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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-Q

(Mark one)

     
x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
     
    OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________ to _______________.

Commission File Number 000-29215
LENDINGTREE, INC.
(Exact name of registrant as specified in its charter)

     
Delaware   25-1795344
 
(State or other jurisdiction of
incorporation or organization)		   (I.R.S. Employer
Identification No.)
     
11115 Rushmore Drive
Charlotte, North Carolina		   28277
 
(Address of principal executive offices)   (Zip code)

(704) 541-5351
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ].

     As of October 31, 2002 there were 22,331,571 shares of Common Stock, $0.01 par value, outstanding. Additionally, there are 392,590 shares of treasury stock issued but not outstanding.

 

LendingTree, Inc.
Table of Contents

         
        Page
        Number
       
Part I   Financial Information:    
         
Item 1.   Consolidated Financial Statements (Unaudited)    
         
          Consolidated Balance Sheets — September 30, 2002 and December 31, 2001   3
         
          Consolidated Statements of Operations —
          Three and nine months ended September 30, 2002 and September 30, 2001 		  4
         
          Consolidated Statements of Cash Flows —
          Nine months ended September 30, 2002 and September 30, 2001 		  5
         
          Consolidated Statement of Changes in Shareholders’ Equity (Deficit) —
          September 30, 2002 		  6
         
          Notes to Consolidated Financial Statements   7
         
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   18
         
Item 3.   Quantitative and Qualitative Disclosures about Market Risk   37
         
Item 4.   Controls and Procedures   37
         
Part II   Other Information:    
         
Item 1.   Legal Proceedings   38
         
Item 2.   Changes in Securities and Use of Proceeds   38
         
Item 6.   Exhibits and Reports on Form 8-K   38
         
Signature       39

PRODUCTS MENTIONED IN THIS REPORT ARE USED FOR IDENTIFICATION PURPOSES ONLY AND MAY BE TRADE NAMES OR TRADEMARKS OF LENDINGTREE, INC. OR THIRD PARTIES.

2

 

PART I — Financial Information

Item 1. Consolidated Financial Statements.

LendingTree, Inc.
Consolidated Balance Sheets
(unaudited)

                         
            September 30,   December 31,
            2002   2001
           
 
            ($ in thousands)
Assets
                
Current assets:
                
 
Cash and cash equivalents
   $ 4,093     $ 3,400  
 
Restricted cash
     9,586       2,764  
 
 
    
     
 
   
Total cash and cash equivalents and restricted cash
     13,679       6,164  
 
Accounts receivable, net of allowance for doubtful accounts
     18,150       11,438  
 
Prepaid expenses and other current assets
     1,553       1,174  
 
 
    
     
 
     
Total current assets
     33,382       18,776  
Equipment, furniture and leasehold improvements, net
     1,888       2,016  
Software, net
     1,219       2,854  
Intangible assets, net
     1,916       3,667  
Other assets
     272       618  
 
 
    
     
 
     
Total assets
   $ 38,677     $ 27,931  
 
 
    
     
 
Liabilities and Shareholders’ Equity (Deficit)
                
Current liabilities:
                
 
Accounts payable
   $ 5,456     $ 4,508  
 
Deferred revenue
     1,285       2,013  
 
Accrued incentive and other compensation
     4,104       5,627  
 
Accrued professional services and other fees
     216       444  
 
Accrued consumer promotional costs
     1,144       1,709  
 
Accrued other expenses
     2,346       1,774  
 
Current portion capital lease obligations
     381       743  
 
 
    
     
 
       
Total current liabilities
     14,932       16,818  
Deposits by subtenants
     122       145  
Capital lease obligations
     19       291  
Commitments and contingencies (Note 9)
Mandatorily redeemable securities
Series A convertible preferred stock, $.01 par value, 8% cumulative, 6,885,715 shares authorized, 6,038,940 and 6,885,715 shares issued and outstanding at September 30, 2002 and December 31, 2001, respectively
     21,685       23,878  
Shareholders’ equity (deficit):
                
 
Common stock, $.01 par value, 100,000,000 shares authorized, 22,265,655 and 19,907,034 shares issued at September 30, 2002 and December 31, 2001, respectively
     227       199  
 
Treasury stock (392,590 shares at September 30, 2002 and 661,996 shares at December 31, 2001, at cost)
     (2,494 )     (4,170 )
 
Additional paid-in-capital
     131,769       121,675  
 
Accumulated deficit
     (124,391 )     (127,064 )
 
Deferred compensation
     (851 )     (1,477 )
 
Notes receivable from officers
     (2,341 )     (2,364 )
 
 
    
     
 
     
Total shareholders’ equity (deficit)
     1,919       (13,201 )
 
 
    
     
 
     
Total liabilities and shareholders’ equity (deficit)
   $ 38,677     $ 27,931  
 
 
    
     
 

The accompanying notes are an integral part of these consolidated financial statements

3

 

LendingTree, Inc.
Consolidated Statements of Operations
(unaudited)

                                     
        For the Three Months Ended September 30,   For the Nine Months Ended September 30,
       
 
        2002   2001   2002   2001
       
 
 
 
        (in thousands, except per share data)   (in thousands, except per share data)
       
 
Revenue:
                                
 
Exchange
   $ 30,392     $ 15,243     $ 73,159     $ 40,397  
 
Lend-X technology
     549       1,960       3,517       4,871  
 
 
    
     
     
     
 
   
Total revenue
     30,941       17,203       76,676       45,268  
 
 
    
     
     
     
 
Cost of revenue:
                                
 
Exchange
     4,478       3,033       10,923       9,314  
 
Lend-X technology
     275       277       877       1,075  
 
 
    
     
     
     
 
   
Total cost of revenue
     4,753       3,310       11,800       10,389  
Gross margin:
                                
 
Exchange
     25,914       12,210       62,236       31,083  
 
Lend-X technology
     274       1,683       2,640       3,796  
 
 
    
     
     
     
 
   
Total gross margin
     26,188       13,893       64,876       34,879  
Operating expenses:
                                
 
Product development
     817       1,137       2,378       3,386  
 
Marketing and advertising
     13,813       9,973       36,681       29,447  
 
Sales, general and administrative
     7,772       5,362       23,393       25,927  
 
 
    
     
     
     
 
   
Total operating expenses
     22,402       16,472       62,452       58,760  
 
 
    
     
     
     
 
Income (loss) from operations
     3,786       (2,579 )     2,424       (23,881 )
Loss on impaired investments
     —       —       —       (350 )
Interest and other non-operating income
     136       176       559       522  
Interest expense, financing and other charges
     (93 )     (590 )     (310 )     (718 )
 
 
    
     
     
     
 
Net income (loss)
     3,829       (2,993 )     2,673       (24,427 )
 
 
    
     
     
     
 
Accretion of mandatorily redeemable convertible preferred stock
     (165 )     (155 )     (509 )     (361 )
Dividends on mandatorily redeemable convertible preferred stock
     (459 )     (577 )     (2,936 )     (1,538 )
 
 
    
     
     
     
 
Net income (loss) available to common shareholders
   $ 3,205     $ (3,725 )   $ (772 )   $ (26,326 )
 
 
    
     
     
     
 
Net income (loss) per share:
                                
 
Basic
   $ 0.14     $ (0.20 )   $ (0.04 )   $ (1.37 )
 
 
    
     
     
     
 
 
Diluted
   $ 0.12     $ (0.20 )   $ (0.04 )   $ (1.37 )
 
 
    
     
     
     
 
 
Weighted average shares — basic
     22,202       18,976       20,803       19,190  
 
 
    
     
     
     
 
 
Weighted average shares — diluted
     32,204       18,976       20,803       19,190  
 
 
    
     
     
     
 

4

 

LendingTree, Inc.
Consolidated Statements of Cash Flows
(unaudited)

                         
            For the Nine Months September 30,
           
            2002   2001
           
 
            ($ in thousands)
Cash flows used in operating activities:
                
 
Net income (loss)
   $ 2,673     $ (24,427 )
 
Adjustments to reconcile net income (loss) to net cash used in operating activities:
                
   
Loss on disposal of fixed assets
     —       3  
   
Depreciation and amortization
     5,241       5,851  
   
Provision for doubtful accounts
     339       (98 )
   
Loss on impairment of investment
     —       350  
   
Compensation charge related to officer note
     —       1,365  
   
Amortization of deferred equity based compensation
     646       728  
   
Issuance of warrants and other costs in conjunction with revolving credit facilities
     —       481  
   
Amortization of deferred financing costs
     104       86  
   
Non-cash equity based compensation
     187       358  
   
Changes in assets and liabilities, net of effects from acquisitions:
                
     
Accounts receivable
     (7,051 )     (2,123 )
     
Prepaid expenses and other current assets
     (405 )     (12 )
     
Other assets
     268       (52 )
     
Accounts payable
     948       469  
     
Accrued promotional costs
     (565 )     1,065  
     
Accrued expenses
     (804 )     1,256  
     
Deferred revenue
     (728 )     345  
     
Deposits
     (22 )     19  
 
 
    
     
 
       
Net cash provided by (used in) operating activities
     831       (14,336 )
 
 
    
     
 
Cash flows (used in) provided by investing activities:
                
 
Purchases of short-term investments
     —       (16,964 )
 
Sales of short-term investments
     —       21,641  
 
Deposits to restricted cash
     (32,553 )     (27,084 )
 
Use of restricted cash
     25,731       23,218  
 
Investments in software
     (1,121 )     (339 )
 
Purchases of equipment, furniture, and leasehold improvements
     (607 )     (98 )
 
 
    
     
 
     
Net cash (used in) provided by investing activities
     (8,550 )     374  
 
 
    
     
 
Cash flows provided by financing activities:
                
 
Proceeds from sales of common stock and exercise of stock options
     3,731       206  
 
Sale of treasury stock for employee stock purchase plan
     620       —  
 
Payment of capital lease obligations
     (634 )     (532 )
 
Net short-term borrowings
     —       1,998  
 
Fees paid related to debt and equity financing
     —       (645 )
 
Proceeds from private placement of common stock
     5,642       —  
 
Proceeds from issuance of preferred stock
     —       12,290  
 
Payment of dividends on preferred stock
     (970 )     —  
 
Proceeds from repayment of officer note
     23       68  
 
 
    
     
 
     
Net cash provided by financing activities
     8,412       13,385  
 
 
    
     
 
Net increase (decrease) in cash and cash equivalents
     693       (577 )
Cash and cash equivalents, beginning of period