##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Commission File Number 000-51653
 DealerTrack Holdings, Inc.
 (Exact name of Registrant as specified in its charter)
 Delaware
    
    52-2336218(State or other jurisdiction of incorporation or
    
    (I.R.S. Employer Identification Number)organization)1111 Marcus Ave., Suite M04
    
    11042Lake Success, NY
    
    (Zip Code)(Address of principal executive offices)
 (516) 734-3600
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



DEALERTRACK HOLDINGS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2009
 TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements
    
    
    3Consolidated Balance Sheets (unaudited)
    
    
    3Consolidated Statements of Operations (unaudited)
    
    
    4Consolidated Statements of Cash Flows (unaudited)
    
    
    5Notes to Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    27PART II. OTHER INFORMATION
    
    
    28Item 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
    29Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 6. Exhibits
    
    
    30Signature
    
    
    30EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATION
   2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 DEALERTRACK HOLDINGS, INC.
 
 CONSOLIDATED BALANCE SHEETS
(unaudited)
 March 31,
    
    
    December 31,2009
    
    
    2008(In thousands, except shareand per share amounts)ASSETSCurrent assetsCash and cash equivalents
    
    $
    148,656
    
    
    $
    155,456Short-term investments
    
    
    12,992
    
    
    
    43,350Accounts receivable, net of allowances of
$3,425 and $1,848 at March 31, 2009 and
December 31, 2008, respectively
    
    
    21,355
    
    
    
    18,462Prepaid expenses and other current assets
    
    
    14,070
    
    
    
    9,624Deferred tax assets
    
    
    2,216
    
    
    
    2,195Restricted cash
    
    
    28
    
    
    
    142Total current assets
    
    
    199,317
    
    
    
    229,229Long-term investments
    
    
    3,626
    
    
    
    4,392Property and equipment, net
    
    
    14,266
    
    
    
    13,448Software and web site developments costs, net
    
    
    14,409
    
    
    
    12,705Intangible assets, net
    
    
    55,429
    
    
    
    44,405Goodwill
    
    
    129,362
    
    
    
    114,886Restricted cash
    
    
    250
    
    
    
    250Deferred taxes and other long-term assets
    
    
    21,513
    
    
    
    17,900Total assets
    
    $
    438,172
    
    
    $
    437,215LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    3,477
    
    
    $
    4,488Accrued compensation and benefits
    
    
    5,863
    
    
    
    7,850Accrued other
    
    
    12,867
    
    
    
    11,385Deferred revenues
    
    
    5,314
    
    
    
    5,609Due to acquirees
    
    
    591
    
    
    
    1,740Capital leases payable
    
    
    365
    
    
    
    360Total current liabilities
    
    
    28,477
    
    
    
    31,432Capital leases payable  long-term
    
    
    357
    
    
    
    454Due to acquirees  long-term
    
    
    722
    
    
    
    682Deferred tax liabilities  long-term
    
    
    5,069
    
    
    
    2,477Deferred revenue and other long-term liabilities
    
    
    5,655
    
    
    
    5,950Total liabilities
    
    
    40,280
    
    
    
    40,995Commitments and contingencies (Note 17)Stockholders equityPreferred stock, $0.01 par value: 10,000,000
shares authorized and no shares issued and
outstanding at March 31, 2009 and
December 31, 2008
    
    
    
    
    
    
    Common stock, $0.01 par value: 175,000,000
shares authorized; 43,060,255 shares issued
and 40,023,759 shares outstanding at March
31, 2009; and 175,000,000 shares authorized;
42,841,737 shares issued and 39,833,616
shares outstanding at December 31, 2008
    
    
    431
    
    
    
    428Treasury stock, at cost, 3,036,496 shares and
3,008,121 shares at March 31, 2009 and
December 31, 2008, respectively
    
    
    (50,386
    )
    
    
    (50,061
    )Additional paid-in capital
    
    
    437,642
    
    
    
    428,771Deferred stock-based compensation (APB 25)
    
    
    (144
    )
    
    
    (446
    )Accumulated other comprehensive income
    
    
    (4,284
    )
    
    
    (2,730
    )Retained earnings
    
    
    14,633
    
    
    
    20,258Total stockholders equity
    
    
    397,892
    
    
    
    396,220Total liabilities and stockholders equity
    
    $
    438,172
    
    
    $
    437,215
   3




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##### Table of Contents



DEALERTRACK HOLDINGS, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 Three Months Ended March 31,2009
    
    
    2008(In thousands, except share andper share amounts)RevenueNet revenue
    
    $
    55,700
    
    
    $
    64,308Operating costs and expensesCost of revenue (1)
    
    
    29,121
    
    
    
    28,612Product development (1)
    
    
    4,132
    
    
    
    3,142Selling, general and administrative (1)
    
    
    32,318
    
    
    
    29,732Total operating costs and expenses
    
    
    65,571
    
    
    
    61,486(Loss) income from operations
    
    
    (9,871
    )
    
    
    2,822Interest income
    
    
    402
    
    
    
