Normal
0
false
false
false
EN-US
X-NONE
X-NONE
LAKE SUCCESS, N.Y. — Recent intimate dialogue with both
dealers and lenders gave Dealertrack Technologies chairman and chief executive
officer Mark O'Neil a unique assessment of just how the subprime auto finance industry
is behaving nowadays.

Topics ranging from approvals for consumers with credit
scores dipping toward 500 as well as possible unity within the lending community
were among the subjects O'Neil touched on this week when Dealertrack conducted
a conference call with investment analysts after reporting its first-quarter
financial statement.

The call came just hours after Dealertrack hosted store
principals and managers from throughout the country who are part of the company's
dealer council. O'Neil shared the broad sentiment of what's happening in the
F&I office at these dealerships.

"I would say unanimously year-over-year every dealer said
underwriting standards have loosened," O'Neil said. "Dealers are talking about
getting 501 credit scores booked with ease. That's phenomenal. A 501 credit
score is an awful credit score. You have significant impairment on your bureau
when you have that low of a score.

"For dealers to characterize that as easy to get bought is
just indicative of how loose credit standards have come on a relative basis to
where we've been the last few years. I don't think they're anywhere near the
loose standards we had in 2007 going into the credit crisis," he continued.

O'Neil then mentioned whether Dealertrack's council is
looking for this trend to continue into the foreseeable future.

"Look, we're optimistic as is the dealer community to see
lenders fighting for incremental business. They're seeing credit standards
loosen up to sell virtually everything they've got," O'Neil said.

"It's no longer an impediment to a sale as it was when you
look back six months ago," he went on to say. "There are plenty of choices out
there. There are plenty of folks who are writing full spectrum. I would
absolutely unequivocally say credit is not an issue to car sales right now."

Lenders' Approach to Changing Regulatory Environment

O'Neil also answered questions about how lenders are
handling new regulatory guidance pushed on them by the Consumer Financial
Protection Bureau and other government agencies. His assessment is that even
though the CFPB issued its guidance about indirect auto lending in March, more
developments are still to come before final resolutions are reached.

"We've still got a couple of months of debate," O'Neil said.
"One of the things we're clearly hearing from our lender community is no one
wants to go first. They kind of all want to link arms and jump in the pool all
together or not go at all. Getting a large community of lenders to make a
decision and jump is going to take a few more rounds of dialogue and prodding
and pushing and exploring all of the option before someone goes down a path.

"We're well into Q2 and we don't even have half of the dialogue
complete," he continued. "We're probably into Q3 before we have options laid
out and maybe folks start moving in Q4."

 Earlier this month, reports
surfaced that extended warranties and other products appear to be the next
regulatory target in the F&I office. The CFPB reportedly issued subpoenas
to U.S. auto lenders over the sale of extended warranties and other financial
products such as gap insurance.

"There is a lot of noise in the newspaper and online, but
not a lot of activity yet," O'Neil said.

Q1 Financial Results and Updated Guidance

Dealertrack reported its financial performance for the quarter
that ended March 31 by first noting its GAAP results:

—Revenue for the quarter was $109.1 million, as compared to
$91.6 million for the first quarter of 2012.

—GAAP net loss for the quarter was $34,000, as compared to
GAAP net income of $17.0 million for the first quarter of 2012.

—Diluted GAAP net loss per share for the quarter was zero,
as compared to GAAP net income per share of $0.39 for the first quarter of
2012.

The company mentioned GAAP net income for the first quarter
of last year 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 joint venture.

Next, Dealertrack non-GAAP results for the first quarter, including:

—Adjusted EBITDA for the quarter was $24.2 million, as
compared to $19.4 million for the first quarter of 2012.

—Adjusted net income for the quarter was $12.0 million, as
compared to $9.4 million for the first quarter of 2012.

—Diluted adjusted net income per share for the quarter was
$0.27, as compared to $0.22 for the first quarter of 2012.

"We are off to a solid start for the year," O'Neil said. "Our
focus on selling broader solutions to dealerships helped drive an increase in
momentum for our subscription products in the first quarter, led by our dealer
management system.

"At the same time, transaction revenue continues to increase
faster than the growth in car sales as we derived more revenue per car sold through
increased cross-selling," he continued. "We are also making significant
progress in a number of product initiatives that we believe will help us
deliver strong growth and profitability in the years ahead."

Dealertrack also updated its 2013 annual guidance to reflect
the acquisition of Casey & Casey as follows beginning with expected GAAP results:

—Revenue for the year is expected to be between $453.0
million and $462.0 million, an increase from prior guidance of between $447.0
million and $456.0 million.

—GAAP net income for the year is expected to be between $9.5
million and $12.5 million, a decrease from prior guidance of between $10.0
million and $13.0 million.

—Diluted GAAP net income per share for the year is expected
to be between $0.21 and $0.28, a decrease from prior guidance of between $0.22
and $0.29 per share.

The company then mentioned expected non-GAAP results:

—Adjusted EBITDA for the year is expected to be between
$112.5 million and $116.5 million, an increase from prior guidance of between
$111.0 million and $115.0 million.

—Adjusted net income for the year is expected to be between
$55.0 million and $58.0 million, an increase from prior guidance of between
$54.0 million and $57.0 million.

—Diluted adjusted net income per share for the year is
expected to be between $1.21 and $1.28, an increase from prior guidance of
between $1.19 and $1.26.

Nick Zulovich can be reached at nzulovich@subprimenews.com. Continue the conversation with SubPrime Auto Finance News on LinkedIn and Twitter.