Bankrate Inc. Q4 2007 Earnings Call Transcript

Bankrate Inc. (RATE)

Q4 2007 Earnings Call

February 5 2008 4:30 pm ET

Executives

Bruce Zanca - SVP

Tom Evans - President and CEO

Ed DiMaria - SVP and CFO

Analysts

Andrew Jeffrey - Suntrust

Paul Thomas - Roth Capital

Youssef Squali - Jefferies and Company

Brian Fitzgerald - Banc of America Securities

Mark Mahaney - Citi

John Pitzer - Credit Suisse

Kyle Evans - Stephens

Presentation

Operator

Good day and welcome to the Bankrate, Incorporated fourth quarter and year end 2007 Conference Call. Today's call is being recorded. At this time, for opening remarks I would like to turn the call over to Mr. Bruce Zanca. Please go ahead, sir.

Bruce Zanca

Thank you. Good morning, everybody, and thank you for joining us on this conference call to report on Bankrate's fourth quarter and full year end 2007 financial results. I'm Bruce Zanca, I'm Senior VP here at Bankrate. Here with me in our New York office is the company's President and CEO, Tom Evans and our Senior VP CFO, Ed DiMaria.

Let me take over just a minute to go over the format of the call today. First, Tom will give us details on the results and color of the quarter and year. Ed will give us some details on the financial results, and then we'll have plenty of time to answer your questions.

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

The company intends that these forward-looking statements may be subject to Safe Harbor created under the securities laws. These forward-looking statements reflect our current views with respect to future events and financial performance, but are subject to uncertainties and factors relating to the company's operation and business environment, which may cause the company’s actual results to be materially different from any future results.

We encourage you to read the section entitled Risk Factors in our form 10-K and subsequent filings with the SEC.

So with that being taken care of, let me introduce you to our President and CEO Tom Evans. Tom?

Tom Evans

Thanks, Bruce. Welcome everyone and thanks for joining us today. We've got a lot to cover, so we'll get at it right away.

I trust that everyone has seen the two press releases we put out at 4 o'clock this afternoon with our Q4 full year 2007 earnings and covering the two acquisitions that we announced today.

So let's get to the fourth quarter of the year 2007 report and then tell you about the companies we acquired, and more importantly where we are going and why are we so excited of our business in 2008.

The fourth quarter ended up later than we expected, particularly after it started out so well. But for the year, we ended up exactly where we said we were going to be on an annual basis. You will remember after the second quarter, we raised our original annual guidance from between $36 million and $40 million in EBITDA to between $39 million and $43 million. And then said after Q3, that we expected to be slightly better than the midpoint of that guidance, which should be $41.6 million we reported. And that is exactly where we came in.

We also indicated that we would be at the low end of the revenue guidance of between $95 million and $100 million, primarily because print was consistently weaker than we expected to be throughout the year. So it turned out to be a solid year and right in line with our raised guidance.

For the year, traffic increased by 40%, our online revenue increased by 31%, EBITDA increased by 48% and our EPS, ex FAS-123R increased from $0.92 to a $1.39 a $0.47 increase or a 51% improvement over 2006.

The only disappointment in 2000 was, of course, the print business but I don't think that was a surprise to anyone. I think one of the amazing statistics about our business is that it shows the elasticity of our model and that for the year, CPC mortgage revenue on bankrate.com was 41% higher on mortgage traffic and clicks, in what was obviously a tough year for the mortgage business. For our entire network in co-brands, it was up over 25% for the year, but bankrate.com's website performance was dramatic.

So we are proud of the accomplished performance for the year, however, the fourth quarter was a weird quarter. Revenue for October was the best first month of any quarter we've ever had and very much on track for a better than anticipated Q4.

November was solid as well. In fact, November generated the highest CPC revenue of any month ever. But by early December, with the cash in the financial markets mostly on concerns about the finance and mortgage related sectors, we began to see a slow down in traffic and received several advertiser cancellations from some of the large institutions that were so prominent in the news. In fact, we had nearly $2 million in canceled displayed ads in the last few weeks of December.

I must admit that it surprised us, particularly given the strength of our business in September, October, and November. We were able to scramble and fill about $0.5 million of that with other advertisers, but we are disappointed that we couldn't make up the full amount and provide the upside surprise we thought we had in our pocket, particularly given the strength of October and November.

So I don’t want to belabor this and we are not making excuses, but situations like this are exactly why we don't issue quarterly guidance.

As I have said to many of you before, the most difficult thing about running this business is that we can't make the business fit into a nice neat 90 day chunks. I was thinking about this earlier in the day and thought that if we've reported this quarter from September 15 to December 15 or October 15 to January 15 we’d had a blowout quarter. Similar thing happened back in Q2 of '06 with traffic; we came roaring back the next several quarters. In this case, it was a timing issue and trust me, the business has come roaring back.

I also admit that in December, we made a conscious decision to do something different than what we had done at the end of 2006. Rather than scrambling around at December trying to find every bit of revenue that we could jam into the end of the year, and not knowing whether it was there or not, we decided instead to focus on setting up our 2008 year, and attempted to go off to a better start than we did in January of last year.

I don't know whether you're going to consider us smart or rookie or whether you aren't happy that we didn't try to do both, but this actually turned out to be a great decision. We've gotten off to a fantastic start in 2008.

I can tell you, in fact, that January of 2008, is the best month we’ve had in the history of the company. We've had the highest unique visitors, the highest page views, the highest CPC revenue, the highest display revenue and the best month we've ever had for Bankrate Select, and I'm talking about apples-to-apples, just Bankrate, not including any of the revenue from NCS, the credit card lead gen company or Savingforcollege, both of which we acquired in December. I’m speaking of just Bankrate.

And just to give you a sense, January traffic was more than 50% above the best month we've ever had, and 70% above last January. CPC revenue for January was more than 50% above November, the best CPC month we've ever had, and more than doubled last January CPC revenue.

Display revenue was 47% above last January’s, and towards the end of January, we've actually seen a modest pickup in print. Traffic was obviously really strong and even before the fed rate fed rate cut on January 18th, and since then, we've seen an unprecedented number of consumers coming to Bankrate.

