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Bankrate, Inc. (NYSE:RATE)

Q4 2013 Earnings Conference Call

February 13, 2014 04:30 p.m. ET

Executives

Bruce J. Zanca – Chief Marketing, Communications Officer and Senior Vice President

Kenneth S. Esterow – President and Chief Executive Officer

Edward J. DiMaria – Senior Vice President and Chief Financial Officer

Analysts

Jordan Rohan – Stifel Nicolaus

Andrew Jeffrey – SunTrust Robinson Humphrey

Joyce Tran – Bank of America Merrill Lynch

John Campbell – Stephens Inc.

Heath Terry – Goldman Sachs

Victor Anthony – Topeka Capital Markets

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2013 and Full Year Earnings Conference Call for Bankrate, Inc. My name is Esterbob, and I will be your operator for today. (Operator instructions) I would now like to turn the conference over to your host for today, Bruce Zanca, Senior VP of Communications.

Bruce J. Zanca

Well, thanks Esterbob. Good afternoon, everyone, and thank you for joining us for Bankrate Inc.'s fourth quarter and full fiscal year 2013 earnings announcement. Here with me in our New York office is the company's President and CEO, Ken Esterow; and our Senior VP and CFO, Ed DiMaria.

Let me briefly review the call's format. First, Ken and Ed will deliver brief prepared remarks concerning the fourth quarter and the full year. I trust you saw our press release a few minutes ago. Following their prepared remarks, Ken and Ed will take some questions.

Let me quickly run through the legal prerequisites and then we'll get started. We remind you that some of the statements made in this conference call, including those regarding the company's future prospects for growth, future revenue or profitability and our ability to continue to reduce costs and successfully implement strategic initiatives constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to future events and financial performance, but are not guarantees of future performance and are subject to numerous uncertainties and risks relating to the company's operations and business environment, which may cause the company's actual results in future periods to be materially different from those contemplated in such forward-looking statements. While we cannot anticipate all of these uncertainties and risks, we have identified some important factors currently known to us in the press release that preceded this discussion and we encourage you to read our reports filed with the SEC, including the discussions under risk factors in our annual report on Form 10-K for the year-ended December 31, 2012, and additional information including risk factors section that will be set forth in our annual report 10-K that we filed for the year ended December 31, 2013. These documents are or will be available on the SEC's website.

So with that, let me turn the call over to Bankrate's President and CEO, Ken Esterow. Ken?

Kenneth S. Esterow

Thank you, Bruce. Hello everyone, and thanks for joining today. It is great to be able to share with you really positive results for Q4 and for the full year 2013 on this my first Bankrate earnings call. I’m going to start with some financial and operational highlights for the quarter, Ed will then give you a more detailed financial review. We will turn to Bankrate’s strategic initiatives for 2014 and beyond and finally I will spend some time on guidance for the year and for the quarter before opening the call up for Q&A.

So let us dive into the quarter. Bankrate is hitting on all cylinders once again. Total Q4 revenue of $122 million reflects a 31% improvement over 2012. In terms of EBITDA we nearly doubled last year’s Q4 result, delivering more than $35 million.

Our insurance business continues its reconstruction with 24% in year-over-year revenue growth for the quarter. Operating metrics reflect the payoff of our intense focus on raising the bar on lead quality. Lead conversion disposition data that we are now getting back from many of our carriers is showing continued and material double-digit improvement over last year. While our commitment to lead quality has us running at roughly 80% of last year’s lead volumes, we are seeing the benefit. Agent retention continues to get better and average spend per agent rose roughly 25% year-over-year.

We are also now linking revenue with quality improvements. Overall monetization in terms of revenue per lead and revenue per click are both up more than 40%. As we set out to do, this monetization is coming through increased ROI delivered to our insurance carrier and agent partners. We are proving the thesis that we can do better ourselves by doing better for our partners. And the more time I spend with the Bankrate insurance team, the more excited I get about the transformational opportunity we have here to replicate the successes in leadership of both bankrate.com and creditcards.com.

Our insurance business is in the early stages of a generational shift of customer acquisition in a $200 billion industry from off-line to online, and delivering to consumers a much improved experience when shopping for insurance. Now speaking of success in leadership, the credit cards team really outdid themselves by delivering more than 60% revenue growth for the quarter versus 2012. Seasonally strong consumer interest was combined with the highest issuer demand that we have seen since 2011. Penetration was also supported by premium issuer offers.

In fact, creditcards.com click and approval volumes were the highest since Bankrate acquired the business back in 2010. Another positive trend is that funnel conversion on our card’s mobile site is now running closer to desktop, up threefold from last year. And finally we have been putting a lot of effort towards more deeply engaging with many of our issuers with a sale and attribution analysis.

The data confirms that issuers are capturing an additional 20% to 50% in new cards generated from consumers who first come to the creditcards.com site before arriving at their site. Now we don’t get paid directly in terms of CPA for these “attributed cards” identifying this additional sell through further enhances the value of our card listing for issuers and creates the potential for increased monetization.

