TRAK (MM)

Dealertrack Technologies, Inc. (NASDAQ: TRAK) today reported financial results for the first quarter ended March 31, 2013.

GAAP Results for the First Quarter 2013

• Revenue for the quarter was $109.1 million, as compared to $91.6 million for the first quarter of 2012.
• GAAP net loss for the quarter was $(34,000), as compared to GAAP net income of $17.0 million for the first quarter of 2012.
• Diluted GAAP net loss per share for the quarter was $(0.00), as compared to GAAP net income per share of $0.39 for the first quarter of 2012.

GAAP net income for the first quarter of 2012 was positively impacted by $16.1 million (net of tax), or $0.37 per share, from a non-cash gain related to the contribution of Chrome to the Chrome Data Solutions, L.P. joint venture.

Non-GAAP Results for the First Quarter 2013

• Adjusted EBITDA for the quarter was $24.2 million, as compared to $19.4 million for the first quarter of 2012.
• Adjusted net income for the quarter was $12.0 million, as compared to $9.4 million for the first quarter of 2012.
• Diluted adjusted net income per share for the quarter was $0.27, as compared to $0.22 for the first quarter of 2012.

Mark F. O’Neil, chairman and chief executive officer of Dealertrack Technologies, Inc., commented, “We are off to a solid start for the year. Our focus on selling broader solutions to dealerships helped drive an increase in momentum for our subscription products in the first quarter, led by our dealer management system. At the same time, transaction revenue continues to increase faster than the growth in car sales as we derived more revenue per car sold through increased cross-selling. We are also making significant progress in a number of product initiatives that we believe will help us deliver strong growth and profitability in the years ahead.”

Updated Guidance for 2013

Dealertrack updated its 2013 annual guidance to reflect the acquisition of Casey & Casey as follows:

Expected GAAP Results

• Revenue for the year is expected to be between $453.0 million and $462.0 million, an increase from prior guidance of between $447.0 million and $456.0 million.
• GAAP net income for the year is expected to be between $9.5 million and $12.5 million, a decrease from prior guidance of between $10.0 million and $13.0 million.
• Diluted GAAP net income per share for the year is expected to be between $0.21 and $0.28, a decrease from prior guidance of between $0.22 and $0.29 per share.

Expected Non-GAAP Results

• Adjusted EBITDA for the year is expected to be between $112.5 million and $116.5 million, an increase from prior guidance of between $111.0 million and $115.0 million.
• Adjusted net income for the year is expected to be between $55.0 million and $58.0 million, an increase from prior guidance of between $54.0 million and $57.0 million.
• Diluted adjusted net income per share for the year is expected to be between $1.21 and $1.28, an increase from prior guidance of between $1.19 and $1.26.

Diluted GAAP net income and adjusted net income per share guidance for the year continues to be based on an estimated 45.4 million diluted weighted average shares outstanding. The guidance also continues to assume that new car sales by franchised dealers will be approximately 15.2 million units and used car sales by franchised dealers will be approximately 15.0 million units in 2013.

Conference Call

Dealertrack will host a conference call to discuss its first quarter 2013 results on May 8, 2013 at 5:00 p.m. Eastern Time. The conference call will be webcast live on the Internet at ir.dealertrack.com. In addition, a live audio of the call will be accessible to the public by calling 877-303-6648 (domestic) or 970-315-0443 (international); no access code is necessary. Callers should dial in approximately 10 minutes before the call begins. A replay will be available on the Dealertrack Technologies, Inc. website until May 30, 2013.

Non-GAAP Financial Measures

The non-GAAP measures of adjusted EBITDA and adjusted net income disclosures are not presented in accordance with generally accepted accounting principles (GAAP) and are not intended to be used in lieu of GAAP presentations of net income. Adjusted EBITDA is a non-GAAP financial measure that represents GAAP net income (loss) excluding interest, taxes, depreciation and amortization expenses, stock-based compensation, contra-revenue and certain items, as applicable, such as: impairment charges, restructuring charges, impact of acquisition-related activity (including contingent consideration changes, compensation expense, basis difference amortization, and professional service fees), realized gains on sales of previously impaired securities, gains or losses on sales or disposals of subsidiaries and other assets, rebranding expense and certain other non-recurring items.

Adjusted net income is a non-GAAP financial measure that represents GAAP net income (loss) excluding stock-based compensation expense, the amortization of acquired identifiable intangibles, contra-revenue, and certain items, as applicable, such as: impairment charges, restructuring charges, impact of acquisition-related activity (including contingent consideration changes, compensation expense, basis difference amortization, and professional service fees), realized gains on sales of previously impaired securities, gains or losses on sales or disposals of subsidiaries and other assets, adjustments to deferred tax asset valuation allowances, non-cash interest expense, rebranding expense and certain other non-recurring items. These adjustments to net income (loss), which are shown before taxes, are adjusted for their tax impact at their applicable statutory rates.

Adjusted EBITDA and adjusted net income are presented because management believes that they provide additional information with respect to the performance of our fundamental business activities and are also frequently used by securities analysts, investors and other interested parties in the evaluation of comparable companies. Adjusted EBITDA and adjusted net income are also presented because the purchase accounting treatment of acquisitions can have a negative impact on our GAAP results because the depreciation and amortization expenses associated with acquired assets, in particular intangibles which tend to have a relatively short useful life, can be substantial in the first several years following an acquisition. As a result, we monitor our adjusted EBITDA and adjusted net income and other business statistics as a measure of operating performance in addition to net income and the other measures included in our consolidated financial statements. Management believes the adjusted EBITDA and adjusted net income information is useful to investors for these reasons. Adjusted EBITDA and adjusted net income are non-GAAP financial measures and should not be viewed as an alternative to GAAP measures of performance. Management believes the most directly comparable GAAP financial measure for adjusted EBITDA and adjusted net income is GAAP net income (loss) and has provided a reconciliation of adjusted EBITDA to GAAP net income (loss) and adjusted net income to GAAP net income (loss) in this press release.

About Dealertrack Technologies (www.dealertrack.com)

Dealertrack Technologies’ intuitive and high-value web-based software solutions and services enhance efficiency and profitability for all major segments of the automotive retail industry, including dealers, lenders, OEMs, third-party retailers, agents, and aftermarket providers. In addition to the industry’s largest online credit application network, connecting more than 19,000 dealers with more than 1,300 lenders, Dealertrack Technologies delivers the industry’s most comprehensive solution set for automotive retailers, including Dealer Management System (DMS), Inventory, Sales and F&I, Interactive, and Registration and Titling solutions. For more information visit www.dealertrack.com.

Safe Harbor for Forward-Looking and Cautionary Statements

Statements in this press release regarding Dealertrack’s expected 2013 performance based on both GAAP and non-GAAP measures, the long-term outlook for its business and all other statements in this release other than the recitation of historical facts are forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995). These statements involve a number of risks, uncertainties and other factors that could cause actual results, performance or achievements of Dealertrack to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements.

Factors that might cause such a difference include: economic trends that affect the automotive retail industry or the indirect automotive financing industry including the number of new and used cars sold; credit availability; reductions in auto dealerships; increased competitive pressure from other industry participants, including Open Dealer Exchange, RouteOne, CUDL, Finance Express and AppOne; the impact of some vendors of software products for automotive dealers making it more difficult for Dealertrack’s customers to use Dealertrack’s solutions and services; security breaches, interruptions, failures and/or other errors involving Dealertrack’s systems or networks; the failure or inability to execute any element of Dealertrack’s business strategy, including selling additional products and services to existing and new customers; Dealertrack’s success in implementing an ERP system; the volatility of Dealertrack’s stock price; new regulations or changes to existing regulations; the integration of recent acquisitions and the expected benefits, as well as the integration and expected benefits of any future acquisitions that Dealertrack may pursue; Dealertrack’s success in expanding its customer base and product and service offerings, the impact of recent economic trends, and difficulties and increased costs associated with raising additional capital; the impairment of intangible assets, such as trademarks and goodwill; and other risks listed in Dealertrack’s reports filed with the Securities and Exchange Commission (SEC), including its most recent Annual Report on Form 10-K. These filings can be found on Dealertrack’s website at www.dealertrack.com and the SEC’s website at www.sec.gov. Forward-looking statements included herein speak only as of the date hereof and Dealertrack disclaims any obligation to revise or update such statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or circumstances, except as required by law.

DEALERTRACK TECHNOLOGIES, INC. Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited)             Three Months Ended March 31, 2013 2012   Net revenue $ 109,059   $ 91,617   Cost of revenue 63,188 53,150 Product development 3,630 2,994 Selling, general and administrative   41,490     34,128   Total operating expenses   108,308     90,272   Income from operations 751 1,345 Interest expense, net (3,240 ) (927 ) Other income , net 66 76 Gain on disposal of subsidiary - 27,693 Earnings from equity method investment, net   1,219     163   (Loss) income before benefit from (provision for) income taxes, net (1,204 ) 28,350 Benefit from (provision for) income taxes, net   1,170     (11,389 ) Net (loss) income $ (34 ) $ 16,961     Basic net (loss) income per share $ (0.00 ) $ 0.40 Diluted net (loss) income per share $ (0.00 ) $ 0.39 Weighted average common stock outstanding (basic) 43,173 42,091 Weighted average common stock outstanding (diluted) 43,173 43,720   Adjusted EBITDA (non-GAAP) (a) $ 24,229 $ 19,419 Adjusted EBITDA margin (non-GAAP) (b) 22 % 21 % Adjusted net income (non-GAAP) (a) $ 12,036 $ 9,444 Diluted adjusted net income per share (non-GAAP) (c) $ 0.27 $ 0.22   Stock-based compensation expense was classified as follows: Cost of revenue $ 692 $ 635 Product development 168 214 Selling, general and administrative   2,411     2,481   $ 3,271   $ 3,330  

(a) See Reconciliation Data.(b) Represents adjusted EBITDA as a percentage of net revenue.(c) For the three months ended March 31, 2013, the diluted adjusted net income per share of approximately $0.27 is based on 44,624,000 diluted weighted average shares outstanding.

              DEALERTRACK TECHNOLOGIES, INC. Condensed Consolidated Balance Sheets (Dollars in thousands) (Unaudited)    

March 31,

2013

December 31,

2012

  ASSETS Cash and cash equivalents $ 131,577 $ 143,811 Marketable securities 39,284 34,031 Customer funds 3,540 1,999 Customer funds receivable 22,613 14,077 Accounts receivable, net 48,225 43,679 Deferred tax assets, net 4,412 4,412 Prepaid expenses and other current assets   24,439   19,142 Total current assets 274,090 261,151   Marketable securities - long-term 4,383 4,428 Property and equipment, net 27,523 27,407 Investments 122,927 122,808 Software and website development costs, net 48,892 46,182 Intangible assets, net 110,193 117,599 Goodwill 270,062 270,646 Deferred tax assets, net 44,316 43,611 Other assets - long-term   14,790   16,684 Total assets $ 917,176 $ 910,516   LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued expenses $ 39,295 $ 50,852 Customer funds payable 26,153 16,076 Deferred revenue 7,884 7,959 Deferred tax liabilities 3,088 3,031 Due to acquirees   11,281   11,124 Total current liabilities 87,701 89,042 Long-term liabilities   250,142   250,157 Total liabilities   337,843   339,199 Total stockholders' equity   579,333   571,317 Total liabilities and stockholders' equity $ 917,176 $ 910,516     DEALERTRACK TECHNOLOGIES, INC. Consolidated Statements of Cash Flows (Dollars in thousands) (Unaudited)             Three Months Ended March 31, 2013 2012 Operating activities: Net (loss) income $ (34 ) $ 16,961 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization 13,897 11,979 Deferred tax (benefit) provision (1,158 ) 10,893 Stock-based compensation expense 3,271 3,330 Provision for doubtful accounts and sales credits 1,682 2,146 Earnings from equity method investment, net (1,219 ) (163 ) Deferred compensation 38 38 Stock-based compensation windfall tax benefit (3,587 ) (2,943 ) Amortization of deferred interest 279 26 Amortization of debt issuance costs and debt discount 2,302 703 Change in contingent consideration (500 ) (250 ) Gain on sale of marketable securities (11 ) - Gain on disposal of subsidiary - (27,693 ) Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable (6,339 ) (6,742 ) Prepaid expenses and other current assets (2,186 ) 3,059 Other assets — long-term 3,166 1,539 Accounts payable and accrued expenses (13,518 ) (11,441 ) Deferred rent 51 48 Deferred revenue (60 ) 527 Other liabilities — long-term   (1,074 )   (1,166 ) Net cash (used in) provided by operating activities (5,000 ) 851   Consolidated Statements of Cash Flows (continued)       Three Months Ended March 31, 2013       2012 Investing activities: Capital expenditures (2,027 ) (1,695 ) Capitalized software and website development costs (5,296 ) (3,665 ) Purchases of marketable securities (18,037 ) - Proceeds from sales and maturities of marketable securities 12,539 - Cash contributed for equity method investment   -     (1,750 ) Net cash used in investing activities (12,821 ) (7,110 )   Financing activities: Principal payments on capital lease obligations and financing arrangements (38 ) (349 ) Proceeds from stock purchase plan and exercise of stock options 3,109 3,662 Proceeds from issuance of senior convertible notes - 200,000 Payments for debt issuance costs - (6,690 ) Payments for convertible note hedges - (43,940 ) Proceeds from the issuance of warrants - 29,740 Purchases of treasury stock (678 ) (657 ) Stock-based compensation windfall tax benefit   3,587     2,943   Net cash provided by financing activities 5,980 184,709   Net (decrease) increase in cash and cash equivalents (11,841 ) 178,450 Effect of exchange rate changes on cash and cash equivalents (393 ) 385 Cash and cash equivalents, beginning of period   143,811     78,709   Cash and cash equivalents, end of period $ 131,577   $ 257,544       Supplemental disclosure: Cash paid for: Income taxes $ 702 $ 1,109 Interest 1,646 217 Non-cash investing and financing activities: Accrued capitalized hardware, software and fixed assets 2,224 1,879 Assets acquired under capital leases and financing arrangements 34 725 Non-cash consideration issued for investment in Chrome Data Solutions - 42,301     DEALERTRACK TECHNOLOGIES, INC. Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA (Dollars in thousands) (Unaudited)             Three Months Ended March 31, 2013 2012   GAAP net (loss) income $ (34 ) $ 16,961 Interest income (124 ) (230 ) Interest expense - cash 1,062 454 Interest expense - non-cash 2,302 703 (Benefit from) provision for income taxes, net (1,170 ) 11,389 Depreciation of property and equipment and amortization of capitalized software and website costs 6,581 5,100 Amortization of acquired identifiable intangibles   7,316     6,879   EBITDA (non-GAAP) 15,933 41,256 Adjustments: Stock-based compensation 3,271 3,330 Contra-revenue 1,354 1,102 Acquisition-related and other professional fees 483 199 Acquisition-related contingent consideration changes and compensation expense, net 35 178 Integration and other related costs 799 - Gain on disposal of subsidiary - (27,693 ) Rebranding expense 1,648 51 Amortization of equity method investment basis difference   706     996   Adjusted EBITDA (non-GAAP) $ 24,229   $ 19,419      

DEALERTRACK TECHNOLOGIES, INC.

Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income (Dollars in thousands) (Unaudited)             Three Months Ended March 31, 2013 2012   GAAP net (loss) income $ (34 ) $ 16,961 Adjustments: Interest expense - non-cash (not tax-impacted) 2,302 703 Amortization of acquired identifiable intangibles 7,316 6,879 Stock-based compensation 3,271 3,330 Contra-revenue 1,354 1,102 Gain on disposal of subsidiary - (27,693 ) Acquisition-related and other professional fees 483 199 Acquisition-related contingent consideration changes and compensation expense, net 35 178 Integration and other related costs 799 - Rebranding expense 1,648 51 Amortization of equity method investment basis difference 706 996 Amended state tax returns impact (non-taxable) 56 - Tax impact of adjustments (a)   (5,900 )   6,738   Adjusted net income (non-GAAP) $ 12,036   $ 9,444  

 

(a) The tax impact of adjustments for the three months ended March 31, 2013 are based on a U.S. statutory tax rate of 38.2% 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 38.1% and 37.7%, respectively. The tax impact of adjustments for the three months ended March 31, 2012 are based on a U.S. statutory tax rate of 37.4% 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 37.3% and 37.0%, respectively.

A reconciliation of GAAP to non-GAAP measures is included in our investor presentation, which also includes the impact of reconciled items on individual income statement classifications.

              DEALERTRACK TECHNOLOGIES, INC. Reconciliation of Forward-looking GAAP Net Income to Forward-looking Non-GAAP Adjusted EBITDA (Dollars in millions) (Unaudited)   Year Ending December 31, 2013 Expected Range   GAAP net income $ 9.5 $ 12.5 Interest, net 13.0 13.0 Income taxes, net 5.8 7.7 Amortization of basis difference from joint venture 2.8 2.8 Depreciation and amortization 25.9 25.0 Amortization of acquired identifiable intangibles   31.2   31.2 EBITDA (non-GAAP)

88.2

92.2 Adjustments: Stock-based compensation 15.1 15.1 Non-recurring costs (a) 4.0 4.0 Contra-revenue   5.2   5.2 Adjusted EBITDA - (non-GAAP) $ 112.5 $ 116.5        

(a) Includes certain professional fees, integration and other related costs, acquisition-related compensation expense, rebranding and fair value adjustments.

    DEALERTRACK TECHNOLOGIES, INC. Reconciliation of Forward-looking GAAP Net Income to Forward-looking Non-GAAP Adjusted Net Income (Dollars in millions) (Unaudited)       Year Ending December 31, 2013 Expected Range       GAAP net income $ 9.5 $ 12.5 Adjustments: Stock-based compensation 15.1 15.1 Amortization of acquired identifiable intangibles 31.2 31.2 Amortization of basis difference from joint venture 2.8 2.8 Non-cash interest expense (not tax-impacted) 9.2 9.2 Non-recurring costs (a) 4.0 4.0 Contra-revenue 5.2 5.2 Tax impact of adjustments (b)   (22.0 )   (22.0 ) Adjusted net income (non-GAAP) $ 55.0   $ 58.0          

(a) Includes certain professional fees, integration and other related costs, acquisition-related compensation expense, rebranding, accelerated depreciation and fair value adjustments.(b) The tax impact of adjustments are based on a blended tax rate of 38% applied to taxable adjustments.

                                DEALERTRACK TECHNOLOGIES, INC. Summary of Business Statistics (Unaudited) Three months ended   Mar 31, Dec 31, Sep 30, Jun 30, Mar 31, 2013 2012 2012 2012 2012   Active U.S. dealers (a) 20,041 19,067 19,107 18,638 18,345 Active U.S. lenders (b) 1,291 1,261 1,237 1,212 1,165 Transactions processed (in thousands) (c) 24,106 20,782 22,738 22,562 21,751 Active U.S. lender to dealer relationships (d) 181,578 174,628 178,809 177,570 172,075 Subscribing dealers (e) 17,832 17,619 16,421 16,280 16,143        

(a) We consider a dealer to be active in our U.S. network 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. The number of active U.S. dealers is based on the number of dealer accounts as communicated by lenders on the U.S. Dealertrack network.(b) We consider a lender to be active in our U.S. network as of a date if it is accepting credit application data electronically from U.S. dealers in the U.S. Dealertrack network.(c) Represents revenue-generating transactions processed in the U.S. Dealertrack, Dealertrack Aftermarket Services, DealerTrack Processing Solutions 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 at the end of a given period.(e) Represents the number of dealerships in the U.S. and Canada with one or more active subscriptions at the end of a given period.

                                DEALERTRACK TECHNOLOGIES, INC. Summary of Business Statistics (Unaudited) Three months ended   Mar 31, Dec 31, Sep 30, Jun 30, Mar 31,   2013   2012  

2012

  2012   2012   Transaction revenue (in thousands) $ 61,364 $ 54,589 $ 58,789 $ 57,493 $ 54,140 Subscription revenue (in thousands) $ 42,778 $ 42,212 $ 35,723 $ 33,932 $ 33,281 Other revenue (in thousands) $ 4,917 $ 4,974 $ 4,572 $ 4,971 $ 4,196 Average transaction price (a) $ 2.60 $ 2.67 $ 2.63 $ 2.59 $ 2.53 Transaction revenue per car sold (b) $ 8.99 $ 7.18 $ 6.47 $ 6.12 $ 8.61 Average monthly subscription revenue per subscribing dealership (c) (d) $ 737 $ 749 $ 694 $ 697 $ 691        

(a) Represents the average revenue earned per transaction processed in the U.S. Dealertrack, Dealertrack Aftermarket, Dealertrack Processing Solutions and Dealertrack Canada networks during a given period. Revenue used in calculation adds back transaction related contra-revenue.(b) Represents transaction revenue divided by our estimate of total new and used car sales for the period in the U.S. and Canada. Revenue used in calculation adds back transaction related contra-revenue.(c) Revenue used in the calculation adds back subscription related contra-revenue.(d) Subscribing dealers and subscription revenue from Dealertrack CentralDispatch have been excluded from the calculation as a majority of these customers are not dealers.

TRAK-E