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 2019 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 ofLendingTree, LLC and several companies owned byLendingTree, LLC . 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 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 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 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 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 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. 28
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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 social distancing 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 has been and is expected to be most impacted as unsecured credit and the flow of capital in certain areas of the market have contracted. Within our Consumer segment, each of credit card, personal loan, and small business is anticipated to see reductions of as much as 60-80% in near-term lender demand for our services reflecting those lenders' uncertainty over the length and depth of the economic recession. The impact to our Home and Insurance segments is anticipated to be 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 is negatively impacted during the recession, we anticipate our marketing expenses will generally decrease in line with revenue. Segment Reporting We have three reportable segments: Home, Consumer and Insurance. We changed our reportable segments in the fourth quarter of 2019, and prior period results have been reclassified to conform with this change in reportable segments. Recent Business Acquisitions OnJanuary 10, 2019 , we acquiredValue Holding Inc. , the parent company ofValuePenguin 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 . Combining ValuePenguin's high-quality content and search engine optimization capability with proprietary technology and insurance carrier network from 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. OnFebruary 28, 2020 , we acquired an equity interest inStash Financial, Inc. ("Stash") for$80.0 million . Stash is a consumer investing and banking platform. Stash brings together banking, investing, and 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.North Carolina Office Properties InDecember 2016 , we completed the acquisition of two office buildings inCharlotte, 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. InNovember 2018 , the office buildings were classified as held for sale. InMay 2019 , we sold these buildings to an unrelated third party for a sale price of$24.4 million . 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 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. 29
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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 declined during 2020
to a monthly average of 3.45% in
[[Image Removed: mdaq12020historicalmixchart.jpg]] Typically, as mortgage interest rates decline, there are more consumers in the marketplace seeking refinancings and, accordingly, the mix of mortgage origination dollars will move towards refinance mortgages. According toMortgage Bankers Association ("MBA") data, total refinance origination dollars remained relatively consistent at 54% of total mortgage origination dollars in the first quarter of 2020 compared to 55% in the fourth quarter of 2019. In the first quarter of 2020, total refinance origination dollars increased 215% from the first quarter of 2019 and decreased 20% from the fourth quarter of 2019. InApril 2020 , the MBA projected 30-year mortgage interest rates to remain relatively consistent through the end of the year. According to MBA projections, the refinance share of total mortgage origination dollars is projected to represent approximately 49% for 2020. 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 theNational Association of Realtors ("NAR"), the COVID-19 pandemic contributed to a slowdown in existing-home sales at the end of the first quarter of 2020. Existing-home sales increased minimally in the first quarter of 2020 over the fourth quarter of 2019, but still experienced a 5% increase over the first quarter of 2019. The NAR expects continued temporary interruptions to existing-home sales in the following months, and predicts an overall decrease of 13.5% in 2020 compared to 2019. 30
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Results of Operations for the Three Months ended
Three Months Ended March 31, $ % 2020 2019 Change Change (Dollars in thousands) Home$ 79,174 $ 63,437 $ 15,737 25 % Consumer 119,924 120,729 (805 ) (1 )% Insurance 82,737 67,092 15,645 23 % Other 1,249 11,132 (9,883 ) (89 )% Revenue 283,084 262,390 20,694 8 % Costs and expenses: Cost of revenue (exclusive of depreciation and amortization shown separately below) 14,252 17,670 (3,418 ) (19 )% Selling and marketing expense 195,538 174,891 20,647 12 % General and administrative expense 32,082 31,117 965 3 % Product development 10,963 10,166 797 8 % Depreciation 3,378 2,482 896 36 % Amortization of intangibles 13,757 13,427 330 2 %
Change in fair value of contingent consideration (8,122 ) 14,592 (22,714 ) (156 )% Severance
158 54 104 193 % Litigation settlements and contingencies 329 (207 ) 536 259 % Total costs and expenses 262,335 264,192 (1,857 ) (1 )% Operating income (loss) 20,749 (1,802 ) 22,551 1,251 % Other (expense) income, net: Interest expense, net (4,834 ) (5,468 ) (634 ) (12 )% Other income - 68 68 100 % Income (loss) before income taxes 15,915 (7,202 ) 23,117 321 % Income tax benefit 3,061 7,752 (4,691 ) (61 )% Net income from continuing operations 18,976 550 18,426 3,350 %
Loss from discontinued operations, net of tax (4,575 ) (1,062 ) 3,513 331 %
Net income (loss) and comprehensive income (loss)
Revenue
Revenue increased in the first quarter of 2020 compared to the first quarter of
2019 due to increases in our Home and Insurance segments, partially offset by a
decrease in our Other category.
Our Home segment includes the following products: purchase mortgage, refinance
mortgage, home equity loans and lines of credit, reverse mortgage loans, and
real estate. Revenue from our Home segment increased
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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 remained relatively consistent in the first quarter of 2020 from the first quarter of 2019, primarily due to decreases in our credit cards, personal loans and student loans products, partially offset by increases in our small business loans and deposit accounts products. Revenue from our credit cards product decreased$2.9 million to$51.6 million in the first quarter of 2020 from$54.5 million in the first quarter of 2019, or 5%, due to decreases in the number of approvals and a decrease in revenue earned per approval and the impact of the economic conditions primarily related to the COVID-19 pandemic in lateMarch 2020 . Revenue from our personal loans product decreased$1.0 million to$31.5 million in the first quarter of 2020 from$32.5 million in the first quarter of 2019, or 3%, primarily due to a decrease in revenue earned per consumer partially offset by an increase in the number of consumers completing request forms and the impact of the economic conditions related to the COVID-19 pandemic in lateMarch 2020 . 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 student loans product decreased$3.3 million in the first quarter of 2020 compared to the first quarter of 2019 due to a decrease in the number of consumers on our marketplace seeking student loans. Revenue from our small business loans product increased$4.4 million in the first quarter of 2020 compared to the first quarter of 2019 due to increases in the number of consumers seeking business loans and an increase in revenue earned per consumer. Revenue from our deposit accounts product increased by$1.7 million in the first quarter of 2020 compared to the first quarter of 2019 due to increased Network Partner demand. The ongoing COVID-19 pandemic is anticipated to significantly impact our Consumer product revenues in the near-term due to the significant industry-wide contraction in the availability of capital for products in the Consumer segment, specifically credit cards, small business loans and personal loans, as discussed above. Our Other category includes revenue from the resale of online advertising space to third parties and revenue from home improvement referrals. Revenue in the Other category decreased$9.9 million in the first quarter of 2020 compared to the first quarter of 2019, as we ceased offering home improvement referrals during the first quarter of 2019 and 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 decreased in the first quarter of 2020 from the first quarter of 2019, primarily due to a$6.2 million decrease for the cost of resold advertising space, partially offset by a$1.2 million increase in compensation and benefits as a result of increases in headcount. We ceased reselling online advertising space during the first quarter of 2020. Cost of revenue as a percentage of revenue decreased to 5% in the first quarter of 2020 compared to 7% in the first quarter of 2019 due to the items above. 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 2020 compared to the first quarter of 2019 was primarily due to increases in advertising and promotional expense of$21.2 million , as discussed below. 32
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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, $ % 2020 2019 Change Change (Dollars in thousands) Online$ 173,081 $ 148,939 $ 24,142 16 % Broadcast 6,324 10,535 (4,211 ) (40 )% Other 4,362 3,112 1,250 40 %
Total advertising expense
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 increased our advertising expenditures in the first quarter of 2020 compared to the first quarter of 2019 in order to generate additional consumer inquiries to meet the increased demand ofNetwork Partners on our marketplace. We will continue to adjust selling and marketing expenditures dynamically in relation to anticipated revenue opportunities and in response to changes in Network Partner demand as a result of the ongoing COVID-19 pandemic discussed above. 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 2020 from the first quarter of 2019, primarily due to increases in professional fees of$2.5 million , technology expense of$1.1 million and facilities expense of$0.7 million . The increase in general and administrative expense was partially offset by a decrease in compensation and benefits of$2.8 million , primarily due to a decrease in bonus and certain equity awards that vested in 2019. General and administrative expense as a percentage of revenue decreased to 11% in the first quarter of 2020 compared to 12% in the first quarter of 2019. 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 2020 compared to the first quarter of 2019 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 . Depreciation The increase in depreciation expense in the first quarter of 2020 compared to the first quarter of 2019 was primarily the result of higher investment in internally developed software in recent years, to support the growth of our business. Contingent consideration During the first quarter of 2020, we recorded an aggregate gain of$8.1 million due to adjustments in the estimated fair value of the earnout payments related to our recent acquisitions. For the first quarter of 2020, the gain related to the QuoteWizard acquisition was$8.3 million , partially offset by contingent consideration expense for the Ovation acquisition of$0.1 million . 33
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During the first quarter of 2019, we recorded aggregate contingent consideration expense of$14.6 million 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 QuoteWizard and SnapCap acquisitions was$14.4 million and$1.6 million , respectively. This was partially offset by contingent consideration gains recorded for the DepositAccounts and Ovation acquisitions of$0.7 million and$0.6 million , respectively. Income tax expense For the first quarter of 2020, the effective tax rate varied from the federal statutory rate of 21% in part due to a tax benefit of$1.1 million 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, as well as a tax benefit of$6.1 million for the impact of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, as described below. OnMarch 27, 2020 ,President Trump signed into law the CARES Act. This legislation is an economic relief package in response to the public health and economic impacts of COVID-19 and includes various provisions that impact us, including, but not limited to, modifications for net operating losses, accelerated timeframe for refunds associated with prior minimum taxes and modifications of the limitation on business interest. We revalued deferred tax assets related to net operating losses in light of the changes in the CARES Act, and recorded a net tax benefit of$6.1 million during the first quarter of 2020. These deferred tax assets are being revalued, as they will be carried back to 2016 and 2017, which are tax periods prior to the Tax Cuts and Jobs Act ("TCJA") when the federal statutory tax rate was 35% versus the 21% federal statutory tax rate in effect after the enactment of the TCJA. For the first quarter of 2019, the effective tax rate varied from the federal statutory rate of 21% primarily due to a tax benefit of$6.0 million 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. 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. Prior to the bankruptcy filing, losses from the LendingTree Loans business were primarily due to litigation settlements and contingencies and legal fees associated with ongoing legal proceedings. The results of discontinued operations include litigation settlements and contingencies and legal fees associated with ongoing 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, including the accounting effect of HLC's bankruptcy filing on our consolidated financial statements. 34
