##### 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 September 30, 2007
 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 þ o
 o þ




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##### 



DEALERTRACK HOLDINGS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007
 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
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    22PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    23Item 1A. Risk Factors
    
    
    23Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    24Item 5. Other Information
    
    
    24Item 6. Exhibits
    
    
    24Signature
    
    
    24EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONSEX-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)
 September 30,
    
    
    December 31,2007
    
    
    2006(In thousands, except shareand per share amounts)ASSETSCurrent assetsCash and cash equivalents
    
    $
    44,896
    
    
    $
    47,080Short-term investments
    
    
    52,725
    
    
    
    124,115Accounts receivable, net of allowances of $5,274 and
$4,407 at September 30, 2007 and December 31, 2006,
respectively
    
    
    32,907
    
    
    
    19,958Prepaid expenses and other current assets
    
    
    6,001
    
    
    
    4,694Deferred tax assets
    
    
    3,508
    
    
    
    2,483Total current assets
    
    
    140,037
    
    
    
    198,330Property and equipment, net
    
    
    10,366
    
    
    
    6,157Software and web site developments costs, net
    
    
    10,216
    
    
    
    10,048Intangible assets, net
    
    
    77,422
    
    
    
    37,918Goodwill
    
    
    115,705
    
    
    
    52,499Restricted cash
    
    
    540
    
    
    
    540Deferred taxes and other long-term assets
    
    
    20,511
    
    
    
    16,021Total assets
    
    $
    374,797
    
    
    $
    321,513LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    3,504
    
    
    $
    1,818Accrued compensation and benefits
    
    
    11,472
    
    
    
    10,111Accrued other
    
    
    12,405
    
    
    
    11,978Deferred revenue
    
    
    3,780
    
    
    
    3,166Due to acquirees and other current liabilities
    
    
    2,123
    
    
    
    2,440Total current liabilities
    
    
    33,284
    
    
    
    29,513Due to acquirees  long-term
    
    
    1,246
    
    
    
    2,982Deferred taxes and other long-term liabilities
    
    
    13,357
    
    
    
    4,681Total liabilities
    
    
    47,887
    
    
    
    37,176Commitments and contingencies (Note 14)Stockholders equityPreferred stock, $0.01 par value; 10,000,000 shares
authorized and no shares issued and outstanding at
September 30, 2007 and December 31, 2006
    
    
    
    
    
    
    Common stock, $0.01 par value; 175,000,000 shares
authorized; 40,182,582 issued and 40,179,335 shares outstanding at September 30, 2007; and
39,358,769 issued and 39,357,550 shares outstanding
at December 31, 2006
    
    
    402
    
    
    
    393Treasury stock, at cost, 3,247 and 1,219 shares at
September 30, 2007 and December 31, 2006, respectively
    
    
    (93
    )
    
    
    (31
    )Additional paid-in capital
    
    
    307,020
    
    
    
    289,490Deferred stock-based compensation (APB 25)
    
    
    (2,600
    )
    
    
    (4,322
    )Accumulated other comprehensive income (foreign currency)
    
    
    7,790
    
    
    
    37Retained earnings (accumulated deficit)
    
    
    14,391
    
    
    
    (1,230
    )Total stockholders equity
    
    
    326,910
    
    
    
    284,337Total liabilities and stockholders equity
    
    $
    374,797
    
    
    $
    321,513
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##### Table of Contents



DEALERTRACK HOLDINGS, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands, except share and
    
    
    (In thousands, except share andper share amounts)
    
    
    per share amounts)RevenueNet revenue(1)
    
    $
    62,871
    
    
    $
    46,264
    
    
    $
    173,103
    
    
    $
    127,613Operating costs and expensesCost of revenue(2)
    
    
    27,678
    
    
    
    19,128
    
    
    
    73,136
    
    
    
    51,536Product development(2)
    
    
    2,761
    
    
    
    2,218
    
    
    
    7,422
    
    
    
    6,781Selling, general and administrative(2)
    
    
    25,598
    
    
    
    22,515
    
    
    
    69,159
    
    
    
    54,957Total operating costs and expenses
    
    
    56,037
    
    
    
    43,861
    
    
    
    149,717
    
    
    
    113,274Income from operations
    
    
    6,834
    
    
    
    2,403
    
    
    
    23,386
    
    
    
    14,339Interest income
    
    
    991
    
    
    
