LendingTree, Inc. — FY2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. The filing also reports unaudited fourth-quarter results. LendingTree operates an online marketplace matching consumers with lenders and other financial-service providers; it does not originate loans. Figures below are in U.S. dollars.
Business context and key financial metrics
| Metric | FY2016 | FY2015 |
|---|---|---|
| Revenue | $384.4 million | $254.2 million |
| Operating income | $52.1 million | $28.5 million |
| Net income from continuing operations | $31.2 million | $51.3 million |
| Net income, including discontinued operations | $27.5 million | $48.0 million |
| Adjusted EBITDA, non-GAAP | $69.8 million | $40.8 million |
| Cash provided by continuing operating activities | $58.5 million | $32.6 million |
| Cash and cash equivalents at year-end | $91.1 million | $207.0 million |
- Revenue grew 51%. Mortgage revenue rose 33% to $220.0 million; non-mortgage revenue rose 85% to $164.4 million. Personal-loan revenue was $66.5 million, credit-card revenue $39.4 million, and home-equity revenue increased $13.6 million year over year.
- Operating margin was approximately 13.6%, up from 11.2%; Adjusted EBITDA margin was approximately 18.2%, up from 16.1%. Continuing-operations net margin was approximately 8.1%, versus 20.2% in 2015.
- Net income from continuing operations fell despite higher operating income, chiefly reflecting a change from a $23.0 million income-tax benefit in 2015 to $20.4 million of tax expense in 2016. The 2015 benefit included release of most of the deferred-tax valuation allowance.
- Fourth-quarter revenue was $100.8 million, up 29% year over year and 7% sequentially. Operating income was $13.4 million, versus $8.2 million in Q4 2015; continuing-operations income was $8.0 million versus $32.1 million. The unusually high prior-year quarter included a significant tax benefit.
- Continuing-operations investing cash outflow was $117.2 million and financing cash outflow was $46.9 million. Continuing operating cash flow less capital expenditures was approximately $26.5 million; this is a simple calculation, not a company-reported free-cash-flow measure.
- The company reported no borrowings under its $125 million secured revolving credit facility at year-end; it was in compliance with its financial covenants. The filing does not provide a clear separate total-debt figure. Total assets were $323.4 million and total liabilities $92.0 million.
Material changes and notable transactions
- CompareCards was acquired in November for $80.7 million cash, plus earnouts of up to $22.5 million in each of 2017 and 2018. The earnout liability was valued at $23.1 million at year-end and is subject to quarterly remeasurement. CompareCards contributed $9.2 million of 2016 revenue after acquisition.
- SimpleTuition was acquired for $5.0 million in cash consideration. In December, the company also bought two Charlotte office buildings for approximately $23.5 million.
- FY2016 investing cash use included $81.2 million for CompareCards, $4.5 million for SimpleTuition, $23.4 million for the buildings, and other capital investment. LendingTree repurchased $48.5 million of its stock during the year.
- Revenue mix continued shifting toward non-mortgage products. Credit-card growth included the acquisition and increased issuer payouts; personal-loan growth was partly offset by lower revenue per consumer.
Outlook, risks, contingencies and unusual items
- Management expected significant non-mortgage revenue growth in 2017, but not at 2016’s 85% growth rate, and expected more moderate mortgage growth. No specific numerical revenue or earnings guidance was provided.
- Management cited personal-loan lender funding constraints, higher investor pricing and tighter underwriting during 2016. A broader contraction in lending capital could harm non-mortgage revenue. The company also identified mortgage rates, housing activity, seasonality and lender demand as important revenue drivers.
- Two lenders represented 15% and 13% of FY2016 revenue, respectively, creating customer-concentration risk. Lender contracts generally may be terminated for convenience, and lender relationships are non-exclusive.
- NextAdvisor litigation resulted in a preliminary injunction restricting certain credit-card marketing through third-party content platforms; the company was defending the case. The filing says the injunction affects a portion of the acquired CompareCards business.
- Legacy LendingTree Loans liabilities remain despite the 2012 sale of its operating assets. The year-end loan-loss reserve was $6.8 million, against an estimated range of $4.4 million to $8.0 million; the company said actual exposure could differ materially. Separate discontinued-operations litigation accruals include claims involving Residential Funding Company and Lehman Brothers.
- A Massachusetts regulatory matter had an estimated possible-loss range of $0.5 million to $6.5 million, with $0.5 million accrued. The filing also describes regulatory, privacy, cybersecurity, intellectual-property and compliance risks.
- Cash declined from $207.0 million to $91.1 million, primarily amid acquisitions, property purchases and share repurchases. Management stated cash, operating cash flows and the revolver were expected to fund operating needs for the next twelve months and beyond.
- The company reported effective disclosure controls and internal control over financial reporting; the independent auditor issued unqualified opinions on the financial statements and internal control.
Important facts for investors to verify
- Whether non-mortgage growth, especially personal loans and credit cards, can continue as lender funding, underwriting and marketing conditions change.
- CompareCards integration and performance, the effects of the NextAdvisor injunction, and future earnout payments or remeasurement charges.
- Future cash generation and liquidity after acquisitions, real-estate investment and repurchases, including the contingent consideration exposure of up to $45 million.
- Resolution and adequacy of reserves for legacy loan repurchase, indemnification and litigation obligations, including the stated $4.4 million–$8.0 million loan-loss range.
- Continued dependence on major lenders, mortgage-market conditions, and compliance with changing consumer-finance and data-privacy rules.