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Table of Contents Segment Profit Three Months Ended March 31, $ % 2020 2019 Change Change (Dollars in thousands) Home$ 35,911 $ 23,921 $ 11,990 50 % Consumer 43,099 53,974 (10,875 ) (20 )% Insurance 30,533 27,864 2,669 10 % Other (328 ) 759 (1,087 ) (143 )%
Segment profit
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. Home segment profit and Insurance segment profit increased$12.0 million and$2.7 million , respectively, in the first quarter of 2020 from the first quarter of 2019, primarily due to an increase in revenue, partially offset by corresponding increases in selling and marketing expense. Consumer segment profit decreased$10.9 million in the first quarter of 2020 from the first quarter of 2019, primarily due to a decrease in revenue. Additionally, selling and marketing expenses in our Consumer segment increased as a percentage of revenue in the first quarter of 2020 compared to the first quarter of 2019. 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. 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. 35
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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, 2020 2019 Net income from continuing operations$ 18,976 $ 550 Adjustments to reconcile to Adjusted EBITDA: Amortization of intangibles 13,757 13,427 Depreciation 3,378 2,482 Severance 158 54 Loss on impairments and disposal of assets 530 218 Non-cash compensation expense 11,917 14,053
Change in fair value of contingent consideration (8,122 ) 14,592 Acquisition expense
2,180 119 Litigation settlements and contingencies 329 (207 ) Interest expense, net 4,834 5,468 Income tax benefit (3,061 ) (7,752 ) Adjusted EBITDA$ 44,876 $ 43,004 Financial Position, Liquidity and Capital Resources General As ofMarch 31, 2020 , we had$51.2 million of cash and cash equivalents, compared to$60.2 million of cash and cash equivalents as ofDecember 31, 2019 . In the first quarter of 2020, we acquired an equity interest in Stash for$80.0 million . The investment was funded through$80.0 million drawn on our Amended Revolving Credit Facility. See Note 7-Equity Investment to the consolidated financial statements included elsewhere in this report for more information. During the first quarter of 2020, we paid down$25.0 million on our Amended Revolving Credit Facility. During the first quarter of 2020, we made a contingent consideration payment of$3.0 million related to the prior acquisition of SnapCap. We could make additional potential contingent consideration payments of up to$1.0 million for DepositAccounts,$3.0 million for SnapCap,$4.4 million for Ovation, and$46.8 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 revolving 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. 36
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Senior Secured Revolving Credit Facility OnDecember 10, 2019 , we entered into an amended and restated$500.0 million five-year senior secured revolving credit facility, which matures onDecember 10, 2024 (the "Amended Revolving Credit Facility"). Borrowings under the Amended Revolving Credit Facility can be used to finance working capital needs, capital expenditures and general corporate purposes, including to finance permitted acquisitions. As ofMay 5, 2020 , we have$130.0 million of borrowings and a$0.2 million letter of credit under the Amended Revolving Credit Facility. The remaining borrowing capacity atMay 5, 2020 is$369.8 million . Cash Flows from Continuing Operations Our cash flows attributable to continuing operations are as follows: Three Months EndedMarch 31, 2020 2019 (in thousands)
Net cash provided by operating activities
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 quarter of 2020 from the first quarter of 2019 primarily due to an increase in revenue, generally offset by an increase in selling and marketing expense. Additionally, there was a net increase 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 and income taxes receivable. Cash Flows from Investing Activities Net cash used in investing activities attributable to continuing operations in the first quarter of 2020 of$84.2 million consisted of the purchase of an$80.0 million equity interest in Stash and capital expenditures of$4.2 million primarily related to internally developed software. 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. Cash Flows from Financing Activities Net cash provided by financing activities attributable to continuing operations in the first quarter of 2020 of$46.6 million consisted primarily of$55.0 million of net proceeds from our Amended Revolving Credit Facility, partially offset by$5.1 million in withholding taxes paid upon surrender of shares to satisfy obligations on equity awards, net of proceeds from the exercise of stock options, and a$3.0 million contingent consideration payment for SnapCap. 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 2017 Revolving Credit Facility, partially offset by$4.0 million for the repurchase of our common 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 a$3.0 million contingent consideration payment for SnapCap. 37
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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 Amended 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 Amended Revolving Credit Facility, if any. As ofMay 5, 2020 , there was$130.0 million borrowed under the Amended Revolving Credit Facility. If the LIBO rate increased by 100-basis points, our annual interest expense would increase by approximately$1.3 million . Increases in the Federal Funds interest rates may also affect potential contingent consideration payments to DepositAccounts. See Note 8-Business Acquisitions-Changes in Contingent Consideration 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. 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 ofMarch 31, 2020 , 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 endedMarch 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. 38
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