TREE COM 
By CHARLOTTE, N.C., March 10, 2014 /PRNewswire/ -- Tree.com, Inc. (NASDAQ: TREE), operator of LendingTree.com, the nation's leading online source for competitive home loan offers, today announced results for the quarter and full year ended December 31, 2013.
"We once again produced record levels of Variable Marketing Margin and Adjusted EBITDA, despite seasonal headwinds, capping off a banner year in which we grew revenue and Adjusted EBITDA by 48% and 32%, respectively, over last year's Adjusted Exchanges results" said Doug Lebda, Chairman & CEO of Tree.com. "In a quarter in which we typically see lower consumer demand for our services and advertising becomes more costly, the team did an excellent job of optimizing our marketing investment to drive increased profitability. Additionally, our diversification strategy continued to pay off, as we achieved record revenue from our non-mortgage products. Overall, the quarter's results notably exceeded our prior guidance."
"In an environment in which mortgage originations continue to decline significantly, we believe the role of our performance-based marketing services takes on greater importance for lenders, as indicated by the activity on our exchange. In the fourth quarter, one-third of our existing clients increased their spend with us by at least 20% over the preceding third quarter. And as mortgage originations continued to contract, we saw improved monetization of our leads."
Fourth Quarter 2013 Business Highlights
-- Continuing the divergence from overall market trends, revenue from
mortgage products was up 49% in the fourth quarter from the same period
last year, while total mortgage market originations fell by 47% during
this time.
-- Proactive and ongoing enhancements to LendingTree.com's purchase
mortgage offering continued to yield impressive results, with fourth
quarter revenue from purchase mortgage products up nearly 200% from the
same period in 2012.
-- Record revenue from non-mortgage products of $5.2 million in the fourth
quarter, reflecting an increase of 112% over the fourth quarter 2012,
was bolstered by the launch of new and improved products throughout the
year, including the LoanExplorer "rate table" marketplace and reverse
mortgage and personal loan offerings
Tree.com Selected Financial Metrics
(In millions)
------------
Q/Q Y/Y
Q4 Q3 % Change Q4
2013 2013 2012 % Change
----- ----- -------- ----- --------
Revenue by
Product
Mortgage
Products
(1) $31.2 $32.6 (4)% $21.0 49%
Non-
Mortgage
Products
(2) 5.2 4.7 10% 2.5 112%
Corporate - - NM 0.5 NM
--- --- ---
Total
Revenue $36.4 $37.3 (2)% $23.9 52%
Non-
Mortgage % 14% 13% 10%
Selling and
Marketing
Expense
Exchanges
Marketing
Expense
(3) $20.1 $22.3 (10)% $11.6 73%
Other
Marketing 2.6 2.6 1% 2.3 10%
--- --- ---
Selling
and
Marketing
Expense $22.6 $24.8 (9)% $13.9 63%
Variable
Marketing
Margin
(4) $16.3 $15.1 8% $12.4 32%
Variable
Marketing
Margin %
of
Revenue 45% 40% 52%
Net
Income/
(Loss)
from
Continuing
Operations $1.3 $0.3 317% $2.5 (47)%
Adjusted
EBITDA
(5) $5.9 $5.4 10% $2.7 115%
Adjusted
EBITDA %
of
Revenue
(5) 16% 14% 11%
(1) Includes the purchase
mortgage and refinance
mortgage products.
(2) Includes the home equity,
reverse mortgage, rate
table, personal loan,
auto, education, home
services, insurance and
personal credit products.
(3) Defined as the portion of
selling and marketing
expense attributable to
variable costs paid for
advertising, direct
marketing and related
expenses, which excludes
overhead, fixed costs and
personnel-related
expenses. Please see
"Tree.com's Reconciliation
of Non-GAAP Measures to
GAAP" and "Tree.com's
Principles of Financial
Reporting" below for more
information.
(4) Defined as revenue minus
Exchanges marketing
expense and is considered
an operating metric.
(5) Adjusted EBITDA and
adjusted EBITDA % of
revenue are non-GAAP
measures. Please see
"Tree.com's Reconciliation
of Non-GAAP Measures to
GAAP" and "Tree.com's
Principles of Financial
Reporting" below for more
information.
Fourth Quarter 2013 Financial and Operating Highlights
-- Fourth quarter 2013 revenue of $36.4 million exceeded prior guidance and
represents an increase of $12.5 million, or 52%, over revenue in the
fourth quarter 2012.
