S-1

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, or the Securities Act, check the following box. ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Commission acting pursuant to said Section 8(a), may determine.

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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

This is an initial public offering of shares of Class A common stock of AutoTrader Group, Inc.

We are offering shares of our Class A common stock. This is our initial public offering and no public market currently exists for our Class A common stock. We expect our initial public offering price will be between $ and $ per share. After pricing the offering, we expect our Class A common stock will be listed on the New York Stock Exchange or The NASDAQ Global Market under the symbol “ATG.”

We have two classes of authorized common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to 10 votes per share and is convertible at any time into one share of Class A common stock. Outstanding shares of Class B common stock will represent approximately % of the voting power of our outstanding capital stock immediately following this offering.

Investing in our Class A common stock involves a high degree of risk. See “Risk Factors” beginning on page 17.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

To the extent that the underwriters sell more than shares of our Class A common stock, the underwriters have the option to purchase up to an additional shares from us at the initial public offering price less the underwriting discount.

The underwriters expect to deliver the shares against payment in New York, New York on , 2012.

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Neither we nor the underwriters (or any of our or their respective affiliates) have authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. Neither we nor the underwriters (or any of our or their respective affiliates) take any responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters (or any of our or their respective affiliates) are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is only accurate as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

We own or have the rights to use various trademarks, service marks and trade names referred to in this prospectus, including, among others, AutoTrader, AutoTrader.com, Kelley Blue Book, KBB.com, vAuto, VinSolutions, CDMdata and HomeNet, and their respective logos. Solely for convenience, we refer to trademarks, service marks and trade names in this prospectus without the TM, SM and ^® symbols. Such references are not intended to indicate, in any way, that we will not assert, to the fullest extent permitted by law, our rights to our trademarks, service marks and trade names. Other trademarks, trade names or service marks appearing in this prospectus are the property of their respective owners. As indicated in this prospectus, we have included market data and industry forecasts that were obtained from industry publications and other sources.

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This prospectus contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact or relating to present facts or current conditions included in this prospectus are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “should,” “can have,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.

The forward-looking statements contained in this prospectus are based on assumptions that we have made in light of our industry experience and our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this prospectus, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (many of which are beyond our control) and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual operating and financial performance and cause our performance to differ materially from the performance anticipated in the forward-looking statements. We believe these factors include, but are not limited to, those described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove incorrect, our actual operating and financial performance may vary in material respects from the performance projected in these forward-looking statements.

Any forward-looking statement made by us in this prospectus speaks only as of the date on which we make it. Factors or events that could cause our actual operating and financial performance to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

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PROSPECTUS SUMMARY

This summary provides an overview of selected information contained elsewhere in this prospectus and is qualified in its entirety by the more detailed information and consolidated financial statements included elsewhere in this prospectus. You should carefully review the entire prospectus, including the risk factors, the consolidated financial statements and the notes thereto, and the other documents to which this prospectus refers before making an investment decision. Unless the context requires otherwise, references to “ATG,” “our company,” “we,” “us” and “our” refer to AutoTrader Group, Inc. and its direct and indirect subsidiaries. References to “ATC” refer to AutoTrader.com, Inc., our direct wholly-owned subsidiary, and references to “Kelley Blue Book” refer to Kelley Blue Book Co., Inc., a direct wholly-owned subsidiary of ATC. References to “CEI” refer to Cox Enterprises, Inc. and its direct and indirect subsidiaries, excluding us.

Overview

We operate the largest digital automotive marketplace and are a leading provider of marketing and software solutions to automotive dealers in the United States. Through our storied and trusted AutoTrader.com and Kelley Blue Book brands, we offer consumers empowering tools, content and information that increase their confidence in the car buying process. In the first quarter of 2012, we provided over 29 million average monthly unique visitors with free, convenient access to over 3.4 million easily searchable daily car listings, rich descriptive content, proprietary pricing and valuation data and innovative vehicle comparison tools. Our digital media solutions provide car dealers, automobile original equipment manufacturers, or OEMs, and others the opportunity to target tailored advertising solutions to our uniquely scaled audience of in-market car buyers. Our innovative software solutions allow car dealers to source, appraise, manage, price and market their inventory, and help them manage their consumer relationships. We have cultivated our dealer relationships by building what we believe is the largest dealer sales force in the U.S. retail automotive industry, with over 1,400 highly trained, consultative sales and support professionals.

Since our founding in 1997, our mission has been to dramatically improve the way people buy and sell new and used cars. We believe our two businesses—Digital Media and Software Solutions—have transformed the retail automotive industry, reducing friction between dealers and consumers and allowing them to transact with greater ease, confidence and efficiency. The unequaled scale of our monthly unique visitors, dealer customers and advertisers, in combination with the rich information and transaction data provided by their interactions on our platform, create a virtuous cycle of value to all of these network participants. Our market position is further bolstered by our unmatched sales force, significant and recurring investment in our market-leading brands and on-going product innovation.

In our Digital Media business, we believe we reach approximately 60% of online in-market car shoppers in the United States, based on a 2011 study we commissioned. We also offer the largest selection of unique online car listings that consumers can access from a single source and trusted content to meet consumer needs at all stages of the car buying process. We operate two of the leading online brands among car buyers in the United States—AutoTrader.com and Kelley Blue Book—and through our AutoTrader.com and KBB.com websites, we provide car shoppers with solutions for the car buying and selling process. On AutoTrader.com, consumers could search over 3.4 million daily unique new and used car listings, on average for the three months ended March 31, 2012, which we aggregate from our network of over 25,000 dealer relationships. In order to more effectively reach our broad audience of in-market car shoppers, over 20,000 of these dealers pay us monthly fees to subscribe to our products and services to enhance their new and used car listings on our websites. On

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KBB.com, consumers can read in-depth vehicle reviews, configure and compare new and used vehicles and obtain proprietary valuation estimates to inform their purchase or sale of a vehicle. On both AutoTrader.com and KBB.com, we offer OEMs and other advertisers the opportunity to tailor advertising solutions to the largest targeted audience of in-market car shoppers in the United States, based on their location and preference of make, model, body style and price point.

Through our Software Solutions business, we provide dealer customers with subscription-based software tools and related data analytics to help them operate their businesses with greater efficiency and profitability. Our inventory management software solutions provide dealers with robust analytical tools to better manage their used car procurement and sales processes. Our integrated customer relationship management, or CRM, software solutions help dealers track their consumer prospects and relationships, develop a web presence, create direct marketing campaigns and instantly advertise inventory across their own and third-party websites. We believe our Software Solutions business benefits from significant contributions from our Digital Media business. Specifically, our AutoTrader.com and KBB.com websites provide us with proprietary historical and current market data that we use to help develop new software solutions.

Since our inception in 1997, we have achieved significant growth, increasing revenues from $1.0 million in 1998 to over $1.0 billion in 2011. In 2011, our Adjusted EBITDA and net income were $334.6 million and $68.1 million, respectively. During this period, we generated 89% of our revenues from our Digital Media business and 11% of our revenues from our Software Solutions business. In the three months ended March 31, 2012, we generated 86% of our revenues from our Digital Media business and 14% of our revenues from our Software Solutions business.

By offering dealers free listings at our launch, we were immediately able to attract consumers with a large selection of cars and demonstrate to a critical mass of dealers the compelling value proposition that we offer. We believe our scale in car shoppers and dealers provides a significant advantage in both our Digital Media business as well as in our Software Solutions business. We still provide dealers with the ability to list their cars for free on AutoTrader.com, but we require them to pay monthly subscription fees for better listing placement and enhanced features. Today, we have over 25,000 dealers listing cars on our site, of which over 20,000 pay us to subscribe to our featured or premium listing solutions.

We believe that we are well-positioned to benefit as consumer behavior and advertising budgets continue to shift toward digital and mobile platforms and as dealers increasingly require more automation and analytical tools. By providing leading car content, research and access to the largest selection of unique, high quality car listings, we streamline the consumer’s choice of which car to buy and what price to pay. As a result, we attract a large audience of in-market car shoppers which generates broad appeal to dealers, and thus more listings for consumers as well as a growing base of dealer customers. We can cross-sell our digital media and software solutions to this growing base of dealer customers.

Our History

CEI formed our company in 1997. We launched our digital media platform in 1998 and licensed the AutoTrader brand in 1999. Until ceasing operations in 2009, CEI operated the AutoTrader print publication as a business separate from us.

In June 2010, CEI sold a 25% stake in us to affiliates of Providence Equity Partners L.L.C., or Providence Equity Partners. We refer to such affiliates of Providence Equity Partners as the

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Providence Funds. Since then, we have executed a series of acquisitions, including vAuto (October 2010), Kelley Blue Book (December 2010), HomeNet (December 2010) and VinSolutions (June 2011), that have broadened our audience reach and expanded our offerings to dealers. These acquisitions have helped us strengthen our tools and content for consumers, provide additional listing and advertising opportunities for dealers and OEMs, and offer software solutions to dealers, which have bolstered our overall market position.

Our Industry

Automotive advertising is among the largest advertising markets in the United States, with more than $22 billion expected to be spent on automotive advertising in 2012, according to Forrester Research. As consumers shift their search for cars online, automotive advertisers are increasingly moving their advertising budgets to the internet and away from traditional media, such as television, radio and print. According to Forrester Research, dealers increased automotive advertising spending on internet advertising from 5% of their advertising budgets in 2008 to 15% of their advertising budgets in 2011. However, the automotive industry’s allocation of advertising spending to digital media continues to lag consumer shopping behavior and preference. Excluding non-marketing sources of influence (such as word of mouth referrals), car buyers reported that the internet primarily drove their new and used car purchase decision 71% and 82% of the time, respectively, according to a Polk Automotive Influence Study we conducted in 2010. We expect the share of online automotive advertising spending to shift towards the internet’s share of consumer influence over time, representing significant future growth potential in digital automotive advertising.

In addition, the internet has brought greater complexity, pricing transparency and competition to dealers’ businesses, increasing the need for dealers to operate more efficiently. We believe dealers will increasingly require software solutions to make their operations more efficient and effective. As more dealers recognize that the use of technology is necessary to maintain and improve their competitiveness, we believe the market for inventory management and CRM software solutions will continue to grow significantly.

Our Solution

Our industry-leading digital automotive marketplace has transformed the car buying and selling process by connecting the largest targeted audience of in-market car shoppers in the United States with what we believe is the largest base of dealers and other sellers. Our software solutions are changing the way dealers use the power of market data, analytics and the internet to improve inventory management, achieve greater price clarity, advertise vehicles to in-market car shoppers, manage consumer relationships throughout their lifecycle and establish and maintain their own websites.

We provide the following key benefits to consumers:

Access to the Largest Selection of Unique, High-Quality Car Listings. We believe we are the authoritative third-party source for car listings in the United States. By aggregating over 3.4 million daily car listings on average for the three months ended March 31, 2012, we help streamline the consumer’s process of deciding which car to buy and what price to pay. We believe this is the largest number of unique listings for new and used cars that consumers can access from a single source. We offer in-market car shoppers available inventory throughout the United States, which is updated multiple times daily, from our network of over 25,000 dealer relationships and from private sellers. As such, we believe consumers are able to find information on the make, model, body style and price point of cars in a specified geography more easily and quickly on our websites than through any other source.

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Customized and Curated Search Capabilities. Our advanced search functionality enables consumers to find the car listings that meet their specific needs and to physically locate the vehicle from a nearby dealer or private seller. Dealers with higher quality online content typically receive the best results in terms of interest in their listings, resulting in powerful and proprietary marketplace input for our search results. Our search tools effectively curate automotive inventory for consumers because subscribing dealers and private sellers must compete to reach our audience by paying higher fees to have their listings displayed in more prominent search result tiers.

Leading Car Content, Research and Advice. We provide consumers two complementary websites, KBB.com and AutoTrader.com, that help meet the entire spectrum of consumer needs throughout the car buying process. KBB.com targets early stage car shoppers by offering in-depth reviews, comprehensive guidance on car valuation and total cost of ownership based on a proprietary database of car transactions. AutoTrader.com targets later stage car shoppers by providing rich content in listings, including high-quality photos, videos and 360-degree spin views. These tools are designed to empower consumers to make more informed car buying decisions and to lessen the perception of information asymmetry between consumers and dealers. For the three months ended March 31, 2012, the overlap of unique visitors on AutoTrader.com and KBB.com was only 2.6 million or 9% of the combined average monthly unique visitors on the two websites.

Opportunity to Increase Resale Value. Through our private seller product, individuals may list used cars for sale on our websites, giving them access to the largest targeted audience of in-market car shoppers in the United States and providing them with the opportunity to increase their sale price. Our Trade-In Marketplace (TIM) product allows consumers throughout the United States to receive instant trade-in offers redeemable at a participating local dealership, subject to verification of the vehicle’s characteristics and condition. These tools have improved the price transparency and convenience of monetizing used vehicles for consumers.

We also provide the following key benefits to dealers, OEMs and other advertisers:

Access to a Large, Targeted Audience of In-Market Car Shoppers. Through a variety of our digital media products and services, dealers, OEMs and other advertisers can reach a targeted audience of approximately 60% of online in-market car shoppers in the United States, according to a study we conducted in 2011, more efficiently than through any other online or offline media channel. Our digital media solutions help dealers reach in-market car shoppers and target those within and beyond their local area that are interested in the makes and models that they stock. We believe that our broad in-market car shopper reach also makes our digital media platform a compelling value proposition for OEMs, most of which advertised on our websites in 2011.

Superior Automotive Advertising ROI. We offer dealers, OEMs and other advertisers more efficient marketing solutions compared to traditional media. For example, our consumer search function identifies consumer interest by location and preference of make, model, body style and price point. Consequently, we are able to match in-market car shoppers with advertising and listings on a highly specific basis and increase the overall likelihood that an advertisement or listing will influence a consumer’s purchasing decision. As a result, we believe dealers, OEMs and other advertisers can invest their marketing budgets more efficiently and effectively with us. We also believe our dealer customers’ perception of the value of our digital media solutions is reflected in our low dealer churn.

Critical Software Solutions that Increase Dealer Efficiency. We believe our solutions are integral to many aspects of a dealer’s retail operations. Under our vAuto and VinSolutions brands, we offer dealers pricing, sourcing, appraising, inventory management, CRM and website management solutions. These innovative software solutions allow dealers to optimize their used vehicle inventory

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management and sales processes and more efficiently manage their businesses, thereby enhancing overall profitability.

Consultative Performance Management. Our dealer sales force strives to be trusted advisors to our customers and lives by the motto, “We Work For You.” We believe our dealer sales force of over 1,400 sales and support professionals is the largest in the U.S. retail automotive industry. Our dealer sales force helps dealers implement our solutions and continue to adapt their usage according to their evolving needs. We offer our dealer customers on-going consultation to assist them in effectively utilizing and maximizing the value of our digital media and software solutions. Through our tools, analytics and highly trained, consultative sales and customer service professionals, we assist dealers in analyzing their businesses on a granular level, charting inventory turnover and pricing relative to other dealers in their region.

Our Strengths

Strong, Recognizable, Highly-Trusted Brands. Our unique portfolio of brands includes AutoTrader.com, Kelley Blue Book and vAuto, among others. The brand strength of AutoTrader.com and Kelley Blue Book is evidenced by the fact that approximately 70% of our traffic to both websites was sourced through direct navigation and search, as of November 2011. In addition, the combined unaided brand awareness of AutoTrader.com and Kelley Blue Book is over 50%, which is over twice that of our nearest online competitor, according to a study we commissioned in 2011. Since our inception, we have spent over $880 million on marketing initiatives to establish and secure our brand leadership. The majority of this spending has been focused on building the AutoTrader.com brand over the past 14 years, but we have begun to invest more in our marketing initiatives for our newly acquired brands, including having recently launched a broad campaign to enhance the trusted Kelley Blue Book brand.

Clear Category Leader with the Largest Targeted Audience and Unmatched Scale. We aggregate the most buyers and what we believe is the most sellers of new and used cars to drive the largest and most robust digital automotive marketplace in the United States. We had over 3.4 million daily car listings, a network of over 25,000 dealer relationships—over 20,000 of which are subscribing dealers—and over 29 million average monthly unique visitors that were unduplicated between AutoTrader.com and KBB.com on average for the three months ended March 31, 2012.

Large Consultative Dealer Sales Force. We believe our dealer sales force of over 1,400 sales and support professionals is the largest in the U.S. retail automotive industry and provides us with a strong competitive advantage. We have built our sales force over the past 14 years, allowing us to deeply ingrain our culture of client dedication into each professional. We believe our track record of helping dealers understand and utilize new products has built dealer loyalty to our solutions and driven the growth of our business.

Robust Analytics Capabilities. We provide our subscribing dealers with an end-to-end view of the consumer car shopping experience through our proprietary market data on our branded AutoTrader.com and KBB.com websites, as well as on the dealer websites and CRM software managed through our Software Solutions business. In leading the shift from contextual advertising to behaviorally-targeted marketing, we enable advertisers to deliver the right message to the right buyer at the right moment, which we believe results in greater advertising efficiency and effectiveness.

Powerful Platform with Significant Network Effects. Our industry leading position has created a platform that allows us to serve a broad range of the retail automotive industry’s needs, from classified

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listings to national brand marketing to a comprehensive suite of digital marketing and software solutions for dealers. Our ability to drive advertising and software product adoption across our dealer customer base has delivered consistent increases in customer spending with monthly run rate, or MRR, in our Digital Media business growing to $3,002 in 2011, representing 15% growth from 2010. We benefit from network effects as each additional listing and each additional consumer increases the utility of our solutions for dealers, advertisers and consumers. The scale of our consumer base, the number of dealers and advertisers that use our solutions, and the rich and accurate information generated by our consumers, dealers and other automotive-related advertisers create a virtuous cycle of value for all participants.

Recurring, Diversified Revenue Model. Our recurring subscription revenue model provides high visibility into our on-going revenue streams. In 2011 and the three months ended March 31, 2012, approximately 75% and 76%, respectively, of our revenues were recurring revenues. We believe our value proposition to dealers along with our increasingly diversified sources of revenue support long-term sustainability and resiliency, even during economic downturns.

Rapid Revenue Growth with Significant Operating Leverage. As a digital pioneer and market leader, we have experienced rapid organic revenue growth as dealers and other advertisers have steadily migrated their advertising spending to digital media platforms. Our operating expenses have grown at a lower rate than our revenues as we are able to leverage our operations, sales and marketing and technology to increase our revenue. This operating leverage has helped drive growth in Adjusted EBITDA margins as revenues have scaled. Our revenues, Adjusted EBITDA and net income grew from $629.5 million, $155.5 million and $9.9 million, respectively, in 2009, to $1.0 billion, $334.6 million and $68.1 million, respectively, in 2011. At the same time, our Adjusted EBITDA margin and net income margin (net income divided by revenues) in 2011 were 33% and 7%, respectively, up from 25% and 2%, respectively, in 2009.

Visionary Management Team. We are led by a talented, experienced and deep management team that grew us from the start-up stage into our current position as the largest digital automotive marketplace and a leading provider of marketing and software solutions to automotive dealers in the United States. The members of our management team have an average of nearly 20 years of experience in the media and automotive industries.

Growth Strategy

We intend to grow our platform and business by focusing on our mission and executing on the following key growth strategies:

Increase Share of Existing Dealer Customer Marketing Spending. We intend to increase the share of marketing spending we receive from our existing base of over 25,000 dealer relationships by helping them adopt additional marketing solutions. Through our consultative sales approach and on-going development of new solutions, we strive to help our dealer customers realize the value of our premium listing packages and increase adoption of our add-on and recently launched products, such as Alpha, Spotlight and TIM.

Cross-Sell Our Software Solutions to Our Customer Base of Subscribing Dealers. Only of our over 20,000 subscribing dealers subscribe to our recently acquired vAuto, VinSolutions and HomeNet software solutions or to more than one of our software solutions. We intend to utilize our existing dealer sales force, long-standing customer relationships and consultative sales approach to help our dealers recognize the value of our software solutions in order to expand the percentage of subscribing dealers using our software solutions, and to increase our Software Solutions MRR.

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Develop New Products and Services for Consumers, Dealers and Advertisers. We intimately understand the car sales process and dealer operations and have continuously leveraged this expertise to develop and launch new products and services. Our proprietary data, analytic tools and market insights allow us to develop new digital media products and services that create refined personalization tools for consumers, and help our dealer and advertiser customers maximize the impact of their digital and mobile advertising spending. We expect to continue to develop core products for these brands, including home page displays, behavioral targeting opportunities, new car products and mobile applications, to attract offline advertising to our digital automotive marketplace. We also intend to enhance the features and functionality of our software solutions to better address the evolving inventory, CRM and marketing management needs of dealers.

Increase Mobile Solutions. We believe mobile devices broaden the access to our dealers’ listings while providing in-market car shoppers with current, location-specific information that facilitates their decision-making process. Our mobile applications provide in-market car shoppers with the information and resources of AutoTrader.com and KBB.com at any location while enhancing the value proposition for our subscribing dealers by enabling them to reach a highly-targeted “on the lot” audience. We are also continuing to develop mobile websites and mobile applications for our inventory management and CRM software solutions.

Increase Brand Advertising and Grow Our Traffic. Increasing the awareness among consumers, dealers and brand advertisers of our AutoTrader.com and Kelley Blue Book brands is critical to expanding in-market consumer traffic to AutoTrader.com and KBB.com and our mobile applications. We intend to continue to invest in our AutoTrader.com and Kelley Blue Book brands to grow our internet traffic.

Increase Penetration of the Dealer Market. In 2011, over 20,000 dealers, out of our target market of approximately 45,700 dealers in the United States, subscribed to one or more of our solutions. We believe that there is a substantial opportunity to further penetrate the U.S. dealer market. We continue to add new dealer customers across our businesses and believe the continued expansion of our dealer customer base will contribute to our overall growth.

