LendingTree, Inc. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement Regarding Forward-Looking Information This report contains “forward-looking statements” within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements related to our anticipated financial performance, business prospects and strategy; anticipated trends and prospects in the various industries in which our businesses operate; new products, services and related strategies; and other similar matters. These forward-looking statements are based on management's current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. The use of words such as “anticipates,” “estimates,” “expects,” “projects,” “intends,” “plans” and “believes,” among others, generally identifies forward-looking statements. Actual results could differ materially from those contained in the forward-looking statements. Factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include those matters discussed or referenced in Part II, Item 1A. Risk Factors included elsewhere in this Quarterly Report on Form 10-Q and Part I, Item 1A. Risk Factors of the Company's Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”). Other unknown or unpredictable factors that could also adversely affect our business, financial condition and results of operations may arise from time to time. In light of these risks and uncertainties, the forward-looking statements discussed in this Quarterly Report on Form 10-Q may not prove to be accurate. Accordingly, you should not place undue reliance on these forward-looking statements, which only reflect the views of LendingTree, Inc.'s management as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results or expectations, except as required by law. Company Overview LendingTree, Inc. is the parent of LT Intermediate Company, LLC, which holds all of the outstanding ownership interests of LendingTree, LLC, and LendingTree, LLC owns several companies. We operate what we believe to be the leading online consumer platform that connects consumers with the choices they need to be confident in their financial decisions. We offer consumers tools and resources, including free credit scores, that facilitate comparison-shopping for mortgage loans, home equity loans and lines of credit, auto loans, credit cards, deposit accounts, personal loans, student loans, small business loans, insurance quotes, sales of insurance policies and other related offerings. We primarily seek to match to match in-market consumers with multiple providers on its marketplace who can provide them with competing quotes for loans, deposit products, insurance or other related offerings they are seeking. 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 providers. Our Spring platform 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 and 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 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. 22 Table of Contents Economic Conditions 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 2023 Annual Report for additional information. During the first quarter of 2024, the challenging interest rate environment and inflationary pressures have continued to present challenges for many of our mortgage lending partners. In our Home segment, mortgage rates have remained relatively consistent in the first quarter of 2024 compared to the fourth quarter of 2023 and the first quarter of 2023, but nearly doubled compared to the first quarter of 2022. The increased mortgage rates continue to cause reduced refinance volumes and continue to put pressure on purchase activity. In our Insurance segment, demand from our carrier partners has increased and we continue to be optimistic about 2024. Segment Reporting We have three reportable segments: Home, Consumer, and Insurance. Recent Mortgage Interest Rate Trends Interest rate and market risks can be substantial in the mortgage lead generation business. Short-term fluctuations in mortgage interest rates primarily affect consumer demand for mortgage refinancings, while long-term fluctuations in mortgage interest rates, coupled with the U.S. real estate market, affect consumer demand for new mortgages. Consumer demand, in turn, affects lender demand for mortgage leads from third-party sources, as well as our own ability to attract online consumers to our website. Typically, when interest rates decline, we see increased consumer demand for mortgage refinancing, which in turn leads to increased traffic to our website and decreased selling and marketing efforts associated with that traffic. At the same time, lender demand for leads from third-party sources typically decreases, as there are more consumers in the marketplace seeking refinancings and, accordingly, lenders receive more organic mortgage lead volume. Due to lower lender demand, our revenue earned per consumer typically decreases, but with correspondingly lower selling and marketing costs. Conversely, when interest rates increase, we typically see decreased consumer demand for mortgage refinancing, leading to decreased traffic to our website and higher associated selling and marketing efforts associated with that traffic. At the same time, lender demand for leads from third-party sources typically increases, as there are fewer consumers in the marketplace and, accordingly, the supply of organic mortgage lead volume decreases. 