    934
    
    
    
    3,742
    
    
    
    2,681Interest expense
    
    
    (96
    )
    
    
    (65
    )
    
    
    (231
    )
    
    
    (206
    )Income before (provision) benefit
for income taxes
    
    
    7,729
    
    
    
    3,272
    
    
    
    26,897
    
    
    
    16,814(Provision) benefit for income taxes, net
    
    
    (3,217
    )
    
    
    2,294
    
    
    
    (11,276
    )
    
    
    (3,157
    )Net income
    
    $
    4,512
    
    
    $
    5,566
    
    
    $
    15,621
    
    
    $
    13,657Basic net income per share
    
    $
    0.12
    
    
    $
    0.16
    
    
    $
    0.40
    
    
    $
    0.39Diluted net income per share
    
    $
    0.11
    
    
    $
    0.15
    
    
    $
    0.38
    
    
    $
    0.37Weighted average shares outstanding
    
    
    39,058,863
    
    
    
    35,547,699
    
    
    
    38,810,710
    
    
    
    35,408,425Weighted average shares outstanding
assuming dilution
    
    
    40,840,688
    
    
    
    36,989,642
    
    
    
    40,579,093
    
    
    
    36,878,982
 
 (1)
    
    Related party revenue for the three and nine months ended September 30, 2007 and 2006 was as follows (in thousands): Three
Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Related party revenue
    
    $
    643
    
    
    $
    12,500
    
    
    $
    1,885
    
    
    $
    32,819
 
 (2)
    
    Stock-based compensation expense recorded for the three and nine months ended September 30, 2007 and 2006
was classified as follows (in thousands): Three
Months Ended September 30,
    
    

Nine
Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Cost of revenue
    
    $
    548
    
    
    $
    287
    
    
    $
    1,438
    
    
    $
    811Product development
    
    
    161
    
    
    
    96
    
    
    
    450
    
    
    
    264Selling, general and administrative
    
    
    2,704
    
    
    
    6,144
    
    
    
    6,100
    
    
    
    8,073
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DEALERTRACK HOLDINGS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 Nine Months EndedSeptember 30,2007
    
    
    2006(In thousands)Cash flows from operating activitiesNet income
    
    $
    15,621
    
    
    $
    13,657Adjustments to reconcile net income to net cash provided by operating activitiesDepreciation and amortization
    
    
    27,645
    
    
    
    19,157Deferred tax benefit
    
    
    (5,025
    )
    
    
    (7,282
    )Amortization of stock-based compensation
    
    
    7,988
    
    
    
    9,148Provision for doubtful accounts and sales credits
    
    
    3,939
    
    
    
    3,566Loss (gain) on sale of property and equipment
    
    
    16
    
    
    
    (47
    )Amortization of deferred interest
    
    
    137
    
    
    
    133Deferred compensation
    
    
    219
    
    
    
    154Amortization of bank financing costs
    
    
    91
    
    
    
    94Stock-based compensation windfall tax benefit
    
    
    (6,190
    )
    
    
    (1,485
    )Changes in operating assets and liabilities, net of effects of acquisitionsTrade accounts receivable
    
    
    (13,946
    )
    
    
    (4,880
    )Accounts receivable  related party
    
    
    25
    
    
    
    (494
    )Prepaid expenses and other current assets
    
    
    (233
    )
    
    
    (3,197
    )Accounts payable and accrued expenses
    
    
    2,872
    
    
    
    908Accounts payable  related party
    
    
    
    
    
    
    (1,903
    )Deferred revenue and other current liabilities
    
    
    337
    
    
    
    140Other long-term liabilities
    
    
    (123
    )
    
    
    35Deferred rent
    
    
    71
    
    
    
    103Other assets
    
    
    (301
    )
    
    
    (21
    )Net cash provided by operating activities
    
    
    33,143
    
    
    
    27,786Cash flows from investing activitiesCapital expenditures
    
    
    (4,339
    )
    
    
    (2,578
    )Funds released from escrow and other restricted cash
    
    
    
    
    
    
    47Purchase of short-term investments
    
    
    (257,275
    )
    
    
    (85,450
    )Sale of short-term investments
    
    
    328,665
    
    
    
    24,700Capitalized software and web site development costs
    
    
    (4,402
    )
    
    
    (2,841
    )Proceeds from sale of property and equipment
    
    
    8
    
    
    
