Item 7. Management’s Discussion and Analysis
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and accompanying notes included elsewhere within this report. This discussion includes both historical information and forward-looking information that involves risks, uncertainties and assumptions. Our actual results may differ materially from management's expectations as a result of various factors, including but not limited to those discussed in the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Information.”
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. Our online consumer platform provides consumers with access to product offerings from our Network Partners, including mortgage loans, home equity loans and lines of credit, auto loans, credit cards, deposit accounts, personal loans, small business loans, insurance quotes, sales of insurance policies and other related offerings. In addition, we offer tools and resources, including free credit scores, that facilitate comparison shopping for loans, deposit products, insurance, and other offerings. We seek to match consumers with multiple providers, who can offer them competing quotes for the product(s) 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 Network Partners.
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, 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 insurance industries are 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.
Economic Conditions
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 2023, the challenging interest rate environment and inflationary pressures continued to present challenges for many of our mortgage, consumer 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. Our Consumer segment was also negatively impacted by economic conditions, with successive Federal Reserve rate increases having their intended effect of tightening financial conditions. The availability of credit contracted and lenders were less inclined to make loans in an environment with high inflation and significantly increased cost of capital. 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.
During 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 remained relatively consistent in 2024, with the annual average mortgage rate in 2024 of 6.7% compared to 6.8% in 2023. However, these rates are more than doubled compared to the low annual average mortgage rates seen in 2021. The increased mortgage rates continue to cause reduced refinance volumes and continue to put pressure on purchase activity. Additionally, the restrictive lending conditions continue to
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pressure our Consumer segment. In our Insurance segment, demand from our carrier partners increased significantly in 2024 and we are optimistic about maintaining the strong performance in the Insurance segment as we head into 2025.
Segment Reporting
We have three reportable segments: Home, Consumer, and Insurance.
Recent Mortgage Interest Rate Trends
Interest rate and market risks are 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 refinancings, 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 refinancing 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 can be adversely affected by the overall reduced demand for refinancing in a rising rate environment.
We dynamically adjust selling and marketing expenditures in all interest rate environments to optimize our results against these variables.
According to Freddie Mac, 30-year mortgage interest rates increased significantly during 2022, 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. During 2024, 30-year mortgage interest rates remained relatively consistent, starting the year at a monthly average of 6.64% in January 2024 and ending at a monthly average of 6.72% in December 2024, with monthly high of 7.06% in May and a monthly low of 6.18% in September 2024.
On a full-year basis, 30-year mortgage interest rates decreased to an average of 6.72% in 2024 compared to 6.80% in 2023, and increased from 5.33% in 2022.
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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 decreased to 15% in 2023 from 30% of total 2022 mortgage origination dollars from refinance due to the increase in average mortgage rates. Total refinance original dollars increased to 28% of total mortgage origination dollars in 2024 due to the decrease in average mortgage interest rates. Total refinance origination dollars decreased by 68% in 2023 over 2022 and increased 124% in 2024 over 2023. Industry-wide mortgage origination dollars decreased by 37% in 2023 over 2022 and increased 22% in 2024 over 2023.
Looking forward, the MBA is projecting 30-year mortgage interest rates to decrease slightly in 2025 to an average of 6.5%. According to MBA projections, the mix of mortgage origination dollars is expected to remain primarily with purchase mortgages with the refinance share representing just 31% for 2025.
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, in 2022, existing home sales decreased by 17% compared to 2021 due to increased interest rates and limited inventory of homes. This trend continued into 2023 with existing home sales decreasing 19% compared to 2022 and decreased a further 1% in 2024 from 2023. Fannie Mae expects a 3% increase in existing home sales in 2025 compared to 2024.
LendingTree Spring
We consider certain metrics related to Spring set forth below to help us evaluate our business and growth trends and assess operational efficiencies. We believe our Spring platform drives repeat user engagement resulting in lower acquisition costs and
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increases consumer lifetime value. 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 3.1 million new users in 2024, bringing cumulative active users to 31.3 million as of December 31, 2024. We calculate the number of Spring users at a period end as the number of users that had an active account at any point during the quarter that includes the period end date. Users that deactivated their accounts prior to the most recent quarter are no longer considered in the user base at the end of the most recent quarter. We attribute approximately $23.1 million of revenue, or 3% of total revenue, for the year ended December 31, 2024 to registered Spring users who initiated their transaction from the Spring platform. During 2024, approximately 0.9 million Spring users initiated a transaction from the Spring platform that contributed to revenue.
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 (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. On July 24, 2020, a portion of the net proceeds from the issuance of the 2025 Notes was used to repurchase approximately $130.3 million principal amount of the 2022 Notes. A portion of the call spread transactions associated with the 2022 Notes was also terminated on July 24, 2020 in notional amounts corresponding to the principal amount of the 2022 Notes repurchased.
On May 31, 2022, we drew $250.0 million on the Term Loan Facility. A portion of this was used to pay the outstanding balance of $169.7 million and interest on our 0.625% Convertible Senior Notes that matured on June 1, 2022. The remaining call spread transactions associated with the 2022 Notes terminated in 2022.
In the second quarter of 2024, we repurchased approximately $161.3 million in principal amount of the 2025 Notes for $151.7 million plus accrued and unpaid interest of approximately $0.3 million. In the third quarter of 2024, we repurchased approximately $7.6 million in principal amount of the 2025 Notes for $7.2 million. In 2024, we recognized a gain on the extinguishment of debt of $10.1 million and a loss on the write-off of unamortized debt issuance costs of $1.1 million, both of which are included in interest (expense) income, net in the consolidated statements of operations and comprehensive income.
In the first quarter of 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. In the fourth quarter of 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 14—Debt, in the notes to the consolidated financial statements included elsewhere in this report.
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 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.
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
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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 was capital-intensive, required 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.
Regulations
Our revenue and earnings may fluctuate from time to time as a result of changes to federal, state, and industry-based laws and regulations, or changes to standards concerning the enforcement thereof. On January 26, 2024, the U.S. Federal Communications Commission (the “FCC”) published regulations which, among other things, amended the consent requirements of the Telephone Consumer Protection Act of 1991 to close what the FCC refers to as the “lead generator loophole” by requiring “one-to-one consent” for outbound telemarketing calls or texts made using an automatic telephone dialing system or pre-recorded or artificial voice messages to wireless or residential numbers. The new “one-to-one consent” rule was scheduled to take effect on January 27, 2025.
However, on January 24, 2025, in Insurance Marketing Coalition Limited. v. Federal Communications Commission, the United States Court of Appeals for the Eleventh Circuit ruled that the “one-to-one consent” requirement was improper, preventing its implementation.
Results of Operations for the Years ended December 31, 2024 and 2023
Our discussion within Revenue provides the details of consolidated revenue by segment and significant products. In this section, we describe overall changes in revenue in our segments and significant products within each segment and increases or decreases in revenue from the prior period. We also provide insight into how changes in price and volume in each significant product impacted product revenue.
Our Segment Profit is a discussion of profitability within each segment of the business. It is impacted by segment revenues as well as segment cost of revenue and marketing expenses. In Segment Profit, we provide a discussion of the business within each segment, addressing both Company and market impacts on the profitability of each segment in addition to a discussion of segment margin.
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For information on fiscal 2022 results and similar comparisons, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations for the Years ended December 31, 2023 and 2022 of our Form 10-K for the fiscal year ended December 31, 2023.
Year Ended December 31, 2024 vs. 2023
2024 2023 $
Change %
Change
(Dollars in thousands)
Home $ 128,854 $ 143,753 $ (14,899) (10) %
Consumer 222,462 278,945 (56,483) (20) %
Insurance 548,704 249,605 299,099 120 %
Other 199 199 — — %
Revenue 900,219 672,502 227,717 34 %
Costs and expenses:
Cost of revenue (exclusive of depreciation and amortization shown separately below)
36,072 38,758 (2,686) (7) %
Selling and marketing expense 635,963 433,588 202,375 47 %
General and administrative expense 108,705 117,700 (8,995) (8) %
Product development 46,358 47,197 (839) (2) %
Depreciation 18,300 19,070 (770) (4) %
Amortization of intangibles 5,889 7,694 (1,805) (23) %
Goodwill impairment — 38,600 (38,600) (100) %
Restructuring and severance 508 10,118 (9,610) (95) %
Litigation settlements and contingencies 3,797 388 3,409 879 %
Total costs and expenses 855,592 713,113 142,479 20 %
Operating income (loss) 44,627 (40,611) 85,238 210 %
Other (expense) income, net:
Interest (expense) income, net (27,849) 21,685 (49,534) (228) %
Other (expense) income (54,162) (105,993) 51,831 49 %
Loss before income taxes (37,384) (124,919) 87,535 70 %
Income tax (expense) benefit (4,320) 2,515 (6,835) (272) %
Net loss and comprehensive loss $ (41,704) $ (122,404) $ 80,700 66 %
Revenue
Revenue increased in 2024 compared to 2023 due to an increase in our Insurance segment, partially offset by decreases in our Home and Consumer segments.
Revenue from our Insurance segment increased $299.1 million, or 120%, to $548.7 million in 2024 from $249.6 million in 2023. The increase in revenue was due to a 63% increase in revenue earned per consumer, representing $156.8 million of the increase and a 35% increase in volume representing $142.3 million of the increase. We measure volume for our insurance product as the number of consumer request forms and in certain cases of re-engagement with a consumer, the number of subsequent consumer engagements through our platform.
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. Many of our Consumer segment products are not individually significant to revenue. Revenue from our Consumer segment decreased $56.5 million in 2024 from 2023, or 20%, primarily due to decreases in our credit cards, other credit products and deposits, partially offset by an increase in small business loans. We are in the process of exiting the student loans business and plan to be substantially completed by the end of the first quarter of 2025.
Revenue from our personal loans product increased $1.3 million, or 1%, to $101.4 million in 2024 from $100.1 million in 2023. The increase in revenue was due to a 22% increase in volume, representing $18.2 million an increase, partially offset by a 17% decrease in revenue earned per consumer, representing $16.9 million of a decrease. We measure volume for our personal loans product as the number of unique consumers completing request forms.
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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 credit cards product decreased $38.2 million, or 62% in 2024 compared to 2023 primarily due to a decrease in revenue earned per click and volume . We measure volume for our credit cards product as the number of consumers clicking through to a card issuer. Revenue from our credit products decreased $12.4 million, or 40%, in 2024 compared to 2023 primarily due to the closure of our Ovation credit services business at the end of the second quarter of 2023. Revenue from our deposits product decreased $6.5 million in 2024 compared to 2023, primarily due to a d ecrease in volume and revenue earned per consumer. Partially offsetting these declines, r evenue from our small business loans product increased $4.0 million, or 8%, in 2024 compared to 2023, due to an increase in revenue earned per consumer partially offset by a decline in the number of consumers completing request forms.
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 $14.9 million, or 10%, in 2024 from 2023 primarily due to a decrease in revenue from our mortgage products partially offset by an increase in revenue from our home equity loans product.
Revenue from our mortgage products decreased $17.3 million, or 29%, to $41.4 million in 2024 from $58.7 million in 2023. The decrease in revenue was due to a 25% decline in volume, representing $13.6 million of the decrease, and a 6% decrease in revenue earned per consumer, representing $3.7 million of the decrease. We measure volume for our mortgage products as the number of consumers completing request forms.
Revenue from our purchase mortgage product decreased $11.0 million in 2024 compared to 2023 primarily due to decreases in the number of consumers completing request forms and a decrease in revenue earned per consumer. Revenue from our refinance mortgage product decreased $6.3 million in 2024 compared to 2023, primarily due to a decrease in the number of consumers completing request forms and a decrease in revenue earned per consumer, as interest rates were generally flat compared to 2023.
Revenue from our home equity loans and lines of credit product increased $2.4 million, or 3%, to $87.5 million in 2024 from $85.1 million in 2023. The increase in revenue was due to a 23% increase in volume, representing an increase of $16.6 million, partially offset by a 17% decrease in reven ue earned per consumer, representing a $14.2 million decrease. We measure volume for our home equity loans and lines of credit as 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 decreased in 2024 compared to 2023 primarily due to a decrease in compensation and benefits of $2.7 million. The decrease is 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 decreased to 4% in 2024 compared to 6% in 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 advertisement is first run.
Selling and marketing expense increased in 2024 compared to 2023 primarily due to the $204.4 million increase in advertising and promotional expense discussed below. Additionally, compensation and benefits decreased $2.0 million in 2024 compared to 2023.
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Advertising and promotional expense is the largest component of selling and marketing expense, and is comprised of the following:
Year Ended December 31, 2024 vs. 2023
2024 2023 $
Change %
Change
(Dollars in thousands)
Online $ 592,019 $ 383,996 $ 208,023 54 %
Broadcast 39 278 (239) (86) %
Other 3,850 7,283 (3,433) (47) %
Total advertising and promotional expense $ 595,908 $ 391,557 $ 204,351 52 %
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.
We adjusted our advertising expenditures in 2024 compared to 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 in 2024 compared to 2023, primarily due to a decrease in compensation and benefits of $3.7 million, a decrease in loss on assets of $2.9 million, a decrease in facilities expense of $2.5 million and a decrease in bad debt expense of $1.6 million.
Non-cash compensation expense, included in total compensation and benefits noted above, within general and administrative expense decreased in 2024 compared to 2023. For additional information, see Note—12-Stock-Based Compensation in the notes to the consolidated financial statements included elsewhere in this report. Non-cash compensation expense is excluded from Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (“Adjusted EBITDA”), as discussed below.
General and administrative expense as a percentage of revenue decreased to 12% in 2024 from 18% in 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 2024 compared to 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.
Amortization of Intangibles
The decrease in amortization of intangibles in 2024 compared to 2023 was due to certain intangible assets associated with our recent business acquisitions becoming fully amortized.
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 .
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Restructuring and severance
During September 2023, we completed 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 were completed by the third quarter of 2024.
In April 2023, we made the decision to close the Ovation credit services business ( the "Ovation Closure"). The Ovation Closure included the elimination of approximately 197 employees, or 18%, of the Company's 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 cash payments for the Ovation Closure were completed in the first 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 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. The Reduction Plan, including cash payments, was completed by the end of the third quarter of 2024.
Interest (expense) income, net
In March 2024, we drew $125.0 million on a first lien term loan facility and incurred $11.5 million of interest expense.
In the third quarter of 2024, we repurchased approximately $7.6 million in principal amount of our 2025 Notes for $7.2 million. In the second quarter of 2024, we repurchased approximately $161.3 million in principal amount of our 2025 Notes for $151.7 million plus accrued and unpaid interest of approximately $0.3 million. As a result of these repurchases, we recognized a gain on the extinguishment of $10.1 million and a loss on the write-off of unamortized debt issuance costs of $1.1 million.
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.
See Note 14—Debt for additional information.
Other Income
We incurred impairment charges of $58.4 million and $114.5 million in 2024 and 2023, respectively, related to our investments in equity securities.
See Note 8—Equity Investments for additional information.
Income tax benefit (expense)
Year Ended December 31,
2024 2023
(in thousands, except percentages)
Income tax (expense) benefit $ (4,320) $ 2,515
Effective tax rate (11.6) % 2.0 %
For 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.
See Note—13 Income Taxes in the notes to the consolidated financial statements included elsewhere in this report for additional information on the valuation allowance.
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Segment Profit
Year Ended December 31, 2024 vs. 2023
2024 2023 $
Change %
Change
(Dollars in thousands)
Home
Revenue $ 128,854 $ 143,753 $ (14,899) (10) %
Segment marketing expense (1)
88,958 95,871 (6,913) (7) %
Segment profit 39,896 47,882 (7,986) (17) %
Segment margin 31% 33%
Consumer
Revenue 222,462 278,945 (56,483) (20) %
Segment marketing expense (1)
111,925 140,068 (28,143) (20) %
Segment profit 110,537 138,877 (28,340) (20) %
Segment margin 50% 50%
Insurance
Revenue 548,704 249,605 299,099 120 %
Segment marketing expense (1)
389,474 146,101 243,373 167 %
Segment profit 159,230 103,504 55,726 54 %
Segment margin 29% 41%
Other
Revenue 199 199 — — %
Segment marketing expense (1)
294 708 (414) (58) %
Other (95) (509) 414 81 %
Total
Revenue 900,219 672,502 227,717 34 %
Segment marketing expense (1)
590,651 382,748 207,903 54 %
Segment profit $ 309,568 $ 289,754 $ 19,814 7 %
Segment margin 34% 43%
(1) Segment marketing expense represents the potion of selling and marketing expense attributable to variable costs paid for advertising, direct marketing and related expenses, that are directly attributable to the segments' products. This measure excludes overhead, fixed costs and personnel-related costs.
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 20—Segment Information in the notes to the consolidated financial statements included elsewhere in this report for additional information on segments and a reconciliation of segment profit to pre-tax income from continuing operations.
HOME
Home segment revenue decreased 10% to $128.9 million in 2024 compared to 2023 and segment profit decreased to $39.9 million in 2024, a decrease of 17% compared to 2023. Our Home segment margin, which is segment profit divided by segment revenue, decreased slightly to 31% in 2024 compared to 33% in 2023 primarily due to a decline in revenue earned per consumer, due to a decline in close rates at our lender partners.
Revenue from our home equity loan product of $87.5 million in 2024 increased 3% compared to 2023. Volume of home equity consumers completing request forms increased 23% in 2024 compared to 2023, however, a 17% decline in revenue earned per consumer partially offset this volume growth. As longer-term rates have remained stable and higher than most existing first mortgages, second lien products offer an attractively priced source of capital for homeowners. According to CoreLogic, homeowners with a mortgage in the U.S. have $17.5 trillion of equity as of September 30, 2024, a 2.5% increase from a year ago. We expect further growth in our home equity business in 2025 as home values remain at near record levels.
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Within Home, our core mortgage business generated revenue of $41.4 million in 2024, down 29% compared to 2023. Our refinance product within our mortgage business matches consumers in the market looking to refinance their existing mortgages with our network lenders. Our purchase product within our mortgage business matches consumers in the market looking to buy a new home with our network lenders. Our mortgage business is directly impacted by the mortgage market in which we participate. Our mortgage business continues to see headwinds from a lack of in-the-money refinance borrowers given the current higher level of mortgage rates, and subdued home sales have pressured the volume of consumers searching for purchase loans. According to Freddie Mac, the 30-year mortgage interest rates have remained elevated with a yearly average of 6.72% in 2024 compared to 6.80% in 2023.
The Mortgage Bankers Association expects overall mortgage originations to increase 16% in 2025, although the first quarter of 2025 is expected to remain weak and below fourth quarter of 2024 levels. The forecast calls for total loan originations of $2.1 trillion and purchase loans are expected to account for 69% of origination volume.
CONSUMER
Revenue in our Consumer segment decreased 20% to $222.5 million in 2024 from 2023, with segment profit of $110.5 million in 2024, a decrease of 20% from 2023. Our Consumer segment margin remained consistent at 50% in 2024 and 2023.
Revenue from our personal loan product of $101.4 million increased 1% in 2024 compared to 2023 as lending standards remained restrictive at our lender partners during the year. The leading reason for consumers to seek personal loans is to re-finance higher-cost credit card debt. Total revolving consumer debt remains near record levels and interest rates on that debt have increased as short-term rates have increased. We believe the outlook is positive for our personal loan product in 2025.
Small business revenue increased 8% in 2024 compared to 2023. Lenders in our network have increased new loan originations as their credit performance has improved, particularly in the second half of 2024. In response, we have invested in our concierge sales team and targeted marketing campaigns. Our concierge sales members provide single-point-of-contact for small business owners, assisting in selecting the best loan offer, collecting required documentation and troubleshooting issues during the application process. Our investment in this team has helped drive a material increase in approval rates for our customers, and allows us to capture lender volume bonuses and renewal revenue streams.
See the section titled “Revenue” above for additional discussion of declines in product revenues within the Consumer segment.
INSURANCE
Insurance revenue of $548.7 million in 2024 increased 120% from 2023, while segment profit of $159.2 million in 2024 increased 54% from 2023. Carriers increased their marketing spend with us steadily throughout the year as two years of compounded premium rate increases combined with declines in the price of used vehicles and replacement parts has created a favorable underwriting environment resulting in higher demand for new auto insurance customers. Additionally, the volume of consumers completing request forms on our platform increased 35% in 2024 compared to 2023.
Our Insurance segment margin decreased to 29% in 2024 compared to 41% in 2023. In 2023, we were able to exit from our highest cost marketing channels and continue to meet the decreased level of demand. In 2024, we re-entered those marketing channels to fill the increase in carrier demand, which has resulted in lower segment profit margin.
Variable Marketing Expense and Variable Marketing Margin
We report variable marketing expense and variable marketing margin as supplemental measures to 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 (loss). Variable marketing margin is defined as revenue less variable marketing expense.
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The following shows the calculation of variable marketing margin:
Year Ended December 31,
2024 2023
(in thousands)
Revenue $ 900,219 $ 672,502
Variable marketing expense 595,908 391,557
Variable marketing margin $ 304,311 $ 280,945
Below is a reconciliation of selling and marketing expense, the most directly comparable GAAP measure, to variable marketing expense:
Year Ended December 31,
2024 2023
(in thousands)
Selling and marketing expense $ 635,963 $ 433,588
Non-variable selling and marketing expense (40,055) (42,031)
Variable marketing expense $ 595,908 $ 391,557
The following is a reconciliation of net loss, the most directly comparable GAAP measure, to variable marketing margin:
Year Ended December 31,
2024 2023
(in thousands)
Net loss $ (41,704) $ (122,404)
Adjustments to reconcile to variable marketing margin:
Cost of revenue 36,072 38,758
Non-variable selling and marketing expense (1)
40,055 42,031
General and administrative expense 108,705 117,700
Product development 46,358 47,197
Depreciation 18,300 19,070
Amortization of intangibles 5,889 7,694
Goodwill impairment — 38,600
Restructuring and severance 508 10,118
Litigation settlements and contingencies 3,797 388
Interest expense (income), net 27,849 (21,685)
Other expense (income) 54,162 105,993
Income tax expense (benefit) 4,320 (2,515)
Variable marketing margin $ 304,311 $ 280,945
(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 Earnings Before Interest, Taxes, Depreciation and Amortization
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.
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Definition of Adjusted EBITDA
We report Adjusted EBITDA as net income adjusted to exclude interest, income tax, amortization of intangibles and depreciation, and to further exclude (1) non-cash compensation expense, (2) non-cash impairment charges, (3) gain/loss on disposal of assets, (4) gain/loss on investments (5) restructuring and severance expenses, (6) litigation settlements and contingencies, (7) acquisitions and dispositions income or expense (including with respect to changes in fair value of contingent consideration), (8) contributions to the LendingTree Foundation, (9) dividend income, and (10) one-time items. 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.
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. 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 loss, the most directly comparable GAAP measure, to Adjusted EBITDA.
Year Ended December 31,
2024 2023
(in thousands)
Net loss $ (41,704) $ (122,404)
Adjustments to reconcile to Adjusted EBITDA:
Amortization of intangibles 5,889 7,694
Depreciation 18,300 19,070
Restructuring and severance 508 10,118
Loss on impairments and disposal of assets 2,584 5,437
Loss on investments 58,376 114,504
Goodwill impairment — 38,600
Non-cash compensation expense 28,579 37,176
Acquisition expense — (5)
Litigation settlements and contingencies 3,797 388
Interest expense (income), net 27,849 (21,685)
Dividend income (4,385) (7,888)
Income tax expense (benefit) 4,320 (2,515)
Adjusted EBITDA $ 104,113 $ 78,490
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Financial Position, Liquidity and Capital Resources
For information on fiscal 2022 results and similar comparisons, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Position, Liquidity and Capital Resources of our Form 10-K for the fiscal year ended December 31, 2023.
General
As of December 31, 2024, we had $106.6 million of cash and cash equivalents, compared to $112.1 million of cash and cash equivalents as of December 31, 2023.
In the third quarter of 2024, we repurchased approximately $7.6 million in principal amount of our 2025 Notes for $7.2 million. In the second quarter of 2024, we repurchased approximately $161.3 million in principal amount of our 2025 Notes for $151.7 million plus accrued and unpaid interest of approximately $0.3 million. As a result of these repurchases, we recognized a gain on the extinguishment of $10.1 million and a loss on the write-off of unamortized debt issuance costs of $1.1 million, both of which are included in interest (expense) income, net in the consolidated statements of operations and comprehensive income.
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, both of which are included in interest income/expense, net in the consolidated statement of operations and comprehensive income.
We expect our cash and cash equivalents and cash flows from operations and available borrowings under our credit facilities to be sufficient to fund our operating needs for the next twelve months and beyond. We will continue to monitor the impact of current economic conditions, including interest rates and inflation on our liquidity and capital resources.
As of December 31, 2024, we have $115.3 million outstanding on the 2025 Notes. We intend to use cash on hand, available borrowings of $50.0 million from the 2024 Term Loan (as defined below), and future cash flows from operations for the repayment of the 2025 Notes.
For more information , see Note 14—Debt, in the notes to the consolidated financial statements included elsewhere in this report.
Equity Distribution Agreement
In July 2024, we entered into an Equity Distribution Agreement in connection with the establishment of an ATM Equity Program (as defined in the 2024 Term Loan (as defined herein) agreement) under which we may sell up to an aggregate of $50.0 million of shares of the our common stock. No sales were made under the Equity Distribution Agreement during 2024.
Credit Facilities
On September 15, 2021, we entered into a credit agreement (the “Credit Agreement”), consisting of a $200.0 million Revolving 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 drew $250.0 million under the Term Loan Facility on May 31, 2022 and used $170.2 million of the proceeds to settle the Company’s 2022 Notes, including interest. The remaining proceeds of $79.8 million may be used for general corporate purposes and any other purposes not prohibited by the Credit Agreement.
As of March 6, 2025, we have outstanding $243.8 million under the 2021 Term Loan and the remaining borrowing capacity is $200.0 million. As of December 31, 2024, we have $20.0 million available for borrowing under the Revolving Facility.
On March 27, 2024, we entered the 2024 Term Loan, a first lien term loan facility 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 were used to pay fees and expenses incurred in connection with the closing of the 2024 Term Loan and delayed draw term loan, and will be used for
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working capital and general corporate purposes, which may include repayment of our 2025 Notes. The funding had a $3.1 million original issue discount and associated debt issuance costs of $4.3 million.
We filed an ATM Shelf Registration (as defined in the 2024 Term Loan agreement) with the SEC in the third quarter of 2024. In the event of a default in the minimum Consolidated EBITDA (as defined in the 2024 Term Loan agreement) covenant in the 2024 Term Loan, we are required to utilize the ATM Equity Program (as defined in the 2024 Term Loan agreement) to sell common stock and use the proceeds to cure the event of default in the minimum Consolidated EBITDA covenant. Additionally, we may use the ATM Equity Program to maintain the $40.0 million minimum cash balance requirement in the 2024 Term Loan.
As of March 6, 2025, we had $115.6 million borrowings outstanding under the 2024 Term Loan.
For additional information on the Credit Facility, see Note 14—Debt in the notes to the consolidated financial statements included elsewhere in this report.
Operating Leases
We have operating lease obligations associated with office space in various cities across the country and office equipment. Our principal executive office is located in Charlotte, North Carolina under an approximate 15-year lease that commenced in the second quarter of 2021. We anticipate cash payments under operating lease obligations of $9.5 million in 2025. See Note 10—Leases in the notes to the consolidated financial statements included elsewhere in this report for more information.
Cash Flows
Our cash flows are as follows:
Year Ended December 31,
2024 2023
(in thousands)
Net cash provided by operating activities $ 62,258 $ 67,571
Net cash used in investing activities $ (11,218) $ (12,478)
Net cash used in financing activities $ (56,502) $ (242,006)
Cash Flows from Operating Activities
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.
Cash from changes in working capital decreased primarily as a result of unfavorable changes in accounts receivable, partially offset by favorable changes accounts payable, accrued expenses and other current liabilities.
Cash Flows from Investing Activities
Net cash used in investing activities in 2024 and 2023 consisted of capital expenditures primarily related to internally developed software of $11.2 million and $12.5 million, respectively.
Cash Flows from Financing Activities
Net cash used in financing activities in 2024 of $56.5 million consisted primarily of the repurchase of the 2025 Notes for $158.8 million, term loan repayments of $12.5 million and $2.2 million in withholding taxes paid upon surrender of shares to satisfy obligations on equity awards, net of proceeds from the employee stock purchase plan and the exercise of stock options offset by $117.6 million net proceeds from the 2024 Term Loan.
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 employee stock purchase plan and the exercise of stock options and $1.9 million repayment of the Term Loan Facility.
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 regarding
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significant areas of judgment. Management is required to make certain estimates and assumptions during the preparation of the consolidated financial statements in accordance with generally accepted accounting principles. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. They also impact the reported amount of net earnings during any period. Actual results could differ from those estimates. Because of the size of the financial statement elements to which they relate, some of our accounting policies and estimates have a more significant impact on our consolidated financial statements than others. A discussion of some of our more significant accounting policies and estimates follows.
Income Taxes
Estimates of current and deferred income taxes and the significant items giving rise to the deferred assets and liabilities are shown in Note 13—Income Taxes in the notes to the consolidated financial statements included elsewhere in this report and reflect management's assessment of actual future taxes to be paid on items reflected in the consolidated financial statements, giving consideration to both timing and the probability of realization. Actual income taxes could vary from these estimates due to future changes in income tax law, state income tax apportionment or the outcome of any review of our tax returns by the IRS and/or state tax authorities, as well as actual operating results that may vary significantly from anticipated results.
We also recognize liabilities for uncertain tax positions based on the two-step process prescribed by the accounting guidance for uncertainty in income taxes. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. This measurement step is inherently difficult and requires subjective estimations of such amounts to determine the probability of various possible outcomes. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.
A valuation allowance is provided on deferred tax assets if it is determined that it is “more likely than not” that the deferred tax asset will not be realized.
During the third quarter of 2022, we established a full valuation allowance against our net deferred tax assets due to historical cumulative pre-tax losses and continued pre-tax losses in the quarter. We regularly review our deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing taxable temporary differences, and tax planning strategies. 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. 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. Should there be a change in the valuation allowance in the future, the income tax provision would increase or decrease in the period in which the allowance is changed.
The indefinite carryforward period for certain deferred tax assets means that indefinite-lived deferred tax liabilities can be considered as support for realization of such deferred tax assets including post December 31, 2017 net operating loss carryovers, which can affect the need to record or maintain a valuation allowance for deferred tax assets.
During 2022, we incurred income tax expense of $139.4 million related to the valuation allowance. At December 31, 2024, 2023 and 2022, we maintained a valuation allowance of $167.5 million, $162.5 million and $145.4 million, respectively, against our net deferred tax assets.
Stock-Based Compensation
The forms of stock-based awards granted to our employees are principally restricted stock units (“RSUs”), RSUs with performance conditions, stock options, and employee stock purchases related to the Employee Stock Purchase Plan (“Employee Stock Purchase Rights”). Further, stock options with market conditions, restricted stock awards (“RSAs”) with performance conditions and RSAs with market conditions have been granted to our Chairman and Chief Executive Officer. The value of RSUs is measured at their grant dates as the fair value of common stock and amortized ratably as non-cash compensation expense over the vesting term. The value of stock options issued and Employee Stock Purchase Rights are generally estimated using a Black-Scholes option pricing model. The value of performance-based grants is measured at their grant dates and recognized as non-cash compensation expense, considering the probability of the targets being achieved. Performance-based grants with a market condition are generally valued using a Monte Carlo simulation model. If an award is modified, we determine if the modification requires a new calculation of fair value or change in the vesting term of the award. See Note 12—Stock-Based Compensation in the notes to the consolidated financial statements included elsewhere in this report for additional information on assumptions and inputs to the fair value determination of stock-based awards.
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Evaluation of Goodwill Impairment
We test goodwill annually for impairment as of October 1, or more frequently upon the occurrence of certain events or substantive changes in circumstances. As part of our annual impairment testing of goodwill, we may elect to assess qualitative factors as a basis for determining whether it is necessary to perform the traditional quantitative impairment testing. If our assessment of these qualitative factors indicates that it is not more likely than not that the fair value of the reporting unit or indefinite-lived intangible asset is less than its carrying value, then no further testing is required. 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, 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.
At June 30, 2022, we assessed the qualitative factors in our impairment testing of goodwill and determined that the effects of the challenging interest rate environment, consumer price inflation, and the decline in our market capitalization required a quantitative impairment test be performed. The quantitative goodwill impairment test found that the fair value of each reporting unit exceeded its carrying amount, indicating no goodwill impairment. The 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 each of the reporting units and the impact of business or economic changes on the fair value of the reporting unit. Changes in the timing of the recovery of the mortgage business, inflation, interest rates and other changes in current expectations could cause an impairment to the Insurance, Mortgage or Consumer reporting units.
The value of goodwill subject to assessment for impairment at December 31, 2024 is $381.5 million.
Recoverability of Long-Lived Assets
We review the carrying value of all long-lived assets, primarily property and equipment, definite-lived intangible assets and operating lease right-of-use assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may be impaired. Impairment is considered to have occurred whenever the carrying value of a long-lived asset cannot be recovered from cash flows that are expected to result from the use and eventual disposition of the asset. This recoverability test requires us to make assumptions and judgments related to factors used in a calculation of undiscounted cash flows, including, but not limited to, management’s expectations for future operations and projected cash flows. 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.
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 $134.6 million at December 31, 2024.
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.
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Any gains or losses are included within other (expense) income in the consolidated statement of operations and comprehensive income.
We incurred impairment charges of $58.4 million and $114.5 million on our investments in equity securities during 2024 and 2023, respectively. 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, 2024 is $1.7 million.
New Accounting Pronouncements
See Note 2—Significant Accounting Policies in the notes to the consolidated financial statements included elsewhere in this report for a description of recent accounting pronouncements.
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