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Dealertrack Technologies, Inc. Reports Third Quarter 2012 Financial Results

Stocks in this article: TRAK

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 Nine Months Ended
September 30, September 30,
  2012     2011     2012     2011  
 
Net revenue $ 99,084   $ 95,793   $ 287,097   $ 262,035  
Cost of revenue 55,475 52,129 162,337 145,121
Product development 2,874 3,278 8,812 9,749
Selling, general and administrative   35,307     33,342     103,502     95,317  
Total operating expenses   93,656     88,749     274,651     250,187  
Income from operations 5,428 7,044 12,446 11,848
Interest expense, net (3,033 ) (263 ) (6,984 ) (308 )
Other income (expense), net (5,271 ) 72 (6,121 ) 171
Gain on disposal of subsidiary and sale of other assets - - 33,193 -
Earnings from equity method investment, net 429 - 737 -
Realized gain on securities   4     -     4     409  
Income (loss) before (provision for) benefit from income taxes, net (2,443 ) 6,853 33,275 12,120
(Provision for) benefit from income taxes, net   (488 )   (1,492 )   (13,320 )   20,135  
Net (loss) income $ (2,931 ) $ 5,361   $ 19,955   $ 32,255  
 
Basic net (loss) income per share $ (0.07 ) $ 0.13 $ 0.47 $ 0.78
Diluted net (loss) income per share $ (0.07 ) $ 0.13 $ 0.45 $ 0.76
Weighted average common stock outstanding (basic) 42,661 41,396 42,413 41,146
Weighted average common stock outstanding (diluted) 42,661 42,497 43,909 42,367
 
Adjusted EBITDA - previous presentation (non-GAAP) (a) $ 23,554 $ 23,041 $ 61,298 $ 56,989
Adjusted EBITDA margin - previous presentation (non-GAAP) (b) 24 % 24 % 21 % 22 %
Adjusted EBITDA (non-GAAP) (a) $ 27,044 $ 25,786 $ 71,500 $ 65,584
Adjusted EBITDA margin (non-GAAP) (b) 27 % 27 % 25 % 25 %
Adjusted net income (non-GAAP) (a) $ 12,455 $ 14,654 $ 35,396 $ 33,194
Diluted adjusted net income per share (non-GAAP) $ 0.28 $ 0.34 $ 0.81 $ 0.78
 
Stock-based compensation expense was classified as follows:
Cost of revenue $ 603 $ 456 $ 1,828 $ 1,308
Product development 169 176 589 548
Selling, general and administrative   2,718     2,113     7,785     6,857  
$ 3,490   $ 2,745   $ 10,202   $ 8,713  
 

(a) See Reconciliation Data.(b) Represents adjusted EBITDA as a percentage of net revenue.(c) For the three months ended September 30, 2012, the diluted adjusted net income per share of approximately $0.28 is based on 44,081,500 diluted weighted average shares outstanding.

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

September 30, 2012

December 31, 2011

 
ASSETS
Cash and cash equivalents $ 163,700 $ 78,709
Marketable securities 45,413 46
Customer funds 3,861 1,097
Customer funds receivable 20,822 18,695
Accounts receivable, net 46,772 37,588
Deferred tax assets 9,019 9,171
Prepaid expenses and other current assets   24,488   23,011
Total current assets 314,075 168,317
 
Marketable securities - long-term 8,192 -
Property and equipment, net 22,702 21,637
Software and website development costs, net 40,348 37,341
Investments 124,179 89,000
Intangible assets, net 99,289 96,441
Goodwill 242,082 200,840
Deferred tax assets, net 31,654 34,421
Other assets - long-term   14,308   12,356
Total assets $ 896,829 $ 660,353
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 36,781 $ 41,194
Customer funds payable 24,683 19,792
Deferred revenue 10,103 9,115
Deferred tax liabilities 3,473 3,443
Due to acquirees 10,966 -
Capital leases payable   122   255
Total current liabilities 86,128 73,799
Long-term liabilities   246,162   91,798
Total liabilities   332,290   165,597
Total stockholders' equity   564,539   494,756
Total liabilities and stockholders' equity $ 896,829 $ 660,353
 
 
DEALERTRACK TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
       
Nine Months Ended
September 30,
  2012     2011  
Operating activities:
Net income $ 19,955 $ 32,255
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 37,659 37,620
Deferred tax provision (benefit) 9,261 (22,813 )
Stock-based compensation expense 10,202 8,713
Provision for doubtful accounts and sales credits 5,520 4,828
Earnings from equity method investment, net (737 ) -
Deferred compensation 112 150
Stock-based compensation windfall tax benefit (4,226 ) (2,255 )
Gain on disposal of subsidiary and sale of other assets (33,193 ) -
Realized gain on securities (4 ) (409 )
Amortization of debt issuance costs and debt discount 5,244 213
Change in contingent consideration (900 ) -
Change in fair value of warrant 6,310 -
Amortization of deferred interest 574 15
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable (17,312 ) (16,449 )
Prepaid expenses and other current assets 2,848 (1,649 )
Other assets — long-term 6,796 (223 )
Accounts payable and accrued expenses (5,186 ) (3,969 )
Deferred rent 151 37
Deferred revenue 1,912 1,726
Other liabilities — long-term   (2,190 )   965  
Net cash provided by operating activities 42,796 38,755
 
