What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-11-05 compared with 2020-08-04 · 115 added, 99 removed, 219 unchanged (49% of the section changed)

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This is designed to provide consumers with measurable savings opportunities over their lifetimes.

Three Months Ended June 30,

Three Months Ended September 30,

My LendingTree

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Of our three reportable segments, the Consumer segment has been and is expected to be most impacted as unsecured credit and the flow of capital in certain areas of the market have contracted.

Within our Consumer segment we have seen reductions of over 70% in near-term lender demand for our services reflecting those lenders' uncertainty over the length and depth of the economic recession.

Within our Consumer segment we have seen reductions of approximately 70% in near-term lender demand for our services reflecting those lenders' uncertainty over the length and depth of the economic recession.

The impact to our Home and Insurance segments has been and is anticipated to be much less substantial.

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We dynamically adjust selling and marketing expenditures in all interest rate environments to optimize our results against these variables.

According to Freddie Mac, 30-year mortgage interest rates declined during 2020 to a monthly average of 3.16% in June 2020.

On a quarterly basis, 30-year mortgage interest rates in the second quarter of 2020 averaged 3.23% , compared to 4.00% in the second quarter of 2019 and 3.51% in the first quarter of 2020.

According to Freddie Mac, 30-year mortgage interest rates declined during 2020 to a monthly average of 2.89% in September 2020.

On a quarterly basis, 30-year mortgage interest rates in the third quarter of 2020 averaged 2.95% , compared to 3.67% in the third quarter of 2019 and 3.23% in the second quarter of 2020.

Typically, as mortgage interest rates decline, there are more consumers in the marketplace seeking refinancings and, accordingly, the mix of mortgage origination dollars will move towards refinance mortgages.

According to Mortgage Bankers Association ("MBA") data, total refinance origination dollars increased to 63% of total mortgage origination dollars in the second quarter of 2020 compared to 54% in the first quarter of 2020.

In the second quarter of 2020 , total refinance origination dollars increased 297% to $580 million from the second quarter of 2019 and 90% from the first quarter of 2020.

Industry-wide mortgage origination volume in the second quarter of 2020 was up 85% from the second quarter of 2019.

In July 2020, the MBA projected 30-year mortgage interest rates to remain relatively consistent through the end of the year.

However, COVID-19 pandemic-related restrictions that impacted traditional homebuying in the second quarter of 2020 resulted in increased demand for purchase mortgages in the third quarter of 2020.

According to Mortgage Bankers Association ("MBA") data, total refinance origination dollars decreased to 52% of total mortgage origination dollars in the third quarter of 2020 compared to 63% in the second quarter of 2020.

In the third quarter of 2020 , total refinance origination dollars decreased 22% to $450 million from the second quarter of 2020 and increased 63% from the third quarter of 2019 .

Industry-wide mortgage originations in the third quarter of 2020 decreased 7% from the second quarter of 2020 and increased 32% from the third quarter of 2019.

In October 2020, the MBA projected 30-year mortgage interest rates to remain relatively consistent through the end of the year.

According to MBA projections, the refinance share of total mortgage origination dollars is projected to represent approximately 55% for 2020.

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Conversely, a weaker real estate market will typically lead to an increase in lender demand, as there are fewer consumers in the marketplace seeking mortgages.

According to the National Association of Realtors ("NAR"), existing-home sales rebounded at the end of the second quarter of 2020 after three straight months of sales decline caused by the ongoing COVID-19 pandemic.

Existing-home sales decreased 21% in the second quarter of 2020 compared to the first quarter of 2020, and decreased 18% compared to the second quarter of 2019.

The NAR expects a continued increase in existing-home sales as long as mortgage rates remain low and job gains continue, but predicts an overall decrease of 3% in 2020 compared to 2019.

Results of Operations for the Three and Six Months ended June 30, 2020 and 2019

Three Months Ended June 30,

Six Months Ended June 30,

According to Fannie Mae data, existing-home sales increased 38% in the third quarter of 2020 compared to the second quarter of 2020, and increased 10% compared to the third quarter of 2019.

Fannie Mae predicts an overall increase in existing-home sales of 1% in 2020 compared to 2019.

Results of Operations for the Three and Nine Months ended September 30, 2020 and 2019

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands)

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(Loss) income before income taxes

Income tax benefit

Income tax benefit (expense)

Net (loss) income from continuing operations

Loss from discontinued operations, net of tax

Income (loss) from discontinued operations, net of tax

Net (loss) income and comprehensive (loss) income

Revenue decreased in the second quarter and first six months of 2020 compared to the second quarter and first six months of 2019 due to decreases in our Consumer segment and Other category, partially offset by increases in our Home and Insurance segments.

Revenue decreased in the third quarter and first nine months of 2020 compared to the third quarter and first nine months of 2019 due to decreases in our Consumer segment and Other category, partially offset by increases in our Insurance and Home segments.

Our Consumer segment includes the following products:

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Many of our Consumer segment products are not individually significant to revenue.

