LENDINGTREE, INC. 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 identifies forward-looking statements. Actual results could differ materially from those contained in the forward-looking statements. Factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include those matters discussed or referenced in Part II, Item 1A. Risk Factors included elsewhere in this quarterly report and Part I, Item 1A. Risk Factors of the 2020 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 ofLendingTree, 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 OverviewLendingTree, Inc. is the parent ofLT Intermediate Company, LLC , which holds all of the outstanding ownership interests ofLendingTree, LLC , andLendingTree, 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 ourNetwork Partners , including mortgage loans, home equity loans, 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 theseNetwork Partners . Our My LendingTree platform offers a personalized comparison-shopping experience by providing free credit scores and credit score analysis. This platform enables us to monitor consumers' credit profiles and then identify and alert them to loans and other offerings on our marketplace that may be more favorable than the terms they may have at a given point in time. This is designed to provide consumers with measurable savings opportunities over their lifetimes. We are focused on developing new product offerings and enhancements to improve the experiences that consumers andNetwork 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 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 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 32 -------------------------------------------------------------------------------- Table of Contents for the discussion under the heading "Discontinued Operations," the analysis within Management's Discussion and Analysis of Financial Condition and Results of Operations reflects our continuing operations. Economic Conditions DuringMarch 2020 , a global pandemic was declared by theWorld Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus ("COVID-19"). The pandemic has significantly impacted the economic conditions in theU.S. , as federal, state and local governments react to the public health crisis, creating significant uncertainties in theU.S. economy. The downstream impact of various lockdown orders and related economic pullback affected our business and marketplace participants to varying degrees. We are continuously monitoring the impacts of the current economic conditions related to the COVID-19 pandemic and the effect on our business, financial condition and results of operations. Of our three reportable segments, the Consumer segment has been most impacted. The impact to our Home and Insurance segments was much less substantial and these segments recovered by the end of 2020. While forecasting the timeline of full recovery for the Consumer segment remains challenging, the momentum of recovery has increased in each quarter subsequent to the onset of the COVID-19 pandemic. We are encouraged by the progress made, and continue to view the Consumer segment with optimism over the medium to long term. Most of our selling and marketing expenses are variable costs that we adjust dynamically in relation to revenue opportunities to profitably meet demand. Thus, as our revenue was negatively impacted during the recession, our marketing expenses generally decreased in line with revenue. Segment Reporting We have three reportable segments: Home, Consumer and Insurance. Recent Business Acquisitions OnFebruary 28, 2020 , we acquired an equity interest inStash Financial, Inc. ("Stash") for$80.0 million . OnJanuary 6, 2021 , we acquired additional equity interest for$1.2 million . Stash is a consumer investing and banking platform. Stash brings together banking, investing, and financial services education into one seamless experience offering a full suite of personal investment accounts, traditional andRoth IRAs , custodial investment accounts, and banking services, including checking accounts and debit cards with a Stock-Back® rewards program. InOctober 2021 , we entered into a stock transfer agreement with third parties to sell a portion of our Stash equity securities. See Note 7-Equity Investment and Note 18-Subsequent Event for additional information on the equity interest in Stash.North Carolina Office Properties Our new corporate office is located on approximately 176,000 square feet of office space inCharlotte, North Carolina under an approximate 15-year lease that contractually commenced inApril 2021 . With our expansion inNorth Carolina , inDecember 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 inNorth Carolina at specific targeted levels through 2020, and maintaining the jobs thereafter. Additionally, the city ofCharlotte and the county ofMecklenburg 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. InDecember 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 inNorth Carolina at specific targeted levels through 2023, and maintaining the jobs thereafter. 