##### 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 June 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
(State or other jurisdiction of incorporation or 
organization)
    
    52-2336218
(I.R.S. Employer Identification Number)1111 Marcus Ave., Suite M04
Lake Success, NY
(Address of principal executive offices)
    
    11042
(Zip Code)
 (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 JUNE 30, 2007
 TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    
    1Consolidated Balance Sheets (unaudited)
    
    
    
    1Consolidated Statements of Operations (unaudited)
    
    
    
    2Consolidated Statements of Cash Flows (unaudited)
    
    
    
    3Notes to Consolidated Financial Statements (unaudited)
    
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    
    18Item 4. Controls and Procedures
    
    
    
    19PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    
    19Item 1A. Risk Factors
    
    
    
    20Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    
    20Item 4. Submission of Matters to a Vote of Security Holders
    
    
    
    20Item 5. Other Information
    
    
    
    21Item 6. Exhibits
    
    
    
    22SignatureEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONSEX-10.1: AMENDED AND RESTATED SENIOR EXECUTIVE EMPLOYMENT AGREEMENTEX-10.2: AMENDED AND RESTATED SENIOR EXECUTIVE EMPLOYMENT AGREEMENTEX-10.3: AMENDED AND RESTATED SENIOR EXECUTIVE EMPLOYMENT AGREEMENTEX-10.4: AMENDED AND RESTATED SENIOR EXECUTIVE EMPLOYMENT AGREEMENTEX-10.5: AMENDED AND RESTATED SENIOR EXECUTIVE EMPLOYMENT AGREEMENTEX-10.6: FIRST AMENDMENT TO DIRECTORS' DEFERRED COMPENSATION PLANEX-10.7: FIRST AMENDMENT TO EMPLOYEES' DEFERRED COMPENSATION PLANEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATION




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 DEALERTRACK HOLDINGS, INC.
 CONSOLIDATED BALANCE SHEETS
(unaudited)
 June 30,
    
    
    December 31,2007
    
    
    2006(In thousands, except shareand per share amounts)ASSETSCurrent assetsCash and
cash equivalents
    
    $
    33,599
    
    
    $
    47,080Short-term investments
    
    
    58,000
    
    
    
    124,115Accounts receivable  related party
    
    
    434
    
    
    
    398Accounts receivable, net of allowances of $4,417 and
$4,407 at June 30, 2007 and December 31, 2006,
respectively
    
    
    27,849
    
    
    
    19,560Prepaid expenses and other current assets
    
    
    4,614
    
    
    
    4,694Deferred tax assets
    
    
    3,846
    
    
    
    2,483Total current assets
    
    
    128,342
    
    
    
    198,330Property and equipment, net
    
    
    10,103
    
    
    
    6,157Software and web site developments costs, net
    
    
    9,549
    
    
    
    10,048Intangible assets, net
    
    
    77,324
    
    
    
    37,918Goodwill
    
    
    115,344
    
    
    
    52,499Restricted cash
    
    
    540
    
    
    
    540Deferred taxes and other long-term assets
    
    
    18,728
    
    
    
    16,021Total assets
    
    $
    359,930
    
    
    $
    321,513LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    2,919
    
    
    $
    1,818Accrued compensation and benefits
    
    
    8,389
    
    
    
    10,111Accrued other
    
    
    17,325
    
    
    
    11,978Deferred revenue
    
    
    4,213
    
    
    
    3,166Due to acquirees and other current liabilities
    
    
    2,623
    
    
    
    2,440Total current liabilities
    
    
    35,469
    
    
    
    29,513Due to acquirees  long-term
    
    
    2,336
    
    
    
    2,982Deferred taxes and other long-term liabilities
    
    
    12,997
    
    
    
    4,681Total liabilities
    
    
    50,802
    
    
    
    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 June
30, 2007 and December 31, 2006, respectively
    
    
    
    
    
    
    Common stock, $0.01 par value; 175,000,000 shares
authorized; 39,706,368 and 39,703,333 shares issued and
outstanding at June 30, 2007, respectively; and
39,358,769 and 39,357,550 shares issued and outstanding
at December 31, 2006, respectively
    
    
    397
    
    
    
    393Treasury stock, at cost, 3,035 and 1,219 shares at June
30, 2007 and December 31, 2006, respectively
    
    
    (85
    )
    
    
    (31
    )Additional paid-in capital
    
    
    297,157
    
    
    