Revenue from our Consumer segment decreased in the second quarter and first six months of 2020 from the second quarter and first six months of 2019 , primarily due to decreases in our credit cards, personal loans, small business loans and student loans products.

Revenue from our credit cards product decreased $48.8 million to $7.2 million in the second quarter of 2020 from $56.0 million in the second quarter of 2019 , or 87% , and decreased $51.8 million to $58.8 million in the first six months of 2020 from $110.6 million in the first six months of 2019 , or 47%, primarily due to the impact of economic conditions related to the COVID-19 pandemic that caused a decrease in the number of approvals and a decrease in revenue earned per approval.

Revenue from our personal loans product decreased $32.3 million to $8.8 million in the second quarter of 2020 from $41.1 million in the second quarter of 2019 , or 79% , and decreased $33.3 million to $40.3 million in the first six months of 2020 from $73.6 million in the first six months of 2019 , or 45%, primarily due to the impact of economic conditions related to the COVID-19 pandemic that caused a contraction in the flow of capital and a decrease in revenue earned per consumer.

Revenue from our Consumer segment decreased in the third quarter and first nine months of 2020 from the third quarter and first nine months of 2019 , primarily due to decreases in our credit cards, personal loans, student loans and small business loans products.

Revenue from our credit cards product decreased $48.1 million to $6.7 million in the third quarter of 2020 from $54.8 million in the third quarter of 2019 , or 88% , and decreased $100.0 million to $65.4 million in the first nine months of 2020 from $165.4 million in the first nine months of 2019 , or 60% , primarily due to the impact of economic conditions related to the COVID-19 pandemic that caused lower issuer demand, resulting in a decrease in the number of approvals and a decrease in revenue earned per approval.

Revenue from our personal loans product decreased $31.4 million to $12.5 million in the third quarter of 2020 from $43.9 million in the third quarter of 2019 , or 72% , and decreased $64.7 million to $52.8 million in the first nine months of 2020 from $117.5 million in the first nine months of 2019 , or 55% , primarily due to the impact of economic conditions related to the COVID-19 pandemic that caused a contraction in the flow of capital and a decrease in revenue earned per consumer.

For the periods presented, no other products in our Consumer segment represented more than 10% of revenue;

however, certain other Consumer products experienced notable changes primarily due to the impact of economic conditions related to the COVID-19 pandemic.

Revenue from our small business loans product decreased $8.5 million in the second quarter of 2020 compared to the second quarter of 2019 and decreased $4.1 million in the first six months of 2020 compared to the first six months of 2019 , due to a contraction in the flow of capital and a decrease in revenue earned per consumer.

Revenue from our student loans product decreased $2.3 million in the second quarter of 2020 compared to the second quarter of 2019 and decreased $5.6 million in the first six months of 2020 compared to the first six months of 2019 , due to a decrease in the number of consumers on our marketplace seeking student loans.

The ongoing COVID-19 pandemic is anticipated to significantly impact our Consumer product revenues in the near-term due to the significant industry-wide contraction in the availability of capital for products in the Consumer segment, specifically credit cards, small business loans and personal loans, as discussed above.

Revenue from our student loans product decreased $11.3 million in the third quarter of 2020 compared to the third quarter of 2019 and decreased $16.9 million in the first nine months of 2020 compared to the first nine months of 2019 , due to a decrease in the number of consumers on our marketplace seeking student loans and lower demand for student loan refinancing due to the Coronavirus Aid, Relief, and Economic Security ("CARES") Act providing temporary payment deferral relief.

Revenue from our small business loans product decreased $9.9 million in the third quarter of 2020 compared to the third quarter of 2019 and decreased $14.0 million in the first nine months of 2020 compared to the first nine months of 2019 , due to a contraction in the flow of capital and a decrease in revenue earned per consumer.

The ongoing COVID-19 pandemic is anticipated to continue to significantly impact our Consumer product revenues in the near-term due to the significant industry-wide contraction in the availability of capital for products in the Consumer segment, specifically credit cards, small business loans and personal loans, as discussed above.

Revenue from our Insurance segment increased $17.7 million to $92.5 million in the third quarter of 2020 from $74.8 million in the third quarter of 2019 , or 24% , and increased $34.3 million to $248.2 million in the first nine months of 2020 from $213.9 million in the first nine months of 2019 , or 16% .

The increase in the third quarter and first nine months of 2020 is due to increases in the number of consumers seeking insurance coverage, partially offset by a decrease in revenue earned per consumer.

Our Home segment includes the following products:

purchase mortgage, refinance mortgage, home equity loans and lines of credit, reverse mortgage loans, and real estate.

Revenue from our Home segment increased $2.4 million in the second quarter of 2020 from the second quarter of 2019 , or 3% , and increased $18.1 million in the first six months of 2020 from the first six months of 2019 , or 13% , primarily due to an increase in revenue from our refinance mortgage product, partially offset by decreases in our purchase mortgage and home equity loans and lines of credit products.

