LendingTree, Inc. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement Regarding Forward-Looking Information This report contains "forward-looking statements" within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements related to our anticipated financial performance, business prospects and strategy; anticipated trends and prospects in the various industries in which our businesses operate; new products, services and related strategies; and other similar matters. These forward-looking statements are based on management's current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. The use of words such as "anticipates," "estimates," "expects," "projects," "intends," "plans" and "believes," among others, generally identifies forward-looking statements. Actual results could differ materially from those contained in the forward-looking statements. Factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include those matters discussed or referenced in Part II, Item 1A. Risk Factors included elsewhere in this quarterly report and Part I, Item 1A. Risk Factors of the 2020 Annual Report. Other unknown or unpredictable factors that could also adversely affect our business, financial condition and results of operations may arise from time to time. In light of these risks and uncertainties, the forward-looking statements discussed in this report may not prove to be accurate. Accordingly, you should not place undue reliance on these forward-looking statements, which only reflect the views of LendingTree, Inc.'s management as of the date of this report. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results or expectations, except as required by law. Company Overview LendingTree, Inc. is the parent of LT Intermediate Company, LLC, which holds all of the outstanding ownership interests of LendingTree, LLC, and LendingTree, LLC owns several companies. We operate what we believe to be the leading online consumer platform that connects consumers with the choices they need to be confident in their financial decisions. Our online consumer platform provides consumers with access to product offerings from our Network Partners, including mortgage loans, home equity loans and lines of credit, reverse mortgage loans, auto loans, credit cards, deposit accounts, personal loans, student loans, small business loans, insurance quotes and other related offerings. In addition, we offer tools and resources, including free credit scores, that facilitate comparison shopping for loans, deposit products, insurance and other offerings. We seek to match consumers with multiple providers, who can offer them competing quotes for the product, or products, they are seeking. We also serve as a valued partner to lenders and other providers seeking an efficient, scalable and flexible source of customer acquisition with directly measurable benefits, by matching the consumer inquiries we generate with these Network Partners. Our My LendingTree platform offers a personalized comparison-shopping experience by providing free credit scores and credit score analysis. This platform enables us to monitor consumers' credit profiles and then identify and alert them to loans and other offerings on our marketplace that may be more favorable than the terms they may have at a given point in time. This is designed to provide consumers with measurable savings opportunities over their lifetimes. We are focused on developing new product offerings and enhancements to improve the experiences that consumers and Network Partners have as they interact with us. By expanding our portfolio of financial services offerings, we are growing and diversifying our business and sources of revenue. We intend to capitalize on our expertise in performance marketing, product development and technology, and to leverage the widespread recognition of the LendingTree brand, to effect this strategy. We believe the consumer and small business financial services industry is still in the early stages of a fundamental shift to online product offerings, similar to the shift that started in retail and travel many years ago and is now well established. We believe that like retail and travel, as consumers continue to move towards online shopping and transactions for financial services, suppliers will increasingly shift their product offerings and advertising budgets toward the online channel. We believe the strength of our brands and of our partner network place us in a strong position to continue to benefit from this market shift. The LendingTree Loans business is presented as discontinued operations in the accompanying consolidated balance sheets, consolidated statements of operations and comprehensive income and consolidated cash flows for all periods presented. Except 29 Table of Contents for the discussion under the heading "Discontinued Operations," the analysis within Management's Discussion and Analysis of Financial Condition and Results of Operations reflects our continuing operations. Economic Conditions During March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus ("COVID-19"). The pandemic has significantly impacted the economic conditions in the U.S., as federal, state and