What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-29 compared with 2023-02-28 · 189 added, 191 removed, 287 unchanged (57% 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.

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.

This is designed to provide consumers with measurable savings opportunities over their lifetimes.

We are focused on developing new product offerings and enhancements to improve the experiences that consumers and Network Partners have as they interact with us.

Our Spring platform (previously MyLendingTree) offers a personalized comparison-shopping experience, financial health advice and credit simulations by providing free credit scores and credit score analysis.

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

Customers can track the progress of their financial health over time based on actions they have taken, see recommended credit score improvement actions, and loans or other products offered by LendingTree.

We are focused on developing new product offerings and enhancements to improve the experience of consumers and Network Partners as they interact with us.

By expanding our portfolio of financial services offerings, we are growing and diversifying our business and sources of revenue.

We intend to capitalize on our expertise in performance marketing, product development and technology by leveraging the widespread recognition of the LendingTree brand.

We believe the consumer and small business financial services industry is still in the early stages of a fundamental shift to online product offerings, similar to the shift that started in retail and travel many years ago and is now well established.

We believe the consumer and small business financial services industry is in the middle stages of a fundamental shift to online product offerings, similar to the shift that started in retail and travel many years ago and is now well established.

We believe that, like retail and travel, as consumers continue to move towards online shopping and transactions for financial services, suppliers will increasingly shift their product offerings and advertising budgets toward the online channel.

We believe the strength of our brands and of our Network Partners place us in a strong position to continue to benefit from this market shift.

The LendingTree Loans business is presented as discontinued operations in the accompanying consolidated balance sheets, consolidated statements of operations and comprehensive income (loss) and consolidated cash flows for all periods presented.

Except for the discussion under the heading “Discontinued Operations,” the analysis within Management's Discussion and Analysis of Financial Condition and Results of Operations reflects our continuing operations.

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.

Refer to Item 1A.

“Risk Factors” for additional information.

Of our three reportable segments, the Consumer segment was impacted the most 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 2022, the challenging interest rate environment and persistent inflationary pressures have presented additional challenges for many of our mortgage lending and insurance partners.

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

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

implement premium increases to offset the effect of inflation on claims.

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

During 2022, the challenging interest rate environment and persistent inflationary pressures presented challenges for many of our mortgage lending and insurance partners.

We saw the most significant impact in our Home segment as mortgage rates nearly doubled in 2022, causing a sharp decline in refinance volumes and pressure on purchase activity.

Although our Insurance segment rebounded from the trough in the fourth quarter of 2021, the recovery was slower than expected as demand from our carrier partners remained volatile as they continued to attempt to implement premium increases to offset the effect of inflation on claims.

In addition, the auto and home insurance industry was impacted in 2022 by persistent industry headwinds, supply chain issues, rising accident severity and frequency, and hurricane losses.

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 hit multi-decade highs of nearly 8% in October, then proceeded to drop below 7% by December, ending the year at 6.6%.

The continued high mortgage rates in 2023 and home affordability issues continued to cause declines in refinance volumes and purchase activity.

In our Insurance segment, demand from our carrier partners remained volatile for much of the year as they continued to deal with persistent industry headwinds.

In the last months of 2023, we began to see advertising budgets from our carrier partners increase and we are optimistic about the prospect for continued increases into 2024.

Segment Reporting

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Home, Consumer, and Insurance.

Recent Business Acquisitions & Investments

In January 2022, the Company acquired an equity interest in EarnUp for $15.0 million.

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

In February 2020, we acquired an equity interest in Stash for $80.0 million, and in January 2021, we acquired an additional equity interest in Stash for $1.2 million.

Stash is a consumer investing and banking platform.

Stash brings together banking, investing, and financial services education into one seamless experience offering a full suite of personal investment accounts, traditional and Roth IRAs, custodial investment accounts, and banking services, including checking accounts and debit cards with a Stock-Back® rewards program.

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

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

Recent Mortgage Interest Rate Trends

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

According to Freddie Mac, 30-year mortgage interest rates steadily decreased in 2020, largely as a result of stimulus efforts in response to the COVID-19 pandemic, beginning at a monthly average of 3.62% in January 2020 and ending at a monthly average of 2.68% in December 2020.

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

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

During 2022, 30-year mortgage interest rates increased significantly from a monthly average of 3.45% in January 2022, ending at a monthly average of 6.36% in December 2022.

During 2023, 30-year mortgage interest rates steadily increased from a monthly average of 6.27% in January 2023 to a high of 7.62% in October 2023 prior to decreasing at the end of the year, ending at a monthly average of 6.82% in December 2023.

On a full-year basis, 30-year mortgage interest rates increased to an average 6.80% in 2023, compared to 5.33% and 2.96% in 2022 and 2021, respectively.

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 of total mortgage origination dollars remained relatively consistent in 2020 and 2021, with 60% of total 2020 mortgage origination dollars from refinance and 59% of total 2021 mortgage origination dollars from refinance as a result of the general trend in average mortgage interest rates.

Total refinance original dollars decreased to 30% of total mortgage origination dollars in 2022 due to the increase in average mortgage interest rates.

According to Mortgage Bankers Association (“MBA”) data, total refinance origination dollars of total mortgage origination dollars decreased to 30% in 2022 from 59% of total 2021 mortgage origination dollars from refinance due to the increase in average mortgage rates.

Total refinance original dollars decreased further to 19% of total mortgage origination dollars in 2023 due to the increase in average mortgage interest rates.

Total refinance origination dollars decreased by 74% in 2022 over 2021 and 54% in 2023 over 2022.

