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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

 

 

 

 

 

 

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

 

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2014

 

OR

 

 

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

 

FOR THE TRANSITION PERIOD FROM               TO             

 

Commission File No. 1-35206

 

Picture 3

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

 

65-0423422

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

11760 U.S. Highway One, Suite 200

North Palm Beach, Florida

 

33408

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (561) 630-2400

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes      No  

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

 

 

 

 

 

Large accelerated filer 

Accelerated filer 

 

 

 

 

Non-accelerated filer 

(Do not check if a smaller reporting company)

Smaller reporting company 

 

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

 

The number of outstanding shares of the issuer’s common stock as of July 31, 2014  was as follows: 104,434,271 shares of Common Stock, $.01 par value.

 


 

 

Table of Contents

Bankrate, Inc. and Subsidiaries

Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2014

 

 

 

 

2

 


 

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains “forward-looking statements” which involve risks and uncertainties. You can identify forward-looking statements because they contain words such as “believes,” “expects,” “may,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” or “anticipates” or similar expressions that relate to our strategy, plans or intentions. All statements we make relating to our estimated and projected earnings, margins, revenues, costs, expenditures, cash flows, growth rates and financial results or to our expectations regarding future industry trends are forward-looking statements. In addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments. These forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those that we expected. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon certain assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are based upon information available to us on, and speak only as of, the date of this report.

Important factors that could cause actual results to differ materially from our expectations, which we refer to as cautionary statements, are discussed in detail in Part I, Item 1A. “Risk Factors” in our annual report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2014. All forward-looking information in this quarterly report and subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Some of the factors that we believe could affect our results include without limitation:

·

the willingness of our advertisers to advertise on our websites or mobile applications;

·

increased competition and its effect on our website traffic, advertising rates, margins, and market share;

·

our dependence on internet search engines to attract a significant portion of the visitors to our websites;

·

the number of consumers seeking information about the financial products we have on our websites or mobile applications;

·

interest rate volatility;

·

technological changes;

·

our ability to manage traffic on our websites or mobile applications, and service interruptions;

·

our ability to maintain and develop our brands and content;

·

the fluctuations of our results of operations from period to period;

·

our indebtedness and the effect such indebtedness may have on our business;

·

our need and our ability to incur additional debt or equity financing;

·

our ability to integrate the operations and realize the expected benefits of businesses that we have acquired and may acquire in the future;

·

the effect of unexpected liabilities we assume from our acquisitions;

·

changes in application approval rates by our credit card issuer customers;

·

our ability to successfully execute on our strategy, including without limitation our insurance quality initiative and our mobile strategy, and the effectiveness of our strategy;

·

our ability to attract and retain executive officers and personnel;

·

the impact of and defense of resolution of lawsuits to which we are a party;

·

the failure to obtain preliminary or final Court approval of the proposed settlement of the securities litigation described in Note 9 of our Condensed Consolidated Financial Statements included in this document (or a delay in obtaining that approval), risks related to decisions by stockholders to opt out of or object to the proposed settlement, and resolution of insurance claims related to the litigation;

·

our ability to protect our intellectual property;

·

the effects of facing liability for content on our websites or mobile applications;

·

our ability to establish and maintain distribution arrangements;

3

 


 

·

our ability to maintain good working relationships with our customers and third-party providers and to continue to attract new customers;

·

the effect of our expansion of operations in the United Kingdom and China and possible expansion to other international markets, in which we may have limited experience;

·

the willingness of consumers to accept the Internet and our online network as a medium for obtaining financial product information;

·

the strength of the U.S. economy in general and the financial services industry in particular;

·

changes in monetary and fiscal policies of the U.S. Government;

·

changes in consumer spending and saving habits;

·

review of our business and operations by regulatory authorities;

·

changes in the legal and regulatory environment;

·

changes in accounting principles, policies, practices or guidelines; and

·

ability to manage the risks involved in the foregoing.

We caution you that the foregoing list of important factors may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this quarterly report may not in fact occur. Accordingly, investors should not place undue reliance on those statements. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

 

4

 


 

PART I. FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements (Unaudited)

Bankrate, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

 

 

 

June 30,

 

December 31,

 

 

2014

 

2013

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

175,779 

 

$

230,071 

Short term investments

 

 

500 

 

 

 -

Accounts receivable, net of allowance for doubtful accounts of

 

 

 

 

 

 

$546 and $451 at June 30, 2014 and December 31, 2013

 

 

77,154 

 

 

61,962 

Deferred income taxes

 

 

17,155 

 

 

7,155 

Prepaid expenses and other current assets

 

 

31,368 

 

 

9,736 

Total current assets

 

 

301,956 

 

 

308,924 

 

 

 

 

 

 

 

Furniture, fixtures and equipment, net of accumulated depreciation of

 

 

 

 

 

 

$24,003 and $19,690 at June 30, 2014 and December 31, 2013

 

 

13,609 

 

 

12,930 

Intangible assets, net of accumulated amortization of

 

 

 

 

 

 

$207,317 and $181,721 at June 30, 2014 and December 31, 2013

 

 

353,977 

 

 

350,206 

Goodwill

 

 

638,010 

 

 

611,975 

Other assets

 

 

12,456 

 

 

12,776 

Total assets

 

$

1,320,008 

 

$

1,296,811 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Accounts payable

 

 

8,247 

 

 

7,149 

Accrued expenses

 

 

27,367 

 

 

40,546 

Deferred revenue and customer deposits

 

 

4,705 

 

 

3,792 

Accrued interest

 

 

6,891 

 

 

7,379 

Other current liabilities

 

 

30,787 

 

 

24,595 

Total current liabilities

 

 

77,997 

 

 

83,461 

 

 

 

 

 

 

 

Deferred income taxes

 

 

63,199 

 

 

51,699 

Long term debt, net of unamortized discount

 

 

297,305 

 

 

297,021 

Other liabilities

 

 

15,581 

 

 

25,668 

Total liabilities

 

$

454,082 

 

$

457,849 

 

 

 

 

 

 

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Common stock, par value $.01 per share -

 

 

 

 

 

 

300,000,000 shares authorized at June 30, 2014 and December 31, 2013;

 

 

 

 

 

 

104,910,543 shares and 101,749,513 shares issued at June 30, 2014 and

 

 

 

 

 

 

December 31, 2013; 104,434,271 shares and 101,698,985 shares outstanding at June 30, 2014 and December 31, 2013

 

 

1,044 

 

 

1,017 

Additional paid-in capital

 

 

895,285 

 

 

864,152 

Accumulated deficit

 

 

(22,680)

 

 

(25,266)

Less: Treasury stock, at cost - 476,272 shares and 50,528 shares at June 30, 2014 and December 31, 2013

 

 

(7,516)

 

 

(591)

Accumulated other comprehensive loss

 

 

(207)

 

 

(350)

Total stockholders' equity

 

 

865,926 

 

 

838,962 

Total liabilities and stockholders' equity

 

$

1,320,008 

 

$

1,296,811 

 

5

 


 

The accompanying notes are an integral part of these condensed consolidated financial statements.

Bankrate, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(In thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

Six months ended

 

 

June 30,

 

June 30,

 

June 30,

 

June 30,

 

 

2014

 

2013

 

2014

 

2013

Revenue

 

$

130,662 

 

$

105,546 

 

$

267,137 

 

$

213,994 

Cost of revenue (excludes depreciation and amortization)

 

 

46,494 

 

 

37,542 

 

 

92,789 

 

 

73,650 

Gross margin

 

 

84,168 

 

 

68,004 

 

 

174,348 

 

 

140,344 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

 

3,674 

 

 

3,751 

 

 

7,334 

 

 

7,528 

Marketing

 

 

33,180 

 

 

24,873 

 

 

66,581 

 

 

51,206 

Product development and technology

 

 

5,907 

 

 

4,840 

 

 

11,645 

 

 

9,491 

General and administrative

 

 

14,169 

 

 

11,246 

 

 

29,426 

 

 

22,622 

Legal settlements

 

 

9,190 

 

 

 -

 

 

9,191 

 

 

 -

Acquisition, offering and related expenses

 

 

158 

 

 

20 

 

 

2,561 

 

 

20 

Changes in fair value of contingent acquisition consideration

 

 

744 

 

 

2,949 

 

 

2,150 

 

 

4,098 

Depreciation and amortization

 

 

15,195 

 

 

14,844 

 

 

29,656 

 

 

29,355 

 

 

 

82,217 

 

 

62,523 

 

 

158,544 

 

 

124,320 

Income from operations

 

 

1,951 

 

 

5,481 

 

 

15,804 

 

 

16,024 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other expenses, net

 

 

5,159 

 

 

6,539 

 

 

10,351 

 

 

13,074 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income before taxes

 

 

(3,208)

 

 

(1,058)

 

 

5,453 

 

 

2,950 

Income tax expense (benefit)

 

 

(962)

 

 

(166)

 

 

2,867 

 

 

1,659 

Net (loss) income

 

$

(2,246)

 

$

(892)

 

$

2,586 

 

$

1,291 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.02)

 

$

(0.01)

 

$

0.03 

 

$

0.01 

Diluted

 

 

(0.02)

 

 

(0.01)

 

 

0.03 

 

 

0.01 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

101,894,188 

 

 

100,050,989 

 

 

101,389,630 

 

 

100,049,225 

Diluted

 

 

101,894,188 

 

 

100,050,989 

 

 

103,415,647 

 

 

100,922,480 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

(2,122)

 

$

(874)

 

$

2,729 

 

$

1,013 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6

 


 

Bankrate, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended

 

 

June 30,

 

June 30,

 

 

2014

 

2013

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

2,586 

 

$

1,291 

Adjustments to reconcile net income to net cash provided by operating activities

 

 

 

 

 

 

Depreciation and amortization

 

 

29,656 

 

 

29,355 

Provision for doubtful accounts receivable

 

 

297 

 

 

433 

Amortization of deferred financing charges and original issue discount

 

 

1,080 

 

 

1,357 

Stock-based compensation

 

 

8,338 

 

 

5,121 

Changes in fair value of contingent acquisition consideration

 

 

2,150 

 

 

4,098 

Change in operating assets and liabilities, net of effect of business acquisitions

 

 

 

 

 

 

Accounts receivable

 

 

(14,184)

 

 

(6,050)

Prepaid expenses and other assets

 

 

(21,764)

 

 

931 

Accounts payable

 

 

(105)

 

 

(757)

Accrued expenses

 

 

(13,800)

 

 

3,165 

Other liabilities

 

 

18,821 

 

 

161 

Deferred revenue

 

 

683 

 

 

169 

Net cash provided by operating activities

 

 

13,758 

 

 

39,274 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Purchases of furniture, fixtures and equipment and capitalized website development costs

 

 

(4,491)

 

 

(6,432)

Purchases of short-term investments

 

 

(500)

 

 

 -

Cash used in business acquisitions, net

 

 

(53,679)

 

 

(4,500)

Restricted cash

 

 

(1)

 

 

 -

Net cash used in investing activities

 

 

(58,671)

 

 

(10,932)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Cash paid for contingent acquisition consideration

 

 

(25,298)

 

 

 -

Purchase of Company common stock

 

 

(6,929)

 

 

 -

Proceeds from exercise of stock options, net of costs

 

 

22,826 

 

 

103 

Net cash (used in) provided by financing activities

 

 

(9,401)

 

 

103 

 

 

 

 

 

 

 

Effect of exchange rate on cash and cash equivalents

 

 

22 

 

 

(74)

Net (decrease) increase in cash

 

 

(54,292)

 

 

28,371 

Cash - beginning of period

 

 

230,071 

 

 

83,590 

Cash - end of period

 

$

175,779 

 

$

111,961 

 

 

 

 

 

 

 

Supplemental disclosure of other cash flow activities

 

 

 

 

 

 

Cash paid for interest

 

 

9,835 

 

 

11,780 

Cash paid for taxes, net of refunds

 

 

27,351 

 

 

1,308 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

Contingent acquisition consideration

 

 

 -

 

