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EX-31.1 - EX-31.1 - Bankrate, Inc.rate-20170630xex31_1.htm
EX-10.6 - EX-10.6 - Bankrate, Inc.rate-20170630xex10_6.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 JUNE 30, 2017

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.)



 

 

1675 Broadway, 22nd Floor

New York, NY 

 

10019

(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,” “smaller reporting company” and “emerging growth 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 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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, 2017  was as follows: 89,695,515  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, 2017





 

 

 

 

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

  

 

29 

  

Item  3. Quantitative and Qualitative Disclosures About Market Risk

  

 

42 

  

Item  4. Controls and Procedures

  

 

42 

  

PART II. OTHER INFORMATION

  

 

42 

  

Item  1. Legal Proceedings

  

 

42 

  

Item  1A. Risk Factors

  

 

43 

  

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

  

 

44 

  

Item  3. Default Upon Senior Securities

 

 

44

 

Item  4. Mine Safety Disclosures

 

 

44

 

Item  5. Other Information

  

 

44 

  

Item  6. Exhibits

  

 

45 

  

Signatures

  

 

46 

  





 

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 for the year ended December 31, 2016 filed with the Securities and Exchange Commission (“SEC” or “Commission”) on March 22, 2017, 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 failure to obtain Bankrate stockholder approval of the proposed merger with Red Ventures or the failure of any of the other conditions to the completion of the merger to be satisfied (see Note 14 – Subsequent Events of the Notes to the Condensed Consolidated Financial Statements for a description of the proposed merger with Red Ventures);

·

the possibility that the proposed merger with Red Ventures may not be completed within the expected time frame or at all;

·

the effect of the announcement and pendency of the merger with Red Ventures on our ability to retain and hire key personnel and maintain relationships with our customers, providers, advertisers, partners and others with whom we do business, or on our operating results and businesses generally;

·

risks associated with the disruption of management’s attention from ongoing business operations due to the proposed merger with Red Ventures;

·

the willingness or interest of credit card issuers, banks, lenders, brokers, 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;

·

the cost of driving consumers to our online network, including without limitation our ability to generate traffic profitably through online and offline marketing channels and branding efforts;

·

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 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;

3


 

·

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

·

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;

·

risks relating to the defense or litigation of lawsuits;

·

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;

·

the costs of indemnification obligations to current and former directors, officers and employees;

·

any delay or failure to collect the deferred portion of the purchase price due to us 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;

·

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

·

our ability to otherwise 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 indebtedness and the effect such indebtedness may have on our business;

·

our need and our ability to obtain additional debt or equity financing or to refinance our existing debt;

·

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

·

the effect of unexpected liabilities we assume (whether intentional or not) from our acquisitions;

·

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;

·

risks associated with the wind down of our operations in China;

·

the strength of the U.S. economy in general and the financial services and senior care industries in particular;

·

changes in monetary and fiscal policies of the U.S. government and interest rate volatility;

·

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;

·

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

4


 

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)

 

 

 



 

June 30,

 

December 31,



 

2017

 

2016

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

188,624 

 

$

176,680 

Accounts receivable, net of allowance for doubtful accounts of

 

 

 

 

 

 

$504 and $190, respectively

 

 

66,714 

 

 

52,211 

Prepaid expenses and other current assets

 

 

38,033 

 

 

42,041 

Total current assets

 

 

293,371 

 

 

270,932 

Deferred income taxes

 

 

11,040 

 

 

 -

Furniture, fixtures and equipment, net of accumulated depreciation of

 

 

 

 

 

 

$19,903 and $19,514, respectively

 

 

18,228 

 

 

15,440 

Intangible assets, net of accumulated amortization of

 

 

 

 

 

 

$221,005 and $202,331, respectively

 

 

173,629 

 

 

192,119 

Goodwill

 

 

599,805 

 

 

599,805 

Other assets

 

 

4,560 

 

 

5,564 

Total assets

 

$

1,100,633 

 

