TrueCar(TRUE) - 2020 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements of TrueCar, Inc, including balance sheets, statements of comprehensive income, stockholders' equity, and cash flows Condensed Consolidated Balance Sheets The company's total assets and stockholders' equity slightly decreased from December 2019 to September 2020, alongside a reduction in total liabilities | Metric | Sep 30, 2020 (in thousands) | Dec 31, 2019 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Total Assets | $397,549 | $421,687 | $(24,138) | -5.72% | | Total Liabilities | $75,646 | $94,416 | $(18,770) | -19.88% | | Total Stockholders' Equity | $321,903 | $327,271 | $(5,368) | -1.64% | | Current Assets | $259,803 | $239,741 | $20,062 | 8.37% | | Current Liabilities | $39,832 | $54,170 | $(14,338) | -26.47% | | Current assets of discontinued operations | $27,280 | $6,777 | $20,503 | 302.53% | Condensed Consolidated Statements of Comprehensive Income (Loss) TrueCar reported net income for Q3 2020, a significant improvement from a net loss in the prior-year period, driven by reduced operating expenses despite lower revenues | Metric (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenues | $77,247 | $85,785 | $214,718 | $250,162 | | Total Costs & Expenses| $67,512 | $94,987 | $226,467 | $301,140 | | Income (Loss) from Operations | $9,735 | $(9,202) | $(11,749) | $(50,978) | | Net Income (Loss) | $11,589 | $(7,652) | $(10,322) | $(46,077) | | Net Income (Loss) per Share, Basic (Continuing Operations) | $0.09 | $(0.08) | $(0.11) | $(0.46) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity slightly decreased due to net losses and common stock repurchases, partially offset by stock-based compensation | Metric (in thousands) | Dec 31, 2019 | Sep 30, 2020 | | :-------------------- | :----------- | :----------- | | Total Stockholders' Equity | $327,271 | $321,903 | | Net Loss (9 months) | N/A | $(10,669) | | Stock-based Compensation (9 months) | N/A | $6,559 | | Repurchase of Common Stock (3 months) | N/A | $(11,677) | Condensed Consolidated Statements of Cash Flows The company generated significantly more cash from operations in the first nine months of 2020 compared to 2019, while financing activities shifted to a use of cash | Metric (in thousands) | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Net Cash Provided by Operating Activities | $23,694 | $7,251 | | Net Cash Used in Investing Activities | $(9,158) | $(31,324) | | Net Cash (Used in) Provided by Financing Activities | $(17,371) | $408 | | Net Decrease in Cash and Cash Equivalents | $(2,835) | $(23,665) | | Cash and Cash Equivalents at End of Period | $178,699 | $172,463 | Notes to Condensed Consolidated Financial Statements This section details the company's accounting policies, the divestiture of ALG, fair value measurements, goodwill impairment, and other key financial disclosures Note 1. Organization and Nature of Business TrueCar operates a digital automotive marketplace connecting consumers with dealers and OEMs, and is divesting its ALG subsidiary to focus on core operations - TrueCar is a digital automotive marketplace offering pricing transparency, connecting consumers with Certified Dealers, and enabling OEMs to target incentives[25] - ALG, a subsidiary providing residual value forecasts and automotive purchase data, is being sold to J.D. Power, with the transaction expected to close by the end of 2020[26] - TrueCar's Retail Solutions, offered through TCDS, combine TrueCar Trade (trade-in vehicle valuation) and Payments (monthly payment calculation via DealerScience technology)[27] Note 2. Summary of Significant Accounting Policies This note outlines key accounting policies, the impact of the COVID-19 pandemic, and the adoption of new guidance for credit losses and income taxes - The unaudited condensed consolidated financial statements are prepared in conformity with GAAP and SEC regulations, with ALG's historical results reported as discontinued operations due to its planned divestiture[28] - The COVID-19 pandemic has negatively impacted TrueCar's operations and customer base, leading to decreased demand for cars and potential delays in receivable payments[32] - Effective January 1, 2020, TrueCar adopted new accounting guidance for measuring credit losses based on expected losses, considering historical, current, and forecast information[35][37] | Metric (in thousands) | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2020 | | :-------------------- | :-------------------------- | :-------------------------- | | Allowances, at beginning of period | $10,304 | $6,591 | | Charged as a reduction of revenue | $1,581 | $6,939 | | (Reduction of) charged to bad debt expense | $(680) | $2,805 | | Write-offs, net of recoveries | $(2,752) | $(7,882) | | Allowances, at end of period | $8,453 | $8,453 | - TrueCar early