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 may 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, the monthly average 30-year mortgage interest rates remained consistent at 6.82% in December 2023 and in March 2024. On a quarterly basis, 30-year mortgage interest rates decreased in the first quarter of 2024 to an average 6.75%, from 7.29% in the fourth quarter of 2023. The quarterly average was up slightly in the first quarter of 2024 compared to 6.36% in the first quarter of 2023. 23 Table of Contents 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 23% of total mortgage origination dollars in the first quarter of 2024 compared to 19% in the fourth quarter of 2023 and 20% in the first quarter of 2023. In the first quarter of 2024, total refinance origination dollars increased 15% from the fourth quarter of 2023 and increased 30% from the first quarter of 2023. Industry-wide mortgage origination dollars in the first quarter of 2024 decreased 6% from the fourth quarter of 2023, but increased 13% from first quarter of 2023. 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 23% for 2024 compared to 19% in 2023. The U.S. Real Estate Market The health of the U.S. real estate market and interest rate levels are the primary drivers of consumer demand for new mortgages. Consumer demand, in turn, affects lender demand for purchase mortgage leads from third-party sources. Typically, a strong real estate market will lead to reduced lender demand for leads, as there are more consumers in the marketplace seeking financing and, accordingly, lenders receive more organic lead volume. 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 8% in the first quarter of 2024 compared to the fourth quarter of 2023, and decreased 3% compared to the first quarter of 2023. Fannie Mae predicts an overall increase in existing-home sales of approximately 4.3% in 2024 compared to 2023. 24 Table of Contents Spring TM 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 0.6 million new users in the first quarter of 2024, bringing cumulative sign-ups to 28.8 million at March 31, 2024. 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 On March 24, 2023, we committed to a workforce reduction plan (the “Reduction Plan”) to reduce operating costs. The Reduction Plan 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, $4.3 million of which was incurred in the first quarter of 2023. 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 estimate the Reduction Plan reduced 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. Separately, in 2023, 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 the first quarter of 2023 related to the write-off of certain long-term assets. 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. Recent Developments In April 2024, we repurchased approximately $37.7 million in principal amount of our 0.50% Convertible Senior Notes due July 15, 2025, through individual privately-negotiated transactions with certain holders of such notes, for approximately $35.3 million in cash plus accrued and unpaid interest. 25 Table of Contents Results of Operations for the Three Months ended March 31, 2024 and 2023 Three Months Ended March 31, 2024 2023 $ Change % Change (Dollars in thousands) Home $ 30,443 $ 43,675 $ (13,232) (30) % Consumer 51,451 79,709 (28,258) (35) % Insurance 85,872 77,082 8,790 11 % Other 2 42 (40) (95) % Revenue 167,768 200,508 (32,740) (16) % Costs and expenses: Cost of revenue (exclusive of depreciation and amortization shown separately below) 8,545 13,760 (5,215) (38) % Selling and marketing expense 108,176 137,111 (28,935) (21) % General and administrative expense 25,796 36,683 (10,887) (30) % Product development 11,857 14,655 (2,798) (19) % Depreciation 4,667 4,795 (128) (3) % Amortization of intangibles 1,489 2,049 (560) (27) % Restructuring and severance 23 4,454 (4,431) (99) % Litigation settlements and contingencies 36 12 24 200 % Total costs and expenses 160,589 213,519 (52,930) (25) % Operating income (loss) 7,179 (13,011) 20,190 155 % Other income (expense), net: Interest (expense) income, net (6,638) 25,029 (31,667) (127) % Other income 1,034 1,834 (800) (44) % Income before income taxes 1,575 13,852 (12,277) (89) % Income tax expense (559) (395) 164 42 % Net income and comprehensive income $ 1,016 $ 13,457 $ (12,441) (92) % Revenue Revenue decreased in the first quarter of 2024 compared to the first quarter of 2023 due to decreases in our Consumer and Home segments, partially offset by an increase in our Insurance segment. Our Consumer segment includes the following products: credit cards, personal loans, small business loans, student loans, auto loans, deposit accounts, and other credit products such as credit repair and debt settlement. The credit repair business was closed at the end of the second quarter of 2023. Many of our Consumer segment products are not individually significant to revenue. Revenue from our Consumer segment decreased $28.3 million, or 35%, in the first quarter of 2024 from the first quarter of 2023 primarily due to decreases in our credit cards and other credit products. Revenue from our personal loans product decreased $3.5 million, or 15%, to $20.1 million in the first quarter of 2024 from $23.6 million in the first quarter of 2023 primarily due to a decrease in the number of consumers completing request forms and a decrease in revenue earned per consumer. 