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4-Traders Homepage  >  Equities  >  Nasdaq  >  TrueCar Inc    TRUE

Delayed Quote. Delayed  - 08/23 10:00:00 pm
16.34 USD   -1.98%
08/09 TRUECAR : reports 2Q loss
08/08 TRUECAR,INC. (N : TRUE) Files An 8-K Results of Operations and Finan..
08/08 TrueCar Reports Second Quarter 2017 Financial Results
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TRUECAR : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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08/09/2017 | 10:16pm CEST
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and related notes thereto included in Item 1 "Financial Statements"
in this Quarterly Report on Form 10-Q. In addition to historical financial
information, the following discussion and analysis contains forward-looking
statements that involve risks, uncertainties, and assumptions. Our actual
results and timing of selected events may differ materially from those
anticipated in these forward-looking statements as a result of many factors,
including, but not limited to, those discussed in the section titled "Risk
Factors" included elsewhere in this Quarterly Report on Form 10-Q.  See "Special
Note Regarding Forward-Looking Statements."
Overview
Our Mission: We exist to be the most transparent brand in automotive, to serve
as a catalyst that dramatically improves the way people discover, buy and sell
cars.
We have established an intelligent, data-driven online marketplace powered by
proprietary market data and analytics. Our company-branded marketplace is
available on our TrueCar website and mobile applications. In addition, we
customize and operate our marketplace on a co-branded basis for our many
affinity group marketing partners, including financial institutions like USAA,
Chase and American Express, membership-based organizations like Consumer
Reports, AARP, Sam's Club, and AAA, and employee buying programs for large
enterprises such as IBM and Walmart. We enable users to obtain market-based
pricing data on new and used cars, and to connect with our network of TrueCar
Certified Dealers. We also allow automobile manufacturers, known in the industry
as OEMs, to connect with TrueCar users during the purchase process and
efficiently deliver targeted incentives to consumers.
    We benefit consumers by providing information related to what others have
paid for a make, model and trim of car in their area and guaranteed savings off
the manufacturer's suggested retail price, or MSRP, for that make, model and
trim, as well as, in most instances, price offers on actual vehicle inventory,
which we refer to as VIN-based offers, from our network of TrueCar Certified
Dealers. Guaranteed savings off MSRP are reflected in a Guaranteed Savings
Certificate which the consumer may then take to the dealer and apply toward the
purchase of the specified make, model and trim of car. VIN-based offers provide
consumers with price offers for specific vehicles from specific dealers. We
benefit our network of TrueCar Certified Dealers by enabling them to attract
these informed, in-market consumers in a cost-effective, accountable manner,
which we believe helps them to sell more cars profitably. We benefit OEMs by
allowing them to more effectively target their incentive spending at
deep-in-market consumers during their purchase process.
    Our network of over 15,000 TrueCar Certified Dealers consists primarily of
new car franchises, representing all major makes of cars, as well as independent
dealers selling used vehicles. TrueCar Certified Dealers operate in all 50
states and the District of Columbia.
Our subsidiary, ALG, Inc., provides forecasts and consulting services regarding
determination of the residual value of an automobile at given future points in
time. These residual values are used to underwrite automotive loans and leases
to determine payments by consumers. In addition, financial institutions use this
information to measure exposure and risk across loan, lease, and fleet
portfolios. We also obtain automobile purchase data from a variety of sources
and use this data to provide consumers and dealers with highly accurate,
geographically specific, real-time pricing information.
During the three months ended June 30, 2017, we generated revenues of $81.8
million and recorded a net loss of $8.1 million. Of the $81.8 million in
revenues, $77.2 million or 94.4%, consisted of transaction revenues with the
remaining $4.6 million, or 5.6%, derived primarily from the sale of forecasts,
consulting and other revenue to the automotive and financial services
industries. Revenues from the sale of forecasts, consulting and other services
are derived primarily from the operations of our ALG subsidiary. Transaction
revenues primarily consist of fees paid to us by our network of TrueCar
Certified Dealers under our pay-for-performance business model.
Over the past year, we have made multiple product enhancements that have
improved the consumer experience resulting in improved revenue growth rates in
the first and second quarters of 2017 as compared to the same periods last year.
Over time, we intend to increase the number of transactions on our platform, and
thereby revenue, by continuing to:
(i)       increase the rate at which visitors to our website and our affinity

group marketing partner sites, and users of our mobile applications,

prospect with a TrueCar certified dealer by investing in delivering a

more engaging experience to consumers and dealers;

(ii) improve close rates by investing in additional dealer support personnel

          to improve and expand our dealer relationships; and



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(iii) better communicate the benefits of fully registering on TrueCar to
consumers using different and stronger messaging.
We plan to continue to focus on cost containments in areas outside of our
dealer, product, technology, and research efforts in order to invest in the
changes that will continue to improve the consumer and dealer experiences and
drive revenue growth in the future. We expect our quarter-over-quarter revenue
growth to modestly improve as we continue to implement these changes.
Key Metrics
We regularly review a number of key metrics to evaluate our business, measure
our performance, identify trends affecting our business, formulate financial
projections and make operating and strategic decisions.
                                               Three Months Ended               Six Months Ended
                                                     June 30,                        June 30,
                                              2017            2016            2017            2016
Average Monthly Unique Visitors             7,215,456       6,683,027       7,280,084       6,686,243
Units(1)                                      242,130         192,531         459,786         367,513
Monetization                              $       319     $       321     $       321     $       324
Franchise Dealer Count                         12,204          10,135          12,204          10,135
Independent Dealer Count                        2,860           2,534           2,860           2,534




(1) We issued full credits of the amount originally invoiced with respect to

5,571 and 4,546 units during the three months ended June 30, 2017 and 2016,

respectively. For the six months ended June 30, 2017 and 2016, we issued full

credits of the amount originally invoiced with respect to 11,276 and 8,738

units, respectively. The number of units has not been adjusted downwards

related to units credited as discussed in the description of the unit metric

below.



Average Monthly Unique Visitors
We define a monthly unique visitor as an individual who has visited our website,
our landing page on our affinity group marketing partner sites, or our mobile
applications within a calendar month. We identify unique visitors through
cookies for browser-based visits on either a desktop computer or mobile device
and through device IDs for mobile application visits. In addition, if a
TrueCar.com user logs-in, we supplement their identification with their log-in
credentials to attempt to avoid double counting on TrueCar.com across devices,
browsers and mobile applications. If an individual accesses our service using
different devices or different browsers on the same device within a given month,
the first access through each such device or browser is counted as a separate
monthly unique visitor, except where adjusted based upon TrueCar.com log-in
information. We calculate average monthly unique visitors as the sum of the
monthly unique visitors in a given period, divided by the number of months in
that period. We view our average monthly unique visitors as a key indicator of
the growth in our business and audience reach, the strength of our brand, and
the visibility of car-buying services to the member base of our affinity group
marketing partners.
The number of average monthly unique visitors increased 8.0% to approximately
7.2 million in the three months ended June 30, 2017 from approximately 6.7
million in the same period of 2016. The number of average monthly unique
visitors increased 8.9% to approximately 7.3 million in the six months ended
June 30, 2017 from 6.7 million in the same period of 2016. We attribute the
growth in our average monthly unique visitors principally to television and
digital marketing advertising campaigns that have led to improved brand
awareness and also to increased efforts from our affinity group marketing
partners to drive greater member awareness and traffic to our platform.
Units
We define units as the number of automobiles purchased by our users from TrueCar
Certified Dealers through TrueCar.com, our TrueCar branded mobile applications
or the car-buying sites we maintain for our affinity group marketing partners. A
unit is counted following such time as we have matched the sale to a TrueCar
user with one of TrueCar Certified Dealers. We view units as a key indicator of
the growth of our business, the effectiveness of our product and the size and
geographic coverage of our network of TrueCar Certified Dealers.
On occasion we issue credits to our TrueCar Certified Dealers with respect to
units sold. However, we do not adjust our unit metric for these credits as we
believe that in substantially all cases a vehicle has in fact been purchased
through our platform given the high degree of accuracy of our sales matching
process. Credits are most frequently issued to a dealer that claims that it had
a pre-existing relationship with a purchaser of a vehicle, and we determine
whether we will issue a credit

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based on a number of factors, including the facts and circumstances related to
the dealer claim and the level of claim activity at the dealership. In most
cases, we issue credits in order to maintain strong business relations with the
dealer and not because we have made an erroneous sales match or billing error.
The number of units increased 25.8% to 242,130 in the three months ended June
30, 2017 from 192,531 in the three months ended June 30, 2016. The number of
units increased 25.1% to 459,786 in the six months ended June 30, 2017 from
367,513 in the same period of 2016. We attribute this growth in units to the
effectiveness of our marketing activities, product enhancements, and the growing
number and geographic coverage of TrueCar Certified Dealers in our network.
Monetization
We define monetization as the average transaction revenue per unit, which we
calculate by dividing all of our transaction revenue in a given period by the
number of units in that period. Our monetization decreased 0.6% to $319 during
the three months ended June 30, 2017 from $321 for the same period in 2016. Our
monetization decreased 0.9% to $321 during the six months ended June 30, 2017
from $324 for the same period in 2016. We expect our monetization to be affected
in the future by changes in our pricing structure, the unit mix between new and
used cars, with used cars providing higher monetization, and by the introduction
of new products and services.
Franchise Dealer Count
We define franchise dealer count as the number of franchise dealers in the
network of TrueCar Certified Dealers at the end of a given period. This number
is calculated by counting the number of brands of new cars sold by dealers in
the TrueCar Certified Dealer network at their locations, and includes both
single-location proprietorships as well as large consolidated dealer groups. The
network comprises of dealers with a range of unit sales volume per dealer, with
dealers representing certain brands consistently achieving higher than average
unit sales volume. We view our ability to increase our franchise dealer count,
particularly dealers representing high volume brands, as an indicator of our
market penetration and the likelihood of converting users of our platform into
unit sales. Our TrueCar Certified Dealer network includes independent
non-franchised dealers that primarily sell used cars and are not included in
franchise dealer count.
Our franchise dealer count was 12,204 at June 30, 2017, an increase from 10,135
at June 30, 2016, an increase from 11,151 at December 31, 2016, and an increase
from 11,734 at March 31, 2017.  Note that our franchise dealer count excludes
Genesis franchises on our program due to Hyundai's recent transition of Genesis
to a stand-alone brand. In order to facilitate period over period comparisons,
we have continued to count each Hyundai franchise that also has a Genesis
franchise as one franchise dealer rather than two. We intend to increase the
number of dealers representing high volume brands in our dealer network,
generally, and in key geographies, by investing to improve the dealer experience
and increasing dealer satisfaction.
Independent Dealer Count

We define independent dealer count as the number of dealers in the network of
TrueCar Certified Dealers at the end of a given period that exclusively sell
used vehicles and are not directly affiliated with a new car manufacturer. This
number is calculated by counting each location individually, and includes both
single-location proprietorships as well as large consolidated dealer groups. Our
independent dealer count was 2,860 at June 30, 2017, an increase from 2,534 at
June 30, 2016, an increase from 2,597 at December 31, 2016, and an increase from
2,716 at March 31, 2017.

Non-GAAP Financial Measures
Adjusted EBITDA and Non-GAAP net income (loss) are financial measures that are
not calculated in accordance with generally accepted accounting principles in
the United States, or GAAP. We define Adjusted EBITDA as net loss adjusted to
exclude interest income, interest expense, depreciation and amortization,
stock-based compensation, certain litigation costs, severance charges, lease
exit costs, and income taxes. We define Non-GAAP net income (loss) as net loss
adjusted to exclude stock-based compensation, certain litigation costs,
severance charges, and lease exit costs. We have provided below a reconciliation
of each of Adjusted EBITDA and Non-GAAP net income (loss) to net loss, the most
directly comparable GAAP financial measure. Neither Adjusted EBITDA nor Non-GAAP
net income (loss) should be considered as an alternative to net loss or any
other measure of financial performance calculated and presented in accordance
with GAAP. In addition, our Adjusted EBITDA and Non-GAAP net income (loss)
measures may not be comparable to similarly titled measures of other
organizations as they may not calculate Adjusted EBITDA or Non-GAAP net income
(loss) in the same manner as we calculate these measures.
We use Adjusted EBITDA and Non-GAAP net income (loss) as operating performance
measures as each is (i) an integral part of our reporting and planning
processes; (ii) used by our management and board of directors to assess our
operational performance, and together with operational objectives, as a measure
in evaluating employee compensation and

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bonuses; and (iii) used by our management to make financial and strategic
planning decisions regarding future operating investments. We believe that using
Adjusted EBITDA and Non-GAAP net income (loss) facilitates operating performance
comparisons on a period-to-period basis because these measures exclude
variations primarily caused by changes in the excluded items noted above. In
addition, we believe that Adjusted EBITDA, Non-GAAP net income (loss) and
similar measures are widely used by investors, securities analysts, rating
agencies and other parties in evaluating companies as measures of financial
performance and debt service capabilities.
Our use of each of Adjusted EBITDA and Non-GAAP net income (loss) has
limitations as an analytical tool, and you should not consider them in isolation
or as a substitute for analysis of our results as reported under GAAP. Some of
these limitations are:
•       Adjusted EBITDA does not reflect the payment or receipt of interest or

the payment of income taxes;

• neither Adjusted EBITDA nor Non-GAAP net income (loss) reflects changes

in, or cash requirements for, our working capital needs;

• although depreciation and amortization are non-cash charges, the assets

being depreciated and amortized may have to be replaced in the future,

and Adjusted EBITDA does not reflect cash capital expenditure

requirements for such replacements or for new capital expenditures or any

other contractual commitments;

• neither Adjusted EBITDA nor Non-GAAP net income (loss) reflects the costs

        to advance our claims in respect of certain litigation or the costs to
        defend ourselves in various complaints filed against us, which we expect
        to continue to be significant;

• neither Adjusted EBITDA nor Non-GAAP net income (loss) reflects the cash

        severance costs due to certain former executives and former members of
        our product and technology teams affected by a reorganization;

• neither Adjusted EBITDA nor Non-GAAP net income (loss) reflects the lease

        exit costs associated with consolidation of the Company's office
        locations in Santa Monica, California;


•       neither Adjusted EBITDA nor Non-GAAP net income (loss) consider the
        potentially dilutive impact of shares issued or to be issued in
        connection with stock-based compensation; and

• other companies, including companies in our own industry, may calculate

        Adjusted EBITDA and Non-GAAP net income (loss) differently than we do,
        limiting their usefulness as a comparative measure.


Because of these limitations, you should consider Adjusted EBITDA and Non-GAAP
net income (loss) alongside other financial performance measures, including our
net loss, our other GAAP results, and various cash flow metrics. In addition, in
evaluating Adjusted EBITDA and Non-GAAP net income (loss) you should be aware
that in the future we will incur expenses such as those that are the subject of
adjustments in deriving Adjusted EBITDA and Non-GAAP net income (loss), and you
should not infer from our presentation of Adjusted EBITDA and Non-GAAP net
income (loss) that our future results will not be affected by these expenses or
any unusual or non-recurring items.
The following table presents a reconciliation of net loss to Adjusted EBITDA for
each of the periods presented:
                                         Three Months Ended              Six Months Ended
                                               June 30,                       June 30,
                                         2017            2016           2017           2016

                                            (in thousands)                (in thousands)
Reconciliation of Net Loss to
Adjusted EBITDA:
Net loss                             $    (8,060 )   $  (14,655 )   $  (14,855 )   $  (26,322 )
Non-GAAP adjustments:
Interest income                             (249 )         (102 )         (382 )         (195 )
Interest expense                             652            632          1,301          1,240
Depreciation and amortization              5,668          5,868         11,752         11,772
Stock-based compensation                   6,846          5,900         12,753         11,792
Certain litigation costs (1)               2,299            150          2,649            422
Severance charges (2)                          -          1,783              -          1,783
Lease exit costs (3)                           -          2,684           (133 )        2,684
Provision for income taxes                   201            170            322            306
Adjusted EBITDA                      $     7,357     $    2,430     $   13,407     $    3,482




(1) The excluded amounts relate to legal costs incurred in connection with

complaints filed by non-TrueCar dealers and the California New Car Dealers

    Association against TrueCar, and securities and consumer class action
    lawsuits. We believe the



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exclusion of these costs is appropriate to facilitate comparisons of our core
operating performance on a period-to-period basis. Based on the nature of the
specific claims underlying the excluded litigation matters, once these matters
are resolved, we do not believe our operations are likely to entail defending
against the types of claims raised by these matters. We expect the cost of
defending these claims to continue to be significant pending resolution.
(2) We incurred $1.3 million in severance costs in the second quarter of 2016

related to a reorganization of our product and technology teams to better

align our resources with business objectives as we transition from multiple

software platforms to a unified architecture. In addition, we incurred

severance costs of $0.5 million related to an executive who terminated during

the second quarter of 2016. We believe excluding the impacts of these

terminations is consistent with our use of Adjusted EBITDA and Non-GAAP net

income (loss) as we do not believe they are useful indicators of ongoing

operating results.

