LendingTree, Inc. 10-Q

Item 1. Financial Statements LENDINGTREE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited) Three Months Ended March 31, 2023 2022 (in thousands, except per share amounts) Revenue $ 200,508 $ 283,178 Costs and expenses: Cost of revenue (exclusive of depreciation and amortization shown separately below) 13,760 15,561 Selling and marketing expense 137,111 204,157 General and administrative expense 36,683 35,977 Product development 14,655 14,052 Depreciation 4,795 4,854 Amortization of intangibles 2,049 7,917 Restructuring and severance 4,454 3,625 Litigation settlements and contingencies 12 ( 27 ) Total costs and expenses 213,519 286,116 Operating loss ( 13,011 ) ( 2,938 ) Other income (expense), net: Interest income (expense), net 25,029 ( 7,505 ) Other income (expense) 1,834 ( 1 ) Income (loss) before income taxes 13,852 ( 10,444 ) Income tax expense ( 395 ) ( 382 ) Net income (loss) and comprehensive income (loss) $ 13,457 $ ( 10,826 ) Weighted average shares outstanding: Basic 12,846 12,901 Diluted 12,935 12,901 Net income (loss) per share: Basic $ 1.05 $ ( 0.84 ) Diluted $ 1.04 $ ( 0.84 ) The accompanying notes to consolidated financial statements are an integral part of these statements. 3 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) March 31, 2023 December 31, 2022 (in thousands, except par value and share amounts) ASSETS: Cash and cash equivalents $ 150,074 $ 298,845 Restricted cash and cash equivalents 34 124 Accounts receivable (net of allowance of $ 2,688 and $ 2,317 , respectively) 83,662 83,060 Prepaid and other current assets 28,231 26,250 Assets held for sale (Note 7) — 5,689 Total current assets 262,001 413,968 Property and equipment (net of accumulated depreciation of $ 34,925 and $ 33,851 , respectively) 57,411 59,160 Operating lease right-of-use assets 65,578 67,050 Goodwill 420,139 420,139 Intangible assets, net 56,266 58,315 Equity investments 174,580 174,580 Other non-current assets 6,319 6,101 Total assets $ 1,042,294 $ 1,199,313 LIABILITIES: Current portion of long-term debt $ 2,500 $ 2,500 Accounts payable, trade 4,473 2,030 Accrued expenses and other current liabilities 84,829 75,095 Liabilities held for sale (Note 7) — 2,909 Total current liabilities 91,802 82,534 Long-term debt 625,356 813,516 Operating lease liabilities 86,685 88,232 Deferred income tax liabilities 7,143 6,783 Other non-current liabilities 329 308 Total liabilities 811,315 991,373 Commitments and contingencies (Note 13) SHAREHOLDERS' EQUITY: Preferred stock $ .01 par value; 5,000,000 shares authorized; none issued or outstanding — — Common stock $ .01 par value; 50,000,000 shares authorized; 16,265,177 and 16,167,184 shares issued, respectively, and 12,909,711 and 12,811,718 shares outstanding, respectively 163 162 Additional paid-in capital 1,198,836 1,189,255 Accumulated deficit ( 701,842 ) ( 715,299 ) Treasury stock; 3,355,466 and 3,355,466 shares, respectively ( 266,178 ) ( 266,178 ) Total shareholders' equity 230,979 207,940 Total liabilities and shareholders' equity $ 1,042,294 $ 1,199,313 The accompanying notes to consolidated financial statements are an integral part of these statements. 4 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) Common Stock Treasury Stock Total Number of Shares Amount Additional Paid-in Capital Accumulated Deficit Number of Shares Amount (in thousands) Balance as of December 31, 2022 $ 207,940 16,167 $ 162 $ 1,189,255 $ ( 715,299 ) 3,355 $ ( 266,178 ) Net income and comprehensive income 13,457 — — — 13,457 — — Non-cash compensation 11,274 — — 11,274 — — — Issuance of common stock for stock options, restricted stock awards and restricted stock units, net of withholding taxes ( 1,693 ) 98 1 ( 1,694 ) — — — Other 1 — — 1 — — — Balance as of March 31, 2023 $ 230,979 16,265 $ 163 $ 1,198,836 $ ( 701,842 ) 3,355 $ ( 266,178 ) Common Stock Treasury Stock Total Number of Shares Amount Additional Paid-in Capital Accumulated Deficit Number of Shares Amount (in thousands) Balance as of December 31, 2021 $ 447,992 16,071 $ 161 $ 1,242,794 $ ( 571,794 ) 2,976 $ ( 223,169 ) Net loss and comprehensive loss ( 10,826 ) — — — ( 10,826 ) — — Non-cash compensation 15,080 — — 15,080 — — — Purchase of treasury stock ( 43,009 ) — — — — 379 ( 43,009 ) Issuance of common stock for stock options, restricted stock awards and restricted stock units, net of withholding taxes ( 3,086 ) 49 — ( 3,086 ) — — — Cumulative effect adjustment due to ASU 2020-06 ( 65,303 ) — — ( 109,750 ) 44,447 — — Balance as of March 31, 2022 $ 340,848 16,120 $ 161 $ 1,145,038 $ ( 538,173 ) 3,355 $ ( 266,178 ) The accompanying notes to consolidated financial statements are an integral part of these statements. 5 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, 2023 2022 (in thousands) Cash flows from operating activities: Net income (loss) and comprehensive income (loss) $ 13,457 $ ( 10,826 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Loss on impairments and disposal of assets 5,027 431 Amortization of intangibles 2,049 7,917 Depreciation 4,795 4,854 Non-cash compensation expense 11,274 15,080 Deferred income taxes 360 326 Bad debt expense 963 850 Amortization of debt issuance costs 1,959 2,467 Write-off of previously-capitalized debt issuance costs 2,373 — Amortization of debt discount — 879 Reduction in carrying amount of ROU asset, offset by change in operating lease liabilities ( 877 ) ( 49 ) Gain on settlement of convertible debt ( 34,308 ) — Changes in current assets and liabilities: Accounts receivable ( 211 ) ( 17,488 ) Prepaid and other current assets ( 1,882 ) ( 3,666 ) Accounts payable, accrued expenses and other current liabilities 8,559 9,322 Income taxes receivable 42 48 Other, net ( 424 ) ( 146 ) Net cash provided by operating activities 13,156 9,999 Cash flows from investing activities: Capital expenditures ( 2,452 ) ( 3,465 ) Equity investments — ( 15,000 ) Net cash used in investing activities ( 2,452 ) ( 18,465 ) Cash flows from financing activities: Repayment of term loan ( 625 ) — Payments related to net-share settlement of stock-based compensation, net of proceeds from exercise of stock options ( 1,693 ) ( 3,085 ) Purchase of treasury stock — ( 43,009 ) Repurchase of 0.50 % Convertible Senior Notes ( 156,294 ) — Payment of debt issuance costs ( 953 ) ( 4 ) Net cash used in financing activities ( 159,565 ) ( 46,098 ) Net decrease in cash, cash equivalents, restricted cash and restricted cash equivalents ( 148,861 ) ( 54,564 ) Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period 298,969 251,342 Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period $ 150,108 $ 196,778 The accompanying notes to consolidated financial statements are an integral part of these statements. 