What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-01 compared with 2021-03-01 · 149 added, 150 removed, 272 unchanged (52% of the section changed)

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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.

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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 as unsecured credit and the flow of capital in certain areas of the market have contracted.

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.

Of our three reportable segments, the Consumer segment was most impacted as unsecured credit and the flow of capital in certain areas of the market have contracted.

The impact to our Home and Insurance segments was much less substantial.

We believe our three reporting segments have generally recovered from the impact of the pandemic.

Most of our selling and marketing expenses are variable costs that we adjust dynamically in relation to revenue opportunities to profitably meet demand.

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On February 28, 2020, we acquired an equity interest in Stash for $80.0 million.

On January 6, 2021 we acquired an 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.

In the fourth quarter of 2021, we sold a portion of our investment in Stash for $46.3 million, realizing a gain on the sale of $27.9 million.

On January 10, 2019, we acquired ValuePenguin, a personal finance website that offers consumers objective analysis on a variety of financial topics from insurance to credit cards, for $106.2 million.

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This strategic acquisition positions us to achieve further scale in the insurance space as well as the broader financial services industry.

On October 31, 2018, we acquired QuoteWizard, one of the largest insurance comparison marketplaces in the growing online insurance advertising market, for $299.5 million in cash and potential contingent consideration payments of up to $70.2 million through October 2021, subject to achieving specific targets.

QuoteWizard services clients by driving consumers to insurance companies’ websites, providing leads to agents and carriers, as well as phone transfers of consumers into carrier call centers.

This acquisition has established LendingTree as a leading player in the online insurance advertising industry, while continuing our ongoing diversification within the financial services category.

On July 23, 2018, we acquired Student Loan Hero for $62.7 million in cash, of which $2.3 million was recognized as severance expense in our consolidated statements of operations and comprehensive income (loss).

Student Loan Hero, a personal finance website dedicated to helping student loan borrowers manage their student debt, offers current and former students in-depth financial comparison tools, educational resources, and unbiased, personalized advice.

This strategic transaction allows us to scale our student loan business and provide consumers with the tools and resources to better understand their personal finances and make smarter financial decisions.

On June 11, 2018, we acquired Ovation, a leading provider of credit services with a strong customer service reputation, for $12.1 million in cash and potential contingent consideration payments of up to $8.75 million through June 2020, subject to achieving specified targets.

Ovation utilizes a proprietary software application that facilitates the credit repair process and is integrated directly with certain credit reporting agencies while educating consumers on credit improvement via ongoing outreach with Ovation case advisors.

The proprietary software application offers consumers a simple, streamlined process to identify, dispute, and correct inaccuracies within their credit reports.

Ovation's experienced management team, strong credit reporting agency relationships and customized software platform enable us to help more consumers achieve their financial goals through the LendingTree platform.

These acquisitions continue our diversification strategy.

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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 increased from 3.95% at the end of 2017 to a monthly average of 4.87% in November 2018, but declined to 4.64% at the end of 2018.

During 2019, 30-year mortgage interest rates steadily decreased from a monthly average of 4.46% in January 2019, ending at a monthly average of 3.72% in December.

The declining trend continued into 2020, largely as a result of stimulus efforts in response to the COVID-19 pandemic, ending at a monthly average of 2.68% in December 2020.

According to Freddie Mac, 30-year mortgage interest rates steadily decreased from a monthly average of 4.46% in January 2019, ending at a monthly average of 3.72% in December 2019.

The declining trend continued into 2020, largely as a result of stimulus efforts in response to the COVID-19 pandemic, beginning at a monthly average of 3.62% in January 2020 and ending at a monthly average of 2.68% in December 2020.

During 2021, 30-year mortgage interest rates steadily increased from a monthly average of 2.74% in January 2021, ending at a monthly average of 3.10% in December.

On a full-year basis, 30-year mortgage interest rates decreased to an average 2.96% in 2021, compared to 3.11% and 3.94% in 2020 and 2019, respectively.

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 from 28% of total 2018 mortgage origination dollars to 38% in 2019, then increased further to 60% in 2020 as a result of the general trend in average mortgage interest rates.

Total refinance origination dollars increased by 70% in 2019 over 2018 and by 109% in 2020 over 2019.

Industry-wide mortgage origination dollars increased by 34% in 2019 over 2018 and by 59% in 2020 over 2019.

According to Mortgage Bankers Association ("MBA") data, total refinance origination dollars increased from 38% of total 2019 mortgage origination dollars to 60% in 2020, then remained relatively consistent at 59% in 2021 as a result of the general trend in average mortgage interest rates.