(3) Represents updated estimates to our lease termination costs associated with

the consolidation of the Company's office locations in Santa Monica,

California in December 2015. We believe that their exclusion is appropriate

to facilitate period-to-period operating performance comparisons.

The following table presents a reconciliation of net loss to Non-GAAP net income (loss) for each of the periods presented:

                                         Three Months Ended              Six Months Ended
                                               June 30,                       June 30,
                                         2017            2016           2017           2016

                                            (in thousands)                (in thousands)
Reconciliation of Net Loss to
Non-GAAP Net Income (Loss):
Net loss                             $    (8,060 )   $  (14,655 )   $  (14,855 )   $  (26,322 )
Non-GAAP adjustments:
Stock-based compensation                   6,846          5,900         12,753         11,792
Certain litigation costs (1)               2,299            150          2,649            422
Severance charges (2)                          -          1,783              -          1,783
Lease exit costs (3)                           -          2,684          

(133 ) 2,684 Non-GAAP net income (loss) (4) $ 1,085 $ (4,138 ) $ 414 $ (9,641 )

(1) The excluded amounts relate to legal costs incurred in connection with

complaints filed by non-TrueCar dealers and the California New Car Dealers

Association against TrueCar, and securities and consumer class action

lawsuits. We believe the exclusion of these costs is appropriate to

facilitate comparisons of our core operating performance on a

period-to-period basis. Based on the nature of the specific claims underlying

the excluded litigation matters, once these matters are resolved, we do not

believe our operations are likely to entail defending against the types of

claims raised by these matters. We expect the cost of defending these claims

to continue to be significant pending resolution.

(2) We incurred $1.3 million in severance costs in the second quarter of 2016

related to a reorganization of our product and technology teams to better

align our resources with business objectives as we transition from multiple

software platforms to a unified architecture. In addition, we incurred

severance costs of $0.5 million related to an executive who terminated during

the second quarter of 2016. We believe excluding the impacts of these

terminations is consistent with our use of Adjusted EBITDA and Non-GAAP net

income (loss) as we do not believe they are useful indicators of ongoing

operating results.

(3) Represents updated estimates to our lease termination costs associated with

the consolidation of the Company's office locations in Santa Monica,

California in December 2015. We believe that their exclusion is appropriate

to facilitate period-to-period operating performance comparisons.

(4) There is no income tax impact related to the adjustments made to calculate

    Non-GAAP net income (loss) because of our available net operating loss
    carryforwards and the full valuation allowance recorded against our net
    deferred tax assets at June 30, 2017 and June 30, 2016.

Components of Operating Results

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Revenues

Our revenues are comprised of transaction revenues, and forecasts, consulting
and other revenue.
Transaction Revenue. Revenue consists of fees paid by dealers participating in
our network of TrueCar Certified Dealers. Dealers pay us these fees either on a
per vehicle basis for sales to our users or in the form of a subscription
arrangement. Subscription arrangements fall into several types: flat rate
subscriptions, subscriptions subject to downward adjustment based on a minimum
number of vehicle sales ("guaranteed sales") and subscriptions based on
introduction volume, including those subject to downward adjustment based on a
minimum number of introductions ("guaranteed introductions").
Under flat rate subscription arrangements, fees are charged at a monthly flat
rate regardless of the number of sales made to users of our platform by the
dealer. For flat rate subscription arrangements, we recognize the fees as
revenue over the subscription period on a straight line basis which corresponds
to the period that we are providing the dealer with access to our platform.
Under guaranteed sales subscription arrangements, fees are charged based on the
number of guaranteed sales multiplied by a fixed amount per vehicle. To the
extent that the actual number of vehicles sold by the dealers to users of our
platform is less than the number of guaranteed sales, we provide a credit to the
dealer. To the extent that the actual number of vehicles sold exceeds the number
of guaranteed sales, we are not entitled to any additional fees.
Certain of our subscription arrangements are charged based on volume of
introductions provided while other introduction based subscription arrangements
operate under a guaranteed introduction model. Under guaranteed introductions
subscription arrangements, fees are charged based on a periodically-updated
formula that considers, among other things, the introductions anticipated to be
provided to the dealer. To the extent that the number of actual introductions is
less than the number of guaranteed introductions, we provide a credit to the
dealer. To the extent that the actual number of introductions provided exceeds
the number guaranteed, we are not entitled to any additional fees.
For guaranteed sales and guaranteed introductions subscription arrangements, we
recognize revenue based on the lesser of (i) the actual number of sales
generated or introductions delivered through our platform during the
subscription period multiplied by the contracted price per sale/introduction or
(ii) the guaranteed number of sales or introductions multiplied by the
contracted price per sale/introduction.
In addition, we enter into arrangements with automobile manufacturers to promote
the sale of their vehicles through the offering of additional consumer
incentives to our consumers. These manufacturers pay us a per-vehicle fee for
promotion of the incentive and we recognize the per-vehicle incentive fee when
the vehicle sale has occurred between the consumer and the dealer.
 Forecasts, Consulting and Other Revenue. We derive this type of revenue
primarily from the provision of forecasts and consulting services to the
automotive and financial services industries through our ALG subsidiary. The
forecasts and consulting services that ALG provides typically relate to the
determination of the residual value of an automobile at given future points in
time. These residual values are used to underwrite automotive loans and leases
to determine payments by consumers. In addition, financial institutions use this
information to measure exposure and risk across loan, lease and fleet
portfolios. Our customers generally pay us for these services as information is
delivered to them.
Costs and Operating Expenses
Cost of Revenue (exclusive of depreciation and amortization). Cost of revenue
includes expenses related to the fulfillment of our services, consisting
primarily of data costs and licensing fees paid to third party service providers
and expenses related to operating our website and mobile applications, including
those associated with our data centers, hosting fees, data processing costs
required to deliver introductions to our network of TrueCar Certified Dealers,
employee costs related to certain dealer operations, sales matching, employee
and consulting costs related to delivering data and consulting services to our
customers, and facilities costs. Cost of revenue excludes depreciation and
amortization of software costs and other hosting and data infrastructure
equipment used to operate our platforms, which are included in the depreciation
and amortization line item on our statement of comprehensive loss.
Sales and Marketing. Sales and marketing expenses consist primarily of:
television, digital, and radio advertising; media production costs; affinity
group partner marketing fees, which also includes loan subvention costs where we
pay certain affinity group marketing partners a portion of consumers' borrowing
costs for car loan products offered by these affinity group marketing partners,
and common stock warrants issued to USAA; marketing sponsorship programs; and
digital customer acquisition. In addition, sales and marketing expenses include
employee related expenses for sales, customer support, marketing and public
relations employees, including salaries, bonuses, benefits, severance, and
stock-based compensation expenses; third-party contractor fees; and facilities
costs. Marketing and advertising costs promote our services and are expensed as
incurred, except for media production costs which are expensed the first time
the advertisement is aired.

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 Technology and Development. Technology and development expenses consist
primarily of employee related expenses including salaries, bonuses, benefits,
severance, and stock-based compensation expenses, third-party contractor fees,
facilities costs, software costs, as well as our product development, product
management, research and analytics, and internal IT functions.
 General and Administrative. General and administrative expenses consist
primarily of employee related expenses including salaries, bonuses, benefits,
severance, and stock-based compensation expenses for executive, finance,
accounting, legal, and human resources. General and administrative expenses also
include legal, accounting, and other third-party professional service fees, bad
debt, lease exit costs, and facilities costs.
 Depreciation and Amortization. Depreciation consists primarily of depreciation
expense recorded on property and equipment. Amortization expense consists
primarily of amortization recorded on intangible assets, capitalized software
costs and leasehold improvements.

Interest Income. Interest income consists of interest earned on our cash and cash equivalents.

 Interest Expense. Interest expense consists primarily of interest on our
built-to-suit lease financing obligations.
Provision for Income Taxes. We are subject to federal and state income taxes in
the United States. We provided a full valuation allowance against our net
deferred tax assets at June 30, 2017 and December 31, 2016 as it is more likely
than not that some or all of our deferred tax assets will not be realized. As a
result of the valuation allowance, our income tax benefit (or expense) is
significantly less than the federal statutory rate of 34%. Our provision for
income taxes in the three and six months ended June 30, 2017 and 2016 primarily
reflects a tax expense associated with the amortization of tax deductible
goodwill that is not an available source of income to realize deferred tax
assets.
Results of Operations
The following table sets forth our selected consolidated statements of
operations data for each of the periods indicated.
                                         Three Months Ended              Six Months Ended
                                               June 30,                       June 30,
                                         2017            2016           2017           2016

                                            (in thousands)                (in thousands)
Consolidated Statements of
Operations Data:
Revenues                             $    81,819     $   66,427     $  157,576     $  128,287
Costs and operating expenses:
Cost of revenue (exclusive of
depreciation and amortization
presented separately below)                7,130          6,365         13,522         12,590
Sales and marketing                       46,933         38,129         89,115         70,240
Technology and development                14,131         14,022         27,760         27,162
General and administrative                15,413         15,998         29,041         31,494
Depreciation and amortization              5,668          5,868         11,752         11,772
Total costs and operating expenses        89,275         80,382        171,190        153,258
Loss from operations                      (7,456 )      (13,955 )      (13,614 )      (24,971 )
Interest income                              249            102            382            195
Interest expense                            (652 )         (632 )       (1,301 )       (1,240 )
Loss before provision for income
taxes                                     (7,859 )      (14,485 )      (14,533 )      (26,016 )
Provision for income taxes                   201            170            322            306
Net loss                             $    (8,060 )   $  (14,655 )   $  (14,855 )   $  (26,322 )
Other Non-GAAP Financial
Information:
Adjusted EBITDA                      $     7,357     $    2,430     $   13,407     $    3,482
Non-GAAP net income (loss)           $     1,085     $   (4,138 )   $      414     $   (9,641 )



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Comparison of the Three and Six Months Ended June 30, 2017 and 2016
Revenues
                                            Three Months Ended            Six Months Ended
                                                  June 30,                     June 30,
                                              2017           2016         2017         2016

                                                            (in thousands)
Transaction revenue                     $    77,203        $ 61,841    $ 147,635    $ 119,250
Forecasts, consulting and other revenue       4,616           4,586        9,941        9,037
Revenues                                $    81,819        $ 66,427    $ 157,576    $ 128,287


Three months ended June 30, 2017 compared to three months ended June 30, 2016.
The increase in our revenues of $15.4 million or 23.2% for the three months
ended June 30, 2017 as compared to the three months ended June 30, 2016
primarily reflected the increase in our transaction revenue. Transaction revenue
and forecasts, consulting and other revenue comprised 94.4% and 5.6%,
respectively, of revenues for the three months ended June 30, 2017 as compared
to 93.1% and 6.9%, respectively, for the same period in 2016. The increase in
transaction revenue for the three months ended June 30, 2017 primarily reflected
a 25.8% increase in units partially offset by a 0.6% decrease in monetization.
Forecasts, consulting and other revenue for the three months ended June 30, 2017
remained materially consistent with the three months ended June 30, 2016. In the
second half of 2017, we anticipate that our year-over-year revenue growth will
increase as a result of our investments in dealer relationships, in consumer
messaging and in our technology platform, which we believe will enable our
business to continue to scale.
Six months ended June 30, 2017 compared to six months ended June 30, 2016. The
increase in our revenues of $29.3 million or 22.8% for the six months ended June
30, 2017 as compared to the six months ended June 30, 2016 primarily reflected
the increase in our transaction revenue. Transaction revenue and forecasts,
consulting and other revenue comprised 93.7% and 6.3%, respectively, of revenues
for the six months ended June 30, 2017 as compared to 93.0% and 7.0%,
respectively, for the same period in 2016. The increase in transaction revenue
for the six months ended June 30, 2017 primarily reflected a 25.1% increase in
units partially offset by a 0.9% decrease in monetization. The increase in
forecasts, consulting and other revenue for the six months ended June 30, 2017
as compared to the six months ended June 30, 2016 of $0.9 million or 10.0% was
primarily due to revenue from the delivery of a large project in our ALG
business in the first quarter of 2017. We do not expect similar sized projects
to reoccur for the remainder of the year.

Costs and Operating Expenses
Cost of Revenue (exclusive of depreciation and amortization)
                                          Three Months Ended              Six Months Ended
                                                June 30,                       June 30,
                                          2017            2016           2017           2016

                                                       (dollars in thousands)
Cost of revenue (exclusive of
depreciation and amortization)       $     7,130      $    6,365     $   13,522     $   12,590
Cost of revenue (exclusive of
depreciation and amortization) as a
percentage of revenues                       8.7 %           9.6 %          

8.6 % 9.8 %



Three months ended June 30, 2017 compared to three months ended June 30, 2016.
Cost of revenue increased $0.8 million or 12.0% for the three months ended June
30, 2017 as compared to the three months ended June 30, 2016 primarily due to
costs for an automotive trade-in pilot program with a large vehicle wholesaler
that commenced in the second quarter of 2017. We expect to incur these costs
during the pilot program during which we do not anticipate material revenue.
Six months ended June 30, 2017 compared to six months ended June 30, 2016. Cost
of revenue increased $0.9 million or 7.4% for the six months ended June 30,
2017 as compared to the six months ended June 30, 2016 primarily due to costs
for an automotive trade-in pilot program with a large vehicle wholesaler that
commenced in the second quarter of 2017.

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Sales and Marketing Expenses
                                         Three Months Ended              Six Months Ended
                                               June 30,                       June 30,
                                         2017            2016           2017           2016

                                                       (dollars in thousands)
Sales and marketing expenses         $    46,933     $   38,129     $   89,115     $   70,240
Sales and marketing expenses as a
percentage of revenues                      57.4 %         57.4 %         

56.6 % 54.8 %



Three months ended June 30, 2017 compared to three months ended June 30, 2016.
Sales and marketing expenses increased $8.8 million or 23.1% for the three
months ended June 30, 2017 as compared to the three months ended June 30, 2016.
The increase primarily reflected a $3.7 million increase in salaries and
employee related expenses primarily due to increased headcount, a $3.0 million
increase in advertising costs, and a $2.1 million increase in revenue share paid
to affinity marketing partners. We expect sales and marketing expenses to
continue to increase in total due to increased headcount to better serve
dealers, as well as increased media production costs, television and radio
advertising, digital customer acquisition costs, affinity group marketing
partner fees, and marketing programs as we grow our business.
Six months ended June 30, 2017 compared to six months ended June 30, 2016. Sales
and marketing expenses increased $18.9 million or 26.9% for the six months ended
June 30, 2017 as compared to the six months ended June 30, 2016. The increase
primarily reflected a $8.5 million increase in salaries and employee related
expenses primarily due to increased headcount, a $3.8 million increase in
revenue share paid to affinity marketing partners, a $3.8 million increase in
advertising costs, a $2.3 million increase in conference and travel related
expenses, and a $1.4 million increase in stock-based compensation. These
increases were partially offset by a decrease of $0.8 million in professional
fees for outsourced services.
Technology and Development Expenses
                                           Three Months Ended              Six Months Ended
                                                 June 30,                       June 30,
                                           2017            2016           2017           2016

                                                         (dollars in thousands)
Technology and development expenses    $    14,131     $   14,022     $   27,760     $   27,162
Technology and development expenses as
a percentage of revenues                      17.3 %         21.1 %         17.6 %         21.2 %
Capitalized software costs             $     4,028     $    3,077     $    7,275     $    6,341


Three months ended June 30, 2017 compared to three months ended June 30, 2016.
Technology and development expenses increased $0.1 million or 0.8% for the three
months ended June 30, 2017 as compared to the three months ended June 30, 2016.
The net increase of $0.1 million was primarily due to an increase in stock-based
compensation of $1.0 million partially offset by a decrease in severance costs
of $1.4 million primarily related to a reorganization in our product and
technology teams in the second quarter of 2016.
Capitalized software costs increased $1.0 million primarily due to an increase
in the amount of salaries capitalized for the development of internal use
software.
We expect our technology and development expenses to increase in dollar amount
as we continue to increase our developer headcount to upgrade and enhance our
technology infrastructure, invest in our products, expand the functionality of
our platform and provide new product offerings. We also expect technology and
development expenses to continue to be affected by variations in the amount of
capitalized internally developed software.
Six months ended June 30, 2017 compared to six months ended June 30, 2016.
Technology and development expenses increased $0.6 million or 2.2% for the six
months ended June 30, 2017 as compared to the six months ended June 30, 2016.
The net increase of $0.6 million was primarily due to increases in stock-based
compensation of $1.1 million and hosting costs of $0.7 million offset by a
decrease in severance costs of $1.5 million primarily related to a
reorganization in our product and technology teams in the second quarter of
2016.

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Capitalized software costs increased $0.9 million primarily due to an increase
in the amount of salaries capitalized for the development of internal use
software.
General and Administrative Expenses
                                         Three Months Ended              Six Months Ended
                                               June 30,                       June 30,
                                         2017            2016           2017           2016

                                                       (dollars in thousands)
General and administrative expenses  $    15,413     $   15,998     $   29,041     $   31,494
General and administrative expenses
as a percentage of revenues                 18.8 %         24.1 %         

18.4 % 24.5 %



Three months ended June 30, 2017 compared to three months ended June 30, 2016.
General and administrative expenses decreased $0.6 million or 3.7% for the three
months ended June 30, 2017 as compared to the three months ended June 30, 2016.
The decrease primarily reflected a $2.7 million lease exit charge in the second
quarter of 2016 that did not recur in the second quarter of 2017. This decrease
was partially offset by a $2.0 million increase in legal fees. Due to ongoing
litigation matters, we expect general and administrative expenses to increase as
significant legal fees are incurred.
Six months ended June 30, 2017 compared to six months ended June 30, 2016.
General and administrative expenses decreased $2.5 million or 7.8% for the six
months ended June 30, 2017 as compared to the six months ended June 30, 2016.
The decrease primarily reflected a $2.7 million lease exit charge in the first
half of 2016 and a $1.5 million decrease in stock-based compensation partially
offset by a $2.0 million increase in legal fees.
Depreciation and Amortization Expenses
                                            Three Months Ended            Six Months Ended
                                                  June 30,                     June 30,
                                              2017            2016        2017         2016

                                                       (dollars in thousands)

Depreciation and amortization expenses $ 5,668 $ 5,868 $ 11,752 $ 11,772



Three months ended June 30, 2017 compared to three months ended June 30, 2016.
Depreciation and amortization expenses decreased $0.2 million or 3.4% for the
three months ended June 30, 2017 compared to the three months ended June 30,
2016. We expect our depreciation and amortization expenses to continue to be
affected by the amount of capitalized internally developed software costs,
property and equipment, and the timing of placing projects in service.
Six months ended June 30, 2017 compared to six months ended June 30, 2016.
Depreciation and amortization expenses remained materially consistent for the
six months ended June 30, 2017 compared to the six months ended June 30, 2016.
Interest Expense
                       Three Months Ended              Six Months Ended
                             June 30,                       June 30,
                          2017             2016         2017           2016

                                    (dollars in thousands)
Interest expense $       652              $ 632    $    1,301        $ 1,240


Three months ended June 30, 2017 compared to three months ended June 30, 2016.
Interest expense was $0.7 million for the three months ended June 30, 2017 and
$0.6 million for the three months ended June 30, 2016, and primarily consists of
interest expense incurred on our lease financing obligation for our Santa Monica
leased office space and our San

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Francisco leased office space. We expect to incur a consistent level of interest
expense on our lease financing obligation in future periods.
Six months ended June 30, 2017 compared to six months ended June 30, 2016.
Interest expense was $1.3 million for the six months ended June 30, 2017 and
$1.2 million for the six months ended June 30, 2016, and primarily consists of
interest expense incurred on our lease financing obligation for our Santa Monica
leased office space and our San Francisco leased office space.
Provision for Income Taxes
                                 Three Months Ended               Six Months Ended
                                       June 30,                        June 30,
                                    2017             2016           2017           2016

                                              (dollars in thousands)
Provision for income taxes $       201              $ 170    $     322            $ 306


Our provision for income taxes for the three and six months ended June 30, 2017
and 2016 primarily reflected tax expense due to amortization of tax deductible
goodwill that is not an available source of income to realize our deferred tax
assets.
Liquidity and Capital Resources
At June 30, 2017, our principal sources of liquidity were cash and cash
equivalents totaling $181.7 million.
We have incurred cumulative losses of $333.1 million from our operations through
June 30, 2017, and expect to incur additional losses in the future. We believe
that our existing sources of liquidity will be sufficient to fund our operations
for at least the next 12 months. However, our future capital requirements will
depend on many factors, including our rate of revenue growth, the expansion of
our sales and marketing activities, and the timing and extent of our spending to
support our technology and development efforts. To the extent that existing cash
and cash equivalents, and cash from operations are insufficient to fund our
future activities, we may need to raise additional funds through public or
private equity or debt financing. Additional funds may not be available on terms
favorable to us or at all.
Credit Facility
On February 18, 2015, we amended our credit facility to provide advances of up
to $35.0 million. This credit facility provides a $10.0 million subfacility for
the issuance of letters of credit and contains an increase option permitting us,
subject to the lender's consent, to increase the revolving credit facility by up
to $15.0 million, to an aggregate maximum of $50.0 million. The credit facility
has a three-year term and matures on February 18, 2018. No amounts were
outstanding at June 30, 2017. The amount available under the amended credit
facility at June 30, 2017 was $30.7 million, reduced for the letters of credit
issued and outstanding under the subfacility of $4.3 million. See Note 5 of our
condensed consolidated financial statements herein for more information about
our amended credit facility.
Cash Flows
The following table summarizes our cash flows:
                                                         Six Months Ended June 30,
                                                          2017               2016

Consolidated Cash Flow Data:                                  (in thousands)

Net cash provided by (used in) operating activities $ 12,719 $

   (2,067 )
Net cash used in investing activities                     (10,340 )           (9,785 )
Net cash provided by financing activities                  71,622           

2,601

Net increase (decrease) in cash and cash equivalents $ 74,001 $

  (9,251 )



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Operating Activities
Our net loss and cash flows provided by or used in operating activities are
significantly influenced by our investments in headcount and infrastructure to
support our growth, marketing, advertising, and sponsorship expenses. Our net
loss has been significantly greater than cash provided by or used in operating
activities due to the inclusion of non-cash expenses and charges.
Cash provided by operating activities for the six months ended June 30, 2017 was
$12.7 million. This was primarily due to our net loss of $14.9 million, which,
adjusted for non-cash items, including depreciation and amortization expense of
$11.7 million and stock-based compensation expense of $12.8 million, resulted in
$11.0 million in cash provided by operations. Net cash provided by operations
was also impacted by an increase of $1.7 million related to changes in operating
assets and liabilities.
The $1.7 million increase related to changes in operating assets and liabilities
primarily reflected an increase in accounts payable of $4.2 million primarily
due to an increase in marketing fees payable, and an increase in other
liabilities of $1.1 million primarily due to increased deferred rent. These
sources of cash were partially offset by a decrease in accrued employee expenses
of $2.1 million due to a decrease in accrued bonus, an increase in accounts
receivable of $1.0 million primarily related to increased revenues, and an
increase in prepaid expenses of $1.0 million primarily due to an increase in
prepaid insurance.
Cash used in operating activities for the six months ended June 30, 2016 was
$2.1 million. This was primarily due to our net loss of $26.3 million, which,
adjusted for non-cash items, including depreciation and amortization expense of
$11.7 million and stock-based compensation expense of $11.8 million, resulted in
$1.2 million in cash used in operations. Net cash used in operations was also
impacted by a decrease of $0.9 million related to changes in operating assets
and liabilities, which primarily reflected a decrease of $4.4 million in
accounts payable primarily due to decreased affinity group marketing fees and in
increase of $1.3 million in prepaid expenses primarily due to an increase in
prepaid insurance. These uses of cash were partially offset by a $2.4 million
increase in accrued expenses and other liabilities primarily due to increased
accrued marketing fees, a $1.3 million increase in other liabilities primarily
due to an increase in lease exit costs, and a $1.2 million increase in accrued
employee expenses.
Investing Activities
Our investing activities consist primarily of capital expenditures for
capitalized software development costs and property and equipment.
Cash used in investing activities of $10.3 million for the six months ended June
30, 2017 resulted from $6.2 million of investments in software, $2.4 million of
investments in furniture, leasehold, and facility improvements, and $1.7 million
of investments in computer hardware.
Cash used in investing activities of $9.8 million for the six months ended June
30, 2016 resulted from $6.4 million of investments in software, $2.7 million of
investments in furniture, leasehold, and facility improvements, and $0.7 million
of investments in computer hardware.
Financing Activities
Cash provided by financing activities of $71.6 million for the six months ended
June 30, 2017 reflects $54.2 million of proceeds from the exercise of stock
options, net of taxes paid for the net share settlement of certain equity
awards, and $17.4 million of proceeds from our public offering of common stock
that closed in May 2017, net of underwriting discounts and commissions and
offering costs.
Cash provided by financing activities of $2.6 million for the six months ended
June 30, 2016 primarily reflects a $1.5 million tenant improvement reimbursement
related to our Santa Monica capitalized facility lease, $1.2 million of proceeds
from the exercise of stock options, net of taxes paid for the net share
settlement of certain equity awards, partially offset by $0.1 million paid for
the repurchase of common stock option awards.
Contractual Obligations and Known Future Cash Requirements
In April 2017, we signed a memorandum of understanding for a six-month
automotive trade-in pilot program with a large vehicle wholesaler. The pilot
program is expected to enable consumers to use our TrueCar branded website or
mobile application to view real-time vehicle valuation information based on
specific vehicle characteristics and receive offers for the vehicle from
participating dealers in the TrueCar network. We anticipate incurring additional
cash costs of approximately $1.0 million per quarter during the pilot program.


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Off-Balance Sheet Arrangements
We do not engage in transactions that generate relationships with unconsolidated
entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities, as part of our ongoing business.
Accordingly, our operating results, financial condition and cash flows are not
subject to off-balance sheet risks.

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Critical Accounting Policies and Estimates
Management's discussion and analysis of financial condition and results of
operations is based upon our condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these condensed consolidated
financial statements requires us to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenue, expenses, and related
disclosures. On an ongoing basis, we evaluate our estimates and assumptions,
including, but not limited to, those related to revenue recognition, allowance
for doubtful accounts and sales allowances, stock-based compensation, income
taxes, goodwill and other intangible assets, internal use capitalized software
development costs, and contingencies and litigation. We base our estimates on
historical experience and on various other estimates and assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results could differ
from these estimates and assumptions.
There have been no material changes to the critical accounting policies
previously disclosed in our Annual Report on Form 10-K, filed with the SEC on
March 1, 2017.
Recent Accounting Pronouncements
See Note 2 to our condensed consolidated financial statements included herein.
Item 3.  Quantitative and Qualitative Disclosures about Market Risk
Market risk represents the risk of loss that may affect our financial position
due to adverse changes in financial market prices and rates. We are exposed to
market risks related to changes in interest rates.
Interest Rate Risk
We had cash and cash equivalents of $181.7 million at June 30, 2017, which
consists entirely of bank deposits and short-term money market funds. Such
interest-earning instruments carry a degree of interest rate risk. To date,
fluctuations in interest income have not been significant.
We do not enter into investments for trading or speculative purposes and have
not used any derivative financial instruments to manage our interest rate risk
exposure.
To the extent we borrow funds under our credit facility, we would be subject to
fluctuations in interest rates. See Note 5 to the condensed consolidated
financial statements herein. As of June 30, 2017, we had no borrowings under the
credit facility. We believe that we do not have a material exposure to changes
in the fair value as a result of changes in interest rates.
Inflation Risk
We do not believe that inflation has had a material effect on our business,
financial condition or results of operations. However, if our costs were to
become subject to significant inflationary pressures, we may not be able to
fully offset such higher costs through price increases. Our inability or failure
to do so could harm our business, operating results and financial condition.
Foreign Currency Exchange Risk
Historically, as our operations and sales have been primarily in the United
States, we have not faced any significant foreign currency risk. If we plan for
international expansion, our risks associated with fluctuation in currency rates
will become greater, and we will continue to reassess our approach to managing
this risk.

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Victor Anthony Perry President, Chief Executive Officer & Director
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Michael Guthrie Chief Financial Officer
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