 
Consolidated Statements of Cash Flows (continued)
      Nine Months Ended
September 30,
  2012       2011  
Investing activities:
Capital expenditures (6,610 ) (6,860 )
Capitalized software and website development costs (14,824 ) (14,807 )
Proceeds from sale of Chrome-branded asset 5,500 -
Purchases of marketable securities (70,175 ) -
Proceeds from sales and maturities of marketable securities 16,106 2,935
Cash contributed for equity method investment (1,750 ) -
Payment for acquisition of businesses and intangible assets, net of acquired cash   (73,994 )   (151,962 )
Net cash used in investing activities (145,747 ) (170,694 )
 
Financing activities:
Principal payments on capital lease obligations and financing arrangements (496 ) (387 )
Proceeds from the exercise of employee stock options 5,500 5,177
Proceeds from employee stock purchase plan 592 509
Proceeds from issuance of senior convertible notes 200,000 -
Payments for debt issuance costs (7,723 ) (1,909 )
Payments for convertible note hedges (43,940 ) -
Proceeds from issuance of warrants 29,740 -
Purchases of treasury stock (784 ) (446 )
Stock-based compensation windfall tax benefit   4,226     2,255  

Net cash provided by financing activities

187,115 5,199
 
Net increase (decrease) in cash and cash equivalents 84,164 (126,740 )
Effect of exchange rate changes on cash and cash equivalents 827 (872 )
Cash and cash equivalents, beginning of period   78,709     192,563  
Cash and cash equivalents, end of period $ 163,700   $ 64,951  
 
 
Supplemental disclosure:
Cash paid for:
Income taxes $ 2,708 $ 5,125
Interest 1,965 141
Non-cash investing and financing activities:
Non-cash consideration issued for investment in Chrome Data Solutions 42,301 -
Non-cash consideration issued for acquisition of eCarList - 12,956
Accrued capitalized hardware, software and fixed assets 2,603 1,756
Assets acquired under capital leases and financing arrangements 772 34
Capitalized stock-based compensation - 98
Deferred compensation reversal to equity 112 150
 
 
DEALERTRACK TECHNOLOGIES, INC.
Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA
(Dollars in thousands)
(Unaudited)
           
Three Months Ended Nine Months Ended
September 30, September 30,
  2012     2011     2012     2011  
 
GAAP net (loss) income $ (2,931 ) $ 5,361 $ 19,955 $ 32,255
Interest income (181 ) (71 ) (595 ) (270 )
Interest expense - cash 984 334 2,426 578
Interest expense - non-cash 2,230 - 5,153 -
Provision for (benefit from) income taxes, net 488 1,492 13,320 (20,135 )
Depreciation of property and equipment and amortization of capitalized software and website costs 5,780 5,338 17,175 15,509
Amortization of acquired identifiable intangibles   6,952     7,543     20,484     22,111  
EBITDA (non-GAAP) 13,322 19,997 77,918 50,048
Adjustments:
Gain on disposal of subsidiary and sale of other assets - - (33,193 ) -
Acquisition-related and other professional fees 1,385 1,390 2,122 2,606
Contra-revenue 1,092 1,175 3,190 3,232
Integration and other related costs (including amounts related to stock-based compensation) 483 51 704 1,009
Acquisition-related contingent consideration changes and compensation expense, net 445 428 403 503
Amortization of equity method investment basis difference 996 - 2,989 -
Rebranding expense 521 - 855 -
Change in fair value of warrant 5,310 - 6,310 -
Realized gain on securities   -     -     -     (409 )
Adjusted EBITDA - previous presentation (non-GAAP) $ 23,554 $ 23,041 $ 61,298 $ 56,989
Stock-based compensation (excluding amounts included in integration and other related costs)   3,490     2,745     10,202     8,595  
Adjusted EBITDA (non-GAAP) $ 27,044   $ 25,786   $ 71,500   $ 65,584  
 
 
DEALERTRACK TECHNOLOGIES, INC.
Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income
(Dollars in thousands)
(Unaudited)
           
Three Months Ended Nine Months Ended
September 30, September 30,
  2012     2011     2012     2011  
 
