LendingTree, Inc. — Q3 2023 Form 10-Q
Business context and reporting period. LendingTree operates an online marketplace connecting consumers with lenders, financial-product providers and insurance carriers. This unaudited filing covers the three and nine months ended September 30, 2023, compared with the same 2022 periods. Its reportable segments are Home, Consumer and Insurance.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | First nine months 2023 | First nine months 2022 |
|---|---|---|---|---|
| Revenue | $155.2 million | $237.8 million | $538.1 million | $782.9 million |
| Operating loss | $34.0 million | $18.6 million | $40.4 million | $25.4 million |
| Net loss | $148.5 million | $158.7 million | $135.1 million | $177.5 million |
| Adjusted EBITDA (non-GAAP) | $21.8 million | $9.8 million | $63.0 million | $67.7 million |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $46.7 million | $26.3 million |
- Q3 revenue fell 35% year over year. Home revenue fell 49%, Consumer 34% and Insurance 22%. For the first nine months, revenue declined 31%.
- Q3 GAAP operating margin was approximately negative 21.9%, compared with negative 7.8% a year earlier. Q3 segment profit was $69.1 million, down 25%; segment margins were 34% Home, 51% Consumer and 43% Insurance.
- Q3 net loss included a $113.1 million impairment of an equity investment and a $38.6 million goodwill impairment in Insurance. Other expense was $110.9 million. The nine-month net loss also reflects these impairments, partly offset by a $34.3 million gain on repurchasing convertible notes.
- Cash and cash equivalents were $175.6 million at September 30, down from $298.8 million at December 31, 2022. Total debt carrying value was approximately $628.2 million, versus $816.0 million at year-end. The company had no revolving-facility borrowings and reported covenant compliance.
- Nine-month investing cash outflow was $9.9 million, primarily capital expenditures; financing cash outflow was $160.2 million, primarily the $156.3 million cash repurchase of convertible notes. The filing reports $147.3 million available to borrow under the revolver as of October 31, 2023.
Material changes and management commentary
- Revenue and segment profit declined in Home and Consumer amid higher rates, weaker consumer demand, lower close rates and tighter lender underwriting. Management reported 30-year mortgage rates averaged 7.04% in Q3 2023 versus 5.58% in Q3 2022; mortgage and home-equity demand remained pressured.
- Insurance revenue fell, but segment profit rose 4% and margin improved to 43% from 32%. Management cited record consumer shopping volume and more optimistic carrier commentary about marketing budgets heading into 2024.
- Management said cost reductions and lower advertising spend tracked weaker partner demand. A workforce reduction plan covering approximately 13% of the workforce is expected to reduce annual compensation expense by approximately $14 million.
- The Ovation credit-services business ceased operations in August 2023 after a planned sale fell through. Its closure followed a $4.2 million asset impairment and involved approximately 197 employees. Additional workforce reductions and related severance charges were also recorded.
- Management expects cash and operating cash flows to fund operating needs for the next 12 months and beyond. The filing provides no specific revenue or earnings guidance. It warns that interest rates, inflation, housing-market conditions, partner demand and insurance-sector underwriting pressures may adversely affect results.
Key investor verification points
- Review the valuation assumptions and recoverability of the impaired equity investment and Insurance goodwill; management warns that delayed recovery could lead to further impairment, including in Home.
- Assess whether marketplace demand, lender close rates and revenue per consumer stabilize, particularly in Home and Consumer, and whether Insurance margin improvement continues.
- Verify the realization, timing and cash costs of expected restructuring savings, and the status of remaining severance and business-closure payments.
- Monitor cash consumption, interest expense on the 9.2% SOFR-rate term loan, revolver availability and compliance with debt covenants.
- Consider that Q3 net loss and Adjusted EBITDA contain substantial impairment and other adjustments; evaluate the non-GAAP measure alongside GAAP operating results and cash flows.