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Bankrate, Inc. (NYSE:RATE)

Q2 2006 Earnings Conference Call

August 2, 2006 11:00 am ET


Thomas R. Evans - President, Chief Executive Officer, Director

Edward J. Dimaria - Chief Financial Officer, Senior Vice President

Bruce J. Zanca - Senior Vice President, Chief Marketing/Communications Officer


Youssef Squali - Jefferies & Co.

Heath Terry - Credit Suisse First Boston

Stewart Barry - ThinkEquity Partners

Mark Mahaney – Citigroup

Taz Turner – Checkpoint Delta Funds

Mark May - Needham & Company

Colin Gillis – Canaccord

Kevin Timmons - CL King

Gary Schnierow - JP Morgan


Good day, ladies and gentlemen, and welcome to the second quarter 2006 Bankrate earnings conference call. My name is Janelle and I will be your coordinator for today.

At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today’s call, Mr. Bruce Zanca, Senior Vice President of Communications. Please proceed, sir.

Bruce J. Zanca

Thank you, Janelle. Good morning, everyone and welcome to our second quarter 2006 financial results conference call. With me here in our New York office is the company’s President and CEO, Tom Evans, and our Senior VP and Chief Financial Officer, Ed Dimaria.

Let me take a minute to go over the format of the call today. First, Tom will give us the results and color on the quarter. Ed will then drill down into the details of the financial results and of course, we will have plenty of time at the end to answer your questions.

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

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 for financial performance but are subject to uncertainties and factors related 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 our section entitled Risk Factors in our 2005 Annual Report and on Form 10-K of our subsequent filings with the Securities and Exchange Commission.

With that taken care of, let me introduce you to Bankrate’s President and CEO, Tom Evans. Tom.

Thomas R. Evans

Thank you, Bruce. Good morning, everyone, and thanks for joining us. Let’s get at it.

I am sure most of you have seen the release we put out this morning. First, let me start the call by reaffirming the guidance we issued last quarter. For the year, we are expecting revenue of between $80 million and $82 million, and EBITDA of between 28 and 29.

As usual, we will go through the financials in detail, but let me give you an overview on the quarter from our perspective.

As we predicted on our last call, the second quarter looked very much like the first quarter, and our underlying business remains solid. Revenue for the quarter was up 59% and EBITDA was up 76% over the same period last year.

Earnings per share, excluding stock-comp expense, was $0.23, well ahead of the $0.15 for the same quarter of 2005, and EBITDA margins increased from 33% a year ago to 36% in this quarter.

Ed will go through the financials in greater detail, but suffice to say that we continue to be optimistic about our business.

Graphic advertising demand, including in the mortgage sector, remains very strong. Our hyperlink rate table business continues to do very well and, more importantly, advertising demand continues to be strong.

Our lead generation aggregator business continues to ramp, and we see opportunities to grow the print business as well.

We have been able to continue to improve the margins so that investments we have made in the business and in people have been more than offset by high quality revenue.

What I can tell you going forward is that we are more optimistic about our business than we have ever been before. Demand from our advertisers is high and we have been able to maintain our pricing leverage. Interest from our co-brand partners in working with Bankrate, opportunities to work with new partners in enhancing our current channels, and opportunities to work with others to improve underdeveloped channels is also high.

The bottom line is that there is more to do, but we remain highly confident that we have the assets, the platform, the resources and the team to take advantage of the opportunity.

With that, I will turn it over to Ed and have him go through the financials for the quarter.

Edward J. Dimaria

Thank you, Tom. Good morning, everyone. We had a busy quarter with a lot to cover, so I want to move quickly, but let me take a minute to review how I will cover the results.

First, I will talk about the highlights, the total revenue, EBITDA, and EPS. I will then take you through revenue by breaking down the results and drivers in more detail. Next, I will review our costs and margins. I will finish up by summarizing our financial position and recapping the results.

Let me remind you that our financials, of course, are on a GAAP basis. However, we also provide the results excluding stock-compensation expense under FAS-123R adopted in the first quarter of 2006. FAS-123R now requires companies to calculate and record non-cash stock-compensation expense, which was not the case in prior years. The investment community typically looks at our results excluding FAS-123R to get a true apples-to-apples comparison.

As Tom mentioned during the call last quarter, we thought the second quarter would be very similar to the first quarter, and indeed it was, with a few exceptions. We were able to reduce expenses, as we finished up our acquisition integration work on schedule. The integration was smooth and efficiently managed.

Revenue came in at $19.7 million, an increase of $7.3 million over the $12.4 million we reported in the second quarter 2005, and consistent with Q1 revenue of $19.8 million.

We did see some traffic softness during a three-week period in late May, early June, but we remain very confident in our business model and where things are headed. Tom will provide more color on traffic during the second half of the call. June finished up strong, and July started and finished strong.

EBITDA excluding non-cash stock-comp expense improved to $7.1 million, an increase of $3.1 million, or 76% over the second quarter 2005 EBITDA of $4.1 million, and a $500,000 increase over the $6.6 million we reported in the first quarter 2006.

Again, we successfully reduced overall operating expenses from Q1 levels, with the exception of stock compensation.

As I have mentioned on numerous occasions to you, we are very EBITDA focused and remain so. Our net income excluding stock compensation expense came in at $4.3 million, or $0.23 per diluted share, which exceeded the analyst consensus estimate of $0.22 as reported by Thompson Firstcall Financial.

However, interest revenue on our invested capital was higher than anticipated, which did help tip the scale over to $0.23 from $0.22 per share. The $0.23 per diluted share represented a 52% increase over the $0.15 per share we reported for the second quarter of 2005, and a 10% improvement sequentially over the first quarter 2006.

The bottom line net income for the quarter was $2.5 million, or $0.14 per diluted share, and that is after factoring in the post-tax $0.09 per share expense for non-cash stock compensation.

For the big three, revenue, EBITDA, and EPS, we had good results, which certainly would have been better had we not seen the soft period in the market during late May and early June.

Let’s drive through revenue and the underlying drivers in more detail. Online revenue for the second quarter 2006 was $15.5 million, and revenue from published print rate tables and licensed content was $4.2 million. The $15.5 million in online revenue breaks down to graphic advertising revenue of $9.2 million and hyperlink revenue of $6.2 million.

The graphic advertising revenue of $9.2 million for the quarter increased 38% over the second quarter 2005 revenue of $6.7 million, and was slightly ahead of the first quarter graphic advertising revenue of $9.1 million.

Tom mentioned demand for graphic advertising on our site has remained very strong throughout the quarter and into the third quarter. Demand actually outstripped supply in various channels during the quarter. Obviously this was frustrating for us, since we left money on the table, but it does present an opportunity and challenge for us to be more going forward to increase page views incrementally beyond a huge organic channel we have come to enjoy. More on that in a minute.

Contributing to the strong, graphic advertising revenue in Q2 2006 was our ability to monetize additional inventory with higher sell-through rates.

Fastfind revenue is included in the graphic advertising revenue I just reported. Fastfind basically tracked up unscheduled during the quarter, although we did notice some softness during the same period I mentioned in late May, early June.

We are very focused on building this business and have taken aggressive steps to build more demand and drive the business metrics up.

Recall the basic metrics we had [harped] on -- drive traffic into the funnel, match leads, and then sell the leads three or four times. [inaudible] any leaks in this process must be plugged. The good news is that we have more than enough traffic going into the funnel to exceed our goals for the year, so the key here continues to be execution, improving our match rate and growing lender demand, which go hand in hand.