GAAP net (loss) income $ (2,931 ) $ 5,361 $ 19,955 $ 32,255
Adjustments:
Deferred tax asset valuation allowance (non-taxable) - 1,197 - (22,350 )
Amortization of acquired identifiable intangibles 6,952 7,543 20,484 22,111
Stock-based compensation (excluding integration and other related costs) 3,490 2,745 10,202 8,595
Gain on disposal of subsidiary and sale of other assets - - (33,193 ) -
Contra-revenue 1,092 1,175 3,190 3,232
Integration and other related costs (including amounts related to stock-based compensation) 536 51 757 1,009
Interest expense - non-cash (not tax-impacted) 2,230 - 5,153 -
Amortization of equity method investment basis difference 996 - 2,989 -
Acquisition-related and other professional fees 1,385 1,390 2,122 2,606
Acquisition-related contingent consideration changes and compensation expense, net 445 428 403 503
Rebranding expense 521 - 855 -
Realized gain on securities (non-taxable) - - - (409 )
Accelerated depreciation of certain technology assets 75 - 1,004 -
Change in fair value of warrant 5,310 - 6,310 -
Amended state tax return impact (non-taxable) - (271 ) - (239 )
Tax impact of adjustments (a)   (7,646 )   (4,965 )   (4,835 )   (14,119 )
Adjusted net income (non-GAAP) $ 12,455   $ 14,654   $ 35,396   $ 33,194  
 

(a) The tax impact of adjustments for the three and nine months ended September 30, 2012 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 37.6%, respectively, for the three months ended September 30, 2012, and 38.1% and 37.6%, respectively, for the nine months ended September 30, 2012. The tax impact of adjustments for the three and nine months ended September 30, 2011 were 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, for the three months ended September 30, 2011, and 37.1% and 37.0%, respectively, for the nine months ended September 30, 2011.

 
 
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, 2012
Expected Range
 
GAAP net income $ 21.5 $ 23.0
Interest, net 10.3 10.3
Income taxes, net 13.5 14.5
Amortization of basis difference from joint venture 4.0 4.0
Depreciation and amortization 23.7 22.7
Amortization of acquired identifiable intangibles   28.2     28.2  
EBITDA (non-GAAP) 101.2 102.7
Adjustments:
Non-recurring costs (a) 11.0 11.0
Realized gains (33.2 ) (33.2 )
Contra-revenue   4.0     4.0  
Adjusted EBITDA - previous presentation (non-GAAP) $ 83.0 $ 84.5
Stock-based compensation (excluding amounts included in integration and other related costs)   13.5     13.5  
Adjusted EBITDA - (non-GAAP) $ 96.5   $ 98.0  
 

(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, 2012
Expected Range
 
GAAP net income $ 21.5 $ 23.0
Adjustments:
Stock-based compensation 13.5 13.5
Amortization of acquired identifiable intangibles 28.2 28.2
Amortization of basis difference from joint venture 4.0 4.0
Non-cash interest expense (not tax-impacted) 7.5 7.5
Non-recurring costs (a) 12.0 12.0
Realized gains, net of taxes (19.3 ) (19.3 )
Contra-revenue 4.0 4.0
Tax impact of adjustments (b)   (23.4 )   (23.4 )
Adjusted net income (non-GAAP) $ 48.0   $ 49.5  
 

(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
             
Sep 30, Jun 30, Mar 31, Dec 31, Sep 30,
2012 2012 2012 2011 2011
 
Active U.S. dealers (a) 19,107 18,638 18,345 17,543 17,629
Active U.S. lenders (b) 1,237 1,212 1,165 1,120 1,103
Transactions processed (in thousands) (c) 22,738 22,562 21,751 18,769 19,772
Active U.S. lender to dealer relationships (d) 178,809 177,570 172,075 164,776 161,400
Subscribing dealers (e) 16,421 16,280 16,143 16,003 15,860
 

(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. 2011 results are recalculated to reflect an improved methodology of accumulating relationships. As previously reported: December 31, 2011 - 151,126, September 30, 2011 - 150,514.(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
 
      Sep 30,   Jun 30,   Mar 31,   Dec 31,   Sep 30,
  2012   2012   2012   2011   2011
 
Transaction revenue (in thousands) $ 58,729 $ 57,433 $ 54,079 $ 47,541 $ 50,411
Subscription revenue (in thousands) $ 35,723 $ 33,932 $ 33,231 $ 38,779 $ 39,261
Other revenue (in thousands) $ 4,632 $ 5,031 $ 4,307 $ 4,939 $ 6,121
Average transaction price (a) $ 2.63 $ 2.59 $ 2.53 $ 2.58 $ 2.60
Transaction revenue per car sold (b) $ 6.47 $ 6.12 $ 8.61 $ 7.17 $ 6.20
Average monthly subscription revenue per subscribing dealership (c) (d) $ 694 $ 697 $ 690 $ 813 $ 834
Average monthly subscription revenue per subscribing dealership (excluding Chrome & ALG) (e) $ 694 $ 697 $ 690 $ 690 $ 684
 

(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 (includes contra-revenue) divided by our estimate of total new and used car sales for the period in the U.S. and Canada.(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.(e) Excludes subscription revenue from Chrome and ALG.

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