    50Payment for net assets acquired, net of acquired cash
    
    
    (109,423
    )
    
    
    (37,529
    )Net cash used in investing activities
    
    
    (46,766
    )
    
    
    (103,601
    )Cash flows from financing activitiesPrincipal payments on capital lease obligations
    
    
    (113
    )
    
    
    (336
    )Proceeds from the exercise of employee stock options
    
    
    3,494
    
    
    
    1,226Proceeds from employee stock purchase plan
    
    
    1,305
    
    
    
    596Purchase of treasury stock
    
    
    (62
    )
    
    
    Principal payments on notes payable
    
    
    (316
    )
    
    
    (316
    )Stock-based compensation windfall tax benefit
    
    
    6,190
    
    
    
    1,485Deferred financing costs
    
    
    
    
    
    
    (211
    )Net cash provided by financing activities
    
    
    10,498
    
    
    
    2,444Net decrease in cash and cash equivalents
    
    
    (3,125
    )
    
    
    (73,371
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    941
    
    
    
    71Cash beginning of period
    
    
    47,080
    
    
    
    103,264Cash end of period
    
    $
    44,896
    
    
    $
    29,964Supplemental disclosureCash paid for:Income taxes
    
    $
    14,018
    
    
    $
    10,867Interest
    
    
    94
    
    
    
    61Non-cash investing and financing activities:Acquisition of capitalized software through note payable
    
    
    
    
    
    
    2,608Accrued capitalized hardware, software and fixed assets
    
    
    479
    
    
    
    1,132Goodwill adjustment
    
    
    72
    
    
    
    366Deferred compensation reversal to equity
    
    
    285
    
    
    
    264Refer to Note 6 for acquired assets and liabilities in conjunction with our business combinations
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DEALERTRACK HOLDINGS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 1. Business Description
  2. Basis of Presentation
   3. Net Income per Share
 Earnings per Share.
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Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Numerator:Net income
    
    $
    4,512
    
    
    $
    5,566
    
    
    $
    15,621
    
    
    $
    13,657Denominator:Weighted average common
stock outstanding (basic)
    
    
    39,058,863
    
    
    
    35,547,699
    
    
    
    38,810,710
    
    
    
    35,408,425Common equivalent shares
from options to purchase
common stock and restricted
common stock (1)
    
    
    1,781,825
    
    
    
    1,441,943
    
    
    
    1,768,383
    
    
    
    1,470,557Weighted average common
stock outstanding (diluted)
    
    
    40,840,688
    
    
    
    36,989,642
    
    
    
    40,579,093
    
    
    
    36,878,982Basic net income per share
    
    $
    0.12
    
    
    $
    0.16
    
    
    $
    0.40
    
    
    $
    0.39Diluted net income per share
    
    $
    0.11
    
    
    $
    0.15
    
    
    $
    0.38
    
    
    $
    0.37
 
 (1)
    
    In accordance with SFAS No. 128, for the three and nine months ended
September 30, 2007 and for the three and nine months ended September
30, 2006, we have excluded 295,000 and 565,000 contingently issuable
shares, respectively, from diluted weighted average common stock
outstanding as their contingent conditions (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 13
for further information).  Three
Months Ended September 30,
    
    

Nine
Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Stock options
    
    
    627,346
    
    
    
    794,439
    
    
    
    489,804
    
    
    
    728,370Restricted common stock
    
    
    63,707
    
    
    
    1,630
    
    
    
    22,788
    
    
    
    14,060Total
    
    
    691,053
    
    
    
    796,069
    
    
    
    512,592
    
    
    
    742,430
 4. Comprehensive Income
  Three
Months Ended September 30,
    
    

Nine
Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    4,512
    
    
    $
    5,566
    
    
    $
    15,621
    
    
    $
    13,657Foreign currency translation adjustments
    
    
    2,840
    
    
    
    (12
    )
    
    
    7,753
    
    
    
    88Total
    
    $
    7,352
    
    
    $
    5,554
    
    
    $
    23,374
    
    
    $
    13,745
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##### Table of Contents



5. Stock-Based Compensation Expense
   Three
Months Ended September 30,
    
    

Nine
Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Stock options
    
    $
    2,068
    
    
    $
    5,799
    
    
    $
    4,766
    
    
    $
    7,729Restricted common stock
    
    
    1,260
    
    
    
