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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 September 30, 2020
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)

Delaware04-3807511
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001 per shareTRUEThe 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 filerAccelerated filer
Non-accelerated filerSmaller 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 November 2, 2020, 104,094,114 shares of the registrant’s common stock were outstanding.




TRUECAR, INC.
INDEX
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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 maintain or grow revenue, scale our business, generate cash flow, fulfill our mission and achieve and maintain future profitability, in particular in light of the existing impacts of and continued uncertainty occasioned by the coronavirus pandemic; 
our ability to forecast our financial and operational performance;
our relationship with key industry participants, including car dealers and automobile manufacturers;
anticipated trends, demand 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 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;
the effect of the coronavirus pandemic, and governments’, organizations’ and consumers’ responses to it, on the wider economy, the automotive industry, the demand for cars, dealers’ ability to sell cars, dealers’ and automobile manufacturers’ third-party marketing budgets and our business;
our ability to mitigate the short- and long-term effects of the coronavirus pandemic on our business and employees, and the success of initiatives that we take to do so, including our efforts to improve or retool our existing products and services, innovate new products and services, cut costs and preserve our dealer network; 
our ability to mitigate the long-term financial effect of the termination of our partnership with USAA Federal Savings Bank;
our ability to maintain and grow our existing additional affinity partner relationships, and to attract new affinity partners to offer our services to their members;
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 or maintain dealer subscription rates, manage dealer churn and return to active status dealers who suspended their participation in our auto-buying program as a result of the coronavirus pandemic;
our ability to attract significant automobile manufacturers to participate, and remain participants, in our incentive programs;
our ability to increase the number of consumers using, and dealers subscribing to, our Retails Solutions packages, which combine our Trade and Payments solutions;
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 necessary qualified employees, including a new chief financial officer and chief accounting officer; 
our continuing ability to provide customers access to our products; 
our ability to maintain and scale our technical infrastructure and leverage our technology platform 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; 
our ability to navigate changes in domestic or international economic, political or business conditions, including changes in interest rates, consumer demand and import tariffs and responses to the coronavirus pandemic;
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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 privacy, 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;
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 pursue acquisitions, divestitures, investments and other similar transactions;
our ability to successfully and timely complete the pending divestiture of our ALG, Inc. subsidiary with minimal disruption to our continuing business and initiatives and to use the proceeds of that divestiture in a manner that maximizes shareholder value;
the extent to which we repurchase our common stock under our share repurchase plan and the effect of these repurchases on long-term stockholder value, the volatility and trading price of our common stock and our cash reserves;
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.
2


SUMMARY OF RISKS AFFECTING OUR BUSINESS
Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors” later in this Quarterly Report on Form 10-Q. These risks include, but are not limited to, the following:
The ongoing disruptions and uncertainties caused by the coronavirus pandemic have meaningfully disrupted our business and may continue to do so, including in new and unforeseen ways.
The termination of our partnership with USAA has adversely affected our business and we may not be able to mitigate its long-term negative financial effects.
Failure to complete the divestiture of our ALG subsidiary could negatively impact us and our business, prospects, financial condition, cash flow or results of operations.
We may not be able to grow and optimize the geographic coverage of dealers in our network, and increase the representation of high-volume brands in that network or manage dealer churn and increase dealer subscription rates, which would limit our growth.
The failure to attract manufacturers to participate in our incentive programs, or to induce them to remain participants in those programs, could reduce our growth or adversely affect our operating results.
The loss of a significant affinity partner or a significant reduction in units attributable to our affinity partners would reduce our revenue and harm our operating results.
If car dealers or automobile manufacturers perceive us in a negative light or our relationships with them suffer harm, our ability to grow and our financial performance may be damaged.
We have experienced significant management turnover and are currently searching for a new chief financial officer. An inability to navigate this turnover and attract, retain and integrate new management and other personnel could harm our business.
Our business is subject to risks related to the larger automotive ecosystem, including interest rates, consumer demand, global supply chain challenges and other macroeconomic issues.
We may not be able to provide a compelling car-buying experience to our users, which could cause the number of transactions between our users and dealers, and therefore our revenues, to decline.
Our ability to enhance our current product offerings, or grow complementary product offerings, may be limited, which could negatively impact our growth rate, revenues and financial performance.
If our lead quality or quantity declines, our unit volume could as well, and dealers could leave our network or insist on lower subscription rates, which could reduce our revenue and harm our business.
We may be unable to maintain or grow relationships with data providers or may experience interruptions in the data feeds they provide, which could limit the information that we are able to provide to our users and dealers as well as the timeliness of the information, and which may impair our ability to attract or retain consumers and dealers and to timely invoice dealers.
We rely on Internet search engines to drive traffic to our website, and if we fail to appear prominently in the search results, our traffic would decline and our business would be adversely affected.
The success of our business relies heavily on our marketing and branding efforts and those of our affinity partners, and these efforts may not be successful.
We are subject to a complex framework of regulations, many of which are unsettled, still developing and contradictory, which have in the past, and could in the future, subject us to claims, challenge our business model or otherwise harm our business.
We collect, process, store, share, disclose and use personal information and other data, and our actual or perceived failure to protect this information and data could damage our reputation and brand and harm our business and operating results.
We face litigation and are party to legal proceedings that could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We may fail to meet our publicly announced guidance or other expectations about our business and future operating results, which could cause our stock price to decline.

3




TRUECAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share data)
(Unaudited)
 September 30, 2020December 31, 2019
Assets  
Current assets  
Cash and cash equivalents$178,699 $181,534 
Accounts receivable, net of allowances of $8,453 and $6,591 at September 30, 2020 and December 31, 2019, respectively (includes related party receivables of $10,013 and $209 at September 30, 2020 and December 31, 2019, respectively)
40,723 38,239 
Prepaid expenses
7,197 7,158 
Other current assets5,904 6,033 
Current assets of discontinued operations27,280 6,777 
Total current assets259,803 239,741 
Property and equipment, net23,789 27,781 
Operating lease right-of-use assets31,752 36,064 
Goodwill51,205 59,469 
Intangible assets, net7,200 9,000 
Equity method investment20,433 21,894 
Other assets3,367 3,620 
Noncurrent assets of discontinued operations 24,118 
Total assets$397,549 $421,687 
Liabilities and Stockholders’ Equity  
Current liabilities  
Accounts payable (includes related party payables of $405 and $6,439 at September 30, 2020 and December 31, 2019, respectively)
$13,140 $21,319 
Accrued employee expenses
5,117 5,969 
Operating lease liabilities, current
4,625 5,875 
Accrued expenses and other current liabilities (includes related party accrued expenses of $0 and $1,299 at September 30, 2020 and December 31, 2019, respectively)
16,196 20,252 
Current liabilities of discontinued operations754 755 
Total current liabilities39,832 54,170 
Deferred tax liabilities442 783 
Operating lease liabilities, net of current portion33,312 37,127 
Other liabilities2,060 2,336 
Total liabilities75,646 94,416 
Commitments and contingencies (Note 8)
Stockholders’ Equity  
Preferred stock — $0.0001 par value; 20,000,000 shares authorized at September 30, 2020 and December 31, 2019; no shares issued and outstanding at September 30, 2020 and December 31, 2019
  
Common stock — $0.0001 par value; 1,000,000,000 shares authorized at September 30, 2020 and December 31, 2019; 106,072,807 and 106,865,830 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively
11 11 
Additional paid-in capital764,276 759,322 
Accumulated deficit(442,384)(432,062)
Total stockholders’ equity321,903 327,271 
Total liabilities and stockholders’ equity$397,549 $421,687 
See accompanying notes to condensed consolidated financial statements.
4


TRUECAR, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands except per share data)
(Unaudited)
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
Revenues (includes related party revenue of $3,164 and $8,184 for the three and nine months ended September 30, 2020, respectively, and related party contra revenue of $331 and $840 for the three and nine months ended September 30 and 2019, respectively)
$77,247 $85,785 $214,718 $250,162 
Costs and operating expenses:   
Cost of revenue (exclusive of depreciation and amortization presented separately below; includes related party cost of revenue of $267 and $302 for the three months ended September 30, 2020 and 2019, respectively, and $691 and $725 for the nine months ended September 30, 2020 and 2019, respectively)
4,664 6,982 16,403 21,558 
Sales and marketing (includes related party expenses of $0 and $6,279 for the three months ended September 30, 2020 and 2019, respectively, and $1,959 and $17,501 for the nine months ended September 30, 2020 and 2019, respectively)
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
  8,264  
Total costs and operating expenses67,512 94,987 226,467 301,140 
Income (loss) from operations9,735 (9,202)(11,749)(50,978)
Interest income13 594 452 2,003 
Other income450  450  
Loss from equity method investment(571)(464)(1,460)(737)
Income (loss) from continuing operations before income taxes9,627 (9,072)(12,307)(49,712)
Provision for (benefit from) income taxes38 (263)(132)(1,080)
Income (loss) from continuing operations9,589 (8,809)(12,175)(48,632)
Income from discontinued operations, net of taxes2,000 1,157 1,853 2,555 
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)
Discontinued operations$0.02 $0.01 $0.02 $0.02 
Net income (loss) per share, diluted
Continuing operations$0.09 $(0.08)$(0.11)$(0.46)
Discontinued operations$0.02 $0.01 $0.02 $0.02 
Weighted average common shares outstanding, basic107,693 106,239 107,418 105,510 
Weighted average common shares outstanding, diluted110,011 106,239 107,418 105,510 
Other comprehensive income (loss):
    
Comprehensive income (loss)$11,589 $(7,652)$(10,322)$(46,077)
See accompanying notes to condensed consolidated financial statements.
5


TRUECAR, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands except share data)
(Unaudited) 
Nine Months Ended September 30, 2020
 Common Stock Accumulated
Deficit
Stockholders’
Equity
 SharesAmountAPIC
Balance at December 31, 2019106,865,830 $11 $759,322 $(432,062)$327,271 
Net loss— — — (10,669)(10,669)
Stock-based compensation— — 6,559 — 6,559 
Shares issued in connection with employee stock plans, net of shares withheld for employee taxes
317,803 — (724)— (724)
Balance at March 31, 2020107,183,633 $11 $765,157 $(442,731)$322,437 
Net loss— — — (11,242)(11,242)
Stock-based compensation— — 6,855 — 6,855 
Shares issued in connection with employee stock plans, net of shares withheld for employee taxes
726,367 — (856)— (856)
Balance at June 30, 2020107,910,000 $11 $771,156 $(453,973)$317,194 
Net income— — — 11,589 11,589 
Repurchase of common stock(2,402,810)— (11,677)— (11,677)
Stock-based compensation— — 6,217 — 6,217 
Shares issued in connection with employee stock plans, net of shares withheld for employee taxes
565,617 — (1,420)— (1,420)
Balance at September 30, 2020106,072,807 $11 $764,276 $(442,384)$321,903 
 

See accompanying notes to condensed consolidated financial statements.
6



TRUECAR, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands except share data)
(Unaudited) 
Nine Months Ended September 30, 2019
 Common Stock Accumulated
Deficit
Stockholders’
Equity
 SharesAmountAPIC
Balance at December 31, 2018104,337,508 $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, 2019105,119,046 $10 $731,394 $(391,537)$339,867 
Net loss— — — (24,060)(24,060)
Stock-based compensation— — 16,061 — 16,061 
Shares issued in connection with employee stock plans, net of shares withheld for employee taxes
776,563 — (469)— (469)
Balance at June 30, 2019105,895,609 $10 $746,986 $(415,597)$331,399 
Net loss— — — (7,652)(7,652)
Stock-based compensation— — 7,622 — 7,622 
Shares issued in connection with employee stock plans, net of shares withheld for employee taxes
596,786 — (1,391)— (1,391)
Balance at September 30, 2019106,492,395 10 753,217 (423,249)329,978 

See accompanying notes to condensed consolidated financial statements.
7


TRUECAR, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 Nine Months Ended
September 30,
 20202019
Cash flows from operating activities  
Net loss$(10,322)$(46,077)
Income from discontinued operations, net of taxes1,853 2,555 
Net loss from continuing operations(12,175)(48,632)
Adjustments to reconcile net loss to net cash provided by operating activities:  
Depreciation and amortization15,321 15,653 
Goodwill impairment8,264  
Deferred income taxes(341)168 
Bad debt expense and other reserves2,805 827 
Stock-based compensation17,632 30,260 
Increase in the fair value of contingent consideration liability151 225 
Amortization of lease right-of-use assets4,312 4,437 
Loss from equity method investment1,460 737 
Write-off and loss on disposal of fixed assets39 1,109 
Changes in operating assets and liabilities:
Accounts receivable(5,289)4,162 
Prepaid expenses and other assets774 (30,553)
Accounts payable(8,189)(4,763)
Accrued employee expenses(851)1,740 
Operating lease liabilities(5,065)(5,125)
Accrued expenses and other liabilities(4,599)32,500 
Other liabilities1,823 (352)
Net cash provided by operating activities - continuing operations16,072 2,393 
Net cash provided by operating activities - discontinued operations7,622 4,858 
Net cash provided by operating activities23,694 7,251 
Cash flows from investing activities  
Purchase of property and equipment(8,020)(7,359)
Cash paid for equity method investment (23,174)
Net cash used in investing activities - continuing operations(8,020)(30,533)
Net cash used in investing activities - discontinued operations(1,138)(791)
Net cash used in investing activities(9,158)(31,324)
Cash flows from financing activities  
Payment of contingent consideration liability(2,263) 
Proceeds from exercise of common stock options84 2,857 
Taxes paid related to net share settlement of equity awards(3,084)(2,449)
Payments for the repurchase of common stock(12,108) 
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 beginning of period181,534 196,128 
Cash and cash equivalents at end of period$178,699 $172,463 
See accompanying notes to condensed consolidated financial statements.
8


TRUECAR, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
(Continued)

Supplemental disclosures of non-cash activities
Stock-based compensation capitalized for software development$992 $1,304 
Capitalized assets included in accounts payable, accrued employee expenses and other accrued expenses
392 308 
Capitalized asset retirement costs included in property and equipment
498  

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. In July 2020, the Company entered into a definitive agreement to sell its 100% interest in ALG to J.D. Power, a Delaware corporation (“J.D. Power”). Refer to Note 3 for further discussion of this planned divestiture.
Through its subsidiary TCDS, the Company provides its Retail Solutions offerings, which combine its TrueCar Trade and Payments products. Our Trade solution 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. The Company’s Payments solution leverages the digital retailing technology of its DealerScience subsidiary, acquired in December 2018, to help consumers calculate accurate monthly payments.

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, 2019, and include all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the interim periods presented. As a result of the planned ALG divestiture as discussed in Note 3, the ALG business met the criteria to be reported as discontinued operations. Therefore, the Company is reporting the historical results of ALG, including the results of operations, cash flows, and related assets and liabilities, as discontinued operations for all period presented herein. Unless otherwise noted, the accompanying Notes to the Consolidated Financial Statements have all been revised to reflect continuing operations only.
The condensed consolidated balance sheet at December 31, 2019 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 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 February 28, 2020. 
10


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 assets and liabilities assumed in business combinations, right-of-use assets and lease liabilities, 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, timing and costs associated with our asset retirement obligations, 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 right-of-use assets and lease liabilities, 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.
Risks and Uncertainties
In March 2020, the World Health Organization declared a novel strain of coronavirus (“COVID-19”) a pandemic that continues to spread throughout the United States and the world. The COVID-19 pandemic has impacted and could further impact the Company’s operations and the operations of its customers due to facility closures, travel and logistics restrictions and quarantines. As a result, the Company’s business has been negatively affected in a number of ways. Most directly, a number of states and local governments have taken steps that have prohibited or curtailed the sale of automobiles during the pandemic. In some jurisdictions, shelter-at-home orders, or other orders related to the pandemic, impede car sales. On top of these legal restrictions, the economic uncertainty and rapidly increasing number of consumers who are unemployed, as well as the decrease in consumers’ willingness to make discretionary trips outside of the home, have decreased the demand for cars. The severity of the impact of COVID-19 on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s customers, all of which are uncertain and cannot be predicted. The Company’s future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms and concessions that the Company may provide to its customers. Even after the COVID-19 pandemic has subsided, the Company may continue to experience adverse impacts to its business as a result of any impacts to its business and any economic recession or depression that has occurred or may occur in the future.
Segments
The Company has one operating segment. The Company’s chief operating decision maker (“CODM”) is the President and Chief Executive Officer and the Chief Financial Officer and Chief Accounting Officer, who manage the Company’s operations based on consolidated financial information for purposes of evaluating financial performance and allocating resources.
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 13). All of the Company’s principal operations, decision-making functions and assets are located in the United States.

11


Allowance for Doubtful Accounts
On January 1, 2020, the Company adopted the new accounting guidance on measuring credit losses on its trade accounts receivable. The new credit loss guidance replaces the old model for measuring the allowance for credit losses with a model that is based on the expected losses rather than incurred losses. Under the new credit loss model, lifetime expected credit losses are measured and recognized at each reporting date based on historical, current and forecast information.

The Company determines its allowance for doubtful accounts based on historical write-off experience and specific circumstances that make it likely that recovery will not occur. The Company reviews the allowance for doubtful accounts periodically and assesses the aging of account balances, with an emphasis on those that are past due over ninety days. Account balances are charged off against the allowance when the Company determines that it is probable the receivable will not be recovered.

Under the new guidance, the Company considers the need to adjust historical information to reflect the extent to which the Company expects current conditions and reasonable and supportable forecasts to differ from the conditions that existed for the period over which historical information was evaluated. The primary current and future economic indicators that the Company uses to develop its current estimate of expected credit losses include the current and forecast U.S. Gross Domestic Product (GDP).

The Company calculates the expected credit losses on a pool basis for those trade receivables that have similar risk characteristics. For those trade receivables that do not share similar risk characteristics, the allowance for doubtful accounts is calculated on an individual basis. Risk characteristics relevant to the Company’s accounts receivable include revenue billing model and aging status.

The following table summarizes the changes in the allowance for doubtful accounts and sales allowances (in thousands):
Three Months Ended September 30, 2020Nine Months Ended September 30, 2020
Allowances, at beginning of period$10,304 $6,591 
Charged as a reduction of revenue1,581 6,939 
(Reduction of) charged to bad debt expense in general and administrative expenses(680)2,805 
Write-offs, net of recoveries(2,752)(7,882)
Allowances, at end of period$8,453 $8,453 
For the nine months ended September 30, 2020, the Company’s assessment considered business and market disruptions caused by COVID-19 and estimates of expected emerging credit and collectability trends. The continued volatility in market conditions and evolving shifts in credit trends are difficult to predict causing variability and volatility that may have a material impact on our allowance for credit losses in future periods.
12


Recent Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued new guidance intended to simplify the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside cost basis differences. The standard is effective for annual periods beginning after December 15, 2020, including interim reporting periods within those annual periods. The Company early adopted this standard effective January 1, 2020. As a result of the adoption, the exception to the intraperiod tax allocation rules due to a loss from continuing operations and income or a gain from discontinued operation was eliminated and the Company followed the general intraperiod allocation to determine total tax expense. See Note 10 for further details.
In August 2018, the FASB issued new guidance that modifies the disclosure requirements in fair value measurements by removing, modifying and adding certain disclosures. The Company adopted this guidance on January 1, 2020 using the prospective transition method. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.
In August 2018, the FASB issued new guidance that aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company adopted this guidance on January 1, 2020 using the prospective transition method. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements
13


3.    Discontinued Operations
In July 2020, as part of the Company’s overall strategy to focus on its core business, the Company entered into a definitive agreement (the “Purchase Agreement”) to sell its 100% interest (the “Transaction”) in ALG to J.D. Power. The Purchase Agreement provides for J.D. Power to pay the Company (i) $112.5 million in cash consideration at the closing of the Transaction, subject to certain customary post-closing adjustments, (ii) a potential cash earnout of up to $7.5 million based upon ALG’s achievement of certain revenue metrics in 2020 and (iii) a potential cash earnout of up to $15 million based upon ALG’s achievement of certain revenue metrics in 2022. The Transaction is expected to close by the end of 2020. This divestiture represents a strategic shift in the Company’s business and meets the criteria of discontinued operations. As a result, the operating results and cash flows from ALG have been reflected as discontinued operations in the Condensed Consolidated Statements of Comprehensive Income (Loss) and Condensed Consolidated Statements of Cash Flows for all periods presented, while the assets and liabilities have been reflected as assets and liabilities of discontinued operations in the Condensed Consolidated Balance Sheets included herein.
The following table presents the balance sheet information for assets and liabilities of discontinued operations as of September 30, 2020 and December 31, 2019 (in thousands):
 September 30, 2020December 31, 2019
Assets  
Current assets 
Accounts receivable, net of allowances$6,635 $6,649 
Prepaid expenses and other current assets82 128 
Total current assets of discontinued operations6,717 6,777 
Property and equipment, net2,593 2,016 
Goodwill11,919 13,842 
Intangible assets, net6,051 8,260 
Total noncurrent assets of discontinued operations20,563 24,118 
Total assets of discontinued operations (1)$27,280 $30,895 
Liabilities  
Current liabilities 
Accounts payable$34 $17 
Accrued expenses and other current liabilities720 738 
Total current liabilities of discontinued operations (1)$754 $755 


(1)    The total assets and liabilities of discontinued operations are classified in current assets and current liabilities, respectively, in the Company’s condensed consolidated balance sheet as of September 30, 2020, as its planned divestiture of the discontinued operation is expected to occur within twelve months of that date.
14



The following table presents the detail of “Income from discontinued operations, net of taxes” within the Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands):
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
Revenues $5,221 $4,770 $13,961 $14,050 
Costs and operating expenses:  
Cost of revenue (exclusive of depreciation and amortization presented separately below)
1,379 1,409 3,720 4,101 
Sales and marketing
304 531 1,243 1,810 
Technology and development
373 245 993 827 
General and administrative
725 176 1,620 566 
Depreciation and amortization
418 1,194 2,910 3,704 
Goodwill impairment
  1,923  
Total costs and operating expenses3,199 3,555 12,409 11,008 
Income from operations2,022 1,215 1,552 3,042 
Interest income3 261 169 819 
Income from discontinued operations before income taxes2,025 1,476 1,721 3,861 
Provision for (benefit from) income taxes25 319 (132)1,306 
Income from discontinued operations, net of taxes$2,000 $1,157 $1,853 $2,555 

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:
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.
15


The following table summarizes the Company’s financial assets measured at fair value on a recurring basis at September 30, 2020 and December 31, 2019 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 September 30, 2020At December 31, 2019
  Total Fair Total Fair
Level 1Level 2Level 3ValueLevel 1Level 2Level 3Value
Assets:
Cash equivalents$167,658 $ $ $167,658 $174,429 $ $ $174,429 
Total assets$167,658 $ $ $167,658 $174,429 $ $ $174,429 
Liabilities:
Contingent consideration, current
$ $ $2,428 $2,428 $ $ $2,441 $2,441 
Contingent consideration, non-current
      2,336 2,336 
Total liabilities$ $ $2,428 $2,428 $ $ $4,777 $4,777 
Contingent Consideration Obligations
The following table summarizes the changes in the fair value of the contingent consideration obligation (in thousands):
Three Months Ended
September 30,
Nine Months Ended September 30,
2020201920202019
Fair value, beginning of period$2,398 $4,627 $4,777 $4,477 
Cash payments  (2,500) 
Additions and changes in fair value30 75 151 225 
Fair value, end of period$2,428 $4,702 $2,428 $4,702 

The following table summarizes the significant unobservable inputs and valuation technique in the fair value measurement of Level 3 financial liabilities used to measure the contingent consideration liability at September 30, 2020:
Valuation TechniqueUnobservable InputValue
Discounted cash flowProbability of achievement
98.9%
Discount rate
4.9%
5.    Goodwill
The following table summarizes the changes in goodwill for the nine months ended September 30, 2020 (in thousands):
Goodwill
Balance at December 31, 2019$59,469 
Impairment(8,264)
Balance at September 30, 2020$51,205 

The Company assesses recoverability of goodwill on an annual basis or when events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable, such as a decline in stock price and market capitalization. Throughout the second half of 2019 and through the first quarter of 2020, the Company’s stock price experienced high volatility, causing a decline in its enterprise market capitalization. During the first quarter of 2020, as a result of the recent global economic disruption and uncertainty due to the COVID-19 pandemic, along with the Company’s announcement that it had entered into a short-term agreement to extend its partnership with USAA Federal Savings Bank to continue to power the USAA Car Buying Service through September 30, 2020, the Company concluded a triggering event had occurred. In light of these two factors, the Company performed an interim quantitative impairment test as of March 31, 2020, in which the Company estimated the fair value of its single reporting unit by utilizing an income approach which uses a discounted cash flow (“DCF”)
16


analysis. The Company has previously used an implied market value approach. Given the high degree of market volatility and lack of reliable market data as of March 31, 2020, the Company determined that a discounted cash flow model (income approach) provided the best approximation of fair value. Determining fair value requires the exercise of significant assumptions and judgments, which are considered Level 3 inputs under the fair value hierarchy, including the amount and timing of expected future cash flows, long-term growth rates and the discount rate. Based on the results of the interim impairment test, the Company concluded that the carrying value of its reporting unit is greater than the fair value and, accordingly, recognized a non-cash impairment charge of $10.2 million during the three months ended March 31, 2020, of which $1.9 million was included in discontinued operations. If the pandemic’s economic impact is more severe, or if the economic recovery takes longer to materialize or does not materialize as strongly as anticipated, this could result in further goodwill impairment charges.

6.    Property and Equipment, net
Property and equipment consisted of the following at September 30, 2020 and December 31, 2019 (in thousands):
 September 30, 2020December 31, 2019
Computer equipment, software, and internally developed software$64,411 $55,844 
Furniture and fixtures4,719 4,927 
Leasehold improvements16,059 15,839 
 85,189 76,610 
Less: Accumulated depreciation(61,400)(48,829)
Total property and equipment, net$23,789 $27,781 
Included in the table above are property and equipment of $0.9 million and $1.2 million at September 30, 2020 and December 31, 2019, 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 $4.5 million and $4.4 million for the three months ended September 30, 2020 and 2019, respectively. Total depreciation and amortization expense of property and equipment was $13.5 million and $13.8 million for the nine months ended September 30, 2020 and 2019, respectively.
Amortization of internal use capitalized software development costs was $3.3 million and $3.0 million for the three months ended September 30, 2020 and 2019, respectively. Amortization of internal use capitalized software development costs was $9.6 million and $9.8 million for the nine months ended September 30, 2020 and 2019, respectively.

7.    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 contains 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
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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.
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 September 30, 2020, 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 September 30, 2020, the Company had no outstanding amounts under the Credit Facility and the amount available was $31.9 million, reduced for the letters of credit issued and outstanding under the subfacility of $3.1 million.

8.    Commitments and Contingencies
Reorganization
In May 2020, the Company committed to a restructuring plan (the “Restructuring Plan”) in furtherance of its efforts to enhance productivity and efficiency, preserve profitability and streamline its organizational structure to better align operations with its long-term commitment to providing an enhanced consumer experience. The Company recorded restructuring costs of approximately $8.3 million in the second quarter of 2020 in connection with the Restructuring Plan. Of the total, the Company recorded $0.6 million in cost of revenue, $5.3 million in sales and marketing, $1.6 million in technology and development and $0.8 million in general and administrative expenses within the Company’s condensed consolidated statements of comprehensive income (loss) during the nine months ended September 30, 2020. Included in discontinued operations are restructuring costs of $0.2 million for the nine months ended September 30, 2020. The majority of the restructuring costs liability was paid during the three months ended September 30, 2020 with the remainder to be paid by early 2021. The Company does not expect to incur significant additional charges in future periods related to the Restructuring Plan.
The following table presents a roll forward of the restructuring costs liability for the nine months ended September 30, 2020 (in thousands):
Restructuring Costs Liability
Accrual at December 31, 2019$28 
Expense (Continuing and Discontinued Operations)8,514 
Cash Payments(7,481)
Accrual at September 30, 2020$1,061 
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.
Stockholder Litigation
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Milbeck Federal Securities Litigation
    On March 30, 2018, Leon Milbeck filed a putative securities class action against the Company in the U.S. District Court for the Central District of California (the “Milbeck Federal Securities Litigation”). On June 27, 2018, the court appointed the Oklahoma Police Pension and Retirement Fund as lead plaintiff, who filed an amended complaint on August 24, 2018. The amended 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 the Company’s 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 and that the defendants made actionable misstatements in violation of Section 11 of the Securities Act in connection with our secondary offering that occurred during the class period. The amended complaint named the Company, certain of its then-current and former officers and directors and the underwriters for its secondary offering 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 the lead plaintiff’s motion for class certification. On August 2, 2019, the parties entered into an agreement to settle the Milbeck Federal Securities Litigation on a class-wide basis for $28.25 million, all of which was paid by the Company’s directors’ and officers’ liability insurance. On October 15, 2019, the court granted preliminary approval of the proposed settlement, and on January 27, 2020, the court issued a minute order granting final approval to the settlement. The court entered the final judgment and order of dismissal on May 26, 2020. As a result, the Milbeck Federal Securities Litigation is resolved. Because the settlement was fully funded by the Company’s directors’ and officers’ liability insurance, the Company removed the settlement liability and offsetting insurance receivable of $28.25 million from its consolidated balance sheet at December 31, 2019.    
California Derivative Litigation
    On March 6, 2019, the Company, certain of its then-current and former officers and directors 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”). On March 12, 2019, the plaintiff filed an amended complaint, which alleged breach of fiduciary duties, unjust enrichment and violation of Section 10(b) and Section 29(b) of the Exchange Act and sought contribution for damages awarded against us 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 May 13, 2019, the Company filed motions to dismiss the amended complaint on the grounds of forum non conveniens based upon the exclusive forum provision of the Company’s certificate of incorporation, failure to make a pre-suit demand on the Company’s board of directors and failure to state a claim upon which relief may be granted. On October 23, 2019, the court granted the Company’s motion to dismiss the state-law claims with prejudice on the grounds of forum non conveniens and granted the Company’s motion to dismiss the federal-law claims without prejudice for failure to state a claim. In light of these rulings, the court declined to address the Company’s motion to dismiss for failure to show pre-suit demand futility. The court permitted the plaintiff to amend his complaint with respect to the dismissed federal-law claims, but on November 5, 2019, he informed the court that he declined to do so and stated his intent to appeal the court’s ruling. On November 18, 2019, the court entered judgment in favor of the defendants and against the plaintiff, and on December 13, 2019, the plaintiff appealed that judgment. On October 20, 2020, the court granted the parties’ stipulated motion to dismiss the appeal. As a result, the California Derivative Litigation is now resolved. The Company has not recorded an accrual related to this matter as of September 30, 2020 as the Company does not believe a loss is probable or reasonably estimable.
Delaware Consolidated Derivative Litigation
In August 2019, three purported stockholder derivative actions were filed in Delaware alleging a variety of claims nominally on the Company’s behalf arising out of alleged breaches of fiduciary duty under Delaware law based upon substantially the same factual allegations as the Milbeck Federal Securities Litigation. The complaints named the Company, certain of its then-current and former directors and officers, USAA and, in one of the actions, certain entities affiliated with USAA and certain of our current and former directors as defendants. On October 7, 2019, the Delaware Court of Chancery consolidated the cases into a single action in that court bearing the caption In re TrueCar, Inc. Stockholder Derivative Litigation (the “Delaware Consolidated Derivative Litigation”). On November 6, 2019, the plaintiffs filed a consolidated complaint against all of the defendants named in the prior actions, asserting claims for breach of fiduciary duty, unjust enrichment, contribution and indemnification against the Company’s current and former officers and directors, and claims for aiding and abetting breaches of fiduciary duty against the entities affiliated with USAA and with certain of the Company’s current and former directors. The plaintiffs seek an award of damages against the defendants on behalf of the Company and various alleged corporate governance reforms. On December 19, 2019, the defendants filed motions to dismiss for failure to make a pre-suit demand. On September 30, 2020, the court dismissed the Delaware Consolidated Derivative Litigation with prejudice for
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failure to make a pre-suit demand and failure to state a claim and the plaintiffs did not appeal the ruling. As a result, the Delaware Consolidated Derivative Litigation is resolved. The Company has not recorded an accrual related to this matter as of September 30, 2020 as the Company does not believe a loss is probable or reasonably estimable.
Lee Derivative Litigation
In December 2019, Sulgi Lee, a purported stockholder, filed a derivative action in the Delaware Court of Chancery alleging a variety of claims nominally on the Company’s behalf arising out of alleged breaches of fiduciary duty under Delaware law based upon substantially the same factual allegations as the Milbeck Federal Securities Litigation. The complaint named the Company, certain of its then-current and former directors and officers and USAA as defendants. The plaintiff seeks an award of damages against the defendants on the Company’s behalf and various alleged corporate governance reforms. On May 5, 2020, the court entered the parties’ stipulation to stay this litigation pending the outcome of the motions to dismiss in the Delaware Consolidated Derivative Litigation. 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 September 30, 2020 as the Company does not believe a loss is probable or reasonably estimable.
Delaware Federal Derivative Litigation
    In April 2019, the Company, certain of its then-current and former directors and officers and USAA were named as defendants in derivative actions nominally on behalf of the Company filed by Ara Afarian and Shelley Niemi in the U.S. District Court for the District of Delaware. The complaints alleged breach of Section 29(b) of the Exchange Act as well as breach of fiduciary duties and unjust enrichment and sought 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 sought rescission of certain contracts. On April 17, 2019, the cases were consolidated into a single action bearing the caption In re TrueCar, Inc. Shareholder Derivative Litigation. On September 4, 2019, the court granted the plaintiffs’ unopposed motion to voluntarily dismiss the litigation without prejudice, meaning it could be re-filed at a later date. In light of the termination of the litigation on this basis, the Company has not recorded an accrual related to this matter as of September 30, 2020 as the Company does not believe a loss is probable.
Trademark Litigation
On April 9, 2020, the Company was named as a defendant in a lawsuit filed by Six Star, Inc. (“Six Star”) in the U.S. District Court for the Middle District of Florida (the “Trademark Litigation”). The complaint in the Trademark Litigation alleges that the Company’s new “BUY SMARTER DRIVE HAPPIER” tagline infringed and diluted Six Star’s “BUY SMART BE HAPPY” trademark and included claims of false advertising and deceptive and unfair trade practices. The complaint seeks injunctive relief in addition to certain monetary awards. The Company believes that the complaint is without merit, and intends to vigorously defend itself in this matter. The Company did not record an accrual related to this matter as of September 30, 2020, 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.
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. 
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9.    Stock-based Awards
Stock Options
A summary of the Company’s stock option activity for the nine months ended September 30, 2020 is as follows:
 Number of
Options
Weighted-Average Exercise PriceWeighted-Average
Remaining
Contractual Life
   (in years)
Outstanding at December 31, 201910,625,980 $11.22 5.2
Granted2,060,028 3.02  
Exercised(39,695)2.12  
Forfeited/expired(1,739,430)12.13  
Outstanding at September 30, 202010,906,883 $9.56 5.2
At September 30, 2020, total remaining stock-based compensation expense for unvested stock option awards was $8.8 million, which is expected to be recognized over a weighted-average period of 2.4 years. For the three months ended September 30, 2020 and 2019, the Company recorded stock-based compensation expense for stock option awards of $1.3 million and $1.8 million, respectively. For the nine months ended September 30, 2020 and 2019, the Company recorded stock-based compensation expense for stock option awards of $4.3 million and $11.6 million, respectively.
Restricted Stock Units
Activity in connection with restricted stock units is as follows for the nine months ended September 30, 2020:
 Number of
Shares
Weighted- Average Grant Date Fair Value
Non-vested — December 31, 20195,890,992 $7.96 
Granted6,118,702 2.91 
Vested(2,453,805)3.43 
Forfeited(1,476,016)7.38 
Non-vested — September 30, 20208,079,873 $4.71 
At September 30, 2020, total remaining stock-based compensation expense for non-vested restricted stock units was $33.4 million, which is expected to be recognized over a weighted-average period of 2.3 years. The Company recorded $4.3 million and $5.0 million in stock-based compensation expense for restricted stock units for the three months ended September 30, 2020 and 2019, respectively. The Company recorded $13.4 million and $18.7 million in stock-based compensation expense for restricted stock units for the nine months ended September 30, 2020 and 2019, respectively.
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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 condensed consolidated statements of comprehensive income (loss) (in thousands):
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
Cost of revenue$108 $321 $463 $956 
Sales and marketing1,816 2,604 6,256 10,588 
Technology and development1,184 1,574 3,730 6,906 
General and administrative2,499 2,306 7,183 11,810 
Total stock-based compensation expense5,607 6,805 17,632 30,260 
Amount capitalized to internal software use293 394 992 1,304 
Total stock-based compensation cost$5,900 $7,199 $18,624 $31,564 

For the nine months ended September 30, 2019, the Company recognized $7.2 million in additional stock-based compensation expense associated with the departures of the Company’s former chief executive officer and certain other executive-level employees.

10.    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 applied the intraperiod tax allocation rules of Accounting Standards Codification (“ASC”) 740, Income Taxes, to allocate income taxes between continuing operations and discontinued operations as prescribed in the rule. While the tax effect of income (loss) before income taxes generally should be computed without regard to the tax effects of income (loss) before income taxes from the other categories, an exception applies when there is a pre-tax loss from continuing operations and pre-tax income from those other categories. This exception to the general rule applies even when a valuation allowance is in place at the beginning and end of the year. For the nine months ended September 30, 2019, the Company recognized net income from discontinued operations while sustaining losses from continuing operations, and thus recorded a benefit for income taxes from continuing operations and offsetting income tax expense in discontinued operations. On January 1, 2020 the Company adopted ASU No. 2019-12 “Income Taxes: Simplying the Accounting for Income Taxes”. The adoption resulted in the elimination of this exception. As a result, the Company did not record a tax benefit in continuing operations and an offsetting tax expense in discontinued operations for the three and nine months ended September 30, 2020.

The Company recorded income tax expense of less than $0.1 million and income tax benefit of $0.3 million for the three months ended September 30, 2020 and 2019, respectively. The Company recorded an income tax benefit of $