Revenue from our refinance mortgage product increased $22.3 million in the second quarter of 2020 compared to the second quarter of 2019 , and increased $48.2 million in the first six months of 2020 compared to the first six months of 2019 , primarily due to an increase in the number of consumers completing request forms resulting from increased refinancing activity in a declining interest rate environment, partially offset by a decrease in revenue earned per consumer.

Revenue from our purchase mortgage product decreased $10.3 million in the second quarter of 2020 compared to the second quarter of 2019 and decreased $15.2 million in the first six months of 2020 compared to the first six months of 2019 .

Revenue from our home equity loans and lines of credit product decreased $8.6 million in the second quarter of 2020 compared to the second quarter of 2019 and decreased $13.2 million in the first six months of 2020 compared to the first six months of 2019 .

Revenue from our Home segment increased $1.6 million in the third quarter of 2020 from the third quarter of 2019 , or 2% , and increased $19.7 million in the first nine months of 2020 from the first nine months of 2019 , or 9% , primarily due to an increase in revenue from our refinance mortgage product, partially offset by decreases in our purchase mortgage and home equity loans and lines of credit products.

Revenue from our refinance mortgage product increased $17.1 million in the third quarter of 2020 compared to the third quarter of 2019 , and increased $65.3 million in the first nine months of 2020 compared to the first nine months of 2019 , primarily due to an increase in the number of consumers completing request forms resulting from increased refinancing activity in a declining interest rate environment.

For the first nine months of 2020 compared to the first nine months of 2019 , this was partially offset by a decrease in revenue earned per consumer.

Revenue from our purchase mortgage product decreased $8.2 million in the third quarter of 2020 compared to the third quarter of 2019 and decreased $23.4 million in the first nine months of 2020 compared to the first nine months of 2019 .

Revenue from our home equity loans and lines of credit product decreased $6.6 million in the third quarter of 2020 compared to the third quarter of 2019 and decreased $19.8 million in the first nine months of 2020 compared to the first nine months of 2019 .

Revenue from our purchase mortgage and home equity loans and lines of credit products decreased due to a shift in lender focus toward refinance products as well as decreases in revenue earned per consumer.

Revenue from our Insurance segment increased $1.0 million to $72.9 million in the second quarter of 2020 from $71.9 million in the second quarter of 2019 , or 1% , and increased $16.6 million to $155.7 million in the first six months of 2020 from $139.0 million in the first six months of 2019 , or 12% , due to increases in the number of consumers seeking insurance coverage, partially offset by a decrease in revenue earned per consumer.

Our Other category primarily includes revenue from the resale of online advertising space to third parties and revenue from home improvement referrals.

Revenue in the Other category decreased $5.6 million in the second quarter of 2020 compared to the second quarter of 2019 , and decreased $15.5 million in the first six months of 2020 compared to the first six months of 2019 , as we ceased offering home improvement referrals during the first quarter of 2019 and ceased reselling online advertising space during the first quarter of 2020.

Revenue in the Other category decreased $6.0 million in the third quarter of 2020 compared to the third quarter of 2019 , and decreased $21.5 million in the first nine months of 2020 compared to the first nine months of 2019 , as we ceased offering home improvement referrals during the first quarter of 2019 and ceased reselling online advertising space during the first quarter of 2020.

Cost of revenue

Cost of revenue consists primarily of costs associated with compensation and other employee-related costs (including stock-based compensation) relating to internally-operated customer call centers, third-party customer call center fees, costs for online advertising resold to third parties, credit scoring fees, credit card fees, website network hosting and server fees.

Cost of revenue decreased in the second quarter of 2020 from the second quarter of 2019 , primarily due to a $5.1 million decrease for the cost of resold advertising space.

Cost of revenue decreased in the third quarter of 2020 from the third quarter of 2019 , primarily due to a $5.8 million decrease for the cost of resold advertising space.

We ceased reselling online advertising space during the first quarter of 2020.

This was partially offset by a $1.1 million increase in website network hosting and server fees and a $0.7 million increase in compensation and benefits as a result of increases in headcount.

Cost of revenue decreased in the first six months of 2020 from the first six months of 2019 , primarily due to a $11.3 million decrease for the cost of resold advertising space, partially offset by increases in website network hosting and server fees, compensation and benefits, and credit card fees of $2.0 million, $1.8 million and $1.0 million, respectively.

Cost of revenue as a percentage of revenue increased to 7% in the second quarter of 2020 compared to 6% in the second quarter of 2019 , and remained consistent at 6% in each of the first six months of 2020 and 2019.

This was partially offset by an increase in credit card fees and customer service costs of $0.5 million and $0.3 million , respectively.

Cost of revenue decreased in the first nine months of 2020 from the first nine months of 2019 , primarily due to a $17.1 million decrease for the cost of resold advertising space, partially offset by increases in website network hosting and server fees, compensation and benefits, and credit card fees of $2.2 million , $2.1 million , and $1.5 million , respectively.

Cost of revenue as a percentage of revenue remained consistent at 6% for each of the third quarters and first nine months of 2020 and 2019.

Selling and marketing expense

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Advertising production costs are expensed in the period the related ad is first run.

Selling and marketing expense decreased in the second quarter and first six months of 2020 compared to the second quarter and first six months of 2019 primarily due to decreases in advertising and promotional expense of $77.7 million and $56.5 million , respectively, as discussed below.

Selling and marketing expense decreased in the third quarter and first nine months of 2020 compared to the third quarter and first nine months of 2019 primarily due to decreases in advertising and promotional expense of $47.1 million and $103.7 million , respectively, as discussed below.

Advertising and promotional expense is the largest component of selling and marketing expense, and is comprised of the following:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands)

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This relationship exists for our Home, Consumer and Insurance segments.

We decreased our advertising expenditures in the second quarter and first six months of 2020 compared to the second quarter and first six months of 2019 in response to changes in Network Partner demand on our marketplace as a result of the ongoing COVID-19 pandemic discussed above.

We decreased our advertising expenditures in the third quarter and first nine months of 2020 compared to the third quarter and first nine months of 2019 in response to changes in Network Partner demand on our marketplace as a result of the ongoing COVID-19 pandemic discussed above.

We will continue to adjust selling and marketing expenditures dynamically in relation to this and in response to anticipated revenue opportunities.

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General and administrative expense consists primarily of compensation and other employee-related costs (including stock-based compensation) for personnel engaged in finance, legal, tax, corporate information technology, human resources and executive management functions, as well as facilities and infrastructure costs and fees for professional services.

General and administrative expense remained relatively consistent in the second quarter and first six months of 2020 compared to the second quarter and first six months of 2019 .

The second quarter and first six months of 2019 benefited from a $2.7 million gain on the sale of two office buildings.

Additionally, travel and entertainment expense decreased $1.5 million in the second quarter of 2020 compared to the second quarter of 2019.

General and administrative expenses decreased in the first six months of 2020 compared to the first six months of 2019 due to decreases in compensation and benefits, travel and entertainment expense and other taxes of $3.4 million, $1.8 million and $1.4 million, respectively.

In addition to the change in general and administrative expenses due to the gain on the sale of the office buildings in 2019, general and administrative expenses increased in the first six months of 2020 compared to the first six months of 2019 due to increases in professional fees, technology expense and facilities expense of $3.2 million, $1.6 million and $1.2 million, respectively.

General and administrative expense as a percentage of revenue increased to 16% and 13% in the second quarter and first six months of 2020 , respectively, compared to 10% and 11% in the second quarter and first six months of 2019 , respectively.

General and administrative expense increased in the third quarter of 2020 compared to the third quarter of 2019 , primarily due to increases in professional fees, facilities expense, and compensation and benefits of $1.9 million , $1.9 million , and $1.2 million , respectively, partially offset by a decrease in travel and entertainment expense of $1.0 million .

General and administrative expense increased in the first nine months of 2020 compared to the first nine months of 2019 due to increases in professional fees, facilities expense, and technology expense of $5.1 million , $3.1 million , and $2.3 million , respectively.

The first nine months of 2019 also benefited from a $2.7 million gain on the sale of two office buildings.

This was partially offset by decreases in travel and entertainment expense, compensation and benefits, employee morale, and other taxes of $2.9 million , $2.2 million , $1.2 million , and $0.9 million , respectively.

General and administrative expense as a percentage of revenue increased to 15% in the third quarter of 2020 compared to 10% in the third quarter of 2019 , and increased to 14% in the first nine months of 2020 compared to 10% in the first nine months of 2019 .

Product development

Product development expense consists primarily of compensation and other employee-related costs (including stock-based compensation) and third-party labor costs that are not capitalized, for employees and consultants engaged in the design, development, testing and enhancement of technology.

Product development expense increased in the second quarter and first six months of 2020 compared to the second quarter and first six months of 2019 as we continued to invest in internal development of new and enhanced features, functionality and business opportunities that we believe will enable us to better and more fully serve consumers and Network Partners.

The increase in depreciation expense in the second quarter and first six months of 2020 compared to the second quarter and first six months of 2019 was primarily the result of higher investment in internally developed software in recent years, to support the growth of our business.

Product development expense increased in the third quarter and first nine months of 2020 compared to the third quarter and first nine months of 2019 as we continued to invest in internal development of new and enhanced features, functionality and business opportunities that we believe will enable us to better and more fully serve consumers and Network Partners.

The increase in depreciation expense in the third quarter and first nine months of 2020 compared to the third quarter and first nine months of 2019 was primarily the result of higher investment in internally developed software in recent years, to support the growth of our business.

Contingent consideration

During the second quarter and first six months of 2020 , we recorded aggregate contingent consideration expense of $9.2 million and $1.1 million , respectively, due to adjustments in the estimated fair value of the earnout payments related to our recent acquisitions.

For the second quarter of 2020 , the contingent consideration expense for the QuoteWizard, Ovation and SnapCap acquisitions was $8.1 million , $1.0 million and $0.1 million , respectively.

For the first six months of 2020 , the contingent consideration expense for the Ovation and SnapCap acquisitions was $1.2 million and $0.1 million , respectively, partially offset by a contingent consideration gain for the QuoteWizard acquisition of $0.2 million .

During the second quarter and first six months of 2019, we recorded aggregate contingent consideration expense of $2.8 million and $17.4 million, respectively, due to adjustments in the estimated fair value of the earnout payments related to our recent acquisitions.

For the second quarter of 2019, the contingent consideration expense for the QuoteWizard and Ovation acquisitions was $2.5 million and $0.6 million, respectively.

This was partially offset by contingent consideration gains recorded for the SnapCap and DepositAccounts acquisitions of $0.1 million and $0.2 million, respectively.

For the first six months of 2019, the contingent consideration expense for the QuoteWizard and SnapCap acquisitions was $16.9 million and $1.5 million, respectively.

This was partially offset by a contingent consideration gain recorded for the DepositAccounts acquisition of $0.9 million.

During the third quarter and first nine months of 2020 , we recorded aggregate contingent consideration expense of $6.7 million and $7.7 million , respectively, due to adjustments in the estimated fair value of the earnout payments related to our recent acquisitions.

For the third quarter of 2020 , the contingent consideration expense for the QuoteWizard and Ovation acquisitions was $6.6 million and $0.1 million , respectively.

For the first nine months of 2020 , the contingent consideration expense for the QuoteWizard, Ovation and SnapCap acquisitions was $6.4 million , $1.3 million and $0.1 million , respectively.

During the third quarter and first nine months of 2019 , we recorded aggregate contingent consideration expense of $3.8 million and $21.2 million, respectively, due to adjustments in the estimated fair value of the earnout payments related to our recent acquisitions.

For the third quarter of 2019 , the contingent consideration expense for the QuoteWizard and SnapCap acquisitions was $4.3 million and $0.3 million, respectively.

This was partially offset by a contingent consideration gain recorded for the Ovation acquisition of $0.8 million.

For the first nine months of 2019 , the contingent consideration expense for the QuoteWizard and SnapCap acquisitions was $21.2 million and $1.8 million, respectively.

This was partially offset by contingent consideration gains recorded for the Ovation and DepositAccounts acquisitions of $0.8 million and $1.0 million, respectively.

Interest expense

Interest expense increased in the third quarter and first nine months of 2020 compared to the third quarter and first nine months of 2019 due to the issuance of $575.0 million of our 0.50% Convertible Senior Notes due July 15, 2025 (the “2025 Notes”) as well as the repurchase of a portion of our existing 0.625% Convertible Senior Notes due June 1, 2022 (the “2022 Notes”) in July 2020.

In the third quarter and first nine months of 2020 , interest expense of $4.9 million was recognized on the 2025 Notes.

Further, a loss on debt extinguishment of $7.8 million was recognized within interest expense upon the partial repurchase of the 2022 Notes.

These increases to interest expense were partially offset by lower interest expense on the 2022 Notes in the third quarter and first nine months of 2020 as a result of the repurchase of $130.3 million principal amount of the 2022 Notes.

See Note 14 —Debt for additional information on the issuance of the 2025 Notes and the partial repurchase of the 2022 Notes.

Income tax expense

For the second quarter and first six months of 2020 , the effective tax rate varied from the federal statutory rate of 21% in part due to a tax benefit of $0.8 million and $1.8 million , respectively, recognized for excess tax benefits resulting from employee exercises of stock options and vesting of restricted stock in accordance with ASU 2016-09 and the effect of state taxes.

The effective tax rate for the first six months of 2020 was also impacted by a tax benefit of $6.1 million for the impact of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, as described below.

For the third quarter and first nine months of 2020 , the effective tax rate varied from the federal statutory rate of 21% in part due to a tax benefit of $0.2 million and $2.0 million , respectively, recognized for excess tax benefits resulting from employee exercises of stock options and vesting of restricted stock in accordance with ASU 2016-09 and the effect of state taxes.

The effective tax rate for the first nine months of 2020 was also impacted by a tax benefit of $6.1 million for the impact of the CARES Act, as described below.

On March 27, 2020, President Trump signed into law the CARES Act.

This legislation is an economic relief package in response to the public health and economic impacts of COVID-19 and includes various provisions that impact us, including, but not limited to, modifications for net operating losses, accelerated timeframe for refunds associated with prior minimum taxes and modifications of the limitation on business interest.

We revalued deferred tax assets related to net operating losses in light of the changes in the CARES Act, and recorded a net tax benefit of $6.1 million during the first six months of 2020 .

This legislation is an economic relief package in response to the public health and economic impacts of COVID-19 and includes various provisions that impact us, including, but

not limited to, modifications for net operating losses, accelerated timeframe for refunds associated with prior minimum taxes and modifications of the limitation on business interest.

