Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

Tree.com Inc (NASDAQ:TREE)

Q4 2013 Earnings Conference Call

March 10, 2014 06:00 PM ET

Executives

Alex Mandel - CFO

Doug Lebda - Chairman and CEO

Analyst

John Campbell - Stephens Inc., Research Division

Shawn Rassouli - Needham & Company, LLC, Research Division

Nick Zamparelli - Zeke LP

Waheed Khorsand - BWS Financial Inc

Jim Fowler - Harvest Capital Strategies

Josh Goldberg - G2 Investment Partners Management

Operator

Good day, ladies and gentlemen, and welcome to the Tree.com Fourth Quarter 2013 Earnings Conference Call. At this time all participants are in a listen only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, today's conference is being recorded. Joining us today are Alex Mandel, Chief Financial Officer; and Doug Lebda, Chairman and CEO. I would now like to turn the conference over to Alex Mandel.

Alexander Mandel

Thanks, operator, and thanks to everyone for joining us today for Tree.com's Fourth Quarter and Full-Year 2013 Earnings Conference Call.

First, a quick disclaimer. During this call, we may discuss Tree.com's plans, expectations, outlook or forecast for future performance. These forward-looking statements are typically preceded by words such as we expect, we believe, we anticipate, we are looking to, or other similar statements. These forward-looking statements are subject to risks and uncertainties, and Tree.com's actual results could differ materially from the views expressed today. Many, but not all of the risks we face, are described in Tree.com’s periodic reports filed with the SEC.

On this call, we'll discuss a number of non-GAAP measures, and I refer you to today's press release available on our website at investors-relations.tree.com for the comparable GAAP measures, definitions and full reconciliations of non-GAAP measures to GAAP.

To put my remarks in context, today, in the fourth quarter, total Mortgage originations industry-wide declined by 47% year-over-year, and refinanced share total origination volume declined to 51% in the quarter putting it roughly on par with purchased share as compared with 74% refinanced share in the fourth quarter of 2012 . In contrast to this 47% decline in total industry originations, our Mortgage products revenue in the quarter grew significantly by 49% to 31.2 million. This also marked our fifth consecutive quarter of company outperformance relative to the market. In the fourth quarter we generally saw a strong monetization front, in terms of the efficiency with which our leads maxed with lenders as well as pricing.

Our Non-Mortgage products revenue also grew year-over-year by 112%. to a record 5.2 million in the quarter, strengthening perpetually from the contribution of our reverse mortgage, home equity, rate payable on personal loan offerings as well as our order of fitness. All in, consolidated revenue of $36.4 million in Q4 was up 52% over Q4 2012 and exceeded our prior guidance. This top line outperformance relates primarily to the month of December where our business did not decline to the degree anticipated, and the continued interest in our offerings on the part of both consumers and lenders.

From a profitability perspective, the company delivered $16.3 million of variable marketing margin, representing a fifth consecutive quarter of new record levels. As a percentage of revenue, VMM improved notably to 45% from 40% in the preceding third quarter. VMM dollars and margin benefited from several factors including both strategically throttling back our television ad spend in the quarter, as well as the completion of the expensing of the production cost for the new brand campaign, early in the quarter.

We now, however, that we recently completed shooting a new set of TV spots which are anticipated to air before the end of Q1. The airing of the new spots would likely trigger recognition of significant production expenditures in the quarter as well as involve additional media spend, and these considerations are reflected accordingly in our guidance for Q1 VMM which calls for a sequential decline. In addition to these media spend factors, there was an approximate 600,000 benefit to VMM in the quarter, attributable to the reversal of certain expense that close at year-end, a significant portion of which derive from third-party vendors reporting to us.

Adjusted EBITDA of $5.9 million in the quarter also reflected a new record for the company and was up 115% year-over-year. Touching briefly on our discontinued operations, which primarily represent our former Mortgage origination business, the loss of approximately 800,000 is largely comprised of legal fees related to the continued wind down efforts with HLC. From a full-year perspective our business scaled significantly in 2013 with full year GAAP revenue of $139 million reflecting 48% growth over full year 2012 adjusted exchanges revenues. And it’s worth noting this growth was entirely organic or internally generated. At an adjusted EBITDA level, the company achieved $18.7 million in 2013, reflecting a margin of 13.4% and growth of 32% over 2012’s adjusted change of EBITDA of $14.2 million. We believe the increased scale of our business is helping to raise its profile and visibility in the market place. From the balance sheet perspective, our unrestricted cash grew to $91.7 million at year end and our working capital position grew to $72.7 million which we calculate as current assets, including unrestricted and restricted cash, minus current liabilities including loan-loss reserves. In conclusion, we believe our fourth quarter demonstrated strong performance as we exceeded prior guidance on all financial metrics, achieved record variable marketing margin and adjusted EBITDA result and gained market share.

