What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-04 compared with 2022-08-01 · 132 added, 104 removed, 255 unchanged (48% of the section changed)

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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.

During the first nine 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 nine 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.

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EarnUp is a consumer-first mortgage payment platform that intelligently automates loan payment scheduling and helps consumers better manage their money and improve their financial well-being.

See Note 7—Equity Investment for additional information on the equity interest in EarnUp.

See Note 7—Equity Investments for additional information on the equity interest in EarnUp.

North Carolina Office Properties

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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 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.

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 6.11% in September 2022.

On a quarterly basis, 30-year mortgage interest rates in the third quarter of 2022 averaged 5.58%, compared to 2.87% in the third 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 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 Mortgage Bankers Association (“MBA”) data, total refinance origination dollars decreased to 19% of total mortgage origination dollars in the third quarter of 2022 compared to 53% in the fourth quarter of 2021.

In the third quarter of 2022, total refinance origination dollars decreased 82% from the fourth quarter of 2021 and 84% from the third quarter of 2021.

Industry-wide mortgage origination dollars in the third quarter of 2022 decreased 52% from the fourth quarter of 2021 and 55% from third quarter of 2021.

In October 2022, the MBA projected 30-year mortgage interest rates to increase during 2022, to an average 6.7% for the year.

According to MBA projections, the mix of mortgage origination dollars is expected to move back towards purchase mortgages with the refinance share representing approximately 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 16% in the second quarter of 2022 compared to the fourth quarter of 2021, and 12% compared to the second quarter of 2021.

According to Fannie Mae data, existing-home sales decreased 24% in the third quarter of 2022 compared to the fourth quarter of 2021, and 22% compared to the third quarter of 2021.

Fannie Mae predicts an overall decrease in existing-home sales of approximately 18% in 2022 compared to 2021.

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,

MyLendingTree

We consider certain metrics related to MyLendingTree set forth below to help us evaluate our business and growth trends and assess operational efficiencies.

The calculation of the metrics discussed below may differ from other similarly titled metrics used by other companies, securities analysts or investors.

We continued to grow our user base and added 0.8 million new users in the third quarter of 2022, bringing cumulative sign-ups to 23.9 million at September 30, 2022.

We attribute $29 million of revenue in the third quarter of 2022 to registered MyLendingTree members across the LendingTree platform.

Our focus on improving the MyLendingTree experience for consumers remains a top priority.

Becoming an integrated digital advisor will greatly improve the consumer experience, which we expect to result in higher levels of engagement improved membership growth rates, and ultimately stronger financial results.

Results of Operations for the Three and Nine Months ended September 30, 2022 and 2021

Three Months Ended September 30, Nine Months Ended September 30,

Change 2022 2021 $

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(Loss) income before income taxes (22,773) (4,407) (18,366) (417) % (43,588) 24,251 (67,839) (280) %

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

Income tax (expense) benefit (135,910) 1 (135,911) — % (133,956) 455 (134,411) — %

Net (loss) income from continuing operations (158,683) (4,406) (154,277) (3,502) % (177,544) 24,706 (202,250) (819) %

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Net (loss) income and comprehensive (loss) income $ (158,684) $ (4,460) $ (154,224) (3,458) % $ (177,548) $ 21,190 $ (198,738) (938) %

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.

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

Revenue from our Consumer segment increased $2.7 million, or 3%, in the third quarter of 2022 from the third quarter of 2021.

Revenue from our Consumer segment increased $76.3 million, or 33%, in the first nine months of 2022 from the first nine months of 2021, primarily due to increases in our personal loans, small business loans, and credit cards.

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

Revenue from our personal loans product increased $3.9 million, or 12%, to $37.7 million in the third quarter of 2022 from $33.8 million in the third quarter of 2021, and increased $41.3 million, or 56%, to $115.2 million in the first nine months of

2022 from $73.9 million in the first nine months of 2021 primarily due to an increase in the number of consumers completing request forms.

Revenue from our credit cards product decreased $2.6 million, or 10%, to $24.3 million in the third quarter of 2022 from $26.9 million in the third quarter of 2021 primarily due to a decrease in the number of consumer clicks.

Revenue from our credit cards product increased $14.5 million, or 22%, to $81.4 million in the first nine months of 2022 compared to $67.0 million in the first nine months of 2021, due to an increase in revenue earned per click.

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 $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.

however, certain other Consumer products experienced notable changes.

Revenue from our small business loans product increased $1.3 million, or 9%, in the third quarter of 2022 compared to the third quarter of 2021, primarily due to an increase in revenue earned per consumer.

Revenue from our small business loans product increased $19.8 million, or 62%, in the first nine months of 2022 compared to the first nine 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 $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.

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

Revenue from our Home segment decreased $47.5 million, or 42%, in the third quarter of 2022 from the third quarter of 2021, and $104.6 million, or 30%, in the first nine months of 2022 compared to the first nine 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 deposits increased $2.4 million, or 134%, in the third quarter of 2022 compared to the third quarter of 2021, and $3.3 million, or 52%, in the first nine months of 2022 compared to the first nine months of 2021, primarily due to increases in both revenue earned per consumer and in the number of consumers.

Revenue from student loans decreased $3.3 million, or 40%, in the third quarter of 2022 compared to the third quarter of 2021, primarily due to a decrease in the number of consumers.

Revenue from student loans decreased $5.8 million, or 43%, in the first nine months of 2022 compared to the first nine months of 2021, primarily due to revenue earned per consumer.

Revenue from our mortgage products decreased $58.1 million, or 63%, to $34.5 million in the third quarter of 2022 from $92.6 million in the third quarter of 2021, and decreased $139.6 million or 47%, to $156.9 million in the first nine months of 2022 from $296.5 million in the first nine months of 2021.

Revenue from our refinance mortgage product decreased $58.8 million in the third quarter of 2022 compared to the third quarter of 2021, and $150.4 million in the first nine months of 2022 compared to the first nine 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 $10.8 million in the first nine months of 2022 compared to the first nine months of 2021, primarily due to an increase in revenue earned per consumer.

Revenue from our home equity loans product increased $10.0 million, or 52%, to $29.0 million in the third quarter of 2022 from $19.0 million in to the third quarter of 2021, and increased $34.0 million, or 73%, to $80.5 million in the first nine months of 2022 from $46.5 million in the first nine months of 2021, primarily due to increases in consumers completing request forms and in revenue earned per consumer.

Revenue from our Insurance segment decreased $14.6 million, or 17%, to $70.2 million in the third quarter of 2022 from $84.8 million in the third quarter of 2021 due to decreases in the number of consumers seeking insurance coverage and in revenue earned per consumer.

Revenue from our Insurance segment decreased $28.7 million, or 11%, to $232.0 million in the first nine months of 2022 from $260.7 million in the first nine 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, 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.

Cost of revenue decreased in the third quarter of 2022 from the third quarter of 2021 by $0.9 million.

Cost of revenue increased $1.4 million in the first nine months of 2022 from the first nine months of 2021, due to an increase in website network hosting and server hosting fees.

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

Selling and marketing expense decreased in the third quarter of 2022 compared to the third quarter 2021 by $29.6 million and decreased in the first nine months of 2022 from the first nine months of 2021 by $23.6 million, primarily due to the changes in advertising and promotional expense discussed below.

Additionally, compensation and benefits decreased $1.2 million in the third quarter of 2022 compared to the third quarter 2021.

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

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

Three Months Ended September 30, Nine Months Ended September 30,

Change 2022 2021 $

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Total advertising expense $ 163,144 $ 191,547 $ (28,403) (15) % $ 523,372 $ 546,845 $ (23,473) (4) %

In the periods presented, advertising and promotional expenses are equivalent to our variable marketing expense.

See Variable Marketing Margin below for additional information on variable marketing expense.

Revenue is primarily driven by Network Partner demand for our products, which is matched to corresponding consumer requests.

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

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 adjusted our advertising expenditures in the third quarter and first nine months of 2022 compared to the third quarter and first nine 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 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.

General and administrative expense decreased in the third quarter of 2022 compared to the third quarter of 2021, due to a $2.6 million decrease in compensation and benefits, partially offset by an increase in technology expenses of $1.6 million.

General and administrative expense increased in the first nine months of 2022 compared to the first nine months of 2021 primarily due to increases in technology of $4.2 million, loss on assets of $1.6 million, other tax expense of $1.5 million, an increase in travel and entertainment expenses of $1.5 million, and an increase in fees and charges of $1.3 million, partially offset by decreases in compensation and benefits of $7.6 million and a decrease in professional fees of $1.8 million.

General and administrative expense as a percentage of revenue in the third quarter of 2022 was 17% compared to 13% for the third quarter of 2021, and 15% for the first nine months of 2022 compared to 14% for the first nine months of 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 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.

Product development expense increased in the third quarter and first nine months of 2022 compared to the third quarter and first nine 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 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.

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

Contingent consideration

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

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

All earnouts were completed prior to 2022.

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.

During the third quarter and first nine months of 2021, we recorded an aggregate gain of $0.2 million and $8.2 million respectively, due to adjustments in the estimated fair value of the earnout payments related to the QuoteWizard acquisition.

Restructuring and severance

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Interest expense

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.

Interest expense decreased in the third quarter and first nine months of 2022 compared to the third quarter and first nine 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 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.

For the first nine 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 Investments for additional information on the equity interest in Stash.

Income tax expense

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.

For the third quarter and first nine months of 2022, the effective tax rate varied from the federal statutory rate of 21% primarily due to expense of $139.7 million to record a full valuation allowance against our net deferred tax assets, excess tax expense of $1.8 million and $4.7 million, respectively, resulting from vesting of restricted stock in accordance with ASU 2016-09 and the effect of state taxes.

See Note 11—Income Taxes for additional information on the valuation allowance.

For the third quarter and first nine months of 2021, the effective tax rate varied from the federal statutory rate of 21% in part due to an excess tax expense of $0.9 million and an excess tax benefit of $7.4 million, respectively, 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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

Change 2022 2021 $

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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.

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.

Our home equity product achieved record revenue in the third quarter of 2022, with a 52% increase in the third quarter of 2022 from the third quarter of 2021.

Purchase revenue increased 4% in the third quarter of 2022 compared to the third quarter of 2021 despite volumes declining 29% in the third quarter of 2022 compared to the third quarter of 2021.

Revenue per lead for purchase loans continues to expand having become more valuable to our lending partners in this difficult origination market.

However, limited home inventory and overall affordability is expected to continue to weigh on overall home sale volumes.

The 30-year fixed mortgage rate at the end of the third quarter, as measured by the Freddie Mac Mortgage Market Survey, reached the highest level recorded since 2006 at 6.7%, negatively impacting already depressed loan origination volumes.

The number of consumers with an incentive to refinance has dropped to levels last seen in January 2000, according to the August 2022 Black Knight Mortgage Monitor.

Near record home prices coupled with higher mortgage rates led to a 24% decrease in existing home sales in September 2022 compared to September 2021.

Our home lending partners continue to adjust their origination capacity to the rapidly changing housing market.

As a result, revenue in the Home segment decreased 42% to $64.9 million in the third quarter of 2022 from the third quarter of 2021, with segment profit of $24.1 million in the third quarter of 2022, a decrease of 42% from the third quarter of 2021.

Importantly, our variable model allowed us to generate a 37% segment margin in the third quarter, which was consistent with that of the third quarter of 2021, as decreased revenue per lead was offset by a similar decline in cost per lead.

Growth in our Consumer segment continued, although the pace of growth has slowed as expected, with revenue of $102.7 million in the third quarter of 2022, an increase of 3% from the third quarter of 2021, and segment profit of $45.8 million in the third quarter of 2022, an increase of 2% from the third quarter of 2021.

Personal loans revenue of $37.7 million in the third quarter of 2022 increased 12% from the third quarter of 2021 as debt consolidation remains attractive with consumer credit card balances continuing to rise.

Many of our partners have tightened their underwriting criteria in order to reduce portfolio risk given recession fears, focusing their customer acquisition activity on consumers with somewhat higher credit quality.

Small business performed well this quarter, achieving revenue growth of 9% in the third quarter of 2022 compared to the third quarter of 2021.

We continue to focus on lender performance to grow originations and improve conversion rates.

By optimizing our marketing mix, we have aimed to increase the quality of our leads which benefits lenders and increases profitability.

We are working on providing new product offerings and expanding data capabilities to provide real-time borrower cash flow insights, with a focus on being a valued partner to our lenders to gain share in this quickly evolving market over time.

Our credit card business generated revenue of $24.3 million in the third quarter of 2022, a decrease of 10% from the third quarter of 2021, as high levels of competition in the quarter drove a decline in volume.

Revenue per click growth continued in the quarter, increasing 3% in the third quarter of 2022 from the third quarter of 2021.

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 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.

We aim to continue to diversify our marketing mix to pursue more profitable marketing channels and partnerships to expand our reach and attract more consumers.

Our student loan business, which typically has seasonally strong performance in the third quarter, continues to be negatively impacted by the extension of the government’s loan payment moratorium.

However, loan payments are expected to resume beginning in 2023.

We believe borrowers will be looking for opportunities to refinance their student debt as payments have been paused since the onset of the pandemic.

Our deposits business is growing quickly again as consumers are looking to capitalize on higher interest rates for their savings.

The auto and home insurance industry continues to be impacted by persistent industry headwinds, supply chain issues, rising accident severity and frequency, and more recently hurricane losses.

Although consumer search volumes are running at all-time highs, the difficult operating environment for our carrier partners limited growth in the quarter.

Revenue was $70.2 million in the third quarter of 2022, a decrease of 17% from the third quarter of 2021.

Segment profit of $22.6 million in the third quarter of 2022 decreased 15% from the third quarter of 2021.

We do not expect property & casualty carriers to return with meaningful budget increases until next year.

Most of our top partners have lowered budgets due to profitability concerns and outsized losses from Hurricane Ian.

Given our focus on lead quality and margin performance, we believe we are well positioned to capture additional share of carrier marketing spend when budgets begin to grow again.

Variable Marketing Margin

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We provide and encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measures discussed below.

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(in thousands)

Revenue $ 237,836 $ 297,450 $ 782,937 $ 840,214

Variable marketing expense 163,144 191,547 523,372 546,845

Variable marketing margin $ 74,692 $ 105,903 $ 259,565 $ 293,369

Below is a reconciliation of selling and marketing expense to variable marketing expense:

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(in thousands)

Selling and marketing expense $ 176,875 $ 206,475 $ 565,569 $ 589,143

Non-variable selling and marketing expense (13,731) (14,928) (42,197) (42,298)

Variable marketing expense $ 163,144 $ 191,547 $ 523,372 $ 546,845

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

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

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Other income (1,523) — (1,806) (40,072)

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

Income tax expense (benefit) 135,910 (1) 133,956 (455)

Variable marketing margin $ 74,692 $ 105,903 $ 259,565 $ 293,369

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Adjusted EBITDA is adjusted for one-time items, if applicable.

Items are considered one-time in nature if they are non-recurring, infrequent, or unusual and have not occurred in the past two years or are not expected to recur in the next two years, in accordance with SEC rules.

Items are considered one-time in nature if they are non-recurring, infrequent, or unusual and have not occurred in the past two years or are not expected to recur in the next two years,

in accordance with SEC rules.

For the periods presented below, one-time items consisted of the franchise tax caused by the equity investment gain in Stash.

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

13 unchanged sentences

Dividend income (1,523) — (1,805) —

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

Income tax (expense) benefit 135,910 (1) 133,956 (455)

Adjusted EBITDA $ 9,786 $ 40,997 $ 67,753 $ 109,975

Financial Position, Liquidity and Capital Resources

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.

As of September 30, 2022, we had $285.5 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.

(“EarnUp”) for $15.0 million.

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

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

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

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See Note 12—Debt for additional information.

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.

As of November 4, 2022, we have outstanding $249.4 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:

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

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

Net cash provided by operating activities attributable to continuing operations 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.

Net cash provided by operating activities attributable to continuing operations decreased in the first nine months of 2022 from the first nine months of 2021 primarily due to a reduction in revenue generated by our products.

Cash Flows from Investing Activities

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.

Net cash used in investing activities attributable to continuing operations in the first nine months of 2022 of $25.4 million consisted of the purchase of a $16.4 million equity interest in EarnUp and another small investment, as well as capital expenditures of $9.0 million primarily related to internally developed software.

Net cash used in investing activities attributable to continuing operations in the first nine months of 2021 of $31.7 million consisted of capital expenditures of $30.5 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 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.

Net cash provided by financing activities attributable to continuing operations in the first nine months of 2022 of $33.4 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 $3.3 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 nine months of 2021 of $15.2 million consisted primarily of $6.7 million in withholding taxes paid upon surrender of shares to satisfy obligations on equity awards, net of proceeds from the exercise of stock options, as well as $6.0 million for the payment of debt issuance costs and $2.5 million paid for the original issue discount on the undrawn Term Loan Facility.

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