    289,490Deferred stock-based compensation (APB 25)
    
    
    (3,170
    )
    
    
    (4,322
    )Accumulated other comprehensive income (foreign currency)
    
    
    4,950
    
    
    
    37Retained earnings (accumulated deficit)
    
    
    9,879
    
    
    
    (1,230
    )Total stockholders equity
    
    
    309,128
    
    
    
    284,337Total liabilities and stockholders equity
    
    $
    359,930
    
    
    $
    321,513
  1




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##### Table of Contents



DEALERTRACK HOLDINGS, INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands, except share and
    
    
    (In thousands, except share andper share amounts)
    
    
    per share amounts)RevenueNet revenue(1)
    
    $
    58,507
    
    
    $
    43,414
    
    
    $
    110,232
    
    
    $
    81,349Operating costs and expensesCost of revenue(2)
    
    
    24,158
    
    
    
    17,289
    
    
    
    45,458
    
    
    
    32,408Product development(2)
    
    
    2,281
    
    
    
    2,361
    
    
    
    4,661
    
    
    
    4,563Selling, general and administrative(2)
    
    
    22,313
    
    
    
    16,474
    
    
    
    43,561
    
    
    
    32,443Total operating costs and expenses
    
    
    48,752
    
    
    
    36,124
    
    
    
    93,680
    
    
    
    69,414Income from operations
    
    
    9,755
    
    
    
    7,290
    
    
    
    16,552
    
    
    
    11,935Interest income
    
    
    1,220
    
    
    
    785
    
    
    
    2,751
    
    
    
    1,748Interest expense
    
    
    (73
    )
    
    
    (69
    )
    
    
    (135
    )
    
    
    (141
    )Income before provision for income taxes
    
    
    10,902
    
    
    
    8,006
    
    
    
    19,168
    
    
    
    13,542Provision for income taxes, net
    
    
    (4,618
    )
    
    
    (3,351
    )
    
    
    (8,059
    )
    
    
    (5,451
    )Net income
    
    $
    6,284
    
    
    $
    4,655
    
    
    $
    11,109
    
    
    $
    8,091Basic net income per share
    
    $
    0.16
    
    
    $
    0.13
    
    
    $
    0.29
    
    
    $
    0.23Diluted net income per share
    
    $
    0.15
    
    
    $
    0.13
    
    
    $
    0.27
    
    
    $
    0.22Weighted average shares outstanding
    
    
    38,748,405
    
    
    
    35,402,769
    
    
    
    38,685,500
    
    
    
    35,335,493Weighted
average shares outstanding assuming dilution
    
    
    40,569,993
    
    
    
    36,933,366
    
    
    
    40,437,270
    
    
    
    36,878,342
 
 (1)
    
    Related party revenue for the three and six months ended June 30, 2007 and 2006 was as
follows (in thousands): Three Months Ended June 30,
    
    Six Months Ended June 30,2007
    
    2006
    
    2007
    
    2006Related party revenue
    
    $
    622
    
    
    $
    11,067
    
    
    $
    1,242
    
    
    $
    20,319
 (2)
    
    Stock-based compensation expense recorded for the three and six months ended June 30, 2007 and 2006 was
classified as follows (in thousands):
 Three Months Ended June 30,
    
    Six Months Ended June 30,2007
    
    2006
    
    2007
    
    2006Cost of revenue
    
    $
    476
    
    
    $
    271
    
    
    $
    890
    
    
    $
    524Product development
    
    
    153
    
    
    
    90
    
    
    
    289
    
    
    
    168Selling, general and administrative
    
    
    1,817
    
    
    
    1,036
    
    
    
    3,396
    
    
    
    1,929
  2




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##### Table of Contents



DEALERTRACK HOLDINGS, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 Six Months EndedJune 30,2007
    
    
    2006(In thousands)Cash flows from operating activitiesNet income
    
    $
    11,109
    
    
    $
    8,091Adjustments to reconcile net income to net cash provided by operating activitiesDepreciation and amortization
    
    
    16,944
    
    
    
    12,239Deferred tax benefit
    
    
    (3,129
    )
    
    
    (2,548
    )Amortization of stock-based compensation
    
    
    4,575
    
    
    
    2,621Provision for doubtful accounts and sales credits
    
    
    2,388
    
    
    
