LendingTree, Inc. — Q2 2015 Form 10-Q Summary
Business context and reporting period. This unaudited filing covers the quarter and six months ended June 30, 2015, compared with the same 2014 periods. LendingTree operates an online marketplace matching consumers seeking loans and other credit products with lenders. LendingTree Loans, sold in 2012, is reported as discontinued operations. Following an organizational change, the company reports one segment: Lending.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $55.1 million | $42.1 million | $106.1 million | $82.2 million |
| Operating income (loss) | $6.8 million | $2.6 million | $12.5 million | $(3.2) million |
| Continuing-operations net income (loss) | $6.4 million | $2.7 million | $11.9 million | $(3.2) million |
| Consolidated net income (loss), including discontinued operations | $4.7 million | $(0.2) million | $9.9 million | $(6.7) million |
| Adjusted EBITDA | $8.9 million | $5.5 million | $17.8 million | $10.0 million |
- Revenue rose 31% in Q2 and 29% for the six-month period. Non-mortgage revenue increased 140% in both comparisons, chiefly from personal loans; mortgage revenue rose 7% and 8%, respectively.
- Operating margin was approximately 12.3% in Q2 2015 versus 6.2% in Q2 2014; for the first six months it was approximately 11.8% versus negative 3.9%. Selling and marketing remained the largest expense, at $36.9 million in Q2.
- Marketplace consumer matches increased 85% in Q2 and 88% for the six months, while average revenue per match declined 29% and 30%, respectively. Management attributed the decline partly to a greater mix of lower-revenue non-mortgage products and lower mortgage revenue per match.
- Q2 discontinued-operations loss was $1.7 million, versus $2.9 million a year earlier; the six-month loss was $1.9 million versus $3.5 million.
Cash, liquidity and obligations
- At June 30, cash and cash equivalents were $93.0 million, and restricted cash was $18.6 million. Total assets were $154.9 million and total liabilities were $49.6 million.
- For the first six months, continuing-operations operating cash flow was $15.2 million, compared with $2.2 million in 2014. Investing activities used $2.7 million, primarily capital expenditures; financing activities used $5.4 million, primarily employee equity-award tax withholding.
- The filing does not present a material borrowing balance; it reports interest expense of $64,000 for Q2. Management said cash and operating cash flows should fund operating needs for the next 12 months and beyond, and identified no material liquidity sources beyond cash and $12.1 million of restricted cash expected to be released in December 2015.
- Operating lease obligations totaled approximately $5.9 million. Restricted cash includes $16.1 million held in connection with legacy LendingTree Loans obligations.
Outlook, risks and unusual items
- No specific financial guidance was provided. Management said marketing spending would be adjusted dynamically to anticipated revenue opportunities. Its market discussion cited projected increases in 2015 home sales and mortgage rates, which could affect mortgage demand, refinancing activity and lender demand for leads.
- Growth in advertising and promotional expense was a key investment: up $7.3 million in Q2 and $12.3 million for the six months, principally to generate lead volume, particularly for personal loans. Management also increased headcount to support planned product launches.
- Competition from existing and potential online lead-generation businesses is a stated risk. Other cited exposures include dependence on third-party technology, online security and fraud, nonexclusive lender relationships, interest-rate and housing-market changes, and seasonal demand.
- Q2 litigation settlements and contingencies recorded a $1.1 million income benefit, principally from an adjustment to the NexTag reserve following a $1.1 million settlement. For the first six months, the line recorded $0.8 million of income, versus $8.1 million of expense in 2014; this materially affects period comparisons.
- Legacy LendingTree Loans loan-loss obligations remain uncertain. The estimated range was $6.5 million to $11.6 million, with an $8.8 million reserve. The company stated actual losses could vary significantly and it lacks precise current loan performance data.
- Other disclosed legal matters include a Massachusetts regulatory matter with estimated possible loss of $0.5 million to $6.5 million and a $0.5 million reserve; a West Virginia class action with a $3.2 million reserve and a July 2015 final judgment, which HLC intends to appeal; and unresolved claims by Residential Funding Company and Lehman Brothers Holdings. The filing does not provide a clear estimated loss for the RFC matter.
Important facts for investors to verify
- Whether personal-loan growth and the higher volume of marketplace matches can offset the decline in average revenue per match and support marketing returns.
- How mortgage rates, housing activity and product mix affect mortgage revenue, particularly as refinancing demand changes.
- Whether operating cash flow remains strong as accounts receivable and marketing-related working capital fluctuate.
- The eventual release and availability of the $12.1 million escrow amount, and the adequacy of reserves for LendingTree Loans obligations and other litigation.
- The effect of litigation outcomes and the $0.8 million six-month litigation income benefit on comparisons of underlying operating performance.