Tree.com Reports Fourth Quarter And Full Year 2012 Financial Results - Continuing operations revenue of $23.9 million, up significantly from fourth quarter 2011 GAAP revenue and total adjusted Exchanges revenue. - Record Variable Marketing Margin of $12.4 million; third consecutive quarter above 50% of revenue. - Positive net income both quarters since completing HLC transaction. - Continuing operations Adjusted EBITDA exceeds prior guidance for fourth quarter 2012 and full year 2012. PR Newswire CHARLOTTE, N.C., March 13, 2013 CHARLOTTE, N.C., March 13, 2013 /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 ended December 31, 2012. Beginning in the third quarter 2012, after the completion of the sale of substantially all of the assets of the company's former mortgage origination business in June 2012, Tree's revenues and expenses reflect the monetization on our mortgage Exchange of all leads generated. Prior to the third quarter 2012, Tree 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, "Continuing our momentum, Q4 was a record quarter for Tree. In our second full quarter as a pure-play performance marketing company, we continued to grow revenue and generate variable marketing margin at record levels, in spite of seasonal pressures we typically see late in the year. As a result, we exceeded our most recent guidance for Adjusted Exchanges EBITDA." "The mortgage business performed particularly well in the fourth quarter, with revenue 10% higher than the third quarter and 225% higher than GAAP revenue in the prior year quarter. Fourth quarter revenue was also 55% higher than adjusted Exchanges revenue for the prior year quarter. The number of mortgage lenders active on our exchange grew over 15% from the third quarter and our monetization of consumer loan requests reflected robust lead quality. And at 52% of revenue in Q4, our Variable Marketing Margin exceeded 50% for the third consecutive quarter," said Mr. Lebda. Fourth Quarter 2012 Financial and Operating Highlights Tree.com Exchanges Metrics (1) $s in millions Q/Q Y/Y Q4 Q3 % Q4 2011 % Change 2012 2012 Change GAAP Adjusted GAAP Adjusted Revenue $ $ $ $ Mortgage 10% 6.7 14.1 (2) 225% 55% 21.9 19.8 $ $ $ $ Non-Mortgage (41%) 3.9 3.9 (47%) (47%) 2.1 3.5 Total $ $ $ $ Exchanges 3% 10.7 18.0 124% 33% revenue 23.9 23.3 Non Mortgage 9% 15% 37% 22% % Selling and marketing expense Exchanges $ $ $ $ marketing 0% 6.2 8.5 86% 37% expense (3) 11.6 11.6 Other $ $ $ $ Marketing 30% 1.2 1.2 97% 97% 2.3 1.8 Selling and $ $ $ $ marketing 4% 7.4 9.7 88% 44% expense 13.9 13.4 Variable $ $ $ $ marketing 5% 4.4 9.5 178% 30% margin (4) 12.4 11.7 Variable marketing 52% 50% 42% 53% margin % of revenue Net Income/(Loss) $ $ $ from 760% (5.1) N/A NM N/A Continuing 2.3 0.3 Operations Adjusted $ $ $ EBITDA (28%) N/A 3.3 (5) N/A (14%) 2.8 3.9 Adjusted EBITDA % of 12% 17% N/A 18% N/A revenue (1) Adjusted Exchanges mortgage revenue, total adjusted Exchanges revenue, Exchanges marketing expense, 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 on these and other non-GAAP measures identified in this table. (2) Adjusted Exchanges mortgage revenue is a non-GAAP measure and 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 equaled 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) 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 Q4 2011 Exchanges marketing expense is a non-GAAP measure that adds to Exchanges marketing expense selling and marketing expense allocated to the company's former mortgage origination business and recorded in discontinued operations (4) Variable marketing margin is defined as revenue minus Exchanges marketing expense and is considered an operational metric. Adjusted Q4 2011 variable marketing expense is adjusted to use Adjusted Exchanges revenue rather than revenue for the calculation. (5) Adjusted Q4 2011 adjusted 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. oFourth quarter revenue of $23.9 million was $5.9 million, or 33%, higher than adjusted Exchanges revenue from the fourth quarter of 2011, driven by a substantial increase in the mortgage business. Additionally, revenue increased $0.6 million, or 3%, from $23.3 million in the prior quarter. oMortgage business revenue was 55% higher than adjusted Exchanges mortgage revenue from the fourth quarter of 2011. oVariable marketing margin of $12.4 million was the highest level achieved since we began reporting this operating metric and, at 52% of revenue, represents the third consecutive quarter above fifty percent. Further, it is $2.9 million, or 30%, greater than the fourth quarter 2011. oContinuing operations Adjusted EBITDA of $2.8 million declined $0.5 million, or 14%, from the fourth quarter 2011 and $1.1 million, or 28%, from the prior quarter. This was largely a result of certain non-recurring G&A items, as well as increased product development costs related to the Loan Explorer rate table and Reverse Mortgage products we launched commercially in January 2013. oWorking capital was $68.1 million at December 31, 2012, compared to $73.0 million at September 30, 2012. Working capital is calculated as current assets (including unrestricted and restricted cash) minus current liabilities (including loan loss reserves). The decline from September 30 is principally related to the special dividend cash payment of approximately $11.4 million which was made on December 26, 2012, as previously reported, and partially offset by a reduction in deferred income taxes. 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 fourth quarter of 2012, the company spent approximately $519 thousand to purchase a total of 35,782 shares. As of December 31, 2012, there was approximately $3.4 million in share repurchase authorization remaining under the current approved plan. Business Outlook – 2013 Tree is providing revenue, variable marketing margin and Adjusted EBITDA guidance for 2013 as follows: For the full year 2013, oRevenue is anticipated to grow 40-46% over 2012 revenue reported on a GAAP basis and 15%–20% over 2012 adjusted Exchanges revenue. oVariable marketing margin is anticipated to be 45%–48% of revenue. oWe are anticipating Adjusted EBITDA to be $15–$17 million. Guidance for Q1 2013, oRevenue is anticipated to grow 104–109% over Q1 2012 revenue reported on a GAAP basis and 12–15% over Q1 2012 adjusted Exchanges revenue. oVariable marketing margin is anticipated to be $13–$14 million. oAdjusted EBITDA is anticipated to be $4.0–$4.5 million. Quarterly Conference Call A conference call to discuss Tree's fourth quarter 2012 financial results will be webcast live today at 11:00 AM 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 PM ET on Wednesday March 27, 2013. To listen to the telephone replay, call toll-free 855-859-2056 with passcode #18075511. Callers outside the United States may dial 404-537-3406 with passcode #18075511. QUARTERLY TABLES AND FINANCIALS – TREE.COM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended Year Ended December31, December31, 2012 2011 2012 2011 (Unaudited) (In thousands, except per share amounts) Revenue $23,942 $10,666 $77,443 $54,617 Costs and expenses (exclusive of depreciation shown separately below) Cost of revenue 1,465 604 4,295 4,133 Selling and marketing expense 13,937 7,415 48,934 46,662 General and administrative expense 6,456 4,693 22,622 19,751 Product development 1,146 526 3,529 3,203 Litigation settlements and (4,173) 525 (3,225) 5,732 contingencies Restructuring and severance expense 52 90 (57) 1,080 Amortization of intangibles 44 104 358 891 Depreciation 901 1,346 4,105 5,023 Asset impairments — — — 29,250 Total operating expenses 19,828 15,303 80,561 115,725 Operating income (loss) 4,114 (4,637) (3,118) (61,108) Other income (expense) Interest expense (275) (102) (881) (368) Total other expense, net (275) (102) (881) (368) Income (loss) before taxes 3,839 (4,739) (3,999) (61,476) Income tax benefit (expense) (1,497) (363) 1,589 11,766 Net income (loss) from continuing 2,342 (5,102) (2,410) (49,710) operations Gain from sale of discontinued (20) — 24,293 7,752 operations, net of tax Income (loss) from operations of (293) 6,284 24,452 (17,545) discontinued operations, net of tax. Income (loss) from discontinued (313) 6,284 48,745 (9,793) operations Net income (loss) available to common $2,029 $1,182 $46,335 $(59,503) shareholders Weighted average common shares 11,386 11,045 11,313 10,995 outstanding Weighted average diluted shares 12,175 11,045 11,313 10,995 outstanding Net income (loss) per share from continuing operations Basic $0.21 $(0.46) $(0.21) $(4.52) Diluted $0.19 $(0.46) $(0.21) $(4.52) Net income (loss) per share available to common shareholders Basic $0.18 $0.11 $4.10 $(5.41) Diluted $0.17 $0.11 $4.10 $(5.41) TREE.COM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December31, December31, 2012 2011 (In thousands, except par value and share amounts) ASSETS: Cash and cash equivalents $80,190 $45,541 Restricted cash and cash equivalents 29,414 12,451 Accounts receivable, net of allowance of $503 and 11,488 5,474 $86, respectively Prepaid and other current assets 743 1,060 Current assets of discontinued operations 407 232,425 Total current assets 122,242 296,951 Property and equipment, net 6,155 8,375 Goodwill 3,632 3,632 Intangible assets, net 10,831 11,189 Other non-current assets 152 246 Non-current assets of discontinued operations 129 10,947 Total assets $143,141 $331,340 LIABILITIES: Accounts payable, trade $2,741 $9,072 Deferred revenue 648 176 Deferred income taxes — 4,335 Accrued expenses and other current liabilities 18,793 16,712 Current liabilities of discontinued operations 31,987 250,030 Total current liabilities 54,169 280,325 Income taxes payable — 7 Other long-term liabilities 936 4,070 Deferred income taxes 4,687 435 Non-current liabilities of discontinued operations 253 1,032 Total liabilities 60,045 285,869 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 12,625,678 and 12,169,226 shares, 126 121 respectively, and outstanding 11,437,199 and 11,045,965 shares, respectively Additional paid-in capital 916,388 911,987 Accumulated deficit (824,006) (858,105) Treasury stock 1,188,479 shares (9,412) (8,532) Total shareholders' equity 83,096 45,471 Total liabilities and shareholders' equity $143,141 $331,340 TREE.COM'S RECONCILIATION OF NON-GAAP MEASURES TO GAAP ($ in thousands): Below is a reconciliation of Adjusted EBITDA to net income (loss) for both continuing operations and discontinued operations. See "Tree.com's Principals of Financial Reporting" for further discussion of the Company's use of these Non-GAAP measures. Three Months Ended Year Ended March 31, June 30, September December December 2012 2012 30, 2012 31, 2012 31, 2012 (Dollars in thousands) Adjusted EBITDA from continuing $(2,546) $(317) $3,899 $2,817 $3,852 operations Adjustments to reconcile to net loss from continuing operations: Amortization of (107) (106) (101) (44) (358) intangibles Depreciation (1,224) (1,046) (935) (901) (4,105) Restructuring and severance 64 (3) 48 (52) 57 income (expense) Loss on (60) — (284) (394) (739) disposal of assets Non-cash (1,184) (1,072) (1,310) (1,485) (5,050) compensation Litigation settlements and (222) (216) (510) 4,173 3,225 contingencies Other expense, (121) (136) (349) (276) (881) net Income tax 2,131 1,142 (188) (1,497) 1,589 benefit (expense) Net income (loss) from $(3,269) $(1,754) $270 $2,342 $(2,410) continuing operations 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 Net income (loss) 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 4 Qtr 3 Qtr 4 (Dollars in thousands) 2012 2012 2011 Revenue (Continuing $23,942 $23,296 $10,666 Operations) Mortgage Exchanges 21,874 19,801 6,738 Revenue Adjustment: Modeled Revenue for 0 0 7,343 leads sent to LTL Adjusted Mortgage Exchange $21,874 $19,801 $14,082 Revenue Non-Mortgage Revenue 2,069 3,495 3,928 Total Adjusted Exchanges $23,942 $23,296 $18,009 Revenue Selling and Marketing Expense $13,937 $13,375 $7,415 (Continuing Operations) Exchanges Marketing 11,590 11,572 6,221 Adjustment: Shared Variable Marketing allocated to 0 0 2,258 Discontinued Ops Adjusted Exchanges Marketing $11,590 $11,572 $8,479 Expense Other Marketing 2,347 1,804 1,194 Adjusted EBITDA - Continuing $2,817 $3,899 $(1,427) Operations * Adjustment: Combined revenue 0 0 5,085 and marketing Adjustment: Shared compensation costs allocated to Discontinued 0 0 (383) Ops Adjusted Exchanges EBITDA $2,817 $3,899 $3,275 * See reconciliation in prior table. Qtr 1 Qtr 2 Qtr 3 Qtr 4 FY 2012 2012 2012 2012 2012 Revenue (Continuing $13,235 $16,969 $23,296 $23,942 $77,443 Operations) Adjustment: Modeled Revenue for $10,838 $6,026 $16,864 leads sent to LTL Adjusted Exchanges $24,073 $22,995 $23,296 $23,942 $94,307 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, adjusted Exchanges EBITDA and adjusted EBITDA % of revenue as supplemental measures to GAAP. These measures are primary metrics by which Tree.com evaluates (or in the case of adjusted Exchanges metrics, evaluated prior to the sale of the mortgage origination business) 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, (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. Total adjusted Exchanges revenue is defined as adjusted Exchanges 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, plus selling and marketing expense allocated to HLC and recorded in discontinued operations. This metric excludes overhead, fixed costs and personnel-related expenses. Adjusted Exchanges marketing expense is a non-GAAP measure that adds to Exchanges marketing expense 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 Exchanges 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 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, June 30, 2012 and September 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, +1-877-640-4856, firstname.lastname@example.org
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Tree.com Reports Fourth Quarter And Full Year 2012 Financial Results
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