Total refinance origination dollars increased by 109% in 2020 over 2019 and decreased by 11% in 2021 over 2020.

Industry-wide mortgage origination dollars increased by 59% in 2020 over 2019 and decreased by 3% in 2021 over 2020.

Looking forward, the MBA is projecting 30-year mortgage interest rates to increase slightly in 2022 to an average 4.0%.

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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"), nationwide existing home sales in 2018 declined approximately 3% compared to 2017 due to limited inventory of homes for sale and rising interest rates.

Existing home sales in 2019 remained consistent with 2018 levels.

According to Fannie Mae data, existing-home sales in 2019 remained consistent with 2018 levels, which had decreased due to limited inventory of homes for sale and rising interest rates.

In 2020, existing home sales grew by 6% over 2019, fueled by increased competition for low inventory as well as an increase in first-time home buyers.

The NAR expects a 15% increase in existing home sales in 2021.

This trend continued into 2021 with existing home sales growing 9% over 2020.

Fannie Mae expects a 5% decrease in existing home sales in 2022.

Convertible Senior Notes and Hedge and Warrant Transactions

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North Carolina Office Properties

In December 2016, we completed the acquisition of two office buildings in Charlotte, North Carolina, for $23.5 million in cash.

The buildings were acquired with the intent to use such buildings as our corporate headquarters and rent any unused space.

In November 2018, the office buildings were classified as held for sale.

In May 2019, we sold these buildings to an unrelated third party for a sale price of $24.4 million.

Our new corporate office is currently in the final stages of construction and will be located on approximately 176,000 square feet of office space in Charlotte, North Carolina under an approximate 15-year lease that is expected to contractually commence in the first quarter of 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.

Our principal executive office is located on approximately 176,000 square feet of office space in Charlotte, North Carolina under an approximate 15-year lease that commenced in the second quarter of 2021.

With our expansion in North Carolina, in December 2016, we received a grant from the state that provides an aggregate amount up to $4.9 million in reimbursements through 2029 beginning in 2017 for investing in real estate and infrastructure in addition to increasing jobs in North Carolina at specific targeted levels through 2021, 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.

In December 2018, we received an additional grant from the state that provides an aggregate amount up to $8.4 million in reimbursements through 2032 beginning in 2021 for increasing jobs in North Carolina at specific targeted levels through 2024, and maintaining the jobs thereafter.

Results of Operations for the Years ended December 31, 2021 and 2020

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Total costs and expenses 1,090,468 916,593 173,875 19 %

Operating (loss) income (6,603) 50,728 (57,331) (113) %

Operating income (loss) 8,031 (6,603) 14,634 222 %

Other (expense) income, net:

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Other income 123,272 376 122,896 32,685 %

(Loss) income before income taxes (42,527) 30,981 (73,508) (237) %

Income tax benefit 19,961 8,479 11,482 135 %

Net (loss) income from continuing operations (22,566) 39,460 (62,026) (157) %

Income (loss) before income taxes 84,436 (42,527) 126,963 299 %

Income tax (expense) benefit (11,298) 19,961 (31,259) (157) %

Net income (loss) from continuing operations 73,138 (22,566) 95,704 424 %

Loss from discontinued operations, net of tax (4,023) (25,689) (21,666) (84) %

Net (loss) income and comprehensive (loss) income $ (48,255) $ 17,828 $ (66,083) (371) %

Revenue decreased in 2020 compared to 2019 due to decreases in our Consumer segment and Other category, partially offset by increases in our Insurance and Home segments.

Net income (loss) and comprehensive income (loss) $ 69,115 $ (48,255) $ 117,370 243 %

Revenue increased in 2021 compared to 2020 due to increases in our Home and Consumer segments, partially offset by decreases in our Insurance segment.

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 $261.8 million in 2020 from 2019, or 51%, primarily due to decreases in our credit cards, personal loans, small business loans and student loans products.

Revenue from our credit cards product decreased $133.9 million to $77.4 million in 2020 from $211.3 million in 2019, or 63%, 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 $86.2 million to $66.5 million in 2020 from $152.7 million in 2019, or 56%, 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 increased $76.7 million in 2021 from 2020, or 30%, primarily due to increases in our personal loans, small business loans products, and credit cards.

Revenue from our personal loans product increased $43.6 million to $110.1 million in 2021 from $66.5 million in 2020, or 66%, primarily due to an increase in revenue earned per consumer, and an increase in the number of consumers completing request forms.

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 $20.9 million in 2020 compared to 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 $18.0 million in 2020 compared to 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 CARES Act providing temporary payment deferral relief.

The ongoing COVID-19 pandemic is anticipated to continue to 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 $49.0 million to $333.8 million in 2020 from $284.8 million in 2019, or 17%, due to increases in the number of consumers seeking insurance coverage, partially offset by a decrease in revenue earned per consumer.

however, certain other Consumer products experienced notable changes.

Revenue from our small business loans product increased $21.5 million in 2021 compared to 2020, due to loosening underwriting standards and improved flow of capital, as well as an

increase in revenue earned per consumer.

Revenue from our credit cards product increased $16.1 million in 2021 compared to 2020 due to an increase in the number of approvals and an increase in revenue earned per approval.

Revenue from our Insurance segment decreased $7.6 million to $326.2 million in 2021 from $333.8 million in 2020, or 2%, due to a decrease in revenue earned per consumer, partially offset by an increase in the number of consumers seeking insurance coverage.

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 $43.1 million in 2020 from 2019, or 15%, 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 $98.3 million in 2020 compared to 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 and our home equity loans and lines of credit product decreased $28.8 million and $24.0 million, respectively, in 2020 compared to 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.

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

Revenue in the Other category decreased $26.8 million in 2020 compared to 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 from our Home segment increased $120.7 million in 2021 from 2020, or 38%, primarily due to increases in revenue from our refinance mortgage, purchase mortgage, and home equity loans products.

Revenue from our refinance mortgage product increased $65.5 million in 2021 compared to 2020, primarily due to an increase in revenue earned per consumer, partially offset by a decrease in the number of consumers completing request forms.

Revenue from our purchase mortgage product and our home equity loans and lines of credit product increased $24.5 million and $31.5 million, respectively, in 2021 compared to 2020.

Revenue from our purchase mortgage product and home equity loans and lines of credit product increased due to a shift in both lender and consumer focus away from refinance products as well as an increase in revenue earned per consumer.

While we believe our three reportable segments have generally recovered from the impacts of the ongoing COVID-19 pandemic, we are continuously monitoring the impacts of the pandemic on the economy and any potential future impacts to our segment revenue.

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

Revenue in the Other category decreased $1.4 million in 2021 compared to 2020, 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 2020 from 2019, primarily due to a $21.7 million decrease for the cost of resold advertising space, partially offset by increases in compensation and benefits, website network hosting and server fees, and credit card fees of $2.4 million, $2.3 million, and $2.1 million, respectively.

Cost of revenue as a percentage of revenue remained consistent at 6% for each of 2020 and 2019.

Cost of revenue increased in 2021 from 2020, primarily due to increases in compensation and benefits, website network hosting and server fees, and call center technology of $3.7 million, $1.5 million, and $1.5 million, respectively, partially offset by a $3.3 million decrease in credit card fees.

Cost of revenue as a percentage of revenue decreased to 5% in 2021 compared to 6% in 2020.

Selling and marketing expense

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

The decrease in selling and marketing expense in 2020 compared to 2019 was primarily due to decreases in advertising and promotional expense of $120.4 million, as discussed below.

This was partially offset by an increase in compensation and benefits of $2.7 million as a result of increases in headcount.

The increase in selling and marketing expense in 2021 compared to 2020 was primarily due to the increases in advertising and promotional expense discussed below.

Additionally, compensation and benefits increased $7.7 million in 2021 compared to 2020.

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

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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.

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

We adjusted our advertising expenditures in 2021 compared to 2020 in response to changes in Network Partner demand on our marketplace as they recovered from the 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 increased in 2020 compared to 2019, primarily due to increases in professional fees, facilities expense, and technology expense of $5.7 million, $4.9 million, and $4.1 million, respectively.

2019 also benefited from a $2.7 million gain on the sale of two office buildings in Charlotte, North Carolina.

This was partially offset by decreases in travel and entertainment expense of $3.8 million and employee morale of $1.7 million.

Non-cash compensation expense within general and administrative expense is expected to increase in 2021, which could result in reductions in net income from continuing operations in 2021 compared to historical periods.

General and administrative expense increased in 2021 compared to 2020, primarily due to increases in compensation and benefits, technology expense, and facilities expense of $18.0 million, $4.0 million, and $2.1 million, respectively.

This was partially offset by decrease in professional fees of $2.3 million.

Losses on the disposal of assets also increased $2.3 million in 2021 compared to 2020.

Non-cash compensation expense within general and administrative expense increased in 2021, which resulted in reductions in net income from continuing operations in 2021 compared to historical periods.

For additional information, see Note 13—Stock-Based Compensation in the notes to the consolidated financial statements included elsewhere in this report.

Non-cash compensation expense is excluded from Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA"), as discussed below.

General and administrative expense as a percentage of revenue increased to 14% in 2020 compared to 11% in 2019.

General and administrative expense as a percentage of revenue remained consistent at 14% for each of 2021 and 2020.

Product development

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Contingent consideration

During 2021, we recorded aggregate contingent consideration gains of $8.2 million due to adjustments in the estimated fair value of the earnout payment related to the QuoteWizard acquisition for which the earnout period ended in 2021.

During 2020, we recorded aggregate contingent consideration expense of $5.3 million due to adjustments in the estimated fair value of the earnout payments related to our recent acquisitions.

For 2020, the net contingent consideration expense for the QuoteWizard, Ovation, and SnapCap acquisitions was $4.0 million, $1.3 million and $0.1 million, respectively.

During 2019, we recorded aggregate contingent consideration expense of $28.4 million due to adjustments in the estimated fair value of the earnout payments related to our recent acquisitions.

For 2019, the contingent consideration expense for the QuoteWizard and SnapCap acquisitions were $27.1 million and $2.2 million, respectively.

This was partially offset by a contingent consideration gain for the DepositAccounts acquisition of $1.0 million.

Interest expense

Interest expense increased in 2020 compared to 2019 due to the issuance of $575.0 million of our 2025 Notes as well as the repurchase of a portion of our existing 2022 Notes in July 2020.

In 2020, interest expense of $11.5 million was recognized on the newly-issued 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 subsequent to the repurchase of $130.3 million principal amount of the 2022 Notes.

Interest expense increased in 2021 compared to 2020 primarily due to the issuance of the 0.50% Convertible Senior Notes due July 15, 2025 (the “2025 Notes”) as well as the partial repurchase of the 2022 Notes in July 2020.

Interest expense was recognized on the 2025 Notes for the entire year of 2021, compared to the partial period in 2020.

This incremental interest expense was partially offset by lower interest expense on the 2022 Notes in 2021 compared to 2020 as a result of the July 2020 partial repurchase of the notes.

The overall increase was further offset by the loss on debt extinguishment of $7.8 million recognized in July 2020, noted above.

See Note 15—Debt for additional information on the issuance of the 2025 Notes and the partial repurchase of the 2022 Notes.

During 2021, we sold a portion of our investment in Stash and realized a gain of $27.9 million.

Additionally, we recorded unrealized gains of $95.4 million as a result of an adjustment to the fair value of the Stash equity securities still held by us based on observable market events.

Income tax benefit

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(in thousands, except percentages)

Income tax benefit $ 19,961 $ 8,479

Income tax (expense) benefit $ (11,298) $ 19,961

Effective tax rate 13.4 % 46.9 %

For 2021, the effective tax rate varied from the federal statutory rate of 21% in part due to the benefit derived from excess tax deductions from exercise of stock options of $11.7 million, including state taxes and from research and experimentation ("R&D") tax credits of $3.2 million, partially offset by expense due to nondeductible executive compensation of $3.1 million and incremental valuation allowance on state net operating losses of $0.6 million, primarily due to state legislative changes.

For 2020, the effective tax rate varied from the federal statutory rate of 21% in part due to the benefit derived from excess tax deductions from the vesting of restricted stock and exercise of stock options of $2.5 million, including state taxes.

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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 2020.

These deferred tax assets are being revalued, as they have been carried back to 2016 and 2017, which are tax periods prior to the 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 2019, the effective tax rate varied from the federal statutory rate of 21% primarily due to the benefit derived from excess tax deductions from the vesting of restricted stock and exercise of stock options of $17.1 million, including state taxes and the benefit of an expected 2019 federal research and development tax credit of $3.5 million, offset by expense due to incremental valuation allowance on state net operating losses of $3.9 million, primarily due to state legislative changes.

These deferred tax assets have been revalued, as they have been carried back to 2016 and 2017, which are tax periods prior to the TCJA when the federal statutory tax rate was 35% versus the 21% federal statutory tax rate in effect after the enactment of the TCJA.

Discontinued Operations

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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.

During the HLC bankruptcy, a bar date for claims against HLC was set, establishing a deadline for all HLC's creditors to assert any claim they may have had against HLC.

