Bankrate Inc. Q4 2008 Earnings Call Transcript

Bankrate Inc. (RATE)

Q4 2008 Earnings Call

February 5, 2009 4:30 pm ET

Executives

Bruce Zanca - SVP

Tom Evans - President and CEO

Ed DiMaria - SVP and CFO

Analysts

Youseff Squali - Jefferies & Company

Mark Mahaney - Citi

Mark May - Needham & Company

Sandeep Aggarwal - Collins Stewart

Ross Sandler - RBC Capital Markets

Sameet Sinha - JMP Securities

Richard Fetyko - MCF

Presentation

Operator

Good day everyone and welcome to the Bankrate Incorporated fourth quarter 2008 conference call. Today's conference is being recorded.

At this time for opening remarks, I would like to turn the conference over to Mr. Bruce Zanca, Senior Vice President. Please go ahead, sir.

Bruce Zanca

Thanks, operator. Good afternoon, everyone and thank you for joining us on this conference call to report our Bankrate's fourth quarter 2008 and full year financial results. With me here in our New York office is the company's President and CEO, Tom Evans, and our Senior Vice President and Chief Financial Officer, Ed DiMaria. I'd like to go over the format of the call today. First, Tom will give us the results and color on the quarter. Then we'll dive into the financial details and then we'll have time to answer your questions.

Before I begin, I need to take care of the legal prerequisites. Our lawyers have asked me to remind you that some of the statements made in this conference call, including those regarding the company's future prospects in revenue growth, its ability to continue to reduce costs and successfully implement strategic initiatives, constitute forward-looking statements within the meanings of the Securities Act of 1933 as amended, and the Securities Exchange Act of 1934, by the Private Securities Litigation Reform Act of 1995.

The company intends that these forward-looking statements may be subject to Safe Harbor created under the Securities laws. These forward-looking statements reflect our current views with respect to future events and financial performance, but are subject to uncertainties and factors relating to the company's operations and business environment which may cause the company's actual results to be materially different from any future results. We encourage you to read the section entitled risk factors in our Form 10-K and our subsequent filings with the Securities and Exchange Commission.

One final housekeeping note before I turn the call over to Tom. During our Q&A portion of the call, after our presentation, we would appreciate if callers would limit themselves to one question. So with that being taken care of, let me introduce you to Bankrate's President and CEO, Tom Evans.

Tom Evans

Thanks, Bruce. That's my favorite part. Good afternoon everyone and thanks for joining us on our fourth quarter and fiscal year 2008 earnings call. The press release we put out a few minutes ago outlined our financial performance for the quarter and for the year. We ended the fourth quarter with $40.2 million in revenue, an increase of 59% over Q4 2007. In the quarter, we generated $13.2 million in EBITDA, an increase of 35%.

I'll just remind everyone that on October 30, we said that we expected revenue to be in the middle to slightly above the middle of our guidance range of $164 million to $169 million for the year, and we finished at $166.9 million, a 75% increase over 2007. And we said we expected EBITDA to be at the top-end or slightly above our range of $54 to $58 million, and we finished the year at $58.1 million, a 40% increase over the prior year, slightly above the top-end of the range. EBITDA margin for the year was 35%.

All in all the year ended upright where we projected it to be and we're pleased. I think that our business held up extraordinarily well in light of the chaos that was going on in the financial sector. And we're more confident than ever about the strength and positioning of the company. Traffic for the quarter at $164 million page views was 26% above the last year's Q4 levels, the growth completely driven by organic traffic. For 2008, page views of $687 million were up 24% above the 2007 levels.

In a few minutes, I'll give you some color on the quarter and on the start of this year, and how we think this year lines up. But first, we'll have Ed go through the financial details for the quarter.

Ed DiMaria

Thanks, Tom. As Tom just mentioned, we ended the year at $166.9 million in revenue and $58.1 million in adjusted EBITDA, just above the high-end of our EBITDA guidance range of $54 to $58 million. So we increased revenues by 75% for the year and EBITDA by a very solid 40%. I'm going to cover the fourth quarter and annual topline results and also run through a couple of anomalies in the fourth quarter, and then, I will cover the operating results.

Revenue was $40.2 million for the quarter. Adjusted EBITDA came in at $13.2 million and EPS excluding stock compensation expense, as well as, the print impairment charge, I'll explain that in a minute, came in at $0.33 per fully diluted share. This represents an increase in revenue of 59% over the $25.2 million in revenue reported in Q4 2007 and a 35% increase over the $9.8 million in EBITDA reported in Q4 2007. The $0.33 in adjusted EPS for the quarter was consistent with Q4 2007 levels.

However, if you look at it on a comparable operating basis, EPS would be $0.40 per diluted share for Q4 2008, compared to $0.29 for Q4 2007, representing an increase of 38%. This presentation further adjust EPS by adding back $0.07 per share this year in non-cash amortization of intangible assets, and also deducts $0.05 per share last year in interest income. Additionally, last year we earned 550 basis points yield on our cash, obviously, not the case anymore.

So all in all a solid quarter, but you have to peel back the numbers a bit to show the true growth in operating earnings. Including all charges, fully diluted EPS came in at $0.14 per diluted share for the quarter, compared to $0.21 in 2007. For the full year, revenues came in at $166.9 million in 2008, representing an increase of $71.3 million or 75% over the $95.6 million reported for 2007. EBITDA for the year excluding share-based compensation expense and intangible asset impairment charges were $58.1 million, an increase of 40% over the $41.2 million reported in the same period in 2007.

Net income was $19.6 million or $1.01 per fully diluted share, compared to $20.1 million or $1.04 in the same period in 2007. Excluding share-based compensation expense and intangible asset impairment charges, EPS was $1.54 for 2008, compared to $1.39 for the same period in 2007, an increase of 11%. Also EPS excluding share-based compensation expense, intangible asset impairment charges, non-cash amortization of intangible assets and interest income increased by 39% to $1.74 per fully diluted share, compared to $1.25 per share for the same period in 2007.

