Bankrate, Inc. Q1 2008 Earnings Call Transcript

Bankrate, Inc. (RATE)

Q1 2008 Earnings Call

May 01, 2008 04:30 pm ET

Executives

Thomas Evans – Chief Executive Officer, President, Executive Director

Edward DiMaria – CFO, Principal Accounting Officer, Sr. Vice President & Secretary

Bruce Zanca – Senior Vice President

Analysts

Colin Gillis – Canaccord Adams

Analyst for Youssef Squali – Jefferies & Company

Kyle Evans – Stephens, Inc.

Mark Mahaney – Citigroup

Ross Sandler – RBC Capital Markets

Unidentified Analyst

Mark May – Needham & Company

Andrew Jeffrey – Suntrust Robinson Humphrey

Presentation

Operator

Welcome to the Bankrate, Inc. first quarter 2008 conference call. (Operator Instructions) At this time, for opening remarks, I would like to turn the conference over to the Senior Vice President Bruce Zanca.

Bruce Zanca

Thanks for joining us on this conference call to report on Bankrate’s first quarter 2008 financial results. With me here in our New York office is the Company's President and Chief Executive Officer, Tom Evans and our Senior VP and Chief Financial Officer, Ed DiMaria.

Let me take a minute to go over the format of the call for today. First, Tom will give us the results and colour on the quarter; Ed will give us some details on the financial results and then we will have plenty of time to answer questions you might have.

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

The company intends that these forward-looking statements maybe subject to safe harbor created under the Securities Law. These forward-looking statements reflect our current views with respect to future events and financial performance; but are subject to uncertainties and factors relating to the company's operations and business environment, which may cause the company's actual results to be materially different from any future results.

We encourage you to read the section entitled Risk Factors in our Form 10K and are subsequent filings with the Securities and Exchange Commission.

That being taken care of, I will introduce you to Tom Evans, President of Bankrate, Tom.

Tom Evans

Good afternoon and welcome, we appreciate your taking time to join us this afternoon for our first quarter 2008 earnings call. I trust that you have seen the press release we put out a few minutes ago outlining our financial performance for the first quarter.

In what was an extraordinarily volatile economic environment, we are pleased with the Company's performance. We ended the quarter with $42.5 million in revenue, an increase of 91% versus the first quarter of 2007. In Q1, we generated $16.1 million in EBITDA, an increase of 61% over the same quarter last year. Both, of course, are records for the Company.

EBITDA margin for the first quarter was 38%, slightly better than we anticipated as we integrated our new lower margin acquisition into the core Bankrate business. Earnings per share excluding the non-cash comp charges were $0.46 compared to $0.33 in Q1 last year. Page views were record 214 million a 50% increase in visitor traffic versus the first quarter of last year.

In a few minutes, I will give you some colour on both our display and CPC business, give you an expanded report on the integration of our acquisitions, give an update on our redesign activities, and give an update on Bankrate China and finally an overview of what we expect for the rest of the year.

First, we will have Ed go through the financial detail for the quarter.

Ed DiMaria

Let me begin by saying that the first quarter 2008 was certainly an eventful start for the year. The traffic levels, particularly January, as well as the acquisitions drove a big pop in revenue.

First, I will walk you through the highlights for the quarter; second, we will grind through the details. I will briefly cover the stock buyback authorization we announced today and Tom will deliver the business report. After Tom delivers the business report, we will finish by covering guidance and then take your call.

Just to note, I will cover the amortization intangibles now that the valuation work is complete on recent acquisitions. We have a lot to go through so let me get started.

Total revenue came in at 42.5 million an increase of 20.3 million or 91% over the 22.2 million in Q1 2007. EBITDA, excluding stock compensation expense, was 16.1 million an increase of 6.1 million or 60% over the 10 million for Q1 2007.

Non-Gaap net income, which excludes stock compensation expense, came in at 9.1 million or $0.46 per diluted share an increase of 2.6 million, which is 40% over the 6.5 million or $0.33, we posted for Q1 2007.

Net income on a GAAP basis was 6.8 million or $0.35 per diluted share compared to 5.4 million or $0.28 per diluted share.

FYI, the amortization intangibles related to the four new acquisitions, during the quarter, was 1 million or $0.03 per share. I will walk you through this in a few minutes. Also, lower interest rates on our cash, during the quarter, reduced interest income by approximately 300,000 or $0.01 per share. If you add back the amortization and the effect of the lower interest rate, EPS would have been $0.50 on a non-GAAP basis and $0.39 on a GAAP basis.

Again as a FYI, since I do not believe that this is considered in your estimates, I know you are waiting for the accounting for the acquisitions, so we are pleased with the stellar Q1 results and I am sure this is a welcome contrast for you given the seemly endless slough of bad news in the market over the past few months.

Looking at revenue more detail, online revenues for Q1 2008 were 40 million up 21 million or 110% over the 19.1 million reported in Q1 2007. The increase in online revenue was driven by display and lead generation along with Cost per Click advertising.

Display and Lead on was 26.4 million up 15.9 million or 153% over the Q1 2007 revenue of 10.5 million. Display picked up nicely coming off December. Also, we got a big boost from traffic and a combination of new products including the new credit card and insurance product revenue from NCS and InsureMe and stronger than expected performance from Bankrate Select. Select generated a very strong ECPM; we also begin testing new NCS and some InsureMe display toward the end of the quarter. Tom will provide more colour on the progress for the acquisitions in the business report.

Not let’s tackle Cost per Click advertising, which I know you are all interested in hearing about.

In my opening remarks, I mentioned that Q1 was an eventful start and CPC revenue was certainly in the thick of it. We really had an unbelievable quarter for CPC. CPC revenue came in at 13.6 million up 5 million or 58% over the 8.6 million we reported in Q1 2007. Revenue was up dramatically for both mortgage and deposit product with mortgage accounting for 44% of CPC revenue and deposit accounting for 48%. We also benefitted from the new Yahoo program launched in mid-November 2007 as well as the MOVE Program launched in September 2007.

Increase in revenue this quarter was driven by a large increase in volume and higher CPC prices. You recall we increased the price of CDs and Emma Mays on average by 20% on January 1.