Distributions were made to holders of allowed claims deemed timely filed.

After all distributions to creditors were made and HLC's Chapter 7 bankruptcy estate was fully administered, the HLC bankruptcy case was closed on July 14, 2021.

Prior to the bankruptcy filing, losses from the LendingTree Loans business were primarily due to litigation settlements and contingencies and legal fees associated with legal proceedings.

The results of discontinued operations include litigation settlements and contingencies and legal fees associated with legal proceedings against LendingTree, Inc.

or LendingTree, LLC that arose due to the LendingTree Loans business or the HLC bankruptcy filing.

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See Note 22—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 $106.3 million during 2020, primarily due to decreases in revenue, partially offset by corresponding decreases in selling and marketing expense due to the impact of economic conditions related to the COVID-19 pandemic.

While the Consumer segment was the most impacted by the COVID-19 pandemic, particularly in our credit cards, personal loans and small business loans products, recovery in the segment gained momentum throughout 2020.

We are encouraged by increasing credit card issuer budgets, increasing lender demand, and sustained signs of improved consumer health and spending, while continuing to be aware of challenges in consumer demand for unsecured loans.

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 $29.0 million during 2020, primarily due to an increase in revenue resulting from increased lender capacity and competition among network lenders, as well as due to margins that have improved as 2020 progressed.

In an environment of historic lows in mortgage rates and nearly historic highs in mortgage originations, lender demand increased in 2020 and persists into the new year.

Lenders adding operational capacity have increasingly turned to LendingTree to help drive growth.

We continue to view our leading position in the mortgage industry as a key point of competitive differentiation, and believe that the mortgage industry is still in the early stages of the shift to digital fulfillment, which has accelerated throughout 2020.

We believe that our reputation, history and lender relationships position us to not only benefit from but also help drive this accelerating shift to price discovery and digital fulfillment.

Insurance segment profit increased $16.5 million during 2020, primarily due to increases in revenue, partially offset by corresponding increases in selling and marketing expense.

We are consistently innovating and identifying opportunities for diversification and growth within the Insurance industry.

The rollout of our new publisher platform during 2020, which enables third-party content producers to monetize traffic through our distribution network, has increasingly contributed to segment results during the year.

The build out in 2020 of our in-house agency serving property and casualty clients, which complements our existing offerings by enabling us to drive volume for insurance carriers who do not write premiums directly, shows promising unit economics and we intend to scale the number of licensed agents and the geographic coverage significantly throughout 2021.

Finally, in addition to the automobile and home categories, our health insurance and Medicare categories continue to scale.

The Medicare category, which we began building out in 2020, showed significant promise during our first open-enrollment period in the fourth quarter of 2020.

We believe there is significant opportunity in this category, and intend to continue investing in its growth over the coming years.

The Home segment had an increase in revenue and segment profit of 38% and 16%, respectively in 2021 compared to 2020.

Our unit economics steadily improved throughout the year, with increases in revenue per lead for refinance, purchase and home equity in 2021 compared to 2020.

Mortgage rates have risen from historic lows and refinance volumes have subsequently declined.

The purchase market remains competitive as a national home inventory shortage and lower affordability impact purchase application rates.

In this type of environment our lender partners rely even more on LendingTree to help meet their origination goals.

We continue to look for opportunities to optimize towards higher converting products such as cash-out refinance and home equity loans, as our partners are focused on these products.

The average home with a mortgage has increased its available equity from a year ago.

As interest rates have risen broadly from all-time lows, loans secured with home equity represent the lowest cost source of financing for most consumers.

We continue to focus on improving the consumer experience to increase repeat users, cross-sell, and conversion rates.

This will allow us to increase our reach and better align the right borrowers to the right experiences based on their readiness to transact.

The Consumer segment grew steadily throughout the year, generating revenue and segment profit growth of 30% and 34%, respectively, in 2021 compared to 2020.

Personal loans and small business revenue in the fourth quarter of 2021 returned to 2019 levels and we are forecasting strong growth to continue in 2022, while credit card is experiencing a slower rebound.

As we add new lending partners to the TreeQual platform, we anticipate a significantly improved customer experience that should drive increased conversion rates, margins, and pace of revenue growth in both credit card and personal loans.

Demand for the personal loans continues to grow as consumer savings rates decline with the end of government stimulus programs and higher consumer spending.

Our partner network has grown in 2021 compared to 2020, and we maintain a strong pipeline of new lenders looking to onboard.

The addition of TreeQual to the personal loans product and our continued investment in the down funnel experience should continue to push close rates higher and increase monetization.

Our credit card business continues its recovery from pandemic lows.

Issuers remain aggressive with the introduction of new cards and features, and we have expanded our partner network.

Margins in the credit card business continue to lag pre-pandemic levels.

We are working to diversify our marketing mix, actively pursuing more profitable marketing channels and partnerships to expand our reach and attract more consumers, which should lead to improved unit economics over time.

Our small business product has been consistently growing, and we expect that to continue in 2022.

We launched our Premium Marketplace offering in the fourth quarter of 2021, which led to increased conversions and higher revenue per referral from enhanced customer tiering.

Volume increased as our concierge model helps small business owners find the right financing options to fit their unique business needs.

We expect these positive trends to continue in 2022 as we focus on product diversification, optimization of customer matching by segment, and cross-sell to unlock additional marketing opportunities.

The claims market for our carrier partners was challenging in the last half of 2021, driving insurance revenue down 2% in 2021 from 2020 and segment profit down 13%.

Property and Casualty ("P&C") carriers reduced marketing budgets as they incurred significantly higher loss ratios, but we believe this down cycle may be behind us.

Although the dynamic remains fluid, we expect the business to return to a normalized operating environment by mid-year.

In the face of the overall industry challenge, we are committed to capturing additional share of carrier budgets by focusing on conversion rate and lead quality,

which will benefit results when carriers look to aggressively acquire new customers.

Consumer demand, as measured by traffic to our sites, remains robust and continued to strengthen into year end.

We expect this trend to continue as significant rate increases kicks-off a historic cycle of drivers shopping for new auto policies.

We also made significant progress expanding our P&C Agency, adding P&C carriers to the platform and increasing our agent base, driving growth in policies sold and written premium in our direct-to-consumer channel.

Providing bindable insurance quotes improves the consumer experience and increases conversion rates, and aligns well with our strategy of improving customer fulfillment across our platform.

Our Medicare Agency has scaled nicely, with growth in written policies of 111% in 2021 compared to 2020 as we invested in additional training while managing our agent count responsibly.

Exiting our second Annual Enrollment Period, we continue to evaluate our performance and look for ways to improve unit economics through marketing effectiveness and close rates.

We have observed the challenges increased customer churn and lower policy persistency have created for competitors in the space.

We will only scale this business to the extent we can do so with attractive targeted returns.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization

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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) restructuring and severance expenses, (5) litigation settlements and contingencies, (6) acquisitions and dispositions income or expense (including with respect to changes in fair value of contingent consideration), and (7) one-time items.

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.

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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 (loss) income from continuing operations to Adjusted EBITDA.

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

Year Ended December 31,

(in thousands)

Net (loss) income from continuing operations $ (22,566) $ 39,460

Net income (loss) from continuing operations $ 73,138 $ (22,566)

Adjustments to reconcile to Adjusted EBITDA:

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Severance 53 295

Loss (gain) on impairments and disposal of assets 1,160 (945)

Loss on impairments and disposal of assets 3,465 1,160

Gain on investments (123,272) —

Non-cash compensation expense 68,555 53,733

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Interest expense, net 46,867 36,300

Income tax benefit (19,961) (8,479)

Income tax expense (benefit) 11,298 (19,961)

Adjusted EBITDA $ 134,691 $ 123,704

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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.

Our 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.

Notable transactions affecting cash and cash equivalents during the reported periods are as follows:

In 2021, we repurchased an aggregate of 334,253 shares of our common stock pursuant to a stock repurchase program for $40.0 million.

In the first quarter of 2021, we acquired an additional equity interest in Stash for $1.2 million.

In the fourth quarter of 2021, we sold a portion of our Stash equity securities to a third party for $46.3 million.

See Note 8—Equity Investment to the consolidated financial statements included elsewhere in this report for additional information on the equity interest in Stash.

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 21—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 $8.6 million reimbursement from the HLC bankruptcy estate related to the ResCap payments by the third quarter of 2021.

In 2021, we received an $8.6 million reimbursement from the HLC bankruptcy estate related to the ResCap payments.

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

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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.

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 15—Debt for additional information.

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During 2020, we made contingent consideration payments of $6.0 million, $4.4 million and $20.2 million related to the prior acquisitions of SnapCap, Ovation and QuoteWizard, respectively.

We could make an additional potential contingent consideration payment of up to $23.4 million for QuoteWizard.

In 2019, we purchased an aggregate of 22,731 shares of our common stock pursuant to a stock repurchase program for $5.5 million.

In May 2019, we completed the sale of two office buildings in Charlotte, North Carolina to an unrelated third party for a sale price of $24.4 million.

We received proceeds of $24.1 million, net of closing fees of $0.3 million.

In January 2019, we acquired ValuePenguin for $106.2 million in cash.

The acquisition was funded through $90.0 million drawn on our 2017 Revolving Credit Facility and the balance using cash on hand.

During 2019, we paid down $140.0 million on our 2017 Revolving Credit Facility.

During 2019, we made contingent consideration payments of $3.0 million, $3.0 million, $4.4 million and $23.4 million related to the prior acquisitions of SnapCap, DepositAccounts, Ovation and QuoteWizard, respectively.

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.

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.

As of February 26, 2021, we have outstanding a $0.2 million letter of credit under the Amended Revolving Credit Facility.

The remaining borrowing capacity at February 26, 2021 is $499.8 million.

For additional information on the Amended Revolving Credit Facility, see Note 15—Debt in the notes to the consolidated financial statements included elsewhere in this report.

Credit Facility

On September 15, 2021, we entered into a credit agreement (the “Credit Agreement”), consisting of a $200.0 million revolving credit facility (the “Revolving Facility”), which matures on September 15, 2026, and a $250.0 million delayed draw term loan facility (the “Term Loan Facility” and together with the Revolving Facility, the “Credit Facility”), which matures on September 15, 2028 to the extent the loans thereunder will be drawn.

The delayed draw commitments under the Term Loan Facility will be available until June 1, 2022.

The proceeds of the Revolving Facility can be used to finance working capital, for general corporate purposes and any other purpose not prohibited by the Credit Agreement.

The proceeds of the Term Loan Facility can be used to settle the Company’s 2022 Notes, including related fees, costs and expenses, and up to $80.0 million may be used for general corporate purposes and any other purposes not prohibited by the Credit Agreement.

See Note 15—Debt for additional information.

As of February 28, 2022, we have outstanding a $0.2 million letter of credit under the Revolving Facility, and the remaining borrowing capacity is $199.8 million.

No term loans have been drawn under the Term Loan Facility as of February 28, 2022.

For additional information on the Credit Facility, see Note 15—Debt in the notes to the consolidated financial statements included elsewhere in this report.

Convertible Debt

Our 2022 Notes have a principal balance of $169.7 million and mature on June 1, 2022, unless earlier repurchased or converted.

Our 2025 Notes have a principal balance of $575.0 million and mature on July 15, 2025, unless earlier repurchased or converted.

See Note 15—Debt to the consolidated financial statements included elsewhere in this report for more information.

Operating Leases

We have operating lease obligations associated with office space in various cities across the country and office equipment.

Our principal executive office is located in Charlotte, North Carolina under an approximate 15-year lease that commenced in the second quarter of 2021.

We anticipate cash payments under operating lease obligations of $13.7 million in 2022.

See Note 11—Leases to the consolidated financial statements included elsewhere in this report for more information.

Cash Flows from Continuing Operations

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Net cash provided by operating activities $ 131,256 $ 111,299

Net cash used in investing activities $ (122,149) $ (101,060)

Net cash provided by (used in) financing activities $ 193,290 $ (87,678)

Net cash provided by (used in) investing activities $ 10,067 $ (122,149)

Net cash (used in) provided by financing activities $ (63,347) $ 193,290

Cash Flows from Operating Activities

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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 2020 from 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 a net increase in cash from changes in working capital, primarily due to favorable changes in accounts receivable, partially countered by unfavorable changes in income taxes receivable and current contingent consideration.

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 2021 from 2020 primarily due to a increase in revenue, partially offset by a corresponding increase in selling and marketing expense.

Additionally, cash from changes in working capital increased primarily as a result of changes in contingent consideration, accounts payable, accrued expenses and other current liabilities, and income taxes receivable, partially offset by unfavorable changes in accounts receivable.

Cash Flows from Investing Activities

Net cash used in investing activities attributable to continuing operations in 2020 of $122.1 million consisted of the purchase of an $80.0 million equity interest in Stash and capital expenditures of $42.1 million primarily related to internally developed software and leasehold improvements for our new principal corporate offices currently under construction.

Net cash used in investing activities attributable to continuing operations in 2019 of $101.1 million consisted primarily of the acquisition of ValuePenguin for $105.6 million, net of cash acquired, and capital expenditures of $20.0 million primarily related to internally developed software.

This was partially offset by proceeds of $24.1 million on the sale of two office buildings, net of closing expenses.

Net cash provided by investing activities attributable to continuing operations in 2021 of $10.1 million consisted of $46.3 million in proceeds from a partial sale of our equity interest in Stash partially offset by $1.2 million for the purchase of an additional equity interest in Stash and capital expenditures of $35.1 million primarily related to internally developed software.

Cash Flows from Financing Activities

Net cash provided by financing activities attributable to continuing operations in 2020 of $193.3 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 $16.6 million for the payment of debt issuance costs.

Net cash used in financing activities attributable to continuing operations in 2019 of $87.7 million consisted primarily of $50.0 million of net repayments on our 2017 Revolving Credit Facility, $21.3 million of aggregate contingent consideration payments for the prior acquisitions of SnapCap, Ovation and QuoteWizard, $5.5 million for the repurchase of our stock, and $8.4 million in withholding taxes paid upon surrender of shares to satisfy obligations on equity awards, net of proceeds from the exercise of stock options.

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.

See Note 16—Commitments to the consolidated financial statements included elsewhere in the report for further details.

Summary of Contractual Obligations

The following table sets forth our contractual obligations and commercial commitments as of December 31, 2020.

Payments Due By Period as of December 31, 2020

Contractual Obligations (a)

Total Less Than

1 Year 1-3 Years 3-5 Years More Than

Operating lease obligations (b)

$ 150,958 $ 9,147 $ 25,440 $ 20,309 $ 96,062

Long-term contractual obligations (c)

23,146 13,858 8,512 776 —

Convertible debt 744,690 — 169,690 575,000 —

Total contractual obligations $ 918,794 $ 23,005 $ 203,642 $ 596,085 $ 96,062

(a) Excludes potential obligations under surety bonds.

Excludes a $2.6 million accrual related to uncertain tax position, as we are unable to determine when, or if, payments for these taxes will ultimately be made.

(b) Our operating lease obligations are associated with office space and office equipment.

(c) Includes a liability of $8.2 million for the estimated fair value of the contingent consideration obligation reflected on the balance sheet for the QuoteWizard acquisition.

The actual contingent consideration payment could range from zero to $23.4 million for QuoteWizard.

Also includes $14.9 million of certain other commitments.

Net cash used in financing activities attributable to continuing operations in 2021 of $63.3 million consisted primarily of $40.0 million for the repurchase of our stock, $14.4 million in withholding taxes paid upon surrender of shares to satisfy obligations on equity awards, net of proceeds from the exercise of stock options, as well as $6.4 million for the payment of debt issuance costs and $2.5 million paid for the original issue discount on the undrawn Term Loan Facility.

Net cash used in financing activities attributable to continuing operations in 2020 of $193.3 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 $16.6 million for the payment of debt issuance costs.

Critical Accounting Policies and Estimates

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Stock-Based Compensation

The forms of stock-based awards granted to our employees are principally restricted stock units ("RSUs"), RSUs with performance conditions and stock options.

The forms of stock-based awards granted to our employees are principally restricted stock units ("RSUs"), RSUs with performance conditions, stock options, and employee stock purchases related to the Employee Stock Purchase Plan ("Employee Stock Purchase Rights").

Further, stock options with market conditions, restricted stock awards ("RSAs") with performance conditions and RSAs with market conditions have been granted to our Chairman and Chief Executive Officer.

The value of RSUs is measured at their grant dates as the fair value of common stock and amortized ratably as non-cash compensation expense over the vesting term.

The value of stock options issued is generally estimated using a Black-Scholes option pricing model.

The value of stock options issued and Employee Stock Purchase Rights are generally estimated using a Black-Scholes option pricing model.

The value of performance-based grants is measured at their grant dates and recognized as non-cash compensation expense, considering the probability of the targets being achieved.

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We reassess the fair value of contingent consideration quarterly until the contingency is resolved, and changes in the fair value are recorded in operating income in the consolidated statements of operations and comprehensive income (loss).

Equity Investment

Our equity investment does not have a readily determinable fair value and, upon acquisition, we elected the measurement alternative to value these securities.

Accordingly, these equity securities are carried at cost and subsequently marked to market upon observable market events with any gains or losses recorded in operating income in the consolidated statement of operations.

The carrying value of our equity investment at December 31, 2021 is $158.1 million.

New Accounting Pronouncements

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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-K

Item 7. Management’s Discussion and Analysis