6 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1— ORGANIZATION Company Overview LendingTree, Inc. is the parent of LT Intermediate Company, LLC, which holds all of the outstanding ownership interests of LendingTree, LLC, and LendingTree, LLC owns several companies (collectively, “LendingTree” or the “Company”). LendingTree operates what it believes to be the leading online consumer platform that connects consumers with the choices they need to be confident in their financial decisions. The Company offers consumers tools and resources, including free credit scores, that facilitate comparison-shopping for mortgage loans, home equity loans and lines of credit, auto loans, credit cards, deposit accounts, personal loans, student loans, small business loans, insurance quotes, sales of insurance policies, and other related offerings. The Company primarily seeks to match in-market consumers with multiple providers on its marketplace who can provide them with competing quotes for loans, deposit products, insurance, or other related offerings they are seeking. The Company also serves as a valued partner to lenders and other providers seeking an efficient, scalable, and flexible source of customer acquisition with directly measurable benefits, by matching the consumer inquiries it generates with these providers. The consolidated financial statements include the accounts of LendingTree and all its wholly-owned entities. Intercompany transactions and accounts have been eliminated. Basis of Presentation The accompanying unaudited interim consolidated financial statements as of March 31, 2023 and for the three months ended March 31, 2023 and 2022, respectively, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). In the opinion of management, the unaudited interim consolidated financial statements have been prepared on the same basis as the audited financial statements, and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the Company's financial position for the periods presented. The results for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023, or any other period. The accompanying consolidated balance sheet as of December 31, 2022 was derived from audited financial statements included in the Company's annual report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”). The accompanying consolidated financial statements do not include all of the information and footnotes required by GAAP for annual financial statements. Accordingly, they should be read in conjunction with the audited financial statements and notes thereto included in the 2022 Annual Report. The Company reclassified certain amounts in the prior year consolidated statement of operations and comprehensive income and consolidated statement of cash flows to be consistent with the current year presentation. NOTE 2— SIGNIFICANT ACCOUNTING POLICIES Accounting Estimates Management is required to make certain estimates and assumptions during the preparation of the consolidated financial statements in accordance with GAAP. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. They also impact the reported amount of net earnings during any period. Actual results could differ from those estimates. Significant estimates underlying the accompanying consolidated financial statements include: the recoverability of long-lived assets, goodwill and intangible assets; the determination of income taxes payable and deferred income taxes, including related valuation allowances; fair value of assets acquired in a business combination; litigation accruals; contract assets; various other allowances, reserves and accruals; assumptions related to the determination of stock-based compensation; and the determination of right-of-use assets and lease liabilities. The Company considered the impact of the current economic conditions, including interest rates, inflation, and the COVID-19 pandemic on the assumptions and estimates used when preparing its consolidated financial statements including, but not limited to, the allowance for doubtful accounts, valuation allowances, contract asset, and the recoverability of long-lived assets, goodwill and intangible assets. These assumptions and estimates may change as new events occur and additional 7 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) information is obtained. If economic conditions worsen, such future changes may have an adverse impact on the Company's results of operations, financial position and liquidity. Certain Risks and Concentrations LendingTree's business is subject to certain risks and concentrations including dependence on third-party technology providers, exposure to risks associated with online commerce security and credit card fraud. Financial instruments, which potentially subject the Company to concentration of credit risk at March 31, 2023, consist primarily of cash and cash equivalents and accounts receivable, as disclosed in the consolidated balance sheet. Cash and cash equivalents are in excess of Federal Deposit Insurance Corporation insurance limits, but are maintained with quality financial institutions of high credit. The Company requires certain Network Partners to maintain security deposits with the Company, which in the event of non-payment, would be applied against any accounts receivable outstanding. Due to the nature of the mortgage lending industry, interest rate fluctuations may negatively impact future revenue from the Company's marketplace. Lenders and lead purchasers participating on the Company's marketplace can offer their products directly to consumers through brokers, mass marketing campaigns or through other traditional methods of credit distribution. These lenders and lead purchasers can also offer their products online, either directly to prospective borrowers, through one or more online competitors, or both. If a significant number of potential consumers are able to obtain loans and other products from Network Partners without utilizing the Company's services, the Company's ability to generate revenue may be limited. Because the Company does not have exclusive relationships with the Network Partners whose loans and other financial products are offered on its online marketplace, consumers may obtain offers from these Network Partners without using its service. Other than a support services office in India, the Company's operations are geographically limited to and dependent upon the economic condition of the United States. Litigation Settlements and Contingencies Litigation settlements and contingencies consists of expenses related to actual or anticipated litigation settlements. Recently Adopted Accounting Pronouncements In August 2020, the FASB issued ASU 2020-06, which simplifies the accounting for convertible instruments, amends the derivatives scope exception guidance for contracts in an entity’s own equity, and amends the related earnings-per-share guidance. Under the new guidance, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, or that do not result in substantial premiums accounted for as paid-in capital. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. Additionally, the new guidance requires the if-converted method to be applied for all convertible instruments when calculating diluted earnings per share. The Company adopted ASU 2020-06 on January 1, 2022 using the modified retrospective transition approach and recognized the cumulative effect of initially applying ASU 2020-06 as a $ 44.4 million adjustment to the opening balance of accumulated deficit, comprised of $ 60.8 million for the interest adjustment, net of $ 16.4 million for the related tax impacts. The recombination of the equity conversion component of our convertible debt remaining outstanding caused a reduction in additional paid-in capital and an increase in deferred income tax assets. The removal of the remaining debt discounts recorded for this previous separation had the effect of increasing our net debt balance. ASU 2020-06 also requires the dilutive impact of convertible debt instruments to utilize the if-converted method when calculating diluted earnings per share and the result is more dilutive. The adoption of ASU 2020-06 did not impact our cash flows or compliance with debt covenants. Recently Issued Accounting Pronouncements The Company has considered the applicability of recently issued accounting pronouncements by the Financial Accounting Standards Board and have determined that they are either not applicable or are not expected to have a material impact on our consolidated financial statements. 8 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 3— REVENUE Revenue is as follows (in thousands) : Three Months Ended March 31, 2023 2022 Home $ 43,675 $ 101,944 Credit cards 18,288 29,822 Personal loans 23,599 35,210 Other Consumer 37,822 36,036 Total Consumer 79,709 101,068 Insurance 77,082 80,038 Other 42 128 Total revenue $ 200,508 $ 283,178 The Company derives its revenue primarily from match fees and closing fees. Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied and promised services have transferred to the customer. The Company's services are generally transferred to the customer at a point in time. Revenue from Home products is primarily generated from upfront match fees paid by mortgage Network Partners that receive a loan request, and in some cases upfront fees for clicks or call transfers. Match fees and upfront fees for clicks and call transfers are earned through the delivery of loan requests that originated through the Company's websites or affiliates. The Company recognizes revenue at the time a loan request is delivered to the customer, provided that no significant obligations remain. The Company's contractual right to the match fee consideration is contemporaneous with the satisfaction of the performance obligation to deliver a loan request to the customer. Revenue from Consumer products is generated by match and other upfront fees for clicks or call transfers, as well as from closing fees, approval fees and upfront service and subscription fees. Closing fees are derived from lenders on certain auto loans, business loans, personal loans, and student loans when the lender funds a loan with the consumer. Approval fees are derived from credit card issuers when the credit card consumer receives card approval from the credit card issuer. Upfront service fees and subscription fees are derived from consumers in the Company's credit services product. Upfront fees paid by consumers are recognized as revenue over the estimated time the consumer will remain a customer and receive services. Subscription fees are recognized over the period a consumer is receiving services. The Company recognizes revenue on closing fees and approval fees at the point when a loan request or a credit card consumer is delivered to the customer. The Company's contractual right to closing fees and approval fees is not contemporaneous with the satisfaction of the performance obligation to deliver a loan request or a credit card consumer to the customer. As such, the Company records a contract asset at each reporting period-end related to the estimated variable consideration on closing fees and approval fees for which the Company has satisfied the related performance obligation but are still pending the loan closing or credit card approval before the Company has a contractual right to payment. This estimate is based on the Company's historical closing rates and historical time between when a consumer request for a loan or credit card is delivered to the lender or card issuer and when the loan is closed by the lender or approved by the card issuer. Revenue from the Company's Insurance products is primarily generated from upfront match fees and upfront fees for website clicks or fees for calls. Match fees and upfront fees for clicks and call transfers are earned through the delivery of consumer requests that originated through the Company's websites or affiliates. The Company recognizes revenue at the time a consumer request is delivered to the customer, provided that no significant obligations remain. The Company's contractual right to the match fee consideration is contemporaneous with the satisfaction of the performance obligation to deliver a consumer request to the customer. The contract asset recorded within prepaid and other current assets on the consolidated balance sheets related to estimated variable consideration was $ 13.4 million and $ 12.2 million at March 31, 2023 and December 31, 2022, respectively. The contract liability recorded within accrued expenses and other current liabilities on the consolidated balance sheets related to upfront fees paid by consumers was $ 1.0 million and $ 0.9 million at March 31, 2023 and December 31, 2022, 9 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) respectively. During the first three months of 2023, the Company recognized revenue of $ 0.8 million that was included in the contract liability balance at December 31, 2022. During the first three months of 2022, the Company recognized revenue of $ 0.7 million that was included in the contract liability balance at December 31, 2021. Revenue recognized in any reporting period includes estimated variable consideration for which the Company has satisfied the related performance obligations but are still pending the occurrence or non-occurrence of a future event outside the Company's control (such as lenders providing loans to consumers or credit card approvals of consumers) before the Company has a contractual right to payment. The Company recognized increases to such revenue from prior periods. This increase was $ 0.2 million in the first quarter of 2023, and $ 0.2 million in the first quarter of 2022. NOTE 4— CASH AND RESTRICTED CASH Total cash, cash equivalents, restricted cash and restricted cash equivalents consist of the following (in thousands) : March 31, 2023 December 31, 2022 Cash and cash equivalents $ 150,074 $ 298,845 Restricted cash and cash equivalents 34 124 Total cash, cash equivalents, restricted cash and restricted cash equivalents $ 150,108 $ 298,969 NOTE 5— ALLOWANCE FOR DOUBTFUL ACCOUNTS Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts. The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time accounts receivable are past due, previous loss history, current and expected economic conditions and the specific customer's current and expected ability to pay its obligation. Accounts receivable are considered past due when they are outstanding longer than the contractual payment terms. Accounts receivable are written off when management deems them uncollectible. A reconciliation of the beginning and ending balances of the allowance for doubtful accounts is as follows (in thousands) : Three Months Ended March 31, 2023 2022 Balance, beginning of the period $ 2,317 $ 1,456 Charges to earnings 963 850 Write-off of uncollectible accounts receivable ( 963 ) ( 503 ) Recoveries collected — — Assets held for sale (Note 7) 371 — Balance, end of the period $ 2,688 $ 1,803 10 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 6— GOODWILL AND INTANGIBLE ASSETS The balance of goodwill, net and intangible assets, net is as follows (in thousands) : March 31, 2023 December 31, 2022 Goodwill $ 903,227 $ 903,227 Accumulated impairment losses ( 483,088 ) ( 483,088 ) Net goodwill $ 420,139 $ 420,139 Intangible assets with indefinite lives $ 10,142 $ 10,142 Intangible assets with definite lives, net 46,124 48,173 Total intangible assets, net $ 56,266 $ 58,315 Goodwill and Indefinite-Lived Intangible Assets The Company's goodwill at each of March 31, 2023 and December 31, 2022 consists of $ 59.3 million associated with the Home segment, $ 166.1 million associated with the Consumer segment, and $ 194.7 million associated with the Insurance segment. At June 30, 2022, the Company assessed the qualitative factors in its impairment testing of goodwill and determined that the effects of the challenging interest rate environment, consumer price inflation, and the decline in the Company's market capitalization required a quantitative impairment test be performed. The quantitative goodwill impairment test found that the fair value of each reporting unit exceeded its carrying amount, indicating no goodwill impairment. The Company will monitor the recovery of the Insurance reporting unit and the Mortgage reporting unit. The property and casualty auto industry is experiencing challenges caused by inflation, supply chain challenges, and rising severity and frequency of claims. Additionally, the significant increase in mortgage interest rates have had a negative impact on the Mortgage reporting unit. Changes in the timing of the recovery compared to current expectations could cause an impairment to the Insurance or Mortgage reporting unit. Intangible assets with indefinite lives relate to the Company's trademarks. Intangible Assets with Definite Lives Intangible assets with definite lives relate to the following (in thousands) : Cost Accumulated Amortization Net Customer lists 77,300 ( 32,303 ) 44,997 Trademarks and tradenames 9,100 ( 7,973 ) 1,127 Balance at March 31, 2023 $ 86,400 $ ( 40,276 ) $ 46,124 Cost Accumulated Amortization Net Customer lists $ 77,300 $ ( 30,775 ) $ 46,525 Trademarks and tradenames 10,100 ( 8,452 ) 1,648 Balance at December 31, 2022 $ 87,400 $ ( 39,227 ) $ 48,173 11 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Amortization of intangible assets with definite lives is computed on a straight-line basis and, based on balances as of March 31, 2023, future amortization is estimated to be as follows (in thousands) : Amortization Expense Remainder of current year $ 5,646 Year ending December 31, 2024 5,889 Year ending December 31, 2025 5,830 Year ending December 31, 2026 5,504 Year ending December 31, 2027 5,198 Thereafter 18,057 Total intangible assets with definite lives, net $ 46,124 See Note 7—Assets and Liabilities Held for Sale for intangible assets with definite lives classified as held for sale. NOTE 7— ASSETS AND LIABILITIES HELD FOR SALE In the fourth quarter of 2022, the Company approved a plan to sell its Ovation credit services business, an asset group associated with the Company's Consumer segment. The asset group was expected to be sold in 2023 to an unrelated third party and is classified, at its carrying value, as current assets held for sale and current liabilities held for sale in the consolidated balance sheet as of December 31, 2022. In the first quarter of 2023, the third party withdrew the letter of intent to purchase the asset group held for sale. The Company made the decision to close the Ovation credit services business. As a result, the Company recorded asset impairment charges of $ 4.2 million, of which $ 2.1 million related to intangible assets, $ 1.7 million related to property and equipment, and $ 0.4 million related to an operating lease right-of-use asset. The carrying value of the accounts receivable, prepaid and other assets, and other non-current assets previously held for sale, and the liabilities previously held for sale approximate their fair value and are no longer classified as assets and liabilities held for sale in the consolidated balance sheet as of March 31, 2023. The following table presents information related to the major classes of assets and liabilities that were classified as held for sale (in thousands) : December 31, 2022 Accounts receivable, net of allowance $ 1,353 Prepaid and other current assets 79 Property and equipment, net of accumulated depreciation of $ 1,102 1,665 Operating lease right-of-use assets 436 Intangible assets, net of accumulated amortization of $ 3,857 2,143 Other non-current assets 13 Total assets held for sale $ 5,689 Accounts payable, trade $ 253 Accrued expenses and other current liabilities 2,551 Operating lease liabilities 105 Total liabilities held for sale $ 2,909 12 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8— ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following (in thousands) : March 31, 2023 December 31, 2022 Accrued advertising expense $ 44,222 $ 37,703 Accrued compensation and benefits 9,398 11,444 Accrued professional fees 1,539 1,393 Customer deposits and escrows 7,253 7,273 Contribution to LendingTree Foundation — 500 Current lease liabilities 8,901 8,513 Accrued restructuring and severance 4,446 304 Other 9,070 7,965 Total accrued expenses and other current liabilities $ 84,829 $ 75,095 See Note 7—Assets and Liabilities Held for Sale for accrued expenses and other current liabilities classified as held for sale. NOTE 9— SHAREHOLDERS' EQUITY Basic and diluted income per share was determined based on the following share data (in thousands) : Three Months Ended March 31, 2023 2022 Weighted average basic common shares 12,846 12,901 Effect of stock options 54 — Effect of dilutive share awards 35 — Weighted average diluted common shares 12,935 12,901 For the first quarter of 2023, the weighted average shares that were anti-dilutive, and therefore excluded from the calculation of diluted income per share, included options to purchase 1.0 million shares of common stock and 0.4 million restricted stock units. For the first quarter of 2022, the Company was in a net loss position and, as a result, no potentially dilutive securities were included in the denominator for computing diluted loss per share, because the impact would have been anti-dilutive. Accordingly, the weighted average basic shares outstanding was used to compute loss per share. Approximately 0.3 million shares related to potentially dilutive securities were excluded from the calculation of diluted loss per share for the first quarter of 2022 because their inclusion would have been anti-dilutive. For the first quarter of 2022, the weighted average shares that were anti-dilutive, and therefore excluded from the calculation of diluted income per share, included options to purchase 0.9 million shares of common stock and 0.2 million restricted stock units. The convertible notes and the warrants issued by the Company could be converted into the Company’s common stock, subject to certain contingencies. See Note 12—Debt for additional information. On January 1, 2022, the Company adopted ASU 2020-06 using the modified retrospective method. Following the adoption, the if-converted method is used for diluted net income per share calculation of our convertible notes. Prior to the adoption of ASU 2020-06 the dilutive impact of the convertible notes was calculated using the treasury stock method. See Note 2—Significant Accounting Policies for additional information. Approximately 1.2 million shares related to the potentially dilutive shares of the Company's common stock associated with the 0.50 % Convertible Senior Notes due July 15, 2025 were excluded from the calculation of diluted loss per share for the first quarter of 2023 because their inclusion would have been anti-dilutive. Approximately 2.1 million shares related to the potentially dilutive shares of the Company's common stock associated with the 0.50 % Convertible Senior Notes due July 15, 2025 and the 0.625 % Convertible Senior Notes due June 1, 2022 were excluded from the calculation of diluted loss per share for the first quarter of 2022 because their inclusion would have been anti-dilutive. Shares of the Company's stock associated 13 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) with the warrants issued by the Company in 2020 were excluded from the calculation of diluted loss per share for the first quarter of 2023, and shares of the Company's stock associated with the warrants issued by the Company in 2017 and 2020 were excluded from the calculation of diluted loss per share for the first quarter of 2022 as they were anti-dilutive since the strike price of the warrants was greater than the average market price of the Company's common stock during the relevant periods. Common Stock Repurchases In each of February 2018 and February 2019, the board of directors authorized and the Company announced the repurchase of up to $ 100.0 million and $ 150.0 million, respectively, of LendingTree's common stock. During the first quarter of 2023, the Company did no t purchase shares of its common stock. During the first quarter of 2022, the Company purchased 379,895 shares of its common stock pursuant to this stock repurchase program. At March 31, 2023, approximately $ 96.7 million of the previous authorizations to repurchase common stock remain available. NOTE 10— STOCK-BASED COMPENSATION Non-cash compensation related to equity awards is included in the following line items in the accompanying consolidated statements of operations and comprehensive income (in thousands) : Three Months Ended March 31, 2023 2022 Cost of revenue $ 214 $ 393 Selling and marketing expense 1,744 2,039 General and administrative expense 7,343 9,600 Product development 1,902 1,965 Restructuring and severance 71 1,083 Total non-cash compensation $ 11,274 $ 15,080 Stock Options A summary of changes in outstanding stock options is as follows: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (a) (per option) (in years) (in thousands) Options outstanding at January 1, 2023 805,079 $ 155.10 Granted — — Exercised — — Forfeited — — Expired ( 34,313 ) 239.93 Options outstanding at March 31, 2023 770,766 151.32 5.14 $ 171 Options exercisable at March 31, 2023 553,965 $ 134.08 3.92 $ 171 (a) The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company's closing stock price of $ 26.66 on the last trading day of the quarter ended March 31, 2023 and the exercise price, multiplied by the number of shares covered by in-the-money options) that would have been received by the option holder had the option holder exercised these options on March 31, 2023. The intrinsic value changes based on the market value of the Company's common stock. 14 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Stock Options with Market Conditions A summary of changes in outstanding stock options with market conditions at target is as follows: Number of Options with Market Conditions Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (a) (per option) (in years) (in thousands) Options outstanding at January 1, 2023 734,685 $ 230.79 Granted — — Exercised — — Forfeited — — Expired ( 16,247 ) 308.96 Options outstanding at March 31, 2023 718,438 229.02 5.43 $ — Options exercisable at March 31, 2023 481,669 $ 195.10 4.35 $ — (a) The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company's closing stock price of $ 26.66 on the last trading day of the quarter ended March 31, 2023 and the exercise price, multiplied by the number of shares covered by in-the-money options) that would have been received by the option holder had the option holder exercised these options on March 31, 2023. The intrinsic value changes based on the market value of the Company's common stock. As of March 31, 2023, a maximum of 395,404 shares may be earned for achieving superior performance up to 167 % of the remaining unvested target number of shares. As of March 31, 2023, no additional performance-based nonqualified stock options with a market condition had been earned. Restricted Stock Units A summary of changes in outstanding nonvested restricted stock units (“RSUs”) is as follows: RSUs Number of Units Weighted Average Grant Date Fair Value (per unit) Nonvested at January 1, 2023 485,053 $ 127.46 Granted 349,399 33.00 Vested ( 150,097 ) 155.46 Forfeited ( 11,427 ) 95.25 Nonvested at March 31, 2023 672,928 $ 72.68 Restricted Stock Units with Performance Conditions A summary of changes in outstanding nonvested RSUs with performance conditions is as follows: RSUs with Performance Conditions Number of Units Weighted Average Grant Date Fair Value (per unit) Nonvested at January 1, 2023 16,000 $ 83.25 Granted — — Vested — — Forfeited ( 16,000 ) 83.25 Nonvested at March 31, 2023 — $ — 15 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Employee Stock Purchase Plan In 2021, the Company implemented an employee stock purchase plan (“ESPP”), under which a total of 262,731 shares of the Company's common stock were reserved for issuance. As of March 31, 2023, 226,813 shares of common stock were available for issuance under the ESPP. The ESPP is a tax-qualified plan under Section 423 of the Internal Revenue Code. Under the terms of the ESPP, eligible employees are granted options to purchase shares of the Company's common stock at 85 % of the lesser of (1) the fair market value at time of grant or (2) the fair market value at time of exercise. The offering periods and purchase periods are typically six-month periods ending on June 30 and December 31 of each year. No shares were issued under the ESPP during the three months ended March 31, 2023. During the three months ended March 31, 2023 and 2022, the Company granted employee stock purchase rights to certain employees with a grant date fair value per share of $ 8.19 and $ 35.43 , respectively, calculated using the Black-Scholes option pricing model. For purposes of determining stock-based compensation expense, the grant date fair value per share estimated using the Black-Scholes option pricing model required the use of the following key assumptions: Three Months Ended March 31, 2023 2022 Expected term (1) 0.50 years 0.50 years Expected dividend (2) — — Expected volatility (3) 82 % 49 % Risk-free interest rate (4) 4.76 % 0.19 % (1) The expected term was calculated using the time period between the grant date and the purchase date. (2) No dividends are expected to be paid, resulting in a zero expected dividend rate. (3) The expected volatility rate is based on the historical volatility of the Company's common stock. (4) The risk-free interest rate is specific to the date of grant. The risk-free interest rate is based on U.S. Treasury yields for notes with comparable expected terms as the employee stock purchase rights, in effect at the grant date. NOTE 11— INCOME TAXES Three Months Ended March 31, 2023 2022 (in thousands, except percentages) Income tax expense $ ( 395 ) $ ( 382 ) Effective tax rate 2.9 % ( 3.7 ) % For the first quarter of 2023, the effective tax rate varied from the federal statutory rate of 21 % primarily due to the change in the valuation allowance, net of the current period change in tax effected net indefinite-lived intangibles. 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, resulting from vesting of restricted stock in accordance with ASU 2016-09 and the effect of state taxes. Three Months Ended March 31, 2023 2022 (in thousands) Income tax benefit - excluding excess tax expense on stock compensation $ ( 395 ) $ 2,086 Excess tax expense on stock compensation — ( 2,468 ) Income tax expense $ ( 395 ) $ ( 382 ) 16 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 12— DEBT Convertible Senior Notes 2025 Notes On July 24, 2020, the Company issued $ 575.0 million aggregate principal amount of its 0.50 % Convertible Senior Notes due July 15, 2025 (the “2025 Notes”) in a private placement. The 2025 Notes bear interest at a rate of 0.50 % per year, payable semi-annually on January 15 and July 15 of each year, beginning on January 15, 2021. The 2025 Notes will mature on July 15, 2025, unless earlier repurchased, redeemed or converted. The initial conversion rate of the 2025 Notes is 2.1683 shares of the Company's common stock per $1,000 principal amount of 2025 Notes (which is equivalent to an initial conversion price of approximately $ 461.19 per share). On March 8, 2023, the Company repurchased approximately $ 190.6 million in principal amount of its 2025 Notes, through individual privately-negotiated transactions with certain holders of the 2025 Notes, for $ 156.3 million in cash plus accrued and unpaid interest of approximately $ 0.1 million. In the first quarter of 2023, the Company recognized a gain on the extinguishment of debt of $ 34.3 million, a loss on the write-off of unamortized debt issuance costs of $ 2.4 million and incurred debt repayment costs of $ 1.0 million, all of which are included in interest income/expense, net in the consolidated statement of operations and comprehensive income. Holders of the 2025 Notes were not entitled to convert the 2025 Notes during the calendar quarter ended March 31, 2023 as the last reported sale price of the Company's common stock, for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on December 31, 2022, was not greater than or equal to 130 % of the conversion price of the 2025 Notes on each applicable trading day. In the first three months of 2023, the Company recorded interest expense on the 2025 Notes of $ 1.4 million which consisted of $ 0.7 million associated with the 0.50 % coupon rate and $ 0.7 million associated with the amortization of the debt issuance costs. In the first three months of 2022, the Company recorded interest expense on the 2025 Notes of $ 1.5 million which consisted of $ 0.7 million associated with the 0.50 % coupon rate and $ 0.8 million associated with the amortization of the debt issuance costs. As of March 31, 2023, the fair value of the 2025 Notes is estimated to be approximately $ 286.7 million using the Level 1 observable input of the last quoted market price on March 31, 2023. A summary of the gross carrying amount, debt issuance costs, and net carrying value of the 2025 Notes, all of which is recorded as a non-current liability in the March 31, 2023 consolidated balance sheet, are as follows (in thousands) : March 31, 2023 December 31, 2022 Gross carrying amount $ 384,398 $ 575,000 Debt issuance costs 4,667 7,734 Net carrying amount $ 379,731 $ 567,266 2022 Notes In the first three months of 2022, the Company recorded interest expense on the 2022 Notes of $ 0.5 million which consisted of $ 0.3 million associated with the 0.625 % coupon rate and $ 0.2 million associated with the amortization of the debt issuance costs. The 2022 Notes were fully settled in June 2022. Convertible Note Hedge and Warrant Transactions 2020 Hedge and Warrants On July 24, 2020, in connection with the issuance of the 2025 Notes, the Company entered into Convertible Note Hedge (the “2020 Hedge”) and warrant transactions with respect to the Company’s common stock. The 2020 Hedge transactions cover 1.2 million shares of the Company’s common stock, the same number of shares initially underlying the 2025 Notes, and are exercisable upon any conversion of the 2025 Notes. The 2020 Hedge transactions 17 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) are expected generally to reduce the potential dilution to the Company's common stock upon conversion of the 2025 Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted 2025 Notes, as the case may be, in the event that the market price per share of common stock, as measured under the terms of the 2020 Hedge transactions, is greater than the strike price of the 2020 Hedge transactions, which initially corresponds to the initial conversion price of the 2025 Notes, or approximately $ 461.19 per share of common stock. The 2020 Hedge transactions will expire upon the maturity of the Notes. On July 24, 2020, the Company sold to the counterparties, warrants (the “2020 Warrants”) to acquire 1.2 million shares of the Company's common stock at an initial strike price of $ 709.52 per share, which represents a premium of 100 % over the last reported sale price of the common stock of $ 354.76 on July 21, 2020. If the market price per share of the common stock, as measured under the terms of the 2020 Warrants, exceeds the strike price of the 2020 Warrants, the 2020 Warrants could have a dilutive effect, unless the Company elects, subject to certain conditions, to settle the 2020 Warrants in cash. In connection with the March 8, 2023 repurchases of the 2025 Notes noted above, the Company entered into agreements with the counterparties for the 2020 Hedge and 2020 Warrants transactions to terminate a portion of these call spread transactions effective March 8, 2023 in notional amounts corresponding to the principal amount of the 2025 Notes repurchased. Subsequent to such termination, the outstanding portion of the 2020 Hedge covers 0.8 million shares of the Company's common stock and 2020 Warrants to acquire 0.8 million shares of the Company's common stock remain outstanding. Credit Facility On September 15, 2021, the Company 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. As of March 31, 2023, the Company had $ 248.1 million of borrowings outstanding under the Term Loan Facility bearing interest at the LIBO option rate of 8.6 % and had no borrowings under the Revolving Facility. As of December 31, 2022, the Company had $ 248.8 million of borrowings outstanding under the Credit Facility and no borrowings under the Revolving Facility. As of March 31, 2023, borrowings of $ 2.5 million under the Term Loan Facility are recorded as current portion of long-term debt on the consolidated balance sheet. At each of March 31, 2023 and December 31, 2022, the Company had outstanding one letter of credit issued in the amount of $ 0.2 million. The Company was in compliance with all covenants at March 31, 2023. In the first three months of 2023, the Company recorded interest expense related to its Revolving Facility of $ 0.4 million which consisted of $ 0.2 million in unused commitment fees, and $ 0.2 million associated with the amortization of the debt issuance costs. In the first three months of 2023, the Company recorded interest expense related to the Term Loan Facility of $ 5.2 million associated with borrowings bearing interest at the LIBO rate. In the first three months of 2022, the Company recorded interest expense related to its revolving credit facilities of $ 0.4 million which consisted of $ 0.2 million in unused commitment fees, and $ 0.2 million associated with the amortization of the debt issuance costs. In the first three months of 2022, the Company recorded interest expense related to the Term Loan Facility of $ 5.1 million which consisted of $ 3.0 million in unused commitment fees, $ 1.2 million associated with the amortization of the debt issuance costs, and $ 0.9 million associated with the amortization of the original issue discount. NOTE 13— CONTINGENCIES Overview LendingTree is involved in legal proceedings on an ongoing basis. In assessing the materiality of a legal proceeding, the Company evaluates, among other factors, the amount of monetary damages claimed, as well as the potential impact of non-monetary remedies sought by plaintiffs (e.g., injunctive relief) that may require it to change its business practices in a manner that could have a material and adverse impact on the Company's business. With respect to the matters disclosed in this Note 13, 18 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) unless otherwise indicated, the Company is unable to estimate the possible loss or range of losses that could potentially result from the application of such non-monetary remedies. As of March 31, 2023 and December 31, 2022, the Company had litigation settlement accruals of $ 0.2 million and $ 0.1 million, respectively. The litigation settlement accruals relate to litigation matters that were either settled or a firm offer for settlement was extended, thereby establishing an accrual amount that is both probable and reasonably estimable. NOTE 14— FAIR VALUE MEASUREMENTS Other than the convertible notes and warrants, as well as the equity interests, the carrying amounts of the Company's financial instruments are equal to fair value at March 31, 2023. See Note 12—Debt for additional information on the convertible notes and warrants . NOTE 15— SEGMENT INFORMATION The Company manages its business and reports its financial results through the following three operating and reportable segments: Home, Consumer, and Insurance. Characteristics which were relied upon in making the determination of the reportable segments include the nature of the products, the organization's internal structure, and the information that is regularly reviewed by the chief operating decision maker for the purpose of assessing performance and allocating resources. The Home segment includes the following products: purchase mortgage, refinance mortgage, and home equity loans and lines of credit. The Company ceased offering reverse mortgage loans in the fourth quarter of 2022. The Consumer segment includes the following products: credit cards, personal loans, small business loans, student loans, auto loans, deposit accounts, and other credit products such as credit repair and debt settlement. The Insurance segment consists of insurance quote products and sales of insurance policies in the agency businesses. The following tables are a reconciliation of segment profit, which is the Company's primary segment profitability measure, to income before income taxes. Segment marketing expense represents the portion of selling and marketing expense attributable to variable costs paid for advertising, direct marketing and related expenses, that are directly attributable to the segments' products. This measure excludes overhead, fixed costs and personnel-related expenses. Three Months Ended March 31, 2023 Home Consumer Insurance Other Total (in thousands) Revenue $ 43,675 $ 79,709 $ 77,082 $ 42 $ 200,508 Segment marketing expense 28,567 44,833 46,930 221 120,551 Segment profit (loss) 15,108 34,876 30,152 ( 179 ) 79,957 Cost of revenue 13,760 Brand and other marketing expense 16,560 General and administrative expense 36,683 Product development 14,655 Depreciation 4,795 Amortization of intangibles 2,049 Restructuring and severance 4,454 Litigation settlements and contingencies 12 Operating loss ( 13,011 ) Interest income, net 25,029 Other income 1,834 Income before income taxes $ 13,852 19 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Three Months Ended March 31, 2022 Home Consumer Insurance Other Total (in thousands) Revenue $ 101,944 $ 101,068 $ 80,038 $ 128 $ 283,178 Segment marketing expense 66,035 58,561 58,935 183 183,714 Segment profit (loss) 35,909 42,507 21,103 ( 55 ) 99,464 Cost of revenue 15,561 Brand and other marketing expense 20,443 General and administrative expense 35,977 Product development 14,052 Depreciation 4,854 Amortization of intangibles 7,917 Restructuring and severance 3,625 Litigation settlements and contingencies ( 27 ) Operating loss ( 2,938 ) Interest expense, net ( 7,505 ) Other income ( 1 ) Loss before income taxes $ ( 10,444 ) NOTE 16— RESTRUCTURING ACTIVITIES On March 24, 2023, the Company committed to a workforce reduction plan (the “Reduction Plan”), that is intended to reduce operating costs. The Reduction Plan includes the elimination of approximately 158 employees, or 13 %, of the Company’s current workforce. As a result of the Reduction Plan, the Company estimates that it will incur approximately $ 5.6 million in severance charges in connection with the workforce reduction, consisting of cash expenditures for employee separation costs of approximately $ 4.6 million and non-cash charges for the accelerated vesting of certain equity awards of approximately $ 1.0 million. The Company incurred restructuring expense of $ 4.3 million in the first quarter of 2023 and expects to incur an additional $ 1.3 million of restructuring expense in the second quarter of 2023 related to the Reduction Plan. The Reduction Plan, including cash payments, is expected to be completed by the end of the second quarter of 2024. During 2022, the Company completed workforce reductions in each of the first, second, and fourth quarters of approximately 75 employees, 25 employees, and 50 employees, respectively. In the first quarter of 2022, the Company incurred total expense of $ 3.6 million consisting of employee separation costs of $ 2.5 million and non-cash compensation expense of $ 1.1 million due to the accelerated vesting of certain equity awards. All employee separation costs for 2022 actions are expected to be paid by the third quarter of 2023. Accrued Balance at December 31, 2022 Income Statement Impact Payments Non-Cash Accrued Balance at March 31, 2023 2023 action Employee separation payments $ — $ 4,260 $ — $ — $ 4,260 Non-cash compensation — 71 — ( 71 ) — 2022 action Employee separation payments 304 25 $ ( 237 ) — 92 $ 304 $ 4,356 $ ( 237 ) $ ( 71 ) $ 4,352 20 Table of Contents