Expand Into New Markets. We believe that there are significant opportunities to expand into adjacent markets in the automotive industry, offer our existing products and services in select new geographic markets and potentially enter into new industry verticals. We believe our expertise in dealer operations and the retail automotive industry, and our ability to manage data and develop technological solutions, can be leveraged to address other aspects of the automotive industry. Our expansion strategy includes exploring acquisitions, partnerships, strategic investments and joint ventures. We believe that our leadership position enhances our ability to evaluate such opportunities on an on-going basis.

Risks Affecting Our Business

Investing in our Class A common stock involves substantial risk. Before participating in this offering, you should carefully consider all of the information in this prospectus, including risks discussed in “Risk Factors” beginning on page 17 of this prospectus. Some of our most significant risks are risks associated with:

our ability to generate, maintain and expand sufficient unique, high-quality new and used car listings and consumer traffic on our websites;

our ability to maintain or increase our base of subscribing dealers who purchase listings on our websites or to increase our revenue from subscribing dealers;

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our ability to compete effectively;

our ability to maintain or grow our base of advertising customers or increase revenue from existing advertisers;

conditions in the retail automotive industry;

our ability to maintain, protect and enhance our AutoTrader.com and Kelley Blue Book brands;

our marketing campaigns to promote AutoTrader.com and Kelley Blue Book;

our ability to successfully execute our growth strategy; and

our relationship with CEI.

Principal Stockholders

CEI is a leading communications, media and automotive services company. With revenues of nearly $14.7 billion in 2011 and more than 50,000 employees, CEI’s major operating subsidiaries include Cox Communications, Inc., or CCI (cable television distribution, telephone, high-speed internet access, commercial telecommunications and advertising solutions); Manheim, Inc., or Manheim (vehicle auctions, repair and certification services and web-based technology products); and Cox Media Group, Inc. (television and radio stations, digital media, newspapers, advertising sales rep firms, Valpak and Cox Digital Solutions). Additionally, CEI operates Kudzu.com, a resource for consumers seeking services for their home and family.

The Providence Funds acquired a 25% interest in us in 2010 and such investment is referred to as the Providence Investment. Providence Equity Partners, the world’s leading private equity firm focused on media, communications, education and information investments, has more than $23 billion of equity under management and has invested in more than 100 companies over its 23-year history. Providence Equity Partners is headquartered in Providence, Rhode Island and has offices in New York, London, Beijing, Hong Kong and New Delhi.

Relationship with CEI

We have an extensive, long-standing relationship with CEI. CEI owns all of our Class B common stock representing % of the voting power of our common stock after this offering (or % if the underwriters’ option to purchase additional shares is exercised in full). After this offering, CEI will have the right to nominate seven directors to our Board of Directors, or Board. CEI also provides various corporate and cash management services. We have also entered into a Related Party Agreement whereby we have agreed (i) not to pursue specified opportunities to the extent such opportunities are in the businesses actively pursued by Manheim or Cox Digital Exchange, LLC, or CDX, which consists primarily of wholesale vehicle auctions and related businesses, and (ii) not to pursue specified acquisitions without the consent of CEI. For more information about our relationship with CEI, see “Management—Board of Directors” and “Certain Relationships and Related Person Transactions—Agreements Related to CEI.”

Corporate Information

We are a Delaware corporation and were incorporated in 2012. ATC was originally formed in 1997 under the name AutoConnect, L.L.C., which we later changed to AutoTrader.com, LLC in 1999 and to AutoTrader.com, Inc. in 2006.

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THE OFFERING


Class A common stock offered by us		shares ( shares if the underwriters’ option to purchase additional shares is exercised in full).

Class A common stock to be outstanding after this offering		shares ( shares if the underwriters’ option to purchase additional shares is exercised in full).

Class B common stock to be outstanding after this offering		shares.

Total Class A common stock and Class B common stock to be outstanding after this offering		shares ( shares if the underwriters’ option to purchase additional shares is exercised in full).

Option to purchase additional shares of Class A common stock		The underwriters may also purchase up to a maximum of additional shares of Class A common stock from us. The underwriters can exercise this option at any time within 30 days from the date of this prospectus.

Use of proceeds		We estimate that the net proceeds to us from our sale of shares of Class A common stock in this offering will be approximately $ million, after deducting underwriting discounts and commissions and estimated expenses payable by us in connection with this offering. This assumes a public offering price of $ , which is the midpoint of the price range set forth on the cover of this prospectus. We intend to use these net proceeds to repay existing indebtedness under our credit facilities and for other general corporate purposes. See “Use of Proceeds.”

Dividend policy		We do not anticipate paying any dividends on our Class A common stock in the foreseeable future; however, we may change this policy in the future. See “Dividend Policy.”

Voting rights		We have two classes of authorized common stock: Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion. The holders of Class A common stock are entitled to one vote per share, and the holders of Class B common stock are entitled to 10 votes per share, on all matters that are subject to a stockholder vote. The Class B common stock is convertible at any time, or from time to time, at the option of the holder of the Class B common stock, into Class A common stock on a share-for-share basis. In addition, the shares of our Class B common stock will automatically convert into Class A common stock

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		on a share-for-share basis (1) upon the sale or other transfer to a person that is not a CEI Related Party (as defined), and (2) on the first date on which the beneficial owners of our Class B common stock as of the effective date, or the Charter Effective Date, of our second amended and restated certificate of incorporation, or our amended and restated certificate of incorporation, have sold or otherwise transferred shares such that the beneficial owners of our Class B common stock hold, directly or indirectly, or are the beneficial owners of, 10% or less of the aggregate number of shares of common stock outstanding as of the Charter Effective Date. Immediately following this offering, our public stockholders will have % of the voting power, or % if the underwriters exercise in full their option to purchase additional shares. See “Description of Capital Stock” for additional information.

Risk factors		Investing in our Class A common stock involves a high degree of risk. See “Risk Factors” beginning on page 17 of this prospectus for a discussion of factors you should carefully consider before investing in our Class A common stock.

Proposed NYSE or NASDAQ Global Market symbol		“ATG.”

Unless otherwise indicated, the number of shares of our Class A common stock and our Class B common stock to be outstanding after this offering:

gives effect to a -for-1 split of our common stock prior to the consummation of this offering;

gives effect to the exchange of common stock of ATC for common stock of ATG in connection with the formation of ATG;

gives effect to an amendment to our amended and restated certificate of incorporation, which will be in effect prior to the consummation of this offering;

excludes shares of Class A common stock reserved for issuance under our 2012 Equity Plan;

excludes shares of Class A common stock reserved for issuance under our Director Restricted Stock Plan.

does not give effect to any conversion of Class B common stock into Class A common stock; and

assumes no exercise of the underwriters’ option to purchase up to additional shares from us.

Also see “Description of Capital Stock” and “Certain Relationships and Related Party Transactions—Transactions of Securities.”

Unless otherwise indicated, this prospectus assumes an initial public offering price of $ per share, the midpoint of the price range set forth on the cover of this prospectus.

Index to Financial Statements

SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables set forth our summary historical consolidated financial and other data for the periods and as of the dates indicated. We derived the consolidated statements of income data for the years ended December 31, 2009, 2010 and 2011 from our audited consolidated financial statements and related notes thereto included elsewhere in this prospectus. The consolidated statements of income data for the three months ended March 31, 2011 and 2012 and consolidated balance sheet data as of March 31, 2012 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus.

The summary unaudited as adjusted balance sheet data as of March 31, 2012 has been prepared to give effect to the sale of our Class A common stock in this offering and the application of the net proceeds from this offering as described in “Use of Proceeds.”

Our historical results are not necessarily indicative of future operating results. You should read the information set forth below together with “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Capitalization” and our financial statements and the related notes thereto included elsewhere in this prospectus.


	Year ended December 31,								Three Months ended March 31,
	2009		2010			2011			2011			2012
	(in thousands)
Consolidated statement of income data:
Revenues
Digital Media	$	629,450	$	725,890		$	917,041		$	221,804		$	236,500
Software Solutions		—		11,937			108,136			20,871			37,005

Total revenues	$	629,450	$	737,827		$	1,025,177		$	242,675		$	273,505

Operating Expenses
Operations(1)		106,190		117,471			197,187			45,522			53,307
Sales and marketing(1)		331,285		371,060			402,054			102,881			105,694
General and administrative(1)		55,605		68,293			117,381			26,347			34,934
Depreciation and amortization		120,471		65,325			122,951			31,274			33,995
Impairment of goodwill		—		—			36,216			—			11,112
Impairment of intangible assets		—		—			—			—			4,544
Other		1,374		1,131			9,634			1,108			1,420

Total operating expenses		614,925		623,280			885,423			207,132			245,006

Income from operations		14,525		114,547			139,754			35,543			28,499
Total other income (expense)		379		(40,066	)		(33,011	)		(9,036	)		(6,891	)

Income before income taxes		14,904		74,481			106,743			26,507			21,608
Income tax expense		5,045		25,357			38,692			10,141			11,340

Net income	$	9,859	$	49,124		$	68,051		$	16,366		$	10,268

Index to Financial Statements


	Year ended December 31,						Three Months ended March 31,
	2009		2010		2011		2011		2012
	(monthly unique visitors, listings and dollars, other than MRR, in thousands)
Other data:
Adjusted EBITDA(2)	$	155,469	$	212,650	$	334,579	$	72,430	$	83,683
Digital Media
Subscribing Dealers(3)		19,517		19,839		20,302		19,862		20,170
MRR(4)	$	2,267	$	2,612	$	3,002	$	2,668	$	3,129
Software Solutions(5)
Subscribing Dealers(6)		—		—		—		—
MRR(7)	$	—	$	—	$	—	$	—	$
Monthly Unique Visitors(8)
AutoTrader.com		13,488		13,946		15,016		15,669		17,116
KBB.com		10,800		11,403		12,544		12,871		14,504
Number of Listings(9)		2,774		3,300		3,409		3,139		3,450


	As of March 31, 2012
	Actual			As adjusted(10)
	(in thousands)
Consolidated balance sheet data:
Amounts due from (to) CEI(11)	$	(4,304	)	$
Total assets		1,468,515
Total long-term debt and capital leases, including current portion		884,883
Total stockholders’ equity		276,952

(1)	Long-term incentive compensation included in above line items:


	Year ended December 31,						Three Months ended March 31,
	2009		2010		2011		2011		2012
	(in thousands)
Operations	$	2,170	$	4,514	$	2,873	$	580	$	536
Sales and marketing		6,172		12,835		9,118		1,839		1,469
General and administrative		3,218		6,691		7,145		1,441		2,072

Total	$	11,560	$	24,040	$	19,136	$	3,860	$	4,077

(2)	Adjusted EBITDA is calculated as net income before income tax expense, other (income) expense, other operating expense and depreciation and amortization, adjusted for:

long-term incentive compensation;

impairment of goodwill and intangible assets;

acquisition transaction costs; and

severance costs.

Adjusted EBITDA eliminates the effects of items that we do not consider indicative of our core operating performance. Adjusted EBITDA is a supplemental measure of operating performance that does not represent and should not be considered as an alternative to net income, as

Index to Financial Statements

determined by U.S. generally accepted accounting principles, or GAAP, and our calculation of Adjusted EBITDA may not be comparable to that reported by other companies.

Management uses Adjusted EBITDA or comparable metrics:

as a measurement used in comparing our operating performance on a consistent basis;

for planning purposes, including the preparation of our internal annual operating budget;

to evaluate the performance and effectiveness of our operational strategies; and

to assess compliance with various metrics associated with our debt agreements.

Management believes the inclusion of Adjusted EBITDA is appropriate to provide additional information to investors about certain material non-cash items and about unusual items that we do not expect to continue at the same level in the future. By providing this non-GAAP financial measure, together with a reconciliation to GAAP results, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing strategic initiatives. We believe Adjusted EBITDA is used by investors as a supplemental measure to evaluate the overall operating performance of companies in our industry.

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 the limitations are:

Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary for interest and principal payments, on our debt;

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 the cash requirements for such replacements;

Adjusted EBITDA does not reflect our tax expense or the cash requirements to pay our taxes; and

Adjusted EBITDA does not reflect the non-cash component of employee compensation.

To address these limitations, we reconcile Adjusted EBITDA to the most directly comparable GAAP measure, net income. Further, we also review GAAP measures and evaluate individual measures that are not included in Adjusted EBITDA.

In calculating Adjusted EBITDA, we exclude long-term incentive compensation expense from Adjusted EBITDA because incentive awards made at a certain price and point in time do not necessarily reflect how our business is performing at any particular time, and the related long-term incentive compensation expense includes non-cash expense and is not a key measure of our core operating performance. We exclude acquisition transaction and severance costs as they are transaction or event-specific and are not indicative of our core operations. We exclude impairment of goodwill and impairment of intangible assets as they are non-cash charges and not indicative of our core operations.

Index to Financial Statements

The following table provides a reconciliation of our net income to Adjusted EBITDA for the periods presented:


	Year ended December 31,							Three Months ended March 31,
	2009			2010		2011		2011		2012
	(in thousands)
Net income	$	9,859		$	49,124	$	68,051	$	16,366	$	10,268
Income tax expense		5,045			25,357		38,692		10,141		11,340
Other (income) expense		(379	)		40,066		33,011		9,036		6,891
Other operating expense(a)		1,374			1,131		9,634		1,108		1,420
Depreciation and amortization		120,471			65,325		122,951		31,274		33,995

Subtotal		136,370			181,003		272,339		67,925		63,914

Long-term incentive compensation(b)		11,560			24,040		19,136		3,860		4,077
Impairment of goodwill(c)		—			—		36,216		—		11,112
Impairment of intangible assets(d)		—			—		—		—		4,544
Acquisition transaction costs(e)		—			5,873		905		25		—
Severance costs(f)		7,539			1,734		5,983		620		36

Adjusted EBITDA	$	155,469		$	212,650	$	334,579	$	72,430	$	83,683

(a)

Other operating expense primarily consists of the post-acquisition increases in the fair value of the earn-outs associated with the vAuto and VinSolutions acquisitions as well as gains and losses on the sale or disposal of assets.

(b)

Long-term incentive compensation includes non-cash compensation expense recorded related to stock options, restricted stock awards, stock appreciation rights and cash-based awards issued to our employees. See Note 14, “Long-Term Incentive Compensation,” to our audited financial statements included elsewhere in this prospectus.

(c)

Impairment of goodwill consists of goodwill impairment charges attributable to HomeNet, which we recognized as a result of reduced future cash flow projections for HomeNet from lower revenues and incremental expenses attributable to our new data licensing agreement with CEI.

(d)

Impairment of intangible assets consists of an intangible asset impairment charge attributable to HomeNet, which we recognized as a result of reduced future cash flow projections for HomeNet.

(e)

Acquisition transaction costs include legal and professional fees and related financing costs.

(f)

Severance costs include costs associated with our personnel reductions, including reductions associated with ceasing the AutoTrader Classics and AutoTrader Latino print publications in 2011 and departmental restructurings.

(3)

Represents the number of dealers subscribing to one or more of our Digital Media monthly listing packages on the last day of the period. For 2009, 2010 and the three months ended March 31, 2011, the number of subscribing dealers includes subscribing dealers for AutoTrader.com only. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics—Number of Subscribing Dealers and Monthly Run Rate (MRR).”

Index to Financial Statements

(4)

We define Digital Media MRR as the monthly run rate of subscription-related revenues for our featured and premium listings and our TIM product as well as on-going purchases of à la carte enhancement products as of the last day of the period, divided by the number of Digital Media subscribing dealers at month end. For 2009, 2010 and the three months ended March 31, 2011, Digital Media MRR is based on revenues and subscribing dealers for AutoTrader.com only. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics—Number of Subscribing Dealers and Monthly Run Rate (MRR).”

(5)

Since we recently acquired the businesses that make up our Software Solutions segment, we have not tracked Software Solutions Subscribing Dealers or Software Solutions MRR prior to 2012. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics—Number of Subscribing Dealers and Monthly Run Rate (MRR).”

(6)

Represents the number of dealers subscribing to one or more of our software solutions on the last day of the period. We did not track Software Solutions subscribing dealers prior to 2012. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics—Number of Subscribing Dealers and Monthly Run Rate (MRR).”

(7)

We define Software Solutions MRR as the monthly run rate of subscription-related revenue from our Software Solutions business as of the last day of the period, divided by the number of Software Solutions subscribing dealers at month end. We did not track Software Solutions MRR prior to 2012. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics—Number of Subscribing Dealers and Monthly Run Rate (MRR).”

(8)

Represents the average number of monthly unique visitors who have visited AutoTrader.com or KBB.com, as applicable, at least once in a given month for each month in the period presented, adding them together and then dividing the sum by the number of months in the period. For the three months ended March 31, 2012, the overlap of unique visitors on AutoTrader.com and KBB.com was 2.6 million or 9% of the combined average monthly unique visitors on the two websites. KBB.com unique visitor data includes data for periods prior to our acquisition of Kelley Blue Book in December 2010. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics—Monthly Unique Visitors.”

(9)	Represents the total number of car listings on AutoTrader.com on the last day of the period. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics—Number of Listings.”

(10)

Gives effect to the sale by us of shares of Class A common stock in this offering at an initial public offering price of $ per share (the midpoint of the price range set forth on the cover of this prospectus) and the application of the net proceeds to be received by us from this offering, as more fully described in “Use of Proceeds,” as if each had occurred as of March 31, 2012.

(11)

CEI provides cash management services to us. This amount represents the net outstanding balance of our cash balances held by CEI offset by the amounts due to CEI for the provision of certain specified services. See “Certain Relationships and Related Person Transactions—Agreements Related to CEI—Cash Management Agreement.”

Index to Financial Statements

Investing in our Class A common stock involves a high degree of risk. You should carefully consider the following risks, as well as the other information contained in this prospectus, before making an investment in our Class A common stock. If any of the following risks actually occur, our business, results of operations and financial condition may be materially adversely affected. In such an event, the trading price of our Class A common stock could decline and you could lose part or all of your investment.

If we fail to generate, maintain and expand sufficient unique, high-quality new and used car listings on our websites, our traffic and revenue could be materially and adversely affected.

Our Digital Media business depends in part on our ability to generate, maintain and expand unique, high-quality car listings, particularly used car listings. We receive a substantial portion of our Digital Media revenue from our subscribing dealers, who pay us monthly subscription fees in order to enhance the visibility of their used car listings. In addition, our future growth is dependent in part on our ability to increase the number of unique, high-quality new car listings on AutoTrader.com and KBB.com that are paid for by subscribing dealers. If subscribing dealers do not provide and pay for listings, or if we are unable to provide consumers with the types of listings they seek or if they can find comparable listings through other websites or services, they may stop or reduce their use of AutoTrader.com and KBB.com, and traffic to AutoTrader.com or KBB.com will decline. If our user traffic declines, our dealers and advertisers may stop listing cars or advertising on our websites, or reduce the number of paid listings, or the amount they are willing to pay for listings or advertising on our websites. In the event of any of the foregoing, our business, results of operations and financial condition would be materially and adversely affected.

If we fail to maintain or increase our base of subscribing dealers who purchase listings on our websites or increase our revenue from subscribing dealers, our business, results of operations and financial condition would be materially and adversely affected.

In 2010, 2011 and the three months ended March 31, 2012, 63%, 64% and 67%, respectively, of our revenue in our Digital Media business was generated by the sale of paid listings on AutoTrader.com. In June 2012, we began providing dealers with the option of listing new and used cars on KBB.com. We employ a “pay for placement” model that allows subscribing dealers to achieve higher placement of their listings on our search results page. There are several tiers of listings for subscribing dealers, including standard, featured and premium. Our higher-priced listing packages offer more prominent placements and more features than our standard listing packages, which are offered to private sellers for a minimal price and to non-subscribing dealers free of charge. Our ability to grow our business depends, in part, on the ability of our sales force to demonstrate to our subscribing dealers the value of our premium classified listings packages and the benefits of additional features and to persuade them to purchase our higher-priced listing packages.

Expanding our base of subscribing dealers may not significantly increase our revenues. Many of the dealers that do not currently list their cars on our websites are smaller franchise and independent dealers, which generally sell fewer cars and have smaller advertising budgets. Even if these dealers were to become subscribing dealers, their size limits the amount they will be able to spend for our listing packages.

Subscribing dealers do not have long-term obligations to purchase listings on our websites or to remain at a specified tier. If subscribing dealers do not continue to list their vehicles at the same

Index to Financial Statements

monthly subscription price level or at an increased price level, if we experience significant attrition or downgrading of tiers by subscribing dealers, if we are unable to attract new dealers in numbers greater than the number of subscribing dealers that we lose, or if we are unable to increase the share of listing revenue from our subscribing dealers, our revenue will decrease and our business, results of operations and financial condition would be materially and adversely affected.

Our Digital Media and Software Solutions businesses face intense competition, and if we are unable to compete effectively, our business, results of operations and financial condition would be materially and adversely affected.

The markets in which we operate are intensely competitive, highly fragmented and rapidly changing. With the emergence of new technologies and new market entrants, competition is likely to intensify in the future.

In our Digital Media business, our primary competitors include offline media companies, including newspaper publishers and television and radio broadcasters. We also compete directly with automobile-specific online service providers such as Cars.com, TRUECar.com, Edmunds.com, classified ad websites such as eBay Motors, Craigslist and newspaper websites and search engines such as Google, Bing and Yahoo!, social media networks such as Facebook and the websites of dealers who are not our customers. Some of our competitors may be more successful than us in developing and marketing online advertising solutions directly to dealers and brand advertisers. In addition, many of our existing dealers and advertisers and potential dealers and advertisers may choose to purchase or use online advertising products and services from these or other competitors and may therefore reduce their purchases of our products and services. We also compete with these companies for the attention of consumers, and may experience decreases in both advertising and consumer traffic if our competitors offer more compelling environments to research or shop for automobiles.