The great news is that many of our CPC advertisers were getting healthier, on the increased volume, what is clearly a refinancing boom. And we certainly don't expect that to continue to at this pace, but it's been a fantastic way to start the year, and the revenue ramp is in sharp contrast to last January where traffic was strong, but we didn't take advantage of that, as much as we could, from the display sales standpoint.

We did not repeat that problem this year. In fact, our biggest problem in January was that at times, the rate tables has gotten thin as advertisers just couldn't keep pace with the traffic in click volumes and were dropping off the tables and pausing sporadically and in fact, once should that occur, we did something quite out of character for us.

To try to help those advertisers deal with the volume, we actually gave away 35% discount on all mortgages and home equity clicks to the last nine days of January. So the numbers I mentioned about CPC revenue being doubled last year includes that 35% discount and that heavy traffic I think certainly will also help Bankrate Select.

But it made for a crazy month, so I am pleased that we have forethought to be better prepared for it. Ed is going to go through the quarter the 2000 year end financials then I'll talk about the two acquisitions we announced today and give you an update on the rest of the business including the two acquisitions we announced in December. Ed?

Edward DiMaria

Thanks Tom. As you can tell by Tom’s opening remarks the management team is very upbeat about 2008 and the core business is starting off the year at a blistering pace combined with the completion of four key acquisitions in the last 60 days.

This was an exciting way to conclude to 2007 with the acquisition of NCS and Savingforcollege. And then began 2008, with the acquisition of InsureMe and Fee Disclosure earlier today, more on that in a minute in Tom's business report. We believe that all four acquisitions are core to Bankrate’s offering and are consistent with the acquisitions strategy we’ve articulated for the past two years.

Now, the final top line results for fiscal 2007. Total revenue came at in $95.6 million at the low end of our revenue guidance for the year of $95 million to $100 million. EBITDA excluding stock compensation came in at $41.6 million and that's a 66 percentile of our EBITDA guidance range of $39 million to $43 million. Please note that this was the revised range. Our guidance through June 2007 was $36 million to $40 million.

So we ended up exceeding the top end of our originally declared guidance and came in above the mid point of our revised range. Without late display cancellation in the five weeks of December as Tom mentioned, we would have likely equaled or exceeded the top end of our revised range. Also, we did benefit from the new acquisitions by picking up some new revenue in December.

For the fourth quarter, total revenue came in at $25.2 million, up 22% over 2006. Earnings per diluted share excluding stock compensation was $0.33, up 22% over 2006 and EBITDA excluding stock compensation was $9.8 million, up 21% over 2006.

For the full fiscal year, again, total revenue came in at $95.6 million, up 20% over 2006. Earnings per diluted share excluding stock compensation were $1.39, an increase of 51% over the $0.92 for 2006 and EBITDA excluding stock compensation came in at $41.6 million representing an increase of 48% over the $28.1 million reported in fiscal 2006. So, again this really a solid performance especially considering the events that unfolded in the mortgage market during 2007.

Now some color on revenue for the fourth quarter and final fiscal year numbers. Again, total revenue came in at $25.2 million for the fourth quarter of 2007, an increase of 22% over the fourth quarter 2006 revenue of $20.7 million. The key driver of growth for the quarter was a 33% increase in online revenue. With Q4, 2007 coming in at $22.8 million compared to $17.1 million in Q4, 2006. And that represents an increase of $5.7 million, again in online revenue. Print, however, decreased by 32% from $3.6 million in Q4 2006 to $2.5 million in Q4 2007.

Display advertising revenue for the fourth quarter of 2007 came in at $12.5 million, an increase of 29% over the $9.7 million reported in the fourth quarter of 2006. The fourth quarter results reflected strong core ad display and display ad demand, for the first two months of the quarter, followed by the pull back in December that Tom described. Also, we benefited from some NCS lead gen revenue that have been on bakrate.com; as we began to test this new lead generation channel, and we also picked up some revenue from the traffic generated by NCS affiliates. Display advertising revenue for the full fiscal year, came in at $46.8 million, a $9.5 million, or 26% increase over 2006 revenue of $37.3 million.

Cost per click or CPC rate search revenue came in at $10.3 million in Q4 2007, compared to $7.4 million in Q4 2006, representing an increase of 39%. The increase was achieved through more CPC clicks, as well as higher CPC rates. As I mentioned, CPC proved to be solid all year long, with CPC revenues for the full fiscal year coming in at $36.9 million, a $10.2 million, or at 38% increase over the $26.7 million we posted for fiscal 2006.

Also during the quarter, we had a small benefit from the additional yahoo contract to a full mortgage rate table listings they now provide for all markets Bankrate serves, and the addition of the deposit auto loan channels on yahoo. This program began to get traction towards the end of the quarter, so the benefit was limited, but the traffic from these new channels started out strong for 2008.

We continue to benefit from the move.com relationship as well. Also, we opened our 2008 CPC rate search business with a 20% increase for deposit clicks effective January 1st, 2008.

Page views for the current quarter were $131 million, up 10.5 million or 9% over the $125 million reported in Q4 2006, with the majority of this growth realized through gains in organic traffic.

Now briefly, Bankrate Select. First and consistent with our recent statement concerning the information we'll be sharing, we'll not be providing details concerning revenue or other statistics for Bankrate Select’s early components of our overall lead generation business for competitive reasons. Bankrate Select provided modest contribution in the fourth quarter, over all the impression was reduced in favor of some testing of our new credit card product. Select increased significantly in January 2008 with the heavy traffic we've seen on the site.

Bankrate Select is now one of five lead generation products we now have in our arsenal. The others being credit cards with the acquisition of NCS, insurance with the acquisition of InsureMe, 529 savings plans with the acquisition of Savingforcollege and real estate related lead generation development of the Fee Disclosure business.

Our print, publishing and licensing revenue was $2.5 million for the quarter representing a decrease of 32% in the fourth quarter of 2006 revenues $3.6 million. The print business accounted for 10% total revenue during the current quarter. The fourth quarter print numbers were a set back, as we thought we seen the bottom with this business earlier in 2007. Obviously this proved not be the case.

We, however, annualize the contribution that we believe this business provides and we remain confident that the business drives a significant amount of traffic to our website, which more than makes up for the poor top line performance. Also, more and more print advertisers are using our online product further solidifying this business as a [heater] for our online business.

