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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 MARCH 31, 2015

 

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.)

 

 

 

477 Madison Avenue, Suite 430

New York, NY 

 

10022

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: 917-368-8600

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 May 29, 2015  was as follows: 103,884,733  shares of Common Stock, $.01 par value.

 

 


 

Table of Contents

Bankrate, Inc. and Subsidiaries

Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2015

 

 

 

 

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 or regarding resolution of regulatory matters described in this quarterly report 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 or unknown 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 (“SEC” or “Commission”) on June 17, 2015. 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 timing and outcome of, including potential expense associated with, the SEC and the United States Department of Justice (“DOJ”) investigations including our ability to enter into a settlement with the SEC on terms consistent with those described herein;

·

the potential impact on our business and stock price of any announcements regarding the announcement of the restatement, the SEC's investigation or the DOJ's investigation;

·

the material weakness in our internal controls over financial reporting and our ability to rectify this issue completely and promptly;

·

risks relating to the defense or litigation of lawsuits, including the putative class action lawsuit currently pending and described herein, and regulatory proceedings;

·

the timing and outcome of (including potential expense associated with), and the potential impact on our business and stock price of any announcements regarding the Consumer Financial Protection Bureau (“CFPB”) investigation;

·

the willingness or interest of banks, lenders, brokers, credit card issuers, insurance carriers and agents, senior care providers and other advertisers in the business verticals in which we operate to advertise on our websites or mobile applications, or purchase our leads, clicks, calls and referrals;

·

the rate of conversion of consumers’ visits to our websites or mobile applications into senior care referrals and the rate at which those referrals result in move-ins with our senior care customers;

·

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

·

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;

·

our dependence on partners to attract a significant portion of the company’s revenue;

·

shift of visitors from desktop to mobile and mobile app environments;

·

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

·

interest rate volatility;

·

technological changes and our ability to adapt to new or evolving technologies that affect our business environment or operations;

 

·

our ability to anticipate and manage cybersecurity risk and data security risk and to mitigate or resolve issues that may arise;

·

the effects of any security breach, data breach or any cyberattack on our systems, websites or mobile applications;

·

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

3


 

·

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 obtain 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;

·

the effect of programmatic advertising platforms on display revenue;

·

our ability to successfully execute on our strategies, including without limitation our insurance quality initiative, our mobile strategy and other initiatives, and the effectiveness of our strategies, including without limitation whether they result in increased revenue or profitability;

·

our ability to attract and retain executive officers and personnel;

·

any failure or refusal by our insurance providers to provide coverage under our insurance policies;

·

our ability to protect our intellectual property;

·

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

·

our ability to establish and maintain distribution arrangements;

·

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 possible expansion to other international markets, in which we may have limited experience, and our ability to successfully execute on our business strategies in international markets;

·

our ability to sell our operations in China in excess of its book value;

·

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;

·

risks relating to the ongoing reviews of our business and operations by regulatory authorities; and

·

our 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)

 

 

 

 

 

March 31,

 

December 31,

 

 

2015

 

2014

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

154,637 

 

$

141,725 

Accounts receivable, net of allowance for doubtful accounts of

 

 

 

 

 

 

$403 and $419 at March 31, 2015 and December 31, 2014, respectively

 

 

79,807 

 

 

70,865 

Deferred income taxes

 

 

6,407 

 

 

6,407 

Prepaid expenses and other current assets

 

 

17,624 

 

 

35,652 

Assets held for sale

 

 

1,564 

 

 

1,627 

Total current assets

 

 

260,039 

 

 

256,276 

Furniture, fixtures and equipment, net of accumulated depreciation of

 

 

 

 

 

 

$26,659 and $24,756 at March 31, 2015 and December 31, 2014, respectively

 

 

14,176 

 

 

13,299 

Intangible assets, net of accumulated amortization of

 

 

 

 

 

 

$242,383 and $228,667 at March 31, 2015 and December 31, 2014, respectively

 

 

329,805 

 

 

338,988 

Goodwill

 

 

642,567 

 

 

641,367 

Other assets

 

 

13,892 

 

 

13,499 

Total assets

 

$

1,260,479 

 