    1,563Other income
    
    
    50
    
    
    
    Interest expense
    
    
    (50
    )
    
    
    (92
    )Gain on available for sale securities
    
    
    463
    
    
    
    (Loss) income before benefit (provision) for income taxes
    
    
    (9,006
    )
    
    
    4,293Benefit (provision) for income taxes, net
    
    
    3,381
    
    
    
    (1,955
    )Net (loss) income
    
    $
    (5,625
    )
    
    $
    2,338Basic net (loss) income per share applicable to common stockholders (2)
    
    $
    (0.14
    )
    
    $
    0.05Diluted net (loss) income per share applicable to common stockholders (2)
    
    $
    (0.14
    )
    
    $
    0.05Weighted average shares outstanding (2)
    
    
    39,095,730
    
    
    
    41,637,585Weighted average shares outstanding assuming dilution (2)
    
    
    39,095,730
    
    
    
    42,805,884
 
 (1)
    
    Stock-based compensation expense recorded for the three months ended March 31, 2009 and 2008 was classified as follows: Three Months Ended March 31,2009
    
    
    2008Cost of revenue
    
    $
    613
    
    
    $
    614Product development
    
    
    210
    
    
    
    177Selling, general and administrative
    
    
    6,583
    
    
    
    2,670
 
 (2)
    
    Basic and diluted income per share amounts for the three months ended March 31, 2008 have been retroactively
adjusted to conform with the provisions of FSP No. EITF 03-6-1. For further information about the adoption of the provisions of
FSP No. EITF 03-6-1 refer to Note 5.   4




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##### Table of Contents



DEALERTRACK HOLDINGS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 Three Months Ended March 31,2009
    
    
    2008(In thousands)Cash flows from operating activitiesNet (loss) income
    
    $
    (5,625
    )
    
    $
    2,338Adjustments to reconcile net (loss) income to net cash (used in) provided by
operating activitiesDepreciation and amortization
    
    
    8,775
    
    
    
    10,522Deferred tax benefit
    
    
    (3,359
    )
    
    
    (526
    )Stock-based compensation expense
    
    
    7,406
    
    
    
    3,461Provision for doubtful accounts and sales credits
    
    
    2,458
    
    
    
    1,539Gain on sale of property and equipment
    
    
    (166
    )
    
    
    Amortization of bond premium
    
    
    40
    
    
    
    Amortization of deferred interest
    
    
    34
    
    
    
    50Non cash deferred compensation
    
    
    75
    
    
    
    62Amortization of bank financing costs
    
    
    
    
    
    
    30Stock-based compensation windfall tax benefit
    
    
    (829
    )
    
    
    (96
    )Gain on available for sale securities
    
    
    (463
    )
    
    
    Changes in operating assets and liabilities, net of effects of acquisitionsTrade accounts receivable
    
    
    (5,415
    )
    
    
    (1,803
    )Prepaid expenses and other current assets
    
    
    (3,977
    )
    
    
    (56
    )Accounts payable and accrued expenses
    
    
    259
    
    
    
    (7,818
    )Deferred revenue and other current liabilities
    
    
    371
    
    
    
    873Other long-term liabilities
    
    
    (336
    )
    
    
    175Deferred rent
    
    
    41
    
    
    
    234Other long-term assets
    
    
    (448
    )
    
    
    (2
    )Net cash (used in) provided by operating activities
    
    
    (1,159
    )
    
    
    8,983Cash flows from investing activitiesCapital expenditures
    
    
    (1,273
    )
    
    
    (1,044
    )Other restricted cash
    
    
    114
    
    
    
    Purchase of investments
    
    
    
    
    
    
    (44,000
    )Sale of investments
    
    
    31,300
    
    
    
    195,080Capitalized software and web site development costs
    
    
    (3,050
    )
    
    
    (1,537
    )Proceeds from sale of property and equipment
    
    
    71
    
    
    
    2Payment for acquisition of businesses and intangible assets, net of acquired cash
    
    
    (33,808
    )
    
    
    (1,599
    )Net cash (used in) provided by investing activities
    
    
    (6,646
    )
    
    
    146,902Cash flows from financing activitiesPrincipal payments on capital lease obligations
    
    
    (92
    )
    
    
    (458
    )Proceeds from the exercise of employee stock options
    
    
    935
    
    
    
    444Proceeds from employee stock purchase plan
    
    
    342
    
    
    
    681Purchase of treasury stock
    
    
    (325
    )
    
    
    (53
    )Principal payments on notes payable
    
    
    (212
    )
    
    
    Stock-based compensation windfall tax benefit
    
    
    829
    
    
    
    96Net cash provided by financing activities
    
    
    1,477
    
    
    
    710Net (decrease) increase in cash and cash equivalents
    
    
    (6,328
    )
    
    
    156,595Effect of exchange rate changes on cash and cash equivalents
    
    
    (472
    )
    
    
    (412
    )Cash, beginning of period
    
    
    155,456
    
    
    
