LendingTree, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; the filing was signed February 26, 2020. The filing also reports fourth-quarter results. LendingTree operates an online marketplace connecting consumers with financial-service providers. It reorganized reporting into Home, Consumer, and Insurance segments in Q4; prior periods were reclassified. LendingTree Loans is reported as discontinued operations.
Financial performance
| Metric | FY 2019 | FY 2018 | Change |
|---|---|---|---|
| Revenue | $1,106.6 million | $764.9 million | +45% |
| Operating income | $50.7 million | $56.2 million | -10% |
| Operating margin | 4.6% | 7.3% | Down 2.7 percentage points |
| Continuing-operations income | $39.5 million | $109.3 million | -64% |
| Net income, including discontinued operations | $17.8 million | $96.5 million | -82% |
| Adjusted EBITDA | $198.2 million | $153.5 million | +29% |
| Operating cash flow from continuing operations | $157.2 million | $123.9 million | +27% |
- Revenue growth reflected expansion in Consumer and Insurance, partly offset by weaker Home revenue. Insurance revenue rose to $284.8 million from $31.4 million, primarily following the QuoteWizard acquisition; Consumer revenue grew 30% to $515.0 million. Home revenue fell 13% to $277.9 million.
- Consumer growth included credit cards revenue of $211.3 million (+28%) and personal loans revenue of $152.7 million (+14%). One insurance Network Partner accounted for 12% of consolidated revenue in 2019.
- Selling and marketing expense increased 47% to $735.2 million, including advertising expense of $688.2 million. Total costs and expenses rose 49%, outpacing revenue growth. Amortization of acquired intangibles increased to $55.2 million; contingent-consideration expense rose to $28.4 million.
- The effective tax benefit was $8.5 million in 2019, versus a $65.6 million benefit in 2018, contributing substantially to the decline in reported continuing-operations income. Adjusted EBITDA is a company-defined non-GAAP measure and excludes, among other items, acquisition-related charges and non-cash compensation.
- Q4 2019 revenue was $255.2 million, operating income $9.0 million, continuing-operations income $1.5 million, and net income $1.9 million. Q4 2018 revenue was $202.7 million, operating income $2.4 million, continuing-operations income $0.3 million, and net loss $3.3 million.
Cash, debt, and liquidity
- At December 31, 2019, cash and cash equivalents were $60.2 million, total assets $948.0 million, and shareholders’ equity $402.3 million.
- Balance-sheet debt included $75.0 million drawn on the revolving facility and $264.4 million net carrying value of the convertible notes. The notes have $300.0 million principal, a 0.625% coupon, and mature June 1, 2022. The notes’ reported fair value was approximately $469.1 million at year-end.
- In December 2019, the company replaced its $350 million revolving facility with a $500 million secured facility maturing December 2024. The company reported $75.0 million drawn at year-end and covenant compliance. As of February 26, 2020, borrowings were $50.0 million, with $449.8 million remaining capacity after a $0.2 million letter of credit.
- Continuing-operations investing cash use was $101.1 million, principally the $105.6 million net ValuePenguin acquisition and $20.0 million of capital expenditures, partly offset by $24.1 million of net proceeds from selling office buildings. Financing cash use was $87.7 million, including revolving-credit repayments, contingent payments, and share repurchases.
- Management stated cash, operating cash flows, and the revolving facility should be sufficient for operating needs for the next twelve months and beyond. Contractual obligations totaled $508.7 million, including $300.0 million convertible debt and $31.8 million operating lease payments.
Material changes, outlook, and risks
- Acquisitions shaped results: QuoteWizard (acquired in October 2018) expanded Insurance, while ValuePenguin was acquired in January 2019 for approximately $106.2 million. Acquisition-related amortization and contingent-consideration remeasurement materially affected expenses.
- Management expects continued Consumer growth but not at 2019’s rate, and does not expect Insurance growth to repeat its 2019 rate because of the acquisition comparison. Management expects Home revenue growth. No specific consolidated 2020 revenue or earnings guidance is provided.
- Mortgage rates declined during 2019; the reported average 30-year rate was 3.94%, versus 4.54% in 2018. Management described mortgage performance as sensitive to interest rates, housing activity, lender demand, and seasonal patterns. The filing cites MBA projections for an average 3.7% 30-year rate and a 33% refinance share in 2020; these are external industry projections, not company guidance.
- HLC, a former mortgage-origination subsidiary, entered Chapter 11 in July 2019 and was converted to Chapter 7 in September; LendingTree deconsolidated it. HLC’s bankruptcy trustee may pursue claims concerning a $40 million 2016 dividend. LendingTree recorded a $31.0 million discontinued-operations liability related to its settlement offer and estimated potential loss at $0–$40 million plus possible prejudgment interest. The company disputes the claims. A separate $68.5 million judgment was entered against HLC in the ResCap matter, and ResCap sued LendingTree entities seeking to impose liability; the company says it will defend the claims. These matters contributed to a $21.6 million discontinued-operations loss in 2019.
- Other principal risks include mortgage-market cyclicality; reliance on paid and organic digital traffic and Network Partners; concentration in credit-card, personal-loan, and insurance revenue; competition; privacy, cybersecurity, and regulatory exposure; and execution and valuation risks from acquisitions. The company ceased home-improvement referrals in 2019 and planned to stop reselling online advertising in Q1 2020, which it said would reduce Other revenue and related costs.
- The auditor issued an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded controls were effective. The auditor identified critical audit matters involving ValuePenguin content valuation and QuoteWizard contingent consideration.
Important facts for investors to verify
- How much of reported revenue and segment profit growth is organic versus attributable to acquisitions, and how sustainable are Consumer and Insurance demand and marketing economics?
- What are the likely cash and earnings outcomes of the HLC-related claims, the ResCap action against LendingTree entities, and other discontinued-operation liabilities?
- How do the convertible notes’ conversion rights, potential cash settlement, hedge and warrant arrangements, and market value affect liquidity and dilution risk?
- Can LendingTree maintain partner relationships and manage its 12% revenue concentration in a single Insurance Network Partner?
- How sensitive are goodwill, acquired intangible assets, and contingent-consideration estimates to changes in growth assumptions and actual acquired-business performance?