So, before I go any further, let's cover two items that were obvious factors for the GAAP results in the fourth quarter P&L; namely, the impairment charge and the effective tax rate on book income. As most of you are aware, the print business has been on a downward trajectory in terms of sales for 2008 and most of 2007. Although we continue to realize great benefits from this business as a feeder of online traffic, the margins are slim as a standalone business, and no longer support the carrying value of the print intangible assets on our books.

The accounting rules require us to analyze the carrying value of all intangible assets, including goodwill every year and test for impairment based on past, current, and future expected performance. This analysis showed an impairment of approximately $2.4 million out of the total carry value of $6.5 million. The impairment charge was related primarily to the print customer list intangible assets associated with the acquisition of MMIS completed in December of 2005.

The effective tax rate on book income for the year was 43%, but for the quarter the effective rate was 50%. The sharp increase in the effective rate during the quarter is the direct result of the impairment charge. What happens was the impairment charge dramatically reduced pre-tax income, which magnified the FAS 123R ISO stock compensation expense tax adjustment. FAS 123R adjustment is fixed, so when it is applied to the lower pre-tax income which was the case this quarter due to the impairment charge, you end up with a 50% effective rate.

I know it sounds crazy, but this is how the rules for FAS 123R and the GAAP tax provision work. Tax rate we actually pay is totally another matter. Our actual tax rate on taxable income is a consistent 38.9%. The higher effective tax rate should be isolated to Q4 since we do not expect such impairment charges in future quarters. For modeling purposes we would expect our go-forward tax rate on book income to be in the range of 41% to 43%.

With that now explained, let's move on to operating results. Looking at revenue in more detail, online revenues for Q4 2008 were $38.3 million, up $15.5 million or 68% over the $22.8 million reported in Q4 2007. For the year, revenue came in at $166.9 million, up $71.3 million or 75% over the $95.6 million reported for fiscal 2007. The increase in revenue for the quarter and year was driven by growth in our lead generation business, resulting from the acquisition of InsureMe and NCS and growth in our hyperlinks business.

Our total display in lead generation revenues were $25.3 million for the quarter, up $12.8 million or 103% over the Q4 2007 revenue of $12.5 million. For the year display and lead generation revenues came in at $106.7 million, an increase of $60 million or 128% over the $46.8 million for 2007. The growth was driven by the new credit card insurance lead generation products and also by growth in Select while we had a decrease in display. Lead generation component of the business performed well during Q4. Select increased by triple digits and the insurance business also performed well.

Two areas where we did not perform well were CreditCardGuide, or CCG, and display. As many of you are aware, CCG lost a large portion of its organic traffic for approximately two thirds of the quarter. In late December, we resolved this issue and CCG's organic traffic recovered, but the loss did have a negative impact on both revenue and EBITDA for Q4. Also as we discussed since the second quarter 2008, the display environment remains a challenge.

The hyperlink business increased by 26% during the quarter, from $10.3 million in Q4 2007 to $13 million in Q4 2008, the growth was fueled by deposit CPC revenue as deposits accounted for 69% of hyperlink revenue in the fourth quarter. For the year hyperlink revenue came in at $51.3 million, a 39% increase over the $37 million we posted for fiscal 2007.

Overall, hyperlinks were a big growth vehicle for us during the year and will remain a key component of our story for 2009. Our print publishing and licensing revenue was $1.9 million for the quarter, representing a decrease of 23% from the fourth quarter 2008 revenue of $2.5 million. For the year, print came in at $8.8 million, down 26% from the $11.9 million last year, again, the decline resulting in our taking the impairment charge.

Looking at margins, our overall gross margin percentage on revenue for the fourth quarter was 63.5% and 61.6% for the year compared to 70.2% and 75.2% in the fourth quarter of fiscal 2007 respectively. The decline all driven by the acquisition. Our strategy continues to focus on increasing margins for the credit card and lead generation businesses by increasing organic owned and operated traffic. We have made progress during the year which can be seen in the results. For example, in Q2 2008 the gross margin percentage was 58.2%, which increased to 61.5% for Q3 and then 63.5% in Q4.

We believe that we can continue to increase margins during 2009, as we execute on our hyperlink insurance and credit card lead generation businesses. The adjusted EBITDA margin for the business 33% in Q4 reflecting the normal seasonal decline in revenue volume we experience during the holiday months. For the year, we ran the business at a 35% EBITDA margin. As we increase margins for the credit card and insurance businesses, the overall EBITDA margin for the business should also increase.

Operating expenses increased for the quarter by $8 million, including the $2.4 million impairment charge from $12.1 million in the fourth quarter of 2007 to $20.2 million for the fourth quarter 2008. For the year, operating expense totaled $69.6 million in 2008, up from $44.2 million in 2007. The increase was driven primarily by new operating expenses associated with the acquisition of InsureMe and NCS and developmental expenses for investments in our China and fee disclosure businesses.

The new expenses associated with the acquisitions included general and administrative expense to run the businesses; meaning NCS and InsureMe people and related costs, marketing, product development and sales expenses. In addition, we had $1 million an unusually high operating expenses during the quarter, including approximately 600,000 in bad debts expense, as well as, one-time costs for accounting valuation work and incremental marketing expense for CCG that we ran during the time, when we experienced the problems in rankings.

The bad debts expense was isolated to a few accounts and we do not expect similar large write-offs in the coming quarters. Our product development expense also increased for planning and development of the new website. Stock compensation expense decreased during the quarter as several older grants became fully amortized. For the year, however, stock compensation expense increased from $11.2 million to $13.4 million on grants for new employees associated with the acquisition.

For modeling purposes, we expect 2009 stock compensation expense to be within the range of $12.5 million to $13.5 million. In addition, we recorded $2.4 million in amortization expense during the quarter for intangible assets for the new acquisition, which accounted for most of the increase in depreciation and amortization. Also as I mentioned in my opening remarks, the new amortization this quarter reduced EPS by $0.07 per diluted share.

For remodeling purposes, we expect that 2009 amortization and depreciation will be between $12 million and $13 million including depreciation for the new website. We ended the quarter with 281 employees, up six from the 275 we had at the end of Q3 2008. The six additions were simply filling vacant positions.

We ended the quarter with $46 million in cash and cash equivalents. We generated $6 million in cash flow from operations after-tax payments during the quarter and used $1 million for capital expenditures primarily on software and the development of new website. Also I want to point out for the benefit of your future estimate our cash is now invested primarily in treasury securities bearing interest at a blended rate of approximately 5 to 10 basis points.

To recap, revenue for 2008 was up 75% to $166.9 million an adjusted EBITDA excluding stock compensation came in at $58.1 million. With that, Tom will now present the business report.

Tom Evans

Thanks, Ed. Ed went through the revenue components in detail, so I would like to give a little more color on the business. First, there's not much news on display advertising. It continues to be soft. We have not yet seen any improvement, but fortunately it doesn't seem to be getting any worse. It was the single greatest area of weakness for us in 2008 particularly in the area of loan and mortgage display advertising. But we think we weathered the storm pretty well particularly with the diversification of our product and revenue mix.

During the quarter our CPC rate table business continued to be strong. The interest in deposit products even as interest rates declined remained very high. Banks are still very interested in raising deposit capital and consumers are still in a flight to safety mode as the stock market and other financial instruments have become riskier and less attractive.

In Q4, we did experience increased traffic due to the mortgage channel, although much of the traffic was not converted to revenue due to the fact that there were apparently more people looking, but not ready to pull the trigger on a mortgage or refinancing their loan. I think that makes sense given the general consensus that rates were likely to fall even further. So, consumers will probably waiting it out.

On the lead gen side of the business Bankrate Select had a good quarter and a very good year in 2008. Select has become a great option for consumers, who either don't qualify for a conforming loan rate quoted on our rate tables or that come to the site at a time, when the rate tables are thin. For those customers Select is a great option. Our insurance lead gen business posted another strong quarter in Q4.

InsureMe continued to increase its lead volume and revenue as more consumers look for ways to save money on their auto, home, life and health insurance products. We were very pleased with the integration and the performance of this business during the year. InsureMe had a great year in 2008 and is off to a very good start in 2009. The credit card business as Ed mentioned, is one that was impacted in the fourth quarter by a couple of events.

First, the difficult in economic environment and second, by the problem that, we had internally. As credit card issuers grappled with increasing delinquency rates to their customers, they cut back on some of the card offers and began to approve fewer people for cards than they had in the past. Remember, this is the one business, where we get paid for approved applications. So, fewer people being approved had a negative impact on our revenue and EBITDA.

As for the internal problem, Ed mentioned shortly after our Q3 earnings call credit card guide lost its position in natural search listings. We subsequently discovered that there were some legacy issues that we didn't detect, when we acquired the site in September that may have violated search engine guidelines.

We identified and corrected those problems and CCG has been reinstated to its previous levels. The problem which lasted about 50 plus days did have a negative impact on that business and on the quarter. However, the good news is we fixed the problem and learned an awful lot in the process.

Lastly, print, Ed mentioned the impairment charge we took as a result of decline of the print business. Print was down 26% for the year and we don't anticipate that business getting better. Although we have seen the business stabilize in the past 60 days as the mortgage business is picked up. However, we believe the print business provides a level of awareness that drives additional organic traffic to our site.

As for traffic, page views at 164 million were up 26% for the quarter and at 687 million were up 24% for the year. While unique visitors at 19 million for the quarter was up 26% and we generated 72 million unique visitors for the year. I think there's an important point we don't want to gloss over. In the worst economic environment for the financial community, our traffic and visitor base, both grew in excess of 20%.

We believe this is great evidence for the time of heightened consumer anxiety and economic turmoil, more people turn to Bankrate for help and advice. Of course, the largest component of traffic is our organic traffic. In fact, all of the organic or all the traffic increase was from direct organic traffic. Both partner and page traffic, were down for the year and for the quarter.

For the quarter 83% of our traffic came to us directly, the highest organic level in our history. The breadth and depth of our content, calculators, tools and rate tables makes Bankrate a popular site among financial information seekers. We've made a large and consistent investment in content over many years and it's really paid off. Again, it's one of the reasons that over the long-term we feel very good about the positioning and strength of our business.

Partner traffic for the quarter was 7% of the total and SEM traffic at 10% of our overall total, was down from 13% in the same period a year ago. We focused our strategy and efforts on organic traffic and it's delivered for us. We'll be happy to answer any questions about Q4 or 2008, but let me speak about the current year and what we're expecting for 2009.

First, January is again off to a good start for the year. We've seen a high volume of traffic and especially in the mortgage channel, as the government is doing everything it can to help improve the housing market. Refi activity has picked up and lenders are seeing dramatic increases in application volume and in some cases overwhelming their ability to keep up. The only downside to that is with that volume, many don't need to be advertising as much as they did previously.

You might remember we saw a similar pattern of behavior last January and the things settled down after the initial wave of activity. We suspect something similar is happening again this year and that lenders will return to previous volumes of advertising and our rate tables will be fuller, than they have been at times in the past couple weeks. We've already seen that in the last few days.

Deposit and CPC revenue has been solid for the month and the CPC business is off to a good start again this year. There's no change there. As we mentioned earlier, the insurance business has been a strong performer for us and January is no exception. The InsureMe business is doing very well and we expect a strong year out of that team in 2009. As we continue to grow that business and do a better job of integrating insurance offers into other areas, such as the mortgage area of our newly redesigned site, we expect InsureMe to get even stronger.

