Tree.com Reports Fourth Quarter 2010 Results

February 11, 2011 at 9:00 AM EST

CHARLOTTE, N.C., Feb. 11, 2011 /PRNewswire/ -- Tree.com, Inc. (Nasdaq: TREE) today announced for the quarter ended December 31, 2010, Adjusted EBITDA of $0.3 million, a reduction of $5.2 million over the prior quarter and a $0.1 million decrease from fourth quarter 2009.  Fourth quarter 2010 revenue was $51.2 million, down from $53.2 million in the third quarter of 2010, but an improvement over the $47.8 million in revenue in the fourth quarter 2009.  Tree.com reported a net loss of $12.5 million, or $1.12 per share, lower than the $1.8 million net income, or $0.16 per share, in the third quarter 2010, but an improvement over the $21.0 million net loss, or $1.92 per share, in the fourth quarter 2009.

Doug Lebda, Chairman and CEO of Tree.com stated, "Overall we are pleased with the bottom line results in the fourth quarter in the face of a change in the mortgage market and seasonally low mortgage volume.  We've been talking about the shift in the market that would come with rising interest rates, and we have been preparing for it.  We are now executing our plans to grow and succeed in a very different market in 2011 than what we had in the last three years."

Tree.com SVP Tamara Kotronis added, "We posted slightly better than breakeven Adjusted EBITDA in the fourth quarter, within our previously announced guidance of Adjusted EBITDA between breakeven and $2.0 million.  The quarter was not without challenges.  During the fourth quarter, interest rates climbed over 60 basis points from early in the quarter to year end.  It is a testament to the strength of our brand and excellent service that we posted positive Adjusted EBITDA in such a volatile quarter."  











Tree.com Summary Financial Results

$s in millions (except per share amounts)
















Q/Q




Y/Y


Q4 2010


Q3 2010


% Change


Q4 2009


% Change

Revenue

$                   51.2


$                   53.2


(4%)


$                   47.8


7%











Cost of Revenue *

$                   16.3


$                   14.5


13%


$                   16.5


(1%)











Operating Expenses*

$                   34.6


$                   33.2


4%


$                   30.9


12%











Adjusted EBITDA **

$                     0.3


$                     5.5


(95%)


$                     0.4


(29%)

EBITDA **

$                 (12.2)


$                     4.0


NM


$                 (18.5)


34%











Net Income/(Loss)

$                 (12.5)


$                     1.8


NM


$                 (21.0)


41%











Net Income/(Loss) Per Share

$                 (1.12)


$                   0.16


NM


$                 (1.92)


42%

Diluted Net Income/(Loss) Per Share

$                 (1.12)


$                   0.16


NM


$                 (1.92)


42%











NM = Not Meaningful










* Does not include non-cash compensation, depreciation, gain/loss on disposal of assets, restructuring, amortization, impairment, or litigation settlements and contingencies.  

** See separate reconciliation of Adjusted EBITDA and EBITDA to GAAP Net Income/Loss.













Information Regarding Q4 Results

  • Fourth quarter 2010 revenue was down $2 million, or 4%, quarter-over-quarter.  While LendingTree Loans revenue grew 7% as a result of higher closed loan volume, the Exchanges and Real Estate revenue were both lower compared to the third quarter 2010, down 22% and 30%, respectively.  The Exchanges segment felt the effects of 25% fewer  matched consumer requests in the quarter, while Real Estate saw the number of closed units decline 21% from third quarter levels.  
  • Year-over-year, revenue was up 7% over the fourth quarter 2009.  This year-over-year increase in total revenue is primarily due to LendingTree Loans, with 36% more closed loans, partially offset by fewer year-over-year matched loan requests on the Exchanges and fewer closed home sales in the Real Estate segment.      
  • Fourth quarter 2010 Adjusted EBITDA was down $5.2 million from the third quarter, with the results primarily driven by lower revenue in addition to $1.2 million higher marketing expense as interest rates rose in the quarter.  Marketing expense as percent of revenue increased to 37% in the fourth quarter, compared to 34% in the third quarter 2010.
  • Adjusted EBITDA was virtually flat versus the fourth quarter 2009, despite higher revenue year-over-year.  The largest contributing factor to the bottom-line decrease is marketing expense, which was 13% higher than the fourth quarter 2009.      
  • Fourth quarter 2010 net loss of $12.5 million includes a $10.8 million charge related to impairment of goodwill and intangible assets.  This is comprised of $10.3 million in the Real Estate segment and $0.5 million in the Exchanges segment.  The impairment charges are the result of the Tree.com's reassessment of its likely future profitability in light of adverse real estate market conditions.

Average 30-Year Fixed Mortgage Rate Recent Trends

(Photo:  http://photos.prnewswire.com/prnh/20110211/CL46523 )

Source: Freddie Mac: Primary Mortgage Market Survey

Freddie Mac's Primary Mortgage Market Survey consists of the average of 125 lenders' rates who contributed rates to Freddie Mac. The rates are based on 30-year fixed rate mortgage with 20% down and 80% finance over the life of the loan.

Business Unit Discussion

LENDINGTREE LOANS SEGMENT











LendingTree Loans Segment Results

$s in millions
















Q/Q




Y/Y


Q4 2010


Q3 2010


% Change


Q4 2009


% Change

Revenue










Origination and Sale of Loans

$                   34.1


$                   31.9


7%


$                   20.6


66%

Other

$                     2.9


$                     2.9


0%


$                     2.3


26%

Total Revenue

$                   37.0


$                   34.8


7%


$                   22.9


61%











Cost of Revenue *

$                   13.3


$                   11.0


20%


$                   10.6


26%











Operating Expenses*

$                   15.4


$                   11.3


38%


$                     7.5


105%











Adjusted EBITDA **

$                     8.3


$                   12.5


(34%)


$                     4.8


72%

EBITDA **

$                     8.2


$                   10.9


(25%)


$                     4.5


82%











Operating Income

$                     7.8


$                   10.5


(26%)


$                     3.8


105%











Metrics










Purchased loan requests (000s)

74.6


69.0


8%


61.5


21%

Closed - units (000s)

3.7


3.3


11%


2.7


36%

Closed - units (dollars)

$                 850.4


$                 721.9


18%


$                 622.6


37%











NM = Not Meaningful










* Does not include non-cash compensation, depreciation, gain/loss on disposal of assets, restructuring, amortization, impairment, or litigation settlements and contingencies.  

** See separate reconciliation of Adjusted EBITDA and EBITDA to Operating Income/(Loss) by Segment.

































LendingTree Loans

Fourth quarter 2010 revenue increased 7% quarter-over-quarter driven by 11% more closed loans.  During the quarter, the average revenue generated per closed unit decreased slightly by 3%.  Fourth quarter  revenue increased 61% from the same period last year on 36% more closed loans and a 6% increase in the revenue generated per loan.

During the fourth quarter 2010, the number of licensed loan officers employed by LTL grew 28% over the third quarter 2010 and was 39% higher than the end of the fourth quarter 2009.  With the integration of the previously-announced acquisition of assets of Surepoint Lending, we anticipate adding approximately 300 more loan officers.  This is still on track to close in the first quarter of 2011.  

Operating expenses were $4.2 million, or 38%, higher quarter-over-quarter and $7.9 million, or 105%, higher year-over-year.  The quarter-over-quarter increase was primarily due to $3.1 million higher marketing costs.  As interest rates rose, greater marketing expense was required to maintain lead volume in the rising rate environment.  In addition, the LendingTree Loans segment received a higher percentage of the total volume generated by the LendingTree brand and therefore a higher share of the total marketing expense.  The year-over-year increase in operating expense is driven in part by higher marketing cost in addition to higher personnel-related expenses resulting from employee growth as the business expanded.  

EXCHANGES SEGMENT  











Exchanges Segment Results

$s in millions
















Q/Q




Y/Y


Q4 2010


Q3 2010


% Change


Q4 2009


% Change

Revenue










Match Fees

$                     9.8


$                   12.9


(24%)


$                   12.3


(20%)

Closed Loan Fees

$                     1.5


$                     1.7


(9%)


$                     5.3


(71%)

Inter-segment Revenue

$                     0.0


$                     0.1


(84%)


$                     0.0


      NM

Other

$                     0.6


$                     0.6


(17%)


$                     0.4


38%

Total Revenue

$                   11.9


$                   15.3


(22%)


$                   18.0


(34%)











Cost of Revenue *

$                     1.3


$                     1.3


(1%)


$                     1.5


(15%)











Operating Expenses*

$                   13.7


$                   15.2


(10%)


$                   14.7


(7%)











Adjusted EBITDA **

$                   (3.1)


$                   (1.2)


(155%)


$                     1.8


      NM

EBITDA **

$                   (3.7)


$                   (0.5)


(692%)


$                   (0.5)


(612%)











Operating Income(Loss)

$                   (4.7)


$                   (1.3)


(253%)


$                   (1.2)


(273%)











Metrics










Matched requests (000s)

235.4


313.6


(25%)


279.3


(16%)

Closing - units (000s)

9.0


9.2


(3%)


11.6


(23%)

Closing - units (dollars)

1,580.5


1,507.7


5%


2,291.5


(31%)











NM = Not Meaningful










* Does not include non-cash compensation, depreciation, gain/loss on disposal of assets, restructuring, amortization, impairment, or litigation settlements and contingencies.  