Industry-wide mortgage origination dollars decreased by 49% in 2022 over 2021 and 29% in 2023 over 2022.

Looking forward, the MBA is projecting 30-year mortgage interest rates to decrease in 2023 to an average 5.2%.

According to MBA projections, the mix of mortgage origination dollars is expected to continue to move towards purchase mortgages with the refinance share representing just 24% for 2023.

Looking forward, the MBA is projecting 30-year mortgage interest rates to decrease in 2024 to an average of 6.1%.

According to MBA projections, the mix of mortgage origination dollars is expected to remain primarily with purchase mortgages with the refinance share representing just 24% for 2024.

Real Estate Market

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According to Fannie Mae data, in 2021, existing home sales grew by 9% over 2020, fueled by increased competition for low inventory as well as an increase in first-time home buyers.

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

In 2022, existing home sales decreased by 17% as compared to 2021 due to increased interest rates and limited inventory of homes.

Fannie Mae expects a 22% decrease in existing home sales 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.

This trend continued into 2023 with existing home sales decreasing 19% over 2022.

Fannie Mae expects a 4% increase in existing home sales in 2024 compared to 2023.

LendingTree Spring (previously MyLendingTree)

We consider certain metrics related to 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 3.8 million new users in 2022, bringing cumulative sign-ups to 24.8 million at December 31, 2022.

We attribute $123.7 million of revenue in 2022 to registered MyLendingTree members across the LendingTree platform.

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

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

We continued to grow our user base and added 3.4 million new users in 2023, bringing cumulative sign-ups to 28.2 million as of December 31, 2023.

Convertible Senior Notes and Hedge and Warrant Transactions

On July 24, 2020, we issued $575.0 million aggregate principal amount of our 0.50% Convertible Senior Notes due July 15, 2025 and, in connection therewith, entered into Convertible Note Hedge and Warrant transactions with respect to our common stock.

On July 24, 2020, we issued $575.0 million aggregate principal amount of our 0.50% Convertible Senior Notes due July 15, 2025 (the "2025 Notes") and, in connection therewith, entered into Convertible Note Hedge and Warrant transactions with respect to our common stock.

On May 31, 2017, we issued $300.0 million aggregate principal amount of our 0.625% Convertible Senior Notes due June 1, 2022 and, in connection therewith, entered into Convertible Note Hedge and Warrant transactions with respect to our common stock.

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The remaining call spread transactions associated with the 2022 Notes terminated in 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.

On December 7, 2023, we repurchased approximately $100.2 million in principal amount of our 2025 Notes, through separate transactions with certain holders of the 2025 Notes, for $81.2 million plus accrued and unpaid interest of approximately $0.2 million.

In 2023, we recognized a gain on the extinguishment of debt of $53.3 million, a loss on the write-off of unamortized debt issuance costs of $3.2 million and incurred debt repayment costs of $1.6 million, all of which are included in interest income/expense, net in the consolidated statement of operations and comprehensive income.

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

North Carolina Office Properties

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

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

We have received approximately $0.7 million related to the December 2016 grants.

If we are unable to maintain the specified target levels, our ability to earn further reimbursements could be limited.

Additionally, the city of Charlotte and the county of Mecklenburg provided a grant that will be paid over five years and is based on a percentage of new property tax we pay on the development of a corporate headquarters.

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

We have currently not met the specified target levels set forth in the December 2018 grant and may not realize any reimbursements from this grant.

Cost Reductions and Simplification of Business

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.

As a result of the Reduction Plan, we incurred approximately $5.3 million in severance charges in connection with the workforce reduction.

Part of this Reduction Plan included the shut down of our LendingTree customer call center as well as our Medicare insurance agency operations within QuoteWizard.

We anticipate the Reduction Plan will reduce annual compensation expense by approximately $14 million, comprised of $2 million in cost of revenue, $4 million in selling and marketing expense, $3 million in general and administrative expense, and $5 million in product development.

During September 2023, we completed workforce reductions of 14 employees.

We incurred $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 and non-cash charges for the accelerated vesting of certain equity awards of approximately $0.2 million.

Separately, we made the decision to close our Ovation credit services business, an asset group within our Consumer segment, by mid- 2023.

As a result, the Company recorded an asset impairment charge of $4.2 million in 2023 related to the write-off of certain long-term assets.

Additionally, we incurred $2.1 million in severance charges in 2023 in connection with cash expenditures for employee separation costs.

We acquired Ovation in 2018 to better serve those customers who come to LendingTree and receive suboptimal offers of credit.

The business grew for a number of years before running into challenges in the wake of COVID-19, and more recently the industry has faced increased regulatory pressure.

The business is capital-intensive, requires elevated overhead, and future prospects were becoming uncertain.

