What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-01 compared with 2023-07-28 · 135 added, 108 removed, 267 unchanged (48% of the section changed)

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We also serve as a valued partner to lenders and other providers seeking an efficient, scalable and flexible source of customer acquisition with directly measurable benefits, by matching the consumer inquiries we generate with these Network Partners.

Our MyLendingTree platform offers a personalized comparison-shopping experience by providing free credit scores and credit score analysis.

Our LendingTree Spring TM platform (previously MyLendingTree) offers a personalized comparison-shopping experience by providing free credit scores and credit score analysis.

This platform enables us to monitor consumers' credit profiles and then identify and alert them to loans and other offerings on our marketplace that may be more favorable than the terms they may have at a given point in time.

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Economic Conditions

We continue to monitor the impact of the COVID-19 pandemic, government actions and measures taken to prevent its spread, and the potential to affect our operations.

We are also monitoring the current global economic environment, specifically including inflationary pressures and interest rates, and any resulting impacts on our financial position and results of operations.

We continue to monitor the current global economic environment, specifically including inflationary pressures and interest rates, and any resulting impacts on our financial position and results of operations.

Refer to Part I, Item 1A.

“Risk Factors” of our 2022 Annual Report for additional information.

Of our three reportable segments, the Consumer segment was impacted the most from the COVID-19 pandemic as unsecured credit and the flow of capital in certain areas of the market contracted.

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

Thus, as our revenue was negatively impacted during the COVID-19 pandemic and the macro-economic conditions that followed, our marketing expenses generally decreased in line with revenue.

During 2023, the challenging interest rate environment and inflationary pressures have continued to present challenges for many of our mortgage lending and insurance partners.

In our Home segment, mortgage rates have remained relatively consistent in the second quarter of 2023 compared to the fourth quarter of 2022, but nearly doubled compared to the first quarter of 2022.

In our Home segment, mortgage rates have remained relatively consistent in the third quarter of 2023 compared to the fourth quarter of 2022, but nearly doubled compared to the first quarter of 2022.

The significant increases in mortgage rates caused a sharp decline in refinance volumes and are putting pressure on purchase activity.

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Due to high lender demand, we typically see an increase in the amount lenders will pay per matched lead, which often leads to higher revenue earned per consumer.

However, increases in the amount lenders will pay per matched lead in this situation is limited by the overall cost models of our lenders, and our revenue earned per consumer can be adversely affected by the overall reduced demand for refinancing in a rising rate environment.

However, increases in

the amount lenders will pay per matched lead in this situation is limited by the overall cost models of our lenders, and our revenue earned per consumer can be adversely affected by the overall reduced demand for refinancing in a rising rate environment.

We dynamically adjust selling and marketing expenditures in all interest rate environments to optimize our results against these variables.

According to Freddie Mac, 30-year mortgage interest rates increased from a monthly average of 6.36% in December 2022 to a monthly average of 6.71% in June 2023.

On a quarterly basis, 30-year mortgage interest rates in the second quarter of 2023 averaged 6.49%, compared to 5.24% in the second quarter of 2022 and 6.69% in the fourth quarter of 2022.

According to Freddie Mac, 30-year mortgage interest rates increased from a monthly average of 6.36% in December 2022 to a monthly average of 7.20% in September 2023.

On a quarterly basis, 30-year mortgage interest rates in the third quarter of 2023 averaged 7.04%, compared to 5.58% in the third quarter of 2022 and 6.69% in the fourth quarter of 2022.

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 increased to 20% of total mortgage origination dollars in the second quarter of 2023 compared to 17% in the fourth quarter of 2022 but decreased from 30% in the second quarter of 2022.

In the second quarter of 2023, total refinance origination dollars increased 39% from the fourth quarter of 2022 and decreased 54% from the second quarter of 2022.

Industry-wide mortgage origination dollars in the second quarter of 2023 increased 16% from the fourth quarter of 2022 and decreased 32% from second quarter of 2022.

According to Mortgage Bankers Association (“MBA”) data, total refinance origination dollars increased to 18% of total mortgage origination dollars in the third quarter of 2023 compared to 17% in the fourth quarter of 2022 but decreased from 19% in the third quarter of 2022.

In the third quarter of 2023, total refinance origination dollars increased 19% from the fourth quarter of 2022 and decreased 15% from the third quarter of 2022.

Industry-wide mortgage origination dollars in the third quarter of 2023 increased 9% from the fourth quarter of 2022 and decreased 10% from third quarter of 2022.