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 credit cards decreased $10.5 million, or 57%, in the first quarter of 2024 from the first quarter of 2023 primarily due to decreases in the number of consumer clicks and in revenue earned per click. Revenue from other credit products decreased $7.4 million, or 65%, in the first quarter of 2024 from the first quarter of 2023 due to the closure of our Ovation credit services business at the end of the second quarter of 2023. Revenue from small business decreased $3.0 million, or 18%, in the first quarter of 2024 from the first quarter of 2023 due to a decrease in the number of consumers completing request forms partially offset by an increase in revenue earned per consumer. Our Home segment includes the following products: purchase mortgage, refinance mortgage, and home equity loans and lines of credit. Revenue from our Home segment decreased $13.2 million, or 30%, in the first quarter of 2024 from the first quarter of 2023 primarily due to decreases in revenue from our refinance and purchase mortgage products. 26 Table of Contents Revenue from our mortgage products decreased $10.3 million, or 52%, to $9.6 million in the first quarter of 2024 from $20.0 million in the first quarter of 2023. Revenue from our purchase mortgage product decreased $5.9 million in the first quarter of 2024 compared to the first quarter of 2023, primarily due to a decrease in the number of consumers completing request forms and a decrease in revenue earned per consumer. Revenue from our refinance mortgage product decreased $4.4 million in the first quarter of 2024 compared to the first quarter of 2023 due to a decrease in the number of consumers completing request forms and a decrease in revenue earned per consumer. Increased mortgage rates continue to cause reduced refinance volumes and continue to put pressure on purchase activity. Revenue from our home equity loans product decreased $2.9 million, or 12%, to $20.8 million in the first quarter of 2024 from $23.7 million in the first quarter of 2023. Revenue from our Insurance segment increased $8.8 million, or 11%, to $85.9 million in the first quarter of 2024 from $77.1 million in the first quarter of 2023 due to an increase in the number of consumers seeking insurance, partially offset by 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 first quarter of 2024 from the first quarter of 2023 by $5.2 million, primarily due to a decrease in compensation and benefits of $4.3 million. The decrease is primarily due to the Reduction Plan at the end of the first quarter of 2023, including shutting down the LendingTree call 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 decreased to 5% in the first quarter of 2024 compared to 7% in the first quarter of 2023. Selling and marketing expense Selling and marketing expense consists primarily of advertising and promotional expenditures and compensation and other employee-related costs (including stock-based compensation) for personnel engaged in sales or marketing functions. 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. Selling and marketing expense decreased in the first quarter of 2024 compared to the first quarter 2023 by $28.9 million primarily due to the changes in advertising and promotional expense discussed below. Additionally, compensation and benefits decreased $2.9 million in the first quarter of 2024 compared to the first quarter 2023. Advertising and promotional expense is the largest component of selling and marketing expense, and is comprised of the following: Three Months Ended March 31, 2024 2023 $ Change % Change (Dollars in thousands) Online $ 97,515 $ 120,720 $ (23,205) (19) % Broadcast 11 306 (295) (96) % Other 795 3,373 (2,578) (76) % Total advertising expense $ 98,321 $ 124,399 $ (26,078) (21) % In the periods presented, advertising and promotional expenses are equivalent to the non-GAAP measure variable marketing expense. See Variable Marketing Expense and Variable Marketing Margin below for additional information. Revenue is primarily driven by Network Partner demand for our products, which is matched to corresponding consumer requests. 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. This relationship exists for our Home, Consumer, and Insurance segments. 27 Table of Contents We adjusted our advertising expenditures in the first quarter of 2024 compared to the first quarter of 2023 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. General and administrative expense 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 $10.9 million in the first quarter of 2024 compared to the first quarter of 2023. Compensation and benefits and bad debt expense decreased in the first quarter of 2024 compared to the first quarter of 2023 by $3.8 million and $1.1 million, respectively. In the first quarter of 2023 we incurred a $4.2 million loss on the impairment of assets for our Ovation business. General and administrative expense as a percentage of revenue in the first quarter of 2024 was 15% compared to 18% for the first quarter of 2023. 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 first quarter of 2024 compared to the first quarter of 2023 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. Restructuring and severance On March 24, 2023, we committed to the Reduction Plan that reduced operating costs. The Reduction Plan 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, 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. We incurred restructuring expense of $4.3 million in the first quarter of 2023. Interest income/expense In the first quarter of 2023, we repurchased approximately $190.6 million in principal amount of our 0.50% Convertible Senior Notes due July 15, 2025 for $156.3 million plus accrued and unpaid interest of approximately $0.1 million. As a result of the repurchase, we recognized a gain on the extinguishment of $34.3 million, a loss on the write-off of unamortized debt issuance costs of $2.4 million, and incurred debt repayment costs of $1.0 million, all of which are included in interest (expense) income, net in the consolidated statement of operations and comprehensive income. See Note 12—Debt for additional information. Other income Other income primarily consists of dividend income. Income tax expense For the first quarter of 2024 and 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. 28 Table of Contents Segment Profit Three Months Ended March 31, 2024 2023 $ Change % Change (Dollars in thousands) Home $ 9,610 $ 15,108 $ (5,498) (36) % Consumer 27,440 34,876 (7,436) (21) % Insurance 33,449 30,152 3,297 11 % Other 23 (179) 202 113 % Segment profit $ 70,522 $ 79,957 $ (9,435) (12) % 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. See Note 15—Segment Information in the notes to the consolidated financial statements for additional information on segments and a reconciliation of segment profit to pre-tax income. Home Revenue in the Home segment decreased 30% to $30.4 million in the first quarter of 2024, with segment profit of $9.6 million in the first quarter of 2024, a decrease of 36% from the first quarter of 2023. Despite the decrease in revenue in the first quarter of 2024, our variable marketing model generated a 32% segment margin, which was down from 35% in the first quarter of 2023. Our home equity business again produced the majority of the Home segment's revenue, declining 12% in the first quarter of 2024 from the first quarter of 2023. According to the National Association of Realtors, the inventory of existing homes for sale was up 14% in the first quarter of 2024 compared to the first quarter of 2023. This remains a depressed level historically, but may indicate that sellers are beginning to adjust to higher mortgage rates and prioritizing normal life changes that require moves. Consumer demand to borrow against a near record level of equity in their homes remains strong, with volume for the product increasing 14% in the first quarter of 2024 compared to the first quarter of 2023. We expect the home equity product will continue to account for the majority of Home revenue for the remainder of the year. Consumer Revenue in our Consumer segment decreased 35% to $51.5 million in the first quarter of 2024 from the first quarter of 2023, with segment profit $27.4 million in the first quarter of 2024 a decrease of 21% from the first quarter of 2023. Our Consumer segment margin increased to 53% in the first quarter of 2024 from 44% in the first quarter of 2023 due to a mix-shift towards higher earning products and lower partner demand allowing us to decrease usage of our highest cost marketing channels. Revenue from our personal loan product of $20.1 million decreased 15% in the first quarter of 2024 from the first quarter of 2023 as lending standards remained restrictive, although this tightening has remained stable for the past several months. Small business revenue declined 18% in the first quarter of 2024 from the first quarter of 2023. The causes were similar to those experienced in personal loans. Tighter credit conditions are decreasing conversion rates at our lending partners. Insurance Insurance revenue of $85.9 million in the first quarter of 2024 increased 11% from the first quarter of 2023 as our carrier partners began to prioritize new customer acquisition after spending most of the last two years increasing premium rates for new policies. Segment profit of $33.4 million in the first quarter of 2024 increased 11% from the first quarter of 2023 as segment profit margin remained consistent at 39%. We believe we are in the beginning stages of a broad recovery in personal insurance marketing spend by our partners. According to the Bureau of Labor Statistics, the cost of consumer auto insurance increased 22% in March 2024 compared to March 2023. Consumers have been coming to us in record numbers to obtain new quotes as these premium increases are communicated to them. However, until recently carriers have shown limited demand to provide new customers quotes. We 29 Table of Contents expect significantly higher prices to consumers will drive an increase in switching between insurers, which in turn will encourage carriers to advertise more aggressively with us to defend and grow market share. Variable Marketing Expense and Variable Marketing Margin We report variable marketing expense and variable marketing margin as supplemental measures to accounting principles generally accepted in the United States of America ("GAAP"). These related measures are the primary metrics by which we measure the effectiveness of our marketing efforts. Variable marketing expense represents the portion of selling and marketing expense attributable to variable costs paid for advertising, direct marketing, and related expenses, and excludes overhead, fixed costs, and personnel-related expenses. Variable marketing margin is a measure of the efficiency of our operating model, measuring revenue after subtracting variable marketing expense. Our operating model is highly sensitive to the amount and efficiency of variable marketing expenditures, and our proprietary systems are able to make rapidly changing decisions concerning the deployment of variable marketing expenditures (primarily but not exclusively online and mobile advertising placement) based on proprietary and sophisticated analytics. We believe that investors should have access to the same set of tools that we use in analyzing our results. This non-GAAP measure should be considered in addition to results prepared in accordance with GAAP but should not be considered a substitute for or superior to GAAP results. We provide and encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measures discussed below. Variable marketing expense is defined as the expense attributable to variable costs paid for advertising, direct marketing and related expenses, and excluding overhead, fixed costs and personnel-related expenses. The majority of these variable advertising costs are expressly intended to drive traffic to our websites and these variable advertising costs are included in selling and marketing expense on our consolidated statements of operations and comprehensive income. Variable marketing margin is defined as revenue less variable marketing expense. The following shows the calculation of variable marketing margin: Three Months Ended March 31, 2024 2023 (in thousands) Revenue $ 167,768 $ 200,508 Variable marketing expense 98,321 124,399 Variable marketing margin $ 69,447 $ 76,109 Below is a reconciliation of selling and marketing expense, the most directly comparable GAAP measure, to variable marketing expense: Three Months Ended March 31, 2024 2023 (in thousands) Selling and marketing expense $ 108,176 $ 137,111 Non-variable selling and marketing expense (9,855) (12,712) Variable marketing expense $ 98,321 $ 124,399 30 Table of Contents The following is a reconciliation of net income, the most directly comparable GAAP measure, to variable marketing margin: Three Months Ended March 31, 2024 2023 (in thousands) Net income $ 1,016 $ 13,457 Adjustments to reconcile to variable marketing margin: Cost of revenue 8,545 13,760 Non-variable selling and marketing expense (1) 9,855 12,712 General and administrative expense 25,796 36,683 Product development 11,857 14,655 Depreciation 4,667 4,795 Amortization of intangibles 1,489 2,049 Restructuring and severance 23 4,454 Litigation settlements and contingencies 36 12 Interest expense (income), net 6,638 (25,029) Other income (1,034) (1,834) Income tax expense 559 395 Variable marketing margin $ 69,447 $ 76,109 (1) Represents the portion of selling and marketing expense not attributable to variable costs paid for advertising, direct marketing and related expenses. Includes overhead, fixed costs and personnel-related expenses. Adjusted EBITDA We report Adjusted EBITDA as a supplemental measure to GAAP. This measure is the primary metric by which we evaluate the performance of our businesses, on which our marketing expenditures and internal budgets are based and by which, in most years, management and many employees are compensated. We believe that investors should have access to the same set of tools that we use in analyzing our results. This non-GAAP measure should be considered in addition to results prepared in accordance with GAAP but should not be considered a substitute for or superior to GAAP results. We provide and encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measures discussed below. 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. 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. These non-GAAP measures may not be comparable to similarly titled measures used by other companies. One-Time Items 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. For the periods presented below, there are no adjustments for one-time items. 31 Table of Contents 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. Non-cash compensation expense also includes expense associated with employee stock purchase plans. 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. Amortization of intangibles are non-cash expenses relating primarily to intangible assets acquired through acquisitions. At the time of an acquisition, the intangible assets of the acquired company, such as purchase agreements, technology and customer relationships, are valued and amortized over their estimated lives. The following table is a reconciliation of net income, the most directly comparable GAAP measure, to Adjusted EBITDA. Three Months Ended March 31, 2024 2023 (in thousands) Net income $ 1,016 $ 13,457 Adjustments to reconcile to Adjusted EBITDA: Amortization of intangibles 1,489 2,049 Depreciation 4,667 4,795 Restructuring and severance 23 4,454 Loss on impairments and disposal of assets 368 5,027 Non-cash compensation expense 7,789 11,203 Acquisition expense — (9) Litigation settlements and contingencies 36 12 Interest expense (income), net 6,638 (25,029) Dividend income (1,034) (1,834) Income tax expense 559 395 Adjusted EBITDA $ 21,551 $ 14,520 Financial Position, Liquidity and Capital Resources General As of March 31, 2024, we had $230.7 million of cash and cash equivalents, compared to $112.1 million of cash and cash equivalents as of December 31, 2023. We expect our cash and cash equivalents and cash flows from operations to be sufficient to fund our operating needs for the next twelve months and beyond. Our credit facilities described below are additional potential sources of liquidity. We will continue to monitor the impact of the current economic conditions, including interest rates, and inflation on our liquidity and capital resources. Credit Facilities On September 15, 2021, we entered into a credit agreement (the “Credit Agreement”), consisting of a $200.0 million revolving credit facility (the “Revolving Facility”), which matures on September 15, 2026, and a $250.0 million delayed draw term loan facility (the “2021 Term Loan” and together with the Revolving Facility, the “Credit Facility”), which matures on September 15, 2028. 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 0.625% Convertible Senior Notes due June 1, 2022, 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. As of May 1, 2024, we have outstanding $245.6 million under the 32 Table of Contents 2021 Term Loan, a $0.2 million letter of credit under the Revolving Facility and the remaining borrowing capacity under the Revolving Facility is $199.8 million. As of March 31, 2024, we had $91.2 million available for borrowing under the Revolving Facility, however this availability will be limited as our cash on hand is utilized to repay our 0.50% Convertible Senior Notes due July 15, 2025. On March 27, 2024, we entered a first lien term loan facility (the “2024 Term Loan”), consisting of $175.0 million which matures on March 27, 2031. We drew $125.0 million of the 2024 Term Loan upon closing while the remaining $50.0 million will be available as a delayed draw term loan until March 27, 2025. The proceeds of the 2024 Term Loan will be used for working capital and general corporate purposes, which may include repayment of our 0.50% Convertible Senior Notes due July 15, 2025. The funding had a $3.1 million original issue discount and associated debt issuance costs of $4.2 million. As of May 1, 2024, the Company had $125.0 million borrowings outstanding under the 2024 Term Loan. See Note 12—Debt for additional information. Cash Flows Our cash flows are as follows: Three Months Ended March 31, 2024 2023 (in thousands) Net cash provided by operating activities $ 5,708 $ 13,156 Net cash used in investing activities (2,746) (2,452) Net cash provided by (used in) financing activities 115,743 (159,565) Cash Flows from Operating Activities Our largest source of cash provided by our operating activities is revenues 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, and income taxes. Net cash provided by operating activities decreased in the first three months of 2024 from the first three months of 2023 primarily due to unfavorable changes in accounts receivable and accounts payable, accrued expenses and other current liabilities. Cash Flows from Investing Activities Net cash used in investing activities in the first three months of 2024 and 2023 of $2.7 million and $2.5 million, respectively, consisted of capital expenditures primarily related to internally developed software. Cash Flows from Financing Activities Net cash provided by financing activities in the first three months of 2024 of $115.7 million consisted primarily of the $117.8 million net proceeds from the 2024 Term Loan partially offset by $1.4 million in withholding taxes paid upon surrender of shares to satisfy obligations on equity awards, net of proceeds from the exercise of stock options. Net cash used in financing activities in the first three months of 2023 of $159.6 million consisted primarily of the repurchase of our 0.50% Convertible Senior Notes due July 15, 2025 for $156.3 million and $1.7 million in withholding taxes paid upon surrender of shares to satisfy obligations on equity awards, net of proceeds from the exercise of stock options. New Accounting Pronouncements For information regarding new accounting pronouncements, see Note 2 — Significant Accounting Policies, in Part I, Item 1 Financial Statements of this Quarterly Report on Form 10-Q. 33 Table of Contents