We revalued deferred tax assets related to net operating losses in light of the changes in the CARES Act, and recorded a net tax benefit of $6.1 million during the first nine months of 2020 .

These deferred tax assets are being revalued, as they will be carried back to 2016 and 2017, which are tax periods prior to the Tax Cuts and Jobs Act ("TCJA") when the federal statutory tax rate was 35% versus the 21% federal statutory tax rate in effect after the enactment of the TCJA.

For the second quarter and first six months of 2019 , the effective tax rate varied from the federal statutory rate of 21% primarily due to a tax benefit of $7.7 million and $13.7 million , respectively, recognized for excess tax benefits resulting from employee exercises of stock options and vesting of restricted stock in accordance with ASU 2016-09 and the effect of state taxes.

For the third quarter and first nine months of 2019 , the effective tax rate varied from the federal statutory rate of 21% primarily due to a tax benefit of $2.8 million and $16.5 million , respectively, recognized for excess tax benefits resulting from employee exercises of stock options and vesting of restricted stock in accordance with ASU 2016-09, a tax benefit of $1.9 million recognized from an adjustment to the federal research tax credit and the effect of state taxes.

Discontinued operations

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Segment Profit

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands)

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See Note 17 —Segment Information in the notes to the consolidated financial statements for additional information on segments and a reconciliation of segment profit to pre-tax income from continuing operations.

Consumer segment profit decreased $31.4 million in the second quarter of 2020 from the second quarter of 2019 , and decreased $42.2 million in the first six months of 2020 from the first six months of 2019 , primarily due to decreases in revenue, partially offset by corresponding decreases in selling and marketing expense.

The biggest challenge facing many of our consumer Network Partners, and in turn our own business, is a lack of visibility into the true health of consumer balance sheets.

Credit performance across consumer lenders of varying shapes and sizes has seemingly fared better than expected, and unemployment has begun to improve after peaking at nearly 15% in April.

But questions remain as to the impact on these trends from government stimulus, forbearance and deferment programs offered by the lenders, and ultimately, our country's ability to re-open safely.

Credit card issuers and personal loan lenders appetite for risk is temporarily diminished until there is further evidence of economic stabilization.

We do believe the revenue opportunity in our Consumer segment has hit the trough as many of our consumer Network Partners who initially paused entirely are beginning to return to the platform.

In most cases, those consumer Network Partners are returning to reach narrower bands of consumers, with much stricter credit standards, smaller budgets, and less aggressive bids.

Home segment profit increased $14.5 million in the second quarter of 2020 from the second quarter of 2019 , and increased $26.5 million in the first six months of 2020 from the first six months of 2019 , due to increases in revenue and decreases in selling and marketing expense.

Historically, as explained, in periods similar to those experienced in the second quarter of 2020 with sharp declines in interest rates and increased consumer interest, our mortgage Network Partners become inundated with more organic volume than they can process and their demand for our services diminishes for a period of time.

While that dynamic has remained very relevant for us in the second quarter, our improved ability to withstand it is evident.

We've developed differentiated offerings and price points for mortgage Network Partners to better serve a wider array of their needs.

Our Home segment has benefited from a decrease in unit marketing costs during the COVID-19 pandemic.

With heightened interest in refinancing and home-buying activity, we managed to meet the demand of our Network Partners in an optimized and cost-efficient way.

We expect Home unit marketing costs in the third quarter of 2020 to return to levels experienced prior to the second quarter of 2020.

Insurance segment profit increased $1.3 million in the second quarter of 2020 from the second quarter of 2019 due to an increase in revenue and a decrease in selling and marketing expense, and increased $4.0 million in the first six months of 2020 from the first six months of 2019 due to an increase in revenue, partially offset by corresponding increases in selling and marketing expense.

At the end of the first quarter of 2020, we noted a slowdown in consumers searching for auto insurance which we attributed to slumping car sales amid the pandemic.

While those trends have steadily begun to recover since early April, reduced search engine traffic has continued to present a modest headwind to achieving the levels of growth in the Insurance segment that we've historically experienced and we have taken on several initiatives to combat these trends.

We've seen demonstrable traffic growth through several non-search channels and the agent portion of the Insurance segment is achieving record-highs as agents find increasing value in our services in a remote work environment.

Consumer segment profit decreased $43.5 million in the third quarter of 2020 from the third quarter of 2019 , and decreased $85.8 million in the first nine months of 2020 from the first nine months of 2019 , primarily due to decreases in revenue, partially offset by corresponding decreases in selling and marketing expense.

While the Consumer segment remains challenged from the impact of economic conditions related to the COVID-19 pandemic, we are encouraged that the performance of each of our credit cards, personal loans and small business loans products has steadily improved from the lows in the second quarter of 2020.

However, it remains difficult to predict the pace of recovery.

We continue to observe favorable trends in consumer credit and spending, but these trends remain unclear due to the uncertainty surrounding further government stimulus and the staying power of COVID-19.

Our Network Partners continue to view the market with caution;

while many Network Partners have resumed activity on our marketplace, their interest in doing so is primarily to assess consumer behavior and performance rather than to aggressively pursue new origination at scale or market share gains.