According to MBA projections, the mix of mortgage origination dollars is expected to continue to be weighted towards purchase mortgages with the refinance share representing approximately 19% for 2023.

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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 increased 2% in the second quarter of 2023 compared to the fourth quarter of 2022, and decreased 21% compared to the second quarter of 2022.

According to Fannie Mae data, existing home sales decreased 4% in the third quarter of 2023 compared to the fourth quarter of 2022, and decreased 16% compared to the third quarter of 2022.

Fannie Mae predicts an overall decrease in existing-home sales of approximately 18% in 2023 compared to 2022.

MyLendingTree

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

LendingTree Spring TM (previously MyLendingTree)

We consider certain metrics related to LendingTree Spring TM ("Spring") 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 1.2 million new users in the second quarter of 2023, bringing cumulative sign-ups to 26.9 million at June 30, 2023.

We attribute $22 million of revenue in the second quarter of 2023 to registered MyLendingTree members across the LendingTree platform.

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

We continued to grow our user base and added 0.7 million new users in the third quarter of 2023, bringing cumulative sign-ups to 27.6 million at September 30, 2023.

We attribute $21 million of revenue in the third quarter of 2023 to registered to Spring members across the LendingTree platform.

Our focus on improving the Spring 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.

Cost Reductions and Simplification of Business

During September 2023, we completed workforce reductions of approximately 12 employees.

We estimate that we will incur approximately $0.9 million in severance charges in connection with the workforce reductions, consisting of cash expenditures for employee separation costs of approximately $0.7 million in the third quarter of 2023 and non-cash charges for the accelerated vesting of certain equity awards of approximately $0.2 million through the fourth quarter of 2023.

On March 24, 2023, we committed to a workforce reduction plan (the “Reduction Plan”), to reduce operating costs, which included the elimination of approximately 13% of the Company’s workforce.

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The Ovation business accounted for approximately 3% of total revenue and 3% of total costs and expenses, with an immaterial impact to net income on the consolidated statement of operations and comprehensive income (loss) for the year ended December 31, 2022.

Results of Operations for the Three and Six Months ended June 30, 2023 and 2022

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

Results of Operations for the Three and Nine Months ended September 30, 2023 and 2022

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

Change 2023 2022 $

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Amortization of intangibles 1,981 6,582 (4,601) (70) % 6,012 21,574 (15,562) (72) %

Goodwill impairment 38,600 — 38,600 100 % 38,600 — 38,600 100 %

Restructuring and severance 1,955 — 1,955 100 % 9,967 3,760 6,207 165 %

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Total costs and expenses 189,180 256,412 (67,232) (26) % 578,539 808,347 (229,808) (28) %

Operating income (loss) 6,613 (3,896) 10,509 270 % (6,398) (6,834) 436 6 %

Operating loss (33,992) (18,576) (15,416) (83) % (40,390) (25,410) (14,980) (59) %

Other income (expense), net:

Interest (expense) income, net (7,097) (5,720) (1,377) (24) % 10,992 (19,990) 30,982 155 %

Other income 439 284 155 55 % 2,273 283 1,990 703 %

Income (loss) before income taxes 112 (10,377) 10,489 101 % 13,964 (20,821) 34,785 167 %

Income tax (expense) benefit (227) 2,339 (2,566) (110) % (622) 1,957 (2,579) (132) %

Net (loss) income and comprehensive (loss) income $ (115) $ (8,038) $ 7,923 99 % $ 13,342 $ (18,864) $ 32,206 171 %

Revenue decreased in the second quarter and first six months of 2023 compared to the second quarter and first six months of 2022 due to decreases in our Home, Consumer, and Insurance segments.

Other (expense) income (110,910) 1,523 (112,433) (7,382) % (108,637) 1,806 (110,443) (6,115) %

Loss before income taxes (151,999) (22,773) (129,226) (567) % (138,035) (43,594) (94,441) (217) %

Income tax benefit (expense) 3,534 (135,911) 139,445 103 % 2,912 (133,954) 136,866 102 %

Net loss and comprehensive loss $ (148,465) $ (158,684) $ 10,219 6 % $ (135,123) $ (177,548) $ 42,425 24 %

Revenue decreased in the third quarter and first nine months of 2023 compared to the third quarter and first nine months of 2022 due to decreases in our Home, Consumer, and Insurance segments.

