LendingTree, Inc. — FY 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing also reports unaudited fourth-quarter results. Amounts below are in millions unless stated otherwise.
Business context
LendingTree operates an online marketplace connecting consumers seeking loans and other credit products with lenders and lead purchasers. It generally earns fees when consumer requests, clicks, or calls are delivered, with some fees tied to closed loans or card approvals. The company does not originate loans. In 2015, management reorganized the business into one reportable segment: Lending.
Financial performance
| Metric | FY 2015 | FY 2014 | Change |
|---|---|---|---|
| Revenue | $254.2 | $167.4 | +52% |
| Operating income (loss) | $28.5 | $(1.0) | Improved |
| Net income from continuing operations | $51.3 | $(0.5) | Improved |
| Net income, including discontinued operations | $48.0 | $9.4 | +413% |
| Adjusted EBITDA, non-GAAP | $40.8 | $21.8 | +87% |
| Net cash from continuing operating activities | $32.6 | $9.1 | Increased |
- Mortgage revenue grew 23% to $165.3 million; non-mortgage revenue grew 168% to $88.9 million. Personal-loan revenue increased $38.9 million and credit-card revenue increased $9.2 million.
- Selling and marketing expense rose 53% to $172.8 million, including $159.2 million of advertising expense, up 56%. Product development expense was $10.5 million.
- Operating margin was approximately 11.2% in 2015 versus negative 0.6% in 2014; adjusted EBITDA margin was approximately 16.1% versus 13.0%. These margins are calculated from reported figures.
- The $23.0 million income-tax benefit included a $34.4 million release of valuation allowance. The tax benefit materially increased reported continuing-operations income; it should not be viewed as recurring operating performance.
- At December 31, cash and cash equivalents were $207.0 million, restricted cash was $6.5 million, total assets were $295.8 million, and shareholders’ equity was $241.1 million. Long-term liabilities were $0.6 million. The company reported no borrowings under its credit facility.
- Cash from investing activities was $4.9 million, including $12.2 million released from restricted cash, partly offset by $7.2 million of capital expenditures. Financing cash flow was $86.9 million, primarily reflecting $91.5 million of net equity-offering proceeds.
Fourth-quarter results and changes
Q4 2015 revenue was $78.3 million, up from $43.9 million in Q4 2014. Operating income was $8.2 million versus $1.7 million. Continuing-operations income was $32.1 million versus $2.1 million, with the year’s valuation-allowance release contributing substantially to reported 2015 earnings. Q4 net income, including discontinued operations, was $32.1 million versus $15.6 million.
Revenue growth reflected expansion in both product groups, particularly personal loans and credit cards, alongside stronger mortgage refinance demand. Mortgage matches increased 44% year over year, while average mortgage revenue per matched consumer declined 14%. Management increased advertising to meet lender demand and said it would adjust marketing spending to expected revenue opportunities.
Outlook, risks, and contingencies
- Outlook: The filing provides no quantified company revenue or earnings guidance. Management expected cash, cash flows from operations, and the revolving facility to fund operating needs for the next twelve months and beyond. It cited industry forecasts for rising mortgage rates and moderate existing-home-sales growth in 2016; these are industry expectations, not company guidance.
- Liquidity and borrowing capacity: A $125 million senior secured revolving facility was established in October 2015, maturing in October 2020. It was undrawn at year-end, and the company reported compliance with covenants. The facility is secured by specified company and subsidiary assets and restricts, among other matters, dividends and certain stock repurchases.
- Legacy loan exposure: The discontinued LendingTree Loans business retained indemnification, repurchase, and premium-repayment obligations from loans sold before its 2012 sale. The recorded reserve was $8.1 million, against an estimated remaining-loss range of $5.7 million to $10.3 million; management said actual losses could differ materially. Approximately $4.0 million was held in escrow.
- Legal matters: The company continued an appeal concerning the invalidation of two patents and disclosed ongoing proceedings, including Next Advisor’s trade-secret and contract claims, a Massachusetts regulatory matter, and legacy loan-related litigation. The filing states that potential losses cannot be clearly estimated for some matters.
- Business risks: Results depend on lender participation, paid and organic online traffic, marketing efficiency, consumer demand, and the continued expansion of newer products—particularly personal loans. Other material risks include regulation and licensing, privacy and cybersecurity, competition, mortgage-market changes, and seasonality. Two lenders each represented about 11% of 2015 revenue.
- Capital allocation: The November 2015 equity offering raised $91.5 million net for general corporate purposes, including potential acquisitions. After year-end, the board expanded repurchase authorizations; the company repurchased 573,370 shares for $40.0 million through February 26, 2016.
Most important facts for investors to verify
- How much of 2015 earnings growth is sustainable after separating core operating performance from the $23.0 million tax benefit and valuation-allowance release.
- Whether rapid non-mortgage growth—especially personal loans—can continue while preserving marketing returns and lender demand.
- Whether the $8.1 million legacy loan-loss reserve is adequate given the stated $5.7 million to $10.3 million range and ongoing claims.
- The status and potential financial impact of disclosed litigation and regulatory matters, including items for which the filing gives no clear loss estimate.
- How management deploys equity-offering proceeds and balances acquisitions and repurchases against the secured facility’s covenants and liquidity needs.