    2,321Loss (gain) on sale of property and equipment
    
    
    17
    
    
    
    (47
    )Amortization of deferred interest
    
    
    87
    
    
    
    70Deferred compensation
    
    
    145
    
    
    
    99Amortization of bank financing costs
    
    
    61
    
    
    
    63Stock-based compensation windfall tax benefit
    
    
    (1,663
    )
    
    
    (1,072
    )Changes in operating assets and liabilities, net of effects of acquisitionsTrade accounts receivable
    
    
    (8,137
    )
    
    
    (1,362
    )Accounts receivable  related party
    
    
    (37
    )
    
    
    (1,651
    )Prepaid expenses and other current assets
    
    
    1,086
    
    
    
    891Accounts payable and accrued expenses
    
    
    (3,620
    )
    
    
    (3,247
    )Accounts payable  related party
    
    
    
    
    
    
    (1,844
    )Deferred revenue and other current liabilities
    
    
    1,048
    
    
    
    349Other long-term liabilities
    
    
    (259
    )
    
    
    341Deferred rent
    
    
    94
    
    
    
    152Other assets
    
    
    (171
    )
    
    
    11Net cash provided by operating activities
    
    
    20,538
    
    
    
    15,477Cash flows from investing activitiesCapital expenditures
    
    
    (3,038
    )
    
    
    (1,691
    )Funds released from escrow and other restricted cash
    
    
    
    
    
    
    47Purchase of short-term investments
    
    
    (227,850
    )
    
    
    (76,250
    )Sale of short-term investments
    
    
    293,965
    
    
    
    15,750Capitalized software and web site development costs
    
    
    (2,053
    )
    
    
    (1,891
    )Proceeds from sale of property and equipment
    
    
    7
    
    
    
    50Payment for net assets acquired, net of acquired cash
    
    
    (99,387
    )
    
    
    (31,203
    )Net cash used in investing activities
    
    
    (38,356
    )
    
    
    (95,188
    )Cash flows from financing activitiesPrincipal payments on capital lease obligations
    
    
    (5
    )
    
    
    (250
    )Proceeds from the exercise of employee stock options
    
    
    1,552
    
    
    
    901Proceeds from employee stock purchase plan
    
    
    823
    
    
    
    370Purchase of treasury stock
    
    
    (54
    )
    
    
    Principal payments on notes payable
    
    
    (211
    )
    
    
    (210
    )Stock-based compensation windfall tax benefit
    
    
    1,663
    
    
    
    1,072Other
    
    
    (1
    )
    
    
    12Net cash provided by financing activities
    
    
    3,767
    
    
    
    1,895Net decrease in cash and cash equivalents
    
    
    (14,051
    )
    
    
    (77,816
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    570
    
    
    
    71Cash beginning of period
    
    
    47,080
    
    
    
    103,264Cash end of period
    
    $
    33,599
    
    
    $
    25,519Supplemental disclosureCash paid for:Income taxes
    
    $
    11,181
    
    
    $
    7,629Interest
    
    
    48
    
    
    
    38Non-cash investing and financing activities:Acquisition of capitalized software through note payable
    
    
    
    
    
    
    2,608Accrued capitalized hardware and software
    
    
    609
    
    
    
    1,132Global Fax purchase price adjustment
    
    
    
    
    
    
    400Goodwill adjustment
    
    
    72
    
    
    
    382Deferred compensation reversal to equity
    
    
    211
    
    
    
    209
  3




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##### Table of Contents



DEALERTRACK HOLDINGS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 1. Business Description
  2. Basis of Presentation
   3. Net Income per Share
 Earnings per Share.
 4




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##### Table of Contents



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Numerator:Net income
    
    $
    6,284
    
    
    $
    4,655
    
    
    $
    11,109
    
    
    $
    8,091Denominator:Weighted average common stock outstanding (basic)
    
    
    38,748,405
    
    
    
    35,402,769
    
    
    
    38,685,500
    
    
    
    35,335,493Common equivalent shares from options to
purchase common stock and restricted common
stock (1)
    
    
    1,821,588
    
    
    
    1,530,597
    
    
    
    1,751,770
    
    
    
    1,542,849
 Weighted average common stock outstanding
(diluted)
    
    
    40,569,993
    
    
    
    36,933,366
    
    
    
    40,437,270
    
    
    
