TRAK (MM)

DealerTrack Holdings, Inc. (Nasdaq: TRAK) today reported financial results for the three and nine month periods ended September 30, 2008. GAAP Results for Third Quarter 2008 Revenue for the quarter was $60.5 million, a 4 percent decrease from $62.9 million for the third quarter of 2007. GAAP net loss for the quarter was $2.6 million, a decrease from GAAP net income of $4.5 million for the third quarter of 2007. GAAP diluted net loss per share for the quarter was $0.07, a decrease from GAAP diluted net income per share of $0.11 for the third quarter of 2007. Non-GAAP Results for Third Quarter 2008 EBITDA for the quarter was $6.7 million, a decrease from $17.5 million for the third quarter of 2007. Adjusted EBITDA for the quarter was $12.4 million, which excludes a $5.7 million impairment charge related to certain auction rate securities. Cash net income for the quarter was $8.8 million, a 22 percent decrease from $11.4 million for the third quarter of 2007 Diluted cash net income per share for the quarter was $0.22, a 21 percent decrease from $0.28 per share for the third quarter of 2007. Included in GAAP net loss and EBITDA is an impairment charge of $5.7 million related to certain auction rate securities. The charge was deemed necessary after an analysis of other-than-temporary impairment factors, including the severity of decline in the securities and current financial market conditions. Auction rate securities with an original par value of $9.6 million were written-down to an estimated fair value of $3.9 million as of September 30, 2008. GAAP diluted net loss per share for the quarter was unfavorably impacted by $0.14 as a result of this impairment. Please refer to Attachment 7 of this press release for additional details on the impairment charge affecting auction rate securities holdings. EBITDA is a non-GAAP financial measure that represents GAAP earnings excluding interest, taxes, depreciation and amortization expenses. Adjusted EBITDA represents EBITDA excluding the impairment charges relating to the re-measurement of auction rate securities. Cash net income is a non-GAAP financial measure that represents GAAP net (loss) income before non-cash stock-based compensation expense (net of taxes), amortization of acquired identifiable intangibles (net of taxes), for 2007 the reversal of a benefit related to a tax valuation allowance, and the impairment charges relating to the re-measurement of auction rate securities in 2008. See �Non-GAAP Financial Measures� below for a further discussion of EBITDA and cash net income, and refer to Attachment 4 of this press release for reconciliations of GAAP financial measures to non-GAAP financial measures. �We are pleased with the continued growth in subscription revenue. However, the tight credit market and decade low new car sales continue to present serious headwinds for transactions on the DealerTrack network,� said Mark O�Neil, chairman and chief executive officer of DealerTrack. �We remain confident that when credit availability and consumer confidence rebound, we are well positioned to see a return of growth in our transaction business.� GAAP Results for Nine Months Ended September 30, 2008 Revenue for the nine months was $188.0 million, a 9 percent increase from $173.1 million for the same period in 2007. GAAP net income for the nine months was $2.8 million, an 82 percent decrease from $15.6 million for the same period in 2007. GAAP diluted net income per share for the nine months was $0.07, an 82 percent decrease from $0.38 per share for the same period in 2007. Non-GAAP Results for Nine Months Ended September 30, 2008 EBITDA for the nine months was $34.0 million, a 33 percent decrease from $51.0 million for the same period in 2007. Adjusted EBITDA for the nine months was $39.7 million, which excludes the $5.7 million impairment charge related to certain auction rate securities. Cash net income for the nine months was $28.0 million, a 15 percent decrease from $32.9 million for the same period in 2007. Diluted cash net income per share for the nine months was $0.66, a 19 percent decrease from $0.81 per share for the same period in 2007. Included in GAAP net income and EBITDA is the impairment charge of $5.7 million related to certain auction rate securities recognized during the three months ended September 30, 2008. GAAP diluted net income per share was unfavorably impacted by $0.13 for the year to date as a result of this impairment. �Our balance sheet is strong with approximately $200 million in cash and investments,� said Mr. O�Neil. �Cash flow from operations during the third quarter of 2008 increased by 63 percent to approximately $20.5 million compared to $12.6 million a year ago.