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EX-32.1 - EX-32.1 - Bankrate, Inc.rate-20160331xex32_1.htm
EX-31.1 - EX-31.1 - Bankrate, Inc.rate-20160331xex31_1.htm
EX-10.1 - EX-10.1 - Bankrate, Inc.rate-20160331xex10_1.htm



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, 2016

 

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 April 29, 2016  was as follows: 90,367,003  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, 2016





 

 

 

 

PART I. FINANCIAL INFORMATION

  

 

  

Item  1. Condensed Consolidated Financial Statements (Unaudited)

  

 

  

Item  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

 

27 

  

Item  3. Quantitative and Qualitative Disclosures About Market Risk

  

 

38 

  

Item  4. Controls and Procedures

  

 

38 

  

PART II. OTHER INFORMATION

  

 

37 

  

Item  1. Legal Proceedings

  

 

37 

  

Item  1A. Risk Factors

  

 

37 

  

Item  2. Unregistered Sales of Equity Securities and Use of Proceeds

  

 

38 

  

Item 3. Default Upon Senior Securities

 

 

38

 

Item 4. Mine Safety Disclosures

 

 

38

 

Item  5. Other Information

  

 

38 

  

Item  6. Exhibits

  

 

39 

  

Signatures

  

 

40 

  





 

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 on Form 10-Q 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 March 9, 2016 as updated in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. All forward-looking information in this Quarterly Report on Form 10-Q 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 or interest of banks, lenders, brokers, credit card issuers, 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;

·

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

·

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

·

our dependence on internet search engines to attract a significant portion of the visitors to our websites and our ability to diversify the sources from which we obtain visitor traffic to our websites and mobile applications, including without limitation through use of social media channels;

·

changes in the way that search engines display paid and organic search results and the impact of those changes on the number of consumers that visit our online network and the cost of driving consumers to our online network;

·

our dependence on traffic from our partners to produce a significant portion of the Company’s revenue and our ability to establish and maintain distribution arrangements;

·

the risk that a condition to closing of the NextAdvisor transaction may not be satisfied, including without limitation antitrust regulatory approval;

·

other risks to consummation of the NextAdvisor transaction, including the risk that the NextAdvisor transaction will not be consummated within the expected time period or at all;

·

the effects of disruption from the announcement of the NextAdvisor transaction or the NextAdvisor transaction itself making it more difficult to maintain relationships with employees, customers, suppliers and other business partners;

·

risks related to the successful integration of the NextAdvisor business acquired and the ability to realize the expected benefits from such acquisition;

·

risks and uncertainties associated with the NextAdvisor business;

·

the willingness of consumers to accept the Internet and our online network as a medium for obtaining information on financial products or senior care;

·

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

·

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;

·

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

3


 

·

our ability to successfully execute on our strategies, and the effectiveness of our strategies and investments in our business, including without limitation whether they result in increased revenue or profitability;

·

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

·

the material weakness in the operating effectiveness of our internal controls over financial reporting discussed in our 2015 Annual Report on Form 10-K and our ability to remediate the weakness completely and promptly;

·

risks relating to the defense or litigation of lawsuits, including the putative securities class action lawsuit currently pending and described in our SEC filings;

·

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 United States Department of Justice (“DOJ”) investigation relating to our financial reporting during 2012;

·

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;

·

any delay or failure to pay the deferred portion of the purchase price, or contractually required reduction in the purchase price as a result of closing working capital adjustments, in connection with the sale of the Company’s Insurance business in December 2015;

·

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 cyberattack on our systems, websites or mobile applications, or on our reputation, and the impact of any notification costs or other liability arising from any security breach, data breach or cyberattack on our business;

·

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

·

our ability to maintain effective disclosure controls and procedures and internal control over financial reporting;

·

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

·

our ability to maintain and develop our brands and content;

·

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 (whether intentional or not) from our acquisitions;

·

the effect of programmatic advertising platforms on display revenue;

·

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;

·

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;

·

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 and interest rate volatility;

·

changes in consumer spending and saving habits;

·

review of our business and operations by regulatory or other governmental authorities;

·

changes in laws and regulations or interpretations of laws and regulations, other changes in the legal and regulatory environment, and the impact of such changes on the operation of our business;

·

any impairment to our goodwill and/or intangible assets, including without limitation the potential for impairment of the goodwill of our Senior Care segment as discussed in Note 2 to the Condensed Consolidated Financial Statements included in this report;

4


 

·

changes in accounting principles, policies, practices or guidelines; 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 on Form 10-Q 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.





5


 

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,



 

2016

 

2015

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

204,387 

 

$

236,866 

Accounts receivable, net of allowance for doubtful accounts of

 

 

 

 

 

 

$215 and $147, respectively

 

 

55,013 

 

 

56,148 

Prepaid expenses and other current assets

 

 

25,041 

 

 

27,660 

Assets held for sale

 

 

947 

 

 

1,157 

Total current assets

 

 

285,388 

 

 

321,831 

Furniture, fixtures and equipment, net of accumulated depreciation of

 

 

 

 

 

 

$15,399 and $14,245, respectively

 

 

10,742 

 

 

9,608 

Intangible assets, net of accumulated amortization of

 

 

 

 

 

 

$176,938 and $168,613, respectively

 

 

197,312 

 

 

205,758 

Goodwill

 

 

567,544 

 

 

567,544 

Other assets

 

 

22,293 

 

 

23,127 

Total assets

 

$

1,083,279 

 

$

1,127,868 

Liabilities and stockholders' equity

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Accounts payable

 

$

1,360 

 

$

10,082 

Accrued expenses

 

 

28,542 

 

 

25,574 

Deferred revenue and customer deposits

 

 

1,381 

 

 

1,367 

Accrued interest payable

 

 

2,297 

 

 

6,890 

Other current liabilities

 

 

6,179 

 

 

14,660 

Liabilities subject to sale

 

 

1,428 

 

 

1,393 

Total current liabilities

 

 

41,187 

 

 

59,966 

Deferred income taxes

 

 

6,950 

 

 

7,552 

Long term debt, net of unamortized discount

 

 

293,881 

 

 

293,284 

Other liabilities

 

 

5,707 

 

 

5,871 

Total liabilities

 

 

347,725 

 

 

366,673 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Common stock, par value $.01 per share -

 

 

 

 

 

 

300,000,000 shares authorized

 

 

 

 

 

 

103,292,228 shares and 103,845,310 shares issued,

 

 

 

 

 

 

respectively; 93,077,600 shares and 96,794,018 shares outstanding, respectively

 

 

1,034 

 

 

1,039 

Additional paid-in capital

 

 

889,162 

 

 

886,261 

Accumulated deficit

 

 

(36,702)

 

 

(36,985)

Less: Treasury stock, at cost - 10,214,628 shares and 7,051,292 shares, respectively

 

 

(117,373)

 

 

(88,616)

Accumulated other comprehensive loss

 

 

(567)

 

 

(504)

Total stockholders' equity

 

 

735,554 

 

 

761,195 

Total liabilities and stockholders' equity

 

$

1,083,279 

 

$

1,127,868 







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



6


 

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,

 



2016

 

2015

 

Revenue

$

93,278 

 

$

89,010 

 



 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

Cost of revenue

 

47,205 

 

 

41,310 

 

Sales and marketing

 

4,816 

 

 

3,973 

 

Product development and technology

 

6,544 

 

 

4,904 

 

General and administrative

 

16,735 

 

 

15,708 

 

Legal settlements

 

(851)

 

 

 -

 

Acquisition, disposition and related expenses

 

 -

 

 

263 

 

Restructuring charges

 

(34)

 

 

 -

 

Changes in fair value of contingent acquisition consideration

 

(162)

 

 

(240)

 

Depreciation and amortization

 

9,551 

 

 

9,462 

 

Total costs and expenses

 

83,804 

 

 

75,380 

 

Income from operations

 

9,474 

 

 

13,630 

 



 

 

 

 

 

 

Interest and other expenses, net

 

4,855 

 

 

5,269 

 



 

 

 

 

 

 

Income before taxes

 

4,619 

 

 

8,361 

 

Income tax expense

 

3,656 

 

 

3,655 

 

Net income from continuing operations

 

963 

 

 

4,706 

 

Net (loss) income from discontinued operations, net of income taxes

 