    50,564Cash, end of period
    
    $
    148,656
    
    
    $
    206,747Supplemental disclosureCash paid for:Income taxes
    
    $
    2,173
    
    
    $
    385Interest
    
    
    16
    
    
    
    42Non-cash investing and financing activities:Asset sale through note receivable
    
    
    500
    
    
    
    Accrued capitalized hardware, software and fixed assets
    
    
    873
    
    
    
    333Goodwill adjustment
    
    
    (12
    )
    
    
    Deferred compensation reversal to equity
    
    
    75
    
    
    
    63
   5




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##### Table of Contents



DEALERTRACK HOLDINGS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 1. Business Description
  2. Basis of Presentation
  3. Recent Accounting Pronouncements
 Determining Whether a Market is Not Active and a Transaction is Not Distressed Fair Value Measurements
 Recognition
and Presentation of Other-Than-Temporary Impairments
 Determining Whether Instruments Granted in
Share-Based Payment Transactions are Participating Securities
  6




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Determination of the Useful Life of
Intangible Assets Goodwill and Other Intangible Assets
 Effective Date of FASB Statement
157
 Business Combinations
 4. Fair Value Measurements
 Fair Value Measurements
 
    
    Level 1  Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or
liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
    
    Level 2  Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
    
    Level 3  Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives
the lowest priority to Level 3 inputs.
   Quoted
    
    
    SignificantPrices in
    
    
    Other
    
    
    SignificantActive
    
    
    Observable
    
    
    UnobservableMarkets
    
    
    Inputs
    
    
    Inputs
    
    
    March 31,(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    2009Cash equivalents (1)
    
    $
    120,683
    
    
    $
    
    
    
    $
    
    
    
    $
    120,683Short-term investments (2)
    
    
    11,179
    
    
    
    1,813
    
    
    
    
    
    
    
    12,992Long-term investments (3)
    
    
    
    
    
    
    
    
    
    
    3,626
    
    
    
    3,626Total
    
    $
    131,862
    
    
    $
    1,813
    
    
    $
    3,626
    
    
    $
    137,301
 
 (1)
    
    Cash equivalents consist primarily of money market funds with original
maturity dates of three months or less, for which we determine fair
value through quoted market prices.(2)
    
    Level 1 short-term investments consist primarily of tax-advantaged
preferred stock of financial institutions, corporate bonds and
municipal notes with maturity dates of one year or less, for which we
determine fair value through quoted market prices.As of December 31, 2008 we had $2.3 million (net of impairment charge)
of Level 2 auction rate securities (ARS) invested in tax-advantaged
preferred stock trusts in which the underlying equities are preferred
stock. These ARS were associated with failed auctions, for which the
trust dissolved and distributed the underlying preferred security
during the first quarter of 2009. The result of this distribution is a
realizable event in which we recognized a loss in the statement of
operations of $0.3 million on the decreased fair value from December
31, 2008 through the dissolution of the trust. Subsequent to the trust
dissolution through March 31, 2009 we recorded a loss in other
comprehensive income of $0.2 million on the decreased fair value.  7




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##### Table of Contents



(3)
    
    Level 3 long-term investments consist of auction rate securities (ARS)
invested in tax-exempt state government obligations that was valued at
par. Our intent is not to hold the $1.6 million of ARS invested in
tax-exempt state government obligations to maturity, but rather use
the interest reset feature to provide liquidity, if
applicable. We have classified this as long-term due to the maturity
date of the security being in 2011, coupled with ongoing failed
auctions in the marketplace.Level 3 long-term investments also includes tax-advantaged preferred
stock of a financial institution. It is uncertain whether we will
liquidate these securities within the next twelve months, as such we
have classified them as long-term on our consolidated balance sheets.
Due to the lack of observable market quotes we utilized valuation
models that rely exclusively on Level 3 inputs including those that
are based on expected cash flow streams, including assessments of
counterparty credit quality, default risk underlying the security,
discount rates and overall capital market liquidity.During the three months ended March 31, 2009 our investment in ARS
invested in certain tax-advantaged preferred stock trusts as of
December 31, 2008 dissolved and the trustee distributed the underlying
preferred stock instruments. As a result of these conversions we
measured the fair value of the Level 3 long-term tax-advantaged
preferred stock on the distribution date and determined that the value
increased from December 31, 2008 and as a result we recorded a
realized gain in the statement of operations of $0.7 million for the
three months ended March 31, 2009.  Balance as of January 1, 2009
    
    $
    1,550Reclassification from Level 2 investments to Level 3 investments
    
    
    1,360Gain on Level 3 available for sale securities
    
    
    716Balance as of March 31, 2009
    
    $
    3,626
 5. Net (Loss) Income per Share
 .
  8




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##### Table of Contents



Three Months Ended March 31,2009
    
    
    2008(2)Numerator:Net (loss) income
    
    $
    (5,625
    )
    
    $
    2,338Net income allocated to participating securities under two-class method
    
    
    
    
    