� Business Statistics There were 21,001 active dealers in the DealerTrack network as of September 30, 2008, down 7 percent from 22,551 a year earlier.. The National Automobile Dealers Association projects that as many as 700 franchised dealerships will close this year, a decrease of 3 percent industry wide. This consolidation is expected to continue in 2009. The number of active financing sources in the DealerTrack network as of September 30, 2008 reached 706, up 43 percent from 495 a year earlier. The number of lender to dealer relationships was approximately 179,000, compared to 227,000 at the beginning of 2008. Transactions processed during the third quarter of 2008 were approximately 19.2 million, down 19 percent from 23.8 million a year ago. Total subscriptions as of September 30, 2008 were 33,123, up 21 percent from 27,469 a year ago. At September 30, 2008, approximately 65 percent of active dealers now have one or more of DealerTrack�s subscription products. The average monthly subscription revenue per subscribing dealership was $557, up 5 percent from $528 a month for the third quarter of 2007. Other Activity As previously announced, the trial date for our patent infringement lawsuit has been moved to February 2009. The trial is currently expected to proceed on three claims on DealerTrack�s most recently issued patent and DealerTrack remains confident about the upcoming trial. On March 18, 2008, DealerTrack�s board of directors authorized a stock repurchase program. In the quarter ended September 30, 2008 DealerTrack repurchased approximately 1.6 million shares at a cost of approximately $25.6 million. Since the end of September DealerTrack purchased an additional 0.4 million shares for approximately $5.1 million. As of November 5, 2008 the total number of shares repurchased by DealerTrack under the program was 3.0 million shares for approximately $49.8 million. Revised Guidance for Full Year 2008 In light of the continued deterioration of the economic environment, the challenges facing the lending and automotive industries, and the $5.7 million impairment charge relating to auction rate securities taken in the third quarter, we have revised our guidance for the full year 2008 as follows: Expected GAAP Results Revenue for the year is expected to be between $240 million and $243 million, compared to the previous estimate of $246 million to $253 million. GAAP net income for the year is expected to be between $1.2 million and $1.7 million, compared to the previous estimate of $9.4 million to $12.8 million. GAAP diluted net income per share for the year is expected to be between $0.03 and $0.04 per share, compared to the previous estimate of $0.22 to $0.30 per share. Expected Non-GAAP Results EBITDA for the year is expected to be between $39.8 million and $40.6 million, compared to the previous estimate of $48.3 million to $54.3 million. Adjusted EBITDA for the year is expected to be between $45.5 million and $46.3 million. Cash net income for the year is expected to be between $32.1 million and $32.6 million, compared to the previous estimate of $33.9 million to $37.3 million. Diluted cash net income per share for the year is expected to be between $0.77 and $0.78 per share, compared to the previous estimate of $0.80 to $0.88 per share. Included in GAAP net income and EBITDA guidance is the impairment charge of $5.7 million related to certain auction rate securities recognized during the three months ended September 30, 2008. Our guidance for GAAP diluted net income per share was unfavorably impacted by $0.14 in the third quarter as a result of this impairment. This guidance is based on a Seasonally Adjusted Annualized Rate of 10 to 10.5 million new car sales for the fourth quarter and continued contraction of the auto lending environment. It is based on an estimated average of 41.8 million shares outstanding. Please refer to Attachment 5 of this press release for reconciliations of GAAP financial guidance to non-GAAP financial guidance. DealerTrack will host a conference call to discuss its third quarter 2008 results and other matters on November 5, 2008 at 5:00 p.m. Eastern Time. The conference call will be webcast live on the Internet at http://ir.dealertrack.com/releases_financial.cfm. Live audio of the call will be accessible to the public by calling 877-419-6597 (domestic) or 719-325-4870 (international); no access code is necessary. Callers should dial in approximately 10 minutes before the call begins. A replay of the webcast will be available on the Investor Relations section of the DealerTrack website until November 14, 2008. Non-GAAP Financial Measures In this release, DealerTrack�s EBITDA and