Tree.com Reports Second Quarter 2014 Financial Results

August 5, 2014 at 7:30 AM EDT

CHARLOTTE, N.C., Aug. 5, 2014 /PRNewswire/ -- Tree.com, Inc. (NASDAQ: TREE), operator of LendingTree.com, the nation's leading online source for competitive loan offers, today announced results for its fiscal second quarter ended June 30, 2014.

Tree.com Logo

"The second quarter was another solid one for Tree.com, as we produced record revenue and exceeded our guidance on variable marketing margin and adjusted EBITDA," said Doug Lebda, Chairman & CEO of Tree.com. "We out-performed the overall mortgage market and continued to scale our non-mortgage revenues, reflecting continued diversification into other highly relevant, loan and credit-based categories. And while we're delighted with our financial performance this quarter, we're even more excited about the transformation under way at LendingTree."

"In the second quarter, we launched the new My LendingTree, a platform that combines personalization and comparison shopping, while providing free credit scores, monthly updates, credit score analysis and an in-depth view of a consumer's credit profile.  With the launch of My LendingTree, coupled with the proliferation of new lending platforms and sources of capital in multiple categories, we're uniquely positioned to not only empower consumers, but also to increase the lifetime value of these relationships."

Second Quarter 2014 Business Highlights

  • Record revenue from mortgage products was up 5% in the second quarter over the same period last year, while total mortgage market originations are estimated to have fallen by 45% during this time, according to a survey of industry data.
  • LendingTree's purchase mortgage offering continued strong year-over-year results, with revenues up 70% over the same period in 2013, benefiting in part from new local-based initiatives.
  • Record revenue from non-mortgage products of $7.5 million in the second quarter reflects an increase of 105% over the second quarter 2013, benefiting from growth in a number of lending categories, particularly our personal loan and auto offerings.

 

Tree.com Selected Financial Metrics

(In millions, except per share amounts)






















Q/Q




Y/Y

Q2 2014

Q1 2014

% Change

Q2 2013

% Change

Revenue by Product















Mortgage Products (1)

$

34.7

$

34.2

1%


$

33.1

5%

Non-Mortgage Products (2)

7.5

5.8

29%


3.7

105%

Corporate

—

—

NM

0.6

NM

Total Revenue

$

42.1

$

40.0

5%


$

37.4

13%

Non-Mortgage % of Total

18%

14%





10%





















Selling and Marketing Expense















Exchanges Marketing Expense (3)

$

26.4

$

24.8

6%


$

23.7

11%

Other Marketing

2.6

2.6

(3)%


2.7

(3)%

Selling and Marketing Expense

$

29.0

$

27.4

6%


$

26.4

10%


















Variable Marketing Margin (4)

$

15.8

$

15.2

3%


$

13.7

15%

Variable Marketing Margin % of Revenue

37%

38%





37%





















Net Income (Loss) from Continuing Operations

$

2.7

$

(5.8)

NM

$

(2.0)

NM

Net Income (Loss) from Cont. Ops. % of Revenue

6%

(15)%





(5)%





















Net Income (Loss) per Share from Cont. Ops.















Basic

$

0.24

$

(0.52)

NM

$

(0.18)

NM

Diluted

$

0.23

$

(0.52)

NM

$

(0.18)

NM

















Adjusted EBITDA (5)

$

5.5

$

4.5

23%


$

3.4

64%

Adjusted EBITDA % of Revenue (5)

13%

11%





9%





















Adjusted Net Income (5)

$

4.6

$

3.7

25%


$

2.5

88%


















Adjusted Net Income per Share (5)

$

0.39

$

0.31

26%


$

0.21

87%


















(1)

Includes the purchase mortgage, refinance mortgage and rate table products.

(2)

Includes the home equity, reverse mortgage, personal loan, auto, education, home services, insurance and personal credit products.

(3)

Defined as the portion of selling and marketing expense attributable to variable costs paid for advertising, direct marketing and related expenses, which excludes overhead, fixed costs and personnel-related expenses.

(4)

Defined as revenue minus Exchanges marketing expense and is considered an operating metric.

(5)

Adjusted EBITDA, adjusted EBITDA % of revenue, adjusted net income and adjusted net income per share 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.