$

1,263,429 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Accounts payable

 

$

16,788 

 

$

8,047 

Accrued expenses

 

 

36,190 

 

 

46,030 

Deferred revenue and customer deposits

 

 

4,575 

 

 

4,303 

Accrued interest payable

 

 

2,297 

 

 

6,980 

Other current liabilities

 

 

11,388 

 

 

13,629 

Liabilities subject to sale

 

 

408 

 

 

1,074 

Total current liabilities

 

 

71,646 

 

 

80,063 

Deferred income taxes

 

 

51,633 

 

 

51,633 

Long term debt, net of unamortized discount

 

 

297,748 

 

 

297,598 

Other liabilities

 

 

6,693 

 

 

10,849 

Total liabilities

 

 

427,720 

 

 

440,143 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Common stock, par value $.01 per share -

 

 

 

 

 

 

300,000,000 shares authorized at March 31, 2015 and December 31, 2014;

 

 

 

 

 

 

104,688,179 shares and 104,701,530 shares issued at March 31, 2015 and

 

 

 

 

 

 

December 31, 2014, respectively; 103,901,016 shares and 101,485,200 shares outstanding at March 31, 2015 and December 31, 2014, respectively

 

 

1,047 

 

 

1,047 

Additional paid-in capital

 

 

861,608 

 

 

892,738 

Accumulated deficit

 

 

(18,686)

 

 

(23,639)

Less: Treasury stock, at cost - 787,163 shares and  3,216,330 shares at
March 31, 2015 and December 31, 2014, respectively

 

 

(10,733)

 

 

(46,494)

Accumulated other comprehensive loss

 

 

(477)

 

 

(366)

Total stockholders' equity

 

 

832,759 

 

 

823,286 

Total liabilities and stockholders' equity

 

$

1,260,479 

 

$

1,263,429 

 

 

 

 

 

 

 

 

 

 

 

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

5


 

Bankrate, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(In thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

March 31,

 

March 31,

 

 

2015

 

2014

Revenue

 

$

141,541 

 

$

136,275 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

Cost of revenue (excludes depreciation and amortization)

 

 

78,749 

 

 

78,508 

Sales and marketing

 

 

6,137 

 

 

6,087 

Product development and technology

 

 

8,193 

 

 

6,875 

General and administrative

 

 

18,064 

 

 

12,543 

Acquisition, offering and related expenses

 

 

263 

 

 

2,403 

Changes in fair value of contingent acquisition consideration

 

 

(240)

 

 

1,407 

Depreciation and amortization

 

 

15,703 

 

 

13,856 

Total costs and expenses

 

 

126,869 

 

 

121,679 

Income from operations

 

 

14,672 

 

 

14,596 

 

 

 

 

 

 

 

Interest and other expenses, net

 

 

5,276 

 

 

5,190 

 

 

 

 

 

 

 

Income before taxes

 

 

9,396 

 

 

9,406 

Income tax expense

 

 

4,119 

 

 

4,874 

Net income from continuing operations

 

 

5,277 

 

 

4,532 

Net loss from discontinued operations, net of income taxes

 

 

(324)

 

 

(446)

Net income

 

$

4,953 

 

$

4,086 

 

 

 

 

 

 

 

Basic net income per share:

 

 

 

 

 

 

Continuing operations

 

$

0.05 

 

$

0.04 

Discontinued operations

 

 

 -

 

 

 -

Basic net income per share

 

$

0.05 

 

$

0.04 

 

 

 

 

 

 

 

Diluted net income per share

 

 

 

 

 

 

Continuing operations

 

$

0.05 

 

$

0.04 

Discontinued operations

 

 

 -

 

 

 -

Diluted net income per share

 

$

0.05 

 

$

0.04 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

Basic

 

 

102,468,045 

 

 

100,876,470 

Diluted

 

 

105,515,247 

 

 

103,081,843 

 

 

 

 

 

 

 

Net income

 

$

4,953 

 

$

4,086 

Other comprehensive (loss) income, net of tax

 

 

(111)

 

 

25 

Comprehensive income

 

$

4,842 

 

$

4,111 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

March 31,

 

March 31,

 

 

2015

 

2014

Cash flows from operating activities

 

 

 

 

 

 

Net income from continuing operations

 

$

5,277 

 

$

4,532 

Adjustments to reconcile net income to net cash provided by (used in) operating activities

 

 

 

 

 

 

Depreciation and amortization

 

 

15,703 

 

 

13,856 

Provision for doubtful accounts receivable

 

 

192 

 

 

198 

Amortization of deferred financing charges and original issue discount

 

 

237 

 

 

536 

Stock-based compensation

 

 

5,816 

 

 

3,923 

Changes in fair value of contingent acquisition consideration

 

 

(240)

 

 

1,407 

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

 

 

 

 

 

 

Accounts receivable

 

 

(9,135)

 

 

(16,673)

Prepaid expenses and other assets

 

 

16,835 

 

 

4,080 

Accounts payable

 

 

8,741 

 

 

2,077 

Accrued expenses

 

 

(9,844)

 

 

(3,513)

Other liabilities

 

 

(9,313)

 

 

(13,180)

Deferred revenue

 

 

272 

 

 

203 

Net cash provided by (used in) operating activities - continuing operations

 

 

24,541 

 

 

(2,554)

Net cash provided by operating activities - discontinued operations

 

 

182 

 

 

301 

Net cash provided by (used in) operating activities

 

 

24,723 

 

 

(2,253)

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

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

 

 

(2,927)

 

 

(1,851)

Cash used in business acquisitions, net

 

 

(3,556)

 

 

 -

Restricted cash

 

 

 -

 

 

(1)

Net cash used in investing activities - continuing operations

 

 

(6,483)

 

 

(1,852)

Net cash used in investing activities - discontinued operations

 

 

(100)

 

 

(68)

Net cash used in investing activities

 

 

(6,583)

 

 

(1,920)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Cash paid for contingent acquisition consideration

 

 

(3,878)

 

 

(4,335)

Purchase of Company common stock

 

 

(1,185)

 

 

(451)

Proceeds from exercise of stock options, net of costs

 

 

 -

 

 

22,811 

Net cash (used in) provided by financing activities - continuing operations

 

 

(5,063)

 

 

18,025 

Net cash provided by financing activities - discontinued operations

 

 

 -

 

 

 -

Net cash (used in) provided by financing activities

 

 

(5,063)

 

 

18,025 

 

 

 

 

 

 

 

Effect of exchange rate on cash and cash equivalents

 

 

(77)

 

 

(3)

Net increase in cash

 

 

13,000 

 

 

13,849 

Cash - beginning of period

 

 

142,051 

 

 

230,071 

Cash - end of period

 

 

155,051 

 

 

243,920 

Less cash of discontinued operations - end of period

 

 

414 

 

 

623 

Cash of continuing operations - end of period

 

$

154,637 

 

$

243,297 

 

 

 

 

 

 

 

 

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

 

7


 

BANKRATE, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(Unaudited)

 

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

The Company

Bankrate, Inc. and its subsidiaries (“Bankrate” or the “Company,” “we,” “us,” “our”) own and operate an Internet-based consumer banking and personal finance network (“Online Network”). Our flagship websites, Bankrate.com,  CreditCards.com,  insuranceQuotes.com and Caring.com are some of the Internet’s leading aggregators of information on more than 300 financial products and services, including mortgages, deposits, credit cards, insurance, 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 condensed consolidated financial statements include the accounts of Bankrate, Inc., and subsidiaries NetQuote Holdings, Inc. (“NetQuote”), NetQuote, Inc., insuranceQuotes, Inc., CreditCards.com, Inc. (“CreditCards”), LinkOffers, Inc., CreditCards.com Limited (United Kingdom), Freedom Marketing Limited (United Kingdom), Caring, Inc., and Wallaby Financial, Inc. after elimination of all intercompany accounts and transactions. During the quarter ended September 30, 2014, the Company commenced the process of divesting its operations in China. The operating results and the assets and liabilities of the operations in China are classified as discontinued operations for all periods presented in the Company’s condensed consolidated financial statements.

 

We operate the following business segments:

 

·

Banking – we offer information on rates for various types of mortgages, home lending and refinancing. We maintain current rate information for more than 600 local markets, covering all 50 U.S. states. Consumers can customize searches for mortgage rates by loan size, type, maturity, and location through our online portals. We also offer rate information and original editorial content on various deposit products, retirement, taxes and debt management.

 

·

Credit Cards – we present visitors with a comprehensive selection of consumer and business credit and prepaid cards, providing detailed information and comparison capabilities, and host news and advice on personal finance, credit card and bank policies, as well as tools and calculators to estimate credit scores and card benefits.

 

·

Insurance – in conjunction with local agents and  insurance carriers, we facilitate a consumer’s ability to receive multiple competitive insurance quotes, provide advice and detailed descriptions of insurance terms, and articles on topical subjects.

 

·

Other – includes the results of operations of Caring.com and aggregated smaller operating units, which operate businesses dissimilar to those of the reportable segments, and the results of the Company’s investments, unallocated corporate overhead and the elimination of transactions between segments.

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 2014 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on June 17, 2015.

Other than as noted below, there have been no significant changes in the Company’s accounting policies from those disclosed in the Company’s 2014 Annual Report on Form 10-K filed with the SEC on June 17, 2015.

Reclassification

Certain reclassifications have been made to the Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2014 to conform to the presentation for the three months ended March 31, 2015. In the third quarter of 2014, the Company announced that it has commenced the process of divesting its operations in China. In accordance with generally accepted accounting principles in United States (“GAAP”), the results of our operations in China are presented as discontinued operations and, as such, have been excluded from continuing operations in the Condensed Consolidated Statements of Comprehensive Income for all periods presented. The assets and liabilities of the operations in China at March 31, 2015 and December 31, 2014 have been reclassified and segregated as held for sale and subject to sale, respectively, in the Condensed Consolidated Balance Sheets. The cash

8


 

BANKRATE, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(Unaudited)

 

flows related to the operations in China have been reclassified and segregated in the Condensed Consolidated Statement of Cash Flows, for all periods presented. Amounts related to the operations in China are consistently excluded from the Notes to Condensed Consolidated Financial Statements for all periods presented.

New Accounting Pronouncements

Recently Adopted Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 FASB Accounting Standards Codification (“ASC”) 205-20, “Discontinued Operations,” to disposals of equity method investments and acquired businesses held for sale. The Company adopted ASU-2014-08 on January 1, 2015, as required and it did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Pronouncements, Not Adopted as of March 31, 2015

In May 2014, the FASB issued ASU 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. This amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. 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.

In June 2014, the FASB issued ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Allow a Performance Target to Be Achieved After the Requisite Service Period,” which requires that a performance target that could be achieved after the requisite service period be treated as a performance condition that affects the vesting of the award. This amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The adoption of this accounting pronouncement is not expected to have an impact on the Company’s consolidated financial statements.

 

In August 2014, the FASB issued ASU 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” which requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued and to provide related footnote disclosures in certain circumstances.

This amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The adoption of this accounting pronouncement is not expected to have an impact on the Company’s consolidated financial statements.

 

In January 2015, the FASB issued ASU 2015-01, “Income Statement – Extraordinary and Unusual Items.” This guidance eliminates the concept of an extraordinary item, which required that an entity separately classify, present, and disclose extraordinary events and transactions on the income statement, net of tax after earnings from continuing operations and disclose applicable income taxes and earnings per share date applicable to the extraordinary item. This amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 and may be applied prospectively and retrospectively. The Company is currently evaluating the impact on its consolidated financial statements of adopting this new guidance but at this time does not expect it to have an impact on the Company’s consolidated financial statements.

 

In April 2015, the FASB issued ASU 2015-03, “Imputation of Interest – Simplifying the Presentation of Debt Issuance Costs.” This guidance requires that the debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the debt liability, consistent with the presentation of a debt discount. This amendment is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The Company is currently evaluating the impact on its consolidated financial statements of adopting this new guidance but at this time does not expect it to have an impact on the Company’s consolidated financial statements.

9


 

BANKRATE, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(Unaudited)

 

 

NOTE 2 – GOODWILL AND INTANGIBLE ASSETS

Goodwill activity for the three months ended March 31, 2015 is shown below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2015

 

 

 

 

$

641,367 

Acquisition of certain assets and liabilities of various entities

 

 

 

 

 

1,200 

Balance, March 31, 2015

 

 

 

 

$

642,567 

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 March 31, 2015:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Cost

 

Accumulated Amortization

 

Net

 

Trademarks and URLs

 

$

295,469 

 

$

(81,519)

 

$

213,950 

 

Customer relationships

 

 

226,215 

 

 

(128,577)

 

 

97,638 

 

Affiliate relationships

 

 

22,780 

 

 

(12,843)

 

 

9,937 

 

Developed technology

 

 

27,724 

 

 

(19,444)

 

 

8,280 

 

 

 

$

572,188 

 

$

(242,383)

 

$

329,805 

 

 

Intangible assets subject to amortization were as follows as of December 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Cost

 

Accumulated Amortization

 

Net

 

Trademarks and URLs

 

$

293,241 

 

$

(75,176)

 

$

218,065 

 

Customer relationships

 

 

223,906 

 

 

(122,201)

 

 

101,705 

 

Affiliate relationships

 

 

22,780 

 

 

(12,617)

 

 

10,163 

 

Developed technology

 

 

27,728 

 

 

(18,673)

 

 

9,055 

 

 

 

$

567,655 

 

$

(228,667)

 

$

338,988 

 

Amortization expense for the three months ended March 31, 2015 and 2014 was $13.8 million and $12.2 million, respectively.

Future amortization expense as of March 31, 2015 is expected to be:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization

(In thousands)

 

 

 

 

Expense

Remainder of 2015

 

 

 

 

$

40,665 

2016

 

 

 

 

 

53,319 

2017

 

 

 

 

 

48,482 

2018

 

 

 

 

 

38,836 

2019

 

 

 

 

 

26,243 

Thereafter

 

 

 

 

 

122,260 

Total expected amortization expense for intangible assets

 

 

 

 

$

329,805 

 

 

 

 

10


 

BANKRATE, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(Unaudited)

 

NOTE 3 – EARNINGS PER SHARE

We compute basic earnings per share by dividing net income (loss) 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 in accordance with 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

 

 

March 31,

 

March 31,

(In thousands, except share and per share data)

 

2015

 

2014

Net income from continuing operations

 

$

5,277 

 

$

4,532 

Net loss from discontinued operations, net of income taxes

 

 

(324)

 

 

(446)

Net income

 

$

4,953 

 

$

4,086 

 

 

 

 

 

 

 

Weighted average common shares outstanding for basic earnings per share

 

 

102,468,045 

 

 

100,876,470 

Additional dilutive shares related to share based awards

 

 

3,047,202 

 

 

2,205,373 

Weighted average common shares outstanding for diluted earnings per share

 

 

105,515,247 

 

 

103,081,843 

 

 

 

 

 

 

 

Basic net income per share:

 

 

 

 

 

 

Continuing operations

 

$

0.05 

 

$

0.04 

Discontinued operations

 

 

 -

 

 

 -

Basic net income per share

 

$

0.05 

 

$

0.04 

 

 

 

 

 

 

 

Diluted net income per share

 

 

 

 

 

 

Continuing operations

 

$

0.05 

 

$

0.04 

Discontinued operations

 

 

 -

 

 

 -

Diluted net income per share

 

$

0.05 

 

$

0.04 

 

 

 

 

 

 

 

 

 

For the three months ended March 31, 2015 and 2014 there were 2,734,885 and 623,126 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 three months ended March 31, 2015 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, 2014

 

104,701 

 

$

1,047 

 

$

892,738 

 

$

(23,639)

 

$

(46,494)

 

$

(366)

 

$

823,286 

11


 

BANKRATE, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(Unaudited)

 

Other comprehensive loss, net of taxes

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(111)

 

 

(111)

Treasury stock purchased

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(1,185)

 

 

 -

 

 

(1,185)

Restricted stock issued, net of cancellations

 

(13)

 

 

 -

 

 

(17,225)

 

 

 -

 

 

17,225 

 

 

