Business Context and Reporting Period
Company: Tree.com, Inc. (Lendingtree, Inc.)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Overview: Tree.com operates three primary segments: LendingTree Loans (direct mortgage origination), Exchanges (online lead generation networks connecting consumers with lenders), and Real Estate (brokerage and lead generation). The company was spun off from IAC/InterActiveCorp in August 2008. The 2009 fiscal year was characterized by severe disruption in the primary and secondary mortgage markets, declining home prices, and tight credit availability.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Total Revenue | $216.8 million | $228.6 million |
| Net Loss | $(24.5) million | $(202.3) million |
| Operating Loss | $(24.3) million | $(215.0) million |
| Adjusted EBITDA | $14.2 million | $(13.7) million |
| Cash and Cash Equivalents | $86.1 million | $73.6 million |
| Restricted Cash | $12.0 million | $15.2 million |
| Warehouse Lines of Credit (Outstanding) | $78.5 million | $76.2 million |
| Warehouse Lines of Credit (Capacity) | $175.0 million | $175.0 million |
| Working Capital | $66.3 million | $72.5 million |
Material Changes vs. Prior Period
- Revenue: Total revenue decreased 5% to $216.8 million. While LendingTree Loans revenue increased 20% (driven by a 21% increase in loan volume due to low interest rates), Exchanges revenue declined 25% and Real Estate revenue declined 21% due to reduced consumer demand and transaction volumes.
- Profitability: The company reported a net loss of $24.5 million, a significant improvement from the $202.3 million loss in 2008. The 2008 loss was heavily impacted by $164.3 million in asset impairment charges (goodwill and intangibles), whereas 2009 impairment charges were only $6.1 million.
- Operating Expenses: Selling and marketing expenses decreased 36% to $62.0 million, reflecting a strategic reduction in advertising spend. General and administrative expenses decreased 11% to $64.9 million.
- Loan Loss Provisions: The provision for previously sold loans increased significantly from $1.3 million in 2008 to $16.4 million in 2009, reflecting higher defaults on loans originated between 2005 and 2007 with lower underwriting standards.
- Litigation: A $12.8 million charge was recorded in Q4 2009 for litigation settlements and contingencies.
Guidance, Outlook, Risks, and Contingencies
- Liquidity and Debt: The company relies heavily on three warehouse lines of credit totaling $175 million. One $40 million line expires June 30, 2010, and is not expected to be renewed. Management believes existing lines are adequate for current operations but notes that the loss of two lines would force a reduction in capacity. A $10 million reduction in capacity was noted in February 2010.
- Market Risks: Continued disruption in mortgage markets, declining home prices, and tight credit availability pose significant risks. The company faces concentration risk with two secondary market investors (Bank of America and Wells Fargo) representing 38% of consolidated revenue in 2009.
- Legal Contingencies: The company is involved in multiple class-action lawsuits regarding a 2008 data security breach, mortgage broker licensing in South Carolina and Wisconsin, and disclosure practices regarding option ARM loans. A $12.8 million liability was accrued for settled matters.
- Outlook: Management anticipates continued adverse market conditions. They expect to adjust selling and marketing expenditures in relation to revenue opportunities. No specific financial guidance for 2010 was provided in the text.
Key Facts for Investor Verification
- Warehouse Line Renewals: Verify the status of the $40 million line expiring June 2010 and the $50 million line expiring April 2010, as the loss of these facilities could materially impact the LendingTree Loans segment.
- Loan Loss Reserves: Monitor the adequacy of the $17.0 million reserve for losses on previously sold loans, particularly regarding the $4.5 million settlement payment due in 2010 and the estimated remaining exposure of $9 million to $15 million.
- Litigation Exposure: Track the resolution of pending class actions related to the 2008 data breach and state mortgage broker licensing, as unfavorable outcomes could result in additional material costs.
- Customer Concentration: Assess the risk associated with Bank of America and Wells Fargo representing 38% of total revenue; any deterioration in these relationships could impact revenue stability.
- Stock Repurchase Program: Note the approval of a $10 million stock repurchase program announced in January 2010, which began in February 2010.