adopted new FASB guidance on income taxes (ASU No. 2019-12) effective January 1, 2020, eliminating the exception for intraperiod tax allocation[41] Note 3. Discontinued Operations TrueCar agreed to sell its ALG subsidiary to J.D. Power for $112.5 million in cash, with potential earnouts, shifting focus to its core marketplace business - TrueCar agreed to sell its ALG subsidiary to J.D. Power for $112.5 million cash at closing, with potential earnouts of up to $22.5 million based on ALG's revenue metrics in 2020 and 2022[45] | Metric (in thousands) | Sep 30, 2020 | Dec 31, 2019 | | :----------------------------------- | :----------- | :----------- | | Total Assets of Discontinued Operations | $27,280 | $30,895 | | Total Liabilities of Discontinued Operations | $754 | $755 | | Metric (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenues | $5,221 | $4,770 | $13,961 | $14,050 | | Total Costs & Operating Expenses | $3,199 | $3,555 | $12,409 | $11,008 | | Income from Discontinued Operations, net of taxes | $2,000 | $1,157 | $1,853 | $2,555 | Note 4. Fair Value Measurements The company measures financial assets and liabilities at fair value, with cash equivalents classified as Level 1 and contingent consideration as Level 3 - Fair value is defined as the exchange price in an orderly transaction between market participants, categorized into Level 1 (quoted prices), Level 2 (observable inputs), and Level 3 (unobservable inputs)[49][50] | Metric (in thousands) | Sep 30, 2020 (Level 1) | Dec 31, 2019 (Level 1) | | :-------------------- | :--------------------- | :--------------------- | | Cash Equivalents | $167,658 | $174,429 | | Metric (in thousands) | Sep 30, 2020 (Level 3) | Dec 31, 2019 (Level 3) | | :-------------------------------- | :--------------------- | :--------------------- | | Contingent Consideration, current | $2,428 | $2,441 | | Contingent Consideration, non-current | $0 | $2,336 | | Total Liabilities | $2,428 | $4,777 | - Contingent consideration liabilities are measured using a discounted cash flow valuation technique, with unobservable inputs including the probability of achievement and discount rate[55] Note 5. Goodwill TrueCar recognized an $8.3 million non-cash goodwill impairment charge in Q1 2020, triggered by market volatility, COVID-19, and the USAA partnership termination | Metric (in thousands) | Goodwill | | :-------------------- | :------- | | Balance at Dec 31, 2019 | $59,469 | | Impairment | $(8,264) | | Balance at Sep 30, 2020 | $51,205 | - A goodwill impairment test was performed as of March 31, 2020, due to stock price volatility, declining market capitalization, COVID-19 economic disruption, and the USAA partnership extension agreement[56][57] - The impairment test resulted in a non-cash impairment charge of $10.2 million (including discontinued operations) during the three months ended March 31, 2020[57] Note 6. Property and Equipment, net Net property and equipment decreased to $23.8 million at September 30, 2020, primarily due to accumulated depreciation | Metric (in thousands) | Sep 30, 2020 | Dec 31, 2019 | | :------------------------------------------ | :----------- | :----------- | | Computer equipment, software, and internally developed software | $64,411 | $55,844 | | Furniture and fixtures | $4,719 | $4,927 | | Leasehold improvements | $16,059 | $15,839 | | Less: Accumulated depreciation | $(61,400) | $(48,829) | | Total property and equipment, net | $23,789 | $27,781 | - Total depreciation and amortization expense for property and equipment was $13.5 million for the nine months ended September 30, 2020[58] Note 7. Credit Facility The company maintains a $35.0 million revolving credit facility, with $31.9 million available and no outstanding amounts as of September 30, 2020 - TrueCar has a $35.0 million revolving credit facility, with a $10.0 million subfacility for letters of credit, expiring on February 18, 2021[59] - The credit facility's interest rate is based on the prime rate or LIBOR, plus a spread determined by the company's adjusted quick ratio[60][61] - As of September 30, 2020, TrueCar had no outstanding amounts under the credit facility and $31.9 million available, after accounting for $3.1 million in outstanding letters of credit[64][66] Note 8. Commitments and Contingencies The company committed to a restructuring plan incurring $8.3 million in costs and is involved in various legal proceedings, most of which are resolved or not expected to result in a loss - TrueCar initiated a restructuring plan in May 2020, incurring approximately $8.3 million in costs during the nine months ended September 30, 2020, to enhance productivity and efficiency[67][69] - The Milbeck Federal Securities Litigation was resolved in May 2020, with the $28.25 million settlement fully covered by insurance[71] - The California Derivative Litigation and Delaware Consolidated Derivative Litigation were resolved in October and September 2020, respectively, with no anticipated loss for TrueCar[72][73][74] - The Lee Derivative Litigation and Trademark Litigation are ongoing, but TrueCar does not believe a loss is probable or reasonably estimable as of September 30, 2020[75][77] Note 9. Stock-based Awards Stock-based compensation expense decreased for the nine months ended September 30, 2020, with significant remaining expense to be recognized over the next few years | Metric | Sep 30, 2020 | Dec 31, 2019 | | :-------------------------------- | :----------- | :----------- | | Stock Options Outstanding | 10,906,883 | 10,625,980 | | Weighted-Average Exercise Price | $9.56 | $11.22 | | Non-vested Restricted Stock Units | 8,079,873 | 5,890,992 | | Metric (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Stock-based Compensation Expense | $5,607 | $6,805 | $17,632 | $30,260 | | Amount Capitalized to Internal Software Use | $293 | $394 | $992 | $1,304 | - Remaining stock-based compensation expense for unvested stock options was $8.8 million and for non-vested restricted stock units was $33.4 million as of September 30, 2020[80][81] Note 10. Income Taxes The company's income tax provision reflects goodwill amortization and impairment, while a 2019 ownership change limited the use of net operating loss carryforwards - TrueCar early adopted ASU No. 2019-12 on January 1, 2020, eliminating the intraperiod tax allocation exception, which resulted in no tax benefit recorded in continuing operations for Q3 2020[85] | Metric (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Provision for (benefit from) income taxes | $38 | $(263) | $(132) | $(1,080) | - An ownership change as of December 31, 2019, is estimated to cause up to $86.8 million of federal and $2.5 million of state net operating loss carryforwards to expire unused[88] - The CARES Act and California legislation suspending NOL deductions for 2020-2022 did not materially impact TrueCar's results for the three and nine months ended September 30, 2020[89] Note 11. Net Income (Loss) Per Share TrueCar reported net income per share of $0.09 from continuing operations for Q3 2020 and authorized a $75 million share repurchase program | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Income (Loss) | $11,589 | $(7,652) | $(10,322) | $(46,077) | | Net Income (Loss) per share, basic (Continuing operations) | $0.09 | $(0.08) | $(0.11) | $(0.46) | | Weighted-average common shares outstanding, diluted | 110,011 | 106,239 | 107,418 | 105,510 | - As of September 30, 2020, 13.9 million anti-dilutive shares were excluded from diluted EPS calculation[91] - In July 2020, the board authorized a $75 million open market stock repurchase program; for Q3 2020, 2.4 million shares were repurchased for $11.7 million[92] Note 12. Related Party Transactions The company's partnership with USAA, a significant affinity partner, ended on September 30, 2020, while an equity method investment in Accu-Trade continues - TrueCar's partnership with USAA Federal Savings Bank (USAA FSB) for its Car Buying Service ended on September 30, 2020, for which USAA FSB paid a $20 million transition services fee[93] | Metric (in thousands) | Sep 30, 2020 | Dec 31, 2019 | | :-------------------- | :----------- | :----------- | | Accounts Receivable from USAA | $10,013 | $209 | | Revenue from USAA (3 months) | $3,500 | N/A | | Revenue from USAA (9 months) | $9,100 | N/A | | Sales and Marketing Expense (9 months) | $2,000 | $17,501 | - TrueCar holds a 20% equity method investment in Accu-Trade, with ongoing software and data licensing agreements[95] Note 13. Revenue Information The company disaggregates revenue into dealer, OEM incentives, and other categories, with dealer revenue decreasing and OEM incentives revenue increasing in Q3 2020 | Revenue Category (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Dealer revenue | $68,229 | $81,270 | $192,076 | $237,061 | | OEM incentives revenue | $5,815 | $4,383 | $14,109 | $12,727 | | Other revenue | $3,203 | $132 | $8,533 | $374 | | Total revenues | $77,247 | $85,785 | $214,718 | $250,162 | - Contract asset balance for estimated variable consideration was $2.8 million at both September 30, 2020, and December 31, 2019[98] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes TrueCar's financial performance, highlighting the impact of COVID-19, key business metrics, non-GAAP measures, and results of operations Overview TrueCar operates a digital automotive marketplace, focusing on enhancing the online car buying experience while divesting its ALG subsidiary - TrueCar is a leading automotive digital marketplace aiming to personalize and streamline the car buying experience by bringing more of the process online[101] - The platform provides market-based pricing data and connects users with TrueCar Certified Dealers, also enabling OEMs to target incentives[101] - TrueCar's Retail Solutions, including Trade and Payments, are key offerings, while the ALG subsidiary is being sold to J.D. Power[101] | Metric (in millions) | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2020 | | :------------------- | :-------------------------- | :-------------------------- | | Revenues | $77.2 | $214.7 | | Net Income (Loss) from Continuing Operations | $9.6 | $(12.2) | COVID-19 Pandemic The COVID-19 pandemic significantly disrupted business, leading to reduced revenues and operational uncertainties, prompting a shift to digital retail solutions - The COVID-19 pandemic has caused significant disruptions, including quarantines and business closures, negatively impacting TrueCar's operations, revenues, and cash flows[103][105] - TrueCar implemented 'Buy from Home' badging for dealers offering remote services and is accelerating investment in digital automotive retailing[104] - Uncertainties include the pandemic's duration, government actions, economic conditions, and vehicle inventory shortages, which could further impact future results[105] Key Metrics Key metrics show increased user traffic but decreased unit sales and dealer counts in Q3 2020, primarily due to COVID-19 and the USAA partnership termination | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Average Monthly Unique Visitors | 9,505,721 | 7,695,650 | 8,512,563 | 7,341,470 | | Units | 213,869 | 267,821 | 599,939 | 750,458 | | Monetization | $346 | $320 | $344 | $333 | | Franchise Dealer Count | 10,745 | 12,711 | 10,745 | 12,711 | | Independent Dealer Count | 3,858 | 4,242 | 3,858 | 4,242 | - Average Monthly Unique Visitors increased by 23.5% (QoQ) and 16.0% (YoY) due to improved search engine optimization and a surge in online browsing during COVID-19[109] - Units decreased by 20.1% (QoQ and YoY) due to the COVID-19 pandemic and the wind-down of the USAA partnership[110][111] - Monetization increased by 8.1% (QoQ) and 3.3% (YoY) driven by growth in OEM incentives revenue and pricing optimization[112] - Franchise and Independent Dealer Counts decreased due to the COVID-19 pandemic and the USAA partnership termination[114][115] Non-GAAP Financial Measures The company uses Adjusted EBITDA and Non-GAAP net income to assess operating performance, excluding items like stock-based compensation and certain one-time costs - Adjusted EBITDA and Non-GAAP net income (loss) are non-GAAP measures used by management to assess operational performance and make strategic decisions[117] - Adjusted EBITDA excludes interest income, depreciation and amortization, stock-based compensation, and certain litigation, restructuring, and transaction costs[117] | Metric (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Income (Loss) from Continuing Operations | $9,589 | $(8,809) | $(12,175) | $(48,632) | | Adjusted EBITDA | $20,489 | $3,056 | $36,026 | $6,458 | | Non-GAAP Net Income (Loss) | $15,347 | $(1,038) | $21,289 | $(6,082) | Components of Operating Results Revenues primarily consist of dealer and OEM incentives, while operating expenses include cost of revenue, sales and marketing, and technology and development - Revenues are primarily derived from dealer revenue and OEM incentives revenue, with some revenue recognized based on expected vehicle sales[126] - Cost of revenue includes data costs, licensing fees, website operating expenses, and employee costs for dealer operations[127] - Sales and marketing expenses cover advertising, affinity group partner marketing fees, and employee-related costs[127] - TrueCar has a full valuation allowance against its net deferred tax assets, leading to an income tax expense significantly lower than the federal statutory rate[128] Results of Operations The company's Q3 2020 results show improved operating income and net income compared to Q3 2019, driven by substantial reductions in operating expenses | Metric (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 19 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenues | $77,247 | $85,785 | $214,718 | $250,162 | | Total Costs & Operating Expenses | $67,512 | $94,987 | $226,467 | $301,140 | | Income (Loss) from Operations | $9,735 | $(9,202) | $(11,749) | $(50,978) | | Net Income (Loss) | $11,589 | $(7,652) | $(10,322) | $(46,077) | Comparison of the Three and Nine Months Ended September 30, 2020 and 2019 Revenues decreased in Q3 and the first nine months of 2020 due to lower dealer revenue, but significant cost reductions led to improved operating results | Revenue Category (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Dealer revenue | $68,229 | $81,270 | $192,076 | $237,061 | | OEM incentives revenue | $5,815 | $4,383 | $14,109 | $12,727 | | Other revenue | $3,203 | $132 | $8,533 | $374 | | Total revenues | $77,247 | $85,785 | $214,718 | $250,162 | - Total revenues decreased by $8.5 million (10.0%) for Q3 2020 and $35.4 million (14.2%) for the nine months ended September 30, 2020, primarily due to a decline in dealer revenue[133][134] | Expense Category (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Cost of Revenue | $4,664 | $6,982 | $16,403 | $21,558 | | Sales and Marketing | $36,254 | $57,430 | $115,366 | $171,122 | | Technology and Development | $10,162 | $12,782 | $34,861 | $43,899 | | General and Administrative | $11,315 | $12,842 | $36,252 | $48,938 | | Depreciation and Amortization | $5,117 | $4,951 | $15,321 | $15,623 | | Goodwill Impairment | $0 | $0 | $8,264 | $0 | - Operating expenses decreased across all categories, with sales and marketing seeing the largest reduction (36.9% QoQ, 32.6% YoY) due to lower revenue share and media spend[138][139] - A non-cash goodwill impairment charge of $8.3 million was recognized for the nine months ended September 30, 2020[147] - Income from discontinued operations, net of taxes, increased by $0.9 million for Q3 2020 but decreased by $0.7 million for the nine-month period[149][150] Liquidity and Capital Resources The company's liquidity is supported by $178.7 million in cash and equivalents and a $35.0 million revolving credit facility - As of September 30, 2020, TrueCar's primary liquidity source was $178.7 million in cash and cash equivalents[152][153] - TrueCar has a $35.0 million revolving credit facility, with $31.9 million available as of September 30, 2020[154] | Cash Flow Activity (in thousands) | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $23,694 | $7,251 | | Net cash used in investing activities | $(9,158) | $(31,324) | | Net cash (used in) provided by financing activities | $(17,371) | $408 | | Net decrease in cash and cash equivalents | $(2,835) | $(23,665) | - Cash provided by operating activities for the nine months ended September 30, 2020, was $16.1 million (continuing operations), driven by non-cash adjustments to net loss[156] - Cash used in financing activities for the nine months ended September 30, 2020, was $17.4 million, primarily due to $12.1 million in common stock repurchases[159] Critical Accounting Policies and Estimates Financial statements rely on key estimates, particularly for revenue recognition, goodwill, and stock-based compensation, with a $10.2 million goodwill impairment charge in Q1 2020 - The preparation of financial statements requires significant estimates and assumptions, including those related to revenue recognition, allowances, goodwill, and capitalized software development costs[163] - A non-cash goodwill impairment charge of $10.2 million was recognized in Q1 2020, triggered by stock price decline, COVID-19 disruption, and the USAA partnership termination[164] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company assesses its exposure to market risks and believes it has no material exposure requiring disclosure - TrueCar does not believe it has any material market risk exposure, including interest rate, inflation, or foreign currency exchange risk, that would require disclosure[166] - Cash and cash equivalents of $178.7 million at September 30, 2020, are primarily in bank deposits and short-term money market funds, carrying some interest rate risk[167] - Historically, TrueCar's operations are primarily in the United States, limiting foreign currency risk, though future international expansion could increase this exposure[170] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2020 - As of September 30, 2020, TrueCar's disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level by management[171] - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2020[172] PART II - OTHER INFORMATION Item 1. Legal Proceedings This section refers to the detailed disclosure of legal proceedings under Note 8, 'Commitments and Contingencies,' in the financial statements - Legal proceedings are detailed in Note 8, 'Commitments and Contingencies,' of the condensed consolidated financial statements[174] Item 1A. Risk Factors This section outlines significant risks that could adversely affect the company, including the COVID-19 pandemic, the USAA partnership termination, and market competition Risks Related to the Coronavirus Pandemic The COVID-19 pandemic has severely disrupted business, causing reduced unit sales, dealer network contraction, and marketing challenges - The COVID-19 pandemic has materially and negatively affected TrueCar's business, leading to a drastic reduction in car purchases, with units declining ~22% YoY in Q2 and Q3 2020[176] - TrueCar supported subscription dealers with discounts and experienced dealer suspensions/cancellations, impacting revenue and timely collection of accounts receivable[176] - The pandemic creates uncertainty for long-term marketing campaigns and forecasting, leading to the withdrawal of 2020 financial guidance[177][180] - Remote work due to COVID-19 increases cybersecurity risks, and the potential illness of management team members could adversely affect the business[180][181] Risks Related to Our Business and Industry The company faces significant risks from the USAA partnership termination, challenges in growing dealer revenue, intense competition, and complex regulations - The termination of the USAA partnership, which accounted for 29% of units in 2019, has materially adversely affected TrueCar's business, revenue, and operating results[184][186] - Failure to complete the ALG divestiture or realize the full $22.5 million in contingent consideration could negatively impact TrueCar's stock price and divert resources[188][189][190] - TrueCar's growth relies on maintaining and increasing dealer revenues, which is challenged by dealer churn and managing subscription rates[191][193][194][195] - The company faces intense competition from various online automotive sites, manufacturers, and offline classifieds[214][215][216] - TrueCar is subject to a complex framework of federal and state laws concerning vehicle sales, advertising, brokering, and privacy[217][218][224] - Reliance on Internet search engines for traffic means that changes in search algorithms could reduce traffic and adversely affect the business[209][210] Risks Related to Ownership of Our Common Stock TrueCar's common stock price has been volatile, and factors like substantial sales by existing stockholders and anti-takeover provisions could depress the price - The trading price of TrueCar's common stock has been volatile, fluctuating between $1.98 and $6.47 in the nine months ended September 30, 2020[259][260] - Sales of substantial amounts of common stock by existing stockholders, who collectively owned ~59% as of Sep 30, 2020, could depress the market price[262][263][265] - Anti-takeover provisions in TrueCar's corporate documents and Delaware law could delay or prevent an acquisition[265][266] - TrueCar does not expect to declare cash dividends in the foreseeable future, intending to retain earnings for business expansion[269] - The share repurchase program, authorized for up to $75 million, does not obligate the company to repurchase shares and may not enhance long-term stockholder value[269] General Risk Factors Operating as a public company incurs substantial costs, and the company may require additional capital, face disruptions from catastrophic events, and experience stock price impacts from analyst coverage - Operating as a public company incurs significant legal, accounting, and compliance expenses, requiring substantial management time[270] - TrueCar may need additional capital for growth, but funds may not be available on favorable terms[272] - Natural disasters, public health crises like COVID-19, and other catastrophic events could disrupt operations and negatively impact consumer spending[273] - Future equity offerings or convertible debt issuances could result in significant dilution for existing stockholders[274] - Changes in research or reports by securities analysts could cause TrueCar's stock price and trading volume to decline[274] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 2.4 million shares for $11.7 million in Q3 2020 under its $75 million share repurchase program - No unregistered sales of equity securities were reported[275] - Proceeds from public offerings have been invested in short-term, investment-grade interest-bearing securities[275] | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | | :--------------------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :--------------------------------------------------------------------------------------- | | July 1, 2020 — July 31, 2020 | 0 | N/A | N/A | N/A | | August 1, 2020 — August 31, 2020 | 428,159 | $5.01 | 428,159 | $72,856,374 | | September 1, 2020 — September 30, 2020 | 1,974,651 | $4.81 | 1,974,651 | $63,359,067 | - TrueCar repurchased 2.4 million shares for $11.7 million during Q3 2020, under a $75 million share repurchase program, with $63.4 million remaining[276] Item 6. Exhibits This section lists the exhibits filed with the report, including organizational documents, employment agreements, certifications, and XBRL data files - Exhibits include the Amended and Restated Certificate of Incorporation and Bylaws, employment agreements, separation agreements, Section 302 and 906 certifications, and various XBRL taxonomy documents[278][279] Signatures The report is signed by the President & Chief Executive Officer and the Chief Financial Officer & Chief Accounting Officer on November 6, 2020 - The report was signed by Michael D. Darrow, President & Chief Executive Officer, and Noel B. Watson, Chief Financial Officer & Chief Accounting Officer, on November 6, 2020[283]