local governments react to the public health crisis, creating significant uncertainties in the U.S. economy. The downstream impact of various lockdown orders and related economic pullback are affecting our business and marketplace participants to varying degrees. We are continuously monitoring the impacts of the current economic conditions related to the COVID-19 pandemic and the effect on our business, financial condition and results of operations. Of our three reportable segments, the Consumer segment has been most impacted. The impact to our Home and Insurance segments was much less substantial and these segments recovered by the end of 2020. While forecasting the timeline of full recovery for the Consumer segment remains challenging, the momentum of recovery has increased in each quarter subsequent to the onset of the COVID-19 pandemic. We are encouraged by the progress made, and continue to view the Consumer segment with optimism over the medium to long term. Most of our selling and marketing expenses are variable costs that we adjust dynamically in relation to revenue opportunities to profitably meet demand. Thus, as our revenue was negatively impacted during the recession, our marketing expenses generally decreased in line with revenue. Segment Reporting We have three reportable segments: Home, Consumer and Insurance. Recent Business Acquisitions On February 28, 2020, we acquired an equity interest in Stash Financial, Inc. (“Stash”) for $80.0 million. On January 6, 2021, we acquired additional equity interest for $1.2 million. Stash is a consumer investing and banking platform. Stash brings together banking, investing, and financial services education into one seamless experience offering a full suite of personal investment accounts, traditional and Roth IRAs, custodial investment accounts, and banking services, including checking accounts and debit cards with a Stock-Back® rewards program. See Note 7—Equity Investment for additional information on the equity interest in Stash. North Carolina Office Properties Our new corporate office is located on approximately 176,000 square feet of office space in Charlotte, North Carolina under an approximate 15-year lease that contractually commenced in April 2021. With our expansion in North Carolina, in December 2016, we received a grant from the state that provides up to $4.9 million in reimbursements over 12 years beginning in 2017 for investing in real estate and infrastructure in addition to increasing jobs in North Carolina at specific targeted levels through 2020, and maintaining the jobs thereafter. Additionally, the city of Charlotte and the county of Mecklenburg provided a grant that will be paid over five years and is based on a percentage of new property tax we pay on the development of a corporate headquarters. In December 2018, we received an additional grant from the state that provides up to $8.4 million in reimbursements over 12 years beginning in 2020 for increasing jobs in North Carolina at specific targeted levels through 2023, and maintaining the jobs thereafter. Recent Mortgage Interest Rate Trends Interest rate and market risks can be substantial in the mortgage lead generation business. Short-term fluctuations in mortgage interest rates primarily affect consumer demand for mortgage refinancings, while long-term fluctuations in mortgage interest rates, coupled with the U.S. real estate market, affect consumer demand for new mortgages. Consumer demand, in turn, affects lender demand for mortgage leads from third-party sources, as well as our own ability to attract online consumers to our website. Typically, when interest rates decline, we see increased consumer demand for mortgage refinancing, which in turn leads to increased traffic to our website and decreased selling and marketing efforts associated with that traffic. At the same time, lender demand for leads from third-party sources typically decreases, as there are more consumers in the marketplace seeking 30 Table of Contents refinancings and, accordingly, lenders receive more organic mortgage lead volume. Due to lower lender demand, our revenue earned per consumer typically decreases, but with correspondingly lower selling and marketing costs. Conversely, when interest rates increase, we typically see decreased consumer demand for mortgage refinancing, leading to decreased traffic to our website and higher associated selling and marketing efforts associated with that traffic. At the same time, lender demand for leads from third-party sources typically increases, as there are fewer consumers in the marketplace and, accordingly, the supply of organic mortgage lead volume decreases. Due to high lender demand, we typically see an increase in the amount lenders will pay per matched lead, which often leads to higher revenue earned per consumer. However, increases in the amount lenders will pay per matched lead in this situation is limited by the overall cost models of our lenders, and our revenue earned per consumer can be adversely affected by the overall reduced demand for refinancing in a rising rate environment. 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 increased from a monthly average of 2.68% in December 2020 to a monthly average of 3.08% in March 2021. On a quarterly basis, 30-year mortgage interest rates in the first quarter of 2021 averaged 2.88%, compared to 3.51% in the first quarter of 2020 and 2.76% in the fourth quarter of 2020. Typically, as mortgage interest rates rise, there are fewer consumers in the marketplace seeking refinancings and, accordingly, the mix of mortgage origination dollars will move toward purchase mortgages. However, limited inventory of homes for sale have impacted this trend in recent months. According to Mortgage Bankers Association ("MBA") data, total refinance origination dollars increased to 71% of total mortgage origination dollars in the first quarter of 2021 compared to 67% in the fourth quarter of 2020. In the first quarter of 2021, total refinance origination dollars decreased 9% from the fourth quarter of 2020 and increased 153% from the first quarter of 2020. Industry-wide mortgage origination dollars in the first quarter of 2021 decreased 13% from the fourth quarter of 2020 and increased 94% from first quarter of 2020. In April 2021, the MBA projected 30-year mortgage interest rates to increase during 2021, to an average 3.7% for the year. According to MBA projections, the mix of mortgage origination dollars is expected to move back towards purchase mortgages with the refinance share representing approximately 49% for 2021. 31 Table of Contents The U.S. Real Estate Market The health of the U.S. real estate market and interest rate levels are the primary drivers of consumer demand for new mortgages. Consumer demand, in turn, affects lender demand for purchase mortgage leads from third-party sources. Typically, a strong real estate market will lead to reduced lender demand for leads, as there are more consumers in the marketplace seeking financing and, accordingly, lenders receive more organic lead volume. 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 Fannie Mae data, existing-home sales decreased 6% in the first quarter of 2021 compared to the fourth quarter of 2020, and increased 13% compared to the first quarter of 2020. Fannie Mae predicts an overall increase in existing-home sales of approximately 5% in 2021 compared to 2020. Results of Operations for the Three Months ended March 31, 2021 and 2020 Three Months Ended March 31, 2021 2020 $ Change % Change (Dollars in thousands) Home $ 128,125 $ 79,174 $ 48,951 62 % Consumer 57,907 119,924 (62,017) (52) % Insurance 86,614 82,737 3,877 5 % Other 104 1,249 (1,145) (92) % Revenue 272,750 283,084 (10,334) (4) % Costs and expenses: Cost of revenue (exclusive of depreciation and amortization shown separately below) 13,895 14,252 (357) (3) % Selling and marketing expense 197,462 195,538 1,924 1 % General and administrative expense 34,989 32,082 2,907 9 % Product development 12,468 10,963 1,505 14 % Depreciation 3,718 3,378 340 10 % Amortization of intangibles 11,312 13,757 (2,445) (18) % Change in fair value of contingent consideration 797 (8,122) 8,919 110 % Severance — 158 (158) (100) % Litigation settlements and contingencies 16 329 (313) (95) % Total costs and expenses 274,657 262,335 12,322 5 % Operating (loss) income (1,907) 20,749 (22,656) (109) % Other (expense) income, net: Interest expense, net (10,215) (4,834) 5,381 111 % Other income 40,072 — 40,072 100 % Income before income taxes 27,950 15,915 12,035 76 % Income tax (expense) benefit (8,638) 3,061 11,699 382 % Net income from continuing operations 19,312 18,976 336 2 % Loss from discontinued operations, net of tax (263) (4,575) (4,312) (94) % Net income and comprehensive income $ 19,049 $ 14,401 $ 4,648 32 % Revenue Revenue decreased in the first quarter of 2021 compared to the first quarter of 2020 due to decreases in our Consumer segment and Other category, partially offset by increases in our Home and Insurance segments. Our Consumer segment includes the following products: credit cards, personal loans, small business loans, student loans, auto loans, deposit accounts, and other credit products such as credit repair and debt settlement. Many of our Consumer segment products are not individually significant to revenue. Revenue from our Consumer segment decreased $62.0 million in the first quarter of 2021 from the first quarter of 2020, or 52%, primarily due to decreases in our credit cards, personal loans, small business loans and deposits products. 32 Table of Contents Revenue from our credit cards product decreased $34.0 million to $17.6 million in the first quarter of 2021 from $51.6 million in the first quarter of 2020, or 66%, 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 $16.6 million to $14.9 million in the first quarter of 2021 from $31.5 million in the first quarter of 2020, or 53%, primarily due to the impact of economic conditions related to the COVID-19 pandemic that caused a decrease in consumers' risk tolerance and subsequent demand for this product. 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 $6.6 million in the first quarter of 2021 compared to the first quarter of 2020, due to government stimulus loans creating less consumer demand for traditional loans, and a decrease in revenue earned per consumer. Revenue from our deposits product decreased $5.5 million in the first quarter of 2021 compared to the first quarter of 2020, due to lower demand in a reduced interest rate environment and a decrease in revenue earned per consumer. The ongoing COVID-19 pandemic is anticipated to continue to impact our Consumer product revenues in the near-term. 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 $49.0 million in the first quarter of 2021 from the first quarter of 2020, or 62%, primarily due to an increase in revenue from our refinance mortgage product, partially offset by a decrease in our purchase mortgage product. Revenue from our refinance mortgage product increased $52.0 million in the first quarter of 2021 compared to the first quarter of 2020, due to an increase in the number of consumers completing request forms resulting from increased refinancing activity in a declining interest rate environment, as well as an increase in revenue earned per consumer. Revenue from our purchase mortgage product decreased $2.6 million in the first quarter of 2021 compared to the first quarter of 2020, primarily due to a shift in lender focus toward refinance products as well as a decrease in revenue earned per consumer. Revenue from our Insurance segment increased $3.9 million to $86.6 million in the first quarter of 2021 from $82.7 million in the first quarter of 2020, or 5%, due to an increase in the number of consumers seeking insurance coverage, partially offset by a decrease in revenue earned per consumer. Revenue in the Other category decreased $1.1 million in the first quarter of 2021 compared to the first quarter of 2020, primarily as we 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 first quarter of 2021 from the first quarter of 2020, primarily due to a $1.1 million decrease for the cost of resold advertising space, as well as a $0.7 million decrease in credit card fees. This was partially offset by an increase in compensation and benefits of $0.9 million. Cost of revenue as a percentage of revenue remained consistent at 5% for each of the first quarters of 2021 and 2020. Selling and marketing expense Selling and marketing expense consists primarily of advertising and promotional expenditures and compensation and other employee-related costs (including stock-based compensation) for personnel engaged in sales or marketing functions. Advertising and promotional expenditures primarily include online marketing, as well as television, print and radio spending. Advertising production costs are expensed in the period the related ad is first run. Selling and marketing expense increased in the first quarter of 2021 compared to the first quarter of 2020 primarily due to an increase in compensation and benefits of $2.0 million as a result of an increase in headcount. 33 Table of Contents Advertising and promotional expense is the largest component of selling and marketing expense, and is comprised of the following: Three Months Ended March 31, 2021 2020 $ Change % Change (Dollars in thousands) Online $ 176,821 $ 173,081 $ 3,740 2 % Broadcast 1,167 6,324 (5,157) (82) % Other 5,715 4,362 1,353 31 % Total advertising expense $ 183,703 $ 183,767 $ (64) — % Revenue is primarily driven by Network Partner demand for our products, which is matched to corresponding consumer requests. We adjust our selling and marketing expenditures dynamically in relation to anticipated revenue opportunities in order to ensure sufficient consumer inquiries to profitably meet such demand. An increase in a product’s revenue is generally met by a corresponding increase in marketing spend, and conversely a decrease in a product’s revenue is generally met by a corresponding decrease in marketing spend. This relationship exists for our Home, Consumer and Insurance segments. We adjusted our advertising expenditures in the first quarter of 2021 compared to the first quarter of 2020 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. General and administrative expense 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 increased in the first quarter of 2021 compared to the first quarter of 2020, primarily due to increases in compensation and benefits, facilities expense, and technology expense of $4.7 million, $1.5 million, and $0.6 million, respectively. This was partially offset by decreases in professional fees and travel and entertainment expense of $1.5 million and $0.7 million, respectively. General and administrative expense as a percentage of revenue increased to 13% in the first quarter of 2021 compared to 11% in the first quarter of 2020. 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 first quarter of 2021 compared to the first quarter of 2020 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. Amortization of intangibles The decrease in amortization of intangibles in the first quarter of 2021 compared to the first quarter of 2020 was due to intangible assets associated with our recent business acquisitions becoming fully amortized. Contingent consideration During the first quarter of 2021, we recorded contingent consideration expense of $0.8 million due to the adjustment in the estimated fair value of the remaining earnout payment related to the QuoteWizard acquisition. During the first quarter of 2020, we recorded an aggregate gain of $8.1 million due to adjustments in the estimated fair value of the earnout payments related to our recent acquisitions. For the first quarter of 2020, the gain related to the 34 Table of Contents QuoteWizard acquisition was $8.3 million, partially offset by contingent consideration expense for the Ovation acquisition of $0.1 million. Interest expense Interest expense increased in the first quarter of 2021 compared to the first quarter of 2020 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 first quarter of 2021, interest expense of $6.8 million was recognized on the 2025 Notes. This increase to interest expense was partially offset by lower interest expense on the 2022 Notes in the first quarter of 2021 compared to the first quarter of 2020 as a result of the July 2020 repurchase of $130.3 million principal amount of the 2022 Notes. See Note 13—Debt for additional information on the issuance of the 2025 Notes and the partial repurchase of the 2022 Notes. Other income For the first quarter of 2021, other income primarily consists of a $40.1 million gain on our investment in Stash as a result of an adjustment to the fair value based on observable market events. See Note 7—Equity Investment for additional information on the equity interest in Stash. Income tax expense For the first quarter of 2021, the effective tax rate varied from the federal statutory rate of 21% primarily due to the effect of state taxes. For the first quarter of 2020, the effective tax rate varied from the federal statutory rate of 21% in part due to a tax benefit of $1.1 million 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, as well as a tax benefit of $6.1 million for the impact of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. See Note 12—Income Taxes for additional information. Discontinued operations The results of discontinued operations include the results of the LendingTree Loans business formerly operated by our wholly-owned subsidiary, Home Loan Center, Inc., or HLC. The sale of substantially all of the assets of HLC, including the LendingTree Loans business, was completed on June 6, 2012. HLC filed a petition under Chapter 11 of the United States Bankruptcy Code on July 21, 2019, which was converted to Chapter 7 of the United States Bankruptcy Code on September 16, 2019. As a result of the voluntary bankruptcy petition, as of the initial July 21, 2019 bankruptcy petition filing date, HLC and its consolidated subsidiary were deconsolidated from LendingTree’s consolidated financial statements. The effect of such deconsolidation was the elimination of the consolidated assets and liabilities of HLC (and its consolidated subsidiary) from LendingTree’s consolidated balance sheets. Prior to the bankruptcy filing, losses from the LendingTree Loans business were primarily due to litigation settlements and contingencies and legal fees associated with ongoing legal proceedings. The results of discontinued operations include litigation settlements and contingencies and legal fees associated with ongoing legal proceedings against LendingTree, Inc. or LendingTree, LLC that arose due to the LendingTree Loans business or the HLC bankruptcy filing. See Note 17—Discontinued Operations to the consolidated financial statements included elsewhere in this report for more information. 35 Table of Contents Segment Profit Three Months Ended March 31, 2021 2020 $ Change % Change (Dollars in thousands) Home $ 38,990 $ 35,911 $ 3,079 9 % Consumer 24,607 43,099 (18,492) (43) % Insurance 32,842 30,533 2,309 8 % Other (92) (328) 236 72 % Segment profit $ 96,347 $ 109,215 $ (12,868) (12) % Segment profit is our primary segment operating metric. Segment profit is calculated as segment revenue less segment selling and marketing expenses attributed to variable costs paid for advertising, direct marketing and related expenses that are directly attributable to the segments' products. See Note 16—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 $18.5 million in the first quarter of 2021 from the first quarter of 2020, primarily due to a decrease in revenue, partially offset by a corresponding decrease in selling and marketing expense. We continue to be encouraged by the progress made in the Consumer segment since the onset of the COVID-19 pandemic. Credit card issuer budgets continue to increase, and there are sustained signs of increasing consumer health and spending. The profitability of our credit card product remains constrained in part due to lower approval rates and decreased competition on our network, as well as increased traffic acquisition costs in an environment where government stimulus has temporarily reduced consumers' demand for additional debt. Lender demand in our personal loans product continues to recover; however, consumers' lowered risk tolerance and subsequently lower demand continues to constrain this product. While the timeline of full recovery for the Consumer segment remains uncertain, we continue to view the segment with optimism over the medium to long term. Home segment profit increased $3.1 million in the first quarter of 2021 from the first quarter of 2020, primarily due to an increase in revenue, partially offset by a corresponding increase in selling and marketing expense. Refinance activity increased at the beginning of the first quarter of 2021, then decelerated in the latter part of the quarter as mortgage interest rates increased from the historical lows experienced in the fourth quarter of 2020. The Home segment performed well throughout as we are an integral part of our Network Partners' marketing model. Demand for our services, and competition on our network, continued to increase with mortgage revenue per lead improving 53% over the first quarter of 2020. In line with an acceleration of revenue, the Home segment margin contracted to 30% of revenue as we extended into lower-margin channels to fulfill increased lender demand. While there is uncertainty over near-term changes in interest rates, we are confident in our market-leading position and flexible business model. Insurance segment profit increased $2.3 million in the first quarter of 2021 from the first quarter of 2020, primarily due to an increase in revenue, partially offset by a corresponding increase in selling and marketing expense. We continue to expand our presence in the Insurance industry by broadening traffic acquisition sources, growing existing insurance carrier relationships, and increasing efforts to scale non-automobile categories. Our publisher platform and inbound channel each delivered record performance in the first quarter of 2021. These additional traffic sources enable incremental growth while reducing our reliance on paid search marketing. Additionally, our efforts to scale non-automobile categories continue to deliver returns. We observed record revenue from the home category in the first quarter of 2021, as we increasingly leverage our presence in the mortgage industry. We continue to make significant investments in our Medicare category. Adjusted EBITDA We report Adjusted EBITDA as a supplemental measure to GAAP. This measure is the primary metric by which we evaluate the performance of our businesses, on which our marketing expenditures and internal budgets are based and by which, in most years, management and many employees are compensated. We believe that investors should have access to the same set of tools that we use in analyzing our results. This non-GAAP measure should be considered in addition to results prepared in accordance with GAAP but should not be considered a substitute for or superior to GAAP results. We provide and encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measures discussed below. 36 Table of Contents Definition of Adjusted EBITDA We report Adjusted EBITDA as net income from continuing operations adjusted to exclude interest, income tax, amortization of intangibles and depreciation, and to further exclude (1) non-cash compensation expense, (2) non-cash impairment charges, (3) gain/loss on disposal of assets, (4) gain/loss on investments, (5) restructuring and severance expenses, (6) litigation settlements and contingencies, (7) acquisitions and dispositions income or expense (including with respect to changes in fair value of contingent consideration), and (8) one-time items. Adjusted EBITDA has certain limitations in that it does not take into account the impact to our statement of operations of certain expenses, including depreciation, non-cash compensation and acquisition-related accounting. We endeavor to compensate for the limitations of the non-GAAP measures presented by also providing the comparable GAAP measures with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the non-GAAP measures. These non-GAAP measures may not be comparable to similarly titled measures used by other companies. One-Time Items Adjusted EBITDA is adjusted for one-time items, if applicable. Items are considered one-time in nature if they are non-recurring, infrequent or unusual and have not occurred in the past two years or are not expected to recur in the next two years, in accordance with SEC rules. For the periods presented below, there are no adjustments for one-time items. Non-Cash Expenses that are Excluded from Adjusted EBITDA Non-cash compensation expense consists principally of expense associated with grants of restricted stock, restricted stock units and stock options, some of which awards have performance-based vesting conditions. These expenses are not paid in cash, and we include the related shares in our calculations of fully diluted shares outstanding. Upon settlement of restricted stock units, exercise of certain stock options or vesting of restricted stock awards, the awards may be settled, on a net basis, with us remitting the required tax withholding amount from our current funds. Amortization of intangibles are non-cash expenses relating primarily to intangible assets acquired through acquisitions. At the time of an acquisition, the intangible assets of the acquired company, such as purchase agreements, technology and customer relationships, are valued and amortized over their estimated lives. The following table is a reconciliation of net income from continuing operations to Adjusted EBITDA (in thousands) . Three Months Ended March 31, 2021 2020 Net income from continuing operations $ 19,312 $ 18,976 Adjustments to reconcile to Adjusted EBITDA: Amortization of intangibles 11,312 13,757 Depreciation 3,718 3,378 Severance — 158 Loss on disposal of assets 348 530 Unrealized gain on investments (40,072) — Non-cash compensation expense 16,436 11,917 Change in fair value of contingent consideration 797 (8,122) Acquisition expense 29 2,180 Litigation settlements and contingencies 16 329 Interest expense, net 10,215 4,834 Income tax expense (benefit) 8,638 (3,061) Adjusted EBITDA $ 30,749 $ 44,876 37 Table of Contents Financial Position, Liquidity and Capital Resources General As of March 31, 2021, we had $162.1 million of cash and cash equivalents, compared to $169.9 million of cash and cash equivalents as of December 31, 2020. In the first quarter of 2021, we acquired additional equity interest in Stash for $1.2 million. See Note 7—Equity Investment to the consolidated financial statements included elsewhere in this report for additional information on the equity interest in Stash. We could make an additional potential contingent consideration payment of up to $23.4 million related to the prior acquisition of QuoteWizard. 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. Our revolving credit facility described below is an additional potential source of liquidity. We will continue to monitor the impact of the ongoing COVID-19 pandemic on our liquidity and capital resources. We expect our cashflow from operating activities to be negatively impacted by the economic recession. Senior Secured Revolving Credit Facility On December 10, 2019, we entered into an amended and restated $500.0 million five-year senior secured revolving credit facility, which matures on December 10, 2024 (the “Amended Revolving Credit Facility”). Borrowings under the Amended Revolving Credit Facility can be used to finance working capital needs, capital expenditures and general corporate purposes, including to finance permitted acquisitions. 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. The amendment applies from the effective date through the fiscal quarter ending June 30, 2021, unless terminated in advance by us. See Note 13—Debt for additional information. As of May 5, 2021, we have outstanding a $0.2 million letter of credit under the Amended Revolving Credit Facility. The remaining borrowing capacity at May 5, 2021 is $499.8 million. Cash Flows from Continuing Operations Our cash flows attributable to continuing operations are as follows: Three Months Ended March 31, 2021 2020 (in thousands) Net cash provided by operating activities $ 8,925 $ 29,302 Net cash used in investing activities (11,733) (84,189) Net cash (used in) provided by financing activities (5,000) 46,601 Cash Flows from Operating Activities Our largest source of cash provided by our operating activities is revenues generated by our products. Our primary uses of cash from our operating activities include advertising and promotional payments. 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 decreased in the first three months of 2021 from the first three months of 2020 primarily due to unfavorable changes in accounts receivable, partially offset by favorable changes in accounts payable, accrued expenses and other current liabilities. 38 Table of Contents Cash Flows from Investing Activities Net cash used in investing activities attributable to continuing operations in the first three months of 2021 of $11.7 million consisted of capital expenditures of $10.6 million primarily related to internally developed software and leasehold improvements for our new principal corporate offices, as well as the purchase of an additional $1.2 million equity interest in Stash, described above. Net cash used in investing activities attributable to continuing operations in the first three months of 2020 of $84.2 million consisted of the initial purchase of an $80.0 million equity interest in Stash and capital expenditures of $4.2 million primarily related to internally developed software. Cash Flows from Financing Activities Net cash used in financing activities attributable to continuing operations in the first three months of 2021 of $5.0 million consisted primarily of $4.8 million in withholding taxes paid upon surrender of shares to satisfy obligations on equity awards, net of proceeds from the exercise of stock options. Net cash provided by financing activities attributable to continuing operations in the first three months of 2020 of $46.6 million consisted primarily of $55.0 million of net proceeds from our Amended Revolving Credit Facility, partially offset by $5.1 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 a $3.0 million contingent consideration payment for SnapCap. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements other than a letter of credit and our funding commitments pursuant to our surety bonds, none of which have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. New Accounting Pronouncements For information regarding new accounting pronouncements, see Note 2 — Significant Accounting Policies, in Part I, Item 1 Financial Statements .