Consumer demand in Click Through rates were up during the quarter, helping to drive the results, especially during January when mortgage rates dipped. The big consumer spike in click traffic caused some thinness in the rate table advertising listings early in the quarter, which has mostly bounced back as traffic spikes moderated. Traffic is still consistently running well ahead of plan, but we are seeing less spikes in the traffic, which actually works much better for us operationally. Tom will provide more colour on CPC in the business report.

Our print, publishing and licensing revenue was 2.5 million for the quarter, representing a decrease of .3% from the first quarter 2007 revenue of 3.2 million. This was no surprise, as you know; we have been fighting the print battle for awhile now. We did, however, manage to keep revenues consistent with the fourth quarter 2007 where we also posted 2.5 million in revenue.

The print business accounted for only 6% of revenue, during the current quarter. The gross margin on the business was 6% and the business continues to be a feeder for our online traffic.

Our overall gross margin on sales, excluding stock compensation for the first quarter, was 63% compared to 75% in the first quarter of last year. The online gross margin, excluding stock compensation expense for the first quarter, came in at 66% in 2008 compared to 85% in the first quarter of 2007. The decrease in the gross margin for the quarter was the result of adding new acquisitions into the mix, which run at lower margins compared to core bank rate since these businesses currently run primarily on affiliate traffic.

As we stated in our last call, our plan is to improve the margins for the new businesses by integrating them into Bankrate to drive more organic traffic through the platform. We should see some benefit of this in the back half of the year.

Again, EBITDA, excluding stock compensation, was 16.1 million for the quarter, representing a 38% EBITDA margin compared to 45% in the first quarter of 2007. The Q1 margin percentage is within the range of our guidance for the year. The decrease, again, reflects the new acquisitions we made in February and December and, as I just mentioned, the margin should improve upon integration and running more organic traffic through the platforms.

Also, we have incurred costs for development for the new website and some integration costs associated with the new acquisitions.

Operating expense has increased for the quarter by 6.6 million from 8.6 million for the first quarter 2007 to 15.2 million for the first quarter 2008. The increase is driven primarily by 3.7 million in new operating expenses associated with the acquisition, meaning InsureMe headcount, NCS headcount, their faculties, et cetera and also by higher marketing, product development and general administrative expenses.

Product development expenses were up due to higher human resource and development costs associated with new products we are working on for 2008, primarily in the new website and higher share based compensation expense.

Marketing expense increased as we continue to increase our FDM spender in the quarter and higher share based compensation expense. G&A increased as a result of higher share based compensation expense, accounting costs associated with valuation work on the acquisitions and some payroll.

You also noticed that depreciation and amortization expense jumped in the quarter and I want to take a minute to walk you through this. The intangible asset valuation work for the acquisitions was completed by DeLoyd and reviewed by Grant Thornton.

We ended up with a dramatically higher identified intangible asset allocation of the purchase price than anticipated and also more of a front loaded faster amortization time table. Identifiable intangibles must be amortized as opposed to goodwill, also an intangible asset, which is not amortized. A larger identified intangible asset allocation results in a lower allocation of the purchase price to goodwill.

Identified intangibles include items such as customer lists, developed technologies, domain names, affiliate relationships, et cetera. Amortization for a portion of these intangibles is tied to expected cash flows consistent with FAS 141, which resulted in front-loading some of the amortization expense given the strong expected cash flow for the businesses. All the factors I just described drove higher than anticipated amortization and depreciation.

Sorry for such a long detailed explanation, but I wanted to make sure you understand it; even though, it is just a technical accounting and bears little weight in evaluating acquisitions. We focus primarily on free cash flow and EBITDA accretion although the acquisitions were still plenty accretive to EPS even after the intangible asset amortization.

For planning purposes, we expect that depreciation and amortization for the year will range between approximately 8.7 and 9.5 million. As I mentioned in my opening remarks, the new amortization this quarter reduced EPS by $0.03 per diluted share.

We ended the quarter with 66.1 million in cash and cash equivalents after spending 96.5 million in the fourth quarter of 2007 and the first quarter of 2008 on acquisitions. We generated 10.2 million in cash flow from operations after tax and used an additional 1.2 million per capital expenditures, primarily on software and the development of the new website.

I want to point out, for the benefit of your future estimates, our cash is now earning below 3% per annum with some of the cash invested in treasuries and some invested in the highest quality money market funds. We have zero exposure to structured investment vehicles or SIDs and zero exposure to auction rate securities or ARSs. We never invested in SIDs and we ceased investing in ARSs last summer, well before the liquidity crisis that brewed this year. We made the decision to eliminate ARSs last summer after evaluation our portfolio and assessing the risks of sales auction and potential liquidity problem. We modified our investment policy to preclude investment in such products.

As I mentioned in my opening remarks, the lower return on investments this quarter, produced EPS by approximately $0.01 per diluted share.

We ended the quarter with 273 employees, which includes 179 Bankrate employees and that includes our small team in China and 94 new employees in the acquisitions.

Our income tax provision of 4.9 million for the quarter represented a 42% effective rate on book income.

Stock repurchase, I am sure you saw in the press release that the Board authorized the stock repurchase of up to 50 million. The Board authorized this as the Company continues to generate strong cash flow and we now have over 73 million in cash.

Our primary objective continues to be to use the cash to make high quality accretive acquisitions; however, the Board also wanted to provide a mechanism for us to be able to repurchase shares if we are not able to find suitable acquisitions or an opportunistic situation should arise. I want to make sure that everyone understands that we have no immediate plan to act on this authorization; but, it is available to us if circumstances should warrant it.

In summary, the results for the first quarter 2008, total revenues were 42.5 million, adjusted EBITDA was 16.1 million and adjusted EPS was $0.46 per fully diluted share.

With that I will turn it back to Tom for the business report, Tom.

Tom Evans

Thanks let me give you first an overview of our business environment. We believe that at the end of the last two years was a demand driven by advertisers. We spent most of last couple of years trying to optimize the ad demand we had.

Our impression of 2008 today is that now the demand is being driven by the consumer, accelerated by the current volatile economic environment, personal finance has gone from being a spectator sport to a participatory sport. It seems to us that more and more people are taking an active interest in their financial well being. Certainly, the economy and the news environment have driven this. More people are concerned about the equity value of their home, where their money is invested, their credit card interest rate and the cost of their insurance. All of that awareness, all of that activity to find the best rates has been very good for our business.

In Q1, we saw an unprecedented amount of traffic to the site and while January activity benefitted by two fed interest rate reductions; we saw increased traffic even before those announcements.

We mentioned on our February call that traffic for January was up 70%. February traffic was up 25% and March traffic was up 53% over last year.

In Q1, we averaged over 8.3 million unique visitors a month and over 22.6 million unduplicated uniques to Bankrate for the quarter, up 45% from the 15.5 million uniques in the same period last year and none of that information include traffic from any new property acquisition. It is truly apple to apples comparison with last year.

Organic traffic continues to make up the greatest composition of our traffic. Organic traffic was up 54% and accounted for 80% of the traffic for the quarter.

Partner traffic accounted for 12% and paid traffic dropped to 8% of our traffic versus 11% a year ago.

April traffic is up double digits as well, so there is little doubt in our mind that people’s concern about their financial well being has never been greater.

We did a survey a year ago and we were amazed to find that a large number of people not only didn’t know what their mortgage rate was but that many didn’t even know what kind of mortgage product they owned. I suspect that has changed dramatically in this current environment.

We believe that all that interest, all that activity and anxiety has been good for our business and that it has driven greater numbers of people to Bankrate. That combined with the fact that we are still benefitting from the secular trend and that more people are using the internet for their research is accelerating our organic traffic growth.

Ed’s going to the financial details so let me give you some colour on our business and outlined what we have accomplished in the first quarter.

As Ed mentioned, the Display and Lead revenue increased for the quarter was helped significantly by traffic volume. We got off to a great start in January, although, we did see the explosion of traffic out pace what we had sold. The additional traffic did allow us to run more of our in-house brands as remnant, particularly Bankrate Select, which did quite well in the first quarter.

While some of our largest financial advertisers didn’t spend the volumes they have in the past, we had more total display advertisers than a year ago.

Additionally, the incremental traffic also allowed us to sell display inventory to sub new lead aggregators, several new automotive and other advertisers, who because of the tight inventory environment were unable to advertise with us in the past. We are seeing some of the bigger financial names increasing their spending going forward. Although, we believe that it is going to be at lower levels than in the past. We have had to scramble a little more than in the past when often the advertiser demand exceeded our supply.

In the past, we were really in an optimization game; now with traffic being up so dramatically, we are in a sell through game, which we grow by getting new advertisers and by using our in-house brands to monetize at inventory and you could tell by the Q1 results that we have had success doing both.

As for our rate tables, CPC revenue, as Ed said, was at record levels up 58% from a year ago. Simply, more people were looking for rates of all kinds.

While there was understandably a great interest in the re-fi activity when rates dipped, the most surprising thing to us was the strength in deposits. For the quarter, mortgage CPC revenue grew by 33% while deposit revenue grew by over 100%. So, deposits were still bigger than mortgage in both volume of clicks and revenue.

We believe that even those CD and money market rates that climb from previous levels, it was a flight to safety by consumers and we have seen that continue into April, as well.

We mentioned on our February call and Ed alluded to it that coverage on some of our CPC tables had declined. The decline occurred even though there were more advertisers on our CPC portal and that ran on our rate tables in Q1 than in any previous quarter. The main difference is that several advertisers began cherry picking, running on fewer markets and pausing their campaigns at various times during the day. In some cases, traffic and click volume simply outpaced out advertiser’s ability to keep up with them.

Let me be clear, we went back and looked at our top 50 CPC advertisers in 2007. All 50 are still running with us in 2008 and many are enjoying greater lead volumes because of the strong traffic in consumer demand.

As for print, there is no great news there. Newspaper advertising is just a difficult proposition right now; however, a recent study from the Center for Media Research reported that newspaper advertising drives online traffic and purchase behavior. Though we continue to believe our newspaper footprint is a marketing tool that we actually get paid for. So, we will be staying in the newspaper business.

Let me take some time to explain the characteristics of our newly acquired credit card insurance lead gen businesses so that you can understand the benefits they bring to the table and what we intend to do with that. The two are somewhat similar in terms of their characteristics.

First, let’s start out with the fact that Nationwide Card Service, NCS and InsureMe have terrific teams and that they are well managed companies. NCS has three notable characteristics, one - a strong technology platform for processing leads, two – a large network of over 500 affiliate marketers and three – relationships with all the major card issuers that offer reward, cash back, student, business and affinity credit cards.

What we intend to do is to complement the NCS assets with the things that Bankrate has and does well, notably content, organic traffic, FCO and its CM capabilities. Toward the end of February, we integrated the NCS engine onto the credit card channel on the Bankrate site. In doing so, it gave us a three-fold increase in cargo offers on our site. Immediately, we saw an increase in click activity on our credit card funnel. The NCS engine with a better product offering combined with Bankrate traffic has produced better results than we had seen previously. That is what we had hoped would happen and are pleased that it is working out as planned.

NCS had a solid first quarter since the demand from consumers for credit cards remain strong. Even though credit standards have tightened by issuers, you know that Bankrate tends to attract a predominantly prime audience. So, our consumers have a great interest to card issuers since many are still able to qualify for a new card.

While we just acquired InsureMe in February, our plans for that Company are similar to that of our plans for NCS. In the state of InsureMe, the assets that it brings to our business are very similar than that of NCS. First, a very strong technology platform for processing leads; second, a network of affiliate marketers and third, a network of thousands of insurance agents who buy their property, auto, health and life insurance leads.

On April 10, we integrated InsureMe lead in under the insurance channel, the Bankrate site. In addition, we believed there are places where we can integrate the InsureMe engine for people who are looking for mortgages or, obviously, natural candidates for home insurance. People looking for car loans will, logically, need auto insurance and in other areas.

Over time, for both of these companies, we will enhance the editorial content, look to drive more traffic, leverage our SCO and SCM capabilities and look for incremental distribution on our co-brand partner sites.

Additionally, we have already been running house ads from both companies, where we’ve tested different creative executions and positions to measure the most effective ECPMs and we are pleased with the early results of those tests and are excited about the business opportunity we have within NCS and InsureMe.

Over time, we expect that both credit card and insurance will be 15 to 20% contributors of the Company's overall revenue to the point where we could have four to five channels of relatively equal size. Again, the benefit is that it continues to broaden the consumer offer on our site and further diversify our revenue base.

Earlier in the year, we integrated some of the saving for college data and have put ad calls on the SFC site. While traffic for saving for college and our college finance channel has been a little less than we anticipated, we are working to improve that since we believe there’s strong advertiser demand there as well.

We also have high hopes for FeeDisclosure, our newest and smallest of the companies we acquired. FeeDisclosure aggregator data, on a variety of services associated with the mortgage and home closing. FeeDisclosure will provide the necessary transparency the consumer is lacking in today’s current environment.

Lastly, we launched the FeeDisclosure Data in 50 markets on our site across 14 different service fees. The fee types include escrow, notary, inspection, title, lender, real estate agent and other fees associated with the mortgage home closing process. We believe this is great information for the consumer and answers the plea from consumer advocates, legislatures and the press for more transparency in the fee process.

We are excited about all the new opportunities and have been working diligently getting them quickly integrated into our business. We are really pleased with the progress and the cooperation, today.

On April l, we officially launched our new Bankrate China site. If you can read mandarin, check it out at bankrate.com.cn and read all the great content that our China team has developed for the new site. We launched the site with over 1200 articles, 35 calculators and generated 100,000 page views in each of the first two weeks, which isn’t bad for something that was launched from scratch.

Clearly, it will be awhile before China is a meaningful contributor for our business. We are excited about the team’s progress.

Finally, as if we didn’t have enough going on, we have been working for several months on the redesign of the Bankrate site. Our goals for this project have been pretty straight forward. First, they gave the site an updated look and feel including making it a flag site, something our current site is not. Second, we want the site to be faster, more intuitive to the user and easier to navigate. Third, we want the site to have some of the functionality that will provide new customer features and business opportunities that our current platform doesn’t allow. We will discuss those and the impact that we think they will have on the business, at a later day. Certain components of the new site will be tested with small portions of our consumer traffic in the next couple of weeks.

We will be launching the site a little later than we anticipated and as we opted to integrate the NCS, InsureMe and FeeDisclosure businesses into the current site and to get those up and running as quickly as possible. Therefore, the expected new site and rate table funnel to be fully launched around October 1. The good news is that we had not contemplated any impact of the redesign site into our budgeting or guidance. There is no downside in having pushed the NCS, FFC, InsureMe and FeeDisclosure integration ahead of the redesign.

Finally, on April 10, the Society for Professional Journalist announced that Bankrate won their Sigma delta chi award for online deadline reporting for our September 18, 2007, coverage of the fed rates co-announcement. As you know, we get very excited around here in Fed days and the hard work of the edit and production teams paid off with this award.

On September 18, we published four stories within minutes of the Fed announcement and a fifth story about an hour later. Sigma delta chi recognized not only the speed, but more importantly the quality of that reporting. Once again, congratulations to our great editorial team.

Due to the strong traffic, we experience in Q1, we got off to a little better start than we anticipated. Although we haven’t seen deterioration in our business, the economic environment makes us a little cautious. So, Ed wants to preempt any question on our guidance, Ed.

Ed DiMaria

As you saw in the press release today, we reaffirmed out annual guidance at 167 to 172 million in revenue and 64 to 68 million in EBITDA.

We remain confident that we will be in this range as traffic remains strong, the business is strong and also Tom just walked you through the many new webers we will have at our disposal the back half of the year that we are very excited about, which gives us added confidence.

A couple of areas I want to point out for your planning. First, coming off the big first quarter, the natural reaction for you is to increase your estimate to say, why not raise guidance or ask, how much bigger Q2 will be, et cetera.

I mention this because we have routinely seen estimates get way out ahead of us, even though we advise against it. Everything is on track and we continue to do very well; but a tough economic environment persists and visibility into the business is relatively short. We want to remain cautious.

January was a nice surprise, which we can’t count on in Q2. Without getting into specific guidance for any quarter, which we won’t do, we think that Q2 will look a lot like Q1 minus this January benefit.

We are going to be making some investments during Q2 for integration including many levers that Tom mentioned and using some inventory for testing and development work. This will help us begin to realize the value of the new products, which we are really excited about.

We think that the rest of the year, we will track more consistently with our plan. With the back half of the year stronger than the front half and perhaps Q2 below us from a revenue and EBITDA stand point.

We got ahead of plan in Q1, but again, we think at this point that the rest of the year will look more like our plan.

Hopefully, this will help in working through quarterly estimates. Once again, we ask that you don’t get way out ahead of us and let a little more of the year unfold. We are confident we will hit our guidance, but just give us a chance to build into the optimization plan that we have set out.

Things are very much on track and we are very optimistic and with that why don’t we just move to the questions, operator.

Question-and-Answer Session

Operator

(Operator Instructions) Your first call is from the line of Colin Gillis of Canaccord Adams.

Colin Gillis - Canaccord Adams

Good afternoon everyone, can you talk a little about what guide levels are you seeing on the credit cards? Are you looking to move into specialized offers in partners?

Tom Evans

The way that the site is organized, it is all specialized. The user goes in and looks for credit card and then makes a determination what kind of card they are looking for. They say, I am looking for a rewards card; I am looking for a cash back card; I am looking for a small business card and are able to scroll through a large number of choices to see all the different varieties of cards that are being included there. There are literally hundreds and hundreds of card offers on the site and that is one of the great benefits of the NCS platform brought to Bankrate.

As I said, if you look at sort of apples to apples, the same traffic what it did prior to that launch and what it did after the launch of that, a better consumer offering drove a much greater click through.

As far as the bounties of it, it is wide depending on the cards. Student cards are less valuable, for example, than business cards. It runs the gamut from a couple hundred bucks for a card and I can tell you that the card companies are very excited about the platform and very excited to be working with Bankrate because of the quality of the consumer that we drive to the site.

Colin Gillis - Canaccord Adams

On the FCM level, 8% of traffic, should we be thinking of that expense lifting going forward through the January impact?

Tom Evans

Yes, probably and one of the things that we did, we pulled it back a little sort of on an opportunistic basis because in some cases, as you know, we didn’t need it. The traffic was running well ahead of our estimates and our budget and well ahead of our ability in some cases to monetize it because we didn’t expect it. We got off to a great start in January, but it really had us sustained. We toggle it back and forth depending upon what we need and how well we can optimize and monetize it and we will continue to do that opportunistically. One of the great things we were able to do in the first quarter was just run a lot of plays and test a lot of things by virtue of having all that traffic.

Colin Gillis - Canaccord Adams

Congrats on putting up one of the best quarter in the space.

Colin Gillis - Canaccord Adams

Thanks Colin.

Operator

Your next call is from the line of Youssef Squali of Jefferies and Company.

Analyst for Youssef Squali - Jefferies and Company

Tom, you mentioned that organic traffic was up 54% year on year. Is that a good proxy for organic revenue growth in Display as well? If we assume that kind of growth on the graphic ad part of the business is the effective CPM kind of implied, is that basically flat year on year and down sequentially quite a lot, is that the right way to think about that?

Tom Evans

That is; primarily, first of all, we are not going to compute a run at 54% traffic increase. I doubt we will see another month, we would love to have another month like January; but, I doubt we will see something that is a 75% year over year comparison. When you start looking at ECPMs, some of that is due to the fact that we didn’t monetize all of those page views because we simply didn’t have ads sold against those. We didn’t anticipate it.

I can tell you for sort of the core business, CPMs are up. We did have an opportunity to after some of the advertisers who heretofore have not been able to get on Bankrate because they couldn’t pay the kind of CPMs that they would have to pay to sort of force somebody off when we were tight and intricate. I mean I am just giving you an example. In the first quarter, we rent 14 automotive campaigns; 14 different automotive companies ran on Bankrate that is versus 3 a year ago. We had AT&T, Afflack, AARP, Phillips, USAA, all new advertisers. Some of it was us taking the opportunity to go out to a different group of advertisers because of the incremental traffic because we were willing to sell at lower CPMs for those than we do for the endemic guys and that was really just opportunistically. But the endemic got a few and if you separate it out the endemic and non-endemic there was no atrophy in the endemic CPMs.

Analyst for Youssef Squali - Jefferies and Company

Is there any comment, anything you can say about organic revenue growth on Display?

Tom Evans

Organic revenue growth was great. One of the things that we said, remember, so to go back to what we said about the acquisitions. We said, Bankrate will continue to grow; Corp Bankrate will continue to grow above 25%; we clearly exceeded that in this quarter both in CPC and then in Display.

Analyst for Youssef Squali - Jefferies and Company

Just shifting to traffic for a second and then you mentioned how you are seeing increased awareness and engagement from consumers that obviously the Fed actions have been a huge driver, so going forward is that kind of stopped for a while, have you seen (inaudible) at both?

Tom Evans

It is not sustainable at 54%; we wouldn’t anticipate that; we are not budgeting that. In April, while April is definitely up over historical levels from last April, I will tell you it’s not at 50%.

I would tell you that I think there are a couple of things. I really do believe that this sort of spectator sport versus participatory sport has really been a key element for us. I think people are much more focused today on what their interest rates are; where their money is sitting; what kind of mortgage they have. I just think that the consumer given the anxiety of this economic environment has created a completely different interest level. We were stunned when we did the survey last year and the number of people that didn’t know what their interest rate was. That has changed today. Everybody has got it at the tip of their tongue.

A year ago I would imagine if you walked down the street and said to people, what is sub-prime, nobody knew what sub-prime loan was. Now, everybody is intoned to that. I just think that we have become more prominent in our category, our area has become of more of interest. I also think that the consumer is using the internet more for that and we are benefitting by that. All of the fishing lines that we have in the water through co-brands, through the print, through the licensing of our content to the things that we do in earned media that’s with Greg and Holden and the other people on our staff that just created more awareness for Bankrate.

We are still seeing significant UVs and significant increases in February, March and April. Again, not at the level it was in January; I think the Fed clearly helps it, but I don’t think that is 100% of the drive, particularly given the traffic in January’s up prior to those things.

Analyst for Youssef Squali - Jefferies and Company

Last question, have you heard anything from advertisers on conversion rates. I think in the past you mentioned how the fixed requirements are causing a decline, is that what you are still seeing and maybe that explains some of their reluctance (inaudible) more?

Tom Evans

It is a great question and I will tell you on the conversion rate, there has clearly been a flight to quality. Fewer consumers are qualifying for loans and its clearly forced lenders to focus on prime conforming customers. As we have said many times that is the Bankrate consumer. Anecdotally I can tell you the average Bankrate consumer with some of the days that we have has a FICO score on an average over 700. These are the people who can actually qualify for a loan for a credit card and may have the money to make a deposit to a CD or money market. Editorial and choice is driving a better consumer to our site. We have always lived in that example. As a result, in many cases, we have advertisers moving their money over to us. If an advertiser, for example, use to be 70% of their business was prime and 30% of theirs was sub-prime, they are not marketing to the sub-prime consumer anymore. They have moved that money into the prime consumer. We have several advertisers who are moving more of their total budget spend to Bankrate because we represent a high concentration, high composition of prime consumers and that is who they are marketing toward.

It has benefitted us. We hear different conversion rates at different times from marketers and we have never been able to correlate that. Is it housing starts; is it mortgage applications. It really depends and to be frank, some advertisers do a lot better than others because they are just better at taking internet leads and better at closing those people.

Again, the biggest surprise to us is that even in a declining interest rate environment, CD and money market rates have been very strong. If you look at a year ago, CD rates were 5.70 for a year CD. I think the top rate and again our journal piece yesterday, the piece the Wall Street Journal runs with Bankrate content was 385 for one year. Yet, we had over 100% growth. 20% of that is attributable to price increase; but that is still significantly more volume and I think we have seen this flight to quality. We have never had more calls to our customer service department about FDIC Insurance and the perimeters around that. I just think it is people who are looking for a safe haven, looking for a smart bet and Bankrate is a great place to find those things.

Analyst for Youssef Squali - Jefferies and Company

Okay, thanks.

Operator

Your next call is from the line of Kyle Evans from Stephens, Inc.

Kyle Evans - Stephens, Inc

Thanks for taking my questions. Could you give us the organic versus acquired revenue in the period? I am not going to ask you to give buy of the acquisition because I know you won’t give it.

Tom Evans

We won’t Kyle and I will tell you why. It’s really difficult to find for a couple of reasons and we don’t necessarily want to tip our hand from a competitive standpoint. We want to be able to remain flexible and we are trying to not put ourselves in a position where you sort of get tripped up by the fact that you guys are looking at each bucket independently, quarter over quarter.

Let me give you an example. If an InsureMe banner, for example, runs in a Bankrate site as Display, do we count that as Bankrate Display or do we count that InsureMe lead revenue?

As the NCS engine, on the Bankrate credit card channel, drives applications in revenue, is that Bankrate traffic because it’s organic traffic for Bankrate or is that NCS lead revenues? We are trying not to define, I mean, we will define those in the end. We know how we are looking at it; but we don’t necessarily want to get into that position because we want to be able to toggle back and forth. We have spent four years, this team has been at Bankrate, diversifying both breath and depth of the topics we cover as well as diversifying the revenues trend. We have grown our advertising categories and the additional traffic has allowed us to do that.

We have spent the last couple of years developing in-house brands, you know Bankrate Selected and CSU’s InsureMe and those products really do allow us to use the Display inventory to drive incremental revenue off our Display traffic.

We want to make sure that we don’t create an imbalance; but it is a great way to augment the Display advertising demand and we worked hard in developing that and we want to be able to sort of toggle it back and forth to meet the demand to be whatever is driving the best and highest ECPMs and we really don’t want to get into the arena where we are bucketing it and then somebody says, well gosh this bucket is down or that bucket is way up in the end so that we are always worried about how to even out.

We just want to put them in big lumps; there is Display and Lead because Display and Lead are really tied together. There is CPC, which is very independent and that continues to be apples to apples; but, all we are really focused on is driving revenue and we really don’t want to be confined by how we have to bucket that revenue.

Kyle Evans - Stephens, Inc

Can you give me a pro forma of organic growth rate? We have 110% online growth and 90% plus total reported revenue growth. I would just like to get some kind of gauge pro forma.

Tom Evans

I think you are asking the same thing, Kyle, just a different way, right? We are not going to break the specifics out.

Kyle Evans - Stephens, Inc

But, it allows you to lump everything together between two different years.

Tom Evans

I’m sorry.

Kyle Evans - Stephens, Inc

Never mind, let’s go to the next one. Can you give the number of advertisers on the site in the quarter?

Tom Evans

We had well over a thousand CPC advertisers and I know the last year’s number was 60 to 75 Display advertisers, end of quarter.

Kyle Evans - Stephens, Inc

Lastly, you mentioned that RateSelect had a strong quarter, what other than having a lot of remnant inventory because you had such a tidal wave of supply change there in that business line?

Tom Evans

I think a couple of things; I think the consumer is looking for, shopping around and looking for different alternatives. I think that at one point the thinness of the rate tables helped drive more awareness, drive more traffic to Select. I also think the consumer knows he can qualify was really in a position where particularly given how hungry lenders were for that consumer, they really put that consumer in the driver’s seat.

As I said, we are looking at data that says the average purchase customer at Bankrate was 700 plus FICO score, the average re-fi was in the 730’s and that consumer was taking advantage of the opportune to leverage the fact that he is an in market consumer at the time when banks are really hungry to make loans to those people, not to everybody but to those people. I think that is what drove it.

I’ve got to tell you, we look at a lot of different things and we all have different theories internally on why things did well. Maybe some of it’s the branding; maybe some of it’s finally that Select has developed traction among the consumers. That it is a trusted brand because it has the Bankrate name. Lots of different reasons, we think. Select did very well and maybe it was just the volume we could put against Select; but, it became more visible and more trusted.

Kyle Evans - Stephens, Inc

Over time could you see Bankrate Select displacing LowerMyBills, et cetera?

Tom Evans

We like doing business with LowerMyBills and the other folks who run on our site. We want to give the consumer the opportunity of choice; one of the things we are very conscious and mindful of is not making it just all things Bankrate that there will be other brands and other opportunities that we want to make sure the consumer is exposed to and we are not forcing them down any path or to any particular product. We really do look at the Bankrate brand, if you will, represents the consumer, an objective comprehensive opportunity where they can make a choice. I don’t think we are going to look it over time or it’s going to be all Bankrate all the time because I am not sure that is in the best interest of the consumer and I think if you are not continuing to serve the best interest of the consumer over time you will lose the consumer.

We certainly like the fact that its competitor from an ECPM standpoint, particularly when we have traffic and we can run it opportunistically as remnant.

Kyle Evans - Stephens, Inc

Okay, thanks.

Operator

Your next call is from the line of Mark Mahaney of Citigroup.

Mark Mahaney - Citigroup

Thank you very much, two questions please. You talked about April traffic being double digit given that 50% plus organic growth you had in Q1, could you narrow that range a little more from 10 and 99%, a little better. Secondly, a very interesting point about credit cards and insurance becoming 15, long term becoming 15 to 20% revenue contributors. Sounds like a great…at some point, a great diversification, which of those two do you think is more likely to reach that level of material size, first, and why, thank you?

Tom Evans

The April mark sort of between 20 and 30, you know, 20 plus.

Then, on credit card versus insurance, I will be honest and I am not trying to be evasive here and give you a non-answer. I think both of them have a good chance of being pretty nice size businesses. One of the interesting things about the assets we bought, they had really nice assets in place and both of them are sort of number two in the category.

They are similar size; they’ve got similar assets in terms of technology platforms. One is an agent network and the other is credit card network; they both were running through affiliate programs and were relatively similar in size. They are both number two; there is the larger player in the credit card arena; there is a larger player in the insurance arena. You get a sense of how big they could be and we liked, when we looked at those Company's, said well we know there could be at least this big because there is already somebody out there doing it at that level.

I think we are still in an environment where it is not necessarily stealing share, these are still very nice growth businesses.

It is a little like looking at your kids and say, which one do you love more. We love them both and we think both of them are going to be super stars and we think both of them are going to be great companies.

Again, I don’t mean to be evasive but that is an honest answer in term of …I think it is going to be fun to watch those true assets grow and compete for the love of their parent’s by out shining one another; they are both really good companies that are well managed. We think they are two very exciting categories with very much play to an online audience where having a comprehensive offering and have the consumer be able to shop and compare is really a great asset. We haven’t even started yet with sort of Bankrate natural traffic, beefing up the content areas, more SCL and more SCM. We think there is a huge opportunity. Again, going to our co-brand partners, we have just done step one and that is what we are really excited about how big those businesses would be.

Mark Mahaney - Citigroup

Thank you, Tom.

Operator

Your next call is from the line of Ross Sandler of RBC Capital Market.

Ross Sandler - RBC Capital Market

Hey guys, most of my questions have been answered, but you done a good job kind of plugging the hole in the Display site. You have massive uplift in traffic and you now have a bunch of different businesses to toss at any kind of macro advertiser demand issues. From the CPC tables, I know we tried some price reductions at the end of January and a few other things, is there anything out there that you can do to offset the abundant amount of traffic and the cherry picking that is going on? The second part of that would be how saturated, you mentioned you have over a thousand CPC advertisers, have you guys ever run any studies to determine how saturated that number might be relative to the size of the market base?

Tom Evans

It is hard to determine how saturated it is because while there are many more lenders and brokers and mortgage companies out there, they are not all online markets. It is a big difference, as we found out, there is a big difference between somebody who is a local bank, a community banker and somebody who is set up and sophisticated and knowledgeable in how to convert online consumers. It is not just, we are a bank and I think…or a mortgage company and I think we will start doing that.

Let me be clear, it was a record quarter for a number of CPC advertisers. We are growing; it is just January our volume of advertisers and the budgets they were willing to spend were being stressed, if you will, by the amount of traffic. I mean it really was sort of a tsunami of traffic. But, that has bounced back; it is more even than it was. We are not worried at this point about it. We are better prepared than we were before if we have another kind of spike in traffic like we did.

Let me just make sure that I addressed something you said. You said we had done a good job in making up for the weakness on the Display side. There has been weakness in some of our very largest advertisers. I mean, if you talk about some of the largest multi-national financial institutions, it is no secret that they have been struggling not just with marketing and their budgets are down. It doesn’t mean Display is down. We are getting advertising from other advertisers; we are getting advertising from other categories and Display advertising for the quarter was up and was up significantly then you layer in the lead, you layer in the Select, you layer in some of those other things and add to that the other components, the lead volume that the NCS and InsureMe drove and 91% increase.

I just think we had the benefit of more traffic; but we also had more plays to run. I think some of the other folks you have been talking to, reporting softness in Display advertising.

Ross Sandler - RBC Capital Market

Thanks for clarification.

Operator

(inaudible)

Unidentified Analyst

I was wondering if you could give us an update on your perspective, where pricing is for you relative to the other Lead generation options, particularly Google. You often talked about that gap between the two and, of course, we have asked you about it before. I would imagine and would be interested in your take on how pricing or to the extent the pricing is changing in the market given the current macro environment. Whether or not that gap between the two of you has narrowed at all?

Tom Evans

The queue that we buy, we have seen flatten out a little; but they are not declining in value but they flattened out, certainly, in the last four or five months. Again, I think they are two very different things. I know you are looking for a proxy, what’s the value of what we do; but I think there is a very different consumer or it’s a very different value to an advertiser. Particularly a local advertiser or a single state advertiser, the difference between buying a queue on Google that says mortgage or 30 year fixed or whatever it happens to be and somebody who is on bank rate who goes to the mortgage channel, who may have used our calculator, who may have been using some of our content, who then says, 30 year fixed Cleveland scrolls down and says purchase 300,000, scrolls down the rate tables and then clicks on a name they know or the best rate they can find.

I just think we are getting somebody much further down in the funnel and the conversion rates are very different. There is nobody that we talk to who says a Google word that I buy converts like Bankrate. We just never ever hear it and we ask the question a lot. I know that is probably the best proxy; but I just don’t think it is an apple to apple comparison in the conversion or in the value.

We watch it but we don’t look at it in that regard and it certainly doesn’t drive our pricing decisions.

Unidentified Analyst

Thank you.

Operator

Your next call is from the line of Mark May of Needham & Company.

Mark May of Needham & Company

Thanks, the first question was you talked about Q2 being a lot like Q1 except for the January effect and you gave various different matrix that we can use to back into it, which I did of course, and it looks like your January effect, if you will, might have been as much as $5 million, can you clarify if that is correct.

Ed DiMaria

No, that’s really high. On EBITDA line it’s much less than that.

Mark May of Needham & Company

I was giving a revenue number.

Ed DiMaria

It’s only, probably, half that Mark.

Mark May of Needham & Company

Thank you and then the second question is on the acquisitions, which I know there are a lot of questions asked about that earlier, thinking a little bit about the impact that those have had on the margins. I also get a sense of where the margins can go back to over time. If you isolated the four acquisitions and put them into a bucket, in Q1, what is the rough EBITDA adjusted EBITDA margin for those businesses or ballpark?

Ed DiMaria

As you know, Bankrate’s EBITDA margin last year, we were at 45% and certainly there has been no erosion whatsoever to the Bankrate EBITDA margin that continues to grow as we grow revenues, primarily we grew online revenues this quarter that’s what we grew, certainly an uptake there.

The other businesses are lower margins, Mark. They operate a little less than half those levels. There is a lot of room for us to move those margins us for those businesses as I mentioned in my prepared remarks, there is quite a bit of affiliate traffic that they run on right now and the big thing that we were talking about there is that as we integrate these acquisitions deeper and as we move more of the organic traffic through those platforms, those margins are going to jump up.

We believe that we can certainly get back to the 45% EBITDA margin, for sure, over time. We are just not going to get there in a quarter. It is going to take us a little bit of time to get back to where we were. We are very confident we can get there.

Mark May of Needham & Company

You are saying that the core business from a year ago may even be a little above 45 right

now?

Ed DiMaria

Absolutely.

Mark May of Needham & Company

It would make sense, particularly in Q1, I would imagine.

Ed DiMaria

Given the organic traffic, given price increases, and given the fact that we have done a pretty good job of managing costs. If you look at the four-year history, we have gone from 23 to 28 to 35 to 45% annual EBITDA margins. If we were just core Bankrate given the trajectory of the business, you would see the same kind of growth this year in core Bankrate.

Now, we are taking four lower margin businesses as they run in currently and we are combining, let’s just say for ballpark, a 50% margin business with a budget 20% margin businesses or slightly less than that. Now, all of a sudden you shake out at 38% in this quarter, a little bit higher than we thought, primarily because of the strength of core Bankrate and again, we think overtime as we optimize these, as we drive more traffic from not affiliate but direct and monetize those more effectively, we think we will continue to grow the margins from that base the same way we have in the core Bankrate business over time.

Mark May of Needham & Company

I think it was in your prepared remarks, I just didn’t catch it, you mentioned something about the four acquisitions either adding 3.7 million to operating expenses.

Ed DiMaria

Yes, they added about 3.7 million in the quarter. Operating expenses for the quarter were just under 15.8 million and that is up from last quarter by about 6.8 million from the first quarter 2007 by about 6.8 million; but of that increase, the $6.8 million increase, the acquisitions were 3.7 million and we have some other increases related to Bankrate. Primarily, the FDM spend was up a little over a half a million. We had some accounting charges as I mentioned and some other things. Not a lot of extra head count costs or things of that nature.

Just keep in mind, those numbers that I quoted included stock comp and stock comp was up by 1.7 million.

Mark May of Needham & Company

Okay and then to Kyle’s question earlier about the pro forma growth, was that something that you will be required to disclose in the footnotes of your 10Q?

Ed DiMaria

No.

Mark May of Needham & Company

If the four deals that represented 3.7 million in Op-ex in the quarter and we assume 20 some odd percent adjusted EBITDA margin, is it fair to say they contributed around 4 or 5 million in revenue in the quarter.

Ed DiMaria

You guys are going to keep asking it a bunch of different ways. Those are operating expenses; it didn’t include the gross margin, Mark.

Mark May of Needham & Company

Okay, I will make that assumption on that. Thanks for answering my questions.

Operator

We have time for one final question and that will come from Andrew Jeffrey, Suntrust.

Andrew Jeffrey – Suntrust

I for one don’t care what the acquired businesses contributed this quarter. Very nice quarter, you did what you said you were going to do, let’s leave it at that.

Maybe a question you will answer with regard to just projectory, you have been very clear, I appreciate it with respect to an improvement in profitability, and I think the fourth quarter was the quarter where you spent some time explaining how mix affected margins, and so forth. When we look at the trajectory of margin improvement, it doesn’t sound like it is going to be a trajectory as you do some things against the traditional affiliate traffic, is it going to be a stair step at the gross margin line? You obviously had really good fixed cost leverage this quarter despite the lower gross margin or is there going to be some kind of second half-outsized increase in profitability? How should we think about the trend?

Tom Evans

I think what Ed was saying in the remarks of the financials, particularly about the guidance in the second quarter, is we expect there to be no growth if not a slight decline in the EBITDA margin in Q2. Again, don’t expect that huge traffic pop. Don’t expect some of that benefit we got from Q1, particularly January. If you back that off, it created a slightly lower EBITDA margin. Then we ought to start stair stepping it up to the six year point as we start optimizing and then we start seeing the optimization of the InsureMe and NCS businesses, in particular.

Andrew Jeffrey – Suntrust

And to get a little more granular, would gross margin follow the same kind of trend. I can’t think of why it would, necessarily. What were you talking strictly on the expense side?

Tom Evans

I think what we talked about, what I mentioned is that, we won’t get the effect of …We don’t think anyway at this point in time that we will get that January like month in the second quarter and that is mostly profit to the extent that is traded out during the second quarter, we will probably see a little lower margin at the EBITDA level and probably at the gross margin level as well. This is the one quarter and as I mentioned in my prepared remarks, basically, you think the year is going to proceed and roll out according to how we originally put the plan into place, which was to do a lot of integration work in the second quarter.

Andrew Jeffrey – Suntrust

Okay, so the January effect was predominantly then within the traditional Bankrate channels and that is the mix kind of the [coolabri] to the second half. That is when the margins, gross margin particularly, starts to step back up again.

Tom Evans

Yes, we didn’t even own InsureMe in January.

Andrew Jeffrey – Suntrust

Okay, thank you very much.

Tom Evans

Just so everybody is clear, we think the business is very much on track and we remain very excited and optimistic about the business. We are not trying to hang any crepe here, worried about Q2 or anything else. We are just trying to calibrate expectations; we have a good business model going forward, in a better business environment, I think it would be insane in terms of how well it would do. We are just thinking in this environment, it is prudent to be cautious. We just want to make sure that we don’t have everybody body run out in front of us. We have a lot of confidence about the year that we have ahead of us; we have a lot of confidence about our guidance and we just want the opportunity to be able to execute.

Things a very much on track, it has been a really busy quarter and I will admit we have stressed our people a bit, especially the senior management team. I want to thank everyone her at Bankrate and all the other affiliated companies for the great work and congratulate them on what has been accomplished so far. I think this could be a terrific year for the Company.

Thanks everyone for joining us today and I am sure we will all see you out in the market soon.

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