cash 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. EBITDA represents GAAP earnings excluding interest, taxes, depreciation and amortization expenses. Adjusted EBITDA represents EBITDA excluding the impairment charges relating to the re-measurement of auction rate securities. Cash net income represents GAAP net income excluding non-cash stock-based compensation expense (net of taxes), amortization of acquired intangibles (net of taxes), and for 2007 the reversal of a benefit related to a tax valuation allowance, and for 2008 excluding the impairment charges relating to the re-measurement of auction rate securities. EBITDA and cash net income are presented because management believes 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. Management believes the EBITDA and cash net income information is useful to investors for these reasons. EBITDA and cash net income are non-GAAP financial measures and should not be viewed as an alternative to GAAP measures of performance. Management believes that the most directly comparable GAAP financial measure for EBITDA and cash net income is GAAP net income and has provided a reconciliation of EBITDA to GAAP net income, and a reconciliation of cash net income to GAAP net income, in Attachment 4 to this press release. About DealerTrack (www.dealertrack.com) DealerTrack Holdings, Inc. (Nasdaq: TRAK) is a leading provider of on-demand software and data solutions for the U.S. automotive retail industry. Our solutions enable dealers to receive consumer leads, submit credit applications, compare financing and leasing options, sell insurance, vehicle accessories and other aftermarket products, document compliance, and execute financing contracts electronically. In addition, the company provides dealer management systems (DMS) through its Arkona, Inc., subsidiary. Over 21,000 dealers, 700 financing sources, and many other service and information providers are active in the DealerTrack network. For more information, visit www.dealertrack.com. Safe Harbor for Forward-Looking and Cautionary Statements Statements in this press release regarding DealerTrack�s expected 2008 performance, the development, expansion and benefits of DealerTrack�s network, products and services, DealerTrack�s growth expectations, assumptions relating to 2008 new car sales 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: the impact of trends in the automotive retail industry on DealerTrack�s business including the ongoing decline in new automobile sales, reductions in the number of dealers, and the loss of large national lenders from indirect auto lending; the impact of some vendors of software products for automotive dealers making it more difficult for our customers to use our products and services; the impact of general economic trends, including increased competitive pressure from other industry participants, the inability to execute any element of DealerTrack�s business strategy, including selling additional products and services to existing and new customers; 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; decrease in DealerTrack�s market value such that it results in an impairment to goodwill and other long-lived assets requiring a write-off of such assets, the inability to expand DealerTrack�s customer base and product and service offerings; declines in consumer confidence, adverse changes in the credit market, currency and interest rate fluctuations, and other risks listed in DealerTrack�s reports filed with the Securities and Exchange Commission (SEC), including its 2007 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. � Attachment (1) Actual Results: Three-Month Period � DEALERTRACK HOLDINGS, INC. Consolidated Statements of Operations (Dollars in thousands, except per share data) (Unaudited) � � Three Months EndedSeptember 30, 2008 � 2007 � Net revenue(1) $ 60,525 $ 62,871 � Cost of revenue 27,940 27,678 Product development 2,875 2,761 Selling, general and administrative 26,654 25,598 Total operating costs and expenses 57,469 � 56,037 Income from operations 3,056 6,834 � Interest income, net 1,018 893 Other income 142 2 Impairment of auction rate securities(a) (5,664 ) - � (Loss) income before provision for income taxes (1,448 ) 7,729 Provision for income taxes (1,155 ) (3,217 ) Net (loss) income $ (2,603 ) $ 4,512 � Basic net (loss) income per share $ (0.07 ) $ 0.12 Diluted net (loss) income per share $ (0.07 ) $ 0.11 Weighted average shares outstanding 39,769,990 39,058,863 Weighted average shares outstanding assuming dilution 39,769,990 40,840,688 � (1) Related party revenue $ 644 $ 643 EBITDA (Non-GAAP) (b) $ 6,713 $ 17,534 EBITDA margin (Non-GAAP) (c) (d) 11 % 28 % Adjusted EBITDA (Non-GAAP) (b) $ 12,377 $ 17,534 Adjusted EBITDA margin (Non-GAAP) (c) (d) 21 % 28 % Cash net income (Non-GAAP) (b) $ 8,844 $ 11,408 Diluted cash net income per share (Non-GAAP) $ 0.22 $ 0.28 � (a) See Attachment 7 (b) See Reconciliation Data in Attachment 4. (c) Represents EBITDA as a percentage of net revenue. (d) See Attachment 4. � � Attachment (1) Actual Results: Nine-Month Period � DEALERTRACK HOLDINGS, INC. Consolidated Statements of Operations (Dollars in thousands, except per share data) (Unaudited) � Nine Months EndedSeptember 30, � 2008 2007 � Net revenue(1) $ 188,014 $ 173,103 � Cost of revenue 84,431 73,136 Product development 9,101 7,422 Selling, general and administrative 84,396 69,159 Total operating costs and expenses 177,928 � 149,717 Income from operations 10,086 23,386 � Interest income, net 3,560 3,509 Other income 142 2 Impairment of auction rate securities(a) (5,664 ) - � Income before provision for income taxes 8,124 26,897 Provision for income taxes (5,323 ) (11,276 ) Net income $ 2,801 $ 15,621 � Basic net income per share $ 0.07 $ 0.40 Diluted net income per share $ 0.07 $ 0.38 Weighted average shares outstanding 40,965,118 38,810,710 Weighted average shares outstanding assuming dilution 42,235,175 40,579,093 � (1) Related party revenue $ 1,974 $ 1,885 EBITDA (Non-GAAP) (b) $ 33,951 $ 51,030 EBITDA margin (Non-GAAP) (c)(d) 18 % 29 % Adjusted EBITDA (Non-GAAP) (b) $ 39,615 $ 51,030 Adjusted EBITDA margin (Non-GAAP) (c) (d) 21 % 29 % Cash net income (Non-GAAP) (b) $ 27,954 $ 32,887 Diluted cash net income per share (Non-GAAP) $ 0.66 $ 0.81 (a) See Attachment 7 (b) See Reconciliation Data in Attachment 4. (c) Represents EBITDA as a percentage of net revenue. (d) See Attachment 4. � Attachment (2) � DEALERTRACK HOLDINGS, INC. Condensed Consolidated Balance Sheets (Dollars in thousands) (Unaudited) � � � September 30, 2008 � � December 31, 2007 ASSETS Cash, cash equivalents and short-term investments $ 194,260 $ 220,144 Accounts receivable, net 25,356 26,957 Prepaid expenses and other current assets 10,630 11,132 Total current assets 230,246 258,233 � Long-term investments available for sale 5,486 - Property and equipment, net 14,061 12,792 Software and web site development costs, net 13,024 10,771 Intangible assets, net 50,016 69,528 Goodwill 116,672 117,702 Deferred taxes and other long-term assets 17,873 13,900 Total assets $ 447,378 $ 482,926 � LIABILITIES AND STOCKHOLDERS� EQUITY Accounts payable and accrued expenses $ 24,856 $ 28,676 Deferred revenue 4,995 4,016 Due to acquirees and other current liabilities 978 2,731 Total current liabilities 30,829 35,423 � Long-term liabilities 11,104 9,141 Total liabilities 41,933 44,564 Total stockholders� equity 405,445 438,362 Total liabilities and stockholders� equity $ 447,378 $ 482,926 � � Attachment (3) � DEALERTRACK HOLDINGS, INC. Summary Cash Flow Information (Dollars in thousands) (Unaudited) � � Nine Months Ended September 30, 2008 � 2007 � Net cash provided by operating activities $ 44,330 $ 33,143 Net cash provided by (used in) investing activities (a) $ 84,246 $ (46,766 ) Net cash (used in) provided by financing activities $ (42,779 ) $ 10,498 � (a) For the nine months ended September 30, 2008, net cash provided by investing activities includes $99.2 million in net sales of investments and auction rate securities that are invested in tax-exempt and tax-advantaged securities. For the nine months ended September 30, 2007, net cash used in investing activities included $71.4 million in net sales of auction rate securities that were invested in tax-exempt and tax-advantaged securities. � Attachment (4) � DEALERTRACK HOLDINGS, INC. Reconciliation of GAAP Net Income to Non-GAAP EBITDA (Dollars in thousands) (Unaudited) � � Three Months Ended September 30, 2008 � 2007 � GAAP net (loss) income $ (2,603 ) $ 4,512 Interest income (1,105 ) (991 ) Interest expense 87 96 Provision for income taxes 1,155 3,217 Depreciation and amortization 3,704 2,686 Amortization of acquired identifiable intangibles 5,475 8,014 EBITDA (Non-GAAP) $ 6,713 $ 17,534 Impairment of auction rate securities 5,664 - Adjusted EBITDA (Non-GAAP) $ 12,377 $ 17,534 � � DEALERTRACK HOLDINGS, INC. Reconciliation of GAAP Net Income to Non-GAAP Cash Net Income (Dollars in thousands) (Unaudited) � � Three Months Ended September 30, 2008 � 2007 � GAAP net income $ (2,603 ) $ 4,512 Non-cash stock-based compensation charges, net of taxes 2,218 2,119 Amortization of acquired identifiable intangibles, net of taxes 3,565 4,777 Impairment of auction rate securities 5,664 - Cash net income (Non-GAAP) $ 8,844 $ 11,408 � � Attachment (4) � DEALERTRACK HOLDINGS, INC. Reconciliation of GAAP Net Income to