$

1,083,860 

Liabilities and stockholders' equity

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Accounts payable

 

$

9,290 

 

$

11,191 

Accrued expenses

 

 

29,171 

 

 

27,887 

Deferred revenue and customer deposits

 

 

762 

 

 

1,369 

Accrued interest payable

 

 

6,891 

 

 

6,887 

Other current liabilities

 

 

76,650 

 

 

6,511 

Total current liabilities

 

 

122,764 

 

 

53,845 

Deferred income taxes

 

 

 -

 

 

5,118 

Long term debt, net of unamortized discount

 

 

296,999 

 

 

295,721 

Other liabilities

 

 

8,894 

 

 

39,798 

Total liabilities

 

 

428,657 

 

 

394,482 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Preferred stock, par value $.01 per share - 50,000,000 authorized, none issued

 

 

 -

 

 

 -

Common stock, par value $.01 per share -

 

 

 

 

 

 

300,000,000 shares authorized;

 

 

 

 

 

 

102,228,527 and 103,132,289 shares issued, respectively;

 

 

 

 

 

 

89,701,738 and 90,072,482 shares outstanding, respectively

 

 

1,023 

 

 

1,032 

Additional paid-in capital

 

 

906,359 

 

 

903,177 

Accumulated deficit

 

 

(100,014)

 

 

(71,119)

Less: Treasury stock, at cost - 12,526,789 and 13,059,807 shares, respectively

 

 

(137,093)

 

 

(142,983)

Accumulated other comprehensive income (loss)

 

 

1,701 

 

 

(729)

Total stockholders' equity

 

 

671,976 

 

 

689,378 

Total liabilities and stockholders' equity

 

$

1,100,633 

 

$

1,083,860 

















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







6


 

Bankrate, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands, except share and per share data)







 

 

 

 

 

 

 

 

 

 

 

 



 

 

Three months ended

 

 

Six months ended



 

June 30,

 

June 30,

 

June 30,

 

June 30,



 

2017

 

2016

 

2017

 

2016

Revenue

 

$

115,924 

 

$

98,302 

 

$

234,583 

 

$

191,780 



 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

64,400 

 

 

52,828 

 

 

127,594 

 

 

100,372 

Sales and marketing

 

 

5,304 

 

 

4,037 

 

 

10,530 

 

 

8,565 

Product development and technology

 

 

8,897 

 

 

7,470 

 

 

17,475 

 

 

14,049 

General and administrative

 

 

23,941 

 

 

20,069 

 

 

45,781 

 

 

37,091 

Legal settlements

 

 

 -

 

 

20,000 

 

 

 -

 

 

19,149 

Acquisition, disposition and related expenses

 

 

240 

 

 

1,335 

 

 

240 

 

 

1,335 

Restructuring-related expenses

 

 

669 

 

 

 -

 

 

669 

 

 

(34)

Changes in fair value of contingent acquisition consideration

 

 

27,292 

 

 

263 

 

 

40,140 

 

 

101 

Impairment charge

 

 

 -

 

 

25,000 

 

 

 -

 

 

25,000 

Depreciation and amortization

 

 

10,887 

 

 

11,079 

 

 

21,429 

 

 

20,706 

Total costs and expenses

 

 

141,630 

 

 

142,081 

 

 

263,858 

 

 

226,334 

Loss from operations

 

 

(25,706)

 

 

(43,779)

 

 

(29,275)

 

 

(34,554)



 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

5,414 

 

 

5,400 

 

 

10,876 

 

 

10,880 

Interest (income) and other, net

 

 

265 

 

 

(426)

 

 

(244)

 

 

(1,058)



 

 

 

 

 

 

 

 

 

 

 

 

Loss before taxes

 

 

(31,385)

 

 

(48,753)

 

 

(39,907)

 

 

(44,376)

Income tax benefit

 

 

(8,099)

 

 

(7,444)

 

 

(11,373)

 

 

(3,788)

Net loss from continuing operations

 

