Stockholders’ Equity

Reverse Stock Split

The Company’s board of directors and stockholders approved a 2-for-3 reverse split of its common stock and its Series A convertible preferred stock, or preferred stock, which was effected on May 2, 2014. All share data and per share data, and related information presented in the consolidated financial statements and accompanying notes have been retroactively adjusted, where applicable, to reflect the reverse stock split of its common stock and preferred stock.

Initial Public Offering

In May 2014, the Company completed its initial public offering (“IPO”) in which the Company sold an aggregate of 8,941,250 shares of its common stock, including 1,166,250 shares sold pursuant to the exercise by the underwriters of their option to purchase such shares, at a public offering price of $9.00 per share. The Company received net proceeds of $69.2 million, after deducting underwriting discounts and commissions and offering expenses payable by the Company, from sales of its shares in the IPO. Immediately prior to the completion of the IPO, all shares of the then-outstanding Series A convertible preferred stock automatically converted into 2,857,143 shares of common stock.

Follow-on Public Offering

In November 2014, the Company completed a follow-on public offering in which the Company sold 1,960,390 shares of common stock and selling stockholders sold 5,402,601 shares at a price of $17.00 per share. The Company received net proceeds of $30.8 million, after deducting underwriting discounts and commissions and offering expenses payable by the Company, from sales of its shares. The Company did not receive any proceeds from the sale of shares by selling stockholders.

Series A Preferred Stock

At December 31, 2012, the Company was authorized to issue 147.0 million shares of common stock. In November 2013, the Company increased the number of authorized shares of common stock to 150.0 million shares. Additionally, the Company authorized the issuance of 4.5 million shares of preferred stock, designated as Series A Preferred Stock (“Series A”).

In November 2013, the Company sold an aggregate of 2,857,143 shares of Series A and warrants to purchase 666,666 shares of common stock at an exercise price of $15.00 per share to Vulcan Capital Growth Equity LLC (“Vulcan”), in a private placement at a price of $10.50 per share, for an aggregate purchase price of $30.0 million.

In May 2014, immediately prior to the completion of the Company’s IPO, all of the outstanding shares of Series A preferred stock automatically converted into 2,857,143 shares of common stock on a one-to-one basis.

Warrants Issued to USAA

On March 12, 2009, June 25, 2010, January 1, 2012, and May 1, 2014, the Company entered into agreements with USAA, an affinity partner and significant stockholder of the Company, which provided for the issuance of warrants to purchase shares of the Company’s common stock upon achievement of minimum performance milestones based on the level of vehicle sales. The warrants were issued to USAA in exchange for marketing services performed by USAA under the Company’s affinity group marketing program. The purpose of the marketing services performed by USAA is to create awareness of, acquire traffic for, and drive users to, the Company’s auto buying platforms. For that reason expense recognized related to warrants issued to USAA is recorded as sales and marketing expense in the Company’s consolidated statements of comprehensive loss.

On November 24, 2009, the minimum performance milestones related to the March 12, 2009 agreement were reached and a fully vested warrant was issued by the Company which allows for the purchase of up to 961,482 shares of common stock at $0.83 per share. These warrants were outstanding at December 31, 2013.

On June 25, 2010, an additional warrant to purchase up to 1,653,333 shares of the Company’s common stock at $2.12 per share was issued to USAA. The warrant became exercisable based on the achievement of performance milestones based on the level of vehicle sales. During 2011, the performance milestones were fully achieved and the affinity partner received a warrant to purchase the full 1,653,333 shares of common stock. The warrant was fully vested at December 31, 2011. These warrants were outstanding at December 31, 2013.

On January 1, 2012, the Company issued another warrant to USAA which allowed USAA to purchase up to 1,042,666 shares of the Company’s common stock at $7.95 per share if minimum performance milestones were reached. The warrant expired at the earlier of (i) eight (8) years from issuance, (ii) ninety (90) days after the expiration of the affinity-agreement with USAA, or (iii) immediately prior to the close of an initial public offering of the Company’s common stock.

In May 2014, the Company and USAA agreed to an extension of the affinity group marketing agreement. As part of the agreement, on May 1, 2014, the Company issued to USAA a warrant to purchase 1,458,979 shares of the Company’s common stock, which will be exercisable in two tranches. The first tranche of 392,313 shares has an exercise price of $7.95 per share and the second tranche of 1,066,666 shares has an exercise price of $15.00 per share. The warrant becomes exercisable based on the achievement of performance milestones based on the level of vehicle sales of USAA members through the Company’s auto buying platforms. The warrant terminates on the earlier of (i) the eighth anniversary of the date of issuance, (ii) the first anniversary of the termination of the USAA car-buying program, or (iii) the date on which the Company no longer operates the USAA car-buying program. In addition, the agreement provides for the Company to spend marketing program funds with the actual level of marketing spend to be mutually agreed upon by USAA and the Company, subject to limits based on the number of actual vehicle sales generated through the affinity group marketing program (Note 12).

For the years ended December 31, 2016, 2015 and 2014, the Company recognized expense of $0.1 million, $0.2 million and $5.7 million related to warrants to purchase 10,666 shares, 71,330 shares, and 631,449 shares of common stock that have been earned and are vested, respectively. The fair value of the warrants was based on the following assumptions using the Black-Scholes option-pricing model:



	Year Ended December 31,
	2016					2015					2014
Risk-free interest rate	1.13	%	to	1.98	%	1.51	%	to	2.03	%	0.02	%	to	2.33	%
Contractual life (years)	5.3		to	6.3		6.3		to	7.2		0.3		to	8.0
Expected volatility	46.7	%	to	48.8	%	47.8	%	to	54.2	%	48.5	%	to	57.5	%
Dividend yield	—					—					—

Warrants to purchase 3,265,168 shares of the Company’s common stock earned from agreements entered into prior to May 2014 were exercised in connection with the Company’s IPO in May 2014 for an aggregate purchase price of $9.5 million.

At December 31, 2016, there were 509,642 warrants that were earned and outstanding with an additional 949,337 remaining warrants that is available for issuance upon achievement of minimum performance milestones.

Warrants Issued to Third Party Marketing Firm

On February 25, 2011, the Company entered into a media and marketing services agreement with a direct marketing firm. Under the arrangement, the marketing firm will provide media purchasing, production, advertising, and marketing services in connection with the advertising and marketing of the Company’s services. In addition to cash consideration, the Company agreed to issue a warrant to the marketing firm to purchase up to 1,433,333 shares of the Company’s common stock at a price of $6.02 per share. The warrant expires eight years from the issuance date and as of December 31, 2014, all warrants have been earned and issued to the marketing firm. In March 2015, the warrant to purchase 1,433,333 shares of the Company's common stock was exercised through a net settlement election. The Company issued 959,676 shares of its common stock to the third party marketing firm.

In 2014, the Company recorded the fair value of the warrants based on the following assumptions using the Black-Scholes option-pricing model: expected life of 4.8 to 5.1 years, risk free rate of 1.51% to 1.70%, and volatility of 46.6% to 48.1%.

For the year ended December 31, 2014, the Company recognized expense of $2.3 million related to 343,665 warrants earned. The expense has been reflected as sales and marketing expense on the accompanying consolidated statements of comprehensive loss.

Warrants Issued to Financial Institution

On August 29, 2013, the Company issued warrants to purchase 66,666 shares of TrueCar’s common stock at an exercise of $7.92 per share to a financial institution with which the Company had previous credit arrangements with. The warrants were issued pursuant to a warrant agreement that the Company had previously entered into in connection with the execution of a credit facility. The warrants were immediately issued and vested upon drawing on the credit facility and expire on the earlier of June 13, 2022, or an acquisition of the Company consisting solely of cash and or marketable securities.

In June 2014, warrants to purchase 66,666 shares of the Company’s common stock were exercised through a net settlement election. The Company issued 27,526 shares of its common stock to the financial institution.

Warrants Issued to Service Provider

In May 2014, the Company entered into a consulting agreement with an individual to provide marketing services to the Company. The Company agreed to issue a warrant to the individual to purchase up to 333,333 shares of the Company’s common stock at a price of $12.81 per share. All shares under the warrant agreement become exercisable in accordance with the vesting schedule over a four year period. The warrant expires five years from the issuance date or, if earlier, twelve months following the termination of the consulting agreement. In December 2015, the Company terminated the consulting agreement and the unvested warrants to purchase an aggregate of 187,500 shares of common stock were canceled. Upon termination, 145,833 of the warrants had vested and were outstanding at December 31, 2015. The warrant expired unexercised in December 2016.

For the year ended December 31, 2015, the Company recorded the fair value of the warrant based on the following assumptions using the Black-Scholes option-pricing model: contractual life of 1.0 to 4.0 years, risk free rate of 0.52% to 1.28%, and volatility of 44.1% to 48.9%. For the year ended December 31, 2014, the Company recorded the fair value of the warrant based on the following assumptions: contractual life of 4.4 to 5.0 years, risk free rate of 1.48% to 1.55%, and volatility of 54.8% to 56.8%.

For the year ended December 31, 2015, the Company recorded a reduction in warrant expense of $1.0 million due to the remeasurement to fair value of the unvested shares through the vesting date, which was primarily related to the reduction in the Company's stock price. The reduction in expense has been reflected as a reduction to sales and marketing expense on the accompanying consolidated statements of comprehensive loss. For the year ended December 31, 2015, warrants earned under this agreement totaled 112,500 shares. For the year ended December 31, 2014, the Company recognized expense of $1.7 million related to warrants to purchase 33,333 shares of common stock that have been earned and are vested.

Reserve for Unissued Shares of Common Stock

The Company is required to reserve and keep available out of its authorized but unissued shares of common stock such number of shares sufficient for the exercise of all outstanding warrants, plus shares granted and available for grant under the Company’s stock option plan.

The amount of such shares of the Company’s common stock reserved for these purposes at December 31, 2016 is as follows:



	Number of Shares
Outstanding stock options	24,541,512
Outstanding restricted stock units	4,339,320
Outstanding common stock warrants	1,458,979
Additional shares available for grant under equity plan	3,254,115
Total	33,593,926