(680)

 

 

247 

 

Net income

$

283 

 

$

4,953 

 



 

 

 

 

 

 

Basic net income per share:

 

 

 

 

 

 

Continuing operations

$

0.01 

 

$

0.05 

 

Discontinued operations

 

(0.01)

 

 

0.00 

 

Basic net income per share

$

0.00 

 

$

0.05 

 



 

 

 

 

 

 

Diluted net income per share:

 

 

 

 

 

 

Continuing operations

$

0.01 

 

$

0.05 

 

Discontinued operations

 

(0.01)

 

 

0.00 

 

Diluted net income per share

$

0.00 

 

$

0.05 

 



 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

Basic

 

92,899,932 

 

 

98,414,578 

 

Diluted

 

93,440,754 

 

 

98,936,296 

 



 

 

 

 

 

 

Net income

$

283 

 

$

4,953 

 

Other comprehensive loss, net of tax

 

(63)

 

 

(111)

 

Comprehensive income

$

220 

 

$

4,842 

 





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

7


 

Bankrate, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows 

(Unaudited)

(In thousands)





 

 

 

 

 

 



 

 

 

 

 

 



 

Three months ended



 

March 31,

 

March 31,



 

2016

 

2015

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

283 

 

$

4,953 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

9,627 

 

 

15,798 

Provision for doubtful accounts receivable

 

 

39 

 

 

192 

Deferred income taxes

 

 

(602)

 

 

 -

Amortization of deferred financing charges and original issue discount

 

 

682 

 

 

237 

Stock-based compensation

 

 

3,904 

 

 

5,816 

Changes in fair value of contingent acquisition consideration

 

 

(162)

 

 

(240)

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

 

 

 

 

 

 

Accounts receivable

 

 

1,137 

 

 

(9,012)

Prepaid expenses and other assets

 

 

2,544 

 

 

17,385 

Accounts payable

 

 

(8,765)

 

 

8,752 

Accrued expenses

 

 

2,817 

 

 

(10,046)

Other liabilities

 

 

(4,618)

 

 

(9,331)

Deferred revenue and customer deposits

 

 

(1)

 

 

219 

Net cash provided by operating activities

 

 

6,885 

 

 

24,723 



 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

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

 

 

(1,231)

 

 

(3,027)

Cash used in business acquisitions, net

 

 

 -

 

 

(3,556)

Net cash used in investing activities

 

 

(1,231)

 

 

(6,583)



 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Cash paid for contingent acquisition consideration

 

 

(8,613)

 

 

(3,878)

Purchase of Company stock

 

 

(29,612)

 

 

(1,185)

Net cash used in financing activities

 

 

(38,225)

 

 

(5,063)



 

 

 

 

 

 

Effect of exchange rate on cash and cash equivalents

 

 

(42)

 

 

(77)

Net (decrease) increase in cash

 

 

(32,613)

 

 

13,000 

Cash - beginning of period

 

 

237,204 

 

 

142,051 

Cash - end of period

 

 

204,591 

 

 

155,051 

Less cash of discontinued operations - end of period

 

 

204 

 

 

25,689 

Cash of continuing operations - end of period

 

$

204,387 

 

$

129,362 



 

 

 

 

 

 

Supplemental disclosure of other cash flow activities

 

 

 

 

 

 

Cash paid for interest

 

$

9,254 

 

$

9,719 

Cash paid (refunded) for taxes, net

 

 

71 

 

 

(10,708)



 

 

 

 

 

 



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





 

8


 

Bankrate, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (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, personal finance and senior care network (“Online Network”). Our flagship websites, Bankrate.com,  CreditCards.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, and other personal finance categories. Additionally, we provide financial applications and information to a network of distribution partners and through national and state publications.

We operate the following reportable 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 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, calculators and products such as free credit reports and estimates of card benefits.

·

Senior Care – we provide helpful caregiving content, a comprehensive online senior living directory for the United States, a local directory covering a wide array of other senior caregiving services and telephone support and advice from trained Family Advisors.

·

Other – includes the results of operations of Quizzle, the results of the Company’s investments, unallocated corporate overhead and the elimination of transactions between segments.

Basis of Presentation



The accompanying consolidated financial statements include the accounts of Bankrate, Inc., and subsidiaries CreditCards.com, Inc. (“CreditCards”), LinkOffers, Inc., CreditCards.com Limited (United Kingdom), Freedom Marketing Limited (United Kingdom), Caring, Inc., Wallaby Financial Inc., Quizzle, LLC., and BR1 Holdings, LLC. 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 three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016, 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 2015 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 9, 2016 (the “2015 Annual Report”).



Other than as noted below, there have been no significant changes in the Company’s accounting policies from those disclosed in the 2015 Annual Report.



9


 

Reclassifications



Certain amounts presented for the three months ended March 31, 2015 reflect reclassifications made to conform to the presentation in our 2015 Annual Report and our current presentation. In accordance with the adoption of Accounting Standards Update (“ASU”) ASU 2015-03, “Imputation of Interest – Simplifying the Presentation of Debt Issuance Costs, our senior unsecured notes are presented net of their related deferred financing costs. We revised the calculations of basic and diluted weighted average common shares outstanding for certain adjustments to the prior year presentation. There was no change in the calculated basic net income per share or diluted net income per share for continuing operations, discontinued operations or in total for the three months ended March 31, 2015.



Discontinued Operations



In December 2015, we sold our Insurance business segment and in 2014, we commenced the process of divesting our operations in China. In accordance with accounting principles generally accepted in the United States (“GAAP”), the results of our Insurance business segment through the date of sale, December 29, 2015, and 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 operating results and the assets and liabilities of the Insurance business segment for 2015 and the operating results and the assets and liabilities of the operations in China for 2016 and 2015, are classified as discontinued operations in the Company’s condensed consolidated financial statements with the exception of condensed consolidated statements of cash flows which is presented on a consolidated basis. The operating results of the Insurance business segment and operations in China are consistently excluded from the Notes to Condensed Consolidated Financial Statements for all periods presented. See Note 13 – Discontinued Operations for presentation of the results of the discontinued operations of the Insurance business and China.



New Accounting Pronouncements



Recently Adopted Pronouncements

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. We adopted ASU 2014-12 on January 1, 2016, as required, and it did not have a significant 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 date applicable to the extraordinary item. We adopted ASU 2015-01 on January 1, 2016, as required, and it did not have a significant impact on our 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. We adopted ASU 2015-03 on January 1, 2016, as required.  The Company’s $300.0 million senior unsecured notes due 2018 are presented at March 31, 2016 and December 31, 2015 net of deferred financing costs of $4.5 million and $4.9 million,  respectively. Deferred financing costs were previously included in other assets in the condensed 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 guidance 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. We adopted ASU 2015-05 on January 1, 2016, as required, and it did not have a significant 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. We adopted ASU 2015-10 on January 1, 2016, as required, and it did not have a significant impact on our consolidated financial statements.

10


 

In September 2015, the FASB issued ASU 2015-16, “Business Combinations (Topic 805) – Simplifying the Accounting for Measurement-Period Adjustments.” The intention of this guidance is to simplify the accounting adjustments made to provisional amounts recognized in business combinations, as the amendment requires the adjustments to provisional amounts be recorded in the current period that they are identified, which eliminates the need to retrospectively account for those adjustments. We adopted ASU 2015-16 on January 1, 2016, as required, and it did not have a significant impact on our consolidated financial statements.

Recently Issued Pronouncements, Not Adopted as of March 31, 2016

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” and in August 2015 issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606) – Deferral of Effective Date.” 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. 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. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, to be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. We are evaluating the effect that this update 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 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 guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. We do not expect the adoption of this guidance to have an impact on our consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01 “Financial Instruments – Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities.” This update amends some of the existing guidance related to the recognition, measurement, presentation, and disclosure of financial instruments. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. We are evaluating the effect that this update will have on our consolidated financial statements and related disclosures.

In January 2016, the FASB issued ASU 2016-02 “Leases (Topic 842).” This update will supersede the leases requirements in Topic 840, Leases, and create an additional Topic 842, which specifies the accounting for leases. The objective is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We are evaluating the effect that this update will have on our consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-08 “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net).” This update is intended to clarify the implementation guidance on principal versus agent considerations. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. We are evaluating the effect that this update will have on our consolidated financial statements and related disclosures. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements of Update 2014-09. Accounting Standards Update No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year.

In March 2016, the FASB issued ASU 2016-09 “Compensation —Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This update is intended to reduce complexity in accounting standard and simplify several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. In addition, the amendments in this Update eliminate the guidance in Topic 718. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted for any entity in any interim or annual period. We are evaluating the effect that this update will have on our consolidated financial statements, earnings per share and related disclosures.



11


 

NOTE 2 – GOODWILL AND INTANGIBLE ASSETS



During the first quarter, the Company’s agreement with a large customer of Senior Care was not renewed. This triggering event resulted in impairment testing as of February 29, 2016. It was concluded that no impairment had occurred. The fair value was greater than the carrying value by 17.9%, however, the absolute dollar amount of the Senior Care cushion is small. If Senior Care does not track to expectations for strong growth, this could lead to impairment. Management did not identify any circumstances or triggers with the Banking or Credit Cards reporting units that could ‘more likely than not’ reduce the fair value of those reporting units below the carrying amounts based upon the financial performance in the first quarter of 2016.



Goodwill activity for the three months ended March 31, 2016 is shown below:









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Banking

 

Credit Cards

 

Senior Care

 

Other

 

Total Company

Balance, January 1, 2016

 

$

140,546 

 

$

383,878 

 

$

24,518 

 

$

18,602 

 

$

567,544 

Additions due to acquisitions

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Balance, March 31, 2016

 

$

140,546 

 

$

383,878 

 

$

24,518 

 

$

18,602 

 

$

567,544 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Intangible assets consist primarily of trademarks and domain names, customer relationships, affiliate relationships and developed technologies. Intangible assets are being amortized over their estimated useful lives on a straight-line basis.



Intangible assets subject to amortization were as follows as of March 31, 2016:  





 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Cost

 

Accumulated Amortization

 

Net

 

Weighted Average Amortization Period Years

Trademarks and domain names

 

$

199,378 

 

$

(72,778)

 

$

126,600 

 

17.1

Customer relationships

 

 

135,774 

 

 

(87,948)

 

 

47,826 

 

9.1

Affiliate relationships

 

 

12,670 

 

 

(6,517)

 

 

6,153 

 

10.3

Developed technologies

 

 

26,428 

 

 

(9,695)

 

 

16,733 

 

7.6



 

$

374,250 

 

$

(176,938)

 

$

197,312 

 

13.3



Intangible assets subject to amortization were as follows as of December 31, 2015:





 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Cost

 

Accumulated Amortization

 

Net

 

Weighted Average Amortization Period Years

Trademarks and domain names

 

$

199,439 

 

$

(68,988)

 

$

130,451 

 

17.1

Customer relationships

 

 

135,831 

 

 

(84,183)

 

 

51,648 

 

9.1

Affiliate relationships

 

 

12,670 

 

 

(6,382)

 

 

6,288 

 

10.3

Developed technologies

 

 

26,431 

 

 

(9,060)

 

 

17,371 

 

7.6



 

$

374,371 

 

$

(168,613)

 

$

205,758 

 

13.3



Amortization expense for the three months ended March 31, 2016 was $8.4 million and amortization expense for the three months ended March 31, 2015 was $8.6 million.



12


 

Future amortization expense for assets placed into service on or before March 31, 2016 is expected to be:





 

 

 

 

 

 



 

 

 

 

 

 



 

 

 

 

Amortization

(In thousands)

 

 

 

 

Expense

Remainder of 2016

 

 

 

 

$

24,850 

2017

 

 

 

 

 

30,959 

2018

 

 

 

 

 

27,358 

2019

 

 

 

 

 

19,152 

2020

 

 

 

 

 

12,853 

Thereafter

 

 

 

 

 

82,140 

Total expected amortization expense for intangible assets

 

 

 

 

$

197,312 













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 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)

 

2016

 

2015

Net income from continuing operations

 

$

963 

 

$

4,706 

Net (loss) income from discontinued operations, net of income taxes

 

 

(680)

 

 

247 

Net income

 

$

283 

 

$

4,953 



 

 

 

 

 

 

Weighted average common shares outstanding for basic earnings per share

 

 

92,899,932 

 

 

98,414,578 

Additional dilutive shares related to share based awards

 

 

540,822 

 

 

521,718 

Weighted average common shares outstanding for diluted earnings per share

 

 

93,440,754 

 

 

98,936,296 



 

 

 

 

 

 

Basic net income per share:

 

 

 

 

 

 

Continuing operations

 

$

0.01 

 

$

0.05 

Discontinued operations

 

 

(0.01)

 

 

0.00 

Basic net income per share

 

$

0.00 

 

$

0.05 



 

 

 

 

 

 

Diluted net income per share:

 

 

 

 

 

 

Continuing operations

 

$

0.01 

 

$

0.05 

Discontinued operations

 

 

(0.01)

 

 

0.00 

Diluted net income per share

 

$

0.00 

 

$

0.05 







For the three months ended March 31, 2016 and 2015, there were 3,454,144 and 4,099,377, respectively, stock options, restricted shares and units and performance shares and units excluded from the calculation of diluted earnings per share because their impact would have been anti-dilutive.















13


 



NOTE 4 – STOCKHOLDERS’ EQUITY



The activity in stockholders’ equity for the three months ended March 31, 2016 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, 2015

 

103,845 

 

$

1,039 

 

$

886,261 

 

$

(36,985)

 

 

(7,051)

 

$

(88,616)

 

$

(504)

 

$

761,195 

Other comprehensive loss, net of taxes

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(63)

 

 

(63)

Treasury stock purchased

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(3,237)

 

 

(29,612)

 

 

 -

 

 

(29,612)

Restricted stock issued, net of cancellations

 

(24)

 

 

 -

 

 

(855)

 

 

 -

 

 

73 

 

 

855 

 

 

 -

 

 

 -

Performance stock issued, net of cancellations

 

(529)

 

 

(5)

 

 

 

 

 -

 

 

 -

 

 

 

 

 

 -

 

 

 -

Stock-based compensation

 

 -

 

 

 -

 

 

3,751 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

3,751 

Net income

 

 -

 

 

 -

 

 

 -

 

 

283 

 

 

 -

 

 

 -

 

 

 -

 

 

283 

Balance at March 31, 2016

 

103,292 

 

$

1,034 

 

$

889,162 

 

$

(36,702)

 

 

(10,215)

 

$

(117,373)

 

$

(567)

 

$

735,554 



In February 2016, the Company’s Board of Directors authorized a $50.0 million share repurchase program. Under the terms of the program, the Company was authorized to repurchase up to $50.0 million of its outstanding common stock, excluding commissions. Stock repurchases under this program could be made through open market and privately negotiated transactions. The timing and amount of specific repurchases were subject to the requirements of federal securities law, market conditions, alternative uses of capital and other factors. The stock repurchase program did not obligate the Company to acquire any particular amount of shares and the program could have been limited or terminated at any time without prior notice. The program was completed in April 2016. 



During the three months ended March 31, 2016, we repurchased approximately 2.9 million shares for approximately  $25.8 million, plus commission fees.















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 other items such as loss on extinguishment of debt, legal settlements, acquisition, disposition and related expenses, restructuring charges, any impairment charge, CEO transition costs and costs related to the Restatement, the Internal Review, the SEC and DOJ investigations 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.







14


 







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended March 31,



 

2016

 

2015

(In thousands)

 

Revenue

 

Adjusted EBITDA

 

Revenue

 

Adjusted EBITDA

Banking

 

$

24,347 

 

$

5,281 

 

$

28,170 

 

$

10,559 

Credit Cards

 

 

63,142 

 

 

25,799 

 

 

56,774 

 

 

26,089 

Senior Care

 

 

6,187 

 

 

(453)

 

 

5,187 

 

 

(77)

Other

 

 

(398)

 

 

(7,318)

 

 

(1,121)

 

 

(4,493)

Total Company

 

$

93,278 

 

 

23,309 

 

$

89,010 

 

 

32,078 



 

 

 

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other expenses, net

 

 

 

 

 

4,855 

 

 

 

 

 

5,269 

Depreciation and amortization

 

 

 

 

 

9,551 

 

 

 

 

 

9,462 

Changes in fair value of contingent acquisition consideration

 

 

 

 

 

(162)

 

 

 

 

 

(240)

Stock-based compensation expense

 

 

 

 

 

3,904 

 

 

 

 

 

4,755 

Legal settlements (A)

 

 

 

 

 

(851)

 

 

 

 

 

 -

Acquisition, disposition and related expenses

 

 

 

 

 

 -

 

 

 

 

 

263 

Restatement charges (B)

 

 

 

 

 

1,427 

 

 

 

 

 

4,174 

Impact of purchase accounting

 

 

 

 

 

 -

 

 

 

 

 

34 

Restructuring charges

 

 

 

 

 

(34)

 

 

 

 

 

 -

Income before income taxes

 

 

 

 

$

4,619 

 

 

 

 

$

8,361 



 

 

 

 

 

 

 

 

 

 

 

 

__________

(A)

During the three months ended March 31, 2016, an $851,000 insurance claim was reimbursed for a previously settled and paid legal settlement.

(B)

Restatement charges include expenses related to unusual regulatory actions, the Internal Review, the Restatement and related litigation.

 











NOTE 6 – FAIR VALUE MEASUREMENT



The carrying amounts of cash, accounts receivable and accrued interest approximate estimated fair value due to their short term nature. In measuring the fair value of our long term debt, we 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, 2016

 

December 31, 2015

(In thousands)

 

Carrying Amount

 

Estimated Fair Value

 

Carrying Amount

 

Estimated Fair Value

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Long term debt (A)

 

$

293,881 

 

$

298,500 

 

$

293,284 

 

$

297,000 

_________

(A)

The long term debt carrying amount is net of debt issuance costs of approximately $4.5 million and $4.9 million at March 31, 2016 and December 31, 2015, respectively.



In addition, we make recurring fair value measurements of contingent acquisition consideration using Level 3 unobservable inputs. We recognize 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, we review 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.





15


 

The following tables present the fair value measurements of contingent acquisition consideration and the assets of the non-qualified deferred compensation plan using the fair value hierarchy:







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Fair Value Measurement at March 31, 2016 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:

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Investments of the non-qualified deferred compensation plan

 

$

169 

 

$

 -

 

$

 -

 

$

169 

Total asset recurring fair value measurements

 

$

169 

 

$

 -

 

$

 -

 

$

169 



 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Contingent acquisition consideration

 

$

 -

 

$

 -

 

$

332 

 

$

332 

Total liabilities recurring fair value measurements

 

$

 -

 

$

 -

 

$

332 

 

$

332 



 

 

 

 

 

 

 

 

 

 

 

 



 

Fair Value Measurement at December 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:

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Investments of the non-qualified deferred compensation plan

 

$

173 

 

$

 -

 

$

 -

 

$

173 

Total asset recurring fair value measurements

 

$

173 

 

$

 -

 

$

 -

 

$

173 



 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Contingent acquisition consideration

 

$

 -

 

$

 -

 

$

9,107 

 

$

9,107 

Total liabilities recurring fair value measurements

 

$

 -

 

$

 -

 

$

9,107 

 

$

9,107 



The following table sets forth a reconciliation of changes in the fair value of Level 3 financial liabilities, contingent acquisition consideration, for the three months ended March 31, 2016:







 

 

 



 

 

(In thousands)

 

Three months ended March 31, 2016

Balance, January 1, 2016

 

$

9,107 

Additions to Level 3

 

 

 -

Transfers into Level 3

 

 

 -

Transfers out of Level 3

 

 

 -

Change in fair value

 

 

(162)

Payments

 

 

(8,613)

Balance, March 31, 2016

 

$

332 





The unobservable inputs used in determining the fair value of contingent acquisition consideration for earnout periods not yet completed include discount factors of 14% to 16% based on our weighted average cost of capital and projected results of the acquired

16


 

businesses. The fair value calculated as of March 31, 2016 is subject to sensitivity as it relates to the projected results of the acquired businesses, which are uncertain in nature. 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, 2016, we recorded a  credit of $162,000 for the change in fair value of contingent acquisition consideration,  which consists of a decrease in the fair value due to a change in estimate of $316,000, partially offset by an increase of $154,000 related to the passage of time.