##### 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, 2008
 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
  þ Large accelerated filer
    

o Accelerated filero Non-accelerated
filer   (Do not check if a smaller reporting company)
    

o Smaller
reporting company
 o þ




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##### 



DEALERTRACK HOLDINGS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008
 TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONItem 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
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market
Risk
    
    
    19Item 4. Controls and Procedures
    
    
    19PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    20Item 1A. Risk Factors
    
    
    20Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
    
    
    21Item 6. Exhibits
    
    
    22Signature
    
    
    22EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONS
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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 31,2008
    
    
    2007(In thousands, except shareand per share amounts)ASSETSCurrent assetsCash and cash equivalents
    
    $
    206,747
    
    
    $
    50,564Short-term investments
    
    
    
    
    
    
    169,580Accounts receivable, net of allowances of $3,550
and $2,615 at March 31, 2008 and December 31,
2007, respectively
    
    
    27,105
    
    
    
    26,957Prepaid expenses and other current assets
    
    
    7,351
    
    
    
    7,305Deferred tax assets
    
    
    3,329
    
    
    
    3,827Total current assets
    
    
    244,532
    
    
    
    258,233Non-current investments
    
    
    18,214
    
    
    
    Property and equipment, net
    
    
    12,515
    
    
    
    12,792Software and web site developments costs, net
    
    
    10,972
    
    
    
    10,771Intangible assets, net
    
    
    62,321
    
    
    
    69,528Goodwill
    
    
    116,733
    
    
    
    117,702Restricted cash
    
    
    540
    
    
    
    540Deferred taxes and other long-term assets
    
    
    13,979
    
    
    
    13,360Total assets
    
    $
    479,806
    
    
    $
    482,926LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    3,414
    
    
    $
    4,762Accrued compensation and benefits
    
    
    5,309
    
    
    
    12,527Accrued other
    
    
    12,192
    
    
    
    11,387Deferred revenue
    
    
    4,876
    
    
    
    4,016Due to acquirees
    
    
    1,717
    
    
    
    2,251Capital leases payable
    
    
    375
    
    
    
    480Total current liabilities
    
    
    27,883
    
    
    
    35,423Capital leases payable  long-term
    
    
    722
    
    
    
    1,076Due to acquirees  long-term
    
    
    1,313
    
    
    
    1,280Deferred tax
liabilities  long-term
    
    
    2,429
    
    
    
    2,800Deferred revenue and other long-term liabilities
    
    
    4,392
    
    
    
    3,985Total liabilities
    
    
    36,739
    
    
    
    44,564Commitments and contingencies (Note 16)Stockholders equityPreferred stock, $0.01 par value; 10,000,000
shares authorized and no shares issued and
outstanding at March 31, 2008 and December 31,
2007
    
    
    
    
    
    
    Common stock, $0.01 par value; 175,000,000 shares
authorized; 42,634,269 shares issued and
42,628,229 shares outstanding at March 31, 2008
and 175,000,000 shares authorized; 42,556,925
shares issued and 42,552,723 shares outstanding
at December 31, 2007
    
    
    426
    
    
    
    426Treasury stock, at cost, 6,040 and 4,202 shares
at March 31, 2008 and December 31, 2007,
respectively
    
    
    (191
    )
    
    
    (139
    )Additional paid-in capital
    
    
    417,750
    
    
    
    413,428Deferred stock-based compensation (APB 25)
    
    
    (1,634
    )
    
    
    (2,056
    )Accumulated other comprehensive income
    
    
    5,856
    
    
    
    8,181Retained earnings
    
    
    20,860
    
    
    
    18,522Total stockholders equity
    
    
    443,067
    
    
    
    438,362Total liabilities and stockholders equity
    
    $
    479,806
    
    
    $
    482,926
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DEALERTRACK HOLDINGS, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 Three Months Ended March 31,2008
    
    
    2007(In thousands, except share and per shareamounts)RevenueNet revenue
    
    $
    64,308
    
    
    $
    51,725Operating costs and expensesCost of revenue (1)
    
    
    28,612
    
    
    
    21,300Product development (1)
    
    
    3,142
    
    
    
    2,380Selling, general and administrative (1)
    
