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 2021 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 Overview
LendingTree, 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 statements of cash flows for all periods 27
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presented. Except for the discussion under the heading "Discontinued Operations," the analysis within Management's Discussion and Analysis of Financial Condition and Results of Operations reflects our continuing operations.
Economic Conditions
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 are affecting 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 was most impacted as unsecured credit and the flow of capital in certain areas of the market have contracted. The impact to our Home and Insurance segments was much less substantial. 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 in Stash for$80.0 million . OnJanuary 6, 2021 we acquired an 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. In the fourth quarter of 2021, we sold a portion of our investment in Stash for$46.3 million , realizing a gain on the sale of$27.9 million .
In
Our new corporate office is located on approximately 176,000 square feet of
office space in
With our expansion inNorth Carolina , inDecember 2016 , we received a grant from the state that provides up to$4.9 million in reimbursements through 2029 beginning in 2017 for investing in real estate and infrastructure in addition to increasing jobs inNorth Carolina at specific targeted levels through 2021, 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 an aggregate amount up to$8.4 million in reimbursements through 2032 beginning in 2021 for increasing jobs inNorth Carolina at specific targeted levels through 2024, 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 the
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
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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.
We dynamically adjust selling and marketing expenditures in all interest rate environments to optimize our results against these variables.
According to Freddie Mac, 30-year mortgage interest rates increased from a monthly average of 3.10% inDecember 2021 to a monthly average of 4.17% inMarch 2022 . On a quarterly basis, 30-year mortgage interest rates in the first quarter of 2022 averaged 3.79%, compared to 2.88% in the first quarter of 2021 and 3.08% in the fourth quarter of 2021. [[Image Removed: tree-20220331_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 decreased to 45% of total mortgage origination dollars in the first quarter of 2022 compared to 53% in the fourth quarter of 2021. In the first quarter of 2022, total refinance origination dollars decreased 34% from the fourth quarter of 2021 and 60% from the first quarter of 2021. Industry-wide mortgage origination dollars in the first quarter of 2022 decreased 23% from the fourth quarter of 2021 and 37% from first quarter of 2021. InApril 2022 , the MBA projected 30-year mortgage interest rates to increase during 2022, to an average 4.8% 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 33% for 2022. 29
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The
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 decreased 3% in the first quarter of 2022 compared to the fourth quarter of 2021, and 4% compared to the first quarter of 2021. Fannie Mae predicts an overall decrease in existing-home sales of approximately 9% in 2022 compared to 2021.
Results of Operations for the Three Months ended
Three Months Ended
March 31,
$ %
2022 2021 Change Change
(Dollars in thousands)
Home $ 101,944 $ 128,125 $ (26,181) (20) %
Consumer 101,068 57,907 43,161 75 %
Insurance 80,038 86,614 (6,576) (8) %
Other 128 104 24 23 %
Revenue 283,178 272,750 10,428 4 %Costs and expenses: Cost of revenue (exclusive of depreciation and amortization shown separately below)
15,561 13,895 1,666 12 %
Selling and marketing expense 204,157 197,462 6,695 3 %
General and administrative expense 35,973 34,989 984 3 %
Product development 14,052 12,468 1,584 13 %
Depreciation 4,854 3,718 1,136 31 %
Amortization of intangibles 7,917 11,312 (3,395) (30) %
Change in fair value of contingent consideration - 797 (797) (100) %
Restructuring and severance 3,625 - 3,625 100 %
Litigation settlements and contingencies (27) 16 (43) (269) %
Total costs and expenses 286,112 274,657 11,455 4 %
Operating loss (2,934) (1,907) (1,027) (54) %
Other (expense) income, net:
Interest expense, net (7,505) (10,215) (2,710) (27) %
Other (expense) income (1) 40,072 (40,073) (100) %
(Loss) income before income taxes (10,440) 27,950 (38,390) (137) % Income tax expense
(383) (8,638) (8,255) (96) %
Net (loss) income from continuing operations (10,823) 19,312 (30,135) (156) % Loss from discontinued operations, net of tax
(3) (263) (260) (99) %
Net (loss) income and comprehensive (loss) income $ (10,826) $ 19,049 $ (29,875) (157) %
Revenue
Revenue increased in the first quarter of 2022 compared to the first quarter of
2021 due to an increase in our Consumer segment, partially offset by decreases
in our Home and Insurance segments.
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 $43.2 million in the first quarter of 2022
from the first quarter of 2021, or 75%, primarily due to increases in our
personal loans, credit cards and small business loans.
