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DealerTrack Holdings, Inc. Reports First Quarter 2012 Financial Results

Raises 2012 Revenue and Non-GAAP Earnings Guidance

Lake Success, N.Y., May 8, 2012 – DealerTrack Holdings, Inc. (Nasdaq: TRAK) today reported financial results for the first quarter ended March 31, 2012.

GAAP Results for the First Quarter 2012

§ Revenue for the quarter was $91.6 million, as compared to $77.2 million for the first quarter of 2011

§ GAAP net income for the quarter was $17.0 million, as compared to $24.7 million for the first quarter of 2011

§ Diluted GAAP net income per share for the quarter was $0.39, as compared to $0.59 for the first quarter of 2011

GAAP net income for the first quarter of 2012 was positively impacted by $16.1 million (net of tax), or $0.37 per share, from a non-cash gain related to the contribution of Chrome to the Chrome Data Solutions, LP joint venture. GAAP net income for the first quarter of 2011 was positively impacted by $24.5 million, or $0.58 per share, from a non-cash reduction in the valuation allowance against the company's net U.S. deferred tax assets. 

Non-GAAP Results for the First Quarter 2012

§ Adjusted EBITDA for the quarter was $19.4 million, as compared to $15.5 million for the first quarter of 2011

§ Adjusted net income for the quarter was $9.4 million, as compared to $7.5 million for the first quarter of 2011

§ Diluted adjusted net income per share for the quarter was $0.22, as compared to $0.18 for the first quarter of 2011

Guidance for 2012 Annual Revenue Performance

DealerTrack raised annual guidance for revenue and non-GAAP earnings to reflect its stronger outlook for the year, and adjusted its expected GAAP earnings to further reflect certain interest expense and costs related to the company’s issuance of $200 million in senior convertible notes in March 2012, as follows:

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Expected GAAP Results

§ Revenue for the year is expected to be between $375.0 million and $382.0 million, an increase from prior guidance of between $365.0 to $372.0 million

§ GAAP net income for the year is expected to be between $27.0 million and $30.0 million, a decrease from prior guidance of between $33.0 million and $36.0 million

§ Diluted GAAP net income per share for the year is expected to be between $0.61 and $0.68, a decrease from prior guidance of between $0.75 and $0.81 per share

Expected Non-GAAP Results

§ Adjusted EBITDA for the year is expected to be between $94.0 million and $97.0 million, an increase from prior guidance of between $91.0 and $95.0 million

§ Adjusted net income for the year is expected to be between $46.0 million and $49.0 million, an increase from prior guidance of between $44.0 and $47.0 million

§ Diluted adjusted net income per share for the year is expected to be between $1.04 and $1.11, an increase from prior guidance of between $0.99 and $1.06

The guidance assumes that new car sales by franchised dealers will be approximately 14.2 million units, up from our previous expectation of 13.5 million units, and used car sales by franchised dealers will be approximately 14.0 million units for 2012, an amount unchanged from our previous estimate. Diluted GAAP net income and adjusted net income per share guidance for the year continue to be based on an estimated 44.3 million diluted weighted average shares outstanding.

Mark F. O’Neil, chairman and chief executive officer of DealerTrack, commented, “We are pleased with our strong performance in the first quarter. Transaction revenue grew at a multiple of growth in car sales as we increased the average transaction revenue per car sold. Our subscription business also performed well, as we saw particularly strong interest in our Inventory solution.” O’Neil further commented, “We are increasing our revenue guidance for 2012, reflecting strong first quarter results and an increase in our 2012 car sales expectations. Continued momentum combined with investments in our future growth make us more confident in our outlook for 2012 and beyond.”

Conference Call

DealerTrack will host a conference call to discuss its first quarter 2012 results and other matters on May 8, 2012 at 5:00 p.m. Eastern Time. The conference call will be webcast live on the Internet at ir.dealertrack.com. In addition, a live audio of the call will be accessible to the public by calling 877-303-6648 (domestic) or 970-315-0443 (international); no access code is necessary. Callers should dial in approximately 10 minutes before the call begins. A replay will be available on the DealerTrack website until May 21, 2012.

Non-GAAP Financial Measures 

The non-GAAP measures of adjusted EBITDA and adjusted net income disclosures are not presented in accordance with generally accepted accounting principles (GAAP) and are not intended to be used in lieu of GAAP presentations of net income.  Adjusted EBITDA is a non-GAAP financial measure that represents GAAP net income (loss) excluding interest, taxes, depreciation and amortization expenses, stock-based compensation, and contra-revenue and may exclude certain items such as:  impairment charges, restructuring charges, impact of acquisition-related activity (including contingent consideration changes, compensation expense, basis difference amortization, and professional service fees), realized gains or losses on sales of securities, gains or losses on sales or disposals of subsidiaries, and certain other non-recurring items. 

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All stock-based compensation expense is excluded from the calculation of the adjusted EBITDA non-GAAP measure. This may reduce the comparability with prior periods. This non-cash expense was included in presentations prior to fourth quarter 2011.

Adjusted net income is a non-GAAP financial measure that represents GAAP net income (loss) excluding stock-based compensation expense, the amortization of acquired identifiable intangibles, and contra-revenue, and may also exclude certain items such as: impairment charges, restructuring charges, impact of acquisition-related activity (including contingent consideration changes, compensation expense, basis difference amortization, and professional service fees), realized gains or losses on sales of securities, gains or losses on sales or disposals of subsidiaries, adjustments to deferred tax asset valuation allowances, non-cash interest expense and certain other non-recurring items.  These adjustments to net income, which are shown before taxes, are adjusted for their tax impact. 

Adjusted EBITDA and adjusted net income are presented because management believes that they provide additional information with respect to the performance of our fundamental business activities and are also frequently used by securities analysts, investors and other interested parties in the evaluation of comparable companies.  Adjusted EBITDA and adjusted net income are also presented because the purchase accounting treatment of acquisitions can have a negative impact on our GAAP results because the depreciation and amortization expenses associated with acquired assets, in 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 adjusted EBITDA and adjusted net income and other business statistics as a measure of operating performance in addition to net income and the other measures included in our consolidated financial statements.  Management believes the adjusted EBITDA and adjusted net income information is useful to investors for these reasons.  Adjusted EBITDA and adjusted net income are non-GAAP financial measures and should not be viewed as an alternative to GAAP measures of performance.  Management believes the most directly comparable GAAP financial measure for adjusted EBITDA and adjusted net income is GAAP net income (loss) and has provided a reconciliation of adjusted EBITDA to GAAP net income (loss) and adjusted net income to GAAP net income (loss) in this press release.

About DealerTrack (www.dealertrack.com)

DealerTrack’s web-based software solutions and services enhance efficiency and profitability for all major segments of the automotive retail industry, including dealers, lenders, OEMs, third party retailers, agents and aftermarket providers.  DealerTrack operates the largest online credit application network in the United States and Canada. DealerTrack's Dealer Management System (DMS) provides dealers with easy-to-use tools and real-time data access to enhance their efficiency.  DealerTrack's Inventory solution offerings provide vehicle inventory management and merchandising solutions to help dealers drive higher in-store and online traffic with state-of-the-art, real-time listings — designed to accelerate used-vehicle turn rates and increase dealer profits.  DealerTrack's Sales and Finance solutions allow dealers to streamline the entire sales process as they structure deals from a single integrated platform.  Our Compliance offering helps dealers meet legal and regulatory requirements, and protect their assets.  DealerTrack also offers processing solutions for the automotive industry, including digital retailing, electronic motor vehicle registration and titling applications, paper title storage, and digital document services.

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Safe Harbor for Forward-Looking and Cautionary Statements

Statements in this press release regarding DealerTrack’s expected 2012 performance based on both GAAP and non-GAAP measures, the long-term outlook for its business, and all other statements in this release other than the recitation of historical facts are forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995). These statements involve a number of risks, uncertainties and other factors that could cause actual results, performance or achievements of DealerTrack to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements.

Factors that might cause such a difference include: economic trends that affect the automotive retail industry or the indirect automotive financing industry including the number of new and used cars sold; credit availability; reductions in auto dealerships; increased competitive pressure from other industry participants, including Open Dealer Exchange, RouteOne, CUDL, Finance Express and AppOne; the impact of some vendors of software products for automotive dealers making it more difficult for DealerTrack’s customers to use DealerTrack’s solutions and services; security breaches, interruptions, failures and/or other errors involving DealerTrack’s systems or networks; the failure or inability to execute any element of DealerTrack’s business strategy, including selling additional products and services to existing and new customers; DealerTrack’s success in implementing an ERP system; the volatility of DealerTrack’s stock price; new regulations or changes to existing regulations; the integration of recent acquisitions and the expected benefits, as well as the integration and expected benefits of any future acquisitions that DealerTrack may pursue; DealerTrack’s success in expanding its customer base and product and service offerings, the impact of recent economic trends, and difficulties and increased costs associated with raising additional capital; the impairment of intangible assets, such as trademarks and goodwill; and other risks listed in DealerTrack’s reports filed with the Securities and Exchange Commission (SEC), including its most recent Annual Report on Form 10-K. These filings can be found on DealerTrack’s website at www.dealertrack.com and the SEC’s website at www.sec.gov. Forward-looking statements included herein speak only as of the date hereof and DealerTrack disclaims any obligation to revise or update such statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or circumstances, except as required by law.

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DEALERTRACK HOLDINGS, INC.

Consolidated Statements of Operations

(Dollars in thousands, except share and per share data)

(Unaudited)

	Three Months Ended
	March 31,
	2012			2011
Net revenue	$	91,617		$	77,191
Cost of revenue		53,696			44,099
Product development		3,544			3,742
Selling, general and administrative		33,032			30,424
Total operating expenses		90,272			78,265
Income (loss) from operations		1,345			(1,074	)
Interest expense and other income, net		(688	)		89
Gain on disposal of subsidiary		27,693			-
Income (loss) before (provision for) benefit from income taxes, net		28,350			(985	)
(Provision for) benefit from income taxes, net		(11,389	)		25,713
Net income	$	16,961		$	24,728
Basic net income per share	$	0.40		$	0.61
Diluted net income per share	$	0.39		$	0.59
Weighted average common stock outstanding (basic)		42,090,947			40,851,659
Weighted average common stock outstanding (diluted)		43,720,166			42,103,811
Adjusted EBITDA - previous presentation (non-GAAP) (a)	$	16,089		$	12,678
Adjusted EBITDA margin - previous presentation (non-GAAP) (b)		18	%		16	%
Adjusted EBITDA (non-GAAP) (a)	$	19,419		$	15,493
Adjusted EBITDA margin (non-GAAP) (b)		21	%		20	%
Adjusted net income (non-GAAP) (a)	$	9,444		$	7,490
Diluted adjusted net income per share (non-GAAP)	$	0.22		$	0.18
Stock-based compensation expense was classified as follows:
Cost of revenue	$	635		$	427
Product development		214			185
Selling, general and administrative		2,481			2,330
	$	3,330		$	2,942

(a)     See Reconciliation Data.

(b)     Represents adjusted EBITDA as a percentage of net revenue.

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DEALERTRACK HOLDINGS, INC.

Condensed Consolidated Balance Sheets

(Dollars in thousands)

(Unaudited)

	March 31, 2012		December 31, 2011
ASSETS
Cash and cash equivalents	$	257,544	$	78,709
Investments		80		46
Customer funds		1,477		1,097
Customer funds receivable		20,526		18,695
Accounts receivable, net		39,025		37,588
Deferred tax assets		9,188		9,171
Prepaid expenses and other current assets		23,668		23,011
Total current assets		351,508		168,317
Property and equipment, net		21,816		21,637
Software and website development costs, net		36,241		37,341
Investments - long-term		132,359		89,000
Intangible assets, net		87,551		96,441
Goodwill		193,423		200,840
Deferred tax assets		33,436		34,421
Other assets - long-term		17,155		12,356
Total assets	$	873,489	$	660,353
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses	$	31,368	$	41,194
Customer funds payable		22,003		19,792
Deferred revenue		8,531		9,115
Deferred tax liabilities		3,443		3,443
Capital leases payable		204		255
Total current liabilities		65,549		73,799
Long-term liabilities		257,826		91,798
Total liabilities		323,375		165,597
Total stockholders' equity		550,114		494,756
Total liabilities and stockholders' equity	$	873,489	$	660,353

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DEALERTRACK HOLDINGS, INC.

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

	Three Months Ended
	March 31,
	2012			2011
Operating activities:
Net income	$	16,961		$	24,728
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		11,979			11,745
Deferred tax provision (benefit)		10,893			(24,670	)
Stock-based compensation expense		3,330			2,942
Provision for doubtful accounts and sales credits		2,146			1,737
Earnings from equity method investment, net		(163	)		-
Deferred compensation		38			50
Stock-based compensation windfall tax benefit		(2,943	)		(1,304	)
Gain on disposal of subsidiary		(27,693	)		-
Amortization of debt issuance costs and debt discount		729			-
Change in contingent consideration		(250	)		-
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		(6,742	)		(6,420	)
Prepaid expenses and other current assets		3,059			(3,301	)
Other assets — long-term		1,539			809
Accounts payable and accrued expenses		(11,441	)		(11,350	)
Deferred rent		48			92
Deferred revenue		527			788
Other liabilities — long-term		(1,166	)		705
Net cash provided by (used in) operating activities		851			(3,449	)

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	Three Months Ended
	March 31,
	2012			2011
Investing activities:
Capital expenditures		(1,695	)		(3,102	)
Capitalized software and website development costs		(3,665	)		(3,359	)
Cash contributed for equity method investment		(1,750	)		-
Payment for acquisition of businesses, net of acquired cash		-			(128,482	)
Net cash used in investing activities		(7,110	)		(134,943	)
Financing activities:
Principal payments on capital lease obligations and financing arrangements		(349	)		(159	)
Proceeds from the exercise of employee stock options		3,478			2,215
Proceeds from employee stock purchase plan		184			175
Proceeds from the issuance of senior convertible notes		200,000			-
Payments for debt issuance costs		(6,690	)		-
Payments for convertible note hedges		(43,940	)		-
Proceeds from the issuance of warrants		29,740			-
Purchases of treasury stock		(657	)		(437	)
Stock-based compensation windfall tax benefit		2,943			1,304
Net cash provided by financing activities		184,709			3,098
Net increase (decrease) in cash and cash equivalents		178,450			(135,294	)
Effect of exchange rate changes on cash and cash equivalents		385			280
Cash and cash equivalents, beginning of period		78,709			192,563
Cash and cash equivalents, end of period	$	257,544		$	57,549
Supplemental disclosure:
Cash paid for:
Income taxes	$	1,109		$	1,280
Interest		217			14
Non-cash investing and financing activities:
Non-cash consideration issued for investment in Chrome Data Solutions		42,301			-
Accrued capitalized hardware, software and fixed assets		1,879			3,725
Capitalized stock-based compensation		-			31
Deferred compensation reversal to equity		38			50
Assets acquired under capital leases and financing arrangements		725			-

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DEALERTRACK HOLDINGS, INC.

Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA

(Dollars in thousands)

(Unaudited)

	Three Months Ended
	March 31,
	2012			2011
GAAP net income	$	16,961		$	24,728
Interest income		(230	)		(114	)
Interest expense - cash		454			32
Interest expense - non-cash		703			-
Provision for (benefit from) income taxes, net		11,389			(25,713	)
Depreciation of property and equipment and amortization of capitalized software and website costs		5,100			4,885
Amortization of acquired identifiable intangibles		6,879			6,860
EBITDA (non-GAAP)		41,256			10,678
Adjustments:
Gain on disposal of subsidiary		(27,693	)		-
Acquisition-related and other professional fees		199			330
Contra-revenue		1,102			943
Integration and other related costs (including amounts related to stock-based compensation)		-			652
Acquisition-related contingent consideration changes and compensation expense		178			75
Rebranding expense		51			-
Amortization of equity method investment basis difference		996			-
Adjusted EBITDA - previous presentation (non-GAAP)	$	16,089		$	12,678
Stock-based compensation (excluding amounts included in integration and other related costs)		3,330			2,815
Adjusted EBITDA - new presentation (non-GAAP)	$	19,419		$	15,493

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DEALERTRACK HOLDINGS, INC.

Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income

(Dollars in thousands)

(Unaudited)

	Three Months Ended
	March 31,
	2012			2011
GAAP net income	$	16,961		$	24,728
Adjustments:
Deferred tax asset valuation allowance (non-taxable)		-			(24,548	)
Amortization of acquired identifiable intangibles		6,879			6,860
Stock-based compensation (excluding integration and other related costs)		3,330			2,815
Gain on disposal of subsidiary		(27,693	)		-
Contra-revenue		1,102			943
Integration and other related costs (including amounts related to stock-based compensation)		-			652
Interest expense - non-cash (not tax-impacted)		703			-
Amortization of equity method investment basis difference		996			-
Acquisition-related and other professional fees		199			330
Acquisition-related contingent consideration changes and compensation expense		178			75
Amended state tax return impact (non-taxable)		-			32
Rebranding expense		51			-
Tax impact of adjustments (a)		6,738			(4,397	)
Adjusted net income (non-GAAP)	$	9,444		$	7,490

(a)   The tax impact of adjustments for the three months ended March 31, 2012, are based on a U.S. statutory tax rate of 37.4% applied to taxable adjustments other than amortization of acquired identifiable intangibles and stock-based compensation expense, which are based on a blended tax rate of 37.3% and 37.0%, respectively. The tax impact of adjustments for the three months ended March 31, 2011, are based on a U.S. statutory tax rate of 38.3% applied to taxable adjustments other than amortization of acquired identifiable intangibles and stock-based compensation expense, which are based on a blended tax rate of 37.6% and 38.0%, respectively.

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DEALERTRACK HOLDINGS, INC.

Reconciliation of Forward-looking GAAP Net Income to Forward-looking Non-GAAP Adjusted EBITDA

(Dollars in millions)

(Unaudited)

	Year Ending December 31, 2012
	Expected Range
GAAP net income	$	27.0		$	30.0
Interest, net		10.3			10.3
Income taxes, net		16.3			17.3
Amortization of basis difference from joint venture		4.0			4.0
Depreciation and amortization		23.6			22.6
Amortization of acquired identifiable intangibles		25.8			25.8
EBITDA (non-GAAP)		107.0			110.0
Adjustments:
Non-recurring costs (a)		3.0			3.0
Realized gains		(33.2	)		(33.2	)
Contra-revenue		4.0			4.0
Adjusted EBITDA - previous presentation (non-GAAP)	$	80.8		$	83.8
Stock-based compensation (excluding amounts included in integration and other related costs)		13.2			13.2
Adjusted EBITDA - new presentation (non-GAAP)	$	94.0		$	97.0

 (a) Includes certain professional fees, integration and other related costs and acquisition-related compensation expense.

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DEALERTRACK HOLDINGS, INC.

Reconciliation of Forward-looking GAAP Net Income to Forward-looking Non-GAAP Adjusted Net Income

(Dollars in millions)

(Unaudited)

	Year Ending December 31, 2012
	Expected Range
GAAP net income	$	27.0		$	30.0
Adjustments:
Stock-based compensation		13.2			13.2
Amortization of acquired identifiable intangibles		25.8			25.8
Amortization of basis difference from joint venture		4.0			4.0
Non-cash interest expense (not tax-impacted)		7.6			7.6
Non-recurring costs (a)		3.0			3.0
Realized gains, net of taxes		(19.6	)		(19.6	)
Contra-revenue		4.0			4.0
Tax impact of adjustments (b)		(19.0	)		(19.0	)
Adjusted net income (non-GAAP)	$	46.0		$	49.0

(a) Includes certain professional fees, integration and other related costs, acquisition-related compensation expense.

(b)  The tax impact of adjustments are based on a blended tax rate of 38% applied to taxable adjustments.

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DEALERTRACK HOLDINGS, INC.

Summary of Business Statistics (Unaudited)

Three months ended

	Mar 31, 2012		Dec 31, 2011		Sep 30, 2011		Jun 30, 2011		Mar 31, 2011
Active U.S. dealers (a)		18,345		17,543		17,629		17,660		17,373
Active U.S. lenders (b)		1,165		1,120		1,103		1,062		1,010
Transactions processed (in thousands) (c)		21,751		18,769		19,772		19,135		16,774
Active U.S. lender to dealer relationships (d)		172,075		164,776		161,400		157,591		152,095
Subscribing dealers (e)		16,143		16,003		15,860		14,488		14,239

(a)      We consider a dealer to be active in our U.S. network as of a date if the dealer completed at least one revenue-generating credit application processing transaction using the U.S. DealerTrack network during the most recently ended calendar month. The number of active U.S. dealers is based on the number of dealer accounts as communicated by lenders on the DealerTrack network.

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

(c)      Represents revenue-generating transactions processed in the U.S. DealerTrack, DealerTrack Aftermarket Services, DealerTrack Processing Solutions and DealerTrack Canada networks at the end of a given period.

(d)     Each lender to dealer relationship represents a pair between an active U.S. lender and an active U.S. dealer at the end of a given period. 2011 results are recalculated to reflect an improved methodology of accumulating relationships. As previously reported: December 31, 2011 - 151,126, September 30, 2011 - 150,514, June 30, 2011 - 149,398, March 31, 2011 - 146,660.

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

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DEALERTRACK HOLDINGS, INC.

Summary of Business Statistics (Unaudited)

Three months ended

	Mar 31, 2012		Dec 31, 2011		Sep 30, 2011		Jun 30, 2011		Mar 31, 2011
Transaction revenue (in thousands)	$	54,079	$	47,541	$	50,411	$	48,505	$	38,435
Subscription revenue (in thousands)	$	33,231	$	38,779	$	39,261	$	34,716	$	33,865
Other revenue (in thousands)	$	4,307	$	4,939	$	6,121	$	5,830	$	4,891
Average transaction price (a)	$	2.53	$	2.58	$	2.60	$	2.58	$	2.35
Transaction revenue per car sold (b)	$	8.61	$	7.17	$	6.20	$	5.73	$	6.71
Average monthly subscription revenue per subscribing dealership (c)	$	690	$	813	$	834	$	807	$	798
Average monthly subscription revenue per subscribing dealership (excluding Chrome & ALG) (d)	$	690	$	690	$	684	$	649	$	641

(a) Represents the average revenue earned per transaction processed in the U.S. DealerTrack, DealerTrack Aftermarket, DealerTrack Processing Solutions and DealerTrack Canada networks during a given period. Revenue used in calculation adds back transaction related contra-revenue.

(b) Represents transaction revenue divided by our estimate of total new and used car sales for the period in the U.S. and Canada. Revenue used in the calculation adds back transaction related contra-revenue.

(c) Revenue used in the calculation adds back subscription related contra-revenue.

(d) Excludes subscription revenue from Chrome and ALG.

TRAK-E ###

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