UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the quarterly period ended September 30, 2022

☐ 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)

1401 Ocean Ave, 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 November 4, 2022, 88,113,160 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 September 30, 2022 and December 31, 2021	5
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2022 and 2021	6
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021	7
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021	9
	Notes to Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	39
	PART II -  OTHER INFORMATION
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	75
Item 6.	Exhibits	76
	Signatures	77

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; 

•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 successfully roll out our TrueCar+ offering, provide a compelling value proposition to consumers using that offering and integrate our current and future offerings into that experience;

•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 short- and long-term effects of the coronavirus pandemic on our business;

•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 and manage dealer churn;

•our ability to attract significant automobile manufacturers to participate, and remain participants, in our incentive programs;

•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 supply shortages, such as of automotive semiconductors, changes in interest rates, consumer demand and import tariffs and governmental responses to the coronavirus pandemic;

•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;

1

•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;

•the extent to which we repurchase our common stock under our share repurchase plan and the effect of these repurchases on long-term stockholder value, the volatility and trading price of our common stock and our cash reserves;

•our ability to effectively and timely integrate our operations with those of any business we acquire, including Digital Motors, and related factors, including the difficulties associated with such integration (such as the difficulties, challenges and costs associated with managing and integrating new facilities, assets and employees) and the achievement of the anticipated benefits of such integration;

•the preceding and other factors discussed in Part II, Item 1A, “Risk Factors,” and in other reports we may file with the Securities and Exchange Commission from time to time; and

•the factors set forth in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in the section entitled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.  Given these uncertainties, you should not place undue reliance on any forward-looking statements. Forward-looking statements speak only as of the date the statements are made. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

2

SUMMARY OF RISKS AFFECTING OUR BUSINESS

Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors” later in this Quarterly Report on Form 10-Q. These risks include, but are not limited to, the following:

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

•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.

•If we are not successful in rolling out our TrueCar+ offering, providing a compelling value proposition to consumers using that offering, integrating our current and future offerings into that experience or monetizing it, our business and prospects could be adversely affected.

•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 Federal Savings Bank 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.

•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 business is subject to risks related to the larger automotive ecosystem, including interest rates, inflation, consumer demand, global supply chain challenges (including relating to automotive semiconductors) and other macroeconomic issues.

•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 key industry participants, including 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.

•Our business could be adversely affected by executive turnover and other transitions in our senior management team. An inability to navigate these transitions and attract, retain and integrate new management and other personnel could harm our business.

•We rely on relationships with data providers and may experience interruptions in the data feeds they provide, which could adversely affect our current and future product offerings, including TrueCar+, to users and dealers as well as the timeliness of the information we provide, 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.

3

•We may fail to meet our publicly announced guidance or other expectations about our business and future operating results, which could cause our stock price to decline.

4

TRUECAR, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value and share data)

(Unaudited)

	September 30, 2022		December 31, 2021
Assets
Current assets
Cash and cash equivalents	$	192,979	$	245,217
Accounts receivable, net of allowances of $1,264 and $3,099 at September 30, 2022 and December 31, 2021, respectively	13,043		16,710
Prepaid expenses	7,453		6,145
Other current assets	2,663		1,866
Total current assets	216,138		269,938
Property and equipment, net	18,804		19,155
Operating lease right-of-use assets	17,849		23,605
Goodwill	—		51,205
Intangible assets, net	15,163		4,950
Equity method investment	—		14,500
Other assets	4,069		4,317
Total assets	$	272,023	$	387,670
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable (includes related party payables of $1,128 at December 31, 2021)	$	9,038	$	11,364
Accrued employee expenses	7,197		5,187
Operating lease liabilities, current	4,442		5,253
Accrued expenses and other current liabilities	11,223		9,677
Total current liabilities	31,900		31,481
Deferred tax liabilities	—		103
Operating lease liabilities, net of current portion	19,750		26,300
Other liabilities	4,523		—
Total liabilities	56,173		57,884
Commitments and contingencies (Note 9)
Stockholders’ Equity
Preferred stock — $0.0001 par value; 20,000,000 shares authorized at September 30, 2022 and December 31, 2021, respectively; no shares issued and outstanding at September 30, 2022 and December 31, 2021	—		—
Common stock — $0.0001 par value; 1,000,000,000 shares authorized at September 30, 2022 and December 31, 2021, respectively; 90,956,585 and 96,213,243 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively	10		10
Additional paid-in capital	710,233		723,623
Accumulated deficit	(494,393)		(393,847)
Total stockholders’ equity	215,850		329,786
Total liabilities and stockholders’ equity	$	272,023	$	387,670

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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues	$	39,052	$	54,966	$	124,860	$	185,837
Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization presented separately below)	3,880		5,715		12,643		16,919
Sales and marketing	25,130		31,239		78,535		108,814
Technology and development	12,742		9,890		34,377		31,863
General and administrative	11,364		11,121		34,025		37,652
Depreciation and amortization	4,284		3,828		11,729		12,731
Goodwill impairment	59,775		—		59,775		—
Total costs and operating expenses	117,175		61,793		231,084		207,979
Loss from operations	(78,123)		(6,827)		(106,224)		(22,142)
Interest income	879		12		1,185		40
Other income	—		—		—		667
Gain (loss) from equity method investment	—		(267)		1,845		(953)
Loss before income taxes	(77,244)		(7,082)		(103,194)		(22,388)
Provision for (benefit from) income taxes	(131)		(38)		(2,648)		189
Loss from continuing operations	(77,113)		(7,044)		(100,546)		(22,577)
Income from discontinued operations, net of taxes	—		208		—		40
Net loss	$	(77,113)	$	(6,836)	$	(100,546)	$	(22,537)
Net loss per share, basic and diluted
Continuing operations	$	(0.85)	$	(0.07)	$	(1.09)	$	(0.23)
Discontinued operations	$	0.00	$	0.00	$	0.00	$	0.00
Weighted average common shares outstanding, basic and diluted	90,687		96,037		92,508		97,800
Other comprehensive loss:
Comprehensive loss	$	(77,113)	$	(6,836)	$	(100,546)	$	(22,537)

See accompanying notes to condensed consolidated financial statements.

6

TRUECAR, INC. 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands except share data)

(Unaudited) 

	Nine Months Ended September 30, 2022
	Common Stock					Accumulated Deficit		Stockholders’ Equity
	Shares	Amount		APIC
Balance at December 31, 2021	96,213,243	$	10	$	723,623	$	(393,847)	$	329,786
Net loss	—	—		—		(12,414)		(12,414)
Repurchase of common stock	(3,107,370)	—		(11,028)		—		(11,028)
Stock-based compensation	—	—		3,744		—		3,744
Shares issued in connection with employee stock plan, net of shares withheld for employee taxes	481,122	—		(861)		—		(861)
Balance at March 31, 2022	93,586,995	$	10	$	715,478	$	(406,261)	$	309,227
Net loss	—	—		—		(11,019)		(11,019)
Repurchase of common stock	(3,731,415)	—		(14,075)		—		(14,075)
Stock-based compensation	—	—		4,777		—		4,777
Shares issued in connection with employee stock plan, net of shares withheld for employee taxes	654,005	—		(849)		—		(849)
Balance at June 30, 2022	90,509,585	$	10	$	705,331	$	(417,280)	$	288,061
Net loss	—			—		(77,113)		(77,113)
Repurchase of common stock	—	$	—	—		—		—
Stock-based compensation	—	$	—	5,437		—		5,437
Shares issued in connection with employee stock plan, net of shares withheld for employee taxes	447,000	$	—	(535)		—		(535)
Balance at September 30, 2022	90,956,585	$	10	$	710,233	$	(494,393)	$	215,850

See accompanying notes to condensed consolidated financial statements.

7

	Nine Months Ended September 30, 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
Net loss	—	—		—		(7,283)		(7,283)
Repurchase of common stock	(2,088,784)	—		(11,556)		—		(11,556)
Stock-based compensation	—	—		5,507		—		5,507
Shares issued in connection with employee stock plan, net of shares withheld for employee taxes	1,034,680	—		(630)		—		(630)
Balance at June 30, 2021	97,613,457	$	10	$	729,439	$	(371,219)	$	358,230
Net loss	—	$	—	$	—	$	(6,836)	$	(6,836)
Repurchase of common stock	(2,365,258)	$	—	$	(13,044)	$	—	$	(13,044)
Stock-based compensation	—	$	—	$	4,768	$	—	$	4,768
Shares issued in connection with employee stock plan, net of shares withheld for employee taxes	499,351	$	—	$	(1,212)	$	—	$	(1,212)
Balance at September 30, 2021	95,747,550	$	10	$	719,951	$	(378,055)	$	341,906

See accompanying notes to condensed consolidated financial statements.

8

TRUECAR, INC. 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities
Net loss	$	(100,546)	$	(22,537)
Income from discontinued operations, net of taxes	—		$	40
Net loss from continuing operations	(100,546)		(22,577)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	11,729		12,731
Goodwill impairment	59,775		—
Deferred income taxes	(2,661)		48
Bad debt expense and other reserves	421		286
Stock-based compensation	13,174		15,992
Increase in the fair value of contingent consideration liability	179		41
Amortization of lease right-of-use assets	3,031		3,211
(Gain) loss from equity method investment	(1,845)		953
Impairment of right-of-use assets and write-off and loss on disposal of finite-lived assets	—		1,666
Other noncash (gain) expense	(14)		313
Changes in operating assets and liabilities:
Accounts receivable	3,250		12,746
Prepaid expenses and other assets	(1,741)		477
Accounts payable	(2,538)		993
Accrued employee expenses	1,978		(1,099)
Operating lease liabilities	(4,036)		(3,877)
Accrued expenses and other current liabilities	(368)		(5,363)
Other liabilities	—		(364)
Net cash (used in) provided by operating activities - continuing operations	(20,212)		16,177
Net cash used in operating activities - discontinued operations	—		(180)
Net cash (used in) provided by operating activities	(20,212)		15,997
Cash flows from investing activities
Purchase of property and equipment	(8,332)		(8,056)
Cash from sale of equity method investment	15,745		—
Cash paid for acquisition, net of cash acquired	(12,093)		—
Net cash used in investing activities - continuing operations	(4,680)		(8,056)
Net cash provided by investing activities - discontinued operations	—		6,484
Net cash used in investing activities	(4,680)		(1,572)
Cash flows from financing activities
Payment of contingent consideration liability	—		(2,214)
Proceeds from exercise of common stock options	179		1,369
Taxes paid related to net share settlement of equity awards	(2,422)		(4,286)
Payments for the repurchase of common stock	(25,103)		(31,943)
Net cash used in financing activities	(27,346)		(37,074)
Net decrease in cash and cash equivalents	(52,238)		(22,649)
Cash and cash equivalents at beginning of period	245,217		273,314
Cash and cash equivalents at end of period	$	192,979	$	250,665

See accompanying notes to condensed consolidated financial statements.

9

TRUECAR, INC. 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

(Continued)

	Nine Months Ended September 30,
	2022		2021
Supplemental disclosures of non-cash activities
Stock-based compensation capitalized for software development	$	784	$	1,015
Capitalized assets included in accounts payable, accrued employee expenses and other accrued expenses	1,198		1,101
Changes in right-of-use assets for operating lease obligations	3,047		—
Changes in lease liabilities for operating lease obligations	3,636		—

See accompanying notes to condensed consolidated financial statements.

10

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 Digital Motors Corporation are collectively referred to as “TrueCar” or the “Company”; TrueCar Dealer Solutions, Inc. is referred to as “TCDS,” DealerScience, LLC is referred to as “DealerScience” and Digital Motors Corporation is referred to as “Digital Motors.” 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, 2021, and include all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the interim periods presented.

The condensed consolidated balance sheet at December 31, 2021 has been derived from the audited financial statements at that date, but does not include all of the disclosures required by GAAP. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Form 10-K filed with the SEC on February 24, 2022. 

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 results 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. Divestitures are included in the Company’s consolidated statements through the date of disposition. All intercompany balances and transactions have been eliminated in consolidation.

11

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, 2022 through September 30, 2022, the Company’s chief operating decision maker (the “CODM”) was comprised of both the President and Chief Executive Officer and the Chief Financial Officer and Chief Operating 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 14). 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 calculated on an individual basis. Risk characteristics relevant to the Company’s accounts receivable include revenue billing model and aging status.

The following table summarizes the changes in the allowance for doubtful accounts and sales allowances (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Allowances, at beginning of period	$	1,605	$	5,789	$	3,099	$	7,147
Charged as a reduction of revenue	601		923		2,070		3,489
Charged to bad debt expense in general and administrative expenses	243		(182)		421		286
Write-offs, net of recoveries	(1,185)		(2,852)		(4,326)		(7,244)
Allowances, at end of period	$	1,264	$	3,678	$	1,264	$	3,678

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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.     Business Combination

On May 31, 2022 (the “Acquisition Date”), the Company acquired all of the outstanding shares of Digital Motors for $15.5 million in cash and up to $8.0 million of contingent cash consideration based on the occurrence of certain events including the achievement of product development milestones and future revenues. The acquisition of Digital Motors is intended to accelerate TrueCar's plan to deliver a robust digital car buying and selling experience with its TrueCar+ marketplace. At the Acquisition Date, the Company assessed the probabilities of Digital Motors meeting product development milestones and future revenue targets and recorded contingent consideration of $6.3 million, with $4.4 million recorded in Other liabilities and $1.9 million recorded in Accrued expenses and other current liabilities. From the Acquisition Date through September 30, 2022, there were no material changes to the value of the contingent consideration.

The Company recorded goodwill of $8.6 million, which represents the excess of the purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed. The goodwill is attributable to the workforce of the acquired business and the significant synergies expected to arise from the Company’s acquisition of Digital Motors. Goodwill attributed to the acquisition is not deductible for income tax purposes. The purchase consideration was preliminarily allocated to the assets acquired and liabilities assumed based on their fair value as of the Acquisition Date.

The following table summarizes the preliminary allocation of the purchase consideration and the estimated fair value of the assets acquired and the liabilities assumed for the acquisition of Digital Motors as of the Acquisition Date (in thousands). The purchase price allocation is preliminary and is subject to revision as additional information about the fair value of the assets acquired and liabilities assumed become available, including deferred taxes and residual goodwill.

	Digital Motors
Assets acquired
Cash	5,201
Acquired technology	12,500
Other assets acquired	548
Goodwill	8,570
Total assets acquired	$	26,819
Liabilities assumed
Accounts payable	1,244
Accrued employee expenses	984
Deferred tax liabilities	2,556
Other liabilities assumed	249
Total liabilities assumed	5,033
Net assets acquired	21,786
Consideration paid
Cash paid	$	15,484
Contingent consideration	$	6,302
Total consideration	$	21,786

The purchase price allocation was adjusted during the three-month period ended September 30, 2022 to reflect certain working capital adjustments. The measurement period adjustment results in a $0.2 million increase in other assets acquired, $0.1 million increase in accounts payable, and $0.1 million increase in other liabilities. The adjusted purchase price allocation is reflected in the condensed consolidated balance sheet as of September 30, 2022.

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The estimated useful life for acquired technology is 4 years. Total liabilities assumed include $1.8 million of accrued Digital Motors transaction expenses, which were paid by the Company shortly after the Acquisition Date and included in cash paid for acquisition, net of cash acquired on the accompanying condensed consolidated statements of cash flows.

For the nine months ended September 30, 2022, the Company incurred transaction costs of $1.0 million in connection with the Digital Motors acquisition which were expensed as incurred and included in general and administrative expense in the accompanying consolidated statements of comprehensive loss.

The Company’s consolidated financial statements include the operating results of Digital Motors from the Acquisition Date through September 30, 2022. Separate operating results and pro forma results of operations for Digital Motors have not been presented as the effect of the acquisition is not material to the Company’s financial results.

4.    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 transactions 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 of $1.9 million in other current assets and other assets in the accompanying 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. During the first quarter of 2021, the Company received a cash payment of $7.5 million related to the first earnout, which is reflected within investing activities of discontinued operations on the accompanying condensed consolidated statements of cash flows. During the three months ended September 30, 2021, the Company recognized an additional income of $0.2 million, which is reflected within income from discontinued operations, net of taxes on the accompanying condensed consolidated statements of comprehensive loss.

5.    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.

The Company recorded a contingent consideration liability upon the acquisition of Digital Motors in 2022 (Note 3). Contingent consideration is measured at fair value and is based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair-value hierarchy. The valuation of contingent consideration uses assumptions the Company believes a market participant would make. The Company assesses these estimates on an ongoing basis as it obtains additional data impacting the assumptions. Changes in the fair value of contingent consideration related to updated assumptions and estimates are recognized within the consolidated statements of comprehensive loss. The Company determined the fair value of the contingent consideration using the Scenario-Based model. Because the Digital Motors purchase agreement makes payment of the contingent consideration contingent on achievement of certain product development milestones and

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future revenue target, the significant unobservable inputs used in the fair value measurement of contingent consideration are the probabilities of achieving those targets and discount rates. Significant increases or decreases in the probabilities of achieving the targets would result in a significantly higher or lower fair value measurement, respectively.

The following table summarizes the Company’s financial assets measured at fair value on a recurring basis at September 30, 2022 and December 31, 2021 by level within the fair value hierarchy. Financial assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement (in thousands):

	At September 30, 2022								At December 31, 2021
							Total Fair								Total Fair
	Level 1		Level 2		Level 3		Value		Level 1		Level 2		Level 3		Value
Assets:
Cash equivalents	$	60,224	$	—	$	—	$	60,224	$	234,763	$	—	$	—	$	234,763
Total assets	$	60,224	$	—	$	—	$	60,224	$	234,763	$	—	$	—	$	234,763

	At September 30, 2022								At December 31, 2021
							Total Fair								Total Fair
	Level 1		Level 2		Level 3		Value		Level 1		Level 2		Level 3		Value
Liabilities:
Contingent consideration, current	$	—	$	—	$	1,959	$	1,959	$	—	$	—	$	—	$	—
Contingent consideration, non-current	$	—	$	—	$	4,522	$	4,522	$	—	$	—	$	—	$	—
Total liabilities	$	—	$	—	$	6,481	$	6,481	$	—	$	—	$	—	$	—

    

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Derivative Assets

The following table summarizes the changes in fair value of the derivative asset for the escrow payment upon the sale of the equity method investment in Accu-Trade in March 2022 (in thousands). The gain from the changes in fair value of the derivative asset was recognized in gain (loss) from equity method investment in the accompanying consolidated statements of comprehensive loss.

	Three Months Ended September 30, 2022		Nine Months Ended September 30, 2022
Fair value, beginning of period	$	—	$	—
Additions	—		1,100
Changes in fair value	—		1,846
Escrow settlement receivable	2,946		—
Cash payments	(2,946)		(2,946)
Fair value, end of period	$	—	$	—

Contingent Consideration Obligations

The following table summarizes the changes in fair value of the contingent consideration obligation related to the Company’s acquisition of Digital Motors:

	Three Months Ended September 30, 2022		Nine Months Ended September 30, 2022
Fair value, beginning of period	$	6,302	$	—
Additions	—		6,302
Changes in fair value	179		179
Fair value, end of period	$	6,481	$	6,481

The following table summarizes the significant unobservable inputs and valuation technique in the fair value measurement of the contingent consideration liability at September 30, 2022:

Valuation Technique	Unobservable Inputs	Value Range
Scenario-Based model	Probabilities of achievement	85.6% to 99.9%
	Discount rates	6.8% to 7.8%

6.    Goodwill

The following table summarizes the changes in goodwill for the three months ended September 30, 2022 (in thousands):

	Goodwill
Balance at June 30, 2022	$	59,775
Impairment	59,775
Balance at September 30, 2022	$	—

The Company assesses recoverability of goodwill on an annual basis or when events or changes in circumstances indicate that the carrying value may not be recoverable, such as a deterioration in macroeconomic conditions and a sustained decrease in stock price. The Company performs its annual goodwill impairment assessment as of December 31. Since 2021, the Company’s business has been negatively impacted by the global automotive semiconductor chip shortage, and more recently, by rising interest rates. During the three months ended September 30, 2022, the Company’s stock price experienced high volatility, causing a further decline in its market capitalization since we last tested goodwill for impairment at June 30, 2022. As a result of the further decline in market capitalization and the continued macroeconomic disruptions, the Company concluded a triggering event had occurred.

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The Company performed an interim quantitative impairment test as of September 30, 2022 utilizing an income approach. Under the income approach, the Company used a discounted cash flow analysis. 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 rates. The Company also performed a reconciliation of the fair value of the reporting unit to the Company’s market capitalization as of September 30, 2022. The market capitalization reconciliation included the estimation of a reasonable control premium and other market factors such as control premiums observed in market transactions. Based on the results of the impairment test, the Company concluded that the carrying value of its single reporting unit exceeded the fair value and, accordingly, recorded a non-cash impairment charge of $59.8 million for the three and nine months ended September 30, 2022.

7.    Property and Equipment, net

Property and equipment consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):

	September 30, 2022		December 31, 2021
Computer equipment, software, and internally developed software	$	86,160	$	77,237
Furniture and fixtures	3,226		3,794
Leasehold improvements	12,609		15,664
	101,995		96,695
Less: Accumulated depreciation	(83,191)		(77,540)
Total property and equipment, net	$	18,804	$	19,155

Included in the table above are property and equipment of $1.3 million and $1.3 million at September 30, 2022 and December 31, 2021, 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 $3.0 million and $3.4 million for the three months ended September 30, 2022 and 2021, respectively. Total depreciation and amortization expense of property and equipment was $9.4 million and $11.5 million for the nine months ended September 30, 2022 and 2021, respectively.

Amortization of internal use capitalized software development costs was $2.9 million and $3.0 million for the three months ended September 30, 2022 and 2021, respectively. Amortization of internal use capitalized software development costs was $8.7 million and $9.3 million for the nine months ended September 30, 2022 and 2021, respectively.

8.    Credit Facility

The Company is party to a third amended and restated loan and security agreement (the “Credit Facility”) with a financial institution that provides for advances under a $35.0 million revolving line of credit. In February 2018, the Company entered into a first amendment to the Credit Facility that, among other things, extended the expiration 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 did 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. In April 2021, the Company entered into a fourth amendment to the Credit Facility to extend the maturity date to April 12, 2024 that did not alter the borrowing amounts, interest rates, or required ratios. The Credit Facility provided a $10.0 million sub-facility for the issuance of letters of credit and contained an increase option permitting the Company, subject to the lender’s consent, to increase the revolving credit facility by up to $15.0 million, to an aggregate maximum of $50.0 million.

The Credit Facility bears interest, at the Company’s option, at either (i) the prime rate published by The Wall Street Journal, plus a spread of -0.25% to 0.25%, 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, as defined in the Credit Facility, for LIBOR rate loans. The Company is also obligated to pay an unused revolving line facility fee of 0.00% to 0.15% 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. At September 30, 2022 and December 31, 2021, the Company was in compliance with the Credit Facility’s financial covenants. 

The Company’s future material domestic subsidiaries are required, upon the lender’s request, to become co-borrowers under the Credit Facility. Additionally, the Credit Facility contains acceleration clauses that accelerate any borrowings in the event of default. The Company’s obligations and those of its future material domestic subsidiaries are collateralized by substantially all of their respective assets, subject to certain exceptions and limitations. 

At September 30, 2022, the Company had no outstanding amounts under the Credit Facility and the amount available was $32.6 million, reduced for the letters of credit issued and outstanding under the sub-facility of $2.4 million.

9.    Commitments and Contingencies

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 and certain of its then-current and former officers and directors in the U.S. District Court for the Central District of California (the “Milbeck Federal Securities Litigation”). The complaint, as amended, sought an award of unspecified damages and other 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 applicable securities law in connection with the Company’s secondary offering of its common stock that occurred during the class period. On May 26, 2020, the case was dismissed pursuant to a settlement. As a result, the Milbeck Federal Securities Litigation has been resolved.

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 as defendants. On October 7, 2019, the Delaware Court of Chancery consolidated the cases into a single action (the “Delaware Consolidated Derivative Litigation”). 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 (described below) and other related stockholder demands. In October 2021, following the aforementioned investigation, the Board adopted the Special Committee’s recommendation that the Board refuse the demands in their entirety and conclude that no further action is necessary. The Company has not recorded an accrual related to this matter as of September 30, 2022 as the Company does not believe a loss is probable or reasonably estimable.

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Further, 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 sought an award of damages against the defendants on the Company’s behalf and various alleged corporate governance reforms. Following the Board’s action on the Special Committee’s recommendation, which is described above, the plaintiff dismissed her claims against the Company on June 22, 2022. As a result, the Lee Derivative Litigation has been resolved and the Company has not recorded an accrual related to this matter as of September 30, 2022 as the Company does not believe a loss is probable or reasonably estimable.

Employment Contracts

The Company has entered into employment contracts with certain executives of the Company. Employment under these contracts is at-will employment. However, under the provisions of the contracts, the Company would incur severance obligations of up to twelve months of the executive’s annual base salary for certain events such as involuntary terminations.

Indemnifications

In the ordinary course of business, the Company may provide indemnities of varying scope and terms to customers, vendors, lessors, investors, directors, officers, employees and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements, services to be provided by the Company, or intellectual property infringement claims made by third parties. While the Company’s future obligations under certain of these agreements may contain limitations on liability for indemnification, other agreements do not contain such limitations and under such agreements it is not possible to predict the maximum potential amount of future payments due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under such indemnities have not had a material effect on the Company’s business, financial condition, results of operations or cash flows. Additionally, the Company does not believe that any amounts that it may be required to pay under these indemnities in the future will be material to the Company’s business, financial position, results of operations, or cash flows. 

10.    Stock-based Awards

Stock Options

A summary of the Company’s stock option activity for the nine months ended September 30, 2022 is as follows:

	Number of Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life
				(in years)
Outstanding at December 31, 2021	6,078,180	$	9.24	6.2
Granted	—	—
Exercised	(66,904)	2.68
Forfeited/expired	(808,004)	8.44
Outstanding at September 30, 2022	5,203,272	$	9.43	5.5

At September 30, 2022, total remaining stock-based compensation expense for unvested stock option awards was $2.5 million, which is expected to be recognized over a weighted-average period of 2.2 years. For the three months ended September 30, 2022 and 2021, the Company recorded stock-based compensation expense for stock option awards of $0.3 million and $0.5 million, respectively. For the nine months ended September 30, 2022 and 2021, the Company recorded stock-based compensation expense for stock option awards of $1.1 million and $3.1 million, respectively.

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Restricted Stock Units

Activity in connection with restricted stock units is as follows for the nine months ended September 30, 2022:

	Number of Shares	Weighted- Average Grant Date Fair Value
Non-vested — December 31, 2021	7,536,114	$	4.60
Granted	6,657,994	4.03
Vested	(2,305,391)	4.64
Forfeited	(1,436,311)	4.54
Non-vested — September 30, 2022	10,452,406	$	4.24

At September 30, 2022, total remaining stock-based compensation expense for non-vested restricted stock units was $37.5 million, which is expected to be recognized over a weighted-average period of 2.9 years. For the three months ended September 30, 2022 and 2021, the Company recorded $4.8 million and $3.9 million in stock-based compensation expense for restricted stock units, respectively. For the nine months ended September 30, 2022 and 2021, the Company recorded $12.1 million and $12.9 million in stock-based compensation expense for restricted stock units, 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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Cost of revenue	$	51	$	44	$	134	$	181
Sales and marketing	1,219		1,271		3,627		5,742
Technology and development	1,126		1,098		3,082		3,445
General and administrative	2,793		2,037		6,331		6,624
Total stock-based compensation expense	5,189		4,450		13,174		15,992
Amount capitalized to internal software use	248		318		784		1,015
Total stock-based compensation cost	$	5,437	$	4,768	$	13,958	$	17,007

11.    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, adjusted for discrete items, if any, that are taken into account in the relevant period. The Company’s annual estimated effective tax rate differs from the statutory rate primarily as a result of state taxes and changes in the Company’s valuation allowance.

The Company recorded an income tax benefit of $0.1 million and less than $0.1 million for the three months ended September 30, 2022 and 2021, respectively. The Company recorded an income tax benefit of $2.6 million and income tax expense of $0.2 million for the nine months ended September 30, 2022 and 2021, respectively. The Company’s income tax benefit for the three months ended September 30, 2022 primarily reflects the discrete impact for reduction of indefinite-lived deferred tax liabilities resulting from the impairment of book goodwill. For the three months ended September 30, 2021, the income tax benefit primarily reflects the reversal of a tax accrual related to the ALG divestiture. The Company’s income tax benefit for the nine months ended September 30, 2022 primarily reflects the release of valuation allowance resulting from net deferred tax liabilities recorded in Digital Motors acquisition accounting providing a source of income in assessing realization of consolidated net deferred tax assets. For the nine months ended September 30, 2021, the Company’s income tax expense is primarily 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. The Company continues to maintain a full valuation allowance as it is more likely than not that the Company’s net deferred tax assets will not be realized.

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There were no material changes to the Company’s unrecognized tax benefits in the nine months ended September 30, 2022. In the fourth quarter of 2021, there was a $1.1 million increase in unrecognized tax benefit primarily related to bonus expense that does not qualify as a federal income tax deduction when accrued for financial reporting purposes. The Company expects the amount of unrecognized tax benefits to decrease by $1.1 million during the fiscal year as a result of applying for a change in accounting method with the filing of the tax return.

The Company is subject to United States federal and state taxation. Due to the presence of net operating loss carryforwards, all income tax years remain open for examination by the IRS and various state taxing authorities. The Company is not currently under Internal Revenue Service or state tax examination.

12.    Net Loss Per Share

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net loss	$	(77,113)	$	(6,836)	$	(100,546)	$	(22,537)
Loss from continuing operations	$	(77,113)	$	(7,044)	$	(100,546)	$	(22,577)
Income from discontinued operations, net of taxes	$	—	$	208	$	—	$	40
Weighted average common shares outstanding, basic and diluted	90,687		96,037		92,508		97,800
Net loss per share, basic and diluted
Continuing operations	$	(0.85)	$	(0.07)	$	(1.09)	$	(0.23)
Discontinued operations	$	—	$	—	$	—	$	—

The following table presents the number of anti-dilutive shares excluded from the calculation of diluted loss per share at September 30, 2022 and 2021 (in thousands):

	September 30,
	2022	2021
Options to purchase common stock	5,203	6,070
Non-vested restricted stock unit awards	10,452	7,821
Total shares excluded from net loss per share	15,655	13,891

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. In May 2021, the Company’s board of directors increased the authorization of the Program by an additional $75 million, bringing the total authorization to $150 million. In July 2022, the Company’s board of directors extended the expiration of the Program until September 30, 2024. 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. During the nine months ended September 30, 2022 the Company repurchased and retired a total of 6.8 million shares under the Program for $25.0 million. As of September 30, 2022, the Company had a remaining authorization of $50.5 million for future share repurchases.

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13.    Related Party Transactions

Transactions with Accu-Trade

On March 1, 2022, the Company sold its 20% ownership interests in Accu-Trade at the investment’s carrying value and no longer considers Accu-Trade a related party after the sale. The Company recognized contra-revenue of $0.1 million and cost of revenue of $1.1 million for the two months ended March 1, 2022, and recognized contra-revenue of $0.2 million and $0.8 million and cost of revenue of $1.5 million and $4.0 million for the three months and nine months ended September 30, 2021, respectively, related to a software and data licensing agreement that was terminated as part of the sale. The Company had amounts due to Accu-Trade included in accounts payable at December 31, 2021 of $1.1 million. No amounts were due to Accu-Trade at September 30, 2022.

14.    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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Dealer revenue	$	37,722	$	52,966	$	120,713	$	177,693
OEM incentives revenue	1,189		1,736		3,613		7,301