Our Consumer segment includes the following products:

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

Revenue from our Consumer segment decreased $23.7 million, or 22%, in the second quarter of 2023 from the second quarter of 2022, and decreased $45.0 million, or 22%, in the first six months of 2023 from the first six months of 2022 primarily due to decreases in our personal loans, credit cards, and small business.

Revenue from our personal loans product decreased $14.2 million, or 33%, to $28.1 million in the second quarter of 2023 from $42.3 million in the second quarter of 2022, and decreased $25.8 million, or 33%, to $51.7 million in the first six months of 2023 from $77.5 million in the first six months of 2022 primarily due to a decrease in the number of consumers completing request forms.

Revenue from our credit cards product decreased $6.2 million, or 23%, to $21.1 million in the second quarter of 2023 from $27.3 million in the second quarter of 2022 primarily due to a decrease in the number of consumer clicks.

Revenue from our credit cards product decreased $17.8 million, or 31%, to $39.4 million in the first six months of 2023 compared to $57.1 million in the first six months of 2022, primarily due to a decrease in the number of consumer clicks and in revenue earned per click.

Revenue from our Consumer segment decreased $35.4 million, or 34%, in the third quarter of 2023 from the third quarter of 2022, and decreased $80.4 million, or 26%, in the first nine months of 2023 from the first nine months of 2022 primarily due to decreases in our personal loans, credit cards, and small business.

Revenue from our personal loans product decreased $11.2 million, or 30%, to $26.5 million in the third quarter of 2023 from $37.7 million in the third quarter of 2022, and decreased $36.9 million, or 32%, to $78.3 million in the first nine months of 2023 from $115.2 million in the first nine months of 2022 primarily due to a decrease in the number of consumers completing request forms and in revenue earned per consumer.

Revenue from our credit cards product decreased $9.7 million, or 40%, to $14.6 million in the third quarter of 2023 from $24.3 million in the third quarter of 2022 and decreased $27.5 million, or 34%, to $53.9 million in the first nine months of 2023 compared to $81.4 million in the first nine months of 2022, primarily due to a decrease in the number of consumer clicks and in revenue earned per click.

For the periods presented, no other products in our Consumer segment represented more than 10% of revenue;

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Revenue from our small business loans product decreased $4.5

million, or 23%, in the second quarter of 2023 compared to the second quarter of 2022, primarily due to a decrease in revenue earned per consumer and a decrease in the number of consumers completing request forms.

Revenue from our small business loans produced decreased $6.0 million, or 17%, in the first six months of 2023 compared to the first six months of 2022, primarily due to a decrease in the number of consumers completing request forms.

million, or 28%, in the third quarter of 2023 compared to the third quarter of 2022, primarily due to a decrease in revenue earned per consumer.

Revenue from our small business loans produced decreased $10.5 million, or 20%, in the first nine months of 2023 compared to the first nine months of 2022, primarily due to a decrease in the number of consumers completing request forms and a decrease in revenue earner per consumer.

Revenue from our credit products decreased $5.7 million or 53% in the third quarter of 2023 compared to the third quarter of 2022 primarily due to the closure of our Ovation credit services business at the end of the second quarter of 2023.

Our Home segment includes the following products:

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We ceased offering reverse mortgage loans in the fourth quarter of 2022.

Revenue from our Home segment decreased $32.4 million, or 44%, in the second quarter of 2023 from the second quarter of 2022, and decreased $90.6 million, or 52%, in the first six months of 2023 from the first six months of 2022 primarily due to decreases in revenue from our refinance and purchase mortgage products.

Revenue from our mortgage products decreased $28.1 million, or 63%, to $16.2 million in the second quarter of 2023 from $44.4 million in the second quarter of 2022, and decreased $86.1 million, or 70%, to $36.2 million in the first six months of 2023 from $122.3 million in the first six months of 2022.

Revenue from our refinance mortgage product decreased $19.9 million in the second quarter of 2023 compared to the second quarter of 2022 and decreased $68.1 million in the first six months of 2023 compared to the first six months of 2022 due to a decrease in the number of consumers completing request forms and a decrease in revenue earned per consumer, as interest rates have risen.

Revenue from our purchase mortgage product decreased $8.2 million in the second quarter of 2023 compared to the second quarter of 2022, and decreased $18.1 million in the first six months of 2023 compared to the first six months of 2022 primarily due to a decrease in the number of consumers completing request forms and a decrease in revenue earned per consumer.

