TrueCar Q2 2019 10-Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended June 30, 2019
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-36449
 
 
TRUECAR, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
04-3807511
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
120 Broadway, Suite 200
Santa Monica, California 90401
(800200-2000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices) 
 
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.0001 per share
TRUE
The Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes     No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No   
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  No 
As of August 1, 2019, 106,184,703 shares of the registrant’s common stock were outstanding.




 




TRUECAR, INC.
INDEX
 
 
Page
 
 
 
 
 
 
 
 
 
 
 

3



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements involve substantial risks and uncertainties.  Forward-looking statements generally relate to future events or our future financial or operating performance.  In some cases, you can identify forward-looking statements because they contain words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “likely,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “target,” “will,” “would” or similar expressions and the negatives of those terms. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
our future financial performance and our expectations regarding our revenue, cost of revenue, gross profit or gross margin, operating expenses and ability to grow revenue, scale our business, generate cash flow, fulfill our mission and achieve and maintain future profitability; 
our relationship with key industry participants, including car dealers and automobile manufacturers;
anticipated trends, growth rates and challenges in our business and in the markets in which we operate;
our ability to anticipate market needs and develop new and enhanced products and services to meet those needs and our ability to successfully monetize those products and services;
maintaining and expanding our customer base in key geographies, including our ability to increase the number of high-volume brand dealers in our network generally and in key geographies; 
our relationship with the United Services Automobile Association, or USAA, our ability to negotiate an extension of our agreement with USAA and the terms on which such an extension can be secured;
our reliance on our third-party service providers; 
the impact of competition in our industry and innovation by our competitors; 
our anticipated growth and growth strategies, including our ability to increase close rates and the rate at which site visitors prospect with a TrueCar certified dealer; 
our ability to successfully increase dealer subscription rates, and manage dealer churn, as the number of dealers on subscription billing arrangements increases relative to those on a pay-per-sale billing model;
our ability to attract significant automobile manufacturers to participate, and remain participants, in our incentive programs;
our ability to increase the number of dealers participating in our automotive trade-in program, expand its geographic coverage and successfully monetize the TrueCar Trade product;
our ability to anticipate or adapt to future changes in our industry;  
the impact on our business of seasonality, cyclical trends affecting the overall economy and actual or threatened severe weather events; 
our ability to hire and retain a chief executive officer and fill other vacancies in our management team and integrate them and other recent additions into our management team;
our ability to hire and retain necessary qualified employees, including anticipated additions to our dealer, product and technology teams; 
our continuing ability to provide customers access to our products; 
our ability to maintain and scale our technical infrastructure and leverage the completion of our technology replatforming project to enhance our customer experience and launch new product offerings;
the evolution of technology affecting our products, services and markets; 
our ability to adequately protect our intellectual property; 
the outcome, and effect on our business, of litigation to which we are a party, including our ability to settle any such litigation, the terms on which we reach any such settlement and the likelihood of obtaining final court approval of any such settlement, if required; 
our ability to navigate changes in domestic or international economic, political or business conditions, including changes in interest rates, consumer demand and import tariffs;
our ability to stay abreast of, and in compliance with, new or modified laws and regulations that currently apply or become applicable to our business, including newly-enacted and rapidly-changing data protection and net neutrality laws and regulations and changes in applicable tax laws and regulations; 
the continued expense and administrative workload associated with being a public company; 
our ability to maintain an effective system of internal controls necessary to accurately report our financial results and prevent fraud; 
our liquidity and working capital requirements;

4



the estimates and estimate methodologies used in preparing our consolidated financial statements;
the future trading prices of our common stock and the impact of securities analysts’ reports on these prices;
our plans to invest in new businesses, products, services and technologies, systems and infrastructure, including potential investments and acquisitions;
our ability to effectively and timely integrate our operations with those of any business we acquire, including DealerScience, and related factors, including the difficulties associated with such integration (such as the difficulties, challenges and costs associated with managing and integrating new facilities, assets and employees) and the achievement of the anticipated benefits of such integration;
the preceding and other factors discussed in Part II, Item 1A, “Risk Factors,” and in other reports we may file with the Securities and Exchange Commission from time to time; and
the factors set forth in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in the section entitled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.  Given these uncertainties, you should not place undue reliance on any forward-looking statements. Forward-looking statements speak only as of the date the statements are made. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

5





TRUECAR, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share data)
(Unaudited)
 
June 30, 2019
 
December 31, 2018
 
 
 
 
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
176,565

 
$
196,128

Accounts receivable, net of allowances of $4,781 and $3,382 at June 30, 2019 and December 31, 2018, respectively (includes related party receivables of $184 and $349 at June 30, 2019 and December 31, 2018, respectively)
49,286

 
47,760

Prepaid expenses
9,006

 
7,468

Other current assets
34,002

 
4,103

Total current assets
268,859

 
255,459

Property and equipment, net
32,282

 
61,511

Operating lease right-of-use assets
39,066

 

Goodwill
73,311

 
73,311

Intangible assets, net
20,353

 
23,451

Equity method investment
22,901

 

Other assets
4,738

 
7,228

Total assets
$
461,510

 
$
420,960

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities
 
 
 
Accounts payable (includes related party payables of $4,225 and $5,039 at June 30, 2019 and December 31, 2018, respectively)
$
20,400

 
$
26,305

Accrued employee expenses
10,361

 
4,349

Operating lease liabilities, current
6,933

 

Accrued expenses and other current liabilities (includes related party accrued expenses of $2,151 and $218 at June 30, 2019 and December 31, 2018, respectively)
49,387

 
10,908

Total current liabilities
87,081

 
41,562

Deferred tax liabilities
695

 
568

Lease financing obligations, net of current portion

 
22,987

Operating lease liabilities, net of current portion
39,851

 

Other liabilities
2,484

 
9,290

Total liabilities
130,111

 
74,407

Commitments and contingencies (Note 7)

 

Stockholders’ Equity
 
 
 
Preferred stock — $0.0001 par value; 20,000,000 shares authorized at June 30, 2019 and December 31, 2018, respectively; no shares issued and outstanding at June 30, 2019 and December 31, 2018

 

Common stock — $0.0001 par value; 1,000,000,000 shares authorized at June 30, 2019 and December 31, 2018; 105,895,609 and 104,337,508 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively
10

 
10

Additional paid-in capital
746,986

 
720,025

Accumulated deficit
(415,597
)
 
(373,482
)
Total stockholders’ equity
331,399

 
346,553

Total liabilities and stockholders’ equity
$
461,510

 
$
420,960

See accompanying notes to condensed consolidated financial statements.

6



TRUECAR, INC. 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands except per share data)
(Unaudited)
 
Three Months Ended 
 June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Revenues (includes related party contra revenue of $345 and $0 for the three months ended June 30, 2019 and 2018, respectively, and $509 and $0 for the six months ended June 30 2019 and 2018, respectively)
$
88,075

 
$
87,850

 
$
173,657

 
$
168,911

Costs and operating expenses:
 
 
 
 
 
 
 
Cost of revenue (exclusive of depreciation and amortization presented separately below; includes related party cost of revenue of $289 and $0 for the three months ended June 30, 2019 and 2018, respectively, and $423 and $0 for the six months ended June 30, 2019 and 2018, respectively)
8,332

 
7,752

 
17,268

 
15,204

Sales and marketing (includes related party expenses of $5,749 and $5,277 for the three months ended June 30, 2019 and 2018, respectively, and $11,222 and $9,818 for the six months ended June 30, 2019 and 2018, respectively)
60,233

 
52,014

 
114,971

 
100,432

Technology and development
16,045

 
15,694

 
31,699

 
31,288

General and administrative
21,382

 
13,494

 
36,486

 
26,975

Depreciation and amortization
6,767

 
5,641

 
13,182

 
10,816

Total costs and operating expenses
112,759

 
94,595

 
213,606

 
184,715

Loss from operations
(24,684
)
 
(6,745
)
 
(39,949
)
 
(15,804
)
Interest income
966

 
750

 
1,967

 
1,354

Interest expense

 
(662
)
 

 
(1,323
)
Loss from equity method investment
(273
)
 

 
(273
)
 

Loss before income taxes
(23,991
)
 
(6,657
)
 
(38,255
)
 
(15,773
)
Provision for (benefit from) income taxes
69

 
(35
)
 
170

 
(96
)
Net loss
$
(24,060
)
 
$
(6,622
)
 
$
(38,425
)
 
$
(15,677
)
 
 
 
 
 
 
 
 
Net loss per share, basic and diluted
$
(0.23
)
 
$
(0.07
)
 
$
(0.37
)
 
$
(0.16
)
Weighted average common shares outstanding, basic and diluted
105,485

 
101,150

 
105,139

 
100,862

Other comprehensive loss:
 
 
 
 
 
 
 
Comprehensive loss
$
(24,060
)
 
$
(6,622
)
 
$
(38,425
)
 
$
(15,677
)
See accompanying notes to condensed consolidated financial statements.


7



TRUECAR, INC. 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands except share data)
(Unaudited) 
 
Six Months Ended June 30, 2019
 
Common Stock
 
 
 
Accumulated
Deficit
 
Stockholders’
Equity
 
Shares
 
Amount
 
APIC
 
 
Balance at December 31, 2018
104,337,508

 
$
10

 
$
720,025

 
$
(373,482
)
 
$
346,553

Cumulative-effect of accounting change adopted as of January 1, 2019

 

 

 
(3,690
)
 
(3,690
)
Net loss

 

 

 
(14,365
)
 
(14,365
)
Stock-based compensation

 

 
9,108

 

 
9,108

Shares issued in connection with employee stock plans, net of shares withheld for employee taxes
781,538

 

 
2,261

 

 
2,261

Balance at March 31, 2019
105,119,046

 
$
10

 
$
731,394

 
$
(391,537
)
 
$
339,867

Net loss

 

 

 
(24,060
)
 
(24,060
)
Stock-based compensation

 

 
16,061

 

 
16,061

Shares withheld for employee taxes, net of shares issued in connection with employee stock plans
776,563

 

 
(469
)
 

 
(469
)
Balance at June 30, 2019
105,895,609

 
$
10

 
$
746,986

 
$
(415,597
)
 
$
331,399


 
Six Months Ended June 30, 2018
 
Common Stock
 
 
 
Accumulated
Deficit
 
Stockholders’
Equity
 
Shares
 
Amount
 
APIC
 
 
Balance at December 31, 2017
100,428,656

 
$
10

 
$
664,192

 
$
(351,084
)
 
$
313,118

Cumulative-effect of accounting change adopted as of January 1, 2018

 

 

 
5,923

 
5,923

Net loss

 

 

 
(9,055
)
 
(9,055
)
Stock-based compensation

 

 
9,431

 

 
9,431

Shares issued in connection with employee stock plans, net of shares withheld for employee taxes
468,809

 

 
(166
)
 

 
(166
)
Balance at March 31, 2018
100,897,465

 
$
10

 
$
673,457

 
$
(354,216
)
 
$
319,251

Net loss

 

 

 
(6,622
)
 
(6,622
)
Stock-based compensation

 

 
9,445

 

 
9,445

Shares issued in connection with employee stock plans, net of shares withheld for employee taxes
708,935

 

 
1,905

 

 
1,905

Balance at June 30, 2018
101,606,400

 
$
10

 
$
684,807

 
$
(360,838
)
 
$
323,979

See accompanying notes to condensed consolidated financial statements.

8



TRUECAR, INC. 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 
Six Months Ended 
 June 30,
 
2019
 
2018
Cash flows from operating activities
 
 
 
Net loss
$
(38,425
)
 
$
(15,677
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
13,182

 
10,818

Deferred income taxes
127

 
(120
)
Bad debt expense and other reserves
485

 
811

Stock-based compensation
24,191

 
18,069

Increase in the fair value of contingent consideration liability
150

 

Amortization of lease right-of-use assets
2,944

 

Loss from equity method investment
273

 

Non-cash interest expense on lease financing obligation

 
218

Impairment or write-off and loss on disposal of finite-lived assets
1,139

 
143

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(2,011
)
 
(4,491
)
Prepaid expenses
(2,538
)
 
(2,882
)
Other current assets
(29,711
)
 
(787
)
Other assets
1,406

 
(835
)
Accounts payable
(5,777
)
 
(232
)
Accrued employee expenses
5,905

 
106

Operating lease liabilities
(3,064
)
 

Accrued expenses and other liabilities
39,047

 
3,033

Other liabilities
(99
)
 
393

Net cash provided by operating activities
7,224

 
8,567

Cash flows from investing activities
 
 
 
Purchase of property and equipment
(5,405
)
 
(9,615
)
Cash paid for equity method investment
(23,174
)
 

Net cash used in investing activities
(28,579
)
 
(9,615
)
Cash flows from financing activities
 

 
 

Proceeds from exercise of common stock options
2,835

 
3,196

Taxes paid related to net share settlement of equity awards
(1,043
)
 
(1,423
)
Net cash provided by financing activities
1,792

 
1,773

Net (decrease) increase in cash and cash equivalents
(19,563
)
 
725

Cash and cash equivalents at beginning of period
196,128

 
197,762

Cash and cash equivalents at end of period
$
176,565

 
$
198,487

Supplemental disclosures of non-cash activities
 
 
 
Stock-based compensation capitalized for software development
978

 
807

Capitalized assets included in accounts payable, accrued employee expenses and other accrued expenses
245

 
554

Proceeds receivable from exercise of stock options included in other current assets

 
1

Taxes payable related to net share settlement of equity awards included in accrued employee expenses

 
29

 See accompanying notes to condensed consolidated financial statements.

9



TRUECAR, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
Organization and Nature of Business
TrueCar, Inc. is an Internet-based information, technology, and communication services company. Hereinafter, TrueCar, Inc. and its wholly owned subsidiaries ALG, Inc., TrueCar Dealer Solutions, Inc. and DealerScience, LLC are collectively referred to as “TrueCar” or the “Company,” ALG, Inc. is referred to as “ALG,” TrueCar Dealer Solutions, Inc. is referred to as “TCDS” and DealerScience, LLC is referred to as “DealerScience.” TrueCar was incorporated in the state of Delaware in February 2005 and began business operations in April 2005. Its principal corporate offices are located in Santa Monica, California.
TrueCar is a digital automotive marketplace that (i) provides pricing transparency about what other people paid for their cars and enables consumers to engage with TrueCar Certified Dealers who are committed to providing a superior purchase experience; (ii) empowers Certified Dealers to attract these informed, in-market consumers in a cost-effective, accountable manner; and (iii) allows automobile manufacturers (“OEMs”) to more effectively target their incentive spending at deep-in-market consumers during their purchase process. TrueCar has established a diverse software ecosystem on a common technology infrastructure, powered by proprietary data and analytics. Consumers access TrueCar’s platform through the TrueCar.com website and TrueCar mobile applications or through the car buying websites and mobile applications that TrueCar operates for its affinity group marketing partners (“Auto Buying Programs”). An affinity group is comprised of a network of members or employees that provides discounts to its members.
ALG provides forecasts, consulting, and other services regarding determination of the residual value of an automobile at future given points in time, which are used to underwrite automotive loans and leases and by financial institutions to measure exposure and risk across loan, lease, and fleet portfolios. ALG also obtains automobile purchase data from a variety of sources and uses this data to provide consumers and dealers with highly accurate, geographically specific, real-time pricing information.
Through its subsidiary TCDS, the Company provides its TrueCar Trade product, which gives consumers information on the value of their trade-in vehicles and enables them to obtain a guaranteed trade-in price before setting foot in the dealership. This valuation is, in turn, backed by a third-party guarantee to dealers that the vehicles will be repurchased at the indicated price if the dealer does not want to keep them. In addition, through TCDS, the Company acted as an agent for DealerSync, Inc. (“DealerSync”) until June 2019 and in that capacity offered dealers its products and services, including a dealer website creation and management service and a software platform that assists dealers in managing, marketing and growing their business.
Additionally, in December 2018, the Company acquired DealerScience, which, through TCDS, provides dealers with advanced digital retailing software tools that allow them to calculate accurate monthly payments, expedite vehicle desking, which is the process of presenting and agreeing upon financial terms and financing options, and streamline the consumer’s experience.
2.
Summary of Significant Accounting Policies
Basis of Presentation
The Company’s unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and Article 10-1 of Regulation S-X. Accordingly, some information and footnote disclosures required by GAAP for complete financial statements have been condensed or omitted pursuant to such rules and regulations. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements and notes have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2018, except for the accounting policy changes detailed in Note 3 as a result of the Company’s adoption of the new leasing standard, and include all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the interim periods presented.
The condensed consolidated balance sheet at December 31, 2018 has been derived from the audited financial statements at that date, but does not include all of the disclosures required by GAAP. The accompanying condensed consolidated financial

10

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statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Form 10-K filed with the SEC on March 1, 2019. 
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of TrueCar and its wholly owned subsidiaries. Business acquisitions are included in the Company’s condensed consolidated financial statements from the date of the acquisition. The Company’s purchase accounting resulted in all assets and liabilities of acquired businesses being recorded at their estimated fair values on the acquisition dates. Equity investments through which the Company is able to exercise significant influence over but does not control the investee and is not the primary beneficiary of the investee’s activities are accounted for using the equity method. The Company’s share of the income or loss from equity method investments is recognized on a one-quarter lag due to the timing and availability of financial information. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Assets and liabilities that are subject to judgment and use of estimates include sales allowances and allowances for doubtful accounts, contract assets, the fair value of a warrant asset and the related liability, the fair value of assets and liabilities assumed in business combinations, right-of-use assets and lease liabilities, the fair value of capitalized lease facilities, the recoverability of goodwill and long-lived assets, valuation allowances with respect to deferred tax assets, useful lives associated with property and equipment and intangible assets, lease exit liabilities, contingencies, and the valuation and assumptions underlying stock-based compensation and other equity instruments. On an ongoing basis, the Company evaluates its estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities. In addition, the Company engaged valuation specialists to assist with management’s determination of the valuation of the fair value of a warrant asset and the related liability, right-of-use assets and lease liabilities, the fair value of capitalized lease facilities, the fair values of assets and liabilities assumed in business combinations, the fair value of reporting units in connection with annual goodwill impairment testing, the fair value of performance shares, and in periods prior to the Company’s initial public offering, valuation of common stock.
Segments
The Company has one operating segment. During the first quarter of 2019, the Company’s chief operating decision maker (“CODM”) was the President and Chief Executive Officer and the Interim Chief Financial Officer and Chief Accounting Officer, who managed the Company’s operations based on consolidated financial information for purposes of evaluating financial performance and allocating resources. Effective April 1, 2019, the Company’s Interim Chief Financial Officer and Chief Accounting Officer resigned from his positions. From April 1, 2019, through May 31, 2019, the Company’s CODM was solely comprised of the President and Chief Executive Officer until his resignation on May 31, 2019. From June 1, 2019 through June 16, 2019, the CODM was comprised of the Interim President and Chief Executive Officer. Upon the hiring of the Chief Financial Officer on June 17, 2019 and through June 30, 2019, the CODM was comprised of both the Interim President and Chief Executive Officer and the Chief Financial Officer. During the three months ended June 30, 2019, the Company’s operations were managed based on consolidated financial information for purposes of evaluating financial performance and allocating resources by the various CODM in place.
The CODM reviews financial information on a consolidated basis, accompanied by information about dealer revenue, OEM incentive revenue, and forecasts, consulting and other revenue (Note 12). All of the Company’s principal operations, decision-making functions and assets are located in the United States.
Equity Method Investment
On February 8, 2019, the Company acquired 20% of the outstanding equity interests of Accu-Trade, LLC, a Delaware limited liability company (“Accu-Trade”), from R.M. Hollenshead Auto Sales & Leasing, Inc., a Florida corporation (“RHAS”), Robert M. Hollenshead (“Hollenshead”) and Jeffrey J. Zamora (“Zamora” and, together with RMHS and Hollenshead, the “Sellers”), pursuant to a Membership Interest Purchase Agreement, dated as of February 8, 2019 (the “Purchase Agreement”), by and among Accu-Trade, RMHS, Hollenshead, Zamora and the Company. Pursuant to the Purchase Agreement, and upon the terms and subject to the conditions thereof, the Company paid the Sellers $17.9 million in cash consideration and made a $5 million capital contribution to Accu-Trade. The Company recognizes its proportional share of the

11

Table of Contents

income or loss from the equity method investment on a one-quarter lag due to the timing and availability of financial information from Accu-Trade.
Included in the initial carrying value of $22.9 million, which represents the fair value on the transaction date, was a basis difference of $21.0 million related to the difference between the cost of the investment and the Company’s proportionate share of the net assets of Accu-Trade. The carrying value of the equity method investment is primarily adjusted for the Company’s share in the losses of Accu-Trade and amortization of the basis difference. The Company amortizes its basis difference between the estimated fair value and the underlying book value of Accu-Trade’s technology and guarantor relationship over their respective useful lives using the straight-line method. The weighted-average life of these intangible assets is approximately 5 years.
Recent Accounting Pronouncements
In February 2016, the FASB issued guidance amending the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. On January 1, 2019, the Company adopted the new leasing standard using the prospective transition method. See Note 3 for further details.
In June 2018, the FASB issued new guidance to simplify the accounting for nonemployee share-based payment transactions by expanding the scope of ASC Topic 718, Compensation - Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. Under the new standard, most of the guidance on stock compensation payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. This standard is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods, with early adoption permitted. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
3.
Leases
Adoption of the New Lease Accounting Standard
On January 1, 2019, the Company adopted the new lease accounting standard using the modified retrospective transition method applied at the effective date of the standard. Results for reporting periods beginning after January 1, 2019 are presented under the new leasing standard, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting. The Company has elected to utilize the package of practical expedients at the time of adoption, which allows the Company to (1) not reassess whether any expired or existing contracts are or contain leases, (2) not reassess the lease classification of any expired or existing leases, and (3) not reassess initial direct costs for any existing leases. The Company also has elected to utilize the short-term lease recognition exemption and, for those leases that qualified, the Company did not recognize right-of-use (“ROU”) assets or lease liabilities.
New Lease Accounting Policies
The Company determines if an arrangement is a lease at inception and determine the classification of the lease, as either operating or finance, at commencement. The Company has various operating leases for its offices. These existing leases have remaining lease terms ranging from 1 to 11 years. Certain lease agreements contain options to renew, with renewal terms that generally extend the lease terms by 3 to 5 years for each option. The Company does not have any finance leases.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company estimates the incremental borrowing rate to reflect the profile of secured borrowing over the expected term of the leases based on the information available at the later of the initial date of adoption or the lease commencement date.
The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Sublease rental income is recognized as a reduction to the related lease expense on a straight-line basis over the sublease term.

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Table of Contents

Adoption Impact
As a result of adoption, the Company recorded a material impact as ROU assets and lease liabilities are recognized on the consolidated balance sheet related to office facility leases. The ROU assets and lease liabilities were valued using the incremental borrowing rate as of the adoption date. Additionally, the Company expects to recognize greater rent expense in operating expenses and less interest expense as the Company’s prior build-to-suit leases are now classified as operating leases. Additionally, the change related to build-to-suit leases resulted in the removal of build-to-suit assets from the consolidated balance sheet, which reduced property and equipment, net by $28.3 million and eliminated the lease financing obligation of $1.8 million within accrued expenses and other liabilities and $23.0 million within lease financing obligation, net of current portion. See Note 5 for further details.
The cumulative effects of the changes made to the Company’s January 1, 2019 consolidated balance sheet were as follows (in thousands):
 
December 31, 2018
 
Adjustments Due to Adoption of New Leasing Standard
 
January 1, 2019
 
 
 
 
 
 
Assets
 
 
 
 
 
Other current assets
$
4,103

 
$
188

 
$
4,291

Property and equipment, net
61,511

 
(25,461
)
 
36,050

Operating lease right-of-use assets

 
42,010

 
42,010

Other assets
7,228

 
147

 
7,375

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Operating lease liabilities, current
$

 
$
6,498

 
$
6,498

Accrued expenses and other current liabilities
10,908

 
(2,637
)
 
8,271

Lease financing obligation, net of current portion
22,987

 
(22,987
)
 

Operating lease liabilities, net of current portion

 
43,351

 
43,351

Other liabilities
9,290

 
(3,651
)
 
5,639

 
 
 
 
 
 
Stockholders Equity
 
 
 
 
 
Accumulated deficit
$
(373,482
)
 
$
(3,690
)
 
$
(377,172
)
Lease Costs
For the three and six months ended June 30, 2019, the Company recorded operating lease costs, excluding subleases, that were included in the consolidated statements of comprehensive loss as follows:
Operating lease costs recorded within:
Three Months Ended June 30, 2019
Six Months Ended June 30, 2019
 
 
 
Cost of revenue
$
192

$
392

Sales and marketing
443

882

Technology and development
893

1,764

General and administrative
616

1,250

Total operating lease costs
$
2,144

$
4,288


The Company did not include short term or variable lease costs in the table above as these amounts were immaterial. For the three and six months ended June 30, 2019, the Company recorded lease costs, excluding subleases, of $2.1 million and $4.3 million, respectively. The Company made cash payments for operating leases of $2.4 million and $2.3 million for the three months ended June 30, 2019 and 2018, respectively, and $4.7 million and $4.8 million for the six months ended June 30, 2019 and 2018, respectively, all of which were included in cash flows from operating activities within the consolidated statements of

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cash flows. The Company’s operating leases have a weighted average remaining lease term of 7.2 years and weighted average discount rate of 5.6%. For its subleases, the Company recorded contra rent expense of $0.5 million for the three months ended June 30, 2019 and 2018. For the six months ended June 30, 2019 and 2018, the Company recorded contra rent expense of $1.0 million related to its subleases.
Lease Commitments
Future undiscounted lease payments for the Company’s operating lease liabilities, a reconciliation of these payments to its operating lease liabilities, and related sublease income at June 30, 2019 are as follows (in thousands):
Six months ended December 31, 2019 and years ended December 31,
 
 
2019
 
$
3,929

2020
 
8,523

2021
 
7,152

2022
 
7,369

2023
 
7,628

Thereafter
 
22,561

Total lease payments
 
$
57,162

Less: imputed interest
 
(10,378
)
Total lease liabilities (discounted)
 
$
46,784


Six months ended December 31, 2019 and year ended December 31, 2020
 
Sublease Income
2019
 
$
(1,096
)
2020
 
(1,299
)
Total sublease income
 
$
(2,395
)

As previously disclosed in the Company’s 2018 Annual Report on Form 10-K and under the previous lease accounting standard, future minimum lease payments for the Company’s operating leases at December 31, 2018, on an undiscounted basis, were as follows (in thousands):    
Years ended December 31,
 
Lease Commitments
 
Sublease Income
2019
 
$
9,220

 
$
(2,180
)
2020
 
8,716

 
(1,282
)
2021
 
7,145

 

2022
 
7,362

 

2023
 
7,621

 

Thereafter
 
22,532

 

Total minimum lease payments
 
$
62,596

 
$
(3,462
)


4.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Accounting standards describe a fair value hierarchy based on the following three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

14



Level 1 — Quoted prices in active markets for identical assets, liabilities, or funds.
Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The carrying amounts of cash equivalents, accounts receivable, prepaid and other current assets, accounts payable, and accrued expenses and other current liabilities approximate fair value because of the short maturity of these items.
The following table summarizes the Company’s financial assets measured at fair value on a recurring basis at June 30, 2019 and December 31, 2018 by level within the fair value hierarchy. Financial assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement (in thousands):
 
At June 30, 2019
 
At December 31, 2018
 
 
 
 
 
 
 
Total Fair
 
 
 
 
 
 
 
Total Fair
 
Level 1
 
Level 2
 
Level 3
 
Value
 
Level 1
 
Level 2
 
Level 3
 
Value
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents
$
171,254

 
$

 
$

 
$
171,254

 
$
192,207

 
$

 
$

 
$
192,207

Total Assets
$
171,254

 
$

 
$

 
$
171,254

 
$
192,207

 
$

 
$

 
$
192,207

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent consideration, current
$

 
$

 
$
2,352

 
$
2,352

 
$

 
$

 
$

 
$

Contingent consideration, non-current
$

 
$

 
$
2,275

 
$
2,275

 
$

 
$

 
$
4,477

 
$
4,477

Total Liabilities
$

 
$

 
$
4,627

 
$
4,627

 
$

 
$

 
$
4,477

 
$
4,477




15

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5.
Property and Equipment, net
Property and equipment consisted of the following at June 30, 2019 and December 31, 2018 (in thousands):
 
June 30,
2019
 
December 31,
2018
 
 
Computer equipment, software, and internally developed software
$
104,471

 
$
99,204

Furniture and fixtures
4,762

 
4,758

Leasehold improvements
15,839

 
8,602

Capitalized facility leases

 
30,632

 
125,072

 
143,196

Less: Accumulated depreciation
(92,790
)
 
(81,685
)
Total property and equipment, net
$
32,282

 
$
61,511


Prior to the adoption of the new lease guidance, the Company was considered the owner, for accounting purposes only, of one of its Santa Monica, California leased office spaces as it had taken on certain risks of construction build cost overages above normal tenant improvement allowances. These capitalized facility leases were removed from the balance sheet at adoption. Refer to Note 3 for further details.
Included in the table above are property and equipment of $1.0 million and $1.1 million at June 30, 2019 and December 31, 2018, respectively, which are capitalizable but had not yet been placed in service. These balances were comprised primarily of capitalized software not ready for its intended use.
Total depreciation and amortization expense of property and equipment was $5.2 million and $4.7 million for the three months ended June 30, 2019 and 2018, respectively. Total depreciation and amortization expense of property and equipment was $10.1 million and $8.9 million for the six months ended June 30, 2019 and 2018, respectively.
Amortization of internal use capitalized software development costs was $3.9 million and $3.3 million for the three months ended June 30, 2019 and 2018, respectively. Amortization of internal use capitalized software development costs was $7.3 million and $6.2 million for the six months ended June 30, 2019 and 2018, respectively.
6.
Credit Facility
The Company is party to a third amended and restated loan and security agreement (the “Credit Facility”) with a financial institution that provides for advances under a $35.0 million revolving line of credit. In February 2018, the Company entered into a first amendment to the Credit Facility that, among other things, extended the expiration of the Credit Facility from February 18, 2018 to February 18, 2021. In December 2018, the Company entered into a second amendment to the Credit Facility to make certain other revisions that do not alter the borrowing amounts, interest rates, or required ratios. The Credit Facility provides a $10.0 million subfacility for the issuance of letters of credit and contained an increase option permitting the Company, 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 bears interest, at the Company’s option, at either (i) the prime rate published by The Wall Street Journal, plus a spread of -0.25% to 0.50%, or (ii) a LIBOR rate determined in accordance with the terms of the Credit Facility, plus a spread of 1.75% to 2.50%. In each case, the spread is based on the Company’s adjusted quick ratio, which is a ratio of the Company’s cash and cash equivalents plus net billed accounts receivable to current liabilities plus all borrowings under the Credit Facility.
Interest is due and payable quarterly in arrears for prime rate loans and on the earlier of the last day of each quarter or the end of an interest period, as defined in the Credit Facility, for LIBOR rate loans. The Company is also obligated to pay an unused revolving line facility fee of 0.00% to 0.20% per annum based on the Company’s adjusted quick ratio.
The Credit Facility requires the Company to maintain an adjusted quick ratio of at least 1.50 to 1.00 on the last day of each quarter. If this adjusted quick ratio is not maintained, then the facility requires the Company to maintain, as measured at each quarter end, a maximum consolidated leverage ratio of 3.00 or 2.50 to 1.00, and a fixed charge coverage ratio of at least 1.25 to 1.00.

16



Consolidated leverage ratio is a ratio of all funded indebtedness, including all capital lease obligations, plus all letters of credit under the facility to the Company’s Adjusted EBITDA for the trailing twelve months. Fixed charge coverage ratio is the ratio of the Company’s Adjusted EBITDA minus cash income taxes to its cash interest payments for the trailing twelve months. The Credit Facility also limits the Company’s ability to pay dividends. At June 30, 2019, the Company was in compliance with the Credit Facility’s financial covenants. 
The Company’s future material domestic subsidiaries are required, upon the lender’s request, to become co-borrowers under the Credit Facility. Additionally, the Credit Facility contains acceleration clauses that accelerate any borrowings in the event of default. The Company’s obligations and those of its future material domestic subsidiaries are collateralized by substantially all of their respective assets, subject to certain exceptions and limitations. 
At June 30, 2019, the Company had no outstanding amounts under the Credit Facility and the amount available was $31.5 million, reduced for the letters of credit issued and outstanding under the subfacility of $3.5 million.
7.
Commitments and Contingencies
Lease Exit Costs
The Company had historically accounted for exit and disposal activities through the use of a lease exit liability. Under the new leasing guidance, the remaining lease exit liability was eliminated and the remaining balance was included as an adjustment to reduce the ROU assets for the relevant properties. Refer to Note 3 for further details.
Reorganization and Executive Departures
In January 2019, the Company initiated and completed a restructuring plan (the “Reorganization Plan”) to improve efficiency and reduce expenses. The Company recorded severance costs of approximately $3.3 million in the first quarter of 2019 in connection with the Reorganization Plan. These costs were recorded within cost of revenue, sales and marketing, technology and development, and general and administrative expenses within the Company’s consolidated statements of comprehensive loss. The Company does not expect to incur significant additional charges in future periods related to this Reorganization Plan.
In the second quarter of 2019, the Company incurred severance costs totaling $4.6 million associated with the separations of executive-level employees including its former chief executive officer. Of the total, the Company recorded $0.4 million in sales and marketing, $0.9 million in technology and development and $3.3 million in general and administrative expenses in the Company’s consolidated statements of comprehensive loss during the three and six months ended June 30, 2019.
The following table presents a roll forward of the severance liability for the six months ended June 30, 2019 (in thousands):
 
Severance Liability
Accrual at December 31, 2018
$

Expense
7,871

Cash Payments
(3,180
)
Accrual at June 30, 2019
$
4,691


Legal Proceedings
From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. When the Company becomes aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. In accordance with authoritative guidance, the Company records loss contingencies in its financial statements only for matters in which losses are probable and can be reasonably estimated. Where a range of loss can be reasonably estimated with no best estimate in the range, the Company records the minimum estimated liability. If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the specific claim if the likelihood of a potential loss is reasonably possible and the amount involved is material. The Company continuously assesses the potential liability related to the Company’s pending litigation and revises its estimates when additional information becomes available. The Company is not currently a party to any material legal proceedings, other than as described below.

17



On March 9, 2015, the Company was named as a defendant in a lawsuit purportedly filed on behalf of numerous automotive dealers who are not on the TrueCar platform in the U.S. District Court for the Southern District of New York (the “NY Lanham Act Litigation”). The complaint in the NY Lanham Act Litigation alleged that the Company violated the Lanham Act as well as various state laws prohibiting unfair competition and deceptive acts or practices related to the Company’s advertising and promotional activities. The complaint sought injunctive relief in addition to over $250 million in damages as a result of the alleged diversion of customers from the plaintiffs’ dealerships to TrueCar Certified Dealers. On April 7, 2015, the Company filed an answer to the complaint. Thereafter, the plaintiffs amended their complaint, and on July 13, 2015, the Company filed a motion to dismiss the amended complaint. On January 6, 2016, the court granted in part and denied in part the Company’s motion to dismiss with respect to some, but not all, of the advertising and promotional activities challenged in the amended complaint. On January 19, 2018, the Company filed a motion to exclude testimony from the plaintiffs’ damages expert. On April 10 and April 11, 2018, the court held an evidentiary hearing on that motion. On May 9, 2018, the court granted the Company’s motion to exclude testimony from the plaintiffs’ damages expert. On July 2, 2018, the Company filed a motion for summary judgment seeking dismissal of the amended complaint in its entirety. On March 27, 2019, the court granted in part and denied in part the Company’s motion, allowing the plaintiffs to pursue disgorgement of the Company’s profits on a deterrence theory but granting summary judgment to the Company on the other aspects of the plaintiffs’ claims. On April 9, 2019, the Company filed a motion for reconsideration of the court’s ruling, which the court granted on July 12, 2019. As a result, the court granted the Company’s motion for summary judgment in its entirety as to the plaintiffs’ Lanham Act claim. In light of the dismissal of the plaintiffs’ sole federal claim, the court declined to exercise supplemental jurisdiction over the state-law claims alleged by the amended complaint and therefore dismissed them without prejudice, meaning that the state-law claims could be re-filed in state court at a later date. If any such claims are re-filed in state court, or if the plaintiffs appeal the dismissal of their federal claims, the Company intends to vigorously defend itself. The Company has not recorded an accrual related to this matter as of June 30, 2019, as it does not believe a loss is probable or reasonably estimable.
On December 23, 2015, the Company was named as a defendant in a putative class action lawsuit filed by Gordon Rose in the California Superior Court for the County of Los Angeles. The complaint asserted claims for unjust enrichment, violation of the California Consumer Legal Remedies Act and violation of the California Business and Professions Code, based principally on allegations that the Company was operating in the State of California as an unlicensed automobile dealer and autobroker as well as factual allegations similar to those asserted in the NY Lanham Act Litigation. The complaint sought an award of unspecified damages, interest, disgorgement, injunctive relief and attorney’s fees. In the complaint, the plaintiff sought to represent a class of California consumers defined as “[a]ll California consumers who purchased an automobile by using TrueCar, Inc.’s price certificate during the applicable statute of limitations.” On January 12, 2016, the court entered an order staying all proceedings in the case pending an initial status conference, which was scheduled for April 13, 2016. On March 16, 2016, the case was reassigned to a different judge. As a result of that reassignment, the initial status conference was rescheduled for and held on May 26, 2016. By stipulation, the stay of discovery was continued until a second status conference, which was scheduled for October 12, 2016. On July 13, 2016, the plaintiff amended his complaint. The amended complaint continues to assert claims for unjust enrichment, violation of the California Consumer Legal Remedies Act and violation of the California Business and Professions Code. The amended complaint retains the same proposed class definition as the initial complaint. Like the initial complaint, the amended complaint seeks an award of unspecified damages, punitive and exemplary damages, interest, disgorgement, injunctive relief and attorney’s fees. On September 12, 2016, the Company filed a demurrer to the amended complaint. On October 12, 2016, the court heard oral argument on the demurrer. On October 13, 2016, the court granted in part and denied in part the Company’s demurrer to the amended complaint, dismissing the unjust enrichment claim but declining to dismiss the balance of the claims at the demurrer stage of the litigation. At a status conference held on January 26, 2017, the court ruled that discovery could then proceed regarding matters related to class certification only. At a status conference held on July 25, 2017, the court set a deadline of January 8, 2018 for the filing of the plaintiff’s motion for class certification and provided that discovery could continue to proceed regarding matters related to class certification only at that time. Subsequently, the court extended to February 7, 2018 the deadline for the filing of plaintiff’s motion for class certification and for the completion of related discovery. On February 7, 2018, the plaintiff filed a motion for class certification. The court held a hearing on the plaintiff’s class certification motion on July 12, 2018 and denied the motion on July 27, 2018. On September 26, 2018, the plaintiff filed a notice of appeal and proceedings in the trial court have been stayed pending the resolution of the appeal. The Company believes that the amended complaint is without merit, and it intends to vigorously defend itself in this matter. The Company has not recorded an accrual related to this matter as of June 30, 2019 as the Company does not believe a loss is probable or reasonably estimable.

18



On March 30, 2018, the Company and one of its former officers were named as defendants in a putative securities class action filed by Leon Milbeck in the U.S. District Court for the Central District of California (the “Milbeck Federal Securities Litigation”). The complaint sought an award of unspecified damages, interest, attorney’s fees and equitable relief based on allegations that the defendants made false or misleading statements about our business, operations, prospects and performance during a purported class period of February 16, 2017 through November 6, 2017 in violation of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. On June 27, 2018, the court appointed the Oklahoma Police Pension and Retirement Fund as lead plaintiff. The plaintiff filed an amended complaint on August 24, 2018. The amended complaint reiterated the claims in the prior complaint and added claims under Section 11 of the Exchange Act. The amended complaint also added our chief executive officer Chip Perry, our former interim chief financial officer John Pierantoni, our former chief financial officer Michael Guthrie and our underwriters and directors who signed the registration statement for our secondary offering that occurred during the class period (the “2017 Registration Statement”) as defendants. On October 31, 2018, the plaintiff dismissed the underwriters from the litigation “without prejudice,” meaning that they could be reinstated as defendants at a later time, and on November 5, 2018, the Company filed a motion to dismiss the amended complaint, which the court denied on February 5, 2019. On May 9, 2019, the court granted lead plaintiff’s motion for class certification and scheduled trial to begin on November 5, 2019. On July 3, 2019, the lead plaintiff, the Company and the individual defendants notified the court that they had reached an agreement in principle to settle the outstanding claims in the Milbeck Federal Securities Litigation. On August 2, 2019, the parties entered into an agreement to settle the Milbeck Federal Securities Litigation on a classwide basis for $28.25 million, which will be covered by the Company’s directors’ and officers’ liability insurance. Later that day, the lead plaintiff filed an unopposed motion for preliminary approval of the proposed settlement, which the court has not yet granted. As of June 30, 2019, the proposed settlement amount and offsetting insurance receivable of $28.25 million are included in “Accrued expenses and other current liabilities” and “Other current assets” in the Company’s condensed consolidated balance sheets.

On March 6, 2019, the Company, its former chief executive officer Chip Perry, its former chief financial officer Michael Guthrie, its former interim chief financial officer John Pierantoni, its directors who signed the 2017 Registration Statement and USAA were named as defendants in a derivative action filed by Dean Drulias nominally on behalf of the Company in the U.S. District Court for the Central District of California (the “California Derivative Litigation”). The complaint alleges breach of fiduciary duties and unjust enrichment and seeks contribution for damages awarded against the Company in the Milbeck Federal Securities Litigation and an award of unspecified damages, interest, attorney’s fees and equitable relief based on substantially the same factual allegations as the Milbeck Federal Securities Litigation. On June 13, 2019, the court granted the Company’s motion to stay the California Derivative Litigation pending the decision of the Judicial Panel on Multidistrict Litigation (the “JPML”) on the Company’s motion to transfer the California Derivative Litigation to the U.S. District Court for the District of Delaware to enable its consolidation with the Delaware Derivative Litigation. On July 31, 2019, the JPML denied the Company’s motion. The Company believes that the complaint is without merit and intends to vigorously defend itself in this matter. The Company has not recorded an accrual related to this matter as of June 30, 2019 as the Company does not believe a loss is probable or reasonably estimable.

On April 1 and April 3, 2019, respectively, the Company, its former chief executive officer Chip Perry, its former chief financial officer Michael Guthrie, its former interim chief financial officer John Pierantoni, its directors who signed the 2017 Registration Statement and USAA were named as defendants in derivative actions filed by Ara Afarian and Shelley Niemi nominally on behalf of the Company in the U.S. District Court for the District of Delaware. The complaints allege breach of Section 29(b) of the Exchange Act as well as breach of fiduciary duties and unjust enrichment and seek contribution for damages awarded against the Company in the Milbeck Federal Securities Litigation and an award of unspecified damages, interest, attorney’s fees and equitable relief based on substantially the same factual allegations as the Milbeck Federal Securities Litigation. The Niemi complaint also seeks rescission of certain contracts. On April 17, 2019, the two cases, and all similar cases originating in or transferred to the U.S. District Court for the District of Delaware, were consolidated into a single action bearing the caption In re TrueCar, Inc. Shareholder Derivative Litigation (the “Delaware Derivative Litigation”). On May 23, 2019, the Delaware Derivative Litigation was stayed pending the decision of the JPML on the Company’s motion that the California Derivative Litigation be transferred to the U.S. District Court for the District of Delaware to enable its consolidation with the Delaware Derivative Litigation. On July 31, 2019, the JPML denied the Company’s motion. The Company believes that the complaints are without merit and intends to vigorously defend itself in this matter. The Company has not recorded an accrual related to this matter as of June 30, 2019 as the Company does not believe a loss is probable or reasonably estimable.
Employment Contracts
The Company has entered into employment contracts with certain executives of the Company. Employment under these contracts is at-will employment. However, under the provisions of the contracts, the Company would incur severance obligations of up to twelve months of the executive’s annual base salary for certain events such as involuntary terminations.

19



Indemnifications
In the ordinary course of business, the Company may provide indemnities of varying scope and terms to customers, vendors, lessors, investors, directors, officers, employees and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements, services to be provided by the Company, or intellectual property infringement claims made by third parties. While the Company’s future obligations under certain of these agreements may contain limitations on liability for indemnification, other agreements do not contain such limitations and under such agreements it is not possible to predict the maximum potential amount of future payments due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under such indemnities have not had a material effect on the Company’s business, financial condition, results of operations or cash flows. Additionally, the Company does not believe that any amounts that it may be required to pay under these indemnities in the future will be material to the Company’s business, financial position, results of operations, or cash flows.  
8.
Stock-based Awards
Stock Options
A summary of the Company’s stock option activity for the six months ended June 30, 2019 is as follows:
 
Number of
Options
 
Weighted-Average Exercise Price
 
Weighted-Average
Remaining
Contractual Life
 
 
 
 
 
(in years)
Outstanding at December 31, 2018
14,114,651

 
$
12.32

 
7.0
Granted
2,022,047

 
7.06

 
 
Exercised
(355,147
)
 
7.98

 
 
Forfeited/expired
(2,701,845
)
 
12.96

 
 
Outstanding at June 30, 2019
13,079,706

 
$
11.50

 
6.8

At June 30, 2019, total remaining stock-based compensation expense for unvested stock option awards was $17.6 million, which is expected to be recognized over a weighted-average period of 2.5 years. For the three months ended June 30, 2019 and 2018, the Company recorded stock-based compensation expense for stock option awards of $6.9 million and $3.8 million, respectively. For the six months ended June 30, 2019 and 2018, the Company recorded stock-based compensation expense for stock option awards of $10.0 million and $8.4 million, respectively.
Restricted Stock Units
Activity in connection with restricted stock units is as follows for the six months ended June 30, 2019:
 
Number of
Shares
 
Weighted- Average Grant Date Fair Value
Non-vested — December 31, 2018
5,375,963

 
$
11.01

Granted
4,498,063

 
6.80

Vested
(1,704,577
)
 
9.63

Forfeited
(1,468,517
)
 
9.91

Non-vested — June 30, 2019
6,700,932

 
$
8.77


At June 30, 2019, total remaining stock-based compensation expense for non-vested restricted stock units was $56.3 million, which is expected to be recognized over a weighted-average period of 3.0 years. The Company recorded $8.7 million and $5.2 million in stock-based compensation expense for restricted stock units for the three months ended June 30, 2019 and 2018, respectively. The Company recorded $14.2 million and $9.6 million in stock-based compensation for restricted stock units for the six months ended June 30, 2019 and 2018, respectively.

20



Stock-based Compensation Cost
The Company recorded stock-based compensation cost relating to stock options and restricted stock units in the following categories on the accompanying consolidated statements of comprehensive loss (in thousands):
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Cost of revenue
$
553

 
$
443

 
$
1,052

 
$
741

Sales and marketing
4,716

 
3,543

 
8,188

 
6,670

Technology and development
3,463

 
2,698

 
5,409

 
5,051

General and administrative
6,824

 
2,288

 
9,542

 
5,607

Total stock-based compensation expense
15,556

 
8,972

 
24,191

 
18,069

Amount capitalized to internal software use
505

 
473

 
978

 
807

Total stock-based compensation cost
$
16,061

 
$
9,445

 
$
25,169

 
$
18,876

 
As referenced in Note 7, certain executive-level employees, including the Company’s former chief executive officer, separated from the Company in the second quarter of 2019. Benefits provided associated with these terminations include severance payments, acceleration of certain equity awards and extension of the exercise period for certain vested stock options. As a result of these termination benefits, the Company recognized $7.2 million in additional stock-based compensation expense for the three and six months ended June 30, 2019.

9.
Income Taxes
In determining quarterly provisions for income taxes, the Company uses the annual estimated effective tax rate applied to the actual year-to-date loss. The Company’s annual estimated effective tax rate differs from the statutory rate primarily as a result of state taxes, tax amortization of goodwill and changes in the Company’s valuation allowance. The Company recorded income tax expense of $0.1 million for the three months ended June 30, 2019 and an income tax benefit of $35 thousand for the three months ended June 30, 2018. The Company recorded income tax expense of $0.2 million for the six months ended June 30, 2019 and an income tax benefit $0.1 million for the six months ended June 30, 2018.
There were no material changes to the Company’s unrecognized tax benefits in the six months ended June 30, 2019, and the Company does not expect to have any significant changes to unrecognized tax benefits through the end of the fiscal year. Due to the presence of NOL carryforwards, all income tax years remain open for examination by the IRS and various state taxing authorities.
10.
Net Loss Per Share
The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share data): 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Net loss
$
(24,060
)
 
$
(6,622
)
 
$
(38,425
)
 
$
(15,677
)
Weighted-average common shares outstanding
105,485

 
101,150

 
105,139

 
100,862

Net loss per share - basic and diluted
$
(0.23
)
 
$
(0.07
)
 
$
(0.37
)
 
$
(0.16
)


21



The following table presents the number of anti-dilutive shares excluded from the calculation of diluted net loss per share at June 30, 2019 and 2018 (in thousands):
 
June 30,
 
2019
 
2018
 


 
 
Options to purchase common stock
13,080

 
16,456

Common stock warrants
1,459

 
1,459

Non-vested restricted stock unit awards
6,701

 
3,727

Total shares excluded from net loss per share
21,240

 
21,642


 
11.
Related Party Transactions
Transactions with USAA
USAA is a large stockholder in the Company and the Company’s most significant affinity marketing partner. The Company has entered into arrangements with USAA to operate its Auto Buying Program. At the time that the Company entered into these arrangements, USAA met the definition of a related party. The Company had amounts due from USAA at June 30, 2019 and December 31, 2018 of $0.2 million and $0.3 million, respectively. In addition, the Company had amounts due to USAA at June 30, 2019 and December 31, 2018 of $6.0 million and $5.3 million, respectively. The Company recorded sales and marketing expense of $5.7 million and $5.3 million for the three months ended June 30, 2019 and 2018, respectively, related to service arrangements entered into with USAA. The Company recorded sales and marketing expense of $11.2 million and $9.8 million for the six months ended June 30, 2019 and 2018, respectively.
Transactions with Accu-Trade
During the first quarter of 2019, the Company became a 20% owner of Accu-Trade and accounts for the investment using the equity method, as the Company has significant influence over the investee. The Company had amounts due to Accu-Trade at June 30, 2019 of $0.4 million. The Company recognized contra-revenue of $0.3 million and cost of revenue of $0.3 million during the three months ended June 30, 2019 related to a software and data licensing agreement entered into with Accu-Trade. During the six months ended June 30, 2019, the Company recognized contra-revenue of $0.5 million and cost of revenue of $0.4 million.
12.
Revenue Information
Disaggregation of Revenue
The Company disaggregates revenue into three revenue streams: dealer revenue, OEM incentives revenue, and forecasts, consulting and other revenue. The following table presents the Company’s revenue categories during the periods presented (in thousands):
 
Three Months Ended 
 June 30,
Six Months Ended June 30,
 
2019
 
2018
2019
 
2018
 
 
 
 
 
 
 
Dealer revenue
$
78,977

 
$
75,271

155,791

 
147,608

OEM incentives revenue
4,143

 
7,927

8,344

 
12,348

Forecasts, consulting and other revenue
4,955

 
4,652

9,522

 
8,955

Total revenues
$
88,075

 
$
87,850

$
173,657

 
$
168,911


Contract Balances
The Company’s contract asset balance for estimated variable consideration to be received upon the occurrence of subsequent vehicle sales is included within other current assets and is distinguished from accounts receivable in that these amounts are conditional upon subsequent sales and not only upon the passage of time. Substantially all of the contract asset balances of $3.3 million at December 31, 2018 were transferred to accounts receivable during the six months ended June 30, 2019 as vehicle sales occurred, with no significant changes in the estimate. A contract asset of $3.4 million was recorded as of June 30, 2019 for leads delivered where consideration to be received was still conditional upon subsequent vehicle sales.

22




Item 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 a diverse software ecosystem on a common technology infrastructure, powered by proprietary data and analytics. Our company-branded platform is available on our TrueCar website and mobile applications. In addition, we customize and operate our platform on a co-branded basis for our many affinity group marketing partners, including financial institutions like USAA 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 16,000 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, 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.
Further, our subsidiary, TCDS, provides our TrueCar Trade product, which gives consumers information on the value of their trade-in vehicles and enables them to obtain a guaranteed trade-in price before setting foot in the dealership. This valuation is, in turn, backed by a third-party guarantee to dealers that the vehicles will be repurchased at the indicated price if the dealer does not want to keep them. In addition, through TCDS, we acted as an agent for DealerSync until June 2019 and in such capacity offered products and services developed by DealerSync, including a dealer website creation and management service and a software platform that assists dealers in managing, marketing and growing their business.
Additionally, in December 2018, we acquired DealerScience, which, through TCDS, provides dealers with advanced digital retailing software tools that allow them to calculate accurate monthly payments, expedite vehicle desking, which is the process of presenting and agreeing upon financial terms and financing options, and streamline the consumer’s experience from shopping to showroom.

23



During the three months ended June 30, 2019, we generated revenues of $88.1 million and recorded a net loss of $24.1 million. During the six months ended June 30, 2019, we generated revenues of $173.7 million and recorded a net loss of $38.4 million.

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 
 June 30,
 
Six Months Ended 
 June 30,
 
2019
 
2018
 
2019
 
2018
Average Monthly Unique Visitors
7,229,910

 
7,763,112

 
7,164,380

 
7,784,160

Units(1)
249,856

 
250,269

 
482,637

 
479,986

Monetization
$
333

 
$
332

 
$
340

 
$
333

Franchise Dealer Count
12,681

 
12,368

 
12,681

 
12,368

Independent Dealer Count
4,014

 
3,166

 
4,014

 
3,166

 
(1)
We issued full credits of the amount originally invoiced with respect to 5,703 and 5,371 units during the three months ended June 30, 2019 and 2018, respectively. We issued full credits of the amount originally invoiced with respect to 14,609 and 10,505 units during the six months ended June 30, 2019 and 2018, 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 the 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 decreased 6.9% to approximately 7.2 million in the three months ended June 30, 2019 from approximately 7.8 million in the same period of 2018. The number of average monthly unique visitors decreased 8.0% to approximately 7.2 million in the six months ended June 30, 2019 from approximately 7.8 million in the same period of 2018. The decrease was primarily due to changes in the search algorithms used by popular search engines reducing our organic traffic that started in the fourth quarter of 2018 and have continued into 2019.
Units
We define units as the number of automobiles purchased from TrueCar Certified Dealers that are matched to users of TrueCar.com, our TrueCar-branded mobile applications or the car-buying sites and mobile applications we maintain for our affinity group marketing partners. A unit is counted after 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 most 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 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.

24



For the three and six months ended June 30, 2019 as compared to June 30, 2018, total units remained fairly flat. The number of units decreased 0.2% to 249,856 in the three months ended June 30, 2019 from 250,269 in the three months ended June 30, 2018. The number of units increased 0.6% to 482,637 in the six months ended June 30, 2019 from 479,986 in the same period of 2018.
Monetization
We define monetization as the average transaction revenue per unit, which we calculate by dividing all of our transaction revenue (dealer revenue and OEM incentives revenue) in a given period by the number of units in that period. Our monetization increased slightly by 0.3% to $333 during the three months ended June 30, 2019 from $332 for the same period of 2018, primarily as a result of growth in revenue from new dealer products, which no incremental units are generated, offset by a decline in OEM revenue. Our monetization increased 2.1% to $340 during the six months ended June 30, 2019 from $333 for the same period of 2018, primarily as a result of growth in our new dealer products revenue. 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 the introduction of new products and services, including new OEM incentive programs.
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 at each individual location, or rooftop, regardless of the size of the dealership that owns the rooftop. The network is comprised 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 12,681 at June 30, 2019, an increase from 12,368 at June 30, 2018, and an increase from 12,674 at December 31, 2018. Note that our franchise dealer count excludes Genesis franchises on our program due to Hyundai’s 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, or rooftop, individually, regardless of the size of the dealership that owns the rooftop. Our independent dealer count was 4,014 at June 30, 2019, an increase from 3,166 at June 30, 2018, and an increase from 3,655 at December 31, 2018.

Non-GAAP Financial Measures
Adjusted EBITDA and Non-GAAP net (loss) income 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, income (loss) from equity method investment, certain litigation costs, certain restructuring costs, certain costs associated with the departures of certain of our former executives, certain transaction costs, changes in the fair value of contingent consideration, and income taxes. We define Non-GAAP net (loss) income as net loss adjusted to exclude stock-based compensation, income (loss) from equity method investment, certain litigation costs, certain restructuring costs, certain costs associated with the departures of certain of our former executives, certain transaction costs, and changes in the fair value of contingent consideration. We have provided below a reconciliation of each of Adjusted EBITDA and Non-GAAP net (loss) income to net loss, the most directly comparable GAAP financial measure. Neither Adjusted EBITDA nor Non-GAAP net (loss) income 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 (loss) income measures may not be comparable to similarly titled measures of other organizations as they may not calculate Adjusted EBITDA or Non-GAAP net (loss) income in the same manner as we calculate these measures. 
We use Adjusted EBITDA and Non-GAAP net (loss) income 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

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operational performance, and together with operational objectives, as a measure in evaluating employee compensation and 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 (loss) income 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 (loss) income 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 (loss) income 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 (loss) income 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 (loss) income reflects the costs to advance our claims in 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 (loss) income reflects severance charges associated with the departures of certain of our former executives in the second quarter of 2019;
neither Adjusted EBITDA nor Non-GAAP net (loss) income reflects the severance charges associated with a restructuring plan initiated and completed in the first quarter of 2019 to improve efficiency and reduce expenses;
neither Adjusted EBITDA non Non-GAAP net (loss) income reflects the legal, accounting, consulting and other third-party fees and costs incurred by the Company in connection with the evaluation and negotiation of potential merger and acquisition transactions;
neither Adjusted EBITDA nor Non-GAAP net (loss) income considers 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 (loss) income differently than we do, limiting their usefulness as a comparative measure.
Because of these limitations, you should consider Adjusted EBITDA and Non-GAAP net (loss) income 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 (loss) income 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 (loss) income, and you should not infer from our presentation of Adjusted EBITDA and Non-GAAP net (loss) income that our future results will not be affected by these expenses or any unusual or non-recurring items.

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The following table presents a reconciliation of net loss to Adjusted EBITDA for each of the periods presented:
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
(in thousands)
 
(in thousands)
Reconciliation of Net Loss to Adjusted EBITDA:
 
 
 
 
 
 
 
Net loss
$
(24,060
)
 
$
(6,622
)
 
$
(38,425
)
 
$
(15,677
)
Non-GAAP adjustments:
 
 
 
 
 
 
 
Interest income
(966
)
 
(750
)
 
(1,967
)
 
(1,354
)
Interest expense

 
662

 

 
1,323

Depreciation and amortization
6,767

 
5,641

 
13,182

 
10,816

Stock-based compensation (1)
15,556

 
8,972

 
24,191

 
18,069

Loss from equity method investment
273

 

 
273