 

8,800 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

7

 


 

BANKRATE, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014

(Unaudited)

 

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Bankrate, Inc. and its subsidiaries (“Bankrate,” the “Company,” “we,” “us,” or “our”) own and operate an Internet-based consumer banking and personal finance network (“Online Network”). Our flagship website, Bankrate.com, is one of the Internet’s leading aggregators of information on more than 300 financial products and fees, including mortgages, deposits, insurance, credit cards, and other personal finance categories. Additionally, we provide financial applications and information to a network of distribution partners and through national and state publications.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Bankrate, Inc., and subsidiaries NetQuote Holdings, Inc., NetQuote Inc, CreditCards.com, Inc., LinkOffers, Inc., CreditCards.com Limited (United Kingdom), Freedom Marketing Limited (United Kingdom), Caring, Inc. and Rate Holding Company (100% owner of Bankrate Information Consulting (Beijing) Co., Ltd.) after elimination of all intercompany accounts and transactions.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for the fair statement of our results have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent gains and losses at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Operating results for the  six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014, for any other interim period or for any other future year.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s 2013 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 27, 2014.

Other than as noted below, there have been no significant changes in the Company’s accounting policies from those disclosed in the Company’s 2013 Annual Report on Form 10-K filed with the SEC on February 27, 2014.

New Accounting Policies

Investments in debt securities

Securities held-to-maturity and available-for-sale: Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each statement of financial position date. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, adjusted for amortization of premiums and accretion of discounts to maturity computed under the effective interest method. Such amortization is included in other income. Interest on securities classified as held-to-maturity is included in other income.

Realized gains and losses, and declines in value judged to be other-than-temporary related to equity securities, are included in other income. With respect to debt securities, when the fair value of a debt security classified as held to maturity or available for sale is less than its amortized cost, management assesses whether or not: (i) it has the intent to sell the security or (ii) it is more likely than not that the Company will be required to sell the security before its anticipated recovery. If either of these conditions is met, the Company must recognize an other-than-temporary impairment through earnings for the difference between the debt security’s amortized cost basis and its fair value.

8

 


 

BANKRATE, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014

(Unaudited)

 

For debt securities that do not meet the above criteria and the Company does not expect to recover a security’s amortized cost basis, the security is considered other-than-temporarily impaired. The amount of the total other-than-temporary impairment related to other factors is recognized in other comprehensive income. For debt securities that have recognized an other-than-temporary impairment through earnings, if through subsequent evaluation there is a significant increase in the cash flow expected, the difference between the amortized cost basis and the cash flows expected to be collected is accreted as interest income.

As of June 30, 2014, the Company had held-to-maturity debt securities of $500,000 at amortized cost and fair value, and there were no unrealized holding gains or losses recognized during the three and six months ended June 30, 2014The security matures within one year and is classified within short term investments in the Condensed Consolidated Balance Sheet.  

Reclassification

Certain reclassifications have been made to the Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2013 to conform to the presentation for the three and six months ended June 30, 2014.

New Accounting Pronouncements

Recently Adopted Pronouncements

In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. This amendment requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The amendment is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The adoption of ASU 2011-11 as of January 1, 2013 did not have a material impact on the Company's consolidated financial statements.

In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income to update the presentation of reclassifications from comprehensive income to net income in consolidated financial statements. Under this new guidance, an entity is required to provide information about the amounts reclassified out of accumulated other comprehensive income either by the respective line items of net income or by cross-reference to other required disclosures. The new guidance does not change the requirements for reporting net income or other comprehensive income in financial statements. This guidance is effective for fiscal years beginning after December 15, 2012. We adopted this guidance effective January 1, 2013, and it did not have any effect on our consolidated financial statements.

In March 2013, the FASB issued ASU 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. Under this guidance, when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity, the parent is required to apply the guidance in Subtopic 830-30 to release any related cumulative translation adjustment into net income. This amendment is effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013 and early adoption is permitted. The adoption of this amendment did not have a material impact on the Company's consolidated financial statements.

