16. Strategic Agreement with General Motors Acceptance Corportion (GMAC)

On February 10, 2010, DealerTrack entered into a strategic relationship with GMAC. Under the terms of the agreement, GMAC will be listed as a financing option on the DealerTrack credit application processing network and DealerTrack has agreed to make a one-time payment to GMAC of $15.0 million payable upon GMAC becoming available to substantially all dealers that it does business with who are on the DealerTrack U.S. network. As of March 31, 2010 we accrued $15.0 million as a current liability as it was deemed probable this contingency will be resolved within a year. The one-time $15.0 million payment will be recorded as a reduction to revenue over the period of expected benefit of approximately five years. GMAC will be available to General Motors and Chrysler dealers, as well as dealers of other manufacturers that GMAC elects to do business with. GMAC will continue to accept credit applications through the RouteOne system.

17. Settlement with Service Provider

During the three months ended March 31, 2010 we received a settlement of approximately $0.4 million related to the cancellation of a services agreement from our eDocs business, which has been recorded to other income in the statement of operations.

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements. Certain statements in this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These statements involve a number of risks, uncertainties and other factors that could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that could materially affect such forward-looking statements can be found in the sections entitled “Risk Factors” in Part II, Item 1A. in this Quarterly Report on Form 10-Q and in Part I, Item 1A. in our Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on February 24, 2010 . Investors are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date hereof and we will undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

 

Overview

DealerTrack’s intuitive and high-value software solutions enhance efficiency and profitability for all major segments of the automotive retail industry, including dealers, lenders, OEM’s, agents and aftermarket providers. We believe our solution set for dealers is the industry’s most comprehensive. DealerTrack operates the industry’s largest online credit application network, connecting approximately 17,000 dealers with approximately 850 lenders. Our dealer management system (DMS) provides dealers with easy-to-use tools and real-time data access that will streamline any automotive business. Dealers using DealerTrack AAX get inventory management tools and services needed to accelerate turns and increase profit. Our sales and finance & insurance (F&I) solution enables dealers to streamline the entire sales process, quickly structuring all types of deals from a single integrated platform. DealerTrack’s compliance solution helps dealers meet legal and regulatory requirements and protect their hard-earned assets. DealerTrack’s family of companies also includes data and consulting services providers, ALG and Chrome Systems.

We are a Delaware corporation formed in August 2001. We are organized as a holding company and conduct a substantial amount of our business through our subsidiaries, including ALG, Inc., Chrome Systems, Inc., DealerTrack Aftermarket Services, Inc., DealerTrack AAX, Inc., DealerTrack Canada, Inc., DealerTrack Digital Services, Inc., DealerTrack, Inc., and DealerTrack Systems, Inc.

We monitor our performance as a business using a number of measures that are not found in our consolidated financial statements. These measures include the number of active dealers, lenders, and active lender to dealership relationships in the DealerTrack network, the number of subscribing dealers in the DealerTrack network, the number of transactions processed, the average transaction price and the average monthly subscription revenue per subscribing dealership. We believe that improvements in these metrics will result in improvements in our financial performance over time. We also view the acquisition and successful integration of acquired companies as important milestones in the growth of our business as these acquired companies bring new products to our customers and expand our technological capabilities. We believe that successful acquisitions will also lead to improvements in our financial performance over time. In the near term, however, the purchase accounting treatment of acquisitions can have a negative impact on our statement of operations as the depreciation and amortization expenses associated with acquired assets, as well as particular intangibles (which tend to have a relatively short useful life), can be substantial in the first several years following an acquisition. As a result, we monitor our non-GAAP financial measures and other business statistics as a measure of operating performance in addition to net income (loss) and the other measures included in our consolidated financial statements. 

 

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The following is a table consisting of non-GAAP financial measures and certain other business statistics that management is continually monitoring (amounts in thousands, are adjusted EBITDA, adjusted net income, capital expenditure data and transactions processed):

		Three Months Ended March 31,
		2010				2009
Non-GAAP Financial Measures and Other Business Statistics:
Adjusted EBITDA (Non-GAAP) (1)		$	4,942			$	6,077
Adjusted net income (Non-GAAP) (1)		$	2,065			$	3,822
Capital expenditures, software and website development costs		$	6,920			$	5,234
Active dealers in our network as of end of the period (2)			16,860				18,998
Active lenders in our network as of end of period (3)			847				736
Active lender to dealer relationships (4)			127,724				134,475
Subscribing dealers in our network as of end of the period (5)			13,705				14,646
Transactions processed (6)			11,841				14,327
Average transaction price (7)		$	1.93			$	1.68
Average monthly subscription revenue per subscribing dealership (8)		$	719			$	635

 

(1)

Adjusted EBITDA is a non-GAAP financial measure that represents GAAP net (loss) income excluding interest, taxes, depreciation and amortization expenses, GMAC contra-revenue and may exclude certain items such as: impairment charges, restructuring charges, acquisition-related earn-out compensation expense and professional service fees, or realized gains or (losses) on securities. Adjusted net income is a non-GAAP financial measure that represents GAAP net (loss) income excluding stock-based compensation expense, the amortization of acquired identifiable intangibles, GMAC contra-revenue and may also exclude certain items, such as: impairment charges, restructuring charges, acquisition-related earn-out compensation expense and professional service fees, or realized gains or (losses) on securities. These adjustments, which are shown before taxes, are adjusted for their tax impact. Adjusted EBITDA and adjusted net income are presented because management believes they provide additional information with respect to the performance of our fundamental business activities and is also frequently used by securities analysts, investors and other interested parties in the evaluation of comparable companies. We rely on adjusted EBITDA and adjusted net income as a primary measure to review and assess the operating performance of our company and management team in connection with our executive compensation plan incentive payments.

