Bankrate's (RATE) CEO Kenneth Esterow on Q2 2014 Results - Earnings Call Transcript

| About: Bankrate Inc. (RATE)

Bankrate (NYSE:RATE)

Q2 2014 Earnings Call

August 07, 2014 4:30 pm ET


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

Kenneth S. Esterow - Chief Executive Officer, President and Director

Edward J. DiMaria - Chief Financial Officer, Principal Accounting Officer and Senior Vice President


Rohit Kulkarni - RBC Capital Markets, LLC, Research Division

John Campbell - Stephens Inc., Research Division

Joyce Tran - BofA Merrill Lynch, Research Division

Kaizad Gotla - JP Morgan Chase & Co, Research Division

Victor B. Anthony - Topeka Capital Markets Inc., Research Division


Good day, ladies and gentlemen, and welcome to the Second Quarter 2014 Bankrate, Inc. Earnings Conference Call. My name is Jason. I'll be your operator for today. [Operator Instructions] I would now like to turn the conference over to Mr. Bruce Zanca, Senior Vice President. Please proceed, sir.

Bruce J. Zanca

Thanks, Jason. Good afternoon, everyone, and thank you for joining us for Bankrate's second quarter 2014 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 second quarter 2014 results that I trust you saw in our press release. 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 on this conference call, including those regarding the company's future prospects, growth, future revenue and profitability and our ability to continue to reduce cost and successfully implement strategic initiatives constitute 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 our 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 operation and business environment, which may cause the company's actual results in the 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, we encourage you to read our reports filed with the SEC, including the discussion under Risk Factors in our annual report on Form 10-K for the year ended December 31, 2013 and our quarterly reports on Form 10-Q, which are available on the SEC's website.

So with that, I'll turn the call over to Bankrate's President and CEO, Ken Esterow.

Kenneth S. Esterow

Hey, thanks, Bruce. Good afternoon, everyone, and thanks for joining. I'm really pleased to be sharing another strong quarter of year-over-year revenue and EBITDA growth for Bankrate. Once again, all of our verticals, banking, credit cards and insurance, grew revenue year-over-year.

What's more, we achieved 22% year-over-year growth in EBITDA, while integrating Caring, our newly acquired senior care business and continuing to invest in our longer-term personalization, optimization and mobile capabilities. Ed will review our financial performance in more detail, but here are the headlines.

Bankrate generated adjusted second quarter 2014 revenues of $130.9 million, 24% higher than 2013. Year-over-year EBITDA grew by approximately 22% to $31.9 million. Net of, "core Bankrate" increased our EBITDA margins for quarter to 25.4%, up from 24.8% a year ago.

Let's turn to the business highlights for the quarter now. Starting with, Chris Speltz and the cards team had another great quarter, with 29% year-over-year revenue growth.

What's more, the macro environment with respect to consumer debt, in general, and for card specifically also continues to strengthen.

In the second quarter, most issuers reported healthy increases in new cards issued, higher card usage and lower delinquencies.

Issuer optimism, combined with the many signs pointing to continue GDP job and personal income growth, keeps us bullish for the card market overall.

It's important to note that in the quarter, we did see an increase in the mix of our offer clicks coming from affiliates and also higher affiliate approval rates. This means that our card affiliates were also benefiting from this robust macro environment.

Further, there was a bit more competition in the paid search environment for cards. That said, our issuers are more engaged than ever. They recognized as a terrifically efficient platform to acquire new cardholders. They also appreciate that the platform can be counted on to maintain the most rigorous environment required for compliance.

We continue to introduce issuers into new card categories and add premium card offers for high-value consumers through our CARDMATCH utility.

Conditional bidding has also improved outcomes for issuers in terms of achieving their card acquisition goals. All told, these efforts resulted in an 18% year-over-year improvement in effective card CPAs.

Our mobile results in cards continue to be encouraging as well. There was a 21% year-over-year increase in mobile side offer clicks with card monetization on mobile up by more than 85%.

And finally, on the card front, we're pleased with the launch of WalletUp, a free tool that analyzes the existing cards in your wallet, your transactions and your spent preferences in real time, and then helps you choose the best card for maximizing points, rewards or cash back.

WalletUp does this by analyzing cards and spending information against the rewards database of more than 1,400 different credit cards.

In soft launches in the quarter, we've already enrolled more than 16,000 users and a WalletUp mobile up will be available in the next month or so. The app will include a geo locating feature, which syncs up the consumer with a retailer at the point of purchase with a view towards maximizing card rewards or sending money. What we've also seen is these users are incredibly responsive to personalize card offers with earlier results indicating a 5x improvement in new card conversion over a regular visitor.

