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):  July 30, 2009

 

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 July 30, 2009, Tree.com, Inc. announced financial results for the second quarter ended June 30, 2009.  A copy of the related press release is furnished as Exhibit 99.

 

Item 9.01.              Financial Statements and Exhibits.

 

(d)  Exhibits.

 

Exhibit Number

 

Description

 

 

 

99

 

Press Release, dated July 30, 2009, with respect to the Company’s financial results for the second quarter ended June 30, 2009

 

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:  July 30, 2009

 

 

TREE.COM, INC.

 

 

 

By:

/S/ MATTHEW PACKEY

 

 

Matthew Packey

 

 

Senior Vice President and

 

 

Chief Financial Officer

 

3



 

EXHIBIT INDEX

 

Exhibit

 

Description

 

 

 

99

 

Press Release, dated July 30, 2009, with respect to the Company’s financial results for the second quarter ended June 30, 2009

 

4


Exhibit 99

 

GRAPHIC

 

TREE.COM REPORTS Q209 RESULTS

 

CHARLOTTE, N.C.,  July 30, 2009 – Tree.com, Inc. (NASDAQ: TREE) today announced financial results for its second quarter ended June 30, 2009 with $0.07 earnings per share on net income of $700,000.  Q209 Revenue was $61.0 million, which was a $3.7 million increase quarter-over-quarter.  Excluding certain items, Q209 Adjusted EBITDA was $8.2 million, which was a $0.6 million decrease quarter-over-quarter and an $11.8 million increase year-over-year.

 

Doug Lebda, Chairman and CEO of Tree.com, said, “Overall, we are pleased with our Q2 results, but toward the end of the quarter interest rates began to climb, as seen in the table below, and we have begun to see the fall-off in refinance volume that we have been predicting for some time now.  This situation reemphasizes our need to aggressively pursue our strategic initiatives to diversify our revenue streams outside of mortgage.  We expect it will take some time, but we are beginning to establish footholds in a couple of new verticals with our recently announced acquisitions of DoneRight and LeadRelevance.”

 

Tree.com Summary Financial Results

$s in millions (except per share amounts)

 

 

 

 

 

 

 

Q/Q

 

 

 

Y/Y

 

 

 

Q2 2009

 

Q1 2009

 

% Change

 

Q2 2008

 

% Change

 

Revenue

 

$

61.0

 

$

57.3

 

6

%

$

60.0

 

2

%

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA *

 

$

8.2

 

$

8.8

 

(6

)%

$

(3.6

)

NM

 

EBITDA *

 

$

4.3

 

$

6.1

 

(30

)%

$

(171.3

)

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income/(Loss)

 

$

0.7

 

$

3.2

 

(76

)%

$

(162.9

)

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income/(Loss) Per Share

 

$

0.07

 

$

0.33

 

(79

)%

$

(17.47

)

NM

 

Diluted Net Income/(Loss) Per Share

 

$

0.07

 

$

0.32

 

(79

)%

$

(17.47

)

NM

 

 


NM = Not Meaningful

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

 

Information Regarding Q2 Results

 

·                  Q209 Revenue increased 6% from Q109 and 2% from Q208.  The quarter-over-quarter improvement in revenue was seen across all of our segments.  LendingTree Loans continued high funding levels reflecting low mortgage rates throughout most of Q1 and Q2.  Real Estate showed strong quarter-over-quarter improvement, largely driven by a seasonal uptick in closings, and the Exchanges improved revenue through higher transfer fees earned from LendingTree Loans.

 

·                  Q209 Adjusted EBITDA decreased $0.6 million quarter-over-quarter, primarily due to our investment in new ad campaign production costs for our core LendingTree.com brand.  Adjusted EBITDA improved $11.8 million year-over-year, primarily from higher margins at LendingTree Loans and lower operating expenses across three of our four operating segments.

 

Tree.com CFO Matt Packey added, “We continue to be happy with the revenue growth and bottom line performance.   However, as we have mentioned in the prior two quarters, these results, particularly at LTL, were bolstered by a low interest rate environment.  Looking forward, we’ve seen some economic forecasts which generally indicate a slow rising interest rate environment, likely meaning lower conversion rates and more investments in marketing to drive the same level, or even fewer, consumers to us.  Coupling those factors with a normal seasonal downturn in Q4 and barring other

 

1



 

changes, we would expect both Q3 and Q4 results to shift downward.  As we’ve said previously, we will remain focused on keeping our Adjusted EBITDA in the black.”

