DealerTrack: 1Q Net Income Up 66 Percent

LAKE SUCCESS, N.Y. — DealerTrack announced its net income for the first quarter reached $3.4 million, up 66 percent from $2.1 million posted in the same period of 2005. Company executives highlighted the fact that their transaction volume in the subprime area was particularly strong.
Executives noted that their net income results include a stock-based compensation expense of $0.7 million. Revenue for the quarter came in at $37.9 million, a 63-percent increase from $23.3 million reported in the first quarter of the prior year.
"Our results for our first full quarter as a public company exceeded our expectations," explained Mark O'Neil, DealerTrack's chairman and chief executive officer. "We are pleased with the continued growth in both transaction and subscription revenue. Transaction volume for the subprime market sector was unusually robust in the final weeks of the quarter, which we believe partly reflects the ongoing trend toward electronic filing of tax returns and the use of those refunds for vehicle purchases. With revenue stronger than forecast, we were able to produce excellent bottom-line results."
As of March 31, DealerTrack said it had 21,794 active dealers in its network, an 8-percent increase from 20,109 in the prior year. DealerTrack announced that the number of active financing sources in its network has hit 225, up from 201 at the end of 2005.
"We are very pleased to reach this milestone," said O'Neil. "As we continue to add more financing sources, the breadth of the DealerTrack network is increasingly beneficial for our 21,000 dealer customers," he added. "Providing dealers with more efficient access to their financing sources helps them sell more cars and can increase their profitability per deal."
Meanwhile, transactions processed through the DealerTrack network for the quarter came in at 15.7 million, up 36 percent from approximately 11.6 million processed in the same quarter last year. Subscriptions are up 67 percent to 16,438, as compared to 9,825 in 2005. Additionally, executives noted the average number of subscriptions per dealer in their network reached 0.75, a 54-percent climb from 0.49 in the first quarter of the previous year.
DealerTrack Holdings also recently announced that its subsidiary DealerTrack Digital Services has acquired the majority of Global Fax assets, which provides business process outsourcing solutions to the auto finance industry.
O'Neil commented on the recent acquisition of Global Fax, saying, "By adding Global Fax's capabilities to our existing eContracting solution, we can now enable our financing source customers to receive 100 percent of their retail automotive contracts in a digital format. This streamlines their contract processing operations and facilitates a completely digital back-end process. We believe this holistic contracting solution creates greater efficiencies for our financing source and dealer customers."
More specifically, Global Fax provides outsourced document scanning, storage, data entry and retrieval services for approximately 20 national auto financing customers. The company was founded in Warren, Mich., in 1993 and originally began by processing faxed credit applications. Today, the company processes auto retail contracts and all related documents.
"DealerTrack is pleased to offer our financing source customers a variety of digital solutions that can provide them with 100 percent of their retail automotive contracts in a digital format," said O'Neil.
"While Global Fax's Express Contract Processing service has strong growth potential in its own right, this acquisition also represents an opportunity for us to enhance the overall value proposition of eContracting and our eDocs solution for our financing source customers," he continued.
Paul Kennedy, president of Global Fax, in addition to being one of its founders, added, "We are excited to join forces with DealerTrack to provide lenders with a complete package of electronic solutions to simplify and streamline their automotive contract processing operations."
O'Neil responded, "Paul, his management team and their ECP service are very highly regarded by their financing source customers. We are delighted about this addition to DealerTrack's capabilities and look forward to having Paul join our team. Consistent with our strategy, this acquisition further enhances the platform of services and technology we provide our financing customers."
Company executives said DealerTrack paid a cash consideration of approximately $3.8 million, with an additional $2.4 million cash consideration to be paid out based upon the achievement of certain revenue targets in 2006.
Looking down the road, company executives said they anticipate 2006 revenue coming in at $115 million to $160 million.
"We continue to execute well within our integrated business model," O'Neil stated. "Organic growth is the primary driver of the business, with strategic acquisitions also adding new products and services that we can leverage using our network. We are steadily adding dealers, financing sources and other third parties to our network, expanding our product offerings and successfully cross-selling to more of our dealer customers.
"As indicated by the completion of the DealerWire and Global Fax transactions, there are still numerous opportunities for DealerTrack to acquire complementary businesses and technology that can be leveraged for the benefit of our dealer and financing source customers, and ultimately our stockholders," O'Neil continued.
Just what do the analysts think? At least one, Lehman Brothers analyst Roger Freeman, had nothing but positive things to say.
In a note to clients, he wrote, "Given that the company had just issued first-quarter guidance with just two weeks left in the quarter, we were surprised to see the magnitude of out-performance during the quarter."
When DealerTrack released financials last week, its stock jumped 5.5 percent to $22.05.
"The company added 639 new dealers during the quarter, the largest quarterly increase in a year," Freeman wrote. "This number is encouraging, especially as the company has been more focused on selling new products to existing dealers recently."

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