LendingTree, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. LendingTree operates an online marketplace connecting consumers with financial-services and insurance providers. The former LendingTree Loans business is reported as discontinued operations.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $270.0 million | $184.3 million | $542.8 million | $467.4 million |
| Operating income (loss) | $10.5 million | $(7.5) million | $8.6 million | $13.2 million |
| Net income from continuing operations | $9.8 million | $(8.6) million | $29.1 million | $10.4 million |
| Net income (loss), including discontinued operations | $6.6 million | $(29.8) million | $25.7 million | $(15.4) million |
| Adjusted EBITDA (non-GAAP) | $38.2 million | $30.8 million | $69.0 million | $75.7 million |
| Continuing-operations operating cash flow | Not separately stated for the quarter | $54.6 million | $87.9 million |
Q2 revenue increased 46% year over year; continuing-operations net income and operating income turned positive. Six-month revenue rose 16%, but operating income fell 35% and Adjusted EBITDA declined about 9%. Six-month results included a $40.1 million unrealized gain on the Stash investment in other income; Adjusted EBITDA excludes investment gains and losses.
By segment, Q2 revenue was Home $104.9 million (+41%), Consumer $75.7 million (+104%) and Insurance $89.3 million (+22%). For the first six months, Home revenue rose 52% to $233.0 million and Insurance rose 13% to $175.9 million, while Consumer fell 15% to $133.6 million. Q2 Home segment profit margin was 37%, compared with 30% in Q1 2021. Cost of revenue was 5% of revenue in Q2 versus 7% a year earlier.
Cash, debt and liquidity
- Cash and cash equivalents were $203.2 million at June 30, 2021, up from $169.9 million at December 31, 2020. Continuing-operations operating cash flow less capital expenditures was approximately $31.0 million for the six months.
- Long-term debt carrying value was $627.6 million: $161.7 million current (2022 convertible notes) and $465.9 million non-current (2025 convertible notes). The notes’ aggregate principal amounts were $169.7 million and $575.0 million, respectively. No borrowings were outstanding under the $500 million revolving facility at quarter-end.
- The temporary revolving-credit covenant amendment expired after June 30. Management said the company was then unable to draw on the facility and was working to establish a new facility during Q3 2021. The company reported compliance with covenants at June 30.
- Six-month investing cash use was $24.8 million, including $23.6 million of capital expenditures and $1.2 million for additional Stash shares. Financing cash use was $5.0 million.
Material changes, outlook and risks
- Home and Insurance growth drove the first-half revenue increase. Consumer revenue remained below the prior year for the half, although Q2 rebounded substantially, led by personal loans, credit cards and small-business loans. Management attributed ongoing Consumer-market uncertainty to the COVID-19 recovery.
- Marketing expense increased 63% in Q2 and 24% for the half, mainly reflecting higher advertising spend aligned with marketplace demand. Online advertising expense rose 69% in Q2 and 24% for the half.
- Interest expense increased to $9.8 million in Q2 and $20.1 million for the half, reflecting the 2025 notes and the remaining 2022 notes. Management expects cash and operating cash flows to fund needs for the next twelve months and beyond, but also said recession-related conditions could negatively affect operating cash flow. No numerical earnings or revenue guidance was provided.
- Management noted mortgage-rate and refinance-volume sensitivity, stronger recent competition in paid search, and continued COVID-19 uncertainty. It expects mortgage rates to rise during 2021, citing an MBA projection of a 3.4% average for 30-year rates; this is an industry projection, not company guidance.
- Unusual items include the $40.1 million Stash fair-value gain, an $8.1 million first-half gain from remeasuring QuoteWizard contingent consideration, and an $8.6 million refund received from the HLC bankruptcy estate. HLC’s bankruptcy case closed July 14, 2021. A settlement with Lehman Brothers Holdings was reached in July 2021 and was included as a balance-sheet liability, but the filing text does not provide a clear settlement amount.
- Litigation accruals at June 30 were $1.0 million in continuing operations and $4.9 million in discontinued operations. Management stated it could not estimate potential losses for certain matters where non-monetary remedies may be sought. The company reported no material changes to previously disclosed risk factors.
Key facts for investors to verify
- Progress, terms and availability of the replacement revolving credit facility, including liquidity while the company cannot draw on the existing facility.
- Whether the Q2 Consumer rebound continues, and how credit-card, personal-loan and small-business-loan demand and profitability develop.
- Home-segment performance as mortgage rates rise and refinance activity decelerates; also track purchase-mortgage and home-equity contribution.
- Cash conversion and spending, especially the effect of receivables, advertising and office-related capital expenditures on operating cash flow.
- Settlement and payment outcomes for the Lehman Brothers matter and other HLC-related litigation, as well as the remaining QuoteWizard earnout exposure of up to $23.4 million.
- Distinguish recurring operating performance from the Stash valuation gain, contingent-consideration remeasurement and discontinued-operation litigation items.