WalletUp is an important first step of bringing MyBankrate, our strategy of establishing an ongoing relationship with our audience across our verticals to life.

For Bankrate Insurance, we're now turning our attention to once again growing volume while keeping lead quality and monetization on track. Bankrate Insurance grew lead volume albeit modestly in June for the first time in almost 2 years, and that trend has continued in July.

Additionally, our click platform continued to scale, with nearly 40% growth on higher year-over-year pricing as well, up some 9% with our emphasis on quality and growth aligned to carrier performance and ROI.

What's more, we continue to increase the percentage of revenue coming from our owned and operated sites where we directly influence demand and where we get the highest quality consumers and the highest RPL. Ed will go into that in a little more detail in his remarks.

Operationally, Jeff Grant's insurance groups are making steady progress and improving the overall consumer experience. A 1.0 version of click to quote, it's really click to date is up and running with several partners and more in the pipeline.

Now after completing a lead form, a consumer engaging with a participating carrier on our quick platform doesn't have to re-enter their information to get a quote driving meaningful conversion improvements for our carriers.

And some of the most exciting progress for Bankrate Insurance is being made in and around mobile, where a shortened mobile home lead form is driving a 20-percentage-point conversion improvement and a similar effort is underway on the auto front.

What's more, we believe our emerging portfolio of cost solutions, including click-to-call and warm call transfer platforms are fast becoming industry-leading in terms of volume and carrier and agent ROI. These mobile friendly solutions allow carriers and agents to meet, consumers preferences to engage and quote in real-time with a live agent, rather than having to follow-up hours or even days later.

Total call program revenue more than doubled year-over-year and increased more than 20% sequentially.

Our mobile insurance click-to-call platform alone doubled in revenue for the quarter to $800,000.

Turning to Don Ross's gang is really pleased to share the news of an important new strategic partner, is one of the nation's top online real estate destinations and Bankrate will be the exclusive provider to for comparison mortgage rate listings and mortgage tools across their desktop, mobile and app environments.

With its extremely high quality and in-market audience, is a great addition for Bankrate to extend our leadership position in the online mortgage marketplace.

Total organic traffic continued to grow nicely, up some 17% versus Q2 of last year. That said, with the refi boom behind us, our partners remain an important and reliable source of in-market consumers and are contributing nicely to growth.

Great year-over-year performance and tighter mobile integration with partners such as increased overall partner revenue by over 40% year-over-year.

Elsewhere on, we launched mobile optimized landing pages for our mortgage advertisers, which will improve click to lead conversion of Bankrate's huge mobile audience.

We've introduced a mobile blog called Bankrate mobile finance, which post news and app rages for consumers to help them save money and to better manage their finances.

We're launching an app software development kit and mobile optimized widgets for affiliates and partners who can then seamlessly integrate Bankrate into their app environments as part of our stated objective to make Bankrate great on mobile. And we want to make it great on mobile end-to-end from partner to consumer to advertiser.

And finally, we're looking forward to our new arrangement with Jean Chatzky, noted author, financial journalist, and NBC Today Show financial editor to create a series of personal finance video and blogging content. This will drive even more engagement with our massive organic Bankrate audience.

And we can't close this highlight section without talking about the newest member of the Bankrate network, And we're really pleased with how seamlessly the on-boarding of that Caring team has been.

In terms of Caring's performance, for May and June, the stub period, Caring revenue more than doubled over last year to $2.3 million with an adjusted EBITDA loss improving by $600,000 as well over the same period.

Organic traffic to grew some 52% over the prior year with qualified inquiries, those were inquiries that can be referred to an assisting living community, up 75% over the same period in 2013.

What's more, Caring's coverage of participating communities also grew extensively increasing by 40% over last year.

Increasing qualified inquiries and expanding community coverage they really go hand-in-hand in building out our Caring franchise.

Caring also now has more than 59,000 consumer reviews of senior living communities, an increase of more than 20% since the beginning of 2014.

These reviews are an incredibly valuable asset for attracting and engaging a qualified audience searching for senior care information. And based on some publicly available site track metrics, we believe has much more organic traffic than any of our competitors.

What's more, Caring and Bankrate has started to capture many of the revenue synergies we expected from the combination, some of which we talked about on our last call. Senior living is already featured as a -- is already a featured category on the site and is included in Bankrate's editorial content dealing with senior-related issues.