 

(23,286)

 

 

(41,309)

 

 

(28,534)

 

 

(40,588)

Net income (loss) from discontinued operation

 

 

 -

 

 

353 

 

 

 -

 

 

(86)

Net loss

 

$

(23,286)

 

$

(40,956)

 

$

(28,534)

 

$

(40,674)



 

 

 

 

 

 

 

 

 

 

 

 

Basic net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.26)

 

$

(0.47)

 

$

(0.32)

 

$

(0.45)

Discontinued operation

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Basic net loss per share

 

$

(0.26)

 

$

(0.47)

 

$

(0.32)

 

$

(0.45)



 

 

 

 

 

 

 

 

 

 

 

 

Diluted net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.26)

 

$

(0.47)

 

$

(0.32)

 

$

(0.45)

Discontinued operation

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Diluted net loss per share

 

$

(0.26)

 

$

(0.47)

 

$

(0.32)

 

$

(0.45)



 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

88,709,404 

 

 

88,030,655 

 

 

88,473,325 

 

 

90,469,093 

Diluted

 

 

88,709,404 

 

 

88,030,655 

 

 

88,473,325 

 

 

90,469,093 



 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(23,286)

 

$

(40,956)

 

$

(28,534)

 

$

(40,674)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation, three and six months ended June 30, 2017 net of tax of $1,305, respectively

 

 

2,367 

 

 

94 

 

 

2,430 

 

 

(157)

Other comprehensive income (loss), net of tax

 

 

2,367 

 

 

94 

 

 

2,430 

 

 

(157)

Comprehensive loss

 

$

(20,919)

 

$

(40,862)

 

$

(26,104)

 

$

(40,831)





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)





 

 

 

 

 

 



 

 

 

 

 

 



 

Six months ended



 

June 30,

 

June 30,



 

2017

 

2016

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(28,534)

 

$

(40,674)

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

21,429 

 

 

20,706 

Provision for doubtful accounts receivable

 

 

513 

 

 

64 

Deferred income taxes

 

 

(15,949)

 

 

(602)

Amortization of deferred financing charges and original issue discount

 

 

1,447 

 

 

1,373 

Stock-based compensation

 

 

13,720 

 

 

8,659 

Loss on disposal of assets

 

 

96 

 

 

179 

Changes in fair value of contingent acquisition consideration

 

 

40,140 

 

 

101 

Non-cash foreign translation effect on interest income and other, net

 

 

876 

 

 

 -

Impairment charge

 

 

 -

 

 

25,000 

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

 

 

 

 

 

 

Accounts receivable

 

 

(15,015)

 

 

5,403 

Prepaid expenses and other assets

 

 

4,716 

 

 

(20,007)

Accounts payable

 

 

(1,891)

 

 

(6,981)

Accrued expenses

 

 

4,271 

 

 

2,521 

Other liabilities

 

 

1,590 

 

 

18,277 

Deferred revenue and customer deposits

 

 

(607)

 

 

Net cash provided by operating activities

 

 

26,802 

 

 

14,020 



 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

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

 

 

(5,619)

 

 

(2,574)

Cash used in business acquisitions, net

 

 

 -

 

 

(63,409)

Net cash used in investing activities

 

 

(5,619)

 

 

(65,983)



 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Cash paid for contingent acquisition consideration

 

 

 -

 

 

(5,181)

Cash paid for deferred acquisition consideration

 

 

(3,309)

 

 

(3,521)

Purchase of Company stock

 

 

(6,069)

 

 

(54,437)

Net cash used in financing activities

 

 

(9,378)

 

 

(63,139)



 

 

 

 

 

 

Effect of exchange rate on cash and cash equivalents

 

 

139 

 

 

(151)

Net increase (decrease) in cash

 

 

11,944 

 

 

(115,253)

Cash - beginning of period

 

 

176,680 

 

 

237,204 

Cash - end of period

 

$

188,624 

 

$

121,951 



 

 

 

