicated by lenders on the DealerTrack network.  

(b)     We consider a lender to be active in our DealerTrack network as of a date if it is accepting credit application data electronically from U.S. dealers in the DealerTrack network.

(c)     Represents revenue-generating transactions processed in the DealerTrack, DealerTrack Digital Services and DealerTrack Canada networks at the end of a given period.

(d)     Each lender to dealer relationship represents a pair between an active U.S. lender and an active U.S. dealer.

(e)     Represents the number of dealerships with one or more active subscriptions on the DealerTrack or DealerTrack Canada networks at the end of a given period.

Attachment (5) Summary of Business Statistics

DEALERTRACK HOLDINGS, INC.

Summary of Business Statistics (Unaudited)

Three months ended

Dec 31,

Sep 30,

Jun 30,

Mar 31,

Dec 31,

2010

2010

2010

2010

2009

Transaction revenue (in thousands)

$25,091

$27,188

$26,851

$22,870

$20,237

Subscription revenue (in thousands)

$32,205

$31,273

$30,341

$29,728

$28,982

Other revenue (in thousands)

$4,710

$4,667

$4,715

$4,187

$4,028

Average transaction price (a)

$2.16

$2.09

$2.19

$1.93

$2.00

Average monthly subscription revenue per subscribing dealership (b)

$769

$759

$749

$719

$695

(a)     Represents the average revenue earned per transaction processed in the DealerTrack, DealerTrack Aftermarket, DealerTrack Digital Services and DealerTrack Canada networks during a given period.  Revenue used in calculation adds back contra-revenue.

(b)     For the 2010 periods, represents  net subscription revenue divided by average subscribing dealers for a given period in the DealerTrack and DealerTrack Canada networks.