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 theU.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 33 -------------------------------------------------------------------------------- Table of Contents 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. 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 generally increased from a monthly average of 2.68% inDecember 2020 to a monthly average of 2.90% inSeptember 2021 . On a quarterly basis, 30-year mortgage interest rates in the third quarter of 2021 averaged 2.87%, compared to 2.95% in the third quarter of 2020 and 3.00% in the second quarter of 2021. [[Image Removed: tree-20210930_g2.jpg]] 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 toMortgage Bankers Association ("MBA") data, total refinance origination dollars remained relatively consistent at 55% of total mortgage origination dollars in the third quarter of 2021 compared to 56% in the second quarter of 2021. In the third quarter of 2021, total refinance origination dollars decreased 15% from the second quarter of 2021 and decreased 31% from the third quarter of 2020. Industry-wide mortgage origination dollars in the third quarter of 2021 decreased 13% from the second quarter of 2021 and decreased 21% from the third quarter of 2020. InOctober 2021 , the MBA projected 30-year mortgage interest rates to increase during 2021, to an average 3.1% for the year. According to MBA projections, the mix of mortgage origination dollars is expected to move back towards purchase mortgages with the refinance share representing approximately 59% for 2021. 34 -------------------------------------------------------------------------------- Table of Contents TheU.S. Real Estate Market The health of theU.S. real estate market and interest rate levels are the primary drivers of consumer demand for new mortgages. Consumer demand, in turn, affects lender demand for purchase mortgage leads from third-party sources. Typically, a strong real estate market will lead to reduced lender demand for leads, as there are more consumers in the marketplace seeking financing and, accordingly, lenders receive more organic lead volume. Conversely, a weaker real estate market will typically lead to an increase in lender demand, as there are fewer consumers in the marketplace seeking mortgages. According to Fannie Mae data, existing-home sales increased 2% in the third quarter of 2021 compared to the second quarter of 2021, and decreased 3% compared to the third quarter of 2020. Fannie Mae predicts an overall increase in existing-home sales of approximately 6% in 2021 compared to 2020. Results of Operations for the Three and Nine Months endedSeptember 30, 2021 and 2020 Three Months Ended September 30, Nine Months Ended September 30, $ % $ % 2021 2020 Change Change 2021 2020 Change Change (Dollars in thousands) Home$ 112,422 $ 78,859 $ 33,563 43 %$ 345,408 $ 232,156 $ 113,252 49 % Consumer 100,011 48,377 51,634 107 % 233,594 205,419 28,175 14 % Insurance 84,837 92,500 (7,663) (8) % 260,714 248,156 12,558 5 % Other 180 515 (335) (65) % 498 1,930 (1,432) (74) % Revenue 297,450 220,251 77,199 35 % 840,214 687,661 152,553 22 % Costs and expenses: Cost of revenue (exclusive of depreciation and amortization shown separately below) 15,020 13,220 1,800 14 % 42,849 40,936 1,913 5 % Selling and marketing expense 206,475 154,670 51,805 33 % 589,143 464,129 125,014 27 % General and administrative expense 40,126 33,705 6,421 19 % 114,926 94,276 20,650 22 % Product development 13,384 11,477 1,907 17 % 39,142 33,252 5,890 18 % Depreciation 4,808 3,535 1,273 36 % 12,969 10,463 2,506 24 % Amortization of intangibles 10,345 13,090 (2,745) (21) % 32,967 40,603 (7,636) (19) % Change in fair value of contingent consideration (196) 6,658 (6,854) (103) % (8,249) 7,711 (15,960) (207) % Severance 47 - 47 100 % 47 190 (143) (75) % Litigation settlements and contingencies 22 13 9 69 % 360 (983) 1,343 137 % Total costs and expenses 290,031 236,368 53,663 23 % 824,154 690,577 133,577 19 % Operating income (loss) 7,419 (16,117) 23,536 146 % 16,060 (2,916) 18,976 651 % Other (expense) income, net: Interest expense, net (11,826) (16,617) (4,791) (29) % (31,881) (26,406) 5,475 21 % Other income - - - - % 40,072 7 40,065 n/a (Loss) income before income taxes (4,407) (32,734) (28,327) (87) % 24,251 (29,315) 53,566 183 % Income tax benefit 1 7,925 (7,924) (100) % 455 14,866 (14,411) (97) % Net (loss) income from continuing operations (4,406) (24,809) (20,403) (82) % 24,706 (14,449) 39,155 271 % (Loss) income from discontinued operations, net of tax (54) 166 (220) (133) % (3,516) (25,550) (22,034) (86) % Net (loss) income and comprehensive (loss) income$ (4,460) $ (24,643) $ (20,183) (82) %$ 21,190 $ (39,999) $ 61,189 153 % Revenue Revenue increased in the third quarter of 2021 compared to the third quarter of 2020 due to increases in our Consumer and Home segments, partially offset by decreases in our Insurance segment and Other category. Revenue increased in the first nine months of 2021 compared to the first nine months of 2020 due to increases in our Home, Consumer and Insurance segments, partially offset by a decrease in our Other category. 