    
    (50
    )Net (loss) income applicable to common stockholders
    
    $
    (5,625
    )
    
    $
    2,288Denominator:Weighted average common stock outstanding (basic)
    
    
    39,095,730
    
    
    
    41,637,585Common equivalent shares from options to purchase common stock and
restricted common stock units (1)
    
    
    
    
    
    
    1,168,299Weighted average common stock outstanding (diluted)
    
    
    39,095,730
    
    
    
    42,805,884Basic net (loss) income per share
    
    $
    (0.14
    )
    
    $
    0.05Diluted net (loss) income per share
    
    $
    (0.14
    )
    
    $
    0.05
 
 (1)
    
    Restricted common stock units are not considered participating
securities since they do not contain a non-forfeitable right to
dividends and have, therefore, not been included in the denominator
for basic earnings per share calculations.(2)
    
    EPS data presented was adjusted retroactively to conform with the
provisions of FSP No. EITF 03-6-1. FSP No. EITF
03-6-1 did not have a
significant impact on the per share calculations for the three months
ended March 31, 2008. The following is a summary of the weighted shares outstanding during the
respective periods that have been excluded from the diluted net (loss) income
per share calculation because the effect would have been antidilutive:
 Three Months Ended March 31,2009
    
    
    2008(2)Stock options
    
    
    4,982,840
    
    
    
    1,864,893Restricted stock units
    
    
    475,938
    
    
    
    Total antidilutive awards
    
    
    5,458,778
    
    
    
    1,864,893
 6. Comprehensive (Loss) Income
  Three Months Ended March 31,2009
    
    
    2008Net (loss) income
    
    $
    (5,625
    )
    
    $
    2,338Foreign currency translation adjustments
    
    
    (1,315
    )
    
    
    (2,039
    )Unrealized loss on available-for-sale securities
    
    
    (239
    )
    
    
    (286
    )Total comprehensive (loss) income
    
    $
    (7,179
    )
    
    $
    13
  9




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##### Table of Contents



7. Stock-Based Compensation Expense
   Three Months Ended March 31,2009
    
    
    2008Stock options
    
    $
    5,332
    
    
    $
    1,930Restricted common stock
    
    
    1,604
    
    
    
    1,411Restricted stock units
    
    
    410
    
    
    
    ESPP
    
    
    60
    
    
    
    120Total stock-based compensation expense
    
    $
    7,406
    
    
    $
    3,461
   8. Business Combinations
 AAX Acquisition
 ® .
  Current assets
    
    $
    489Property and equipment
    
    
    1,035Intangible assets
    
    
    16,639Goodwill
    
    
    15,283Total assets acquired
    
    
    33,446Total liabilities assumed
    
    
    (2,571
    )Net assets acquired
    
    $
    30,875
   10




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##### Table of Contents



Other AAX deal terms
 Service Credits
  Purchase Price Adjustment
   Unaudited Pro Forma Summary of Operations
  Three Months Ended March 31,2009
    
    
    2008(Unaudited)(In thousands, except per share data)Net revenue
    
    $
    57,283
    
    
    $
    70,719Net (loss) income
    
    $
    (5,851
    )
    
    $
    743Basic net (loss) income per share applicable to common stockholders
    
    $
    (0.15
    )
    
    $
    0.02Diluted net (loss) income per share applicable to common stockholders
    
    $
    (0.15
    )
    
    $
    0.02
  11




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##### Table of Contents



Curomax Acquisition
  9. Stock Repurchase Program
  10. Related Party Transactions
  11. Property and Equipment
  EstimatedUseful Life
    
    
    March 31,
    
    
    December 31,(Years)
    
    
    2009
    
    
    2008Computer equipment
    
    
    35
    
    
    $
    21,661
    
    
    $
    20,431Office equipment
    
    
    5
    
    
    
    3,028
    
    
    
    2,896Furniture and fixtures
    
    
    5
    
    
    
    3,217
    
    
    
    3,068Leasehold improvements
    
    
    511
    
    
    
    1,951
    
    
    
    1,233Total property and equipment, gross
    
    
    
    
    
    
    29,857
    
    
    
    27,628Less: Accumulated depreciation and amortization
    
    
    
    
    
    
    (15,591
    )
    
    
    (14,180
    )Total property and equipment, net
    
    
    
    
    
    $
    14,266
    
    
    $
    13,448
  12. Intangible Assets
  March 31, 2009
    
    
    December 31, 2008Gross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    AmortizationBook
    
    
    Accumulated
    
    
    Book
    
    
    Accumulated
    
    
    PeriodValue
    
    
    Amortization
    
    
    Value
    
    
    Amortization
    
    
    (Years)Customer contracts
    
    $
    40,653
    
    
    $
    (19,438
    )
    
    $
    33,673
    
    
    $
    (17,289
    )
    
    
    27Database
    
    
    13,825
    
    
    
    (9,350
    )
    
    
    13,333
    
    
    
    (8,818
    )
    
    
    36Trade names
    
    
    12,510
    
    
    