 

Average 30-Year Fixed Mortgage Rate Recent Trends

 

 

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.

 

2



 

Business Unit Discussion

 

LENDINGTREE LOANS SEGMENT

 

LendingTree Loans Segment Results

$s in millions

 

 

 

 

 

 

 

Q/Q

 

 

 

Y/Y

 

 

 

Q2 2009

 

Q1 2009

 

% Change

 

Q2 2008

 

% Change

 

Revenue - Direct Lending

 

 

 

 

 

 

 

 

 

 

 

Origination and Sale of Loans

 

$

34.4

 

$

32.8

 

5

%

$

22.8

 

51

%

Other

 

$

1.9

 

$

1.6

 

19

%

$

2.5

 

(24

)%

Total Revenue - Direct Lending

 

$

36.3

 

$

34.4

 

5

%

$

25.3

 

44

%

 

 

 

 

 

 

 

 

 

 

 

 

Cost of Revenue *

 

$

14.0

 

$

11.9

 

18

%

$

11.4

 

23

%

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses*

 

$

10.1

 

$

7.5

 

35

%

$

11.4

 

(11

)%

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

12.2

 

$

15.0

 

(18

)%

$

2.5

 

381

%

EBITDA

 

$

13.2

 

$

15.0

 

(12

)%

$

1.2

 

969

%

 

 

 

 

 

 

 

 

 

 

 

 

Metrics - Direct Lending

 

 

 

 

 

 

 

 

 

 

 

Purchased loan requests (000s)

 

66.5

 

57.7

 

15

%

89.8

 

(26

)%

Closed - units (000s)

 

4.0

 

3.3

 

23

%

3.2

 

24

%

Closed - units (dollars)

 

$

898.0

 

$

714.8

 

26

%

$

637.6

 

41

%

 


* Does not include non-cash compensation, depreciation, gain/loss on disposal of assets, restructuring, amortization or impairment. See separate reconciliation of Adjusted EBITDA and EBITDA to Operating Income/Loss.

 

LendingTree Loans

 

LendingTree Loans revenue in Q209 increased 5% compared to Q109, and increased 44% compared to the same period in 2008.  Revenue from the origination and sale of loans increased 5% quarter-over-quarter and 51% year-over-year.  The Q209 revenue improvements were the result of  a better than 20%  increase in the number of loans closed quarter-over-quarter and year-over-year coupled with a slight increase in average funded loan balances.  These increases were partially offset by a higher provision for loan losses in the period, reflecting approximately a 20% increase in loan reserves primarily for 2006 and 2007 vintage loans.

 

Operating expenses increased $2.7 million quarter-over-quarter and decreased $1.3 million year-over-year.  The primary driver of both variances was changes in marketing spend.

 

3



 

EXCHANGES SEGMENT

 

Exchanges Segment Results

$s in millions

 

 

 

 

 

 

 

Q/Q

 

 

 

Y/Y

 

 

 

Q2 2009

 

Q1 2009

 

% Change

 

Q2 2008

 

% Change

 

Revenue - Exchanges

 

 

 

 

 

 

 

 

 

 

 

Match Fees

 

$

9.9

 

$

10.0

 

(1

)%

$

13.7

 

(28

)%

Closed Loan Fees

 

$

6.4

 

$

6.4

 

0

%

$

10.2

 

(37

)%

Inter-segment Revenue

 

$

3.7

 

$

1.9

 

91

%

$

5.4

 

(31

)%

Other

 

$

0.6

 

$

0.8

 

(30

)%

$

0.8

 

(24

)%

Total Revenue - Exchanges

 

$

20.6

 

$

19.1

 

8

%

$

30.1

 

(32

)%

 

 

 

 

 

 

 

 

 

 

 

 

Cost of Revenue *

 

$

2.0

 

$

1.9

 

7

%

$

3.0

 

(32

)%

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses*

 

$

15.3

 

$

14.7

 

5

%

$

26.0

 

(41

)%

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

3.3

 

$

2.5

 

29

%

$

1.1

 

206

%

EBITDA

 

$

2.7

 

$

1.7

 

54

%

$

(102.0

)

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

Metrics - Exchanges

 

 

 

 

 

 

 

 

 

 

 

Matched loan requests (000s)

 

333.2

 

366.3

 

(9

)%

471.8

 

(29

)%

Closing - units (000s)

 

13.1

 

14.3

 

(9

)%

24.9

 

(48

)%

Closing - units (dollars)

 

$

2,613.1

 

$

2,625.0

 

(0

)%

$

3,685.4

 

(29

)%

 


NM = Not Meaningful

* Does not include non-cash compensation, depreciation, gain/loss on disposal of assets, restructuring, amortization or impairment. See separate reconciliation of Adjusted EBITDA and EBITDA to Operating Income/Loss.

 

Exchanges

 

Exchanges revenue in Q209 increased 8% compared to Q109 and decreased 32% compared to the same period in 2008.  On a quarter-over-quarter basis, Exchanges revenue improved largely due to increases in transfer fees to LendingTree Loans with network revenue remaining essentially flat.  The decrease in revenue year-over-year continues to reflect the weaker lender demand in this low rate environment.

 

Despite lower closing units in the quarter, close revenue remained flat quarter-over-quarter due to a 9% increase in closed loan values.  The year-over-year decrease in closing revenue is the result of the continued trend of lower matched loan requests related to the lender capacity issues.

 

Operating expenses increased $0.6 million quarter-over-quarter and decreased $10.7 million year-over-year.  The increase quarter-over-quarter was largely due to our investments for production of our new advertising.  The year-over-year decrease was primarily driven by reductions in variable marketing spend versus Q208, made possible by higher consumer demand driven by favorable mortgage rate trends and some improvement in organic traffic.

 

4



 

REAL ESTATE SEGMENT

 

Real Estate Segment Results

$s in millions

 

 

 

 

 

 

 

Q/Q

 

 

 

Y/Y

 

 

 

Q2 2009

 

Q1 2009

 

% Change

 

Q2 2008

 

% Change

 

Total Revenue - Real Estate

 

$

7.8

 

$

5.8

 

35

%

$

10.2

 

(24

)%

 

 

 

 

 

 

 

 

 

 

 

 

Cost of Revenue *

 

$

4.8

 

$

3.9

 

24

%

$

5.9

 

(18

)%

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses*

 

$

3.7

 

$

4.8

 

(24

)%

$

5.9

 

(38

)%

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

(0.7

)

$

(2.9

)

77

%

$

(1.6

)

59

%

EBITDA

 

$

(4.6

)

$

(3.8

)

(22

)%

$

(63.5

)

93

%

 

 

 

 

 

 

 

 

 

 

 

 

Metrics - Real Estate

 

 

 

 

 

 

 

 

 

 

 

Closing - units (000s)

 

1.5

 

1.2

 

22

%

2.2

 

(30

)%

Closing - units (dollars)

 

$

332.4

 

$

281.4

 

18

%

$

541.1

 

(39

)%

Agents - RealEstate.com, REALTORS®

 

1,365

 

1,213

 

13

%

999

 

37

%

Markets - RealEstate.com, REALTORS®

 

20

 

20

 

0

%

14

 

43

%

 


* Does not include non-cash compensation, depreciation, gain/loss on disposal of assets, restructuring, amortization or impairment. See separate reconciliation of Adjusted EBITDA and EBITDA to Operating Income/Loss.

 

Real Estate

 

Q209 Real Estate revenue increased $2.0 million or 35% from Q109 and decreased $2.4 million or 24% from Q208.  The primary driver of the quarter-over-quarter increase was normal seasonality as Q2 is typically the peak home buying season.  The year-over-year decrease in total Real Estate revenue is attributed to declines in our referral networks, which experienced decreases in closings and transaction values year-over-year from persistent negative market conditions.

 

Operating expenses decreased $1.1 million quarter-over-quarter and decreased $2.2 million year-over-year.  The decreases in operating expense were primarily due to decreases in marketing expenses related to the continued progress in marketing efficiency driven by ongoing innovation on the RealEstate.com Web site, as well as general and administrative reductions reflecting our prior cost cutting initiatives.

 

5



 

CORPORATE

 

Unallocated Corporate Costs and Eliminations

$s in millions

 

 

 

 

 

 

 

Q/Q

 

 

 

Y/Y

 

 

 

Q2 2009

 

Q1 2009

 

% Change

 

Q2 2008

 

% Change

 

Inter-segment Revenue - elimination

 

$

(3.7

)

$

(1.9

)

91

%

$

(5.6

)

(34

)%

 

 

 

 

 

 

 

 

 

 

 

 

Cost of Revenue *

 

$

0.5

 

$

0.6

 

(12

)%

$

0.5

 

(9

)%

 

 

 

 

 

 

 

 

 

 

 

 

Inter-segment Marketing - elimination

 

$

(3.7

)

$

(1.9

)

91

%

$

(5.4

)

(31

)%

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses*

 

$

6.1

 

$

5.2

 

19

%

$

4.8

 

29

%

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

(6.6

)

$

(5.8

)

(14

)%

$

(5.5

)

(19

)%

EBITDA

 

$

(7.0

)

$

(6.9

)

(2

)%

$

(7.1

)

1

%

 


* Does not include non-cash compensation, depreciation, gain/loss on disposal of assets, restructuring, amortization or impairment. See separate reconciliation of Adjusted EBITDA and EBITDA to Operating Income/Loss.

 

Corporate

 

The eliminations both in revenue and in marketing were primarily associated with the inter-segment transfer pricing charged from Exchanges to LendingTree Loans for leads.  Operating expenses increased $0.9 million quarter-over-quarter and $1.3 million year-over-year.  The quarter-over-quarter and year-over-year increases in operating expense were primarily related to increases in professional fees for various corporate matters and public company costs.

 

Liquidity and Capital Resources

 

As of June 30, 2009, Tree.com had $83.7 million in unrestricted cash and cash equivalents, compared to $81.4 million as of March 31, 2009.  There were two key drivers of the increase in cash for the period.  The first is Adjusted EBITDA of $8.2 million generated for the quarter.  The second is related to $1.9 million of cash received from the sale of restricted common stock.  These increases were offset by a $3.6 million net cash outflow related to timing of the origination and sale of loans and warehouse line activity, $3.4 million of negative net working capital changes and $0.8 million of capital expenditures during the quarter.

 

The loans held for sale and warehouse lines of credit balances as of June 30, 2009 were $111.9 million and $93.1 million, respectively.

 

Conference Call

 

Tree.com will audiocast its conference call with investors and analysts discussing the Company’s second quarter financial results on Thursday, July 30, 2009 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 audiocast is open to the public at http://investor-relations.tree.com/.

 

6



 

QUARTERLY FINANCIALS

 

TREE.COM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

(In thousands, except per share amounts)

 

Revenue

 

 

 

 

 

 

 

 

 

LendingTree Loans

 

$

36,257

 

$

25,254

 

$

70,629

 

$

56,056

 

Exchanges and other

 

16,923

 

24,514

 

34,052

 

55,523

 

Real Estate

 

7,793

 

10,215

 

13,552

 

18,597

 

Total revenue

 

60,973

 

59,983

 

118,233

 

130,176

 

Cost of revenue

 

 

 

 

 

 

 

 

 

LendingTree Loans

 

14,003

 

11,413

 

25,859

 

23,213

 

Exchanges and other

 

2,531

 

3,601

 

4,998

 

8,072

 

Real Estate

 

4,792

 

5,907

 

8,656

 

10,777

 

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

 

21,326

 

20,921

 

39,513

 

42,062

 

Gross margin

 

39,647

 

39,062

 

78,720

 

88,114

 

Operating expenses

 

 

 

 

 

 

 

 

 

Selling and marketing expense

 

13,892

 

27,819

 

27,714

 

57,746

 

General and administrative expense

 

17,112

 

15,027

 

33,806

 

35,686

 

Product development

 

1,561

 

1,443

 

3,169

 

3,552

 

Restructuring expense

 

(1,078

)

1,761

 

(236

)

2,163

 

Amortization of intangibles

 

1,318

 

3,660

 

2,581

 

7,328

 

Depreciation

 

1,687

 

1,771

 

3,351

 

3,546

 

Asset impairments

 

3,903

 

164,335

 

3,903

 

164,335

 

Total operating expenses

 

38,395

 

215,816

 

74,288

 

274,356

 

Operating income (loss)

 

1,252

 

(176,754

)

4,432

 

(186,242

)

Other income (expense)

 

 

 

 

 

 

 

 

 

Interest income

 

27

 

2

 

75

 

11

 

Interest expense

 

(151

)

(219

)

(302

)

(328

)

Other

 

 

 

 

(2

)

Total other income (expense), net

 

(124

)

(217

)

(227

)

(319

)

Income (loss) before income taxes

 

1,128

 

(176,971

)

4,205

 

(186,561

)

Income tax (provision) benefit

 

(386

)

14,051

 

(303

)

13,842

 

Net income (loss)

 

$

742

 

$

(162,920

)

$

3,902

 

$

(172,719

)

Weighted average common shares outstanding

 

10,706

 

9,328

 

10,194

 

9,328

 

Weighted average diluted shares outstanding

 

11,034

 

9,328

 

10,354

 

9,328

 

Net income (loss) per share available to common shareholders

 

 

 

 

 

 

 

 

 

Basic

 

$

0.07

 

$

(17.47

)

$

0.38

 

$

(18.52

)

Diluted

 

$

0.07

 

$

(17.47

)

$

0.38

 

$

(18.52

)

 

7



 

TREE.COM, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

 

June 30, 2009

 

December 31,
2008

 

 

 

(unaudited)

 

 

 

 

 

(In thousands, except share amounts)

 

ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

83,705

 

$

73,643

 

Restricted cash and cash equivalents

 

15,499

 

15,204

 

Accounts receivable, net of allowance of $408 and $367, respectively

 

6,011

 

7,234

 

Loans held for sale ($110,054 and $85,638 measured at fair value, respectively)

 

111,917

 

87,835

 

Prepaid and other current assets

 

11,080

 

8,960

 

Total current assets

 

228,212

 

192,876

 

Property and equipment, net

 

13,968

 

17,057

 

Goodwill

 

9,285

 

9,285

 

Intangible assets, net

 

59,179

 

64,663

 

Other non-current assets

 

476

 

202

 

Total assets

 

$

311,120

 

$

284,083

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Warehouse lines of credit

 

$

93,122

 

$

76,186

 

Accounts payable, trade

 

4,787

 

3,541

 

Deferred revenue

 

1,561

 

1,231

 

Deferred income taxes

 

2,290

 

2,290

 

Accrued expenses and other current liabilities

 

35,042

 

37,146

 

Total current liabilities

 

136,802

 

120,394

 

Income taxes payable

 

882

 

862

 

Other long-term liabilities

 

9,923

 

9,016

 

Deferred income taxes

 

15,683

 

15,683

 

Total liabilities

 

163,290

 

145,955

 

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 and outstanding 10,806,584 and 9,369,381 shares, respectively

 

108

 

94

 

Additional paid-in capital

 

900,363

 

894,577

 

Accumulated deficit

 

(752,641

)

(756,543

)

Total shareholders’ equity

 

147,830

 

138,128

 

Total liabilities and shareholders’ equity

 

$

311,120

 

$

284,083

 

 

8



 

TREE.COM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2009

 

2008

 

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

Net income (loss)

 

$

3,902

 

$

(172,719

)

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

 

 

 

 

 

Loss on disposal of assets

 

949

 

 

Amortization of intangibles

 

2,581

 

7,328

 

Depreciation

 

3,351

 

3,546

 

Intangible impairment

 

3,903

 

33,378

 

Goodwill impairment

 

 

130,957

 

Non-cash compensation expense

 

1,993

 

2,219

 

Non-cash restructuring expense

 

161

 

370

 

Deferred income taxes

 

 

(13,869

)

Gain on origination and sale of loans

 

(67,206

)

(50,828

)

Loss on impaired loans not sold

 

290

 

47

 

Loss on sale of real estate acquired in satisfaction of loans

 

77

 

198

 

Bad debt expense

 

243

 

432

 

Non-cash interest expense

 

 

76

 

Changes in current assets and liabilities:

 

 

 

 

 

Accounts receivable

 

864

 

2,153

 

Origination of loans

 

(1,612,556

)

(1,246,436

)

Proceeds from sales of loans

 

1,658,128

 

1,295,909

 

Principal payments received on loans

 

627

 

222

 

Payments to investors for loan losses and early payoff obligations

 

(4,141

)

(2,907

)

Prepaid and other current assets

 

(623

)

2,129

 

Accounts payable and other current liabilities

 

(1,888

)

4,147

 

Income taxes payable

 

123

 

(508

)

Deferred revenue

 

236

 

(718

)

Other, net

 

1,003

 

(278

)

Net cash used in operating activities

 

(7,983

)

(5,152

)

Cash flows from investing activities:

 

 

 

 

 

Contingent acquisition consideration

 

 

(14,487

)

Acquisitions

 

(1,000

)

 

Capital expenditures

 

(1,404

)

(2,770

)

Other, net

 

581

 

(146

)

Net cash used in investing activities

 

(1,823

)

(17,403

)

Cash flows from financing activities:

 

 

 

 

 

Borrowing under warehouse lines of credit

 

1,402,823

 

1,142,343

 

Repayments of warehouse lines of credit

 

(1,385,887

)

(1,146,336

)

Principal payments on long-term obligations

 

 

(20,045

)

Transfers to IAC

 

 

27,266

 

Capital contributions from IAC

 

 

14,487

 

Issuance of common stock

 

3,807

 

 

Excess tax benefits from stock-based awards

 

 

153

 

(Increase) decrease in restricted cash

 

(875

)

12,048

 

Net cash provided by financing activities

 

19,868

 

29,916

 

Net increase in cash and cash equivalents

 

10,062

 

7,361

 

Cash and cash equivalents at beginning of period

 

73,643

 

45,940

 

Cash and cash equivalents at end of period

 

$

83,705

 

$

53,301

 

 

9



 

TREE.COM’S RECONCILIATION OF SEGMENT RESULTS TO GAAP ($s in thousands)

 

 

 

For the Three Months Ended June 30, 2009:

 

 

 

LendingTree

 

 

 

 

 

Unallocated—

 

 

 

 

 

Loans

 

Exchanges

 

Real Estate

 

Corporate

 

Total

 

Revenue

 

$

36,257

 

$

20,630

 

$

7,793

 

$

(3,707

)

$

60,973

 

Cost of revenue (exclusive of depreciation shown separately below)

 

14,003

 

2,020

 

4,792

 

511

 

21,326

 

Gross Margin

 

22,254

 

18,610

 

3,001

 

(4,218

)

39,647

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing expense

 

4,098

 

12,474

 

1,020

 

(3,700

)

13,892

 

General and administrative expense

 

5,911

 

2,665

 

2,331

 

6,205

 

17,112

 

Product development

 

97

 

807

 

347

 

310

 

1,561

 

Restructuring expense

 

(1,084

)

 

6

 

 

(1,078

)

Amortization of intangibles

 

70

 

106

 

1,142

 

 

1,318

 

Depreciation

 

759

 

198

 

287

 

443

 

1,687

 

Asset impairments

 

 

 

3,903

 

 

3,903

 

Total operating expenses

 

9,851

 

16,250

 

9,036

 

3,258

 

38,395

 

Operating income (loss)

 

12,403

 

2,360

 

(6,035

)

(7,476

)

1,252

 

Adjustments to reconcile to EBITDA and Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangibles

 

70

 

106

 

1,142

 

 

1,318

 

Depreciation

 

759

 

198

 

287

 

443

 

1,687

 

EBITDA

 

13,232

 

2,664

 

(4,606

)

(7,033

)

4,257

 

Restructuring expense

 

(1,084

)

 

6

 

 

(1,078

)

Asset impairments

 

 

 

3,903

 

 

3,903

 

Loss on disposal of assets

 

 

311

 

 

 

311

 

Non-cash compensation

 

67

 

306

 

33

 

410

 

816

 

Adjusted EBITDA

 

$

12,215

 

$

3,281

 

$

(664

)

$

(6,623

)

$

8,209

 

 

 

 

For the Three Months Ended June 30, 2008:

 

 

 

LendingTree

 

 

 

 

 

Unallocated—

 

 

 

 

 

Loans

 

Exchanges

 

Real Estate

 

Corporate

 

Total

 

Revenue

 

$

25,254

 

$

30,128

 

$

10,215

 

$

(5,614

)

$

59,983

 

Cost of revenue (exclusive of depreciation shown separately below)

 

11,413

 

3,063

 

5,907

 

538

 

20,921

 

Gross Margin

 

13,841

 

27,065

 

4,308

 

(6,152

)

39,062

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing expense

 

5,623

 

25,327

 

2,223

 

(5,354

)

27,819

 

General and administrative expense

 

5,618

 

183

 

3,654

 

5,572

 

15,027

 

Product development

 

60

 

733

 

611

 

39

 

1,443

 

Restructuring expense

 

404

 

151

 

513

 

693

 

1,761

 

Amortization of intangibles

 

70

 

2,502

 

1,088

 

 

3,660

 

Depreciation

 

848

 

194

 

252

 

477

 

1,771

 

Asset impairments

 

898

 

102,630

 

60,807

 

 

164,335

 

Total operating expenses

 

13,521

 

131,720

 

69,148

 

1,427

 

215,816

 

Operating income (loss)

 

320

 

(104,655

)

(64,840

)

(7,579

)

(176,754

)

Adjustments to reconcile to EBITDA and Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangibles

 

70

 

2,502

 

1,088

 

 

3,660

 

Depreciation

 

848

 

194

 

252

 

477

 

1,771

 

EBITDA

 

1,238

 

(101,959

)

(63,500

)

(7,102

)

(171,323

)

Restructuring expense

 

404

 

151

 

513

 

693

 

1,761

 

Asset impairments

 

898

 

102,631

 

60,806

 

 

164,335

 

Non-cash compensation

 

 

250

 

552

 

861

 

1,663

 

Adjusted EBITDA

 

$

2,540

 

$

1,073

 

$

(1,629

)

$

(5,548

)

$

(3,564

)

 

10



 

 

 

For the Six Months Ended June 30, 2009:

 

 

 

LendingTree

 

 

 

 

 

Unallocated—

 

 

 

 

 

Loans

 

Exchanges

 

Real Estate

 

Corporate

 

Total

 

Revenue

 

$

70,629

 

$

39,697

 

$

13,552

 

$

(5,645

)

$

118,233

 

Cost of revenue (exclusive of depreciation shown separately below)

 

25,859

 

3,911

 

8,656

 

1,087

 

39,513

 

Gross Margin

 

44,770

 

35,786

 

4,896

 

(6,732

)

78,720

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing expense

 

6,212

 

24,442

 

2,698

 

(5,638

)

27,714

 

General and administrative expense

 

11,248

 

5,456

 

5,055

 

12,047

 

33,806

 

Product development

 

247

 

1,439

 

881

 

602

 

3,169

 

Restructuring expense

 

(1,192

)

58

 

739

 

159

 

(236

)

Amortization of intangibles

 

140

 

156

 

2,285

 

 

2,581

 

Depreciation

 

1,546

 

397

 

547

 

861

 

3,351

 

Asset impairments

 

 

 

3,903

 

 

3,903

 

Total operating expenses

 

18,201

 

31,948

 

16,108

 

8,031

 

74,288

 

Operating income (loss)

 

26,569

 

3,838

 

(11,212

)

(14,763

)

4,432

 

Adjustments to reconcile to EBITDA and Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangibles

 

140

 

156

 

2,285

 

 

2,581

 

Depreciation

 

1,546

 

397

 

547

 

861

 

3,351

 

EBITDA

 

28,255

 

4,391

 

(8,380

)

(13,902

)

10,364

 

Restructuring expense

 

(1,192

)

58

 

739

 

159

 

(236

)

Asset impairments

 

 

 

3,903

 

 

3,903

 

Loss on disposal of assets

 

 

949

 

 

 

949

 

Non-cash compensation

 

136

 

419

 

131

 

1,307

 

1,993

 

Adjusted EBITDA

 

$

27,199

 

$

5,817

 

$

(3,607

)

$

(12,436

)

$

16,973

 

 

 

 

For the Six Months Ended June 30, 2008:

 

 

 

LendingTree

 

 

 

 

 

Unallocated—

 

 

 

 

 

Loans

 

Exchanges

 

Real Estate

 

Corporate

 

Total

 

Revenue

 

$

56,056

 

$

67,188

 

$

18,597

 

$

(11,665

)

$

130,176

 

Cost of revenue (exclusive of depreciation shown separately below)

 

23,213

 

6,968

 

10,777

 

1,104

 

42,062

 

Gross Margin

 

32,843

 

60,220

 

7,820

 

(12,769

)

88,114

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing expense

 

11,639

 

52,763

 

4,414

 

(11,070

)

57,746

 

General and administrative expense

 

12,719

 

3,892

 

6,938

 

12,137

 

35,686

 

Product development

 

404

 

1,843

 

1,266

 

39

 

3,552

 

Restructuring expense

 

806

 

151

 

513

 

693

 

2,163

 

Amortization of intangibles

 

140

 

4,992

 

2,196

 

 

7,328

 

Depreciation

 

1,650

 

380

 

454

 

1,062

 

3,546

 

Asset impairments

 

898

 

102,630

 

60,807

 

 

164,335

 

Total operating expenses

 

28,256

 

166,651

 

76,588

 

2,861

 

274,356

 

Operating income (loss)

 

4,587

 

(106,431

)

(68,768

)

(15,630

)

(186,242

)

Adjustments to reconcile to EBITDA and Adjusted EBITDA:

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangibles

 

140

 

4,992

 

2,196

 

 

7,328

 

Depreciation

 

1,650

 

380

 

454

 

1,062

 

3,546

 

EBITDA

 

6,377

 

(101,059

)

(66,118

)

(14,568

)

(175,368

)

Restructuring expense

 

806

 

151

 

513

 

693

 

2,163

 

Asset impairments

 

898

 

102,630

 

60,807

 

 

164,335

 

Non-cash compensation

 

 

330

 

717

 

1,172

 

2,219

 

Adjusted EBITDA

 

$

8,081

 

$

2,052

 

$

(4,081

)

$

(12,703

)

$

(6,651

)

 

About Tree.com, Inc.

Tree.com, Inc. (NASDAQ: TREE) is the parent of several brands and businesses in the financial services and real estate industries including LendingTree®, LendingTree Loans sm, GetSmart®, Home Loan Center, RealEstate.com, iNest®, and RealEstate.com, REALTORS®.  Together, they serve as an ally for consumers who are looking to comparison shop loans, real estate and other financial products from multiple businesses and professionals who compete for their business.

 

11



 

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.

 

Segment Information

 

The overall concept that Tree.com employs in determining its reportable segments and related financial information is to present them in a manner consistent with how the chief operating decision maker and executive management view the businesses, how the businesses are organized as to segment management, and the focus of the businesses with regards to the types of products or services offered or the target market.

 

Following the spin-off from IAC, the new chief operating decision maker began to realign the Tree.com businesses into new operating segments.  For the first quarter of 2009, management completed its realignment of staffing and direct revenue and costs for each new segment and created reporting structures to enable the chief operating decision maker and management to evaluate the results of operations for each of these new segments on a comparative basis with prior periods.  In prior periods, the segments “Lending” and “Real Estate” were presented, which have been changed to “LendingTree Loans”, “Exchanges”, and “Real Estate” segments.  Additionally, certain shared indirect costs that are described below are reported as “Unallocated — Corporate”.  All items of segment information for prior periods have been restated to conform to the new reportable segment presentation.

 

The expenses presented for each of the business segments include an allocation of certain corporate expenses that are identifiable and directly benefit those segments.  The unallocated expenses are those corporate overhead expenses that are not directly attributable to a segment and include: corporate expenses such as finance, legal, executive, technology support, and human resources, as well as elimination of inter-segment revenue and costs.

 

LendingTree Loans

The LendingTree Loans segment originates, processes, approves and funds various residential real estate loans through Home Loan Center, Inc. (“HLC”) (d/b/a LendingTree Loans).  The HLC and LendingTree Loans brand names are collectively referred to as “LendingTree Loans.”

 

Exchanges

The Exchanges segment consists of online lead generation networks and call centers (principally LendingTree.com and GetSmart.com) that connect consumers and service providers principally in the lending industry.

 

Real Estate

Real Estate consists of a proprietary full service real estate brokerage (RealEstate.com, REALTORS®) that operates in 20 U.S. markets, as well as an online lead generation network accessed at www.RealEstate.com, that connects consumers with real estate brokerages around the country.

 

Definition of Tree.com’s Non-GAAP Measures

 

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.

 

12



 

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) proceeds from litigation settlements, (6) pro forma adjustments for significant acquisitions, and (7) one-time items.  Tree.com believes this measure is useful to investors because it represents the operating results from Tree.com’s segments, but excludes the effects of any other non-cash expenses.  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 release, 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 release, 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.

 

Reconciliation of EBITDA and Adjusted EBITDA

 

For a reconciliation of EBITDA and Adjusted EBITDA to operating income (loss) for Tree.com’s operating segments for the three and six months ended June 30, 2009 and 2008, see the table above.

 

Interest Rate Risk

Tree.com’s exposure to market rate risk for changes in interest rates relates primarily to its interest rate lock commitments, loans held for sale, and LendingTree Loans’ lines of credit.

 

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 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

 

13



 

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; and deficiencies in our disclosure controls and procedures and internal control over financial reporting.  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, 2008, our Quarterly Report on Form 10-Q for the period ended March 31, 2009, 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

 

14