What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-01 compared with 2022-05-05 · 147 added, 103 removed, 212 unchanged (54% of the section changed)

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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.

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.

Thus, as our revenue was negatively impacted during the COVID-19 pandemic, our marketing expenses generally decreased in line with revenue.

During the first six months of 2022, the challenging interest rate environment combined with annual inflation persistently running above 8% has presented additional challenges for many of our mortgage lending and insurance partners.

We have seen the most significant impact in our Home segment as mortgage rates have nearly doubled over the first six months of 2022, causing a sharp decline in refinance volumes and more recent pressure on purchase activity.

Although our Insurance segment continues to rebound from the trough in the fourth quarter of 2021, the recovery has been slower than expected as demand from our carrier partners remains volatile as premium increases continue to chase inflation.

Segment Reporting

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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 refinancings and, accordingly, lenders receive more organic mortgage lead volume.

At the same time, lender demand for leads from third-party sources typically decreases, as there are more consumers in the marketplace seeking 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.

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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 a monthly average of 3.10% in December 2021 to a monthly average of 4.17% in March 2022.

On a quarterly basis, 30-year mortgage interest rates in the first quarter of 2022 averaged 3.79%, compared to 2.88% in the first quarter of 2021 and 3.08% in the fourth quarter of 2021.

According to Freddie Mac, 30-year mortgage interest rates increased from a monthly average of 3.10% in December 2021 to a monthly average of 5.52% in June 2022.

On a quarterly basis, 30-year mortgage interest rates in the second quarter of 2022 averaged 5.24%, compared to 3.00% in the second quarter of 2021 and 3.08% in the fourth quarter of 2021.

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.

According to Mortgage Bankers Association ("MBA") data, total refinance origination dollars decreased to 45% of total mortgage origination dollars in the first quarter of 2022 compared to 53% in the fourth quarter of 2021.

In the first quarter of 2022, total refinance origination dollars decreased 34% from the fourth quarter of 2021 and 60% from the first quarter of 2021.

Industry-wide mortgage origination dollars in the first quarter of 2022 decreased 23% from the fourth quarter of 2021 and 37% from first quarter of 2021.

In April 2022, the MBA projected 30-year mortgage interest rates to increase during 2022, to an average 4.8% for the year.

According to Mortgage Bankers Association (“MBA”) data, total refinance origination dollars decreased to 30% of total mortgage origination dollars in the second quarter of 2022 compared to 53% in the fourth quarter of 2021.

In the second quarter of 2022, total refinance origination dollars decreased 57% from the fourth quarter of 2021 and 66% from the second quarter of 2021.

Industry-wide mortgage origination dollars in the second quarter of 2022 decreased 24% from the fourth quarter of 2021 and 35% from second quarter of 2021.

In July 2022, the MBA projected 30-year mortgage interest rates to increase during 2022, to an average 5.2% 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 30% for 2022.

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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 Fannie Mae data, existing-home sales decreased 3% in the first quarter of 2022 compared to the fourth quarter of 2021, and 4% compared to the first quarter of 2021.

According to Fannie Mae data, existing-home sales decreased 16% in the second quarter of 2022 compared to the fourth quarter of 2021, and 12% compared to the second quarter of 2021.

Fannie Mae predicts an overall decrease in existing-home sales of approximately 16% in 2022 compared to 2021.

Results of Operations for the Three Months ended March 31, 2022 and 2021

Three Months Ended March 31,

Results of Operations for the Three and Six Months ended June 30, 2022 and 2021

Three Months Ended June 30, Six Months Ended June 30,

Change 2022 2021 $

(Dollars in thousands)

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Total costs and expenses 265,817 259,466 6,351 2 % 551,929 534,123 17,806 3 %

Operating loss (2,934) (1,907) (1,027) (54) %

Operating (loss) income (3,894) 10,548 (14,442) (137) % (6,828) 8,641 (15,469) (179) %

Other (expense) income, net:

Interest expense, net (6,765) (9,840) (3,075) (31) % (14,270) (20,055) (5,785) (29) %