    (5,798
    )
    
    
    10,500
    
    
    
    (5,469
    )
    
    
    510Technology
    
    
    27,700
    
    
    
    (7,839
    )
    
    
    22,684
    
    
    
    (7,209
    )
    
    
    15Non-compete agreement
    
    
    7,805
    
    
    
    (4,639
    )
    
    
    10,697
    
    
    
    (7,697
    )
    
    
    25Total
    
    $
    102,493
    
    
    $
    (47,064
    )
    
    $
    90,887
    
    
    $
    (46,482
    )
  12




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##### Table of Contents



13. Goodwill
  Balance as of January 1, 2009
    
    $
    114,886Acquisition of AAX (see Note 8)
    
    
    15,283Impact of change in Canadian dollar exchange rate
    
    
    (595
    )Exit from SCS business (See Note 20)
    
    
    (200
    )Other
    
    
    (12
    )Balance as of March 31, 2009
    
    $
    129,362
  14. Other Accrued Liabilities
  March 31,
    
    
    December 31,2009
    
    
    2008Revenue share
    
    $
    2,214
    
    
    $
    1,700Customer deposits
    
    
    2,638
    
    
    
    2,749Sales taxes
    
    
    1,495
    
    
    
    1,511Severance
    
    
    1,408
    
    
    
    34Software licenses
    
    
    1,179
    
    
    
    1,341Professional fees
    
    
    1,221
    
    
    
    1,158Accrued Curomax contingent consideration (Note 8)
    
    
    
    
    
    
    1,837Other
    
    
    2,712
    
    
    
    1,055Total other accrued liabilities
    
    $
    12,867
    
    
    $
    11,385
 15. Income Taxes
 Accounting for Uncertainty in Income Taxes  an
Interpretation of FASB Statement No. 109 or FIN 48
    13




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##### Table of Contents



16. Long-Term Incentive Equity Awards
    Three Months Ended March 31,2009
    
    
    2008EBITDA Performance Award
    
    $
    120
    
    
    $
    167Market Value Award
    
    
    (106
    )
    
    
    187Total
    
    $
    14
    
    
    $
    354
  17. Commitments and Contingencies
 Retail Sales Tax
     14




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##### Table of Contents



Commitments
    Legal Proceedings
  DealerTrack Inc. v. RouteOne LLC
   DealerTrack, Inc. v. Finance Express et al., CV-06-2335;
 DealerTrack Inc. v. RouteOne and Finance Express et al., CV-06-6864; and
 DealerTrack Inc. v. RouteOne and Finance Express et al., CV-07-215
  15




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##### Table of Contents



Markman
          18. Segment Information
 Disclosures about Segments of an Enterprise and Related
Information
  Three Months Ended March 31,2009
    
    
    2008Transaction services revenue
    
    $
    24,041
    
    
    $
    38,167Subscription services revenue
    
    
    27,943
    
    
    
    22,386Other
    
    
    3,716
    
    
    
    3,755Total net revenue
    
    $
    55,700
    
    
    $
    64,308
  16




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##### Table of Contents



19. Realignment of Workforce and Business
   Balance as of
    
    
    
    
    
    
    
    
    
    
    Balance as ofJanuary 1, 2009
    
    
    Charges
    
    
    Cash Payments
    
    
    March 31, 2009Severance
    
    $
    
    
    
    $
    2,732
    
    
    $
    1,388
    
    
    $
    1,344Other benefits
    
    
    
    
    
    
    130
    
    
    
    130
    
    
    
    Total
    
    $
    
    
    
    $
    2,862
    
    
    $
    1,518
    
    
    $
    1,344
  20. Exit from SCS Business
   Consolidation of Variable Interest Entities, an interpretation of
ARB No. 51
 21. 401(k) Plan
  22. Employee Stock Purchase Plan
   17




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 You should read the following discussion and analysis of our financial condition and
results of operations in conjunction with our consolidated financial statements. Certain statements
in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the
Securities Exchange Act of 1934, as amended (the Exchange Act). These statements involve a number
of risks, uncertainties and other factors that could cause our actual results, performance or
achievements to be materially different from any future results, performance or achievements
expressed or implied by these forward-looking statements. Factors that could materially affect such
forward-looking statements can be found in the sections entitled Risk Factors in Part II,
Item 1A. in this Quarterly Report on Form 10-Q and in Part I, Item 1A. in our Annual Report on Form
10-K for the year ended December 31, 2008 filed with the SEC on February 24, 2009. Investors are
urged to consider these factors carefully in evaluating the forward-looking statements and are
cautioned not to place undue reliance on such forward-looking statements. The forward-looking
statements made herein are only made as of the date hereof and we will undertake no obligation to
publicly update such forward-looking statements to reflect subsequent events or circumstances.
 Overview
     Three Months Ended March 31,2009
    
    
    2008EBITDA and Other Business Statistics:EBITDA (1)
    
    $
    (629
    )
    
    $
    13,344Capital expenditures, software and web site development costs
    
    $
    5,234
    
    
    $
    2,914Active dealers in our network as of end of the period (2)
    
    
    18,998
    
    
    
    22,457Active financing sources in our network as of end of period (3)
    
    
    736
    
    
    
    578Active lender to dealer relationships (4)
    
    
    134,475
    
    
    
    220,264Subscribing dealers in our network as of end of the period (5)
    
    
    14,646
    
    
    
    13,641Transactions processed (6)
    
    
    14,327
    
    
    
    23,889Average transaction price (7)
    
    $
    1.68
    
    
    $
    1.60Average monthly subscription revenue per subscribing dealership (8)
    
    $
    635
    
    
    $
    547
  18




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##### Table of Contents



(1)
    
    EBITDA represents net income before interest (income) expense, taxes,
depreciation and amortization. We present EBITDA because we believe
that EBITDA provides useful information with respect to the
performance of our fundamental business activities and is also
frequently used by securities analysts, investors and other interested
parties in the evaluation of comparable companies. We rely on EBITDA
as a primary measure to review and assess the operating performance of
our company and management team in connection with our executive
compensation plan incentive payments.EBITDA has limitations as an analytical tool and you should not
consider it in isolation, or as a substitute for analysis of our
results as reported under Generally Accepted Accounting Principles in
the United States of America (GAAP). Some of these limitations are: 
    
    EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
    
    EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
    
    EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or
principal payments, on our debts;
    
    Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have
to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; and
    
    Other companies may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.Because of these limitations, EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth
of our business. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA only supplementally.
EBITDA is a measure of our performance that is not required by, or presented in accordance with, GAAP. EBITDA is not a measurement of
our financial performance under GAAP and should not be considered as an alternative to net income, operating income or any other
performance measures derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of our
liquidity.
  Three Months Ended March 31,2009
    
    
    2008GAAP net (loss) income
    
    $
    (5,625
    )
    
    $
    2,338Interest income
    
    
    (402
    )
    
    
    (1,563
    )Interest expense
    
    
    50
    
    
    
    92(Benefit) provision for income taxes
    
    
    (3,381
    )
    
    
    1,955Depreciation of property and equipment and amortization of capitalized software and website costs
    
    
    3,443
    
    
    
    2,896Amortization of acquired identifiable intangibles
    
    
    5,286
    
    
    
    7,626EBITDA (non-GAAP)
    
    $
    (629
    )
    
    $
    13,344
 
 (2)
    
    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.(3)
    
    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 made in July 2008 to more accurately reflect the number of
financing sources available on the network.(4)
    
    Lender to dealer relationships are made up of two components, the number of financing sources on the DealerTrack
network and the number of active dealers submitting applications. Lender to dealer relationships are counted by pair.
For example, one lenders relationship with 50 dealerships is counted as fifty relationships; the next lenders
relationship with the same 50 dealership would bring our relationship count to 100. The number of lender to dealer
relationships is impacted by both the loss of lenders or dealers. For example, if a lender goes out of business,
exits indirect auto financing or reduces the number of dealers it does business with, our relationship count is
negatively impacted by each of the dealers that are no longer doing business with that lender. If a dealer goes out
of business our relationship count is also negatively impacted.  19




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##### Table of Contents



(5)
    
    Represents the number of dealerships with a current subscription in the DealerTrack or DealerTrack Canada network at
the end of a given period.(6)
    
    Represents revenue-generating transactions processed in the DealerTrack, DealerTrack Digital Services and DealerTrack
Canada networks at the end of a given period.(7)
    
    Represents the average revenue earned per transaction processed in the DealerTrack, DealerTrack Digital Services and
DealerTrack Canada networks during a given period.(8)
    
    Represents net subscription revenue divided by subscribing dealers in the DealerTrack and DealerTrack Canada networks. Revenue
 Transaction Services Revenue.
 Subscription Services Revenue.
 Other Revenue.
 Cost of Revenue and Operating Expenses
 Cost of Revenue.
 Product Development Expenses.
 Selling, General and Administrative Expenses.
   Fair Value Measurements
 Fair Value Measurements
 
    
    Level 1  Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or
liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
    
    Level 2  Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
    
    Level 3  Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives
the lowest priority to Level 3 inputs.
  20




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##### Table of Contents



Quoted
    
    
    SignificantPrices in
    
    
    Other
    
    
    SignificantActive
    
    
    Observable
    
    
    UnobservableMarkets
    
    
    Inputs
    
    
    Inputs
    
    
    March 31,(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    2009Cash equivalents (1)
    
    $
    120,683
    
    
    $
    
    
    
    $
    
    
    
    $
    120,683Short-term investments (2)
    
    
    11,179
    
    
    
    1,813
    
    
    
    
    
    
    
    12,992Long-term investments (3)
    
    
    
    
    
    
    
    
    
    
    3,626
    
    
    
    3,626Total
    
    $
    131,862
    
    
    $
    1,813
    
    
    $
    3,626
    
    
    $
    137,301
 
 (1)
    
