UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported):  February 24, 2012

 

Tree.com, Inc.

(Exact name of registrant as specified in charter)

 

Delaware

 

001-34063

 

26-2414818

(State or other jurisdiction

 

(Commission

 

(IRS Employer

of incorporation)

 

File Number)

 

Identification No.)

 

11115 Rushmore Drive, Charlotte, NC

 

28277

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code:  (704) 541-5351

 

Not Applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 



 

Item 2.02.      Results of Operations and Financial Condition.

 

On February 24, 2012, Tree.com, Inc. (the “Registrant”) announced financial results for the fourth quarter ended December 31, 2011.  A copy of the related press release is furnished as Exhibit 99.1.

 

Item 9.01.  Financial Statements and Exhibits.

 

Exhibit No.

 

Exhibit Description

99.1

 

Press Release, dated February 24, 2012, with respect to Registrant’s financial results for the fourth quarter ended December 31, 2012.

 

2



 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date:  February 24, 2012

 

 

TREE.COM, INC.

 

 

 

 

 

 

By:

/s/ Christopher R. Hayek

 

 

Christopher R. Hayek

 

 

Senior Vice President and Chief Accounting Officer

 

3



 

EXHIBIT INDEX

 

Exhibit
Number

 

Description

 

 

 

99.1

 

Press Release, dated February 24, 2012, with respect to Registrant’s financial results for the fourth quarter ended December 31, 2011.

 

4


Exhibit 99.1

 

 

TREE.COM REPORTS FOURTH QUARTER 2011 FINANCIAL RESULTS

 

CHARLOTTE, N.C., February 24, 2012 — 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.

 

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



 


(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 equalled 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

 

(5)  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.

 

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.

 

2



 

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.

 

3



 

·                  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

 

4



 

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

)

 

5



 

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

 

 

6



 

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

 

 

7



 

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

)

 

8



 

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

 

9



 

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

 

10



 

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.comSM, 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.

 

Contacts:

Investor Relations

877-640-4856

tree.com-investor.relations@tree.com

 

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