Revenue from our home equity loans product decreased $3.0 million, or 11%, to $25.3 million in the second quarter of 2023 from $28.4 million in the second quarter of 2022, and decreased $2.5 million, or 5%, to $49.0 million in the first six months of 2023 from $51.5 million in the first six months of 2022.

Revenue from our Insurance segment decreased $23.4 million, or 29%, to $58.4 million in the second quarter of 2023 from $81.8 million in the second quarter of 2022, and decreased $26.3 million, or 16%, to $135.5 million in the first six months of 2023 from $161.8 million first six months of 2022 primarily due to a decrease in revenue earned per consumer.

Revenue from our Home segment decreased $31.5 million, or 49%, in the third quarter of 2023 from the third quarter of 2022, and decreased $122.2 million, or 51%, in the first nine months of 2023 from the first nine months of 2022 primarily due to decreases in revenue from our refinance and purchase mortgage products.

Revenue from our mortgage products decreased $21.2 million, or 61%, to $13.3 million in the third quarter of 2023 from $34.5 million in the third quarter of 2022, and decreased $107.3 million, or 68%, to $49.5 million in the first nine months of 2023 from $156.9 million in the first nine months of 2022.

Revenue from our refinance mortgage product decreased $10.2 million in the third quarter of 2023 compared to the third quarter of 2022 and decreased $78.2 million in the first nine months of 2023 compared to the first nine months of 2022 due to a decrease in the number of consumers completing request forms and a decrease in revenue earned per consumer, as interest rates have risen.

Revenue from our purchase mortgage product decreased $11.1 million in the third quarter of 2023 compared to the third quarter of 2022, and decreased $29.1 million in the first nine months of 2023 compared to the first nine months of 2022 primarily due to a decrease in the number of consumers completing request forms and a decrease in revenue earned per consumer.

Revenue from our home equity loans product decreased $8.9 million, or 31%, to $20.1 million in the third quarter of 2023 from $29.0 million in the third quarter of 2022, and decreased $11.4 million, or 14%, to $69.1 million in the first nine months of 2023 from $80.5 million in the first nine months of 2022 primarily due to a decrease in revenue earned per consumer.

Revenue from our Insurance segment decreased $15.7 million, or 22%, to $54.5 million in the third quarter of 2023 from $70.2 million in the third quarter of 2022, and decreased $42.0 million, or 18%, to $190.0 million in the first nine months of 2023 from $232.0 million in the first nine months of 2022, primarily due to a decrease 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 decreased in the second quarter of 2023 from the second quarter of 2022, primarily due to a decrease in compensation and benefits of $4.0 million.

Cost of revenue decreased in the first six months of 2023 from the first six months of 2022 primarily due to a decrease in compensation and benefits of $4.2 million and a decrease in website network hosting and server hosting fees of $1.8 million.

The decreases in the second quarter and first six months are primarily due to the Reduction Plan at the end of the first quarter of 2023, including shutting down the LendingTree customer call center.

Cost of revenue as a percentage of revenue decreased to 5% in the second quarter of 2023 compared to 6% in the second quarter of 2022, and remained consisted at 6% in the first six months of 2023 and 2022.

Cost of revenue decreased in the third quarter of 2023 from the third quarter of 2022, primarily due to a decrease in compensation and benefits of $4.9 million.

Cost of revenue decreased in the first nine months of 2023 from the first nine months of 2022 primarily due to a decrease in compensation and benefits of $9.1 million, and a decrease in website network hosting and server hosting fees of $2.2 million and a decrease in customer service fees of $1.1 million.

The decreases in the third quarter and first nine months are primarily due to the Reduction Plan at the end of the first quarter of 2023, including shutting down the LendingTree customer call center.

Cost of revenue as a percentage of revenue decreased to 5% in the third quarter of 2023 compared to 6% in the third quarter of 2022, and remained consistent at 6% in the first nine months of 2023 and 2022.

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 decreased in the second quarter of 2023 compared to the second quarter 2022 by $68.5 million, and decreased $135.5 million in the first six months of 2023 compared to the first six months of 2022 primarily due to the changes in advertising and promotional expense discussed below.

Additionally, compensation and benefits decreased $3.3 million in the second quarter of 2023 compared to the second quarter of 2022 and decreased $5.6 million in the first six months of 2023 compared to the first six months of 2022.

Selling and marketing expense decreased in the third quarter of 2023 compared to the third quarter 2022 by $79.6 million, and decreased $215.1 million in the first nine months of 2023 compared to the first nine months of 2022 primarily due to the changes in advertising and promotional expense discussed below.

