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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, 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 July 31, 2015  was as follows: 103,944,095  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, 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 18, 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 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 traffic from our partners to produce 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 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 operation 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)

 

 

 

 

 

June 30,

 

December 31,

 

 

2015

 

2014

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

138,517 

 

$

141,725 

Accounts receivable, net of allowance for doubtful accounts of

 

 

 

 

 

 

$364 and $419, respectively

 

 

87,306 

 

 

70,865 

Deferred income taxes

 

 

6,407 

 

 

6,407 

Prepaid expenses and other current assets

 

 

16,411 

 

 

35,652 

Assets held for sale

 

 

1,439 

 

 

1,627 

Total current assets

 

 

250,080 

 

 

256,276 

Furniture, fixtures and equipment, net of accumulated depreciation of

 

 

 

 

 

 

$28,189 and $24,756, respectively

 

 

15,832 

 

 

13,299 

Intangible assets, net of accumulated amortization of

 

 

 

 

 

 

$256,439 and $228,667, respectively

 

 

329,258 

 

 

338,988 

Goodwill

 

 

663,589 

 

 

641,367 

Other assets

 

 

14,041 

 

 

13,499 

Total assets

 

$

1,272,800 

 

$

1,263,429 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Accounts payable

 

$

12,257 

 

$

8,047 

Accrued expenses

 

 

39,202 

 

 

46,030 

Deferred revenue and customer deposits

 

 

4,704 

 

 

4,303 

Accrued interest payable

 

 

6,967 

 

 

6,980 

Other current liabilities

 

 

11,135 

 

 

13,629 

Liabilities subject to sale

 

 

439 

 

 

1,074 

Total current liabilities

 

 

74,704 

 

 

80,063 

Deferred income taxes

 

 

51,633 

 

 

51,633 

Long term debt, net of unamortized discount

 

 

297,900 

 

 

297,598 

Other liabilities

 

 

10,427 

 

 

10,849 

Total liabilities

 

 

434,664 

 

 

440,143 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Common stock, par value $.01 per share -

 

 

 

 

 

 

300,000,000 shares authorized

 

 

 

 

 

 

102,844,081 shares and 102,286,646 shares issued

 

 

 

 

 

 

respectively; 98,673,094 shares and 98,296,110 shares outstanding, respectively

 

 

1,028 

 

 

1,023 

Additional paid-in capital

 

 

916,588 

 

 

904,740 

Accumulated deficit

 

 

(18,366)

 

 

(23,639)

Less: Treasury stock, at cost - 4,170,987 shares and 3,990,536 shares, respectively

 

 

(60,775)

 

 

(58,472)

Accumulated other comprehensive loss

 

 

(339)

 

 

(366)

Total stockholders' equity

 

 

838,136 

 

 

823,286 

Total liabilities and stockholders' equity

 

$

1,272,800 

 

$

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

 

 

Six months ended

 

 

June 30,

 

June 30,

 

June 30,

 

June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Revenue

 

$

132,865 

 

$

130,367 

 

$

274,406 

 

$

266,642 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue (excludes depreciation and amortization)

 

 

74,671 

 

 

78,174 

 

 

153,426 

 

 

156,682 

 

Sales and marketing

 

 

6,292 

 

 

6,347 

 

 

12,430 

 

 

12,434 

 

Product development and technology

 

 

9,013 

 

 

6,979 

 

 

17,206 

 

 

13,854 

 

General and administrative

 

 

18,536 

 

 

11,724 

 

 

36,592 

 

 

24,266 

 

Legal settlements

 

 

 

 

9,190 

 

 

 

 

9,191 

 

Acquisition, offering and related expenses

 

 

311 

 

 

159 

 

 

574 

 

 

2,562 

 

Changes in fair value of contingent acquisition consideration

 

 

628 

 

 

743 

 

 

387 

 

 

2,150 

 

Depreciation and amortization

 

 

15,857 

 

 

14,590 

 

 

31,562 

 

 

28,446 

 

Total costs and expenses

 

 

125,311 

 

 

127,906 

 

 

252,180 

 

 

249,585 

 

Income from operations

 

 

7,554 

 

 

2,461 

 

 

22,226 

 

 

17,057 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other expenses, net

 

 

6,417 

 

 

5,162 

 

 

11,693 

 

 

10,352 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before taxes

 

 

1,137 

 

 

(2,701)

 

 

10,533 

 

 

6,705 

 

Income tax expense (benefit)

 

 

664 

 

 

(874)

 

 

4,783 

 

 

4,000 

 

Net income (loss) from continuing operations

 

 

473 

 

 

(1,827)

 

 

5,750 

 

 

2,705 

 

Net loss from discontinued operations, net of income taxes

 

 

(153)

 

 

(366)

 

 

(477)

 

 

(812)

 

Net income (loss)

 

$

320 

 

$

(2,193)

 

$

5,273 

 

$

1,893 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.00 

 

$

(0.02)

 

$

0.06 

 

$

0.03 

 

Discontinued operations

 

 

 -

 

 

 -

 

 

(0.01)

 

 

(0.01)

 

Basic net income (loss) per share

 

$

0.00 

 

$

(0.02)

 

$

0.05 

 

$

0.02 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.00 

 

$

(0.02)

 

$

0.05 

 

$

0.03 

 

Discontinued operations

 

 

 -

 

 

 -

 

 

 -

 

 

(0.01)

 

Diluted net income (loss) per share

 

$

0.00 

 

$

(0.02)

 

$

0.05 

 

$

0.02 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

102,705,717 

 

 

101,894,188 

 

 

102,578,638 

 

 

101,389,630 

 

Diluted

 

 

105,622,507 

 

 

101,894,188 

 

 

105,496,332 

 

 

103,415,647 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

320 

 

$

(2,193)

 

$

5,273 

 

$

1,893 

 

Other comprehensive income, net of tax

 

 

138 

 

 

129 

 

 

27 

 

 

154 

 

Comprehensive income

 

$

458 

 

$

(2,064)

 

$

5,300 

 

$

2,047 

 

 

 

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,

 

 

2015

 

2014

Cash flows from operating activities

 

 

 

 

 

 

Net income from continuing operations

 

$

5,750 

 

$

2,705 

Adjustments to reconcile net income from continuing operations to net cash provided by (used in) operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

31,562 

 

 

28,446 

Provision for doubtful accounts receivable

 

 

267 

 

 

297 

Amortization of deferred financing charges and original issue discount

 

 

507 

 

 

1,080 

Stock-based compensation

 

 

11,853 

 

 

8,338 

Loss on disposal of assets

 

 

44 

 

 

 -

Changes in fair value of contingent acquisition consideration

 

 

387 

 

 

2,150 

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

 

 

 

 

 

 

Accounts receivable

 

 

(16,629)

 

 

(14,211)

Prepaid expenses and other assets

 

 

18,417 

 

 

(20,103)

Accounts payable

 

 

4,210 

 

 

(124)

Accrued expenses

 

 

(6,876)

 

 

(14,025)

Other liabilities

 

 

(5,716)

 

 

5,700 

Deferred revenue

 

 

401 

 

 

694 

Net cash provided by operating activities - continuing operations

 

 

44,177 

 

 

947 

Net cash provided by operating activities - discontinued operations

 

 

334 

 

 

114 

Net cash provided by operating activities

 

 

44,511 

 

 

1,061 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

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

 

 

(7,283)

 

 

(4,251)

Cash used in business acquisitions, net

 

 

(30,753)

 

 

(54,179)

Net cash used in investing activities - continuing operations

 

 

(38,036)

 

 

(58,430)

Net cash used in investing activities - discontinued operations

 

 

(173)

 

 

(159)

Net cash used in investing activities

 

 

(38,209)

 

 

(58,589)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Cash paid for contingent acquisition consideration

 

 

(7,169)

 

 

(12,683)

Purchase of Company common stock

 

 

(2,303)

 

 

(6,929)

Proceeds from exercise of stock options, net of costs

 

 

 -

 

 

22,826 

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

 

 

(9,472)

 

 

3,214 

Net cash provided by financing activities - discontinued operations

 

 

 -

 

 

 -

Net cash (used in) provided by financing activities

 

 

(9,472)

 

 

3,214 

 

 

 

 

 

 

 

Effect of exchange rate on cash and cash equivalents

 

 

126 

 

 

22 

Net (decrease) increase in cash

 

 

(3,044)

 

 

(54,292)

Cash - beginning of period

 

 

142,051 

 

 

230,071 

Cash - end of period

 

 

139,007 

 

 

175,779 

Less cash of discontinued operations - end of period

 

 

490 

 

 

398 

Cash of continuing operations - end of period

 

$

138,517 

 

$

175,381 

 

 

 

 

 

 

 

 

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

 

7


 

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, senior care 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., Wallaby Financial, Inc. and Quizzle, LLC after elimination of all intercompany accounts and transactions.

 

We operate the following business segments:

 

·

Banking – we offer information on rates for various types of mortgages, home lending and refinancing options, specific to geographic location and covering all 50 states; rate information on various deposit products such as money markets, savings and certificates of deposits; and information on retirement, taxes and debt management. This segment also provides original articles on topics related to the housing market and loan refinancing; provides online analytic tools to calculate investment values; and provides content on topics such as 401(k) planning, Social Security, tax deductions and exemptions, auto loans, debt consolidation and credit risk.

 

·

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, and provide advice and detailed descriptions of insurance terms, and articles on topical subjects.

 

·

Other – includes the results of operations of Senior Care and aggregated smaller, dissimilar operating units, the results of our investments, unallocated corporate overhead and the elimination of transactions between segments.

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, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015, 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 2014 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on June 18, 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 18, 2015.

 

Reclassification and Discontinued Operations

 

Statements and certain amounts presented for the six months ended June 30, 2014 reflect reclassifications made to conform to the presentation in our 2014 Annual Report and our current presentation.

8


 

In the second quarter of 2015, we identified a misclassification within shareholders’ equity between common stock, additional paid-in capital and treasury stock for the year ended 2014 and first quarter of 2015 which related to the treatment of restricted share awards. The December 31, 2014 consolidated balance sheet has been modified to reflect the reclassification of common stock, additional paid-in capital and treasury stock. There was no change to total shareholders equity as a result of this modification. We believe this misclassification within stockholders’ equity was not material to total stockholders’ equity or to the financial statements taken as a whole.

 

In 2014, we commenced the process of divesting our 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 June 30, 2015 and December 31, 2014 have been classified and segregated as held for sale and subject to sale, respectively, in the Condensed Consolidated Balance Sheets. The cash flows related to the operations in China have been classified and segregated in the Condensed Consolidated Statement of Cash Flows, for all periods presented. See Note 12 – Discontinued Operations for presentation of the results of the discontinued operations in China.

 

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. We adopted ASU-2014-08 on January 1, 2015, as required, and it did not have a material impact on our consolidated financial statements.

 

Recently Issued Pronouncements, Not Adopted as of June 30, 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 that 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, 2017. 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 this amendment 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 a material impact on our 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 a material impact on our 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 data 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. We are currently evaluating the impact of this guidance, but at this time do not expect it to have a material impact on our consolidated financial statements.

 

9


 

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. We are currently evaluating the impact of this guidance, but at this time do not expect it to have a material impact on our consolidated financial statements.

 

In April 2015, the FASB issued ASU 2015-05 “Intangibles–Goodwill and Other–Internal-Use Software (Subtopic 350-40) – Customers Accounting for Fees Paid in a Cloud Computing Arrangement.” The amendments in this update provide a basis for evaluating whether a cloud computing arrangement includes a software license and clarification of the treatment of fees paid by the customer if that license is to internal-use software, other than internal-use software or not considered a license. This amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. We are currently evaluating the impact of this amendment, but at the time do not expect it to have a material impact on our consolidated financial statements.

 

In June 2015, the FASB issued ASU 2015-10, “Technical Corrections and Improvements.” This guidance’s intention is (i) to clarify the Codification for differences between original guidance and the Codification, (ii) correct unintended application of guidance and correct references or (iii) streamline, simplify or make minor improvements to the Codification through minor structural changes to headings or minor editing of text to improve the usefulness and understandability, that are not expected to have a significant effect on current accounting practice. This amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. We are currently evaluating the impact of this guidance, but at this time do not expect it to have a material impact on our consolidated financial statements

 

NOTE 2 – GOODWILL AND INTANGIBLE ASSETS

 

Goodwill activity for the six months ended June 30, 2015 is shown below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2015

 

 

 

 

$

641,367 

Additions due to acquisitions

 

 

 

 

 

22,222 

Balance, June 30, 2015

 

 

 

 

$

663,589 

 

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, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Cost

 

Accumulated Amortization

 

Net

 

Trademarks and URLs

 

$

299,508 

 

$

(87,804)

 

$

211,704 

 

Customer relationships

 

 

224,190 

 

 

(135,091)

 

 

89,099 

 

Affiliate relationships

 

 

22,770 

 

 

(13,069)

 

 

9,701 

 

Developed technology

 

 

39,229 

 

 

(20,475)

 

 

18,754 

 

 

 

$

585,697 

 

$

(256,439)

 

$

329,258 

 

 

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 and six months ended June 30, 2015 was $13.9 million and $27.7 million, respectively, and amortization expense for the three and six months ended June 30, 2014 was $12.8 million and $25.0 million, respectively.

 

10


 

Future amortization expense for assets placed into service on or before June 30, 2015 is expected to be:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization

(In thousands)

 

 

 

 

Expense

Remainder of 2015

 

 

 

 

$

25,462 

2016

 

 

 

 

 

49,951 

2017

 

 

 

 

 

47,249 

2018

 

 

 

 

 

40,339 

2019

 

 

 

 

 

27,734 

Thereafter

 

 

 

 

 

138,523 

Total expected amortization expense for intangible assets

 

 

 

 

$

329,258 

 

 

 

 

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

 

Six months ended

 

 

June 30,

 

June 30,

 

June 30,

 

June 30,

(In thousands, except share and per share data)

 

2015

 

2014

 

2015

 

2014

Net income (loss) from continuing operations

 

$

473 

 

$

(1,827)

 

$

5,750 

 

$

2,705 

Net loss from discontinued operations, net of income taxes

 

 

(153)

 

 

(366)

 

 

(477)

 

 

(812)

Net income (loss)

 

$

320 

 

$

(2,193)

 

$

5,273 

 

$

1,893 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding for basic earnings per share

 

 

102,705,717 

 

 

101,894,188 

 

 

102,578,638 

 

 

101,389,630 

Additional dilutive shares related to share based awards

 

 

2,916,790 

 

 

 -

 

 

2,917,694 

 

 

2,026,017 

Weighted average common shares outstanding for diluted earnings per share

 

 

105,622,507 

 

 

101,894,188 

 

 

105,496,332 

 

 

103,415,647 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.00 

 

$

(0.02)

 

$

0.06 

 

$

0.03 

Discontinued operations

 

 

 -

 

 

 -

 

 

(0.01)

 

 

(0.01)

Basic net income (loss) per share

 

$

0.00 

 

$

(0.02)

 

$

0.05 

 

$

0.02 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.00 

 

$

(0.02)

 

$

0.05 

 

$

0.03 

Discontinued operations

 

 

 -

 

 

 -

 

 

 -

 

 

(0.01)

Diluted net income (loss) per share

 

$

0.00 

 

$

(0.02)

 

$

0.05 

 

$

0.02 

 

 

 

For the three months ended June 30, 2015 and 2014, there were 2,723,293 and 2,612,684 stock options, respectively, and for the six months ended June 30, 2015 and 2014 there were 2,723,293 and 586,667 stock options, respectively, which are not included in the calculation of diluted earnings per share because their impact would have been anti-dilutive.

 

 

 

11


 

NOTE 4 – STOCKHOLDERS’ EQUITY

 

The activity in stockholders’ equity for the six months ended June 30, 2015 is shown below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

Treasury Stock

 

 

 

 

 

 

(In thousands)

 

Shares

 

Amount

 

Additional paid-in capital

 

Accumulated Deficit

 

Shares

 

Amount

 

Accumulated Other Comprehensive Loss - Foreign Currency Translation

 

Total Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2014

 

102,287 

 

$

1,023 

 

$

904,740 

 

$

(23,639)

 

 

(3,991)

 

$

(58,472)

 

$

(366)

 

$

823,286 

Other comprehensive income, net of taxes

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

27 

 

 

27 

Treasury stock purchased

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(180)

 

 

(2,303)

 

 

 -

 

 

(2,303)

Restricted stock issued, net of cancellations

 

557 

 

 

 

 

(5)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Performance stock issued, net of cancellations

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Stock-based compensation

 

 -

 

 

 -

 

 

11,853 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

11,853 

Net income

 

 -

 

 

 -

 

 

 -

 

 

5,273 

 

 

 -

 

 

 -

 

 

 -

 

 

5,273 

Balance at June 30, 2015

 

102,844 

 

$

1,028 

 

$

916,588 

 

$

(18,366)

 

 

(4,171)

 

$

(60,775)

 

$

(339)

 

$

838,136 

 

 

 

NOTE 5 – SEGMENTS

 

The reportable segments presented below represent our operating segments for which separate financial information is available and utilized on a regular basis by the 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 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. Our presentation of Adjusted EBITDA, a non-GAAP measure, may not be comparable to similarly-titled measures used by other companies.

12


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30,

 

 

2015

 

2014

(In thousands)

 

Revenue

 

Adjusted EBITDA

 

Revenue

 

Adjusted EBITDA

Banking

 

$

26,972 

 

$

9,202 

 

$

29,136 

 

$

10,994 

Credit Cards

 

 

56,054 

 

 

25,816 

 

 

55,054 

 

 

20,511 

Insurance

 

 

43,902 

 

 

4,508 

 

 

45,363 

 

 

5,479 

Other

 

 

5,937 

 

 

(3,750)

 

 

814 

 

 

(4,603)

Total Company

 

$

132,865 

 

 

35,776 

 

$

130,367 

 

 

32,381 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other expenses, net (A)

 

 

 

 

 

6,417 

 

 

 

 

 

5,162 

Depreciation and amortization

 

 

 

 

 

15,857 

 

 

 

 

 

14,590 

Changes in fair value of contingent acquisition consideration

 

 

 

 

 

628 

 

 

 

 

 

743 

Stock-based compensation expense

 

 

 

 

 

6,037 

 

 

 

 

 

4,415 

Legal settlements

 

 

 

 

 

 

 

 

 

 

9,190 

Acquisition, offering and related expenses

 

 

 

 

 

311 

 

 

 

 

 

159 

Restatement charges (B)

 

 

 

 

 

5,385 

 

 

 

 

 

603 

Impact of purchase accounting

 

 

 

 

 

 

 

 

 

 

220 

Income tax expense (benefit)

 

 

 

 

 

664 

 

 

 

 

 

(874)

Net income (loss) from continuing operations

 

 

 

 

$

473 

 

 

 

 

$

(1,827)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

__________

(A)

2015 includes a  $1.2 million charge related to the exit of an office lease.

(B)

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

13


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30,

 

 

2015

 

2014

(In thousands)

 

Revenue

 

Adjusted EBITDA

 

Revenue

 

Adjusted EBITDA

Banking

 

$

55,142 

 

$

19,761 

 

$

61,600 

 

$

24,189 

Credit Cards

 

 

112,828 

 

 

51,904 

 

 

107,886 

 

 

41,975 

Insurance

 

 

96,433 

 

 

12,851 

 

 

97,677 

 

 

12,169 

Other

 

 

10,003 

 

 

(8,319)

 

 

(521)

 

 

(9,089)

Total Company

 

$

274,406 

 

 

76,197 

 

$

266,642