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Revenue from our credit cards product increased$12.2 million to$29.8 million in the first quarter of 2022 from$17.6 million in the first quarter of 2021, or 69%, primarily due to an increase in revenue earned per approval and an increase in the number of approvals. Revenue from our personal loans product increased$20.3 million to$35.2 million in the first quarter of 2022 from$14.9 million in the first quarter of 2021, or 137%, primarily due to an increase in the number of consumers completing request forms and an increase in revenue earned per consumer. For the periods presented, no other products in our Consumer segment represented more than 10% of revenue; however, certain other Consumer products experienced notable changes primarily due to the impact of economic conditions related to the COVID-19 pandemic. Revenue from our small business loans product increased$10.7 million in the first quarter of 2022 compared to the first quarter of 2021, primarily due to increase in revenue earned per consumer and an increase in the number of consumers completing request forms. 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 decreased$26.2 million in the first quarter of 2022 from the first quarter of 2021, or 20%, primarily due to an decrease in revenue from our refinance mortgage product, partially offset by a increase in our home equity and purchase mortgage products. Revenue from our refinance mortgage product decreased$47.6 million in the first quarter of 2022 compared to the first quarter of 2021, due to a shift in lender focus towards purchase products as well as a decrease in the number of consumers completing request forms as interest rates have risen. Revenue from our home equity loans product increased$12.2 million in the first quarter of 2022 compared to the first quarter of 2021, primarily due to an increase in revenue earned per consumer. Revenue from our purchase mortgage product increased$9.2 million in the first quarter of 2022 compared to the first quarter of 2021, primarily due to a shift in lender focus back towards purchase products as well as an increase in revenue earned per consumer. Revenue from our Insurance segment decreased$6.6 million to$80.0 million in the first quarter of 2022 from$86.6 million in the first quarter of 2021, or 8%, due to an decrease in the number of consumers seeking insurance coverage, partially offset by an increase 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 2022 from the first quarter of 2021, primarily due to a$1.4 million increase in website network hosting and server hosting fees.
Cost of revenue as a percentage of revenue remained consistent at 5% for each of the first quarters of 2022 and 2021.
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 first quarter of 2022 compared to the first quarter of 2021 primarily due to increases in advertising and promotional expense discussed below. Additionally, compensation and benefits increased$1.3 million as a result of an increase in headcount. 31
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Advertising and promotional expense is the largest component of selling and marketing expense, and is comprised of the following:
Three Months Ended March 31,
$ %
2022 2021 Change Change
(Dollars in thousands)
Online $ 182,473 $ 176,821 $ 5,652 3 %
Broadcast 840 1,167 (327) (28) %
Other 5,764 5,715 49 1 %
Total advertising expense $ 189,077 $ 183,703 $ 5,374 3 %
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 first quarter of 2022 compared
to the first quarter of 2021 in response to changes in Network Partner demand on
our marketplace. We will continue to adjust selling and marketing expenditures
dynamically in response to anticipated revenue opportunities.
General and administrative expense
General and administrative expense consists primarily of compensation and other employee-related costs (including stock-based compensation) for personnel engaged in finance, legal, tax, corporate information technology, human resources and executive management functions, as well as facilities and infrastructure costs and fees for professional services.
General and administrative expense increased in the first quarter of 2022 compared to the first quarter of 2021, primarily due to increases in technology and other tax expense of$1.5 million and$1.8 million , respectively. This was partially offset by decreases in compensation and benefits and professional fees of$2.4 million and$1.2 million , respectively.
General and administrative expense as a percentage of revenue remained consistent at 13% for each of the first quarters of 2022 and 2021.
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 2022 compared to the first quarter of 2021 as we continued to invest in internal development of new and enhanced features, functionality and business opportunities that we believe will enable us to better and more fully serve consumers andNetwork Partners .
Amortization of intangibles
The decrease in amortization of intangibles in the first quarter of 2022 compared to the first quarter of 2021 was due to certain intangible assets associated with our recent business acquisitions becoming fully amortized.
Contingent consideration
During the first quarter of 2022, we did not record contingent consideration expense. All earnouts were completed prior to 2022.
During the first quarter of 2021, we recorded an aggregate gain of$0.8 million due to adjustments in the estimated fair value of the earnout payments related to the QuoteWizard acquisition. 32
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Restructuring and severance
In the first quarter of 2022, we completed a workforce reduction of approximately 75 employees. The Company incurred total expense of$3.6 million consisting of employee separation costs of$2.5 million and non-cash compensation expense of$1.1 million due to the accelerated vesting of certain equity awards. All employee separation costs are expected to be paid by the first quarter of 2023.