    
    29,732
    
    
    
    21,248Total operating costs and expenses
    
    
    61,486
    
    
    
    44,928Income from operations
    
    
    2,822
    
    
    
    6,797Interest income
    
    
    1,563
    
    
    
    1,531Interest expense
    
    
    (92
    )
    
    
    (62
    )Income before provision for income taxes
    
    
    4,293
    
    
    
    8,266Provision for income taxes
    
    
    (1,955
    )
    
    
    (3,441
    )Net income
    
    $
    2,338
    
    
    $
    4,825Basic net income per share
    
    $
    0.06
    
    
    $
    0.12Diluted net income per share
    
    $
    0.05
    
    
    $
    0.12Weighted average shares outstanding
    
    
    41,636,035
    
    
    
    38,625,215Weighted average shares outstanding assuming dilution
    
    
    42,882,662
    
    
    
    40,231,194
 
 (1) Stock-based compensation expense recorded for the three months ended March 31, 2008 and 2007 was
classified as follows: Three Months Ended March 31,2008
    
    
    2007(In thousands)Cost of revenue
    
    $
    614
    
    
    $
    414Product development
    
    
    177
    
    
    
    136Selling, general and administrative
    
    
    2,670
    
    
    
    1,579
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DEALERTRACK HOLDINGS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 Three Months EndedMarch 31,2008
    
    
    2007(In thousands)Cash flows from operating activitiesNet income
    
    $
    2,338
    
    
    $
    4,825Adjustments to reconcile net income to net cash provided by operating
activitiesDepreciation and amortization
    
    
    10,522
    
    
    
    7,846Deferred tax benefit
    
    
    (526
    )
    
    
    (2,075
    )Amortization of deferred stock-based compensation
    
    
    3,461
    
    
    
    2,129Provision for doubtful accounts and sales credits
    
    
    1,539
    
    
    
    1,008Loss on sale of property and equipment
    
    
    
    
    
    
    15Amortization of deferred interest
    
    
    50
    
    
    
    42Deferred compensation
    
    
    62
    
    
    
    70Amortization of bank financing costs
    
    
    30
    
    
    
    30Stock-based compensation windfall tax benefit
    
    
    (96
    )
    
    
    (1,141
    )Changes in
operating assets and liabilities, net of effects of
acquisitionsTrade accounts receivable
    
    
    (1,803
    )
    
    
    (3,146
    )Prepaid expenses and other current assets
    
    
    (56
    )
    
    
    612Accounts payable and accrued expenses
    
    
    (7,818
    )
    
    
    (5,760
    )Deferred revenue and other current liabilities
    
    
    873
    
    
    
    921Other long-term liabilities
    
    
    175
    
    
    
    21Deferred rent
    
    
    234
    
    
    
    77Other long-term assets
    
    
    (2
    )
    
    
    (16
    )Net cash provided by operating activities
    
    
    8,983
    
    
    
    5,458Cash flows from investing activitiesCapital expenditures
    
    
    (1,044
    )
    
    
    (811
    )Purchase of short-term investments
    
    
    (44,000
    )
    
    
    (58,050
    )Sale of short-term investments
    
    
    195,080
    
    
    
    75,805Capitalized software and web site development costs
    
    
    (1,537
    )
    
    
    (957
    )Proceeds from sale of property and equipment
    
    
    2
    
    
    
    Payment for net assets acquired, net of acquired cash
    
    
    (1,599
    )
    
    
    (37,832
    )Net cash provided by (used in) investing activities
    
    
    146,902
    
    
    
    (21,845
    )Cash flows from financing activitiesPrincipal payments on capital lease obligations
    
    
    (458
    )
    
    
    (105
    )Proceeds from the exercise of employee stock options
    
    
    444
    
    
    
    833Proceeds from employee stock purchase plan
    
    
    681
    
    
    
    430Purchase of treasury stock
    
    
    (53
    )
    
    
    (41
    )Stock-based compensation windfall tax benefit
    
    
    96
    
    
    
    1,141Other
    
    
    
    
    
    
    (1
    )Net cash provided by financing activities
    
    
    710
    
    
    
    2,257Net increase (decrease) in cash and cash equivalents
    
    
    156,595
    
    
    
    (14,130
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (412
    )
    
    
    85Cash,
beginning of period
    
    
    50,564
    
    
    
    47,080Cash, end of
period
    
    $
    206,747
    
    
    $
    33,035Supplemental disclosureCash paid for:Income taxes
    
    $
    385
    
    
    $
    3,356Interest
    
    
    42
    
    
    
    21Non-cash investing and financing activities:Accrued capitalized hardware, software and fixed assets
    
    $
    333
    
    
    $
    1,679Deferred compensation reversal to equity
    
    
    63
    
    
    
    136
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DEALERTRACK HOLDINGS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 1. Business Description
  2. Basis of Presentation
  3. Recent Accounting Pronouncements
 The
Fair Value Option for Financial Assets and Financial Liabilities
 Fair
Value Measurements
 Effective Date of FASB Statement 157
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##### Table of Contents



4. 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.
   Significant Other
    
    
    SignificantQuoted Prices in
    
    
    Observable
    
    
    Unobservable
    
    
    Total CarryingActive Markets
    
    
    Inputs
    
    
    Inputs
    
    
    Value at(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    March 31, 2008Cash equivalents (1)
    
    $
    19,046
    
    
    $
    
    
    
    $
    
    
    
$
    19,046Non-current investments (2)
    
    
    
    
    
    
    
    
    
    
    18,214
    
    
    
    18,214Total
    
    $
    19,046
    
    
    $
    
    
    
    $
    18,214
    
    
    $
    37,260
 
 (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)
    
    Non-current investments consist of auction rate securities (ARS) that are invested in
tax-exempt and tax-advantaged preferred stock trust securities. We classify investment
securities as available for sale, and as a result, report the investments at fair value.
Auction rate securities have long-term underlying maturities, but have interest rates that
are reset every one year or less. Our intent is not to hold these securities to maturity,
but rather to use the interest rate reset feature to provide liquidity as necessary. Our
investment in these securities generally provide higher interest rates than money market
and other cash equivalent investments. Due to the recent lack of observable market quotes on our
ARS portfolio due to failed auctions within the industry, we utilize 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. The valuation of our ARS investment portfolio is subject
to uncertainties that are difficult to predict. If the issuers of these securities are
unable to successfully complete future auctions or refinance their obligations and their
credit ratings deteriorate, we may be required to adjust the carrying value of these
securities and recognize an impairment charge for an other-than temporary decline in the
fair value. We believe that we will be able to liquidate our investment without material
loss and that these securities are not permanently impaired, however, due to the
uncertainty of whether we will be able to sell these securities within the next year we
have reclassified them to long-term at March 31, 2008. Based on our available cash and
other investments, we do not currently anticipate that the lack of liquidity caused by
failed auctions will have a material adverse effect on our operating cash flows or will
affect our ability to operate our business as usual.  Balance as of January 1, 2008
    
    $
    169,580Net sales of auction rate securities
    
    
    (151,080
    )Unrealized losses included in accumulated other comprehensive income
    
    
    (286
    )Balance as of March 31, 2008
    
    $
    18,214
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5. Net Income per Share
 Earnings per Share .
  Three Months Ended March 31,2008
    
    
    2007Numerator:Net income
    
    $
    2,338
    
    
    $
    4,825Denominator:Weighted average common stock outstanding (basic)
    
    
    41,636,035
    
    
    
    38,625,215Common equivalent shares from options to purchase
common stock, restricted common stock and
contingent restricted common stock (1)
    
    
    1,246,627
    
    
    
    1,605,979Weighted average common stock outstanding (diluted)
    
    
    42,882,662
    
    
    
    40,231,194Basic net income per share
    
    $
    0.06
    
    
    $
    0.12Diluted net income per share
    
    $
    0.05
    
    
    $
    0.12
 
 (1)
    
    In accordance with SFAS No. 128, for the three months ended March 31,
2008 and 2007, we have excluded 393,333 and 386,667 contingently
issuable shares, respectively, from diluted weighted average common
stock outstanding as their contingent considerations (a) have not been
satisfied at the reporting date nor (b) would have been satisfied if
the reporting date was the end of the contingency period. (Refer to
Note 15 for further information).  Three Months Ended March 31,2008
    
    
    2007Stock options
    
    
    1,858,968
    
    
    
    380,131Restricted common stock
    
    
    73,084
    
    
    
    77,310Total
    
    
    1,932,052
    
    
    
    457,4416. Comprehensive IncomeThe components of comprehensive income were as
follows (in thousands):Three Months Ended March 31,2008
    
    
    2007Net income
    
    $
    2,338
    
    
    $
    4,825Foreign currency translation adjustments
    
    
    (2,039
    )
    
    
    731Unrealized loss on available-for-sale securities
    
    
    (286
    )
    
    
    Total
    
    $
    13
    
    
    $
    5,556
  8




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7. Stock-Based Compensation Expense
   Three Months Ended March 31,2008
    
    
    2007Stock options
    
    $
    1,930
    
    
    $
    1,225Restricted common stock
    
    
    1,411
    
    
    
    828ESPP
    
    
    120
    
    
    
    76Total stock-based compensation expense
    
    $
    3,461
    
    
    $
    2,129
   8. Stock Repurchase Program
  9. Related Party Transactions
  10. Property and Equipment
  EstimatedUsefulLife
    
    
    March 31,
    
    
    December 31,(Years)
    
    
    2008
    
    
    2007Computer equipment
    
    
    3
    
    
    $
    16,987
    
    
    $
    16,719Office equipment
    
    
    5
    
    
    
    2,418
    
    
    
    2,189Furniture and fixtures
    
    
    5
    
    
    
    3,007
    
    
    
    2,840Leasehold improvements
    
    
    5-11
    
    
    
    1,085
    
    
    
    992Total property and equipment, gross
    
    
    
    
    
    
    23,497
    
    
    
    22,740Less: Accumulated depreciation and amortization
    
    
    
    
    
    
    ( 10,982
    )
    
    
    ( 9,948
    )Total property and equipment, net
    
    
    
    
    
    $
    12,515
    
    
    $
    12,792
  9




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11. Intangible Assets
  March 31, 2008
    
    
    December 31, 2007Gross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    AmortizationBook
    
    
    Accumulated
    
    
    Book
    
    
    Accumulated
    
    
    PeriodValue
    
    
    Amortization
    
    
    Value
    
    
    Amortization
    
    
    (Years)Customer contracts
        $
    39,926
    
        $
    (15,417
    )
        $
    41,569
    
        $
    (14,789
    )
    
    
    2-4Database
    
    
    16,433
    
    
    
    (10,320
    )
    
    
    16,433
    
    
    
    (9,577
    )
    
    
    3-6Trade names
    
    
    10,500
    
    
    
    (4,712
    )
    
    
    10,500
    
    
    
    (4,460
    )
    
    
    5-10Patents/technology
    
    
    32,355
    
    
    
    (16,012
    )
    
    
    35,212
    
    
    
    (16,618
    )
    
    
    2-5Non-compete agreement
    
    
    12,527
    
    
    
    (6,124
    )
    
    
    14,062
    
    
    
    (6,214
    )
    
    
    1-5Contractual agreements
    
    
    4,400
    
    
    
    (1,235
    )
    
    
    4,400
    
    
    
    (1,029
    )
    
    
    5Other
    
    
    
    
    
    
    
    
    
    
    900
    
    
    
    (861
    )
    
    
    5Total
        $
    116,141
    
        $
    (53,820
    )
        $
    123,076
    
        $
    (53,548
    )
    12. Goodwill
  Balance as of January 1, 2008
        $
    117,702Impact of change in Canadian dollar exchange rate
    
    
    (929
    )Other
    
    
    (40
    )Balance as of March 31, 2008
        $
    116,733
 13. Other Accrued Liabilities
  March 31,
    
    
    December 31,2008
    
    
    2007Taxes
    
    $
    3,448
    
    
    $
    3,379Customer deposits
    
    
    2,791
    
    
    
    2,773Professional fees
    
    
    2,406
    
    
    
    1,462Other
    
    
    1,541
    
    
    
    920Revenue share
    
    
    907
    
    
    
    1,196Software licenses
    
    
    739
    
    
    
    1,212Public company costs
    
    
    184
    
    
    
    174Severance
    
    
    176
    
    
    
    271Total other accrued liabilities
    
    $
    12,192
    
        $
    11,387
 10




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14. Income Taxes
 Accounting for Uncertainty in
Income Taxes  an Interpretation of FASB Statement No. 109 of FIN 48
   15. Long-Term Incentive Equity Awards
    Three Months Ended March 31,2008
    
    
    2007EBITDA Performance Award
        $
    166,718
    
        $
    148,093Market Value Award
    
    
    187,099
    
    
    
    172,509Total Long-Term Incentive Equity Awards expense
        $
    353,817
    
        $
    320,602
  16. Commitments and Contingencies
 Retail Sales Tax
   11




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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
  12




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##### Table of Contents



17. Segment Information
 Disclosures about Segments of an Enterprise and Related
Information
  Three Months Ended March 31,2008
    
    
    2007Transaction services revenue
    
    $
    38,167
    
    
    $
    34,290Subscription services revenue
    
    
    22,386
    
    
    
    15,769Other
    
    
    3,755
    
    
    
    1,666Total net revenue
    
    $
    64,308
    
    
    $
    51,725
 18. Credit Facility
  13




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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 section entitled Risk Factors in Part I, Item 1A.
in our Annual Report on Form 10-K for the year ended December 31, 2007 filed with the SEC on
February 28, 2008. 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 31,2008
    
    
    2007(In thousands, exceptfor non-financial data)EBITDA and Other Business Statistics:EBITDA (1)
        $
    13,344
    
        $
    14,643Capital expenditures, software and website development costs
        $
    2,914
    
        $
    3,447Active dealers in our network as of end of the quarter (2)
    
    
    22,457
    
    
    
    22,642Active financing sources in our network as of end of the quarter (3)
    
    
    503
    
    
    
    344Transactions processed (4)
    
    
    23,889
    
    
    
    22,725Product subscriptions (5)
    
    
    30,098
    
    
    
    23,267
 
 (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. In addition, our credit
agreement uses EBITDA (with additional adjustments), in part, to
measure our compliance with covenants such as interest coverage. 14




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##### Table of Contents



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 (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.The following table sets forth the reconciliation of EBITDA, a non-GAAP financial measure, to net income, our most directly comparable financial measure in accordance with GAAP (in thousands).
 Three Months Ended March 31,2008
    
    
    2007GAAP net income
    
    $
    2,338
    
    
    $
    4,825Interest income
    
    
    (1,563
    )
    
    
    (1,531
    )Interest expense
    
    
    92
    
    
    
    62Provision for income taxes
    
    
    1,955
    
    
    
    3,441Depreciation of property and equipment and amortization of
capitalized software and web site costs
    
    
    2,896
    
    
    
    2,276Amortization of acquired identifiable intangibles
    
    
    7,626
    
    
    
    5,570EBITDA (Non-GAAP)
    
    $
    13,344
    
    
    $
    14,643
 (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.(4)
    
    Represents revenue-generating transactions processed in the DealerTrack, DealerTrack Digital Services and DealerTrack Canada networks at the end of a given period.(5)
    
    Represents revenue-generating subscriptions in the DealerTrack or DealerTrack Canada networks at the end of a given period.
 Revenue
 Transaction Services Revenue.
 15




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##### Table of Contents



Subscription Services Revenue.
 Cost of Revenue and Operating Expenses
 Cost of Revenue.
 Product Development Expenses.
 Selling, General and Administrative Expenses.
  Critical Accounting Policies and Estimates
   Results of Operations
  Three Months Ended March 31,2008
    
    
    2007(% of net revenue)Consolidated Statements of Operations Data:Net revenue
    
    
    100.0
    %
    
    
    100.0
    %Operating costs and expenses:Cost of revenue
    
    
    44.5
    %
    
    
    41.2
    %Product development
    
    
    4.9
    %
    
    
    4.6
    %Selling, general and administrative
    
    
    46.2
    %
    
    
    41.1
    %Total operating costs and expenses
    
    
    95.6
    %
    
    
    86.9
    %Income from operations
    
    
    4.4
    %
    
    
    13.1
    %Interest income
    
    
    2.4
    %
    
    
    3.0
    %Interest expense
    
    
    (0.1
    )%
    
    
    (0.1
    )%Income before provision for income taxes
    
    
    6.7
    %
    
    
    16.0
    %Provision for income taxes
    
    
    (3.1
    )%
    
    
    (6.7
    )%Net income
    
    
    3.6
    %
    
    
    9.3
    %
 16




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##### Table of Contents



Three Months Ended March 31, 2008 and 2007
 Revenue
  Transaction Services Revenue.
 Subscription Services Revenue.
 Cost of Revenue and Operating Expenses
 Cost of Revenue.
 Product Development Expenses.
 Selling, General and Administrative Expenses.
 Provision for Income Taxes
  Liquidity and Capital Resources
  17




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##### Table of Contents



Three Months Ended March 31,2008
    
    
    2007Net cash provided by operating activities
    
    $
    8,983
    
    
    $
    5,458Net cash provided by (used in) investing activities
    
    
    146,902
    
    
    
    (21,845
    )Net cash provided by financing activities
    
    
    710
    
    
    
    2,257
 Operating Activities
  Investing Activities
  Financing Activities
  Contractual Obligations
  Off-Balance Sheet Arrangements
  Industry Trends
  18




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##### 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
  19




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##### 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
        
 Item 1A. Risk Factors
  20




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##### Table of Contents



Funds associated with certain of our auction rate securities may not be accessible for in excess of
12 months and our auction rate securities may experience an other than temporary decline in value,
which would adversely affect our income.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Purchases of Equity Securities by the Issuer
   Total
    
    MaximumNumber of
    
    NumberShares
    
    of SharesPurchased
    
    Thatas Part of
    
    May Yet beTotal Number
    
    Average Price
    
    Publicly
    
    Purchasedof Shares
    
    Paid per
    
    Announced
    
    Under thePeriod
    
    Purchased
    
    Share
    
    Program
    
    ProgramJanuary 2008
    
    
    1,133
    
    
    $
    32.15
    
    
    
    n/a
    
    
    
    n/aFebruary 2008
    
    
    705
    
    
    $
    23.39
    
    
    
    n/a
    
    
    
    n/aMarch 2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    (1)Total
    
    
    1,838
 (1)
    
    Up to $75 million of our common stock may be purchased under
this program. 21




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##### Table of Contents



Item 6. Exhibits
 ExhibitNumber
    
    Description of Document10.1 (1)
    
    Amendment No. 3, dated March 19, 2008, to the Credit
Agreement, dated as of April 15, 2005, among the Registrant,
the Lenders party therto and JPMorgan Chase Bank, N.A., as
Administrative Agent and LC Issuing Bank.31.1
    
    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 Robert J. Cox III, Senior Vice President,
Chief Financial Officer and Treasurer, 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 Robert J. Cox III, Senior Vice
President, Chief Financial Officer and Treasurer, pursuant
to 18 U.S.C Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
 
 (1)
    
    Incorporated by reference to our Current Report on Form 8-K dated March 19, 2008, which was filed on March 20, 2008. 
 SIGNATURE
  DealerTrack Holdings, Inc.(Registrant)Dated: May 8, 2008
    
    /s/ Robert J. Cox IIIRobert J. Cox IIISenior Vice President, Chief Financial Officer and Treasurer(Principal Financial and Accounting Officer)
 
 EXHIBIT INDEX
 ExhibitNumber
    
    Description of Document10.1 (1)
    
    Amendment No. 3, dated March 19, 2008, to the Credit
Agreement, dated as of April 15, 2005, among the Registrant,
the Lenders party therto and JPMorgan Chase Bank, N.A., as
Administrative Agent and LC Issuing Bank.31.1
    
    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 Robert J. Cox III, Senior Vice President,
Chief Financial Officer and Treasurer, 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 Robert J. Cox III, Senior Vice
President, Chief Financial Officer and Treasurer, pursuant
to 18 U.S.C Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
 
 (1)
    
    Incorporated by reference to our Current Report on Form 8-K dated March 19, 2008, which was filed on March 20, 2008. 22