LendingTree, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; compared with the three months ended March 31, 2020. LendingTree operates an online marketplace connecting consumers with financial-services and insurance providers. Its reportable segments are Home, Consumer and Insurance. The legacy LendingTree Loans business is reported as discontinued operations.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $272.8 million | $283.1 million | Down 4% |
| Operating income (loss) | ($1.9 million) | $20.7 million | Down $22.7 million |
| Income from continuing operations | $19.3 million | $19.0 million | Up 2% |
| Net income, including discontinued operations | $19.0 million | $14.4 million | Up 32% |
| Diluted EPS | $1.35 | $1.02 | Up $0.33 |
| Adjusted EBITDA | $30.7 million | $44.9 million | Down 31% |
| Cash from continuing operating activities | $8.9 million | $29.3 million | Down $20.4 million |
Revenue was driven by a 62% increase in Home to $128.1 million and a 5% increase in Insurance to $86.6 million, offset by a 52% decline in Consumer to $57.9 million. Segment profit was $39.0 million for Home, $24.6 million for Consumer and $32.8 million for Insurance; total segment profit declined 12% to $96.3 million. The filing describes Home segment margin as 30%, reflecting expansion into lower-margin channels to meet lender demand.
Total costs and expenses rose 5% to $274.7 million despite lower revenue. Selling and marketing expense was $197.5 million, general and administrative expense $35.0 million, and product development $12.5 million. Operating margin was approximately negative 0.7%, compared with positive 7.3% a year earlier. Net income benefited materially from a $40.1 million unrealized gain on LendingTree’s Stash investment, recorded in other income; without that gain, reported net income and pre-tax results would have been substantially lower. Interest expense increased to $10.2 million from $4.8 million.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $162.1 million at March 31, 2021, versus $169.9 million at December 31, 2020.
- Total assets were $1.243 billion and shareholders’ equity was $395.4 million. Accounts receivable rose to $123.1 million from $89.8 million at year-end.
- Long-term debt carrying value was $619.5 million. The company had $575.0 million principal amount of 0.50% convertible notes due 2025 and approximately $169.7 million gross carrying amount of the remaining 0.625% notes due 2022.
- No borrowings were outstanding under the $500 million revolving credit facility at quarter-end; a $0.2 million letter of credit was outstanding. The company reported covenant compliance. A temporary amendment, including a minimum liquidity covenant of $200 million, was scheduled to apply through June 30, 2021 unless terminated earlier.
- Continuing-operations investing cash outflow was $11.7 million, including $10.6 million of capital expenditures and $1.2 million invested in Stash. Financing cash outflow was $5.0 million. Total cash, cash equivalents and restricted cash decreased $7.9 million during the quarter.
Material changes and management commentary
- Consumer: Revenue fell $62.0 million, principally from credit cards (down 66%) and personal loans (down 53%). Management attributed weakness to pandemic-related lower issuer demand, reduced consumer risk tolerance, government stimulus affecting demand for traditional borrowing, and lower deposits demand in a low-rate environment. Management expected near-term pandemic impacts to continue, while expressing medium- to long-term optimism; timing of full recovery remained uncertain.
- Home: Revenue rose mainly on refinancing activity and increased revenue per consumer. Refinancing activity slowed late in the quarter as mortgage rates rose. Management noted that higher rates and limited home inventory could affect the mix and volume of mortgage demand.
- Insurance: Revenue and segment profit increased. Management cited record performance from publisher and inbound channels, efforts to broaden non-automobile insurance categories, and continued investment in Medicare.
- Mortgage rates averaged 2.88% in Q1 2021, versus 3.51% in Q1 2020; they rose during the quarter. The filing cites an April 2021 MBA projection of an average 3.7% rate for 2021 and a 49% refinance share, which are industry forecasts, not LendingTree guidance.
- Management said cash and operating cash flows were expected to fund operating needs for the next twelve months and beyond, while also warning that the recession could negatively affect operating cash flow. No company-specific numerical earnings or revenue guidance is provided.
Risks, contingencies and unusual items
- Consumer demand and partner demand remain exposed to COVID-19 conditions, economic recovery, mortgage-rate movements and changes in lender or issuer budgets. The company also relies on third-party technology and faces competition from providers offering products outside its marketplace.
- Continuing-operations cash flow was pressured by a $33.7 million increase in accounts receivable. Management noted that actual results could differ from estimates, including estimates affected by the pandemic.
- A potential QuoteWizard earnout ranges from zero to $23.4 million; its quarter-end estimated fair value was $9.0 million.
- Legacy discontinued-operations matters remain. The company’s ResCap settlement requires payment of $58.5 million less amounts received through HLC’s bankruptcy; it had paid $32.9 million by year-end 2020 and recorded an $8.6 million expected refund as an asset. An April 2021 settlement offer of $0.8 million to LBHI was recorded as a liability at March 31. The filing says it cannot estimate possible losses for certain legal matters.
- The company reported no material changes to its previously disclosed risk factors. It also stated that disclosure controls were effective and that no material change in internal control occurred during the quarter.
Important facts for investors to verify
- How much of reported earnings and EPS depends on the $40.1 million Stash fair-value gain, and how that investment may be valued in future periods.
- Whether Consumer segment demand and profitability recover, and how marketing costs respond as lender and issuer demand changes.
- Cash conversion and receivables collection, given lower operating cash flow and the quarter’s increase in accounts receivable.
- Debt repayment, conversion and potential dilution exposures, including the 2022 and 2025 convertible notes and the temporary revolving-facility covenant terms.
- Final amounts and timing for the QuoteWizard earnout and legacy HLC/ResCap and LBHI matters, including the expected refund and any additional legal exposure.