LendingTree, Inc. — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing also reports fourth-quarter results. LendingTree operates an online marketplace connecting consumers with financial-services providers; it generally earns fees from partner referrals, clicks, calls, loan closings, and credit-card approvals.
Financial performance
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $764.9 million | $617.7 million |
| Operating income | $56.2 million | $33.1 million |
| Net income from continuing operations | $109.3 million | $19.4 million |
| Net income, including discontinued operations | $96.5 million | $15.6 million |
| Adjusted EBITDA (non-GAAP) | $153.5 million | $115.1 million |
| Net cash from continuing operating activities | $123.9 million | $103.5 million |
| Cash and cash equivalents at year-end | $105.1 million | $368.6 million |
Revenue grew 24%. Non-mortgage revenue rose 53% to $522.7 million, while mortgage revenue fell 12% to $242.2 million. Personal-loan revenue increased 52% to $134.2 million; credit-card revenue rose 13% to $165.8 million. Insurance revenue increased $31.2 million, primarily reflecting QuoteWizard, acquired late in October.
Operating income increased 70%, though expenses also rose: selling and marketing reached $500.3 million, including $469.9 million of advertising, and amortization of acquired intangibles rose to $23.5 million. Adjusted EBITDA is a company-defined non-GAAP measure and excludes specified items.
Continuing-operations income included a $65.6 million income-tax benefit, largely from $77.6 million of excess tax deductions related to vesting equity awards and option exercises. This unusually large tax benefit materially affects the comparison of reported net income.
Continuing-operations cash flow from investing was negative $383.0 million, largely reflecting acquisitions. Financing cash flow was positive $4.8 million, including $125.0 million of revolving-credit borrowings and $93.7 million of share repurchases. The company reported $125.0 million drawn on its revolver and $250.9 million net carrying value of convertible notes at year-end; the notes have $300.0 million principal due in 2022. The revolver’s capacity was increased to $350.0 million. As of February 28, 2019, borrowings were $195.0 million.
Fourth-quarter results and changes
| Metric | Q4 2018 | Q4 2017 |
|---|---|---|
| Revenue | $202.7 million | $161.0 million |
| Operating income (loss) | $2.4 million | $(0.2) million |
| Income (loss) from continuing operations | $0.3 million | $(6.5) million |
| Net income (loss), including discontinued operations | $(3.3) million | $(7.7) million |
Fourth-quarter 2018 operating results included $6.8 million of QuoteWizard contingent-consideration expense. The quarter’s discontinued-operations loss was $3.6 million, principally related to legacy mortgage litigation and related legal costs.
Higher mortgage rates and fewer refinancing inquiries contributed to a $39.3 million annual decline in refinance revenue; purchase-mortgage revenue rose $5.6 million. The filing also adopted ASC Topic 606 in 2018, accelerating recognition of certain closing and approval fees. The company reported that adoption increased 2018 revenue by $2.1 million versus the prior accounting basis, which limits comparability with 2017.
Outlook, risks, and unusual items
- Management expected a more moderate year-over-year decline in mortgage revenue in 2019 and anticipated non-mortgage revenue growth, particularly from insurance acquisitions. These are expectations, not quantified full-year guidance.
- Management cited rising mortgage rates, housing-market conditions, partner demand, advertising costs, and availability of capital as important business drivers. Credit-card and personal-loan revenue are also exposed to issuer or lender appetite, approval rates, competition, and consumer demand.
- QuoteWizard was acquired for $299.9 million in cash, with potential earnout payments of up to $70.2 million. ValuePenguin was acquired in January 2019 for $105.0 million, funded partly by an additional $90.0 million revolver draw.
- A jury returned a $28.7 million verdict against subsidiary Home Loan Center in the Residential Funding Company matter. The plaintiff also sought up to $28.8 million in attorneys’ fees and $30.6 million in prejudgment interest. The company disclosed a potential loss range of $0 to $88.1 million, with $7.0 million accrued; it intended to appeal and said judgment had not yet been entered as of February 28, 2019.
- Other material risks include regulatory and licensing requirements, data privacy and cybersecurity, dependence on search and online advertising channels, partner relationships, acquisition integration, and goodwill or intangible-asset impairment. The company reported effective disclosure controls and internal control over financial reporting; certain QuoteWizard controls, covering approximately 3% of assets and 4% of revenue, were excluded from the assessment.
- The company agreed in February 2019 to sell two Charlotte office buildings for $24.75 million, subject to adjustments and the buyer’s inspection-period rights. It also authorized an additional $150.0 million for share repurchases in February 2019.
Most important facts for investors to verify
- Whether non-mortgage growth—especially insurance, credit cards, and personal loans—can offset continued weakness in mortgage refinancing, and how much growth reflects acquisitions.
- The underlying earnings and cash-generation trend excluding the unusually large 2018 tax benefit, acquisition-related costs, contingent-consideration remeasurement, and discontinued-operations litigation.
- The final outcome and total exposure in the Residential Funding Company case, including fees, interest, appeal prospects, and adequacy of the recorded reserve.
- Post-acquisition leverage, revolver utilization, debt-covenant headroom, and the cash requirements for ValuePenguin and future earnouts.
- Whether QuoteWizard and ValuePenguin meet expected performance and integration objectives, and whether acquisition-related amortization or impairment charges materially affect future results.