-- Variable marketing margin of $16.3 million in the fourth quarter 2013
was the highest level achieved since we began reporting this operating
metric and, as a percent of revenue, reflected completion of the
expensing of production costs for the new brand campaign early in the
quarter. With production of new television spots currently underway, a
resumption of production expenditures is anticipated in Q1 2014.
-- Adjusted EBITDA of $5.9 million also represents a record result and
exceeded our previous guidance.
-- Working capital was $72.7 million at December 31, 2013. Working capital
is calculated as current assets (including unrestricted and restricted
cash) minus current liabilities (including loan loss reserves).
Full Year 2013 Financial and Operating Highlights
-- Full year 2013 revenue of $139.2 million exceeded prior guidance and
represents increases of 48% and 80% over full year 2012 Adjusted
Exchanges revenue and GAAP revenue, respectively. Growth in revenue was
entirely internally-generated. Included in this result is growth in
Mortgage Revenue of 64% over Adjusted Mortgage Exchange Revenue in 2012,
while total mortgage originations in the market declined by 13%.
-- Variable marketing margin of $58.6 million in 2013, or 42% of revenue,
increased by 24% from Adjusted Variable Marketing Margin of $47.1
million, or 50% of Adjusted Exchanges revenue, in 2012. 2012 Adjusted
Variable Marketing Margin is defined as Adjusted Exchanges Revenue less
Adjusted Exchanges Marketing Expense.
-- Net loss from Continuing Operations of $0.7 million.
-- Adjusted EBITDA of $18.7 million exceeded the high end of the previous
guidance range of $16 - $17 million and represents year-over-year growth
of 32%, as compared with Adjusted Exchanges EBITDA of $14.2 million in
2012.
Business Outlook - 2014
Tree.com is providing revenue, variable marketing margin and Adjusted EBITDA guidance for the first quarter 2014 and maintaining it's previously provided full year 2014 outlook.
For Q1 2014:
-- Tree.com expects revenue to grow 30 - 40% over the first quarter 2013.
-- Variable Marketing Margin for Q1 2014 is anticipated to be in the range
of $14.0 - $15.0 million.
-- Adjusted EBITDA for first quarter 2014 is anticipated to be in the range
of $4.0 - $4.5 million.
For full year 2014, TREE is reiterating its previous guidance:
-- Revenue is anticipated to grow by 10% - 15% over 2013.
-- Variable Marketing Margin is anticipated to be in the range of $62 - $66
million.
-- Adjusted EBITDA is anticipated to be in the range of $20 - $21 million.
Quarterly Conference Call
A conference call to discuss Tree's fourth quarter and full year 2013 financial results will be webcast live today at 6:00 PM Eastern Time (ET). The live audiocast is open to the public and available on Tree's investor relations website at http://investor-relations.tree.com/. The call may also be accessed toll-free via phone at (877) 606-1416. Callers outside the United States may dial (707) 287-9313. Following completion of the call, a recorded replay of the webcast will be available on Tree's investor relations website until 11:59 PM ET on Wednesday March 19, 2014. To listen to the telephone replay, call toll-free (855) 859-2056 with passcode #4756168. Callers outside the United States may dial (404) 537-3406 with passcode #4756168.
TREE.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share information)
Year Ended
Three Months Ended
------------------
December 31, December 31, December 31, December 31,
2013 2012 2013 2012
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
Revenue $36,411 $23,942 $139,240 $77,443
Costs and expenses:
Cost of revenue
(exclusive of
depreciation
shown separately
below) 1,503 1,465 6,542 4,295
Selling and
marketing
expense 22,648 13,937 91,121 48,934
General and
administrative
expense 6,841 6,065 24,658 22,231
Product
development 1,350 1,146 5,264 3,529
Depreciation 853 901 3,501 4,105
Amortization of
intangibles 28 44 147 358
Restructuring and
severance 83 52 159 (57)
Litigation
settlements and
contingencies 2,143 (4,049) 8,955 (3,101)
Total costs and
expenses 35,449 19,561 140,347 80,294
------ ------ ------- ------
Operating income
(loss) 962 4,381 (1,107) (2,851)
Other income (expense):
Interest expense (1) (275) (19) (881)
--- ---- --- ----
Income (loss)
before income
taxes 961 4,106 (1,126) (3,732)
Income tax
benefit
(expense) 356 (1,603) 453 1,483
--- ------ --- -----
Net income (loss)
from continuing
operations 1,317 2,503 (673) (2,249)
----- ----- ---- ------
Discontinued operations:
Gain from sale of
discontinued
operations, net
of tax (540) 60 9,561 24,373
Income (loss)
from operations
of discontinued
operations, net
of tax (777) (244) (4,739) 24,501
---- ---- ------ ------
Income (loss)
from
discontinued
operations (1,317) (184) 4,822 48,874
------ ---- ----- ------
Net income $ - $2,319 $4,149 $46,625
--- --- ------ ------ -------
Weighted average shares
outstanding:
Basic 11,025 10,768 11,035 10,695
Diluted 11,839 11,557 11,035 10,695
Net income (loss) per share
from continuing operations:
Basic $0.12 $0.23 $(0.06) $(0.21)
Diluted $0.11 $0.22 $(0.06) $(0.21)
Net income (loss) per share
from discontinued operations:
Basic $(0.12) $(0.02) $0.44 $4.57
Diluted $(0.11) $(0.02) $0.44 $4.57
Net income per share
attributable to common
shareholders:
Basic $ - $0.22 $0.38 $4.36
Diluted $ - $0.20 $0.38 $4.36
TREE.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share amounts)
December 31, December 31,
2013 2012
---- ----
ASSETS:
Cash and cash
equivalents $91,667 $80,190
Restricted cash
and cash
equivalents 26,017 29,414
Accounts
receivable, net
of allowance of
$408 and $503,
respectively 12,850 11,488
Prepaid and other
current assets 1,689 773
Current assets of
discontinued
operations 46 407
--- ---
Total current
assets 132,269 122,272
Property and
equipment, net 5,344 6,155
Goodwill 3,632 3,632
Intangible assets,
net 10,684 10,831
Other non-current
assets 111 152
Non-current
assets of
discontinued
operations 129 129
--- ---
Total assets $152,169 $143,171
-------- --------
LIABILITIES:
Accounts payable,
trade $4,881 $2,741
Deferred revenue 49 648
Accrued expenses
and other current
liabilities 23,265 19,960
Current
liabilities of
discontinued
operations 31,327 31,017
------ ------
Total current
liabilities 59,522 54,366
Other non-current
liabilities 378 936
Deferred income
taxes 4,849 4,694
Non-current
liabilities of
discontinued
operations 210 253
--- ---
Total liabilities 64,959 60,249
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Preferred stock
$.01 par value;
authorized
5,000,000 shares;
none issued or
outstanding - -
Common stock $.01
par value; 11,006,730
authorized shares,
50,000,000 respectively
shares; issued
12,619,835 and
12,195,209
shares,
respectively, and
outstanding
11,250,903 and 126 122
Additional paid-
in capital 907,148 903,692
Accumulated
deficit (807,331) (811,480)
Treasury stock
1,368,932 and
1,188,479 shares,
respectively (12,733) (9,412)
------- ------
Total
shareholders'
equity 87,210 82,922
------ ------
Total liabilities
and shareholders'
equity $152,169 $143,171
-------- --------
TREE.COM'S RECONCILIATION OF NON-GAAP MEASURES TO GAAP
Below is a reconciliation of Adjusted EBITDA to net income (loss) from continuing operations. See "Tree.com's Principles of Financial
Reporting" for further discussion of the Company's use of these Non-GAAP measures.
(In thousands)
Three Months Ended Year Ended
------------------ ----------
December September December December December
31, 2013 30, 2013 31, 2012 31, 2013 31, 2012
--------- ---------- --------- --------- ---------
Adjusted
EBITDA $5,908 $5,364 $2,745 $18,717 $3,779
Adjustments to
reconcile to net
income (loss) from
continuing
operations:
Amortization
of
intangibles (28) (33) (44) (147) (358)
Depreciation (853) (891) (901) (3,501) (4,105)
Restructuring
and
severance (83) 70 (52) (159) 57
Loss on
disposal of
assets (140) (1) (394) (165) (738)
Non-cash
compensation (1,349) (1,412) (1,022) (5,627) (4,587)
Discretionary
cash bonus - - - (920) -
Trust
contribution (350) - - (350) -
Litigation
settlements
and
contingencies (2,143) (2,875) 4,049 (8,955) 3,101
Other
expense,
net (1) (4) (275) (19) (881)
Income tax
benefit
(provision) 356 98 (1,603) 453 1,483
--- --- ------ --- -----
Net income
(loss) from
continuing
operations $1,317 $316 $2,503 $(673) $(2,249)
------ ---- ------ ----- -------
Below is a reconciliation of revenue to Adjusted Exchanges revenue, selling and marketing expense to Adjusted Exchanges marketing expense, and Adjusted EBITDA (reconciled to net income (loss) from continuing operations in the table above) to Adjusted Exchanges EBITDA. See "Tree.com's Principles of Financial Reporting" for further discussion of the Company's use of these Non-GAAP measures.
(In thousands)
-------------
Three Months Ended Year Ended December 31,
------------------ -----------------------
December 31, December 31, December 31, December 31,
2013 2012 2013 2012
------------- ------------- ------------- -------------
Revenue $36,411 $23,492 $139,240 $77,443
Mortgage
Revenue $33,815 $21,307 $127,985 $61,176
Adjustment:
Modeled
Revenue for
leads sent
to HLC - - - 16,864
Adjusted
Mortgage
Exchange
Revenue N/A N/A N/A $78,040
Non-
Mortgage
Revenue 2,595 2,110 10,632 14,620
Corporate
Revenue 1 525 624 1,647
Total
Adjusted
Exchanges
Revenue N/A N/A N/A $94,307
Selling &
Marketing
Expense $22,648 $13,937 $91,121 $48,934
Exchanges
Marketing
Expense 20,073 11,590 80,680 41,272
Adjustment:
Shared
Variable
Marketing
allocated
to HLC - - - 5,927
Adjusted
Exchanges
Marketing
Expense N/A N/A N/A $47,199
Other
Marketing 2,575 2,347 10,441 7,661
Adjusted
EBITDA $5,908 $2,745 $18,717 $3,779
Adjustment:
Combined
Revenue &
Marketing - - - 10,937
Adjustment:
Shared
compensation
costs
allocated
to HLC - - - (489)
Adjusted
Exchanges
EBITDA N/A N/A N/A $14,227
TREE.COM'S PRINCIPLES OF FINANCIAL REPORTING
Tree.com reports Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), as adjusted for certain items discussed below ("Adjusted EBITDA") and Adjusted EBITDA % of revenue as supplemental measures to GAAP. These measures are primary metrics by which Tree.com evaluates the performance of its businesses, on which its marketing expenditures are based and, in the case of Adjusted EBITDA, by which management and many employees are compensated. Tree.com believes that investors should have access to the same set of tools that it uses in analyzing its results. These non-GAAP measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. Tree.com provides and encourages investors to examine the reconciling adjustments between the GAAP and non-GAAP measures set forth above. Tree.com is not able to provide a reconciliation of projected Adjusted EBITDA to expected reported results due to the unknown effect, timing and potential significance of the effects of the wind-down of discontinued operations and tax considerations.
Definition of Tree.com's Non-GAAP Measures
EBITDA is defined as operating income or loss (which excludes interest expense and taxes) excluding amortization of intangibles and depreciation.
Adjusted EBITDA is defined as EBITDA excluding (1) non-cash compensation expense, (2) non-cash intangible asset impairment charges, (3) gain/loss on disposal of assets, (4) restructuring and severance expenses, (5) litigation settlements and contingencies and legal fees for certain patent litigation, (6) adjustments for significant acquisitions or dispositions, and (7) one-time items. Adjusted EBITDA has certain limitations in that it does not take into account the impact to Tree.com's statement of operations of certain expenses, including depreciation, non-cash compensation and acquisition-related accounting. Tree.com endeavors to compensate for the limitations of the non-GAAP measures presented by also providing the comparable GAAP measures with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the non-GAAP measures.
Adjusted Mortgage Exchange revenue is defined as revenue generated by our mortgage exchange plus modeled revenue for leads provided to HLC, assuming sale prices for such leads equaled contemporaneous sale prices of leads of similar quality sold to network lenders. Accordingly, this measure also assumes lender demand on the network would have been sufficient to absorb the additional lead volume without affecting the prices of the leads actually sold. The Company believes these are reasonable assumptions to facilitate the purpose of this metric, which is to give investors a view into what the results might have been if the Company did not operate HLC. Investors are cautioned that there is inherent uncertainty in this metric and the Company urges investors to consider this metric, and the other non-GAAP measures discussed below that include this metric, in addition to results prepared in accordance with GAAP and not as substitutions for or superior to GAAP results.
Total adjusted Exchanges revenue is defined as adjusted Mortgage Exchange revenue plus revenue from the non-mortgage verticals.
Exchanges marketing expense is defined as the portion of selling and marketing expense attributable to variable costs paid for advertising, direct marketing and related expenses, which excludes overhead, fixed costs and personnel-related expenses. Adjusted Exchanges marketing expense is a non-GAAP measure that adds to Exchanges marketing expense the selling and marketing expense allocated to the company's former mortgage origination business and recorded in discontinued operations.
Adjusted Exchanges EBITDA is defined as Adjusted EBITDA from continuing operations, plus modeled revenue for leads provided to HLC, minus the selling and marketing expense allocated to HLC and recorded in discontinued operations.
Non-GAAP adjusted Exchanges metrics are not prepared in accordance with SEC rules or Generally Accepted Accounting Principles requiring certain pro forma financial information giving effect to the disposition of a material asset that has occurred or in some cases that is probable, and they are not intended to be a substitute for such financial information. The Company prepared and reported pro forma financial information following the closing of the sale of assets of Home Loan Center, Inc. ("HLC") in accordance with SEC rules and Generally Accepted Accounting Principles, which was filed as an exhibit to Tree.com's Form 8-K filed on June 7, 2012.
One-Time Items
Adjusted EBITDA is adjusted for one-time items, if applicable. Items are considered one-time in nature if they are non-recurring, infrequent or unusual, and have not occurred in the past two years or are not expected to recur in the next two years, in accordance with SEC rules. For the periods presented in this report, there are no adjustments for one-time items, except for a compensation charge of $0.9 million related to a discretionary cash bonus payment to employee stock option holders in Q1 2013 and a $0.4 million contribution to a trust in Q4 2013.
Non-Cash Expenses That Are Excluded From Tree.com's Adjusted EBITDA
Non-cash compensation expense consists principally of expense associated with the grants of restricted stock units, stock options and restricted stock. These expenses are not paid in cash and Tree.com includes the related shares in its calculations of fully diluted shares outstanding. Upon settlement of restricted stock units, exercise of certain stock options or vesting of restricted stock awards, the awards may be settled on a net basis, with Tree.com remitting the required tax withholding amounts from its current funds.
Amortization of intangibles are non-cash expenses relating primarily to acquisitions. At the time of an acquisition, the intangible assets of the acquired company, such as purchase agreements, technology and customer relationships, are valued and amortized over their estimated lives.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
The matters contained in the discussion above may be considered to be "forward-looking statements" within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995. Those statements include statements regarding the intent, belief or current expectations or anticipations of Tree.com and members of our management team. Factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include the following: adverse conditions in the primary and secondary mortgage markets and in the economy, particularly interest rates; seasonality of results; potential liabilities to secondary market purchasers; changes in the Company's relationships with network lenders; breaches of network security or the misappropriation or misuse of personal consumer information; failure to provide competitive service; failure to maintain brand recognition; ability to attract and retain customers in a cost-effective manner; ability to develop new products and services and enhance existing ones; competition; allegations of failure to comply with existing or changing laws, rules or regulations, or to obtain and maintain required licenses; failure of network lenders or other affiliated parties to comply with regulatory requirements; failure to maintain the integrity of systems and infrastructure; liabilities as a result of privacy regulations; failure to adequately protect intellectual property rights or allegations of infringement of intellectual property rights; and changes in management. These and additional factors to be considered are set forth under "Risk Factors" in our Annual Report on Form 10-K for the period ended December 31, 2012 and our Quarterly Report on Form 10-Q for the period ended September 30, 2013, and in our other filings with the Securities and Exchange Commission. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results or expectations.
About Tree.com, Inc.
Tree.com, Inc. (NASDAQ: TREE) is the parent of several brands and businesses that provide information, tools, advice, products and services for critical transactions in consumers' lives. Our family of brands includes: LendingTree®, GetSmart®, LendingTree Education(SM), LendingTreeAutos(SM), LendingTree HomePros(SM), DoneRight® and InsuranceTree®. Together, these brands serve as an ally for consumers who are looking to comparison shop for loans, education, auto, home services and other services from multiple businesses and professionals who will compete for their business.
Tree.com, Inc. is headquartered in Charlotte, NC and maintains operations solely in the United States. For more information, please visit www.tree.com.
SOURCE Tree.com, Inc.