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 Years ended December 31, 2023 and 2022

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Amortization of intangibles 7,694 25,306 (17,612) (70) %

Change in fair value of contingent consideration — (8,249) 8,249 100 %

Goodwill impairment 38,600 — 38,600 — %

Restructuring and severance 10,118 4,428 5,690 129 %

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Total costs and expenses 713,113 1,017,754 (304,641) (30) %

Operating (loss) income (32,756) 8,031 (40,787) (508) %

Operating loss (40,611) (32,762) (7,849) (24) %

Other (expense) income, net:

Interest expense, net (26,014) (46,867) (20,853) (44) %

Other income 3,843 123,272 (119,429) (97) %

(Loss) income before income taxes (54,927) 84,436 (139,363) (165) %

Income tax expense (133,019) (11,298) 121,721 1,077 %

Net (loss) income from continuing operations (187,946) 73,138 (261,084) (357) %

Loss from discontinued operations, net of tax (6) (4,023) (4,017) (100) %

Net (loss) income and comprehensive (loss) income $ (187,952) $ 69,115 $ (257,067) (372) %

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

Interest income (expense), net 21,685 (26,014) 47,699 183 %

Other (expense) income (105,993) 3,843 (109,836) (2,858) %

Loss before income taxes (124,919) (54,933) (69,986) (127) %

Income tax benefit (expense) 2,515 (133,019) 135,534 102 %

Net loss and comprehensive loss $ (122,404) $ (187,952) $ 65,548 35 %

Revenue decreased in 2023 compared to 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 increased $66.2 million in 2022 from 2021, or 20%, primarily due to increases in our personal loans, small business loans products, credit cards, and deposit accounts, partially offset by a decrease in student loans.

Many of our products in the Consumer segment experienced increases in revenue in 2022 from 2021 due to the recovery from the impacts of the COVID-19 pandemic.

Revenue from our personal loans product increased $34.0 million, or 31%, to $144.1 million in 2022 from $110.1 million in 2021 primarily due to an increase in the number of consumers completing request forms.

Revenue from our credit cards product increased $6.8 million, or 7%, to $100.2 million in 2022 from $93.4 million in 2021 primarily due to an increase in revenue earned per click, partially offset by a decrease in the number of clicks.

Revenue from our Consumer segment decreased $117.2 million in 2023 from 2022, or 30%, primarily due to decreases in our personal loans, credit cards, small business loans products and other credit products.

Several of our other products in the Consumer segment experienced decreases in revenue in 2023 from 2022.

Revenue from our personal loans product decreased $44.0 million, or 31%, to $100.1 million in 2023 from $144.1 million in 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 $38.2 million, or 38%, to $62.0 million in 2023 from $100.2 million in 2022 primarily due to a decrease in the number of clicks and a decrease in revenue earned per click.

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

however, certain other Consumer products experienced notable changes.

Revenue from our small business loans product increased $19.9 million in 2022 compared to 2021, due to an increase in revenue earned per consumer, partially offset by a decrease in the number of consumers.

Revenue from our deposit accounts product increased $6.6 million in 2022 compared to 2021 due to an increase in the number of consumers and an increase in revenue earned per consumer.

Student loans decreased $6.4 million in 2022 compared to 2021, due to a decrease in the number of consumers, partially offset by an increase in revenue earned per consumer.

Revenue from our Insurance segment decreased $27.1 million, or 8%, to $299.1 million in 2022 from $326.2 million in 2021 primarily due to a decrease in carrier budgets reducing the number of consumers completing request forms.

The decrease in carrier budgets was due primarily to reduced customer acquisition activity for insurance carriers as they attempted to raise premium rates in response to inflationary pressures on claims.

Revenue from our small business loans product decreased $16.5 million, or 24%, in 2023 compared to 2022, due to a decrease in revenue earned per consumer and a decrease in the number of consumers completing request forms.

Revenue from our credit products decreased $12.1 million, or 28%, in 2023

compared to 2022 primarily due to the closure of our Ovation credit services business at the end of the second quarter of 2023.

Student loans decreased $5.7 million in 2023 compared to 2022, due to a d ecrease in the number of consumers.

Revenue from our Insurance segment decreased $49.5 million, or 17%, to $249.6 million in 2023 from $299.1 million in 2022 primarily due to a decrease in the revenue earned per consumer, partially offset by an increase in the number of consumers completing request forms.

Our Home segment includes the following products:

purchase mortgage, refinance mortgage, home equity loans and lines of credit, and real estate.

purchase mortgage, refinance mortgage, and home equity loans and lines of credit.

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

Revenue from our Home segment decreased $152.4 million, or 34%, in 2022 from 2021 primarily due to a decrease in revenue from our refinance mortgage product, partially offset by increases in our home equity loans and purchase mortgage products.

Revenue from our Home segment decreased $145.6 million, or 50%, in 2023 from 2022 primarily due to a decrease in revenue from our mortgage products.

Revenue from our mortgage products decreased $120.8 million, or 67%, to $58.7 million in 2023 from $179.4 million in 2022.

Revenue from our refinance mortgage product decreased $203.7 million in 2022 compared to 2021, primarily due to a decrease in the number of consumers completing request forms and a decrease in revenue earned per consumer, as interest rates rose significantly in 2022.

Revenue from our purchase mortgage product increased $7.1 million in 2022 compared to 2021 primarily due to an increase in revenue earned per consumer, partially offset by a decrease in the number of consumers completing request forms.

Revenue from our home equity loans and lines of credit product increased $43.0 million, or 67% to $105.8 million in 2022 from $62.7 million in 2021 due to an increase in both the number of consumers completing request forms and the revenue earned per consumer.

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

Revenue from our refinance mortgage product decreased $82.9 million in 2023 compared to 2022, primarily due to a decrease in the number of consumers completing request forms and a decrease in revenue earned per consumer as interest rates continued to increase in 2023.

Revenue from our purchase mortgage product decreased $37.9 million in 2023 compared to 2022 primarily due to decreases in revenue earned per consumer and in the number of consumers completing request forms.

Revenue from our home equity loans and lines of credit product decreased $20.7 million, or 20%, to $85.1 million in 2023 from $105.8 million in 2022 primarily due to a decrease the reven ue earned per consumer, slightly offset by an increase in the number of consumers completing request forms.