That said recognizing some of the contributing factors I noted along with our outlook for Q1’s anticipated brand advertising efforts, our profitability guidance for Q1 reflect the sequential reduction although we anticipate the investment to support continues top-line growth. I will now turn to Doug for his perspective.

Doug Lebda

Thanks Alex and thanks to everyone for joining the call. And in capped of 2013 with yet another fantastic quarter, I would like to touch on a couple of the Q4 highlights reflect on our accomplishments throughout the year and finally touch briefly on our Q1 expectations. First, looking at Q4, we worked through seasonal challenges and a continuing declining mortgage market to produce our highest levels of VMM and adjusted EBITDA on record. That record profitability is a testament to a number of factors. First, in our mortgage business, we are able to selectively dial back our marketing spend in certain channels with minimal impact on revenue. Additionally, our mortgage revenue benefited from improved monetization as demand for our leads continue to increase and lenders consequently bid up pricing.

To put that into perspective, mortgage originations industry-wide declined 26% quarter-over-quarter while revenue from our mortgage products declined to mere 4% and our variable marketing expense was down 10%. Second and most importantly, we saw real gains in our non-mortgage products. Revenue from these products was $5.2 million, up 10% from Q3 and remarkable 112% from the same period last year. Auto finance in particular continues to scale profitably and revenues from our new and recently relaunched personal finance offerings all saw impressive growth in the quarter. And finally as Alex discussed, we benefited from the one-time accruals which was largely driven by reporting of expenses to us by certain marketing partners. I caution you all to keep that one-time benefit in mind as we discuss our expectations for the first quarter in a moment.

With that color on Q4, I would like to reflect the bit on what we have accomplished in 2013. To help frame our performance, I will give a few notes on what transpire in the mortgage environment this year. First, the inevitable increase in interest rates we all knew was coming began in earnest in May of this year, of last year, as a result total originations dropped from 1.1 trillion in the first half to 700 billion in the second half according to MBA, a decline of roughly 30%. Decline in refinancing was almost 50%. As we have discussed on the last few calls, we took several steps in 2012 and early 2013 to combat these trends and I cannot be happier with the foresight and execution our team to drive truly outstanding results in the face of these market pressures. First and foremost, the purchased mortgage strategy we laid out at the beginning of the year has absolutely paid off.

The number of lenders on our network taking purchase leads has more than doubled since the end of last year and our revenue from the purchased mortgages in Q4 was up nearly 200% from the fourth quarter of 2012. In addition to our purchased mortgage strategy, we launched a number of new and improved offerings and related personal finance verticals. In Q1, we launched a reverse mortgage product which has contributed meaningful revenue since inception. We launched Loan Explorer, our rate table marketplace which continues to scale as we add third-party publishers. And in early Q3, we announced our revamped personal loans experience which has enabled us to partner with some of the industry leaders in that emerging space.

In other businesses, auto revenue grew by more than 75% and more than doubled its adjusted EBITDA contribution and under new management our home froze (Ph) and education businesses each improved at an EBITDA level. Also extremely importantly was the launch of our national brand campaign in Q2 of last year. The LendingTree brand is without a doubt one of our biggest competitive advantages and this year we took it upon ourselves to reinvest in the strength of our brand and in doing so establish the brand platform that we can leverage in the years to come. The campaign has yielded excellent results to-date and you can expect to see another round of fresh creative coming out soon. In closing out 2013, all of this hard work resulted in annual revenue of $139 million that represents growth of almost 50% over last year’s adjusted exchange figures in mortgage market where total originations were down 13% for the year.

We converted that revenue into $18.7 million of adjusted EBITDA, up 32% over 2012 and we accomplished that remarkable growth by still managing to invest heavily in our product and our brand.

With that I would like you to briefly discuss our expectations for Q1, but first let me caveat our Q1 guidance by pointing out that we are reaccelerating our brand investment and in somewhat at Q2 of last year will be expensing a good portion of the production cost associated with new commercials within the quarter. Additionally unlike digital channels, the off-line advert channel will take some runway to begin materializing. So the upfront production expense along with the ramping off-line media placement in mid to late March will likely rely on our financial performance in Q1 but should set us up for continued growth in future periods.

That said, for revenue, we anticipate growth of 30% to 40% over first quarter 2013 continuing the trend of growth in the phase of market contraction. Variable marketing margin is anticipated to be $14 million to $15 million in Q1 and adjusted EBITDA is projected at $4 million to $4.5 million. For the full year 2014, we are maintaining our previously provided guidance. Revenue growth is anticipated to be 10% to 15% over full-year 2013. VMM believed to be $62 million to $66 million, and adjusted EBITDA is expected to fall in the range of $20 million to $21 million.

With that let’s begin questions and answers.

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from John Campbell from Stephens Inc.

John Campbell - Stephens Inc., Research Division

Congrats on a great quarter and a great year. Did you guys, just maybe help us guide a little bit with discounted growth trajectory at that non-Mortgage realm, is that more of a kind of slow grind upwards in ’14, and is that more approximately – you know, little sharper growth given the new products are still relatively normal.

Douglas Lebda

The company has given guidance specifically in Mortgage and non-Mortgage, but I think it’s, we would expect that Dallas businesses will grow faster than Mortgage as I think the trends have been over the last couple of quarters and I think that that should continue, the number of those new products are starting to hit good scale, and we are seeing some really positive results there. So I think growth rate there should continue to be faster than normal.

John Campbell - Stephens Inc., Research Division

And then just second question here. Just trying to, maybe size up that purchased related rev, I mean you guys breakout the Mortgage rev by purchase versus refi?

Douglas Lebda

We don’t, and there is a good reason for that. I can say that purchases continuing to grow, it’s continuing to grow both in volume and monetization, and refinance is definitely contracting as the trends have been. As when there is demand more of purchase leads as the refinance volume goes down, they did up the price of purchase and we step on the marketing gaps to produce it, think the better way to look at the business of the overall VMM, but I can’t say that anecdotally. I feel that the risk of sort of being refinance-centric has cashed us. And this is now business where it’s much more balanced between purchase refinance and then non-Mortgage revenue.

John Campbell - Stephens Inc., Research Division

And maybe if I can just squeeze in one more here; I know you guys are – you know we are still very much in the early innings of the three storeys, but just even if you guys are, how quickly is growing the business and in some of that OpEx should you see some efficiencies over time. Could you guys give us adjusted general idea of where you think maybe adjusted EBITDA margins will go over time?

Douglas Lebda

I’m looking at Alex and thinking about the frontier that I don’t know if we have ever given specific guidance about that in the past. But I can say now, I should speak for him too, that 20% or more north of that is not crazy. And I believe it should be in line with other Internet companies. Anybody in the meeting in tech space over time should see margins that are comparable with, the leaders in our category, maybe just include that we do have a good bit of thinning marketing expense or traffic acquisition cost as it will be called in most Internet companies but we should be on par with them and I think over time north of 20% operating margin.

Operator

The next question comes from Shawn Rassouli with Needham & Company.

Shawn Rassouli - Needham & Company, LLC, Research Division

Looks like another solid quarter, congratulations. I had a few questions. Thinking about your revenue guidance for 2014, on the mortgage side, kind of appreciating how non-Mortgage is expected to grow faster. We’re kind of focusing on the mortgage side, can you give us a sense for the assumptions you are making around volumes and pricing, your expectations for volume growth or lack there out where a select industry-wide projections by Fannie and Freddie and others or are you forecasting better volume trends given the success you’ve had adding new lenders? I would assume it’s the latter but we’d love to get more color on how you’re thinking about volume growth in ’14?

Doug Lebda

So I think I hit on this in the last call I think it’s important to note and I’ve talked it I think I’ve said at investor conferences if you look I think the best way to look at 2014 is off of the second half of 2013 which is I think Alex said it was $700 billion originations second half and I don’t have on my fingertips the MBA forecast for the full year but I believe it’s roughly consistent with that second half number annualized. I think the full year is 1.2 trillion forecast for 2014 and Q4 was 312 billion so roughly the Q4 run rate is what the industry is currently saying off of next year.