 -

 

 

 -

Performance stock issued, net of cancellations

 

 -

 

 

 -

 

 

(19,721)

 

 

 -

 

 

19,721 

 

 

 -

 

 

 -

Stock-based compensation

 

 -

 

 

 -

 

 

5,816 

 

 

 -

 

 

 -

 

 

 -

 

 

5,816 

Net income

 

 -

 

 

 -

 

 

 -

 

 

4,953 

 

 

 -

 

 

 -

 

 

4,953 

Balance at March 31, 2015

 

104,688 

 

$

1,047 

 

$

861,608 

 

$

(18,686)

 

$

(10,733)

 

$

(477)

 

$

832,759 

 

 

 

NOTE 5 – SEGMENTS

 

The reportable segments presented below represent the Company’s operating segments for which separate financial information is available and utilized on a regular basis by its chief operating decision maker, the Company’s chief executive officer, to assess performance and allocate resources. Management evaluates the operating results of each of the Company’s operating segments based upon revenue and “Adjusted EBITDA”, which we define as income from continuing operations before depreciation and amortization, interest, income taxes, changes in fair value of contingent acquisition consideration, stock-based compensation, and non-recurring items such as loss on extinguishment of debt, legal settlements, acquisition, offering and related expenses, restructuring charges, and costs related to unusual regulatory actions, the financial review process that was used to prepare the restatement (the “Internal Review”), the restatement of our financial statements and related litigation. The Company’s presentation of Adjusted EBITDA, a non- GAAP measure, may not be comparable to similarly-titled measures used by other companies.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

March 31,

 

March 31,

(In thousands)

2015

 

2014

Revenue:

 

 

 

 

 

Banking

$

28,170 

 

$

32,465 

Credit Cards

 

56,774 

 

 

52,833 

Insurance

 

52,531 

 

 

52,314 

Other

 

4,066 

 

 

(1,337)

 

$

141,541 

 

$

136,275 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

March 31,

 

March 31,

(In thousands)

2015

 

2014

Adjusted EBITDA:

 

 

 

 

 

Banking

$

10,559 

 

$

13,195 

Credit Cards

 

26,089 

 

 

21,465 

Insurance

 

8,342 

 

 

6,690 

Other

 

(4,569)

 

 

(4,487)

 

 

40,421 

 

 

36,863 

 

 

 

 

 

 

12


 

BANKRATE, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(Unaudited)

 

Interest and other expenses, net

 

5,276 

 

 

5,190 

Depreciation and amortization

 

15,703 

 

 

13,856 

Changes in fair value of contingent acquisition consideration

 

(240)

 

 

1,407 

Stock-based compensation expense

 

5,816 

 

 

3,923 

Acquisition, offering and related expenses

 

263 

 

 

2,403 

Restatement charges (A)

 

4,174 

 

 

678 

Impact of purchase accounting

 

33 

 

 

 -

Income tax expense

 

4,119 

 

 

4,874 

Net income from continuing operations

$

5,277 

 

$

4,532 

 

 

 

 

 

 

(A) Restatement charges include expenses related to unusual regulatory actions, the Internal Review, and restatement of our financial statements and related litigation.

 

 

 

 

 

 

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

December 31, 2014

(In thousands)

 

Carrying Amount

 

Estimated Fair Value

 

Carrying Amount

 

Estimated Fair Value

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Long term debt

 

$

297,748 

 

$

295,500 

 

$

297,598 

 

$

280,500 

 

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.

The following tables present the Company’s fair value measurements of its contingent acquisition consideration using the fair value hierarchy:

 

13


 

BANKRATE, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurement at March 31, 2015 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

 

$

 -

 

$

 -

 

$

12,638 

 

$

12,638 

Total recurring fair value measurements

 

$

 -

 

$

 -

 

$

12,638 

 

$

12,638 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurement at December 31, 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

 

$

 -

 

$

 -

 

$

19,028 

 

$

19,028 

Total recurring fair value measurements

 

$

 -

 

$

 -

 

$

19,028 

 

$

19,028 

 

The following table sets forth a reconciliation of changes in the fair value of the Company’s Level 3 financial liabilities, contingent acquisition consideration, for the three months ended March 31, 2015:

 

 

 

 

 

 

 

Three months ended

(In thousands)

 

March 31, 2015

Balance at beginning of period

 

$

19,028 

Additions to Level 3

 

 

2,350 

Transfers into Level 3

 

 

 -

Transfers out of Level 3

 

 

 -

Change in fair value

 

 

(240)

Payments

 

 

(8,500)

Balance at end of period

 

$

12,638 

The unobservable inputs used by the Company in determining the fair value of contingent acquisition consideration for earnout periods not yet completed include discount factors of 14% to 16% based on the Company’s weighted average cost of capital and projected results of the acquired businesses. The fair value calculated as of March 31, 2015 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 three months ended March 31, 2015, the Company changed certain estimates of the projected results of acquired businesses that resulted in a decrease in the fair value of contingent acquisition consideration and a credit to operating income of $946,000 offset by $706,000 recorded in the change in fair value of contingent acquisition consideration related to the passage of time.

 

 

 

 

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 March 31, 2015,  1,561,587  shares were available for future issuance under the 2011 plan.

14


 

BANKRATE, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(Unaudited)

 

The stock-based compensation expense for stock options and restricted stock awards recognized in our condensed consolidated statements of comprehensive income are as follows:

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

March 31,

 

March 31,

(In thousands)

 

2015

 

2014

Cost of revenue

 

$

566 

 

$

309 

Sales and marketing

 

 

1,028 

 

 

563 

Product development and technology

 

 

1,103 

 

 

507 

General and administrative

 

 

3,119 

 

 

2,544 

Total stock-based compensation

 

$

5,816 

 

$

3,923 

 

Restricted Stock

The following table summarizes restricted stock award activity for the three months ended March 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

Number of

 

Grant Date

 

 

 

Shares

 

Fair Value

Balance, January 1, 2015

 

 

2,162,382 

 

$

14.40 

Granted

 

 

1,179,470 

 

 

12.76 

Vested and released

 

 

(288,192)

 

 

16.06 

Forfeited

 

 

(13,351)

 

 

13.76 

Balance, March 31, 2015

 

 

3,040,309 

 

$

13.62 

 

Stock-based compensation expense for the three months ended March 31, 2015 and 2014 included approximately $4.2 million and $2.0 million related to restricted stock awards, respectively. As of March 31, 2015, there was unrecognized compensation cost related to non-vested restricted stock awards of $34.5  million, which is estimated to be recognized over a weighted average period of 1.6 years.

Performance Based Restricted Shares

Performance based shares activity was as follows for the three months ended March 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

Number of

 

Grant Date

 

 

 

Shares

 

Fair Value

Balance, January 1, 2015

 

 

1,020,720 

 

$

15.71 

Granted

 

 

1,341,358 

 

 

12.77 

Vested/Earned

 

 

 -

 

 

 -

Forfeited

 

 

 -

 

 

 -

Unearned

 

 

 -

 

 

 -

Balance, March 31, 2015

 

 

2,362,078 

 

$

14.04 

During the three months ended March 31, 2015, we granted 1,341,358 performance based restricted shares with an average grant date fair value of $12.77 per share. The shares include a performance condition and the number of shares ultimately issued will be determined based on the Company’s performance for the two years ending December 31, 2016. The granted amount represents the maximum amount of the award at 150% of the target and the total number of shares ultimately issued can range from 0% to 100% of the granted amount. No stock-based compensation expense has been recorded during the three months ended March 31, 2015 and 2014 as the satisfaction of the performance condition is not considered probable.

15


 

BANKRATE, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(Unaudited)

 

Stock Options

Stock option activity was as follows for the three months ended March 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

Price

 

Weighted Average

 

Aggregate

 

 

 

Shares

 

Per Share

 

Exercise Price

 

Intrinsic Value

Balance, January 1, 2015

 

 

2,825,709 

 

$

11.05 - 24.25

 

$

16.04 

 

$

85,250 

Granted

 

 

 -

 

 

 -

 

 

 -

 

 

 

Exercised

 

 

 -

 

 

 -

 

 

 -

 

 

 

Forfeited