The dealer software industry is highly fragmented and is served by a variety of inventory management, dealer management, valuation and pricing, lead and CRM and finance and insurance solutions providers. These providers include DealerSocket, Reynolds & Reynolds, Automatic Data Processing, Inc., or ADP, DealerTrack and Dealer.com, which offer several of these software solutions. These or other competitors may be more successful than us in marketing their software solutions to dealers, or offering a more comprehensive suite of products, which may reduce our Software Solutions business revenue.

Some of our competitors enjoy competitive advantages, such as greater name recognition, longer operating histories, substantially greater market share, larger existing customer bases and substantially greater financial, technical and other resources. These companies may use these advantages to offer products and services similar to ours at a lower price, develop competitive products or services and respond more quickly and effectively than we do to new or changing opportunities, technologies, standards or consumer, dealer or advertiser requirements. As the online advertising and dealer software markets develop, new competitors, business models and solutions are likely to emerge. In addition, many of our current and potential competitors have established longstanding relationships with—and access to—dealer and advertiser customer bases. For all of these reasons, we may be unable to maintain or grow the number of consumers who use our websites, the number of dealers that use our digital media and software solutions or the number of dealers and brand advertisers that advertise on our websites, and we may face pressure to reduce the price of our solutions, in which case our business, results of operations and financial condition would be materially and adversely affected.

Index to Financial Statements

We may be unable to maintain or grow our base of advertising customers or increase our revenue from our existing advertisers, in which case our business, results of operations and financial condition will be harmed.

In 2010, 2011 and the three months ended March 31, 2012, 11%, 18% and 16%, respectively, of our revenue in our Digital Media business was generated by the sale of advertising. Many dealers and brand advertisers spend more of their advertising budgets on traditional advertising methods, such as newspapers, television and radio. In 2010, franchise dealers spent 24% of their advertising dollars on the internet, according to National Automobile Dealers Association, or NADA. Our ability to grow our advertising revenue depends on our effectiveness in convincing our advertising customers, including dealers and brand advertisers, to expand their advertising on our websites and to continue to shift their automotive advertising budgets to the internet and away from traditional media. To do so, we must demonstrate to these customers the benefits of our advertising solutions. Failure to maintain and expand our advertiser base could have a material adverse effect on our business, results of operations and financial condition.

Our advertising customers do not have long-term obligations to purchase advertising from us. We rely heavily on advertising spending by automobile dealers, which often have limited advertising budgets. As a result, we have experienced, and will in the future experience, spending fluctuations from these customers in the ordinary course of business resulting from several factors, including advertisers seeking to spend more of their advertising budget on competitors’ websites or offline media, perceptions that our advertising solutions are unnecessary or ineffective, declining advertising budgets, dealer closures and bankruptcies or poor economic conditions. Additionally, there are a limited number of OEMs, most of which already advertise on our websites. In order to grow our advertising revenue from these OEMs, we need to increase the portion of their advertising budgets that we receive from them.

If the rates of renewal for our advertising customers decrease, if we experience a significant decrease in advertising spending, if we are unable to attract new advertisers in numbers greater than the number of advertisers that we lose, if we are unable to raise rates or rates decline, if we are unable to increase the share of advertising revenue from dealers and other advertisers or if the number of advertising impressions on our websites declines for any reason, our revenue will decrease and our business, results of operations and financial condition would be materially and adversely affected.

Dealer closures or consolidation could reduce demand for, and the pricing of, our solutions, thereby leading to decreased earnings.

The number of automotive dealers declined in 2009 and 2010 due to closures and consolidation as a result of such factors as the global economic downturn in 2008 and 2009. Excluding fleet sales, U.S. vehicle sales declined by 6% in 2009, according to industry sources. In addition, many dealers closed or consolidated, and the overall automotive advertising market declined by 29%, according to Forrester Research. In 2009, these poor economic conditions adversely impacted our results of operations in our Digital Media business. When dealers consolidate, the products and services they previously purchased separately are often purchased by the combined entity in a lesser quantity than before, leading to volume compression and loss of revenue. Further consolidation or closures of automobile dealers could reduce the aggregate demand for our products and services in the future and could limit the amounts we earn for our solutions. If dealer closures and consolidations continue to occur in the future, our business, financial position and results of operations could be materially and adversely affected.

Index to Financial Statements

Our business depends on strong AutoTrader.com and Kelley Blue Book brands, and any failure to maintain, protect and enhance our AutoTrader.com and Kelley Blue Book brands could hurt our ability to retain or expand our base of consumers, dealers and advertisers, and our ability to increase the frequency with which they use our solutions.

We believe maintaining and increasing the strong recognition of our AutoTrader.com and Kelley Blue Book brands is critical to our future success. AutoTrader.com is known for attracting a large base of in-market car shoppers and having the largest collection of unique new and used car listings for consumers to view. In addition, consumers, dealers and the automotive finance and insurance industry, including banks, insurance companies and the government, rely on the credibility of automobile valuations made by Kelley Blue Book, which is a critical component of that brand. In order to grow our business, we must maintain, protect and enhance the AutoTrader.com and Kelley Blue Book brands. Otherwise, we will be unable to expand our base of consumers, dealers and advertisers, or increase the frequency with which they use or purchase our solutions. Expanding our business will depend largely on our ability to maintain the trust consumers, dealers and advertisers, as well as the automotive finance and insurance industry, place in our solutions and the quality and integrity of the listings and other content found on AutoTrader.com and KBB.com, including the valuations calculated by Kelley Blue Book. In addition, any negative publicity about us, including about our solutions, technologies, sales practices, personnel or customer service, could diminish confidence in and the use of our solutions. If negative publicity about us persists, or if consumers otherwise perceive that content on our websites is not reliable, our reputation, the value of our brands and traffic to our websites could decline, and our business, results of operations and financial condition could be materially and adversely affected.

Our marketing campaigns to promote AutoTrader.com and Kelley Blue Book may not be successful.

We currently advertise through high-profile television and radio marketing campaigns and sponsorship programs, the goal of which is to increase the strength, recognition and trust in our brands and drive greater consumer traffic to our websites and mobile applications. In 2009, 2010, 2011 and the three months ended March 31, 2012, we spent approximately $87 million, $96 million, $111 million and $31 million, respectively, on such campaigns and programs. We cannot guarantee that our marketing efforts in traditional media will allow us to reach our targeted audience of in-market car shoppers or if continued marketing investments will result in new or additional consumers visiting our websites or using our mobile applications, or recover such costs by attaining corresponding revenue growth. If we are unable to recover our marketing costs through an increase in the number of consumers, dealers or advertisers using or purchasing our digital media solutions, or if we discontinue our broad marketing campaigns, it could have a material adverse effect on our business, results of operations and financial condition.

We have made strategic acquisitions in the past and may do so in the future. If we are unable to find suitable acquisitions or partners or to achieve expected benefits from future acquisitions, partnerships or other strategic investments, there could be a material adverse effect on our business, results of operations and financial condition.

Acquisitions, partnerships, joint ventures and strategic investments are a part of our growth strategy. Since 2009, we acquired Kelley Blue Book, vAuto, VinSolutions and HomeNet, as well as several smaller companies. As part of our on-going business strategy to expand the number and capabilities of our solutions and acquire new technologies, we frequently engage in discussions with third parties regarding, and enter into agreements relating to, possible acquisitions, strategic alliances and joint ventures. There may be significant competition for acquisition, partnership, strategic investments and joint venture targets in our industry, or we may not be able to identify suitable

Index to Financial Statements

candidates or negotiate attractive terms for acquisitions, partnerships, strategic investments and joint ventures. In addition, we have to obtain the consent of the holders of a majority of our outstanding Class B common stock (which currently is held by affiliates of CEI) in order to enter into specified acquisitions, loans to third parties or equity investments. If we are unable to identify future acquisition, partnership, strategic investment or joint venture opportunities, reach agreement with such third parties, obtain the financing necessary to enter into such transactions or obtain any required consents, we could lose market share to competitors who are able to make such acquisitions, partnerships, strategic investments and joint ventures, which could have a material adverse effect on our business, results of operations and financial condition.

Even if we are able to complete acquisitions or enter into partnerships, strategic investments and joint ventures that we believe will be successful, such transactions are inherently risky. Significant risks for these transactions include:

If we are not successful in completing transactions in the future, we may be required to reevaluate our strategy. We also may incur substantial expenses and devote significant management time and resources in seeking to complete such transactions. In addition, we could use substantial portions of our available cash or debt capacity to pay all or a portion of the purchase price of future acquisitions. If we do not achieve the anticipated benefits of our transactions as rapidly or to the extent anticipated by our management, our business, results of operations and financial condition may be materially and adversely affected.

We do not own the “AutoTrader.com” trademark. The AutoTrader.com and Trader brand names are licensed to us by TPI Holdings, Inc. only for specific goods and services, which may limit our ability to control the strength of such brand names and expand our business into adjacent and new markets under the “AutoTrader.com” and “Trader” trademarks.

Our trademarks are an important element of our business. The AutoTrader.com brand has been key to our marketing strategy for consumers, dealers and advertisers. TPI Holdings, Inc. owns the “Trader” and “AutoTrader.com” trademarks. Under our trademark license agreement for these trademarks, we are prohibited from using the term “Trader” in combination with words that relate to (i) motorcycles, RVs, ATVs, dune buggies, go-carts, golf carts, snow mobiles, boats, yachts, personal watercrafts, commercial light trucks, big trucks, construction and heavy equipment, trailers and aircrafts, and parts and accessories for these products and (ii) apartments, condominiums, homes, employment, travel and multiple categories of general merchandise, which are all exclusively licensed by TPI Holdings, Inc. to Trader Publishing Company, or Trader Publishing. For example, under the

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license agreement, we are prohibited from launching a website branded with the trademark AutoTrader.com Motorcycles. In addition, we are prohibited from using any Trader trademark for a print publication or website (other than AutoTrader.com) if (i) 50% or more of the advertisements in such publication or website are for products that fall within the categories exclusive to Trader Publishing or (ii) products within the Trader Publishing categories are advertised on the home page of such website. Although the trademark license agreement for the AutoTrader.com and Trader trademarks does not limit our ability to include advertisements in adjacent and new markets on AutoTrader.com or on a non-Trader branded website, it does limit our right to expand use of the Trader trademark into adjacent and new markets, which could have a materially adverse effect on our business, results of operations and financial condition.

If we expand into new markets, we may not have the right to use the AutoTrader.com and Kelley Blue Book brands in such markets.

If we expand our business into new geographic markets, adjacent markets in the automotive industry or new industry verticals, we may not have the ability to adopt trademarks or domain names that are identical or similar to trademarks and domain names that we use in the United States. We have faced in the past, and may face in the future, oppositions from third parties to our use of trademarks and applications to register key trademarks in domestic and foreign jurisdictions in which we expect to develop or expand our presence. Third parties may have already adopted identical or similar trademarks to the ones that we use for our products and services. If we are unsuccessful in defending against these oppositions, our trademark applications may be denied. We could be forced to pay significant settlement costs or cease the use of these trademarks and associated elements of our brands in those or other jurisdictions. For example, we agreed pursuant to a settlement agreement not to use the AutoTrader.com logo on automotive classified websites in the European Union. International expansion may require us to adopt and promote new trademarks, which may be expensive and place us at a competitive disadvantage.

If we obtain the rights to any trademark that incorporates the Trader or AutoTrader.com brand, or any domain name that uses the term “Trader,” we will need to contribute these assets to TPI Holdings.

In the event we acquire any trademarks that incorporate the term “Trader,” or any domain name comprised solely of the term “Trader” with a top-level domain, we must contribute these trademarks or domain names as capital to TPI Holdings. To the extent that trademarks or domain names must be contributed, Trader Publishing would have the exclusive right to use the contributed trademarks or domain names in connection with (i) motorcycles, RVs, ATVs, dune buggies, go-carts, golf carts, snow mobiles, boats, yachts, personal watercrafts, commercial light trucks, big trucks, construction and heavy equipment, trailers and aircrafts, and parts and accessories for these products and (ii) apartments, condominiums, homes, employment, travel and multiple categories of general merchandise. These obligations and limitations may materially restrict our ability to expand our business internationally, could harm our brands or brand recognition and may have a material adverse effect on our business, results of operations and financial condition.

We may be unable to continue to use the domain names that we use in our business, or prevent third parties from acquiring and using domain names that infringe on, are similar to, or otherwise decrease the value of our brands and trademarks.

We registered domain names for our websites that we use in our business, such as AutoTrader.com, kelleybluebook.com and KBB.com. If we lose the ability to use a domain name, whether due to trademark claims, failure to renew the applicable registration or any other cause, we may be forced to market our products under a new domain name, which could cause substantial harm

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to our business, or cause us to incur significant expense in order to purchase rights to such domain name. In addition, our competitors and others could attempt to utilize our brand recognition by using domain names confusingly similar to ours. Furthermore, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights varies from jurisdiction to jurisdiction and is unclear in some jurisdictions. If we are unable to prevent third parties from acquiring and using domain names that infringe on, or are similar to, our domain names and trademarks, the value of our brands or trademarks could be materially and adversely affected. Protecting and enforcing our rights in our domain names may require litigation, which could result in substantial costs and diversion of management’s attention. Any of the foregoing could materially and adversely affect our business, results of operations and financial condition.

If we fail to manage our growth effectively, our brands, results of operations and business could be harmed.

Since 2009, as a result of organic growth and acquisitions, we have experienced rapid growth in our headcount and operations, which places substantial demands on management and our operational infrastructure. Many of our employees have been with us for fewer than two years and have joined us as a result of our recent acquisitions. As we continue to grow, we must effectively integrate, develop and motivate a large number of new employees, while maintaining the beneficial aspects of our company culture. We continue to invest in our technologies, sales and marketing organizations. Since our recent acquisitions of Kelley Blue Book, vAuto, VinSolutions and HomeNet, we have worked to integrate these acquisitions into our business and, in particular, utilize the strong Kelley Blue Book brand. However, we cannot guarantee that we will be able to do so effectively. If we do not manage the growth of our business and operations effectively and manage the integration of our acquisitions efficiently, the quality of our solutions and efficiency of our operations could suffer, which could have a material adverse effect on our business, results of operations and financial condition.

We rely on traffic to AutoTrader.com and KBB.com from search engines like Google, Yahoo! and Bing, some of which offer products and services that compete directly with our solutions. If AutoTrader.com and our other websites fail to rank prominently in unpaid search results, traffic to our website could decline and our business, results of operations and financial condition would be adversely affected.

The success of our Digital Media business depends, in part, on our ability to attract consumers to AutoTrader.com and KBB.com through paid and unpaid internet search results on search engines such as Google, Bing and Yahoo! The number of consumers we attract to AutoTrader.com and KBB.com from search engines is due in part to how and where our websites rank in search results. These rankings can be affected by a number of factors, some of which are not in our direct control, and may change frequently. For example, a search engine may change its ranking algorithms, methodologies or design layouts. As a result, links to AutoTrader.com and KBB.com may not be prominent enough to drive traffic to our websites, and we may not be able to influence the results. In some instances, search engines may change our rankings in order to promote their own competing products or services or the products or services of one or more of our competitors. Our websites have experienced fluctuations in search results rankings in the past, and we anticipate such fluctuations in the future.

Our success depends, in part, on our ability to maintain a prominent presence in search results for queries on Google. Google is the most significant source of traffic to AutoTrader.com and KBB.com, accounting for more than 29% and 35% of total visits to AutoTrader.com, and 31% and 37% of total visits to KBB.com, from internet searches during the year ended December 31, 2011 and three months ended March 31, 2012, respectively. Google has removed links to our website from portions of its search product or has promoted its own competing products, including local shopping products, in its search results. Given the large volume of traffic to AutoTrader.com and the importance of the

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placement and display of results of a user’s search, similar actions in the future could have a material adverse effect on our business, results of operations and financial condition.

Any reduction in the number of consumers directed to our websites or increase in the number of consumers directed to competing websites could materially adversely impact our business, results of operations and financial condition.

The traffic to our websites and mobile applications may decline and our brands and business may be adversely affected if other companies copy information from our websites and publish or aggregate it with other information for their own benefit.

From time to time, other companies copy information from our websites through website scraping, robots or other means, and publish or aggregate it with other information for their own benefit. When third parties copy, publish or aggregate content from our websites, it makes them more competitive, and decreases the likelihood that consumers will visit our websites or use our mobile applications to find the information they seek. While we try to prevent or limit these activities, we have experienced them in the past, and we cannot guarantee that we will be successful in preventing or properly detecting such activities in the future. We may not be able to detect such third-party conduct in a timely manner and, even if we could, we may not be able to prevent it. In some cases, particularly in the case of third parties operating outside of the United States, our available remedies may be inadequate to protect us against such activities. In addition, we may be required to expend significant financial or other resources to successfully enforce our rights. If any of these activities were to occur, it could adversely affect our business, results of operations and financial condition.

Some vendors of software products used by automotive dealers, including certain of our competitors, are designing their software and using financial or other incentives or penalties to make it more difficult for our customers to use our solutions.

Some software vendors, including some of our competitors, have designed their software in order to make it difficult to integrate with products and services such as ours, and others have announced their intention to do so. Some software vendors also use financial or other incentives or penalties to encourage their customers to purchase their products and services, disincentivizing dealers from using our software solutions. These obstacles make it more difficult for us to compete with these vendors and expand our dealer customer base. While we have agreements in place with various third-party software providers to facilitate integration between their existing software and our software solutions, we cannot assure you that each of these agreements will remain in place, or that during the terms of such agreements these third parties will not increase the cost or level of difficulty in maintaining integration with their software. Any of the foregoing could complicate or prevent our ability to integrate our solutions and services in the same manner, or at all, and could have a material adverse effect on our business, results of operations and financial condition.

We utilize certain key technologies and data from, and integrate our network with, third parties, and may be unable to replace those technologies if they become obsolete, unavailable or incompatible with our solutions.

Our proprietary software is designed to work in conjunction with certain hardware, software and data from third parties, including Microsoft, IBM and Oracle. Any significant interruption in the supply or maintenance of such third-party hardware, software and data could have a material adverse effect on our ability to offer our solutions unless and until we can replace the functionality provided by these products and services. In addition, we are dependent upon these third parties’ ability to enhance their current products, develop new products on a timely and cost-effective basis and respond to emerging industry standards and other technological changes. There can be no assurance that we would be able

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to replace the functionality or data provided by such third-party vendors currently incorporated into our solutions in the event that such technologies or data becomes obsolete or incompatible with our solutions, or is otherwise not adequately maintained or updated. Any delay in or inability to replace such functionality or delays in the release of new and upgraded versions of third-party software products could have a material adverse effect on our business, results of operations and financial condition.

Additionally, as new mobile devices and platforms are released, it is difficult for us to predict the problems we may encounter in developing solutions for these alternative devices and platforms, and we may need to devote significant resources to the creation, support and maintenance of such solutions. In addition, if we experience difficulties in the future in integrating our mobile applications or advertising into mobile devices or if problems arise with our relationships with providers of mobile operating systems or mobile application download stores, such as those of Apple or Google; if our applications receive unfavorable treatment compared to the promotion and placement of competing applications, such as the order of our products in the Apple AppStore; or if we face increased costs to distribute our mobile applications, our future growth and our business, results of operations and financial condition could be materially and adversely affected.

We may require additional capital to support business growth, and this capital might not be available on acceptable terms, or at all. Any acquisitions that we complete with equity financings may dilute your ownership interest in us, and any acquisition that we complete with debt financing may make it difficult for us to obtain additional capital and pursue potential acquisitions.

We intend to continue to make investments and acquisitions to support our business growth and may require additional funds to respond to business challenges, including the need to develop new features and solutions or enhance our existing solutions, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds or as payment, in part or in full, for the business or assets acquired. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Class A common stock. Future equity financings will also decrease our earnings per share and the benefits derived by us from such acquisition might not outweigh or might not exceed its dilutive effect. Any additional debt financing we secure in the future to finance acquisitions could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may also have future impairment of assets, or suffer adverse tax and accounting consequences in connection with, any future acquisitions. We may not be able to obtain additional financing on terms favorable to us, or at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business, results of operations and financial condition may be materially and adversely affected.

Our failure or inability to execute any element of our business strategy could adversely affect our business, results of operations and financial condition.

Our business, results of operations and financial condition depend on our ability to execute our business strategy, which includes the following key elements:

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We may not succeed in implementing a portion or all of our business strategy and, even if we do succeed, our strategy may not have the favorable impact on operations that we anticipate. Our success depends on our ability to leverage our sales force and customer base; offer a broad and expanding array of solutions; provide convenient, high-quality solutions to consumers; maintain and expand our market position with dealers and brand advertisers; enter new markets; and implement other elements of our business strategy.

We may not be able to effectively manage any expansion of our business or operations as a result of the execution of our strategy or achieve the rapid execution necessary to fully avail ourselves of the market opportunity for our solutions. If we are unable to successfully implement our business strategy, our business, results of operations and financial condition could be materially and adversely affected.

We may not timely and effectively scale and adapt our existing technologies and network infrastructure to ensure that our platform is accessible.

It is important to our success that consumers and customers be able to access our digital media and software solutions at all times. We have previously experienced, and may experience in the future, service disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, capacity constraints due to an overwhelming number of consumers accessing our platform simultaneously and denial-of-service or fraud or security attacks. In some instances, we may not be able to identify the causes of these performance problems within an acceptable period of time. It may become increasingly difficult to maintain and improve the availability of our solutions, especially during peak usage times and as our solutions become more complex and our consumer traffic increases. For example, in December 2011, we experienced an approximately three-hour outage of our AutoTrader.com website. If our solutions are unavailable when consumers or customers attempt to access them or if they do not load as quickly as they expect, consumers or customers may seek other services to obtain the information for which they are looking, and may not return to our solutions as often in the future, or at all. Dealers may also be less willing to pay for listings or our software solutions and advertisers may be less willing to advertise on our websites and mobile applications if our solutions are unavailable when they try to access them. This would negatively impact our ability to attract consumers and customers, and would impact our ability to increase the frequency with which they use our solutions.

Additionally, although AutoTrader.com and KBB.com are designed to be fully redundant, and are each located in two geographically distinct data centers, the AutoTrader.com data centers are located within 30 miles of one another. Our software solutions systems are redundant within their respective data centers, but are not redundant across data centers. Our core human resources and finance systems are supported through third-party hosts, but several functions are not fully redundant and would require a restore from backup in the event of a system or site failure. Although our disaster recovery program contemplates transitioning our solutions and data to a backup center in the event of such a failure, we have not yet tested the procedure in full, and the transition procedure may take several days or more to complete.

We may experience service disruptions to the extent that we do not effectively address capacity constraints, upgrade our systems and disaster recovery plan as needed and continually develop our

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technologies and network architecture to accommodate actual and anticipated changes in technology. Although we have business interruption insurance, it may not fully cover all loses we may incur and coverage may not be available in certain situations. Any such disruptions resulting from our inability to effectively scale and adapt our technology could have a material adverse effect on our business, results of operations and financial condition.

If our security measures are compromised, or if our solutions are subject to attacks that degrade or deny the ability of consumers to access our websites or software solutions, consumers may curtail or stop using our platform.

Our solutions are vulnerable to computer viruses, break-ins, phishing attacks, attempts to overload our servers with denial-of-service or other attacks and similar disruptions from unauthorized use of our computer systems, any of which could lead to interruptions, delays or website or software shutdowns, causing loss of critical data or the unauthorized disclosure or use of confidential information. If we experience compromises to our security that result in performance or availability problems, the complete shutdown of AutoTrader.com or KBB.com or mobile applications or the loss or unauthorized disclosure of confidential information, consumers, dealers or advertisers may lose trust and confidence in us, decrease their use of our solutions or stop using our solutions entirely. Because the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently, often are not recognized until launched against a target and may originate from less regulated and remote areas around the world, we may be unable to proactively address these techniques or to implement adequate preventative measures. In addition, dealer and advertiser accounts and content could be hacked, hijacked, altered or otherwise claimed or controlled by unauthorized persons. Although we have controls that proactively identify phishing websites, verify the identity of any individual dealers attempting to change their account passwords and controls to prevent password guessing attacks, there is no guarantee that our controls will work effectively. Such issues could negatively impact our ability to attract new consumers, dealers or advertisers and could deter current consumers, dealers or advertisers from using our solutions, or subject us to lawsuits, regulatory fines or other action or liability, thereby having a material adverse effect on our business, results of operations and financial condition.

We use open source software, which may pose particular risks to our proprietary software and solutions.

We use open source software in our solutions and expect to continue to do so in the future. Open source terms may be ambiguous, and many of the risks associated with open source software cannot be eliminated. Use of certain open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of their software. Although we do not intend to modify open source software or package it for distribution within our products, we could potentially face claims from third parties claiming ownership of, or demanding release of, the open source software or derivative works that we developed using such software (which could include our proprietary source code), or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation and could require us to enter into or purchase a costly license or stop offering the implicated solutions unless and until we can re-engineer them to avoid infringement. This re-engineering process could require significant additional research and development resources. Any of these risks could be difficult to eliminate or manage, and, if not addressed successfully, could have a material adverse effect on our business, results of operations and financial condition.

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The software underlying our products and services may be subject to undetected errors, defects or bugs which could adversely effect our business.

The software underlying our products and services is complex and may contain undetected errors, defects or bugs, such as missing advertisements, reporting errors or other user interface anomalies. For example, in 2011, we rolled out a new version of one of our software solutions and experienced outages and other performance problems, which we are continuing to monitor and fix. We may discover significant errors, defects or bugs in the future that we may not be able to correct in a timely manner. Our solutions are integrated with products and systems developed by third parties. Third-party software programs may contain undetected errors, defects or bugs when they are first introduced or as new versions are released. It is possible that errors, defects or bugs will be found in our existing or future products and services or third-party products upon which our solutions are dependent, with the possible results of delays in, or loss of market acceptance of, our products and services, diversion of our resources, injury to our reputation, increased service and warranty expenses and payment of damages, any of which could have a material adverse effect upon our business, results of operations and financial condition.

Our business operations may be disrupted if our enterprise resource planning, or ERP, system implementation is not successful.

We are in the process of converting our various business information systems to a single Oracle ERP. We have committed significant resources to this conversion and we expect it will be phased in over multiple years, beginning in the third quarter of 2012. The conversion process is extremely complex because of the multiple processes and legacy systems that must be integrated following our recent acquisitions. We are using a controlled project plan that we believe will provide an adequate allocation of resources. However, such a plan, or a divergence from it, may result in cost overruns, project delays or business interruptions. Additionally, during the conversion process, we may be limited in our ability to convert any business that we acquire to the ERP. Failure to adequately address these issues could result in significant costs or impact our ability to perform necessary business operations which could have a material adverse effect on our business, results of operations and financial condition.

We depend upon CEI and its affiliates to provide us with various services. If the agreements governing these services are terminated, we may not be able to timely replace such services on terms favorable to us.

Under our agreements with CEI, CEI agreed to provide us directly or through its subsidiaries, with various services, which include assistance with bandwidth and server custody, cash management services, legal and administrative services, tax services, treasury services, insurance and employee benefits administration. Pursuant to these agreements, we paid CEI certain fees and reimbursed CEI for certain expenses, which totaled $3.8 million, $2.4 million, and $0.4 million for the years ended December 31, 2010 and 2011 and the three months ended March 31, 2012. We rely on CEI to provide these services, and we currently have limited in-house capability to handle these services independent of CEI. If these agreements are terminated, we will have to obtain such services from third parties or hire employees to perform them. We may not be able to renew these agreements or replace these services or hire such employees in a timely manner or on terms, including cost and level of expertise, that are as favorable as those we receive from CEI. This would result in an increase in our operating expenses and increased time and attention from management, and could have a material adverse effect on our business, results of operations and financial condition.

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We rely on third-party service providers for many aspects of our business, including automobile pricing and other data, and any failure to maintain these relationships could harm our business.

We rely on information about automobiles and pricing from third parties, including OEMs, dealers and others, with respect to valuations made by Kelley Blue Book and instant trade-in offer pricing made through our TIM service. We also rely on third parties for other aspects of our business, such as server custody, site hosting and administrative software solutions. If these third parties experience difficulty meeting our requirements or standards, or our licenses are revoked or not renewed, it could make it difficult for us to operate some aspects of our business, which could damage our business and reputation. In addition, if such third-party service providers were to cease operations, temporarily or permanently, face financial distress or other business disruption, increase their fees or if our relationships with these providers deteriorate, we could suffer increased costs and delays in our ability to provide consumers and customers with our solutions or provide similar solutions until an equivalent provider could be found or we develop replacement technology or operations. If any of the foregoing occurs or if we are unsuccessful in choosing or finding high-quality partners, if we fail to negotiate cost-effective relationships with them or if we ineffectively manage these relationships, it could have a material adverse effect on our business, results of operations and financial condition.

Our sales cycle may be long and unpredictable, and our sales efforts require considerable time and expense. As a result, our results of operations are difficult to predict and may vary substantially from quarter to quarter, which may cause our results of operations to fluctuate.

We sell our solutions primarily to the management, advertising, sales and IT departments of automobile dealers that are managing a growing set of consumer, marketing, sales and compliance demands, which has increased the complexity of dealer requirements to be met and confirmed in the sales cycle. Additionally, we have found that security, legal and compliance functions within dealers’ business operations are increasingly involved in the testing, evaluation and approval of purchases, which has made the sales cycle longer and less predictable.

A dealer’s decision to use our solutions may be an enterprise-wide decision, particularly in our Software Solutions business and for larger dealer groups. In these circumstances, such sales may require us to provide greater levels of education regarding the use and benefits of our solutions. In addition, larger dealer groups may demand more customization, integration services and features. Consequently, we may be required to devote greater resources to individual customers, increasing costs and time required to complete sales and diverting our resources to a smaller number of larger transactions.

As a result of the foregoing or otherwise, we may not be able to accurately predict or forecast the timing of sales, which makes our future revenue difficult to predict and could cause our results to vary significantly. In addition, we might devote substantial time and effort to a particular unsuccessful sales effort, and as a result we could lose other sales opportunities or incur expenses that are not offset by an increase in revenue, any of which could have a material adverse effect on our business, results of operations and financial condition.

We have not materially monetized our mobile advertising solutions to date and we may not be able to generate meaningful revenue from this platform for the foreseeable future.

We believe the number of people who access our digital media solutions through mobile devices, including smartphones, tablets and handheld computers, will increase over the next few years. We have not materially monetized our mobile advertising solutions to date and we may not be able to generate meaningful revenue from this platform for the foreseeable future. If consumers use our mobile

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solutions at the expense of our websites, our advertisers may reduce or stop advertising on our websites and may be unwilling to advertise on our mobile solutions unless we develop effective products and services that are compelling to them. Similarly, we may be unable to attract new advertisers unless we develop effective mobile solutions. At the same time, it is important that any mobile solutions that we develop do not adversely affect the consumer experience, even if that might result in decreased short-term monetization. If we fail to develop effective mobile advertising solutions, if our solutions alienate our dealer or advertiser customer base, or if our solutions are not widely adopted or are insufficiently profitable, our business, results of operations and financial condition may be materially and adversely affected.

We expect a number of factors to cause our results of operations to fluctuate on a quarterly and annual basis, which may make it difficult to predict our future performance.

Our results of operations could vary significantly from quarter-to-quarter and year-to-year because of a variety of factors, many of which are outside of our control. As a result, our results of operations from period to period may not be comparable. Factors that may contribute to the variability of our quarterly and annual results include:

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We rely on the performance of our executives and highly skilled personnel, and if we are unable to attract, retain and motivate well-qualified employees, our business could be materially and adversely affected.

We believe our success has depended, and continues to depend, on the efforts and talents of our executives and employees, including Chip Perry, our President and Chief Executive Officer, or CEO, and our dealer sales force. Our future success depends on our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. Qualified individuals are in high demand, and we may incur significant costs to attract and retain them. In addition, the loss of any of our senior management or key employees could materially adversely affect our ability to execute our business plan and strategy, and we may not be able to find adequate replacements on a timely basis, or at all. Most of our executive officers and other United States employees are at-will employees, which means they may terminate their employment relationship with us at any time, and their knowledge of our business and industry would be extremely difficult to replace. We cannot ensure that we will be able to retain the services of any members of our senior management or other key employees. If we do not succeed in attracting well-qualified employees or retaining and motivating existing employees, our business could be materially and adversely affected.

The impact of worldwide economic conditions, including the resulting effect on consumer spending, as well as marketing spending by dealers and advertisers targeting automobile consumers, may materially and adversely affect our business, results of operations and financial condition.

Our performance is subject, in part, to worldwide economic conditions and their impact on the levels of paid listings by automobile dealers, advertising expenditures by advertisers targeting in-market car shoppers as well as the rate in which dealers adopt or maintain the use of our software solutions, any of which may be disproportionately affected by economic downturns. To the extent that the current poor economic condition continues, or worldwide economic conditions materially deteriorate, our existing and potential customers may no longer consider investment in our digital media or software solutions as a necessity, or may elect to reduce their spending on listings, advertising or software solutions. Historically, economic downturns have resulted in overall reductions in advertising spending in general and automobile related advertising in particular. For example, in the difficult economic environment in 2009, the overall automotive advertising market declined by 29% as a result of the decline in car sales in 2009, according to Forrester Research, which we believe slowed the growth rate of revenue in our Digital Media business. In addition, online advertising solutions may be viewed by some of our customers as a lower priority which could cause them to reduce the amounts they spend on advertising, terminate their use of our digital media solutions or default on their payment obligations to us.

In addition, economic conditions may adversely impact levels of consumer spending, which could adversely impact the numbers of consumers visiting AutoTrader.com and KBB.com. Consumer purchases of new and used automobiles generally decline during recessionary periods and other periods in which disposable income is adversely affected. Purchases of new and used automobiles are typically discretionary for consumers and have been, and may continue to be, affected by negative trends in the economy, including the cost of energy and gasoline, the availability and cost of credit, the declining residential and commercial real estate markets, reductions in business and consumer confidence, stock market volatility and increased unemployment. A reduction in the number of new and

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used automobiles purchased by consumers could continue to adversely affect dealers and OEMs and lead to a reduction in spending by our dealer and advertising customers on our digital media and software solutions. The foregoing could have a material adverse effect on our business, results of operations and financial condition.

If we fail to expand effectively into new markets, our revenue growth could be limited.

We continue to expand into new markets and we may fail to do so successfully or incur losses. For example, as a result of recent acquisitions, we entered the market for software solutions. Such expansion places us in competitive environments with which we may be unfamiliar and involves various risks, including the need to invest significant resources and the possibility that returns on such investments will not be achieved for several years, or at all. In attempting to establish a presence in new markets, we expect, as we have in the past, to incur significant expenses and face various other challenges, such as expanding our dealer sales force and technical personnel to cover those new markets. Our current and any future expansion plans will require significant resources and management attention. Furthermore, we have already developed a significant market position in the automobile listings and advertising market in the United States and further expansion may not yield similar results or sustain our growth.

If growth in the online automotive advertising market becomes stagnant or does not continue to increase, our business, results of operations and financial condition could be materially and adversely affected.

We believe future growth in the online automotive advertising market will be driven, in part, by dealers and brand advertisers increasingly shifting their advertising spending away from traditional media towards online advertising. To the extent that overall automotive related advertising does not continue to shift online, our business, results of operations and financial condition could be materially and adversely affected.

We are, and may in the future be, subject to disputes and assertions by third parties that we violate their rights. These disputes may be costly to defend and could materially adversely affect our business, results of operations and financial condition.

We have faced, and we expect to face from time to time in the future, allegations that we have violated the rights of third parties, including patent, trademark, copyright and other intellectual property rights. For example, third parties have sued us for allegedly violating their patent rights, and actions have been filed against us on behalf of current and former employees claiming that we violated labor and other employment laws.

Other claims against us can be expected to be made in the future. Even if the claims are without merit, the costs associated with defending these types of claims may be substantial, including in terms of time, money and management distraction. In particular, patent and other intellectual property litigation may be protracted and expensive, and the results are difficult to predict and may require us to stop offering certain features, purchase licenses or modify our products and features while we develop non-infringing substitutes or may result in significant settlement costs. We may be unable to deter competitors or others from pursuing patent or other intellectual property infringement claims against us.

The results of litigation and claims to which we may be subject cannot be predicted with certainty. Even if these matters do not result in litigation or are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, including management time and attention, could materially and adversely affect our business, results of operations and financial condition.

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Failure to protect or enforce our intellectual property rights could have a material adverse effect on our business, results of operations and financial condition.

As of March 31, 2012, we had approximately 180 trademarks registered or pending in 24 jurisdictions, over 500 copyright registrations and over 1,600 domain name registrations. We regard the protection of our trade secrets, trademarks, copyrights and domain names as critical to our success. In particular, we must maintain, protect and enhance the AutoTrader.com and Kelley Blue Book brands. We pursue the registration of our domain names and trademarks in the United States and in certain jurisdictions abroad. We strive to protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. In order to limit access to, and disclosure and use of, our proprietary information, we may enter into confidentiality or invention assignment agreements with employees, contractors and parties with whom we conduct business. However, these contractual arrangements and the other steps we have taken to protect our intellectual property may not prevent the misappropriation or disclosure of our proprietary information, deter independent development of similar technologies by others or otherwise protect our intellectual property rights from being challenged, invalidated or circumvented.

Effective copyright, trademark and domain name protection is expensive to develop and maintain, both in terms of initial and on-going registration requirements and expenses and the costs of defending our rights. We seek to protect our trademarks and domain names in an increasing number of jurisdictions, a process that is expensive and may not be successful or which we may not pursue in every location. Litigation may be necessary to enforce our intellectual property rights, protect our respective trade secrets or determine the validity and scope of proprietary rights claimed by others. Any litigation of this nature, regardless of outcome or merit, could result in substantial costs and diversion of management and technical resources, any of which could materially and adversely affect our business, results of operations and financial condition. We may incur significant costs in enforcing our trademarks against those who attempt to imitate the AutoTrader.com or Kelley Blue Book brands.

As of March 31, 2012, we had 15 pending patent applications and one issued patent. Our issued patent and any future patents issued to us may be challenged, invalidated or circumvented, may not provide sufficiently broad protection or may not prove to be enforceable in actions against alleged infringers. Furthermore, there can be no assurance that our pending patent and trademark applications will be accepted in the United States or elsewhere or that effective patent, trademark, copyright and trade secret protection will be available in every country in which our digital automotive marketplace is available over the internet. In addition, the legal standards relating to the validity, enforceability and scope of protection of intellectual property rights regularly evolve.

If we fail to maintain, protect and enhance our intellectual property rights, our business, results of operations and financial condition could be materially and adversely affected.

We process, store and use personal information and other consumer data, which subjects us to governmental regulation and other legal obligations related to privacy and the security of consumer information.

We process, store and use personal information and other consumer data, including credit card information. These activities are governed by numerous evolving, inconsistent and often conflicting laws.

For example, the Federal Trade Commission, or FTC, expects companies like ours to comply with guidelines that govern the collection, use and storage of consumer information, and establish principles relating to notice, consent, access and data integrity and security. Our practices are designed to comply with these guidelines as described in our published privacy policies. These policies

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disclose that we collect a range of information about consumers, such as their names, email addresses, search histories and activity on our platform. We also use and store such information primarily to personalize the experience on our platform, provide customer support and display relevant advertising.

Additionally, we and third parties use tracking technologies, including “cookies” and related technologies, to help us manage and track consumers’ interactions with our websites and deliver relevant listings and advertising. United States regulatory agencies are increasingly focused on online privacy matters and, in particular, on online advertising activities that utilize cookies and other online tools for tracking purposes. For example, the FTC, Department of Commerce and White House have recently issued several reports emphasizing the importance of the principles of consumer notice and choice, and recommending the adoption of methods of simplified choice, including the implementation of a “Do Not Track” mechanism—likely a persistent setting on consumers’ internet browsers—to enable consumers to choose whether to allow the tracking of their online search and browsing activities. These and similar efforts could significantly restrict our ability to collect, augment, analyze, use and share data, including anonymous data and geolocation information, which could make it more difficult for us to provide effective solutions to our customers.

Further, we participate in the Digital Advertising Alliance and similar industry self-regulatory organizations. These and other organizations issue guidelines addressing privacy protection on internet or mobile platforms, and in many cases, government regulators expect us to abide by these guidelines, even if we are not a member of the issuing organization.

While we do not sell personal information to third parties for any purpose, we do have relationships with third parties that may allow them access to user information for other purposes. For example, when we outsource functions such as technical and customer support, quality assurance and payment processing to other companies, we make user information available to those companies to the extent necessary for them to provide the outsourced services.

Any failure or perceived failure by us to comply with our privacy policies or similar legal obligations, including any security compromise resulting in the unauthorized release of personal information or other user data, by us or a third party, may result in government enforcement action, litigation or negative publicity. Any of the foregoing could cause our consumers, dealers and advertisers to lose trust in us, result in substantial costs and diversion of management’s attention and have a material adverse effect on our business, results of operations and financial condition.

We are subject to complex and evolving laws and regulations that involve matters central to our business.

We are directly and indirectly subject to numerous laws and regulations in the United States and abroad that involve matters central to our business, including advertising, content and automobile valuation. These laws and regulations are constantly evolving and can be subject to significant change. In addition, the application and interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate.

For example, automotive sales, leasing and financing, as well as advertising generally, is highly regulated, and such regulation could be interpreted to obligate us to ensure that our listings and advertising comply with applicable laws and regulations. Consequently, we may face liability for, and may be subject to claims related to, inaccurate or improper advertising content provided to us, which even if unfounded or decided in our favor, may be extremely costly to defend, could require us to pay significant damages and could limit our ability to operate.

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Additionally, laws relating to the liability of providers of online services for actions by users and third parties are currently being tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademark infringement and other theories. If legislation is passed that limits the immunities afforded to websites that publish content generated by third parties, we may be compelled to remove such content from our platform.

Further, instant trade-in offer pricing through our TIM service could subject us to liability under state “Bird Dog” laws, which prohibit dealers from making payments to third-parties in connection with the sale of motor vehicles through persons other than their licensed salespeople. If we become subject to these laws or regulations, we may be forced to implement new measures to reduce our exposure to this liability, including discontinuing certain products or features.

A number of jurisdictions are considering legislative and regulatory proposals concerning these or other aspects of our business, including anti-internet neutrality, taxation and access charges. We do not know such regulations will be applied to the internet, or whether they could result in a decrease in internet use, which could in turn decrease demand for our solutions. Such regulation could also require us to modify or discontinue providing all or a portion of our solutions. Any of the foregoing may require us to expend substantial resources or to discontinue certain products or features, which could harm our reputation and brands, undermine our value proposition to consumers, dealers or advertisers, divert management time and attention, result in substantial costs and impact the growth of our business, which could materially and adversely affect our business, results of operations and financial condition.

We face potential liability and expense for legal claims based on the content on our websites.

We face potential liability and expense for legal claims relating to the information that we publish on AutoTrader.com and KBB.com and our mobile applications, including claims for defamation, libel, negligence and copyright or trademark infringement, among others. For example, to the extent that descriptions of vehicles included in listings on our websites are inaccurate, or instant trade-in offers made pursuant to our TIM service are not honored, we may be subject to false advertising claims or product liability claims. We may also be subject to claims based on our advertising of our own business. Any such claims could divert management time and attention away from our business and result in significant costs to investigate and defend, regardless of the merits of the claims. In some instances, we may elect or be compelled to remove content or may be forced to pay substantial damages if we are unsuccessful in our efforts to defend against these claims. If we elect or are compelled to remove valuable content from our websites or mobile applications, our platform may become less useful to consumers and our traffic may decline, which could have a material adverse effect on our business, results of operations and financial condition.

We could be sued for contract or product liability claims, and such lawsuits may disrupt our business, divert management’s attention or have a material adverse effect on our business, results of operations and financial condition.

General errors, defects or other performance problems in our software solutions could result in financial or other damages to our consumers, dealers or advertisers. Although our contracts include terms meant to limit our liability for any defects or performance problems, there can be no assurance that any limitations of liability set forth in our contracts would be enforceable or would otherwise protect us from liability for damages. We maintain general liability insurance coverage, including coverage for errors and omissions in excess of the applicable deductible amount. There can be no assurance that this coverage will continue to be available on acceptable terms or in sufficient amounts to cover one or more large claims, or that the insurer will not deny coverage for any future claim. The successful assertion of one or more large claims against us that exceeds available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large

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deductible or co-insurance requirements, could have a material adverse effect on our business, results of operations and financial condition. Furthermore, litigation, regardless of its outcome, could result in substantial cost to us and divert management’s attention from our operations. Any of the foregoing could have a material adverse effect on our business, results of operations and financial condition.

If our intangible assets and goodwill become impaired we may be required to record a significant non-cash charge to earnings which would materially and adversely affect our results of operations.

Under accounting principles generally accepted in the United States, we review our intangible assets and goodwill for impairment annually in the fourth quarter of each fiscal year, or more frequently if events or changes in circumstances indicate the carrying value of our intangible assets may not be fully recoverable. In 2011 and the three months ended March 31, 2012, we recognized $36.2 million and $11.1 million, respectively, of goodwill impairment charges attributable to HomeNet, which we acquired in 2010. In addition, in the three months ended March 31, 2012, we recognized a $4.5 million intangible asset impairment charge attributable to HomeNet. We may recognize additional impairment charges associated with our acquisitions in future periods. The carrying value of our intangible assets may not be recoverable due to factors such as a decline in our stock price and market capitalization, reduced estimates of future revenues or cash flows or slower growth rates in our industry. Estimates of future revenues and cash flows are based on a long-term financial outlook of our operations. Actual performance in the near-term or long-term could be materially different from these forecasts, which could impact future estimates and the recorded value of the intangibles. For example, a significant, sustained decline in our stock price and market capitalization may result in impairment of certain of our intangible assets, including goodwill, and a significant charge to earnings in our consolidated financial statements during the period in which an impairment is determined to exist. We will continue to monitor and evaluate the carrying value of our goodwill. In the event we had to reduce the carrying value of our goodwill, any such impairment charge could materially and adversely affect our results of operations.

Under certain circumstances we could be liable for payments related to income taxes owed by CEI’s consolidated group.

Prior to 2010, we were an indirect subsidiary of CEI and a member of CEI’s consolidated group for United States federal income tax purposes. In 2010, the Providence Funds acquired a 25% interest in us, which resulted in our deconsolidation from the CEI consolidated group. United States federal tax law provides that each member of a consolidated group is jointly and severally liable for the consolidated group’s entire federal income tax obligation. Thus, to the extent CEI or other members of the CEI consolidated group fail to make any United States federal income tax payments required by law for any tax year in which we were, at any time during such tax year, a member of the CEI consolidated group, we could be liable for the shortfall. Similar principles may apply for foreign, state or local income tax purposes where we have previously filed combined, consolidated or unitary returns with CEI or its subsidiaries for foreign, state or local income tax purposes.

Our business is subject to the risks of tornadoes, earthquakes, fires, floods and other natural catastrophic events and to interruption by man-made problems such as computer viruses or terrorism.

Our systems and operations are vulnerable to damage or interruption from earthquakes, fires, floods, power losses, telecommunications failures, terrorist attacks, acts of war, human errors, break-ins and similar events. For example, a significant natural disaster, such as a tornado, earthquake, fire or flood, could have a material adverse effect on our business, results of operations and financial condition, and our insurance coverage may be insufficient to compensate us for losses that may occur. Our corporate offices and one of the facilities we lease to house our computer and

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telecommunications equipment are located in the Atlanta, Georgia metropolitan area, a region known for hurricane and tornado activity. In addition, acts of terrorism, which may be targeted at metropolitan areas that have higher population density than rural areas, could cause disruptions in our or our local business advertisers’ businesses or the economy as a whole. Our servers may also be vulnerable to computer viruses, break-ins, denial-of-service attacks and similar disruptions from unauthorized tampering with our computer systems, which could lead to interruptions, delays, loss of critical data or the unauthorized disclosure of confidential client data. We may not have sufficient protection or recovery plans in certain circumstances, such as natural disasters affecting the Atlanta, Georgia metropolitan area. As we rely heavily on our servers, computer and communications systems and the internet to conduct our business and provide high-quality customer service, such disruptions could negatively impact our ability to run our business and either directly or indirectly disrupt our dealers and other advertisers’ businesses, which could have a material adverse affect on our business, results of operations and financial condition.

Our indebtedness could adversely affect our financial health, harm our ability to react to changes to our business and prevent us from fulfilling our obligations under our indebtedness.

We have a significant amount of indebtedness. As of March 31, 2012, we had total indebtedness of approximately $884.4 million. Based on that level of indebtedness after giving effect to the $400.0 million in additional borrowings under our credit facilities incurred on April 30, 2012 and interest rates applicable at March 31, 2012, our annual interest expense would have been $37.1 million. Although we believe that our current cash flows will be sufficient to cover our annual interest expense, any increase in the amount of our indebtedness or any decline in the amount of cash available to make interest payments could require us to divert funds identified for other purposes for debt service and impair our liquidity.

Our indebtedness could also have other significant consequences. For example, it could:

Increases in interest rates could increase interest payable under our variable rate indebtedness.

We are subject to interest rate risk in connection with our variable rate indebtedness outstanding under our credit facilities. Interest rate changes could increase the amount of our interest payments

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and thus negatively impact our future earnings and cash flows. Taking into account the LIBOR floor on the Term Loan B, we estimate that our annual interest expense on our variable rate indebtedness would increase by approximately $9.9 million for the first increase in interest rates of 1% and $12.9 million for each subsequent increase in interest rates of 1% after giving effect to the outstanding balance as of April 30, 2012. If we do not have sufficient earnings, we may be required to refinance all or part of our existing debt, sell assets, borrow more money or sell more securities, none of which we can guarantee we will be able to complete on commercially reasonable terms acceptable to us or at all.

Despite current indebtedness levels, we and our subsidiaries may still be able to incur substantially more debt.

We and our subsidiaries may be able to incur substantial additional indebtedness in the future. Although the agreement governing our credit facilities contains restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial. For example, we had $136.5 million available under our revolving credit facility as of March 31, 2012 and $136.5 million available after giving effect to the additional borrowings incurred on April 30, 2012. If we incur additional debt above the levels currently in effect, the risks associated with our substantial leverage would increase.

To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

Our ability to make payments on and to refinance our indebtedness and to fund our operations will depend on our ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Specific events that might adversely affect our cash flow include declines in orders for our products or decreased use of our services. Accordingly, we may not be able to generate cash to service our indebtedness, which could lead to a default under our credit agreement and adversely affect our business, results of operations and financial condition.

We are a holding company with no business operations of our own and depend on our subsidiaries for cash.

We are a holding company with no significant business operations of our own. Our operations are conducted through our subsidiaries. Dividends from, and cash generated by, our subsidiaries are our principal sources of cash to pay dividends, if any, which such payment is prohibited under the agreement governing our credit facilities. Accordingly, our ability to pay any dividends to our stockholders is dependent on the earnings and the distributions of funds from our subsidiaries. The agreement governing our credit facilities significantly restricts our subsidiaries from paying dividends and otherwise transferring cash or other assets to us. In addition, our subsidiaries are permitted under the agreement governing our credit facilities to incur additional indebtedness that may severely restrict or prohibit the transferring of cash or other assets, the payment of dividends or the making of loans by our subsidiaries to us.

Restrictive covenants in the agreement governing our credit facilities may restrict our ability to pursue our business strategies.

The agreement governing our credit facilities contains a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to pursue our business strategies or undertake actions that may be in our best interests. The agreement governing our credit facilities require us to maintain compliance with certain financial ratios, including a maximum

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total leverage ratio and a minimum debt service coverage ratio. In addition, the agreement governing our credit facilities include covenants restricting, among other things, our ability to:

Our ability to comply with these restrictions and covenants in the future is uncertain and will be affected by the levels of cash flow from our operations and events or circumstances beyond our control. Our failure to comply with any of the restrictions and covenants under the agreement governing our credit facilities could result in a default under the credit agreement, which could cause all of our existing indebtedness to be immediately due and payable. If our indebtedness is accelerated, we may not be able to repay our indebtedness or borrow sufficient funds to refinance it. In addition, in the event of an acceleration lenders under our credit facilities could proceed against the collateral securing the obligations under the credit facilities which includes nearly all of our assets. Even if we are able to obtain new financing, it may not be on commercially reasonable terms or on terms that are acceptable to us. If our indebtedness is in default for any reason, our business, results of operations and financial condition could be materially and adversely affected. In addition, complying with these restrictions and covenants may also cause us to take actions that are not favorable to our stockholders and may make it more difficult for us to successfully execute our business plan and compete against companies that are not subject to such restrictions and covenants. See “Description of Material Indebtedness.”

After this offering, CEI will continue to have substantial control over us, including the ability to influence the outcome of matters requiring stockholder approval.

Following the consummation of this offering, CEI will beneficially own 100% of our outstanding Class B common stock. The rights of the holders of our Class A common stock and our Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock will be entitled to one vote per share. The holders of our Class B common stock are entitled to ten votes per share, and our Class B common stock is convertible into shares of our Class A common stock on a share-for-share basis. Accordingly, after the consummation of this offering, CEI will collectively beneficially own approximately % (or % if the underwriters’ option to purchase additional shares is exercised in full) of the combined voting power of our outstanding common stock. In addition, CEI, through Manheim, has the right to nominate a majority of the directors to our Board.

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As a consequence, CEI will be able to exert a significant degree of influence or actual control over our management and affairs and will control matters requiring stockholder approval, including:

The interests of CEI may not always coincide with our interests or the interests of our other stockholders. For instance, this concentration of ownership may have the effect of delaying or preventing a change in control of us otherwise favored by our other stockholders and could adversely affect our Class A common stock price.

Additionally, because CEI controls more than 50% of the voting power of our common stock, we are a “controlled company” within the meaning of NYSE or NASDAQ corporate governance standards. Under NYSE or NASDAQ rules, a controlled company may elect not to comply with certain corporate governance requirements, including requirements that: (1) a majority of the Board consist of independent directors; (2) compensation of officers be determined or recommended to the Board by a majority of its independent directors or by a compensation committee that is composed entirely of independent directors; and (3) director nominees be selected or recommended by a majority of the independent directors or by a nominating committee composed solely of independent directors. Because we have elected to take advantage of the controlled company exemption, our stockholders do not have the same protections afforded to stockholders of companies that are subject to all of the NYSE or NASDAQ corporate governance requirements.

Provisions in our Related Party Agreement with CEI, CDX and Manheim may limit our ability to expand into certain new businesses or consummate certain acquisitions.

We have entered into a Related Party Agreement with CEI, CDX, and Manheim, pursuant to which we have agreed, for a period ending on the earliest of (i) June 14, 2017, (ii) the date on which CEI and its affiliates no longer, directly or indirectly, have voting control of us or Manheim and (iii) the date on which CEI is no longer controlled by the CEI Related Parties (as defined), not to actively pursue specified business opportunities in the United States, including business, commercial and investment opportunities as well as the development, production or sale of new products or services to the extent that the subject matter of any of the foregoing is in the businesses actively conducted by Manheim and CDX as of June 14, 2012, which consist primarily of wholesale vehicle auctions and related businesses. CEI has agreed to similar limitations consists for itself and of its controlled affiliates, including CDX and Manheim, with respect to business opportunities in our businesses. In addition, we have agreed that as long as CEI and its controlled subsidiaries have voting control of us, we must notify the executive committee of our Board of all acquisitions being actively pursued by us or any of our controlled subsidiaries and Manheim will cause CEI to notify CEI’s chief executive officer or chief financial officer of any acquisitions being actively pursued by CEI and its controlled subsidiaries. If CEI’s chief executive officer and chief financial officer have actual knowledge that Manheim or we are

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actively pursuing the same acquisition, then CEI’s designees on our Board must recuse themselves from the consideration and approval of such acquisition as long as a Manheim entity is actively pursuing such acquisition. In addition, we have agreed not to enter into acquisitions, loans to third parties or equity investments, without first obtaining the consent of the holders of a majority of our outstanding Class B common stock (which currently is held by affiliates of CEI and which consents may be subject to such conditions and limitations as such affiliates of CEI specify in their sole discretion). If the holders of such Class B common stock do not consent, CEI and its controlled subsidiaries may not consummate such acquisition, loan or investment without our written consent, which consent must be authorized by the related party committee of our Board. The foregoing limitations may impact our ability to expand into new businesses or consummate acquisitions. If we are unable to enter into new businesses or make acquisitions, loans or equity investments, we could lose market share to competitors who are able to do so, which could have a material adverse effect on our business, results of operations and financial condition.

Conflicts of interest may arise because some of our directors are principals of our principal stockholders.

Upon the completion of this offering, representatives of CEI and Providence Equity Partners will occupy a majority of the seats on our Board. CEI may compete with us directly or invest in entities that directly or indirectly compete with us. In addition, Providence Equity Partners could invest in entities that directly or indirectly compete with us, and entities in which Providence Equity Partners is invested may compete with us in the future. As a result, when conflicts arise between the interests of CEI or Providence Equity Partners and the interests of our other stockholders, these directors may not be disinterested. The representatives of CEI or Providence Equity Partners on our Board, by the terms of our amended and restated certificate of incorporation, are not required to offer us any corporate opportunity of which they become aware and could take any such opportunity for themselves or offer it to other companies in which they have an investment, unless such opportunity is expressly offered to them solely in their capacity as our directors.

As a public company, we will become subject to additional financial and other reporting and corporate governance requirements that may be difficult and costly for us to satisfy.

We have historically operated our business as a private company. After this offering, we will be required to file with the SEC annual and quarterly information and other reports that are specified in Section 13 of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We will also be required to ensure that we have the ability to prepare financial statements that are fully compliant with all SEC reporting requirements on a timely basis. We will also become subject to other reporting and corporate governance requirements, including the requirements of the NYSE or NASDAQ, and certain provisions of the Sarbanes-Oxley Act and the regulations promulgated thereunder, which will impose significant compliance obligations upon us. As a public company, we will be required to, among other things:

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These changes will require a significant commitment of additional resources and management oversight and some of our competitors already comply with these obligations. We may not be successful in implementing these requirements and the significant commitment of resources required for implementing them could materially and adversely affect our business, results of operations and financial condition. If we fail to implement the requirements with respect to our internal accounting and audit functions, our ability to report our results of operations on a timely and accurate basis could be impaired and we could suffer adverse regulatory consequences or violate NYSE or NASDAQ continued listing standards. These changes have increased and will continue to increase our costs and might place a strain on our systems and resources. As a result, our management’s attention might be diverted from other business concerns. In addition, if we fail to maintain an effective internal control environment or to comply with the numerous legal and regulatory requirements imposed on public companies, we could make material errors in, and be required to restate, our financial statements. Any such restatement could result in a loss of public confidence in the reliability of our financial statements and sanctions imposed on us by the SEC. Any of these events, should they occur, could have a material adverse effect on the market price of our Class A common stock.

Our internal control over financial reporting does not currently meet the standards required by Section 404 of the Sarbanes-Oxley Act and a material weakness in our internal control over financial reporting has been identified. If we fail to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act, such failure could have a material adverse effect on our business and the trading price of our Class A common stock.

Prior to this offering, we were a private company with limited accounting personnel and other resources with which to address our internal control over financial reporting. Our internal control over financial reporting does not currently meet the standards required by Section 404 of the Sarbanes-Oxley Act, standards that we will be required to meet in the course of preparing future financial statements. We do not currently document or test our compliance with these controls on a periodic basis in accordance with Section 404. Furthermore, we have not tested our internal controls in accordance with Section 404 and, due to our lack of documentation, such a test would not be possible to perform at this time.

In the audit of our consolidated financial statements for the year ended December 31, 2011, a material weakness in our internal control over financial reporting, as defined in the standards established by U.S. Public Accounting Oversight Board, was identified. The material weakness identified resulted from our lack of accounting and financial reporting personnel with sufficient experience in applying GAAP to certain significant, complex, non-routine and/or infrequent transactions, specifically accounting for business combinations and related impairment determinations as well as stock-based compensation. As a result, misstatements were identified in the audit process and were corrected prior to the issuance of audited financial statements for the year ended December 31, 2011.

To remedy this material weakness, we are in the process of implementing several measures to improve our internal control over financial reporting, including (i) hiring additional financial and accounting personnel with SEC reporting and public company accounting experience, including an

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SEC reporting director, (ii) adjusting our policies and procedures for accounting for complex transactions, and (iii) improving the capabilities of our existing financial and accounting personnel through training and education in the accounting for complex transactions and public reporting requirements. We plan to complete these efforts prior to this offering. Our remediation efforts may not be successful in preventing future determinations that we have a material weakness or significant deficiency in our internal control over financial reporting.

In addition to the remediation efforts noted above, we are in the early stages of addressing our internal control procedures to satisfy the requirements of Section 404, which requires an annual management assessment of the effectiveness of our internal control over financial reporting. If, as a public company, we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, our independent registered public accounting firm may not be able to attest to the effectiveness of our internal control over financial reporting. If we are unable to maintain adequate internal control over financial reporting, we may be unable to report our financial information on a timely basis, may suffer adverse regulatory consequences or violations of applicable stock exchange listing rules and may breach the covenants under the agreement governing our credit facilities. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements.

In addition, we will incur additional costs in order to improve our internal control over financial reporting and comply with Section 404, including increased auditing and legal fees and costs associated with hiring additional accounting and administrative staff.

We expect that our stock price will fluctuate significantly, which could cause the value of your investment in our Class A common stock to decline, and you may not be able to resell your shares at or above the initial public offering price.

Securities markets worldwide have experienced, and are likely to continue to experience, significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of our Class A common stock regardless of the performance of our business or our results of operations. The trading price of our Class A common stock is likely to be volatile and subject to price fluctuations in response to various factors, including:

These and other factors may cause the market price and demand for shares of our Class A common stock to fluctuate substantially, which may limit or prevent investors from readily selling their

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shares of Class A common stock and may otherwise negatively affect the liquidity of our Class A common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business, which could significantly harm our reputation and have a material adverse effect on our business, results of operations and financial condition.

Anti-takeover provisions in our amended and restated certificate of incorporation and our amended and restated by-laws could prohibit a change of control that our stockholders may favor and could negatively affect the price of our Class A common stock.

Provisions in our amended and restated certificate of incorporation and our amended and restated by-laws may make it more difficult and expensive for a third party to acquire control of us even if a change of control would be beneficial to the interests of the holders of our Class A common stock. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our directors or management. For example, our amended and restated certificate of incorporation and our amended and restated by-laws:

These provisions make it more difficult for stockholders or potential acquirers to acquire us and could discourage potential takeover attempts and could adversely affect the market price of our Class A common stock.

There may not be an active, liquid trading market for our Class A common stock, or securities or industry analysts may not publish research reports or may publish research reports containing negative information about our business.

Prior to this offering, there has been no public market for shares of our Class A common stock. We cannot predict the extent to which investor interest in our company will lead to the development of a trading market for our Class A common stock on the NYSE or NASDAQ or how liquid that market may become. If an active trading market does not develop, you may have difficulty selling any of our Class A common stock that you hold due to the limited public float. The initial public offering price of

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shares of our Class A common stock will be determined by negotiation between us and the underwriters and may not be indicative of market prices of our Class A common stock that will prevail following the completion of this offering. The trading market for our Class A common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. The market price of shares of our Class A common stock may decline below the initial public offering price, and you may not be able to resell your shares of our Class A common stock at or above the initial offering price.

If a substantial number of shares become available for sale and are sold in a short period of time, the market price of our Class A common stock could decline.

If our existing stockholders sell substantial amounts of our Class A common stock in the public market following this offering, the market price of our Class A common stock could decrease significantly. The perception in the public market that our existing stockholders might sell shares of Class A common stock could also depress the market price of our Class A common stock. Upon the consummation of this offering, we will have shares of Class A common stock (including shares of Class A common stock issuable upon conversion of our Class B common stock) outstanding. Our directors, executive officers, and certain of our other stockholders will be subject to the lock-up agreements described in “Underwriting” and may be subject to the Rule 144 holding period requirements described in “Shares Eligible for Future Sale.” After these lock-up agreements have expired and holding periods have elapsed, additional shares of our Class A common stock (including shares of Class A common stock issuable upon conversion of our Class B common stock) will be eligible for sale in the public market. See “Description of Capital Stock.” Our existing stockholders (and certain permitted transferees thereof) will have registration rights with respect to the Class A common stock they hold or have the right to receive. See “Shares Eligible for Future Sale.” The market price of shares of our Class A common stock may drop significantly when the restrictions on resale by our existing stockholders lapse as a result of sales by our stockholders in the market or the perception that such sales could or will occur. In addition, any decline in the price of shares of our Class A common stock could impede our ability to raise capital through the issuance of additional shares of our Class A common stock or other equity securities.

We do not anticipate paying any cash dividends on our Class A common stock for the foreseeable future.

We intend to retain any future earnings to repay indebtedness and to fund our operations and any acquisitions that we may make. We do not intend to pay any dividends to holders of our Class A common stock for the foreseeable future. Our debt agreements limit the amounts available to us to pay cash dividends, and, to the extent that we require additional funding, the sources of such funding may prohibit the payment of a dividend. As a result, capital appreciation in the price of our Class A common stock, if any, will be your only source of gain on an investment in our Class A common stock. See “Dividend Policy.”

New investors in our Class A common stock will experience immediate and substantial book value dilution after this offering.

The initial public offering price of our Class A common stock will be substantially higher than the pro forma net tangible book value per share of the outstanding Class A common stock immediately after the offering. Based on our pro forma net tangible book value as of March 31, 2012, if you purchase our Class A common stock in this offering, you will suffer immediate dilution in net tangible book value per share of approximately $ per share. See “Dilution.”

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We estimate that the net proceeds to us from our sale of shares of Class A common stock in this offering will be approximately $ million, after deducting underwriting discounts and commissions and estimated expenses payable by us in connection with this offering. This assumes a public offering price of $ per share, which is the midpoint of the price range set forth on the cover of this prospectus.

Our credit facilities consist of two tranches of term A loans, a term B loan facility and a revolving credit facility. One term A loan tranche and our revolver mature in 2015, the other term A loan tranche matures (subject to certain conditions) in 2017 and the term B loan facility matures in 2016. As of March 31, 2012, the weighted average interest rate under our credit facilities was 2.99%. On April 30, 2012, we amended our credit facilities to, among other things, provide for $400.0 million of additional borrowing capacity, and we drew down the additional capacity to pay a $400.0 million dividend to the then-existing common stockholders of ATC. For more information regarding our credit facilities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Facilities.”

We may also use a portion of the net proceeds for acquisitions of technologies, products or companies that complement our business, although we have no current understandings, commitments or agreements to do so.

This expected use of net proceeds from this offering represents our current intentions based upon our present plans and business conditions. The amounts and timing of our actual expenditures depend on numerous factors. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.

Certain affiliates of the underwriters are lenders under our credit facilities and are expected to receive a portion of the net proceeds from this offering in connection with our repayment of indebtedness under our credit facilities.

Assuming no exercise of the underwriters’ option to purchase additional shares, a $1.00 increase (decrease) in the assumed initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus) would increase (decrease) the net proceeds to us from this offering by $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated expenses payable by us.

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We do not intend to pay cash dividends on our Class A common stock in the foreseeable future. However, in the future, subject to the factors described below and our future liquidity and capitalization, we may change this policy and choose to pay dividends. On April 30, 2012, ATC declared and paid a cash dividend to holders of its Class A, Class B and Class C common stock in an aggregate amount of $400.0 million, or $8.27 per share.

The amounts available to us to pay cash dividends are restricted by the agreement governing our credit facilities. Our business is conducted through our subsidiaries. Dividends from and cash generated by our subsidiaries will be our principal source of cash to pay dividends. Accordingly, our ability to pay dividends is dependent on the earnings and distributions of funds from our subsidiaries. In addition, under Delaware law, our Board may declare dividends only to the extent of our surplus (which is defined as total assets at fair market value minus total liabilities, minus statutory capital) or, if there is no surplus, out of our net profits for the then-current and/or immediately preceding fiscal year.

Any future determination to pay dividends will be at the discretion of our Board and will take into account:

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This table should be read in conjunction with “Use of Proceeds,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and notes thereto included elsewhere in this prospectus.

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If you invest in our Class A common stock, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our Class A common stock and the net tangible book value per share of our Class A common stock upon the consummation of this offering.

Our net tangible book value as of March 31, 2012 was $ , or $ per share of common stock outstanding based on shares of common stock outstanding. The net tangible book value represents the amount of total tangible assets less total liabilities, and net tangible book value per share represents net tangible book value divided by the number of shares of common stock outstanding.

After giving effect to (i) the sale of shares of Class A common stock in this offering at the assumed initial public offering price of $ per share (the midpoint of the price range set forth on the cover of this prospectus) and (ii) the application of the net proceeds from this offering, our as adjusted net tangible book value as of March 31, 2012 would have been $ million, or $ per share. This represents an immediate increase in as adjusted net tangible book value of $ per share to our existing investors and an immediate dilution in as adjusted net tangible book value of $ per share to new investors.

The following table illustrates this dilution on a per share of common stock basis:

A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) our as adjusted net tangible book value by $ million, the as adjusted net tangible book value per share after this offering by $ and the dilution per share to new investors by $ assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The following table summarizes, on an as adjusted basis as of March 31, 2012 after giving effect to this offering, the total number of shares of common stock purchased from us, the total cash consideration paid to us and the average price per share paid by our existing investors and by new investors purchasing shares in this offering:

If the underwriters were to fully exercise their option to purchase additional shares of our Class A common stock, the percentage of shares of our common stock held by existing investors would be %, and the percentage of shares of our common stock held by new investors would be %.

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The above discussion and tables are based on the number of shares outstanding at March 31, 2012. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities could result in further dilution to our stockholders.

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The following tables set forth our historical consolidated financial data for the periods and as of the dates indicated. We derived the consolidated statements of income data for the years ended December 31, 2009, 2010 and 2011 and the consolidated balance sheet data as of December 31, 2010 and 2011 from our audited consolidated financial statements and related notes thereto included elsewhere in this prospectus. The consolidated statements of income data for the three months ended March 31, 2011 and 2012 and consolidated balance sheet data as of March 31, 2012 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The consolidated balance sheet data as of December 31, 2007, 2008 and 2009 and the consolidated statements of income data for the years ended December 31, 2007 and 2008 are derived from our audited financial statements that are not included in this prospectus.

Our historical results are not necessarily indicative of future operating results. You should read the information set forth below together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Capitalization” and our financial statements and the related notes thereto included elsewhere in this prospectus.

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The following discussion and analysis of our financial condition and results of operations should be read together with “Selected Consolidated Financial Data” and the consolidated and unconsolidated financial statements and the related notes included elsewhere in this prospectus. This discussion includes the financial results of ATC prior to the formation of ATG and the merger of a subsidiary of ATG with and into ATC. This discussion contains forward-looking statements, based on current expectations and related to future events and our future financial performance, that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “Risk Factors,” “Forward-Looking Statements” and elsewhere in this prospectus.

AutoTrader Group connects in-market car shoppers and sellers through our AutoTrader.com and KBB.com websites, which showcase car listings in local markets in the United States as well as descriptive content relating to cars. We also offer car dealers software solutions to help them source, appraise, manage, price and market their inventory, and help them manage their consumer relationships. We generate revenue through subscriptions for new and used car listings, sales of brand advertising and software solution subscriptions.

Our business targets three main constituent groups: in-market car shoppers, car dealers and brand advertisers. Car shoppers come to our websites in order to search the largest collection of unduplicated vehicle listings, read descriptive reviews of cars, compare specific vehicles and use our proprietary valuation and pricing tools. Car dealers advertise their listings on our websites in order to reach the largest targeted audience of in-market car shoppers in the United States. Car dealers also purchase or license software solutions from us to enhance their operations. Brand advertisers buy display advertisements to target our audience of in-market car shoppers. Our largest category of brand advertisers is automotive OEMs.

In the three months ended March 31, 2012, we had over 29 million average monthly unique visitors on our websites and over 3.4 million daily new and used car listings on our AutoTrader.com website from our network of over 25,000 dealer relationships in our Digital Media business. Over 20,000 of these dealers pay us monthly fees to have their new and used car listings on our websites, and we refer to these dealers as subscribing dealers. Our Digital Media MRR was $3,002 as of December 31, 2011 and $3,129 as of March 31, 2012. We sold advertisements on our websites to most major OEMs during March 2012. We served an average of 1.9 billion and 1.6 billion advertisement impressions on our websites per month in 2011 and in the three months ended March 31, 2012, respectively.

In 2011, we generated $1.0 billion of revenues, $334.6 million of Adjusted EBITDA, and $68.1 million of net income, representing growth of 39%, 57% and 39%, respectively, over the prior year. We achieved these results through strategic acquisitions and organic growth.

In December 2010, we expanded our Digital Media business through the acquisition of Kelley Blue Book. Kelley Blue Book provides extensive, objective third-party automobile valuations through KBB.com and in print, with over 2.5 billion pricing reports generated over the last ten years. Since the acquisition, we have invested in enhancing the content and functionality of the KBB.com website, increasing awareness of the Kelley Blue Book brand and increasing traffic to KBB.com.

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In October 2010, we established our Software Solutions business through the acquisition of vAuto, a provider of advanced software tools for used vehicle management, pricing and inventory optimization. We further expanded our Software Solutions business through our December 2010 acquisition of HomeNet, a provider of online inventory information management and merchandising solutions to car dealers, and our June 2011 acquisition of VinSolutions, a provider of CRM and internet lead management, inventory management software, dealer websites, sales management tools and social media and direct targeted marketing campaign tools to car dealers. In addition, our software solutions also include CDMdata dealer inventory and management solutions, which were acquired with Kelley Blue Book. Since our acquisitions, we have made investments in our Software Solutions business, including recruiting key management and sales and support personnel, investing in additional hardware, new data centers and phone systems and developing mobile solutions.

We refer to the acquisitions we made in 2010 of Kelley Blue Book, CDMdata, vAuto and HomeNet as our 2010 Acquisitions.

Our business is comprised of two distinct business segments: Digital Media and Software Solutions. In 2011, we generated 89% of our revenues from our Digital Media segment and 11% of our revenues from our Software Solutions segment. In the three months ended March 31, 2012, we generated 86% of our revenues from our Digital Media segment and 14% of our revenues from our Software Solutions segment.

We sell digital media subscriptions to dealers on a pay-for-placement basis through tiered listing packages. Listings that are placed in our premium and featured tiers are displayed more prominently on a consumer’s search results page on our websites and, therefore, are viewed more frequently by consumers. We charge more for subscriptions to our premium tiers than we do for our featured tiers. In addition, we provide basic, limited used car listings to dealers for free. We also sell to dealers additional advertising products, which we refer to as à la carte enhancement products, on an episodic or on-going basis and on a bundled basis with our premium and featured listing subscriptions. These products include additional features within the listings (such as more photos and videos) and our Alpha, Spotlight, and Tower advertising products. Dealers can also subscribe to our Trade-in Marketplace, or TIM, product, which was launched in 2009. We also generate revenue in our Digital Media segment by selling display advertising on our websites to OEMs and other advertisers, which purchase display advertisements based on a cost per thousand impressions, or CPM.

We offer our listings and display advertising to dealers through a team of over 1,400 highly-trained, consultative sales and support professionals. Our dealer sales force regularly meets with dealers to review their performance and to optimize their presence on our websites. Through our consultative sales force, we seek to increase the amount that each of our subscribing dealers spends on our digital media solutions by helping them see the value of our premium listings packages and additional features that are designed to increase the performance of the dealer’s listings. We also seek to increase our penetration among dealers by specifically targeting our marketing efforts to increase traffic to, and brand recognition of, our websites. We also continue to develop listing solutions and sales channels to fit the evolving needs of dealers.

In our Software Solutions segment, we generate revenue by selling subscriptions to our portfolio of software solutions, which help our dealer customers manage their operations more efficiently. Our

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portfolio includes solutions that address dealer inventory, sourcing and management, CRM, marketing, prospect tracking and value appraising. We provide dealers with robust analytical tools which allow them to target selected used vehicles to purchase for their inventory and provide them with an analytical framework for determining optimal list prices. We believe this enables dealers to increase the velocity of their turnover in used car inventory, resulting in increased profit opportunities for them. We also provide dealers with integrated CRM software solutions that enhance the ability of dealers to track their inventory, consumer prospects and relationships, as well as to develop a web presence, create direct marketing campaigns and instantly advertise inventory across their own and third-party websites, including AutoTrader.com and KBB.com.

Our sales force and software solutions marketing efforts are focused on penetrating our existing base of Digital Media subscribing dealers as a large number of these dealers do not subscribe to our software solutions. In addition, we are seeking to expand the number of our software solutions used by each dealer. We are also focused on developing and launching new software solutions for dealers. For example, we launched our Provision used vehicle stocking solution in 2011. As we grow our Software Solutions business, we are also investing in increasing the market awareness of vAuto, VinSolutions and our other brands.

We track the number of subscribing dealers in our Digital Media and Software Solutions segments. For purposes of our calculation of subscribing dealers, we consider all of the franchises at a single address to be one dealer. Subscribing dealers consists of the number of dealers subscribing to one or more of our listing packages or software solutions at the end of a period. We believe that the number of our subscribing dealers is indicative of the success of our sales and marketing efforts, including our ability to further penetrate the dealer market, cross-sell our software solutions to our Digital Media customers and maintain our existing and develop new dealer relationships.

We also track MRR for both of our business segments and for each of our subscribing dealers.

We define Digital Media MRR as the monthly run rate of subscription-related revenues for our featured and premium listings and our TIM product as of the last day of a period, as well as on-going à la carte enhancement product purchases, such as purchases of our Alpha, Spotlight or Tower products, divided by the number of Digital Media subscribing dealers at month end. Digital Media MRR does not include short-term or episodic à la carte enhancement product or other short-term placements and does not give effect to set-up fees, credits or promotional arrangements. We define Software Solutions MRR as the monthly run rate of subscription-related revenues from our Software Solutions business, as of the last day of a period, divided by the number of Software Solutions subscribing dealers at month end. In calculating Software Solutions MRR, we do not include installation or set-up fees, vAuto revenue-sharing arrangements or marketing campaign revenues. In addition, we do not take into account credits to customers, bad debt expenses or other collection-related adjustments or promotional arrangements. We view MRR as a key indicator of our growth and the success of our sales and marketing efforts and strategy to create new digital media and software solutions that are valuable to our dealer customers. We believe that advances in data analytics are accelerating our sales force’s ability to quantitatively educate dealers about the cost-effective impact and influence of our products and services. This, in turn, is leading to increased dealer budget allocations to our premium digital media products and services and increased penetration of our software solutions. We did not track Software Solutions subscribing dealers prior to 2012.

Index to Financial Statements

Digital Media MRR is primarily a function of our listing subscription fees which typically range from $660 to $7,068 per month and can be as high as $42,975 per month per dealer. Our Digital Media MRR has grown from $2,267 at December 31, 2009 to $3,002 at December 31, 2011 and $3,129 at March 31, 2012. For 2009, 2010 and the three months ended March 31, 2011, Digital Media MRR reflected monthly subscription-related revenues solely on our AutoTrader.com website, as we did not generate subscription-related revenues on our KBB.com website. In our Digital Media business, we aim to capture a larger share of each subscribing dealer’s marketing expenditures as we demonstrate the value of our premium classifieds listings packages, increase penetration of our enhancement advertising products (including Alpha, Spotlight and Tower), increase market acceptance of our recently launched products and services, including TIM, and introduce additional innovative products and services over time.

Since we recently acquired the businesses that make up our Software Solutions segment, we have not tracked Software Solutions MRR prior to 2012. Our Software Solutions MRR at March 31, 2012 was $ . In our Software Solutions business, we aim to convert our existing Digital Media subscribing dealers into subscribers to our software solutions, increase the number of software solutions utilized by existing software solution customers, and increase market acceptance of new software solutions that we introduce in the future.

We believe these key metrics enable us to evaluate our performance on a rate and volume basis.

The following table sets forth MRR and subscribing dealer data for our Digital Media and Software Solutions businesses as of the dates indicated:

We review dealer churn, which we define as the total number of subscribing dealers that are no longer customers at the end of a given month divided by the number of subscribing dealers at the beginning of that month. We believe dealer churn is a good indicator of dealer satisfaction with our solutions and the success of our sales and marketing efforts. In 2011 and for the three months ended March 31, 2012, our average monthly dealer churn was 1.6% and 1.9%, respectively. Prior to 2012, we only tracked dealer churn for AutoTrader.com subscribing dealers. Beginning in 2012, we intend to track dealer churn for our entire Digital Media business. We do not track dealer churn in our Software Solutions business.

We track the monthly unique visitors to AutoTrader.com and KBB.com. Monthly unique visitors is the number of visitors with unique cookies who have visited our websites using either a computer or

Index to Financial Statements

mobile browser at least once in a given month. An individual who accesses one of our websites from multiple devices with different cookies will be counted as multiple unique visitors, and multiple individuals who access our websites from a shared device with a single cookie will be counted as a single unique visitor. We use proprietary and third-party tools to track unique visitors. Our methodology is compliant with the Interactive Advertising Bureau’s Audience Reach Measurement Guidelines. We calculate monthly unique visitors on an average basis by calculating the unique visitors for each month in the period, adding them together and then dividing the sum by the number of months in the period. The number of monthly unique visitors is indicative of the traffic on our websites, which is important to our Digital Media subscribing dealers as well as to our advertisers. This metric is also an important indicator of the success of our marketing campaigns.

We separately track monthly unique visitors to each of AutoTrader.com and KBB.com, and there is overlap among unique visitors on the two websites. For the three months ended March 31, 2012, the overlap of unique visitors on AutoTrader.com and KBB.com was 2.6 million or 9% of the combined average monthly unique visitors on the two websites. The following table sets forth the number of average monthly unique visitors to each of AutoTrader.com and KBB.com for the each of the periods presented (in thousands):

We track the number of listings on our AutoTrader.com website as an indicator of business activity. The number of listings as of a specified date is the total number of car listings on the AutoTrader.com website on that date. We had over 3.1 million and 3.4 million monthly unique car listings on AutoTrader.com and KBB.com on average for the twelve months ended December 31, 2011 and the three months ended March 31, 2012, respectively. Prior to June 2012, listings on KBB.com were being provided by a third party. In June 2012, we began providing dealers with the option of listing new and used cars on KBB.com, which are offered to our subscribing dealers on AutoTrader.com as an upgrade to our listing subscriptions.

In 2011 and the three months ended March 31, 2012, brand advertising revenues made up approximately 18% and 16%, respectively, of the revenues in our Digital Media business. We sell brand advertising to OEMs and dealer associations. We served 10.4 billion and 2.6 billion brand advertising impressions on our websites in the year ended December 31, 2011 and the three months ended March 31, 2012, respectively. Brand advertising revenues are a function of the CPM that we charge and the number of impressions that we served.

Adjusted EBITDA is a non-GAAP financial measure of our operating performance that we calculate as net income adjusted to exclude acquisition transactions costs and severance costs, long-term incentive compensation, depreciation and amortization, impairment of goodwill and intangible assets, other operating expense, other (income) expense and income tax expense. We believe that

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Adjusted EBITDA enhances investors’ understanding of our business and our results of operations and assists investors in evaluating our performance in the same manner as management. We also believe Adjusted EBITDA is used by investors as a supplemental measure to evaluate the overall operating performance of companies in our industry. This non-GAAP information is not necessarily comparable to non-GAAP information provided by other companies. 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. For more information about Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, see “Prospectus Summary—Summary Historical Consolidated Financial and Other Data” and “Selected Consolidated Financial Data.”

Segment Profit is a non-GAAP financial measure of the operating performance of our business segments that we calculate as segment revenues less segment operating expenses. See Note 16, “Segment Information,” to our audited financial statements included elsewhere in this prospectus.

Our Digital Media revenues and Digital Media MRR are dependent on the amount dealers spend on paid listings and on advertising on our websites. In order to increase our revenues, dealers will have to increase the amount they spend on online marketing in absolute dollars or as a percentage of their total marketing expenditures.

Our future growth will depend in part on our ability to successfully increase the amount that each of our dealer customers spends on our digital media solutions. We have made a substantial investment in our sales organization, and we are dependent on the success of that organization in helping our subscribing dealers see the value and the return on investment of our premium listings and our enhancement products and services.

Historically, we have had success in increasing the revenues in our Digital Media business through the launch of new value-added products, including featured listings, premium listings, our Alpha, Spotlight and Tower advertisement enhancement products and our TIM product. We also intend to launch new software solutions in order to increase revenues in our Software Solutions business. Our revenue growth in the future will be dependent, in part, on our ability to successfully innovate, develop, launch and gain market acceptance of new products and services that we can sell to dealers for an additional monthly subscription fee. Also, our future results of operations will be affected by the timing of the launch of new products and services.

We aim to grow our recently acquired Software Solutions business and our success will depend on our ability to cross-sell our software solutions to our dealer customer base and otherwise increase the overall number of dealers using our software solutions. Our ability to increase our MRR in our Software Solutions business will also depend on our success in increasing the number of software solutions subscribed to by our customers.

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We believe the number of in-market car shoppers that utilize our websites is a key differentiator and directly impacts the value of our websites to dealers and advertisers and the amount subscribing dealers and advertisers are willing to spend on our digital media solutions. Our ability to increase MRR in our Digital Media business and our advertising sales is dependent on our ability to continue to attract in-market car shoppers to our AutoTrader.com and KBB.com websites. In addition, the data we derive about the behavior of in-market car shoppers on our websites enables us to provide useful market insights to dealers and brand advertisers, which supports the development of new products and services and increases the utility of our software solutions.

We have invested aggressively in building the recognition of our AutoTrader.com brand and we are increasing our investment in our Kelley Blue Book brand. We spent over $111 million and $31 million on marketing initiatives in the year ended December 31, 2011 and the three months ended March 31, 2012, respectively, and have spent over $780 million on marketing initiatives since our inception in 1997. We have sponsorship relationships with many well-known brands, including the National Football League, National Basketball Association, the National Hockey League and Major League Baseball, and we also have long-term relationships with A&E, CBS, ESPN, Fox, Lifetime and TNT. We intend to continue to purchase significant online and traditional advertising as well as sports programming sponsorships and marketing positions at major consumer automotive shows to increase traffic on our websites and enhance the market perception of our company, brands and solutions. The timing and magnitude of our marketing and sponsorship activities will impact our sales and marketing expense in a given period and the relative effectiveness of such activities could have a significant impact on our revenues in future periods.

We operate in the retail automotive industry in the United States and our principal customers are car dealers. Accordingly, our results can be impacted by prevailing economic and market conditions that impact the retail automotive industry in general and car dealers, in particular. Improving economic conditions in 2010 and 2011 have improved new and used car sales, which, according to industry sources, has had a positive impact on dealer revenues and, in turn, has had a positive impact on our revenues. In contrast, adverse market conditions such as those that prevailed in 2008 and 2009 reduced the number of dealers that were in business and adversely impacted surviving dealers. These conditions adversely affected the amount dealers, OEMs and other advertisers were willing to spend on advertising in general, including digital media advertising, according to Forrester Research, which impacted our revenues and our rate of growth during that period. In addition, general economic conditions can impact the number of in-market car shoppers on our websites and the availability of used car inventory, which makes up the vast majority of the paid listings on our websites.

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We generate revenues from two business segments: Digital Media and Software Solutions. The following table provides a breakdown of our revenues by segment:

In our Digital Media business, we primarily generate revenues through the following products and services:

Tiered Listing Subscriptions. We generate revenues by selling car dealers recurring, monthly subscriptions to advertise their new and used car listings on our AutoTrader.com and KBB.com websites. Subscription pricing varies depending on the listings features, including vehicle photos, video capability, bundled enhanced advertising products and the placement of the listing on our search results page. On AutoTrader.com, these subscriptions are tiered into premium and featured categories.

À la Carte Enhancement Advertising Products. In addition to our tiered listing subscriptions, we generate revenues by selling dealers add-on advertising products on our websites that can be purchased à la carte on an on-going or episodic basis, including our Alpha, Spotlight and Tower highlighted placements. Our Alpha and Spotlight placements are the prominently visible interactive advertising positions across the top of a search results page, which allow consumers to view multiple cars in the advertising dealer’s inventory. Our Tower placements are along the side of a search results page. We sell these placements by zip code so that consumers only see relevant advertisers in their vicinity.

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Trade-in-Marketplace. We generate revenues by selling dealers monthly, recurring subscriptions to our TIM product, which was launched in 2009. This solution offers consumers the ability to trade-in or sell their car to a dealer through an instant trade-in offer. By filling out a form on our websites with details about their car, a consumer can receive an offer to purchase the car which is redeemable at a participating local dealer, subject to an inspection report, and then trade in the car for cash or use the offer to offset the cost of a new or used car purchase.

Brand Advertising. We generate revenues from the sale of display advertising to OEMs and dealer associations on our website pages. We sell this advertising on a CPM basis. We typically guarantee for a fixed fee a minimum number of impressions, or times that an advertisement appears in pages viewed by users. As a result, our advertising revenues are impacted by the number of impressions served in a given period and our prevailing CPM during that period.

Private Seller Listings. We generate revenues from the sale of listing packages to individual sellers seeking to list their used car for sale on our websites. An individual can purchase several tiers of listing products on AutoTrader.com with different lengths of run, photo and video options and page placement.

Other. We generate other revenues from a variety of sources. We generate revenues by selling display advertising to other advertisers, including finance, insurance and warranty companies, and aftermarket retailers who market their products and services to consumers on or through our websites. Revenues from such advertising are typically derived from transaction-based fees determined by contractually defined metrics, such as total website visits, specific traffic referrals or transaction leads generated by the advertising. We also sell vehicle valuations and other data to finance and insurance companies and other interested parties, as well as print versions of Kelley Blue Book. From 2009 to 2011, we operated AutoTrader Classics and AutoTrader Latino as print and digital media businesses. We ceased operating these as print businesses in May 2011 and October 2011, respectively, in order to focus on our Digital Media business. We continue to serve classic car enthusiasts, dealers and advertisers through our autotraderclassics.com and dealsonwheels.com websites. We direct visitors of the autotraderlatino.com website to a Spanish-translated version of the Find Your Car page on autotrader.com. As a result of these changes, we no longer generate revenues associated with the print versions of these publications which accounted for a substantial portion of the revenues associated with AutoTrader Classics and AutoTrader Latino. However, we continue to generate revenues from the related digital media businesses.

In our Software Solutions segment, we generate revenues through the following products and solutions:

Inventory Management Subscriptions. We generate revenues by selling to dealers monthly, recurring subscriptions to our premium desktop inventory management software. Through these products, dealers can evaluate what vehicle to purchase at what price and search sources for inventory procurement. Dealers pay an initial set-up fee for installation and can also purchase add-on software products or modules.

Integrated CRM Subscriptions. We generate revenues by selling to dealers monthly, recurring subscriptions to our web-based integrated platform for dealer websites, CRM, lead generation and tracking, and marketing. Dealers pay an initial set-up fee for installation and can also purchase add-on software products or modules.

Other Solutions. We generate revenues by offering other add-on products to dealers, which include online inventory management, merchandising and syndication solutions through HomeNet and other software solutions provided through our CDMdata business.

Index to Financial Statements

Operations. Our operations expenses primarily consist of salaries, benefits and long-term incentive compensation for our engineers, product management, information technology program management and analytics personnel, internet services costs, website content costs, hardware and software annual license and maintenance costs and salaries, benefits and long-term incentive compensation for our information technology infrastructure teams related to operating our websites and mobile applications. In addition, operations expenses include outside services and consulting fees. We believe that continued investment in content, features and functionality of our websites, software development tools, mobile applications and code modification is important to attaining our strategic objectives, and, as a result, we expect product development expense to increase for the foreseeable future.

Sales and Marketing. Our sales and marketing expenses primarily consist of salaries, benefits, long-term incentive compensation, rent for sales offices, travel expenses, bad debt expenses and commission-based compensation for our sales, field support and marketing employees. Sales and marketing expenses also include revenue sharing fees, primarily to our TIM product partner, which generates and ultimately financially supports the instant trade-in offer, as well as for our participation in a digital behavioral targeting brand advertising network. Further, sales and marketing expenses include content or service fees paid to advertising partners and product providers, brand advertisement serving costs, outside services and consulting fees and costs to print the Kelley Blue Book print publication. Historically, sales and marketing expenses also included costs to print the AutoTrader Classics and AutoTrader Latino print publications. In addition, sales and marketing expenses include consumer and dealer acquisition marketing, branding and advertising costs. In 2009, in response to adverse conditions in the retail automotive industry and the United States economy in general, we decreased our sales and marketing headcount. As conditions improved, we modestly increased our sales and marketing personnel in 2010 and 2011. We also added personnel in those periods as a result of our acquisitions. We expect our dealer acquisition sales and marketing costs to increase as we continue to expand to new dealers and cross-sell our digital media and software solutions to our existing dealers. We expect our sales and marketing expenses to increase as we continue to build our brands, generate additional revenues and increase our sales and marketing activities for our software solutions. We also plan to augment our existing sales team and develop a specialized in-house sales force to specifically target smaller independent dealers. While sales and marketing expense is expected to continue to increase in absolute dollars, it is expected to decrease as a percentage of revenues as a result of the increase in revenues from our acquisitions and improved operating leverage.

General and Administrative. Our general and administrative expenses primarily consist of salaries, benefits and long-term incentive compensation for our executive, finance, legal, human resources and other administrative employees. In addition, general and administrative expenses include outside consulting, legal and accounting services and dealer credit card processing fees and facilities and other supporting overhead costs not allocated to other expense categories. General and administrative expenses also include amounts payable to CEI for various services, including tax administration, benefits administration and cash management, that they provide to us pursuant to agreements with them described under “Certain Relationships and Related Person Transactions—Agreements Related to CEI.” These services are provided to us for our convenience and we believe that costs of these services are competitive with third-party providers. We do not anticipate that in the event we have to obtain these services from third-party providers or manage these functions internally, it would have a material impact on our general and administrative expense. We expect our general and administrative expenses to increase for the foreseeable future as we continue to expand our business. We also believe that we will incur additional costs in becoming a public company, given the expected increase in audit fees, legal fees, regulatory compliance (including documentation of our internal control over financial reporting), listing fees, director compensation and director and officer insurance premiums, among other costs.

Index to Financial Statements

Long-term Incentive Compensation. We grant a variety of cash and stock-based incentive awards to employees as long-term incentive compensation. See “—Critical Accounting Policies and Estimates—Long-term Incentive Compensation” for a discussion of the methodology used for determining the amount of long-term compensation expense recognized in a given period. All stock-based incentive awards that vest after completion of this offering will be settled through the issuance of our Class A common stock instead of cash. The expense associated with our long-term incentive compensation is allocated to operations, sales and marketing and general and administrative expenses. In connection with this offering, we intend to grant an aggregate of shares of Class A common stock to our employees. We will record an expense in the amount of $ in the quarterly period in which our Class A common stock commences trading. The expense will be allocated as described above.

The following table shows the allocation of long-term incentive compensation expense among our expense line items for the periods presented:

Pension Expense. Certain of our full-time employees are eligible to participate in CEI’s funded, qualified, defined-benefit pension plan. Certain key employees also participate in CEI’s unfunded, nonqualified, supplemental pension plan. These plans call for benefits to be paid to eligible employees at retirement based primarily upon years of service with CEI and us and compensation rates near retirement. Under the CEI pension plans, CEI allocates pension expense to us generally based on actuarial determinations of the effects of our employees’ participation in the plan. In addition to pension benefits, we provide certain postretirement healthcare and life insurance benefits to certain employees through participation in the CEI postretirement plan. Under the CEI postretirement healthcare plan, CEI allocates postretirement healthcare expense to us generally based on actuarial determinations of the effects of our employees’ participation in the plan. Annual pension and postretirement expenses may change, largely as a result of economic factors, including volatility in discount rates and investment returns, as well as changes in laws, regulations and assumptions used to calculate pension expense. If our or CEI’s interest or ability in providing pension and postretirement benefits changes, we have the right to evolve our pension and postretirement benefits to alternative arrangements that meet the needs of our employees and the company. The following table provides a breakdown of our pension expense included in the indicated line items:

Depreciation and Amortization. Depreciation and amortization expenses primarily consist of depreciation on computer equipment, software, leasehold improvements, capitalized website and

Index to Financial Statements

internal software development costs and amortization of purchased intangibles. We expect depreciation and amortization expenses to increase for the foreseeable future as we continue to expand our technology infrastructure.

Impairment of Goodwill and Intangible Assets. Under accounting principles generally accepted in the United States, we review our goodwill and intangible assets for impairment annually in the fourth quarter of each fiscal year, or more frequently if events or changes in circumstances indicate the carrying value of our intangible assets may not be fully recoverable. Impairment of goodwill consists of non-cash goodwill impairment charges attributable to HomeNet (Software Solutions segment), which we recognized in 2011 and the three months ended March 31, 2012 as a result of lower than expected future cash flows attributable to HomeNet. Impairment of intangible assets consists of non-cash intangible asset impairment charges attributable to HomeNet, which we recognized in the three months ended March 31, 2012 as a result of the related goodwill impairment charge. The primary purpose of the HomeNet acquisition was to enhance our internal technology development capabilities rather than to provide significant incremental revenue. We may also recognize additional impairment charges associated with our other acquisitions in future periods.

Other. Other primarily consists of the post-acquisition increases in the fair value of the earn-outs associated with the vAuto and VinSolutions acquisitions as well as gains and losses on the sale or disposal of assets. The earn-outs associated with the vAuto and VinSolutions acquisitions have been paid.

Total Other (Income) Expense. Total other (income) expense consists primarily of interest on borrowings under our credit facilities, interest incurred on amounts owed to CEI, net of interest earned on cash and cash equivalents held on our behalf by CEI and loss on early retirement of debt. Loss on early retirement of debt consists of a $23.4 million loss comprised of a prepayment penalty and the write-off of deferred debt issuance costs and original issue discount for the year ended December 31, 2010. The loss was associated with the early retirement of an existing credit facility in December 2010 resulting from the entering into of our new credit facilities to pay for a portion of the acquisition costs for Kelley Blue Book and HomeNet.

Income Tax (Benefit) Expense. Income tax expense consists of federal and state income taxes in the United States, deferred income taxes reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and the realization of net operating loss carryforwards in certain states.

The Providence Funds acquired a 25% interest in us in 2010 and such investment is referred to as the Providence Investment. Providence Equity Partners is the world’s leading private equity firm focused on media, communications, education and information investments. CEI retained majority ownership and voting control of us, and Providence Equity Partners obtained two seats on our Board.

In the fourth quarter of 2010, we sold shares of our common stock to our existing stockholders for aggregate proceeds of $316.5 million to fund a portion of our vAuto, Kelley Blue Book and HomeNet acquisitions.

Index to Financial Statements

vAuto. In October 2010, we acquired 100% of the outstanding stock of vAuto, a provider of advanced software tools for used vehicle management, pricing and inventory optimization, for $192.8 million in cash. In addition, the purchase agreement provided for maximum additional consideration of up to $34.5 million in the form of an earn-out payable in 2012 and was based upon the achievement of certain cumulative financial targets for 2010 and 2011. In June 2011, the acquisition of VinSolutions triggered certain provisions of the vAuto purchase agreement that accelerated the vesting of the earn-out, resulting in a full payment of $34.5 million in July 2011.

HomeNet. In December 2010, we acquired certain assets of HomeNet in a business combination for cash consideration of $61.6 million. The $2.2 million remaining unamortized option value as of the acquisition date was accounted for as additional purchase price of the acquired assets.

Kelley Blue Book. In December 2010, we acquired 100% of the outstanding stock of Kelley Blue Book, a provider of new and used car pricing information to the automotive industry, as well as its affiliate, CDMdata, for $532.4 million in cash.

VinSolutions. In June 2011, we acquired 100% of the assets of VinSolutions, a provider of an end-to-end solution platform for automobile dealers including CRM and internet lead management, inventory management tools, dealer websites, sales management and desking tools, and social media and direct targeted marketing campaign tools, for $134.6 million in cash. In addition, the purchase agreement provided for additional consideration of up to $15.0 million in the form of an earn-out payable in 2012 and based upon the achievement of certain financial targets for 2011. In 2012, we paid $13.0 million in two installments in settlement of the earn-out.

On April 30, 2012, we amended our senior secured credit facilities, which we refer to as our credit facilities, to, among other things, provide for $400.0 million of additional borrowing capacity, and we drew down the additional capacity in connection with the payment of a $400.0 million dividend to the then-existing common stock holders of AutoTrader.com, Inc. For more information regarding our credit facilities, see “—Liquidity and Capital Resources—Credit Facilities.”

Index to Financial Statements

The following tables set forth our results of operations for the periods presented and as a percentage of total revenues for those periods. The period-to-period comparison of financial results is not necessarily indicative of future results.


	Year ended December 31,						Three Months ended March 31,
	2009		2010		2011		2011		2012
	(in thousands)
Operations	$	2,170	$	4,514	$	2,873	$	580	$	536
Sales and marketing		6,172		12,835		9,118		1,839		1,469
General and administrative		3,218		6,691		7,145		1,441		2,072

Total	$	11,560	$	24,040	$	19,136	$	3,860	$	4,077

Index to Financial Statements

Digital Media revenues. Digital Media revenues increased by $14.7 million, or 7%, for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011. Revenues from dealers increased 12% due to a 2% increase in the number of subscribing dealers from 19,862 to 20,170 as well as a 17% increase in MRR from $2,668 to $3,129, reflecting increased penetration of premium tiered listings and TIM subscriptions among our subscribing dealer base. In addition, revenues from our brand advertising customers increased 1% due to a modest increase in overall advertising impressions delivered. Partially offsetting these increases were decreases resulting from ceasing print publication of AutoTrader Classics and AutoTrader Latino magazines in 2011. Revenues related to AutoTrader Classics and AutoTrader Latino decreased by $5.1 million for the three months ended March 31, 2012 compared to the three months ended March 31, 2011.

Index to Financial Statements

Software Solutions revenues. Software Solutions revenues increased $16.1 million, or 77%, for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011. The increase is driven primarily by the absence of revenues in the first quarter of 2011 from VinSolutions, which was acquired in June 2011. VinSolutions’ revenues were $12.8 million for the three months ended March 31, 2012. The rest of the increase in Software Solutions revenues was due mainly to an increase in the number of dealers subscribing to our inventory management software solutions and an increase in the amount of subscription fees per subscribing dealer.

Operations expense increased by $7.8 million, or 17%, for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011. This increase was primarily due to $3.7 million in personnel costs attributable to increased headcount resulting from our increased investment in product development and customer support and $4.6 million of VinSolutions’ expenses in the three months ended March 31, 2012. These increases were partially offset by $1.0 million of higher capitalized labor costs related to internally developed software and website development activities in the three months ended March 31, 2012.

Sales and marketing expense increased by $2.8 million, or 3%, for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011. The increase was primarily due to $2.5 million of increased branding and consumer acquisition marketing expenses, $2.1 million of expenses associated with VinSolutions in the three months ended March 31, 2012, $2.3 million in consulting fees primarily related to the development of a comprehensive dealer selling and services strategy and a $0.9 million increase in travel and entertainment expense. These increases more than offset the $3.6 million decreases in certain non-personnel related sales and marketing expense as a result of ceasing print publication of AutoTrader Classics and AutoTrader Latino magazines, $0.6 million in less revenue sharing and other fees paid to advertising partners and third party product providers and a $0.4 million decrease in bad debt expense. In addition, increased sales and marketing personnel since the first quarter of 2011 was mostly offset by a decrease in AutoTrader Classics and AutoTrader Latino personnel.

Index to Financial Statements

General and administrative expense increased by $8.6 million, or 33%, for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011. The increase was primarily due to increased personnel expenses associated with increased headcount, increased employer taxes related to higher bonus and incentive compensation payments, $3.3 million of expenses associated with VinSolutions in the three months ended March 31, 2012 and $0.6 million of increased credit card processing and bank fees, which were partially offset by the absence of $2.2 million of overlapping rent, operating and restoration expenses associated with our new and expiring Atlanta headquarters office leases and $1.2 million of retention bonus expense related to certain HomeNet employees incurred during the three months ended March 31, 2011.

Depreciation and amortization expense increased by $2.7 million, or 9%, for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011. This increase was primarily the result of a $2.7 million increase in depreciation in the three months ended March 31, 2012 as compared to the three months ended March 31, 2011, due to our continued investment in internally developed software and website development activities.

As a result of recently reduced projected future cash flow expectations for HomeNet, we recognized an impairment of goodwill for the three months ended March 31, 2012 of $11.1 million based on lower than expected revenue growth resulting from recent project launch issues, a change in outlook of the outcome expected for certain business development opportunities, and incremental expenses expected from our new data licensing agreement. We did not recognize any impairment charges in the three months ended March 31, 2011.

Index to Financial Statements

As a result of events occurring in late April 2012 that resulted in reduced future cash flow projections for HomeNet, we determined that certain of HomeNet’s long-lived assets were not recoverable and recorded an impairment charge of $4.5 million during the three months ended March 31, 2012. We did not recognize any impairment of intangible assets in the three months ended March 31, 2011.

Other increased by $0.3 million, or 28%, for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011. This increase was primarily a result of higher losses on the disposal of assets in the ordinary course of business.

Total other expense decreased by $2.1 million, or 24%, for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011 due to lower interest rates on our indebtedness.

Income tax expense increased by $1.2 million, or 12%, for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011 due to an increase in pre-tax book

Index to Financial Statements

income partially offset by the difference in book and tax treatment of the vAuto earn-out and changes in effective state rates.

Net income decreased by $6.1 million, or 37%, for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011. This decrease was primarily due to $15.7 million of pre-tax expense related to the impairment of HomeNet’s goodwill and intangible assets, which was partially offset by an increase in both Digital Media and Software Solutions revenues, including the impact of $12.8 million of revenues from VinSolutions, which was acquired in June 2011.

We measure the performance of our Digital Media and Software Solutions segments based on revenues and segment profit. The discussion that follows is a summary analysis of revenues and the primary changes in segment profit by segment.

Digital Media revenues increased by $14.7 million, or 7%, for the three months ended March 31, 2012 compared to the three months ended March 31, 2011. Digital Media segment profit increased by $7.4 million, or 12%, for the three months ended March 31, 2012 compared to the three months ended March 31, 2011 due to the $14.7 million increase in segment revenues, which were partially offset by a $7.3 million increase in segment expenses.

Software Solutions revenues increased $16.1 million, or 77%, for the three months ended March 31, 2012 as compared to the three months ended March 31, 2011. The increase was primarily

Index to Financial Statements

the result of the impact of $12.8 million of increased revenues relating to the inclusion of VinSolutions results for the three months ended March 31, 2012. Software Solutions segment profit increased $4.2 million, or 60%, for the three months ended March 31, 2012 compared to the three months ended March 31, 2011 due to the $16.1 million increase in segment revenues, which were partially offset by an $11.9 million increase in segment expenses, of which $10.0 million related to VinSolutions.

2010 Compared to 2011. Total revenues increased by $287.4 million, or 39%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010. This increase was primarily due to the $221.9 million increase in revenues resulting from the full year impact of the 2010 Acquisitions and the partial year impact of the VinSolutions acquisition in 2011.

Digital Media revenues increase by $191.2 million, or 26%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010, due primarily to a $125.7 million increase resulting from the full year impact of the Kelley Blue Book acquisition. Digital Media revenues from AutoTrader.com dealers increased 13% due to a 2% increase in the number of subscribing dealers as well as a 15% increase in Digital Media MRR resulting from increased penetration of premium tiered listings and TIM subscriptions. In addition, revenues from AutoTrader.com’s brand advertising customers increased as an increase in average CPM in 2011 more than offset a decrease in overall advertising impressions delivered as a result of changing dealer association advertising strategies by certain OEMs. Partially offsetting these increases were decreases resulting from ceasing print publication of AutoTrader Classics and AutoTrader Latino magazines in May and October 2011, respectively. Revenues for AutoTrader Classics and AutoTrader Latino decreased by $13.6 million for the year ended December 31, 2011 as compared to the year ended December 31, 2010.

Software Solutions revenues increased by $96.2 million for the year ended December 31, 2011 as compared to the year ended December 31, 2010, due to the full year impact of the 2010 Acquisitions and the partial year impact of the VinSolutions acquisition in 2011.

Index to Financial Statements

2009 Compared to 2010. Total revenues increased by $108.4 million, or 17%, for the year ended December 31, 2010 as compared to the year ended December 31, 2009. This increase was due in part to $18.1 million of post-acquisition date revenues associated with the 2010 Acquisitions.

Digital Media revenues increased by $96.4 million, or 15% as revenues from AutoTrader.com dealers increased 16% due to a 2% increase in the number of subscribing dealers from 19,517 as of December 31, 2009 to 19,839 as of December 31, 2010 as well as a 15% increase in Digital Media MRR from $2,267 as of December 31, 2009 to $2,612 as of December 31, 2010, resulting from increased premium tiered listings and TIM subscriptions in 2010. In addition, revenues from AutoTrader.com’s brand advertising customers increased due mainly to an increase in overall advertising impressions delivered in 2010, partially offset by a decrease in average CPM. Increased revenues in 2010 were partially offset by a 12% decline in AutoTrader Classics revenues, as magazine circulation was adversely impacted by the termination of a distributor relationship and the corresponding loss of retail outlets in certain markets.

Software Solutions revenues were $11.9 million for the year ended December 31, 2010. We did not have Software Solutions revenues for the year ended December 31, 2009.

2010 Compared to 2011. Operations expense increased by $79.7 million, or 68%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010. This increase was primarily due to the full year impact of our 2010 Acquisitions as well as the partial year impact of our VinSolutions acquisition, which resulted in $75.1 million of incremental operations expense. The remaining increase in operations expense was due to $8.4 million in higher personnel costs from increased full-time and contractor headcount. These expenses were partially offset by $2.2 million in higher capitalized labor costs related to internally developed software and website development activities and a $0.9 million decrease in outside consulting fees.

2009 Compared to 2010. Operations expense increased by $11.3 million, or 11%, for the year ended December 31, 2010 as compared to the year ended December 31, 2009. A decrease in personnel expense in 2009 resulting from reduced headcount was more than offset by the $4.4 million decrease in capitalized labor costs related to internally developed software and website development activities in 2010 and a $5.5 million increase in professional fees in 2010.

Index to Financial Statements

2010 Compared to 2011. Sales and marketing expense increased by $31.0 million, or 8%, for the year ended December 2011 as compared to the year ended December 31, 2010. This increase was primarily due to the full year impact of our 2010 Acquisitions and the partial year impact of our VinSolutions acquisition, which resulted in $39.3 million of incremental sales and marketing expense. Other sales and marketing expense decreased $8.0 million compared to the prior year, as a $5.9 million decrease in lower non-personnel-related sales and marketing costs resulting from ceasing print publication of AutoTrader Classics and AutoTrader Latino magazines, a $3.5 million decrease in commissions and a $3.4 million decline in long-term incentive compensation expense were partially offset by a $2.5 million increase in revenue sharing fees to advertising partners, primarily for TIM, and a $1.8 million increase in outside consulting fees.

2009 Compared to 2010. Sales and marketing expense increased by $39.8 million, or 12%, for the year ended December 31, 2010 as compared to the year ended December 31, 2009. This increase was primarily the result of $9.9 million in increased sales and marketing expenses associated with our 2010 Acquisitions, $9.6 million in incremental local advertising expense, primarily to support the national roll-out of our TIM program, $8.4 million in increased revenue sharing fees to advertising partners, primarily for TIM, $6.6 million in increased long-term incentive compensation expense and $3.8 million in increased travel and entertainment expense.

2010 Compared to 2011. General and administrative expense increased by $49.1 million, or 72%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010. This increase was primarily due to the full year impact of our 2010 Acquisitions and the partial year impact of our VinSolutions acquisition, which resulted in $45.4 million of incremental general and administrative expense. Other general and administrative expense increased $3.9 million, or 12%, compared to the prior year due primarily to $8.1 million in higher personnel costs in 2011 due to increased headcount and severance expense for certain AutoTrader Classics and AutoTrader Latino personnel, $0.9 million of increased outside consulting and professional service fees, $0.7 million in incremental expense for overlapping rent, operating and restoration costs associated with our new and expiring Atlanta headquarters office leases and $0.7 million in higher credit card processing fees relating to payments from our dealer customers. These increases were partially offset by $4.5 million of expense incurred in 2010 associated with the early termination of a vendor contract and $3.0 million in decreased legal fees due to reduced acquisition activity in 2011.

2009 Compared to 2010. General and administrative expense increased by $12.7 million, or 23%, for the year ended December 31, 2010 as compared to the year ended December 31, 2009. This increase was primarily due to $5.7 million in legal and other professional service fees, mainly resulting from our 2010 acquisition activity, $4.5 million in costs associated with the early termination of a vendor contract, $3.5 million in increased long-term incentive compensation expense, $1.7 million in overlapping rent associated with our new and expiring Atlanta headquarters office leases plus $0.7 million in higher credit card processing fees relating to payments from our dealer customers. These increases were partially offset by $4.1 million in decreased personnel costs from the absence of severance and lower employee contract expenses in 2010.

Index to Financial Statements

2010 Compared to 2011. Depreciation and amortization expense increased by $57.6 million, or 88%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010. This increase was due to the full year impact of depreciation and amortization costs associated with our 2010 Acquisitions and the partial year impact of our 2011 VinSolutions acquisition.

2009 Compared to 2010. Depreciation and amortization expense decreased by $55.1 million, or 46%, for the year ended December 31, 2010 as compared to the year ended December 31, 2009. This decrease reflected the impact of the amortization in 2009 of definite-lived intangible assets assigned in connection with CEI’s 2006 purchase and transfer of certain ownership interests in us. These assigned assets were fully amortized as of December 31, 2009.

As a result of our annual impairment test of goodwill, we recognized an impairment of goodwill in 2011 due to lower than expected revenue growth for HomeNet relative to assumptions made in the year of acquisition. We did not recognize any impairment charges in 2010 or 2009.

2010 Compared to 2011. Other operating expenses increased by $8.5 million for the year ended December 31, 2011 as compared to the year ended December 31, 2010. This increase was primarily due to the increase in the fair value of the earn-outs associated with the vAuto and VinSolutions acquisitions. Our other operating expenses were relatively flat for the years ended December 31, 2010 and 2009.

Index to Financial Statements

2010 Compared to 2011. Total other expense decreased by $7.1 million, or 18%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010. This decrease was primarily due to a $23.4 million loss from the early retirement of our then-existing credit facility in December 2010 resulting from the entering into of our new credit facilities to pay a portion of the acquisition costs for the Kelley Blue Book and HomeNet acquisitions. The loss consisted of a $2.7 million prepayment penalty and the write-off of deferred debt issuance costs and original issue discount related to our then-existing credit facility. This decrease was partially offset by increased interest expense in 2011 attributable to the full year impact of the higher principal amount outstanding under our new credit facilities, which were increased by $200.0 million in aggregate principal amount in June 2011 to pay the acquisition costs for the VinSolutions acquisition and to prepay a portion of the term B loan facility.

2009 Compared to 2010. Total other expense was $40.1 million for the year ended December 31, 2010 compared to other income of $0.4 million for the year ended December 31, 2009. This change was due to interest expense on our credit facility established in June 2010 to help finance a share repurchase prior to the Providence Investment. This credit facility was retired in December 2010 when we entered into new credit facilities, resulting in the recognition of a $23.4 million loss on the early retirement of debt.

2010 Compared to 2011. Income tax expense increased by $13.3 million, or 53%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010. This increase was primarily due to an increase in pre-tax book income, changes in certain state effective tax rates in 2010 and the difference in book and tax treatment of the vAuto earn-out.

2009 Compared to 2010. Income tax expense increased by $20.3 million for the year ended December 31, 2010 as compared to the year ended December 31, 2009. This increase was primarily due to an increase in pre-tax book income, partially offset by changes in certain state effective tax rates in 2010.

Index to Financial Statements

2010 Compared to 2011. Net income increased by $18.9 million, or 39%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010. This increase was primarily the result of increased revenues resulting from the full year impact of the 2010 Acquisitions and the partial year impact of the acquisition of VinSolutions. The increase in revenues more than offset increased operating expense and income tax expense.

2009 Compared to 2010. Net income increased by $39.3 million for the year ended December 31, 2010 as compared to the year ended December 31, 2009. This increase was primarily due to the impact of our 2010 Acquisitions and increases in Digital Media subscribing dealers and Digital Media MRR, which more than offset increased operating expense and income tax expense.

2011 is the only year in which we operated our Software Solutions business for the entire year and we do not believe a year-to-year comparison is meaningful.

Our liquidity is funded primarily through cash provided by operations, our credit facilities (described below) and the sale of equity securities, which has been generally sufficient to fund our operations, planned capital expenditures, debt service, dividends, stock repurchases, acquisitions and public company expenses. As of March 31, 2012, our principal sources of liquidity consisted of cash provided by operations and $136.5 million of availability under the $200.0 million revolving portion of our credit facilities. Our total indebtedness was $884.4 million as of March 31, 2012. In April 2012, we amended our credit facilities and borrowed an additional $400.0 million in connection with the payment of a $400.0 million cash dividend to our then-existing common stockholders.

Our principal needs for liquidity have been, and for the foreseeable future will continue to be, debt service, capital expenditures, working capital and acquisitions. Additionally, our strategy includes the development of additional products and services and the expansion into new markets. We anticipate that the execution of these components of our strategy will not require a significant amount of resources and will be funded primarily through cash provided by operating activities.

The main portion of our capital expenditures has been related to enhancing our technology infrastructure. Our capital expenditures for the three months ended March 31, 2011 and 2012 and the years ended December 31, 2009, 2010 and 2011 were $17.1 million, $17.8 million, $62.6 million, $51.4 million and $90.4 million, respectively. We believe that our cash flow from operations and available borrowings under the revolving portion of our credit facilities will be sufficient to meet our liquidity needs for the next 12 months. We anticipate that to the extent that we require additional liquidity, it will be funded through the incurrence of additional indebtedness, equity financings or a combination thereof. We cannot assure you that we will be able to obtain additional liquidity through financings on

Index to Financial Statements

reasonable terms, or at all. Additionally, our liquidity and our ability to meet our obligations and fund our capital requirements are also dependent on our future financial performance, which is subject to general economic, financial and other factors that are beyond our control. Accordingly, we cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available under our credit facilities or otherwise to meet our liquidity needs in the future. Although we have no specific current plans to do so, if we decide to pursue one or more significant acquisitions, we may incur additional debt or sell additional equity to finance such acquisitions.

The following table presents a summary of cash flows from operating, investing and financing activities for the three months ended March 31, 2011 and 2012 and the years ended December 31, 2009, 2010 and 2011.

Net cash provided by operating activities was $42.6 million for the three months ended March 31, 2011 as compared to $25.9 million in the three months ended March 31, 2012. The decrease was due primarily to a $24.0 million increase in long-term incentive compensation payments, which was partially offset by an increase in cash from operations and a $2.8 million decrease in interest paid in the three months ended March 31, 2011.

Net cash provided by operating activities was $148.4 million for the year ended December 31, 2010 as compared to $247.0 million for the year ended December 31, 2011. The increase was primarily due to an increase in cash from operations, including an increase resulting from the impact of the vAuto, VinSolutions and Kelley Blue Book acquisitions, a $7.6 million increase in working capital and a $3.2 million decrease in long-term incentive compensation payments, which were partially offset by $20.8 million and $9.8 million in higher interest and taxes paid, respectively, in 2011.

Net cash provided by operating activities was $110.8 million for the year ended December 31, 2009 compared to $148.4 million for the year ended December 31, 2010. The increase was primarily due to an increase in cash from operations during the year ended December 31, 2010, including an increase resulting from the impact of the vAuto and Kelley Blue Book acquisitions, a $21.0 million decrease in long-term incentive compensation payments and a $2.8 million increase in working capital, which were partially offset by $28.7 million and $14.0 million in higher taxes and interest paid, respectively, in 2011.

Net cash used in investing activities was $14.2 million for the three months ended March 31, 2011 as compared to $15.3 million for the three months ended March 31, 2012. The increase was primarily due to a $0.4 million decrease in our cash balances held by CEI and $0.7 million increase in capital expenditures in the three months ended March 31, 2012.

Index to Financial Statements

Net cash used in investing activities was $762.6 million for the year ended December 31, 2010 as compared to $222.4 million for the year ended December 31, 2011. The decrease reflected $786.8 in cash used for the 2010 Acquisitions, which was slightly offset by $134.6 million in cash used for the acquisition of VinSolutions in 2011 and $39.0 million of increased capital expenditures in 2011. Further, 2010 investing activities included a $75.6 million decrease in our cash balances held by CEI, which cash balances were used to help finance a share repurchase in June 2010 prior to the Providence Investment.

Net cash used in investing activities was $103.3 million for the year ended December 31, 2009 as compared to $762.6 million for the year ended December 31, 2010. The increase reflected $786.8 million in cash used for the 2010 Acquisitions, which was slightly offset by a $11.3 million decrease in capital expenditures in 2010 as compared to 2009. Further, 2010 investing activities included a $75.6 million decrease in our cash balances held by CEI, which cash balances were used to help finance a share repurchase in June 2010 prior to the Providence Investment.


Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer x	Smaller reporting company ¨
		(Do not check if a smaller reporting company)



Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price(1)	Amount of Registration Fee
Class A Common Stock, par value $0.001 per share	$300,000,000	$34,380


	Per share	Total
Initial public offering price	$	$
Underwriting discounts and commissions	$	$
Proceeds, before expenses, to us	$	$


Goldman, Sachs & Co.		Morgan Stanley

Allen & Company LLC	Barclays	Citigroup

Deutsche Bank Securities	SunTrust Robinson Humphrey	Wells Fargo Securities


RBC Capital Markets Raymond James

Evercore Partners	Guggenheim Securities	The Williams Capital Group, L.P.


	Page
Forward-Looking Statements		ii
Prospectus Summary		1
The Offering		10
Summary Historical Consolidated Financial and Other Data		12
Risk Factors		17
Use of Proceeds		46
Dividend Policy		47
Capitalization		48
Dilution		49
Selected Consolidated Financial Data		51
Management’s Discussion and Analysis of Financial Condition and Results of Operations		53
Business		89
Management		119
Executive and Director Compensation		126
Certain Relationships and Related Person Transactions		148
Principal Stockholders		154
Description of Material Indebtedness		156
Description of Capital Stock		159
Shares Eligible for Future Sale		164
Material United States Federal Income Tax Considerations for Non-U.S. Holders		166
Underwriting		170
Legal Matters		175
Experts		175
Where You Can Find More Information		176
Index to Financial Statements		F-1


	As of March 31, 2012
	Actual			As adjusted
	(in thousands)
Debt:
Total long-term debt, including current portion	$	884,415		$

Redeemable common stock		62,279

Stockholders’ equity:
Class A common stock, $0.001 par value—250,000 shares authorized; 17,682 shares issued and outstanding (591 of which are redeemable)		17
Class B common stock, $0.001 par value—15,000 shares authorized; 277 and 347 shares, respectively issued and outstanding (all of which are redeemable)		—
Class C common stock $0.001 par value—100,000 shares authorized; 30,338 shares issued and outstanding		30
Additional paid-in capital		682,883
Treasury stock		(539,428	)
Retained earnings		133,450

Total stockholders’ equity		276,952

Total capitalization(1)	$	1,223,646		$


Initial public offering price per share of Class A common stock		$
Net tangible book value per share as of March 31, 2012 before this offering	$
Increase in net tangible book value per share attributable to new investors

As adjusted net tangible book value per share after this offering

Dilution in net tangible book value per share to new investors		$


	Year ended December 31,													Three Months ended March 31,
	2007			2008		2009		2010			2011			2011			2012
	(in thousands, except per share data)
Consolidated statement of income data:
Revenues
Digital Media	$	516,492		$	621,196	$	629,450	$	725,890		$	917,041		$	221,804		$	236,500
Software Solutions		—			—		—		11,937			108,136			20,871			37,005

Total revenues	$	516,492		$	621,196	$	629,450	$	737,827		$	1,025,177		$	242,675		$	273,505

Operating Expenses:
Operations		90,241			109,353		106,190		117,471			197,187			45,522			53,307
Sales and marketing		260,061			291,857		331,285		371,060			402,054			102,881			105,694
General and administrative		57,439			57,547		55,605		68,293			117,381			26,347			34,934
Depreciation and amortization		109,546			129,366		120,471		65,325			122,951			31,274			33,995
Impairment of goodwill		—			5,310		—		—			36,216			—			11,112
Impairment of intangible assets		—			—		—		—			—			—			4,544
Other		31			175		1,374		1,131			9,634			1,108			1,420

Total operating expenses		517,318			593,608		614,925		623,280			885,423			207,132			245,006

(Loss) income from operations		(826	)		27,588		14,525		114,547			139,754			35,543			28,499
Total other income (expense)		(305	)		1,604		379		(40,066	)		(33,011	)		(9,036	)		(6,891	)

Income before income taxes		(1,131	)		29,192		14,904		74,481			106,743			26,507			21,608
Income tax (benefit) expense		(61,650	)		14,130		5,045		25,357			38,692			10,141			11,340

Net income	$	60,519		$	15,062	$	9,859	$	49,124		$	68,051		$	16,366		$	10,268

Net income per share:
Basic	$			$		$		$			$			$			$
Diluted	$			$		$		$			$			$			$
Shares used in computing net income per share:
Basic
Diluted


	As of December 31,										As of March 31,
	2007		2008		2009		2010		2011		2012
	(in thousands)
Consolidated balance sheet data:
Amounts due from (to) CEI(1)	$	52,046	$	47,332	$	80,864	$	4,056	$	2,476	$	(4,304	)
Total assets		620,940		557,922		524,978		1,421,709		1,511,150		1,468,515
Total long-term debt and capital leases, including current portion		—		—		—		885,972		892,979		884,883
Total stockholders’ equity		462,939		432,967		436,595		209,042		265,013		276,952


	As of December 31,						As of March 31,
	2009		2010		2011		2011		2012
*Digital Media*
Subscribing Dealers		19,517		19,839		20,302		19,862		20,170
MRR	$	2,267	$	2,612	$	3,002	$	2,668	$	3,129

*Software Solutions(1)*
Subscribing Dealers		—		—		—		—
MRR	$	—	$	—	$	—	$	—	$


	Year ended December 31,						Three Months ended March 31,
	2009		2010		2011		2011		2012
AutoTrader.com		13,488		13,946		15,016		15,669		17,116
KBB.com(1)		10,800		11,403		12,544		12,798		14,504


	Year ended December 31,						Three Months ended March 31,
	2009		2010		2011		2011		2012
	(in thousands)
AutoTrader Classics	$	19,805	$	17,407	$	7,243	$	3,900	$	1,129
AutoTrader Latino	$	6,889	$	10,433	$	6,950	$	2,316		—


	Year ended December 31,						Three Months ended March 31,
	2009		2010		2011		2011		2012
	(in thousands)
Operations	$	2,781	$	4,343	$	5,377	$	1,159	$	1,437
Sales and marketing		5,430		8,761		9,723		2,095		2,426
General and administrative		698		944		1,414		305		311

Total	$	8,909	$	14,048	$	16,514	$	3,559	$	4,174


	Three Months ended March 31,
	2011			2012			$ Change		% Change
	(dollars in thousands)
Revenues:
Digital Media	$	221,804		$	236,500		$	14,696		7	%
Software Solutions		20,871			37,005			16,134		77

Total revenues	$	242,675		$	273,505		$	30,830		13	%

Percentage of Revenues:
Digital Media		91	%		86	%
Software Solutions		9			14

Total revenues		100	%		100	%


	Year ended December 31,									2009 to 2010					2010 to 2011
	2009			2010			2011			$ Change		% Change			$ Change		% Change
	(dollars in thousands)
Revenues by Segment:
Digital Media	$	629,450		$	725,890		$	917,041		$	96,440		15	%	$	191,151		26	%
Software Solutions		—			11,937			108,136			11,937		—			96,199		*

Total revenues	$	629,450		$	737,827		$	1,025,177		$	108,377		17	%	$	287,350		39	%

Percentage of revenues by segment:
Digital Media		100	%		98	%		89	%
Software Solutions		—			2	%		11	%

Total revenues		100	%		100	%		100	%


	Years ended December 31									Three Months ended March 31,
	2009			2010			2011			2011			2012
	(dollars in thousands)
Net cash provided by operating activities	$	110,817		$	148,393		$	247,009		$	42,551		$	25,860
Net cash used in investing activities		(103,256	)		(762,565	)		(222,404	)		(14,176	)		(15,319	)
Net cash (used in) provided by financing activities		(7,561	)		614,172			(24,605	)		(28,375	)		(10,541	)