** See separate reconciliation of Adjusted EBITDA and EBITDA to Operating Income/(Loss) by Segment.

































Exchanges

Exchanges revenue in the fourth quarter 2010 decreased 22% quarter-over-quarter and 34% year-over-year.  The quarter-over-quarter decrease was driven primarily by lower match fee revenue resulting from 25% fewer matched consumer requests, fueled by an expected seasonal downturn at year-end and by higher interest rates.  As a result of the increase in interest rates, lender demand is on the rise, as evidenced by a 14% increase in the number of lenders matching to our refinance consumers and increasing match fees during the quarter.  The year-over-year decline in closed loan revenue is due primarily to pricing actions taken in late 2009 which increased the emphasis on match revenue by increasing match fees and decreasing the average close fees paid by lenders.  The year-over-year decline in closed loan fees is also partially due to 23% fewer closed loan transactions.  For the fourth consecutive quarter, non-mortgage consumer services such as Education, Insurance, Auto and Home Services accounted for more than 50% of our total matched consumer requests.  

Operating expenses decreased $1.5 million quarter-over-quarter and decreased $1.0 million year-over-year.  The quarter-over-quarter decrease is primarily driven by lower marketing expenses.  After increasing spend in the third quarter, the non-mortgage verticals returned to more normalized levels in the fourth quarter.  The decrease in marketing for the Exchanges is also the result of more leads being delivered to LendingTree Loans and therefore a greater share of the marketing cost being allocated to LendingTree Loans.  

REAL ESTATE SEGMENT











Real Estate Segment Results

$s in millions
















Q/Q




Y/Y


Q4 2010


Q3 2010


% Change


Q4 2009


% Change

Total Revenue

$                     2.3


$                     3.2


(30%)


$                     6.9


(67%)











Cost of Revenue *

$                     1.7


$                     2.0


(17%)


$                     4.3


(60%)











Operating Expenses*

$                     1.6


$                     1.7


(7%)


$                     2.5


(37%)











Adjusted EBITDA **

$                   (1.0)


$                   (0.5)


(91%)


$                     0.1


       NM











EBITDA **

$                 (11.6)


$                   (0.7)


(1643%)


$                   (2.5)


(355%)











Operating Income(Loss)

$                 (11.9)


$                   (1.2)


(906%)


$                   (3.6)


(234%)











Metrics










Closing - units (000s)

0.6


0.7


(21%)


1.3


(59%)

Closing - units (dollars)

$                   94.4


$                 137.7


(31%)


$                 278.3


(66%)

Agents - RealEstate.com,










REALTORS®

641


787


(19%)


1,145


(44%)

Markets - RealEstate.com,










REALTORS®

20


20


NM


20


       NM











NM = Not Meaningful










* Does not include non-cash compensation, depreciation, gain/loss on disposal of assets, restructuring, amortization, impairment, or litigation settlements and contingencies.  

** See separate reconciliation of Adjusted EBITDA and EBITDA to Operating Income/(Loss) by Segment.

































Real Estate

Fourth quarter 2010 Real Estate revenue declined $0.9 million, or 30%, quarter-over-quarter on 21% fewer closed real estate transactions.  Real Estate revenue was down $4.6 million, or 67%, year-over-year on 59% fewer closed transactions. The decline in revenue was also the result of lower average home prices, which were down 13% quarter-over-quarter and 18% year-over-year.    

Adjusted EBITDA declined $0.5 million quarter-over-quarter and was down $1.1 million year-over-year.  Operating expenses were virtually flat quarter-over-quarter and $0.9 million lower year-over-year.  The reductions in operating expenses year-over-year reflect prior year cost cutting initiatives.

Fourth quarter 2010 operating loss in the Real Estate segment includes a $10.3 million charge related to impairment of goodwill and intangible assets.  This is a non-cash charge that reflects Tree.com's reassessment of the likely future profitability of the Real Estate segment in the face of current real estate market conditions and the operational strategies undertaken in connection with such market realities.

CORPORATE











Unallocated Corporate Costs and Eliminations

$s in millions
















Q/Q




Y/Y


Q4 2010


Q3 2010


% Change


Q4 2009


% Change

Inter-segment Revenue - elimination

$                   (0.0)


$                   (0.1)


(84%)


$                     0.0


NM











Cost of Revenue *

$                     0.0


$                     0.0


(31%)


$                     0.1


(80%)











Operating Expenses*

$                     4.0


$                     5.2


(23%)


$                     6.2


37%











Adjusted EBITDA **

$                   (4.0)


$                   (5.3)


24%


$                   (6.3)


37%











EBITDA **

$                   (5.1)


$                   (5.8)


12%


$                 (19.9)


74%











Operating Income(Loss)

$                   (5.4)


$                   (6.1)


12%


$                 (20.3)


73%











NM = Not Meaningful










* Does not include non-cash compensation, depreciation, gain/loss on disposal of assets, restructuring, amortization, impairment, or litigation settlements and contingencies.  

** See separate reconciliation of Adjusted EBITDA and EBITDA to Operating Income/(Loss) by Segment.



Corporate

Operating expenses in the corporate segment decreased $1.2 million quarter-over-quarter and $2.3 million year-over-year.  The quarter-over-quarter decrease was largely due to overall lower compensation-related expense.  The year-over-year decrease in operating expenses was primarily driven by lower employee costs reflecting prior cost-cutting initiatives.    

Liquidity and Capital Resources

As of December 31, 2010, Tree.com had $68.8 million in unrestricted cash and cash equivalents, compared to $57.3 million as of September 30, 2010.  The increase in cash in the fourth quarter is due to the timing of selling loans.  At September 30, 2010, we were holding loans on the balance sheet for more days on average before sale due to investor capacity issues causing them to take longer to purchase loans.  

During the fourth quarter, under the previously announced $10 million share repurchase program which began in February 2010, Tree.com repurchased 140,897 shares at an average price of $7.21 in open market transactions.  Through December 31, 2010, Tree.com has repurchased a total of 810,922 shares at an average price of $7.03 and has approximately $4.3 million of share repurchase authorization remaining.

In addition, during the fourth quarter Tree.com temporarily suspended its share repurchase program in lieu of a "Dutch Auction" tender offer.  The completion of the tender offer was announced on December 23, 2010.  During the offer period, which expired on December 17, 2010, Tree.com accepted for purchase 312,339 shares of its common stock at a price of $7.75 per share, for an aggregate purchase price of approximately $2.4 million, excluding fees and expenses related to the tender offer.

As of December 31, 2010, LendingTree Loans had two committed lines of credit totaling $150 million of borrowing capacity, plus an additional $25 million of uncommitted capacity.  The $50 million committed line of credit, which also includes the additional $25 million uncommitted line, is scheduled to expire June 29, 2011.  The second line of credit in the amount of $100 million is scheduled to expire October 28, 2011.  

Borrowings under these lines of credit are used to fund, and are secured by, consumer residential loans that are held for sale. Loans under these lines of credit are repaid from proceeds from the sales of loans held for sale by LendingTree Loans. We expect to renew the lines that are expiring on June 29, 2011, and October 28, 2011.  The loans held for sale and warehouse lines of credit balances as of December 31, 2010, were $116.7 million and $100.6 million, respectively.  

Conference Call

Tree.com will audio cast its conference call with investors and analysts discussing Tree.com's fourth quarter financial results and certain other matters described herein on Friday, February 11, 2011 at 11:00 a.m. Eastern Time (ET).  This call will include the disclosure of certain information, including forward-looking information, which may be material to an investor's understanding of Tree.com's business.  The live audio cast is open to the public at http://investor-relations.tree.com/.

QUARTERLY FINANCIALS

TREE.COM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS



Three Months Ended December 31,

Year Ended December 31,


2010

2009

2010

2009


(unaudited)

(audited)


(In thousands, except per share amounts)

Revenue





LendingTree Loans

$37,033

$22,932

$124,180

$117,670

Exchanges and other

11,905

17,998

59,918

70,660

Real Estate       

2,258

6,896

14,083

28,445

Total revenue     

51,196

47,826

198,181

216,775

Cost of revenue





LendingTree Loans 

13,304

10,211

44,056

48,998

Exchanges and other

1,326

2,012

4,980

7,716

Real Estate       

1,716

4,334

9,028

18,046

Total cost of revenue (exclusive of depreciation shown separately below)

16,346

16,557

58,064

74,760

Gross margin         

34,850

31,269

140,117

142,015

Operating expenses





Selling and marketing expense   

19,039

16,808

74,074

61,957

General and administrative expense

15,419

13,971

54,682

64,901

Product development       

1,191

1,120

4,155

5,962

Litigation settlements and contingencies

520

12,803

2,108

13,208

Restructuring expense         

106

2,848

3,469

2,690

Amortization of intangibles        

311

1,211

2,716

4,847

Depreciation               

1,621

1,617

6,160

6,666

Asset impairments           

10,809

2,194

10,809

6,097

Total operating expenses   

49,016

52,572

158,173

166,328

Operating loss         

(14,166)

(21,303)

(18,056)

(24,313)

Other income (expense)





Interest income           

1

4

8

88

Interest expense           

(80)

(166)

(473)

(617)

Total other income (expense), net 

(79)

(162)

(465)

(529)

Loss before income taxes     

(14,245)

(21,465)

(18,521)

(24,842)

Income tax benefit         

1,786

489

936

368

Net loss           

$(12,459)

$(20,976)

$(17,585)

$(24,474)

Weighted average common shares outstanding

11,076

10,900

11,014

10,536

Net loss per share available to common shareholders





Basic  

$(1.12)

$(1.92)

$(1.60)

$(2.32)

Diluted     

$(1.12)

$(1.92)

$(1.60)

$(2.32)




TREE.COM, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



December 31, 2010

December 31, 2009


(In thousands, except par value
and share amounts)

ASSETS:



Cash and cash equivalents             

$68,819

$86,093

Restricted cash and cash equivalents    

10,699

12,019

Accounts receivable, net of allowance of $213 and $518, respectively

4,305

6,835

Loans held for sale ($115,908 and $92,236 measured at fair value, respectively)

116,681

93,596

Prepaid and other current assets           

11,778

10,758

Total current assets           

212,282

209,301

Property and equipment, net        

12,795

12,257

Goodwill                 

11,599

12,152

Intangible assets, net       

45,419

57,626

Other non-current assets     

707

496

Total assets             

$282,802

$291,832

LIABILITIES:



Warehouse lines of credit     

$100,623

$78,481

Accounts payable, trade     

7,387

5,905

Deferred revenue           

1,540

1,731

Deferred income taxes       

2,358

2,211

Accrued expenses and other current liabilities

39,425

54,694

Total current liabilities   

151,333

143,022

Income taxes payable    

96

510

Other long-term liabilities     

15,590

12,010

Deferred income taxes     

13,962

15,380

Total liabilities           

180,981

170,922




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 11,893,468 and 10,904,330 shares, respectively, and outstanding 10,770,207 and 10,904,330 shares, respectively

118

109

Additional paid-in capital    

908,837

901,818

Accumulated deficit     

(798,602)

(781,017)

Treasury stock 1,123,261 and -0- shares, respectively

(8,532)

—

Total shareholders' equity

101,821

120,910

Total liabilities and shareholders' equity   

$282,802

$291,832




TREE.COM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS



Year Ended December 31,


2010

2009


(In thousands)

Cash flows from operating activities:



Net loss                                                       

$(17,585)

$(24,474)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:



Loss on disposal of fixed assets             

356

1,123

Amortization of intangibles                 

2,716

4,847

Depreciation                          

6,160

6,666

Intangible impairment                   

9,491

6,097

Goodwill impairment                  

1,318

—

Non-cash compensation expense      

3,640

3,892

Non-cash restructuring expense      

307

1,191

Deferred income taxes             

(1,270)

(382)

Gain on origination and sale of loans   

(113,425)

(110,320)

Loss on impaired loans not sold     

128

647

Loss on real estate acquired in satisfaction of loans

406

51

Bad debt expense                   

10

422

Non-cash interest expense             

—

—

Changes in current assets and liabilities:



Accounts receivable                 

2,520

(23)

Origination of loans                 

(2,792,041)

(2,855,246)

Proceeds from sales of loans         

2,892,070

2,969,658

Principal payments received on loans    

2,356

1,422

Payments to investors for loan repurchases and early payoff obligations

(12,154)

(8,742)

Prepaid and other current assets             

(79)

(680)

Accounts payable and other current liabilities 

(15,635)

15,206

Income taxes payable               

(278)

(402)

Deferred revenue                 

(350)

151

Restricted cash                  

820

722

Other, net                     

7,181

1,391

Net cash (used in) provided by operating activities

(23,338)

13,217

Cash flows from investing activities:



Contingent acquisition consideration 

—

—

Acquisitions                     

(250)

(5,726)

Capital expenditures                

(7,226)

(3,865)

Other, net                             

451

4,040

Net cash used in investing activities       

(7,025)

(5,551)

Cash flows from financing activities:



Borrowing under warehouse lines of credit 

1,864,905

2,475,106

Repayments of warehouse lines of credit       

(1,842,764)

(2,472,811)

Principal payments on long-term obligations      

—

—

Spin-off capital contributions from IAC           

—

—

Issuance of common stock, net of withholding taxes   

(570)

3,364

Excess tax benefits from stockbased awards   

—

—

Purchase of treasury stock                   

(8,532)

—

(Increase) decrease in restricted cash           

50

(875)

Net cash provided by financing activities         

13,089

4,784

Net (decrease) increase in cash and cash equivalents             

(17,274)

12,450

Cash and cash equivalents at beginning of period    

86,093

73,643

Cash and cash equivalents at end of period  

$68,819

$86,093




TREE.COM RECONCILIATION OF SEGMENT RESULTS TO GAAP ($ in thousands):



For the Three Months Ended December 31, 2010:


LendingTree
Loans

Exchanges

Real Estate

Unallocated—
Corporate

Total

Revenue               

$37,033

$11,921

$2,258

$(16)

$51,196

Cost of revenue (exclusive of depreciation shown separately below)

13,304

1,301

1,716

25

16,346

Gross Margin

23,729

10,620

542

(41)

34,850

Operating Expenses:






Selling and marketing expense

7,551

11,160

328

—

19,039

General and administrative expense

7,807

1,634

1,415

4,563

15,419

Product development             

197

933

61

—

1,191

Litigation settlements and contingencies

—

—

1

519

520

Restructuring expense          

—

41

44

21

106

Amortization of intangibles   

—

298

1

12

311

Depreciation             

391

667

309

254

1,621

Asset impairments       

—

539

10,270

—

10,809

Total operating expenses   

15,946

15,272

12,429

5,369

49,016

Operating income (loss)     

7,783

(4,652)

(11,887)

(5,410)

(14,166)

Adjustments to reconcile to EBITDA and Adjusted EBITDA:






Amortization of intangibles   


298

1

12

311

Depreciation               

391

667

309

254

1,621

EBITDA                     

8,174

(3,687)

(11,577)

(5,144)

(12,234)

Restructuring expense        

—

41

44

21

106

Asset impairments              

—

539

10,270

—

10,809

Loss on disposal of assets         

56

1

209

81

347

Non-cash compensation           

79

130

40

551

800

Litigation settlements and contingencies

—

—

1

519

520

Post acquisition adjustments   

—

(79)

—

—

(79)

Adjusted EBITDA         

$8,309

$(3,055)

$(1,013)

$(3,972)

$269

Reconciliation to net loss in total:






Operating loss per above              

$(14,166)

Other expense, net            

(79)

Loss before income taxes     

(14,245)

Income tax benefit        

1,786

Net loss             

$(12,459)





TREE.COM RECONCILIATION OF SEGMENT RESULTS TO GAAP ($ in thousands):



For the Three Months Ended September 30, 2010:


LendingTree
Loans

Exchanges

Real
Estate

Unallocated—
Corporate

Total

Revenue                         

$34,760

$15,307

$3,213

$(103)

$53,177

Cost of revenue (exclusive of depreciation shown separately below)

11,049

1,312

2,074

34

14,469

Gross margin           

23,711

13,995

1,139

(137)

38,708

Operating expenses:






Selling and marketing expense

4,432

12,944

454

—

17,830

General and administrative expense

6,714

669

951

5,701

14,035

Product development     

135

804

74

—

1,013

Litigation settlements and contingencies

1,510

—

36

—

1,546

Restructuring expense        

(14)

44

288

3

321

Amortization of intangibles      

—

294

212

13

519

Depreciation                

395

559

306

263

1,523

Total operating expenses     

13,172

15,314

2,321

5,980

36,787

Operating income (loss)   

10,539

(1,319)

(1,182)

(6,117)

1,921

Adjustments to reconcile to EBITDA and Adjusted EBITDA:






Amortization of intangibles

—

294

212

13

519

Depreciation        

395

559

306

263

1,523

EBITDA            

10,934

(466)

(664)

(5,841)

3,963

Restructuring expense  

(14)

44

288

3

321

Non-cash compensation   

94

73

28

583

778

Litigation settlements and contingencies

1,510

—

36

—

1,546

Post acquisition adjustments 

—

(849)

(221)

—

(1,070)

Adjusted EBITDA       

$12,524

$(1,198)

$(533)

$(5,255)

$5,538







Reconciliation to net income in total:






Operating income per above       





$1,921

Other expense, net           





(60)

Income before income taxes    





1,861

Income tax provision         





(42)

Net income                   





$1,819




TREE.COM RECONCILIATION OF SEGMENT RESULTS TO GAAP ($ in thousands):



For the Three Months Ended December 31, 2009:


LendingTree
Loans

Exchanges

Real Estate

Unallocated—
Corporate

Total

Revenue                         

$22,932

$17,998

$6,896

$—

$47,826

Cost of revenue (exclusive of depreciation shown separately below)

10,561

1,530

4,334

132

16,557

Gross Margin        

12,371

16,468

2,562

(132)

31,269

Operating Expenses:






Selling and marketing expense 

3,350

12,665

793

—

16,808

General and administrative expense

4,216

1,657

1,645

6,453

13,971

Product development       

106

592

102

320

1,120

Litigation settlements and contingencies

53

—

—

12,750

12,803

Restructuring expense     

157

1,552

892

247

2,848

Amortization of intangibles 

70

429

699

13

1,211

Depreciation         

625

300

311

381

1,617

Asset impairments     

—

519

1,675

—

2,194

Total operating expenses

8,577

17,714

6,117

20,164

52,572

Operating income (loss)

3,794

(1,246)

(3,555)

(20,296)

(21,303)

Adjustments to reconcile to EBITDA and Adjusted EBITDA:






Amortization of intangibles  

70

429

699

13

1,211

Depreciation          

625

300

311

381

1,617

EBITDA               

4,489

(517)

(2,545)

(19,902)

(18,475)

Restructuring expense   

157

1,552

892

247

2,848

Asset impairments     

—

519

1,675

—

2,194

Loss on disposal of assets 

90

—

16

68

174

Non-cash compensation   

46

202

71

513

832

Litigation settlements and contingencies

53

—

—

12,750

12,803

Adjusted EBITDA           

$4,835

$1,756

$109

$(6,324)

$376

Reconciliation to net loss in total:






Operating loss per above   

$(21,303)

Other expense, net     

(162)

Loss before income taxes   

(21,465)

Income tax benefit     

489

Net loss           

$(20,976)




TREE.COM RECONCILIATION OF SEGMENT RESULTS TO GAAP ($ in thousands):



For the Year Ended December 31, 2010:


LendingTree
Loans

Exchanges

Real Estate

Unallocated—
Corporate

Total

Revenue                 

$124,180

$60,118

$14,083

(200)

$198,181

Cost of revenue (exclusive of depreciation shown separately below)

44,056

4,481

9,028

499

58,064

Gross Margin        

80,124

55,637

5,055

(699)

140,117

Operating Expenses:






Selling and marketing expense 

22,148

50,045

1,865

16

74,074

General and administrative expense

24,253

5,367

5,464

19,598

54,682

Product development         

331

3,293

337

194

4,155

Litigation settlements and contingencies

1,551

—

37

520

2,108

Restructuring expense       

(7)

167

696

2,613

3,469

Amortization of intangibles     

—

1,182

1,484

50

2,716

Depreciation               

1,701

2,040

1,242

1,177

6,160

Asset impairments           

—

539

10,270

—

10,809

Total operating expenses     

49,977

62,633

21,395

24,168

158,173

Operating income (loss)       

30,147

(6,996)

(16,340)

(24,867)

(18,056)

Adjustments to reconcile to EBITDA and Adjusted EBITDA:






Amortization of intangibles   

—

1,182

1,484

50

2,716

Depreciation             

1,701

2,040

1,242

1,177

6,160

EBITDA                   

31,848

(3,774)

(13,614)

(23,640)

(9,180)

Restructuring expense     

(7)

167

696

2,613

3,469

Asset impairments       

—

539

10,270

—

10,809

Loss on disposal of assets   

56

1

215

84

356

Non-cash compensation   

378

833

158

2,271

3,640

Litigation settlements and contingencies

1,551

—

37

520

2,108

Post acquisition adjustments   

—

(928)

(221)

—

(1,149)

Adjusted EBITDA           

$33,826

$(3,162)

$(2,459)

$(18,152)

$10,053

Reconciliation to net loss in total:






Operating loss per above         

$(18,056)

Other expense, net            

(465)

Loss before income taxes     

(18,521)

Income tax benefit       

936

Net loss                

$(17,585)






TREE.COM RECONCILIATION OF SEGMENT RESULTS TO GAAP ($ in thousands):



For the Year Ended December 31, 2009:


LendingTree
Loans

Exchanges

Real Estate

Unallocated—
Corporate

Total

Revenue                     

$117,670

$70,660

$28,445

$—

$216,775

Cost of revenue (exclusive of depreciation shown separately below)

48,998

5,957

18,046

1,759

74,760

Gross Margin           

68,672

64,703

10,399

(1,759)

142,015

Operating Expenses:






Selling and marketing expense

10,227

47,010

4,712

8

61,957

General and administrative expense 

20,374

9,041

8,742

26,744

64,901

Product development         

518

2,793

1,346

1,305

5,962

Litigation settlements and contingencies

419

6

33

12,750

13,208

Restructuring expense         

(1,089)

1,660

1,684

435

2,690

Amortization of intangibles     

280

922

3,625

20

4,847

Depreciation              

2,912

943

1,160

1,651

6,666

Asset impairments        

—

519

5,578

—

6,097

Total operating expenses   

33,641

62,894

26,880

42,913

166,328

Operating income (loss)     

35,031

1,809

(16,481)

(44,672)

(24,313)

Adjustments to reconcile to EBITDA and Adjusted EBITDA:






Amortization of intangibles       

280

922

3,625

20

4,847

Depreciation             

2,912

943

1,160

1,651

6,666

EBITDA                  

38,223

3,674

(11,696)

(43,001)

(12,800)

Restructuring expense

(1,089)

1,660

1,684

435

2,690

Asset impairments       

—

519

5,578

—

6,097

Loss on disposal of assets 

90

949

16

68

1,123

Non-cash compensation

245

669

281

2,697

3,892

Litigation settlements and contingencies

419

6

33

12,750

13,208

Adjusted EBITDA

$37,888

$7,477

$(4,104)

$(27,051)

$14,210

Reconciliation to net loss in total:






Operating loss per above

$(24,313)

Other expense, net

(529)

Loss before income taxes

(24,842)

Income tax benefit

368

Net loss

$(24,474)





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®, RealEstate.com®, DegreeTree.com(SM), HealthTree.com(SM), LendingTreeAutos.com, DoneRight.com®, and InsuranceTree.com(SM).  Together, these brands serve as an ally for consumers who are looking to comparison shop for loans, real estate 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.

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"), as supplemental measures to GAAP. These measures are two of the primary metrics by which Tree.com evaluates the performance of its businesses, on which its internal budgets are based and by which management is 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 which are discussed below.

Definition of Tree.com's Non-GAAP Measures

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 loss contingencies and settlements, (6) pro forma adjustments for significant acquisitions, 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 measure with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the non-GAAP measure.

Pro Forma Results

Tree.com will only present EBITDA and Adjusted EBITDA on a pro forma basis if it views a particular transaction as significant in size or transformational in nature. For the periods presented in this report, there are no transactions that Tree.com has included on a pro forma basis.

One-Time Items

EBITDA and Adjusted EBITDA are presented before one-time items, if applicable. These items are truly one-time in nature and 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 one-time items.

Non-Cash Expenses That Are Excluded From Tree.com's Non-GAAP Measures

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 future 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.

Other

REALTORS®—a registered collective membership mark that identifies a real estate professional who is a member of the National Association of REALTORS® and subscribes to its strict Code of Ethics.

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 the Company 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: our ability to operate effectively as a separate public entity following our spin-off from IAC in August 2008; additional costs associated with operating as an independent company; volatility in our stock price and trading volume; our ability to obtain financing on acceptable terms; limitations on our ability to enter into transactions due to spin-related restrictions; adverse conditions in the primary and secondary mortgage markets and in the economy; adverse conditions in our industries; adverse conditions in the credit markets and the inability to renew or replace warehouse lines of credit; seasonality in our businesses; potential liabilities to secondary market purchasers; changes in our relationships with network lenders, real estate professionals, credit providers and secondary market purchasers; breaches of our network security or the misappropriation or misuse of personal consumer information; our failure to provide competitive service; our failure to maintain brand recognition; our ability to attract and retain customers in a cost-effective manner; our ability to develop new products and services and enhance existing ones; competition from our network lenders and affiliated real estate professionals; our failure to comply with existing or changing laws, rules or regulations, or to obtain and maintain required licenses; failure of our network lenders or other affiliated parties to comply with regulatory requirements; failure to maintain the integrity of our systems and infrastructure; liabilities as a result of privacy regulations; failure to adequately protect our intellectual property rights or allegations of infringement of intellectual property rights; changes in our management; deficiencies in our disclosure controls and procedures and internal control over financial reporting; and our ability to successfully implement our strategic initiatives in the Real Estate and LendingTree Loans businesses.  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, 2009, our Quarterly Reports on Form 10-Q for the periods ended March 31, 2010, June 30, 2010, and September 30, 2010 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.

Contacts:

Investor Relations

877-640-4856

tree.com-investor.relations@tree.com



SOURCE Tree.com, Inc.

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