Non-GAAP EBITDA (Dollars in thousands) (Unaudited) � � Nine Months Ended September 30, 2008 � 2007 � GAAP net income $ 2,801 $ 15,621 Interest income (3,813 ) (3,742 ) Interest expense 253 231 Provision for income taxes 5,323 11,276 Depreciation and amortization 9,785 7,391 Amortization of acquired identifiable intangibles 19,602 20,253 EBITDA (Non-GAAP) $ 33,951 $ 51,030 Impairment of auction rate securities 5,664 - Adjusted EBITDA (Non-GAAP) $ 39,615 $ 51,030 � � DEALERTRACK HOLDINGS, INC. Reconciliation of GAAP Net Income to Non-GAAP Cash Net Income (Dollars in thousands) (Unaudited) � � Nine Months Ended September 30, 2008 � 2007 � GAAP net income $ 2,801 $ 15,621 Non-cash stock-based compensation charges, net of taxes 6,736 4,961 Amortization of acquired identifiable intangibles, net of taxes 12,753 12,305 Impairment of auction rate securities 5,664 - Cash net income (Non-GAAP) $ 27,954 $ 32,887 � � Attachment (5) � DEALERTRACK HOLDINGS, INC. Reconciliation of Forward-Looking GAAP Net Income to Forward-Looking Non-GAAP EBITDA (Dollars in millions) (Unaudited) � � Year Ending December 31, 2008 � � Expected Range � GAAP net income $ 1.2 $ 1.7 Interest income (4.8 ) (4.8 ) Interest expense 0.3 0.3 Provision for income taxes 5.1 5.4 Depreciation and amortization 13.1 13.1 Amortization of acquired identifiable intangibles 24.9 24.9 EBITDA (Non-GAAP) $ 39.8 $ 40.6 Impairment of auction rate securities 5.7 5.7 Adjusted EBITDA (Non-GAAP) $ 45.5 $ 46.3 � � DEALERTRACK HOLDINGS, INC. Reconciliation of Forward-Looking GAAP Net Income to Forward-Looking Non-GAAP Cash Net Income (Dollars in millions) (Unaudited) � � Year Ending December 31, 2008 � � Expected Range � GAAP net income $ 1.2 $ 1.7 Non-cash stock-based compensation charges, net of taxes 9.0 9.0 Amortization of acquired identifiable intangibles, net of taxes 16.2 16.2 Impairment of auction rate securities 5.7 5.7 Cash net income (Non-GAAP) $ 32.1 $ 32.6 � � Attachment (6) Summary of Business Statistics (Unaudited) � DEALERTRACK HOLDINGS, INC. � Three months ended September 30, 2008 � June 30, 2008 � March 31, 2008 � December 31, 2007 � September 30, 2007 � Active dealers (a) 21,001 21,735 22,457 22,043 22,551 Active financing sources (b) 706 659 578 536 495 Transactions processed (c) (in thousands) 19,219 22,251 23,889 20,836 23,810 Product subscriptions (d) 33,123 31,499 30,098 28,966 27,469 � (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 DealerTrack network during the most recently ended calendar month. (b) We consider a financing source to be active in our network as of a date if it is accepting credit application data electronically from dealers in the DealerTrack network, including financing sources visible to dealers through drop down menus. This counting methodology reflects revisions we made in July 2008 to more accurately reflect the number of financing sources available on the network. (c) Represents revenue-generating transactions processed in the DealerTrack, DealerTrack Digital Services and DealerTrack Canada networks at the end of a given period. The second quarter transaction volume has been revised upwards by 1,204,000 transactions from the number previously reported. (d) Represents revenue generating subscriptions in DealerTrack and DealerTrack Canada in a given period. � DEALERTRACK HOLDINGS, INC. � Three months ended September 30, 2008 � June 30, 2008 � March 31, 2008 � December 31, 2007 � September 30, 2007 � Transaction revenue(in thousands) $33,007 $36,321 $38,167 $35,330 $39,096 Subscription revenue (in thousands) $23,797 $22,877 $22,386 $21,470 $20,378 Other revenue(in thousands) $3,721 $3,983 $3,755 $3,942 $3,397 Average transaction price (b) $1.72 $1.63 $1.60 $1.70 $1.64 Average subscription price $244 $246 $251 $253 $256 Average monthly subscription revenue per subscribing dealership (a) $557 $547 $547 $543 $528 � (a) Represents total subscription revenue divided by subscribing dealers in US and Canada networks. (b) Due to the revision in the number of second quarter transactions, the average transaction price was reduced by $0.10. � � � � Attachment (7) Impairment charges for certain auction rate securities � � � Auction Rate Preferred Holding � � Par Value (000) � Fair Market Value at September 30, 2008 (000) � Rating at (1) September 30, 2008 Third Quarter 2008 Impairment Charge (000) � Suntrust I $ 3,000 $ 1,575 A3 $ 1,425 Goldman Sachs series I 1,600 $ 817 A2 783 Freddie Mac Finance Mortgage Loan Series S 2,200 $ 88 Ca 2,112 CR-Societe Generale Finance Mortgage Loan Series IV 1,000 $ 518 A1 482 CR-Societe Generale Finance Mortgage Loan Series I 1,800 $ 938 A1 862 Total $ 9,600 $ 3,936 $ 5,664 � (1) According to Moody�s Investor Service