    687
    
    
    
    2,992
    
    
    
    1,314ESPP
    
    
    85
    
    
    
    41
    
    
    
    230
    
    
    
    105Total
    
    $
    3,413
    
    
    $
    6,527
    
    
    $
    7,988
    
    
    $
    9,148
    6. Business Combinations
 Curomax Acquisition
     Current assets
    
    $
    2,454Property and equipment
    
    
    339Intangible assets
    
    
    21,670Goodwill
    
    
    19,926Total assets acquired
    
    
    44,389Total liabilities assumed
    
    
    (5,424
    )Net assets acquired
    
    $
    38,965
    8




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##### Table of Contents



Arkona Acquisition
   Current assets
    
    $
    2,740Property and equipment
    
    
    2,065Other assets
    
    
    191Intangible assets
    
    
    25,760Goodwill
    
    
    38,943Total assets acquired
    
    
    69,699Total liabilities assumed
    
    
    (9,726
    )Net assets acquired
    
    $
    59,973
    AutoStyleMart Acquisition
   Current assets
    
    $
    69Property and equipment
    
    
    32Intangible assets
    
    
    4,126Goodwill
    
    
    774Total assets acquired
    
    
    5,001Total liabilities assumed
    
    
    (897
    )Net assets acquired
    
    $
    4,104
    9




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##### Table of Contents



Unaudited Pro Forma Summary of Operations
  Three Months Ended September 30,2007
    
    2006(Unaudited)(In thousands, except per share data)Net revenue
    
    $
    62,923
    
    
    $
    52,720Net income
    
    $
    4,151
    
    
    $
    1,768Basic net income per share
    
    $
    0.11
    
    
    $
    0.05Diluted net income per share
    
    $
    0.10
    
    
    $
    0.05
 Nine Months Ended September 30,2007
    
    2006(Unaudited)(In thousands, except per share data)Net revenue
    
    $
    181,514
    
    
    $
    149,556Net income
    
    $
    10,588
    
    
    $
    2,417Basic net income per share
    
    $
    0.27
    
    
    $
    0.07Diluted net income per share
    
    $
    0.26
    
    
    $
    0.07
 7. Related Party Transactions
 Service Agreement with Related Parties  Financing Sources
    Service Agreements with Related Parties  Other Service and Information Providers
  10




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8. Property and Equipment
  EstimatedUseful Life
    
    
    September 30,
    
    
    December 31,(Years)
    
    
    2007
    
    
    2006Computer equipment
    
    
    3
    
    
    $
    14,649
    
    
    $
    9,671Office equipment
    
    
    5
    
    
    
    1,340
    
    
    
    1,245Furniture and fixtures
    
    
    5
    
    
    
    2,208
    
    
    
    1,627Leasehold improvements
    
    
    5-7
    
    
    
    837
    
    
    
    63619,034
    
    
    
    13,179Less: Accumulated depreciation and amortization
    
    
    
    
    
    
    (8,668
    )
    
    
    (7,022
    )Total property and equipment, net
    
    
    
    
    
    $
    10,366
    
    
    $
    6,157
 9. Intangible Assets
  September 30, 2007
    
    
    December 31, 2006Gross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    AmortizationBook
    
    
    Accumulated
    
    
    Book
    
    
    Accumulated
    
    
    PeriodValue
    
    
    Amortization
    
    
    Value
    
    
    Amortization
    
    
    (Years)Customer contracts
    
    $
    41,516
    
    
    $
    (11,922
    )
    
    $
    19,308
    
    
    $
    (10,904
    )
    
    
    1-4Database
    
    
    16,433
    
    
    
    (8,834
    )
    
    
    15,900
    
    
    
    (6,666
    )
    
    
    3-6Trade names
    
    
    10,500
    
    
    
    (4,207
    )
    
    
    10,500
    
    
    
    (3,428
    )
    
    
    5-10Patents/technology
    
    
    35,204
    
    
    
    (14,163
    )
    
    
    16,031
    
    
    
    (8,806
    )
    
    
    1-5Non-compete agreement
    
    
    14,026
    
    
    
    (4,791
    )
    
    
    3,308
    
    
    
    (1,738
    )
    
    
    2-5Partner agreements
    
    
    4,400
    
    
    
    (824
    )
    
    
    4,400
    
    
    
    (206
    )
    
    
    5Other
    
    
    900
    
    
    