For our banking products, strong demand from our deposit advertisers continues to dampen the impact of a slowing refi market. We also notched important wins in both business development with the extension of our partnership with move.com and in sales with a number of active mortgage advertisers on Bankrate.com, up 16% versus this time last year. You know, we have seen this trend before where a slowing refi market actually means our audience of highly engaged and qualified consumers is even in more demand by mortgage advertisers.

Also in December, we launched our rate plus program, which allows mortgage advertisers to price their loans with increased granularity, and provides consumers with even more competitive pricing. And finally, while we don’t usually talk a lot about display anymore, another indication of the strength of our audience is that the Bankrate team set a record for display revenue for the quarter, which was up 18% versus last year.

Now I would like to turn the call over to our CFO, Ed DiMaria, for a more detailed review of Bankrate’s financial performance.

Edward J. DiMaria

Great. Thanks, Ken. Okay, we have a lot to report, first I will provide a high level overview of the quarter and the annual financial results. Then we will review our 2013 accomplishments and achievements in relation to guidance and how the business trended during the year. I will provide some color on the quarter and current trends, and Ken will walk you through our initiatives and our view on Q1 and annual 2014 guidance that I know you are all very interested in, and then we will be happy to take some questions.

And please note, a reconciliation from GAAP to non-GAAP measures that I provide my remarks can be found in the back portion of the press release.

From a high level standpoint, revenues for the quarter were $122.3 million, up $29 million or approximately 31% over the prior year 2012 quarter. Fourth quarter adjusted EBITDA was $35.4 million, up 97% over the $17.9 million we reported in Q4 2012, and note EBITDA was up 11% sequentially over Q3 2013. So we are really showing some very nice growth in momentum right now. The adjusted EBITDA margin of 29% in Q4 was the highest margin we posted all year, driven by strong performance in the credit card business as Ken just mentioned, which increased by over 60% in Q4 on strong consumer offer clicks, issuer demand and approval rates.

GAAP net loss was $3.5 million for Q4 2013, which represented a loss of $0.04 per share versus net income of $0.3 million in Q4 2012, which rounded to $0.00 of EPS.

Net income on an adjusted basis was $13.5 million for Q3 2013, representing EPS of $0.13, which is flat versus the prior year. One of the big factors between GAAP and non-GAAP is the charge we took in Q3 on the P&L associated with successfully refinancing our debt, more on that in a few minutes. Non-GAAP net income on an adjusted basis was $16.9 million for Q4 2013, which came in at adjusted EPS of $0.17 compared to $0.06 in the prior year.

For the full year, revenues were essentially flat at $457.4 million for 2013 versus $457.2 million in 2012. Likewise EBITDA came in at $121.9 million for 2013 versus $123.1 million for 2012. Okay let me take a minute to explain the non-GAAP measures because there was $33.6 million during the quarter, which is why we have a GAAP net loss. If you look at the reconciliation in the back of the press release for both adjusted EBITDA and adjusted net income and EPS, the main areas being adjusted are deal amortization and you have seen that before, stock compensation, which is non-cash and viewed as an equity item on a non-GAAP basis. There was a charge for the equity award modification for the CEO transition, and note this charge was included in the current quarter’s G&A line, which is why that line looks unusually large, and a charge for fair market value adjustments taken on the P&L for acquisition earn outs, and note these are contractual purchase price earn out adjustments.

But under the GAAP regs, such adjustments are recognized on the P&L. So, of course, we exclude them for adjusted earnings and EBITDA. So that explains the non-GAAP measures.

Now a couple of remarks on 2013 and the business trends. First and foremost, we had an excellent Q4, capping of a year when we as management in our guidance in the beginning of 2013 said, we will return the business to growth by the second half of 2013, and we did indeed achieve this. We had conviction around the strategy and we had conviction around our guidance for 2013, and we did deliver.

We said that with our continued focus on quality in insurance we would have this vertical growing by the latter half of 2013, and the insurance vertical increased by 24% in Q4 2013 year-over-year and started off 2014 on a very positive growth trajectory. Now with this heavy lifting behind us, we are continuing to unlock quality, conversion and monetization. We are focused on opening up new sources of traffic and turning our attention to new product development opportunities in mobile content and the consumer experience, data and analytics, machine learning and other areas where we think we can truly provide exciting areas for growth as we continue to develop what we think is a very large revenue opportunity in the insurance vertical.

We think we are in the early stages of a growth in development in the insurance vertical, and we believe we are very well positioned to go after this growth. On the card side, as we closed 2012 we began to see some green shoots of growth as you remember and that growth has accelerated all year long during 2013, and we ended Q4 2013 very strong, up over 60% year-over-year. We started January 2014 on a very positive note with another very strong month of growth across a broad range of products and issuers.

On the banking side, we saw better traction on our deposit area in Q4 2013 with a 23% year-over-year CPC increase, and this growth is continuing into early 2014. Also, our display business was strong all year long during 2013 and continues to be strong entering 2014. The deposit CPC growth has offset some of the cool off in refi traffic we saw in 2013. Also I do want to highlight mortgage click revenue in Q4 was under 10% of revenues. So this is a small part of our business. Obviously still very important, but not like 10 years ago when mortgage was the majority of our business.

Given the strength in display, deposits, traffic and monetization we expect our banking business will show solid growth in revenue and margins during 2014. So from a broad trends perspective we feel very good about our business, how it is tracking and growing exiting 2013 and entering 2014.

Now let us run through the details. Revenue from our leads business of $86.3 million was up by approximately 41% on a blended basis versus Q4 2012. The overall year-over-year increase was primarily driven by very strong growth in credit cards, which as I mentioned was up over 60% as I previously mentioned. Issuer marketing continued to accelerate with more card products and offers, higher approval rates, and increased monetization. In addition, consumer credit card traffic and engagement on our site increased. Obviously this was huge growth and a great result. Also we do expect strong growth in the cards vertical to continue.

Our CPL product revenue, which is primarily related to insurance, was up approximately 13% from Q4 2012 with overall insurance revenues including CPC up 24% as I previously mentioned. As discussed before, we said that we will return this business to growth by late 2013 and we did. We will be back to you with an update when we have Q1 2014 results. I’m not going to play spoiler, but the early read is looking very good.

Our display advertising revenues totaled $9.4 million, up 18% year-over-year in Q4, and to note, this is the highest quarterly CPM revenue that we had posted in the last five years. On the CPC side, revenues of $24.6 million were up 11% versus Q4 2012.

Our insurance CPC product revenue was up over 60% year-over-year. We gained traction in the insurance CPC channel across the board. Needless to say, our quality initiatives are paying off not only in the insurance lead business, but also within our insurance clicks business.

Our banking CPC product revenue was down 10% with deposit growth of 23% offsetting some of the cool off in refi.

With respect to margins, our overall gross margin percentage on revenue on a non-GAAP basis, excluding stock compensation for the fourth quarter 2013 was 69.9%, compared to 67.1% in the fourth quarter 2012, and was up over 300 basis points sequentially from Q3 2013. The improvement in margin is the result of a higher mix of revenues from our credit card business, as well as an improvement in monetization driving higher margin all our business areas, including credit cards, banking, and insurance.

Operating expenses excluding stock compensation, amortization and depreciation and other non-cash related items, totaled $50.1 million in Q4 2013 versus $44.7 million in Q4 2012 and $49 million in Q3 2013.

OpEx was relatively flat sequentially, and was up by about $5.5 million year-over-year as we continued to increase our marketing activities to move more traffic through our owned and operated sites consistent with our strategy. We had additional expense associated with our management incentive compensation plan in 2013 as a result of hitting our financial targets. Note that in 2012, the company did not pay out management incentive compensation due to weaker than expected performance.

The adjusted EBITDA of $35.4 million represents a margin of 29% in Q4 2013, compared to Q4 2012 EBITDA of $17.9 million, which was a 19.2% margin and Q3 2013 EBITDA of $31.9 million, which is a 26.3% margin. The year-over-year and sequential increase in EBITDA dollars and margin during Q4 2013 was a result of a higher mix of cards revenues, increased monetization and efficiencies with respect to our marketing spend.

The step up in financial performance this quarter has further strengthened our conviction that our strategy is working, and will provide an excellent foundation for the future. We will continue to focus on high-quality traffic, increased conversion and product development featuring mobile as core strategies, which we believe will continue to propel our growth in the future.

We ended the quarter with $230.1 million in cash, up $38.5 million versus the $191.5 million at the end of Q3 2013. Our leverage ratio at Q4 end was 0.5 times on a net debt basis on LTM EBITDA of $121.9 million. So with that Ken will give you an update on our business initiatives, and then he will review guidance.

Kenneth S. Esterow

Great. Thanks Ed. Before covering guidance for 2014, I would like to spend a few minutes highlighting Bankrate’s strategic initiatives to sustain our revenue and EBITDA growth longer term. Let us focus on the top three. Firstly, Bankrate has always prided itself on providing consumers, advertisers and partners with the most relevant and engaging content and tools for consumer personal finance. There is a large opportunity for us to sync up this incredible franchise will today’s tools around user optimization, multivariant testing and applying metadata to test dozens of site changes and enhancements at a time, instead of the one which we are running today.

This will enable us to continuously improve consumer utility as well as monetization. With our 250 million annual visitors across Bankrate and roughly one billion pages, there is a lot of gold to be mined. Second, with regard to our mobile efforts, I would like to surface a slightly different view then perhaps you have heard. Bankrate has indeed come a long way in a relatively short time with respect to introducing our mobile sites, and building new apps for iOS, android, kindles and windows. The mobile user experience on Bankrate is much improved in 2013, and will continue to get even better. That said Bankrate’s future success depends on not just approaching mobile as a check the box, yes, Virginia, we do have a mobile site and some apps, rather we plan on applying a full end-to-end view to make all of Bankrate great on mobile.

