LendingTree, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; balance-sheet comparisons are with December 31, 2022. LendingTree operates an online consumer marketplace connecting consumers with lenders, financial-services providers and insurance partners. Its reportable segments are Home, Consumer and Insurance.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $182.5 million | $261.9 million | $383.0 million | $545.1 million |
| Operating income (loss) | $6.6 million | ($3.9 million) | ($6.4 million) | ($6.8 million) |
| Net income (loss) | ($0.1 million) | ($8.0 million) | $13.3 million | ($18.9 million) |
| Adjusted EBITDA (non-GAAP) | $26.7 million | $28.6 million | $41.2 million | $58.0 million |
| Operating cash flow | Not stated for the quarter | $28.2 million | $16.1 million |
- Q2 revenue declined 30% year over year across all three segments. Home fell 44%, Consumer 22% and Insurance 29%. For the first half, revenue declined 30% overall.
- Q2 GAAP operating margin was approximately 3.6%; the company reported a $112,000 pretax profit but a $115,000 net loss after tax. First-half operating loss was $6.4 million, while first-half net income benefited from the debt extinguishment gain described below.
- Q2 variable marketing margin, a company-defined non-GAAP measure, was $76.5 million versus $90.8 million a year earlier. Segment margins were Home 32% versus 36%, Consumer 49% versus 42%, and Insurance 42% versus 28%.
- Cash and cash equivalents were $162.6 million at June 30, down from $298.8 million at year-end. Six-month investing cash use was $4.9 million, and financing cash use was $159.7 million, primarily from repurchasing convertible notes.
- Total reported debt was approximately $627.7 million: $625.2 million long-term and $2.5 million current. This included $380.2 million net carrying value of the 2025 convertible notes and $247.5 million outstanding under the term loan. The $200 million revolving facility had no borrowings; the company stated $101.1 million was available to borrow as of July 27, 2023.
Material changes and unusual items
- Revenue contraction reflected weaker mortgage activity amid elevated rates, reduced consumer loan applications and partner credit tightening, and lower insurance revenue per consumer. Q2 30-year mortgage rates averaged 6.49%, versus 5.24% in Q2 2022.
- On March 8, 2023, LendingTree repurchased approximately $190.6 million principal amount of its 0.50% convertible notes for $156.3 million cash. It recorded a $34.3 million extinguishment gain, offset in part by a $2.4 million write-off of debt issuance costs and $1.0 million of repayment costs. This materially affected first-half interest income and net income.
- The company closed its Ovation credit-services business after a prospective buyer withdrew. It recorded $4.2 million of impairment charges in Q1 and $2.1 million of Q2 severance expense. The closure was expected to be completed by mid-2023, with related separation payments extending into 2024.
- A separate workforce reduction targeted approximately 13% of employees and carried estimated severance charges of $5.3 million, substantially incurred by June 30. Management expects about $14 million in annual compensation-expense savings; execution and cash payments were expected to finish by Q2 2024.
- A $1.4 million impairment of an equity investment was recorded in Q2. Litigation settlement accruals were $0.6 million at June 30; the company said it could not estimate possible losses or ranges for certain matters.
Liquidity, outlook and risks
- Management said cash, cash flows from operations and access to the credit facility are expected to fund operating needs for the next 12 months and beyond. The company reported compliance with all debt covenants at June 30.
- No consolidated full-year revenue or earnings guidance is provided in the supplied filing text. Management said a return to year-over-year Consumer revenue growth was unlikely in 2023, given capital-market headwinds and possible further short-term rate increases.
- Management described mortgage-rate and real-estate conditions as challenges for Home, and volatile carrier demand and industry loss pressures as headwinds for Insurance. In Consumer, lender tightening and lower close rates—particularly for lower-credit-quality borrowers—continued to weigh on conversion and revenue.
- Other risks include sensitivity to interest rates and economic conditions, reliance on Network Partners and third-party technology providers, competition, and the possibility that consumers obtain offers directly from providers. Management noted potential impairment risk for Insurance and Mortgage reporting units if recovery timing deteriorates.
- A 100-basis-point change in interest rates would have an estimated $2.5 million annual effect on interest paid on credit-facility borrowings. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter; it reported no material changes to the risk factors in its 2022 Form 10-K.
Important facts for investors to verify
- Whether Home, Consumer and Insurance revenue and conversion trends stabilize, especially under persistently high mortgage rates and tighter lender or insurer conditions.
- Whether the expected $14 million annual workforce savings are achieved and whether restructuring and Ovation closure costs remain within disclosed estimates and timelines.
- Cash-flow generation and liquidity after the substantial cash outlay for the convertible-note repurchase; also clarify the gap between the revolver’s stated remaining capacity and the lower borrowing availability disclosed as of July 27.
- The sustainability of reported first-half net income, which included the $34.3 million debt extinguishment gain, and the performance of non-GAAP measures relative to GAAP results.
- Developments in litigation and potential impairment testing for goodwill or other assets, as well as any subsequent changes in debt, covenants or partner demand.