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 increased$51.6 million in the third quarter of 2021 from the third quarter of 2020, or 107%, primarily due to increases in our personal loans, credit cards, and small business loans products. Revenue from our Consumer segment increased$28.2 million in the first nine months of 35 -------------------------------------------------------------------------------- Table of Contents 2021 from the first nine months of 2020, or 14%, primarily due to increases in our personal loans and small business loans products. Revenue from our personal loans product increased$21.3 million to$33.8 million in the third quarter of 2021 from$12.5 million in the third quarter of 2020, or 170%, due to an increase in the number of consumers completing request forms as well as an increase in revenue earned per consumer. Revenue from our personal loans product increased$21.1 million to$73.9 million in the first nine months of 2021 from$52.8 million in the first nine months of 2020, or 40%, primarily due to an increase in revenue earned per consumer, partially offset by a decrease in the number of consumers completing request forms. 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 increased$20.3 million in the third quarter of 2021 compared to the third quarter of 2020, due to an increase in the number of approvals and an increase in revenue earned per approval. Revenue from our small business loans product increased$11.4 million in the third quarter of 2021 compared to the third quarter of 2020, and increased$12.5 million in the first nine months of 2021 compared to the first nine months of 2020, due to loosening underwriting standards and improved flow of capital, as well as an increase in revenue earned per consumer. The ongoing COVID-19 pandemic is anticipated to continue to impact our Consumer product revenues in the near-term. Our Home segment includes the following products: purchase mortgage, refinance mortgage, home equity loans, reverse mortgage loans, and real estate. Revenue from our Home segment increased$33.6 million in the third quarter of 2021 from the third quarter of 2020, or 43%, primarily due to increases in revenue from our refinance mortgage, purchase mortgage, and home equity loans products. Revenue from our Home segment increased$113.3 million in the first nine months of 2021 from the first nine months of 2020, or 49%, primarily due to increases in revenue from those same products. Revenue from our refinance mortgage product increased$12.6 million in the third quarter of 2021 compared to the third quarter of 2020, and increased$77.3 million in the first nine months of 2021 compared to the first nine months of 2020, due to an increase in revenue earned per consumer, partially offset by a decrease in the number of consumers completing request forms. Revenue from our home equity loans product increased$11.9 million in the third quarter of 2021 compared to the third quarter of 2020, and increased$21.8 million in the first nine months of 2021 compared to the first nine months of 2020. Revenue from our purchase mortgage product increased$9.1 million in the third quarter of 2021 compared to the third quarter of 2020, and increased$14.6 million in the first nine months of 2021 compared to the first nine months of 2020. Revenue from our home equity loans product and our purchase mortgage product increased due to a shift in both lender and consumer focus away from refinance products as well as an increase in revenue earned per consumer. Revenue from our Insurance segment decreased$7.7 million to$84.8 million in the third quarter of 2021 from$92.5 million in the third quarter of 2020, or 8%, due to a decrease in revenue earned per consumer, partially offset by an increase in the number of consumers seeking insurance coverage. Revenue from our Insurance segment increased$12.6 million to$260.7 million in the first nine months of 2021 from$248.2 million in the first nine months of 2020, or 5%, due to an increase in the number of consumers seeking insurance coverage, partially offset by a decrease in revenue earned per consumer. Revenue in the Other category decreased$1.4 million in the first nine months of 2021 compared to the first nine months of 2020, primarily as we ceased reselling online advertising space during the first quarter of 2020. 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 third quarter of 2021 from the third quarter of 2020, primarily due to an increase in compensation and benefits of$1.3 million . Cost of revenue increased in the first nine months of 2021 from the first nine months of 2020, primarily due to an increase in compensation and benefits of$3.1 million , partially offset by a$2.3 million decrease in credit card fees. Cost of revenue as a percentage of revenue decreased to 5% in the third quarter and first nine months of 2021 compared to 6% in the third quarter and first nine months of 2020. 36 -------------------------------------------------------------------------------- Table of Contents Selling and marketing expense Selling and marketing expense consists primarily of advertising and promotional expenditures and compensation and other employee-related costs (including stock-based compensation) for personnel engaged in sales or marketing functions. Advertising and promotional expenditures primarily include online marketing, as well as television, print and radio spending. Advertising production costs are expensed in the period the related ad is first run. Selling and marketing expense increased in the third quarter and first nine months of 2021 compared to the third quarter and first nine months of 2020 primarily due to the increases in advertising and promotional expense discussed below. Advertising and promotional expense is the largest component of selling and marketing expense, and is comprised of the following: Three Months Ended September 30, Nine Months Ended September 30, $ % $ % 2021 2020 Change Change 2021 2020 Change Change (Dollars in thousands)
Online$ 185,214 $ 136,496 $ 48,718 36 %$ 527,073 $ 405,993 $ 121,080 30 % Broadcast 3,065 2,662 403 15 % 6,881 12,140 (5,259) (43) % Other 3,268 2,967 301 10 % 12,891 9,588 3,303 34 % Total advertising expense$ 191,547 $ 142,125 $ 49,422 35 %$ 546,845 $ 427,721 $ 119,124 28 % 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 the third quarter and first nine months of 2021 compared to the third quarter and first nine months of 2020 in response to changes in Network Partner demand on our marketplace as a result of the ongoing COVID-19 pandemic discussed above. We will continue to adjust selling and marketing expenditures dynamically in relation to this and 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 increased in the third quarter of 2021 compared to the third quarter of 2020, primarily due to increases in compensation and benefits of$4.3 million and technology expense of$1.3 million . General and administrative expense increased in the first nine months of 2021 compared to the first nine months of 2020, primarily due to increases in compensation and benefits, technology expense, and facilities expense of$14.5 million ,$3.6 million , and$2.4 million , respectively. General and administrative expense as a percentage of revenue decreased to 13% in the third quarter of 2021 compared to 15% in the third quarter of 2020, and remained consistent at 14% in both the first nine months of 2021 and 2020. 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 third quarter and first nine months of 2021 compared to the third quarter and first nine months of 2020 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 andNetwork Partners . 37 -------------------------------------------------------------------------------- Table of Contents Depreciation The increase in depreciation expense in the third quarter and first nine months of 2021 compared to the third quarter and first nine months of 2020 was primarily the result of depreciation on assets related to our new corporate office, which lease contractually commenced in the second quarter of 2021. Amortization of intangibles The decrease in amortization of intangibles in the third quarter and first nine months of 2021 compared to the third quarter and first nine months of 2020 was due to certain intangible assets associated with our recent business acquisitions becoming fully amortized. Contingent consideration During the third quarter and first nine months of 2021, we recorded contingent consideration gains of$0.2 million and$8.2 million , respectively, due to adjustments in the estimated fair value of the remaining earnout payment related to the QuoteWizard acquisition. During the third quarter and first nine months of 2020, we recorded aggregate contingent consideration expense of$6.7 million and$7.7 million , respectively, due to adjustments in the estimated fair value of the earnout payments related to our recent acquisitions. For the third quarter of 2020, the contingent consideration expense for the QuoteWizard and Ovation acquisitions was$6.6 million and$0.1 million , respectively. For the first nine months of 2020, the contingent consideration expense for the QuoteWizard, Ovation and SnapCap acquisitions was$6.4 million ,$1.3 million and$0.1 million , respectively. Interest expense Interest expense decreased in the third quarter of 2021 compared to the third quarter of 2020, primarily due to a loss on debt extinguishment of$7.8 million recognized upon the partial repurchase of the 0.625% Convertible Senior Notes dueJune 1, 2022 (the "2022 Notes") inJuly 2020 . Interest expense increased in the first nine months of 2021 compared to the first nine months of 2020 primarily due to the issuance of the 0.50% Convertible Senior Notes dueJuly 15, 2025 (the "2025 Notes") as well as the partial repurchase of the 2022 Notes inJuly 2020 . Interest expense was recognized on the 2025 Notes during the entire first nine months of 2021, compared to a partial period of the first nine months of 2020. This incremental interest expense was partially offset by lower interest expense on the 2022 Notes in the first nine months of 2021 compared to the first nine months of 2020 as a result of theJuly 2020 partial repurchase of the notes. The overall increase was further offset by the loss on debt extinguishment of$7.8 million recognized inJuly 2020 , noted above. See Note 13-Debt for additional information on the issuance of the 2025 Notes and the partial repurchase of the 2022 Notes. Other income For the first nine months of 2021, other income primarily consists of a$40.1 million gain on our investment in Stash as a result of an adjustment to the fair value based on observable market events. See Note 7-Equity Investment for additional information on the equity interest in Stash. Income tax expense For the third quarter and first nine months of 2021, the effective tax rate varied from the federal statutory rate of 21% in part due to an excess tax expense of$0.9 million and an excess tax benefit of$7.4 million , respectively, resulting from employee exercises of stock options and vesting of restricted stock in accordance with ASU 2016-09 and the effect of state taxes. For the third quarter and first nine months of 2020, the effective tax rate varied from the federal statutory rate of 21% in part due to a tax benefit of$0.2 million and$2.0 million , respectively, recognized for excess tax benefits resulting from employee exercises of stock options and vesting of restricted stock in accordance with ASU 2016-09 and the effect of state taxes. The effective tax rate for the first nine months of 2020 was also impacted by a tax benefit of$6.1 million for the impact 38 -------------------------------------------------------------------------------- Table of Contents of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. See Note 12-Income Taxes for additional information. Discontinued operations The results of discontinued operations include the results of the LendingTree Loans business formerly operated by our wholly-owned subsidiary,Home Loan Center, Inc. , or HLC. The sale of substantially all of the assets of HLC, including the LendingTree Loans business, was completed onJune 6, 2012 . HLC filed a petition under Chapter 11 of the United States Bankruptcy Code onJuly 21, 2019 , which was converted to Chapter 7 of the United States Bankruptcy Code onSeptember 16, 2019 . As a result of the voluntary bankruptcy petition, as of the initialJuly 21, 2019 bankruptcy petition filing date, HLC and its consolidated subsidiary were deconsolidated from LendingTree's consolidated financial statements. The effect of such deconsolidation was the elimination of the consolidated assets and liabilities of HLC (and its consolidated subsidiary) from LendingTree's consolidated balance sheets. During the HLC bankruptcy, a bar date for claims against HLC was set, establishing a deadline for all HLC's creditors to assert any claim they may have had against HLC. Distributions were made to holders of allowed claims deemed timely filed. After all distributions to creditors were made andHLC's Chapter 7 bankruptcy estate was fully administered, the HLC bankruptcy case was closed onJuly 14, 2021 . Prior to the bankruptcy filing, losses from the LendingTree Loans business were primarily due to litigation settlements and contingencies and legal fees associated with legal proceedings. The results of discontinued operations include litigation settlements and contingencies and legal fees associated with legal proceedings againstLendingTree, Inc. orLendingTree, LLC that arose due to the LendingTree Loans business or the HLC bankruptcy filing. See Note 17-Discontinued Operations to the consolidated financial statements included elsewhere in this report for more information. Segment Profit Three Months Ended September 30, Nine Months Ended September 30, $ % $ % 2021 2020 Change Change 2021 2020 Change Change (Dollars in thousands) Home$ 41,517 $ 25,166 $ 16,351 65 %$ 119,524 $ 99,803 $ 19,721 20 % Consumer 44,716 21,647 23,069 107 % 102,717 84,148 18,569 22 % Insurance 26,610 37,043 (10,433) (28) % 92,690 97,698 (5,008) (5) % Other 97 2 95 4,750 % (44) (245) 201 82 % Segment profit$ 112,940 $ 83,858 $ 29,082 35 %$ 314,887 $ 281,404 $ 33,483 12 % Segment profit is our primary segment operating metric. Segment profit is calculated as segment revenue less segment selling and marketing expenses attributed to variable costs paid for advertising, direct marketing and related expenses that are directly attributable to the segments' products. See Note 16-Segment Information in the notes to the consolidated financial statements for additional information on segments and a reconciliation of segment profit to pre-tax income from continuing operations. Consumer segment profit increased$23.1 million in the third quarter of 2021 from the third quarter of 2020, and increased$18.6 million in the first nine months of 2021 from the first nine months of 2020, primarily due to an increase in revenue, partially offset by a corresponding increase in selling and marketing expense. We continue to build momentum in the Consumer segment amid increased demand from both consumers and ourNetwork Partners . Lender demand in our personal loans product is strong, with new lenders joining our marketplace during the third quarter of 2021. While consumer demand for our personal loans product has been relatively muted in part due to government stimulus programs, we expect demand to return to pre-pandemic levels as consumer savings balances begin to normalize. Credit card issuer budgets and payouts continue to increase; however, the profitability of our credit card product remains constrained as we continue to re-invest incremental revenue into the product to capture wallet share. Within our small business loans product, our concierge business continues to be an 39 -------------------------------------------------------------------------------- Table of Contents important growth driver following the conclusion of the Paycheck Protection Program. Our student loans product benefited from the annual in-school lending season, but remains constrained due to reduced lender budgets. While demand for student loan refinancing has decreased with the moratorium on federal student loan payments extended toJanuary 2022 , we expect demand to return once the moratorium concludes. We continue to view the Consumer segment with optimism and are pleased with the pace of its recovery. Home segment profit increased$16.4 million in the third quarter of 2021 from the third quarter of 2020, and increased$19.7 million in the first nine months of 2021 from the first nine months of 2020, primarily due to an increase in revenue, partially offset by a corresponding increase in selling and marketing expense. While refinance activity decelerates from the peak experienced earlier this year, the Home segment continues to perform well as we are an integral part of ourNetwork Partners' marketing model. Mortgage revenue per lead increased 78%, and home equity revenue per lead increased 79%, in the third quarter of 2021 compared to the third quarter of 2020. While there is uncertainty over the interest rate environment and corresponding impact to refinance activity, we are confident in our market-leading position, key partner status, and flexible business model. Insurance segment profit decreased$10.4 million in the third quarter of 2021 from the third quarter of 2020, primarily due to a decrease in revenue and an increase in selling and marketing expense. Insurance segment profit decreased$5.0 million in the first nine months of 2021 from the first nine months of 2020, primarily due to an increase in selling and marketing expense, partially offset by an increase in revenue. The Insurance segment experienced challenging market factors in the third quarter of 2021. Personal lines insurance carriers are experiencing rising loss costs as the economy reopens and drivers return to the road. Higher catastrophe losses from major storms have also pressured carrier earnings, resulting in an industry-wide reduction in carrier marketing budgets. We view these factors as transitory and are optimistic that the Insurance segment will return to historic earnings and growth in the near term. Our investments in other insurance categories, including our Medicare agency, property and casualty agency, and in-dealership automobile product, continue to make significant progress and provide diversification benefits. Our inbound channel continued to deliver record performance and we observed significant growth in the home category as we increasingly leverage our presence in the mortgage industry. Adjusted EBITDA We report Adjusted EBITDA as a supplemental measure to GAAP. This measure is the primary metric by which we evaluate the performance of our businesses, on which our marketing expenditures and internal budgets are based and by which, in most years, management and many employees are compensated. We believe that investors should have access to the same set of tools that we use in analyzing our results. This non-GAAP measure should be considered in addition to results prepared in accordance with GAAP but should not be considered a substitute for or superior to GAAP results. We provide and encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measures discussed below. Definition of Adjusted EBITDA We report Adjusted EBITDA as net income from continuing operations adjusted to exclude interest, income tax, amortization of intangibles and depreciation, and to further exclude (1) non-cash compensation expense, (2) non-cash impairment charges, (3) gain/loss on disposal of assets, (4) gain/loss on investments, (5) restructuring and severance expenses, (6) litigation settlements and contingencies, (7) acquisitions and dispositions income or expense (including with respect to changes in fair value of contingent consideration), and (8) 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 withSEC rules. For the periods presented below, there are no adjustments for one-time items. 40 -------------------------------------------------------------------------------- Table of Contents Non-Cash Expenses that are Excluded from Adjusted EBITDA Non-cash compensation expense consists principally of expense associated with grants of restricted stock, restricted stock units and stock options, some of which awards have performance-based vesting conditions. Non-cash compensation expense also includes expense associated with employee stock purchase plans. These expenses are not paid in cash, and we include the related shares in our calculations of fully diluted shares outstanding. Upon settlement of restricted stock units, exercise of certain stock options or vesting of restricted stock awards, the awards may be settled, on a net basis, with us remitting the required tax withholding amount from our current funds. Amortization of intangibles are non-cash expenses relating primarily to intangible assets acquired through acquisitions. At the time of an acquisition, the intangible assets of the acquired company, such as purchase agreements, technology and customer relationships, are valued and amortized over their estimated lives. The following table is a reconciliation of net income from continuing operations to Adjusted EBITDA (in thousands). Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Net (loss) income from continuing operations$ (4,406) $ (24,809) $ 24,706 $ (14,449) Adjustments to reconcile to Adjusted EBITDA: Amortization of intangibles 10,345 13,090 32,967 40,603 Depreciation 4,808 3,535 12,969 10,463 Severance 47 - 47 190 Loss on impairments and disposal of assets 1,251 134 2,651 686 Unrealized gain on investments - - (40,072) - Non-cash compensation expense 17,074 14,161 51,804 39,236 Change in fair value of contingent consideration (196) 6,658 (8,249) 7,711 Acquisition expense 227 205 1,366 2,405 Litigation settlements and contingencies 22 13 360 (983) Interest expense, net 11,826 16,617 31,881 26,406 Income tax expense (benefit) (1) (7,925) (455) (14,866) Adjusted EBITDA$ 40,997 $ 21,679 $ 109,975 $ 97,402 Financial Position, Liquidity and Capital Resources General As ofSeptember 30, 2021 , we had$215.3 million of cash and cash equivalents, compared to$169.9 million of cash and cash equivalents as ofDecember 31, 2020 . In the first quarter of 2021, we acquired additional equity interest in Stash for$1.2 million . See Note 7-Equity Investment to the consolidated financial statements included elsewhere in this report for additional information on the equity interest in Stash. We expect our cash and cash equivalents and cash flows from operations to be sufficient to fund our operating needs for the next twelve months and beyond. Our credit facility described below is an additional potential source of liquidity. We will continue to monitor the impact of the ongoing COVID-19 pandemic on our liquidity and capital resources. We expect our cashflow from operating activities to be negatively impacted by the economic recession. Credit Facility OnSeptember 15, 2021 , we entered into a credit agreement (the "Credit Agreement"), consisting of a$200.0 million revolving credit facility (the "Revolving Facility"), which matures onSeptember 15, 2026 , and a$250.0 million delayed draw term loan facility (the "Term Loan Facility" and together with the Revolving Facility, the "Credit Facility"), which matures onSeptember 15, 2028 to the extent the loans thereunder will be drawn. The delayed draw commitments under the Term Loan 41 -------------------------------------------------------------------------------- Table of Contents Facility will be available untilJune 1, 2022 . 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. The proceeds of the Term Loan Facility can be used to settle the Company's 2022 Notes, including related fees, costs and expenses, and up to$80.0 million may be used for general corporate purposes and any other purposes not prohibited by the Credit Agreement. See Note 13-Debt for additional information. As ofOctober 28, 2021 , we have outstanding a$0.2 million letter of credit under the Revolving Facility, and the remaining borrowing capacity is$199.8 million . No term loans have been drawn under the Term Loan Facility as ofOctober 28, 2021 . Cash Flows from Continuing Operations Our cash flows attributable to continuing operations are as follows: Nine Months Ended September 30, 2021 2020 (in thousands) Net cash provided by operating activities$ 88,893 $
96,216
Net cash used in investing activities (31,695)
(100,386)
Net cash (used in) provided by financing activities (15,192) 197,375
Cash Flows from Operating Activities Our largest source of cash provided by our operating activities is revenues generated by our products. Our primary uses of cash from our operating activities include advertising and promotional payments. In addition, our uses of cash from operating activities include compensation and other employee-related costs, other general corporate expenditures, litigation settlements and contingencies, certain contingent consideration payments, and income taxes. Net cash provided by operating activities attributable to continuing operations decreased in the first nine months of 2021 from the first nine months of 2020 primarily due to unfavorable changes in accounts receivable, partially offset by favorable changes in accounts payable, accrued expenses and other current liabilities, and income taxes receivable. Cash Flows from Investing Activities Net cash used in investing activities attributable to continuing operations in the first nine months of 2021 of$31.7 million consisted of capital expenditures of$30.5 million primarily related to internally developed software and leasehold improvements for our new principal corporate offices, as well as the purchase of an additional$1.2 million equity interest in Stash, described above. Net cash used in investing activities attributable to continuing operations in the first nine months of 2020 of$100.4 million consisted of the initial purchase of an$80.0 million equity interest in Stash and capital expenditures of$20.4 million primarily related to internally developed software and leasehold improvements for our new principal corporate offices. Cash Flows from Financing Activities Net cash used in financing activities attributable to continuing operations in the first nine months of 2021 of$15.2 million consisted primarily of$6.7 million in withholding taxes paid upon surrender of shares to satisfy obligations on equity awards, net of proceeds from the exercise of stock options, as well as$6.0 million for the payment of debt issuance costs and$2.5 million paid for the original issue discount on the undrawn Term Loan Facility. Net cash provided by financing activities attributable to continuing operations in the first nine months of 2020 of$197.4 million consisted primarily of$575.0 million of gross proceeds from the issuance of the 2025 Notes, partially offset by$233.9 million paid to repurchase a portion of the 2022 Notes, a net$47.4 million paid for convertible note hedge and warrant transactions,$75.0 million of net repayments on our revolving credit facility, and$16.4 million for the payment of debt issuance costs. 42 -------------------------------------------------------------------------------- Table of Contents Off-Balance Sheet Arrangements We have no off-balance sheet arrangements other than a letter of credit and 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 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 Credit Facility, if any. As ofOctober 28, 2021 , there were no borrowings under the Credit Facility. 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. 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 ofSeptember 30, 2021 , 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 theSecurities and Exchange Commission . Changes in Internal Control Over Financial Reporting There was no change in our internal control over financial reporting that occurred during the quarter endedSeptember 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. 43
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