Cost of revenue

Cost of revenue consists primarily of costs associated with compensation and other employee-related costs (including stock-based compensation) relating to internally-operated customer call centers, third-party customer call center fees, credit scoring fees, credit card fees, website network hosting, and server fees.

Cost of revenue remained relatively consistent in 2022 compared to 2021.

Cost of revenue as a percentage of revenue increased to 6% in 2022 compared to 5% in 2021.

Cost of revenue decreased in 2023 compared to 2022 primarily due to a decrease in compensation and benefits of $13.9 million, a decrease in website network hosting and server hosting fees of $2.4 million and a decrease in customer service fees of $1.5 million.

The decreases are primarily due to the Reduction Plan at the end of the first quarter of 2023, including shutting down the LendingTree customer call center, and the closure of our Ovation credit services business at the end of the second quarter of 2023.

Cost of revenue as a percentage of revenue remained consistent at 6% in 2023 compared to 2022.

Selling and marketing expense

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Advertising and promotional expenditures primarily include online marketing, as well as television, print, and radio spending.

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

The $71.8 million decrease in selling and marketing expense in 2022 compared to 2021 was primarily due to the decreases in advertising and promotional expense discussed below.

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

Selling and marketing expense decreased in 2023 compared to 2022 primarily due to the $255.8 million decrease in advertising and promotional expense discussed below.

Additionally, compensation and benefits decreased $12.9 million in 2023 compared to 2022.

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We adjust our selling and marketing expenditures dynamically in relation to anticipated revenue opportunities in order to ensure sufficient consumer inquiries to profitably meet such demand.

An increase in a product’s revenue is generally met by a corresponding increase in marketing spend, and conversely a decrease in a product’s revenue is generally met by a corresponding decrease in marketing spend.

An increase in a product’s revenue is generally

met by a corresponding increase in marketing spend, and conversely a decrease in a product’s revenue is generally met by a corresponding decrease in marketing spend.

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

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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 2022 compared to 2021, primarily due to decreases in compensation and benefits, facilities, and professional fees expense of $13.4 million, $1.6 million, and $1.1 million, respectively.

This was partially offset by increases in technology, fees and charges, travel and entertainment, and other tax expense of $5.6 million, $2.0 million, $1.5 million, and $1.5 million, respectively.

Additionally, losses on the disposal of assets increased $3.1 million in 2022 compared to 2021.

Non-cash compensation expense, included in total compensation and benefits noted above, within general and administrative expense decreased in 2022, which resulted in an increase in net income from continuing operations in 2022 compared to 2021.

General and administrative expense decreased in 2023 compared to 2022, primarily due to a decrease in compensation and benefits of $18.1 million.

Additionally, professional fees, technology, facilities, and bad debt expense decreased $2.8 million, $2.6 million, $2.4 million, and $2.3 million, respectively.

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

Non-cash compensation expense, included in total compensation and benefits noted above, within general and administrative expense decreased in 2023, which resulted in an increase in net income in 2023 compared to 2022.

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

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Product development expense consists primarily of compensation and other employee-related costs (including stock-based compensation) and third-party labor costs that are not capitalized, for employees and consultants engaged in the design, development, testing, and enhancement of technology.

Product development expense increased in 2022 compared to 2021 as we continued to invest in internal development of new and enhanced features, functionality and business opportunities that we believe will enable us to better and more fully serve consumers and Network Partners.

The increase in depreciation expense in 2022 compared to 2021 was primarily the result of higher investment in internally developed software in recent years, to support the growth of our business in addition to depreciation on new assets related to our principal executive offices which we moved into in mid-2021.

Product development expense decreased in 2023 compared to 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 2023 compared to 2022 was due to certain intangible assets associated with our recent business acquisitions becoming fully amortized.

Contingent consideration

During 2022, we did not record contingent consideration expense.

All earnouts were completed prior to 2022.

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

Goodwill Impairment

We incurred a goodwill impairment charge of $38.6 million in 2023 in our Insurance reporting unit.

See Note 7 - Goodwill and Intangible Assets for additional information .

Restructuring and severance

During September 2023, we initiated workforce reductions of 14 employees.

We incurred $0.9 million in severance charges in 2023 in connection with the workforce reductions, consisting of cash expenditures for employee separation costs of approximately $0.7 million and non-cash charges for the accelerated vesting of certain equity awards of approximately $0.2 million.

The cash payments are expected to be substantially completed by the third quarter of 2024.

On March 24, 2023, we committed to the Reduction Plan to reduce operating costs.

The Reduction Plan included the elimination of approximately 162 employees, or 13%, of the Company’s current workforce.

As a result of the Reduction Plan, the Company incurred approximately $5.3 million in severance charges in connection with the workforce reduction, consisting of cash expenditures for employee separation costs of approximately $4.3 million and non-cash charges for the accelerated vesting of certain equity awards of approximately $1.0 million.

The Reduction Plan, including cash payments, is expected to be substantially completed by the end of the second quarter of 2024.

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

The Ovation Closure includes the elimination of approximately 197 employees, or 18%, of the Company's current workforce.

As a result of the Ovation Closure, we incurred $2.1 million in restructuring expense in connection with cash expenditures for employee separation costs.

The Ovation Closure, including cash payments, is expected to be completed by the first quarter of 2024.

During 2022, we completed workforce reductions in each of the first, second, and fourth quarters of approximately 75 employees, 25 employees, and 50 employees, respectively.

We incurred total expense of $4.4 million consisting of employee separation costs of $3.3 million and non-cash compensation expense of $1.1 million due to the accelerated vesting of certain equity awards.

