LendingTree(TREE) - 2021 Q4 - Annual Report

PART I Item 1. Business The company operates an online consumer platform connecting consumers with a network of partners for various financial services, generating revenue primarily from match fees - The company operates an online marketplace connecting consumers with over 500 Network Partners for a wide range of financial products, including loans, credit cards, and insurance[25] - Revenue is primarily generated from match fees paid by Network Partners upon receiving a consumer request, with some products also generating fees upon loan closing or sale[26][40] - The company has diversified its offerings beyond its original mortgage business through organic growth and strategic acquisitions, including ValuePenguin (2019) and an equity interest in Stash (2020)[28][33][34] - As of December 31, 2021, the company had 1,425 employees and considered its employee relations to be good[66] Segment Revenue (2019-2021) | Segment | 2021 Revenue (in thousands) | 2020 Revenue (in thousands) | 2019 Revenue (in thousands) | | :--- | :--- | :--- | :--- | | Home | $441,738 | $320,992 | $277,935 | | Consumer | $329,945 | $253,198 | $515,037 | | Insurance | $326,153 | $333,765 | $284,792 | | Other | $663 | $2,035 | $28,839 | | Total | $1,098,499 | $909,990 | $1,106,603 | Item 1A. Risk Factors The company faces significant business, operational, legal, and investment risks, including market dependency, cybersecurity threats, and concentrated voting control - Business performance is highly sensitive to economic conditions, particularly interest rates affecting the mortgage market, and depends on maintaining strong relationships with its Network Partners[72][73] - The business relies heavily on search engines and online advertising to attract consumers, making it vulnerable to algorithm changes and rising marketing costs[80][81] - Significant operational risks include potential system interruptions and security breaches that could lead to the misappropriation of sensitive personal information, resulting in financial liabilities and reputational damage[114][116] - The company is subject to a complex web of federal and state regulations, including RESPA, TILA, TCPA, and data privacy laws like GLBA and CCPA, with non-compliance potentially leading to significant penalties[121][124][132] - As of February 18, 2022, the Chairman and CEO, Douglas Lebda, beneficially owned approximately 16% of outstanding common stock, concentrating voting control[167] - The company has outstanding convertible senior notes (2022 Notes and 2025 Notes) whose conditional conversion features, if triggered, could adversely affect financial condition and liquidity[175][176] Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments - Not applicable[190] Item 2. Properties The company's principal executive offices are located in a leased space in Charlotte, North Carolina, with additional offices supporting its business segments - The main executive offices are in Charlotte, North Carolina, under a lease expiring in 2036[191] - Additional offices are maintained in multiple U.S. locations and India to support the Home, Consumer, and Insurance segments[192][193] Item 3. Legal Proceedings The company is party to various legal proceedings in the ordinary course of business - The company is involved in ordinary course litigation concerning property, contract, and intellectual property claims[194] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[195] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on Nasdaq, it does not plan to pay dividends, and it maintains an active stock repurchase program - The company's common stock is listed on the Nasdaq under the ticker symbol "TREE"[198] - The company does not intend to pay cash dividends in the foreseeable future[199] - During the quarter ended December 31, 2021, 334,253 shares were repurchased under the stock repurchase program, with $121.7 million still authorized for future repurchases as of February 18, 2022[204] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's 21% revenue growth to $1.1 billion in 2021, improved profitability, liquidity position, and critical accounting policies Results of Operations In 2021, revenue grew 21% to $1.1 billion, driven by the Home and Consumer segments, resulting in a significant turnaround to net income of $73.1 million - The Home segment revenue grew 38% to $441.7 million, driven by increases in refinance, purchase, and home equity products[242][248] - The Consumer segment revenue increased 30% to $329.9 million, primarily due to growth in personal loans, small business loans, and credit cards[242][244] - The Insurance segment revenue decreased 2% to $326.2 million due to lower revenue earned per consumer[242][247] - Selling and marketing expense, the largest cost component, increased 25% to $774.0 million, in line with revenue growth and increased advertising spend[242][255] - Other income surged to $123.3 million in 2021 from $0.4 million in 2020, primarily due to a $27.9 million realized gain and a $95.4 million unrealized gain on its Stash investment[242][269] Consolidated Results of Operations (2021 vs. 2020) | Metric | 2021 (in thousands) | 2020 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $1,098,499 | $909,990 | 21% | | Total Costs and Expenses | $1,090,468 | $916,593 | 19% | | Operating Income (Loss) | $8,031 | $(6,603) | 222% | | Net Income (Loss) from Continuing Operations | $73,138 | $(22,566) | 424% | Segment Profit Total segment profit increased 11% to $410.4 million, with growth in Home and Consumer segments offsetting a decline in the Insurance segment - The Home segment's profit growth was driven by improved unit economics and increased lender reliance on LendingTree to meet origination goals in a competitive market[280] - The Consumer segment's profit growth was fueled by a recovery in personal loans and small business revenue to pre-pandemic levels[281] - The Insurance segment's profit decline was attributed to P&C carriers reducing marketing budgets due to higher loss ratios in the latter half of 2021[285] Segment Profit (2021 vs. 2020) | Segment | 2021 Profit (in thousands) | 2020 Profit (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Home | $153,352 | $132,123 | 16% | | Consumer | $143,497 | $106,890 | 34% | | Insurance | $113,464 | $131,142 | (13)% | | Other | $53 | $(682) | 108% | | Total | $410,366 | $369,473 | 11% | Financial Position, Liquidity and Capital Resources The company maintained a strong liquidity position with $251.2 million in cash, supported by operating cash flow and a new credit facility - Cash and cash equivalents increased to $251.2 million at year-end 2021 from $169.9 million at year-end 2020[297] - In September 2021, the company entered into a new Credit Agreement with a $200.0 million revolving facility and a $250.0 million delayed draw term loan facility[305] - Outstanding debt includes $169.7 million of 0.625% Convertible Senior Notes due June 2022 and $575.0 million of 0.50% Convertible Senior Notes due July 2025[307] Cash Flow Summary (2021 vs. 2020) | Cash Flow Activity | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $131,256 | $111,299 | | Net cash provided by (used in) investing activities | $10,067 | $(122,149) | | Net cash (used in) provided by financing activities | $(63,347) | $193,290 | Critical Accounting Policies and Estimates Management highlights critical accounting policies involving significant estimates, particularly for income taxes, goodwill impairment, and the valuation of investments - Key estimates are required for income taxes, including the realization of deferred tax assets and liabilities for uncertain tax positions[318][319] - The company tests its $420.1 million of goodwill for impairment annually, using a discounted cash flow analysis that requires significant judgment on discount rates and future cash flows[322][323][324] - Fair value of contingent consideration from acquisitions is reassessed quarterly, with changes impacting operating income[327][328] - The company's equity investment in Stash is carried at cost and marked to market upon observable market events, with a carrying value of $158.1 million at December 31, 2021[329] Item 7A. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate fluctuations, which significantly impact consumer demand in its Home segment - The company's main market risk exposure is to interest rate fluctuations, which directly affect consumer demand for mortgages and, consequently, lender demand for leads[333] - Falling interest rates typically increase mortgage refinancing volume but can decrease revenue per consumer, while rising rates have the opposite effect[333] Item 8. Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements, notes, and the independent auditor's report, which provided an unqualified opinion - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2021[339][340] - A critical audit matter was identified concerning the valuation of the company's equity investment in Stash Financial, Inc., due to the significant management judgment involved in determining its fair value[347][348] Consolidated Balance Sheet Highlights (as of Dec 31) | Account | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $251,231 | $169,932 | | Total Assets | $1,299,356 | $1,188,990 | | Total Debt (Current & Long-term) | $644,159 | $611,412 | | Total Liabilities | $851,364 | $824,229 | | Total Shareholders' Equity | $447,992 | $364,761 | Notes to Consolidated Financial Statements The notes provide detailed information on revenue recognition, goodwill, debt structure, the Stash investment, and discontinued operations - Revenue is primarily recognized at the point in time a consumer request (lead) is delivered to a customer (Network Partner), with some revenue estimated based on conversion rates (Note 2)[368][373] - As of December 31, 2021, the company held an equity investment in Stash with a carrying value of $158.1 million, recognizing a $27.9 million realized gain and a $95.4 million unrealized gain during 2021 (Note 8)[455][456] - The company's debt includes $169.7 million of 2022 Convertible Notes and $575.0 million of 2025 Convertible Notes (Note 15)[537][551][561] - Discontinued operations relate to the former LendingTree Loans Business (HLC), whose bankruptcy case was closed on July 14, 2021 (Note 21)[602][606][609] Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure This item is not applicable to the company - Not applicable[628] Item 9A. Controls and Procedures Management concluded that the company's disclosure controls, procedures, and internal control over financial reporting were effective as of December 31, 2021 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[630] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2021, based on the COSO framework[632] Item 9B. Other Information The company reports no other information for this item - None[634] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[635] PART III Items 10-14 Required information on governance, compensation, and ownership is incorporated by reference from the company's 2022 proxy statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's 2022 Proxy Statement[637] PART IV Item 15. Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the report - This section lists all financial statements, schedules, and exhibits filed with the Form 10-K[645][648] Item 16. Form 10-K Summary The company provides no summary for this item - None[657]