Interest expense
Interest expense decreased in the first quarter of 2022 compared to the first quarter of 2021 primarily due to the adoption of ASU 2020-06 onJanuary 1, 2022 , whereby we derecognized the remaining debt discounts on the 2022 Notes and 2025 Notes and therefore no longer recognize any amortization of debt discounts as interest expense partially offset by an increase in interest from our Term Loan Facility. See Note-2 Significant Accounting Policies for additional information.
Other income
For the first quarter 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 first quarter of 2022, the effective tax rate varied from the federal statutory rate of 21% primarily due to excess tax expense of$2.5 million and the effect of state taxes. For the first quarter of 2021, the effective tax rate varied from the federal statutory rate of 21% primarily due to the effect of state taxes. Segment Profit Three Months Ended March 31, $ % 2022 2021 Change Change (Dollars in thousands) Home$ 35,909 $ 38,990 $ (3,081) (8) % Consumer 42,507 24,607 17,900 73 % Insurance 21,103 32,842 (11,739) (36) % Other (55) (92) 37 40 % Segment profit$ 99,464 $ 96,347 $ 3,117 3 % Segment profit is our primary segment operating metric. Segment profit is calculated as segment revenue less segment selling and marketing expenses attributed to variable costs paid for advertising, direct marketing and related expenses that are directly attributable to the segments' products. See Note 15-Segment Information in the notes to the consolidated financial statements for additional information on segments and a reconciliation of segment profit to pre-tax income from continuing operations.
Home
Revenue in our Home segment was$101.9 million in the first quarter of 2022, a decrease of 20% from the first quarter of 2021, with segment profit of$35.9 million in the first quarter of 2022, a decrease of 8% from the first quarter of 2021, as we experienced historically high refinance volumes in the first quarter of 2021. The 30-year mortgage interest rates, according to Freddie Mac, increased from a quarterly average of 2.88% in the first quarter 2021 to 3.79% in the first quarter of 2022.
Our leadership position in the mortgage marketplace generated improved unit economics throughout the quarter, even as refinancing activity slowed significantly. Mortgage revenue per consumer increased in the first quarter of 2022 compared to the first quarter of 2021.
Home equity continues to grow as a part of our overall product mix, achieving
record revenue with increases of 112% in the first quarter of 2022 compared to
the first quarter of 2021. Revenue per consumer increased in the first quarter
of 2022 compared to the first quarter of 2021. Purchase revenue increased 90% in
the first quarter of 2022 compared to the first quarter
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of 2021. Persistently low home inventory and higher home prices continue to suppress purchase application volumes nationally, but revenue earned per consumer in this category continues to expand, as lenders are pivoting more towards the product with refinancing activity subsiding.
Our lender partners tend to rely on us even more at this point in the interest rate cycle to help meet their origination goals. In turn, we focus on optimizing higher converting products for them such as cash-out refinance and home equity loans. Despite the recent sharp uptick in interest rates, loans secured with home equity remain the lowest cost source of financing for most consumers that own a home. Consumer Revenue in our Consumer segment increased 75% to$101.1 million in the first quarter of 2022 compared to the first quarter of 2021. Segment profit in our Consumer segment increased 73% to$42.5 million , in the first quarter of 2022 compared to the first quarter of 2021. Personal loans revenue of$35.2 million increased 137% in the first quarter of 2022 from the first quarter of 2021, as consumer demand continued to increase throughout the quarter. We expect this positive trend to continue as credit card balances are increasing at an unprecedented rate and are projected to reach a record level by the middle of this year. Increased card balances should drive increased demand for the product as consumers look to consolidate this higher cost debt with personal loan products. Our credit card business recovery continues, generating revenue of$29.8 million in the first quarter of 2022, an increase of 69% from the first quarter of 2021. Revenue per approval increased in the first quarter of 2022 from the first quarter of 2021, as issuer partners expanded their marketing budgets. We are focused on optimizing the increasing demand for travel reward cards as restrictions continue to lift and mandates expire. Margins in the segment remain lower than historical levels. We are working to diversify our marketing mix, actively pursuing more profitable marketing channels and partnerships to expand our reach and attract more consumers. We expect these actions will lead to improved unit economics over time. Small business growth continues at a strong pace, achieving record revenue in the first quarter, with revenue increasing 138% in the first quarter of 2022 from the first quarter of 2021. Our lender network continues to grow as we onboard additional partners and diversify our marketplace for borrowers. OurPremium Marketplace offering, launched last quarter, sorts incoming borrower traffic into risk tiers. The result is funnel optimization that has driven increased conversions and revenue per lead.
