LendingTree, Inc. — Q3 2022 Form 10-Q
Business context and reporting period. LendingTree operates an online marketplace connecting consumers seeking financial products with lenders, insurers and other providers. This unaudited filing covers the three and nine months ended September 30, 2022; comparisons are with the corresponding 2021 periods. LendingTree Loans is reported as discontinued operations.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $237.8 million | $297.5 million | $782.9 million | $840.2 million |
| Operating income (loss) | $(18.6) million | $7.4 million | $(25.4) million | $16.1 million |
| Net income (loss), continuing operations | $(158.7) million | $(4.4) million | $(177.5) million | $24.7 million |
| Adjusted EBITDA (non-GAAP) | $9.8 million | $41.0 million | $67.8 million | $110.0 million |
| Operating cash flow, continuing operations | Not provided for the quarter | Not provided for the quarter | $26.3 million | $88.9 million |
- Q3 variable marketing margin, a company-defined non-GAAP measure, was $74.7 million versus $105.9 million. Segment profit was $92.3 million, down 18% year over year; Home segment margin was 37%, consistent with Q3 2021.
- Revenue by segment in Q3: Home $64.9 million, down 42%; Consumer $102.7 million, up 3%; Insurance $70.2 million, down 17%. For the first nine months, Consumer revenue rose 33%, while Home fell 30% and Insurance fell 11%.
- The Q3 income tax expense of $135.9 million included a $139.7 million charge to establish a full valuation allowance against net deferred tax assets, reflecting historical and current pre-tax losses. This was the principal driver of the unusually large reported net loss.
- At September 30, cash and cash equivalents were $285.5 million, versus $251.2 million at December 31, 2021. Current assets were $410.5 million and current liabilities $91.5 million.
- Debt carrying amounts totaled approximately $815.9 million, including $249.4 million outstanding under the term loan and $566.5 million net carrying value for the 2025 convertible notes. The term loan bore interest at 6.87% at quarter-end; there were no revolver borrowings. The company reported covenant compliance.
- For the first nine months, investing cash outflow was $25.4 million and financing cash inflow was $33.4 million. Financing included a $250 million term-loan draw, repayment of $169.7 million of 2022 convertible notes, and $43.0 million of share repurchases.
Material changes and management commentary
- Revenue fell 20% in Q3 and 7% over the first nine months. Home mortgage revenue weakened sharply as higher rates reduced refinance activity; Q3 mortgage product revenue was $34.5 million, down 63% year over year. Home equity and purchase mortgage products partly offset the decline.
- Management cited a sharp rise in mortgage rates, persistent inflation, weaker home-sale activity and affordability constraints. The average 30-year mortgage rate was 5.58% in Q3 2022 versus 2.87% a year earlier; the September monthly average was 6.11%.
- Insurance results remained pressured by carrier budget reductions, inflation, supply-chain issues, higher claim severity and frequency, and Hurricane Ian losses. Management did not expect meaningful property-and-casualty carrier budget increases until the following year.
- Consumer growth continued but was uneven. Personal-loan and small-business revenue increased, while credit-card revenue declined in Q3 amid competition. Student-loan activity remained affected by the federal payment moratorium, with payments expected to resume in 2023.
- The company reduced its workforce by approximately 100 employees in the first half of 2022, recording $3.8 million in restructuring and severance expense. It also acquired a $15.0 million equity interest in EarnUp in January 2022.
- Management stated that cash, operating cash flows and available credit were expected to fund operating needs for the next twelve months and beyond. No specific company revenue or earnings guidance is provided in the supplied filing text.
Risks, contingencies and other items
- Marketplace performance is sensitive to interest rates, lender and insurer partner demand, consumer activity and competition; partners may offer products directly or through other channels.
- The company identified potential impairment risk for its Insurance reporting unit if recovery is delayed, citing auto-insurance inflation and claim trends. Its 2022 quantitative goodwill test found reporting-unit fair values above carrying values, with no impairment recorded.
- Litigation is ongoing; the filing reports $0.1 million of litigation accruals and says possible losses or ranges for certain matters cannot be estimated. Management reported no material changes to previously disclosed risk factors.
- The adoption of ASU 2020-06 increased reported debt carrying value and changed diluted-EPS accounting; it resulted in a $44.4 million adjustment to opening accumulated deficit and did not affect cash flows or covenant compliance.
- Management said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether the full deferred-tax valuation allowance remains appropriate and how future taxable income assumptions may change.
- The pace of recovery, if any, in mortgage demand and insurer partner marketing budgets, and the resulting effect on Home and Insurance segment revenue and margins.
- Cash generation relative to the increased debt balance, including the floating-rate exposure of the term loan and remaining revolver availability.
- How management’s liquidity outlook and operating plans develop; the filing provides no quantified earnings or revenue guidance.
- Potential developments in litigation and the Insurance reporting unit’s impairment outlook.