The one area of concern we have currently is the credit card business. Credit card issuers recently have reported higher delinquency rates and deteriorating portfolios. As they have both cut back on the number of cards offered and have lowered their approval rates of applicants, both obviously have a negative impact on our business. How long that continues remains to be seen.

However, they're in the business of acquiring more customers and getting those customers to use their card more often. Obviously, with the proper risk metrics associated. So it will be just a matter of time before they begin aggressively marketing again, we believe. Let me be clear, though. They haven't stopped marketing and haven't stopped approving applicants. They've just raised the bar.

We're trying to get a better handle on their portfolio at this time. We also benefit by adding a higher quality source of traffic for those issuers on Bankrate, especially which converted much higher industry averages. So, now a few words about the new Bankrate website.

The newly designed site was launched in beta several weeks ago and has been testing well. Some of you may have already seen it. If you go to our current site, you'll notice a link at the very top of the homepage that will allow you to preview the beta site. There is also a site tour at the top of that beta site homepage, that will provide a tutorial on what's been improved and why.

While sites are redesigned all the time and ours was last redesigned in early 2005, this was the first time that we overhauled both our platform and the logic layer in addition to the user interface. As a result of the platform overhaul, we now have a site that provides more flexibility for distribution, better SEO capabilities, customized landing pages, and easier acquisition integration.

For the consumer, there are a number of benefits as well which include: a site that's less cluttered, easier to navigate, and offers a more robust retail experience. We've added several new areas and features. There is a new channel called Life & Money, and two new areas called Life Stages and How Do I. Life Stages series highlights things like: starting out, careers, couples and marriage, parenthood, homeownership, retirement and life crises such as divorce, death, bankruptcy.

The How Do I series, simplifies some of the financial basics for people explaining what to do in a step-by-step fashion. How do I improve my credit score? How do I set up a retirement account? How do I take out a loan for my 401-K? How do I find the best deal on insurance? And how to find the college scholarship, are just a few of the questions we try to help people within this series.

Our calculator area has been added to and improved. The new calculators provide consumers with multiple one click entry points directly into some of the corresponding rate tables. The new more robust rate table channel has gone through several changes that condensed the rate table funnel and allow the consumer more choices, greater functionality and flexibility.

All in all, a better user experience with some new advertising opportunities being planned. As for display advertising on the new site, our new flex ad capability will allow us to deliver a page in the format that accommodates the ad unit desired rather than the unit we have available.

Lastly, the new design allows the company to integrate and promote our own internal assets like Bankrate Select, InsureMe and CreditCardGuide. There are a number of additional items that are not being previewed with the initial launch of the site, but will be added in the weeks and months ahead. So we'll continue to be launching and testing as we go through the year.

As you can imagine this has been a massive undertaking, an effort that we're very proud of, we're very excited about and something we believe will pay great dividends going forward. So, please check it out. We promise to continue to give you updates on the responses and on the features that we roll out.

Lastly, let's say a few words about our guidance for the year. It's no secret to anyone that not only is the economic environment a difficult one for our customers, but it's unprecedented in terms of its impact and the uncertainty it has created. As other companies reported there's just simply no visibility right now. Commitments have become shorter and shorter as advertisers need greater flexibility in managing their businesses.

We get that and understand that the short-term orientation is not likely to change in the near term. So for the first time, we're not in a position to give full-year guidance. If we did, it would obviously be prudent to be overly conservative. Remember over the past four years, we've had EBITDA growth of 71%, 84%, 48%, and 40%. We're probably not looking at those levels, unless we see meaningful improvements in the display ad business.

However, we firmly believe that we can continue to grow EBITDA in double-digits. As for the moment, our business is being impacted daily by macro events and by Washington, so it's tough to forecast in the short-term. To be clear though, January traffic has been strong. There is clearly a current refi boom, but it's impossible to tell how long it will last.

Consumers are still very interested and actively moving money into safe and secure CDs and that business remains strong. Our insurance lead gen business is going well. January was a record month for InsureMe. Display advertising is holding up not great, certainly not what it was even in Q1 last year, but not getting any worse than it's been since its stabilized over the past couple of quarters and there are encouraging number of proposals being worked on.

The one area of concern today is our credit card business as issuers are trying to get a handle on their portfolio, but given our position, we strongly believe that we'll continue to grow. It's just very tough to try to put a number on that growth rate given all the variables and uncertainty out there. Like everyone else, we're being prudent about how we manage the business.

Two positives for 2009. First, nearly all the work on our new website was done in 2008, so we should return to our typical modest CapEx expenditures. The second is that organic traffic has been so strong that we should be able to reduce our SEM expenditures. Obviously if that happens, it's positive for margins. We still feel great about our business over the long-term.

It's just a little tough to project in the short-term until some of these macro issues work themselves out, but we feel good about how we're positioned. Please remember, the breadth and depth of our content set us apart, having a high composition of growing organic traffic is great and mitigates SEM competition and risk and third, the quality of our consumer is second to none. Again, not withstanding the challenges I think I can't think of another business we'd rather be running especially in this environment.

Apologize, if this was so long. But with that, we're now happy to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions). And we'll take our first question from Youseff Squali with Jefferies & Company.

Youseff Squali - Jefferies & Company

Thank you very much. Tom, just a quick question, on the lack of 2009 guidance, you've cited a few positive things. Certainly the credit card is somewhat of a disappointment. But considering the 11% increase in CPC that you just instituted for deposit, do you think or do you still expect topline growth in 2009?

Tom Evans

Absolutely, yeah, absolutely expect top-line growth. We've got our way. I mean, there are a number of mitigating circumstances in the end things that are hedges. I think the biggest surprise to us is that mortgage has sort of pop back with the decrease in interest rates, but the deposit business has held up so well. I think that the macro conditions of financial institutions are really needing and their looking for deposit capital has helped a lot.

Organic traffic has been up pretty dramatically. So, we do expect topline growth. We do expect EBITDA growth. It's just really hard to put a number on it. We got a little (inaudible) last January, if you remember, January was so strong and then it, sort of, I don't want to say it flattened out, but it went to more normal levels. We just want to make sure we don't get too excited about sort of the start we're off to in January.

We want to be prudent and wait to be able to give some guidance and to be able to really explain our business. As we go a little further into the year, I got to tell you 35 days into the year, especially since January, we saw a similar pattern of activity this year to what we saw last year. We just don't want to get too ahead of ourselves, get too excited, over promise, and then find out that, some of the headwinds and the economy have been sort of stronger than we thought.

Youseff Squali - Jefferies & Company

And on the credit card issue, is there a way to kind of quantify the impact of not being on the site for 50 days or so? I mean, the point is, how much do you get back assuming the segment continues to be weak, but you're back among the top three natural searchers out there? How much of that business do you get back?

Tom Evans

Well, I'll answer in two ways. I'll try to answer the first part of your question directly. The impact was probably million dollars top-line in the fourth quarter of having lost that. And it's not all CCG because there are some multiplier benefits in that business with bonuses and true ups and everything else that hit it. So, we've got the CCG clearly back to where it was. We're delighted with that.

The problem is, it's not going to perform in the current environment with credit card issuers having cut back on offers and approving fewer applicants through because we do get paid on a per approved basis that it would have, for example, what it did in October. We're not anticipating that because it's not the same environment. So, it will take, I think, credit card companies are in a position, where they're pulled back a little bit.

They're trying to get a handle on their portfolio before they start issuing again. They're going to start, they are issuing, but before they start aggressively issuing, they're just need to find out what size long balance those customers should have, what the interest rates should be, and until they work themselves through this current environment. I mean there was a story in USA today that the current write-off is the highest level since the bankruptcy laws were changed in 2005.

So, I think they're in the midst of this hurricane right now trying to figure out where they are. So, impact in the fourth quarter was about a million bucks. You can't exactly say it's the same million dollars in this environment, but we'll see as we work through that.

Youseff Squali - Jefferies & Company

I understand. Thanks a lot, Tom.

Tom Evans

Thank you.

Ed DiMaria

Thank you.

Operator

We will take our next question from Mark Mahaney with Citi.

Mark Mahaney - Citi

A question about mortgage lenders and any potential shifts in channels that they are using in this environment. When there is a lot of activity, a lot of consumers searching, is that caused and perhaps mortgage lenders can be a little more choosey in the last couple months because they've had such a flood of interest? Do you see a shifting amongst different channels? Is there a move towards cheaper channels? Thank you.

Tom Evans

Great question, Mark. And I'm not sure you see a shift toward cheaper channels. I think that they just don't need as much volume as they did. I mean we talked to some of our customers who pulled back a little bit, who pulled off the rate tables for periods of time, who said I got more volume coming in than I can handle. I didn't anticipate it. I don't have the backend to support all the volume I'm getting.

So, I don't need to be marketing as much right now. I've pulled back. They're getting it. I mean, I could tell you an anecdote that one of our advertisers said; listen, I need to go dark for a couple weeks because I had a large multinational lender call me up. The multinational institution said I will send you 675 leads a day for free. We are getting so much volume that we don't have time to call these people back, so they're giving this company free leads.

Obviously he doesn't need to be out marketing. He said hey, I can't even handle 675 leads a day, but they're giving it to me. I'll cherry pick those and I'll work those and, I'll be back to you. So, I'm not sure it's cheaper channels. It might be a little cheaper. It's just that they don't need as much volume because so much of it is coming in directly. So, again, it's very similar to what we saw last January.

You'll remember we had a phenomenal first 20 days of a month and all of a sudden our rate tables started getting very thin due to the fact that we were burning through lenders, budgets, and they just couldn't support the volume. We've seen almost an exact replication of that again this year. Last year it moved out actually pretty quickly and the tables became pretty robust again.

The tables are much more robust today. For example, our tables are more than they were 10 days ago. So you're right in your premise. I don't know whether cheaper marketing channels or what they were. They with high quality consumer they can convert, but when guys are, when they're getting twice as many leads as they need they can surely pick those.

So, I think that was the environment we were in. I don't think it's going to last. It didn't last year. I can't imagine this kind of activity lasts for a long time. If it does, it's going to be phenomenal for the mortgage industry, and you'll see guys staffing up, and then hiring more loan officers, and trying to take advantage of it.

Mark Mahaney - Citi

And Tom, you said that the deposit channel was 69% of total hyperlink revenue. What was the mortgage channel as a percentage of total hyperlink?

Tom Evans

The mortgage channel would have been, I think 32% of that, or I think from a revenue standpoint, for the year it was 62, 32 and 6, deposits, mortgages, and then all other.

Mark Mahaney - Citi

Thank you very much, Tom.

Tom Evans

Thank you, Mark.

Operator

And we will go next to Mark May with Needham & Company.

Mark May - Needham & Company

Thanks for letting me ask you a question. I guess the first question would be for Ed. Given you've done a couple of sizable acquisitions in the past year, could you give us the pro forma revenue growth in fourth quarter? And then one of the things that's a little difficult about modeling going forward particularly in Q1, is that last year, in Q1, you had such a great quarter.

Not only did you have 60% sequential growth in page views, but you took a price increase in the graphic, in the display business, which I don't think you took this year. I might be wrong on that. But can you just help us think about the comparable to a year ago and the things that might cause a headwind as it relates to the year-over-year comparison?

Tom Evans

I'll take first part of that. If you look at the way we look at the business Mark, I think of the business in sort of six buckets. You've got the most important thing: traffic, traffic, traffic and then you think of the product buckets. The product buckets being mortgage, deposit, insurance, credit card, and then all other being, auto loans, retirement, financial planning, and sort of print, sort of the all other, and we think of those separate from traffic, sort of even 20% buckets.

Sometimes, obviously, you think that deposits are running a little higher than that. So if you look at sort of those separately, mortgage feels like it should be pretty good in terms of its performance in the first quarter relative to last year. Deposits feels like it should be similar; pretty good relative to last year. Our insurance business is going well and that business is executing very effectively.

Credit card, that's going to be a little bit down we expect, and again, don't know how long they continue in the current environment is going to last. And then, the all other, are pretty much sort of steady state. So, sort of three of the four of the five buckets are in pretty good shape, I'd say three are in good shape. One sort of similar to what it was last year and one is down.

Mark May - Needham & Company

Okay. And, so, your commentary on the call. It sounds like it has been, when you say relatively good or bad shape, like you're comparing that to a year ago which was a really good quarter, so.

Tom Evans

Well, again this is part of what we've talked about overtime with our business. And if you look at, and I know it probably doesn't look like this on the outside, but I mean, this is a business that really sort of moves, not week-to-week, but certainly, month-to-month. January last year was a very good month. February really slowed down. March then sort of popped again.

So we're running. It's a more diversified business than it was certainly a couple of years ago, and even more than it was a year ago. And what we attempt to do over the course of a quarter of a year is pull the levers that ought to be pulled at the right time to take advantage of the opportunity.

Ed DiMaria

Yeah, and further to Tom's point. I mean it's a little bit tough to look at sort of a static pro forma standalone growth, because these businesses aren't standalone in the sense that, we sort of acquired historical revenue and EBITDA and this is what it's going to do this year versus last year. I mean, we've done a lot of integration with these businesses particularly on the credit card side, and those things we've done to add organic traffic have really paid off.

So, as Tom mentioned, insurance is doing really well. It's growing. Certainly we expect it to grow double-digits. And notwithstanding some of the issues in credit card, again, because we're generating more organic traffic in those businesses, and that business, we would expect that to not only grow, but help us on the bottom line.

Mark May - Needham & Company

Okay. And my other question. Ed, on the fourth quarter, do you have the pro forma number year-over-year?

Ed DiMaria

Didn't have those businesses last year, and we wouldn't put out standalone basis. We only had NCS for a short period of time.

Mark May - Needham & Company

Okay, I'm sorry. I thought that was something you had to file in the Q. So I'm mistaken. And how do you feel about the margins? Last question in the go forward, I think of where the biggest difference was in the quarter with our model was the margins, EBITDA, a little lower than what we're projecting. Do you still feel like by the end of the year you're still pacing towards a kind of high 30% margin?

Ed DiMaria

Absolutely I think one of the things and I think I had explained it in the quarter. It was an odd quarter from the standpoint. I mean, we did what we said we were going to do. I mean, if you remember what we said on October 30th, we had both numbers literally within $100,000. So, we did what we said we were going to do. When we had that earnings call, we did not that we're going to have the problem with CCG, and we did end up taking, $1 million more in expense, against that quarter than we would have anticipated.

With the couple of things that went on with the bad debt expense that we took or we might have been a little overly aggressive in that regard. But, we figured let's do it now, let's do it in the quarter, and let's get it behind us. So, we do feel confident that the margins will continue to increase, and we can get them back where we had said.

Mark May - Needham & Company

Yeah. The $1 million number would make the difference, then. Okay, that made sense. Thanks.

Ed DiMaria

Yeah. Thank you.

Operator

And we'll take our next question from Sandeep Aggarwal with Collins Stewart.

Sandeep Aggarwal - Collins Stewart

Thanks, for taking my question. Tom, I know a lot of things have changed since you hosted your October call, but that time you mentioned that, you know what is the street numbers for 2009 and you think very comfortable achieving that. I know you're not providing any guidance. But, you said double-digit growth rate for EBITDA for 2009 which maybe as low as $63 million versus $71 million you implied in October.

So, just want to see where the gap is? If this is because of the shortfall in that revenue, which if that's a new development, and also if we see the $63 million plus type of EBITDA. Is it coming because of margin expansion or the top-line growth?

Tom Evans

Yeah. Ed's shaking his head at me, don't do it, don't say it, don't. It's just, listen we've got a pretty, I mean, we monitor this business pretty closely. We manage the expenses excruciatingly tight. We think we got a handle on the leverage that we want to pull and we've got obviously a budget like everybody else does in this environment. This is a steady state budget. This is what happens if the current environment gets more difficult and then, good news never has to be managed.

So, you don't have to worry about it if things get a lot better. We're in a position where we're just not able to give as much guidance and visibility on the business, but we kind of think of it like we're in the NASCAR race and we're in the pole position and we're in a yellow light right now. If it goes to green light, we're going to take-off and we'll be in great shape, but right now under the yellow flag, it's pretty difficult to know when you're exactly going to finish the race.

So, it depends on whether that yellow light is lifted; depends on whether it's lifted at all. So, we're just trying to be really conservative about forecasting the business. We're obviously being very conservative about expenses as everybody else is.

The nice thing is, we haven't built this giant infrastructure where we have to lay-off anybody. We haven't laid- off a single person. We've always run Bankrate pretty thin. We've run the other companies pretty thin and so we're in a position where we'll add folks and other things if we think it's prudent to do so, but we want to be very cautious in this current environment.

Sandeep Aggarwal - Collins Stewart

Okay. And if I just quickly ask one question about the comment you just made a couple minutes back about the mortgage. It seems like in a bad economy, you suffer from the demand side problem where basically customers are not really refinancing and in a good economy it seems like there's a supply side problem where maybe advertisers may not need you as much as they perhaps needed you in a bad economy. Is it a gap in terms of the value proposition here of your mortgage-off things? Do you need to make that value pillars more compelling?

Tom Evans

I understand the question, but I disagree with the premise, and the reason I disagree is first of all, we're talking about the best quality available. We're talking about a very short-term thing that is unlike anything we've seen in the mortgage business in history. There has been a little talk of anything else in the news centered around a new president, new administration what they're going to do to try to fix this huge problem called the housing problem and the mortgage problem and everything else and I think we're in an unusual position.

We really haven't seen it. In fact, I would say that when business is tight we've had as I think those of you who followed the company. We've sort of flown through some of the tighter environments because of the high quality of our consumer, the fact that we have had increased traffic in every quarter going forward. It tends to be organic traffic. It's the highest quality and people pay up for it and we've had pricing leverage.

The only problem we've seen is in a crazy boom economy meaning that these little spurts of traffic for mortgage lenders in the January of 2008 and 2009, that they're just overwhelmed. They've been waterboarded by leads. They're just getting an incredible amount of phone calls. I mean, try to call a lender today. You hear these recordings that say, due to an unusual amount of volume, it might be days before we call you back.

It's unprecedented and I don't think that that's going to stay a long time. We're still talking about a tight credit environment, and we're still talking about lenders really needing and wanting the highest quality consumer. So, I think we're going to be in a good position. It's just a very unusual position.

Sandeep Aggarwal - Collins Stewart

Thanks very much, Tom.

Tom Evans

Thank you.

Operator

We'll take our next question from Ross Sandler with RBC Capital Markets.

Ross Sandler - RBC Capital Markets

Hi, guys. Tom, there are some comments you guys made in early January. I think you guys had characterized credit card in total was about 20% of revenue.

Tom Evans

Yes.

Ross Sandler - RBC Capital Markets

As we move into 1Q and now that CCG is back online, is that about the same percent of total and what kind of margin profile do you guys have in credit card? And I've got one follow-up.

Tom Evans

Well, I'll walk you through sort of the margin business. Obviously, if it's down and again, it's hard to tell how it's tracking. It's the one business where we actually don't have real real-time results the way we do in the other business. We get reports, days, sometimes a week to 10 days behind actual dates, because we're talking about approved GAAPs, not just people that apply.

So, I expect the business, if it continues the way it's continuing now, to be below that 20% level in the near term, but that is kind of how we look at the business where those five buckets that I mentioned, mortgage, deposit, credit card, insurance and all other being sort of 20% contributors. Obviously deposit would be 25% contributor and the all other would be slightly less, but in terms of the margin of the business we bought a business that was NCS, largely driven by affiliates. Most of that revenue is going to the affiliate network.

So, when we acquired NCS, it was a business that performed in the mid-teens in terms of EBITDA margins. We plugged that into Bankrate in our credit card channel, saw 157% increase in click rates, 300% increase in our ability to monetize that channel.

Now, all of a sudden, we added Bankrate last year, we're running that business in the 20% plus range. Now all of a sudden we add CCG, which is 90% organic traffic and the component of Bankaholic that's credit card, which is 100% organic traffic. Now we're running that business I mean, in the month of October, for example, we ran that business, the credit card business, in the mid to high 30s. So, that's really what we envisioned for that business when we acquired it. We weren't just going to run an affiliate-based business.

We wanted to bring high quality organic traffic across that platform and really improve not only the volume, but the margin of the business. So, that's kind of the way we thought about that. We intend to do that. It's what we did with other parts of our business like mortgage, when we acquired Interest.com in the deposit business and one of the things we're watching is as a result. Is there any affiliate attrition?

So, we like the trajectory of the business. We really like the business. Credit cards, is the number one search for consumer financial product online, and we wanted to have a significant offering in that business and we do. Not withstanding what our customers are going through watching their deterioration in their delinquency rates, but we like the business. I think it's going to be a good business going forward.

Ross Sandler - RBC Capital Markets

Okay. And then just one more follow-up.

Tom Evans

Series violation, I'm sorry, go ahead.

Ross Sandler - RBC Capital Markets

Beyond the January 1 price increase in deposit, do you think there is any more flexibility to increase prices on the deposit side or do you think you've hit a ceiling near-term?

Tom Evans

Well, I think it depends on whether you talk about the value of the customer or whether you talk about the environment. Do we think that the value of the customer would allow us to increase the prices? Yes. Do we think that, in this environment, a great thing to be doing out there is increasing prices and sticking it to our customers? Probably not, we've been much more gentle. I think, to Mark's earlier point on the display side, we've been much more gentle on the mortgage side.

We had a 10% increase in deposits this year rather than January 1, which we had traditionally or habitually been higher than that. We still think we're providing great value. We know the value of that customer. We know how badly those institutions need deposit customers. There is sometimes were yeah, I could get more, but is that kind of the right thing to do? Does it feel like the right thing to do from a long-term standpoint? Probably not, so I think we want to be a little more, gentle in this environment. So, thanks.

Ross Sandler - RBC Capital Markets

Thank you.

Tom Evans

A couple more questions? No?

Bruce Zanca

We will take.

Tom Evans

Okay.

Bruce Zanca

We'll take two more.

Operator

Okay. We will take our next question from Sameet Sinha with JMP Securities.

Sameet Sinha - JMP Securities

Yes, a couple of questions here. So, in terms of in the new website, you’re sorting the final to the rate tables where you lose page views, and obviously some display ad revenues. Quantify, or give us some structure on what incremental click through you acquire for the rate tables to offset the loss on display? I fully understand that display is a much smaller percentage of revenues, but I just want to get a sense of what incremental do you expect from these rate tables?

Tom Evans

Well, first of all, in this environment we don't think we've gone from an environment, you know, 2005, 2006, the majority of 2007, where we really had a lot of pressure on our inventory. That’s why we got in the SEM game because there were many times that we didn't have enough inventory to support the demand we had. That certainly isn't the environment we're in now from a display standpoint. So, in the near-term, I hope it's not forever. I don't think it's going to be. We aren't giving up a lot by getting people more quickly to the high value places on the site.

We do believe the way the rate tables are structured and the way the new rate tables are going to operate that it’s going to create less funnel traffic, if you will. So it's going to get people faster to those areas but there's going to be a lot more that they can do: they can do site by site comparisons, they can look at multi products, they can look at multi vendors, they can look at different rates, they can work in different scenarios, and they can bounce from calculator to table.

So, there's a lot better sort of user performance issues that we think will mitigate some of the page view loss. But I got to tell you, getting somebody on the rate table is the highest value by far in terms of the way our business and the leverage that we can pull. So, we've obviously done some testing. We thought about it a lot. We've modeled it a lot. It's one of the reasons why you run it in beta rather than in just through your own testing. The usability studies that we do are to really see how consumers react and we're doing more of that, and so far, so good.

So, we wouldn't do it, if we didn't think those could be better for the consumer. We wouldn't do it, if we didn't think it was going to be a better business opportunity for us. And just to make a comment about display, there's a lot of talk. In fact, there was a story in the journal today about display advertising, and a lot of the advertisers are shifting their spending away from sort of lifestyle sites to sites that are geared toward consumers who are in the market, making purchase decisions.

And that's clearly, good news for us, because performance-based media is what Bankrate's all about. And again, the comment in the journal I believe was, it's easy to track and it's easy to measure and boy, we welcome that. If advertisers start focusing more of their money on places where they can measure and track and seeing our ROI, we think that's going to be great for Bankrate.

So, it's one of the reasons why we designed the new site the way it is. And if the new metric is performance-based and if everybody is going to focus on how your site performs and how is our ROI bringing on, we think that's a great opportunity.

Sameet Sinha - JMP Securities

And a follow-up question. I'm looking at the deposit revenue the 69% of hyperlink. That's a sequential decline of about 18 5% and do you think that mini boom on the deposit side is gone, because, I mean, saving rates are going up all over the country. So it is like a slowdown. Anything you can say to explain that?

Tom Evans

Yeah, it's seasonality. At the time, because we've seen in the first quarter, we've seen in January, things pop right back I think. We've always said there is one and let's not forget notwithstanding the environment, there is one time in our business that, every Louie in the world is out there between Thanksgiving and New Year's looking to do Christmas shopping and holiday, things like that; they're not looking for financial products primarily.

We saw a lot of traffic in the fourth quarter that didn't convert. There were a lot of things going on that people were looking and we haven't seen that. January would sort of belie that concern, and that trend where the deposit business in January is sort of back to where it was.

Sameet Sinha - JMP Securities

Thank you very much.

Tom Evans

Thanks.

Ed DiMaria

Thank you.

Tom Evans

Last question.

Operator

And we'll take our final question from Richard Fetyko with MCF.

Richard Fetyko - MCF

Hey, guys. Just want to know a couple questions on the display side. How much of your revenues does display roughly represent now? And then, I'm curious about the success with the InsureMe business, and congrats on that. Just curious, it kind of runs against some trends that we're seeing in the auto sales being down 30% to 40% year-over-year, so I was just curious, what would you attribute the success of InsureMe to?

Tom Evans

Well, I think a couple things. I think that and so to answer the first part of your question, we don't break out display in particular. I mean display was down double-digits this year in 2008. So, there were no displays. It wasn't all seashells and balloons; it was a pretty tough environment. I think that the InsureMe explanation is fairly obvious. First of all, it's great execution by that team. It's a ramping business. They've been doing a great job.

The other thing is listen, I think if you get your insurance policy from X insurance company. In this kind of an environment, people are going to say hey, they just pushed through a 3% increase or a 5% increase or hey, can I save money somewhere else? I'm going to go shop this around. It's a very competitive environment. People in this kind of an economic environment are looking to save money.

People are looking to drive the best deal possible. And I think that's why more people are shopping for products. And I think more people are making applications, more people want to get calls from multiple agents, and they may say, hey, I don't care whether it's State Farm, Geico, Progressive or Allstate, I want the best deal.

And so, I think that this kind of an environment where people are really watching their money very closely and trying to drive their best deal possible are shopping more often. When we acquired the company, I remember looking in our due diligence, the persistency in the industry, Richard, what they call policy life expectancy, the number of times you renew with the same carrier has gone down from 5 years to 3.5 years and people are shopping at much more often.

So, if I get my renewal from Loui Insurance Company, I'm going to go and see what the best deal I can get. We've just seen that in InsureMe. It's better execution. There is a larger agent network because more agents are looking for growth in their business. Online they're buying leads and that's been good for us. I also think it's been the same and with a couple of other guys in that business who have nice agent networks, they've seen their business grow as well.

So, we're really happy with that business. The folks in Denver have done a good job. We think we've got a lot of momentum there, and as we build more organic traffic and better sources of traffic to that site, we integrated some of the areas and Bankrate where we think people are logically looking for a product that would be supported by insurance.

If I am buying a new house, I've got to buy property and casualty. If I'm buying a new car, I've got buy collision and liability. So, if we can intercept those people who are making those decisions, we've probably got a pretty good chance to then create another lead. And we hope to do the same thing with the margin in that business that we've done on the credit card side. So, that's our story there and we're sticking with it.

Bruce Zanca

Thank you, Richard.

Tom Evans

But thanks. And again I think we're at the end. I thank you for your time. We're obviously it's a tough environment. We're optimistic, but we're cautiously optimistic. As I said earlier, and I think everybody at Bankrate feels the same way, there isn't another company that we'd rather be associated with. We feel better about this and how this company, bankrate.com and the other nine sites that we own and operate, are positioned in this kind of an economic environment.

I think we've weathered the storm pretty well to date. We're not impervious to, or immune to the things that are going on, but we think we've weathered it pretty well to date and we think unless it gets dramatically worse, that we'll do the same again this year. So, thanks for your time. Thanks for joining us today. I'm sorry we ran long, but appreciate your time and interest. Take care and we'll see you again in 90 days.

Operator

That does conclude today's conference. Thank you for your participation. You may disconnect at this time.

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