In considering the coming quarters, it is possible that our unit economics will remain constrained in our credit cards, personal loans and small business loans products due to the lack of heightened competition among our Network Partners.

However, we believe that we are strategically positioning ourselves for success when industry conditions return to health.

We continue to drive volume to our Network Partners, which could decrease segment profitability in the near term.

The strength of our Home and Insurance segments, discussed below, enables us to adopt a longer-term orientation toward our Network Partners in these challenging times.

Home segment profit decreased $2.9 million in the third quarter of 2020 from the third quarter of 2019 , primarily due to an increase in selling and marketing expense, and increased $23.6 million in the first nine months of 2020 from the first nine months of 2019 , primarily due to an increase in revenue.

Mortgage lender capacity continued to expand in the third quarter of 2020 as refinance mortgage activity abated from the highs in the second quarter of 2020.

While increased lender capacity benefits our business and enables improved traffic monetization, these same dynamics drive heightened competition and costs to acquire such traffic, leading to compressed margins.

Other factors such as the November 2020 election also contributed to increased traffic acquisition costs;

however, we view those dynamics as temporary and expect the industry backdrop to remain favorable in the coming quarters.

Insurance segment profit increased $7.0 million in the third quarter of 2020 from the third quarter of 2019 , and increased $11.0 million in the first nine months of 2020 from the first nine months of 2019 , primarily due to increases in revenue, partially offset by corresponding increases in selling and marketing expense.

While decreased search engine traffic presented modest headwinds in the second quarter of 2020, such headwinds largely dissipated in the third quarter of 2020.

We also accelerated the Insurance business in the third quarter of 2020 in a number of areas:

the roll out of our publisher platform that is expected to be a significant growth driver in future quarters, the build out of an in-house agency that complements our existing offerings by enabling us to drive volume for insurance carriers who do not write premiums directly, and steady progress made in the health insurance and Medicare categories.

Adjusted EBITDA

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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.

The following table is a reconciliation of net income from continuing operations to Adjusted EBITDA (in thousands) .

The following table is a reconciliation of net (loss) income from continuing operations to Adjusted EBITDA (in thousands) .

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Net (loss) income from continuing operations

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Interest expense, net

Income tax benefit

Income tax (benefit) expense

Adjusted EBITDA

Financial Position, Liquidity and Capital Resources

As of June 30, 2020 , we had $101.8 million of cash and cash equivalents, compared to $60.2 million of cash and cash equivalents as of December 31, 2019 .

As of September 30, 2020 , we had $187.3 million of cash and cash equivalents, compared to $60.2 million of cash and cash equivalents as of December 31, 2019 .

In February 2020, we acquired an equity interest in Stash for $80.0 million .

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See Note 7 —Equity Investment to the consolidated financial statements included elsewhere in this report for more information.

During the first six months of 2020 , we paid down $25.0 million on our Amended Revolving Credit Facility.

We made net repayments of $130.0 million on our Amended Revolving Credit Facility in July 2020.

During the first six months of 2020 , we made two contingent consideration payments of $3.0 million each, related to the prior acquisition of SnapCap.

We could make additional potential contingent consideration payments of up to $4.4 million for Ovation and $46.8 million for QuoteWizard.

In July 2020, we made litigation settlement payments of $26.5 million to the ResCap Liquidating Trust and $36.0 million to the HLC bankruptcy Trustee for the matters noted in Note 18 —Discontinued Operations.

In July 2020, we issued $575.0 million of our 0.50% Convertible Senior Notes due July 15, 2025 (the “2025 Notes”) for estimated net proceeds of approximately $559.8 million.

During the first nine months of 2020 , we made net repayments of $75.0 million on our Amended Revolving Credit Facility.

During the first nine months of 2020 , we made two contingent consideration payments of $3.0 million each, related to the prior acquisition of SnapCap.

In October 2020, we made a contingent consideration payment of $4.4 million related to the prior acquisition of Ovation.

We could make additional potential contingent consideration payments of up to $46.8 million for QuoteWizard.

In July 2020, we made litigation settlement payments of $26.5 million to the ResCap Liquidating Trust ("ResCap") and $36.0 million to the HLC bankruptcy Trustee for the matters noted in Note 18 —Discontinued Operations.

In October 2020, due to the timing of distributions from the HLC bankruptcy estate, we were required to make a further payment of $6.4 million to ResCap.

We anticipate receiving a total $7.5 million reimbursement from the HLC bankruptcy estate related to the ResCap payments by the first quarter of 2021.

In July 2020, we issued $575.0 million of our 2025 Notes for net proceeds of approximately $559.9 million.

We used approximately $63.0 million of the net proceeds to enter into Convertible Note Hedge and Warrant transactions.

Further, we used approximately $234.0 million of the net proceeds to repurchase approximately $130.3 million principal amount of our 0.625% Convertible Senior Notes due June 1, 2022 (the “2022 Notes”).

Further, we used $234.0 million of the net proceeds to repurchase approximately $130.3 million principal amount of our 2022 Notes.

To the extent of the repurchases of the 2022 Notes, we received approximately $15.6 million as a result of terminating a corresponding portion of the Convertible Note Hedge and Warrant transactions entered into on May 31, 2017.

See Note 19 —Subsequent Events for additional information.

See Note 14 —Debt for additional information.

We expect our cash and cash equivalents and cash flows from operations to be sufficient to fund our operating needs for the next twelve months and beyond.

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In July 2020, we executed a temporary amendment to the Amended Revolving Credit Facility to provide for certain covenant relief, primarily to facilitate the issuance of the 2025 Notes, the repurchase of a portion of the 2022 Notes, and to pay down existing borrowings under the credit facility.

As of August 4, 2020 , we have a $0.2 million letter of credit under the Amended Revolving Credit Facility.

The remaining borrowing capacity at August 4, 2020 is $499.8 million .

The amendment applies from the effective date through the fiscal quarter ending June 30, 2021, unless terminated in advance by us.

See Note 14 —Debt for additional information.

As of November 5, 2020 , we have a $0.2 million letter of credit under the Amended Revolving Credit Facility.

The remaining borrowing capacity at November 5, 2020 is $499.8 million .

Cash Flows from Continuing Operations

Our cash flows attributable to continuing operations are as follows:

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

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In addition, our uses of cash from operating activities include compensation and other employee-related costs, other general corporate expenditures, litigation settlements and contingencies, certain contingent consideration payments, and income taxes.

Net cash provided by operating activities attributable to continuing operations increased in the first six months of 2020 from the first six months of 2019 primarily due to changes in accounts receivable, partially offset by changes in accounts payable, accrued expenses and other current liabilities.

The first six months of 2020 also experienced a decrease in revenue, partially offset by a corresponding decrease in selling and marketing expense, compared to the first six months of 2019 .

Net cash provided by operating activities attributable to continuing operations decreased in the first nine months of 2020 from the first nine months of 2019 primarily due to a decrease in revenue, partially offset by a corresponding decrease in selling and marketing expense.

This was further partially offset by net favorable changes in working capital, primarily in accounts receivable and accounts payable, accrued expenses and other current liabilities.

Cash Flows from Investing Activities

Net cash used in investing activities attributable to continuing operations in the first six months of 2020 of $89.1 million consisted of the purchase of an $80.0 million equity interest in Stash and capital expenditures of $9.1 million primarily related to internally developed software.

Net cash used in investing activities attributable to continuing operations in the first six months of 2019 of $90.8 million consisted primarily of the acquisition of ValuePenguin for $105.6 million , net of cash acquired, and capital expenditures of $9.8

Net cash used in investing activities attributable to continuing operations in the first nine months of 2020 of $100.4 million consisted of the purchase of an $80.0 million equity interest in Stash and capital expenditures of $20.4 million primarily related to internally developed software and leasehold improvements for our new principal executive offices currently under construction.

Net cash used in investing activities attributable to continuing operations in the first nine months of 2019 of $96.2 million consisted primarily of the acquisition of ValuePenguin for $105.6 million , net of cash acquired, and capital expenditures of $15.2

million primarily related to internally developed software.

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Cash Flows from Financing Activities

Net cash provided by financing activities attributable to continuing operations in the first six months of 2020 of $45.3 million consisted primarily of $55.0 million of net proceeds from our Amended Revolving Credit Facility, partially offset by $6.1 million in withholding taxes paid upon surrender of shares to satisfy obligations on equity awards, net of proceeds from the exercise of stock options, and $3.3 million related to contingent consideration payments for SnapCap.

Net cash used in financing activities attributable to continuing operations in the first six months of 2019 of $24.7 million consisted primarily of $10.0 million of net repayments on our 2017 Revolving Credit Facility, $4.0 million for the repurchase of our common stock, $7.6 million in withholding taxes paid upon surrender of shares to satisfy obligations on equity awards, net of proceeds from the exercise of stock options, and a $3.0 million contingent consideration payment for SnapCap.

Net cash provided by financing activities attributable to continuing operations in the first nine months of 2020 of $197.4 million consisted primarily of $575.0 million of gross proceeds from the issuance of the 2025 Notes, partially offset by $233.9 million paid to repurchase a portion of the 2022 Notes, a net $47.4 million paid for the related convertible note hedge and warrant transactions outlined above, $75.0 million of net repayments on our Amended Revolving Credit Facility, and $16.4 million for the payment of debt issuance costs.

Net cash used in financing activities attributable to continuing operations in the first nine months of 2019 of $56.8 million consisted primarily of $40.0 million of net repayments on our 2017 Revolving Credit Facility, $4.3 million for the repurchase of our common stock, $9.5 million in withholding taxes paid upon surrender of shares to satisfy obligations on equity awards, net of proceeds from the exercise of stock options, and a $3.0 million contingent consideration payment for SnapCap.

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis