LendingTree, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless noted. LendingTree operates an online marketplace connecting consumers with providers of mortgage, consumer credit, and insurance products.
Financial performance and position
- Revenue: $200.5 million, down 29% from $283.2 million. Home revenue fell 57% to $43.7 million, Consumer fell 21% to $79.7 million, and Insurance fell 4% to $77.1 million.
- Profitability: Operating loss was $13.0 million, versus a $2.9 million loss. Net income was $13.5 million, compared with a $10.8 million net loss. The year-over-year swing to net income primarily reflects a $34.3 million gain on extinguishing convertible notes; it does not indicate operating profit.
- Segment performance: Segment profit was $80.0 million, down 20%. Home profit declined 58% to $15.1 million; Consumer declined 18% to $34.9 million; Insurance increased 43% to $30.2 million. Segment profit is a company-defined measure based on revenue less attributed variable marketing costs.
- Other performance measures: Variable marketing margin was $76.1 million, down 19%. Adjusted EBITDA was $14.5 million, down 51% from $29.4 million.
- Cash flow: Operating cash flow was $13.2 million, versus $10.0 million. Investing used $2.5 million, mainly for capital expenditures; financing used $159.6 million, primarily for the convertible-note repurchase.
- Cash and liquidity: Cash and cash equivalents were $150.1 million at quarter-end, down from $298.8 million at December 31, 2022. The company said cash, operating cash flows, and available credit were expected to fund operating needs for the next 12 months and beyond. At May 2, the $200 million revolving facility had no borrowings and $199.8 million of remaining capacity, net of a letter of credit.
- Debt: Total reported debt was approximately $627.9 million, including $379.7 million net carrying value of the 2025 notes and $248.1 million of term-loan borrowings. The company repurchased $190.6 million principal amount of 2025 notes for $156.3 million in cash. It reported compliance with credit-facility covenants.
- Margins and costs: Cost of revenue was 7% of revenue, versus 5%. Selling and marketing expense fell 33% to $137.1 million as advertising was reduced with lower marketplace demand. General and administrative expense was broadly unchanged, but rose to 18% of revenue from 13%.
Material changes and management commentary
- Home mortgage revenue was pressured by higher rates, lower refinance activity, and weaker purchase-mortgage demand. Home equity revenue increased 2% to $23.7 million; management cited continued consumer interest in borrowing against home equity.
- Consumer revenue weakened amid tighter partner underwriting and reduced lending appetite. Personal-loan revenue declined 33% and credit-card revenue declined 39%.
- Insurance revenue declined modestly as carrier partners remained cautious, although cost discipline lifted segment profit. Management reported a temporary uptick in auto-policy partner spending but expected Insurance revenue to decline somewhat from Q1 levels for the rest of 2023.
- MyLendingTree added 1.0 million users in Q1, reaching 25.8 million cumulative sign-ups. The company attributed $20 million of Q1 revenue to registered members.
Outlook, unusual items, and risks
- A workforce-reduction plan targets approximately 158 employees, or 13% of the workforce. Expected severance costs total about $5.6 million; management estimated annual compensation expense savings of approximately $14 million. It expected another $1.3 million of restructuring expense in Q2 and completion, including cash payments, by the end of Q2 2024.
- The company decided to close its Ovation credit-services business after a prospective buyer withdrew. It recorded $4.2 million of asset impairment charges in Q1 and planned to close the business by mid-2023.
- The $34.3 million debt-extinguishment gain, $2.4 million write-off of unamortized debt issuance costs, and $1.0 million of repayment costs materially affected reported results.
- Key exposures include mortgage-rate and housing-market shifts, tighter consumer-credit conditions, insurance-industry loss costs and partner demand, competition, and economic conditions. Management noted potential impairment risk for Insurance or Mortgage reporting units if recovery differs from expectations.
- The filing gives no specific consolidated revenue or earnings guidance. Management cited an external MBA projection of 5.5% average 30-year mortgage rates for 2023, not company guidance. The company reported no material changes to previously disclosed risk factors and no material off-balance-sheet arrangements beyond a letter of credit and surety-bond commitments.
- Litigation is ongoing; recorded litigation accruals were $0.2 million. The company said it could not estimate possible losses or ranges for certain matters. Disclosure controls were assessed as effective, with no material change in internal control reported.
Important facts for investors to verify
- Whether operating performance improves independently of the one-time debt-extinguishment gain, given the operating loss and lower Adjusted EBITDA.
- Cash generation and liquidity after the substantial cash-funded note repurchase, and the cost and terms of outstanding term-loan debt.
- Whether the expected workforce savings materialize and whether further restructuring or closure costs arise.
- Whether the forecast decline in Insurance revenue occurs, and whether mortgage and consumer-credit demand recover.
- Progress on the Ovation closure and any additional impairment, restructuring, or litigation exposure.