Additionally, compensation and benefits decreased $3.9

million in the third quarter of 2023 compared to the third quarter of 2022 and decreased $9.6 million in the first nine months of 2023 compared to the first nine months of 2022.

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 2023 2022 $

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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 2023 compared to the second quarter and first six months of 2022 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 2023 compared to the third quarter and first nine months of 2022 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 decreased in the second quarter of 2023 from the second quarter of 2022 primarily due to a decrease in compensation and benefits of $5.9 million, a decrease in loss on assets of $2.9 million, and a decrease in facilities expense of $0.9 million.

General and administrative expense decreased in the first six months of 2023 from the first six months of 2022 primarily due to a decrease in compensation and benefits of $7.6 million, a decrease in facilities expenses of $1.6 million, a decrease in franchise tax expense of $1.5 million, partially offset by an increase in loss on assets of $1.7 million.

General and administrative expense decreased in the third quarter of 2023 from the third quarter of 2022 primarily due to a decrease in compensation and benefits of $7.2 million, and decreases in professional fees, technology costs, fees and other charges and loss on assets of $1.9 million, $0.8 million, $0.8 million, and $0.7 million, respectively.

General and administrative expense decreased in the first nine months of 2023 from the first nine months of 2022 primarily due to a decrease in compensation and benefits of $14.8 million, a decrease in facilities expenses of $2.2 million, a decrease in franchise tax expense of $1.5 million, and a decrease in technology of $1.5 million.

We incurred a $4.2 million loss on the impairment of assets for our Ovation business in the first quarter of 2023.

General and administrative expense as a percentage of revenue increased to 16% in the second quarter of 2023 compared to 15% in the second quarter of 2022, and increased to 17% in the first six months of 2023 compared to 14% in the first six months of 2022.

General and administrative expense as a percentage of revenue remained consistent at 17% in the third quarter of 2023 and the third quarter of 2022, and increased to 17% in the first nine months of 2023 compared to 15% in the first nine months of 2022.

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 decreased in the second quarter and first six months of 2023 compared to the second quarter and first six months of 2022 primarily due to the Reduction Plan at the end of the first quarter of 2023.

Product development expense decreased in the third quarter and first nine months of 2023 compared to the third quarter and first nine months of 2022 primarily due to the Reduction Plan at the end of the first quarter of 2023.

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 2023 compared to the second quarter and first six months of 2022 was primarily 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 2023 compared to the third quarter and first nine months of 2022 was primarily due to certain intangible assets associated with our recent business acquisitions becoming fully amortized.

Goodwill impairment

In the third quarter of 2023, we incurred a goodwill impairment charge of $38.6 million in our Insurance reporting unit.

See Note 6 - Goodwill and Intangible Assets for additional information.

Restructuring and severance

During September 2023, we completed workforce reductions of approximately 12 employees.

We anticipate the cash payments for separation costs will be completed by the third quarter of 2024.

On March 24, 2023, we committed to the Reduction Plan to reduce operating costs, which included the elimination of approximately 13% of the Company’s workforce.

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We anticipate that the execution of the Reduction Plan, including cash payments, will be completed by the end of the second quarter of 2024.

We made the decision to close the Ovation credit services business by mid-2023.

We made the decision to close the Ovation credit services business by mid-2023 and all operations ceased in August 2023.

We incurred $2.1 million of restructuring expense related to the Ovation closure in the second quarter of 2023 in connection with cash expenditures for employee separation costs.

We anticipate the cash payments for separation costs will be completed by the second quarter of 2024.

We anticipate the cash payments for separation costs will be completed by the first quarter of 2024.

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

We incurred total expense of $3.8 million in the first six months of 2022 related to these actions, consisting of employee separation costs of $2.7 million and non-cash compensation expense of $1.1 million due to the accelerated vesting of certain equity awards.

We incurred total expense of $3.8 million in the first nine months of 2022 related to these actions, consisting of employee separation costs of $2.7 million and non-cash compensation expense of $1.1 million due to the accelerated vesting of certain equity awards.

Interest income/expense

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See Note 13—Debt for additional information.

For the second quarter and first six months of 2023 and 2022, other income primarily consisted of dividend income.

In the third quarter of 2023, we incurred an impairment charge of $113.1 million related to an investment in equity securities.

See Note 8 - Equity Investment for additional information.

