LendingTree, Inc. — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone Q4 report; quarterly figures are not clearly provided in the supplied filing text. Dollar amounts below are in millions unless otherwise noted.
Business context
LendingTree operates an online marketplace matching consumers seeking financial products with lenders, insurers, and other providers. Its reportable segments are Home, Consumer, and Insurance. Revenue is primarily earned from partner fees for consumer referrals, clicks, calls, approvals, and certain loan closings.
Financial performance and liquidity
| Metric | FY 2020 | FY 2019 | Change |
|---|---|---|---|
| Revenue | $910.0 | $1,106.6 | Down 18% |
| Operating income (loss) | ($6.6) | $50.7 | Down $57.3 |
| Net income (loss) from continuing operations | ($22.6) | $39.5 | Down $62.0 |
| Total net income (loss), including discontinued operations | ($48.3) | $17.8 | Down $66.1 |
| Adjusted EBITDA (non-GAAP) | $123.7 | $198.2 | Down 38% |
| Cash from continuing operating activities | $111.3 | $157.2 | Down $45.9 |
Operating margin was approximately negative 0.7%, versus 4.6% in 2019; continuing-operations net margin was approximately negative 2.5%, versus 3.6%. These are calculations from reported figures. Adjusted EBITDA is a company-defined non-GAAP measure and should not be treated as a substitute for GAAP results.
- Segment revenue: Home $321.0, up 15%; Consumer $253.2, down 51%; Insurance $333.8, up 17%; Other $2.0, down 93%.
- Consumer declines reflected lower credit-card issuer demand and reduced unsecured-lending availability amid COVID-19. Credit-card revenue fell 63% to $77.4; personal-loan revenue fell 56% to $66.5.
- Home growth was led by refinancing activity as mortgage rates declined; refinance revenue rose $98.3. Purchase mortgage and home-equity revenue declined.
- Insurance growth reflected more consumers seeking coverage, partly offset by lower revenue per consumer. Progressive Casualty Insurance represented 15% of total revenue, up from 12% in 2019.
- Cash and cash equivalents were $169.9 at year-end, versus $60.2 a year earlier. Continuing-operations investing cash outflow was $122.1, including the $80.0 Stash investment and $42.1 of capital expenditures. Continuing-operations financing cash inflow was $193.3, principally reflecting convertible-note issuance.
- Cash from continuing operations less capital expenditures was approximately $69.2 in 2020, a simple calculation and not a company-reported free-cash-flow measure.
- Long-term debt was $611.4 net of discounts and issuance costs; gross principal of the 2022 and 2025 convertible notes totaled approximately $744.7. The company had no revolving-credit borrowings at December 31, 2020 and reported $169.9 of cash. Its $500.0 revolving facility matures in December 2024.
Material changes, outlook, risks, and unusual items
- COVID-19 materially reduced Consumer-segment demand and lender capital availability. Management said recovery momentum improved through 2020, while the timing of full Consumer recovery remained uncertain. Home and Insurance had recovered by year-end, according to management.
- Management adjusts marketing spending with partner demand; selling and marketing expense declined 16% to $617.4, while revenue fell 18%. No numerical 2021 company guidance is clearly provided in the filing text.
- In July 2020, LendingTree issued $575.0 of 0.50% convertible notes due 2025 and repurchased approximately $130.3 principal amount of 0.625% notes due 2022 for about $234.0. Interest expense increased to $36.3 from $20.3, including a $7.8 debt-extinguishment loss.
- The company paid $36.0 to settle claims brought by its bankrupt Home Loan Center subsidiary and agreed to pay ResCap $58.5, less amounts recovered through the HLC bankruptcy estate. It paid ResCap $32.9 during 2020 and recorded an expected $8.6 reimbursement. Discontinued operations generated a $25.7 net loss in 2020.
- Other notable items include an income-tax benefit of $20.0, including a $6.1 benefit associated with the CARES Act; $5.3 of contingent-consideration expense, versus $28.4 in 2019; and an $80.0 equity investment in Stash. The 2020 GAAP loss contrasts with positive Adjusted EBITDA.
- Key risks include continued weakness in unsecured credit markets, mortgage-rate and housing-market sensitivity, dependence on Network Partners and online traffic, concentration in one insurer partner, regulation and consumer-data privacy, cybersecurity, and litigation related to HLC. Convertible-note cash-settlement, dilution, and covenant requirements are also relevant.
- The company reported compliance with its credit-facility covenants at year-end. A temporary amendment replaced the debt-to-EBITDA covenant with a minimum $200.0 million U.S. liquidity requirement through the quarter ending June 30, 2021, unless terminated earlier.
- PwC gave an unqualified audit opinion on the financial statements and internal control over financial reporting; management and the auditor concluded internal controls were effective at December 31, 2020.
Important facts for investors to verify
- Whether Consumer-segment lender demand and revenue per consumer continue to recover, and how that translates into segment profit.
- Whether Home and Insurance growth and margins persist as mortgage rates, refinance volumes, and partner demand change; also monitor the 15% revenue exposure to Progressive.
- Cash generation after litigation payments, capital expenditures, and any remaining HLC-related payments or reimbursements.
- Convertible-note principal, conversion and cash-settlement exposure, and the company’s ability to meet the temporary liquidity covenant and subsequent facility terms.
- The assumptions behind the remaining QuoteWizard earnout, recorded at $8.2, with potential payment of up to $23.4.
- Any updates to HLC bankruptcy-related claims, the ResCap settlement recovery, and other litigation contingencies.