    Cash equivalents consist primarily of money market funds with original
maturity dates of three months or less, for which we determine fair
value through quoted market prices.(2)
    
    Level 1 short-term investments consist primarily of tax-advantaged
preferred stock of financial institutions, corporate bonds and
municipal notes with maturity dates of one year or less, for which we
determine fair value through quoted market prices.As of December 31, 2008 we had $2.3 million (net of impairment charge)
of Level 2 auction rate securities (ARS) invested in tax-advantaged
preferred stock trusts in which the underlying equities are preferred
stock. These ARS were associated with failed auctions, for which the
trust dissolved and distributed the underlying preferred security
during the first quarter of 2009. The result of this distribution is a
realizable event in which we recognized a loss in the statement of
operations of $0.3 million on the decreased fair value from December
31, 2008 through the dissolution of the trust. Subsequent to the trust
dissolution through March 31, 2009 we recorded a loss in other
comprehensive income of $0.2 million on the decreased fair value.(3)
    
    Level 3 long-term investments consist of auction rate securities (ARS)
invested in tax-exempt state government obligations that was valued at
par. Our intent is not to hold the $1.6 million of ARS invested in
tax-exempt state government obligations to maturity, but rather use
the interest reset feature to provide liquidity, if
applicable. We have classified this as long-term due to the maturity
date of the security being in 2011, coupled with ongoing failed
auctions in the marketplace.Level 3 long-term investments also includes tax-advantaged preferred
stock of a financial institution. It is uncertain whether we will
liquidate these securities within the next twelve months, as such we
have classified them as long-term on our consolidated balance sheets.
Due to the lack of observable market quotes we utilized valuation
models that rely exclusively on Level 3 inputs including those that
are based on expected cash flow streams, including assessments of
counterparty credit quality, default risk underlying the security,
discount rates and overall capital market liquidity.During the three months ended March 31, 2009 our investment in ARS
invested in certain tax-advantaged preferred stock trusts as of
December 31, 2008 dissolved and the trustee distributed the underlying
preferred stock instruments. As a result of these conversions we
measured the fair value of the Level 3 long-term tax-advantaged
preferred stock on the distribution date and determined that the value
increased from December 31, 2008 and as a result we recorded a
realized gain in the statement of operations of $0.7 million for the
three months ended March 31, 2009.  Balance as of January 1, 2009
    
    $
    1,550Reclassification from Level 2 investments to Level 3 investments
    
    
    1,360Gain on available for sale securities
    
    
    716Balance as of March 31, 2009
    
    $
    3,626
  21




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##### Table of Contents



Realignment of Workforce and Business
   Balance as of
    
    
    
    
    
    
    
    
    
    
    Balance as ofJanuary 1, 2009
    
    
    Charges
    
    
    Cash Payments
    
    
    March 31, 2009Severance
    
    $
    
    
    
    $
    2,732
    
    
    $
    1,388
    
    
    $
    1,344Other benefits
    
    
    
    
    
    
    130
    
    
    
    130
    
    
    
    Total
    
    $
    
    
    
    $
    2,862
    
    
    $
    1,518
    
    
    $
    1,344
  Critical Accounting Policies and Estimates
     22




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##### Table of Contents



Results of Operations
  Three Months March 31,2009
    
    
    2008% of Net
    
    
    
    
    
    
    % of Net$ Amount
    
    
    Revenue
    
    
    $ Amount
    
    
    Revenue(In thousands, except percentages)Consolidated Statements of Operations Data:Net revenue
    
    $
    55,700
    
    
    
    100.0
    %
    
    $
    64,308
    
    
    
    100.0
    %Operating costs and expenses:Cost of revenue
    
    
    29,121
    
    
    
    52.3
    
    
    
    28,612
    
    
    
    44.5Product development
    
    
    4,132
    
    
    
    7.4
    
    
    
    3,142
    
    
    
    4.9Selling, general and administrative
    
    
    32,318
    
    
    
    58.0
    
    
    
    29,732
    
    
    
    46.2Total operating costs and expenses
    
    
    65,571
    
    
    
    117.7
    
    
    
    61,486
    
    
    
    95.6(Loss) income from operations
    
    
    (9,871
    )
    
    
    (17.7
    )
    
    
    2,822
    
    
    
    4.4Interest income
    
    
    402
    
    
    
    0.7
    
    
    
    1,563
    
    
    
    2.4Interest expense
    
    
    (50
    )
    
    
    (0.1
    )
    
    
    (92
    )
    
    
    (0.1
    )Other income, net
    
    
    50
    
    
    
    0.1
    
    
    
    
    
    
    
    Realized gain on marketable securities
    
    
    463
    
    
    
    0.8
    
    
    
    
    
    
    
    (Loss) income before benefit (provision) for income taxes
    
    
    (9,006
    )
    
    
    (16.2
    )
    
    
    4,293
    
    
    
    6.7Benefit (provision) for income taxes, net
    
    
    3,381
    
    
    
    6.1
    
    
    
    (1,955
    )
    