All employee separation costs are expected to be paid by the third quarter of 2023.

All employee separation costs for 2022 actions were paid by the fourth quarter of 2023.

Interest expense

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

See Note—2 Significant Accounting Policies in the notes to the consolidated financial statements included elsewhere in this report for additional information.

Other income for 2022 primarily consists of dividend income.

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

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

Income tax expense

In the first quarter of 2023, we repurchased approximately $190.6 million in principal amount of our 2025 Notes for $156.3 million plus accrued and unpaid interest of approximately $0.1 million.

In the fourth quarter of 2023, we repurchased approximately $100.2 million in principal amount of our 2025 Notes, for $81.2 million in cash plus accrued and unpaid interest of approximately $0.2 million.

As a result of the repurchases, we recognized a gain on the extinguishment of $53.3 million, a loss on the write-off of unamortized debt issuance costs of $3.2 million, and incurred debt repayment costs of $1.6 million, all of which are included in interest income/expense, net in the consolidated statements of operations and comprehensive income.

See Note 15—Debt for additional information.

We incurred an impairment charge of $113.1 million in 2023 related to an investment in equity securities.

See Note 8 - Equity Investments for additional information.

Other income for 2022 primarily consisted of dividend income.

Income tax benefit (expense)

Year Ended December 31,

(in thousands, except percentages)

Income tax expense $ (133,019) $ (11,298)

Income tax benefit (expense) $ 2,515 $ (133,019)

Effective tax rate 2.0 % (242.2) %

For 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 2022, the effective tax rate varied from the federal statutory rate of 21% primarily due to expense of $139.4 million to record a full valuation allowance against our net deferred tax assets.

See Note—14 Income Taxes in the notes to the consolidated financial statements included elsewhere in this report for additional information on the valuation allowance.

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

Discontinued Operations

The results of discontinued operations include the results of the LendingTree Loans business formerly operated by our wholly-owned subsidiary, HLC.

The sale of substantially all of the assets of HLC, including the LendingTree Loans business, was completed on June 6, 2012.

HLC filed a petition under Chapter 11 of the United States Bankruptcy Code on July 21, 2019, which was converted to Chapter 7 of the United States Bankruptcy Code on September 16, 2019.

As a result of the voluntary bankruptcy petition, as of the initial July 21, 2019 bankruptcy petition filing date, HLC and its consolidated subsidiary were deconsolidated from LendingTree’s consolidated financial statements.

The effect of such deconsolidation was the elimination of the consolidated assets and liabilities of HLC (and its consolidated subsidiary) from LendingTree’s consolidated balance sheets.

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

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

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

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

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

See Note 22—Discontinued Operations in the notes to the consolidated financial statements included elsewhere in this report for more information, including the accounting effect of HLC’s bankruptcy filing on our consolidated financial statements.

Segment Profit

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Revenue in the Home segment decreased 50% to $143.8 million in 2023 from 2022, with segment profit of $47.9 million in 2023, a decrease of 54% from 2022.

Our Home segment margin (segment profit divided by segment revenue) remained relatively consistent, at 36% in 2022 compared to 35% in 2021.

Within Home, our core mortgage business generated revenue of $179.4 million in 2022, down 52% from 2021, as demand for refinancing transactions diminished throughout the year, with almost no outstanding mortgages later in the year carrying a higher rate than current loan offerings.

The 30-year mortgage interest rates increased from a monthly average of 3.1% in December 2021 to a monthly average of 6.36% in December 2022, according to Freddie Mac Near record home prices coupled with higher mortgage rates led to a 17% decrease in existing home sales in 2022 compared to 2021.

Our mortgage volume decreased 47% and revenue per lead decreased 10% in 2022 compared to 2021.

The volume mix in our mortgage business was close to evenly balanced between refinance at 54% and purchase loans at 46% of total volume in 2022 as compared to refinance at 67% and purchase at 33% of total volume in 2021.

Revenue from our home equity loan product of $105.8 million in 2022 increased 69% from 2021, as homeowners in the U.S.

enjoy near record levels of equity to borrow against for other debt repayments and to finance home improvements.

Home equity revenue per lead increased 13% in 2022 compared to 2021 as we were able to capture 49% more volume in 2022 compared to 2021.

During the fourth quarter of 2022, we discontinued our reverse mortgage offering to better focus resources on supporting our traditional lending Network Partners going forward.

The outlook for the mortgage industry is a sustained period of lower refinance demand, with the Mortgage Bankers Association forecasting a 37% decline in refinance originations in 2023 after falling 76% in 2022.

We have been actively engaged with our Network Partners in mortgage to increase purchase lead conversion rates, and are focusing on this metric internally as a key growth priority for the segment this year.

We expect home equity will continue to generate the majority of our Home revenue in 2023, as our Network Partners have leaned on the favorable environment for cash-out transactions to maintain loan officer productivity.

Growth in our Consumer segment continued, with revenue of $396.1 million in 2022, an increase of 20% from 2021, and segment profit of $174.6 million in 2022, an increase of 22% from 2021.

Our Consumer segment margin remained consistent, at 44% in 2022 compared to 43% in 2021.

Revenue from our personal loan product of $144.1 million increased 31% in 2022 compared to 2021 as debt consolidation was attractive with consumer credit card balances continuing to rise.

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

Credit card revenue increased to $100.2 million or 7.3% in 2022 compared to 2021.

Revenue per click grew 17% in 2022 compared to 2021 while we experienced an 8% decrease in the number of clicks.