Second Quarter 2014 Financial and Operating Highlights

  • Second quarter 2014 revenue of $42.1 million represents a record result and was within our previous guidance. This result represents an increase of $4.7 million, or 13%, over revenue in the second quarter 2013.
  • Variable marketing margin of $15.8 million in the second quarter 2014 exceeded previous guidance and represents an increase of $2.1 million, or 15%, over second quarter 2013.
  • Adjusted EBITDA of $5.5 million exceeded previous guidance and reflects an increase of $2.2 million, or 64%, over second quarter 2013.
  • Working capital was $63.1 million at June 30, 2014. Working capital is calculated as current assets (including unrestricted and restricted cash) minus current liabilities (including loan loss reserves).
  • During the quarter, the Company purchased a total of 59,200 shares of its stock for approximately $1.5 million.

Business Outlook - 2014

Tree.com is providing revenue, variable marketing margin and Adjusted EBITDA guidance for the third quarter 2014 and full year 2014, as follows:

For Q3 2014:

  • Tree.com anticipates revenue to grow by 8% to 13% over third quarter 2013 revenue of $37.3 million
  • Variable Marketing Margin is anticipated to be in the range of $16.0 - $17.0 million
  • Adjusted EBITDA is anticipated to be in the range of $5.0 - $6.0 million
  • For full year 2014, we continue to anticipate:
  • Revenue to grow by 15% - 18% over full year 2013,
  • Variable Marketing Margin to be in the range of $62 - $66 million
  • Adjusted EBITDA to be in the range of $20 - $21 million

Quarterly Conference Call

A conference call to discuss Tree's second quarter 2014 financial results will be webcast live tomorrow, August 6, 2014 at 4:30 PM Eastern Time (ET). The live audiocast is open to the public and will be available on Tree's investor relations website at http://investor-relations.tree.com/. The call may also be accessed toll-free via phone at (877) 606-1416. Callers outside the United States and Canada may dial (707) 287-9313. Following completion of the call, a recorded replay of the webcast will be available on Tree's investor relations website until 11:59 PM ET on Monday August 11, 2014. To listen to the telephone replay, call toll-free (855) 859-2056 with passcode #78803003. Callers outside the United States may dial (404) 537-3406 with passcode #78803003.

Historical View of Selected Financial Metrics

In addition to Tree.com's selected financial metrics provided above, below is a presentation of additional historical periods, reflecting the adjusted definition of Mortgage Products to include Rate Table revenues, implemented in Q1 2014.

 


Tree.com Selected Financial Metrics

(In millions, except per share amounts)


















Q1 2013

Q2 2013

Q3 2013

Q4 2013

FY 2013

Q1 2014

Q2 2014

Revenue by Product

















Mortgage Products (1)

$

25.3

$

33.1

$

33.0

$

31.7

$

123.1


$

34.2

$

34.7

Non-Mortgage Products (2)

2.8

3.7

4.4

4.7

15.6


5.8

7.5

Corporate

—

0.6

—

—

0.6


—

—

Total Revenue

$

28.1

$

37.4

$

37.3

$

36.4

$

139.2


$

40.0

$

42.1

Non-Mortgage % of Total

10%

10%

12%

13%

11%


14%

18%




















Selling and Marketing Expense

















Exchanges Marketing Expense (3)

$

14.6

$

23.7

$

22.3

$

20.1

$

80.7


$

24.8

$

26.4

Other Marketing

2.7

2.7

2.5

2.5

10.4


2.6

2.6

Selling and Marketing Expense

$

17.3

$

26.4

$

24.8

$

22.6

$

91.1


$

27.4

$

29.0




















Variable Marketing Margin (4)

$

13.5

$

13.7

$

15.1

$

16.3

$

58.6


$

15.2

$

15.8

Variable Marketing Margin % of Revenue

48%

37%

40%

45%

42%


38%

37%




















Net Income (Loss) from Continuing Operations

$

(0.3)

$

(2.0)

$

0.3

$

1.3

$

(0.7)


$

(5.8)

$

2.7

Net Income (Loss) from Cont. Ops. % of Revenue

(1)%

(5)%

1%

4%

—%


(15)%

6%




















Net Income (Loss) per Share from Cont. Ops.

















Basic

$

(0.02)

$

(0.18)

$

0.03

$

0.12

$

(0.06)


$

(0.52)

$

0.24

Diluted

$

(0.02)

$

(0.18)

$

0.03

$

0.11

$

(0.06)


$

(0.52)

$

0.23




















Adjusted EBITDA (5)

$

4.1

$

3.4

$

5.4

$

5.9

$

18.7


$

4.5

$

5.5

Adjusted EBITDA % of Revenue (5)

15%

9%

14%

16%

13%


11%

13%




















Adjusted Net Income (5)

$

3.1

$

2.5

$

4.5

$

5.4

$

15.5


$

3.7

$

4.6




















Adjusted Net Income per Share (5)

$

0.27

$

0.21

$

0.39

$

0.45

$

1.32


$

0.31

$

0.39




















(1)

Includes the purchase mortgage, refinance mortgage and rate table products.

(2)

Includes the home equity, reverse mortgage, personal loan, auto, education, home services, insurance and personal credit products.

(3)

Defined as the portion of selling and marketing expense attributable to variable costs paid for advertising, direct marketing and related expenses, which excludes overhead, fixed costs and personnel-related expenses.

(4)

Defined as revenue minus Exchanges marketing expense and is considered an operating metric.

(5)

Adjusted EBITDA, adjusted EBITDA % of revenue, adjusted net income and adjusted net income per share 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.

 

TREE.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) 

 

Three Months Ended
 June 30,

Six Months Ended
 June 30,

2014

2013

2014

2013

(In thousands, except per share amounts)

Revenue

$

42,144

$

37,406

$

82,180

$

65,486

Costs and expenses:










Cost of revenue (exclusive of depreciation) (1)

1,895

1,950

3,560

3,306

Selling and marketing expense (1)

28,964

26,386

56,413

43,641

General and administrative expense (1)

5,478

5,651

11,611

12,207

Product development (1)

1,826

1,492

3,758

2,697

Depreciation

946

872

1,701

1,757

Amortization of intangibles

27

43

55

86

Restructuring and severance

23

148

225

146

Litigation settlements and contingencies

385

2,909

8,092

3,937

Total costs and expenses

39,544

39,451

85,415

67,777

Operating income (loss)

2,600

(2,045)

(3,235)

(2,291)

Other income (expense):










Interest expense

—

(7)

—

(14)

Income (loss) before income taxes

2,600

(2,052)

(3,235)

(2,305)

Income tax benefit (expense)

83

19

84

(1)

Net income (loss) from continuing operations

2,683

(2,033)

(3,151)

(2,306)

Discontinued operations:










Gain from sale of discontinued operations, net of tax

—

10,003

—

10,101

Loss from operations of discontinued operations, net of tax

(2,931)

(891)

(3,505)

(3,433)

Income (loss) from discontinued operations

(2,931)

9,112

(3,505)

6,668

Net income (loss)

$

(248)

$

7,079

$

(6,656)

$

4,362












Weighted average shares outstanding:










Basic

11,214

11,133

11,178

11,050

Diluted

11,849

11,133

11,178

11,050

Income (loss) per share from continuing operations:










Basic

$

0.24

$

(0.18)

$

(0.28)

$

(0.21)

Diluted

$

0.23

$

(0.18)

$

(0.28)

$

(0.21)

Income (loss) per share from discontinued operations:










Basic

$

(0.26)

$

0.82

$

(0.31)

$

0.60

Diluted

$

(0.25)

$

0.82

$

(0.31)

$

0.60

Income (loss) per share attributable to common shareholders:










Basic

$

(0.02)

$

0.64

$

(0.60)

$

0.39

Diluted

$

(0.02)

$

0.64

$

(0.60)

$

0.39

(1)  Amounts include non-cash compensation, as follows:










Cost of revenue

$

7

$

3

$

13

$

5

Selling and marketing expense

226

306

459

523

General and administrative expense

928

879

1,989

1,909

Product development

260

244

576

429

 

TREE.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share amounts)

 

June 30,
 2014

December 31,
 2013

(Unaudited)


ASSETS:




Cash and cash equivalents

$

87,618

$

91,667

Restricted cash and cash equivalents

22,044

26,017

Accounts receivable (net of allowance of $474 and $408, respectively)

13,260

12,850

Prepaid and other current assets

1,518

1,689

Current assets of discontinued operations

715

521

Total current assets

125,155

132,744

Property and equipment (net of accumulated depreciation of $19,709 and $18,008, respectively)

5,602

5,344

Goodwill

3,632

3,632

Intangible assets, net

11,219

10,684

Other non-current assets

102

111

Non-current assets of discontinued operations

100

129

Total assets

$

145,810

$

152,644






LIABILITIES:




Accounts payable, trade

$

5,949

$

4,881

Accrued expenses and other current liabilities

23,505

23,314

Current liabilities of discontinued operations

32,620

32,004

Total current liabilities

62,074

60,199

Other non-current liabilities

67

334

Deferred income taxes

4,849

4,849

Non-current liabilities of discontinued operations

261

254

Total liabilities

67,251

65,636

SHAREHOLDERS' EQUITY:




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

—

—

Common stock $.01 par value; 50,000,000 shares authorized; 12,771,101 and 12,619,835 shares issued, respectively, and 11,342,969 and 11,250,903 shares outstanding, respectively

128

126

Additional paid-in capital

906,866

907,148

Accumulated deficit

(814,189)

(807,533)

Treasury stock 1,428,132 and 1,368,932 shares, respectively

(14,246)

(12,733)

Total shareholders' equity

78,559

87,008

Total liabilities and shareholders' equity

$

145,810

$

152,644

 

TREE.COM'S RECONCILIATION OF NON-GAAP MEASURES TO GAAP

Below is a reconciliation of adjusted EBITDA and adjusted net income to net income (loss) from continuing operations, adjusted EBITDA % of revenue to net income (loss) from continuing operations % of revenue and adjusted net income per share to net income (loss) per diluted share from continuing operations. See "Tree.com's Principles of Financial Reporting" for further discussion of the Company's use of these non-GAAP measures.

 

Three Months Ended

June 30,
 2014

March 31,

2014

December 31,
 2013

September 30,
 2013

June 30,
 2013

March 31,
 2013

(In thousands)

Adjusted EBITDA

$

5,520

$

4,481

$

5,908

$

5,364

$

3,359

$

4,086

Adjusted EBITDA % of revenue

13%

11%

16%

14%

9%

15%

Adjustments to reconcile to net income (loss)

 from continuing operations:











Depreciation

(946)

(755)

(853)

(891)

(872)

(885)

Amortization of intangibles

(27)

(28)

(28)

(33)

(43)

(43)

Interest income (expense)

—

—

(1)

(4)

(7)

(7)

Income tax benefit (provision)

83

1

356

98

19

(20)

Adjusted net income

4,630

3,699

5,382

4,534

2,456

3,131













Non-cash compensation

(1,421)

(1,616)

(1,349)

(1,412)

(1,432)

(1,433)

Loss on disposal of assets

(44)

(8)

(140)

(1)

—

(25)

Acquisition expense

(74)

—

—

—

—

—

Discretionary cash bonus

—

—

—

—

—

(920)

Trust contribution

—

—

(350)

—

—

—

Restructuring and severance

(23)

(202)

(83)

70

(148)

2

Litigation settlements and contingencies (1)

(385)

(7,707)

(2,143)

(2,875)

(2,909)

(1,028)

Net income (loss) from continuing operations

$

2,683

$

(5,834)

$

1,317

$

316

$

(2,033)

$

(273)

Net income (loss) from continuing operations % of revenue

6%

(15)%

4%

1%

(5)%

(1)%













Adjusted net income per share

$

0.39

$

0.31

$

0.45

$

0.39

$

0.21

$

0.27

Adjustments to reconcile adjusted net income to net income (loss) from continuing operations

$

(0.16)

$

(0.86)

$

(0.34)

$

(0.36)

$

(0.40)

$

(0.31)

Adjustments to reconcile effect of dilutive securities

$

—

$

0.03

$

—

$

—

$

0.01

$

0.02

Net income (loss) per diluted share from continuing operations

$

0.23

$

(0.52)

$

0.11

$

0.03

$

(0.18)

$

(0.02)













Adjusted weighted average diluted shares outstanding

11,849

11,888

11,839

11,720

11,776

11,636

Effect of dilutive securities

—

746

—

—

643

669

Weighted average diluted shares outstanding

11,849

11,142

11,839

11,720

11,133

10,967

Effect of dilutive securities

635

—

814

703

—

—

Weighted average basic shares outstanding

11,214

11,142

11,025

11,017

11,133

10,967













(1)

Includes legal fees for certain patent litigation.

 

TREE.COM'S PRINCIPLES OF FINANCIAL REPORTING

Tree.com reports Earnings Before Interest, Taxes, Depreciation and Amortization, as adjusted for certain items discussed below ("Adjusted EBITDA"), Adjusted EBITDA % of revenue, adjusted net income and adjusted net income per share as supplemental measures to GAAP.

Adjusted EBITDA and Adjusted EBITDA % of revenue are primary metrics by which Tree.com evaluates the operating performance of its businesses, on which its marketing expenditures and internal budgets are based and, in the case of adjusted EBITDA, 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. Tree.com believes that adjusted net income and adjusted net income per share are useful financial indicators that provide a different view of the financial performance of the Company than adjusted EBITDA (the primary metric by which Tree.com evaluates the operating performance of its businesses) and the GAAP measures of net income (loss) from continuing operations and GAAP income (loss) per diluted share.

Adjusted net income and adjusted net income per share supplement GAAP income (loss) from continuing operations and GAAP income (loss) per diluted share by enabling investors to make period to period comparisons of those components of the nearest comparable GAAP measures that management believes better reflect the underlying financial performance of the Company's business operations during particular financial reporting periods. Adjusted net income and adjusted net income per share exclude certain amounts, such as non-cash compensation, loss on disposal of assets, acquisition expense, restructuring and severance, and litigation settlements and contingencies, which are recognized and recorded under GAAP in particular periods but which might be viewed as not necessarily coinciding with the underlying business operations for the periods in which they are so recognized and recorded.

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 measures set forth above. Tree.com is not able to provide a reconciliation of projected adjusted EBITDA to expected reported results due to the unknown effect, timing and potential significance of the effects of the wind-down of discontinued operations and tax considerations.

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 and severance expenses, (5) litigation settlements, contingencies and legal fees for certain patent litigation, (6) adjustments for acquisitions or dispositions, and (7) one-time items.

Adjusted net income is defined as net income (loss) from continuing operations excluding (1) non-cash compensation expense, (2) non-cash intangible asset impairment charges, (3) gain/loss on disposal of assets, (4) restructuring and severance expenses, (5) litigation settlements, contingencies and legal fees for certain patent litigation, (6) adjustments for acquisitions or dispositions, and (7) one-time items.

Adjusted net income per share is defined as adjusted net income divided by the adjusted weighted average diluted shares outstanding.  In cases where the Company reported GAAP losses from continuing operations, the effects of potentially dilutive securities are excluded from the calculation of net loss per diluted share from continuing operations because their inclusion would have been anti-dilutive.  In such instances where the Company reports GAAP net loss from continuing operations but reports positive non-GAAP adjusted net income, the effects of potentially dilutive securities are included in the denominator for calculating adjusted net income per share.

Tree.com endeavors to compensate for the limitations of these non-GAAP measures 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 measures.  These non-GAAP measures may not be comparable to similarly titled measures used by other companies.

One-Time Items

Adjusted EBITDA and adjusted net income are 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, except for a $0.4 million contribution to a trust in Q4 2013 and a compensation charge of $0.9 million related to a discretionary cash bonus payment to employee stock option holders in Q1 2013.

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

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

Amortization 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.  Amortization of intangibles are only excluded from Adjusted EBITDA.

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 the following: adverse conditions in the primary and secondary mortgage markets and in the economy, particularly interest rates; seasonality of results; potential liabilities to secondary market purchasers; changes in the Company's relationships with network lenders; 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, 2013 and our Quarterly Report on Form 10-Q for the period ended March 31, 2014, 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 consumers' lives. Our family of brands includes: LendingTree®, GetSmart®, LendingTreeAutosSM, LendingTree EducationSM and LendingTree HomeProsSM. Together, these brands serve as an ally for consumers who are looking to comparison shop for loans, autos, education, home services and other services from multiple businesses and professionals who will compete for their business.

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

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SOURCE Tree.com, Inc.

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