Adjusted EBITDA and adjusted net income have limitations as an analytical tool and you should not consider them in isolation from, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

•

Adjusted EBITDA and adjusted net income do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

•

Adjusted EBITDA and adjusted net income do not reflect changes in, or cash requirements for, our working capital needs;

•

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and adjusted EBITDA and adjusted net income do not reflect any cash requirements for such replacements;

•

Non-cash compensation is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as an expense when evaluating our ongoing performance for a particular period;

•

Adjusted EBITDA and adjusted net income do not reflect the impact of certain charges or gains resulting from matters we consider not to be indicative of our ongoing operations; and

•

Other companies may calculate adjusted EBITDA and adjusted net income differently than we do, limiting its usefulness as a comparative measure.

 

Because of these limitations, adjusted EBITDA and adjusted net income should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using adjusted EBITDA, and adjusted net income only as supplements to our GAAP results. Adjusted EBITDA and adjusted net income are measures of our performance that are not required by, or presented in accordance with, GAAP. Adjusted EBITDA and adjusted net income are not a measurements of our financial performance under GAAP and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of our liquidity.

 

 

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The following table sets forth the reconciliation of adjusted EBITDA, a non-GAAP financial measure, to net loss, our most directly comparable financial measure in accordance with GAAP (in thousands):

		Three Months Ended March 31,
		2010				2009
GAAP net loss		$	(2,451	)		$	(5,625	)
Interest income			(126	)			(402	)
Interest expense			59				50
Benefit for income taxes			(1,214	)			(3,381	)
Depreciation of property and equipment and amortization of capitalized software and website costs			4,006				3,443
Amortization of acquired identifiable intangibles			5,234				5,286
EBITDA (Non-GAAP)			5,508				(629	)
Adjustments:
Restructuring costs (including amounts related to stock-based compensation)			—				6,731
Acquisition related professional fees			16				438
Realized gain on securities			(582	)			(463	)
Adjusted EBITDA (Non-GAAP)		$	4,942			$	6,077

 

The following table sets forth the reconciliation of adjusted net income, a non-GAAP financial measure, to net loss, our most directly comparable financial measure in accordance with GAAP (in thousands):

		Three Months Ended March 31,
		2010				2009
GAAP net loss		$	(2,451	)		$	(5,625	)
Adjustments:
Amortization of acquired identifiable intangibles			5,234				5,286
Restructuring costs (including amounts related to stock-based compensation)			—				6,731
Acquisition related professional fees			16				438
Realized gain on securities (non-taxable)			(582	)			(463	)
Stock-based compensation (excluding restructuring costs)			2,742				3,515
Tax impact of adjustments (9)			(2,894	)			(6,060	)
Adjusted net income (Non-GAAP)		$	2,065			$	3,822

(2)	We consider a dealer to be active as of a date if the dealer completed at least one revenue-generating credit application processing transaction using the DealerTrack network during the most recently ended calendar month.

 

(3)	We consider a lender to be active in our DealerTrack network as of a date if it is accepting credit application data electronically from U.S dealers in the DealerTrack network.

 

(4)	Each lender to dealer relationship represents a pair between an active U.S. lender and an active U.S. dealer.

 

(5)	Represents the number of dealerships with one or more active subscriptions on the DealerTrack or DealerTrack Canada networks at the end of a given period.

 

(6)	Represents revenue-generating transactions processed in the DealerTrack, DealerTrack Digital Services and DealerTrack Canada networks at the end of a given period.

 

(7)	Represents the average revenue earned per transaction processed in the DealerTrack, DealerTrack Digital Services and DealerTrack Canada networks during a given period.

 

(8)	Represents net subscription revenue divided by average subscribing dealers for a given period in the DealerTrack and DealerTrack Canada networks.

 

(9)

The tax impact of adjustments for the three months ended March 31, 2010 are based on a U.S. effective tax rate of 36.8% applied to taxable adjustments other than amortization of acquired identifiable intangibles, which is based on a blended effective tax rate of 35.9%. The tax impact of adjustments for the three months ended March 31, 2009 are based on a U.S. effective tax rate of 38.3% applied to taxable adjustments other than amortization of acquired identifiable intangibles, which is based on a blended effective tax rate of 37.2%.

 

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Revenue

Transaction Services Revenue. Transaction services revenue consists of revenue earned from our lender customers for each credit application or contract that dealers submit to them. We also earn transaction services revenue from lender customers for each financing contract executed via our electronic contracting and digital contract processing solutions, as well as for any portfolio residual value analyses we perform for them. We also earn transaction services revenue from dealers or other service and information providers, such as aftermarket providers, accessory providers, and credit report providers, for each fee-bearing product accessed by dealers.

 

Subscription Services Revenue. Subscription services revenue consists of revenue earned from our customers (typically on a monthly basis) for use of our subscription or license-based products and services. Our subscription services enable dealer customers to manage their dealership data and operations, compare various financing and leasing options and programs, sell insurance and other aftermarket products, analyze inventory, and execute financing contracts electronically.

 

Other Revenue. Other revenue consists of revenue primarily earned through forms programming, data conversion and training and start up fees from our DMS solution, shipping commissions earned from our digital contract business and consulting and analytical revenue earned from ALG.

 

Operating Expenses

 

Cost of Revenue. Cost of revenue primarily consists of expenses related to running our network infrastructure (including Internet connectivity, hosting expenses, and data storage), amortization expense on acquired intangible assets, capitalized software and website development costs, compensation and related benefits for network and technology development personnel, amounts paid to third parties pursuant to contracts under which a portion of certain revenue is owed to those third parties (revenue share) and direct costs for data licenses and direct costs (printing, binding, and delivery) associated with our residual value guides. Cost of revenue also includes hardware costs associated with our DMS product offering, and compensation, related benefits and travel expenses associated with DMS installation personnel.

 

Product Development Expenses. Product development expenses consist primarily of compensation and related benefits, consulting fees and other operating expenses associated with our product development departments. The product development departments perform research and development, as well as enhance and maintain existing products.

 

Selling, General and Administrative Expenses. Selling, general and administrative expenses consist primarily of compensation and related benefits, facility costs and professional services fees for our sales, marketing, customer service and administrative functions.

 

We allocate overhead such as occupancy and telecommunications charges, and depreciation expense based on headcount, as we believe this to be the most accurate measure. As a result, a portion of general overhead expenses is reflected in our cost of revenue and each operating expense category.

We allocated the restructuring costs related to our January 5, 2009 realignment of our workforce and business to the appropriate cost of revenue and operating expense categories based on each of the terminated employees respective functions.

 

Fair Value Measurements

 

Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Inputs used to measure fair value are prioritized into a three-level fair value hierarchy. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

•

Level 1 – Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

•

Level 2 – Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

•

Level 3 – Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

 

We have segregated all financial assets that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below.

 

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Financial assets measured at fair value on a recurring basis include the following as of March 31, 2010 and December 31, 2009 (in thousands):

As of March 31, 2010		Quoted Prices in Active Markets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				March 31, 2010
Cash equivalents (1)		$	158,209			$	—			$	—			$	158,209
Short-term investments (3)			69				—				—				69
Long-term investments (4)			—				—				3,975				3,975
Total		$	158,278			$	—			$	3,975			$	162,253

As of December 31, 2009		Quoted Prices in Active Markets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				December 31, 2009
Cash equivalents (1) (2)		$	163,615			$	—			$	—			$	163,615
Short-term investments (3)			1,484				—				—				1,484
Long-term investments (4)			—				—				3,971				3,971
Total		$	165,099			$	—			$	3,971			$	169,070

 

(1)	Cash equivalents consist primarily of money market funds with original maturity dates of three months or less, for which we determine fair value through quoted market prices.

 

(2)

Level 1 cash equivalents of approximately $163.6 million as of December 31, 2009 has been revised from $127.6 million as previously disclosed in the fair value measurement footnote in our Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on February 24, 2010 to reflect the inclusion of a money market account held at December 31, 2009 that was incorrectly omitted from our original disclosure. Amounts classified as cash and cash equivalents on our audited balance sheet at December 31, 2009 were correctly stated.

 

(3)

As of March 31, 2010 and December 31, 2009, Level 1 short-term investments include investments in tax-advantaged preferred securities, for which we determined fair value based on the quoted market prices of the underlying securities. During the three months ended March 31, 2010, we sold a portion of our Level 1 investments in tax-advantaged preferred securities for approximately $1.4 million and recorded a realized gain in the statement of operations of approximately $0.6 million.

 

(4)

Level 3 long-term investments as of both March 31, 2010 and December 31, 2009 include a $1.6 million, or 0.3% of total assets, auction rate security (ARS) invested in a tax-exempt state government obligation that was valued at par. Our intent is not to hold the ARS invested in tax-exempt state government obligations to maturity, but rather to use the interest reset feature to provide liquidity. However, should the marketplace auctions continue to fail we may hold the security to maturity. We have classified this as long-term due to the maturity date of the security being September 2011, coupled with ongoing failed auctions in the marketplace.

 

Level 3 long-term investments as of March 31, 2010 and December 31, 2009 also include a $2.4 million, or 0.5% of total assets, tax-advantaged preferred stock of a financial institution. It is uncertain whether we will be able to liquidate these securities within the next twelve months; as such we have classified them as long-term on our consolidated balance sheets. Due to the lack of observable market quotes we utilized valuation models that rely exclusively on Level 3 inputs including those that are based on expected cash flow streams, including assessments of counterparty credit quality, default risk underlying the security, discount rates and overall capital market liquidity.

 

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A reconciliation of the beginning and ending balances for Level 3 investments as of March 31, 2010 and December 31, 2009, is as follows (in thousands):

Balance as of January 1, 2009		$	1,550
Reclassification from Level 2 investments to Level 3 investments (5)			1,360
Realized gain on securities included in the statement of operations (5)			716
Unrealized gain on securities recorded in other comprehensive income (5)			345
Balance as of December 31, 2009			3,971
Unrealized gain on securities recorded in other comprehensive income (5)			4
Balance as of March 31, 2010		$	3,975

(5)

During 2009 our investments in Level 2 ARS invested in certain tax-advantaged preferred stock trusts held as of January 1, 2009 dissolved and the trustees distributed the underlying preferred stock investments. As a result of these dissolutions we measured the fair value of the Level 3 long-term tax-advantaged preferred stock on the distribution date and determined that the value increased from $1.4 million as of December 31, 2008 to $2.1 million on the distribution date and as a result we recorded a realized gain in the statement of operations of $0.7 million. Subsequent to the trust dissolution we re-measured the fair value on December 31, 2009 and March 31, 2010 and determined that the value had increased and recorded a gain in other comprehensive income of $0.3 million and approximately $4,000, respectively.  The total value of the tax-advantaged preferred stock of a financial institution included in the $4.0 million of Level 3 long-term investments as of both December 31, 2009 and March 31, 2010 is approximately $2.4 million.

 

Critical Accounting Policies and Estimates

 

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the amounts reported for assets, liabilities, revenue, expenses and the disclosure of contingent liabilities.

 

Our critical accounting policies are those that we believe are both important to the portrayal of our financial condition and results of operations and that involve difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The estimates are based on historical experience and on various assumptions about the ultimate outcome of future events. Our actual results may differ from these estimates if unforeseen events occur or should the assumptions used in the estimation process differ from actual results. Management believes there have been no material changes to the critical accounting policies discussed in the section entitled “Management Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2009, filed with the SEC on February 24, 2010, except as set forth below.

 

In October 2009, the FASB issued Revenue Recognition guidance around Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issues Task Force. This guidance modifies the fair value requirements of Revenue Recognition-Multiple Element Arrangements by allowing the use of the “best estimate of selling price” in addition to VSOE and VOE (now referred to as third-party evidence or TPE) for determining the selling price of a deliverable. A vendor is now required to use its best estimate of the selling price when VSOE or TPE of the selling price cannot be determined. In addition, the residual method of allocating arrangement consideration is no longer permitted.  The final consensus is effective for fiscal years beginning after June 15, 2010. Companies have the option of adopting the guidance retrospectively or prospectively for new or materially modified agreements.  Early adoption is permitted as of the beginning of an entity’s fiscal year.  We have adopted the provisions of this standard prospectively as of January 1, 2010, which did not have a material impact on our consolidated financial statements.

 

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Results of Operations

 

The following table sets forth, for the periods indicated, the selected consolidated statements of operations:

		Three Months March 31,
		2010						2009
		$ Amount			% of Net Revenue			$ Amount			% of Net Revenue
		(In thousands, except percentages)
Consolidated Statements of Operations Data:
Net revenue		$	56,785		100.0	%		$	55,700		100.0	%
Operating expenses:
Cost of revenue			30,717		54.1				29,121		52.3
Product development			3,598		6.3				4,132		7.4
Selling, general and administrative			27,408		48.3				32,318		58.0
Total operating expenses			61,723		108.7				65,571		117.7
Loss from operations			(4,938	)	(8.7	)			(9,871	)	(17.7	)
Interest income			126		0.2				402		0.7
Interest expense			(59	)	(0.1	)			(50	)	(0.1	)
Other income			624		1.1				50		0.1
Realized gain on securities			582		1.0				463		0.8
Loss before benefit for income taxes			(3,665	)	(6.5	)			(9,006	)	(16.2	)
Benefit for income taxes, net			1,214		2.2				3,381		6.1
Net loss		$	(2,451	)	4.3	%		$	(5,625	)	(10.1	)%

 

Three Months Ended March 31, 2010 and 2009

 

Revenue

		Three Months Ended March 31,
		2010				2009
Transaction services revenue		$	22,870			$	24,041
Subscription services revenue			29,728				27,943
Other			4,187				3,716
Total net revenue		$	56,785			$	55,700

Total net revenue increased $1.1 million, or 2%, to $56.8 million for the three months ended March 31, 2010 from $55.7 million for the three months ended March 31, 2009.

 

Transaction Services Revenue.   Transaction services revenue decreased $1.1 million, or 5%, to $22.9 million for the three months ended March 31, 2010 from $24.0 million for the three months ended March 31, 2009. The decrease was primarily due to a 17% decline in the volume of transactions processed through the DealerTrack network to 11.8 million for the three months ended March 31, 2010 from 14.3 million for the three months ended March 31, 2009, which was impacted by the 5% decrease in our number of lender to dealer relationships (LDRs) to 127,724, as of March 31, 2010, from 134,475, as of March 31, 2009. The decrease in LDRs is primarily due to lenders exiting the auto financing market, lenders limiting the number of dealers they lend through and dealership closings. The 17% decrease in transaction volume resulted in a $4.2 million reduction in revenue for the three months ended March 31, 2010. The relative tightening of the credit markets together with the continual decline in vehicle sales and captive lenders, and in particular captives not on the DealerTrack network, increasing market share while independent finance companies and credit unions lost share collectively, have meaningfully impacted our transaction volume compared to historical levels. The revenue decline of $4.2 million related to the decrease in transaction volume was partially offset by a $3.0 million increase due to an increase in the average transaction price to $1.93 for the three months ended March 31, 2010 from $1.68 for the three months ended March 31, 2009. A contributing factor to the increase in average transaction price was the 15% increase in lender customers active in our network to 847 as of March 31, 2010 from 736 as of March 31, 2009. The additional 111 lender customers added are generally lower transaction volume customers with higher price per application tiers.  Also, with overall lower transaction volumes, our existing lenders were generally in a higher transaction price tier.

 

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Subscription Services Revenue.   Subscription services revenue increased $1.8 million, or 6%, to $29.7 million for the three months ended March 31, 2010 from $27.9 million for the three months ended March 31, 2009.  Subscription services revenue growth was due to a 13% increase in the average monthly spend per subscribing dealer to $719 for the three months ended March 31, 2010 from $635 for the three months ended March 31, 2009. The increase in average monthly spend per subscribing dealer is primarily attributable to the continued success of selling DMS and inventory management solutions, including our ability to cross sell those solutions to existing customers and by the cancellation of a disproportionate number of lower priced subscriptions as dealerships consolidate or go out of business. These factors contributed $1.7 million to the increase in subscription services revenue, which includes $0.7 million related to acquired customers.

Other Revenue.   Other revenue increased $0.5 million, or 13%, to $4.2 million for the three months ended March 31, 2010 from $3.7 million for the three months ended March 31, 2009.  The $0.5 million increase was primarily resulting from an approximately $0.7 million increase in hardware revenue from our DMS business, an increase of $0.3 million in shipping commissions from our eDocs solution, offset by a decrease of $0.3 million in data services revenue, a decrease of $0.1 million in DealerTrack Canada revenue and a decrease of $0.1 million in revenue associated with our SCS business which we exited in February 2009.

 

Operating Expenses

		Three Months Ended March 31,
		2010				2009
Cost of revenue		$	30,717			$	29,121
Product development			3,598				4,132
Selling, general and administrative			27,408				32,318
Total operating expenses		$	61,723			$	65,571

  

Cost of Revenue. Cost of revenue increased $1.6 million, or 5%, to $30.7 million for the three months ended March 31, 2010 from $29.1 million for the three months ended March 31, 2009. The $1.6 million increase was primarily the result of increased technology expense of $0.6 million, which includes hosting expenses, technology support, and other consulting expenses, $0.7 million in travel related to an increase in installations and hardware costs associated with our DMS product offering, $0.7 million in third party costs related to our compliance and inventory management solutions, $0.4 million in software amortization and depreciation charges,  offset by a decrease in revenue share of $0.3 million, a decrease in stock-based compensation expense of $0.2 million, and a decrease in compensation and related benefit costs of approximately $0.1 million primarily due to $0.4 million of severance and benefit expense paid in the first quarter of 2009 resulting from the realignment of our workforce and business on January 5, 2009, coupled with a decrease in bonus and other discretionary compensation and offset by increases due to headcount additions, commissions, the acquisition of AAX in January 2009, and an increase in payroll and other taxes.

Product Development Expenses. Product development expenses decreased $0.5 million, or 13%, to $3.6 million for the three months ended March 31, 2010 from $4.1 million for the three months ended March 31, 2009. The $0.5 million decrease was primarily a result of decreased compensation and related benefit costs of $0.4 million due primarily to $0.2 million of severance and benefit expense in the first quarter of 2009 resulting from the realignment of our workforce and business on January 5, 2009, coupled with a decrease in bonus and other discretionary compensation and offset by an increase in compensation and benefits due to headcount additions, the acquisition of AAX in January 2009, and an increase in payroll and other taxes.

 

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $4.9 million, or 15%, to $27.4 million for the three months ended March 31, 2010 from $32.3 million for three months ended March 31, 2009. The $4.9 million decrease in selling, general and administrative expenses was primarily the result of a decrease of $4.4 million in stock-based compensation expense primarily due to $3.9 million in increased stock-based compensation expense in the first quarter of 2009 resulting from the realignment of our workforce and business on January 5, 2009, a decrease of $0.5 million of professional fees primarily due to an increase in deal-related costs resulting from the acquisition of AAX in the first quarter of 2009, a decrease in compensation and related benefit costs of approximately $0.2 million primarily due to $2.2 million of severance and benefit expense paid in the first quarter of 2009 resulting from the realignment of our workforce and business on January 5, 2009, coupled with a decrease in bonus and other discretionary compensation and offset by an increase in compensation and benefits due to headcount additions, the acquisition of AAX in January 2009, and an increase in payroll and other taxes, a decrease in marketing expenses of $0.2 million due to continued cost containment efforts, a decrease in general and administrative expenses of $0.2 million primarily due to a decrease in bad debt expense, offset by an increase of $0.4 million in travel related expenses, and an increase of $0.1 million in recruiting and relocation expenses.

 

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Interest Income

		Three Months Ended March 31,
		2010				2009
Interest income		$	126			$	402

Interest income decreased $0.3 million to $0.1 million for the three months ended March 31, 2010 from $0.4 million for the three months ended March 31, 2009. The $0.3 million decrease is primarily related to the decrease in our weighted average interest rate to approximately 0.1% for the three months ended March 31, 2010 from approximately 0.3% for the three months ended March 31, 2009.

 

Other Income

		Three Months Ended March 31,
		2010				2009
Other income		$	624			$	50

 

Other income increased $0.5 million to $0.6 million for the three months ended March 31, 2010 from $0.1 million for the three months ended March 31, 2009. The $0.5 million increase is primarily due to a settlement of $0.4 million received during the three months ended March 31, 2010 related to the cancellation of a services agreement for our eDocs business.

 

Realized Gain on Securities

		Three Months Ended March 31,
		2010				2009
Realized gain on securities		$	582			$	463

During the three months ended March 31, 2010, we sold a portion of our investments in tax-advantaged preferred securities for approximately $1.4 million and recorded a gain in the statement of operations of approximately $0.6 million. For the three months ended March 31, 2009, we recorded a gain of $0.5 million on the distribution of the underlying preferred stock instruments related to our ARS invested in certain tax-advantaged preferred stock trusts. For further information please refer to Note 4 in the accompanying notes to the consolidated financial statements included in this Quarterly Report on Form 10-Q.

 Benefit for Income Taxes, Net

		Three Months Ended March 31,
		2010				2009
Benefit for income taxes, net		$	1,214			$	3,381

The benefit for income taxes for the three months ended March 31, 2010 of $1.2 million consisted primarily of $0.3 million of federal income tax benefit and $1.5 million of state income tax benefit, offset by $0.6 million of tax expense for our Canadian subsidiary. The benefit for income taxes for the three months ended March 31, 2009 of $3.4 million consisted primarily of $3.7 million of federal tax expense and $0.1 of state income tax benefit, offset by $0.4 million of tax expense for our Canadian subsidiary. Included in tax expense for our Canadian subsidiary for the three months ended March 31, 2010 and 2009 is $0.3 million and $0.1 million, respectively, for a permanent item relating to intangible amortization. These amounts have a 9.2% and 1.0 % impact on the effective tax rate for the three months ended March 31, 2010 and 2009, respectively. Our effective tax rate for the three months ended March 31, 2010 is 33.1% compared with 37.6% for the three months ended March 31, 2009.

In the event that the future income streams that we currently project do not materialize, we may be required to record a valuation allowance. Any increase in a valuation allowance would result in a charge that would adversely impact our operation performance.

 

Liquidity and Capital Resources

 

Our liquidity requirements will continue to be for working capital, acquisitions, capital expenditures and general corporate purposes. Our capital expenditures, software and website development costs for the three months ended March 31, 2010 were $6.9 million, of which $4.8 million was paid in cash. We expect to finance our future liquidity needs through working capital and cash flows from operations, however future acquisitions or other strategic initiatives may require us to incur or seek additional financing.

 

As of March 31, 2010, we had $183.2 million of cash and cash equivalents, $0.1 million in short-term investments, $4.0 million in non-current investments and $193.7 million in working capital, as compared to $197.5 million of cash and cash equivalents, $1.5 million in short-term investments, $4.0 million in non-current investments and $191.9 million in working capital as of December 31, 2009.

 

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Reductions in interest rates and changes in investments could materially impact our interest income and may impact future reported operating results. An interest rate fluctuation of 1% would have an effect of approximately $1.1 million, or $0.03 per share, on future reported operating results.

 

Under the terms of the merger agreement with AutoStyleMart, Inc., we have a future contingent payment obligation of up to $11.0 million based upon the achievement of certain operational targets from February 2008 through February 2011. As of December 31, 2009, we determined that certain operational conditions were probable of being achieved and recorded a liability of $1.0 million.  The $1.0 million was deemed compensation for services, as payment was also contingent on certain former stockholders remaining employees or consultants of DealerTrack for a certain period. The $1.0 million of additional consideration was paid in the first quarter of 2010. As of March 31, 2010, it has been determined that achievement of the operational targets related to the remaining $10.0 million in contingent payment obligations is not yet probable. Any amounts deemed probable in the future will also be recorded as compensation expense. We will assess the probability of the achievement of the operational targets on a quarterly basis.

 

In connection with the purchase of Automotive Lease Guide (ALG) on May 25, 2005, we have a contractual agreement with the seller to pay an additional $0.8 million per year for 2006 through 2010.

 

During April 2010, we entered into an agreement with an ERP provider to purchase certain software licenses, computer equipment, and implementation consulting services.  The estimated capital expenditures in 2010 related to the ERP project are expected to be approximately $5.0 million.

 

The following table sets forth the cash flow components for the following periods (in thousands):

		Three Months Ended March 31,
		2010				2009
Net cash used in operating activities		$	(7,666	)		$	(1,159	)
Net cash used in investing activities		$	(7,049	)		$	(6,646	)
Net cash provided by financing activities		$	246			$	1,477

 

Operating Activities

 

Net cash used in operating activities of $7.7 million for the three months ended March 31, 2010 was primarily attributable to a net loss of $2.5 million, which includes depreciation and amortization of $9.2 million, stock-based compensation expense of $2.7 million, an increase to the provision for doubtful accounts and sales credits of $1.5 million, an increase in accounts payable and accrued expenses of $5.2 million, and a deferred tax provision of $13.4 million, partially offset by an increase in prepaid expenses and other current assets of $18.0 million, an increase in accounts receivable of $5.0 million due to an increase in transaction revenues, an increase in other assets of $13.2 million, a gain of $0.6 million realized on the sale of securities, and a stock-based compensation windfall tax benefit of $0.6 million. Net cash used in operating activities of $1.2 million for the three months ended March 31, 2009 was primarily attributable to a net loss of $5.6 million, which includes depreciation and amortization of $8.8 million, stock-based compensation expense of $7.4 million, an increase to the provision for doubtful accounts and sales credits of $2.5 million, an increase to deferred revenue and other current liabilities of $0.4 million, an increase in accounts payable and accrued expenses of $0.3 million, partially offset by a deferred tax benefit of $3.4 million, a gain of $0.5 million realized on the sale or conversion of securities, a stock-based compensation windfall tax benefit of $0.8 million, an increase in prepaid expenses and other current assets of $4.0 million, a decrease in other long-term liabilities of $0.3 million, and an increase in accounts receivable of $5.4 million due to an increase in subscription revenues and the acquisition of AAX.

 

Investing Activities

 

Net cash used in investing activities of $7.0 million for the three months ended March 31, 2010 was primarily attributable to the payment for the acquisition of intangible assets of $2.3 million, capital expenditures of $2.5 million, and capitalized software and website development costs of $2.2 million. Net cash used in investing activities of $6.6 million for the three months ended March 31, 2009 was primarily attributable to the net sale of short-term investments of $31.3 million offset by the payment for the acquisition of AAX business and intangible assets of $30.9 million, the payment of the Curomax additional purchase consideration of $1.8 million, the payment of the ALG additional purchase consideration of $1.1 million, capital expenditures of $1.3 million, and capitalized software and website development costs of $3.1 million.

 

Financing Activities

 

Net cash provided by financing activities of $0.2 million for the three months ended March 31, 2010 was primarily attributable to net proceeds received from the exercise of employee stock options of $0.1 million, employee stock purchases under our employee stock purchase plan of $0.2 million, and a stock-based compensation windfall tax benefit of $0.6 million, partially offset by payment for shares surrendered for taxes of $0.6 million related to restricted common stock and restricted stock units vesting, and principal payments on capital lease obligations of $0.1 million. Net cash provided by financing activities of $1.5 million for the three months ended March 31, 2009 was primarily attributable to net proceeds received from employee stock purchases under our employee stock purchase plan of $0.3 million, the exercise of employee stock options of $0.9 million and stock-based compensation windfall tax benefit of $0.8 million, partially offset by payment for shares surrendered for taxes of $0.3 million related to restricted stock vesting.

 

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Contractual Obligations

 

As of March 31, 2010, there were no material changes in our contractual obligations as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on February 24, 2010, except as set forth below.

On February 10, 2010, DealerTrack entered into a strategic relationship with GMAC. Under the terms of the agreement, GMAC will be listed as a financing option on the DealerTrack credit application processing network and DealerTrack has agreed to make a one-time payment to GMAC of $15.0 million payable upon GMAC becoming available to substantially all dealers that it does business with who are on the DealerTrack U.S. network. As of March 31, 2010 we accrued $15.0 million as a current liability as it was deemed probable this contingency will be resolved within a year. The one-time $15.0 million payment will be recorded as a reduction to revenue over of the period of expected benefit of approximately five years. GMAC will be available to General Motors and Chrysler dealers, as well as dealers of other manufacturers that GMAC elects to do business with. GMAC will continue to accept credit applications through the RouteOne system.

 

On March 31, 2010, we entered into an equipment and software purchase agreement with a vendor. Under the terms of the agreement, we are committed to purchasing certain equipment and software totaling approximately $5.4 million in 2010 and an additional $2.7 million in 2011. Both commitments are non-cancellable, however, we have not accepted title or risk of loss of any of the aforementioned equipment or software as of March 31, 2010.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which are typically established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

 

Industry Trends

We are impacted by trends in both the automotive industry and the credit finance markets. Our financial results are impacted by trends in the number of dealers serviced and the level of indirect financing and leasing by our participating lender customers, special promotions by automobile manufacturers and the level of indirect financing and leasing by captive finance companies not available in our network. The United States and global economies are currently undergoing a period of economic uncertainty, and the financing environment, automobile industry and stock markets are experiencing high levels of volatility. The relative tightening of the credit markets has caused a significant decline in the number of lending relationships between the various lenders and dealers available through our network as dealers and lenders have exited the market, as well as reduced the total number of vehicles financed. Purchases of new 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. 2008 and 2009 have been the worst years for selling vehicles since 1982 and while automobile sales are expected to increase in 2010, they will remain low as compared to historical levels. As a result of reduced car sales and the general economic environment, two major automobile manufacturers, Chrysler and General Motors have filed and emerged from bankruptcy in the past year. This has had a significant impact on their franchised dealers both in terms of dealer closing and the financial viability of their remaining dealers. Toyota has suffered significant recalls that limited its ability to sell new vehicles for a period of time and potentially decreased the value of Toyota used vehicles, whose impact on its dealer base remains to be seen. Together, these factors have meaningfully impacted our transaction volume and subscription cancellations compared to historical levels. We expect to continue to experience challenges due to the ongoing adverse outlook for the credit markets and automobile sales. In addition, volatility in our stock price and declines in our market capitalization could impair the carrying value of our goodwill and other long-lived assets. As a result, we may be required to write off some of our goodwill or long-lived assets if these conditions worsen for a period of time.

Due to the economic downturn, there has been continued automotive dealer consolidation and the number of franchised automotive dealers declined in both 2008 and 2009 with further declines expected in 2010. General Motors (GM) and Chrysler have stated that they notified approximately 1,124 and 789 dealers, respectively, that one or more of their franchise licenses would be terminated. Recent federal legislation has led GM and Chrysler to agree to reinstatement of some of these dealers. As a result of these factors, we cannot predict the timing and impact dealership reductions will have on our subscription revenue. The elimination by GM and Chrysler dealers with subscription products has led to an increase in cancellations and will most likely result in additional cancellations of those subscriptions and corresponding loss of revenue. Further, a reduction in the number of automotive dealers reduces the number of opportunities we have to sell our subscription products. Additionally, dealers who close their businesses may not pay the amounts owed to us, resulting in an increase in our bad debt expense.

 

Effects of Inflation

 

Our monetary assets, consisting primarily of cash and cash equivalents, receivables and long-term investments, and our non-monetary assets, consisting primarily of intangible assets and goodwill, are not affected significantly by inflation. We believe that replacement costs of equipment, furniture and leasehold improvements will not materially affect our operations. However, the rate of inflation affects our expenses, which may not be readily recoverable in the prices of products and services we offer.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Foreign Currency Exposure

 

We only have operations located in, and provide services to, customers in the United States and Canada. Our earnings are affected by fluctuations in the value of the U.S. dollar as compared with the Canadian dollar. Our exposure is mitigated, in part, by the fact that we incur certain operating costs in the same foreign currency in which revenue is denominated. The foreign currency exposure that does exist is limited by the fact that the majority of transactions are paid according to our standard payment terms, which are generally short-term in nature.

 

Interest Rate Exposure

 

As of March 31, 2010, we had cash, cash equivalents, short-term investments and long-term investments of $187.3 million invested in money market instruments, municipal notes, tax-exempt state government obligations and tax advantaged preferred securities. Such investments are subject to interest rate and credit risk. Our general policy of investing in securities with original maturities of three months or less minimizes our interest and credit risk.

 

Reductions in interest rates and changes in investments could materially impact our interest income and may impact future reported operating results. An interest rate fluctuation of 1% would have an effect of approximately $1.1 million, or $0.03 per share, on future reported operating results.

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

     We carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. In designing and evaluating our disclosure controls and procedures, we and our management recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures. Based upon that evaluation, our chief executive officer and chief financial officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control Over Financial Reporting

 

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

From time to time, we are a party to litigation matters arising in connection with the normal course of our business, none of which is expected to have a material adverse effect on us. In addition to the litigation matters arising in connection with the normal course of our business, we are party to the litigation described below.

 

DealerTrack, Inc. v. Finance Express et al., CV-06-2335; DealerTrack Inc. v. RouteOne and Finance Express et al., CV-06-6864; and DealerTrack Inc. v. RouteOne and Finance Express et al., CV-07-215

 

On April 18, 2006, we filed a Complaint and Demand for Jury Trial against David Huber, Finance Express LLC (Finance Express), and three of their unnamed dealer customers in the United States District Court for the Central District of California, Civil Action No. CV-06-2335 AG (FMOx). The complaint sought declaratory and injunctive relief, as well as damages, against the defendants for infringement of the U.S. Patent No. 5,878,403 (the ’403 Patent) Patent and the 6,587,841 (the ’841 Patent). Finance Express denied infringement and challenged the validity and enforceability of the patents-in-suit.

On October 27, 2006, we filed a Complaint and Demand for Jury Trial against RouteOne, David Huber and Finance Express in the United States District Court for the Central District of California, Civil Action No. CV-06-6864 (SJF). The complaint sought declaratory and injunctive relief as well as damages against the defendants for infringement of the ’403 Patent and the ’841 Patent. On November 28, 2006 and December 4, 2006, respectively, defendants RouteOne, David Huber and Finance Express filed their answers. The defendants denied infringement and challenged the validity and enforceability of the patents-in-suit.

 

On February 20, 2007, we filed a Complaint and Demand for Jury Trial against RouteOne LLC (RouteOne), David Huber and Finance Express in the United States District Court for the Central District of California, Civil Action No. CV-07-215 (CWx). The complaint sought declaratory and injunctive relief as well as damages against the defendants for infringement of U.S. Patent No. 7,181,427 (the ’427 Patent). On April 13, 2007 and April 17, 2007, respectively, defendants RouteOne, David Huber and Finance Express filed their answers. The defendants denied infringement and challenged the validity and enforceability of the ’427 Patent.

 

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The DealerTrack, Inc. v. Finance Express et al., CV-06-2335 action, the DealerTrack Inc. v. RouteOne and Finance Express et al., CV-06-6864 action and the DealerTrack v. RouteOne and Finance Express et al., CV-07-215 action, described above, were consolidated by the court. A hearing on claims construction, referred to as a “Markman ” hearing, was held on September 25, 2007. Fact and expert discovery and motions for summary judgment have substantially been completed.

 

On July 21, 2008 and September 30, 2008, the court issued summary judgment orders disposing of certain issues and preserving other issues for trial.

 

On July 8, 2009, the court  held Claims 1-4 of DealerTrack’s patent 7,181,427 was invalid for failure to comply with a standard required by the recently decided case in the Court of Appeals of the Federal Circuit of In re Bilski.  On August 11, 2009, the court entered into a judgment granting summary judgment.  On September 8 , 2009, DealerTrack filed a notice of appeal in the United States Court of Appeals for the Federal Circuit in regards to the finding of non-infringement of patent 6,587,841, the invalidity of patent 7,181,427, and the claim construction order to the extent that it was relied upon to find the judgments of non-infringement and invalidity. On October 29, 2009, the Federal Circuit granted a motion to stay briefing until the disposition of In re Bilski.

 

We believe that the potential liability from all current litigations will not have a material effect on our financial position or results of operations when resolved in a future period.

 

Item 1A. Risk Factors

 

         In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in the section entitled “Risk Factors” in Part I, Item 1A. of  our Annual Report on Form 10-K for the year ended December 31, 2009, which was filed with the SEC on February 24, 2010, that could materially affect our business, financial condition or results of operations. The risks described in that Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition and/or results of operations. There has been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on February 24, 2010.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Purchases of Equity Securities by the Issuer

 

 From time to time, in connection with the vesting of restricted common stock under our incentive award plans, we may receive shares of our common stock from certain restricted common stockholders in consideration of the tax withholdings due upon the vesting of restricted common stock.

 

The following table sets forth the repurchases for the three months ended March 31, 2010:

Total

Maximum

Number of

Number

Shares

of Shares

Purchased

That

Total

Average

as Part of

May Yet be

Number

Price

Publicly

Purchased

of Shares

Paid per

Announced

Under the

Period

Purchased

Share

Program

Program

January 2010

31,417

$

18.19

n/a

n/a

February 2010

1,089

$

17.37

n/a

n/a

March 2010

—

$

—

n/a

n/a

Total

32,506

 

 

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Item 6. Exhibits

Exhibit
Number		Description of Document
31.1		Certification of Mark F. O’Neil, Chairman, President and Chief Executive Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Eric D. Jacobs, Senior Vice President, Chief Financial and Administrative Officer, pursuant to Rule 13a-14(a)and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certifications of Mark F. O’Neil, Chairman, President and Chief Executive Officer, and Eric D. Jacobs, Senior Vice President, Chief Financial and Administrative Officer, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	DealerTrack Holdings, Inc. (Registrant)
Date: May 5, 2010	/s/ Eric D. Jacobs
	Eric D. Jacobs
	Senior Vice President, Chief Financial and Administrative Officer (Duly Authorized Officer and Principal Financial Officer)

 

EXHIBIT INDEX

Exhibit
Number		Description of Document
31.1		Certification of Mark F. O’Neil, Chairman, President and Chief Executive Officer, pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Eric D. Jacobs, Senior Vice President, Chief Financial and Administrative Officer, pursuant to Rule 13a-14(a)and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certifications of Mark F. O’Neil, Chairman, President and Chief Executive Officer, and Eric D. Jacobs, Senior Vice President, Chief Financial and Administrative Officer, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

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