    (816
    )
    
    
    900
    
    
    
    (681
    )
    
    
    5Total
    
    $
    122,979
    
    
    $
    (45,557
    )
    
    $
    70,347
    
    
    $
    (32,429
    )
     10. Goodwill
  Balance as of January 1, 2007
    
    $
    52,499Acquisition of Curomax
    
    
    19,926Impact of change in Canadian dollar exchange rate
    
    
    3,536Acquisition of Arkona (preliminary allocation)
    
    
    38,943Acquisition of AutoStyleMart
    
    
    774Other
    
    
    27Balance as of September 30, 2007
    
    $
    115,705
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##### Table of Contents



11. Other Accrued Liabilities
  September 30,
    
    
    December 31,2007
    
    
    2006Professional fees
    
    $
    1,220
    
    
    $
    1,167Software licenses
    
    
    1,188
    
    
    
    1,184Customer deposits
    
    
    2,666
    
    
    
    2,685Revenue share
    
    
    1,732
    
    
    
    1,926Other
    
    
    5,599
    
    
    
    5,016Total other accrued liabilities
    
    $
    12,405
    
    
    $
    11,978
 12. Income Taxes
 Accounting for Uncertainty in
Income Taxes  an Interpretation of FASB Statement No. 109 of FIN 48
   13. Long-Term Incentive Equity Awards
   14. Commitments and Contingencies
 Executive Severance Commitment
  Retail Sales Tax
  12




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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
  13




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##### Table of Contents



15. Segment Information
 Disclosures about Segments of an Enterprise and Related
Information
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Transaction services revenue
    
    $
    39,096
    
    
    $
    30,837
    
    
    $
    111,982
    
    
    $
    83,675Subscription services revenue
    
    
    20,378
    
    
    
    13,878
    
    
    
    53,591
    
    
    
    38,500Other
    
    
    3,397
    
    
    
    1,549
    
    
    
    7,530
    
    
    
    5,438Total net revenue
    
    $
    62,871
    
    
    $
    46,264
    
    
    $
    173,103
    
    
    $
    127,613
 16. Credit Facility
  17. Subsequent Event
  14




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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 section entitled Risk Factors in Part I, Item 1A.
in our Annual Report on Form 10-K for the year ended December 31, 2006 filed with the SEC on
March 16, 2007 and amended on April 30, 2007. 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 September 30,
    
    Nine Months Ended September 30,2007
    
    2006
    
    2007
    
    2006EBITDA and Other Business Statistics:EBITDA (1)
    
    $
    17,534
    
    
    $
    9,322
    
    
    $
    51,030
    
    
    $
    33,496Capital expenditures, software and
web site development costs
    
    $
    3,520
    
    
    $
    1,837
    
    
    $
    9,220
    
    
    $
    9,159Active dealers in our network as of
end of the period (2)
    
    
    22,551
    
    
    
    22,276
    
    
    
    22,551
    
    
    
    22,276Active financing sources in our
network as of end of period (3)
    
    
    427
    
    
    
    268
    
    
    
    427
    
    
    
    268Transactions processed (4)
    
    
    23,810
    
    
    
    18,837
    
    
    
    70,033
    
    
    
    51,994Product subscriptions (5)
    
    
    27,469
    
    
    
    19,952
    
    
    
    27,469
    
    
    
    19,952
 15




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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. In addition, our credit
agreement uses EBITDA (with additional adjustments), in part, to
measure our compliance with covenants such as interest coverage.  
    
    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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    4,512
    
    
    $
    5,566
    
    
    $
    15,621
    
    
    $
    13,657Interest income
    
    
    (991
    )
    
    
    (934
    )
    
    
    (3,742
    )
    
    
    (2,681
    )Interest expense
    
    
    96
    
    
    
    65
    
    
    
    231
    
    
    
    206Provision for income taxes, net
    
    
    3,217
    
    
    
    (2,294
    )
    
    
    11,276
    
    
    
    3,157Depreciation of property and equipment and
amortization of capitalized software and website
costs
    
    
    2,686
    
    
    
    2,404
    
    
    
    7,391
    
    
    
    6,230Amortization of acquired identifiable intangibles
    
    
    8,014
    
    
    
    4,515
    
    
    
    20,253
    
    
    