Print gross margin for the quarter was $200,000 or 8% excluding stock compensation. This is compared to the 2006 gross margin excluding stock compensation of 13%. Overall gross margin on sales excluding stock compensation for the fourth quarter was 70.3% compared to 73% in the same quarter last year and 75% for the full fiscal year, compared to the 70% for 2006.

The online gross margin excluding stock compensation expense for the fourth quarter came in at 77% in 2007 and 84% for the full fiscal year compared to 85.7% in the fourth quarter of 2006 and 84% for the full fiscal year. The decrease in the online gross margin for the quarter was result of running the new NCS business in December on bankrate.com and also some affiliate traffic. We ran this at a relatively low gross margin in December to begin to invest and setup the business for 2008.

We believe that we can gradually improve these margins by concentrating on increasing direct NCS lead generation through Bankrate organic and direct SCM advertising. While also increasing in key affiliate revenue margin through sharing content, volume and other products NCS will be offering to affiliates. The overall improvement in margins for the full year reflects the change in mix during 2007, with a higher percentage of our business coming from online sources versus print.

Our EBITDA margin, excluding stock compensation expense, was 39% for the current quarter and also 39% in the fourth quarter of 2006 for the adjusted EBITDA of $9.8 million compared to $8.1 million in the same quarter last year.

The drop in the fourth quarter margin compared to earlier quarters in 2007 reflects investments made in acquisitions and work in our new website combined with lower December margins. The cost incurred during the fourth quarter for the new website were primarily expenses we are supposed to capitalize. We are now, however, in the development phase and most of the outside cost will be capitalized in 2008, with the exception of training and certain cost associated with content, which will be expense.

Our adjusted EBITDA margin for the full year 2007 was 44%, compared to 35% for the full year 2006. Adjusted EBITDA was $41.6 million in 2007, up $13.5 million, or 48% over the $28.1 million adjusted EBITDA of 2006, and note the $28.1 in 2006 excludes the $3 million legal settlement charge.

We achieved the 44% EBITDA margin by realizing an 85% incremental EBITDA margin on the $15.9 million increase in sales in 2007 over 2006. For 2007, online revenue per 1000 page views was $151, compared to $131 in 2006. We sold more ad units at higher CPMs in 2007, compared to 2006.

Operating expenses increased for quarter by $2.2 million from $9.3 million in the fourth quarter of 2006 to $11.5 million in the fourth quarter of 2007. The increase was driven by higher sales, marketing and product development cost, offset by lower general and administrative expenses.

Sales and product development expenses were up, due to higher human resource and development cost associated with new products we are working on for 2008, primarily the new website and a higher share base compensation expense.

Marketing expenses increased as we continued to ramp our SCM spend during the quarter, and a higher share based compensation expense.

General and administrative expense decreased as a result of lower general expenses, lower legal and accounting cost offset again by higher share-based compensation expense.

We ended the year with 202 employees, which includes 166 Bankrate employees and 36 new employees from the acquisition. We will continue to make smart increases in personnel to develop our business, particularly in areas, where we expect to have immediate strong growth such as deposits, mortgage, credit cards, insurance, college, finance and our new Fee Disclosure business.

In spite of these planned investments, you can see from overall revised guidance on the press release that we expect to add between 54% and 64% growth in EBITDA dollars in 2008.

Our income tax provision of $3.3 million for the quarter and $14.3 million for the year represented a 44% effective rate on book income for the fourth quarter and a 41.6% effective rates for the year. The higher effective income tax rate in the quarter is attributable to the tax effect by the true-ups and an adjustment in the saved portion of tax rate. We made estimated tax payments during the fourth quarter totaling $4.8 million and $14.3 million for the full year.

We ended the year with $125.1 million in cash and cash equivalent, up $15.2 million from the end of 2006 where we reported a $109.9 million. We generated $42.6 million in cash flow from operations before payments for income tax during the year. We made payment this year totaling $14.3 million for income tax, this resulting in a net cash flow from operations of $28.5 million. We also used $28.3 million in cash for the fourth quarter acquisitions.

In summary, again results for the fiscal year 2007, total revenues were $95.6 million, adjusted EBITDA was $41.6 million and adjusted EPS was a $1.39 per fully diluted share.

And with that I'll turn the call back over to Tom to provide business report. Tom?

Tom Evans

Ed, thanks. Before discussing the acquisitions, let me just remind everyone the strategy we laid out a couple years ago and how we think we are executing on that game plan. You will remember that we said we wanted to broaden the breadth and depth of personal finance content and products that we offer at our site. Over the past several years, we moved effectively from being focused primarily on mortgage and home equity to deposits and auto loans. That has obviously worked very well as deposits was our biggest channel in 2007 both in terms of revenue and clicks.

We also stated that we wanted to expand into the areas of real estate, retirement, credit cards, college finance and insurance either through partnerships, acquisition or by building it ourselves. With the two acquisitions we announced today, we feel that we have gone a long way toward the completion of that original strategy and our efforts now are focused on execution, integration and developing those businesses to be meaningful revenue and EBITDA contributors that we think they can be.

We think we have a very good shot at having four to five channels, each contributing 20% to 25% of our revenue; certainly a more diversified and exciting portfolio that we had a couple of years ago.

Let me now tell you about InsureMe. InsureMe is an insurance lead gen company with 100s of marketing affiliates and at literally 1000’s of customers in the form of insurance agent lead buyers. What InsureMe does is generate consumer prospects for insurance professionals, both companies and agents looking for auto, home, life, health and long-term care products.

In addition to direct and search engine and marketing business to its website, the company has over 500 active affiliates and has 1000s of agent customers. Based in Englewood, Colorado the company is run by a talented trio; founder Tim McTavish, COO Robin Paquette and CFO Mike Sajdak. They built an impressive, growing and profitable company in the insurance lead gen space.

You heard us talk before about our interest in partnering or acquiring a company in the insurance base, we think this is a perfect fit for Bankrate and are absolutely delighted that working with the InsureMe team we are going to be able to make this happen. We paid $65 million in cash for the business.

In addition, there is a $10 million cash earn-out potential for reaching predetermined EBITA target in each of the next two years, and the entire 68% InsureMe team including the management group will be staying on to run the company.

We believe the acquisition will be accretive in the first year, and the team is highly motivated to maximize its potential and reach their earn-out. We've been very impressed with the InsureMe business, the team is very buttoned up. The technology platform and customer service functions are very impressive, and the momentum of the business is strong.

It was clear to us that they could have continued to be a successful company going it alone, but I think we're lucky to be able to convince them that their business could blossom even more alongside Bankrate, and it was important for us such well run operation was sitting there, particularly given that we had our plate full already.

We just signed the deal this morning, and I know they are listening, so I want to say welcome to the InsureMe team in Englewood. There are some very exciting opportunities for integration, co-branding, and leveraging Bankrate's organic traffic, and we're beginning those as soon as possible.

The other acquisition we announced today is a company named Fee Disclosure. We actually got to know the two founders Mark Zimmerman and Mike Kratzer a couple of years ago when Fee Disclosure was little more than an idea. We've maintained contact with them over the past several years, and monitored the development of their business.

Though their business model is still immature, it's exactly the kind of content and consumer offering that we would have looked to develop. What Fee Disclosure does, is provide local real estate agents and consumers with transparent comparison information on all of the different fees associated with mortgage, loans in real estate closet.

Title insurance, escrow fees, fess for appraisals and home inspections, mold, septic and radon inspections and more. Exactly the kind of information that consumers need to know and with the current mortgage environment exactly what legislators, government agencies and consumer advocates have been for pushing the industry for.

In fact, on the Sunday before Christmas there was a front page store in the business section of the New York Times praising Fee Disclosures content and the benefit it provides to consumers. Fee Disclosure currently has over 30,000 local vendors that have registered on its platform. Combined with Bankrate's traffic, we think this is a perfect fit for our [mortgage] channel and retail business.

We think we've got a pretty good sense to how to monetize local vendors, given our success with our rate tables and we are excited about the opportunity to build us business over time and at the same time provide a great consumer product.

Mike and Mark, the founders, will be moving to Florida and joining our team in North Palm Beach and as the business model is new, we do not expect this is to be accretive as we will be investing in the business to build it out this year. That's a bit of departure for us, but we felt that the operating was so inner goal and so important and an addition to our content offering that we decided to acquire the company.

We paid $2.85 million in cash for the business and think we can ramp it to be an important contributor quickly. The founders have additional cash from that opportunity over the next several years and we are optimistic that this will be a great acquisition for us going forward.

Lastly our Chairman, Peter Morse and I just returned from the visit two weeks ago to China. Unannounced to all of you, with even many insiders in our organization, we've had for the past year a small group in Beijing build up Bankrate China, a similar site and looking field to our domestic US site, but in Mandarin.

In order to meet the local ownership and regulatory licensing requirements the Bankrate website is operated through a wholly foreign owned enterprise owned by Bankrate Inc., which acts in cooperation's with an affiliate PeoplesRepublic of China company owned by certain Bankrate China employees. And ICP license permitting us to publish was granted on February 1st, just less than a week ago. The Chinese operation launched the beta version of the site in early January, which you can see at bankrate.com.cn for all of you who speak Mandarin or can read Mandarin. We expect that this site will be live and launched on April 1st. Obviously the Chinese consumers banking [matters in this nation] is very different from ours in the US, rates are regulated and the consumers are not as sophisticated as ours in this country.

We've spoken with government regulators and banks in China about the need for the kind of financial education program that we’ve done here at Bankrate.com with our basics, guides, calculators, products and rate information and our financial literacy program. Everybody we've spoken to thinks this is great approach to the Chinese market, and that will be our initial focus with the site in China. We want to provide consumers with the kind of financial information that will make them better informed consumers.

It will be a while before this is a significant business, generating many an important revenue, but we wanted to develop our site, build our relationship as early as possible. You have seen the cost of the efforts flow through financials in the past quarter and the cost of operation is already factored into our guidance for 2008.

Let me give you quick update on our redesign. The redesign of the Bankrate site is in full motion. We expect the new redesigned rate tables and rate table funnel to be testing toward the end of Q1 and the redesign of the rest of the site to be launched at end of Q2.

It doesn't mean we are just sitting around waiting for the launch however. We have already integrated the ads and tools on the Savingforcollege site and integrated the college finance content into the Bankrate site. Nationwide card services is off to a great start. In December, as Ed mentioned, we will get some of their ads appearing on bankrate.com and you will see more integration on our site in the future.

Obviously, we want to be able to offer our co-brand partners the additional products of credit cards and now insurance .We’d hope to have some traction on that this year, it really does give us a broad portfolio of products to offer our partners, without having them have to do much in the way of integration or development work.

As for 2008 guidance, factoring in the accretive nature of the InsureMe acquisition and the expense associated with the Chinese development and the Fee Disclosure build out, we are updating and increasing our guidance.

In 2008, we're now expecting revenues of between $167 million and $172 million, and EBITDA between $64 million and $68 million. That low end of the guidance represents a 75% increase in revenue and a 54% increase in EBITDA in 2008 over 2007.

And again, I'll reiterate what we said on our last call. We expect our core business to be growing to be growing in excess of 25% in 2008, and it's obviously off to a great start already.

We do expect to be running the business in 2008 at lower margins, at the 44% we ran the business this year, as we’ve begun to mix the lower margin NCS, InsureMe, and Savingforcollege business with the Bankrate core business.

However, we believe that we will be able to improve those margins overtime, just as we have in the past three years, and particularly as we push our organic traffic at in-market consumers across those platforms, co-brands and other sales opportunities.

I'm sorry to be going on so long, so now why don’t we open it up to questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). We'll take our first question from Andrew Jeffery with Suntrust.

Andrew Jeffrey - Suntrust

Hi good afternoon guys.

Tom Evans

Hi Andrew.

Andrew Jeffrey - Suntrust

Hi, a couple of questions Tom, I mean, obviously the, some of the greatest fears in the market seems to have manifested at least in December with respect to advertiser cancellations and obviously then we've had this big rally in the ten year treasury and commensurate increase in mortgage refinance. So a couple of things in that, lets call one: can you get a little more granular on your comfort? Based on one month of the year, with respect to the outlook for the full year, we used to say we don't a repeat event especially if we go under recession.

And then two, given the strength in January are we looking at a front end-loaded year and, I mean, we knew I know it's tough to budget on a quarter-by-quarter basis, but, when you look internally: you are expecting 1Q to spike and then the rest of the year to come off? Or: how should we think about those things? And I've got one follow-up.

Tom Evans

Yeah, I mean: take it one at a time. First part, it really was a wild quarter. I mean: we were absolutely smoking and in fact we talked a lot of you and we talked to -- we were at Investor Conferences saying we haven't seen it. I mean October, best month ever. November great month a CPC month ever, all of a sudden you've got -- I mean it's not exactly news to anybody that city Merrill Lynch, E-Loan, E-Trade Countrywide all these guys were just getting hammered.

I mean: everyday you pick up the paper, the news was worse than the next. And we saw a cancellation, I mean: from those name brand guys who pulled back. We don't, again without that kind of event occurring this year, we haven't seen that kind of problem; we are off to a great start. Traffic wasn't just when the Fed lowered the interest rates. January one or two every single day except for January 1st, our traffic was up over the year prior and pretty dramatically.

So when we hit the 18, I mean: we are already getting calls from some of you guys, saying hey what's going on with the rate tables, they are looking a little thin. There was so much traffic, there was so much activity we were burning through advertiser’s budgets and it’s why we instituted that 35% rate reduction for the last nine days. Now as of February 1, we are back up to the former rates, but bank are going to still need to advertise and we’ve got a lot of commitments in, not saying that they are iron clad, they are not going to cancel, but their back ordering advertising, the consumer is back, CPC dollars are up.

We have heard from so many guys that they are so much healthier now as a result of this boom. People are starting to think about hiring again now. They are a little skittish about how much do I load up and how many people do I bring in, because if we take a decline in the economy it could be problematic. But I am going to tell you there is a completely different mood out there and we've seen it reflected in the consumer. I mean: we had the best month we’ve ever had in the history of the company. Last month we did 6 million units on Bankrate. January did over 8.8 million.

So they are coming, we are seeing new people come to the site. We are very bullish, advertisers want to generate business and we do have the advantage of with people focusing on better credit customers: that's our customer. I mean: our guys at the ad paper, our guys at the prime loans, our guys are the guys that credit companies and mortgage companies and re-fi guys are giving loans to.

So that part of it is working. I am so sorry, I can't see what it looks like going forward, but it sure feels very positive right now. And again, other than the two weeks that we had -- two-and-a-weeks in December, it was a great fourth quarter. So we were flying by that environment after a great third quarter, after a really solid first half of the year.

Now, we're not really, the honest answer Andrew, but that part of the year is front-loaded, honest, we're not really sure. I, we sure don’t think so, because I think that once we get into the integration of NCS, of InsureMe and we get to the redesigned Bankrate, we think that's going to really pump a lot of wind in our sales.

We don't have any of those new companies that we own on any of our co-brands, yet that provides some upside opportunity. We think that's a later in the year event.

So I will tell you, notwithstanding the economy and I don't mean to say that that's not a concern, it's a concern for all of us. We've never been sort of more bullish about our business and never felt better about the business going into a year, and I can honestly tell you, other than -- if we step back and look at our year, and this is the toughest thing about as I said in the prepared remarks about a company like Bankrate.

We had sort of two to three weak periods during the year, one in August and one in December, that were really skittish, and other than that it was a phenomenal year, and everything that we look at in terms of revenue ramp, and traffic, and clicks and being able to monetize that and advertising demand was up for the year.

And tell you what our budget was just to give you, I’d tell you where we ended up, and I mean that original guidance was not sandbagging, that's really where we thought we'll be. We raised guidance and then we exceeded a bit part of that so. I'll stop going on and on and on, but we are feeling good about the business, but not really sure how it's going to shake out and again that's why we don't guide in on a 90-day basis, we guide for the year.

Andrew Jeffrey - Suntrust

Okay. And then on the one follow up: could you give us a snap shot so on the pro forma basis as to what you think the revenue mix looks like by financial category?

Tom Evans

Well. It depends on what point in time, but, as I said, we think and the nice thing about the fact that mortgaged are becoming a less and less of our percent of our total revenue. Notwithstanding that mortgage continues to grow with double-digits for the fourth year in a row and maybe for all of Bankrate going back before I got to the company, but in light of two pretty challenging years in the housing and mortgage industry we've grown at double-digits. So mortgages, I mean: my guess as good as like swap me as I do this. But I mean I think you are talking sort of a early out mortgage 30%, deposit 30%, insurance 20%, credit card 20%. I guess it's 100% already. And there we throw….

Andrew Jeffrey - Suntrust

So yeah, that's more than a 100. Yeah okay.

Tom Evans

Print 10% and all other 10%, so I guess 120%. But consumer habits are changing, more consumers are coming online. We've watched with admiration the ramp of the InsureMe business, the ramp of the NCS business. We are delighted to have those as two Bankrate companies now and we are excited. We think that those are going to be growing businesses. Those are going to be great for us and imagine somebody coming under Bankrate and after looking for a mortgage, we pop something up and say: “would you like an insurance quote”.

After looking for an auto loan, we pop, we have popup, that there are pop under, but after they leave that lender site says, would you like to quote on your auto insurance, because we know you are just looking for an auto loan, and we think this is great opportunity for us and they are perfect fit with Bankrate. I mean: it’s not like we are trying to do something with these acquisitions that we have never signaled before that you need though. Hey wait a second. Why are they getting into stocks and bonds? Why are they getting into something sort of far a field? This is right in our [wheeled] house, where we know the consumers are actively looking for the kind of information that we provide.

Andrew Jeffrey - Suntrust

Thank you very much.

Tom Evans

Thank you.

Operator

We'll take our next question from Rich Ingrassia with Roth Capital.

Paul Thomas - Roth Capital

Hey Tom this Paul Thomas actually for Rich.

Ed DiMaria

Hey Paul.

Paul Thomas - Roth Capital

Not to hound the point too much, but maybe looking back of your previous experience maybe even before Bankrate and looking at where we are in the economic cycle and back to sort of what happened in December: do you feel like sort of turned the corner here? It just seem like we are kind of at the beginning of way things are going to go: what's your perspective on that?

Tom Evans

Yeah, my sense -- that’s a good question. My sense is, let me tell about the current environment and I will say little bit about my perspective based upon 25 years in the media business, which is amazing since I am only 40. The first part of it is there is never going to be more noise about those big advertisers that we talked about. I mean, I won’t say something cataclysmic and I don't think any of us thinks that that's going to happen.

So that was the worst time, if you think about the new it happened. I mean: I was keeping track on pulling out sort of press clippings from sort of November 10th on, but I mean: it was really a mess for some of those names that I mentioned earlier. Now, typically in a media session and the media pull back, what does happen and I have lived through, half dozen of years. The stuff that's sort of peripheral. The stuff that's nice to do. The stuff you do with business is really great. The stuff you do when business is solid, that stuff gets cut as things get more difficult.

What holds is that core, the stuff you have to be, those consumers that are in market, you prime, prime advertising place. And it's when you start cutting golf sponsorships and all the kinds of peripheral stuff you do, you don't loose your core, and I can tell you, Bankrate is core to those advertisers.

I mean: we're the place that people to come to in order to lock in conversions. We are the people replaces, that people go to get that in-market consumer, and particularly the prime consumer. So we really think we're going to be able to maintain our position. We had CEOs being terminated, and that always causes a dislocation. And gosh: what should we do, should we do? Should we spend the money as everything is status quo? Or: do we sort of put things on hold?

And I never say it was the perfect storm or will always be, listen or not making excuses, but my sense is that that part of it the worst is over, and I'm not saying the economic worst is over, but certainly for those marketers, the uncertainty is over and they are going to be still trying to sell mortgages next year, still trying to sell credit cards, still trying to sell home equity loans, and get people to signup for checking and savings products, and Bankrate is a place is for them to do that.

Paul Thomas - Roth Capital

Great, thanks for the perspective.

Tom Evans

Thank you.

Paul Thomas - Roth Capital

And one another quick one Tom?

Tom Evans

Yes.

Paul Thomas - Roth Capital

You talked about a graphic ad increase before, happening in January, and then you mentioned the discount. Did a price increase go through? Or: what's the status of that?

Tom Evans

Yeah, two separate points. The 35% discount that I mentioned was strictly for mortgage and home equity CPC clicks. So we reduced just because we were the tables we are getting thin, we were -- basically there was so much traffic and so many consumers, we were burning through the budgets of our advertisers in order to help them.

In order to maintain the rate tables, we did two things, number one: we gave them in a sense 35% of the clicks for free. And the second thing we did was: we increased the editorial listings on the tables. So you'll go into an average market where we might had five listings and now we have nine or we have 10 or we have eight and we did that as a consumer service. We didn’t consumers coming to the site and not seeing a plurality of lenders on Bankrate's, so it was an amazing time and I was right, it was almost like these guys were getting more important, I mean: they were really sort of gasping for breathe.

I mean: we heard from some of these guys by 10 o'clock in the morning they had more leads than they were able to work. So they were turning off. They were turning off their campaigns and pausing on Bankrate at not being active because they just couldn't the volume. So that was the strictly CPC.

On the display side what we said was that we were going to target a sort of mid-teen 15% increase in display advertising rates and got to tell you that's where we've about come out. So I mean: the deals we've signed have been right in that ballpark and in January the advertising we were running was right in that ballpark. So, and in fact it was interesting because Select did so well for a period of a time and Select was competitive on a CPM basis or on ECPM basis with some of those high-paying advertisers.

Paul Thomas - Roth Capital

Thanks Tom.

Tom Evans

Yeah. Thank you.

Operator

We go next to Youssef Squali with Jefferies and Company.

Youssef Squali - Jefferies and Company

Thank you very much and good afternoon everybody. Couple of questions, first if I look at the new guidance at the mid-point, basically it implies an incremental EBITDA margin of about 33% versus 85% in '08. Can you -- is there anything structural about these acquisitions that would warrant margins to kind of fundamentally to slow or stay below the mid-forty that you guys have historically done? I am not talking history about '08, I am talking about later and, obviously: how fast can you ramp those up?

And second if I look at the absolute dollar increase in your guidance, there is about a $25 million to $27 million increase on the revenue side, there is about a $4 million increase on the EBITDA side. If my math is correct that means, that implies, it implies about a 16 forward EBITDA multiple that you paid on these acquisitions, I guess in aggregate. Which to me, I mean: that it is not accretive to your current valuation. Can you address those two points?

Ed DiMaria

Well I'll take the first one, just on the guidance margin. As I mentioned in my prepared remarks the business NCS that we brought as well as InsureMe, I mean: they do operate at least initially at a lower margin then our online business. So we wanted to provide ourselves some room to be able to move that margin up by generating a running Bankrate organic traffic, as well as SCM through those acquisition. So that sort of implies in the margin. We think we can make progress there, we think that we have enough room in there to be able to improve upon that. But that's where we really wanted to -- that's the bar we wanted to set, at least initially. I think we choose how to look at it just besides the overall growth in EBITDA dollars that we put in the guidance. We do have significant growth there and overall we are looking at it, not only margin percentage but also just growth in EBITDA dollars so.

Youssef Squali - Jefferies and Company

But structurally is there anything different about this business in term of customer acquisition or not?

Tom Evans

Yeah well…

Youssef Squali - Jefferies and Company

Sure.

Tom Evans

Yeah. A large part of their current customer acquisition today comes through affiliates, and they pay affiliates a rep share, so it’s significantly different than Bankrate. Now, we want to maintain that business, they have got a great affiliate platform both NCS and InsureMe them. But what we intend to do is bring in more direct traffic and provide them with direct traffic through Bankrate, co-brands and some other things we are doing, so they will run, and we believe that they will run at higher margins and as I mentioned, that’s where we will start.

But if you look at some of the trajectory of what we've done over the past couple of years, we’ve been able to pretty effectively raise margins year-to-year, and we think, we'll be able to do that this year and next year as well.

Now one of the problems we’ve had, and I think we've talked about this with all of you, is that, running at, when you look at the kind of trajectory Bankrate has had, and the kind of margins that we run at, it's hard to find anything else that's running at those kinds of margins.

It's really difficult to find a business like that, that's affordable. And so, we thought that initially we would take this sort of hit on margins, but then, we'll be able to grow it overtime, they are so compatible and it ought to work so well that we think, these things can be very valuable.

Ed DiMaria

And just further to the point: where you are sort of trying to back into a multiple or anything like that, we didn’t put up specific numbers with these guys, I can assure you that, even with the earn-outs in fully earned, these are at a attractive multiples to ultimately what Bankrate trades at. They are indeed accretive to the business.

Youssef Squali - Jefferies and Company

They are lower than what are you trading?

Tom Evans

Absolutely.

Youssef Squali - Jefferies and Company

Okay. Then maybe my math is just off.

Ed DiMaria

You've also got to factor in the expense. Fee Disclosure is not as accretive. I mean Fee Disclosure is clearly going to be run at a loss and as an expense, and we'll be building that business as is China. So we factor that in as well. So if you would add back the money for the EBITDA that you are showing $4 million, but it's actually more than that because there is expense from those two assets. That is factored in as well.

Youssef Squali - Jefferies and Company

Okay. That's fair. And then, Tom, back to your 35% discount in the margin home equity CPC clicks, this isn't the first time since we've covered you, we've covered you for years that we've seen you guys actually go the other way. Historically, you've taken prices up. So: do you still feel that you have enough leverage to raise rates in this category in '08?

Tom Evans

I did say it was out of character and it was nine days. The answer to that is: “absolutely”. There is such a thirst for the kind of volume, the kind of consumer, the kind of conversion rates that we provide that absolutely.

I mean: remember, our largest category currently is deposits. We put a 20% increase in January 1 and have seen absolutely no decline in the number of people that are looking for deposit customers in terms of advertisers. We pushed through an increase in October for mortgage and home equity. It went through December.

We've got more advertisers too. We got over a thousand CPC advertisers now today. The problem was traffic was so incredible in January that we were burning through the advertisers budgets and we just weren't sustaining the rate tables. And from an editorial standpoint, we want those rate tables to be full; we want them to be comprehensive. And so, we thought one of the ways that we could help the advertiser in the short-term, while they are sort of catching their breath, was to have that discount.

I promise you that the discount was not done for any reason other than to help them maintain their position on the rate tables. I mean we had double the page views in January as we had the year prior. I mean it's been unbelievable. By the way, the first five days of February are no less busy. So we just thought it was something we do -- I know it's a long way to answer your question -- but absolutely, we continue to feel like Bankrate is a value buy for those advertisers.

Youssef Squali - Jefferies and Company

Thank you.

Tom Evans

Thanks.

Operator

Next we'll go to Brian Fitzgerald with Banc of America Securities.

Brian Fitzgerald - Banc of America Securities

Thank you. A quick clarification on the new guidance: Is it safe to assume that's all from the acquisitions? Or: can you help me understand the way it's changed from the prior outlook? Is it ad budgets finalized in January? January was a stronger month. Was it related to the front end loaded question? Or: are the integrations going better than expected? And then a quick one on January, you mentioned CPC was strong: any color on how display did in January? Thanks.

Tom Evans

Display was 47% up.

Brian Fitzgerald - Banc of America Securities

Got it.

Tom Evans

January up above the year prior. Display was strong. I mean our sell-through rate wasn't what we'd like it to be not only because we thought we'd be selling 60 million page views and it turned out to be over 80 million page views. So we were scrambling on to try to fill it. One of the things we did is put a bunch of Bankrate Select on there and Bankrate Select did extraordinarily well. So, solid demand from a display standpoint and solid pricing from a display standpoint. Ed, do you want to handle the EBITDA?

Ed DiMaria

Yeah. The guidance, just a clarification, we did go up from 60 to 65 to 64 to 68, as I mentioned in my prepared remarks, and it was a couple of things. Certainly, we did take into consideration the acquisition of InsureMe, but also the core business is running a little bit better obviously than we expected. So we did factor in a little there as well.

On the Fee Disclosure business, as Tom just mentioned that's going to be a situation where we're going to provide funding. We're going to develop that business. It's going to run at a negative EBITDA, obviously, until we get the revenue cranked up on that business, and business begins to get traction. So that combined with additional investments in China was somewhat of an offset.

So those are some of the pieces that were factored in. I just want to remind everybody, the new guidance that we have in there ranges from a 54% increase in EIBTDA dollars to a 63% increase in EBITDA dollars. So it's pretty significant growth that we are expecting for 2008.

Brian Fitzgerald - Banc of America Securities

Great! Thanks.

Tom Evans

Thank you.

Operator

We'll take our next question from Mark Mahaney with Citi.

Mark Mahaney - Citi

Great! Two quick questions, first is just the way I understand I would think what's happening is you're getting huge ramp-up in traffic with all of the refi activity, but it must be that conversation rates are really falling off. I think that's probably the explanation for why advertisers are burning to budgets, but they are not able to keep up maybe or they need the price decrease because those leads just aren't converting. Does that seem like a reasonable interpretation?

And secondly, just as a broad question, Tom and Ed, you've got four acquisitions in integration mode now on a major website, overhaul that's on track for the end of Q1. It does seem like a lot of things on the burners now. How should we think about the execution risk about these five things occurring at the same time? Thank you.

Tom Evans

Two great questions, Mark. And honestly, the volume and the reason guys were backing off the rate tables and volume is, if you've got 20 loan officers and they can each work five leads a day and you get 100 leads by 10 o'clock in the morning, you're not going to want to pay for incremental leads. If you can't work, I mean if they can't get to home, you don't want to buy them, you don't want them there. We heard just the opposite that conversion rates were up because it's refi that the consumer was ready to do business.

We've heard from so many of our advertisers, so many of our rate table guys that they've gotten healthier, they are converting a lot. I mean I can tell you one advertiser told us. That guy is pretty sophisticated about the Bankrate tables. They've been adding people in anticipation of this, and they did more loans in January than in the history of their company. So we've been hearing the opposite. Honestly, the reason guys were dropping off was simply because they just didn't have the back end to be able to support the amount of leads they have. But we've not heard that they weren't converting.

On the acquisition, fair comment, you talk about getting one aborted. Maybe we're getting one aborted with a lot going out. I would love to have done one a quarter or one every four months for the last year and a half. Sometimes things happen on your timing and sometimes things happen on other peoples timing. And generally, we are acquiring someone that happens on their timing.

The good news about the acquisitions is that we've really been able to buy in both NCS and InsureMe two very solid, very well run companies. These are not mom-and-pop operations. We were really impressed. When we went in and looked at the technology platforms of these companies, the financial reporting of these companies, the operations, the management teams, we've left both teams completely intact.

Every employee at NCS has now been converted to a Bankrate employee. Every employee at InsureMe -- I'm going to be flying out tomorrow and meeting with those folks tomorrow, we want all 68 of those people at Bankrate. They got a really good team. If these were poorly run companies that we really needed to go in and shore up the operations and stick our people in there, and fix them immediately, I completely agree with you.

Quite frankly, we had this discussion at the Board level. I don't think our Board will have approved doing these things in the shorter period of time because it is a lot to have on our plate. But our opportunity really is to take two great platforms and leverage our traffic across those platforms, drive up the margins, expand our portfolio of services, and integrate those into something we're already doing and that's redesigning the site.

So the timing was actually good. I'd like to have staggered them. I know Ed would like to have staggered them. But they are great teams. And for that reason, we feel that there is an opportunity to do it. But it's a fair point. We've talked a lot about it internally.

Mark Mahaney - Citi

Thank you Tom. Thank you, Ed.

Tom Evans

Thank you.

Ed DiMaria

Thank you, Mark.

Operator

We'll take our next question from Heath Terry with Credit Suisse.

John Pitzer - Credit Suisse

Thanks. It's actually [John Pitzer] for Heath Terry. Just a quick question. With the Fed cutting rates, presumably you guys are seeing better growth in the overall mortgage category. Can you guys please talk about the impact on your margins given the higher pricing from improved mix from mortgage relative to your deposits?

Tom Evans

Yeah. The margin impact is pretty much the same. If you go from, as I said, charging $6 to $750 on deposits, every dime that falls to the bottomline, so the margin expansion on Bankrate itself of the core business in January was significant. Again, without getting add over our schemes, I dare say January was by far the most profitable month we've ever had, no doubt about it, and increased margins. And all of that sort of falls in the bottomline, And it doesn't really matter whether its deposit or mortgage.

Because of the size of the deposits that we're generating is pretty valuable stuff, we've tried to increase more aggressively the deposit rates than mortgage rates over the past, actually, couple of years to try to bring them sort of in lockstep with one another. So, we want to be in a position where we're completely ambivalent about whether it's a mortgage click or a deposit click. If it works either way, interest rates are going up, interest rates are going down, you get it from one; you get it from the other.

I can tell you that January, it was both. I mean: deposit clicks were up, mortgage clicks were up. As you say, it was kind of all good.

John Pitzer - Credit Suisse

Great! Thank you.

Tom Evans

Thank you.

Ed DiMaria

Thank you.

Operator

At this time, we'll take our last question from Kyle Evans with Stephens.

Kyle Evans - Stephens

Hi, guys. Thanks for taking my question.

Tom Evans

Surely.

Kyle Evans - Stephens

It seems like to me that the inability to quickly sync up your demand with unexpected supply, whether that's some cancelled advertisers or this tide wave that you're are seeing in January of traffic, that may be one of the only flaws in that core business. What can you guys do operationally from here given all the volatility of rates and all that other stuff in terms of operations and/or in terms of pricing, maybe something more dynamic along an auction model-type thing to better sync those up?

Tom Evans

Yeah, besides clone our Chief Revenue Officer is Don Ross. I really think it's a couple of things. You hit the prom on there. We talk a lot internally and discuss ways to sort of mitigate the traffic slider and advertiser cancels, traffic is strong, and again it's why I talk about the difficulty of these 90-day chunks. We've really tried to coordinate, and I think we've done for the most parts in over the last several years a decent job, not a fabulous job, but a decent job of matching traffic and SEM spend when we do that with sold inventory.

One of the reasons why Select, NCS, InsureMe are so attractive, Fee Disclosures is more of an integrated opportunity and saving for college is more of an integrated opportunity. But to be able to pop up a consumer offer, when we have incremental traffic or when we have holes in the inventory for whatever reason, is really -- and two or three or four, as Ed talked about, sort of five different lead gen opportunities that all monetize pretty well is exactly for that reason.

We cannot predict well enough what the traffic is because I got to tell you we were prepared for January. We made a conscious decision in December not to chase the nickels and dimes at the end of the year. I don't know whether they would have been there or not, but we really focused on setting up embracing for January. So we got off to a better start. We sort of got blown over by the tsunami. I mean it was just so much traffic, but we've plugged in Bankrate Select, we've plugged in NCS and they did really, really well. We added InsureMe to be able to plug into all that incremental traffic.

So that's one of the reasons why we want this broader portfolio of products that we're able to monetize. Beside sort of the natural things that we could do on the site, integrating on my place is where it makes sense, providing the offers. It provides a portfolio for the consumers where there were lots of products.

Kyle, we haven't figured out the timing of where we can perfectly match. We try to do was [remin] advertising. That sometimes works. I got to tell you in environment like January, we even blew threw our remin advertisers capacity on the top end of their demand. Now it doesn't happen that often. And sometimes the remin stuff doesn't monetize the way core stuff certainly does. But we're trying to run as many place to do that as possible. We don't have it down perfect but we're doing better.

Kyle Evans - Stephens

Great! Thanks.

Tom Evans

Yeah. Thank you. Well, thanks everybody. Really, I appreciate everybody's joining us. We believe this company has never been in a better position to continue and accelerate the momentum that we have. We've had three really good years in a row and feel that with the broad width of product and service that we now have to offer to the consumer that this will be our best year yet.

So, I appreciate your support and hope you monitor our progress as we continue to build the company. So, thanks everyone. I'm sorry to go on so long. We had a lot to talk about. But thank you very much and we'll report back to you soon.

Operator

And that concludes today's conference call. We do appreciate everybody's participation. If you have any further questions, you may contact Bruce Zanca directly at 917-368-8648. And again, that was area code 917-368-8648. Thank you and have a good day.

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