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 March 31, 2021

☐ 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 May 4, 2021, 98,806,292 shares of the registrant’s common stock were outstanding.

TRUECAR, INC.

INDEX

		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited)	5
	Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020	5
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2021 and 2020	6
	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2021 and 2020	7
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020	8
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	36
	PART II -  OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	72
Item 6.	Exhibits	73
	Signatures	76

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, including 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 maintain or 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 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 maintain or increase close rates and the rate at which site visitors prospect with a TrueCar certified dealer; 

•our ability to successfully maintain or increase 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 newer suite of products, including our Access package, which combines our Trade and Payments solutions, and our Finance & Insurance products;

•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 governmental 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 use the proceeds of the ALG divestiture in a manner that maximizes shareholder value;

•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.

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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 negative financial effects.

•We may not be able to grow and optimize the geographic coverage of dealers in our network, and maintain or 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.

•Low automobile inventory supply levels adversely impact our business, results of operations and prospects by increasing competition for dealers’ advertising expenditures and reducing automobile manufacturers’ incentive spending.

•We have experienced significant management turnover. 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, and we may not be able to successfully demonstrate the value of any expanded or complementary products that we introduce, 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

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results, which could cause our stock price to decline.

4

TRUECAR, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value and share data)

(Unaudited)

	March 31, 2021		December 31, 2020
Assets
Current assets
Cash and cash equivalents	$	274,573	$	273,314
Accounts receivable, net of allowances of $6,149 and $7,147 at March 31, 2021 and December 31, 2020, respectively	28,308		32,923
Prepaid expenses	4,905		5,800
Other current assets	4,057		12,901
Total current assets	311,843		324,938
Property and equipment, net	20,626		21,421
Operating lease right-of-use assets	28,124		29,192
Goodwill	51,205		51,205
Intangible assets, net	6,188		6,600
Equity method investment	19,576		19,905
Other assets	4,709		4,800
Total assets	$	442,271	$	458,061
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable (includes related party payables of $1,040 and $913 at March 31, 2021 and December 31, 2020, respectively)	$	13,831	$	13,198
Accrued employee expenses	4,549		6,506
Operating lease liabilities, current	4,847		4,771
Accrued expenses and other current liabilities	16,064		18,402
Total current liabilities	39,291		42,877
Deferred tax liabilities	57		40
Operating lease liabilities, net of current portion	30,645		31,974
Other liabilities	86		388
Total liabilities	70,079		75,279
Commitments and contingencies (Note 8)
Stockholders’ Equity
Preferred stock — $0.0001 par value; 20,000,000 shares authorized at March 31, 2021 and December 31, 2020; no shares issued and outstanding at March 31, 2021 and December 31, 2020	—		—
Common stock — $0.0001 par value; 1,000,000,000 shares authorized at March 31, 2021 and December 31, 2020; 98,667,561 and 99,690,942 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively	10		10
Additional paid-in capital	736,118		738,290
Accumulated deficit	(363,936)		(355,518)
Total stockholders’ equity	372,192		382,782
Total liabilities and stockholders’ equity	$	442,271	$	458,061

See accompanying notes to condensed consolidated financial statements.

5

TRUECAR, INC. 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands except per share data)

(Unaudited)

	Three Months Ended March 31,
	2021		2020
Revenues (includes related party contra revenue of $297 and net revenue of $1,247 for the three months ended March 31, 2021 and 2020, respectively)	$	65,105	$	78,917
Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization presented separately below; includes related party cost of revenue of $1,248 and $285 for the three months ended March 31, 2021 and 2020, respectively)	5,458		6,175
Sales and marketing (includes related party expenses of $0 and $1,959 for the three months ended March 31, 2021 and 2020, respectively)	40,099		46,080
Technology and development	11,193		11,899
General and administrative	12,678		12,088
Depreciation and amortization	4,312		5,029
Goodwill impairment	—		8,264
Total costs and operating expenses	73,740		89,535
Loss from operations	(8,635)		(10,618)
Interest income	15		378
Other income	625		—
Loss from equity method investment	(329)		(382)
Loss from continuing operations before income taxes	(8,324)		(10,622)
Provision for (benefit from) income taxes	94		(232)
Loss from continuing operations	(8,418)		(10,390)
Loss from discontinued operations, net of taxes	—		(279)
Net loss	$	(8,418)	$	(10,669)
Loss per share, basic and diluted
Continuing operations	$	(0.09)	$	(0.10)
Discontinued operations	$	0.00	$	0.00
Weighted average common shares outstanding, basic and diluted	98,581		107,024
Other comprehensive loss:
Comprehensive loss	$	(8,418)	$	(10,669)

See accompanying notes to condensed consolidated financial statements.

6

TRUECAR, INC. 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands except share data)

(Unaudited) 

	Three Months Ended March 31, 2021
	Common Stock					Accumulated Deficit		Stockholders’ Equity
	Shares	Amount		APIC
Balance at December 31, 2020	99,690,942	$	10	$	738,290	$	(355,518)	$	382,782
Net loss	—	—		—		(8,418)		(8,418)
Repurchase of common stock	(1,683,692)	—		(7,829)		—		(7,829)
Stock-based compensation	—	—		6,732		—		6,732
Shares issued in connection with employee stock plans, net of shares withheld for employee taxes	660,311	—		(1,075)		—		(1,075)
Balance at March 31, 2021	98,667,561	$	10	$	736,118	$	(363,936)	$	372,192

	Three Months Ended March 31, 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

See accompanying notes to condensed consolidated financial statements.

7

TRUECAR, INC. 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Three Months Ended March 31,
	2021		2020
Cash flows from operating activities
Net loss	$	(8,418)	$	(10,669)
Loss from discontinued operations, net of taxes	—		(279)
Net loss from continuing operations	(8,418)		(10,390)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	4,312		5,029
Goodwill impairment	—		8,264
Deferred income taxes	17		(439)
Bad debt expense and other reserves	232		2,225
Stock-based compensation	6,385		5,914
Increase in the fair value of contingent consideration liability	31		75
Amortization of lease right-of-use assets	1,068		1,516
Loss from equity method investment	329		382
Write-off and loss on disposal of fixed assets	—		41
Other noncash expense	125		—
Changes in operating assets and liabilities:
Accounts receivable	4,383		2,131
Prepaid expenses and other assets	2,205		2,851
Accounts payable	717		(3,697)
Accrued employee expenses	(1,745)		(3,245)
Operating lease liabilities	(1,253)		(2,000)
Accrued expenses and other liabilities	(2,607)		(6,726)
Other liabilities	(302)		(44)
Net cash provided by operating activities - continuing operations	5,479		1,887
Net cash provided by operating activities - discontinued operations	—		3,663
Net cash provided by operating activities	5,479		5,550
Cash flows from investing activities
Purchase of property and equipment	(2,816)		(3,154)
Net cash used in investing activities - continuing operations	(2,816)		(3,154)
Net cash provided by (used in) investing activities - discontinued operations	7,500		(351)
Net cash provided by (used in) investing activities	4,684		(3,505)
Cash flows from financing activities
Proceeds from exercise of common stock options	567		3
Taxes paid related to net share settlement of equity awards	(1,642)		(727)
Payments for the repurchase of common stock	(7,829)		—
Net cash used in financing activities	(8,904)		(724)
Net increase in cash and cash equivalents	1,259		1,321
Cash and cash equivalents at beginning of period	273,314		181,534
Cash and cash equivalents at end of period	$	274,573	$	182,855

See accompanying notes to condensed consolidated financial statements.

8

TRUECAR, INC. 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

(Continued)

	Three Months Ended March 31,
	2021		2020
Supplemental disclosures of non-cash activities
Stock-based compensation capitalized for software development	$	347	$	345
Capitalized assets included in accounts payable, accrued employee expenses and other accrued expenses	585		148

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 TrueCar Dealer Solutions, Inc., DealerScience, LLC and ALG, Inc. (up to the disposition date of November 30, 2020) 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.

Through its subsidiary TCDS, the Company provides 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, 2020, and include all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the interim periods presented. As a result of the 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 periods presented herein through the date of disposition. Unless otherwise noted, the accompanying Notes to the Condensed Consolidated Financial Statements have all been revised to reflect continuing operations only.

The condensed consolidated balance sheet at December 31, 2020 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 March 5, 2021. 

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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. Divestitures are included in the Company’s consolidated statements through the date of disposition. 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, the recoverability and related impairment of goodwill and long-lived assets, valuation allowances with respect to deferred tax assets, useful lives associated with property and equipment and intangible assets, right-of-use assets and operating lease liabilities, contingencies, and the valuation and assumptions underlying stock-based compensation and other equity instruments. On an ongoing basis, the Company evaluates its estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities. In addition, the Company engaged valuation specialists to assist with management’s determination of the fair values of its single reporting unit related to goodwill impairment, right-of-use assets and lease liabilities, assets and liabilities assumed in business combinations, assets and liabilities of its equity method investment and performance-based stock units.

Segments

The Company has one operating segment. From January 1, 2021 through January 26, 2021, the Company’s chief operating decision maker (“CODM”) was solely comprised of the President and Chief Executive Officer who managed the Company’s operations based on consolidated financial information for purposes of evaluating financial performance and allocating resources. Upon the hiring of the Company’s Chief Financial Officer on January 27, 2021 and through March 31, 2021, the CODM was comprised of both the President and Chief Executive Officer and the Chief Financial Officer, who jointly managed 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 other revenue (Note 13). All of the Company’s principal operations, decision-making functions and assets are located in the United States.

Allowance for Doubtful Accounts

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.

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

11

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 March 31,
	2021		2020
Allowances, at beginning of period	$	7,147	$	6,591
Charged as a reduction of revenue	1,279		2,398
Charged to bad debt expense in general and administrative expenses	232		2,225
Write-offs, net of recoveries	(2,509)		(3,327)
Allowances, at end of period	$	6,149	$	7,887

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.