 

 

 

Supplemental disclosure of other cash flow activities

 

 

 

 

 

 

Cash paid for interest

 

$

9,369 

 

$

9,255 

Cash paid for taxes, net

 

 

2,903 

 

 

1,737 



 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

Accrued additions to furniture, fixtures and equipment and capitalized software and website development costs

 

 

37 

 

 

 -

Vested share-based awards

 

 

15,893 

 

 

9,781 



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, CreditCards.com,  Bankrate.com, and Caring.com are some of the Internet’s leading aggregators of information on more than 300 financial and senior care products and services, including credit cards, mortgages, deposits, and other personal finance categories. Additionally, we provide financial applications and information to a network of distribution partners.



We operate the following reportable business segments:



·

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, products and services to estimate credit scores and card benefits.

·

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.

·

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 unallocated corporate overhead, the elimination of transactions between segments and the wind down of our China operations.



Basis of Presentation



The accompanying condensed consolidated financial statements include the accounts of Bankrate, Inc., and its subsidiaries. Intercompany accounts and transactions are eliminated in consolidation.  



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, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017, for any future interim period or for any 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 2016 Annual Report on Form 10-K (“2016 Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on March 22, 2017.



There have been no significant changes in the Company’s accounting policies from those disclosed in our 2016 Annual Report.



9


 

Reclassifications



Certain amounts presented for the six months ended June 30, 2017 reflect reclassifications made to conform to the presentation in our 2016 Annual Report and our current presentation as follows: 



In 2016 we adopted ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” on a retrospective basis. In doing so, the presentation and classification of certain transactions involving cash paid for contingent acquisition consideration on our statement of cash flows for the six months ended June 30, 2016 have been retrospectively adjusted to conform to our current presentation and classification.



As disclosed in our 2016 Annual Report, in  the third quarter 2016 management revised the strategy of its Quizzle reporting unit to focus its technology resources primarily on enhancing the user experience of the products and services provided by the Banking segment through greater personalization, and realigned its management reporting structure by integrating the Quizzle operations into the Banking segment, as it was previously reported in Other. All segment results reported for the three and six months ended June 30, 2016 have been revised to reflect such change.



New Accounting Pronouncements



Recently Adopted Pronouncements



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. We adopted this guidance and it may have an impact on future disclosures to our condensed  consolidated financial statements.



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 the 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. We adopted this guidance on January 1, 2017, as required, on a modified retrospective basis, adjusted forfeiture rates in related calculations and recorded a cumulative-effect adjustment to retained earnings (See Note 4 – Stockholders’ Equity).



In January 2017, the FASB issued ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The primary amendment of the guidance update to simplify the subsequent measurement of goodwill eliminated Step 2 from the goodwill impairment test. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any entity in any interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We elected to early adopt this standard on January 1, 2017 and it did not have an impact on our condensed consolidated financial statements and related disclosures.



Recently Issued Pronouncements, Not Adopted as of June 30, 2017



The FASB issued several updates on Topic 606 “Revenue from Contracts with Customers”, including:

·

ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”

·

ASU 2016-08 “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net).”

·

ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.”

·

ASU 2016-11, “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF (Emerging Issue Task Force) Meeting.”

·

ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients.”

·

ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.”



The standards provide 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

10


 

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. The 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 plan to adopt this guidance effective January 1, 2018, as required. We understand that the adoption of these updates have the potential to materially impact our revenue recognition process and related expenses. We have engaged a third-party to assist in our analysis and review of our contracts regarding this guidance and we are in the process of completing the analysis of the standards impact. We have completed our review of the standard’s impact on our Credit Cards segment, our largest revenue producing segment,  and we have not identified any provisions that we would expect to have a significant impact on how we recognize revenue and related expenses for this segment.  We are in the process of completing the analysis of this standard on our Banking and Senior Care segments,  and at this time we have not identified any provisions that we would expect to have a significant impact on how we recognize revenue and related expenses for these segments.  We are evaluating the impact of this update on our financial statement disclosures. We expect to complete our assessments prior to adoption of the guidance.



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, while at this time we do not anticipate that this update will have a significant impact 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 June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This update requires a financial asset, or group of financial assets, measured at amortized cost basis to be presented at the net amount expected to be collected. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any entity in any interim or annual period 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 October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory,” to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted for all entities in the first interim period if an entity issues interim financial statements. We are evaluating the effect that this update will have on our consolidated financial statements and related disclosures.



In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” to provide guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows, thereby reducing the diversity in presentation. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. This update may have an effect on our future classification of certain transactions on our consolidated statements of cash flows and related disclosures.



In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” These amendments clarify the definition of a business. The amendments affect all companies and other reporting organizations that must determine whether they have acquired or sold a business. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The amendments are intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted under certain circumstances. The amendments should be applied prospectively as of the beginning of the period of adoption. We are evaluating the effect that this update will have on our consolidated financial statements and related disclosures.



In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718) Scope of Modification Accounting,”to provide clarity and reduce the diversity of practice and cost and complexity when applying guidance in Topic 718, Compensation-Stock Compensation, to a change in terms and conditions of a share-based payment award. The amendments in this update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15,

11


 

2017. Early adoption is permitted for reporting periods for which financial statements have not yet been issued. The amendments in this update should be applied prospectively to an award modified on or after the adoption date. We are evaluating the effect that this update will have on our consolidated financial statements and related disclosures.





NOTE 2 – GOODWILL AND INTANGIBLE ASSETS



Goodwill activity for the six months ended June 30, 2017 is shown below:





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Credit Cards

 

Banking

 

Senior Care

 

Total Company

Balance, January 1, 2017

 

$

451,771 

 

$

127,516 

 

$

20,518 

 

$

599,805 

Additions due to acquisitions

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Balance, June 30, 2017

 

$

451,771 

 

$

127,516 

 

$

20,518 

 

$

599,805 



 

 

 

 

 

 

 

 

 

 

 

 

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 June 30, 2017:  





 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Cost

 

Accumulated Amortization

 

Net

 

Weighted Average Amortization Period Years

Trademarks and domain names

 

$

204,628 

 

$

(92,509)

 

$

112,119 

 

16.5

Customer relationships

 

 

157,735 

 

 

(109,821)

 

 

47,914 

 

8.9

Affiliate relationships

 

 

12,670 

 

 

(7,192)

 

 

5,478 

 

10.3

Developed technologies

 

 

18,170 

 

 

(10,985)

 

 

7,185 

 

6.3

Non-compete covenants

 

 

1,431 

 

 

(498)

 

 

933 

 

3.0



 

$

394,634 

 

$

(221,005)

 

$

173,629 

 

12.7



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





 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Cost

 

Accumulated Amortization

 

Net

 

Weighted Average Amortization Period Years

Trademarks and domain names

 

$

204,534 

 

$

(84,494)

 

$

120,040 

 

16.5

Customer relationships

 

 

157,648 

 

 

(100,611)

 

 

57,037 

 

9.0

Affiliate relationships

 

 

12,670 

 

 

(6,922)

 

 

5,748 

 

10.3

Developed technologies

 

 

18,167 

 

 

(10,046)

 

 

8,121 

 

6.2

Non-compete covenants

 

 

1,431 

 

 

(258)

 

 

1,173 

 

3.0



 

$

394,450 

 

$

(202,331)

 

$

192,119 

 

12.8



Amortization expense for the three and six months ended June 30, 2017 was $9.3 million and $18.6 million, respectively, and amortization expense for the three and six months ended June 30, 2016 was $8.7 million and $17.1 million, respectively.  