Income tax expense

For the second quarter and first six months 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 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 Accounting Standards Update 2016-09 and the effect of state taxes.

For the third quarter and first nine months 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 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 Accounting Standards Update 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 2023 2022 $

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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 16—Segment Information in the notes to the consolidated financial statements for additional information on segments and a reconciliation of segment profit to pre-tax income.

Home segment revenue of $41.6 million in the second quarter of 2023 decreased 44% from the second quarter of 2022 and segment profit of $13.3 million in the second quarter of 2023 decreased 50% from the second quarter of 2022.

The Home segment margin of 32% in the second quarter of 2023 decreased from 36% in the second quarter of 2022, as lower close rates realized by our Network Partners has negatively impacted revenue per consumer.

Our home equity business again produced the majority of the Home segment's revenue, declining 11% in the second quarter of 2023 from the second quarter of 2022.

Consumer demand to borrow against a near record level of equity in their homes remains strong, and we expect this channel will continue to generate the majority of segment revenue going forward.

Our Consumer segment revenue of $82.5 million in the second quarter of 2023 was down 22% from the second quarter of 2022, while segment profit of $40.7 million was down a more modest 9% as segment margin improved to 49% in the second quarter of 2023 compared to 42% in the second quarter of 2022.

Personal loans revenue of $28.1 million in the second quarter of 2023 decreased 33% from the second quarter of 2022 as close rates again declined from the prior quarter, most notably in prime and mid-prime segments.

Although partner appetite to extend credit appears to have stabilized since multiple regional banks failed in March 2023, capital market headwinds and the outlook for additional increases in short-term rates by the Federal Reserve mean a return to year over year revenue growth is unlikely to occur this year.

Small business revenue decreased 23% in the second quarter of 2022 from the second quarter of 2023.

Ongoing tightening of credit by our lender partners again negatively impacted conversion rates, most notably for lower credit quality borrowers.

Close rates have now declined steadily for four consecutive quarters.

The average loan size has also declined across borrower credit spectrum, which directly impacts revenue we earn on funded loans.

We have focused on optimizing our marketing mix to target higher credit quality borrowers as well as bringing on new lender partners to improve close rates.

Credit card revenue of $21.1 million in the second quarter of 2023 decreased 23% from the second quarter of 2022.

During the second quarter of 2023 we continued to migrate traffic to our LendingTree website from our CompareCards domain.

The results have been positive, with notably improved consumer engagement and higher approval rates observed.

The implementation of LightSpeed, our new credit card tech platform, has performed as expected, greatly improving page load speeds and redirect rates.

These improvements in consumer experience represent the beginning of our approach to recapture market share in this large and important vertical.

Revenue of $58.4 million in the second quarter of 2023 decreased 29% from the second quarter of 2022, however, segment profit of $24.8 million in the second quarter of 2023 increased 10% from the second quarter of 2022.

As expected, carriers reduced advertising budgets in the quarter due to worse than expected loss rates on personal auto policies.

Continued operating efficiency gains generated a 42% segment margin compared to a 28% segment margin in the second quarter of 2022 .

Home segment revenue of $33.4 million in the third quarter of 2023 decreased 49% from the third quarter of 2022 and segment profit of $11.3 million in the third quarter of 2023 decreased 53% from the third quarter of 2022.

Lower close rates at our lenders increased their cost per funded loan, which in-turn pressures our revenue per consumer.

Lower competition for digital advertising, which causes lower cost per lead, helped offset most of our drop in pricing to generate a 34% segment margin in the third quarter of 2023, a decrease from 37% in the third quarter of 2022.

We continue to focus on driving cost per lead lower to improve efficiency while maintaining quality for our partners.

Home equity revenue of $20.1 million in the third quarter of 2023 decreased $8.9 million from $29.0 million in the third quarter of 2022.

The Prime benchmark rate for home equity loans has climbed to 8.5% and is a typical rate for high quality borrowers, while lower credit score consumers expect to pay an additional mark-up.

Although this cost of debt is lower than a personal loan or credit card, it still adds significant interest expense burden.

As a result, we have seen customer demand for home equity loans recede the last few months.

Home equity loans remain the best opportunity for our lenders given the environment.

Ultimately, we believe the housing market will need to experience some combination of lower interest rates, lower home prices or more for sale inventory before the Home segment can sustainably improve performance .

Our Consumer segment revenue of $67.3 million in the third quarter of 2023 decreased 34% from the third quarter of 2022, and segment profit of $34.4 million decreased 25%.