First is to make sure we are working with our publishing affiliate partners upstream serving their mobile web and app audience by providing tools, which is [SDK links]. An example of what I am talking about can already be seen through our partnership with move.com, which recently integrated our mortgage offering into their realtor app. Second is ensuring that our content for editorial, articles, tools, even something as minor as what headlines or images we show resonate with the mobile audience.

It will then shift from simple optimization to ultimately creating content specifically for the mobile user. And finally, let us say we do all this work to engage consumers either directly or with our affiliates, we will make sure that when we deliver these mobile in market consumers to advertisers, they continue to have a great experience. For some of our advertisers, especially in the mortgage vertical, this may mean helping them directly by providing mobile optimized landing pages and templates, so they are able to engage directly with the mobile or app consumer. Simply said, mobile for Bankrate won’t just be about technology anymore.

And finally, we will be broadening Bankrate’s horizons from our episodic, very mission oriented consumer emphasis such as searching for a mortgage or credit cards towards establishing an ongoing relationship with customers. Think about it as my Bankrate. Effectively, we will be creating a service for consumers that provides features and benefits with ongoing value, and we are ready to begin to anticipate when they may need certain information and more importantly be responsive to a partner offer.

We are still working through what the consumer proposition is for my bankrate, including what even to call it. But at this point we are expecting it to be offered to consumers as a free or freemium model with our huge audience, our consumer credibility and our ecosystem of leading financial partners, we are in a great position to develop my Bankrate into an important new channel over the long term.

So now let us turn to 2014, our insurance business will keep its laser focus on improving quality, which in turn should drive favorable trends on RPL, carrier participation, and local agent dynamics such as tenure and spend. We are also targeting having our owned and operated site as Ed mentioned, generating an even larger share of our leads through our SEO and SEM efforts. Longer term, it is our owned and operated sites that will continue to be the best source of quality leads.

The credit cards team will continue to use advanced analytics and a data feedback loop for issuers to improve funnel metrics. And on the theme of being great on mobile, we will be adding mobile optimized content for the credit card audience, which today only seems card offers on m.creditcards.com. And finally for Bankrate.com proper, we are seeing strong demand by mortgage and deposit advertisers, leading to higher average CPMs and higher CPP. As such, we are projecting that our banking business overall will be up year-over-year.

In terms of 2014 financial performance, we are targeting full year revenue to be in the range of $520 million to $530 million, and full year adjusted EBITDA of between $145 million and $150 million. Now typically Bankrate has not guided quarterly, but I do appreciate the desire for some color here as well. 2014 has started off strong with solid revenue growth across banking insurance and cards compared to January of last year.

So for Q1, we are targeting revenue to be in the range of $125 million to $130 million and adjusted EBITDA of $33 million and $36 million. As I highlighted in our release, net-net we are targeting 20% growth in adjusted EBITDA for both the quarter and for the year. For Bankrate investors, this represents an important return to growth.

And with that operator, I would like to turn the call open for your questions. Esterbob?

Question-and-Answer Session

Operator

(Operator instructions) It looks like our first question comes from Jordan Rohan with Stifels.

Jordan Rohan – Stifel Nicolaus

Thank you and nice quarter guys. It's nice to finally close the book on the [surprise] 2012 year and now that that's behind you. I have a couple of questions on the insurance side of the business, and then one question about guidance on both the growth and margins. On the insurance side, can you give us -- I didn't hear the specific breakout of percent of leads driven through SEO and SEM on your properties in Q4. I am also curious about the frequency of leads sold. If I heard correctly, you said volumes were 80% of prior year, which means down 20%. Yet it seemed like revenues were up 13%. What I can't tell from that is if that's largely driven by selling the same leads more times, or if that's driven from real price increase on a per-lead basis. And then, finally, on margins and guidance, you know, the 31% growth in fourth quarter is great, but it was off of a kitchen sink Q4 2012. The full-year guide of 15% growth in revenues and 20% growth in EBITDA is -- even against the backdrop of a really strong environment for credit card marketing seems pretty conservative to me. Can you talk about what implied growth rates might exist for the businesses outside of credit cards, in order to get down to the 15% revenue growth at the midpoint of your guided range for 2014? Thank you.

Kenneth S. Esterow

I am sure there is a lot in there. I will take the first couple and let Ed try to take on the next set, I think there are four or five questions in there. In terms of the break down on our lead volume, at a high level you should think about sort of between 25% and 30% of our leads are being generated on our owned and operated sites between SDL and SEM with the balance coming from form host affiliates and for leads that we’re buying in the ping post process, which I believe has been described previously.

The second question was around the higher RPL, we are -- we are seeing two things. One, as I mentioned in our remarks and as Ed did as well, we are beginning to have carrier pricing that aligns pricing with improvements in quality. So I think of it as a matrix or scale, as our quality improves and as our agents and carriers ROI improves, we are able to drive additional revenue. And that is something that Jeff and the team worked in all through 2013 and will continue into 2014. So think about quality equal dollars, and I believe, and I’m kind of looking at the number right -- for the number, but our number of leads that are being matched, the number of leads that are being matched across our network has improved slightly, which also helps with monetization.

I don’t have the metric in front of me, but that also is partially responsible for the improvement on the revenue per lead metrics. And I will turn the other section over to Mr. DiMaria.

Edward J. DiMaria

Guidance, yes, I have a fresh CEO sitting here in front of me Jordan, right, so if I -- If I get off he will throw something on me, right. No, seriously I mean, you know, it is a full year, you know, as I pointed out in my prepared remarks, we hit our numbers this past year, and that was for a year where I would say it was pretty well execution heavy for 2013. You know, I’m not going to say that 2014 is a breeze. There is no execution involved, but we are entering 2014 in a year where, you know, certainly the business is in much different shape.

We have a lot of growth entering the year, where really we are fuelling all the verticals, growing, entering the year -- we are entering the year with a January month, where we are already exceeding where we thought we would be. So, it feels pretty good. We want to give ourselves some room. We don’t want to get out ahead of ourselves, you know, but we like the momentum where we are. Well, credit cards are strong. Could the growth in credit cards exceed where we are putting it, sure. But for right now, we want to -- we have placed the stake in the ground, and you know, let us just see how the year progress, and yes, we will update you in 90 days.

In terms of -- in terms of just rough numbers I mean, we do think that cards and insurance will grow faster than banking, but we do think that banking will, you know, as I mentioned in my prepared remarks will have solid growth, double-digit.

Kenneth S. Esterow

And that is overcoming Q1 and Q2 where the refi boom is still in effect, interest rates picked up in May, which are now up 100 basis points, 30 are mortgage in the past year.

Jordan Rohan – Stifel Nicolaus

All right, guys. Thank you and that is a good quarter.

Kenneth S. Esterow

Great. Thanks.

Operator

Our next question comes from Andrew Jeffrey with SunTrust.

Andrew Jeffrey – SunTrust Robinson Humphrey

Hi, good afternoon. Thanks for taking the question. Ken, nice job on your first call here. My question, at least the first one is around mobile, and obviously it is a key emphasis for the company, is there a way to quantify as you think about especially in credit cards what that might mean as far as potentially dampening some of the cyclicality you have seen in that business before? In other words, is there a sort of a structural uplift as you look to model ’14 that might reduce some of the, you know, the amplitude of the sine wave a little bit in credit cards, assuming that the market remains externally as cyclical as it has been in the last few years?

Kenneth S. Esterow

So, I think there was two pieces to that. I’m also happy to have Ed chime in afterwards. First, in terms of the mobile experience for credit cards we will get better. We are going to provide content, editorial, they are going to continue to update and upgrade the site. They are going to be providing us a set of tools to engage the mobile user, track card spend, optimize the choice of card relative to their spending behavior, all that we think will bode well for engagement with issued cards.

The other opportunity on mobile, we believe is furthering our really strong position with respect to organic. On the desktop world, you get to see lots more choice. In the mobile world, you have one or two paid listings, maybe in news feed, and then there is one or two that are available. So it is moving to more of a win and take most type dynamic, which we think given our authority that has been built over a decade, given our continued commitment to editorial and consumer engagement, and providing a great marketplace and experience for issuers, we think that will bode well. And we are well positioned to take advantage of that shift.

Edward J. DiMaria

No, and I echo that, I mean, that is really what it all comes down to. When you are in the leadership position, you know, if you continue to increase your relevancy, particularly in the mobile environment, I mean at least I think, you know, we will continue – we will increase our share.

Kenneth S. Esterow

And the other thing which is statistically referenced about conversion now up three fold and starting to get close, not there yet to a desktop conversion experience. That in part is we are seeing the mobile audience being more reflective of the general population. I think on some previous calls, either Tom or Ed mentioned that what they were seeing was the audience skewed more sub prime and more -- wasn’t representative of the broader credit seeking population. As mobile adoption has increased, as engagement has increased, as people are starting to use these as their first access point for information, and utility, that also bodes well for us because we serve that higher end part of the market.

Andrew Jeffrey – SunTrust Robinson Humphrey

And do you have internally, I know one of the things you've emphasized, Ken, is the effort to do more analytics, to have a stronger internal feedback loop, do you have evidence -- I mean, the conversion rates are up that that is translating into share gain?

Kenneth S. Esterow

Our best guess is we have picked up maybe a point or two of share on a fairly large base. And then obviously, overall volumes for the entire system have been up. So, total card issued, I think I saw an Equifax report the first nine months of ’13 were up some 7% or 8%, our volumes were up similarly. So we think we picked up maybe a point or two of share, but it is on a pretty high base.

Andrew Jeffrey – SunTrust Robinson Humphrey

Okay. And then a question for you, Ed, nice EBITDA margin progress here is -- and I know there are some investments that are critical to sustaining the kind of advantage you have in this business, across your businesses, do you still feel like this can be a 30-plus EBITDA margin business? It looks like G&A, even adjusted for some of the one-time expenses was a little bit elevated this quarter, is there a call-out or any other structural impediment to driving the margin significantly higher here?

Edward J. DiMaria

Well, keep in mind, it was elevated as I mentioned in my prepared remarks because last year we didn’t pay any incentive comp because as you know, our results were off. So, you know, that was one of the reasons it was off because obviously we had to --

Kenneth S. Esterow

We didn’t get paid.

Edward J. DiMaria

Yes, we didn’t get paid last year, and we will get paid this year. So, but that being -- that would be something that would stay the same going forward. No, I mean, obviously the business has a lot of operating leverage in it, and you know, high incremental margins

as we grow it. You know, the investment that we are making, you know, if you look at what is built into our guidance, we are making the investments that we are making but we still think that we can either maintain or move up our EBITDA margins, you know, and that is right out of the gates with our guidance for 2014, and that is what we are seeing and yet with that we are announcing several pretty significant initiatives that Ken talked about.

So, you know, I think that if you think about that, you know, over multiple years, yes, I do think that over time we can get back to that type of a margin. I mean this is a business that thrives on owning its consumer audience, and when you own your consumer audience, over time you are able to monetize that at a much higher margin.

Andrew Jeffrey – SunTrust Robinson Humphrey

Okay. I'll jump back in the queue. Thanks.

Kenneth S. Esterow

Yes.

Operator

Our next question comes from Joyce Tran with Bank of America Merrill Lynch.

Joyce Tran – Bank of America Merrill Lynch

Hi, congrats on the great quarter, for insurance, it seems like it is improving quite a bit and how much room in terms of volume and pricing growth do you anticipate in 2014 and where is that versus your original goal, and then also on the partnership with move.com was that meaningful to revenue, and are there other large partners that Bankrate can integrate with? Thank you.

Kenneth S. Esterow

So, let me take the second question first, the move relationship is something we have had for many years. It’s a valued partner. We appreciate the work they have done in prioritizing the integration of our mortgage utility into their app, and it’s still early stages in terms of how impactful it is, but it rounds up their experience for their users and we think it’s the first of many to come as we have to be well positioned as I said earlier in the call that we are embedded upstream with our affiliate and publishing partners, and maintain the same strength of distribution that we’ve developed over the many years with traditional publishers in the web [data] role.

In terms of insurance pricing it comes back to the more quality we are able to drive the better pricing. We’ve had lots of clear feedback from many -- but not all but many of our carriers, who want better quality and have clearly indicated they are willing to pay for it, so you should expect to see as we deliver on improved quality with our efforts around machine learning, with our efforts around driving more of our business to our owned and operated sites, which generate the best of our lead quality across the spectrum, that lead quality will increase, RPL will increase, and it’s something that our carriers -- many of them are asking for because they want to focus on the leads that are most likely to convert because it drives their best ROI.

Every data point we see even with the growth in RPL we are still by far one of the most efficient customer acquisition vehicles for carriers and agents. And as they build more business processes around closing loop on lead to contact to conversion as they build better tools to support the entire experience of interacting with consumers online, and some carriers are very far down that path, some are just starting.

That bodes well for a transformational change in the space as I talked at some of the conferences in the past, if you think about the insurance vertical as the auto buying vertical was a decade ago when the lead form was kind of clumsy and long, and the responsiveness of car dealers and OEMs was not that great that experience has gotten orders of magnitude better and has created hugely valuable companies, as they deliver value to the dealer network and the OEMs. That same transformation is expected to happen in the insurance vertical.

Joyce Tran – Bank of America Merrill Lynch

Thank you.

Kenneth S. Esterow

Thanks Joyce.

Operator

Our next question comes from John Campbell with Stephens Inc.

John Campbell – Stephens Inc.

Hi, good afternoon guys. Thanks for taking our questions. The first, just on lead time, can you guys just give us -- just some color on maybe how fast a grower that is and then maybe what acquired rev was in Q4?

Kenneth S. Esterow

First of all, John welcome and congratulations. So we took steps very quickly to integrate LeadKarma into the fabric of insurance. It played into our overall strategy of driving more business through our owned and operated sites. They built a best in class SEM utility and tool. They have got folks who are manically focused on optimization, so at this point we are not dealing necessarily separately, and we’re not going to share a breakout of LeadKarma as we don’t breakout other parts of our business.

John Campbell – Stephens Inc.

Got you. So you don’t have -- you can’t share that inorganic number overall?

Kenneth S. Esterow

It’s an integrated component of our business and our strategy to -- essentially is to have that component of our business take over the SEM component of our business. So --

Edward J. DiMaria

I guess [Indiscernible] they were a partner before we brought them. Some of the leads we are getting from them, some of the leads they shifted from other partners to us. They’ve ramped up their SEMs sort of apples to apples.

Kenneth S. Esterow

SEMs that we were doing internally, we shifted to them , it is impossible to breakout sort of inorganic and organic.

Edward J. DiMaria

But Akshay and team are doing a great job there, an important part of our go forward strategy and we’re really pleased that they are part of the team.

Kenneth S. Esterow

Our job is to drive high quality leads through our owned and operated site and drive up quality, and you know, ultimately convert our leads into policy for our partners, and they’re a very important part of that because they drive high quality leads, they provide good analytics, and it was a very strategic acquisition for us to improve modernization.

Edward J. DiMaria

We also think we can do a lot more with them overtime.

John Campbell – Stephens Inc.

Okay, great.

Edward J. DiMaria

It’s not material to our overall revenue, I can assure you that.

John Campbell – Stephens Inc.

Okay, that’s fair enough. Thanks for that. And just last question here, obviously you guys have accumulated a fair amount of cash at this point, if you guys can maybe just give us an update or just kind of where your head is at for capital allocation in ’14?

Kenneth S. Esterow

You know, so our -- we believe and continue to believe when we did the debt refinance back last summer, obviously we wanted to remove the debt that was expensive and replace it with a much more desirable bond, that was less expensive and we felt that as part of that process, we would have additional resources available where we can pursue strategic acquisition, should they become available and we felt that that was our highest and best use of capital where we could buy -- look at accretive acquisitions where we can put the money to work, where if we could find something where one plus one given our high monetizing platform, one plus one equals three or four, and we continue to look for those types of opportunities given our strategy. There is nothing in the works, there is nothing right here in front of us but that continues to be something that we will look to pursue.

Edward J. DiMaria

If you think about two halves, one is around continue tuck ins that build out our franchises in credit cards and insurance and in banking, we will always be out in the look out for those. We’ve done a really good job of filling those out, integrating them, executing, building value. The second is thinking about more strategic opportunities where in verticals which resonate with the Bankrate skill set, building authority, generating high traffic because of that authority, and linking that traffic to a marketing population that values in market highly engaged consumers.

So there is lots of things for us to look at. We are in no rush but having that firepower at our disposal allows us to move quickly as the company did with credit cards way back when, as it did and consolidating a number of the insurance players, so when the opportunity presents itself and it is consistent with an overall strategy that we’re still developing around the other verticals we think we can add value as longer we have that capital available at our disposal. It is a good business to be in, and we still have very little leverage on any measure.

Kenneth S. Esterow

So if the opportunity not present itself at some point in the future, you know, when and if it is determined that that opportunity or that that capital would not be available or would not be able to be invested in acquisitions, and we would likely at some point return that to shareholders.

John Campbell – Stephens Inc.

Sounds great. Congrats on the great quarter guys.

Kenneth S. Esterow

Great, thanks.

Operator

Our next question comes from Heath Terry with Goldman Sachs.

Heath Terry – Goldman Sachs

Great. Thanks. I was wondering if you could give us a little bit color about the technology spend that you have planned for the year, whether in absolute terms or on a relative basis against the spend in ’13, clearly you got a lot of priorities in terms of the investments that it sounds like you want to make in mobile and in the insurance product and some other areas, just curious sort of how you see the -- the need to increase spending from a technology standpoint or how you get to those product developments?

Kenneth S. Esterow

Sure, great question, thanks Heath. I think the way investors look at ’14 and ’15 is that our investment in technology, or on the capital side, on the balance sheet side will grow with our growth in revenue and EBITDA. We are no longer going to try to -- starving the business is a wrong phrase, but limit that side of the business. We recognize that we may have underinvested in many of the areas, and need to set that up. Part of it is doing it in a way that, it’s consistent with organizational readiness, so just throwing money at technology at least in ’14 won’t necessarily work.

So a lot of the work we are laying out whether it be the optimization framework, whether it be some of the work that’s been done in insurance, our project that has been scoped and planned and we feel good about our ability to execute. But as the business continues to grow and thrive with that will come additional investments in technology. We think it’s important to us to not only catch up but in some of our verticals to deliver innovation and disruption, which I am really excited about.

Heath Terry – Goldman Sachs

Great, thanks. And you have talked in the past about the levels of organic traffic that you see in the various verticals, would you mind updating us on, you know, what percentage or what portion of your traffic and in the core mortgages, financials business, credit cards and insurance are coming from what you would consider organic versus paid traffic?

Kenneth S. Esterow

It is sort of a – I’ll answer the question slightly differently, which is we generate in total call it 50% gross margins after direct marketing spend, which is a combination of affiliate relationships, and our pay search relationships and that mix changes from insurance to credit cards to banking. Relative to many other verticals, we have lot of experience in travel, those are very robust gross margins in terms of being able to drive customers though the authority we’ve built with our owned and operated sites.

So I may not answer your question directly, and it is different by insurance and credit cards and Bankrate.com [proper], the other piece that shifts that are some of our important business and commercial relationship. So as we bring our new partners that have very favorable economics and rev shares that our partner benefits and we benefit, we will do those deals all day long, even while we build out our organic franchise, I think Ed referenced or I referenced for the year business were up 10% but we are still going out and signing new deals, bringing on new partners and helping our partners be successful with more tools and better solutions so that they can engage their audience. So hopefully that helps with the question although it may not have answered it specifically.

Heath Terry – Goldman Sachs

Sure. Thank you very much.

Operator

Our next question comes from Victor Anthony with Topeka Capital Markets.

Victor Anthony – Topeka Capital Markets

Thanks, congrats on the great execution over the past year. Correct me if I am wrong, but you quoted a number of $20 billion at the beginning of your script, I believe that was the insurance industry, some of the addressable market for you guys, Maybe you can help us just frame that market, that $20 billion number, and what’s the opportunity for Bankrate over the next several years against that number, and I assume [Indiscernible] pushing forward into -- over the next several years.

Kenneth S. Esterow

So there was some external data out there, which points to just the order of category at about $180 billion of premiums issued that if you add home and health where we’re also focused, it is well in excess of $200 billion. You will see statistics out there that the major auto carriers will spend somewhere between $5 billion and $6 billion on marketing efforts. That is more than doubled in the past couple of years.

They will spend another $12 billion or $13 billion on agent commissions, so round numbers of a $200 billion market that is spending $17 billion to $18 billion a year on customer acquisition, roughly 10%. We think there is a lot of room for us as long as we provide a quality product that provides a cost effective way for their -- to acquire customers, that’s consistent with each carrying agents over our leads and it varies. We have direct carriers, we have captive, we have carriers with captive agents, and we have independent agents, and our solutions and our pricing and our approach will be specific to those various consistencies. So we think there is a huge addressable market. We have seen many carriers not only embrace online customer acquisition, but make major investments in their customer experience being able to get your policy online, being able to file a claim online, being able to engage with your carrier or agent in a way that is far different than just a couple of years ago. And those investments bode well for the consumer who is looking to engage with the industry online and in mobile.

Edward J. DiMaria

So, it is changing. The point is, it is changing, it is transforming, you know, more consumers are doing the work online, and as that continues to happen and the carriers invest more dollars in that process, and we continue to invest in this vertical, we think we are in a very good position to continue to pick up those consumer acquisition dollars.

Victor Anthony – Topeka Capital Markets

Thanks. And second question just really on vertical expansion. I know in the past you've focused on [Indiscernible] maybe taxes. You know, what's the opportunity over the next several years?

Kenneth S. Esterow

I don’t think we have included anything with respect to verticals other than the direction Ed and I have given to the team, our operating leaders, Hanno, who heads up our M&A -- is find verticals where our core competitive advantage around authority building and audience building a brand, and being able to leverage that audience and brand with marketing partners who value in market customers, and engage customers is what we are looking for and whether that is taxes, whether that is financial planning, whether that is other verticals, we are looking for, we have nothing specific that is meaningful. It is in consideration.

But we have got the capital to do it. We are going to be disciplined as the company has been in the past. Over the past four or five years they have done a number of small tuck ins, and a handful of bigger deals that also proved valuable for shareholders. So we expect that trend to continue.

Victor Anthony – Topeka Capital Markets

Just one final one, just a quick update on China, what's your thoughts there?

Kenneth S. Esterow

So, we do have Bankrate China. It is a relatively small part of our business today. I think longer term as the financial markets deregulate, as consumers begin to look for information about their own financial decision making, we have got a solution and a team that are well positioned.

I would say and based on my limited experience with our Bankrate China business, it has moved slowly, and more slowly than I think we anticipated, but the opportunity is there and it is not a big drag right now, and it is something that we believe is sort of a good option bet with relatively low amount of spend, with a huge opportunity, Luna and her team are laser focused on it. I just actually spoke to Luna, a week ago, a week and a half ago, and they are focused on building apps and mobile solutions, and they are progressing their business, the market has to come along, the government has to come along, but we’ve every indication that that’s going to happen and happen in an horizon that we feel good about. So not a lot there yet but it’s a well priced option.

Victor Anthony – Topeka Capital Markets

Thank you very much.

Edward J. DiMaria

I think most of the traffic is organic there so far. So it’s building slowly, and we’ve been developing and as Ken said, you know, keeping our investment to a point where it’s been mostly unnoticed, it hasn’t really been that big, so --

Victor Anthony – Topeka Capital Markets

Okay, great. Thanks.

Edward J. DiMaria

Thank you.

Operator

Look like there are no further questions, I would now like to hand the call back to Ken Esterow.

Kenneth S. Esterow

Great. Thank you Esterbob, and in closing, I want to be sure to thank Ed and really thank the entire team for their efforts in returning Bankrate to growth, and on a personal basis thank them for their support as I continue to on board, after just a few months in the role I am really pleased and excited where we are, we’ve got a great leadership team, we’ve got solid momentum to start the year, and we’re already executing on our strategy to sustain growth beyond 2014, and I really look forward to sharing our progress in coming calls. So with that we’re going to conclude our first or my first call as Bankrate’s CEO. Thanks for listening.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

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