true-20240331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2024

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

Commission File Number: 001-36449

TRUECAR, INC.

(Exact name of registrant as specified in its charter)


Delaware						04-3807511
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

225 Santa Monica Blvd, 12th Floor

Santa Monica, California 90401

(800) 200-2000

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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	TRUE	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 1, 2024, 91,668,140 shares of the registrant’s common stock were outstanding.

TRUECAR, INC.

INDEX


		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited)	5
	Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023	5
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2024 and 2023	6
	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023	7
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023	8
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	33
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	72
I tem 5.	O ther Information	73

Item 6.	Exhibits	74
	Signatures	75

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “likely,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “target,” “will,” “would” or similar expressions and the negatives of those terms. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

•our future financial performance and our expectations regarding our revenue, cost of revenue, gross profit or gross margin, operating expenses and ability to maintain or grow revenue, scale our business, generate cash flow, fulfill our mission and achieve and maintain future profitability;

•the success and long-term effects of our strategic restructuring;

•our ability to forecast our financial and operational performance;

•our relationship with key industry participants, including car dealers and automobile manufacturers;

•anticipated trends, demand rates and challenges in our business and in the markets in which we operate;

•our ability to successfully roll out our TrueCar+ offering and other new offerings, provide a compelling value proposition to consumers using such offerings and integrate our current and future offerings into such experiences;

•our ability to anticipate market needs and develop new and enhanced products and services to meet those needs and to successfully monetize those products and services;

•maintaining and expanding our customer base in key geographies, including our ability to maintain or increase the number of high-volume brand dealers in our network generally and in key geographies;

•the lingering effects of the coronavirus pandemic on our business;

•our ability to mitigate the financial effect of the termination of our partnership with USAA Federal Savings Bank in 2020;

•our ability to maintain and grow our existing additional affinity partner relationships, and to attract new affinity partners to offer our services to their members;

•our reliance on our third-party service providers;

•the impact of competition in our industry and innovation by our competitors;

•our anticipated growth and growth strategies, including our ability to maintain or increase close rates and the rate at which site visitors prospect with a TrueCar certified dealer;

•our ability to successfully maintain or increase dealer subscription rates and manage dealer churn;

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

•our ability to anticipate or adapt to future changes in our industry;

•the impact on our business of seasonality, cyclical trends affecting the overall economy and actual or threatened severe weather events or public health events;

•our ability to hire and retain necessary qualified employees;

•our continuing ability to provide customers access to our products;

•our ability to maintain and scale our technical infrastructure and leverage our technology platform to enhance our customer experience and launch new product offerings;

•the evolution of technology affecting our products, services and markets;

•our ability to adequately protect our intellectual property;

•the outcome, and effect on our business, of litigation to which we are a party, including our ability to settle any such litigation;

•our ability to navigate changes in domestic or international economic, political or business conditions, including supply shortages, such as of automotive semiconductors, changes in interest rates, consumer demand and import tariffs;

•our ability to stay abreast of, and in compliance with, new or modified laws and regulations that currently apply or may become applicable to our business, including newly-enacted and rapidly-changing privacy, data protection and net neutrality laws and regulations and changes in applicable tax laws and regulations;

•the continued expense and administrative workload associated with being a public company;

•our ability to maintain an effective system of internal controls necessary to accurately report our financial results and prevent fraud;

•our liquidity and working capital requirements;

•the estimates and estimate methodologies used in preparing our consolidated financial statements;

•the future trading prices of our common stock and the impact of securities analysts’ reports on these prices;

•our plans to pursue acquisitions, divestitures, investments and other similar transactions;

•our ability to use the proceeds of the ALG divestiture in a manner that maximizes shareholder value;

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

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

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

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

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

SUMMARY OF RISKS AFFECTING OUR BUSINESS

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

•Our business is subject to risks related to the larger automotive ecosystem, including recent low automobile inventory supply levels, which have adversely impacted our business, results of operations and prospects.

•If our lead quality or quantity declines, our unit volume could as well, and dealers could leave our network or insist on lower subscription rates, which could reduce our revenue and harm our business.

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

•Actions that we have taken in the past and may take in the future to restructure our business in alignment with our strategic priorities may not be as effective as anticipated.

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

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

•We may not be able to provide a compelling car-buying experience to our users, which could cause the number of transactions between our users and dealers, and therefore our revenues, to decline.

•Economic and other conditions that impact consumer demand for automobiles, including interest rates, inflation, fuel prices and the impacts of public health events, may have a material adverse effect on our business, financial condition and results of operations.

•The failure to attract manufacturers to participate in our incentive programs, or to induce them to remain participants in those programs, could reduce our growth or adversely affect our operating results.

•Our cash and cash equivalents could be adversely affected if the financial institutions in which we hold our cash and cash equivalents fail.

•A significant reduction in units attributable to our affinity partners, such as the decrease in our unit volume following the termination of our partnership with USAA Federal Savings Bank in 2020, would reduce our revenue and harm our operating results.

•If key industry participants, including car dealers or automobile manufacturers perceive us in a negative light or our relationships with them suffer harm, our ability to grow and our financial performance may be damaged.

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

•We rely on relationships with data providers and may experience interruptions in the data feeds they provide, which could adversely affect our current and future product offerings, including TrueCar+, to users and dealers as well as the timeliness of the information we provide, and which may impair our ability to attract or retain consumers and dealers and to timely invoice dealers and otherwise negatively affect our business.

•We rely on internet search engines to drive traffic to our website, and if we fail to appear prominently in the search results, our traffic would decline and our business would be adversely affected.

•The success of our business relies heavily on our marketing and branding efforts, especially with respect to the TrueCar website and our branded mobile applications, as well as those efforts of the affinity group marketing partners whose websites we power, and these efforts may not be successful.

•If consumers and dealers do not respond positively to our branding, our financial performance and our ability to grow unique visitor traffic and expand our dealer network could be negatively affected.

•We are subject to a complex framework of regulations, many of which are unsettled, still developing and contradictory, which have in the past, and could in the future, subject us to claims, challenge our business model or otherwise harm our business.

•We collect, process, store, share, disclose and use personal information and other data, and our actual or perceived failure to protect this information and data could damage our reputation and brand and harm our business and operating results.

•We face litigation and are party to legal proceedings that could have a material adverse effect on our business, financial condition, results of operations and cash flows.

•Our number of unique visitors, revenue and operating results fluctuate due to seasonality.

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

TRUECAR, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value and share data)

(Unaudited)


	March 31, 2024		December 31, 2023
Assets
Current assets
Cash and cash equivalents (includes restricted cash of $1,855 at March 31, 2024 and December 31, 2023)	$	133,687	$	136,964
Accounts receivable, net of allowances of $965 and $1,118 at March 31, 2024 and December 31, 2023, respectively	15,106		18,264
Prepaid expenses	4,850		6,067
Other current assets	1,703		1,787
Total current assets	155,346		163,082
Property and equipment, net	17,912		18,880
Operating lease right-of-use assets	9,541		10,132
Intangible assets, net	6,773		8,375
Other assets	3,957		3,851

Total assets	$	193,529	$	204,320
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	9,174	$	6,875
Accrued employee expenses	2,705		6,667
Operating lease liabilities, current	3,164		3,240
Accrued expenses and other current liabilities	11,738		12,196

Total current liabilities	26,781		28,978
Operating lease liabilities, net of current portion	10,368		11,169
Other liabilities	347		3,958
Total liabilities	37,496		44,105
Commitments and contingencies (Note 5)
Stockholders’ Equity
Preferred stock — $0.0001 par value; 20,000,000 shares authorized at March 31, 2024 and December 31, 2023, respectively; no shares issued and outstanding at March 31, 2024 and December 31, 2023	—		—
Common stock — $0.0001 par value; 1,000,000,000 shares authorized at March 31, 2024 and December 31, 2023, respectively; 91,573,738 and 91,091,541 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively	9		9
Additional paid-in capital	724,170		722,504
Accumulated deficit	(568,146)		(562,298)
Total stockholders’ equity	156,033		160,215
Total liabilities and stockholders’ equity	$	193,529	$	204,320

See accompanying notes to condensed consolidated financial statements.

TRUECAR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands except per share data)

(Unaudited)


	Three Months Ended March 31,
	2024		2023
Revenues	$	41,052	$	36,980
Costs and operating expenses:
Cost of revenue (exclusive of depreciation and amortization presented separately below)	4,261		3,846
Sales and marketing	22,082		26,766
Technology and development	8,123		12,498
General and administrative	9,486		10,846
Depreciation and amortization	4,585		4,191
Total costs and operating expenses	48,537		58,147
Loss from operations	(7,485)		(21,167)
Interest income	1,644		1,608
Loss before income taxes	(5,841)		(19,559)
Provision for income taxes	7		6
Net loss	$	(5,848)	$	(19,565)

Net loss per share, basic and diluted	$	(0.06)	$	(0.22)
Weighted average common shares outstanding, basic and diluted	91,234		88,647
Other comprehensive loss:
Comprehensive loss	$	(5,848)	$	(19,565)

See accompanying notes to condensed consolidated financial statements.

TRUECAR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands except share data)

(Unaudited)


	Three Months Ended March 31, 2024
	Common Stock					Accumulated Deficit		Stockholders’ Equity
	Shares	Amount		APIC
Balance at December 31, 2023	91,091,541	$	9	$	722,504	$	(562,298)	$	160,215
Net loss	—	—		—		(5,848)		(5,848)
Stock-based compensation	—	—		2,822		—		2,822
Shares issued in connection with employee stock plan, net of shares withheld for employee taxes	482,197	—		(1,156)		—		(1,156)
Balance at March 31, 2024	91,573,738	$	9	$	724,170	$	(568,146)	$	156,033


	Three Months Ended March 31, 2023
	Common Stock					Accumulated Deficit		Stockholders’ Equity
	Shares	Amount		APIC
Balance at December 31, 2022	88,439,088	$	9	$	709,790	$	(512,532)	$	197,267
Net loss	—	—		—		(19,565)		(19,565)
Stock-based compensation	—	—		4,930		—		4,930
Shares issued in connection with employee stock plan, net of shares withheld for employee taxes	622,680	—		(1,006)		—		(1,006)
Balance at March 31, 2023	89,061,768	$	9	$	713,714	$	(532,097)	$	181,626

See accompanying notes to condensed consolidated financial statements.

TRUECAR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	Three Months Ended March 31,
	2024		2023
Cash flows from operating activities
Net loss	$	(5,848)	$	(19,565)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	4,585		4,191
Bad debt expense and other reserves	217		96
Stock-based compensation	2,632		4,708
Increase in the fair value of contingent consideration liability	92		591
Amortization of lease right-of-use assets	591		909
Impairment of right-of-use assets	—		351
Other noncash expense	383		194
Changes in operating assets and liabilities:
Accounts receivable	2,941		(430)
Prepaid expenses and other assets	1,101		1,364
Accounts payable	2,309		560
Accrued employee expenses	(3,483)		(2,749)
Operating lease liabilities	(877)		(1,209)
Accrued expenses and other current liabilities	(2,594)		(1,160)
Other liabilities	—		48
Net cash provided by (used in) operating activities	2,049		(12,101)
Cash flows from investing activities
Purchase of property and equipment	(2,560)		(3,855)
Net cash used in investing activities	(2,560)		(3,855)
Cash flows from financing activities
Payment of contingent consideration liability	(1,610)		(1,908)
Proceeds from exercise of common stock options	—		64
Taxes paid related to net share settlement of equity awards	(1,156)		(1,070)
Net cash used in financing activities	(2,766)		(2,914)
Net decrease in cash, cash equivalents and restricted cash	(3,277)		(18,870)
Cash, cash equivalents and restricted cash at beginning of period	136,964		175,518
Cash, cash equivalents and restricted cash at end of period	$	133,687	$	156,648

See accompanying notes to condensed consolidated financial statements.

TRUECAR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

(Continued)


	Three Months Ended March 31,
	2024		2023
Supplemental disclosures of non-cash activities
Stock-based compensation capitalized for software development	$	190	$	222
Capitalized assets included in accounts payable, accrued employee expenses and other accrued expenses	374		708

See accompanying notes to condensed consolidated financial statements.

TRUECAR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Nature of Business

TrueCar, Inc. is an internet-based information, technology, and communication services company. Hereinafter, TrueCar, Inc. and its wholly owned subsidiaries TrueCar Dealer Solutions, Inc., Digital Motors Corporation, and TrueCar Wholesale Solutions, Inc. are collectively referred to as “TrueCar” or the “Company”; TrueCar Dealer Solutions, Inc. is referred to as “TCDS,” Digital Motors Corporation is referred to as “Digital Motors,” and TrueCar Wholesale Solutions, Inc. is referred to as “TCWS.” TrueCar was incorporated in the state of Delaware in February 2005 and began business operations in April 2005. Its principal corporate offices are located in Santa Monica, California.

TrueCar is a digital automotive marketplace that (i) provides pricing transparency about what other people paid for their cars and enables consumers to engage with TrueCar Certified Dealers who are committed to providing a superior purchase experience; (ii) empowers Certified Dealers to attract these informed, in-market consumers in a cost-effective, accountable manner; and (iii) allows automobile manufacturers (“OEMs”) to more effectively target their incentive spending at deep-in-market consumers during their purchase process. TrueCar has established a diverse software ecosystem on a common technology infrastructure, powered by proprietary data and analytics. Consumers access TrueCar’s platform through the TrueCar.com website and TrueCar mobile applications or through the car buying websites and mobile applications that TrueCar operates for its affinity group marketing partners (“Auto Buying Programs”). An affinity group is comprised of a network of members or employees that provides discounts to its members.

Through its subsidiary, TCDS, the Company provides its Trade and Payments solutions. TCDS also supports the Company’s Sell Your Car product. The Sell Your Car and Trade solutions give consumers information on the value of the vehicle they wish to sell or trade-in and enables them to obtain a guaranteed trade-in price before setting foot in the dealership. This valuation is, in turn, backed by a guarantee to dealers that the vehicles will be repurchased at the indicated price if the dealer does not want to keep them. The Company’s Payments solution helps consumers calculate accurate monthly payments.

2. Summary of Significant Accounting Policies

Basis of Presentation

The Company’s unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and Article 10-1 of Regulation S-X. Accordingly, some information and footnote disclosures required by GAAP for complete financial statements have been condensed or omitted pursuant to such rules and regulations. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements and notes have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2023, and include all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the interim periods presented.

The condensed consolidated balance sheet at December 31, 2023 has been derived from the audited financial statements at that date, but does not include all of the disclosures required by GAAP. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Form 10-K filed with the SEC on February 22, 2024.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of TrueCar and its wholly owned subsidiaries. Business acquisitions are included in the Company’s condensed consolidated financial statements from the date of the acquisition. The Company’s purchase accounting results in all assets and liabilities of acquired businesses being recorded at their estimated fair values on the acquisition dates. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Assets and liabilities that are subject to judgment and use of estimates include sales allowances and allowances for doubtful accounts, contract assets, the fair value of assets and liabilities assumed in business combinations, the recoverability and related impairment of long-lived assets, valuation allowances with respect to deferred tax assets, useful lives associated with property and equipment and intangible assets, measurement of right-of-use assets and operating lease liabilities, contingencies, and the valuation and assumptions underlying stock-based compensation awards. On an ongoing basis, the Company evaluates its estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities. In addition, the Company engaged valuation specialists to assist with management’s determination of the fair values related to right-of-use assets and lease liabilities, assets and liabilities assumed in business combinations, and performance-based stock units.

Segments

The Company has one operating segment. From January 1, 2024 through March 31, 2024, the Company’s chief operating decision maker (the “CODM”) was comprised solely of the President and Chief Executive Officer (“CEO”) who managed the Company’s operations based on consolidated financial information for purposes of evaluating financial performance and allocating resources.

The CODM reviews financial information on a consolidated basis, accompanied by information about dealer revenue, OEM incentive revenue, and other revenue (Note 9). All of the Company’s principal operations, decision-making functions and assets are located in the United States.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original or remaining maturity at the date of purchase of three months or less to be cash equivalents. At March 31, 2024 and December 31, 2023, cash and cash equivalents were comprised primarily of cash held in money market funds and checking accounts. At March 31, 2024 and December 31, 2023, cash and cash equivalents included restricted cash used to collateralize a letter of credit to secure certain of the Company’s obligations under one of its office leases.

Allowance for Doubtful Accounts

The Company determines its allowance for doubtful accounts based on historical write-off experience and specific circumstances that make it likely that recovery will not occur. The Company reviews the allowance for doubtful accounts periodically and assesses the aging of account balances, with an emphasis on those that are past due over ninety days. Account balances are charged off against the allowance when the Company determines that it is probable the receivable will not be recovered.

The Company considers the need to adjust historical information to reflect the extent to which the Company expects current conditions and reasonable and supportable forecasts to differ from the conditions that existed for the period over which historical information was evaluated. The primary current and future economic indicators that the Company uses to develop its current estimate of expected credit losses include the current and forecast U.S. Gross Domestic Product (GDP).

The Company calculates the expected credit losses on a pool basis for those trade receivables that have similar risk characteristics. For those trade receivables that do not share similar risk characteristics, the allowance for doubtful accounts is calculated on an individual basis. Risk characteristics relevant to the Company’s accounts receivable include revenue billing model and aging status.

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


	Three Months Ended March 31,
	2024		2023
Allowances, at beginning of period	$	1,118	$	1,073
Charged as a reduction of revenue	430		704
Charged to bad debt expense in general and administrative expenses	217		96
Write-offs, net of recoveries	(800)		(782)
Allowances, at end of period	$	965	$	1,091

The Company’s assessment considered business and market disruptions impacting its customers and estimates of expected emerging credit and collectability trends. The continued volatility in market conditions and interest rates and the impact of ongoing supply chain disruptions are difficult to predict, causing variability and volatility that may have a material impact on the Company’s allowance for credit losses in future periods.

3. Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Accounting standards describe a fair value hierarchy based on the following three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

•Level 1 — Quoted prices in active markets for identical assets, liabilities, or funds.

•Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The carrying amounts of cash equivalents, restricted cash, accounts receivable, prepaid and other current assets, accounts payable, and accrued expenses and other current liabilities approximate fair value because of the short maturity of these items.

The Company recorded a contingent consideration liability upon the acquisition of Digital Motors in 2022. The contingent consideration is measured at fair value and is based on significant inputs not observable in the market which include the probability of achieving certain future targets. This represents a Level 3 measurement within the fair-value hierarchy. The valuation of contingent consideration uses assumptions the Company believes a market participant would make. The Company assesses these estimates on an ongoing basis as it obtains additional data impacting the assumptions. Changes in the fair value of contingent consideration related to updated assumptions and estimates are recognized within the condensed consolidated statements of comprehensive loss. During the second quarter of 2023 the Company amended the purchase agreement in connection with its Restructuring Plan (Note 5) such that the future targets were considered 100% achieved, and as a result, there were no significant unobservable inputs used to measure the contingent consideration liability as of March 31, 2024.

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis at March 31, 2024 and December 31, 2023 by level within the fair value hierarchy. The current and non-current portions of contingent consideration reside within “Accrued expenses and other current liabilities” and “Other liabilities”, respectively, within the condensed consolidated balance sheet. These assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement (in thousands):


	At March 31, 2024								At December 31, 2023
							Total Fair								Total Fair
	Level 1		Level 2		Level 3		Value		Level 1		Level 2		Level 3		Value
Assets:
Cash equivalents	$	124,255	$	—	$	—	$	124,255	$	119,735	$	—	$	—	$	119,735
Total assets	$	124,255	$	—	$	—	$	124,255	$	119,735	$	—	$	—	$	119,735


	At March 31, 2024								At December 31, 2023
							Total Fair								Total Fair
	Level 1		Level 2		Level 3		Value		Level 1		Level 2		Level 3		Value
Liabilities:
Contingent consideration, current	$	—	$	—	$	3,684	$	3,684	$	—	$	—	$	1,981	$	1,981
Contingent consideration, non-current	$	—	$	—	$	—	$	—	$	—	$	—	$	3,611	$	3,611
Total liabilities	$	—	$	—	$	3,684	$	3,684	$	—	$	—	$	5,592	$	5,592

Contingent Consideration Obligations

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


	Three Months Ended March 31,
	2024		2023
Fair value, beginning of period	$	5,592	$	6,661
Cash payments	(2,000)		(2,000)
Changes in fair value	92		591
Fair value, end of period	$	3,684	$	5,252

4. Property and Equipment, net

Property and equipment consisted of the following at March 31, 2024 and December 31, 2023 (in thousands):


	March 31, 2024		December 31, 2023
Computer equipment and internally developed software	$	89,710	$	87,830
Furniture and fixtures	1,527		1,527
Leasehold improvements	8,694		8,694
	99,931		98,051
Less: Accumulated depreciation	(82,019)		(79,171)
Total property and equipment, net	$	17,912	$	18,880

Included in the table above are property and equipment of $0.6 million and $1.0 million at March 31, 2024 and December 31, 2023, respectively, which are capitalizable but had not yet been placed in service. These balances were comprised primarily of capitalized software not ready for its intended use.

Total depreciation and amortization expense of property and equipment was $3.0 million for the three months ended March 31, 2024 and 2023.

Amortization of internal use capitalized software development costs was $2.8 million for the three months ended March 31, 2024 and 2023.

5. Commitments and Contingencies

Reorganization

In June 2023, the Company committed to a restructuring plan (the “Restructuring Plan”) in furtherance of its efforts to enhance productivity and efficiency, preserve profitability and streamline its organizational structure to better align operations with its long-term commitment to providing an enhanced consumer experience. The Company recorded restructuring costs of approximately $7.2 million during the year ended December 31, 2023 in connection with the Restructuring Plan. The Company did not record any restructuring costs in the first quarter of 2024 related to the Restructuring Plan and does not expect to incur significant additional charges in future periods related to the Restructuring Plan.

The following table presents a roll forward of the Restructuring Plan costs liability for the three months ended March 31, 2024 (in thousands):


	Restructuring Costs Liability
Accrual at December 31, 2023	$	951
Expense	—
Cash Payments	(795)
Accrual at March 31, 2024	$	156

Legal Proceedings

From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. When the Company becomes aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. In accordance with authoritative guidance, the Company records loss contingencies in its financial statements only for matters in which losses are probable and can be reasonably estimated. Where a range of loss can be reasonably estimated with no best estimate in the range, the Company records the minimum estimated liability. If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the specific claim if the likelihood of a potential loss is reasonably possible and the amount involved is material. The Company continuously assesses the potential liability related to the Company’s pending litigation and revises its estimates when additional information becomes available. The Company is not currently a party to any material legal proceedings.

Employment Contracts

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

Indemnifications

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

6. Stock-based Awards

Stock Options

A summary of the Company’s stock option activity for the three months ended March 31, 2024 is as follows:


	Number of Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life
				(in years)
Outstanding at December 31, 2023	2,240,898	$	10.65	3.1
Granted	—	—
Exercised	—	—
Forfeited/expired	(299,093)	11.56
Outstanding at March 31, 2024	1,941,805	$	10.51	3.1

At March 31, 2024, total remaining stock-based compensation expense for unvested stock option awards was $0.2 million, which is expected to be recognized over a weighted-average period of 1.0 year. For the three months ended March 31, 2024 and 2023, the Company recorded stock-based compensation expense for stock option awards of $0.1 million and $0.3 million, respectively.

Restricted Stock Units

Activity in connection with restricted stock units is as follows for the three months ended March 31, 2024:


	Number of Shares	Weighted- Average Grant Date Fair Value
Non-vested — December 31, 2023	5,763,510	$	2.94
Granted	2,749,085	3.54
Vested	(454,020)	3.46
Forfeited	(423,586)	3.28
Non-vested — March 31, 2024	7,634,989	$	3.11

At March 31, 2024, total remaining stock-based compensation expense for non-vested restricted stock units was $21.9 million, which is expected to be recognized over a weighted-average period of 3.0 years. For the three months ended March 31, 2024 and 2023, the Company recorded $1.8 million and $3.2 million in stock-based compensation expense for restricted stock units, respectively.

Performance Stock Units

Activity in connection with performance stock units is as follows for the three months ended March 31, 2024:


	Number of Shares	Weighted- Average Grant Date Fair Value
Outstanding — December 31, 2023	2,518,556	$	4.18
Granted	1,231,577	4.39
Vested	(364,837)	5.99
Forfeited	(131,555)	5.25
Outstanding — March 31, 2024	3,253,741	$	4.01

At March 31, 2024, total remaining stock-based compensation expense for non-vested performance stock units was $7.9 million, which is expected to be recognized over a weighted-average period of 2.5 years. For the three months ended March 31, 2024 and 2023, the Company recorded $0.7 million and $1.2 million in stock-based compensation expense for performance stock units, respectively.

Stock-based Compensation Cost

The Company recorded stock-based compensation cost relating to stock options, restricted stock units, and performance stock units in the following categories on the accompanying condensed consolidated statements of comprehensive loss (in thousands):


	Three Months Ended March 31,
	2024		2023
Cost of revenue	$	52	$	50
Sales and marketing	399		1,895
Technology and development	496		1,017
General and administrative	1,685		1,746
Total stock-based compensation expense	2,632		4,708
Amount capitalized to internal software use	190		222
Total stock-based compensation cost	$	2,822	$	4,930

7. Income Taxes

In determining quarterly provisions for income taxes, the Company uses the annual estimated effective tax rate applied to the actual year-to-date loss, adjusted for discrete items, if any, that are taken into account in the relevant period. The Company’s annual estimated effective tax rate differs from the statutory rate primarily as a result of state taxes and changes in the Company’s valuation allowance.

The Company recorded income tax expense of less than $0.1 million for the three months ended March 31, 2024 and 2023, respectively. The Company’s provision for income taxes for the three months ended March 31, 2024 and 2023 reflects state income tax expense. The Company continues to maintain a full valuation allowance as it is more likely than not that the Company’s net deferred tax assets will not be realized.

There were no material changes to the Company’s unrecognized tax benefits in the three months ended March 31, 2024, and the Company does not expect to have significant changes to unrecognized tax benefits through the end of the fiscal year.

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

8. Net Loss Per Share

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


	Three Months Ended March 31,
	2024		2023
Net loss	$	(5,848)	$	(19,565)
Weighted average common shares outstanding, basic and diluted	91,234		88,647
Net loss per share, basic and diluted	$	(0.06)	$	(0.22)

The following table presents the number of anti-dilutive shares excluded from the calculation of diluted loss per share at March 31, 2024 and 2023 (in thousands):


			March 31,
			2024

SEC Form 10-Q filed by TrueCar Inc.