    36,878,342Basic net income per share
    
    $
    0.16
    
    
    $
    0.13
    
    
    $
    0.29
    
    
    $
    0.23Diluted net income per share
    
    $
    0.15
    
    
    $
    0.13
    
    
    $
    0.27
    
    
    $
    0.22
 
 (1)
    
    In accordance with SFAS No. 128, for the three and six months
ended June 30, 2007, we have excluded 290,000 contingently
issuable shares 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.
These contingent restricted common stock awards were not in effect for the six months ended June
30, 2006 (Refer to Note 13 for further information).  Three Months Ended June 30,
    
    Six Months Ended June 30,2007
    
    2006
    
    2007
    
    2006Stock options
    
    
    488,966
    
    
    
    738,450
    
    
    
    431,245
    
    
    
    738,450Restricted common stock
    
    
    
    
    
    
    28,000
    
    
    
    101,300
    
    
    
    154,000Total
    
    
    488,966
    
    
    
    766,450
    
    
    
    532,545
    
    
    
    892,450
 4. Comprehensive Income
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    6,284
    
    
    $
    4,655
    
    
    $
    11,109
    
    
    $
    8,091Foreign currency translation adjustments
    
    
    4,182
    
    
    
    110
    
    
    
    4,913
    
    
    
    100Total
    
    $
    10,466
    
    
    $
    4,765
    
    
    $
    16,022
    
    
    $
    8,191
 5. Stock-Based Compensation Expense
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Stock options
    
    $
    1,473
    
    
    $
    1,015
    
    
    $
    2,698
    
    
    $
    1,930Restricted common stock
    
    
    904
    
    
    
    342
    
    
    
    1,732
    
    
    
    626ESPP
    
    
    69
    
    
    
    40
    
    
    
    145
    
    
    
    65Total
    
    $
    2,446
    
    
    $
    1,397
    
    
    $
    4,575
    
    
    $
    2,621
    5




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##### Table of Contents



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
    Arkona Acquisition
   Current assets
    
    $
    2,743Property and equipment
    
    
    2,065Other assets
    
    
    191Intangible assets
    
    
    22,988Goodwill
    
    
    40,792Total assets acquired
    
    
    68,779Total liabilities assumed
    
    
    (8,930
    )Net assets acquired
    
    $
    59,849
 6




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##### Table of Contents



Unaudited Pro Forma Summary of Operations
  Three Months Ended June 30,2007
    
    2006(Unaudited)(In thousands, except per share data)Net revenue
    
    $
    61,724
    
    
    $
    50,546Net income
    
    $
    4,953
    
    
    $
    1,736Basic net income per share
    
    $
    0.13
    
    
    $
    0.05Diluted net income per share
    
    $
    0.12
    
    
    $
    0.05
 Six Months Ended June 30,2007
    
    2006(Unaudited)(In thousands, except per share data)Net revenue
    
    $
    118,277
    
    
    $
    96,705Net income
    
    $
    7,919
    
    
    $
    2,200Basic net income per share
    
    $
    0.20
    
    
    $
    0.06Diluted net income per share
    
    $
    0.20
    
    
    $
    0.06
 7. Related Party Transactions
 Service Agreement with Related Parties  Financing Sources
    Service Agreements with Related Parties  Other Service and Information Providers
 7




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8. Property and Equipment
  EstimatedUseful Life
    
    
    June 30,
    
    
    December 31,(Years)
    
    
    2007
    
    
    2006Computer equipment
    
    
    3
    
    
    $
    14,413
    
    
    $
    9,671Office equipment
    
    
    5
    
    
    
    1,338
    
    
    
    1,245Furniture and fixtures
    
    
    5
    
    
    
    1,943
    
    
    
    1,627Leasehold improvements
    
    
    5-7
    
    
    
    836
    
    
    
    63618,530
    
    
    
    13,179Less: Accumulated depreciation and amortization
    
    
    
    
    
    
    (8,427
    )
    
    
    (7,022
    )Total property and equipment, net
    
    
    
    
    
    $
    10,103
    
    
    $
    6,157
 9. Intangible Assets
  June 30, 2007
    
    
    December 31, 2006Gross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    AmortizationBook
    
    
    Accumulated
    
    
    Book
    
    
    Accumulated
    
    
    PeriodValue
    
    
    Amortization
    
    
    Value
    
    
    Amortization
    
    
    (Years)Customer contracts
    
    $
    38,470
    
    
    $
    (16,028
    )
    
    $
    19,308
    
    
    $
    (10,904
    )
    
    
    1-4Database
    
    
    16,433
    
    
    
    (8,092
    )
    
    
    15,900
    
    
    
    (6,666
    )
    
    
    3-6Trade names
    
    
    10,500
    
    
    
    (3,955
    )
    
    
    10,500
    
    
    
    (3,428
    )
    
    
    5-10Patents/technology
    
    
    16,880
    
    
    
    (11,720
    )
    
    
    16,031
    
    
    
    (8,806
    )
    
    
    1-5Non-compete agreement
    
    
    11,578
    
    
    
    (3,258
    )
    
    
    3,308
    
    
    
    (1,738
    )
    
    
    2-5Partner agreements
    
    
    4,400
    
    
    
    (618
    )
    
    
    4,400
    
    
    
    (206
    )
    
    
    5Arkona preliminary intangible allocation
    
    
    22,988
    
    
    
    (383
    )
    
    
    
    
    
    
    
    
    
    
    5Other
    
    
    900
    
    
    
    (771
    )
    
    
    900
    
    
    
    (681
    )
    
    
    5Total
    
    $
    122,149
    
    
    $
    (44,825
    )
    
    $
    70,347
    
    
    $
    (32,429
    )
     8




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##### Table of Contents



10. Goodwill
  Balance as of January 1, 2007
    
    $
    52,499Acquisition of Curomax
    
    
    19,926Impact of change in Canadian dollar exchange rate
    
    
    2,055Acquisition
of Arkona (preliminary allocation)
    
    
    40,792Other
    
    
    72Balance as of June 30, 2007
    
    $
    115,344
 11. Other Accrued Liabilities
  June 30,
    
    
    December 31,2007
    
    
    2006Professional fees
    
    $
    1,644
    
    
    $
    1,167Software licenses
    
    
    1,636
    
    
    
    1,184Customer deposits
    
    
    2,666
    
    
    
    2,685Revenue share
    
    
    1,620
    
    
    
    1,926Servicing costs
    
    
    40
    
    
    
    128Public company costs
    
    
    208
    
    
    
    625Severance
    
    
    385
    
    
    
    489Taxes
    
    
    303
    
    
    
    1,774Computer equipment
    
    
    177
    
    
    
    Acquisition costs
    
    
    4,698
    
    
    
    49Other
    
    
    3,948
    
    
    
    1,951Total other accrued liabilities
    
    $
    17,325
    
    
    $
    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
  9




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##### Table of Contents



14. Commitments and Contingencies
 Executive Severance Commitment
  Retail Sales Tax
     Commitments
    Legal Proceedings
  10




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##### Table of Contents



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. Segment Information
 Disclosures about Segments of an Enterprise and Related
Information
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Transaction services revenue
    
    $
    38,596
    
    
    $
    28,298
    
    
    $
    72,886
    
    
    $
    52,838Subscription services revenue
    
    
    17,444
    
    
    
    12,991
    
    
    
    33,213
    
    
    
    24,622Other
    
    
    2,467
    
    
    
    2,125
    
    
    
    4,133
    
    
    
    3,889Total net revenue
    
    $
    58,507
    
    
    $
    43,414
    
    
    $
    110,232
    
    
    $
    81,349
 11




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##### Table of Contents



16. Credit Facility
  17. Subsequent Event
 AutoStyleMart Acquisition
  Amended Employment Agreements
  
 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
    12




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##### Table of Contents



Three Months Ended June 30,
    
    Six Months Ended June 30,2007
    
    2006
    
    2007
    
    2006EBITDA and Other Business Statistics:EBITDA (1)
    
    $
    18,853
    
    
    $
    13,459
    
    
    $
    33,496
    
    
    $
    24,174Capital expenditures, software and web
site development costs
    
    $
    2,253
    
    
    $
    2,554
    
    
    $
    5,700
    
    
    $
    7,322Active dealers in our network as of end
of the period (2)
    
    
    22,630
    
    
    
    22,031
    
    
    
    22,630
    
    
    
    22,031Active financing sources in our network
as of end of period (3)
    
    
    380
    
    
    
    243
    
    
    
    380
    
    
    
    243
 
 (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.
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    6,284
    
    
    $
    4,655
    
    
    $
    11,109
    
    
    $
    8,091Interest income
    
    
    (1,220
    )
    