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.  The amendments in ASU 2013-11 require an entity to present an unrecognized tax benefit in the financial statements as a reduction to a deferred tax asset for an net operating loss ("NOL") carryforward, a similar tax loss, or a tax credit carryforward except when: (1) An NOL carryforward, a similar tax loss, or a tax credit carryforward is not available as of the reporting date under the governing tax law to settle taxes that would result from the disallowance of the tax position; or (2) The entity does not intend to use the deferred tax asset for this purpose (provided that the tax law permits a choice). If either of these conditions exists, an entity should present an unrecognized tax benefit in the financial statements as a liability and should not net the unrecognized tax benefit with a deferred tax asset. The amendment does not affect the recognition or measurement of uncertain tax positions under ASC 740 This amendment is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The amendments should be applied prospectively to all unrecognized

9

 


 

BANKRATE, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014

(Unaudited)

 

tax benefits that exist at the effective date.  The adoption of this amendment did not have a material impact on the Company's consolidated financial statements.

Recently Issued Pronouncements, Not Adopted as of June 30, 2014

In April 2014, the FASB issued ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity,” which amends the definition of a discontinued operation and requires entities to provide additional disclosures about disposal transactions that do not meet the discontinued operations criteria. This ASU requires discontinued operations treatment for disposals of a component or group of components of an entity that represent a strategic shift that has or will have a major impact on an entity’s operations or financial results. ASU 2014-08 also expands the scope of ASC 205-20, “Discontinued Operations,” to disposals of equity method investments and acquired businesses held for sale. This ASU is effective prospectively for all disposals or classifications as held for sale that occur in interim and annual reporting periods beginning after December 15, 2014. Management does not expect the adoption of ASU 2014-08 to have a material impact on the Company’s consolidated financial statements.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09: Revenue from Contracts with Customers. The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when control of the goods or services transfers to the customer, as opposed to recognizing revenue when the risks and rewards transfer to the customer under the existing revenue guidance. The effective date for public registrants will be January 1, 2017 for us. Early adoption is not permitted. The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment.  We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting. 

 

NOTE 2 – GOODWILL AND INTANGIBLE ASSETS

Goodwill activity for the six months ended June 30, 2014 is shown below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2014

 

 

 

 

$

611,975 

Acquisition of Caring, Inc.

 

 

 

 

 

26,217 

Adjustment during the measurement period of previous acquisition

 

 

 

 

 

(182)

Balance, June 30, 2014

 

 

 

 

$

638,010 

Intangible assets consist primarily of domain names and URLs, customer relationships, affiliate relationships and developed technologies. Intangible assets are being amortized over their estimated useful lives on both straight-line and accelerated bases.

Intangible assets subject to amortization were as follows as of June 30, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Cost

 

Accumulated Amortization

 

Net

 

Trademarks and URLs

 

$

270,407 

 

$

(63,869)

 

$

206,538 

 

Customer relationships

 

 

239,011 

 

 

(113,735)

 

 

125,276 

 

Affiliate relationships

 

 

22,740 

 

 

(12,169)

 

 

10,571 

 

Developed technology

 

 

29,136 

 

 

(17,544)

 

 

11,592 

 

 

 

$

561,294 

 

$

(207,317)

 

$

353,977 

 

 

10

 


 

BANKRATE, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014

(Unaudited)

 

Intangible assets subject to amortization were as follows as of December 31, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Cost

 

Accumulated Amortization

 

Net

 

Trademarks and URLs

 

$

256,013 

 

$

(53,681)

 

$

202,332 

 

Customer relationships

 

 

229,041 

 

 

(100,077)

 

 

128,964 

 

Affiliate relationships

 

 

22,740 

 

 

(11,721)

 

 

11,019 

 

Developed technology

 

 

24,133 

 

 

(16,242)

 

 

7,891 

 

 

 

$

531,927 

 

$

(181,721)

 

$

350,206 

 

Amortization expense for the three months ended June 30, 2014 and 2013 was $13.7 million and $13.1 million, respectively. Amortization expense for the six months ended June 30, 2014 and 2013 was $26.3 million and $26.0 million, respectively.

Future amortization expense as of June 30, 2014 is expected to be:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization

(In thousands)

 

 

 

 

Expense

Remainder of 2014

 

 

 

 

$

27,124 

2015

 

 

 

 

 

52,262 

2016

 

 

 

 

 

51,198 

2017

 

 

 

 

 

46,313 

2018

 

 

 

 

 

36,362 

Thereafter

 

 

 

 

 

140,718 

Total expected amortization expense for intangible assets

 

 

 

 

$

353,977 

 

 

NOTE 3 – EARNINGS PER SHARE

We compute basic earnings per share by dividing net income for the period by the weighted average number of shares outstanding for the period. Diluted earnings per share includes the effects of dilutive common stock equivalents, consisting of outstanding stock-based awards, unrecognized compensation expense and tax benefits in accordance with FASB Accounting Standards Codification (“ASC”) 718, Compensation – Stock Compensation, to the extent the effect is not anti-dilutive, using the treasury stock method.

The following table presents the computation of basic and diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

June 30,

 

June 30,

 

June 30,

 

June 30,

(In thousands, except share and per share data)

 

2014

 

2013

 

2014

 

2013

Net (loss) income

 

$

(2,246)

 

$

(892)

 

$

2,586 

 

$

1,291 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding for basic earnings per share

 

 

101,894,188 

 

 

100,050,989 

 

 

101,389,630 

 

 

100,049,225 

Additional dilutive shares related to share based awards

 

 

 -

 

 

 -

 

 

2,026,017 

 

 

873,255 

Weighted average common shares outstanding for diluted earnings per share

 

 

101,894,188 

 

 

100,050,989 

 

 

103,415,647 

 

 

100,922,480 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.02)

 

$

(0.01)

 

$

0.03 

 

$

0.01 

Diluted

 

$

(0.02)

 

$

(0.01)

 

$

0.03 

 

$

0.01 

11

 


 

BANKRATE, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014

(Unaudited)

 

For the three months ended June 30, 2014 and 2013 there were 2,612,684 and 5,022,426 stock options, respectively, which were not included in the calculation of diluted earnings per share because their impact would have been anti-dilutive.  For the six months ended June 30, 2014 and 2013 there were  586,667 and 4,897,426 stock options, respectively, which are not included in the calculation of diluted earnings per share because their impact would have been anti-dilutive.

NOTE 4 – STOCKHOLDERS’ EQUITY

The activity in stockholders’ equity for the six months ended June 30, 2014 is shown below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Shares

 

Amount

 

Additional paid-in capital

 

Accumulated Deficit

 

Treasury Stock

 

Accumulated Other Comprehensive Loss - Foreign Currency Translation

 

Total Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2013

 

101,699 

 

$

1,017 

 

$

864,152 

 

$

(25,266)

 

$

(591)

 

$

(350)

 

$

838,962 

Other comprehensive income, net of taxes

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

143 

 

 

143 

Treasury stock purchased

 

(426)

 

 

(4)

 

 

 -

 

 

 -

 

 

(6,925)

 

 

 -

 

 

(6,929)

Restricted stock issued, net of cancellations

 

901 

 

 

 

 

(9)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Performance stock issued, net of cancellations

 

720 

 

 

 

 

(7)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Common stock issued

 

1,540 

 

 

15 

 

 

22,811 

 

 

 -

 

 

 -

 

 

 -

 

 

22,826 

Stock-based compensation

 

 -

 

 

 -

 

 

8,338 

 

 

 -

 

 

 -

 

 

 -

 

 

8,338 

Excess tax benefit

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Net income

 

 -

 

 

 -

 

 

 -

 

 

2,586 

 

 

 -

 

 

 -

 

 

2,586 

Balance at June 30, 2014

 

104,434 

 

$

1,044 

 

$

895,285 

 

$

(22,680)

 

$

(7,516)

 

$

(207)

 

$

865,926 

 

 

 

 

NOTE 5 – GEOGRAPHIC DATA AND CONCENTRATIONS

No single country outside of the U.S. accounted for more than 10% of revenue during the three months ended June 30, 2014 and 2013. There was one customer that accounted for 12% of revenue during the three months ended June 30, 2014. There were no customers that accounted for more than 10% of revenue during the three months ended June 30, 2013. .No single country outside of the U.S. accounted for more than 10% of revenue during the six months ended June 30, 2014 and 2013. There was one customer that accounted for 11% of revenue during the six months ended June 30, 2014. There were no customer that accounted for more than 10% of revenue during the six months ended June 30, 2013. There was one customer with accounts receivable that constituted greater than 10% of the accounts receivable balance as of June 30, 2014 and no customers greater than 10% as of December 31, 2013.

12

 


 

BANKRATE, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014

(Unaudited)

 

Revenue related to the U.S. and international operations and revenue by type for the three and six months ended June 30, 2014 and 2013, and long-lived assets related to the U.S. and international operations as of June 30, 2014 and December 31, 2013 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

June 30,

 

June 30,

 

June 30,

 

June 30,

(In thousands)

 

2014

 

2013

 

2014

 

2013

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

USA

 

$

129,801 

 

$

104,436 

 

$

264,950 

 

$

211,377 

International

 

 

861 

 

 

1,110 

 

 

2,187 

 

 

2,617 

 

 

$

130,662 

 

$

105,546 

 

$

267,137 

 

$

213,994 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Online

 

$

129,346 

 

$

103,564 

 

$

264,411 

 

$

210,029 

Print

 

 

1,316 

 

 

1,982 

 

 

2,726 

 

 

3,965 

 

 

$

130,662 

 

$

105,546 

 

$

267,137 

 

$

213,994 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

(In thousands)

 

 

 

 

 

 

 

2014

 

2013

Long lived assets:

 

 

 

 

 

 

 

 

 

 

 

 

USA

 

 

 

 

 

 

 

$

1,001,551 

 

$

970,903 

International

 

 

 

 

 

 

 

 

4,045 

 

 

4,208 

Balance, end of period

 

 

 

 

 

 

 

$

1,005,596 

 

$

975,111 

 

 

NOTE 6 – FAIR VALUE MEASUREMENT

The carrying amounts of cash, accounts receivable and accrued interest approximate estimated fair value. In measuring the fair value of our long term debt, the Company used market information. These estimates require considerable judgment in interpreting market data, and changes in assumptions or estimation methods could significantly affect the fair value estimates.

The following table presents estimated fair value, and related carrying amounts, as of June 30, 2014 and December 31, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2014

 

December 31, 2013

(In thousands)

 

Carrying Amount

 

Estimated Fair Value

 

Carrying Amount

 

Estimated Fair Value

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Long term debt

 

$

297,305 

 

$

318,750 

 

$

297,021 

 

$

312,000 

 

In addition, the Company makes recurring fair value measurements of its contingent acquisition consideration using Level 3 unobservable inputs. The Company recognizes the fair value of contingent acquisition consideration based on its estimated fair value at the date of acquisition using discounted cash flows and subsequent adjustments to the fair value are due to the passage of time as we approach the payment date or changes to management’s estimates of the projected results of the acquired business. In determining the fair value of contingent acquisition consideration, the Company reviews current results of the acquired business along with projected results for the remaining earnout period to calculate the expected contingent acquisition consideration to be paid using the agreed upon formula as laid out in the acquisition agreements.

13

 


 

BANKRATE, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014

(Unaudited)

 

The following tables present the Company’s fair value measurements of its contingent acquisition consideration as of June 30, 2014 and December 31, 2013 using the fair value hierarchy:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurement at June 30, 2014 Using

(In thousands)

 

Quoted Prices in Active Markets for Identical Assets (Level 1)

 

Significant Other Observable Inputs (Level 2)

 

Significant Unobservable Inputs (Level 3)

 

Total

Recurring fair value measurement

 

 

 

 

 

 

 

 

 

 

 

 

Contingent acquisition consideration

 

$

 -

 

$

 -

 

$

15,615 

 

$

15,615 

Total recurring fair value measurements

 

$

 -

 

$

 -

 

$

15,615 

 

$

15,615 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurement at December 31, 2013 Using

(In thousands)

 

Quoted Prices in Active Markets for Identical Assets (Level 1)

 

Significant Other Observable Inputs (Level 2)

 

Significant Unobservable Inputs (Level 3)

 

Total

Recurring fair value measurement

 

 

 

 

 

 

 

 

 

 

 

 

Contingent acquisition consideration

 

$

 -

 

$

 -

 

$

38,762 

 

$

38,762 

Total recurring fair value measurements

 

$

 -

 

$

 -

 

$

38,762 

 

$

38,762 

 

The following table sets forth a reconciliation of changes in the fair value of the Company’s Level 3 financial assets, contingent acquisition consideration, for the six months ended June 30, 2014:

 

 

 

 

 

 

 

Six months ended

(In thousands)

 

June 30, 2014

Balance at beginning of period

 

$

38,762 

Additions to Level 3

 

 

 -

Transfers into Level 3

 

 

 -

Transfers out of Level 3

 

 

 -

Change in fair value

 

 

2,150 

Payments

 

 

(25,297)

Balance at end of period

 

$

15,615 

The unobservable inputs used by the Company in determining the fair value of contingent acquisition consideration for earnout periods not yet completed include a discount factor of 16% based on the Company’s weighted average cost of capital and projected results of the acquired businesses. The fair value calculated as of June 30, 2014 is subject to sensitivity as it relates to the projected results of the acquired businesses. Each calculation is based on a separate formula and results that differ from our projections could impact the fair value significantly. During the six months ended June 30, 2014, the Company changed certain estimates of the projected results of acquired businesses that resulted in an increase in the fair value of contingent acquisition consideration and a charge to operating income of $543,000. The remaining $1.6 million recorded in the change in fair value of contingent acquisition consideration during the six months ended June 30, 2014 is related to the passage of time. As of June 30, 2014, the $15.6 million represents the discounted fair value of the maximum payments allowed under the acquisition agreements and therefore only a change to the discount factor used could result in an increase to the fair value recorded as of June 30, 2014.  

 

 

 

 

14

 


 

BANKRATE, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014

(Unaudited)

 

NOTE 7 – STOCK-BASED COMPENSATION

In June 2011, the Company established the 2011 Equity Compensation Plan (the “2011 Plan”) to grant stock-based awards for up to 12,120,000 shares of our common stock. Under the 2011 Plan, the Board of Directors or its delegate has the sole authority to determine who receives such grants, the type, size and timing of such grants, and to specify the terms of any non-competition agreements relating to the grants. The purpose of the 2011 Plan is to advance our interests by providing eligible participants in the Plan with the opportunity to receive equity-based or cash incentive awards, thereby aligning their economic interests with those of our stockholders. As of June 30, 2014,  3,786,155  shares were available for future issuance under the 2011 plan.

The stock-based compensation expense for stock options and restricted stock awards recognized in our condensed consolidated statements of comprehensive income for the three and  six months ended June 30, 2014 and 2013 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

June 30,

 

June 30,

 

June 30,

 

June 30,

(In thousands)

 

2014

 

2013

 

2014

 

2013

Cost of revenue

 

$

388 

 

$

190 

 

$

698 

 

$

318 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

 

399 

 

 

433 

 

 

732 

 

 

777 

Marketing

 

 

264 

 

 

314 

 

 

494 

 

 

577 

Product development and technology

 

 

707 

 

 

388 

 

 

1,214 

 

 

714 

General and administrative

 

 

2,657 

 

 

1,555 

 

 

5,200 

 

 

2,735 

Total stock-based compensation

 

$

4,415 

 

$

2,880 

 

$

8,338 

 

$

5,121 

 

Restricted Stock

The following table summarizes restricted stock award activity for the six months ended June 30, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

Number of

 

Grant Date

 

 

 

Shares

 

Fair Value

Balance, January 1, 2014

 

 

973,193 

 

$

15.66 

Granted

 

 

937,728 

 

 

16.19 

Vested and released

 

 

(274,920)

 

 

14.77 

Forfeited

 

 

(36,476)

 

 

15.72 

Expired

 

 

 -

 

 

 -

Balance, June 30, 2014