So if you look at year-over-year number you’re certainly going to see mortgage originations going down from 2013 to 2014 however if you look at the back half of 2013 as a run rate you’re going to see the full year and 2014 not declining very much and if you take Q4 as a guide and you believe the MBA we’re essentially where we’re going to be. So I’m feeling confident about 2014 in origination volumes. In terms of purchase and refinance obviously purchase come to the lower expected value because of the lower natural conversion rates on the Internet and that’s okay we know that, we know lenders aren’t going to bid up pricing to an unprofitable level and because we have that close loop of reporting we are confident right now that our lenders are pricing our leads appropriately in the market and we’re seeing some really great signs there. And we’re also working on a number of product improvements this year which I’ll be able to talk about in the next call such that we release them that we’ll take that even further and help improve conversion rate as well as help drive volume which we’ve talked about before that’s not dependent on paid market.

Shawn Rassouli - Needham & Company, LLC, Research Division

I appreciate the color there, and I totally understand sort of the dynamics around industry wide volumes. So I’m assuming that the volume as you’re seeing the volume trends you’re seeing internally within the company are kind of moving in lock step with sort of industry wide trends?

Doug Lebda

So on the volumes I mean I think we’re -- no I think we’re seeing a bifurcation of it certainly on the revenue side we’re definitely seeing higher revenue as the industry declines we’re seeing on a revenue basis but we’re also seeing that on a volume basis too and that’s not fairly indicative because all volume has not created equal I could produce a lot of volume that’s quarter-on-quarter lower quality but that’s not our game but we’re definitely seeing lending through gaining share on a volume basis. We’re seeing the most significant gain on the revenue basis.

Shawn Rassouli - Needham & Company, LLC, Research Division

Okay, that’s very helpful. And then in regards to the new regulations that went into effect earlier this year mainly QM and ATR, are you seeing any impacting your business any sort of high level thoughts on the regulatory environment and how that’s affecting your business?

Doug Lebda

I think so far it’s actually been -- it was a big risk and I think those are non-event. QM was already baked into lender guidelines relevant (Ph) to last year and so that coming out as you really had an impact. And I think the regulations overall were more industry sensible than they really could have been. So I feel fine about the regulation front. And anything I’m starting to hear in the industry some signs of things that could give another boost so for example lenders were starting to at least talk about doing some QM loans and you’re starting to hear a little bit more about private securitization and some of the bank means I am having our sales team are having we’re starting to hear about the equity loans coming back which used to be a real big profit driver for the company but pretty much died in 2008. So I am feeling good on the regulatory front and I am feeling that it might actually be a little positive for us.

Shawn Rassouli - Needham & Company, LLC, Research Division

Okay, great. And one last question from me, on going back to VMM obviously it was better than what we were expecting and what you were expecting I guess in your guidance. And kind of excluding the impact of the 600 grand benefits you got as well as sort of throughout going back tell that you’re going to have spent and the traditional sort of channel namely display search. Can you call out -- can you talk about the trends you’re seeing, are you seeing more efficiencies there or how would you describe the pricing environments in search and display?

Doug Lebda

I wouldn’t call out specific names because I think you’ve got any given month or quarter even week or quite frankly day some channels outperform others sometimes it’s because you catch tailwinds (Ph) sometimes because you got to keep getting better at it and but I would say directionally all of the channels are showing improvement and I’m not feeling pressure in any one channel or seeing that we’re topping out. Now, again a lot of that is because we’re getting better at it, I think we will see in search lenders start to do more that directly and we’re seeing some signs of that but we’re also seeing that even other doing that we can still did very effectively given at very high Google quality score and given on our ongoing performance there.

The other thing I would say is in 2014, we’re starting to push in social advertising for the mortgage and financial products whereas before it was only really in our education verticals. So, as a whole in channel force that its early but we think we will be winner on social ads just like we are on other ad formats and so that opens up a whole new avenue for us to get more growth.

Operator

The next question comes from Nick Zamparelli from Zeke LP.

Nick Zamparelli - Zeke LP

Hi guys. Thanks for taking the questions few here. First, do you break out I guess not so far but could you breakout the EBITDA contribution from the non-mortgage lines of business.

Doug Lebda

We don’t and but we do sort of in the Q -- I'm sorry in the 10-K and the Q, it’s a little different take on it so I caution you about that because it groups some of the other and this gets a little wonky but the way the SEC requires us to report in the Q is how it will segment, how we’re organized internally and so because all of our financial products including reverse mortgage and credit cards and the other products we’ve lunched that aren’t a mortgage because they’ve reported up to our GM of mortgage, they’re once in with mortgage and then the non-mortgage in the Q is only home services and education. So, you got a think through that little bit and I expect our Qs will start to change because the reality is from the investors’ standpoint, who care about mortgage, concentration and then there is non-mortgage concentration, investors don’t really care their credit card reports that gave report or not and unfortunately the captains make us chose that way. Long strong short, we track that in the Q.

Nick Zamparelli - Zeke LP

Okay. And then, the upfront ad production expense related to the new TV campaign in the coming Q1, can you size for us or how much should we kind of have budget for that.

Doug Lebda

So, its reflected in the guidance, let call it $0.5 million and we’ll probably be expensing up to 700 and part of the reason I can’t give a perfect answer on that is because we go produce let say five spots and you expense the production and when you run the spark the first time on that point sure we had spot first more produced than others I’m not quite sure which will be run but we’ll -- so we’re not exactly sure but call it 500 to 700.

Nick Zamparelli - Zeke LP

Okay. And then in terms of return hurdles for your TV campaign how do you guys think about that internally, what would mark successful TV campaign from an unsuccessful TV campaign.

Doug Lebda

So, we do track and have ways of doing was known as attribution modeling and we track the VMM of not only every channel and offline of the channel but also each add and really each placement online and offline and we do that with some pretty sophisticated tracking technologies and we want to see positive VMM from offline period, full stop. Now you do start off every year for a few months you’ll be slightly negative VMM as the campaign builds and as what’s known as the region frequency of an ad gets out there so it will start off a little negative but then it gets very positive and we expected those are on a dollar basis we look for every dollar VMM. On a percentage basis, offline but a lower percentage VMM but than an online ad but there is you can run a lot more of them so you can go get a lot of dollars? A lot more VMM dollars and really what we do is focus on the return on overall stats but we do track VMM at a channel and at an ad level and we expect that to be expect offline to be positive and we expect it produce a lot of vary than margin dollars and we expect that also improves results of the other additional channels as well.

Operator

The next Question comes from Waheed Khorsand from BWS Financials.

Waheed Khorsand - BWS Financial Inc

Hi guys, just a clarification did you say you expect EBITDA growth of 20%?

Doug Lebda

I think we said $20 million to $21 million of EBITDA for 2014 that was our guidance which right now we’re sticking with.

Waheed Khorsand - BWS Financial Inc

Do you think that’s going to ramp anytime soon, beyond 2014?

Doug Lebda

I think -- people we did in 2013 and what we did the years before. It’s always nice to beat your guidance at the same time this is a business now that we’ve got it right, it’s very, very predictable. So what we always like to do is deliver very solid growth, quite frankly as Q4 came in so strong the growth to Q1 or 2014 looks lower than we did issued our guidance we get that and it’s still early in the year and hopefully that will continue to improve as it’s done prior years. But at the same time because the business is so predictable I like to give investors what they need in order to day wow, they’re performing very well, they are consistent, they can deliver, I can rely on them. And then we reinvest above that back in the business. And we do that in product, we do it in marketing, we do it in technology and we do it other ways.

And so right now I do the same thing. So I think you should see us this year, in 2014, have revenue growth, it’s more robust than EBITDA growth, but that’s because we’re still taking a balanced investment approach. You’re never going to hear like a lot of companies out there saying we’re major investment mode, we’re not going to produce bottom line results but trust me look at the top line. We likely put on solid top very solid top line growth and very solid EBITDA growth but be very EBITDA positive and be very credible with you all and you can actually see the results. And we still like to invest above and beyond that.

Waheed Khorsand - BWS Financial Inc

And you briefly touched on the changes in the mortgage; do you expect that’s going to have any positive or negative effects going forward?

Doug Lebda

I don’t think it will have a negative effect because I said the rules have been baked in, in all the vendors’ guidelines. So there is not going to be any further tightening of what lenders want based on regulation. And I think what I would say that specifically attributed direct relation but now that a qualified mortgage is defined, now the rules that they are playing with you have got some lenders that are talking as I said about doing private securitization.

So for example QM put a real freeze over the private securitization market until it was actually known it there was going to be a safe harbor in those rules. Now the people know there is people are -- and now I can maybe do a private securitization, next will be qualified mortgage. Now I understand the rules for non-qualified mortgage, maybe I’ll do some non-QM origination and keep them in my portfolio, if not as being [indiscernible] maybe I can do some all pay stuff, maybe I can even do some sub-prime stuff, we’ve seen great growth for example in the sub-prime auto space, it’s been fantastic. On the personal loans and the other one we’re seeing where now as people -- the sub-prime is not so horrible in personal loans. As you are seeing all this institutional money comes through peer-peer platforms that are our biggest customers in personal loans. Companies like Prosper and LendingClub and many more that are now come in into that market.

So I think that now that regulations are settled people are willing to take more -- lenders are going to take more appropriate risks inside of those guidelines and outside the guidelines.

Operator

(Operator Instructions) The next question comes from Jim Fowler from Harvest Capital. Jim

Fowler your line is open, please check your mute button.

Jim Fowler - Harvest Capital Strategies

I am sorry I was on mute. I am on a cell phone so hope you can hear me okay. And I just wanted to make sure that I caught some of the details you’re giving. Did you say that you think although at the upper end the advertising spend that you expect in the first quarter could be in a range between 500k to 700k, is that what I heard?

Doug Lebda

No what I was calling out is the one-time expense from production in Q1, so we spent call it round numbers $800,000 spot and we expect to expense 500 to 700 of that thousand of that production in Q1 with a little bit falling over to Q2, but it will depend on what adds actually, I was only talking about the production.

Jim Fowler - Harvest Capital Strategies

So if I assume it’s 700 expenditure in the first quarter and your first quarter midpoint of VMM is 14.5 and if -- kind of mid-point on the revenue I get to a sort of a almost core of the VMM about 41.5% and your guidance implies just under 41 for the full year. how does that any thoughts on how that goes throughout the following three quarters of the year or is it going to be fairly stable around the 40% to 41% or will that be something similar to last year where you had big first quarter you mentioned the second quarter marketing campaign kind of the flattish and you’re down third quarter and then a big fourth quarter how would you think about it for the -- assume (Ph) the three quarters?

Doug Lebda

Yes I think Q1 is typically so for Q2 last year we have the production expense in the start of the brand campaign that’s now happening late in Q1 so it’s going to be a little bit different so the short answer to your question I would expect that the VMM percentages would be lower in Q1 and that would be on the next three quarters on a percentage basis and may be on a dollar basis too because of that one time effect. Now that said the big media spend the launch will be it will be in the start of the March so we’ve got all the production expense but the advertising expense will really be fundamentally still a Q2 event so it may not be huge growth Q1 or Q2. And quite frankly, our Q1 earnings aren’t so far away so I’ll be able to give you a really clear guidance (Ph) on Q2 not too long from now.

But the only caveat I would say a lot of that is again keep in mind we’ve been kind of land the plane where we want to land the plane every quarter and for the year so it won’t be out of territories in some future quarter I’d say listen VMM percentages or dollars are less than you might expect but that’s because we launched the new social campaign and we really doubled down, our lenders really demanding something we let our percentages went lower or god forbid we screwed something up and one thing you can only count on for us so as it will be [indiscernible] about the call ask me explanations of it but just please note that managing this business is actually very intentional we’re always thinking do we step on the gas there or we pulled back and a lot of is due to lender demand.

If lenders are demanding lease, we into get them for them at profit at a VMM positive level if they’re really demand you might see a step on the gas percentages would go down but what we’d be able to explain it the flip side might be also through any given month of quarter may be people get worries about something in the macro environment mortgage rates fall lenders get full again and this one gets pulled back on marketing spend or is normal than Q4 one thing if you want to mention this so called pull back of marketing spent that’s not something that’s something we do every year like you just have to because of the holidays and shopping et cetera so when it’s go dried up for advertising cost is more and lenders don’t want as much in Q4 because they’re taking vacations too and then you have got fewer operating days, people take off for Thanksgiving it’s Christmas holidays, et cetera, et cetera. So that’s a normal Q4 event. The only change this year versus last year is really moving that for in addition to just doing better is moving the production expense in Q4 into -- I'm sorry from Q2 into Q1.

Jim Fowler - Harvest Capital Strategies

Yes. And then -- thanks for that. And then last question, in the non-mortgage area you mentioned the few of the products. I am wondering specifically relative to auto, we’ve seen a lot of increased competition across both prime and non-prime auto. How much is auto as a percentage of total non-mortgage in the fourth quarter or in the growth rate let’s say and how much has it been more recently versus say that the prior two or three quarters?

Doug Lebda

So you probably won’t like my answer because I don’t like to break them out and here is why because I start to say autos ex percent than not only than people [indiscernible] now it’s that many millions of dollars and then they start to -- everybody’s got their own model and our competitors quite frankly do it too. What I can say and I know people watch and look into those calls very carefully and try to discern what’s underneath them and by definition in the same way the pricing get out of Google what is Google’s percentage of revenue on mortgage cost per click adds versus pharmaceuticals we don’t like to do that either because they vary and it’s also competitive intelligence what I can say here is increased competition in autos is actually helpful to us because the competition isn’t coming from loan aggregate in the auto states where you can get banks to compete by filling out one form it’s coming from lenders moving into the mix and lenders willing to lend and so that is bringing more lenders on the platform bidding up our pricing on auto in ways that it hasn’t before which enables us to then build into paid marketing and drive it in. So competition is actually very helpful to us.

Jim Fowler - Harvest Capital Strategies

Yes, that’s what I would assume I assume that the increased competition amongst lenders looking forward to more of those loans will be helpful. So, okay, well great thanks a lot Doug and Alex appreciate it.

Operator

The next question comes from Noah Steinberg from G2 Investment Partners Management.

Josh Goldberg - G2 Investment Partners Management

Hey guys, this is Josh Goldberg. Congratulations on the strong Q4. I think it’s even more remarkable when you think about some of the other guys in space some of your best competitors showing substantially down Q4 revenue numbers because of the weakness in the mortgage market and only to believe you took a lot of shares there. Just couple of quick questions, it was seemed to me like the getting of the year, you obviously faced your tougher comps. The beginning of last year you have much bigger mortgage market than you do at the beginning of this year and we’re [indiscernible] see pretty good visibility to the March quarter with the guidance of that 30% to 40% increase in your revenue. It seems like you’re expecting pretty big deceleration as you go on to the year. And I want to understand such conservatism and [indiscernible] develops or any kind of one timing or one timer in the first quarter that makes you feel like you’re growing your revenue at this pace but by at end of the year you won’t?

Doug Lebda

I think when speak a little bit both sides went out and I think you know. Number one, we’re conservative in our guidance because we tend to be that way. And we like to put out a bar and beat it. I’ve also said that our internal plans on which we hold ourselves too are generally iron (Ph) but that’s because we push ourselves and then not everything works perfectly and then we give guidance less than that. So that’s the conservative point, but the other point I would say it’s like I’ve said before, which is we want to land the plane with very solid growth quarter-over-quarter, year-over-year, and the same quarter in the prior year and I agree with your comment and the quarter-on-quarter is going to get at some point harder to do as diverted year-over-year Q1 to Q1. I think things all be fine. And we do try to reinvest. So I do like Q1 call to talk about with great stuff that we’ve launched in Q1 and it’s probably more product than we would have been baked in when we did in our plan six months ago because that’s what we tried to do. And so bit of conservative and it’s also little bit of – I want to give ourselves some flexibility to invest as need see fit and I think you’re hitting exactly on the point. We’re getting significant share. Now, this is a very competitive market and guys like Zillow and Bankrate and others are – they’re competitive people. And we want to win. So it’s great we’re getting lot of share, it’s great venders still love this, it’s great that we got a very credible product but we recognized necessarily I’ll keep making a better I will stagnate. And I want to just keep and give ourselves flexibility to keep making those types of investments.

Josh Goldberg - G2 Investment Partners Management

Okay just quick other things, if I remember correctly your original guidance for ‘13 was roughly around $110 million to $115 million or 15% to 20% growth, so obviously you did a good job of meeting those early expectations. When you talk about you EBITDA as you go into rest of the year, I guess how much you think are going spent in the second and third quarter of just on TV advertising? I know the preproduction stuff will cost you in the March quarter but do you expect of date increase just on the advertising side like you did last year in the June quarter?

Doug Lebda

I think it would be more accused one and two. I don’t think it would be substantially less than last year but I don’t have the numbers right in front of me. And we don’t think of it as a TV to TV. We really manage to overall VMM and then that supply and demand equation. Lenders are -- so I guess if we see lenders continuing to increase demand and begging us for lease more so than they have in the past then you should expect we’re going to increase spending to get to that. And you should also expect that in Q2 that’s the spring purchase season and so like last year when we launch in Q2. Q2 versus Q1 and Q3 and Q4, Q2 is always typically a heavier spent as we’re trying our purchase volume than the other quarters. But year-over-year I’m not sure because I got to see what demand is at that time from the venders. But I can tell you whenever we’re buying that it’s very-very flexible, so we’re constantly optimizing everything to just maximize VMM. And make sure we deliver the right amount of demand the one that we’re looking for. I talked in the past quarters about the travel industry 2001 and I’ll try to make that point again which is in 2001 after September 2011, that’s went online travel started kicking off. Prior to that, the big hotel company the big airlines did not put their excess inventory on hotels.com and Expedia, travel and everybody else but one they couldn’t fill those rooms point they put that inventory in there and we have the next grade decade of online travel that continues to this date. I think we’re in a very early innings potentially if something like that happening in vending where for example our customers a couple of years ago were a lot fewer and were all correspondent lenders, now we have a lot more bank business in there, we have a lot more bank interest coming on in addition to our existing companies, taking share, as, our existing clients taking share. And I think it was Q3, maybe Q4 as the industry reports started to show the big money center bank actually losing share for the first time. So our existing correspondents are taking share in their businesses and the big money center banks are doing a really good job of lending through the loans that are there and the ones that aren’t there are talking to us, which is different than the facts.

Josh Goldberg - G2 Investment Partners Management

And the peak time where the advertisers really want to advertise on your site now there’s the second and third quarter, that’s the peak season for purchase, correct?

Doug Lebda

It is the peak season for purchase, but keep in mind a lender wants to lease when they can’t get them for free themselves, so if you’re really a brave purchase lender and you got loan officers scattered around branch office all over the country you might be able to keep all your bids, keep your business full by going around and making relationships with realtors and then you wouldn’t need as much, you wouldn’t have much excess capacity, he wouldn’t to looking as many leases from us, if you’re getting them from here on, but the generally yes, I think but in those non-bank lenders, yes, they’re not getting purchase volume on their own and so deriving purchase volume and at particularly that time as it’s matching the market.

Josh Goldberg - G2 Investment Partners Management

Okay, great. Last question just for Alex, okay. How do you see DSOs down nicely to 32 days and your cash balance went up nicely this quarter? You talked about the final month being stronger than you expected, how come your DSOs came down so much.

Alex Mandel

[Indiscernible]

Josh Goldberg - G2 Investment Partners Management

Daily sales outstanding, yes.

Alex Mandel

Funny I haven’t looked at that. I guess we are getting paid. This will probably be the answer but let me get a better answer and let you know if anybody else wants to answer that, my guess is we did a better job at collecting the [indiscernible], I don’t think it’s any, there’s nothing that’s sticking in my brain that would said oh your major initiative or you know seeing in a really, there was nothing like that, just normal variation.

Josh Goldberg - G2 Investment Partners Management

Okay, so outside that 600,000 accrual you had in the quarter you still had your EBITDA number well above your initial guidance for the fourth quarter.

Alex Mandel

I should have made that point myself, so thank you for making it, you’re exactly right.

Operator

I am showing no further questions, I would now like to turn the call back over to Doug Lebda.

Doug Lebda

Thank you, I’ll be brief, but I appreciate all of your time and attention, thank you for sticking with us, thank you for all support and thanks to all of our employees and lender partners for their continued belief in us. We look forward to reporting Q1 very shortly and hopefully we’ll continue to put great performance on the board and hope to see you in the industry conference near you. So as always reach out the same time and any questions or comments we’re always happy to engage with our shareholders and know what you’re thinking and get feedback from you and answer any questions that you have, thank you very much.

Operator

Ladies and gentlemen that does conclude the conference for today, again thank you for your participation, you may all disconnect, have a good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Tree.com's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts