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MarketScreener Homepage  >  Equities  >  Nasdaq  >  LendingTree, Inc.    TREE

LENDINGTREE, INC.

(TREE)
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LENDINGTREE : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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04/29/2019 | 06:14am EDT
Cautionary Statement Regarding Forward-Looking Information
This report contains "forward-looking statements" within the meaning of the
Securities Act of 1933 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 identify 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 and Part I, Item 1A.
Risk Factors of the 2018 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 report 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 report. 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 LendingTree, LLC and several companies owned
by LendingTree, LLC.
LendingTree operates 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, reverse mortgage loans, auto loans, credit
cards, deposit accounts, personal loans, student loans, small business loans,
insurance quotes 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, or products, 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 partners.
Our My LendingTree platform offers a personalized loan comparison-shopping
experience by providing free credit scores and credit score analysis. This
platform enables us to observe consumers' credit profiles and then identify and
alert them to loans and other offerings on our marketplace that may be more
favorable than the terms they may have at a given point in time. This is
designed to provide consumers with measurable savings opportunities over their
lifetimes.
We are focused on developing new product offerings and enhancements to improve
the experiences that consumers and Network Partners have as they interact with
us. 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, and
to leverage the widespread recognition of the LendingTree brand to effect this
strategy.
We believe the consumer and small business financial services industry is still
in the early stages of a fundamental shift to online product offerings, similar
to the shift that started in retail and travel many years ago and is now well
established. We believe that like retail and travel, as consumers continue to
move toward 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 partner
network place us in a strong position to continue to benefit from this market
shift.
The LendingTree Loans business is presented as discontinued operations in the
accompanying consolidated balance sheets, consolidated statements of operations
and comprehensive income and consolidated cash flows for all periods presented.
Except for the discussion under the heading "Discontinued Operations," the
analysis within Management's Discussion and Analysis of Financial Condition and
Results of Operations reflects our continuing operations.

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Recent Business Acquisitions
On January 10, 2019, we acquired Value Holding, Inc., the parent company of
ValuePenguin Inc. ("ValuePenguin"), a personal finance website that offers
consumers objective analysis on a variety of financial topics from insurance to
credit cards, for $106.2 million. We believe that combining ValuePenguin's
high-quality content and search engine optimization capability with recently
acquired proprietary technology and insurance carrier network from
QuoteWizard.com, LLC ("QuoteWizard") enables us to provide immense value to
carriers and agents. This strategic acquisition positions us to achieve further
scale in the insurance space as well as the broader financial services industry.
On October 31, 2018, we acquired QuoteWizard, one of the largest insurance
comparison marketplaces in the growing online insurance advertising market, for
$299.9 million in cash at the closing of the transaction, subject to
post-closing adjustments to working capital and potential contingent
consideration payments of up to $70.2 million through October 2021, subject to
achieving specific targets. QuoteWizard services clients by driving consumers to
insurance companies' websites, providing leads to agents and carriers, as well
as phone transfers of consumers into carrier call centers. This acquisition has
established LendingTree as a leading player in the online insurance advertising
industry, while continuing our ongoing diversification within the financial
services category.
On July 23, 2018, we acquired Student Loan Hero, Inc. ("Student Loan Hero") for
$62.7 million in cash, of which $2.3 million was recognized as severance expense
in our consolidated statements of operations and comprehensive income. Student
Loan Hero, a personal finance website dedicated to helping student loan
borrowers manage their student debt, offers current and former students in-depth
financial comparison tools, educational resources, and unbiased, personalized
advice. This strategic transaction allows us to scale our student loan business
and provide consumers with the tools and resources to better understand their
personal finances and make smarter financial decisions.
On June 11, 2018, we acquired Ovation Credit Services, Inc. ("Ovation"), a
leading provider of credit services with a strong customer service reputation
for $12.1 million in cash and potential contingent consideration payments of up
to $8.75 million through June 2020, subject to achieving specified targets.
Ovation utilizes a proprietary software application that facilitates the credit
repair process and is integrated directly with certain credit bureaus while
educating consumers on credit improvement via ongoing outreach with Ovation case
advisors. The proprietary software application offers consumers a simple,
streamlined process to identify, dispute, and correct inaccuracies within their
credit reports. Ovation's experienced management team, strong credit bureau
relationships and customized software platform enable us to help more consumers
achieve their original financial goals through the LendingTree platform.
These acquisitions continue our diversification strategy.
North Carolina Office Properties
In December 2016, we completed the acquisition of two office buildings in
Charlotte, North Carolina, for $23.5 million in cash. The buildings were
acquired with the intent to use such buildings as our corporate headquarters and
rent any unused space. In November 2018, the office buildings were classified as
held for sale. In February 2019, the Company agreed to sell these buildings to
an unrelated third party, which agreement was amended in March 2019. For
additional information, see Note 6-Assets Held for Sale in the notes to the
consolidated financial statements included elsewhere in this report.
With our expansion in North Carolina, in December 2016, we received a grant from
the state that provides up to $4.9 million in reimbursements over 12 years
beginning in 2017 for investing in real estate and infrastructure in addition to
increasing jobs in North Carolina at specific targeted levels through 2020, and
maintaining the jobs thereafter. Additionally, the city of Charlotte and the
county of Mecklenburg provided a grant that will be paid over five years and is
based on a percentage of new property tax we pay on the development of a
corporate headquarters. In December 2018, we received an additional grant from
the state that provides up to $8.4 million in reimbursements over 12 years
beginning in 2020 for increasing jobs in North Carolina at specific targeted
levels through 2023, and maintaining the jobs thereafter.
Seasonality
Revenue in our lending business is subject to cyclical and seasonal trends. Home
sales (and purchase mortgages) typically rise during the spring and summer
months and decline during the fall and winter months, while refinancing and home
equity activity is principally driven by mortgage interest rates as well as real
estate values. However, in certain historical periods additional factors
affecting the mortgage and real estate markets, such as the 2008-2009 financial
crisis and ensuing recession have impacted customary seasonal trends.
We anticipate revenue in our newer products to be cyclical as well; however, we
have limited historical data to predict the nature and magnitude of this
cyclicality. Based on industry data, we anticipate as our personal loan product
matures we will

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experience less consumer demand during the fourth and first quarters of each
year. We also anticipate less consumer demand for credit cards in the fourth
quarter of each year and we anticipate higher consumer demand for deposit
accounts in the first quarter of each year. The majority of consumer demand for
in-school student loan products occurs in the third quarter coinciding with
collegiate enrollment in late summer. Other factors affecting our business
include macro factors such as credit availability in the market, interest rates,
the strength of the economy and employment.
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 can be
adversely affected by the overall reduced demand for refinancing in a rising
rate environment. These factors combined to cause lower revenue earned per
consumer for mortgage products in the first quarter of 2019 compared to the
prior year quarter.
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 have decreased
steadily during 2019 to a monthly average of 4.27% in March 2019. On a quarterly
basis, 30-year mortgage interest rates in the first quarter of 2019 averaged
4.37%, as compared to 4.27% in the first quarter of 2018 and 4.78% in the fourth
quarter of 2018.
               [[Image Removed: mdaq1historicalmixchart2019.jpg]]

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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 moves towards purchase mortgages. According to Mortgage
Bankers Association ("MBA") data, total refinance origination dollars increased
to 30% of total mortgage origination dollars in the first quarter of 2019 from
26% in the fourth quarter of 2018, while total purchase origination dollars
decreased to 70% of total mortgage origination dollars in the first quarter of
2019 from 74% in the fourth quarter of 2018. In the first quarter of 2019, total
refinance origination dollars decreased 24% from the first quarter of 2018 and
4% from the fourth quarter of 2018.
Looking forward, MBA is projecting 30-year mortgage interest rates to remain
relatively consistent through the end of the year. According to MBA projections,
the current mix of mortgage origination dollars will move toward purchase
mortgages in the second quarter of 2019 resulting in the projected annual
refinance share representing approximately 26% for 2019 compared to 28% in 2018.
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 the National Association of Realtors ("NAR"), low inventory
continues to contribute to declining home sales. The NAR expects a decrease of
1% in existing home sales in 2019 from 2018.
Results of Operations for the Three Months ended March 31, 2019 and 2018
                                                           Three Months Ended March 31,
                                                                               $          %
                                                       2019       2018      Change     Change
                                                              (Dollars in thousands)
Mortgage products                                   $ 45,984$ 73,462$ (27,478 )    (37 )%
Non-mortgage products                                216,406    107,573     108,833      101  %
Revenue                                              262,390    181,035      81,355       45  %
Costs and expenses:
Cost of revenue (exclusive of depreciation and
amortization shown separately below)                  17,670      5,696      11,974      210  %
Selling and marketing expense                        174,891    126,044      48,847       39  %
General and administrative expense                    31,117     22,814       8,303       36  %
Product development                                   10,166      6,260       3,906       62  %
Depreciation                                           2,482      1,671         811       49  %
Amortization of intangibles                           13,427      3,963       9,464      239  %

Change in fair value of contingent consideration 14,592 (741 ) 15,333 2,069 % Severance

                                                 54          -          54      N/A
Litigation settlements and contingencies                (207 )      (22 )      (185 )    841  %
Total costs and expenses                             264,192    165,685      98,507       59  %
Operating (loss) income                               (1,802 )   15,350     (17,152 )   (112 )%
Other (expense) income, net:
Interest expense, net                                 (5,468 )   (2,988 )     2,480       83  %
Other income                                              68         34          34      100  %
(Loss) income before income taxes                     (7,202 )   12,396     (19,598 )   (158 )%
Income tax benefit                                     7,752     23,461     (15,709 )    (67 )%
Net income from continuing operations                    550     35,857     (35,307 )    (98 )%

Loss from discontinued operations, net of tax (1,062 ) (4,333 ) (3,271 ) (75 )% Net (loss) income and comprehensive (loss) income $ (512 )$ 31,524$ (32,036 ) (102 )%

Revenue

Revenue increased in the first quarter of 2019 compared to the first quarter of 2018 due to an increase in our non-mortgage products of $108.8 million, partially offset by a decrease in our mortgage products of $27.5 million.


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Our non-mortgage products include the following non-mortgage lending products:
credit cards, personal loans, home equity loans and lines of credit, small
business loans, student loans, reverse mortgage loans and auto loans. Our
non-mortgage products also include insurance quotes, deposit accounts, home
improvement referrals and other credit products such as credit repair and debt
settlement. Revenue earned through resale of online advertising space to third
parties is also included in non-mortgage products. Many of our non-mortgage
products are not individually significant to revenue. The increase in revenue
from our non-mortgage products in the first quarter of 2019 from the first
quarter of 2018 is primarily due to increases in our insurance, credit cards,
personal loans, credit services, student loans and small business loans
products, as well as resold advertising space.
Revenue from our insurance product increased to $67.1 million in the first
quarter of 2019 from an immaterial amount in the first quarter of 2018, due to
the acquisition of QuoteWizard in the fourth quarter of 2018.
Revenue from our credit cards product increased $8.4 million to $54.5 million in
the first quarter of 2019 from $46.1 million in the first quarter of 2018, or
18%, due to increases in click traffic sent to issuers, partially offset by a
decrease in revenue earned per approval.
Revenue from our personal loans product increased $6.5 million to $32.5 million
in the first quarter of 2019 from $26.0 million in the first quarter of 2018, or
25%, due to an increased number of consumers completing request forms as a
result of increased lender demand and corresponding increases in selling and
marketing efforts, partially offset by a decrease in revenue earned per
consumer.
For the periods presented, no other non-mortgage product represented more than
10% of revenue, however certain other non-mortgage products experienced notable
increases. Revenue from the resale of online advertising space to third parties
was $8.4 million in the first quarter of 2019. We did not have revenue from the
resale of online advertising space to third parties in the first quarter of
2018. Revenue from our credit services product increased by $5.2 million in the
first quarter of 2019 compared to the first quarter of 2018, due to the
acquisition of Ovation in the second quarter of 2018. Revenue from our student
loans product increased by $5.2 million in the first quarter of 2019 compared to
the first quarter of 2018, due to increased consumers and increased revenue
earned per consumer, primarily due to the acquisition of Student Loan Hero in
July of 2018. Revenue from our small business loans product increased by $5.1
million in the first quarter of 2019 compared to the first quarter of 2018, due
to increases in the number of consumers seeking business loans, increases in
selling and marketing efforts, and increased revenue earned per consumer.
We believe the market for our non-mortgage products remains under-penetrated and
we believe long-term growth prospects are strong for non-mortgage products. A
significant industry-wide contraction in the availability of capital for
non-mortgage products would likely adversely affect our non-mortgage product
revenues.
Revenue from our mortgage products decreased in the first quarter of 2019
compared to the first quarter of 2018 due to a decrease in revenue from both our
refinance and purchase products. Revenue from our refinance product decreased
$20.5 million in the first quarter of 2019 compared to the first quarter of 2018
due to a decrease in the number of consumers completing request forms as a
result of fewer consumers seeking refinancing in a period of higher interest
rates, as well as a decrease in revenue earned per consumer. Revenue from our
purchase product decreased $7.0 million in the first quarter of 2019 compared to
the first quarter of 2018 due to a decrease in the number of consumers
completing request forms, as well as 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, costs for online advertising resold to third parties, credit scoring fees,
credit card fees, website network hosting and server fees.
Cost of revenue increased in the first quarter of 2019 from the first quarter of
2018, primarily due to increases of $7.3 million for the cost of resold
advertising space and $3.1 million in compensation and benefits as a result of
increases in headcount.
Cost of revenue as a percentage of revenue increased to 7% in the first quarter
of 2019 compared to 3% in the first quarter of 2018 due to the items above.

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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. The increase in selling and marketing expense in the first quarter of 2019 compared to the first quarter of 2018 was primarily due to increases in advertising and promotional expense of $44.6 million, as discussed below. Selling and marketing expense also increased in the first quarter of 2019 compared to the first quarter of 2018 due to increases in compensation and benefits of $4.3 million as a result of increases in headcount. Advertising and promotional expense is the largest component of selling and marketing expense, and is comprised of the following:

                                   Three Months Ended March 31,
                                                        $           %
                             2019         2018        Change     Change
                                      (Dollars in thousands)
Online                    $ 148,939$ 111,420$ 37,519       34  %
Broadcast                    10,535        3,240       7,295      225  %
Other                         3,112        3,368        (256 )     (8 )%

Total advertising expense $ 162,586$ 118,028$ 44,558 38 %



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
both mortgage and non-mortgage products.
We increased our advertising expenditures in the first quarter of 2019 compared
to the first quarter of 2018 in order to generate additional consumer inquiries
to meet the increased demand of Network Partners on our marketplace. We will
continue to adjust selling and marketing expenditures dynamically in relation 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 increased in the first quarter of 2019 from
the first quarter of 2018 primarily due to increases in compensation and
benefits of $3.3 million as a result of increases in headcount. General and
administrative expense also increased in the first quarter of 2019 compared to
the first quarter of 2018 due to increases of $1.0 million in franchise taxes,
$0.9 million in facilities expense and $0.9 million in technology expense.
General and administrative expense as a percentage of revenue remained
relatively consistent at 12% in the first quarter of 2019 compared to 13% in the
first quarter of 2018.
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 increased in the first quarter of 2019 compared to
the first quarter of 2018, as we continued to invest in internal development of
new and enhanced features, functionality and business opportunities that we
believe will enable us to better and more fully serve consumers and lenders.

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Depreciation

The increase in depreciation expense in the first quarter of 2019 compared to
the first quarter of 2018 was primarily the result of higher investment in
internally developed software in recent years, to support the growth of our
business.
Amortization of intangibles
Amortization of intangibles increased in the first quarter of 2019 compared to
the first quarter of 2018 primarily due to intangible assets associated with our
business acquisitions in 2018 and 2019.
Contingent consideration
During the first quarter of 2019, we recorded an aggregate of $14.6 million of
contingent consideration expense due to adjustments in the estimated fair value
of the earnout payments related to our recent acquisitions. For the first
quarter of 2019, the contingent consideration expense for the SnapCap
acquisition and the QuoteWizard acquisition was $1.6 million and $14.4 million,
respectively. This was partially offset by contingent consideration gains
recorded for the DepositAccounts acquisition and the Ovation acquisition of $0.8
million and $0.6 million, respectively.
During the first quarter of 2018, we recorded a net $0.7 million gain due to
adjustments in the estimated fair value of the earnout payments related to our
recent acquisitions. For the first quarter of 2018, we recored a $2.1 million
gain for the SnapCap acquisition. This was partially offset by contingent
consideration expense for the CompareCards acquisition and the DepositAccounts
acquisition of $0.5 million and $0.9 million, respectively.
Income tax expense
For the first quarter of 2019 and the first quarter of 2018, the effective tax
rate varied from the federal statutory rate of 21% primarily due to a tax
benefit of $6.0 million and $27.2 million, respectively, recognized for excess
tax benefits due to employee exercises of stock options and vesting of
restricted stock in accordance with ASU 2016-09 and the effect of state taxes.
There have been no changes to our valuation allowance assessment for the first
quarter of 2019.
Discontinued operations
Losses from discontinued operations are attributable to losses associated with
the LendingTree Loans business, the sale of which was completed on June 6, 2012.
Losses from discontinued operations were primarily due to litigation settlements
and contingencies and legal fees associated with ongoing legal proceedings.
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
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 from continuing operations adjusted to
exclude interest, income tax, amortization of intangibles and depreciation, and
to further exclude (1) non-cash compensation expense, (2) non-cash impairment
charges, (3) gain/loss on disposal of assets, (4) restructuring and severance
expenses, (5) litigation settlements and contingencies, (6) acquisitions and
dispositions income or expense (including with respect to changes in fair value
of contingent consideration) and (7) 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.

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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 in this
report, 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 income from continuing operations
to Adjusted EBITDA (in thousands).
                                                       Three Months Ended
                                                            March 31,
                                                        2019          2018
Net income from continuing operations               $      550$ 35,857
Adjustments to reconcile to Adjusted EBITDA:
Amortization of intangibles                             13,427        3,963
Depreciation                                             2,482        1,671
Severance                                                   54            -
Loss on disposal of assets                                 218           92
Non-cash compensation expense                           14,053       11,109

Change in fair value of contingent consideration 14,592 (741 ) Acquisition expense

                                        119           62
Litigation settlements and contingencies                  (207 )        (22 )
Interest expense, net                                    5,468        2,988

Rental amortization of intangibles and depreciation - 202 Income tax benefit

                                      (7,752 )    (23,461 )
Adjusted EBITDA                                     $   43,004$ 31,720


Financial Position, Liquidity and Capital Resources
General
As of March 31, 2019, we had $64.6 million of cash and cash equivalents compared
to $105.1 million of cash and cash equivalents as of December 31, 2018.
In the first quarter of 2019, we purchased an aggregate of 17,501 shares of our
common stock pursuant to a stock repurchase program for $4.0 million.
In January 2019, we acquired ValuePenguin for $106.1 million in cash at closing
of the transaction, subject to adjustments for working capital. The acquisition
was funded through $90.0 million drawn on our Revolving Credit Facility and the
balance using cash on hand.
During the first quarter of 2019, we paid down $30 million on our Revolving
Credit Facility.

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During the first quarter of 2019, we made contingent consideration payments of
$3.0 million and $1.0 million, respectively, related to prior acquisitions of
SnapCap and DepositAccounts. We made an additional contingent consideration
payment of $2.0 million in April 2019 for DepositAccounts.
We could make additional potential contingent consideration payments of up to
$1.0 million for DepositAccounts, $6.0 million for SnapCap, $8.75 million for
Ovation, and $70.2 million for QuoteWizard.
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 amended and restated revolving credit facility described below is an
additional potential source of liquidity.
Senior Secured Revolving Credit Facility
On October 26, 2018, we amended our five-year senior secured revolving credit
facility which matures on November 21, 2022 (the "Revolving Credit Facility") to
increase its borrowing capacity by $100.0 million to $350.0 million. Borrowings
under the Revolving Credit Facility can be used to finance working capital
needs, capital expenditures and general corporate purposes, including to finance
permitted acquisitions. As of April 26, 2019, we have $155.0 million of
borrowings under the Revolving Credit Facility.
Cash Flows from Continuing Operations
Our cash flows attributable to continuing operations are as follows:
                                                              Three Months Ended March 31,
                                                                 2019               2018
                                                                     (in thousands)
Net cash provided by operating activities                  $      23,269$      17,675
Net cash used in investing activities                           (110,405 )            (3,500 )
Net cash provided by (used in) financing activities               49,408             (33,618 )


Cash Flows from Operating Activities
Our largest source of cash provided by our operating activities is revenues
generated by our mortgage and non-mortgage products. Our primary uses of cash
from our operating activities include advertising and promotional payments. In
addition, our uses of cash from operating activities include compensation and
other employee-related costs, other general corporate expenditures, litigation
settlements and contingencies, certain contingent consideration payments and
income taxes.
Net cash provided by operating activities attributable to continuing operations
increased in the first quarter of 2019 from the first quarter of 2018 due
primarily to an increase in revenue, partially offset by an increase in selling
and marketing expense and cost of revenue. Additionally, there was a net
decrease in cash from changes in working capital primarily driven by changes in
accounts receivable, partially offset by changes in accounts payable, accrued
expenses and other current liabilities.
Cash Flows from Investing Activities
Net cash used in investing activities attributable to continuing operations in
the first quarter of 2019 of $110.4 million consisted primarily of the
acquisition of ValuePenguin for $105.4 million, net of cash acquired, and
capital expenditures of $5.0 million primarily related to internally developed
software.
Net cash used in investing activities attributable to continuing operations in
the first quarter of 2018 of $3.5 million consisted primarily of capital
expenditures related to internally developed software.
Cash Flows from Financing Activities
Net cash provided by financing activities attributable to continuing operations
in the first quarter of 2019 of $49.4 million consisted primarily of $60.0
million of net proceeds from our Revolving Credit Facility, partially offset by
$4.0 million for the repurchase of our stock, $3.6 million in withholding taxes
paid upon surrender of shares to satisfy obligations on equity awards, net of
proceeds from the exercise of stock options and $3.0 million of contingent
consideration payments for SnapCap.

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Net cash used in financing activities attributable to continuing operations in
the first quarter of 2018 of $33.6 million consisted primarily of $23.5 million
of contingent consideration payments for CompareCards and DepositAccounts and
$12.1 million for the repurchase of our stock, partially offset by $2.1 million
in proceeds from the exercise of stock options, net of payments of withholding
taxes upon surrender of shares to satisfy obligations on equity awards.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements other than our funding commitments
pursuant to our surety bonds, none of which have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to investors.
New Accounting Pronouncements
For information regarding new accounting pronouncements, see Note 2-Significant
Accounting Policies, in Part I, Item 1 Financial Statements.
Item 3.  Quantitative and Qualitative Disclosures about Market Risk
Other than our Revolving Credit Facility, we do not have any financial
instruments that are exposed to significant market risk. We maintain our cash
and cash equivalents in bank deposits and short-term, highly liquid money market
investments. A hypothetical 100-basis point increase or decrease in market
interest rates would not have a material impact on the fair value of our cash
equivalents securities, or our earnings on such cash equivalents, but would have
an effect on the interest paid on borrowings under the Revolving Credit
Facility, if any. As of April 26, 2019, there was $155.0 million borrowed under
the Revolving Credit Facility. Increases in the Federal Funds interest rates may
also affect contingent consideration payable to DepositAccounts. See Note
7-Business Acquisitions-Changes in Contingent Consideration-DepositAccounts in
Part I, Item 1. Financial Statements.

Fluctuations in interest rates affect consumer demand for new mortgages and the
level of refinancing activity which, in turn, affects lender demand for mortgage
leads. 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 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. See also the risk factor "Adverse conditions in the primary and
secondary mortgage markets, as well as the general economy, could materially and
adversely affect our business, financial condition and results of operations,"
in Part I, Item 1A (Risk Factors) in our 2018 Annual Report.
Item 4.  Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), management, with the participation of our principal
executive officer (our Chief Executive Officer) and principal financial officer
(our Chief Financial Officer), evaluated, as of the end of the period covered by
this report, the effectiveness of our disclosure controls and procedures as
defined in Exchange Act Rule 13a-15(e). Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective, as of March 31, 2019, to reasonably
ensure that information required to be disclosed and filed under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified, and that management will be timely alerted to material information
required to be included in our periodic reports filed with the Securities and
Exchange Commission.

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Changes in Internal Control Over Financial Reporting There was no change in our internal control over financial reporting that occurred during the quarter ended March 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.



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