LendingTree, Inc.
Feb 24, 2012

Tree.com Reports Fourth Quarter 2011 Financial Results

CHARLOTTE, N.C., Feb. 24, 2012 /PRNewswire/ -- Tree.com, Inc. (NASDAQ: TREE) today announced for the quarter ended December 31, 2011, a net loss of $1.1 million, or $0.10 per share, which includes an impairment charge of $5.6 million, and adjusted EBITDA of $6.2 million.  Revenue in the fourth quarter was $10.7 million. As a result of the pending sale of substantially all of the operating assets of Tree.com's Home Loan Center subsidiary to Discover Financial Services (NYSE: DFS), revenue and other results of the LendingTree Loans business are shown as discontinued operations for all periods reported.  

(Logo: http://photos.prnewswire.com/prnh/20110518/MM04466LOGO )

Doug Lebda, Chairman and CEO of Tree.com stated, "I am very pleased with our results. The strides we made in marketing throughout 2011 paid significant dividends in the fourth quarter. We were able to reduce marketing expense significantly and thus marketing expense as a percentage of revenue was the lowest level we've seen since the second quarter of 2009. And, in our LendingTree Loans business, continued low interest rates enabled us to generate substantial returns. Looking ahead to 2012, we're confident in our market position and we are issuing guidance for 2012."

New Non-GAAP Adjusted Exchanges Results

Because Tree.com's accounting policies do not recognize revenue for leads generated by the Exchanges business that are provided to LendingTree Loans, the Company is providing new metrics designed to give investors a view into what the results might have been if the Company did not operate LendingTree Loans. We will continue to report these metrics for future periods pending the sale of assets of Home Loan Center.


Tree.com 2011 Exchanges Metrics (1)


$s in millions
















Q1


Q2


Q3


Q4



GAAP

Adjusted


GAAP

Adjusted


GAAP

Adjusted


GAAP

Adjusted


Revenue













Mortgage (2)

$          10.0

$          20.0


$          12.4

$          20.2


$            9.2

$          15.6


$            6.8

$          14.1


Non Mortgage

$            3.9

$            3.9


$            4.5

$            4.5


$            3.9

$            3.9


$            3.9

$            3.9


Total Exchanges revenue

$          13.9

$          23.9


$          16.9

$          24.7


$          13.1

$          19.5


$          10.7

$          18.0


Non Mortgage %

28%

16%


27%

18%


30%

20%


36%

22%















Selling and marketing expense













Exchanges marketing expense (3)

$          14.6

$          20.0


$          13.8

$          18.4


$            7.5

$          10.8


$            6.2

$            8.5


Other Marketing

$            0.9

$            0.9


$            1.4

$            1.4


$            1.0

$            1.0


$            1.2

$            1.2


Selling  and marketing expense

$          15.5

$          20.9


$          15.2

$          19.8


$            8.5

$          11.8


$            7.4

$            9.7















Variable marketing margin  (4)

$           (0.6)

$            3.9


$            3.1

$            6.3


$            5.6

$            8.8


$            4.4

$            9.5


Variable marketing margin % of revenue

-5%

16%


18%

26%


43%

45%


42%

53%















Net Income from Continuing Operations

$         (16.1)

N/A


$         (8.1)

N/A


$           (3.7)

N/A


$           (8.2)

N/A















Adjusted Exchanges EBITDA (5)

N/A

$           (4.2)


N/A

$           (2.3)


N/A

$            2.3


N/A

$            3.3


Adjusted EBITDA % of revenue

N/A

-18%


N/A

-9%


N/A

12%


N/A

18%




























(1)  Adjusted Exchanges mortgage revenue, total adjusted Exchanges revenue, adjusted Exchanges marketing expense, variable marketing margin, variable marketing margin % of revenue, adjusted Exchanges EBITDA, and adjusted EBITDA % of revenue are non-GAAP measures.  Please see "Tree.com's Reconciliation of Non-GAAP Measures to GAAP" and Tree.com's Principles of Financial Reporting" below for more information on these non-GAAP measures.  


(2)  Adjusted Exchanges mortgage revenue is defined as revenue from the Exchanges mortgage vertical plus modeled revenue for leads provided to LendingTree Loans assuming sale prices for such leads equaled sale prices of leads of similar quality sold to network lenders.  Accordingly, this measure also assumes lender demand on the network would have been sufficient to absorb the additional lead volume without affecting the prices of the leads actually sold.  Please see  "Tree.com's Principles of Financial Reporting" for further explanation of this metric.


(3)  Adjusted Exchanges marketing expense is defined as the portion of selling and marketing expense attributable to the current Exchanges business for variable costs paid for advertising, direct marketing and related expenses, plus selling and marketing expense allocated to LendingTree Loans and recorded in discontinued operations.  This metric excludes overhead, fixed costs, and personnel-related expenses.


(4)  Variable marketing margin is defined as total Exchanges revenue minus Exchanges marketing expense



Full Year 2012 Guidance

"We are entering 2012 with momentum and focus. Marketing has gained significant efficiencies in recent quarters, our fixed costs are in line, and we are projecting positive adjusted Exchanges EBITDA for 2012," said Tree.com SVP of Financial Planning & Analysis, Tamara Kotronis.  "We believe the second half of 2011 is indicative of the current interest rate environment; therefore, we are issuing guidance of net income from continuing operations of $3-$4 million and adjusted Exchanges EBITDA of $8-$12 million."

Additionally, the Company is projecting a cash balance after the close of the sale of the Home Loan Center Assets and wind-down of the remaining business of approximately $50 million.  This estimate is subject to uncertainties including the timing of closing, the Company's results of operations through closing, litigation-related payments, the effects of restructuring, unplanned capital expenditures, proceeds from sale of loans held for sale and related derivative positions, and changes in loan loss reserves, any of which may cause the actual cash balance to be substantially different.

Other Tree.com Summary Financial Results


Tree.com Summary Financial Results


$s in millions (except per share amounts)


















Q/Q




Y/Y



Q4 2011


Q3 2011


% Change


Q4 2010


% Change


Revenue











From Continuing Ops

$    10.7


$    13.1


(19%)


$    11.9


(10%)


From Discontinued Ops

$    37.2


$    37.6


(1%)


$    39.3


(5%)


Total Revenue

$    47.9


$    50.7


(6%)


$    51.2


(6%)













Adjusted EBITDA *











From Continuing Ops

$     (1.4)


$     (0.5)


(174%)


$     (6.7)


79%


From Discontinued Ops

$      7.6


$      9.6


(21%)


$      7.3


4%


Total Adjusted EBITDA

$      6.2


$      9.1


(32%)


$      0.6


914%













EBITDA *











From Continuing Ops

$     (8.8)


$     (2.2)


(308%)


$     (8.8)


1%


From Discontinued Ops

$      7.5


$      9.0


(17%)


$     (3.4)


NM


Total EBITDA

$     (1.3)


$      6.8


NM


$   (12.2)


89%













Net Income/(Loss)











Net Loss from Continuing Ops

$     (8.2)


$     (3.7)


(122%)


$     (8.4)


2%


Net Income/(Loss) from Discontinued Ops

$      7.1


$    16.3


(57%)


$     (4.1)


NM


Net Income/(Loss)

$     (1.1)


$    12.6


NM


$   (12.5)


91%













Net Income/(Loss) Per Share

$   (0.10)


$    1.14


NM


$   (1.12)


91%


Diluted Net Income/(Loss) Per Share

$   (0.10)


$    1.13


NM


$   (1.12)


91%













From Continuing Operations:











Net Loss Per Share

$   (0.74)


$   (0.33)


(122%)


$   (0.75)


2%


Diluted Net Loss Per Share

$   (0.74)


$   (0.33)


(122%)


$   (0.75)


2%













NM = Not Meaningful











* EBITDA and Adjusted EBITDA are Non-GAAP measures.  Please see "Tree.com's Reconciliation of Non-GAAP Measures to GAAP" and "Tree.com's Principles of Financial Reporting" below for more information on Adjusted EBITDA



Fourth Quarter 2011 Highlights

Continuing Operations

  • Fourth quarter revenue was $10.7 million, down $2.4 million, or 19%, from the third quarter 2011, and down $1.2 million, or 10%, from fourth quarter 2010. The reduction quarter-over-quarter was driven by lower mortgage revenue, as interest rates were generally lower in the fourth quarter leading to lower lender demand for leads.  The Company also provided a greater percentage of the Exchanges mortgage lead volume to LendingTree Loans in the fourth quarter compared to the third quarter, resulting in lower reported revenue.  
  • Net loss from continuing operations was $8.2 million in the fourth quarter 2011, representing a $4.5 million decline from the third quarter 2011 and a $0.2 million improvement from the fourth quarter 2010.  The net loss in the quarter includes a $5.6 million impairment of intangible assets.  
  • Adjusted EBITDA in the fourth quarter was a loss of $1.4 million, a decline from the $0.5 million Adjusted EBITDA loss in the prior quarter, but a $5.3 million improvement compared to fourth quarter 2010.  The quarter-over-quarter decline was the result of lower revenue which was partially offset by $1.1 million lower marketing expense.  The year-over-year improvement was driven primarily by $3.7 million lower marketing expense.   In a lower interest rate environment, the Company is generally able to lower marketing expense for customer acquisition.
  • Adjusted Exchanges revenue was down 8% in the fourth quarter compared to the prior quarter, primarily attributable to lower mortgage revenue reflecting lower lender demand due to lower interest rates.
  • Adjusted Exchanges variable marketing margin % increased to 53% in the fourth quarter, from 45% in the third quarter, reflecting lower adjusted Exchanges variable marketing expense.  

Discontinued Operations

  • Net income from discontinued operations was $7.1 million in the fourth quarter 2011.  
  • Adjusted EBITDA from discontinued operations in the fourth quarter was $7.5 million, down $2.0 million from the third quarter 2011, but up slightly, $0.3 million, over the fourth quarter 2010.  The decline from the prior quarter was driven by a $2.6 million increase in cost of revenue at LendingTree Loans.  Looking year-over-year, Adjusted EBITDA from discontinued operations was influenced by lower Real Estate revenue and a $2.0 million increase in cost of revenue compared to the fourth quarter 2010, which were slightly more than offset by $3.7 million lower marketing expense.
  • As of December 31, 2011, LendingTree Loans had three committed lines of credit totaling $275.0 million of borrowing capacity. In January 2012, one of the committed lines for $50.0 million expired, bringing total committed capacity down to $225.0 million. However, a new uncommitted line for $100.0 million was also added in January 2012, bringing total funding capacity to $325.0 million.  
  • The loans held for sale and warehouse lines of credit balances as of December 31, 2011 were $217.5 million and $197.7 million, respectively.  

Liquidity and Capital Resources

As of December 31, 2011, Tree.com had $45.5 million in unrestricted cash and cash equivalents, compared to $10.3 million as of September 30, 2011.  During the fourth quarter and for the twelve months of 2011, Tree.com did not purchase any shares under its previously announced $10 million share repurchase program.  The program began in February 2010 and has approximately $4.3 million of share repurchase authorization remaining.

Update on Sale of Home Loan Center Assets

On February 7, 2012, Tree.com and its Home Loan Center subsidiary entered into an amendment to the asset purchase agreement related to the sale of substantially all of the operating assets of Home Loan Center to Discover Financial Services. Under the amended terms, while the total purchase price remains $55.9 million, the payment timing of the deferred portion of the purchase price is accelerated so that $45.9 million will be due at closing and $10 million will be due on the first anniversary of closing.  To date, Discover has made a total of $5 million in extension payments.  A purchase price payment of $3 million will be due on March 7, 2012, regardless of whether or not the transaction has closed.  These $8 million in pre-closing payments will be credited against the purchase price due at closing, so Discover will pay a net of $37.9 million at closing.  The closing and all future payments described above are subject to certain conditions being satisfied.

Discover has exercised its extension rights under the original agreement to extend the date on which Home Loan Center or Discover can terminate the agreement if closing has not occurred to March 7, 2012.  Under the amendment, Discover may further extend the end date to July 6, 2012 without further extension payments, subject to certain conditions.  Tree.com anticipates closing to occur by mid-year 2012.