    12,927EBITDA
    
    $
    17,534
    
    
    $
    9,322
    
    
    $
    51,030
    
    
    $
    33,496
 
 (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 Canadian networks at the end of a given period. 16




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##### Table of Contents



A new agreement executed during the fourth quarter of 2006 resulted in a different method of
measurement regarding transaction volumes and fees from a particular credit bureau provider. This
agreement contributed additional 2.9 million and 8.6 million revenue-generating transactions
processed through the network for the three and nine months ended September 30, 2007, respectively.(5)
    
    Represents revenue-generating subscriptions in the DealerTrack network at the end of a given period. Revenue
 Transaction Services Revenue.
 Subscription Services Revenue.
 Cost of Revenue and Operating Expenses
 Cost of Revenue.
  Product Development Expenses.
 Selling, General and Administrative Expenses.
 Acquisitions
      17




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##### Table of Contents



Critical Accounting Policies and Estimates
   Results of Operations
  Three Months Ended September 30,
    
    Nine Months Ended September 30,2007
    
    2006
    
    2007
    
    2006(% of net revenue)
    
    (% of net revenue)Consolidated Statements of Operations Data:Net revenue (1)
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Operating costs and expenses:Cost of revenue
    
    
    44.0
    
    
    
    41.3
    
    
    
    42.2
    
    
    
    40.4Product development
    
    
    4.4
    
    
    
    4.8
    
    
    
    4.3
    
    
    
    5.3Selling, general and administrative
    
    
    40.7
    
    
    
    48.7
    
    
    
    40.0
    
    
    
    43.1Total operating costs and expenses
    
    
    89.1
    
    
    
    94.8
    
    
    
    86.5
    
    
    
    88.8Income from operations
    
    
    10.9
    
    
    
    5.2
    
    
    
    13.5
    
    
    
    11.2Interest income
    
    
    1.6
    
    
    
    2.0
    
    
    
    2.1
    
    
    
    2.1Interest expense
    
    
    (0.2
    )
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.1
    )Income before (provision) benefit for income taxes
    
    
    12.3
    
    
    
    7.1
    
    
    
    15.5
    
    
    
    13.2(Provision) benefit for income taxes, net
    
    
    (5.1
    )
    
    
    4.9
    
    
    
    (6.5
    )
    
    
    (2.5
    )Net income
    
    
    7.2
    %
    
    
    12.0
    %
    
    
    9.0
    %
    
    
    10.7
    %(1) Related party revenue
    
    
    1.0
    %
    
    
    27.0
    %
    
    
    1.1
    %
    
    
    25.7
    %
 18




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##### Table of Contents



Three Months Ended September 30, 2007 and 2006
 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
  19




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##### Table of Contents



Nine Months Ended September 30, 2007 and 2006
 Revenue
  Transaction Services Revenue.
 Subscription Services Revenue.
 Cost of Revenue and Operating Expenses
 Cost of Revenue.
 Product Development Expenses.
 Selling, General and Administrative Expenses.
 Interest Income
  Provision for Income Taxes
  Liquidity and Capital Resources
  20




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##### Table of Contents



Nine Months EndedSeptember 30,2007
    
    
    2006Net cash provided by operating activities
    
    $
    33,143
    
    
    $
    27,786Net cash used in investing activities
    
    $
    (46,766
    )
    
    $
    (103,601
    )Net cash provided by financing activities
    
    $
    10,498
    
    
    $
    2,444
 Operating Activities
  Investing Activities
  Financing Activities
  Contractual Obligations
  Off-Balance Sheet Arrangements
  21




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##### Table of Contents



Industry Trends
  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
  22




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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
  23




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##### Table of Contents



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
    
    
    ProgramJuly 2007
    
    
    
    
    
    $
    
    
    
    
    n/a
    
    
    
    n/aAugust 2007
    
    
    212
    
    
    $
    35.86
    
    
    
    n/a
    
    
    
    n/aSeptember 2007
    
    
    
    
    
    $
    
    
    
    
    n/a
    
    
    
    n/aTotal
    
    
    212
 
 Item 5. Other Information
  
 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 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.
 
 SIGNATURE
  DealerTrack Holdings, Inc.
(Registrant)Date November 8, 2007
    /s/ Robert J. Cox IIIRobert J. Cox IIISenior Vice President, Chief Financial Officer and
Treasurer
(Principal Financial and Accounting Officer) 24




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##### Table of Contents



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 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.
 25