We remain confident that our goals to optimize the business are achievable by the end of the year.

Hyperlink revenue of $6.2 million for the quarter, increased 64% over Q2 2005 revenue of $3.8 million, and dropped slightly from the Q1 2006 revenue of $6.5 million. Hyperlink deposit revenue accounted for 43% of hyperlink revenue, up nearly four times the Q2 2005 deposit rate table revenue. Mortgage rate table revenue represented 46% of hyperlink revenue.

I am sure you all know, but for the benefit of newcomers on the call, our hyperlink business model changed dramatically as of October 1, when we migrated to a cost-per-click pricing model on our rate tables.

This shift has worked out well for us by dramatically increasing revenue. Our rate tables are very granular by product and location, so the CPC model provides us with a platform to optimize pricing over time, both by specific product and location.

At this time, we have tiered pricing by state, so the pricing is flat at the product level and location level.

So there is ample juice to be squeezed out of this lemon at the CPC level.

Page views in Q2 2006 were 116 million versus 113.8 million in Q205 and 124.2 million in Q1 2006. We continue to see strong traffic in the deposit channel with CD’s, money markets, and savings accounts.

This traffic represented 23% of our traffic in the second quarter of 2006 compared to 12% of our traffic in Q2 2005. We believe the deposit channel will continue to represent an excellent growth vehicle for us ahead.

Another point that I want to highlight is that organic traffic for the site remains strong at 93%. Again, this traffic to the site comes to us at zero cost and provides the fuel for the powerful monetization engine we have.

I do want to touch on a point I made earlier. As I mentioned, our demand actually outstripped supply during the quarter. We believe there is an opportunity for us to add incremental traffic to the site through marketing and organic search.

We have completed the analysis and are confident that we can monetize this incremental traffic profitably, both on our rate tables and through graphic ads. We are in the process of implementing a number of tools to assist us in this regard.

Publishing and licensing revenue was $4.2 million for the second quarter 2006, compared to $1.2 million in Q2 2005 and $4.2 million in Q1 2006. The primary growth here for the current quarter over the prior year quarter is due to the acquisition of MMIS’ print business. The print business generates relatively low margins at 14%, although we look at the traditional print business in two ways. First, it does generate cash flow to our business, and will also provide new growth in publishing deposit tables.

Equally important, we provide the Bankrate URL on every rate table published, which directs more incremental traffic to our website for zero cost, thereby providing additional support to our primary business objective of building and monetizing web traffic.

We are now in over 450 newspapers nationwide and will be focused on growing this business with adding deposit tables as well as adding more newspapers to the mix.

Our gross margin on revenue after the direct cost of publishing was 68% in Q2 2006, 77% in Q2 2005, and 69% in Q1 2006. The 9% drop from Q2 2005 to the current quarter is the result of factoring into the mix the MMIS print operation, which operates at a 14% margin, as I just said.

The total operating cost in Q2 2006 was $10.10 million compared to $5.6 million in Q2 2005, which represents an increase of $4.4 million. The increase in operating expense was driven primarily by non-cash, $3.2 million in stock compensation expense, approximately $900,000 in acquired operating expense for Fastfind and MMIS, $500,000 legal and accounting expense, and $365,000 in amortization of acquired intangible assets.

More importantly though, our operating expense in the second quarter 2006 decreased from the first quarter 2006 in two primary areas. G&A, due to curtailed cost integration and lower legal fees, and product development, due to an excellent job by our technology group in curtailing cost when completing the technology integration of our new web properties.

Stock compensation expense during the quarter was higher than the first quarter of 2006, primarily due to accelerated vesting of certain options with market performance vesting features.

We entered the quarter with 163 employees, up 3 from the end of Q1 2006, and up 40 compared to the 123 at the end of the second quarter of 2005. The additional headcount over 2005 was primarily the result of the acquisitions in Q4 2005.

We have now completed nearly 100% of the integration. At the time of the acquisition, the total combined positions were 198 employees. Now, as you can see, we are at 163 employees.

We continue to closely manage headcount and operating costs, the results of which show up on the bottom line. We will continue to make investments where necessary to take the business to the next level, but every addition to cost is carefully planned and scrutinized.

Earnings before tax on a GAAP basis, including the non-cash stock compensation expense, was $4 million for Q2 2006 compared to $4.1 million in Q2 2005, representing a decrease of 1%. Again, the current year results included a $3.2 million non-cash expense for stock compensation due to the adoption of FAS-123R.

Our income tax provision for the quarter of $1.5 million was charged primarily against our deferred tax basket, and therefore did not result in any cash payments for tax. Please note that the adoption of FAS 123R negatively affected our provision for 2006, resulting in a higher GAAP effective tax rate on booking, although this impact will continue to be non-cash.

We opened the year with a tax NOL carry forward of approximately $14 million, which is recognized on our books as deferred tax assets, as adjusted for differences in book versus tax accounting.

We ended the quarter with a tax NOL carry forward of approximately $9 million, which we believe will be substantially used up by the end of the year.

Net income for Q206 was $2.5 million, or $0.14 per diluted share, compared to $2.5 million or $0.15 per diluted share for Q205. Again, earnings per diluted share were $0.23, after adding back the $0.09 stock compensation expense, after tax.

We closed the secondary offering about halfway through the quarter, which provided net cash to the company of $92.5 million, including proceeds from options exercised into the secondary.

We ended the quarter with $102.4 million in cash, which is invested primarily in overnight U.S. federal securities.

Our balance sheet remains debt free and our ratio of current assets to current liabilities, including our war chest of cash, is over 17 to 1. We are well-positioned for growth with an excellent cash position, zero debt, and a strong currency.

At a recap, revenue for the quarter was $19.7 million, up 59% over Q2 2005. Our EBITDA adjusted for stock compensation was $7.1 million, up 76%, and EPS was $0.23 per diluted share, adjusted for stock compensation, which exceeded the analyst consensus estimate of $0.22.

Tom will now take you through his business report for the remainder of 2006. Tom.

Thomas R. Evans

As Ed mentioned, it was a solid quarter with growth in every one of the sectors of our business. Let me go through them one by one, and give a little color on each.

First, let’s cover graphic advertising, which accounted for 47% of our revenue for the quarter. We are seeing increased demand from our existing advertisers, and getting business from advertisers in new categories. Excluding the [inaudible] revenue we ran in Q2 of 2005, graphic ad sales were up 38% in Q2. As we planned, the amount of that ad revenue that came from aggregators was down 64% from 2005, and down 45% from Q1 of this year, as we moved that inventory to Fastfind and/or made that inventory available to meet the increased demand from other advertisers.

In the second quarter, we signed up 24 new graphic advertisers, the largest new advertiser increase we have ever had. We saw new advertising from two automotive companies, from credit card companies, a home improvement company, a couple of insurance companies, and several others.

In fact, responding to the increased opportunities that we see on the advertising front, we added four new ad sales people in the second quarter, taking our total to 18 in market ad sales folks.

In the quarter, we saw the sell-through rate increase, and we were able to maintain the CPM’s on our advertising.

We talk a lot in 2005 that we thought we would be better able to attract the well-known brand advertisers because of our high-quality consumer traffic and our new sales force. If you look at Bankrate, at the website today, you see evidence of that, that it has turned out the way we planned.

As in the previous two quarters, the move to cost per click in our hyperlink rate tables continues to be successful. Hyperlink revenue, which represents 31% of our revenue for the quarter, was up 64% versus the year ago quarter. We have seen the advertising base grow as well. We had more active hyperlink advertisers on our rate tables in the second quarter under a CPC model than we did a year ago under the flat rate fee model.

Even better news is that the advertiser budgets allotted to those rate tables currently well exceeds the supply of clicks. That will pay off down the road as we deploy our marketing efforts -- more on that in a moment.

The great news is that the trend of increased activity in the deposit channel continues as well. In Q2, 43% of the rate table revenue came from deposit clicks, from money markets and CDs, compared to 18% in the quarter a year ago. That means the deposit channel revenue was up 290% versus a year ago.

Rate table mortgage revenue continues to increase as well. 46% of the rate table revenue was from mortgage clicks, down as a percentage of the total, down from 66% a year ago but actual mortgage rate payable revenue was up 13%.

We have spoken in the past about what we believe to be our opportunity to leverage our CPC pricing. For Q3, we have increased CPC prices on the mortgage tables. Previously, only clicks in the State of California were being charged the top price of $5.25. Now we have altered the tiers.

We have added seven states to the top tier, so that now clicks in the State of New York, New Jersey, Florida, Texas, Massachusetts, Illinois and Georgia, in addition to California, are all being charged $5.25.

Additionally, we have moved six states from tier three to tier two, so those states go from $3.50 to $4.50 per click, and we have moved nine states from tier four, at $1.75 per click, to tier 3 at $3.50. You understand our model. All that incremental revenue falls to the bottom line.

The most exciting thing about the price increase is that we actually have more advertisers on our tables today at higher prices post the increase than we did throughout last quarter and more than we had a year ago when we were at a flat rate pricing structure.

Ed mentioned in his remarks that traffic for the quarter was up 2% compared to last year and down 7% from Q1. Organic and non-paid traffic represented 93% of the traffic to the site, was 7% coming from paid search.

Of the 93%, 80% was organic, direct to Bankrate, and 13% came through our co-brand partners.

Some of you, I have learned during the quarter, monitor the comScore Alexa hit-wise traffic numbers, and saw that we had a slow period during the quarter. Let me explain it since many of you asked.

Toward the end of May, and for about an 18- to 20-day period, we saw falloff in our traffic. What first started out as a blip and appeared to be an anomaly became a pattern for almost a three-week period. It began around May 18, the day the new fed chairman announced that the fed was going to be focused on fighting inflation, and that the economy’s growth was likely to be impacted.

During that three-week period, there was more negative news about home sales, negative news about housing starts and the mortgage business. We heard anecdotally from several of our co-brand partner financial sites that they saw similar decline in traffic. Now, if you look at the comScore numbers for May and June, financial sites traffic was off an average of just under 10%.

Typically, I do not see much of a correlation between the news cycle and the impact it has on our business, but in this case, it did seem to have an effect, as traffic had been solid up until that time, then inexplicably, as suddenly as it had slowed down, it bounced back up. I cannot tell you what the impetus was for the change, but for the rest of June, the traffic was good. July’s traffic has been very good, which makes that period in late May and early June even more confusing.

You should know that the decline in traffic for that period of time did have an impact on the quarter, as Ed mentioned. We ended up not fully delivering several ad campaigns that we had orders for, so we indeed left money on the table to reduce both the top and bottom-lines for the quarter.

In future quarters, we believe we will have a better ability to mitigate the impact of traffic inconsistencies with a more aggressive marketing strap. As we have discussed previously, we have always relied heavily on organic and partner traffic. However, as the demand from our advertisers has increased, we have gotten into a position where demand in some cases outstrips our supply of traffic. Believe me, it is a high-class problem, but a problem and frustrating nonetheless.

To take advantage of that demand, we have been building a baseline for search engine keyword spending, measuring the ROI, and putting the component pieces in place to be more aggressive from a marketing standpoint.

We interviewed several of the companies in the search engine marketing category, and have contracted with San Francisco based Efficient Frontier. We will be slowing increasing our marketing spending and intend to have it fully ramped by the fourth quarter.

Let me just explain what we think this does for us. First, it allows us to drive targeted traffic where we have demand, and where can effectively monetize the traffic. Second, it allows us to balance any page viewing consistencies we have. Third, it allows us to make sure we do not have ad demand that we cannot fulfill.

So I will beat you to the punch. The natural question is why didn’t you idiots do this earlier?

The honest answer is that previously, we were not in a position where our ad demand had outstripped our page view supply. Now we are.

In addition, before we went to a cost-per-click pricing in our rate tables, there really was no incremental benefit to driving hundreds of thousands of additional page use to the rate tables. Now there is, and we intend to exploit that opportunity.

We now know that we get a solid ROI in our keyword strapping. We have increased advertising demand, and we have the advertiser money available on the rate tables to make this work very well for us.

If you have heard my rant previously about organic traffic, nothing is changing. We will still be predominantly an organic free traffic based business, but we believe we can provide incremental, highly profitable business without any negative impact to our operating margins.

Now for print. From a logistics and manpower standpoint, the print business has probably been the most difficult part of the acquisition and integration, primarily because of just the sheer number of newspapers and number of advertisers we are working with in combining the MMIS and Bankrate print operations.

In the second quarter, print licensing revenue, which accounted for 21% of the revenue in the quarter, was up 262% over the same quarter last year, mostly due just to the addition of MMIS to the Bankrate printing business. Actual growth in print for the quarter was 3%, when looking at it on a pro forma basis.

In the quarter, we added 11 new newspapers and continued to generate interest in adding deposit tables with existing newspaper customers. We expect to see the impact of the deposit table additions at the end of this year and into 2007.

Now, Fastfind. For Fastfind, we continue to be very optimistic about the aggregator business. We continue to generate high quality leads from both the Bankrate and platforms and have been adding lenders to the network.

We continue to allot Fastfind between 6% and 7% of the inventory from our websites, and will increase that as Fastfind reaches higher levels of optimization. Fastfind did well for us for the first six months of the year, although there continues to be much more to do. There is good news and there is bad news here. The good news is that we signed up 109 new lenders in the second quarter. The bad news is that it is taking us longer to get those lenders live on the network, providing us with their parameters and filters, and beginning to receive and paying for leads.

We are laser focused, and determined to be on target of having Fastfind optimized in the second half. At that point, we will begin the rollout of our larger plan for Fastfind, more page use for Bankrate and, and integrated into some of our co-brand and affiliate partners.

We are still convinced that this is a great move for us, and that the aggregator business will be a growing business and a significant contributor by the end of the year.

On the business development front, we are making a conscious decision to attempt, not necessarily to get broader, but deeper with our most important co-brand partners. The model for the way we like these partnerships to work is what we have been doing with Yahoo!

As many of you know, Bankrate content and links are on the home page of Yahoo! Finance, and it is currently our largest co-brand in terms of revenue contribution. We have mortgage and home equity CPC rate tables on Yahoo!, and hope to add other products like deposits in the near future.

Along those lines, you may have noticed that we have recently been added to the homepage of, and to the real estate homepage of the There are other similar deals that we are working on with other top-ranked, highly trafficked sites. We are excited that these sites have recognized Bankrate as providing both high quality content as well as the ability to drive high-quality revenue, and hope to have some announcements coming in the next couple of weeks.

As all of you are aware, we raised over $90 million in early May, with the expressed intent of making acquisitions that we believe will be accretive and will enhance our business going forward. To that end, we announced this morning that we acquired a group of three small websites --,, and, that were owned and run by a company called East West Mortgage Inc. that also happens to be an advertiser on Bankrate. The price was $4.4 million, it was all cash, and will close within a week.

It is an asset purchase, will be operated going forward by Bankrate and no people are coming to our company from East West as part of the sale.

If you go to Google today and type in the words mortgage calculator, you will see that the number one site is mortgagecalc, followed by number two, Bankrate, followed by number three, -- all three of us obviously sites that we now own.

Mortgage calculator is a frequently queried term and has been a very good term for Bankrate driving traffic. It has also been one of the keyword phrases we buy, because it is so easy for us to monetize effectively.

We believe we can easily monetize the traffic that mortgagecalc currently gets to their site, which is, by the way, 100% organic traffic. We think it will add around $300,000 in EBITDA per quarter, beginning in October, just by having the inventory to sell and having our rate tables connected to the site.

It is not a large deal, by any means, but an easy decision and an easy addition in that it will increase our organic ad [inaudible] inventory for very little in incremental expenses.

We had the advertiser demand, so picking up organic traffic that we can readily monetize we think is a natural for us.

We remain very active on the acquisition front, looking at a number of opportunities of small and medium size. Just to reiterate what we said before, we would like to broaden the breadth and depth of what we do, and are most interested in the insurance and real estate spaces, and are looking at some other areas as well.

We have stated that we expect what we do to be accretive in the first year and remain committed to that position.

Now, on a macroeconomic basis, much has been written about the slowing of the real estate business and its impact on the mortgage industry. At Bankrate, we really have been seeing this trend for the past six to eight quarters, so it is nothing new. Looking back, the heights of the mortgage and re-fi boom really occurred during the third and fourth quarters of 2004.

However, we continue to see a lot of mortgage activity on the site and continue to see increased demand from advertisers and lenders for clicks, for ads, and for leads.

There is also a very compelling market dynamic that we believe will provide a favorable boost to our business. According to the National Mortgage Association, there will be $1.3 trillion to $1.5 trillion in adjustable rate mortgages that have their first rate reset in the 18-month period between July 1, 2006 and December 31, 2007. That is a huge market of consumers who, due to rising interest rates, are seeing meaningful increases in their monthly payments. In many cases, a move to another product, to a fixed rate loan, for example, is a better option for them. In any case, it is an opportunity for Bankrate in that we are a logical place to compare products and find the best rates available.

In keeping up with the change in lending environment, to support opportunities like this, we recently added two new rate tables, a 40-year fixed mortgage, and a 30-year interest only mortgage product now being offered by lenders.

Let me cover a couple of other things quickly before we go to your questions. Due to Google’s announcement last week, I have been asked by several investors about what the press is calling click fraud. Given the nature of our rate tables, fraud per se is not an issue. We do however filter out some of the clicks that we determine to be invalid. The filters employed are always determined by the host site, the publisher, by us, so we have chosen to make this filter thresholds as high as possible, so as not to have to deal with the issue.

Let me give you a quick example. If a person clicks on link, and while waiting to be delivered to that site, clicks again, we only count that as one click. There are sites that make the time between the first click and the next just three seconds, so that an initial click and an additional click after three seconds would count and be billed as two paid clicks. Not on Bankrate.

Our threshold for that second click is 30 minutes. So that second click, 5 seconds, 30 seconds, or even 5 minutes after the initial click, would not be a click the advertiser would be billed for at Bankrate.

We have provided other protection for our advertisers. We have it set up so that clicks from internal Bankrate IP addresses do not count and get filtered out, so no one at Bankrate can go on, click a bunch of times, and have an advertiser have to pay for it.

We also have a host of robot IPs, testing IPs, and other IP addresses that are designated for exclusion from billing.

Keep in mind that the invalid click filtering is managed not by Bankrate but by a third party, who has no economic incentive to do anything other than to do it right.

This really has not been an issue for us, and we do not expect it to be in the future going forward.

Again, we want to reaffirm our guidance. The first half has been a good six months. We have been building our advertising demand, and have a number of things like keyword marketing, CPC pricing leverage, a growing deposit business, and a lead generating business at Fastfind that will provide more growth for the company. We are working on several other opportunities to accelerate our business and remain very optimistic. We are confident in reaffirming our earlier guidance of between $80 million to $82 million in revenue, and EBITDA excluding stock comp of between $28 million to $29 million.

With that, Ed and I will be happy to take your questions.

Question-and-Answer Session


(Operator Instructions)

Our first question comes from the line of Youssef Squali from Jefferies. Please proceed.

Youssef Squali - Jefferies & Co.

A couple of questions. First, just for housekeeping item, on the three acquisitions that you have just announced, can you tell us what kind of contribution, top-line contribution -- I think you said $300,000 EBITDA per quarter. I am wondering what the top-line is, or assumed.

Then, you have raised guidance several times in the last several quarters. You sound very optimistic. Why not raise guidance again here? Then I have a follow-up.

Thomas R. Evans

On the acquisitions, I think we are being conservative until we actually get our hands on the assets and put the component pieces in place. The incremental cost is going to be very, very little. We estimate the incremental cost to be around $100,000 a year, so we are talking about $325,000 in revenue for the quarter. The EBITDA impact will be about $300,000. Again, being conservative.

Listen, on the dreaded guidance debate, we talked about this before. You all know we are conservative guys. We do not run our business like a Texas hold ‘em poker game, and we have never been people to sort of play all in poker, particularly early in the game. We are comfortable with the guidance. We are optimistic about the business. We prefer to under-promise and over-deliver, but be assured that when business circumstances warrant, we will update.

I would almost prefer that we issue guidance at the beginning of the year, it would hold for the entire year, we would never address the question again. We really do not want to get into the position where we are trying to manage the business quarter by quarter. We are building a long-term business. We are trying to build strength and profitability.

It is what we are doing, for example, with Fastfind. If we were just pushing this for quick return, we would have made an additional million dollars in EBITDA this quarter by pushing those ads to Bankrate advertisers rather than to Fastfind. Now, Fastfind is profitable, but less so than if we just run ads, just selling the Bankrate inventory. We are trying to build the business long-term.

We believe it is going to be a long-term, significant contributor, and in quarters where you are doing that, you are giving up a little bit. Again, while still profitable, still accretive, we are giving up what we could have had and we are giving up some of the organic growth that we would have had at Bankrate.

Your follow-up?

Youssef Squali - Jefferies & Co.

My follow-up is about the weakness you have seen in late May, early June. Is there any way you can actually quantify how much you have left on the table, either in terms of revenue or traffic -- what I am trying to get to is really…

Thomas R. Evans

What the impact was?

Youssef Squali - Jefferies & Co.

What the impact was, and secondly, you said July came back nicely. How do you see page views pattern going forward in Q3 and Q4?

Thomas R. Evans

The impact was somewhere between $700,000 and $1 million in EBITDA, of that traffic decline. I tell you, we scratched our head. While it was going on, we were checking every single -- I think we wore down -- our CTO checking all the areas on the site. We talked to all the partners, which is how we knew that they were all seeing and experiencing similar traffic declines.

There is no doubt it did cost us, and we had ad demand. We had ad orders in house that we were not able to fill as a result.

July, again, inexplicably it turned around, and the rest of June was very solid and July was a very good month. We are running -- I hate to start forecasting page views. It is a pretty dicey game, but July did very well. If July continues, we will run ahead of where we were and slightly ahead -- definitely ahead of last year, and potentially more looking like the first quarter or a little bit better than that than certainly the second quarter did.


Our next question comes from the line of Heath Terry from Credit Suisse. Please proceed.

Heath Terry - Credit Suisse First Boston

Thank you. You touched on this a little bit in response to Youssef’s question, but I was wondering if you could give us an idea of where you are in the integration process of Fastfind versus what it is going to look like to consumers once it is fully integrated into the site, and how much in terms of the potential total impact on the business we would have seen in this current quarter.

Thomas R. Evans

Fastfind, as we said, this is a process over time, where there are a couple of different components. First of all, it is getting the media up and available, and on that, we are going to start testing better the use of the Bankrate brand or Fastfind from Bankrate or Bankrate Select, or whatever we happen to call it. We are going to start to test to see whether that has a better impact and does not in any way dilute or diminish the value of the rest of the opportunities, the rate tables, the graphic advertising on the site, because we want to make sure we maintain a balance.

We are looking to increase the click-through rate, which as Ed alluded to has been going well. That is on target. We want to increase the match rate, and that is just a matter of having the number of lenders on the site active and live with wide and broad shelters, so that the ads -- or I am sorry, the applications that we do drive can be sold.

We want to increase what we call the velocity, and that is the number of times the application is sold, up to four times.

The last two components, the first component is a creative and branding component. The last two are strictly the volume of active lenders on the site. We have had great success in signing them up, getting them to put their filters in, start paying for ads and accepting those applications is taking longer. It is taking longer than, quite frankly, we thought it would. Some of it goes through legal departments and there is a process. Some is they want to test with, let’s test a half-dozen leads a day, see how it works, let’s change our filters, so there is a lot of testing that goes on initially before they say okay, we know what works best, we know we want to pay for them, we know, we have been able to measure and verify the quality of leads, now we want 200 a day. Now we want 300 a day.

So we are sort of plowing through that now. There is a lot of work being done. Again, we expected this to be a significant contributor. Right now, what we are doing is we are trading high margin dollars for lower margin dollars. If we would have sold those ads to Bankrate advertising customers, we would be making almost 100% margin of those ads versus giving them to Fastfind, where we are making less than that, half of that.

So it is a tradeoff we are willing to make. It is a short-term hit on EBITDA, but we think this is going to be a big business going forward, and as we said, we are 6% of inventory now. We have talked about getting this up to a maximum of 15% of our inventory. We think there is an opportunity to do that.

Then, as we go forward, we start spreading it out on our affiliate partners, on our co-brands. We do not want to do that yet if it cannot be optimized. We want to keep our [powder dry] there, but we think it is a big opportunity going forward.

Heath Terry - Credit Suisse First Boston

Then you talked about the demand for advertising, graphic advertising, outsourcing the supply that you have. Is that something that you really just started to see this quarter, or is this a trend that has been growing? Then, I guess if you can give us any kind of idea as to what degree you are actually seeing demand greater than supply.

Thomas R. Evans

It has actually been growing. You sort of go back and I promise I will not do this, but you have to go back and look at what we said 2004 when we said we wanted to change our ad sales force from a Florida based phone team to an in-market ad sales team.

We have seen that. We have seen ramping. We have seen more demand, as I said, if you looked at the Bankrate site today and see the kinds of advertisers, the quality of the names of the advertisers, Rich and his team have done a fabulous job of driving demand, but driving demand from the kinds of advertisers that we wanted.

We talked a lot earlier about what we thought would be the gentrification of the neighborhood, where the cities and the B of A’s and the Schwab’s and the Fidelity’s and those kinds of folks have replaced what was largely a sort of aggregator dominated site in the past, so that has worked very well.

This is the first quarter where -- actually, the lines have crossed to your question, where demand has outstripped supply. Part of it was the little blip we had in traffic. The rest of it was just increased ad demand. I mean, we have all read stories about the Tsunami of money to come on the Internet. We have seen the same thing with our customers. There is more demand. They are paying great CPM’s for that. We are seeing that we are able to attract some great companies and some high-class advertisers to the site, so it is the reason why, for the first time, we really feel optimistic about the fact that we can and should go out and spend more money on keywords and other kinds of marketing opportunities, because we can really monetize them.

As I said earlier, driving people to rate tables in the past, where prior to CPC and having no incremental gain from that, was not a beneficial thing to do.

We also did not do it initially when we went to CPC because we really did not know whether we would generate more traffic than we had budgeted CPC dollars by our advertisers, so we have been trying to monitor that very closely, make sure we keep that balance. Now we see higher buckets of advertising wanting more clicks, being willing to pay for more clicks, more graphic ad demand, so more page views is just going to mean more revenue for us, so yes, it really is the first time those lines have crossed.

Heath Terry - Credit Suisse First Boston

Thank you.

Thomas R. Evans

Thank you. Sorry for the long-winded answer.


Our next question comes from the line of Stewart Barry from ThinkEquity. Please proceed.

Stewart Barry - ThinkEquity Partners

Tom, is there a healthy percentage of paid search traffic target, like say 10% to 15% of future traffic from paid search that you are aiming towards, or that we can think about? Can you just run us through the basic economics of paid search, and how it relates to your model?

Thomas R. Evans

We are not sure what the target is. One of the things we want to do is continue to balance demand, so if I said 15% paid traffic, we would have to have demand. That would be incremental. We would have to have demand for that. We need to build up for that demand.

So one of the things we want to do is make sure there is a concurrent development and increase in CPC budgets and graphic ad demand to go with our increase in paid traffic.

I do not know whether overtime then becomes 15 -- gosh, if it was 20%, I would love it. If it was 25%, I would love it, because that just means that we are driving more traffic and we have more demand. We won't drive traffic that we can't monetize.

So if it gets to be a bigger percentage of Bankrate and it’s not coming because we are declining in organic or partner traffic that will be a terrific thing. The economics are pretty simple: we spend on average in the $0.30 or $0.35 range for a click currently. We manage about 30,000 or 40,000 words. We are not aggressive, we have been spending about $250,000 or $300,000 a month. We think there's an opportunity to boost this up because we know now through the work that we have been doing that a dollar spent brings us more than $1.50.

I don’t want to be much more specific about that because we don't want to indicate to the market where we are going and or what we can do, but we think we can plough a bunch more money into paid search, we can make it highly profitable to the point that it will not in any way reduce our current margins.

So we think it will actually be additive to our margins and we are sort of anxious to get at it as quickly as possibly. That is what we have been doing establish in that baseline through the second quarter this year.

Stewart Barry – ThinkEquity

Ed, could you update on what the legal expenses are and what you are forecasting and what may happen to those if the current law suit is closed?

Ed Dimaria

Total legal and accounting expense is down $600,000 in the second quarter but as you know, the law suit still goes on and we are going to have additional legal expenses to defend it. So we are in the process of working through that with our attorneys.

We are going to hold it down as much as we can throughout the rest of the year. We don’t think it's going to approach first quarter levels, but we may see a little bit of pressure in the latter half of the year.

Stewart Barry – ThinkEquity

Great, thanks a lot.

Ed Dimaria

Thank you.


Our next question comes from the line of Mark Mahaney - Citigroup.

Mark Mahaney - Citigroup

Great, a couple of questions. First, is there any way we can get at what the organic growth or the pro forma growth was during the quarter? What was the contribution from FastFind and the MMIS interest, please?

Thomas R. Evans

Yes, if you look at it purely as organic versus acquisition, it was about 35% Bankrate, 65% acquisitions. However, if you take out what the trade-off was, Bankrate was actually growing at about 55% organically on an apples-to-apples basis. If you take what we could have sold to others and we traded to the FastFind. So, of the 59% revenue growth, Bankrate represented about 55% of that.

Mark Mahaney - Citigroup

Any more color, you detailed the price increases that you implemented at the beginning of this quarter. Any more color on the reactions you’ve gotten from advertisers to that? How should we think about price increases in the future or how are pitching these to advertisers? Is this something that they should come to expect on an annual basis, semi-annual basis? Any color on that would be helpful.

Thomas R. Evans

We’ve been out with CPC for nine months now, we‘ve had two price increases, we had an increase at the end of the first quarter of CPC which was the beginning of the year, January 1 on our CD and money market tables. This is the first increase we have had on our mortgage tables.

What we’ve told people is that we’ll give you at least 15 days notice, we are trying not to do it intra-quarter to whipsaw people, because they are planning their budgets and they are bucketing their money on our CPC tables monthly and quarterly. So we don’t want to whipsaw them by doing that.

I can tell you, we have seen zero pushback -- probably I shouldn’t say this -- but we’ve seen no pushback in terms of pricing. I will reiterate what we said earlier on the call, we have more advertisers on today after the rate increase than we did in April/May/June; more than we did a year ago when we were on a flat fee and driving significantly less revenue from that base of lenders than we are today.

So, it's really worked well. I mentioned, click fraud has not been an issue. The biggest worry that we had was, would we get to the end of a month, would we get to an end of a quarter, would we see sometimes when advertisers ran out of money on what they allotted for clicks and they go dark on the site? So then somebody goes to a 30-year fixed San Diego rate table and there were 35 lenders on at the beginning of the month, now there are only 12 lenders on today or at the end of the month; or there are 20 or 27.

We would look at that as being a very negative thing because that would diminished the editorial and comprehensive nature of the Bankrate rate tables. We haven’t seen any of that.

So as I said, more advertisers today at higher prices than we saw a quarter ago or a year ago. So we look at it as a very good trend and I think it gives us a lot of pricing leverage going forward.

Some of you have asked and perhaps been critical, why didn't we push harder? Why aren't we raising rates harder or faster? We are trying to build a long-term business. We are trying to build a long-term business, we are trying not to gouge everyone of those lenders, we are trying to allow them to manage their business and manage their spending on Bankrate. They have other places they can advertise and we don’t want to get crazy and irritate them to the point that they can't manage their business.

We do have a lot of leverage because we provide high quality, in-market consumers who click and convert. As we've heard over and over and over again, nobody has the kind of audience that Bankrate has. So we want to leverage that without killing them.

Mark Mahaney - Citigroup

I am sorry, last question. Just on that traffic pattern you saw during the quarter. You have not seen those kind of drops or spikes in traffic related to financial news events like that in the past?

Thomas R. Evans

You know what, when the Fed comes out with an announcement, it is a good day for Bankrate. Rates going up, rates going down, rates not changing, is a good day for Bankrate because a lot of people come to us and see what the impact is going to be.

This was not a rate change. On the 18th, the Fed Chairman was out saying that inflation was the enemy and they were going to be focused on fighting inflation. We saw a blip. What we weren’t prepared for and we hadn’t seen before is it was a blip that lasted 18 to 20 days. Generally when news occurs, we see a blip up. This is the first time we’ve seen news creating a blip down and it wasn’t a one-day phenomenon.

As I said, poor Dan, we had him checking every component of the site, we had him checking all of our links, all of our platforms because we thought boy, something’s going wrong here. When we checked with partners they were seeing the same thing. Again, if you look at the comp score numbers for financial sites, if you look at the top 10 or 20 sites, you’ll see they were down about 10% in May and June. Can’t explain it, I don’t know why. It all of a sudden bounced back. But it did, and July has been very solid. So, wish we knew.

Mark Mahaney - Citigroup

Great, thank you very much.

Thomas R. Evans

Thanks Mark.


Our next question comes from Taz Turner – Checkpoint Delta Funds.

Taz Turner – Checkpoint Delta Funds

Hi guys.

Thomas R. Evans

Hi Taz, how are you?

Taz Turner – Checkpoint Delta Funds

Good. When you said that traffic was tracking back to the Q1 levels, is this without paid search or with the incremental that you’ve done?

Thomas R. Evans

We aren’t really doing much incremental yet. That’s something that we’re still building up. So July we had a modest -- I mean a modest -- increase in paid search. The traffic on Bankrate for July was very good. So we are seeing it in organic, we are seeing it in algorithmic search, we are seeing the people that bookmark Bankrate coming in. So it's not just the impact of a slightly – and I mean slightly -- higher paid search spend.

Taz Turner – Checkpoint Delta Funds

So, assuming that paid search is additive, it increased your page views and if so, did the CPMs hold or can they continue to increase with the increased page views from paid search?

Thomas R. Evans

CPMs are holding. It's tough to raise CPM intra-quarter. When you start with an advertiser at the beginning of year and they commit to a buy, it's implied that that advertiser is going to maintain the same CPMs over the course of the year.

As many of you know, I spent a long time in the magazine publishing business. What’s different in the Internet business than in the publishing business is typically at the end of the year, the publishing businesses you see the fourth quarter is when you start to having to give the advertiser their rebates for their page volume discount. That does not occur in the online business.

The rates tend to hold and just demand for the inventories is what will drive CPMs up. So CPMs have been very solid, they are up slightly in July. I don’t want to paint too much of a picture there; CPMs are good, we had a nice solid increase from – we had a huge increase from '04 to '05, a solid increase from '05 to '06 and we have been able to maintain that and improve that slightly. But again, don't want to make a bigger issue out of that than it is.

Taz Turner – Checkpoint Delta Funds

That’s great. Lastly as you target the page search as to whatever portion of the traffic it's going to be, what magnitude increase in EBITDA margin are you targeting in your paid search initiative?

Thomas R. Evans

Well, I don’t want to get too specific about what it is. If we are running a 36% EBITDA margin across the entire business, it's well north of that. Again, what we don’t know about it is as you buy into the tail, as you are buying the end of it, does it reduce the margin from 70% to 50%, does it reduce the margin from 75% to 35%, just for that portion of the tail? I don’t know.

Taz Turner – Checkpoint Delta Funds

But safe to say every piece is targeting about 36% or whatever it is.

Thomas R. Evans


Taz Turner – Checkpoint Delta Funds

Great, thank you.

Thomas R. Evans

Thank you.


And our next question comes from the line of Mark May - Needham & Company.

Mark May - Needham & Co.

Thanks for taking my questions. I had a couple of them. I was a little confused, Tom, on your answer to the earlier question with regard to pro forma growth. I think you mentioned Bankrate, it would have been 55%, so that means that the difference between 55% and 59% is $500,000. Is that the contribution from FastFind?

I think what might be helpful is you could tell us what the contribution from FastFind was in the quarter and what pro forma year-over-year growth is, had you included all the companies. I guess just the 10-Q footnote that you have to follow, the year-over-year pro forma growth including as if you owned them for the last 12 months? Then I have a follow-up.

Thomas R. Evans

When I said 55%, 55% of the 59% growth. So, if we grew $7.5 million or $8 million ex-barter in the quarter, $4.5 million of that was Bankrate and $3.5 million of that approximately was the acquisitions.

Mark May - Needham & Co.

The acquisitions. Thank you.

Thomas R. Evans

Again, taking out the trade on FastFind, that's what I meant by that.

Mark May - Needham & Co.

Hyperlink revenue related to mortgage, I think you gave what it was year-over-year, can you tell us what it was in the first quarter?

Thomas R. Evans

Last year, the mortgage represented 66% of the hyperlink tables revenue, 66% in the second half. 66% of the hyperlink revenue in Q2 of '05 was mortgage, it was 44% in Q1 of '06. It went to 46%.

Mark May - Needham & Co.

That would have been all volume-driven, then? It looks like it was flat, the revenues were flat sequentially since there were no changes in pricing, it’s really being driven by volumes.

Thomas R. Evans

Correct. Then deposit represented 43% of that.

Mark May - Needham & Co.

Can you help explain to us as you have a mix shift in the hyperlink segment away from mortgage and more to the deposit, I think you gave us some good pricing data with regards to mortgage earlier. Can you talk about how the mix shift impacts the average overall pricing for the hyperlink? I am assuming that deposits have a lower average price per lead.

Thomas R. Evans

Our deposit pricing is $3 for CDs and $4 for money market clicks. The pricing for mortgage is $5.25 for tier one, $4.50 for tier two, $3.50 for tier three, and $1.75 for tier four.

Mark May - Needham & Co.

How does that average out roughly?

Thomas R. Evans

On mortgage it’s a little over four and on mortgage it's obviously about a halfway between three and four.

Mark May - Needham & Co.

Lastly on the guidance you maintained the guidance for the year. It sounds as though from your earlier commentary that you felt like it was taking a little longer to ramp up FastFind new lenders. I am wondering, that sounds like it’s slightly newer. I know you have talked about that a little bit in the past, but it seems like that your views there have changed a little bit. What gives you confidence in maintaining the guidance given that slower ramp?

Thomas R. Evans

Again, we tend to be pretty conservative and we have sort of baked in. The way we budgeted the business, the way we managed the Company, the way we issued guidance did not assume FastFind was going to blow the socks off, or the doors. It was not a business that we knew well, it’s not a business– we think we understood it pretty well from having run the aggregator business the way we did last year, with the two advertisers on Bankrate in 2005.

We just were conservative on our estimates As I said, we have had great success in signing up lenders, so that's the good news. It's been slower to get them to be fully buying at the levels that we know they buy. That's because that have been doing a lot of testing, they have been doing a lot of tweaking, they have been doing a lot of small little buys.

Very, very confident we’ll get there. We didn't bake a lot of upside into FastFind in our guidance. We said it's going to be a second half towards the end of the year optimization event. If you go back and read what we said about FastFind all along, it’s a building process in '06 and it's going to be our big growth impetus in '07. We still feel very much on track, and again, we didn’t bake so much into our estimate and our guidance on Fastfind so that it has to perform all out early for us to just get there.

Mark May - Needham & Co.

The valuation on the acquisition you announced this morning seems very compelling. It looks like it's around 4 times EBITDA. Can you tell us why you were able to get such a low valuation or attractive valuation for that? What is the business growing at or are you doubling the revenue or EBITDA in a very short amount of time?

Thomas R. Evans

They’ve got a very good business in the mortgage lending business. They are not website operators, they are not advertisers, it was really just a legion platform, it didn’t have advertisers, it didn’t have rate tables. It’s just a great tuck-in for us. Nobody can monetize that site the way we can, because all of a sudden we have got a graphic ad sales that has just picked up incremental inventory, we’ve got rate tables, those would just get plopped right on there, so that will be part of our rate table platform. We looked at just the page views and the kind of pages that they are getting and the kind of click rates they are getting and thought, here is what we can do with it.

Again, I think it's unique to Bankrate being able to monetize it in a way that we can. We think it’s a fair price to pay for what the assets were, we are certainly not going to pay for what we can make it worth.

Mark May - Needham & Co.

My last question I promise. Since you last gave guidance it sounds like you have probably gone further down with Efficient Frontier in exploring what you plan to do in the fourth quarter and you have probably learned a little bit more about that. Have you, in the last time you gave guidance, did you incorporate any of the benefits in costs related to that increased SEM later in the year, and/or now are you including any of that in your projections?

Thomas R. Evans

I don’t think this will surprise you Mark; yes, but not a lot, I mean we have included that, but again, we have been very conservative. We don’t have to blow it out to beat our estimate. If there is as much upside as we think there may be, yes, we can clearly exceed what we have been guided.

We have to manage the business for long-term, we have to manage the business for a rainy day, there is no benefit in my mind to telling people how great it's going to be and then coming 2% shy of fabulous and having everybody disappointed because you ratcheted up the expectations.

We really tried over the last couple of years that I have been here not to do that and been conservative and been prudent about the way we are managing our business so that we can manage it for the long term and not again try to finesse or finagle to meet a quarter.

Mark May - Needham & Co.

Okay. Thanks for taking all my questions.

Thomas R. Evans



Our next question comes from the line of Colin Gillis - Canaccord. Please proceed.

Colin Gillis - Canaccord

Hi Tom, thanks for taking my question.

Thomas R. Evans

Thanks for hanging on, Colin.

Colin Gillis - Canaccord

So can you just give me a sense as to where exactly you want to drop the paid search traffic? Is that just in for the rate tables or into the editorial content as well?

Thomas R. Evans

Great question. It depends on what the search term is. Mortgage calculator will drop right in to our calculator, and our calculators generally get x number of page views and then pop people from that over to our rate tables. So if you get page view, page view, page view, rate table you are talking about high CPM, high CPM, high CPM rate tables -- click -- that’s a pretty nice place to be.

We generally try to drop them into topic-specific areas so that we can be very tactical about our SEM activity. Again, just because of the amount of content that we have on the site, because it's so specific either by channel, by product or by market. Somebody types “30 year fixed San Diego” yes, they go right to the 30 year fixed San Diego table.

But a term like mortgage calculator or some of the other terms put them into that area that is pertinent to that search term, and hopefully we get page views and clicks out of that; and leads out of that dynamic.

Colin Gillis - Canaccord

Got it. Speaking about calculators, can you give us a sense as to how the CPMs for calculators stack up against some of the other channels?

Thomas R. Evans

Very, very well. You are talking about a consumer who’s really in market, a person who is grinding on how much can I afford, what’s the best product for me, they’re pretty far down that decision-making funnel so the CPMs on calculators, the CPMs on rate tables are very, very strong.

Colin Gillis - Canaccord

So calculator traffic is definitely going to be something that you are going to be able to monetize?

Thomas R. Evans

Without a doubt.

Colin Gillis - Canaccord

Just turning to, can you talk about the quality of the advertisers there, any efforts to clean up that house and then any site redesigns?

Thomas R. Evans

Midway through this, we have got a new site editor and he’s doing a terrific job of really looking at it. We are going through that process now and I think you’ll see some changes in the look and feel, in the content of and then following that, you’ll start to see a some sort of gentrification to the neighborhood if you will, in terms of the advertising base. But that will come as we make the changes and the improvements in the side.

Colin Gillis - Canaccord

Just on the FastFind side, any answers you can give to these questions are great. Can you quantify what the lending network is? Where you want to get it to in terms of the number of banks that are looking to buy leads?

Thomas R. Evans

It's currently over 300 and we only need 250 active lenders who have meaningful lead requests on a daily, weekly, monthly basis to make it work. We will continue to sign them up but now the real focus is, the guys we’ve signed up, get the filters in place, get the testing over, get the trials done that they are doing on the site, get them buying a significant number of leads on a daily basis.

The traffic is there, the click rates are there, it’s just a matter of ramping that back end and so it’s gone according to plan; the selling efforts been good, the implementation, that isn’t a technical problem it’s a marketing and sales effort as well to get them all live rather than just on the network, signed up, where we have done credit checks and things like that.

Colin Gillis - Canaccord

Sure but you are leveraging the existing Bankrate sales channel to offer this product, is that correct?

Thomas R. Evans

Absolutely I mean 109 sign-up sales in the quarter and a good number of those came from the Bankrate team in addition to the FastFind team.

Colin Gillis - Canaccord

Just on a revenue per PIP basis, could you give us some sense of as to where they are now and where they could be say at the end of 2007? Just so that we get a sense as to how much room there is for improvement in that area?

Thomas R. Evans

The revenue per lead, the revenue per individual -- PIP is an individual lender who is buying it -- bounces around depending upon the type of lead anywhere from $10 to $35 to $38. The average that we have always targeted is at $20 or $22 sold 3.5 times, that becomes a very attractive value proposition. So that's the target where we have some advertisers that are buying at the high levels, we have some people who are testing and they are testing at the low levels. What we hope to do is lock that up over time.

It's lower than what we have targeted right now, but no reason to think that that's not going to work and we are not going to be able to, as we build up demand, that the pricing leverage will be there just the way it is on our CPC tables and on our graphic ads.

Colin Gillis - Canaccord

Just quickly along those lines, the conversion rates, once traffic hits FastFind, do you think that there’s room for improvement in terms of increasing all the conversion rates there?

Thomas R. Evans

That's what we do with application optimization and there are certain things we can do just in terms of application verification. Down the road, putting credit scores on those applications so that when you sell a lender an application, they know exactly what they are buying, they know that a person already qualifies and it just accelerates the process.

Colin Gillis - Canaccord

Okay great. Then on the last one, could we get a breakdown of traffic by channel?

Thomas R. Evans

Traffic by channel, the mortgage channel was about 32% in the quarter, the deposit channel, which was 15% a year ago was 31%, credit cards was about 10%. I am missing one, off the top of my mind. There was another large one, I can’t figure out what it is. Home equity is always in the 8% to 10%.

Colin Gillis - Canaccord

The calculators and all others.

Thomas R. Evans


Colin Gillis - Canaccord

Great quarter Tom. Thank you.

Thomas R. Evans

I appreciate it. Thanks.


Currently, we have time for two more questions. And our next question comes from the line of Kevin Timmons - CL King. Please proceed.

Kevin Timmons - CL King

Hi, guys, nice quarter.

Thomas R. Evans

Hi, Kevin. Thank you.

Kevin Timmons - CL King

Most of my question have been answered. I have a couple of specific ones. The tax rate this quarter for a cap basis was quite a bit lower than in the first quarter, can you just go through what's going there?

Thomas R. Evans

Kevin, it was tough to hear you. I am sorry, could you --

Kevin Timmons - CL King

I am sorry. The tax rate for the quarter was quite a bit lower than in Q1?

Ed Dimaria

All of change is a result of FAS 123 R. We have got more, if you will, benefit this quarter in stock compensation expense than we did last quarter due to the nature of how [inaudible]

Unfortunately, that’s a kind of what you deal with a little bit with this new standard.

Kevin Timmons - CL King

With the stock comp number, it was obviously up a lot from Q1, but that was primarily due to the early vesting and that's converted to a run up in the stock price during the quarter?

Ed Dimaria

Absolutely, that’s exactly what happened there. When the stock vests really, you have to essentially take a charge.

Kevin Timmons - CL King

So, for modeling purposes if I figure the number is way down from $3 million plus in Q2, is that the reasonable thing to do?

Ed Dimaria

Yes, we don't really have other grants if you will, that have that type of feature. We are definitely expecting that to go down.

Kevin Timmons - CL King

You guys have quantified obviously, around the first quarter number, that'll be probably a more rational place to be?

Ed Dimaria

A little bit more than that. Closer to $2 million.

Kevin Timmons - CL King

Okay. The gross margin on the print business and you may have addressed this, I may have missed it, was that the result of spending to try to push out to more paper? Or is there something else going on there? It was down from 15% in Q1 to 11 and change I think.

Thomas R. Evans

The operating profit on print? Yes, primarily.

Ed Dimaria

You have to look at it on a year-to-date basis, I mean that’s where we are. It's down a little bit, we expect it to come in for the year around 14%.

Kevin Timmons - CL King

Again for modeling purposes, up from Q2 is reasonable.

Ed Dimaria


Kevin Timmons - CL King

Finally, the changes that you mentioned in the tiering, the state by state tiering, when did that take place?

Thomas R. Evans

That took place at the end of June.

Kevin Timmons - CL King

So that hasn't been reflected in the numbers yet?

Thomas R. Evans

It will be reflected in the third quarter.

Kevin Timmons - CL King

Third quarter, okay, great. Thank you very much.

Thomas R. Evans

Thank you.


And our final question comes from the line of Gary Schnierow - JP Morgan, please proceed.

Gary Schnierow - JP Morgan

Your organic traffic was 93% of page views for the quarter, and it's much higher than the previous quarters. Why was that? I mean, is that because you dialed down the paid traffic?

Thomas R. Evans

Well, in the last quarter, Q1 of this year it was 94%. So, it really has just been a reflection of what we have seen in terms of traffic patterns over time where if you look at our traffic, for example, in 2004 , 18% came through paid search, 20% came through partners and 62% came through Bankrate. That 62% is now 80%.

The 20% that came through partners was 13% and then the rest is made up of paid search, last quarter was 95% organic and 5% paid, it was 81% organic, 14% partner and 5% paid. So it's maintained to relatively same balance.

Gary Schnierow - JP Morgan

Okay and what's the traffic you get from your partners? How does the revenue split on that work?

Thomas R. Evans

Yes, generally it goes to those co-brands and we split the revenues 50-50.

Gary Schnierow - JP Morgan

On your website, the insurance tabs, the tax, the personal finance, education, how new are those?

Thomas R. Evans

Well, they were concurrent to our launch of the website a year ago in May. The one area I forgot taxes, when the question was asked earlier about channel traffic, the taxes is always a good second quarter channel for us. Taxes did just under 10% in traffic. But those are channels that we have developed. When I talked about the fact that we can do more in those areas, it is just a matter of pushing more traffic and having more content, doing some partnerships to accelerate traffic and growth in those areas.

Gary Schnierow - JP Morgan

Okay, great. Thanks Tom.

Thomas R. Evans

Yes, I appreciate it and thanks for hanging in for so long. Okay everybody. I know we have run awfully long here, but we want to thank for your time and attention. We are very excited about our business going forward. We appreciate the support of our investors, of our Board and want to say special thanks the employees at Bankrate who have done and continue to do a superb job.

So again, I apologize for running late, appreciate your time and interest and thanks everyone. We’ll be back to you next quarter.


Thank you for your participation in today's conference. This concludes the presentation, you may now disconnect. Have a wonderful day.

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Source: Bankrate Q2 2006 Earnings Conference Call Transcript (RATE)

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