Operational improvements are being implemented and improving credit card results is a core priority for the company in 2023.

Small business achieved revenue growth of 41% in 2022 from 2021.

In the second half of 2022 we continue to focus on lender performance to grow originations and improve conversion rates.

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

Our ability to efficiently steer borrowers to the most appropriate lender on our network with our concierge model continues to positively impact results.

Going forward we are implementing technology improvements to automate capture of applicant financial data to enhance the borrower experience and increase lender match rate.

The auto and home insurance industry in 2022 was impacted by persistent industry headwinds, supply chain issues, rising accident severity and frequency, and hurricane losses in the back half of the year.

This difficult operating environment for our carrier partners caused an 8% decrease in revenue in our Insurance segment to $299.1 million in 2022, from 2021.

Segment profit of $91.8 million in 2022 decreased 19% from 2021.

Our Insurance segment margin decreased to 31% in 2022 compared to 35% in 2021.

Our Home segment margin, which is segment profit divided by segment revenue, decreased slightly to 33% in 2023 compared to 36% in 2022.

Within Home, our core mortgage business generated revenue of $58.7 million in 2023, down 67% from 2022, as demand for refinancing transactions diminished throughout the year, with few mortgages later in the year carrying a higher rate than current loan offerings.

The 30-year mortgage interest rates increased from a monthly average of 6.36% in December 2022 to a monthly average of 6.82% in December 2023, according to Freddie Mac.

Purchase transactions were negatively impacted by low for sale inventory and current homeowners resisting a move in favor of retaining a significantly lower rate on their existing loan.

Existing home sales decreased 19% in 2023 compared to 2022.

The volume mix in our mortgage business shifted to purchase at 55% and refinance at 45% of total volume in 2023 as compared to refinance at 54% and purchase at 46% of total volume in 2022.

Revenue from our home equity loan product of $85.1 million in 2023 decreased 20% from 2022 as higher short-term interest rates broadly pressured demand from homeowners.

The Mortgage Bankers Association expects overall mortgage originations to increase in 2024, although the first quarter of 2024 is expected to remain weak and below fourth quarter of 2023 levels.

The forecast calls for a 22% growth in total loan originations over 2023, with purchase loans accounting for 77% of total volume.

Revenue in our Consumer segment decreased 30% to $278.9 million in 2023 from 2022, with segment profit of $138.9 million in 2023, a decrease of 20% from 2022.

Our Consumer segment margin increased to 50% in 2023 compared to 44% in 2022.

Revenue from our personal loan product of $100.1 million decreased 31% in 2023 compared to 2022 as our partners broadly tightened underwriting criteria in 2023, however there are indications for increased loan originations and wider credit appetite in 2024.

Credit card revenue decreased to $62.0 million or 38% in 2023 compared to 2022.

We have begun onboarding credit card issuers onto TreeQual, the prequalification/preapproval platform for our customers to more easily shop offers available to them.

TreeQual sits at the core of our strategy to drive improved credit card application conversion rates which will allow us to reinvest additional marketing spend to gain back share in this large consumer marketplace.

Small business revenue declined 24% in 2023 from 2022.

The highest quality customers continue to receive multiple loan offers from our partners, while lower credit quality and smaller revenue business owners receive few if any offers.

We are serving partner demand for higher quality and larger revenue/loan amount effectively, as seen through a consistent increase in match rate for those customers.

Insurance revenue of $249.6 million in 2023 decreased 17% from 2022, while segment profit of $103.5 million in 2023 increased 13% from 2022 as we successfully matched higher levels of organic customer search volumes against lower overall

carrier demand for new policies.

Consumer demand across all insurance products remained high, growing 8% in 2023 from 2022.

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

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

We experienced the beginning of a recovery in our auto insurance product at the end of the fourth quarter of 2023, with a number of key carrier partners unexpectedly adding budget over the holiday season and continuing to refine their product offering to target and write more profitable policies through our platforms.

Health insurance continued its strong growth trend, with revenue up 14% in 2023 compared to 2022.

We have made great strides capturing a growing share of carrier budgets in these categories, and we are optimistic they will help drive incremental revenue growth in 2024.

Our Insurance segment margin increased to 42% in 2023 compared to 31% in 2022.

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

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

Variable Marketing Expense and Variable Marketing Margin

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Variable marketing expense $ 391,557 $ 647,324

The following is a reconciliation of net (loss) income from continuing operations, 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:

Year Ended December 31,

(in thousands)

Net (loss) income from continuing operations $ (187,946) $ 73,138

Net loss $ (122,404) $ (187,952)

Adjustments to reconcile to variable marketing margin:

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Amortization of intangibles 7,694 25,306

Change in fair value of contingent consideration — (8,249)

Goodwill impairment 38,600 —

Restructuring and severance 10,118 4,428

Litigation settlements and contingencies 388 (18)

Interest expense, net 26,014 46,867

Other income (3,843) (123,272)

Income tax expense 133,019 11,298

Interest (income) expense, net (21,685) 26,014

Other expense (income) 105,993 (3,843)

Income tax (benefit) expense (2,515) 133,019

Variable marketing margin $ 280,945 $ 337,668

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Definition of Adjusted EBITDA

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

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.

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.

We endeavor to compensate for the limitations of the non-GAAP measures presented by also providing the comparable GAAP measures with

equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the non-GAAP measures.

We endeavor to compensate for the limitations of the non-GAAP measures presented by also providing the comparable GAAP measures with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the non-GAAP measures.

These non-GAAP measures may not be comparable to similarly titled measures used by other companies.

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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.

One-time items for the year ended December 31, 2022 consisted of the $1.5 million franchise tax caused by the equity investment gain in Stash.

There are no adjustments for one-time items for the year ended December 31, 2023.

One-time items for the year ended December 31, 2022 consisted of the $1.5 million franchise tax caused by the equity investment gain in Stash.

Non-Cash Expenses that are Excluded from Adjusted EBITDA

Non-cash compensation expense consists principally of expense associated with grants of restricted stock, restricted stock units and stock options, some of which awards have performance-based vesting conditions.

These expenses are not paid in cash, and we include the related shares in our calculations of fully diluted shares outstanding.

These expenses are not paid in cash

and we include the related shares in our calculations of fully diluted shares outstanding.

Upon settlement of restricted stock units, exercise of certain stock options or vesting of restricted stock awards, the awards may be settled, on a net basis, with us remitting the required tax withholding amount from our current funds.

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

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

Year Ended December 31,

(in thousands)

Net (loss) income from continuing operations $ (187,946) $ 73,138

Net loss $ (122,404) $ (187,952)

Adjustments to reconcile to Adjusted EBITDA:

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Loss on impairments and disposal of assets 5,437 6,590

Gain on investments — (123,272)

Loss on investments 114,504 —

Goodwill impairment 38,600 —

Non-cash compensation expense 37,176 58,541

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Contribution to LendingTree Foundation — 500

Change in fair value of contingent consideration — (8,249)

Acquisition expense (5) 277

Litigation settlements and contingencies 388 (18)

Interest expense, net 26,014 46,867

Interest (income) expense, net (21,685) 26,014

Dividend income (7,888) (3,842)

Income tax expense 133,019 11,298

Income tax (benefit) expense (2,515) 133,019

Adjusted EBITDA $ 78,490 $ 84,458

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

We will continue to monitor economic impacts caused by the challenging interest rate environment, high levels of inflation, and lingering effects of the COVID-19 pandemic on our liquidity and capital resources.

We will continue to monitor economic impacts caused by the challenging interest rate environment and high levels of inflation on our liquidity and capital resources.

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

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

In 2022, we repurchased an aggregate of 379,895 shares of our common stock pursuant to a stock repurchase program for $43.0 million.

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

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

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

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

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

Credit Facility

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As of February 28, 2024, we have outstanding $246.3 million under the Term Loan Facility, a $0.2 million letter of credit under the Revolving Facility, and the remaining borrowing capacity is $199.8 million.

We have $79.9 million available for borrowing under the Revolving Facility as of February 28, 2024.

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

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

Cash Flows from Continuing Operations

Our cash flows attributable to continuing operations are as follows:

Our cash flows are as follows:

Year Ended December 31,

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Net cash (used in) provided by investing activities $ (12,478) $ (27,876)

Net cash provided by (used in) financing activities $ 32,536 $ (63,347)

Net cash (used in) provided by financing activities $ (242,006) $ 32,536

Cash Flows from Operating Activities

Our largest source of cash provided by our operating activities is revenues generated by our products.

Our largest source of cash provided by our operating activities is revenue generated by our products.

Our primary uses of cash from our operating activities include advertising and promotional payments.

In addition, our uses of cash from operating

activities include compensation and other employee-related costs, other general corporate expenditures, litigation settlements and contingencies, certain contingent consideration payments, and income taxes.

Net cash provided by operating activities attributable to continuing operations decreased in 2022 from 2021 primarily due to a decrease in revenue, partially offset by a corresponding decrease in selling and marketing expense.

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

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

Cash from changes in working capital increased primarily as a result of favorable changes in accounts receivable and accounts payable, accrued expenses and other current liabilities.

Cash Flows from Investing Activities

Net cash used in investing activities attributable to continuing operations in 2022 of $27.9 million consisted of the purchase of a $16.4 million equity investment in EarnUp and another small investment, as well as capital expenditures of $11.4 million primarily related to internally-developed software.

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

Net cash used investing activities in 2023 of $12.5 million consisted of capital expenditures primarily related to internally developed software.

Net cash used in investing activities in 2022 of $27.9 million consisted of the purchase of a $16.4 million equity investment in EarnUp and another small investment, as well as capital expenditures of $11.4 million primarily related to internally developed software.

Cash Flows from Financing Activities

Net cash provided by financing activities attributable to continuing operations in 2022 of $32.5 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, $3.4 million in withholding taxes paid upon surrender of shares to satisfy obligations on equity awards, net of proceeds from the exercise of stock options and $1.3 million repayment of the term loan.

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

Net cash used in financing activities in 2023 of $242.0 million consisted primarily of the repurchase of our 2025 Notes for $237.5 million and the related payment of debt issuance costs of $1.6 million, $1.1 million in withholding taxes paid upon surrender of shares to satisfy obligations on equity awards, net of proceeds from the exercise of stock options and $1.9 million repayment of the Term Loan Facility.

Net cash provided by financing activities in 2022 of $32.5 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, $3.4 million in withholding taxes paid upon surrender of shares to satisfy obligations on equity awards, net of proceeds from the exercise of stock options, and $1.3 million repayment of the term loan.

Critical Accounting Policies and Estimates

The following disclosure is provided to supplement the description of our accounting policies contained in Note 2—Significant Accounting Policies in the notes to the consolidated financial statements included elsewhere in this report in regard to significant areas of judgment.

This disclosure includes accounting policies related to both continuing operations and discontinued operations.

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The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income.

In determining the amount of the valuation allowance, we considered the scheduled reversal of deferred tax liabilities.

In determining the amount of the valuation allowance, we considered the

scheduled reversal of deferred tax liabilities.

We will maintain a full valuation allowance on net deferred tax assets until there is sufficient evidence to support the reversal of some or all of the allowance.

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During 2022, we incurred income tax expense of $139.4 million related to the valuation allowance.

At December 31, 2022, we maintain a valuation allowance of $145.4 million against our net deferred tax assets.

At December 31, 2021 and 2020, we recorded a partial valuation allowance of $6.0 million and $5.8 million, respectively, primarily related to state net operating losses, which we do not expect to be able to utilize prior to expiration.

At December 31, 2023 and 2022, we maintain a valuation allowance of $162.5 million and $145.4 million, respectively, against our net deferred tax assets.

At December 31, 2021, we recorded a partial valuation allowance of $6.0 million primarily related to state net operating losses, which we do not expect to be able to utilize prior to expiration.

Stock-Based Compensation

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Otherwise, the goodwill reporting unit must be quantitatively tested for impairment.

Performing the quantitative test for goodwill impairment that compares the reporting unit fair value with its carrying value using a discounted cash flow and market analysis requires the exercise of significant judgments, including judgments about appropriate discount rates, perpetual growth rates, including revenue, the amount and timing of expected future cash flows, and market multiples.

Performing the quantitative test for goodwill impairment that compares the reporting unit fair value with its carrying value using a discounted cash flow and market analysis requires the exercise of significant judgments, including judgments about appropriate discount rates, revenue growth rates, marketing spend, direct operating expenses, the amount and timing of expected future cash flows, and market multiples.

If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

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The quantitative goodwill impairment test found that the fair value of each reporting unit exceeded its carrying amount, indicating no goodwill impairment.

We will monitor the recovery of the Insurance reporting unit and the Mortgage reporting unit.

The property and casualty auto insurance industry is experiencing challenges caused by inflation, supply chain challenges, and the rising severity and frequency of claims.

Additionally, the significant increase in mortgage interest rates have had a negative impact on our Mortgage reporting unit.

The property and casualty auto insurance industry experienced challenges in 2022 caused by inflation, supply chain challenges, and the rising severity and frequency of claims.

Additionally, the significant increase in mortgage interest rates in 2022 had a negative impact on our Mortgage reporting unit.

During the third quarter of 2023, our market capitalization declined significantly compared to the second quarter of 2023.

The closing stock price on September 29, 2023 was $15.50 reflecting a market capitalization below our book value.

In addition, the effects of the challenging interest rate environment, low for-sale home inventories and the rise in home prices in the Home reporting unit and consumer price inflation negatively impacting carrier underwriting in the Insurance reporting unit continue to provide revenue headwinds.

Based on these factors, we concluded that a triggering event had occurred and an interim quantitative impairment test was performed as of September 30, 2023.

Upon completing the quantitative goodwill impairment test, we concluded that the carrying value of the Insurance reporting unit exceeded its fair value which resulted in a goodwill impairment charge of $38.6 million.

The fair value of the Home and Consumer reporting units exceeded their carrying amounts, indicating no goodwill impairment.

The fair values of each reporting unit were determined using a combination of the income approach and the market approach valuation methodologies.

We will continue to monitor the recovery of the Insurance reporting unit and 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 units.

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The key assumptions used in this calculation include Adjusted EBITDA, the remaining useful lives of the primary cash flow generating asset in the asset group and, to a lesser extent, the deduction of capital expenditures and taxes paid in cash to arrive at net cash flows.

Subsequent to the adoption of ASU 2018-15 in the first quarter of 2020, capitalized implementation costs incurred in a hosting arrangement that is a service contract are also allocated to and included within long-lived asset groups tested for recoverability.

Capitalized implementation costs incurred in a hosting arrangement that is a service contract are also allocated to and included within long-lived asset groups tested for recoverability.

The combined value of long-lived assets and capitalized implementation costs incurred in a hosting arrangement that is a service contract subject to assessment for impairment is $154.7 million at December 31, 2023.

Business Acquisitions

When we acquire businesses, we allocate the purchase price to tangible assets and liabilities and identifiable intangible assets acquired at their acquisition date fair values.

Any residual purchase price is recorded as goodwill.

We also estimate the fair value of any contingent consideration using Level 3 unobservable inputs.

Our estimates of fair value are based upon assumptions believed to be reasonable but which are uncertain and involve significant judgments by management.

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

Equity Investment

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

Accordingly, the equity securities will be carried at cost less impairment, if any, and subsequently measured to fair value upon observable price changes in an orderly transaction for the identical or similar investments with any gains or losses recorded to the consolidated statement of operations and comprehensive income.

The carrying value of our equity investment at December 31, 2022 is $174.6 million.

Equity Investments

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

Accordingly, the equity investments will be carried at cost less impairment, if any, and subsequently measured to fair value upon observable price changes in an orderly transaction for the identical or similar investments.

Additionally, if a qualitative assessment identifies impairment indicators, then the equity investments must be evaluated for impairment and written down to its fair value, if it is determined that the fair value is less than the carrying value.

Any gains or losses are included within other (expense) income in the consolidated statement of operations and comprehensive income.

We incurred impairment charges of $114.5 million on our investments in equity securities during 2023.

See Note 8—Equity Investments in the notes to the consolidated financial statements included elsewhere in this report for additional information.

The carrying value of our equity investments at December 31, 2023 is $60.1 million.

New Accounting Pronouncements

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

What changed 10-K

Item 7. Management’s Discussion and Analysis