Segment margin improved to 51% in the third quarter of 2023 compared to 45% in the third quarter of 2022.

Personal loans revenue of $26.5 million in the third quarter of 2023 decreased 30% from the third quarter of 2022.

We saw close rates decline modestly during the quarter and expect this trend to continue in the fourth quarter of 2023 partially due to normal seasonality, but also as some lenders on our network have proactively tightened underwriting criteria further with the resumption of student loan payments in October 2023.

We are in the midst of multiple platform migrations that we believe will enable more customization and optimization of personal lender offers on our platform.

Small business revenue decreased 28% in the third quarter of 2023 from the third quarter of 2022.

A continuation of lower close rates due to tighter credit requirements at lenders remains the key headwind for the business.

Not surprisingly, lenders are favoring business owners that have been operating for several years, have strong annual revenue generation and high credit scores.

Competition for these borrowers remains strong, as does the cost to attract them to our platform.

We have been working

on several initiatives to solidify the business given the weaker economic backdrop.

We have enhanced our application form by adding a connection to a third-party service provider to enrich the applicant’s data for lenders, added new lenders to our network to expand coverage, and have continued rightsizing affiliate partners based on cost and quality.

Credit card revenue of $14.6 million in the third quarter of 2023 decreased 40% from the third quarter of 2022.

We have been strategic with our marketing spend and have optimized our landing pages following our Lightspeed implementation, our new credit card tech platform, to improve redirect and approval rate performance.

Insurance revenue of $54.5 million in the third quarter of 2023 decreased 22% from the third quarter of 2022, however, segment profit of $23.4 million in the third quarter of 2023 increased 4% from the third quarter of 2022.

Our carrier partners have been asking for and receiving successive price increases across most states over the last two years, as persistent loss cost inflation negatively impacted underwriting results.

Recent commentary from carriers has been optimistic regarding marketing budgets as we enter 2024.

The positive impact from premium increases on loss ratios, combined with broad declines in used car prices and other components of auto loss cost, may help our record volume of customers searching for auto insurance find an increasingly competitive partner marketplace moving into next year.

Segment margin improved to 43% in the third quarter of 2023, an increase of 11 points from a 32% segment margin in the third quarter of 2022.

We have maintained our focus on efficiency and adapting to changing carrier needs throughout this difficult market cycle.

These efforts helped us control costs and improve quality despite industry profitability challenges.

During the third quarter of 2023, aggressive shopping from consumers resulted in all time high volume.

We are encouraged by our ability to drive significant margin improvement and attract record consumer traffic.

Coupled with the encouraging outlook from our carrier partners, we believe the business is well positioned to generate improved financial performance as we move into next year.

Variable Marketing Expense and Variable Marketing Margin

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We believe that investors should have access to the same set of tools that we use in analyzing our results.

This non-GAAP measure should be considered in addition to results prepared in

accordance with GAAP but should not be considered a substitute for or superior to GAAP results.

This non-GAAP measure should be considered in addition to results prepared in accordance with GAAP but should not be considered a substitute for or superior to GAAP results.

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

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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Variable marketing expense $ 87,439 $ 163,144 $ 317,796 $ 523,372

The following is a reconciliation of net (loss) income, the most directly comparable GAAP measure, to variable marketing margin:

The following is a reconciliation of net loss, the most directly comparable GAAP measure, to variable marketing margin:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

(in thousands)

Net (loss) income $ (115) $ (8,038) $ 13,342 $ (18,864)

Net loss $ (148,465) $ (158,684) $ (135,123) $ (177,548)

Adjustments to reconcile to variable marketing margin:

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Amortization of intangibles 1,981 6,582 6,012 21,574

Goodwill impairment 38,600 — 38,600 —

Restructuring and severance 1,955 — 9,967 3,760

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Interest expense (income), net 7,097 5,720 (10,992) 19,990

Other (income) expense (439) (284) (2,273) (283)

Income tax expense (benefit) 227 (2,339) 622 (1,957)

Other expense (income) 110,910 (1,523) 108,637 (1,806)

Income tax (benefit) expense (3,534) 135,911 (2,912) 133,954

Variable marketing margin $ 67,749 $ 74,692 $ 220,353 $ 259,565

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Definition of Adjusted EBITDA

We report Adjusted EBITDA as net income adjusted to exclude interest, income tax, amortization of intangibles and depreciation, and to further exclude (1) non-cash compensation expense, (2) non-cash impairment charges, (3) gain/loss on disposal of assets, (4) gain/loss on investments (5) restructuring and severance expenses, (6) litigation settlements and contingencies, (7) acquisitions and dispositions income or expense (including with respect to changes in fair value of contingent consideration), (8) contributions to the LendingTree Foundation, (9) dividend income, and (10) one-time items.

consideration), (8) contributions to the LendingTree Foundation, (9) dividend income, and (10) one-time items.

Adjusted EBITDA has certain limitations in that it does not take into account the impact to our statement of operations of certain expenses, including depreciation, non-cash compensation and acquisition-related accounting.

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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 Financial, Inc.

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At the time of an acquisition, the intangible assets of the acquired company, such as purchase agreements, technology and customer relationships, are valued and amortized over their estimated lives.

The following table is a reconciliation of net (loss) income, the most directly comparable GAAP measure, to Adjusted EBITDA.

The following table is a reconciliation of net loss, the most directly comparable GAAP measure, to Adjusted EBITDA.

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

(in thousands)

Net (loss) income $ (115) $ (8,038) $ 13,342 $ (18,864)

Net loss $ (148,465) $ (158,684) $ (135,123) $ (177,548)

Adjustments to reconcile to Adjusted EBITDA:

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Loss on investments 113,064 — 114,504 —

Goodwill impairment 38,600 — 38,600 —

Non-cash compensation expense 8,592 15,575 28,999 46,907

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Dividend income (2,154) (1,523) (5,867) (1,805)

Income tax expense (benefit) 227 (2,339) 622 (1,957)

Income tax (benefit) expense (3,534) 135,911 (2,912) 133,954

Adjusted EBITDA $ 21,834 $ 9,786 $ 63,027 $ 67,747

Financial Position, Liquidity and Capital Resources

As of June 30, 2023, we had $162.6 million of cash and cash equivalents, compared to $298.8 million of cash and cash equivalents as of December 31, 2022.

As of September 30, 2023, we had $175.6 million of cash and cash equivalents, compared to $298.8 million of cash and cash equivalents as of December 31, 2022.

On March 8, 2023, we repurchased approximately $190.6 million in principal amount of our 2025 Notes, through separate transactions with certain holders of the 2025 Notes, for $156.3 million plus accrued and unpaid interest of approximately $0.1 million.

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Our credit facility described below is an additional potential source of liquidity.

continue to monitor the impact of the current economic conditions, including interest rates, inflation, and ongoing COVID-19 pandemic on our liquidity and capital resources.

We will continue to monitor the impact of the current economic conditions, including interest rates and inflation on our liquidity and capital resources.

Credit Facility

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

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

We borrowed $250.0 million under the delayed draw term loan on May 31, 2022 and used $170.2 million of the proceeds to settle our 0.625% Convertible Senior Notes due June 1, 2022 ("2022 Notes"), including interest.

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

See Note 13—Debt for additional information.

As of July 27, 2023, we have outstanding $247.5 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.

We have $101.1 million available for borrowing under the Revolving Facility as of July 27, 2023.

As of October 31, 2023, we have outstanding $246.9 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.

We have $147.3 million available for borrowing under the Revolving Facility as of October 31, 2023.

Our cash flows 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, and income taxes.

Net cash provided by operating activities increased in the first six months of 2023 from the first six months of 2022 primarily due to favorable changes in accounts receivable and prepaid and other current assets.

Net cash provided by operating activities increased in the first nine months of 2023 from the first nine months of 2022 primarily due to favorable changes in accounts receivable, prepaid and other current assets, and accounts payable, accrued expenses and other current liabilities.

Cash Flows from Investing Activities

Net cash used in investing activities in the first six months of 2023 of $4.9 million consisted of capital expenditures primarily related to internally developed software.

Net cash used in investing activities 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 in the first nine months of 2023 of $9.9 million consisted of capital expenditures primarily related to internally developed software.

Net cash used in investing activities 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.

Cash Flows from Financing Activities

Net cash used in financing activities in the first six months of 2023 of $159.7 million consisted primarily of the repurchase of our Convertible Senior Notes for $156.3 million.

Net cash provided by financing activities 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 our 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 in the first nine months of 2023 of $160.2 million consisted primarily of the repurchase of our 2025 Notes for $156.3 million.

Net cash provided by financing activities 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 our 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.

New Accounting Pronouncements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis