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Tree.com Reports Third Quarter 2012 Financial Results

            Tree.com Reports Third Quarter 2012 Financial Results

PR Newswire

CHARLOTTE, N.C., Nov. 5, 2012

CHARLOTTE, N.C., Nov. 5, 2012 /PRNewswire/ --

  oConsolidated Net Income of $4.4 million; basic EPS of $0.38 and diluted
    EPS of $0.37
  oContinuing operations revenue of $23.3 million, up 19% from third quarter
    2011 total adjusted Exchanges revenue
  oContinuing operations Adjusted EBITDA of $3.9 million, or 17% of revenue
  oRaising 2012 adjusted Exchanges EBITDA guidance and issuing guidance for
    2013

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 ended September 30, 2012.

(Logo: http://photos.prnewswire.com/prnh/20110518/MM04466LOGO)

Following the completion of the sale of substantially all of the assets of the
company's former mortgage origination business in the preceding quarter,
Tree's revenues and expenses for the third quarter reflect the monetization on
our mortgage Exchange of all leads generated. Tree formerly provided non-GAAP
adjusted Exchanges metrics to give investors a view into what our results
might have been if the company did not monetize some leads through the former
mortgage origination business. Tree is continuing to provide adjusted
Exchanges metrics for applicable historical periods in which the company
operated the mortgage origination business.

Chairman and CEO of Tree.com, Doug Lebda, commented, "Tree delivered another
great quarter. This was our first full quarter as a pure-play performance
marketing company and we grew both top- and bottom-line from both last quarter
and Q3 of last year. Our third quarter results reflect strong demand from our
network lenders, who readily absorbed the substantial increase in supply of
leads available to our Exchange following the sale of our mortgage origination
business even in this historically low interest rate environment."

"We continue to leverage our brands to drive consumers to our sites and
provide quality leads to our clients. I am particularly pleased with the
continued growth of our mortgage business, where we grew mortgage Exchanges
revenue by 27% over adjusted mortgage Exchanges revenue in the third quarter
of last year. Our financial plan is to grow our top line while maintaining
strong variable marketing margin dollars and percent, and we are performing to
that plan with nearly $12 million in variable marketing margin, representing a
50% margin, in the quarter," said Mr. Lebda.

Third Quarter 2012 Financial and Operating Highlights

  oRevenue in the third quarter was 19% higher than adjusted Exchanges
    revenue in the third quarter 2011, driven by a 27% increase in adjusted
    Exchanges mortgage revenue.
  oCompared to prior periods' adjusted Exchanges EBITDA, continuing
    operations Adjusted EBITDA represented a 67% improvement over third
    quarter 2011 and a 14% improvement over the second quarter 2012.
  oContinuing operations Adjusted EBITDA margin was 17% in the quarter,
    compared with adjusted Exchanges EBITDA margins of 12% in the third
    quarter 2011 and 15% in the second quarter 2012.
  oUnique visitors grew in the third quarter 2012, with an 18% increase over
    third quarter 2011 and a 19% increase over the second quarter 2012.
  oWorking capital was $73.0 million at September 30, 2012, compared to $70.5
    million at June 30, 2012. Working capital is calculated as current assets
    (including unrestricted and restricted cash) minus current liabilities
    (including loan loss reserves). Working capital does not include $10
    million of deferred contingent consideration payable on the one year
    anniversary of the closing of the sale of the company's mortgage
    origination business, subject to various conditions being satisfied.
  oDuring the third quarter 2012, the company purchased a total of 15,136
    shares of its stock at an average price of $15.28. As of September 30,
    2012, there was approximately $3.9 million in share repurchase
    authorization remaining under the current approved plan. Subsequent to
    the end of the third quarter, between October 1 and October 31, 2012, the
    company purchased an additional 24,815 shares at an average price of
    $14.35.

Business Outlook – 2012 and 2013

Tree is providing revenue, Variable Marketing Margin and Adjusted EBITDA
guidance for 2012 and 2013 as follows:

For 2012:

  oWe expect revenue from continuing operations in the fourth quarter 2012 to
    be 23%-27% higher than adjusted Exchanges revenue from the fourth quarter
    2011. This equates to approximately 108%-114% higher revenue from
    continuing operations than reported in the fourth quarter 2011 on a GAAP
    basis.
  oVariable marketing margin in the fourth quarter 2012 is expected to be
    $10-$11 million. The company did not previously provide guidance on
    variable marketing margin.
  oAdjusted Exchanges EBITDA guidance for the full year 2012 is revised to
    $13-$14 million, from $12-$14 million previously.

We are withdrawing our guidance for Net Income because of uncertainty in
projecting the effects of the wind-down of discontinued operations and tax
considerations.

For 2013:

  oRevenue is anticipated to grow 15%–20% over 2012 adjusted Exchanges
    revenue. This equates to approximately 41%-46% over 2012 revenue from
    continuing operations reported on a GAAP basis.
  oVariable marketing margin is anticipated to be 45%-48% of revenue.
  oAdjusted EBITDA is anticipated to be $15–$17 million.

Quarterly Conference Call

A conference call to discuss Tree's third quarter 2012 financial results will
be webcast live today at 5:30 PM Eastern Time (ET). The live audio cast is
open to the public and available on Tree's investor relations website at
http://investor-relations.tree.com/. For those without access to the
Internet, the call may be accessed toll-free via phone at 877-606-1416.
Callers outside the United State 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 P.M. ET on Monday November 19, 2012.
To listen to the telephone replay, call toll-free 855-859-2056 with passcode #
34370948. Callers outside the United States may dial 404-537-3406  with
passcode #34370948.

QUARTERLY TABLES AND FINANCIALS –

 Tree.com Exchanges Metrics (1)
 $s in millions
                                       Q/Q                               Y/Y
               Q3     Q2 2012         % Change         Q3 2011         % Change
               2012
                      GAAP Adjusted  GAAP Adjusted   GAAP Adjusted  GAAP Adjusted
 Revenue
 Mortgage (2) $    $   $        59%   7%          $   $        115%  27%
               19.8   12.5  18.5                          9.2 15.6
 Non-Mortgage $    $   $       (22%) (22%)       $   $       (10%) (10%)
                3.5   4.5 4.5                           3.9 3.9
 Total         $     $                                 $ 
 Exchanges     23.3  17.0 $  23.0  37%   1%          13.1 $  19.5  78%   19%
 revenue
 Non Mortgage  15%    27%   20%                          30%   20%
 %
 Selling and
 marketing
 expense
 Exchanges     $    $   $                          $   $  
 marketing     11.6    9.0 11.1       29%   4%           7.5 10.7       54%   8%
 expense (3)
 Other         $    $   $       (10%) (10%)       $   $       80%   80%
 Marketing     1.8   2.0 2.0                           1.0 1.0
 Selling and   $     $                                 $  
 marketing     13.4  11.0 $  13.1  22%   2%          8.5  $  11.8  57%   13%
 expense
 Variable      $    $   $                          $   $   
 marketing     11.7    8.0 11.9       47%   (1%)         5.6 8.8        109%  33%
 margin (4)
 Variable
 marketing     50%    47%   52%                          43%   45%
 margin % of
 revenue
 Net
 Income/(Loss) $    $                                $  
 from           0.3  (1.8) N/A      NM    N/A       (3.4) N/A      NM    N/A
 Continuing
 Operations
 Adjusted      $          $                                $  
 Exchanges     3.9   N/A 3.4       N/A 14%         N/A 2.3       N/A 67%
 EBITDA (5)
 Adjusted
 EBITDA % of   17%    N/A 15%        N/A             N/A 12%        N/A
 revenue

(1) Adjusted Exchanges mortgage revenue, total adjusted Exchanges revenue,
adjusted Exchanges marketing expense, variable marketing margin, variable
marketing margin % of revenue, adjusted Exchanges 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 on these non-GAAP measures. Q2 2012 Adjusted
Exchanges metrics reflect modeled results through June 6, 2012, and actual
results from June 7, 2012, through June 30, 2012.

(2) Adjusted Exchanges mortgage revenue is defined as revenue from the
Exchanges mortgage vertical plus modeled revenue for leads provided to the
company's former mortgage origination business assuming sale prices for such
leads equalled 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. Please see "Tree.com's
Principles of Financial Reporting" for further explanation of this metric.

(3) Adjusted Exchanges marketing expense is defined as the portion of selling
and marketing expense attributable to the current Exchanges business for
variable costs paid for advertising, direct marketing and related expenses,
plus selling and marketing expense allocated to the company's former mortgage
origination business and recorded in discontinued operations. This metric
excludes overhead, fixed costs, and personnel-related expenses.

(4) Variable marketing margin is defined as total Exchanges revenue minus
Exchanges marketing expense.

(5) Adjusted Exchanges EBITDA is defined as Adjusted EBITDA from continuing
operations, plus modeled revenue for leads provided to the company's former
mortgage origination business, minus Exchanges selling and marketing expense
allocated to the company's former mortgage origination business and recorded
in discontinued operations.

 Tree.com Summary Financial Results
 $s in millions (except per share amounts)
                                               Q/Q                   Y/Y
                      Q3 2012    Q2 2012     %          Q3 2011    %
                                               Change                Change
 Revenue
 From Continuing Ops $       $        37%        $       78%
                      23.3        17.0                  13.1
 From Discontinued    $       $        (81%)      $       (84%)
 Ops                   5.9      30.6                 37.6
 Total Revenue       $       $        (38%)      $       (42%)
                      29.2        47.5                  50.7
 Adjusted EBITDA *
 From Continuing Ops $       $        NM         $       NM
                        3.9      (0.3)                (0.5)
 From Discontinued    $       $        (16%)      $       (56%)
 Ops                   4.2       5.0                 9.6
 Total Adjusted       $       $        72%        $       (10%)
 EBITDA                8.1       4.7                 9.1
 EBITDA *
 From Continuing Ops $       $        NM         $       NM
                        1.8      (1.6)                (2.2)
 From Discontinued    $       $        23%        $       (54%)
 Ops                   4.2       3.4                 9.0
 Total EBITDA        $       $        240%       $       (12%)
                        6.0       1.8                 6.8
 Net Income/(Loss)
 Net Income/(Loss)    $       $        NM         $       NM
 from Continuing Ops   0.3      (1.8)                (3.4)
 Net Income/(Loss)    $       $                   $    
 from Discontinued      4.1      27.5     (85%)       16.7      (75%)
 Ops
 Net Income/(Loss)   $       $        (83%)      $       (67%)
                        4.4      25.8                  13.3
 Net Income/(Loss)    $       $        (83%)      $       (68%)
 Per Share           0.38        2.28                  1.21
 Diluted Net          $       $                   $    
 Income/(Loss) Per    0.37        2.28       (84%)      1.21        (70%)
 Share
 From Continuing
 Operations:
 Net Income/(Loss)    $       $        NM         $        NM
 Per Share           0.02       (0.16)                 (0.31)
 Diluted Net          $       $                   $   
 Income/(Loss) Per    0.02       (0.16)      NM         (0.31)     NM
 Share
 NM = Not Meaningful
 * EBITDA and Adjusted EBITDA 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 on Adjusted EBITDA





TREE.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
                                      Three Months Ended   Nine Months Ended
                                      September30,        September30,
                                      2012       2011      2012     2011
                                      (In thousands, except per share amounts)
Revenue                               $23,296    $13,101   $53,501  $43,951
Costs and expenses
Cost of revenue                       1,231      1,001     2,830    3,529
Selling and marketing expense         13,376     8,475     34,997   39,246
General and administrative expense    5,532      4,388     16,166   15,059
Product development                   853        681       2,383    2,677
Litigation settlements and            510        212       948      5,206
contingencies
Restructuring expense (gain)          (48)       498       (109)    990
Amortization of intangibles           101        213       314      787
Depreciation                          934        1,393     3,204    3,677
Asset impairments                     —          —         —        29,250
Total costs and expenses              22,489     16,861    60,733   100,421
Operating income (loss)               807        (3,760)   (7,232)  (56,470)
Other expense
Interest expense                      (349)      (110)     (606)    (266)
Total other expense, net              (349)      (110)     (606)    (266)
Income (loss) before income taxes     458        (3,870)   (7,838)  (56,736)
Income tax benefit (provision)        (188)      464       3,086    12,128
Net income (loss) from continuing     270        (3,406)   (4,752)  (44,608)
operations
Gain from sale of discontinued        —          7,752     24,313   7,752
operations, net of tax
Income (loss) from operations of      4,112      8,969     24,745   (23,829)
discontinued operations, net of tax
Income (loss) from discontinued       4,112      16,721    49,058   (16,077)
operations
Net income (loss) attributable to     $4,382     $13,315   $44,306  $(60,685)
common shareholders
Weighted average common shares        11,389     11,037    11,293   10,978
outstanding
Weighted average diluted shares       12,003     11,037    11,293   10,978
outstanding
Net income (loss) per share from
continuing operations
Basic                                 $0.02      $(0.31)   $(0.42)  $(4.06)
Diluted                               $0.02      $(0.31)   $(0.42)  $(4.06)
Net income (loss) per share from
discontinued operations
Basic                                 $0.36      $1.52     $4.34    $(1.47)
Diluted                               $0.35      $1.52     $4.34    $(1.47)
Net income (loss) per share
attributable to common shareholders
Basic                                 $0.38      $1.21     $3.92    $(5.53)
Diluted                               $0.37      $1.21     $3.92    $(5.53)





TREE.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
                                                    September30, December31,
                                                    2012          2011
                                                    (unaudited)
                                                    (In thousands, except
                                                    par value and share
                                                    amounts)
ASSETS:
Cash and cash equivalents                           $89,780       $45,541
Restricted cash and cash equivalents                29,425        12,451
Accounts receivable, net of allowance of $94 and    10,415        5,474
$86, respectively
Prepaid and other current assets                    1,524         1,060
Current assets of discontinued operations           479           232,425
Total current assets                                131,623       296,951
Property and equipment, net                         6,924         8,375
Goodwill                                            3,632         3,632
Intangible assets, net                              10,874        11,189
Other non-current assets                            166           246
Non-current assets of discontinued operations       236           10,947
Total assets                                        $153,455      $331,340
LIABILITIES:
Accounts payable, trade                             $3,963        $9,072
Deferred revenue                                    1,162         176
Deferred income taxes                               4,335         4,335
Accrued expenses and other current liabilities      17,367        11,998
Current liabilities of discontinued operations      31,784        254,744
Total current liabilities                           58,611        280,325
Income taxes payable                                —             7
Other long-term liabilities                         1,094         4,070
Deferred income taxes                               568           435
Non-current liabilities of discontinued operations  331           1,032
Total liabilities                                   60,604        285,869
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Preferred stock $.01 par value; authorized          —             —
5,000,000 shares; none issued or outstanding
Common stock $.01 par value; authorized 50,000,000
shares; issued 12,546,501 and 12,169,226 shares,    125           121
respectively, and outstanding 11,393,804 and
11,045,965 shares, respectively
Additional paid-in capital                          915,417       911,987
Accumulated deficit                                 (813,799)     (858,105)
Treasury stock of 1,152,697 and 1,123,261 shares,  (8,892)       (8,532)
respectively
Total shareholders' equity                          92,851        45,471
Total liabilities and shareholders' equity          $153,455      $331,340



TREE.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
                                                           Nine Months
                                                           Ended September30,
                                                           2012      2011
                                                           (In thousands)
Cash flows from operating activities attributable to
continuing operations:
Net income (loss)                                          $44,306   $(60,685)
Less (income) loss from discontinued operations, net of    (49,058)  16,077
tax
Net loss from continuing operations                        (4,752)   (44,608)
Adjustments to reconcile net loss from continuing
operations to net cash used in operating activities
attributable to continuing operations:
Loss on disposal of fixed assets                           344       210
Amortization of intangibles                                314       787
Depreciation                                               3,204     3,677
Intangible impairment                                      —         29,250
Non-cash compensation expense                              3,565     2,731
Deferred income taxes                                      134       (12,144)
Bad debt expense (recovery                                 (4)       32
Changes in current assets and liabilities:
Accounts receivable                                        (4,938)   (1,911)
Prepaid and other current assets                           401       (122)
Accounts payable and other current liabilities             (2,492)   385
Income taxes payable                                       (658)     (58)
Deferred revenue                                           986       (96)
Other, net                                                 (410)     988
Net cash used in operating activities attributable to      (4,306)   (20,879)
continuing operations
Cash flows from investing activities attributable to
continuing operations:
Capital expenditures                                       (2,046)   (5,480)
Increase in restricted cash                                (4,047)   (1,488)
Net cash used in investing activities attributable to      (6,093)   (6,968)
continuing operations
Cash flows from financing activities attributable to
continuing operations:
Vesting and issuance of common stock, net of withholding   (301)     (950)
taxes
Purchase of treasury stock                                 (360)     —
(Increase) decrease in restricted cash                     4,150     (3,325)
Net cash provided by (used in) financing activities        3,489     (4,275)
attributable to continuing operations
Total cash used in continuing operations                   (6,910)   (32,122)
Net cash provided by (used in) operating activities        222,885   (58,317)
attributable to discontinued operations
Net cash provided by (used in) investing activities        25,923    (9,310)
attributable to discontinued operations
Net cash provided by (used in) financing activities        (197,659) 41,261
attributable to discontinued operations
Total cash provided by (used in) discontinued operations   51,149    (26,366)
Net increase (decrease) in cash and cash equivalents       44,239    (58,488)
Cash and cash equivalents at beginning of period           45,541    68,819
Cash and cash equivalents at end of period                 $89,780   $10,331



TREE.COM'S RECONCILIATION OF NON-GAAP MEASURES TO GAAP ($ in thousands):
Below is a reconciliation of Adjusted EBITDA to net income (loss) for both
continuing operations and discontinued operations. See "Tree.com's Principles
of Financial Reporting" for further discussion of our use of these Non-GAAP
measures.
                             

                             Three Months Ended
                             September 30,     September 30,    June 30,
                             2012              2011             2012
                             (Dollars in thousands)
     Adjusted EBITDA from  $3,897            $(521)           $(317)
    continuing operations
     Adjustments to
    reconcile to net income
    (loss) from continuing
    operations:
     Amortization of       (101)             (213)            (106)
    intangibles
     Depreciation          (934)             (1,393)          (1,046)
     Restructuring gain    48                (498)            (3)
    (expense)
     Loss on disposal of   (284)             (99)             —
    assets
     Non-cash compensation (1,309)           (824)            (1,072)
     Litigation
    settlements and          (510)             (212)            (216)
    contingencies
     Other expense, net    (349)             (110)            (136)
     Income tax benefit    (188)             464              1,142
    (provision)
     Net income (loss)
    from continuing          $270              $(3,406)         $(1,754)
    operations
     Adjusted EBITDA from  $4,221            $9,584           $5,032
    discontinued operations
     Adjustments to
    reconcile to net income
    from discontinued
    operations:
     Restructuring expense (95)              (509)            (239)
     Asset impairments     —                 —                (1,365)
     Loss on disposal  —                 (27)             —
    of assets
     Non-cash compensation —                 (75)             (42)
     Litigation
    settlements and          33                (4)              (15)
    contingencies
     Gain from sale of
    discontinued operations, —                 7,752            24,313
    net of tax
     Other expense, net    29                —                10
     Income tax benefit    (76)              —                (166)
    (provision)
     Net income from       $4,112            $16,721          $27,528
    discontinued operations
     Adjusted EBITDA from
    continuing operations    $3,897            $(521)           $(317)
    per above
     Adjusted EBITDA from
    discontinued operations  4,221             9,584            5,032
    per above
     Total Adjusted EBITDA 8,118             9,063            4,715
     Adjustments to
    reconcile to net income:
     Amortization of       (101)             (213)            (106)
    intangibles
     Depreciation          (934)             (1,393)          (1,046)
     Restructuring expense (47)              (1,007)          (242)
     Asset impairments     —                 —                (1,365)
     Loss on disposal of   (284)             (126)            —
    assets
     Non-cash compensation (1,309)           (899)            (1,114)
     Litigation
    settlements and          (477)             (216)            (231)
    contingencies
     Gain from sale of
    discontinued operations, —                 7,752            24,313
    net of tax
     Other expense, net    (320)             (110)            (126)
     Income tax benefit    (264)             464              976
    (provision)
     Net income            $4,382            $13,315          $25,774





Below is a reconciliation of revenue to adjusted Exchanges revenue, selling
and marketing expense to adjusted Exchanges marketing expense, and Adjusted
EBITDA from continuing operations (reconciled to operating loss in 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.
                             Qtr 3           Qtr 2              Qtr 3
(Dollars in thousands)       2012            2012               2011
Revenue (Continuing          $23,296         $16,970            $13,101
Operations)
Mortgage Exchanges           19,801          12,461             9,203
Revenue
Adjustment: Modeled Revenue 0               6,026              6,429
for leads sent to LTL
Adjusted Mortgage Exchange   $19,801         $18,487            $15,632
Revenue
Non-Mortgage                 3,495           4,508              3,898
Revenue
Total Adjusted Exchanges     $23,296         $22,995            $19,531
Revenue
Selling and Marketing
Expense (Continuing          $13,375         $10,969            $8,475
Operations)
Exchanges                    11,572          8,969              7,458
Marketing
Adjustment: Shared Variable
Marketing allocated to       0               2,082              3,288
Discontinued Ops
Adjusted Exchanges Marketing $11,572         $11,051            $10,746
Expense
Other Marketing     1,804           2,000              1,017
Adjusted EBITDA - Continuing $3,897          $(317)             $(521)
Operations *
Adjustment: Combined        0               3,943              3,141
revenue and marketing
Adjustment: Shared
compensation costs allocated 0               (206)              (287)
to Discontinued Ops
Adjusted Exchanges EBITDA    $3,897          $3,420             $2,333
* See reconciliation in
prior table.
                                             Full Year          Full Year
                             Qtr 4           Guidance           Guidance

                                             Low                High
                             2011            2012        -      2012
Revenue (Continuing          $10,666         $75,652     -      $76,373
Operations)
Adjustment: Modeled Revenue 7,343           16,863      -      16,863
for leads sent to LTL
Total Adjusted Exchanges     $18,009         $92,515     -      $93,236
Revenue

 

TREE.COM'S PRINCIPLES OF FINANCIAL REPORTING

Tree.com reports Earnings Before Interest, Taxes, Depreciation and
Amortization ("EBITDA"), and adjusted for certain items discussed below
("Adjusted EBITDA"), adjusted Exchanges mortgage revenue, total adjusted
Exchanges revenue, adjusted Exchanges marketing expense, variable marketing
margin $, variable marketing margin % of revenue, adjusted Exchanges 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 and Variable Marketing Margin $, 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 measure set
forth above. Tree.com is not able to provide a reconciliation of projected
adjusted Exchanges EBITDA or 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 expenses, (5) litigation settlements and
contingencies, (6) pro forma 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 Exchanges mortgage revenue is defined as revenue from the Exchanges
mortgage vertical 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. There can be no assurance that this metric and the other non-GAAP
measures discussed below that include this metric will be indicative of actual
results of operations following the sale of the Home Loan Center assets.

Total adjusted Exchanges revenue is defined as adjusted Exchanges revenue plus
revenue from the non-mortgage verticals.

Adjusted Exchanges marketing expense is defined as the portion of selling and
marketing expense attributable to the current Exchanges business for variable
costs paid for advertising, direct marketing and related expenses, plus
selling and marketing expense allocated to HLC and recorded in discontinued
operations. This metric excludes overhead, fixed costs and personnel-related
expenses.

Adjusted variable marketing margin is defined as adjusted Exchanges revenue
minus adjusted Exchanges marketing expense, and adjusted variable marketing
margin % of revenue is defined as variable marketing margin expressed as a
percentage of adjusted Exchanges revenue.

Adjusted Exchanges EBITDA is defined as Adjusted EBITDA from continuing
operations, plus modeled revenue for leads provided to HLC, minus Exchanges
selling and marketing expense allocated to HLC and recorded in discontinued
operations.

Adjusted EBITDA % of revenue is defined as adjusted Exchanges EBITDA expressed
as a percentage of adjusted Exchanges revenue.

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 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.

Non-Cash Expenses That Are Excluded From Tree.com's Adjusted EBITDA and
Adjusted Exchanges EBITDA

Non-cash compensation expense consists principally of expense associated with
the grants of restricted stock units and stock options. These expenses are not
paid in cash and Tree.com will include the related shares in its calculations
of fully diluted shares outstanding. Upon vesting of restricted stock units
and the exercise of certain stock options, the awards will be settled, at
Tree.com's discretion, on a net basis, with Tree.com remitting the required
tax withholding amounts from its current funds.

Amortization and impairment 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, 2011, our
Quarterly Reports on Form 10-Q for the period ended March 31, 2012 and June
30, 2012, 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
businessesthat provide information, tools, advice, products and services for
critical transactions in consumers' lives. Our family of brands includes:
LendingTree®, GetSmart®, DegreeTree®, LendingTreeAutos, DoneRight!®,
ServiceTree(SM), InsuranceTree® and HealthTree.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, N.C. and maintains operations
solely in the United States. For more information, please visitwww.tree.com.

SOURCE Tree.com, Inc.

Website: http://www.tree.com
Contact: Investor Relations, 877-640-4856,
tree.com-investor.relations@tree.com
 
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