    
    (785
    )
    
    
    (2,751
    )
    
    
    (1,748
    )Interest expense
    
    
    73
    
    
    
    69
    
    
    
    135
    
    
    
    141Provision for income taxes, net
    
    
    4,618
    
    
    
    3,351
    
    
    
    8,059
    
    
    
    5,451Depreciation of property and equipment and amortization of
capitalized software and website costs
    
    
    2,429
    
    
    
    1,934
    
    
    
    4,705
    
    
    
    3,826Amortization of acquired identifiable intangibles
    
    
    6,669
    
    
    
    4,235
    
    
    
    12,239
    
    
    
    8,413EBITDA
    
    $
    18,853
    
    
    $
    13,459
    
    
    $
    33,496
    
    
    $
    24,174
 13




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##### Table of Contents



(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. 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
    14




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##### Table of Contents



Critical Accounting Policies and Estimates
   Results of Operations
  Three Months Ended June 30,
    
    Six Months Ended June 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
    
    
    41.3
    %
    
    
    39.8
    %
    
    
    41.2
    %
    
    
    39.8
    %Product development
    
    
    3.9
    %
    
    
    5.4
    %
    
    
    4.2
    %
    
    
    5.6
    %Selling, general and administrative
    
    
    38.1
    %
    
    
    38.0
    %
    
    
    39.6
    %
    
    
    39.9
    %Total operating costs and expenses
    
    
    83.3
    %
    
    
    83.2
    %
    
    
    85.0
    %
    
    
    85.3
    %Income from operations
    
    
    16.7
    %
    
    
    16.8
    %
    
    
    15.0
    %
    
    
    14.7
    %Interest income
    
    
    2.1
    %
    
    
    1.8
    %
    
    
    2.5
    %
    
    
    2.1
    %Interest expense
    
    
    (0.2
    )%
    
    
    (0.2
    )%
    
    
    (0.1
    )%
    
    
    (0.2
    )%Income before provision for income taxes
    
    
    18.6
    %
    
    
    18.4
    %
    
    
    17.4
    %
    
    
    16.6
    %Provision for income taxes, net
    
    
    (7.9
    )%
    
    
    (7.7
    )%
    
    
    (7.3
    )%
    
    
    (6.7
    )%Net income
    
    
    10.7
    %
    
    
    10.7
    %
    
    
    10.1
    %
    
    
    9.9
    %
 Three Months Ended June 30,
    
    Six Months Ended June 30,2007
    
    2006
    
    2007
    
    2006(% of net revenue)
    
    (% of net revenue)(1) Related party revenue
    
    
    1.1
    %
    
    
    25.5
    %
    
    
    1.1
    %
    
    
    25.0
    %
 15




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##### Table of Contents



Three Months Ended June 30, 2007 and 2006
 Revenue
  Transaction Services Revenue.
 Subscription Services Revenue.
 Cost of Revenue and Operating Expenses
 Cost of Revenue.
 Selling, General and Administrative Expenses.
 Interest Income
  Provision for Income Taxes
  Six Months Ended June 30, 2007 and 2006
 Revenue
  Transaction Services Revenue.
 Subscription Services Revenue.
 16




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##### Table of Contents



Cost of Revenue and Operating Expenses
 Cost of Revenue.
 Selling, General and Administrative Expenses.
 Interest Income
  Provision for Income Taxes
  Liquidity and Capital Resources
      Six Months EndedJune 30,2007
    
    2006Net cash provided by operating activities
    
    $
    20,538
    
    
    $
    15,477Net cash used in investing activities
    
    $
    (38,356
    )
    
    $
    (95,188
    )Net cash provided by financing activities
    
    $
    3,767
    
    
    $
    1,895
 17




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##### Table of Contents



Operating Activities
  Investing Activities
  Financing Activities
  Contractual Obligations
  Off-Balance Sheet Arrangements
  Industry Trends
  Effects of Inflation
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Foreign Currency Exposure
  Interest Rate Exposure
  18




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##### Table of Contents



Item 4. Controls and Procedures
 Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  
 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
     19




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##### Table of Contents



Item 1A. Risk Factors
  
 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
    
    ProgramApril 2007
    
    
    
    
    
    $
    
    
    
    
    n/a
    
    
    
    n/aMay 2007
    
    
    402
    
    
    $
    33.05
    
    
    
    n/a
    
    
    
    n/aJune 2007
    
    
    
    
    
    $
    
    
    
    
    n/a
    
    
    
    n/aTotal
    
    
    402
 
 Item 4. Submission of Matters to a Vote of Security Holders
  1.
    
    The individuals named below were elected as a Class II Directors to a three-year
term expiring at our annual meeting of stockholders in 2010 or until his or her earlier
resignation or removal:
 Name
    
    
    Votes Received
    
    
    Votes WithheldThomas F. Gilman
    
    
    37,461,326
    
    
    347,147Ann B. Lane
    
    
    37,460,826
    
    
    347,647John J. McDonnell, Jr.
    
    
    32,840,857
    
    
    4,967,616
 20




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##### Table of Contents



The other directors of the Company whose terms continued after the 2006 Annual Meeting were
Mary Cirillo-Goldberg, Thomas R. Gibson, James David Powers III, Howard L. Tischler and
Mark F. ONeil.
 2.
    
    The selection of PricewaterhouseCoopers LLP as DealerTracks independent registered
public accounting firm for the fiscal year ending December 31, 2007 was ratified.
 Vote For
    
    Vote Against
    
    Abstain37,790,055
    
    18,259
    
    160
 3.
    
    The amendment and restatement of DealerTracks 2005 Incentive Award Plan was
approved.
 Vote For
    
    Vote Against
    
    Abstain26,450,531
    
    8,927,723
    
    12,566
 
 Item 5. Other Information
  
 Item 6. Exhibits
 ExhibitNumber
    
    Description of Document10.1*
    
    Amended and Restated Senior Executive Employment Agreement, dated as of August 8, 2007, by and between Mark F.
ONeil and DealerTrack Holdings, Inc.10.2*
    
    Amended and Restated Senior Executive Employment Agreement, dated as of August 8, 2007, by and between Robert Cox
and DealerTrack Holdings, Inc.10.3*
    
    Amended and Restated Senior Executive Employment Agreement, dated as of August 8, 2007, by and between John A.
Blair and Automotive Lease Guide (alg), Inc.10.4*
    
    Amended and Restated Senior Executive Employment Agreement, dated as of August 8, 2007, by and between Eric D.
Jacobs and DealerTrack Holdings, Inc.10.5*
    
    Amended and Restated Senior Executive Employment Agreement, dated as of August 8, 2007, by and between Raj Sundaram
and DealerTrack Holdings, Inc.10.6*
    
    First Amendment to DealerTrack Holdings, Inc. Directors Deferred Compensation Plan effective as of January 1, 2007.10.7*
    
    First Amendment to DealerTrack Holdings, Inc. Employees Deferred Compensation Plan effective as of January 1, 2007.31.1
    
    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.
 
 *
    
    Indicates a management contract or any compensatory plan, contract or arrangement. 21




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##### Table of Contents



SIGNATURE
  DealerTrack Holdings, Inc.
(Registrant)Date August 9, 2007
    /s/ Robert J. Cox IIIRobert J. Cox III
Senior Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer) EXHIBIT INDEX
 ExhibitNumber
    
    Description of Document10.1*
    
    Amended and Restated Senior Executive Employment Agreement, dated as of August 8, 2007, by and between Mark F.
ONeil and DealerTrack Holdings, Inc.10.2*
    
    Amended and Restated Senior Executive Employment Agreement, dated as of August 8, 2007, by and between Robert Cox
and DealerTrack Holdings, Inc.10.3*
    
    Amended and Restated Senior Executive Employment Agreement, dated as of August 8, 2007, by and between John A.
Blair and Automotive Lease Guide (alg), Inc.10.4*
    
    Amended and Restated Senior Executive Employment Agreement, dated as of August 8, 2007, by and between Eric D.
Jacobs and DealerTrack Holdings, Inc.10.5*
    
    Amended and Restated Senior Executive Employment Agreement, dated as of August 8, 2007, by and between Raj Sundaram
and DealerTrack Holdings, Inc.10.6*
    
    First Amendment to DealerTrack Holdings, Inc. Directors Deferred Compensation Plan effective as of January 1, 2007.10.7*
    
    First Amendment to DealerTrack Holdings, Inc. Employees Deferred Compensation Plan effective as of January 1, 2007.31.1
    
    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.
 
 *
    
    Indicates a management contract or any compensatory plan, contract or arrangement. 22