3.    Discontinued Operations

On November 30, 2020, the Company completed the sale of its 100% interest (the “Divestiture”) in ALG to J.D. Power for $112.5 million in cash (subject to customary working capital and other adjustments) pursuant to the Membership Interest Purchase Agreement, dated as of July 31, 2020 (the “Purchase Agreement”). The Purchase Agreement provides for J.D. Power to pay the Company (i) a potential cash earnout of up to $7.5 million based upon ALG’s achievement of certain revenue metrics in 2020 and (ii) a potential cash earnout of up to $15 million based upon ALG’s achievement of certain revenue metrics in 2022. The Company received cash proceeds of $111.5 million, net of working capital adjustments, and incurred transaction costs of approximately $1.9 million. As part of the Divestiture, the Company also received a five-year data license from J.D. Power for use of certain ALG data in the Company’s products and services. The Company recorded the fair value of the data license in the amount of $1.9 million. The carrying value of the data license is included in other current assets and other assets in the accompanying condensed consolidated balance sheets. The data license is being treated as additional consideration received and is being amortized on a straight-line basis over five years. The Company accounts for the future earnouts as gain contingencies and recognizes the contingent consideration associated with the Divestiture when the consideration is determined to be realizable. At December 31, 2020, the Company recorded a receivable of $7.5 million associated with the achievement of the first earnout based on certain 2020 revenue metrics. The Divestiture resulted in a pre-tax gain of $92.5 million for the year ended December 31, 2020. During the first quarter of 2021, the Company received cash payment of $7.5 million related to the first earnout and is reflected within investing activities of discontinued operations on the accompanying condensed consolidated statements of cash flows.

The 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 loss and consolidated statements of cash flows for all periods presented.

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The following table presents the detail of “Loss from discontinued operations, net of taxes” within the condensed consolidated statements of comprehensive loss (in thousands):

	Three Months Ended March 31, 2020
Revenues	$	4,609
Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization presented separately below)	1,046
Sales and marketing	495
Technology and development	317
General and administrative	224
Depreciation and amortization	1,242
Goodwill impairment	1,923
Total costs and operating expenses	5,247
Loss from operations	(638)
Interest income	155
Loss from discontinued operations before income taxes	(483)
Benefit from income taxes	(204)
Loss from discontinued operations, net of taxes	$	(279)

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.

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The following table summarizes the Company’s financial assets measured at fair value on a recurring basis at March 31, 2021 and December 31, 2020 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 March 31, 2021								At December 31, 2020
							Total Fair								Total Fair
	Level 1		Level 2		Level 3		Value		Level 1		Level 2		Level 3		Value
Assets:
Cash equivalents	$	263,139	$	—	$	—	$	263,139	$	262,309	$	—	$	—	$	262,309
Total assets	$	263,139	$	—	$	—	$	263,139	$	262,309	$	—	$	—	$	262,309
Liabilities:
Contingent consideration, current	$	—	$	—	$	2,490	$	2,490	$	—	$	—	$	2,459	$	2,459
Total liabilities	$	—	$	—	$	2,490	$	2,490	$	—	$	—	$	2,459	$	2,459

Contingent Consideration Obligations

The following table summarizes the changes in the fair value of the contingent consideration obligation (in thousands):

	Three Months Ended March 31,
	2021		2020
Fair value, beginning of period	$	2,459	$	4,777
Additions and changes in fair value	31		75
Fair value, end of period	$	2,490	$	4,852

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 March 31, 2021:

Valuation Technique	Unobservable Input	Value
Discounted cash flow	Probability of achievement	100.0%
	Discount rate	4.9%

5.    Goodwill

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 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”) 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 was 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.

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6.    Property and Equipment, net

Property and equipment consisted of the following at March 31, 2021 and December 31, 2020 (in thousands):

	March 31, 2021		December 31, 2020
Computer equipment, software, and internally developed software	$	69,083	$	66,198
Furniture and fixtures	4,605		4,610
Leasehold improvements	15,727		15,727
	89,415		86,535
Less: Accumulated depreciation	(68,789)		(65,114)
Total property and equipment, net	$	20,626	$	21,421

Included in the table above are property and equipment of $1.0 million and $0.9 million at March 31, 2021 and December 31, 2020, 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 $3.9 million and $4.4 million for the three months ended March 31, 2021 and 2020, respectively.

Amortization of internal use capitalized software development costs was $3.2 million and $3.1 million for the three months ended March 31, 2021 and 2020, respectively.

7.    Credit Facility

February 2018 Amended Credit Facility

The Company is party to a third amended and restated loan and security agreement (as amended from time to time, 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. In February 2021, the Company entered into a third amendment to the Credit Facility to extend the expiration date to April 19, 2021 that did 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.

At March 31, 2021, the Company had no outstanding amounts under the Credit Facility and the amount available was $32.2 million, reduced for the letters of credit issued and outstanding under the subfacility of $2.8 million.

April 2021 Amendment to Credit Facility

In April 2021, the Company entered into a fourth amendment to the Third Amended Credit Facility (“Fourth Amendment”). The Fourth Amendment extends the maturity date to April 12, 2024. Similar to the third amended and restated loan and security agreement, the Fourth Amendment provides for advances under a $35.0 million revolving line of credit. The Fourth Amendment also provides for 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 Fourth Amendment 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 0.25%, or (ii) a LIBOR rate determined in accordance with the terms of the Credit Facility, plus a spread of 1.75% to 2.25%. 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, excluding operating lease obligations, plus all obligations and liabilities to the financial institution including issued and outstanding letters of credit.

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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 for LIBOR rate loans. The Company is also obligated to pay an unused revolving line facility fee of 0.00% to 0.15% 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 1.25 to 1.00 on the last day of each quarter. The Credit Facility also limits the Company’s ability to pay dividends.

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.

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 majority of the restructuring costs liability was paid during the year ended December 31, 2020 with the remainder expected to be paid in 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 three months ended March 31, 2021 (in thousands):

	Restructuring Costs Liability
Accrual at December 31, 2020	$	381
Cash Payments	—
Accrual at March 31, 2021	$	381

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

In March 2018, Leon Milbeck filed a putative securities class action complaint 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 our business, operations, prospects and performance during a purported class period of February 16, 2017 through November 6, 2017 in violation of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, and that the defendants made actionable misstatements in violation of Section 11 of the Securities Act in connection with the Company’s 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

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for its secondary offering as defendants. On October 31, 2018, the lead plaintiff dismissed the underwriters from the litigation “without prejudice,” meaning that they could be reinstated as defendants at a later time. 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, pursuant to which the court dismissed the case on May 26, 2020. As a result, the Milbeck Federal Securities Litigation is currently resolved.

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 sought 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 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. Following the court’s decision, the plaintiffs sent a letter to the Company demanding that it pursue claims against certain current and former officers for various alleged breaches of their fiduciary duties, based substantially on the same factual allegations as the Milbeck Federal Securities Litigation. On November 18, 2020, the Company’s Board of Directors (the “Board”) established a special committee of the Board (the “Special Committee”) to investigate the claims contained in the Delaware Consolidated Derivative Litigation, the Lee Derivative Litigation and other related stockholder demands. The Company has not recorded an accrual related to this matter as of March 31, 2021 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 (the “Lee Derivative Litigation”) 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. Following the dismissal of the Delaware Consolidated Derivative Litigation, on December 22, 2020, the court entered the parties’ further stipulation to stay the Lee Derivative Litigation pending the outcome of the Special Committee’s investigation. The Company believes that the complaint is without merit, and should the litigation proceed, the Company intends to vigorously defend itself in this matter. The Company has not recorded an accrual related to this matter as of March 31, 2021 as the Company does not believe a loss is probable or reasonably estimable.

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 March 31, 2021, as the Company does not believe a loss is probable or reasonably estimable.

Employment Contracts

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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. 

9.    Stock-based Awards

Stock Options

A summary of the Company’s stock option activity for the three months ended March 31, 2021 is as follows:

	Number of Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life
				(in years)
Outstanding at December 31, 2020	10,009,282	$	9.58	5.1
Granted	768,354	5.04
Exercised	(180,321)	3.14
Forfeited/expired	(742,705)	7.97
Outstanding at March 31, 2021	9,854,610	$	9.46	4.7

At March 31, 2021, total remaining stock-based compensation expense for unvested stock option awards was $6.7 million, which is expected to be recognized over a weighted-average period of 2.8 years. For each of the three months ended March 31, 2021 and 2020, the Company recorded stock-based compensation expense for stock option awards of $1.6 million.

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Restricted Stock Units

Activity in connection with restricted stock units is as follows for the three months ended March 31, 2021:

	Number of Shares	Weighted- Average Grant Date Fair Value
Non-vested — December 31, 2020	6,918,474	$	4.63
Granted	1,655,016	5.35
Vested	(793,015)	5.31
Forfeited	(554,981)	4.46
Non-vested — March 31, 2021	7,225,494	$	4.73

At March 31, 2021, total remaining stock-based compensation expense for non-vested restricted stock units was $30.3 million, which is expected to be recognized over a weighted-average period of 2.4 years. The Company recorded $4.8 million and $4.3 million in stock-based compensation expense for restricted stock units for the three months ended March 31, 2021 and 2020, 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 March 31,
	2021		2020
Cost of revenue	$	71	$	313
Sales and marketing	2,959		2,161
Technology and development	1,188		1,225
General and administrative	2,167		2,215
Total stock-based compensation expense	6,385		5,914
Amount capitalized to internal software use	347		345
Total stock-based compensation cost	$	6,732	$	6,259

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 recorded income tax expense of $0.1 million and an income tax benefit of $0.2 million for the three months ended March 31, 2021 and 2020, respectively. For the three months ended March 31, 2021, the Company’s provision for income taxes primarily reflects tax expense associated with state income taxes and the amortization of tax-deductible goodwill that is not an available source of income to realize deferred tax assets. For the three months ended March 31, 2020, the $0.2 million tax benefit primarily arose in connection with the impairment of goodwill, resulting in reduction of indefinite-lived deferred tax liabilities.