Insurance
We believe the fourth quarter of 2021 was the trough for the Insurance segment, as the challenging underwriting environment for carriers begins to ease with premium rate increases. Our business has begun to recover as a result, with revenue of$80.0 million in the first quarter of 2022, down 8% from the first quarter of 2021 but up 22% from the fourth quarter of 2021, and segment profit of$21.1 million in the first quarter of 2022, down 36% from the first quarter of 2021 and up 1% from the fourth quarter of 2021. We are encouraged by conversations we are having with our carrier partners as they increase marketing budgets. Evidence of returning demand can be seen in our revenue per consumer, which increased in the first quarter of 2022 compared to the first quarter of 2021. The costs of those leads, however, increased as we prioritized quality for our partners, resulting in a 26% margin in the first quarter of 2021, which is significantly lower than the business has historically delivered. We expect improving margins in the second half of the year as partner demand continues to recover and our marketing costs improve. Auto insurance rate increases from our clients are continuing to be approved in states across the country, driving improved appetite for new policy acquisition. Auto revenue in the first quarter of 2022 increased from the fourth quarter of 2021, and we expect growth to continue as the business returns to a normalized operating environment. We remain committed to capturing additional share of carrier budgets by focusing on conversion rate and lead quality and moving quickly to ensure alignment with carrier targets to meet and exceed their goals. Consumer demand, as measured by traffic to our sites, remains strong, and we expect this trend to continue as drivers shop for new policies following these rate increases.
We continue to diversify our Insurance business by entering new markets to expand our growth opportunities and increase market share.
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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, one-time items consisted of the franchise tax caused by the equity investment gain in Stash.
Non-Cash Expenses that are Excluded from Adjusted EBITDA
Non-cash compensation expense consists principally of expense associated with grants of restricted stock, restricted stock units and stock options, some of which awards have performance-based vesting conditions. 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.
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The following table is a reconciliation of net income from continuing operations to Adjusted EBITDA (in thousands).
Three Months Ended
March 31,
2022 2021
Net (loss) income from continuing operations $ (10,823) $ 19,312
Adjustments to reconcile to Adjusted EBITDA:
Amortization of intangibles 7,917 11,312
Depreciation 4,854 3,718
Restructuring and severance 3,625 -
Loss on impairments and disposal of assets 431 348
Gain on investments - (40,072)
Non-cash compensation expense 13,997 16,436
Franchise tax caused by equity investment gain 1,500 -
Change in fair value of contingent consideration - 797
Acquisition expense 9 29
Litigation settlements and contingencies (27) 16
Interest expense, net 7,505 10,215
Income tax expense 383 8,638
Adjusted EBITDA $ 29,371 $ 30,749 Financial Position, Liquidity and Capital Resources
General
As of
In the first quarter of 2022, we acquired an equity interest in
On
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.
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 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 12-Debt for additional information. As ofMay 5, 2022 , we have outstanding a$0.2 million letter of credit under the Revolving Facility and the remaining borrowing capacity under the Revolving Facility is$199.8 million . No term loans have been drawn under the Term Loan Facility as ofMay 5, 2022 . 36
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Cash Flows from Continuing Operations
Our cash flows attributable to continuing operations are as follows:
Three Months Ended
March 31,
2022 2021
(in thousands)
Net cash provided by operating activities
(18,465) (11,733)
Net cash used in financing activities (46,098) (5,000)
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 increased in the first three months of 2022 from the first three months of 2021 primarily due to favorable changes in accounts receivable and accounts payable, accrued expenses and other current liabilities, partially offset by unfavorable changes in prepaid and other current assets.
Cash Flows from Investing Activities
Net cash used in investing activities attributable to continuing operations in the first three months of 2022 of$18.5 million consisted of capital expenditures of$3.5 million primarily related to internally developed software, as well as the purchase of a$15.0 million equity interest in EarnUp. Net cash used in investing activities attributable to continuing operations in the first three months of 2021 of$11.7 million consisted of capital expenditures of$10.6 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.
Cash Flows from Financing Activities
Net cash used in financing activities attributable to continuing operations in the first three months of 2022 of$46.1 million consisted primarily of$43.0 million for the repurchase of our stock and$3.1 million in withholding taxes paid upon surrender of shares to satisfy obligations on equity awards, net of proceeds from the exercise of stock options. Net cash used in financing activities attributable to continuing operations in the first three months of 2021 of$5.0 million consisted primarily of $$4.8 million in withholding taxes paid upon surrender of shares to satisfy obligations on equity awards, net of proceeds from the exercise of stock options.
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.
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