Other (expense) income (1) 40,072 (40,073) (100) %

Other income 284 — 284 — % 283 40,072 (39,789) (99) %

(Loss) income before income taxes (10,375) 708 (11,083) (1,565) % (20,815) 28,658 (49,473) (173) %

Income tax expense (383) (8,638) (8,255) (96) %

Income tax benefit 2,337 9,092 (6,755) (74) % 1,954 454 1,500 330 %

Net (loss) income from continuing operations (8,038) 9,800 (17,838) (182) % (18,861) 29,112 (47,973) (165) %

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Net (loss) income and comprehensive (loss) income $ (8,038) $ 6,601 $ (14,639) (222) % $ (18,864) $ 25,650 $ (44,514) (174) %

Revenue increased in the first quarter of 2022 compared to the first quarter of 2021 due to an increase in our Consumer segment, partially offset by decreases in our Home and Insurance segments.

Revenue decreased in the second quarter of 2022 compared to the second quarter of 2021 due to decreases in our Home and Insurance segments, partially offset by an increase in our Consumer segment.

Revenue increased in the first six months of 2022 compared to the first six months of 2021 due to an increase in our Consumer segment, partially offset by decreases in our Home and Insurance segments.

Our Consumer segment includes the following products:

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

Revenue from our Consumer segment increased $43.2 million in the first quarter of 2022 from the first quarter of 2021, or 75%, primarily due to increases in our personal loans, credit cards and small business loans.

Revenue from our credit cards product increased $12.2 million to $29.8 million in the first quarter of 2022 from $17.6 million in the first quarter of 2021, or 69%, primarily due to an increase in revenue earned per approval and an increase in the number of approvals.

Revenue from our personal loans product increased $20.3 million to $35.2 million in the first quarter of 2022 from $14.9 million in the first quarter of 2021, or 137%, primarily due to an increase in the number of consumers completing request forms and an increase in revenue earned per consumer.

Revenue from our Consumer segment increased $30.5 million, or 40%, in the second quarter of 2022 from the second quarter of 2021 and increased $73.6 million, or 55%, in the first six months of 2022 from the first six months of 2021, primarily due to increases in our personal loans, credit cards, and small business loans.

Many of our products in the Consumer segment experienced increases in revenue in the second quarter and first six months of 2022 from the second quarter and first six months of 2021 due to the recovery from the impacts of the COVID-19 pandemic.

Revenue from our personal loans product increased $17.1 million, or 68%, to $42.3 million in the second quarter of 2022 from $25.2 million in the second quarter of 2021, and increased $37.4 million, or 93%, to $77.5 million in the first six months

of 2022 from $40.1 million in the first six months of 2021 primarily due to an increase in the number of consumers completing request forms and an increase in revenue earned per consumer.

Revenue from our credit cards product increased $4.9 million, or 22%, to $27.3 million in the second quarter of 2022 from $22.4 million in the second quarter of 2021 primarily due to an increase in revenue earned per approval.

Revenue from our credit cards product increased $17.1 million, or 43%, to $57.1 million in the first six months of 2022 compared to $40.1 million in the first six months of 2021, due to an increase in revenue earned per approval and an increase in the number of approvals.

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 increased $10.7 million in the first quarter of 2022 compared to the first quarter of 2021, primarily due to increase in revenue earned per consumer and an increase in the number of consumers completing request forms.

Revenue from our small business loans product increased $7.8 million, or 81%, in the second quarter of 2022 compared to the second quarter of 2021, primarily due to an increase in revenue earned per consumer.

Revenue from our small business loans product increased $18.5 million, or 106%, in the first six months of 2022 compared to the first six months of 2021, primarily due to an increase in revenue earned per consumer and an increase in the number of consumers completing request forms.

Our Home segment includes the following products:

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

Revenue from our Home segment decreased $26.2 million in the first quarter of 2022 from the first quarter of 2021, or 20%, primarily due to an decrease in revenue from our refinance mortgage product, partially offset by a increase in our home equity and purchase mortgage products.

Revenue from our refinance mortgage product decreased $47.6 million in the first quarter of 2022 compared to the first quarter of 2021, due to a shift in lender focus towards purchase products as well as a decrease in the number of consumers completing request forms as interest rates have risen.

Revenue from our home equity loans product increased $12.2 million in the first quarter of 2022 compared to the first quarter of 2021, primarily due to an increase in revenue earned per consumer.

Revenue from our purchase mortgage product increased $9.2 million in the first quarter of 2022 compared to the first quarter of 2021, primarily due to a shift in lender focus back towards purchase products as well as an increase in revenue earned per consumer.

Revenue from our Insurance segment decreased $6.6 million to $80.0 million in the first quarter of 2022 from $86.6 million in the first quarter of 2021, or 8%, due to an decrease in the number of consumers seeking insurance coverage, partially offset by an increase in revenue earned per consumer.

Revenue from our Home segment decreased $30.9 million, or 29%, in the second quarter of 2022 from the second quarter of 2021, and $57.1 million, or 25%, in the first six months of 2022 compared to the first six months of 2021, primarily due to a decrease in revenue from our refinance mortgage product, partially offset by increases in our home equity and purchase mortgage products.

Revenue from our mortgage products decreased $43.1 million, or 49%, to $44.4 million in the second quarter of 2022 from $87.5 million in the second quarter of 2021, and decreased $81.5 million or 40%, to $122.3 million in the first six months of 2022 from $203.8 million in the first six months of 2021.

Revenue from our refinance mortgage product decreased $44.0 million in the second quarter of 2022 compared to the second quarter of 2021, and $91.6 million in the first six months of 2022 compared to the first six months of 2021, due to a decrease in the number of consumers completing request forms as interest rates have risen.

Revenue from our purchase mortgage product increased $0.9 million in the second quarter of 2022 compared to the second quarter of 2021 and $10.1 million in the first six months of 2022 compared to the first six months of 2021, primarily due to an increase in revenue earned per consumer.

Revenue from our home equity loans product increased $11.8 million, or 71%, to $28.4 million in the second quarter of 2022 from $16.5 million in to the second quarter of 2021, and increased $24.0 million, or 87%, to $51.5 million in the first six months of 2022 from $27.5 million in the first six months of 2021, primarily due to an increase in consumers completing request forms, and an increase in revenue earned per consumer.

Revenue from our Insurance segment decreased $7.5 million, or 8%, to $81.8 million in the second quarter of 2022 from $89.3 million in the second quarter of 2021, and $14.1 million, or 8%, to $161.8 million in the first six months of 2022 from $175.9 million in the first six months of 2021 due to a decrease in the number of consumers seeking insurance coverage, partially offset by an increase in revenue earned per consumer.

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 increased in the first quarter of 2022 from the first quarter of 2021, primarily due to a $1.4 million increase in website network hosting and server hosting fees.

Cost of revenue as a percentage of revenue remained consistent at 5% for each of the first quarters of 2022 and 2021.

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, credit scoring fees, credit card fees, website network hosting and server fees.

Cost of revenue remained relatively consistent in the second quarter of 2022 from the second quarter of 2021, increasing $0.6 million.

Cost of revenue increased in the first six months of 2022 from the first six months of 2021, primarily due to a $1.5 million increase in website network hosting and server hosting fees.

Cost of revenue as a percentage of revenue increased to 6% in the second quarter of 2022 compared to 5% in the second quarter of 2021, and increased to 6% in the first six months of 2022 compared to 5% in the first six months of 2021.

Selling and marketing expense

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

Selling and marketing expense increased in the first quarter of 2022 compared to the first quarter of 2021 primarily due to increases in advertising and promotional expense discussed below.

Additionally, compensation and benefits increased $1.3 million as a result of an increase in headcount.

Selling and marketing expense remained relatively consistent in the second quarter of 2022 compared to the second quarter 2021, decreasing $0.7 million.

Selling and marketing expense increased in the first six months of 2022 from the first six months of 2021, primarily due to the changes in advertising and promotional expense discussed below.

Additionally, compensation and benefits increased $1.1 million in the first six months of 2022 compared to the first six months of 2021, as a result of an increase in headcount in the first quarter of 2022.

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

Change 2022 2021 $

(Dollars in thousands)

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

We adjusted our advertising expenditures in the first quarter of 2022 compared to the first quarter of 2021 in response to changes in Network Partner demand on our marketplace.

We adjusted our advertising expenditures in the second quarter and first six months of 2022 compared to the second quarter and first six months of 2021 in response to changes in Network Partner demand on our marketplace.

We will continue to adjust selling and marketing expenditures dynamically 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 the first quarter of 2022 compared to the first quarter of 2021, primarily due to increases in technology and other tax expense of $1.5 million and $1.8 million, respectively.

This was partially offset by decreases in compensation and benefits and professional fees of $2.4 million and $1.2 million, respectively.

General and administrative expense as a percentage of revenue remained consistent at 13% for each of the first quarters of 2022 and 2021.

General and administrative expense increased in the second quarter of 2022 compared to the second quarter of 2021, primarily due to increases in loss on assets of $1.9 million and in technology expenses of $1.1 million, partially offset by a $2.5 million decrease in compensation and benefits.

General and administrative expense increased in the first six months of 2022 compared to the first six months of 2021 primarily due to increases in technology of $2.6 million, loss on assets of $2.0 million, other tax expense of $1.5 million, an increase in travel and entertainment expenses of $1.1 million, and an increase in fees and charges of $1.1 million.

This was partially offset by decreases in compensation and benefits of $4.9 million and a decrease in professional fees of $2.0 million.

General and administrative expense as a percentage of revenue remained consistent at 15% for each of the second quarters of 2022 and 2021, and remained consistent at 14% for the first six months of 2022 and 2021.

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 2022 compared to the first quarter of 2021 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.

Product development expense increased in the second quarter and first six months of 2022 compared to the second quarter and first six months of 2021 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 2022 compared to the first quarter of 2021 was due to certain intangible assets associated with our recent business acquisitions becoming fully amortized.

The decrease in amortization of intangibles in the second quarter and first six months of 2022 compared to the second quarter and first six months of 2021 was due to certain intangible assets associated with our recent business acquisitions becoming fully amortized.

Contingent consideration

During the first quarter of 2022, we did not record contingent consideration expense.

During the second quarter and first six months of 2022, we did not record contingent consideration expense.

All earnouts were completed prior to 2022.

During the first quarter of 2021, we recorded an aggregate gain of $0.8 million due to adjustments in the estimated fair value of the earnout payments related to the QuoteWizard acquisition.

During the second quarter and first six months of 2021, we recorded an aggregate gain of $8.9 million and $8.1 million respectively, due to adjustments in the estimated fair value of the earnout payments related to the QuoteWizard acquisition.

Restructuring and severance

In the first quarter of 2022, we completed a workforce reduction of approximately 75 employees.

In the first quarter of 2022, we completed a workforce reduction of approximately 75 employees, and in the second quarter of 2022 completed a workforce reduction of approximately 25 employees.

The Company incurred total expense of $3.8 million consisting of employee separation costs of $2.7 million and non-cash compensation expense of $1.1 million due to the accelerated vesting of certain equity awards.

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Interest expense

Interest expense decreased in the first quarter of 2022 compared to the first quarter of 2021 primarily due to the adoption of ASU 2020-06 on January 1, 2022, whereby we derecognized the remaining debt discounts on the 2022 Notes and 2025 Notes and therefore no longer recognize any amortization of debt discounts as interest expense partially offset by an increase in interest from our Term Loan Facility.

Interest expense decreased in the second quarter and first six months of 2022 compared to the second quarter and first six months of 2021 primarily due to the adoption of ASU 2020-06 on January 1, 2022, whereby we derecognized the remaining debt discounts on the 2022 Notes and 2025 Notes and therefore no longer recognize any amortization of debt discounts as interest expense partially offset by an increase in interest from our Term Loan Facility.

See Note—2 Significant Accounting Policies for additional information.

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.

For the first six months 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 2022, the effective tax rate varied from the federal statutory rate of 21% primarily due to excess tax expense of $2.5 million and the effect of state taxes.

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 second quarter and first six months of 2022, the effective tax rate varied from the federal statutory rate of 21% primarily due to excess tax expense of $0.4 million and $2.9 million, respectively, resulting from vesting of restricted stock in accordance with ASU 2016-09 and the effect of state taxes.

For the second quarter and first six months of 2021, the effective tax rate varied from the federal statutory rate of 21% in part due to a tax benefit of $8.3 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.

Segment Profit

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

Change 2022 2021 $

(Dollars in thousands)

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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.

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 15—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.

Revenue in our Home segment was $101.9 million in the first quarter of 2022, a decrease of 20% from the first quarter of 2021, with segment profit of $35.9 million in the first quarter of 2022, a decrease of 8% from the first quarter of 2021, as we experienced historically high refinance volumes in the first quarter of 2021.

The 30-year mortgage interest rates, according to Freddie Mac, increased from a quarterly average of 2.88% in the first quarter 2021 to 3.79% in the first quarter of 2022.

Our leadership position in the mortgage marketplace generated improved unit economics throughout the quarter, even as refinancing activity slowed significantly.

Mortgage revenue per consumer increased in the first quarter of 2022 compared to the first quarter of 2021.

Home equity continues to grow as a part of our overall product mix, achieving record revenue with increases of 112% in the first quarter of 2022 compared to the first quarter of 2021.

Revenue per consumer increased in the first quarter of 2022 compared to the first quarter of 2021.

Purchase revenue increased 90% in the first quarter of 2022 compared to the first quarter

Persistently low home inventory and higher home prices continue to suppress purchase application volumes nationally, but revenue earned per consumer in this category continues to expand, as lenders are pivoting more towards the product with refinancing activity subsiding.

Our lender partners tend to rely on us even more at this point in the interest rate cycle to help meet their origination goals.

In turn, we focus on optimizing higher converting products for them such as cash-out refinance and home equity loans.

Despite the recent sharp uptick in interest rates, loans secured with home equity remain the lowest cost source of financing for most consumers that own a home.

Revenue in our Consumer segment increased 75% to $101.1 million in the first quarter of 2022 compared to the first quarter of 2021.

Segment profit in our Consumer segment increased 73% to $42.5 million, in the first quarter of 2022 compared to the first quarter of 2021.

Personal loans revenue of $35.2 million increased 137% in the first quarter of 2022 from the first quarter of 2021, as consumer demand continued to increase throughout the quarter.

We expect this positive trend to continue as credit card balances are increasing at an unprecedented rate and are projected to reach a record level by the middle of this year.

Increased card balances should drive increased demand for the product as consumers look to consolidate this higher cost debt with personal loan products.

Our credit card business recovery continues, generating revenue of $29.8 million in the first quarter of 2022, an increase of 69% from the first quarter of 2021.

Revenue per approval increased in the first quarter of 2022 from the first quarter of 2021, as issuer partners expanded their marketing budgets.

We are focused on optimizing the increasing demand for travel reward cards as restrictions continue to lift and mandates expire.

Margins in the segment remain lower than historical 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.

The rapid rise in interest rates throughout the quarter significantly impacted the performance of our Home segment.

The 30-year fixed mortgage rate, as measured by the Freddie Mac Mortgage Market Survey, approached 6% during the second quarter of 2022, causing refinance volumes to decline sharply.

Combined with persistently low inventory of homes for sale, the purchase market also declined steadily throughout the quarter, recording activity below the peak of the pandemic, dropping to levels not seen since 2015 according to the MBA purchase index.

As a result, during the second quarter of 2022, we recorded revenue of $73.9 million, down 29% from the second quarter of 2021, with segment profit of $26.7 million in the second quarter of 2022, down 31% from the second quarter of 2021.

Home equity continues to be an important part of our overall product mix, achieving record revenue with 71% growth in the second quarter of 2022 compared to the second quarter of 2021.

Purchase revenue grew 6% in the second quarter of 2022 compared to the second quarter of 2021 despite volumes declining.

As is typically the case during difficult origination markets, revenue per lead expanded significantly as purchase leads become more valuable for our lending partners.

However, we expect that limited home inventory and affordability concerns will continue to weigh on home sales going forward.

As a leader in the mortgage marketplace, we are committed to supporting our lender partners during this rising rate environment.

We anticipate that our broadcast marketing campaign will help to increase lead volume for our partners over time.

We remain focused on optimizing higher converting products, such as cash-out refinance and home equity loans, to help them meet their origination goals.

Despite the sharp uptick in interest rates, loans secured with home equity remain the lowest cost source of financing for most consumers that own a home.

We continue to be pleased with the ongoing recovery of our Consumer segment, which again performed quite well, with revenue of $106.1 million in the second quarter of 2022, up 40% from the second quarter of 2021, and profit of $44.6 million in the second quarter of 2022, up 34% from the second quarter of 2021.

Personal loans revenue of $42.3 million in the second quarter of 2022 was up 68% from the second quarter of 2021 as consumers are able to access attractive rates for debt consolidation.

Credit card balances continue to increase as a result of enduring consumer spending growth.

Some of our lenders, however, have begun to tighten their underwriting criteria on the margin in order to reduce portfolio risk should a recession occur over the next few quarters.

In response, we are helping our partners by providing segment level insights to help them win in this environment.

Also, our new brand campaign features commercials specifically targeting our personal loan offering, providing additional awareness and driving demand, which we anticipate will lead to increased monetization.

Our credit card business generated revenue of $27.3 million in the second quarter of 2022, up 22% from the second quarter of 2021, driven by an increase in revenue per approval, as issuers looked to capitalize on summer travel demand.

Margins in the segment remain lower than historical levels as we prioritize capturing partner spend and maximizing variable marketing dollars.

The card business remains competitive, and we continue to diversify our marketing mix to pursue more profitable marketing channels and partnerships to expand our reach and attract more consumers.

We expect these actions will lead to improved unit economics over time.

Small business growth continues at a strong pace, achieving record revenue in the first quarter, with revenue increasing 138% in the first quarter of 2022 from the first quarter of 2021.

Our lender network continues to grow as we onboard additional partners and diversify our marketplace for borrowers.

Our Premium Marketplace offering, launched last quarter, sorts incoming borrower traffic into risk tiers.

The result is funnel optimization that has driven increased conversions and revenue per lead.

We believe the fourth quarter of 2021 was the trough for the Insurance segment, as the challenging underwriting environment for carriers begins to ease with premium rate increases.

Our business has begun to recover as a result, with revenue of $80.0 million in the first quarter of 2022, down 8% from the first quarter of 2021 but up 22% from the fourth quarter of 2021, and segment profit of $21.1 million in the first quarter of 2022, down 36% from the first quarter of 2021 and up 1% from the fourth quarter of 2021.

We are encouraged by conversations we are having with our carrier partners as they increase marketing budgets.

Evidence of returning demand can be seen in our revenue per consumer, which increased in the first quarter of 2022 compared to the first quarter of 2021.

The costs of those leads, however, increased as we prioritized quality for our partners, resulting in a 26% margin in the first quarter of 2021, which is significantly lower than the business has historically delivered.

We expect improving margins in the second half of the year as partner demand continues to recover and our marketing costs improve.

Auto insurance rate increases from our clients are continuing to be approved in states across the country, driving improved appetite for new policy acquisition.

Auto revenue in the first quarter of 2022 increased from the fourth quarter of 2021, and we expect growth to continue as the business returns to a normalized operating environment.

We remain committed to capturing additional share of carrier budgets by focusing on conversion rate and lead quality and moving quickly to ensure alignment with carrier targets to meet and exceed their goals.

Consumer demand, as measured by traffic to our sites, remains strong, and we expect this trend to continue as drivers shop for new policies following these rate increases.

We continue to diversify our Insurance business by entering new markets to expand our growth opportunities and increase market share.

Small business again delivered a solid performance, achieving revenue growth of 81% in the second quarter of 2022 compared to the second quarter of 2021.

We continue to add new lenders to our network, expanding and diversifying our marketplace for borrowers.

We are focused on driving lender performance by providing insights and recommendations to grow originations and improve conversion rates.

We believe being a valued partner to our lenders will help us continue to secure more marketing budget and gain share over time.

The Insurance segment continues to recover after troughing in the fourth quarter of 2021, but the pace of recovery has been slower than initially expected.

The industry is facing prolonged headwinds due to inflation, supply chain challenges, and rising accident severity and frequency.

This challenging environment limited growth in the quarter, with revenue of $81.8 million in

the second quarter of 2022, down 8% from the second quarter of 2021.

Segment profit of $22.6 million in the second quarter of 2022 was down 32% from the second quarter of 2021.

We anticipate the property and casualty insurance industry will continue to be challenged through the rest of the year.

Most of our top carrier partners have indicated lower budgets in the third quarter of 2022 due to profitability concerns as well as the threat of hurricane season.

Our top priority is to maintain as much budget as possible with our partners by delivering high quality, high intent leads that achieve and exceed their targets.

We believe positioning ourselves as a first class partner will allow us to capture additional share of carrier marketing spend when budgets return.

We continued our focus on agency expansion and efficiency for both the property and casualty and Medicare businesses.

Variable Marketing Margin

We report variable marketing margin as a supplemental measure to GAAP.

This measure is the primary metric by which we measure the effectiveness of our marketing efforts.

Variable marketing margin is a measure of the efficiency of our operating model, measuring revenue after subtracting variable marketing and advertising costs that directly influence revenue.

Our operating model is highly sensitive to the amount and efficiency of variable marketing expenditures, and our proprietary systems are able to make rapidly changing decisions concerning the deployment of variable marketing expenditures (primarily but not exclusively online and mobile advertising placement) based on proprietary and sophisticated analytics.

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.

The following is a reconciliation of net (loss) income from continuing operations to variable marketing margin (in thousands):

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Net (loss) income from continuing operations $ (8,038) $ 9,800 $ (18,861) $ 29,112

Adjustments to reconcile to variable marketing margin:

Cost of revenue 14,574 13,934 30,135 27,829

Non-variable selling and marketing expense (1)

13,385 13,610 28,466 27,370

General and administrative expense 40,289 39,811 76,262 74,800

Product development 14,318 13,290 28,370 25,758

Depreciation 4,896 4,443 9,750 8,161

Amortization of intangibles 7,075 11,310 14,992 22,622

Change in fair value of contingent consideration — (8,850) — (8,053)

Restructuring and severance 135 — 3,760 —

Litigation settlements and contingencies (7) 322 (34) 338

Interest expense, net 6,765 9,840 14,270 20,055

Other income (284) — (283) (40,072)

Income tax benefit (2,337) (9,092) (1,954) (454)

Variable marketing margin $ 90,771 $ 98,418 $ 184,873 $ 187,466

(1) Represents the portion of selling and marketing expense not attributable to variable costs paid for advertising, direct marketing and related expenses.

Includes overhead, fixed costs and personnel-related expenses.

Adjusted EBITDA

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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) 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 income from continuing operations to Adjusted EBITDA (in thousands) .

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

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Net (loss) income from continuing operations $ (8,038) $ 9,800 $ (18,861) $ 29,112

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Interest expense, net 6,765 9,840 14,270 20,055

Income tax expense 383 8,638

Dividend income (282) — (282) —

Income tax benefit (2,337) (9,092) (1,954) (454)

Adjusted EBITDA $ 28,596 $ 38,229 $ 57,967 $ 68,978

Financial Position, Liquidity and Capital Resources

As of March 31, 2022, we had $196.7 million of cash and cash equivalents, compared to $251.2 million of cash and cash equivalents as of December 31, 2021.

As of June 30, 2022, we had $279.1 million of cash and cash equivalents, compared to $251.2 million of cash and cash equivalents as of December 31, 2021.

In the first quarter of 2022, we acquired an equity interest in EarnUp Inc.

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See Note 7—Equity Investment to the consolidated financial statements included elsewhere in this report for additional information on the equity interest.

On June 1, 2022 the outstanding balance of $169.7 million of our 0.625% Convertible Senior Notes will mature.

It is our intent to use proceeds from the Term Loan Facility to settle the notes.

On May 31, 2022, we drew $250.0 million on the Term Loan Facility.

A portion of this was used to pay the outstanding balance of $169.7 million and interest on our 0.625% Convertible Senior Notes that matured on June 1, 2022.

See Note 12—Debt for additional information.

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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 will continue to monitor the impact of the ongoing COVID-19 pandemic and inflation on our liquidity and capital resources.

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.

We borrowed $250.0 million under the delayed draw term loan on May 31, 2022 and used $170.2 million of the proceeds to settle the Company’s 2022 Notes, including interest.

The remaining proceeds of $79.8 million may be used for general corporate purposes and any other purposes not prohibited by the Credit Agreement.

See Note 12—Debt for additional information.

As of May 5, 2022, we have outstanding a $0.2 million letter of credit under the Revolving Facility and the remaining borrowing capacity under the Revolving Facility is $199.8 million.

No term loans have been drawn under the Term Loan Facility as of May 5, 2022.

Cash Flows from Continuing Operations

As of July 29, 2022, we have outstanding $250.0 million under the Term Loan Facility, a $0.2 million letter of credit under the Revolving Facility and the remaining borrowing capacity under the Revolving Facility is $199.8 million.

Our cash flows attributable to continuing operations are as follows:

Three Months Ended

Six Months Ended

(in thousands)

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Net cash used in investing activities (22,786) (24,765)

Net cash used in financing activities (46,098) (5,000)

Net cash provided by (used in) financing activities 34,584 (4,970)

Cash Flows from Operating Activities

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

Net cash provided by operating activities attributable to continuing operations increased in the first three months of 2022 from the first three months of 2021 primarily due to favorable changes in accounts receivable and accounts payable, accrued expenses and other current liabilities, partially offset by unfavorable changes in prepaid and other current assets.

Net cash provided by operating activities attributable to continuing operations decreased in the first six months of 2022 from the first six months of 2021 primarily due to unfavorable changes in income taxes receivable, prepaid and other current assets, and accounts payable, accrued expenses and other current liabilities, partially offset by favorable changes in accounts receivable.

Cash Flows from Investing Activities

Net cash used in investing activities attributable to continuing operations in the first three months of 2022 of $18.5 million consisted of capital expenditures of $3.5 million primarily related to internally developed software, as well as the purchase of a $15.0 million equity interest in EarnUp.

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.

Net cash used in investing activities attributable to continuing operations in the first six months of 2022 of $22.8 million consisted of the purchase of a $16.4 million equity interest in EarnUp and another small investment, as well as capital expenditures of $6.3 million primarily related to internally developed software.

Net cash used in investing activities attributable to continuing operations in the first six months of 2021 of $24.8 million consisted of capital expenditures of $23.6 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.

Cash Flows from Financing Activities

Net cash used in financing activities attributable to continuing operations in the first three months of 2022 of $46.1 million consisted primarily of $43.0 million for the repurchase of our stock and $3.1 million in withholding taxes paid upon surrender of shares to satisfy obligations on equity awards, net of proceeds from the exercise of stock options.

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 six months of 2022 of $34.6 million consisted primarily of $250.0 million in proceeds from the term loan and the repayment of $169.7 million to settle the Company’s 2022 Notes discussed in the “Credit Facility” section above, $43.0 million for the repurchase of our stock, and $2.7 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 used in financing activities attributable to continuing operations in the first six 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.

Off-Balance Sheet Arrangements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis