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, 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)

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

(800) 200-2000

(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, 2020, 108,007,698 shares of the registrant’s common stock were outstanding.

TRUECAR, INC.

INDEX

		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019	3
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2020 and 2019	4
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019	5
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	37
	PART II -  OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73
Item 6.	Exhibits	74
	Signatures	75

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 wind down our partnership with USAA Federal Savings Bank in a manner that minimizes disruption to our business, and our ability to mitigate the long-term financial effect of the termination of that partnership;

•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; 

•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;

1

•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, if at all, we repurchase our common stock under our share repurchase plan and the effect of any such 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

TRUECAR, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value and share data)

(Unaudited)

	June 30, 2020		December 31, 2019
Assets
Current assets
Cash and cash equivalents	$	173,086	$	181,534
Accounts receivable, net of allowances of $10,459 and $6,759 at June 30, 2020 and December 31, 2019, respectively (includes related party receivables of $6,512 and $209 at June 30, 2020 and December 31, 2019, respectively)	41,540		44,888
Prepaid expenses	8,311		7,215
Other current assets	5,800		6,104
Total current assets	228,737		239,741
Property and equipment, net	27,775		29,797
Operating lease right-of-use assets	33,062		36,064
Goodwill	63,124		73,311
Intangible assets, net	14,167		17,260
Equity method investment	21,005		21,894
Other assets	3,567		3,620
Total assets	$	391,437	$	421,687
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable (includes related party payables of $467 and $6,439 at June 30, 2020 and December 31, 2019, respectively)	$	10,017	$	21,336
Accrued employee expenses	10,364		5,969
Operating lease liabilities, current	4,665		5,875
Accrued expenses and other current liabilities (includes related party accrued expenses of $0 and $1,299 at June 30, 2020 and December 31, 2019, respectively)	13,037		20,990
Total current liabilities	38,083		54,170
Deferred tax liabilities	386		783
Operating lease liabilities, net of current portion	34,632		37,127
Other liabilities	1,142		2,336
Total liabilities	74,243		94,416
Commitments and contingencies (Note 7)
Stockholders’ Equity
Preferred stock — $0.0001 par value; 20,000,000 shares authorized at June 30, 2020 and December 31, 2019; no shares issued and outstanding at June 30, 2020 and December 31, 2019	—		—
Common stock — $0.0001 par value; 1,000,000,000 shares authorized at June 30, 2020 and December 31, 2019; 107,910,000 and 106,865,830 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively	11		11
Additional paid-in capital	771,156		759,322
Accumulated deficit	(453,973)		(432,062)
Total stockholders’ equity	317,194		327,271
Total liabilities and stockholders’ equity	$	391,437	$	421,687

See accompanying notes to condensed consolidated financial statements.

3

TRUECAR, INC. 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands except per share data)

(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Revenues (includes related party revenue of $3,773 and $345 for the three months ended June 30, 2020 and 2019, respectively, and $5,020 and $509 for the six months ended June 30, 2020 and 2019, respectively)	$	62,685	$	88,075	$	146,211	$	173,657
Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization presented separately below; includes related party cost of revenue of $139 and $289 for the three months ended June 30, 2020 and 2019, respectively, and $424 and $423 for the six months ended June 30, 2020 and 2019, respectively)	6,859		8,332		14,080		17,268
Sales and marketing (includes related party expenses of $0 and $5,749 for the three months ended June 30, 2020 and 2019, respectively, and $1,959 and $11,222 for the six months ended June 30, 2020 and 2019, respectively)	33,476		60,233		80,051		114,971
Technology and development	13,103		16,045		25,319		31,699
General and administrative	13,520		21,382		25,832		36,486
Depreciation and amortization	6,425		6,767		12,696		13,182
Goodwill impairment	—		—		10,187		—
Total costs and operating expenses	73,383		112,759		168,165		213,606
Loss from operations	(10,698)		(24,684)		(21,954)		(39,949)
Interest income	72		966		605		1,967
Loss from equity method investment	(507)		(273)		(889)		(273)
Loss before income taxes	(11,133)		(23,991)		(22,238)		(38,255)
Provision for (benefit from) income taxes	109		69		(327)		170
Net loss	$	(11,242)	$	(24,060)	$	(21,911)	$	(38,425)
Net loss per share, basic and diluted	$	(0.10)	$	(0.23)	$	(0.20)	$	(0.37)
Weighted average common shares outstanding, basic and diluted	107,535		105,485		107,279		105,139
Other comprehensive loss:
Comprehensive loss	$	(11,242)	$	(24,060)	$	(21,911)	$	(38,425)

See accompanying notes to condensed consolidated financial statements.

4

TRUECAR, INC. 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands except share data)

(Unaudited) 

	Six Months Ended June 30, 2020
	Common Stock					Accumulated Deficit		Stockholders’ Equity
	Shares	Amount		APIC
Balance at December 31, 2019	106,865,830	$	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, 2020	107,183,633	$	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, 2020	107,910,000	$	11	$	771,156	$	(453,973)	$	317,194

	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 issued in connection with employee stock plans, net of shares withheld for employee taxes	776,563	—		(469)		—		(469)
Balance at June 30, 2019	105,895,609	$	10	$	746,986	$	(415,597)	$	331,399

See accompanying notes to condensed consolidated financial statements.

5

TRUECAR, INC. 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Six Months Ended June 30,
	2020		2019
Cash flows from operating activities
Net loss	$	(21,911)	$	(38,425)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	12,696		13,182
Goodwill impairment	10,187		—
Deferred income taxes	(397)		127
Bad debt expense and other reserves	3,485		485
Stock-based compensation	12,631		24,191
Increase in the fair value of contingent consideration liability	121		150
Amortization of lease right-of-use assets	3,002		2,944
Loss from equity method investment	889		273
Write-off and loss on disposal of fixed assets	41		1,139
Changes in operating assets and liabilities:
Accounts receivable	(137)		(2,011)
Prepaid expenses	(1,096)		(2,538)
Other current assets	304		(29,711)
Other assets	53		1,406
Accounts payable	(11,280)		(5,777)
Accrued employee expenses	4,410		5,905
Operating lease liabilities	(3,705)		(3,064)
Accrued expenses and other liabilities	(8,509)		39,047
Other liabilities	905		(99)
Net cash provided by operating activities	1,689		7,224
Cash flows from investing activities
Purchase of property and equipment	(6,294)		(5,405)
Cash paid for equity method investment	—		(23,174)
Net cash used in investing activities	(6,294)		(28,579)
Cash flows from financing activities
Payment of contingent consideration liability	(2,263)		—
Proceeds from exercise of common stock options	3		2,835
Taxes paid related to net share settlement of equity awards	(1,583)		(1,043)
Net cash (used in) provided by financing activities	(3,843)		1,792
Net decrease in cash and cash equivalents	(8,448)		(19,563)
Cash and cash equivalents at beginning of period	181,534		196,128
Cash and cash equivalents at end of period	$	173,086	$	176,565
Supplemental disclosures of non-cash activities
Stock-based compensation capitalized for software development	$	783	$	978
Capitalized assets included in accounts payable, accrued employee expenses and other accrued expenses	410		245
Capitalized asset retirement costs included in property and equipment	498		—

See accompanying notes to condensed consolidated financial statements.

6

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 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.

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. 

7

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 12). All of the Company’s principal operations, decision-making functions and assets are located in the United States.

8

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 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 June 30, 2020		Six Months Ended June 30, 2020
Allowances, at beginning of period	$	8,054	$	6,759
Charged as a reduction of revenue	2,978		5,386
Charged to bad debt expense in general and administrative expenses	1,260		3,485
Write-offs, net of recoveries	(1,833)		(5,171)
Allowances, at end of period	$	10,459	$	10,459

For the six months ended June 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.

9

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued new guidance to simplify the accounting for income taxes by removing certain exceptions to the general principles in Accounting Standards Codification Topic 740, Income Taxes. This standard is effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those annual reporting periods. The Company is currently evaluating the impact of this guidance but the adoption is not expected to have a material impact on the Company’s condensed consolidated financial statements.

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.

In June 2016, the FASB issued new guidance that replaces the then-existing model for measuring the allowance for credit losses for financial assets measured at amortized cost (including trade accounts receivable) to a model that is based on the expected losses rather than incurred losses. Under the new credit loss model, lifetime expected credit losses on such financial assets are measured and recognized at each reporting date based on historical, current, and forecast information. The amendments in this new guidance are applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company adopted this guidance on January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

3. 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.

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The following table summarizes the Company’s financial assets measured at fair value on a recurring basis at June 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 June 30, 2020								At December 31, 2019
							Total Fair								Total Fair
	Level 1		Level 2		Level 3		Value		Level 1		Level 2		Level 3		Value
Assets:
Cash equivalents	$	165,919	$	—	$	—	$	165,919	$	174,429	$	—	$	—	$	174,429
Total assets	$	165,919	$	—	$	—	$	165,919	$	174,429	$	—	$	—	$	174,429
Liabilities:
Contingent consideration, current	$	—	$	—	$	2,398	$	2,398	$	—	$	—	$	2,441	$	2,441
Contingent consideration, non-current	—		—		—		—		—		—		2,336		2,336
Total liabilities	$	—	$	—	$	2,398	$	2,398	$	—	$	—	$	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 June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Fair value, beginning of period	$	4,852	$	4,552	$	4,777	$	4,477
Cash payments	(2,500)		—		(2,500)		—
Additions and changes in fair value	46		75		121		150
Fair value, end of period	$	2,398	$	4,627	$	2,398	$	4,627

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 June 30, 2020:

Valuation Technique	Unobservable Input	Value
Discounted cash flow	Probability of achievement	98.9%
	Discount rate	4.9%

4. Goodwill

The following table summarizes the changes in goodwill for the six months ended June 30, 2020 (in thousands):

	Goodwill
Balance at December 31, 2019	$	73,311
Impairment	(10,187)
Balance at June 30, 2020	$	63,124

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

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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”) 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. 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.

5. Property and Equipment, net

Property and equipment consisted of the following at June 30, 2020 and December 31, 2019 (in thousands):

	June 30, 2020		December 31, 2019
Computer equipment, software, and internally developed software	$	66,845	$	60,049
Furniture and fixtures	5,022		4,927
Leasehold improvements	16,064		15,839
	87,931		80,815
Less: Accumulated depreciation	(60,156)		(51,018)
Total property and equipment, net	$	27,775	$	29,797

Included in the table above are property and equipment of $1.9 million and $1.4 million at June 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 $4.9 million and $5.2 million for the three months ended June 30, 2020 and 2019, respectively. Total depreciation and amortization expense of property and equipment was $9.6 million and $10.1 million for the six months ended June 30, 2020 and 2019, respectively.

Amortization of internal use capitalized software development costs was $3.5 million and $3.9 million for the three months ended June 30, 2020 and 2019, respectively. Amortization of internal use capitalized software development costs was $6.9 million and $7.3 million for the six months ended June 30, 2020 and 2019, 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 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.

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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.

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, 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 June 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.

7. 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 $8.5 million in the second quarter of 2020 in connection with the Restructuring Plan. Of the total, the Company recorded $0.7 million in cost of revenue, $5.3 million in sales and marketing, $1.6 million in technology and development and $0.9 million in general and administrative expenses within the Company’s condensed consolidated statements of comprehensive loss during the three and six months ended June 30, 2020. The Company expects the majority of the restructuring costs liability as of June 30, 2020 to be 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.

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The following table presents a roll forward of the restructuring costs liability for the six months ended June 30, 2020 (in thousands):

	Restructuring Costs Liability
Accrual at December 31, 2019	$	28
Expense	8,514
Cash Payments	(2,139)
Accrual at June 30, 2020	$	6,403

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

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

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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. The Company believes that the appeal 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, 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. The Company believes that the consolidated 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, 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 June 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 June 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

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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 June 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.  

8. Stock-based Awards

Stock Options

A summary of the Company’s stock option activity for the six months ended June 30, 2020 is as follows:

	Number of Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life
				(in years)
Outstanding at December 31, 2019	10,625,980	$	11.22	5.2
Granted	1,713,111	2.66
Exercised	(3,166)	0.83
Forfeited/expired	(1,596,381)	12.28
Outstanding at June 30, 2020	10,739,544	$	9.70	5.3

At June 30, 2020, total remaining stock-based compensation expense for unvested stock option awards was $9.5 million, which is expected to be recognized over a weighted-average period of 2.3 years. For the three months ended June 30, 2020 and 2019, the Company recorded stock-based compensation expense for stock option awards of $1.5 million and $6.9 million, respectively. For the six months ended June 30, 2020 and 2019, the Company recorded stock-based compensation expense for stock option awards of $3.1 million and $10.0 million, respectively.

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Restricted Stock Units

Activity in connection with restricted stock units is as follows for the six months ended June 30, 2020:

	Number of Shares	Weighted- Average Grant Date Fair Value
Non-vested — December 31, 2019	5,890,992	$	7.96
Granted	5,652,422	2.77
Vested	(1,598,585)	6.89
Forfeited	(1,338,505)	7.43
Non-vested — June 30, 2020	8,606,324	$	4.83

At June 30, 2020, total remaining stock-based compensation expense for non-vested restricted stock units was $38.9 million, which is expected to be recognized over a weighted-average period of 2.4 years. The Company recorded $5.0 million and $8.7 million in stock-based compensation expense for restricted stock units for the three months ended June 30, 2020 and 2019, respectively. The Company recorded $9.6 million and $14.2 million in stock-based compensation expense for restricted stock units for the six months ended June 30, 2020 and 2019, respectively.

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 loss (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Cost of revenue	$	211	$	553	$	618	$	1,052
Sales and marketing	2,388		4,716		4,644		8,188
Technology and development	1,361		3,463		2,633		5,409
General and administrative	2,494		6,824		4,736		9,542
Total stock-based compensation expense	6,454		15,556		12,631		24,191
Amount capitalized to internal software use	401		505		783		978
Total stock-based compensation cost	$	6,855	$	16,061	$	13,414	$	25,169

For the three and six months ended June 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.

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 an income tax expense of $0.1 million in each of the three months ended June 30, 2020 and 2019. The Company recorded an income tax benefit of $0.3 million and income tax expense of $0.2 million for the six months ended June 30, 2020 and 2019, respectively. For the six months ended June 30, 2020, the $0.3 million tax benefit arose in connection with the impairment of goodwill during the first quarter of 2020, resulting in reduction of indefinite-lived deferred tax liabilities.

        There were no material changes to the Company’s unrecognized tax benefits in the six months ended June 30, 2020, 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 net operating loss (“NOL”) carryforwards, all income tax years remain open for examination by the IRS and various state taxing authorities.

The Internal Revenue Code of 1986, as amended (the “IRC”), imposes substantial restrictions on the utilization of net operating losses and other tax attributes in the event of an “ownership change” of a corporation. Accordingly, a company’s

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ability to use pre-change net operating loss and research tax credits may be limited as prescribed under IRC Sections 382 and 383. Events that may cause a limitation in the amount of the net operating losses and credits that the Company uses in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. The Company experienced a cumulative ownership change as of December 31, 2019 within the meaning of IRC Sections 382 and 383. As a result of this ownership change, the Company estimates that up to $86.8 million and $2.5 million of federal and state net operating loss carryforwards, respectively, may expire unused. Similarly, the Company estimates that up to $0.8 million of federal research and development credit carryforward may expire unused. The Section 382 limitation resulted in a reduction of deferred tax assets of $18.4 million and would be fully offset by a corresponding decrease in its valuation allowance, with no net tax provision impact.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted to provide economic relief to individuals and businesses facing economic hardship as a result of the COVID-19 public health emergency. The CARES Act includes, among other things, provisions relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative minimum tax credits refunds, modifications to the net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property. In addition, on June 29, 2020 California enacted legislation suspending NOL deductions for taxpayers with more than $1 million of business income and imposing limits on the use of tax credits up to $5 million effective for tax years 2020 through 2022. The changes in tax law did not have a material impact on the Company’s results of operations for the three and six months ended June 30, 2020. The Company will continue to monitor possible future impact of changes in tax legislation.

10. Net Loss Per Share