    There were no material changes to the Company’s unrecognized tax benefits in the three months ended March 31, 2021, 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 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

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experienced a cumulative ownership change as of December 31, 2019. The Company estimates that up to $15.2 million and $0.5 million of federal and state net operating loss carryforwards, respectively, may expire unused. The Section 382 limitation resulted in a reduction of deferred tax assets of $3.2 million and was fully offset by a corresponding decrease in its valuation allowance, with no net tax provision impact. Additionally, pending finalization of the 2011-2020 research and development tax credits study, the Company anticipates that certain federal research and development credit carryforwards may expire unused. Any write-off of these tax attributes would be fully offset by a corresponding decrease in the Company’s valuation allowance, with no net tax provision impact.

11.    Net Loss Per Share

The following table sets forth the computation of basic and diluted loss per share (in thousands, except per share data): 

	Three Months Ended March 31,
	2021		2020
Net loss	$	(8,418)	$	(10,669)
Loss from continuing operations	$	(8,418)	$	(10,390)
Loss from discontinued operations, net of taxes	$	—	$	(279)
Weighted-average common shares outstanding, basic and diluted	98,581		107,024
Loss per share, basic and diluted
Continuing operations	$	(0.09)	$	(0.10)
Discontinued operations	$	0.00	$	0.00

The following table presents the number of anti-dilutive shares excluded from the calculation of diluted loss per share at March 31, 2021 and 2020 (in thousands):

	March 31,
	2021	2020
Options to purchase common stock	9,855	12,052
Common stock warrants	510	1,459
Non-vested restricted stock unit awards	7,225	10,183
Total shares excluded from net loss per share	17,590	23,694

Share Repurchase Program

In July 2020, the Company’s board of directors authorized an open market stock repurchase program (the “Program”) of up to $75 million to allow for the repurchase of shares of the Company’s common stock through September 30, 2022. The timing and amount of any repurchases will be determined by Company management based on its evaluation of market conditions and other factors. Repurchases of the Company’s common stock may be made under a Rule 10b5-1 plan, which would permit common stock to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws, open market purchases, privately-negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws. The Program may be suspended or discontinued at any time and does not obligate the Company to purchase any minimum number of shares. For the three months ended March 31, 2021, the Company repurchased and retired a total of 1.7 million shares under the Program for $7.8 million. As of March 31, 2021, the Company had a remaining authorization of $25.0 million for future share repurchases.

12.    Related Party Transactions

Transactions with USAA

USAA is a large stockholder in the Company and was the Company’s most significant affinity marketing partner. At the time that the Company entered into arrangements with USAA to operate its Auto Buying Program, USAA met the definition of a related party. In February 2020, the Company entered into a short-term agreement to extend its partnership with USAA

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Federal Savings Bank (“USAA FSB”) to continue to power the USAA Car Buying Service through September 30, 2020. USAA FSB paid the Company a $20 million transition services fee that was earned over the term of the agreement. Revenue share from USAA FSB to the Company remained the same as it was under the previous agreement except that amounts earned after March 1, 2020 were settled net of the transaction service fee. For the three months ended March 31, 2020, the Company recognized revenue of $1.7 million and recorded sales and marketing expense of $2.0 million related to service arrangements entered into with USAA. At March 31, 2021 and December 31, 2020 the Company had no amounts due to or from USAA.

Transactions with Accu-Trade

During the first quarter of 2019, the Company became a 20% owner of Accu-Trade and accounts for the investment using the equity method, as the Company has significant influence over the investee. The Company had amounts due to Accu-Trade included in accounts payable at March 31, 2021 and December 31, 2020 of $1.0 million and $0.9 million, respectively. The Company recognized contra-revenue of $0.3 million and $0.4 million and cost of revenue of $1.2 million and $0.3 million for the three months ended March 31, 2021 and 2020, respectively, related to a software and data licensing agreement entered into with Accu-Trade.

13.    Revenue Information

Disaggregation of Revenue

The Company disaggregates revenue into three revenue streams: dealer revenue, OEM incentives revenue, and other revenue. The following table presents the Company’s revenue categories during the periods presented (in thousands):

	Three Months Ended March 31,
	2021		2020
Dealer revenue	$	62,057	$	73,798
OEM incentives revenue	2,797		3,523
Other revenue	251		1,596
Total revenues	$	65,105	$	78,917

Contract Balances

The Company’s contract asset balance for estimated variable consideration to be received upon the occurrence of subsequent vehicle sales is included within other current assets and is distinguished from accounts receivable in that these amounts are conditional upon subsequent sales and not only upon the passage of time. Substantially all of the contract asset balances of $2.3 million at December 31, 2020 were transferred to accounts receivable during the three months ended March 31, 2021 as vehicle sales occurred, with no significant changes in the estimate. A contract asset of $2.3 million was recorded as of both March 31, 2021 and December 31, 2020 for leads delivered where consideration to be received was still conditional upon subsequent vehicle sales.

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Item 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes thereto included in Item 1 “Financial Statements” in this Quarterly Report on Form 10-Q. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those discussed in the section titled “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q.  See “Special Note Regarding Forward-Looking Statements.”

Overview

TrueCar is a leading automotive digital marketplace that enables car buyers to connect to our network of Certified Dealers. We are building the industry’s most personalized and efficient car buying experience as we seek to bring more of the purchasing process online.

We have established a diverse software ecosystem on a common technology infrastructure, powered by proprietary data and analytics. Our company-branded platform is available on our TrueCar website and mobile applications. In addition, we customize and operate our platform on a co-branded basis for our many affinity group marketing partners, including financial institutions like PenFed and American Express; membership-based organizations like Consumer Reports, AARP, Sam’s Club, and AAA; and employee buying programs for large enterprises such as IBM and Walmart. We enable users to obtain market-based pricing data on new and used cars, and to connect with our network of TrueCar Certified Dealers. We also allow automobile manufacturers, known in the industry as OEMs, to connect with TrueCar users during the purchase process and efficiently deliver targeted incentives to consumers.

We benefit consumers by providing information related to what others have paid for a make, model and trim of car in their area and price offers on actual vehicle inventory, which we refer to as VIN-based offers, from our network of TrueCar Certified Dealers. VIN-based offers provide consumers with price offers for specific vehicles from specific dealers. We benefit our network of TrueCar Certified Dealers by enabling them to attract these informed, in-market consumers in a cost-effective, accountable manner, which we believe helps them to sell more cars profitably. We benefit OEMs by allowing them to more effectively target their incentive spending at deep-in-market consumers during their purchase process.

Our network of TrueCar Certified Dealers consists primarily of new car franchises, representing all major makes of cars, as well as independent dealers selling used vehicles. TrueCar Certified Dealers operate in all 50 states and the District of Columbia.

Our subsidiary, TCDS, provides our 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. Our Payments solution leverages the digital retailing technology of our DealerScience subsidiary, acquired in December 2018, to help consumers calculate accurate monthly payments.

During the three months ended March 31, 2021, we generated revenues of $65.1 million and recorded a loss from continuing operations of $8.4 million. During the three months ended March 31, 2020, we generated revenues of $78.9 million and recorded a loss from continuing operations of $10.4 million.

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COVID-19 Pandemic

Events surrounding the ongoing COVID-19 pandemic have resulted and will continue to result in significant economic disruptions. We continue to experience the negative effects of COVID-19 on our business, operations and financial results as reflected in the year over year decline in revenues, and we may experience further negative effects on our results of operations, financial condition and cash flows due to numerous uncertainties. In addition to vehicle inventory shortages caused by closures in OEM production facilities in the early days of the COVID-19 induced lockdown, OEMs have also been forced to cut production in the current year as supply-chain disruption due to the pandemic resulted in a global automotive semiconductor chip shortage. The ensuing automobile inventory shortage has resulted in significant unmet demand, with automotive dealers seeing some incoming new car shipments presold. The inventory shortage along with strong consumer demand may impact the decision of our current network of Certified Dealers to cancel or pause on our services and product offerings and could discourage new dealers from joining our network. Refer to Part II, Item 1A, Risk Factors, for additional disclosures of risks related to COVID-19.

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Key Metrics

We regularly review a number of key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make operating and strategic decisions.

	Three Months Ended March 31,
	2021		2020
Average Monthly Unique Visitors	9,175,703		7,751,696
Units (1)	165,858		197,002
Monetization	$	391	$	392
Franchise Dealer Count	10,446		11,356
Independent Dealer Count	3,702		4,193

(1)We issued full credits of the amount originally invoiced with respect to 4,609 and 5,513 units during the three months ended March 31, 2021 and 2020, respectively. The number of units has not been adjusted downwards related to units credited as discussed in the description of the unit metric below.

Average Monthly Unique Visitors

We define a monthly unique visitor as an individual who has visited our website, our landing page on our affinity group marketing partner sites, or our mobile applications within a calendar month. We identify unique visitors through cookies for browser-based visits on either a desktop computer or mobile device and through device IDs for mobile application visits. In addition, if a TrueCar.com user logs in, we supplement their identification with their log-in credentials to attempt to avoid double counting on TrueCar.com across devices, browsers and mobile applications. If an individual accesses our service using different devices or different browsers on the same device within a given month, the first access through each such device or browser is counted as a separate monthly unique visitor, except where adjusted based upon TrueCar.com log-in information. We calculate average monthly unique visitors as the sum of the monthly unique visitors in a given period, divided by the number of months in the period. We view our average monthly unique visitors as a key indicator of the growth in our business and audience reach, the strength of our brand, and the visibility of car-buying services to the member base of our affinity group marketing partners.

The number of average monthly unique visitors increased 18.4% to approximately 9.2 million in the three months ended March 31, 2021 from approximately 7.8 million in the same period of 2020. The increase was primarily due to improvements to our search engine optimization strategy and a surge in online browsing as a result of COVID-19.

Units

We define units as the number of automobiles purchased from TrueCar Certified Dealers that are matched to users of TrueCar.com, our TrueCar-branded mobile applications or the car-buying sites and mobile applications we maintain for our affinity group marketing partners. A unit is counted after we have matched the sale to a TrueCar user with one of TrueCar Certified Dealers. We view units as a key indicator of the health of our business, the effectiveness of our product and the size and geographic coverage of our network of TrueCar Certified Dealers.

On occasion, we issue credits to our TrueCar Certified Dealers with respect to units sold. However, we do not adjust our unit metric for these credits as we believe that in most cases a vehicle has in fact been purchased through our platform given the high degree of accuracy of our sales matching process. Credits are most frequently issued to a dealer that claims that it had a pre-existing relationship with a purchaser of a vehicle, and we determine whether we will issue a credit based on a number of factors, including the facts and circumstances related to the dealer claim and the level of claim activity at the dealership. In most cases, we issue credits in order to maintain strong business relations with the dealer and not because we have made an erroneous sales match or billing error.

The number of units decreased 15.8% to 165,858 units in the three months ended March 31, 2021 from 197,002 units in the three months ended March 31, 2020. The unit decrease is due to the termination of the USAA partnership that ended on September 30, 2020, as well as lower automobile inventory levels resulting from the global automotive semiconductor chip shortage. The impact of the chip shortage on units will be dependent on the duration of the chip-related production cuts by OEMs.

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Monetization

We define monetization as the average transaction revenue per unit, which we calculate by dividing all of our transaction revenue (dealer revenue and OEM incentives revenue) in a given period by the number of units in that period. Our monetization was flat year over year at $391 for three months ended March 31, 2021 as compared to $392 for the three months ended March 31, 2020. We expect our monetization to be affected in the future by changes in our pricing structure and the unit mix between new and used cars, with used cars providing higher monetization.

Franchise Dealer Count

We define franchise dealer count as the number of franchise dealers in the network of TrueCar Certified Dealers at the end of a given period. This number is calculated by counting the number of brands of new cars sold at each individual location, or rooftop, regardless of the size of the dealership that owns the rooftop. The network is comprised of dealers with a range of unit sales volume per dealer, with dealers representing certain brands consistently achieving higher than average unit sales volume. We view our ability to increase our franchise dealer count, particularly dealers representing high volume brands, as an indicator of our market penetration and the likelihood of converting users of our platform into unit sales. Our TrueCar Certified Dealer network includes independent non-franchised dealers that primarily sell used cars and are not included in franchise dealer count.

Our franchise dealer count was 10,446 at March 31, 2021, a decrease from 11,356 at March 31, 2020, and a decrease from 10,589 at December 31, 2020. The decline in franchise dealer count was primarily due to the impact of the COVID-19 pandemic. As a result of inventory shortages and high consumer demand, certain franchise dealers have less of a need for marketing services and products. We expect our franchise dealer count to be impacted by these inventory shortages.

Independent Dealer Count

    We define independent dealer count as the number of dealers in the network of TrueCar Certified Dealers at the end of a given period that exclusively sell used vehicles and are not directly affiliated with a new car manufacturer. This number is calculated by counting each location, or rooftop, individually, regardless of the size of the dealership that owns the rooftop. Our independent dealer count was 3,702 at March 31, 2021, a decrease from 4,193 at March 31, 2020, and relatively flat from 3,794 at December 31, 2020. The decline in independent dealer count from March 31, 2020 was primarily due to suspensions, cancellations or going-out-of-business due to COVID-19. We expect our independent dealer count to also be impacted by new car shortages as demand for used cars have increased, which have also resulted in inventory constraints in the used car market.

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Non-GAAP Financial Measure

Adjusted EBITDA is a financial measure that is not calculated in accordance with generally accepted accounting principles in the United States, or GAAP. We define Adjusted EBITDA as net income (loss) adjusted to exclude interest income, depreciation and amortization, stock-based compensation, income (loss) from equity method investment, certain litigation costs, certain restructuring costs, certain executive departure costs, certain transaction costs, changes in the fair value of contingent consideration, goodwill impairment, other income and income taxes. We have provided below a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure. Adjusted EBITDA should not be considered as an alternative to net income (loss) or any other measure of financial performance calculated and presented in accordance with GAAP. In addition, our Adjusted EBITDA measure may not be comparable to similarly titled measures of other organizations as they may not calculate Adjusted EBITDA in the same manner as we calculate this measure. 

We use Adjusted EBITDA as an operating performance measure as it is (i) an integral part of our reporting and planning processes; (ii) used by our management and board of directors to assess our operational performance, and together with operational objectives, as a measure in evaluating employee compensation and bonuses; and (iii) used by our management to make financial and strategic planning decisions regarding future operating investments. We believe that using Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis because it excludes variations primarily caused by changes in the excluded items noted above. In addition, we believe that Adjusted EBITDA and similar measures are widely used by investors, securities analysts, rating agencies and other parties in evaluating companies as measures of financial performance and debt service capabilities.

Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

•Adjusted EBITDA does not reflect the receipt of interest or the payment of income taxes; 

•Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; 

•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditures or any other contractual commitments;

•Adjusted EBITDA does not reflect the costs to advance our claims in certain litigation or the costs to defend ourselves in various complaints filed against us, which we expect to continue to be significant;

•Adjusted EBITDA does not reflect the severance charges associated with the restructuring plans initiated and completed in the second quarter of 2020 to improve efficiency and reduce expenses;

•Adjusted EBITDA does not reflect the legal, accounting, consulting and other third-party fees and costs incurred by us in connection with the evaluation and negotiation of potential merger and acquisition transactions;

•Adjusted EBITDA does not consider the potentially dilutive impact of shares issued or to be issued in connection with stock-based compensation; and

•other companies, including companies in our own industry, may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including our net loss, our other GAAP results, and various cash flow metrics. In addition, in evaluating Adjusted EBITDA you should be aware that in the future we will incur expenses such as those that are the subject of adjustments in deriving Adjusted EBITDA, and you should not infer from our presentation of Adjusted EBITDA that our future results will not be affected by these expenses or any unusual or non-recurring items.

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The following table presents a reconciliation of net loss to Adjusted EBITDA for each of the periods presented:

	Three Months Ended March 31,
	2021		2020
	(in thousands)
Reconciliation of Net Loss to Adjusted EBITDA:
Net loss	$	(8,418)	$	(10,669)
Loss from discontinued operations, net of tax	—		279
Loss from continuing operations	(8,418)		(10,390)
Non-GAAP adjustments:
Interest income	(15)		(378)
Depreciation and amortization	4,312		5,029
Stock-based compensation	6,385		5,914
Share of net loss of equity method investment	329		382
Certain litigation costs (1)	—		(1,939)
Change in fair value of contingent consideration	31		75
Goodwill impairment (2)	—		8,264
Other income (3)	(625)		—
Provision for (benefit from) income taxes	94		(232)
Adjusted EBITDA	$	2,093	$	6,725

(1)For the three months ended March 31, 2020, the excluded amount relates to legal costs incurred in connection with complaints filed by non-TrueCar dealers against TrueCar and consumer class action lawsuits, offset by a $2.0 million payment. The $2.0 million payment received from one of our insurance carriers reflects a settlement of a lawsuit we brought in the fourth quarter of 2017 to recover insured legal fees. We believe the exclusion of these costs and recovery is appropriate to facilitate comparisons of our core operating performance on a period-to-period basis.

(2)The excluded amount represents a non-cash impairment charge we recognized on our goodwill during the first quarter of 2020.

(3)Other income primarily consists of fees earned associated with the transition services agreement we entered into with J.D. Power in connection with our ALG divestiture.

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Components of Operating Results 

Revenues

Our revenues are comprised primarily of dealer revenue and OEM incentives revenue. We recognize transaction revenue earlier for certain of our Auto Buying Program and OEM incentives arrangements at the time introductions and incentives are delivered based upon expected subsequent vehicle sales between the Auto Buying Program user and the dealer.

Costs and Operating Expenses

Cost of Revenue (exclusive of depreciation and amortization). Cost of revenue includes expenses related to the fulfillment of our services, consisting primarily of data costs and licensing fees paid to third-party service providers and expenses related to operating our website and mobile applications, including those associated with hosting fees, data processing costs required to deliver introductions to our network of TrueCar Certified Dealers, employee costs related to certain dealer operations, sales matching, and facilities costs. Cost of revenue excludes depreciation and amortization of software costs and other hosting and data infrastructure equipment used to operate our platforms, which are included in the depreciation and amortization line item on our condensed consolidated statements of comprehensive loss.

Sales and Marketing. Sales and marketing expenses consist primarily of: television, digital, and radio advertising; media production costs; affinity group partner marketing fees, which also include loan subvention costs where we pay certain affinity group marketing partners a portion of consumers’ borrowing costs for car loan products offered by these affinity group marketing partners; marketing sponsorship programs; and digital customer acquisition. In addition, sales and marketing expenses include employee-related expenses for sales, customer support, marketing and public relations employees, including salaries, bonuses, benefits, severance, and stock-based compensation expenses; third-party contractor fees; and facilities costs. Marketing and advertising costs promote our services and are expensed as incurred, except for media production costs, which are expensed the first time the advertisement is aired.

 Technology and Development. Technology and development expenses consist primarily of employee-related expenses including salaries, bonuses, benefits, severance, and stock-based compensation expenses; third-party contractor fees; facilities costs; software costs; and costs associated with our product development, product management, research and analytics, and internal IT functions.

 General and Administrative. General and administrative expenses consist primarily of employee-related expenses, including salaries, bonuses, benefits, severance, and stock-based compensation expenses for executive, finance, accounting, legal, and human resources functions. General and administrative expenses also include legal, accounting, and other third-party professional service fees, bad debt, and facilities costs.

 Depreciation and Amortization. Depreciation consists primarily of depreciation expense recorded on property and equipment. Amortization expense consists primarily of amortization recorded on intangible assets, capitalized software costs and leasehold improvements.

 Interest Income. Interest income consists of interest earned on our cash and cash equivalents.

Other Income. Other income consists of fees earned associated with the transition services agreement we entered into with J.D. Power in connection with our ALG divestiture.

Provision for (Benefit from) Income Taxes. We are subject to federal and state income taxes in the United States. We provided a full valuation allowance against our net deferred tax assets at March 31, 2021 and December 31, 2020, as it is more likely than not that some or all of our deferred tax assets will not be realized. As a result of the valuation allowance, our income tax expense is significantly less than the federal statutory rate of 21%.

For the three months ended March 31, 2021, our provision for income taxes primarily reflects tax expense associated with state income taxes and the amortization of tax-deductible goodwill that is not an available source of income to realize deferred tax assets. Our benefit from income taxes for the three months ended March 31, 2020 primarily arose in connection with the impairment of goodwill during the first quarter of 2020, resulting in reduction of indefinite-lived deferred tax liabilities.

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Results of Operations

The following table sets forth our selected consolidated statements of operations data for each of the periods indicated.

	Three Months Ended March 31,
	2021		2020
	(in thousands)
Consolidated Statements of Operations Data:
Revenues	$	65,105	$	78,917
Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization presented separately below)	5,458		6,175
Sales and marketing	40,099		46,080
Technology and development	11,193		11,899
General and administrative	12,678		12,088
Depreciation and amortization	4,312		5,029
Goodwill impairment	—		8,264
Total costs and operating expenses	73,740		89,535
Loss from operations	(8,635)		(10,618)
Interest income	15		378
Other income	625		—
Loss from equity method investment	(329)		(382)
Loss from continuing operations before income taxes	(8,324)		(10,622)
Provision for (benefit from) income taxes	94		(232)
Loss from continuing operations	(8,418)		$	(10,390)
Loss from discontinued operations, net of taxes	—		(279)
Net loss	$	(8,418)	$	(10,669)
Other Non-GAAP Financial Information:
Adjusted EBITDA	$	2,093	$	6,725

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Comparison of the Three Months Ended March 31, 2021 and 2020

Revenues

	Three Months Ended March 31,
	2021		2020
	(in thousands)
Dealer revenue	$	62,057	$	73,798
OEM incentives revenue	2,797		3,523
Other revenue	251		1,596
Total revenues	$	65,105	$	78,917

Three months ended March 31, 2021 compared to three months ended March 31, 2020. The decrease in our revenues of $13.8 million, or 17.5%, for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 reflected decreases in our dealer revenue, OEM incentives revenue and other revenue. Dealer revenue, OEM incentives revenue, and other revenue comprised 95.3%, 4.3%, and 0.4%, respectively, of revenues for the three months ended March 31, 2021 as compared to 93.5%, 4.5%, and 2.0%, respectively, for the same period in 2020. The decrease of $11.7 million in dealer revenue for the three months ended March 31, 2021 reflected a decrease in our Auto Buying Program revenue of $11.4 million primarily as a result of the termination of the USAA auto-buying program. The decrease of $0.7 million in OEM incentives revenue for the three months ended March 31, 2021 was driven by the loss of OEM programs that targeted USAA members only. A decrease of $1.3 million in other revenue was primarily driven by fees earned related to the USAA transition services agreement which ended on September 30, 2020. We expect our revenues to be impacted by the inventory constraints caused by the global automobile semiconductor chip shortage, which may influence dealers on our Certified Dealers network to cancel or pause our services or product offerings and could discourage new dealers from joining our network.

Costs and Operating Expenses

Cost of Revenue (exclusive of depreciation and amortization)

	Three Months Ended March 31,
	2021			2020
	(dollars in thousands)
Cost of revenue (exclusive of depreciation and amortization)	$	5,458		$	6,175
Cost of revenue (exclusive of depreciation and amortization) as a percentage of revenues	8.4		%	7.8		%

Three months ended March 31, 2021 compared to three months ended March 31, 2020. Cost of revenue decreased $0.7 million, or 11.6%, for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 primarily due to a $0.7 million decrease in employee-related expenses due to decreased headcount, a $0.2 million decrease in stock-based compensation, a $0.2 decrease in facilities costs, and a $0.1 million decrease in travel-related expenses. These decreases were offset by a $0.7 million increase in data and licensing expenses primarily driven by growth in dealer adoption of our retail solutions products compared to the prior year.

Sales and Marketing Expenses

	Three Months Ended March 31,
	2021			2020
	(dollars in thousands)
Sales and marketing expenses	$	40,099		$	46,080
Sales and marketing expenses as a percentage of revenues	61.6		%	58.4		%

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Three months ended March 31, 2021 compared to three months ended March 31, 2020. Sales and marketing expenses decreased $6.0 million, or 13.0%, for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. The decrease primarily reflects a $2.1 million decrease in employee-related expenses due to decreased headcount, $1.8 million decrease in conference and travel-related expenses, a $1.7 million decrease in revenue share paid to affinity marketing partners primarily as a result of the termination of the USAA partnership, a $1.3 million decrease in creative production costs, and a $1.2 million decrease in other professional services, offset by a $1.6 million increase in branded media spend and a $0.8 million increase in stock-based compensation associated with the acceleration of certain equity awards related to the departures of certain executives. We expect sales and marketing expenses to increase over the course of the year as we invest in our brand experience and increase branded media spend to grow our business.

Technology and Development Expenses

	Three Months Ended March 31,
	2021			2020
	(dollars in thousands)
Technology and development expenses	$	11,193		$	11,899
Technology and development expenses as a percentage of revenues	17.2		%	15.1		%
Capitalized software costs	$	2,946		$	2,761

Three months ended March 31, 2021 compared to three months ended March 31, 2020. Technology and development expenses decreased $0.7 million, or 5.9%, for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. The decrease was primarily due to a $0.4 million decrease in facilities costs and $0.1 million decrease in employee-related expenses due to lower headcount.

Capitalized software costs increased by $0.2 million, or 6.7%, primarily due to an increase in third-party software costs.

We expect technology and development expenses to continue to be affected by variations in the amount of capitalized internally developed software.

General and Administrative Expenses

	Three Months Ended March 31,
	2021			2020
	(dollars in thousands)
General and administrative expenses	$	12,678		$	12,088
General and administrative expenses as a percentage of revenues	19.5		%	15.3		%

Three months ended March 31, 2021 compared to three months ended March 31, 2020. General and administrative expenses increased $0.6 million, or 4.9%, for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. The increase was primarily due to a $2.0 million increase in legal expenses as a result of a $2.0 million payment received in the first quarter of 2020 from one of our insurance carriers in settlement of a lawsuit we brought during the fourth quarter of 2017 to recover insured legal fees, and a $0.4 million increase in employee bonuses. These increases were offset by a $2.0 million decrease in bad debt expense driven by adjustments to our allowance for doubtful accounts resulting from both improved collection efforts and forecast assumptions, and a $0.2 million decrease in travel-related expenses. Due to ongoing litigation matters, we expect general and administrative expenses to vary depending on the timing and course of litigation proceedings and related legal fees.

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Depreciation and Amortization Expenses

	Three Months Ended March 31,
	2021		2020
	(in thousands)
Depreciation and amortization expenses	$	4,312	$	5,029

Three months ended March 31, 2021 compared to three months ended March 31, 2020. Depreciation and amortization expenses decreased $0.7 million, or 14.3%, for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. We expect our depreciation and amortization expenses to continue to be affected by the amount of capitalized internally developed software costs, property and equipment, and the timing of placing projects in service.

Goodwill Impairment

For the three months ended March 31, 2020, we recognized a non-cash goodwill impairment charge in the amount of $8.3 million, which represents the amount that our carrying value was in excess of its estimated fair value at March 31, 2020. For further details, see Note 5 to our condensed consolidated financial statements included herein.

Other Income

For the three months ended March 31, 2021, other income consists of fees earned from the transition services agreement we entered into with J.D. Power in connection with our ALG divestiture.

Provision for (Benefit from) Income Taxes

	Three Months Ended March 31,
	2021		2020
	(in thousands)
Provision for (benefit from) income taxes	$	94	$	(232)

For the three months ended March 31, 2021, our provision for income taxes primarily reflects tax expense associated with state income taxes and the amortization of tax-deductible goodwill that is not an available source of income to realize deferred tax assets. Our benefit from income taxes for the three months ended March 31, 2020 primarily arose in connection with the impairment of goodwill during the first quarter of 2020, resulting in reduction of indefinite-lived deferred tax liabilities.

Loss from Discontinued Operations

	Three Months Ended March 31,
	2021		2020
	(in thousands)
Loss from discontinued operations, net of taxes	$	—	$	(279)

Three months ended March 31, 2021 compared to three months ended March 31, 2020. Net loss from discontinued operations, net of taxes, was $0.3 million during the three months ended March 31, 2020. We completed our divestiture of ALG on November 30, 2020.

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Liquidity and Capital Resources

At March 31, 2021, our principal sources of liquidity were cash and cash equivalents totaling $274.6 million.

We have incurred cumulative losses of $363.9 million from our operations through March 31, 2021, and expect to incur additional losses in the future. We believe that our existing sources of liquidity will be sufficient to fund our operations for at least the next 12 months. However, our future capital requirements will depend on many factors, including our revenue levels, the timing and extent of our spending to support our technology and development efforts, costs related to potential acquisitions to further expand our business and product offerings, collection of accounts receivable, macroeconomic activity, and the length and severity of business disruptions associated with the ongoing COVID-19 pandemic. To the extent that existing cash and cash equivalents, and cash from operations, are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing. Additional funds may not be available on terms favorable to us or at all.

Credit Facility

We are party to a credit facility with Silicon Valley Bank that provides for advances of up to $35.0 million. This credit facility provides a $10.0 million subfacility for the issuance of letters of credit and contains an increase option permitting us, 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 has a three-year term and matures on April 19, 2021. No amounts were outstanding at March 31, 2021. The amount available under the amended credit facility at March 31, 2021 was $32.2 million, reduced for the letters of credit issued and outstanding under the subfacility of $2.8 million. In April 2021, we entered into an amendment to extend the maturity date of our credit facility for another three years to expire on April 12, 2024. See Note 7 of our condensed consolidated financial statements herein for more information about our amended credit facility.

Cash Flows

The following table summarizes net cash derived from operating, investing, and financing activities from continuing operations, as well as net cash from discontinued operations:

	Three Months Ended March 31,
	2021		2020
Consolidated Cash Flow Data:	(in thousands)
Net cash provided by operating activities	$	5,479	$	1,887
Net cash used in investing activities	(2,816)		(3,154)
Net cash used in financing activities	(8,904)		(724)
Net cash used in continuing operations	(6,241)		(1,991)
Net cash provided by discontinued operations	7,500		3,312
Net increase in cash and cash equivalents	$	1,259	$	1,321

Operating Activities of Continuing Operations

Our net loss and cash flows provided by or used in operating activities are significantly influenced by our investments in headcount and infrastructure to support our growth, marketing, advertising, and sponsorship expenses. Our net loss has been significantly greater than cash provided by or used in operating activities due to the inclusion of non-cash expenses and charges.

Cash provided by operating activities for the three months ended March 31, 2021 was $5.5 million. This was primarily due to our loss from continuing operations of $8.4 million, adjusted for non-cash items, including stock-based compensation expense of $6.4 million, depreciation and amortization expense of $4.3 million, amortization of lease right-of-use assets of $1.1 million, bad debt expense of $0.2 million, and loss from equity method investment of $0.3 million. Net cash provided by operations also reflected an increase of $1.4 million from changes in operating assets and liabilities, which primarily reflected an increase in accounts receivable of $4.4 million primarily due to improved collections efforts, an increase in prepaid expenses and other assets of $2.2 million primarily due to the timing of payments of certain insurance premiums, and an increase in accounts payable of $0.7 million. These increases were offset by a decrease in accrued employee expenses of $1.7 million, a decrease in operating lease liabilities of $1.3 million, and a decrease in accrued expenses and other current liabilities of $2.6 million primarily related to decreased accrued marketing spend and marketing fees payable to our affinity group partners and advertisers.

Cash provided by operating activities for the three months ended March 31, 2020 was $1.9 million. This was primarily due to our loss from continuing operations of $10.4 million, adjusted for non-cash items, including goodwill impairment of $8.3 million, stock-based compensation expense of $5.9 million, depreciation and amortization expense of $5.0 million, bad debt

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expense of $2.2 million, and amortization of lease right-of-use assets of $1.5 million. Net cash provided by operations also reflected a decrease of $10.7 million related to changes in operating assets and liabilities.

The $10.7 million decrease related to changes in operating assets and liabilities primarily reflected decreases in accrued expenses and other current liabilities of $6.7 million and in accounts payable of $3.7 million both primarily related to decreased accrued marketing spend and marketing fees payable to our affinity group partners and advertisers, a decrease in accrued employee expenses of $3.2 million primarily due to a decrease in accrued bonus, and a decrease in operating lease liabilities of $2.0 million. These decreases were offset by an increase in prepaid expenses and other assets of $2.9 million and an increase in accounts receivable of $2.1 million.

Investing Activities of Continuing Operations

Our investing activities consist primarily of capital expenditures for capitalized software development costs and property and equipment.

Cash used in investing activities of $2.8 million for the three months ended March 31, 2021 resulted from investments in software and computer hardware.

Cash used in investing activities of $3.2 million for the three months ended March 31, 2020 resulted from investments in software and computer hardware.

Financing Activities of Continuing Operations

Cash used in financing activities of $8.9 million for the three months ended March 31, 2021 represents payments of $7.8 million for the repurchase of our common stock and taxes paid of $1.6 million for the net share settlement of certain equity awards. These decreases were offset by an increase due to cash received of $0.6 million for the exercise of employee stock options.

Cash used in financing activities of $0.7 million for the three months ended March 31, 2020 consisted of taxes paid for the net share settlement of certain equity awards.

Net Cash Provided by Discontinued Operations

Net cash provided by discontinued operations for the three months ended March 31, 2021 consisted of $7.5 million cash earnout received from J.D. Power based upon ALG’s achievement of certain revenue metrics in 2020.

Contractual Obligations and Known Future Cash Requirements

There were no significant changes to our contractual obligations and known future cash requirements for the three months ended March 31, 2021.

Off-Balance Sheet Arrangements

We do not engage in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, as part of our ongoing business. Accordingly, our operating results, financial condition and cash flows are not subject to off-balance sheet risks.

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Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions, including, but not limited to, those related to revenue recognition, allowance for doubtful accounts and sales allowances, stock-based compensation, income taxes, goodwill and other intangible assets, internal use capitalized software development costs, and contingencies and litigation. We base our estimates on historical experience and on various other estimates and assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates and assumptions.

There have been no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K, filed with the SEC on March 5, 2021.

Recent Accounting Pronouncements

See Note 2 to our condensed consolidated financial statements included herein.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of loss that may affect our financial position due to adverse changes in financial market prices and rates. We do not believe that there is any material market risk exposure that would require disclosure under this item.

Interest Rate Risk

We had cash and cash equivalents of $274.6 million at March 31, 2021, which consist entirely of bank deposits and short-term money market funds. Such interest-earning instruments carry a degree of interest rate risk. To date, fluctuations in interest income have not been significant.

We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.

To the extent we borrow funds under our credit facility, we would be subject to fluctuations in interest rates. See Note 7 to the condensed consolidated financial statements herein. As of March 31, 2021, we had no borrowings under the credit facility.

We believe that we do not have a material exposure to changes in fair value as a result of changes in interest rates.

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Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. However, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, operating results and financial condition.

Foreign Currency Exchange Risk

Historically, as our operations and sales have been primarily in the United States, we have not faced any significant foreign currency risk. If we plan for international expansion, our risks associated with fluctuation in currency rates will become greater, and we will continue to reassess our approach to managing this risk. 

Item 4.   Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2021, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level. 

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

Refer to the disclosure under the heading “Legal Proceedings” in Note 8 “Commitments and Contingencies” to our condensed consolidated financial statements included in this report for legal proceedings. From time to time, we may be involved in various legal proceedings arising from the normal course of our business activities.

Item 1A.    Risk Factors

Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this report, including our consolidated financial statements and related notes, and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before making an investment in our common stock. If any of the following risks is realized, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the trading price of our common stock could decline and you could lose part or all of your investment. Additional risks and uncertainties not presently known to us or not believed by us to be material could also impact us.

Risks Related to the Coronavirus Pandemic

The ongoing coronavirus pandemic and the responses to it by governments, organizations and individuals have disrupted all facets of daily life around the globe in unprecedented ways that have materially negatively affected our business. We cannot predict the extent to which our business will be disrupted by the pandemic or by its lingering effects.

In late 2019, a novel strain of the coronavirus surfaced and quickly began to spread across the globe. On March 11, 2020, the World Health Organization declared the outbreak to be a pandemic. Since then, governments around the world have taken extraordinary and unprecedented measures to slow the spread of the virus. These measures have included, among other things, orders requiring so-called “non-essential” businesses to close and individuals to “shelter at home.” Even where not required by applicable governmental authorities, individuals and organizations have voluntarily canceled and scaled down social and commercial activities to protect themselves and their members from infection.

These responses to the pandemic have caused unparalleled damage to the global economy and have negatively affected, and continue to negatively affect, our business, growth, financial condition, results of operations and cash flows in a number of ways. Most directly, in the first and second quarters of 2020, a number of state and local governments took steps that prohibited or curtailed the sale of automobiles during the pandemic. In some jurisdictions, shelter-at-home orders, or other orders related to the pandemic, impeded car sales. On top of these legal restrictions, the economic uncertainty and the large number of consumers who are unemployed, as well as the decrease in consumers’ need and willingness to make discretionary trips outside of the home, decreased the demand for cars.

Cumulatively, these factors resulted in a drastic reduction in the number of cars bought by our users from our dealers. In the second and third quarters of 2020, for example, our units declined by approximately 22% over the same two-quarter period in 2019, with the effect most pronounced in April 2020. These factors continued to negatively affect the number of cars bought by our users from our dealers in subsequent quarters, and this has been compounded by the wind-down and termination of our partnership with USAA Federal Savings Bank later in the year. This decline in units had a number of negative effects. First, it directly translated into lowered revenue from our pay-per-sale dealers. Second, we took costly steps to support our subscription dealers, including by allowing some of them to switch to pay-per-sale arrangements (which generally reduced our fees from the prenegotiated subscription rate during pandemic conditions), and substantially lowering the subscription rates on our invoices for other subscription dealers during the second quarter. Third, the nationwide decline in car sales caused many dealers to suspend or cancel their participation in our network. Finally, the combination of the pandemic-related deterioration in our dealers’ financial condition and our efforts to support them through the pandemic caused a material reduction in our ability to collect accounts receivable in a timely manner, which had largely corrected by the end of 2020.

Although we noticed a marked improvement in our financial and operational metrics since the strictest governmental restrictions were lifted during the second quarter of 2020 and as dealers and consumers continued to adapt to the “new normal,” we have still not returned to pre-pandemic financial conditions, and the persistence, and unpredictable course, of the virus and its variants leaves open the potential that governmental restrictions could be reimposed or heightened and for additional changes in dealer and consumer behavior, any of which could exacerbate the negative financial and operational impacts of the pandemic.

We have taken steps to adjust to changing market conditions, including by launching a “buy from home” program to promote our dealers who adhere to certain criteria and implementing wide-ranging cost-saving measures. We have also endeavored to take steps to reduce our operating losses; for example, in the second quarter of 2020, we carried out a restructuring that reduced our workforce by over 30%, imposed a temporary moratorium on promotions, raises and hiring, canceled much of our discretionary marketing spending and otherwise limited our discretionary spending across our business.

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Each of these cost-saving measures disrupted, and in some cases may continue to disrupt, our business and operations. We cannot assure you that the measures that we have taken will be sufficient to preserve the profitability of our business if the course of the pandemic worsens, nor that we will not be required to take additional, potentially disruptive steps in the future.

The coronavirus pandemic could result in long-lasting changes to consumer and dealer behavior and the macroeconomic environment that persist even after its conclusion, and any of those changes could harm our business.

Uncertainty continues to surround the governmental, economic and societal conditions that will prevail when the coronavirus pandemic abates. We cannot predict or prepare for every eventuality, and our business could suffer if consumer or dealer behavior or the macroeconomic environment do not return to pre-pandemic conditions. For example, consumer demand for cars could be permanently decreased if remote working conditions continue after the pandemic, reducing the need for workers to commute. Further, many dealers have been highly profitable during the pandemic as a result of low inventory levels and marketing costs, and if dealers continue this operational approach, our business could be adversely affected. Likewise, if dealers who suspended or canceled their participation in our network during the pandemic do not return to the network afterward, our business would be negatively affected.

Finally, we may be unable to offer new products and services, or retool or otherwise update our existing products and services, in a way that responds to consumers’ and dealers’ changing preferences and expectations. For example, if consumers become accustomed to contactless purchases and we are not able to successfully improve our TrueCar Deal Builder and associated digital retailing tools, we may not be able to return our units and revenues to unaffected levels and our business would be harmed.

The loss of a critical mass of dealers, either nationally or in any given geographic area, could deprive us of the data we need to provide certain of our key features, including our TrueCar Curve, our inventory supply and certain key elements of our TrueCar Deal Builder’s functionality, any of which could negatively affect our business.

Financial hardship arising from the coronavirus pandemic resulted in many of our dealers going out of business, or canceling or suspending their participation in our network, in March and April 2020, and additional dealers could go out of business or cancel or suspend their participation in our network. As discussed in more detail under the risk factor below: “If we suffer a significant interruption in our access to third-party data, we may be unable to maintain key aspects of our user experience, including the TrueCar Curve and certain elements of our TrueCar Deal Builder’s functionality, and our business and operating results would be harmed,” we depend on data provided by our dealers to populate our TrueCar Curve, among other aspects of our user experience. If a critical mass of dealers nationally, or in any given geographic area, goes out of business, or cancels or suspends their participation in our network, we may be unable to provide the TrueCar Curve, our used-car inventory count and certain key elements of our TrueCar Deal Builder experience to users in the affected areas, or the quality of the information or user experience could deteriorate in those areas.

Additionally, because much of our organic traffic from search engines originates from used-car-related search terms, and our ranking for those terms is heavily influenced by our inventory levels, the loss of a critical mass of dealers in any given geographic area could also cause a loss of used-car inventory on our sites that diminishes our organic search traffic and therefore our monthly unique visitors. For example, a decrease in our relevant inventory would result in a decrease in pages that are available for search-engine indexation and a greater probability that a user leaves our pages early, which is generally a negative signal for ranking algorithms. For more information on the reliance of our business on search-engine results, refer to the risk factor below: “We rely, in part, 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.”

Although dealer cancellations and suspensions at the beginning of the pandemic were disproportionately concentrated in California and the Northeastern United States, we do not believe that we have to date lost a critical mass of dealers in any particular geographic area. Nevertheless, recent decreases in our dealer count have affected our ability to present a wide array of dealers and inventory to some of our users, which could harm our business. Further, if we do lose a critical mass of dealers nationally, in any geographic area or for any particular manufacturer, our business, reputation and results of operations would be negatively affected.

The coronavirus pandemic has disrupted our marketing strategy in a number of ways, and if we are unable to mitigate the effects of this disruption, our business would be harmed.

Our inability to predict the extent or duration of the pandemic or what the world will look like upon its conclusion heightens the difficulty inherent in planning long-term marketing campaigns. Similarly, we cannot predict whether, and if so, how, the ideal mix of marketing channels will change during and after the pandemic. For example, if we shift too much television spend toward social-media spend, our brand awareness and organic traffic could be negatively affected. Earlier in the pandemic, we also experienced increased consumer sensitivity to our marketing, including criticism that we should not encourage or facilitate the purchase of cars during the pandemic. If our marketing does not strike the right tone and consumers perceive it as insensitive or opportunistic, our brand could likewise suffer.

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Similarly, the coronavirus pandemic’s disruptions interfere with our short-term marketing by eliminating the usefulness of our historical data in accurately forecasting dealers’ ability to support the demand that we can drive through paid channels. We cannot predict what regions and states will be more or less affected by the disruptions caused by the pandemic, and at what times, and the resulting volatility in our close rate hampers the efficiency of our marketing campaigns. This disrupts our business, particularly as it relates to our dealers on pay-per-sale billing arrangements, most noticeably in states where we only offer pay-per-sale billing arrangements.

In light of the many uncertainties during the pandemic, and given the need for rapid flexibility in our business and its product and services offerings, we may not devote as much time as we have in the past to researching and testing our marketing campaigns. This factor, and any of the others described above, could make our marketing efforts less effective, which could harm our brand and negatively affect our business and our cash flows and results of operations.

Given the unprecedented nature of the coronavirus pandemic and the extraordinary uncertainty that it occasions, we have had difficulty and may continue to have difficulty forecasting our operational and financial performance, which could negatively affect our business.

As noted earlier in this “Risk Factors” section, the coronavirus pandemic is unparalleled in modern history and has occasioned considerable uncertainty. Neither the pandemic, nor the governmental, societal and individual responses thereto, have any precedents to guide our expectations and forecasts about their future course. As a result, we have had, and expect during the duration of the pandemic, if not longer, to continue to have, increased difficulty in forecasting our operational and financial performance and the effect of macroeconomic conditions on our business. For example, in March 2020, we withdrew our full-year 2020 financial guidance as a result of this uncertainty, did not provide formal guidance for the second or third quarters of 2020 and only provided abbreviated guidance in the first quarter of 2021. In addition to heightening the uncertainty surrounding any financial guidance that we do provide, this increased difficulty forecasting could also negatively affect our ability to prioritize and execute operational and strategic initiatives, plan appropriately for the financial and operational needs of our business and participate in financial or strategic transactions. Any of these factors could negatively affect our business.

The coronavirus pandemic could result in the adoption of laws or regulations that adversely affect U.S. businesses in general or our business in particular.

The global economic and societal disruption caused by the coronavirus pandemic have prompted sweeping governmental responses worldwide. For example, the U.S. Congress has provided for over $5 trillion of emergency spending, a level that is unprecedented in size. Similarly, the Federal Reserve has provided substantial emergency support to the economy, and foreign nations and the states have passed emergency measures, through executive orders, legislation and court decisions. Further, as the damage caused by the pandemic continues, governmental entities, including Congress, continue to debate taking further legislative, regulatory and other actions.

Although we did not materially benefit directly from the congressional and other relief programs, we cannot predict the content or timing of future governmental actions prompted by the pandemic and therefore cannot guarantee you that they will not harm our business, either directly or indirectly by adversely affecting the economic environment. In addition, it is possible that future legislation or other governmental action could impose restrictions on us or expand the eligibility for existing programs in a manner that enables us to benefit from them, subject to restrictions that could limit our ability to run our business in the best interests of our stockholders. Further, any such future legislation or other action could contain other provisions, for example relating to taxation or privacy, that adversely affect our business or impose additional compliance costs.

Finally, concerns over potential budget deficits resulting from the emergency legislation or from reduced tax receipts caused by the pandemic-related reduction in economic activity have resulted in higher taxes (or the elimination of tax benefits) that negatively affect our business, and we cannot be sure that additional such taxes will not be passed. For example, California’s 2020-21 state budget disallowed net operating loss deductions for the years 2020 through 2022, and we expect this legislation to require us to use California research and development credits to offset California state taxes incurred on the gains from the Divestiture, and thereby diminish our tax assets. Additional taxes or other adverse legislative or regulatory developments could negatively affect our business and results of operations.

We have transitioned all of our employees to work-from-home status for the duration of the coronavirus pandemic, which could increase our cybersecurity risk.

In the first quarter of 2020, we transitioned all of our employees to mandatory work-from-home status to reduce the risk of transmission of the coronavirus in accordance with the orders of relevant governmental authorities, which could pose unknown risks. For example, remote working carries potential cybersecurity risks. These risks include the heightened potential for hacking and other security breaches of telecommunications services in light of the increased use of those services, including services provided by Zoom Video Communications, Inc., which is our principal video conferencing provider. Further, greater reliance on remote communication methods and the inability to communicate in person with our information technology

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professionals could increase the incidence, or likelihood of success, of phishing attacks and other related cybersecurity incidents. If these or any other risks associated with remote working come to pass, our business would be negatively affected.

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Risks Related to Our Business and Industry

The termination of our partnership with the United Services Automobile Association, or USAA, has adversely affected our business and we may be unable to mitigate its negative financial effects.

The largest source of user traffic and unit sales from our affinity group marketing partners in 2019 came from the site we maintain for USAA. In 2019, 293,142 units, representing 29% of all of our units during that period, were matched to users of the car-buying site we maintained for USAA (before responsibility for the partnership was transferred from USAA to its banking subsidiary, USAA Federal Savings Bank, or USAA FSB, in February 2020). Our affinity group marketing agreement with USAA reached the end of its term in the first quarter of 2020. Effective February 14, 2020, we entered into a transition services agreement with USAA pursuant to which it continued to offer its members an auto-buying program through September 30, 2020, after which there was a wind-down period that ended in the first quarter of 2021 to permit us to continue to serve USAA members who already began the car-buying process through USAA FSB’s auto-buying program.

Even as the partnership was wound down during 2020, 154,339 units, representing 20.1% of all of our units that year, were attributable to the program. As such, the number of units purchased using the USAA car-buying site has in the past had a significant influence on our operating results.

The termination of our affinity partnership with USAA FSB had a material adverse effect on our business, revenue, operating results and prospects, and may lead to the loss of additional dealers from our network. To the extent that we do not mitigate the adverse effects of the termination of our relationship with USAA FSB, our business, revenues, results of operations and cash flows will continue to be materially negatively affected.

The growth of our business relies significantly on our ability to maintain and increase the revenues that we derive from dealers in our network of TrueCar Certified Dealers. Failure to do so would harm our financial performance.

We derive most of our revenues from dealers in our network of TrueCar Certified Dealers. If we are unable to maintain and increase these revenues, our financial performance would be harmed. We seek to increase these revenues in a number of ways.

First, as described elsewhere in this “Risk Factors” section, we work to develop and introduce, and improve, new products for dealers, including our “Access” and Finance and Insurance, or F&I, offerings, to increase revenue and drive dealer adoption of our products.

Second, we endeavor to support and maintain our currently active TrueCar Certified Dealers. As described in greater detail elsewhere in this “Risk Factors” section, the coronavirus pandemic has imposed financial hardships on dealers that have resulted in some of them going out of business or canceling or suspending their participation in our offerings, and the termination of our partnership with USAA FSB diminished the number of users that we refer to our dealers and decreased the average quality of the leads that we provide our dealers.

Third, because approximately two-thirds of our unit volume from our dealers is subject to subscription billing arrangements, with the remainder being subject to pay-per-sale billing arrangements, our ability to properly manage dealer subscription rates is critical to maintaining and increasing our dealer revenues. If the number of TrueCar Certified Dealers on subscription billing arrangements increases relative to those on a pay-per-sale billing model, the growth of our business will be even more dependent on our ability to manage dealer subscription rates.

If we are unable to convince subscription-based dealers of our value proposition, we could be unable to maintain or increase dealer subscription rates even if our unit volume increases. Similarly, if our unit volume declines and we are not able to appropriately manage the subscription rates of affected dealers, those dealers could insist on lower subscription rates or terminate their participation in our dealer network. Any of these and other similar subscription-related eventualities could have a material adverse effect on our business, growth, financial condition, results of operations and cash flows. In addition, since the beginning of the coronavirus pandemic, our monetization rates have experienced substantially more volatility than they have historically experienced. In response to this volatility, we provided automatic discounts to most of our subscription dealers during the second quarter of 2020. In the future, we expect to continue to adjust individual dealers’ subscription rates in an effort to bring their monetization rates into line with historical levels. If we do not successfully balance the need to maintain dealer relationships with appropriate subscription adjustments with the need to maintain our revenues, our business, operating results and financial condition could be negatively affected.

Finally, we strive to grow and optimize the geographic coverage of dealers in our network of TrueCar Certified Dealers and to improve the representation of high-volume brands in our network to increase the number of transactions between our users and dealers. Some automotive brands consistently achieve higher than average sales volume per dealer. As a consequence, dealers representing those brands make a disproportionately greater contribution to our unit volume. Our ability to

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grow and to optimize the geographic coverage of dealers in our network of TrueCar Certified Dealers, increase the number of dealers representing high-volume brands and grow the overall number of dealers in our network is an important factor in growing our business.

As described elsewhere in this “Risk Factors” section, car dealerships have sometimes viewed our business in a negative light. Although we have taken steps intended to improve our relationships with, and our reputation among, car dealerships, including the commitments made in our pledge to dealers, there can be no assurance that our efforts will be successful. Over the course of 2020, we experienced the loss of a significant number of car dealers in our network and we may be unable to maintain or grow the number of car dealers in our network, in a geographically optimized manner or at all, or increase the proportion of dealers in our network representing high volume brands. Similarly, during the second half of 2015, we experienced both a decline in the proportion of high-volume dealers in our network and slowed quarter-over-quarter revenue growth. Additionally, as noted earlier in this “Risk Factors” section, many of our dealers canceled or suspended their participation in our network as a result of the coronavirus pandemic and the termination of our affinity partnership with USAA FSB may lead to the loss of additional dealers from our network. If we experience a similar decline in the future, it could have a material adverse effect on our business, growth, financial condition, results of operations and cash flows.

In addition, our ability to increase the number of TrueCar Certified Dealers in an optimized manner depends on strong relationships with other constituents, including car manufacturers and state dealership associations. From time to time, car manufacturers have communicated concerns about our business to dealers in our network. For example, many car manufacturers maintain guidelines that prohibit dealers from advertising a car at a price that is below an established floor, referred to as “minimum allowable advertised price,” or “MAAP,” guidelines. If a manufacturer takes the position that its MAAP guidelines apply to prices provided by a TrueCar Certified Dealer to our users and the dealer submits a price to a user that falls below the applicable MAAP guidelines, the manufacturer may discourage that dealer from remaining in the network and may discourage other dealers within its brand from joining the network. For example, in late 2011, Honda publicly announced that it would not provide advertising allowances to dealers that remained in our network of TrueCar Certified Dealers. While we subsequently addressed Honda’s concerns and it ceased withholding advertising allowances from our TrueCar Certified Dealers, discord with specific car manufacturers could impede our ability to grow our dealer network. Although an increasing number of manufacturers have begun introducing MAAP guidelines recently, and we have implemented certain changes designed to accommodate these guidelines, it is unclear whether we will continue to be able to do so without making material, unfavorable adjustments to our business practices or user experience and, if we are not, it could have a material adverse effect on our business, growth, financial condition, results of operations and cash flows.

In addition, state dealership associations maintain significant influence over the dealerships in their states as lobbying groups and as thought leaders. To the extent that these associations view us in a negative light, our reputation with car dealers in the corresponding states may be negatively affected. If our relationships with car manufacturers or state dealership associations suffer, our ability to maintain and grow the number of car dealers in our network would be harmed.

We cannot assure you that we will be able to maintain or increase the revenues that we derive from dealers in our network of TrueCar Certified Dealers in any of the ways described above, or otherwise, and failure to do so would harm our financial performance.

The failure to attract manufacturers to participate in our car manufacturer incentive programs, or to induce manufacturers to remain participants in those programs, could reduce our growth or have an adverse effect on our operating results.

In 2020 and 2019, respectively, we derived approximately 6.0% and 4.9% of our revenue from our arrangements with car manufacturers to promote the sale of their vehicles through additional consumer incentives, and, while more volatile than other of our revenue sources, we believe that this revenue stream represents a potential growth opportunity for our business. Failure to attract additional manufacturers to participate in these programs could reduce our growth and harm our operating results. For example, increasingly low vehicle inventories have reduced manufacturers’ incentive spending, which we believe has reduced their interest in partnering with us on incentives and may continue to do so for so long as inventories remain low. For more information on in effect of low vehicle inventory levels on our business, refer to the risk factor below “Low automobile inventory supply levels adversely impact our business, results of operations and prospects by increasing competition for dealers’ advertisement expenditures and reducing automobile manufacturers’ incentive spending.” Additionally, our relationships with manufacturers typically begin with a short-term pilot arrangement and, even if a relationship progresses beyond the pilot stage, it may only be for a short term and may not be renewed by the manufacturer, which could cause fluctuations in our operating results. If we are unable to induce the manufacturers with which we currently have relationships to continue or expand their incentive programs on our platform, or to enter into longer-term arrangements, or if we are unable to attract new manufacturers to our platform, that could have an adverse effect on our business, revenue, operating results and prospects.

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The loss of a significant affinity group marketing partner or a significant reduction in the number of cars purchased from our TrueCar Certified Dealers by members of our affinity group marketing partners would reduce our revenue and harm our operating results.

Our financial performance is substantially dependent upon the number of cars purchased from TrueCar Certified Dealers by users of the TrueCar website, our branded mobile applications and the car-buying sites we maintain for our affinity group marketing partners. A majority of the cars purchased by our users have historically been matched to the car-buying sites we maintain for our affinity group marketing partners, and although the termination of our affinity partner relationship with USAA has increased our branded sites’ relative unit contributions, our relationships with our affinity group marketing partners will remain critical to our business and financial performance. However, several aspects of our relationships with affinity groups might change in a manner that harms our business and financial performance, including:

•affinity group marketing partners might terminate their relationship with us or make the relationship non-exclusive, resulting in a reduction in the number of transactions between users of our platform and TrueCar Certified Dealers; 

•affinity group marketing partners might de-emphasize the car-buying programs within their offerings or alter the user experience for members in a way that results in a decrease in the number of transactions between their members and our TrueCar Certified Dealers; or 

•