Finally, Caring worked with the Bankrate cross-business unit SEO Council, the team prioritized opportunities for Caring to take advantage of Bankrate's time-tested and proven leadership in creating a true site authority through timely and relevant, editorial and engaging consumer experiences. While we've got lots of work to do, we really like our starting position in this emerging vertical.

And with that, I'd like to turn the call over to Ed DiMaria to cover the financial highlights for the quarter. Ed?

Edward J. DiMaria

Great. Thanks, Ken. Okay, as with past calls, I will provide a high-level financial overview of the quarter, and then provide some color on the current trends, as well as run through the financial details. And then before taking your questions, Ken will provide our view on our Q3 and annual 2014 guidance.

Also note, the reconciliation from GAAP to the GAAP measures that I referenced in my prepared remarks can be found in the back portion of the press release.

From a high-level standpoint, revenues for the quarter were $130.7 million, up $25.1 million or approximately 24% over the $105.5 million in revenue we posted in the prior year quarter.

And note, on an adjusted basis, revenues for the quarter were $130.9 million, excluding a $200,000 purchase accounting adjustment to deferred revenue related to the Caring acquisition.

Adjusted EBITDA of $31.9 million was up 22% over the $26.2 million we reported in Q2 2013, and that was at a margin of 24.4% in Q2 2014, which was down 40 basis points versus Q2 2013, but actually increased 60 basis points if you exclude the impact of the Caring acquisition. I will cover EBITDA margin in a few minutes.

GAAP net loss was $2.2 million in Q2 2014, which represents a loss per share of $0.02 versus net loss of $0.9 million in Q2 2013 or loss of $0.01 last year. And note, the loss was mainly the result of a $9 million nonoperating charge, which I'll cover a little later on.

And excluding such items, non-GAAP adjusted net income was $14.9 million for Q2 2014, which is adjusted EPS of $0.15 compared to $0.10 in the prior year. And that calculates out to an increase of 50% in adjusted EPS for the second quarter.

Overall, in Q2, we posted strong revenue EBITDA and earnings growth versus last year on adjusted basis. And although the results were on lower -- were on the lower end of our revenue guidance range and just shy on adjusted EBITDA, we are still talking about growth of 24% and 22%, respectively, and EBITDA growth would've actually been approximately 25%, excluding Caring, exceeding our revenue growth.

But we believed it was important to make an investment in the senior care vertical with the Caring acquisition, which as we stated on our last call is currently running at an EBITDA loss. However, we expect revenues to ramp-up quickly, and we are already beginning to see this. And get to EBITDA breakeven by the end of the year. Also, we expect this vertical to be a nice drive of future growth for 2015 and beyond.

We think we are well-positioned in all our verticals as we continue to invest in mobile and personalization to unlock continued long-term growth in our business, which we think will be driven off our huge network of great consumers through partners, our desktop organic audience and, of course, our fast-growing organic mobile segment. Let me take a minute and run through a few points to give you a flavor for the trends before we get into the financial details.

In insurance, the strategy of focusing on high-quality traffic has unquestionably strengthened our leadership position in the industry. Revenue from direct traffic sources is now about 36%, which is 15 percentage points higher than the prior year. We believe we are on track to achieve our goal of driving the share of revenue derived from direct sources to the upper 40s by year end.

Overall, insurance product revenues, and that's both leads and clicks, were up 28% with click revenue growing at 52% compared to Q2 2013 and lead revenue up 20%.

The overall growth in insurance business leads and clicks was driven by both growth in volume and monetization.

Our cards business growth rate accelerated with a Q2 growth rate of 29% year-over-year compared to a 19%, which we saw in Q1. Issuer demand remains high and as a result, we're seeing higher conversion rates and pricing.

Approved card volume increased roughly 10%, consumer traffic or offer clicks increased, and we saw a roughly 40 basis points improvement in approval rates.

And as Ken mentioned, we're really excited about all the development activities we have underway to capitalize on the strong and growing consumer credit vertical.

The banking side of the business is also doing well as our deposit click business remains strong with 62% year-over-year growth in Q2, more than offsetting the decline in mortgage CPC against the record quarter we saw last year.

Going forward, the mortgage CPC comps are easier, so we expect the CPC growth rate to increase meaningfully in the back half of the year.

One thing I do want to call out, Ken mentioned the partnership we announced today with has always had great execution working with Marquis partners, distributing our content, our products, our tools, and we've seen excellent response on the consumer side.

On the financials, since we do share the revenue, it has impacted the margins somewhat in the banking vertical recently. And we do expect to sustain margin impact in the banking vertical as we are continuing to see an influx of interest and growth in from partners.

But certainly, the partnerships are welcomed, and we're seeing growth in both revenue and profits from these activities, and they work well for both Bankrate, our partners and of course, our consumers.

Okay, let's run through the financial details. Revenues from our leads business of $89.3 million on an adjusted basis was up by approximately 29% on a blended basis versus Q2 2013 and up 26%, excluding the impact of the acquisition.

The overall year-over-year increase was driven by strength in both credit cards and insurance lead revenue, along with contribution from our new senior care vertical.

Regarding credit cards, revenues were up by approximately 29% year-over-year given the strong issuer demand, increased traffic, monetization and higher approval rates, as I previously highlighted.

This is a solid performance. So we do expect strong growth in cards to continue with July and August demand from issuers remaining high and showing a continued overall strong and healthy environment in the cards vertical.

Our insurance CPL revenue was up by approximately 20% from Q2 2013. Total insurance revenues for both leads and clicks were up by approximately 28% as I previously highlighted.

We have seen a sharp increase in insurance revenue in July versus our average Q2 revenue, so we are continuing to see progress within our insurance vertical.

I want to point out, however, that we are not going to sacrifice on quality for volume because we believe that the path to continued development in this vertical is consumer, policy, conversion. So we will be completely focused during the back half of 2014 on driving incremental, high-quality direct traffic.

So with that in mind, we expect a more modest back half in terms of lead volume growth in terms of expectations in the 5% to 10% range as opposed to the low- to mid-teens range that we previously expected. Still, a very solid year and second half for this vertical where we expect to double the bottom line for the year.

But we just want to stay conservative given all the progress we've made and not try and push a few million additional dollars on the -- to the bottom line in terms of short-term bottom line growth right now because we want to be well positioned for 2015.

Lastly, on the lead side, contributed over $2 million in revenues on an adjusted basis for the quarter to our leads business. And I'll provide some color in a few minutes.

Revenue on our display advertising business, including Caring was $9.3 million in Q2 2014, up 8% year-over-year, excluding revenue was $9 million or up 4.5%.

On a CPC side, revenues of $30.7 million were up 20% versus Q2 2013. Our insurance CPC product revenue was up 52% year-over-year as I previously mentioned and our banking CPC product revenue was up 4%.

Our deposit growth of 62% more than offset a 27% decline in mortgage click revenue given the cool-off in refi.

And I just want to make sure everyone has some context. Bankrate's total mortgage click revenue was only about 6% of consolidated revenue, so the cool-off is minor in context of our entire business.

In addition, we saw some nice growth in other CPC areas such as home equity and auto loans as the overall consumer credit market continues to rebound.

With respect to margins, our overall gross margin percentage on revenue on a non-GAAP basis excluding stock compensation for the second quarter 2014 was 64.7% compared to 64.6% in the second quarter 2013.

Similar to last year, and typically in Q2, we see a sequential decline in margin from Q1 as the overall revenue mix in our banking cards vertical were more skewed towards partners and affiliates. We've seen more card traffic and approvals from affiliate sources this quarter given the stronger issuer demand. And this has impacted the card verticals margins to a degree.

We expect this to continue during Q3, and we expect card margins to trend higher during Q4, which is historically, the strongest quarter organically for the card vertical.

Our organic revenue is growing in line with overall revenue and did mitigate a portion of the higher affiliate mix. Our organic traffic continues to convert at a higher rate than our affiliate and SEM traffic, which is a testament to the fact that we drive the highest quality in market consumers.

In banking, we saw a similar development with affiliate revenue gaining share -- gaining some share, but also our organic revenue growing as well.

Operating expenses excluding stock compensation, amortization and depreciation and other noncash and nonrecurring items totaled $52.9 million in Q2 2014 versus $42 million in Q2 2013 and $54 million in Q1 2014. OpEx was higher year-over-year as we continue to increase our marketing activities to move more traffic through our owned and operated sites and then in the insurance vertical.

Marketing costs were $32.9 million in Q2 2014 versus $24.6 million in Q2 2013 and $33.2 million last quarter in Q1 2014.

Consistent with what I discussed on the last call, we are continuing to play offense, trying new things with an eye towards future growth opportunities and not necessarily on immediate quarter ROI. Our growth and improvements in monetization puts us in a position to do this.

Just like last quarter, we made significant investments in marketing and testing activities that impacted current quarter EBITDA. We believe that some of these investments will open up additional high-quality traffic sources and growth for our business.

The adjusted EBITDA of $31.9 million at a margin of 24.4% in Q2 2014 compares to $26.2 million at a margin of 24.8% in Q2 2013. This represents a 22% increase in EBITDA.

Excluding the impact of the acquisition, our EBITDA would have been $32.7 million or 25% above the prior year at a 25.4% EBITDA margin.

Okay, now let's take a look at Caring. We committed to keep you updated with respect to the Caring financial performance. As such, I will provide a breakout each quarter for at least the rest of this year, so you understand what is happening with this acquisition.

Caring revenues on an adjusted basis were $2.3 million for the quarter as I previously mentioned, which incidentally was for just the May and June timeframe. And it had an adjusted EBITDA loss of approximately $820,000.

On our last call, we have said that we expect Caring to lose about $1.5 million in EBITDA through the end of the year, and that we expect by the end of the year to achieve breakeven. And we continue to expect this.

We ended the quarter with approximately $176 million in cash, down $68 million from the prior quarter, primarily as a result of the acquisition that we announced on the last earnings call that closed in Q2.

In addition, we repurchased $5 million of shares under our previously announced share repurchase authorization, and we have approximately $64 million remaining under our standing authorization that expires at year end.

Other significant items impacting cash during the quarter included: A $25 million estimated tax payment and incidentally this covers the majority of what we think the liability will be for the 2014 year; and $13 million in contingent payments for previous acquisitions. Our leverage ratio at Q2 end was 0.9x on a net debt basis on LTM EBITDA of $135.2 million.

Okay, I know I'm running along here, but just 2 more quick items, nonoperating items and then I'll turn the call back over to Ken.

Back in June, we announced that we've reached an agreement subject to court approval to settle the class actions shareholder suit for approximately $18 million.

We believe the full settlement amount and expenses in connection with the action, class action, in excess of our deductible should be covered by our insurance. But we are working, still working through those claims with our carriers. Therefore, we've taken a $9 million nonoperating charge for a portion of the settlement, plus expenses.

Second, shareholders may recall, we have been incubating a small Bankrate business in China. We have decided that the time is right to seek a China-based investor, buyer or partner to take this effort forward and the great Bankrate China team forward.

So with that, Ken will give you some more information with respect to guidance, and then he will wrap up.

Kenneth S. Esterow

Great. Thanks, Ed. We're really pleased here at Bankrate with the progress of our business this year. And I want to take a moment to thank the entire Bankrate team and the board for all their hard work and efforts in supporting the business in 2014. We feel good about the fact we are executing on our 2014 operating plan, while finding the balance to implement our strategic framework to position the company for long-term growth.

Even with the on-boarding of Caring, 2014 is shaping up to be a record year for Bankrate on almost every measure. And we feel great about the underlying macro factors and trends for the business going forward.

With preliminary July results coming together and indicative August card unit CPAs, we are forecasting solid growth in revenue and EBITDA for the balance of the year. That said, an increasing banking partner and card affiliate mix, combined with a more modest outlook for insurance volume growth that Ed highlighted is pointing for us to update our guidance a bit.

We're now expecting 2014 full year adjusted revenue of $545 million to $555 million and adjusted EBITDA of between $141 million and $145 million, 3% down from our previous EBITDA midpoint.

For Q3 2014, we're anticipating adjusted revenues of between $140 million and $145 million and adjusted EBITDA of $33 million to $36 million.

With that, I'd like to thank you for your engagement and open the call up for questions. Operator?

Question-and-Answer Session


[Operator Instructions] Our first question comes from the line of Rohit Kulkarni with RBC.

Rohit Kulkarni - RBC Capital Markets, LLC, Research Division

I just wanted to clarify on the Q2 numbers, revenue came in a little bit shy of your midpoint, yet your guidance you're raising the revenues. Obviously, you're seeing something or are there any obvious factors that you would want to call out about why this disconnect?

Kenneth S. Esterow

Sure. So there's a few things going on. One, as I highlighted in my comments, we are seeing a higher mix of card affiliate traction that's driven by the larger macro environment as issuers are -- have so embraced the broader market for acquiring new cardholders with delinquencies down and transactions spend up, so that's a good part of the revenue increase, as well as we have a little more comfort and confidence around our revenue with respect to Caring. Now that we have got it under the belt for the first 2 months.

Edward J. DiMaria

Yes, and as I mentioned in my prepared remarks, I mean we really have seen a pretty sharp increase in our insurance business, stepping up in July off of our average Q2 numbers. So that was an area that moved up in Q3. So certainly, although as I mentioned in the prepared remarks, it is going to be a little more modest in terms of volume growth in the back half, nevertheless, we are going to see a step-up off of our Q2 numbers, off of our sort of front half or Q2 number results. So if you look at that, and you look at the fact that the cards business is certainly running hot and as Ken mentioned, our Caring business is growing very quickly, and we have some confidence around where those numbers are going to come in for the year, that gave us certainly confidence to raise our overall revenue numbers for the year.

Rohit Kulkarni - RBC Capital Markets, LLC, Research Division

Okay, great. And on the insurance side of things, any more color on how we are kind of revenue mix between carriers versus agents is shifting? And in the past you have talked about home insurance optimization, any updates over there?

Kenneth S. Esterow

So the first question was on carrier versus agent mix. The focus for the first part of the year has been really around monetization as we've driven increases in quality and looking for a commensurate increases monetization that's come both at the carrier level and the agent level. The mix has stayed roughly similar quarter-over-quarter or sequentially. It's really about making sure we can now drive incremental lead volume across our platform of both carriers and agents with the quality that they're expecting, and they've come to expect so nothing meaningfully has changed there, and I'm sorry, your second question was...

Rohit Kulkarni - RBC Capital Markets, LLC, Research Division

About home insurance optimization. You have talked about that in the past and...

Kenneth S. Esterow

Sure. So there's 2 things going on. One, we're getting traction around home insurance cross sell, which is starting to become a meaningful part of the monetization profile. And to the extent that we can monetize a cross-sell opportunity, that allows us to be even more aggressive on paid search because there's more revenues with the initial click. And home has been the first place where we've seen a shortened lead form on mobile beginning to drive higher lead conversion, getting people through the funnel more efficiently, starting to append some third-party data has also proved useful to help consumers not have to fill out field after field after field, which is particularly challenging in a mobile environment -- touch screen environment.


And your next question comes from the line of John Campbell with Stephens.

John Campbell - Stephens Inc., Research Division

So Ed, I believe you said that you guys have already seeing fairly sharp insurance growth in July, and then you kind of caution on the leads growth going forward. So I'm taking it that the average rev per lead continues to ramp and probably drove that strong July rev. So just curious about your expectations for rev per lead as we kind of move to the back half of the year and then into '15.

Edward J. DiMaria

Well, I mean, my remarks were, hey, I wouldn't take them as to cautionary. I mentioned that the business is going to double the bottom line for the year. If you look at our overall range that we sort of took a minor adjustment to our bottom line of 3%, I think it was moved down roughly about $4 million and Caring alone, which we -- yes, we built into our numbers last quarter, but we thought we could absorb $1.5 million, but hey, that's a chunk of the $4 million and we're only talking about a fairly minor amount that we moved down our numbers. So I wouldn't get too carried away with sort of the cautionary statement, but the fact is that the business is doing well, and it's moved up considerably off of our Q2 numbers. It's just that we don't want to take any chances and risk quality. So we think we're going to be in the 5% to 10% volume growth range, and it's going to be focused on all quality stuff, and that's really it.

Kenneth S. Esterow

So one of the things for those who have followed the insurance story for the past 24 months that we talked about is you have this step change when you improve quality, then you have to go back and link pricing to that improved quality. So we've driven significant increases in RPL over the past 12 months associated with our improved quality. Now we're trying to take another quantum step in our mix to have own and operate it, which will in turn drive even higher quality, and then we're going to have to go back and have the dialogue with carriers and agents who will confirm the improved conversion ROI and that should translate into higher RPL. Because at the back of the year, we're not anticipating meaningful changes in RPL. We're really focused on beginning to drive quality, which is something to drive volume, which is something we talked about on our last call, that for the first time in 2 years we're going to start to see volume increases. We saw it in June, we're seeing it again in July, and we're expecting that to carry through into the other months.

Edward J. DiMaria

As I said in the remarks, I mean the key to this is the conversion rate and quality. The way that we were able to get all this progress was to clear the bar, and clear by a lot, and we talked about significant improvements in conversion rate, and that drove great monetization improvements. And we want to stay well ahead of that curve and continue to reap the benefits of strong growth in monetization. So the last thing we want to do is risk growth in conversion at all. So that's really what we're focused on here because we think that there's a lot of room ahead of us if we can continue to focus on growth and conversion rate and quality, so that's what we're focused on. And we think this is the right thing to do, and we think that good things will come out of us. And the business is doing quite well, as I said, I think we'll double the bottom line, so we think that's -- this is the exact right approach of think.

John Campbell - Stephens Inc., Research Division

Got it. And did you guys mentioned, I might have missed this, the percent that was O&O?

Edward J. DiMaria

Well, I said it was 36% direct, derived from direct resources of the revenue. And we expect to move that up into the upper 40s by the end of the year.

John Campbell - Stephens Inc., Research Division

Got it, got it. Last question here, so I believe you said there's 64 million remaining in the share repo authorization. Just curious where your heads at on share repo versus other uses of capital. I mean, in 2Q the stock did dip down to levels probably the lowest level over the last year. If you were to get back down those levels, would we -- could we safely assume that you guys would be back active as you were in 2Q?

Kenneth S. Esterow

I wouldn't want to assume anything. I think we're going to work with our board and the management team to make the right decision for our shareholders in terms of optimizing shareholder value. At the $15 a share range, I was a buyer, personally, so and the Board and our finance team thought it was an appropriate use of capital in and around those levels. Hard to tell for the quarter, I don't want to make predictions, but we do have that authorization in place.


Your next question comes from the line of Joyce Tran with Merrill Lynch.

Joyce Tran - BofA Merrill Lynch, Research Division

I think last quarter, for insurance lead volume, I think that was slightly down year-over-year. Can you comment on the lead volume for this quarter and what we should expect for next year, I guess, maybe the 5% to 10%?

Kenneth S. Esterow

So for Q2, overall, it's roughly flat, plus or minus. June was up, some 5% or 6% year-over-year and July is up sort of similar range that we're seeing and we're looking to get between 5% and 10% for the balance of the year in growth lead volume. Coming into Q2, we're still thinking that number would be in sort of the 10% to 15% range in terms of the back half of the year. And one of the things that I've also give kudos to Jeff and team is, there is sort of an easy path to just got and chase volume, there's volume to be chased. There's lots of people selling volume, but we are so focused on driving our O&O traffic, which has the higher monetization. If you remember on previous calls, we talked about that I think 80% of our national deals have linkage between quality and pricing, the more we can drive people into the category of our owned and operated sites, which have the best conversion, the best ROI and the best RPL, you get this with sort of virtuous circle being created. So we're going to be very disciplined and how we sort of burn into additional paid search and make sure that we're doing it in a profitable and smart way, so those were Ed's comments around the back half of the year. We do expect to see lead volume growth in the sort of 5% to 10% range.

Edward J. DiMaria

Yes. I mean the whole key is quality, and that's really the future of the business is quality and conversion, and we think good things come out of that. We've seen a lot of great things come out of that thus far, and that's our playbook.

Joyce Tran - BofA Merrill Lynch, Research Division

And just a follow-up question, and I think you mentioned about China opportunity. Is that just for on the kind of mortgage side, or is that also include insurance and credit cards?

Kenneth S. Esterow

So yes, I'll take that one. I was out there in Beijing in May, meeting with Luna Wang and the team. It's a great group of folks, some 25 to 30 highly professional. It's a very traditional Bankrate business, editors and content, very well regarded in the popular press and it established a great franchise. From a revenue basis I think it was $250,000 or $300,000 for the quarter in Q2, it's small from a revenue perspective, it's growing nicely. What that business really needs is a China-based investor for those of you follow the financial services market, it's moving quickly, it's becoming much more sophisticated there's a lot more capital going in, both venture and private equity capital. And we think for our shareholders today, finding a partner in China and investor, a buyer, a commercial combination is the right answer for the team and for Bankrate in the U.S., and that's what we're planning to do.


Your next question is from Douglas Anmuth with JPMorgan.

Kaizad Gotla - JP Morgan Chase & Co, Research Division

This is Kaizad Gotla in for Doug. Just on credit cards, it sounds like you're seeing lenders loosen their approval standards a bit, so just trying to get a sense for what percentage of your credit card leads are going un-approved today just to help us sort of understand how much the run rate you have there. And then separately, how much of your revenue this quarter came from mobile. Thanks.

Kenneth S. Esterow

So let me answer the first one. I think if you go back a couple of years, we saw approval rates upwards in sort of the 8% and 9% range, maybe a little higher. Organic -- and our organic approval rates -- our approval rates on organic traffic typically run about 1/3 higher than our affiliates because of our high quality in-market customer. So we are still well below that even with the tick up of 40 basis points or so in approval rates, so we've got room to run there. In terms of -- I'm sorry, the second question, I was just looking at something else.

Edward J. DiMaria

I think he is asking specifically for mobile rev.

Kenneth S. Esterow

For mobile, in Q1, it was 3% of card revenue. Actually, I don't have the metric for Q2. Monetization was up meaningfully, mobile clicks were up more meaningfully. The mobile audience for cards is trying to represent the public at large and Chris and the cards team have launched a mobile-optimized site for editorial, they're looking to include a model monetization scheme with our issuers to have them begin to select where they want to be on our mobile display, so we expect monetization to continue to improve. The last thing on mobile, which is encouraging on cards is many of the issuers now have included an apply by phone option, so the consumer doesn't have to fat-finger their way through a mobile app, they can talk to someone on the phone real-time and that rolls into our CPA at the same levels.


And your next question comes from the line of Victor Anthony with Topeka.

Victor B. Anthony - Topeka Capital Markets Inc., Research Division

Ed, I'm just wondering if you could give us an update on the metrics for and what you see for 2014 in terms of leads, conversions, move-ins and what are your expectations for 2015 as well?

Edward J. DiMaria

We're probably not going to provide a granular level of all kinds of details for Caring at that level of just plain old pure granularity. If you've modeled it out, we can help you do that, but I'm probably going to provide revenue earnings for the rest of the year.

Kenneth S. Esterow

And next year, we'll do...

Edward J. DiMaria

Probably part of next year, but not quite at that level of detail.

Kenneth S. Esterow

Look, this is a highly competitive business that's in an emerging vertical where the rules are still being written in terms of marketing efforts, in terms of customer acquisition and traffic acquisition in terms of the facilities and communities. It is something that we are mindful in making sure that we don't undermine Andy Cohen and team out and Caring who are working really hard to build up this franchise. So we did say our commitment to our investors and our analysts that we'd highlight the financial performance of the business, so we weren't sort of hiding the football and we'll continue to do that. But some of the operating metrics, we think, are best left in confidence, to have the business continue to compete in an effective way.

Edward J. DiMaria

I mean, traffic is growing as we pointed out in the press release, for example, at 52%, qualified inquiries of 75%, so we are talking about very sustained, very fast growth that we're seeing just overall with the unit. I think we mentioned during the last call that we do expect the vertical likely at this point. We think it's probably on a trajectory that we could see it double potentially next year in terms of revenue, so that just give you an idea of the trajectory. We do get somewhere in the rough range, 20 -- $2,200, $2,300 a move-in. You can do the math, it kind of gives you a sort of a rough idea. We think that that's likely to move up just because we think we probably underpriced to the market over time, so that gives you some idea kind of where we are, but of a just granular metrics on the business is stuff that we're probably not going to be providing.

Kenneth S. Esterow

All the competitors are private.

Edward J. DiMaria


Kenneth S. Esterow

This is really -- it's tight race. We want every advantage to win. We think we are really well-positioned. We have the most organic traffic, we've got a great team, we've got an effective platform. Our communities love us, our customers love us. We're getting our sea legs with respect to the Bankrate integration and really sort of leveraging what we can do that to help that business continue to grow and Andy and team couldn't be, sort of, more pleased with how the on-boarding has gone. So all things are appointed positive and we're really excited. This is -- back to the original premise of the acquisition, this is a vertical, $50 billion and plus growing. If you drive around any suburban community and many urban communities, you'll see facility after facility coming online that needs to be filled with residents and much like our card vertical, there is basically uncapped opportunity for facilities to spend as long as you provide them people who perform, which are people moved in and stay residents. So to the extent we can drive qualified leads and bring those leads into communities and have those leads result in move-ins, this business will scale beautifully.


Thank you for your questions, ladies and gentlemen. That concludes the Q&A session. I will now like to turn the conference over to Ken Esterow for final comments.

Kenneth S. Esterow

Sure, operator. Everyone, thanks for listening to our shareholders. Really appreciate your engagement, our analysts. This is a great business, a great franchise, and we are looking to find that right balance between delivering our short-term commitments with making sure that we continue to have a great business for the long-term. And we think we are accomplishing that.

So with that, we look forward to keeping people updated on our next call and in interim analyst and other conferences. Thanks, and have a good rest of the summer.


Ladies and gentlemen, that concludes the presentation. You may now disconnect. Have a great day.

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