Conference Call

Tree.com will audio cast its conference call with investors and analysts discussing fourth quarter financial results and certain other matters described herein today at 11:00 a.m. Eastern Time (ET).  The live audio cast is open to the public at http://investor-relations.tree.com/.

Conference call
Dial in #:  888-466-4518
719-325-2196 outside the United States/Canada

To listen to a replay of the call
Toll free #: 888-203-1112
719-457-0820 from outside the United States/Canada
Replay Passcode: 5733742
Replay will be available beginning at 1:00 p.m. Eastern Time on Friday, February 24 until 11:59 p.m. on Friday, March 16, 2012.

QUARTERLY FINANCIALS —

TREE.COM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS



Three Months Ended
December 31,

Year Ended
December 31,


2011

2010

2011

2010


(Unaudited)



(In thousands, except per share amounts)

Revenue

$10,666

$11,905

$54,617

$59,918

Cost of revenue (exclusive of depreciation shown separately
below)

604

1,326

4,133

4,980

Gross margin

10,062

10,579

50,484

54,938

Operating expenses





Selling and marketing expense

7,416

11,161

46,662

50,061

General and administrative expense

4,693

5,855

19,751

24,522

Product development

526

933

3,203

3,488

Litigation settlements and contingencies

525

861

5,732

963

Restructuring expense

90

62

1,080

2,780

Amortization of intangibles

104

311

891

1,232

Depreciation

1,346

920

5,023

3,216

Asset impairments

5,600

539

5,850

540

Total operating expenses

20,300

20,642

88,192

86,802

Operating loss

(10,238)

(10,063)

(37,708)

(31,864)

Other income (expense)





Interest income

8

Interest expense

(102)

(78)

(368)

(472)

Total other expense, net

(102)

(78)

(368)

(464)

Loss before income taxes

(10,340)

(10,141)

(38,076)

(32,328)

Income tax benefit

2,155

1,786

2,038

936

Net loss from continuing operations

(8,185)

(8,355)

(36,038)

(31,392)

Gain from sale of discontinued operations, net of tax

7,752

Income (loss) from operations of discontinued operations, net of tax

7,063

(4,104)

(17,552)

13,807

Income (loss) from discontinued operations

7,063

(4,104)

(9,800)

13,807

Net loss available to common shareholders

$(1,122)

$(12,459)

$(45,838)

$(17,585)

Weighted average common shares outstanding

11,045

11,076

10,995

11,014

Weighted average diluted shares outstanding

11,045

11,076

10,995

11,014

Net loss per share from continuing operations





Basic

$(0.74)

$(0.75)

$(3.28)

$(2.85)

Diluted

$(0.74)

$(0.75)

$(3.28)

$(2.85)

Net loss per share available to common shareholders





Basic

$(0.10)

$(1.12)

$(4.17)

$(1.60)

Diluted

$(0.10)

$(1.12)

$(4.17)

$(1.60)



TREE.COM, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



December 31,
2011

December 31,
2010


(In thousands, except
par value and share
amounts)

ASSETS:



Cash and cash equivalents

$45,541

$68,819

Restricted cash and cash equivalents

12,451

8,155

Accounts receivable, net of allowance of $86 and $131, respectively

5,474

3,564

Prepaid and other current assets

1,060

1,043

Current assets of discontinued operations

232,425

130,701

Total current assets

296,951

212,282

Property and equipment, net

8,375

7,598

Goodwill

3,632

3,632

Intangible assets, net

34,589

41,319

Other non-current assets

245

116

Non-current assets of discontinued operations

9,740

17,855

Total assets

$353,532

$282,802

LIABILITIES:



Accounts payable, trade

$9,072

$6,562

Deferred revenue

176

312

Deferred income taxes

5,434

2,358

Accrued expenses and other current liabilities

16,712

23,881

Current liabilities of discontinued operations

230,205

118,220

Total current liabilities

261,599

151,333

Income taxes payable

7

96

Other long-term liabilities

4,070

3,168

Deferred income taxes

9,063

13,962

Non-current liabilities of discontinued operations

19,657

12,422

Total liabilities

294,396

180,981

Commitments and contingencies



SHAREHOLDERS' EQUITY:



Preferred stock $.01 par value; authorized 5,000,000 shares; none issued or
outstanding

Common stock $.01 par value; authorized 50,000,000 shares; issued 12,169,226 and 11,893,468 shares, respectively, and outstanding 11,045,965 and 10,770,207 shares, respectively

121

118

Additional paid-in capital

911,987

908,837

Accumulated deficit

(844,440)

(798,602)

Treasury stock 1,123,261 shares

(8,532)

(8,532)

Total shareholders' equity

59,136

101,821

Total liabilities and shareholders' equity

$353,532

$282,802



TREE.COM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS



Year Ended
December 31,


2011

2010


(In thousands)

 Cash flows from operating activities attributable to continuing operations:



 Net loss

$(45,838)

$(17,585)

 Less (income) loss from discontinued operations, net of tax

9,800

(13,807)

 Net loss from continuing operations

(36,038)

(31,392)

 Adjustments to reconcile net loss from continuing operations to net cash used in operating   activities attributable to continuing operations:



 Loss on disposal of fixed assets

311

85

 Amortization of intangibles

891

1,232

 Depreciation

5,023

3,216

 Intangible impairment

5,850

540

 Non-cash compensation expense

3,777

3,104

 Non-cash restructuring expense

93

 Deferred income taxes

(1,823)

(1,270)

 Bad debt expense

32

10

 Changes in current assets and liabilities:



 Accounts receivable

(1,941)

2,457

 Prepaid and other current assets

(148)

225

 Accounts payable and other current liabilities

(4,439)

(11,394)

 Income taxes payable

(309)

(278)

 Deferred revenue

(136)

(64)

 Other, net

898

1,684

 Net cash used in operating activities attributable to continuing operations

(28,052)

(31,752)

 Cash flows from investing activities attributable to continuing operations:



 Capital expenditures

(6,110)

(5,123)

 Acquisitions

(250)

 Other, net

(1,981)

2,193

 Net cash used in investing activities attributable to continuing operations

(8,091)

(3,180)

 Cash flows from financing activities attributable to continuing operations:



 Issuance of common stock, net of withholding taxes

(962)

(570)

 Purchase of treasury stock

(8,532)

 Increase in restricted cash

(2,325)

(50)

 Net cash used in financing activities attributable to continuing operations

(3,287)

(9,152)

 Total cash used in continuing operations

(39,430)

(44,084)

 Net cash provided by (used in) operating activities attributable to discontinued operations

(71,473)

6,771

 Net cash used in investing activities attributable to discontinued operations

(9,411)

(2,103)

 Net cash provided by financing activities attributable to discontinued operations

97,036

22,142

 Total cash provided by discontinued operations

16,152

26,810

 Net decrease in cash and cash equivalents

(23,278)

(17,274)

 Cash and cash equivalents at beginning of period

68,819

86,093

 Cash and cash equivalents at end of period

$45,541

$68,819



TREE.COM'S RECONCILIATION OF NON-GAAP MEASURES TO GAAP ($ in thousands):


Below is a reconciliation of Adjusted EBITDA to net income (loss) for both continuing operations and discontinued operations.  See "Tree.com's Principals of Financial Reporting" for further discussion of the Company's use of these Non-GAAP measures.



Three Months Ended

Year Ended


March 31,
2011

June 30,
2011

September
30, 2011

December 31,
2011

December 31,
2011


(Dollars in thousands)

  Adjusted EBITDA from continuing operations

$(8,414)

$(5,336)

$(521)

$(1,425)

$(15,696)

  Adjustments to reconcile to net loss from continuing operations:






  Amortization of intangibles

(307)

(267)

(213)

(104)

(891)

  Depreciation

(1,059)

(1,225)

(1,393)

(1,346)

(5,023)

  Restructuring expense

(94)

(398)

(498)

(90)

(1,080)

  Asset impairments

(250)

(5,600)

(5,850)

  Loss on disposal of assets

(111)

(99)

(101)

(311)

  Non-cash compensation

(1,120)

(788)

(824)

(1,045)

(3,777)

  Litigation settlements and contingencies

(4,749)

(246)

(212)

(525)

(5,732)

  Post acquisition adjustments

652

652

  Other expense, net

(80)

(76)

(110)

(102)

(368)

  Income tax (expense) benefit

(265)

(37)

185

2,155

2,038

  Gain from sale of discontinued operations

  Net loss from continuing operations

$(16,088)

$(8,082)

$(3,685)

$(8,183)

$(36,038)







  Adjusted EBITDA from discontinued operations

$(7,497)

$(5,150)

$9,584

$7,593

$4,530

  Adjustments to reconcile to net income (loss) from discontinued operations:






  Amortization of intangibles

(71)

(44)

(44)

(159)

  Depreciation

(595)

(589)

(394)

(377)

(1,955)

  Restructuring expense

(2,158)

(3,906)

(509)

6

(6,567)

  Asset impairments

(12,974)

(12,974)

  Loss on disposal of assets

(27)

(35)

(62)

  Non-cash compensation

(181)

(5)

(75)

(77)

(338)

  Litigation settlements and contingencies

(2)

(15)

(4)

(6)

(27)

  Post acquisition adjustments

  Other expense, net

  Income tax benefit

  Gain from sale of discontinued operations

7,752

7,752

  Net income (loss) from discontinued operations

$(23,407)

$(9,736)

$16,283

$7,060

$(9,800)







  Adjusted EBITDA from continuing operations per above

$(8,414)

$(5,336)

$(521)

$(1,425)

$(15,696)

  Adjusted EBITDA from discontinued operations per above

(7,497)

(5,150)

9,584

7,593

4,530

  Total Adjusted EBITDA

(15,911)

(10,486)

9,063

6,168

(11,166)

  Adjustments to reconcile to net income (loss):






  Amortization of intangibles

(307)

(338)

(257)

(148)

(1,050)

  Depreciation

(1,654)

(1,814)

(1,787)

(1,723)

(6,978)

  Restructuring expense

(2,252)

(4,304)

(1,007)

(84)

(7,647)

  Asset impairments

(12,974)

(250)

(5,600)

(18,824)

  Loss on disposal of assets

(111)

(126)

(136)

(373)

  Non-cash compensation

(1,301)

(793)

(899)

(1,122)

(4,115)

  Litigation settlements and contingencies

(4,751)

(261)

(216)

(531)

(5,759)

  Post acquisition adjustments

652

652

  Other expense, net

(80)

(76)

(110)

(102)

(368)

  Income tax (expense) benefit

(265)

(37)

185

2,155

2,038

  Gain from sale of discontinued operations

7,752

7,752

  Net income (loss)

$(39,495)

$(17,818)

$12,598

$(1,123)

$(45,838)



Below is a reconciliation of revenue to adjusted Exchanges revenue, selling and marketing expense to adjusted Exchanges marketing expense, and Adjusted EBITDA from continuing operations (reconciled to operating loss in table above) to Adjusted Exchanges Adjusted EBITDA.  See "Tree.com's Principals of Financial Reporting" for further discussion of the Company's use of these Non-GAAP measures.













Qtr 1



Qtr 2



Qtr 3



Qtr 4

(Dollars in thousands)

2011



2011



2011



2011












Revenue  - Continuing Operations

$13,919



$16,931



$13,101



$10,666












Non-Mortgage Revenue

3,896



4,514



3,898



3,883

Mortgage Exchanges Revenue

10,023



12,417



9,203



6,783

Adjustment:  Hypothetical  Revenue for leads sent to LTL

9,972



7,780



6,429



7,343

Adjusted Mortgage Exchange Revenue

$19,995



$20,197



$15,632



$14,126












Total adjusted Exchanges revenue

$23,892



$24,711



$19,531



$18,009























Selling and Marketing Expense - Continuing Operations

$15,529



$15,242



$8,475



$7,415












Other Marketing

963



1,385



1,017



1,194

Exchanges Marketing

14,566



13,857



7,458



6,221

Adjustment:  Shared Marketing absorbed in Continuing Ops

5,416



4,534



3,288



2,258

Adjusted Exchanges marketing expense

$19,982



$18,391



$10,746



$8,479























Adjusted EBITDA - Continuing Ops *

$(8,414)



$(5,336)



$(521)



$(1,427)












Adjustment:  Combined revenue and marketing

4,556



3,246



3,141



5,085

Adjustment:  shared comp costs absorbed in Continuing Ops

(355)



(241)



(287)



(383)

Adjusted Exchanges EBITDA-

$(4,213)



$(2,331)



$2,333



$3,275























*  See reconciliation in prior table.













TREE.COM'S PRINCIPLES OF FINANCIAL REPORTING

Tree.com reports Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), and adjusted for certain items discussed below ("Adjusted EBITDA"), adjusted Exchanges mortgage revenue, total adjusted Exchanges revenue, adjusted Exchanges marketing expense, variable marketing margin $, variable marketing margin % of revenue, adjusted Exchanges EBITDA, and adjusted EBITDA % of revenue as supplemental measures to GAAP. These measures are primary metrics by which Tree.com evaluates the performance of its businesses, on which its marketing expenditures are based and in the case of Adjusted EBITDA and Variable Marketing Margin $ by which management and many employees are compensated. Tree.com believes that investors should have access to the same set of tools that it uses in analyzing its results. These non-GAAP measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. Tree.com provides and encourages investors to examine the reconciling adjustments between the GAAP and non-GAAP measure set forth above.

Definition of Tree.com's Non-GAAP Measures

EBITDA is defined as operating income or loss (which excludes interest expense and taxes) excluding amortization of intangibles and depreciation.

Adjusted EBITDA is defined as EBITDA excluding (1) non-cash compensation expense, (2) non-cash intangible asset impairment charges, (3) gain/loss on disposal of assets, (4) restructuring expenses, (5) litigation settlements and contingencies, (6) pro forma adjustments for significant acquisitions or dispositions, and (7) one-time items. Adjusted EBITDA has certain limitations in that it does not take into account the impact to Tree.com's statement of operations of certain expenses, including depreciation, non-cash compensation and acquisition related accounting. Tree.com endeavors to compensate for the limitations of the non-GAAP measure presented by also providing the comparable GAAP measures with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the non-GAAP measure.

Adjusted Exchanges mortgage revenue is defined as revenue from the Exchanges mortgage vertical plus modeled revenue for leads provided to LendingTree Loans assuming sale prices for such leads equaled contemporaneous sale prices of leads of similar quality sold to network lenders.  Accordingly, this measure also assumes lender demand on the network would have been sufficient to absorb the additional lead volume without affecting the prices of the leads actually sold.  The Company believes these are the most reasonable assumptions to facilitate the purpose of this metric -- to give investors a view into what the result might have been if the Company did not operate LendingTree Loans -- and the Company used the same assumptions to evaluate the performance of its business beginning in the third quarter of 2011.  Investors are cautioned that there is inherent uncertainty in this metric and the Company urges investors to consider this metric and the other non-GAAP measures discussed below that include this metric in addition to results prepared in accordance with GAAP and not as substitutions for or superior to GAAP results.   There can be no assurance that this metric and the other non-GAAP measures discussed below that include this metric will be indicative of actual results of operations following the sale of the Home Loan Center assets.

Total adjusted Exchanges revenue is defined as adjusted Exchanges revenue plus revenue from the non-mortgage verticals.

Adjusted Exchanges marketing expense is defined as the portion of selling and marketing expense attributable to the current Exchanges business for variable costs paid for advertising, direct marketing and related expenses, plus selling and marketing expense allocated to LendingTree Loans and recorded in discontinued operations.  This metric excludes overhead, fixed costs, and personnel-related expenses.

Variable marketing margin is defined as adjusted Exchanges revenue minus adjusted Exchanges marketing expense, and variable marketing margin % of revenue is defined as variable marketing margin expressed as a percentage of adjusted Exchanges revenue.

Adjusted Exchanges EBITDA is defined as Adjusted EBITDA from continuing operations, plus modeled revenue for leads provided to LendingTree Loans, minus Exchanges selling and marketing expense allocated to LendingTree Loans and recorded in discontinued operations.

Adjusted EBITDA % of revenue is defined as adjusted Exchanges EBITDA expressed as a percentage of adjusted Exchanges revenue.

Non-GAAP adjusted Exchange metrics are not prepared in accordance with SEC rules or Generally Accepted Accounting Principles requiring certain pro forma financial information giving effect to disposition of a material asset that has occurred or in some cases that is probable, and they are not intended to be a substitute for such financial information.  The Company will prepare and report pro forma financial information following the closing of the pending sale of assets of Home Loan Center in accordance with SEC rules and Generally Accepted Accounting Principles.

One-Time Items

Adjusted EBITDA is adjusted for one-time items, if applicable. Items are considered one-time in nature if they are non-recurring, infrequent or unusual, and have not occurred in the past two years or are not expected to recur in the next two years, in accordance with SEC rules. For the periods presented in this report, there are no adjustments for one-time items.

Non-Cash Expenses That Are Excluded From Tree.com's Adjusted EBITDA and Adjusted Exchanges EBITDA

Non-cash compensation expense consists principally of expense associated with the grants of restricted stock units and stock options. These expenses are not paid in cash, and Tree.com will include the related shares in its calculations of fully diluted shares outstanding. Upon vesting of restricted stock units and the exercise of certain stock options, the awards will be settled, at Tree.com's discretion, on a net basis, with Tree.com remitting the required tax withholding amount from its current funds.

Amortization and impairment of intangibles are non-cash expenses relating primarily to acquisitions. At the time of an acquisition, the intangible assets of the acquired company, such as purchase agreements, technology and customer relationships, are valued and amortized over their estimated lives.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

The matters contained in the discussion above may be considered to be "forward-looking statements" within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995.  Those statements include statements regarding the intent, belief or current expectations or anticipations of Tree.com and members of our management team.  Factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include uncertainties surrounding the potential sale transaction related to the assets of our LendingTree Loans business, including: the uncertainty as to the timing of the closing, the possibility that various closing conditions for the transaction may not be satisfied or waived, and the effects of disruption from the transaction making it more difficult to maintain relationships with employees, customers and other business partners.  Other factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include the following: adverse conditions in the primary and secondary mortgage markets and in the economy, particularly interest rates; adverse conditions in the credit markets and the inability to renew or replace warehouse lines of credit; seasonality of results; potential liabilities to secondary market purchasers; changes in the Company's relationships with network lenders, credit providers and secondary market purchasers; breaches of network security or the misappropriation or misuse of personal consumer information; failure to provide competitive service; failure to maintain brand recognition; ability to attract and retain customers in a cost-effective manner; ability to develop new products and services and enhance existing ones; competition; allegations of failure to comply with existing or changing laws, rules or regulations, or to obtain and maintain required licenses; failure of network lenders or other affiliated parties to comply with regulatory requirements; failure to maintain the integrity of systems and infrastructure; liabilities as a result of privacy regulations; failure to adequately protect intellectual property rights or allegations of infringement of intellectual property rights; and changes in management.  These and additional factors to be considered are set forth under "Risk Factors" in our Annual Report on Form 10-K for the period ended December 31, 2010, our Quarterly Reports on Form 10-Q for the period ended March 31, 2011, June 30, 2011, September 30, 2011 and in our other filings with the Securities and Exchange Commission.  We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results or expectations.

About Tree.com, Inc.

Tree.com, Inc. (NASDAQ: TREE) is the parent of several brands and businesses that provide information, tools, advice, products and services for critical transactions in our customers' lives.  Our family of brands includes: LendingTree.com®, GetSmart.com®, DegreeTree.com(SM), LendingTreeAutos.com, DoneRight.com and ServiceTree.com.  Together, these brands serve as an ally for consumers who are looking to comparison shop for loans, home services, education, auto and other services from multiple businesses and professionals who will compete for their business.

Tree.com, Inc. is the parent company of wholly owned operating subsidiaries:  LendingTree, LLC and Home Loan Center, Inc.  

Tree.com, Inc. is headquartered in Charlotte, N.C. and maintains operations solely in the United States. For more information, please visit www.tree.com.

SOURCE Tree.com, Inc.

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