12


 

Future amortization expense for intangible assets placed into service on or before June 30, 2017 is expected to be:





 

 

 

 

 

 



 

 

 

 

 

 



 

 

 

 

Amortization

(In thousands)

 

 

 

 

Expense

Remainder of 2017

 

 

 

 

$

16,303 

2018

 

 

 

 

 

30,851 

2019

 

 

 

 

 

22,450 

2020

 

 

 

 

 

15,863 

2021

 

 

 

 

 

13,352 

2022

 

 

 

 

 

11,198 

Thereafter

 

 

 

 

 

63,612 

Total expected amortization expense for intangible assets

 

 

 

 

$

173,629 

















NOTE 3 – EARNINGS (LOSS) PER SHARE



We compute basic earnings (loss) per share by dividing net income (loss) for the period by the weighted average number of shares outstanding for the period. Diluted earnings (loss) per share includes the effects of dilutive common stock equivalents, consisting of outstanding stock-based awards in accordance with ASC 718, CompensationStock 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 (loss) per share:





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended

 

Six months ended



 

June 30,

 

June 30,

 

June 30,

 

June 30,

(In thousands, except share and per share data)

 

2017

 

2016

 

2017

 

2016

Net loss from continuing operations

 

$

(23,286)

 

$

(41,309)

 

$

(28,534)

 

$

(40,588)

Net income (loss) from discontinued operation

 

 

 -

 

 

353 

 

 

 -

 

 

(86)

Net loss

 

$

(23,286)

 

$

(40,956)

 

$

(28,534)

 

$

(40,674)



 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding for basic earnings (loss) per share

 

 

88,709,404 

 

 

88,030,655 

 

 

88,473,325 

 

 

90,469,093 

Additional dilutive shares related to share based awards

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Weighted average common shares outstanding for diluted earnings (loss) per share

 

 

88,709,404 

 

 

88,030,655 

 

 

88,473,325 

 

 

90,469,093 



 

 

 

 

 

 

 

 

 

 

 

 

Basic net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.26)

 

$

(0.47)

 

$

(0.32)

 

$

(0.45)

Discontinued operation

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Basic net loss per share

 

$

(0.26)

 

$

(0.47)

 

$

(0.32)

 

$

(0.45)



 

 

 

 

 

 

 

 

 

 

 

 

Diluted net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.26)

 

$

(0.47)

 

$

(0.32)

 

$

(0.45)

Discontinued operation

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Diluted net loss per share

 

$

(0.26)

 

$

(0.47)

 

$

(0.32)

 

$

(0.45)





As we incurred a loss from continuing operations for the three and six months ended June 30, 2017 and 2016, all outstanding stock options, restricted stock awards and performance stock awards have an anti-dilutive effect and therefore are excluded from the computation of diluted weighted average shares outstanding for those periods. Accordingly, basic and diluted weighted average shares outstanding are equal for such periods. The following were excluded from the calculation of diluted earnings per share because their impact would have been anti-dilutive:





13


 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended

 

Six months ended



 

June 30,

 

June 30,

 

June 30,

 

June 30,



 

2017

 

2016

 

2017

 

2016

Restricted shares and restricted stock units

 

 

1,252,240 

 

 

1,247,313 

 

 

1,463,369 

 

 

1,385,643 

Stock options

 

 

953,292 

 

 

2,385,656 

 

 

954,116 

 

 

2,428,326 

Performance shares and performance stock units

 

 

79,142 

 

 

 -

 

 

100,205 

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 







NOTE 4 – STOCKHOLDERS’ EQUITY



The activity in stockholders’ equity for the six months ended June 30, 2017 is shown below:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Common Stock

 

 

 

 

 

 

 

Treasury Stock

 

 

 

 

 

 

(In thousands)

 

Shares

 

Amount

 

Additional paid-in capital

 

Accumulated Deficit

 

Shares

 

Amount

 

Accumulated Other Comprehensive Income (Loss) - Foreign Currency Translation

 

Total Stockholders' Equity



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2017

 

103,132 

 

$

1,032 

 

$

903,177 

 

$

(71,119)

 

 

(13,059)

 

$

(142,983)

 

$

(729)

 

$

689,378 

Cumulative-effect adjustment of adoption of ASU 2016-09

(A)

 -

 

 

 -

 

 

571 

 

 

(361)

 

 

 -

 

 

 -

 

 

 -

 

 

210 

Other comprehensive income, net of taxes

(B)

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

2,430 

 

 

2,430 

Treasury stock purchased

(C)

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(572)

 

 

(6,069)

 

 

 -

 

 

(6,069)

Restricted stock issued, net of cancellations

 

(19)

 

 

 -

 

 

(9,586)

 

 

 -

 

 

888 

 

 

9,586 

 

 

 -

 

 

 -

Performance stock issued, net of cancellations

 

(885)

 

 

(9)

 

 

(2,364)

 

 

 -

 

 

217 

 

 

2,373 

 

 

 -

 

 

 -

Stock-based compensation

 

 -

 

 

 -

 

 

12,901 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

12,901 

Performance-based restricted liability award vest

 

 -

 

 

 -

 

 

1,660 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

1,660 

Net loss

 

 -

 

 

 -

 

 

 -

 

 

(28,534)

 

 

 -

 

 

 -

 

 

 -

 

 

(28,534)

Balance at June 30, 2017

 

102,228 

 

$

1,023 

 

$

906,359 

 

$

(100,014)

 

 

(12,526)

 

$

(137,093)

 

$

1,701 

 

$

671,976 

__________

(A)

On January 1, 2017, we recorded a $361,000, net of tax, cumulative-effect adjustment to accumulated deficit related to the adoption of ASU 2016-09 “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.”

(B)

During the six months ended June 30, 2017, accumulated other comprehensive income (loss) was impacted by approximately $2.3 million, net of tax, for the translation of an intercompany loan that was an adjustment to the currency translation of a historical intercompany loan..  

(C)

During the three and six months ended June 30, 2017, we increased our treasury stock by approximately 122,000 shares ($1.3 million) and approximately 572,000 shares ($6.1 million), respectively, for shares withheld from the vesting of stock-based compensation awards paid for employee tax withholding. 









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 charges; NextAdvisor contingent deferred compensation for the acquisition; costs related to the amendment and restatement of our consolidated financial statements and other financial information, which was set forth in our Annual Report on Form 10-K for the year ended December 31, 2014 (the “Restatement”) and related internal review, the SEC and DOJ investigations and related litigation and indemnification obligations; purchase accounting adjustments; and our operations in China as we are winding down and ceasing its operations. 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 June 30,



 

2017

 

2016

(In thousands)

 

Revenue

 

Adjusted EBITDA

 

Revenue

 

Adjusted EBITDA

Credit Cards (A)

 

$

78,887 

 

$

25,111 

 

$

69,650 

 

$

24,690 

Banking (B)

 

 

34,756 

 

 

8,924 

 

 

23,851 

 

 

4,744 

Senior Care

 

 

6,797 

 

 

(732)

 

 

6,022 

 

 

464 

Other

 

 

(4,516)

 

 

(5,966)

 

 

(1,221)

 

 

(7,282)

Total Company

 

$

115,924 

 

 

27,337 

 

$

98,302 

 

 

22,616 



 

 

 

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

5,414 

 

 

 

 

 

5,400 

Interest income and other, net

 

 

 

 

 

265 

 

 

 

 

 

(426)

Depreciation and amortization

 

 

 

 

 

10,887 

 

 

 

 

 

11,079 

Changes in fair value of contingent acquisition consideration

 

 

 

 

 

27,292 

 

 

 

 

 

263 

Stock-based compensation expense

 

 

 

 

 

7,360 

 

 

 

 

 

4,754 

Legal settlements (C)

 

 

 

 

 

 -

 

 

 

 

 

20,000 

Acquisition, disposition and related expenses

 

 

 

 

 

240 

 

 

 

 

 

1,335 

Restructuring charge (D) 

 

 

 

 

 

669 

 

 

 

 

 

 -

Impairment charge (E)