    
    (3.1
    )Net (loss) income
    
    $
    (5,625
    )
    
    
    (10.1
    )%
    
    $
    2,338
    
    
    
    3.6
    %
 Three Months Ended March 31, 2009 and 2008
 Revenue
 Three Months EndedMarch 31,2009
    
    
    2008Transaction services revenue
    
    $
    24,041
    
    
    $
    38,167Subscription services revenue
    
    
    27,943
    
    
    
    22,386Other
    
    
    3,716
    
    
    
    3,755Total net revenue
    
    $
    55,700
    
    
    $
    64,308
  Transaction Services Revenue.
  23




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##### Table of Contents



Subscription Services Revenue.
 Cost of Revenue and Operating Expenses
 Three Months Ended March 31,2009
    
    
    2008Cost of revenue
    
    $
    29,121
    
    
    $
    28,612Product development
    
    
    4,132
    
    
    
    3,142Selling, general and administrative
    
    
    32,318
    
    
    
    29,732Total cost of revenue and operating expenses
    
    $
    65,571
    
    
    $
    61,486
 Cost of Revenue.
 Product Development Expenses.
 Selling, General and Administrative Expenses.
 Interest Income
 Three Months Ended March 31,2009
    
    
    2008Interest Income
    
    $
    402
    
    
    $
    1,563
   24




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##### Table of Contents



Benefit
(Provision) for Income Taxes
 Three Months Ended March 31,2009
    
    
    2008Benefit (provision) for income taxes, net
    
    $
    3,381
    
    
    $
    (1,955
    )
  Liquidity and Capital Resources
        Three Months Ended March 31,2009
    
    
    2008Net cash (used in) provided by operating activities
    
    $
    (1,159
    )
    
    $
    8,983Net cash (used in) provided by investing activities
    
    $
    (6,646
    )
    
    $
    146,902Net cash provided by financing activities
    
    $
    1,477
    
    
    $
    710
  25




---



##### Table of Contents



Operating Activities
  Investing Activities
  Financing Activities
  Contractual Obligations
   Off-Balance Sheet Arrangements
  Industry Trends
   26




---



##### Table of Contents



Effects of Inflation
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Foreign Currency Exposure
  Interest Rate Exposure
   
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
   27




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  DealerTrack Inc. v. RouteOne LLC
   DealerTrack, Inc. v. Finance Express et al., CV-06-2335;
 DealerTrack Inc. v. RouteOne and Finance Express et al., CV-06-6864; and
 DealerTrack Inc. v. RouteOne and Finance Express et al., CV-07-215
    Markman
          28




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##### Table of Contents



Item 1A. Risk Factors
  Planned significant reductions in the number of automobile dealers will have a negative effect on
our subscription business.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Purchases of Equity Securities by the Issuer
   Total
    
    
    MaximumNumber of
    
    
    NumberShares
    
    
    of SharesPurchased
    
    
    ThatTotal
    
    
    Average
    
    
    as Part of
    
    
    May Yet beNumber
    
    
    Price
    
    
    Publicly
    
    
    Purchasedof Shares
    
    
    Paid per
    
    
    Announced
    
    
    Under thePeriod
    
    Purchased
    
    
    Share
    
    
    Program
    
    
    ProgramJanuary 2009
    
    
    1,944
    
    
    $
    11.83
    
    
    
    n/a
    
    
    
    n/aFebruary 2009
    
    
    10,049
    
    
    $
    12.93
    
    
    
    n/a
    
    
    
    n/aMarch 2009
    
    
    16,382
    
    
    $
    10.49
    
    
    
    n/a
    
    
    
    n/aTotal
    
    
    28,375
  29




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##### Table of Contents



Item 6. Exhibits
 ExhibitNumber
    
    Description of Document31.1
    
    
    Certification of Mark F. ONeil, Chairman, President and Chief
Executive Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of Eric D. Jacobs, Senior Vice President, Chief
Financial and Administrative Officer, pursuant to
Rule 13a-14(a)and 15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certifications of Mark F. ONeil, Chairman, President and Chief
Executive Officer, and Eric D. Jacobs, Senior Vice President,
Chief Financial and Administrative Officer, pursuant to 18 U.S.C
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 SIGNATURE
  DealerTrack Holdings, Inc.
(Registrant)Date: May 8, 2009
    /s/ Eric D. JacobsEric D. JacobsSenior Vice President, Chief Financial and
Administrative Officer
(Principal Financial and Accounting Officer) 
 EXHIBIT INDEX
 ExhibitNumber
    
    Description of Document31.1
    
    
    Certification of Mark F. ONeil, Chairman, President and Chief
Executive Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of Eric D. Jacobs, Senior Vice President, Chief
Financial and Administrative Officer, pursuant to
Rule 13a-14(a)and 15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certifications of Mark F. ONeil, Chairman, President and Chief
Executive Officer, and Eric D. Jacobs, Senior Vice President,
Chief Financial and Administrative Officer, pursuant to 18 U.S.C
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
  30