ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and accompanying notes included elsewhere within this report. This discussion includes both historical information and forward-looking information that involves risks, uncertainties and assumptions. Our actual results may differ materially from management's expectations as a result of various factors, including but not limited to those discussed in the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Information.”
Company Overview
LendingTree, Inc. is the parent of LT Intermediate Company, LLC, which holds all of the outstanding ownership interests of LendingTree, LLC, and LendingTree, LLC owns several companies.
We operate what we believe to be the leading online consumer platform that connects consumers with the choices they need to be confident in their financial decisions. Our online consumer platform provides consumers with access to product offerings from our Network Partners, including mortgage loans, home equity loans and lines of credit, auto loans, credit cards, deposit accounts, personal loans, student loans, small business loans, insurance quotes, sales of insurance policies and other related offerings. In addition, we offer tools and resources, including free credit scores, that facilitate comparison shopping for loans, deposit products, insurance, and other offerings. We seek to match consumers with multiple providers, who can offer them competing quotes for the product(s) they are seeking. We also serve as a valued partner to lenders and other providers seeking an efficient, scalable and flexible source of customer acquisition with directly measurable benefits, by matching the consumer inquiries we generate with these Network Partners.
Our MyLendingTree 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 and Network Partners have as they interact with us. By expanding our portfolio of financial services offerings, we are growing and diversifying our business and sources of revenue. We intend to capitalize on our expertise in performance marketing, product development and technology by leveraging the widespread recognition of the LendingTree brand.
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 Network Partners 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 (loss) 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.
Economic Conditions
We continue to monitor the impact of the COVID-19 pandemic, government actions and measures taken to prevent its spread, and the potential to affect our operations. We are also monitoring the current global economic environment, specifically including inflationary pressures and interest rates, and any resulting impacts on our financial position and results of operations. Refer to Item 1A. “Risk Factors” for additional information.
Of our three reportable segments, the Consumer segment was impacted the most as unsecured credit and the flow of capital in certain areas of the market contracted. 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 COVID-19 pandemic and the macro-economic conditions that followed, our marketing expenses generally decreased in line with revenue.
During 2022, the challenging interest rate environment and persistent inflationary pressures have presented additional challenges for many of our mortgage lending and insurance partners. We have seen the most significant impact in our Home segment as mortgage rates have nearly doubled in 2022, causing a sharp decline in refinance volumes and more recent pressure on purchase activity. Although our Insurance segment continues to rebound from the trough in the fourth quarter of 2021, the recovery has been slower than expected as demand from our carrier partners remains volatile as they continue to attempt to
implement premium increases to offset the effect of inflation on claims. In addition, the auto and home insurance industry was impacted in 2022 by persistent industry headwinds, supply chain issues, rising accident severity and frequency, and hurricane losses.
Segment Reporting
We have three reportable segments: Home, Consumer, and Insurance.
Recent Business Acquisitions & Investments
In January 2022, the Company acquired an equity interest in EarnUp for $15.0 million. EarnUp is a consumer-first mortgage payment platform that intelligently automates loan payment scheduling and helps consumers better manage their money and improve their financial well-being.
In February 2020, we acquired an equity interest in Stash for $80.0 million, and in January 2021, we acquired an additional equity interest in Stash 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 and Roth 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.
See Note 8—Equity Investments in the notes to the consolidated financial statements included elsewhere in this report for additional information on the equity interest in Stash and EarnUp.
Recent Mortgage Interest Rate Trends
Interest rate and market risks are substantial in the mortgage lead generation business. Short-term fluctuations in mortgage interest rates primarily affect consumer demand for mortgage refinancings, while long-term fluctuations in mortgage interest rates, coupled with the U.S. real estate market, affect consumer demand for new mortgages. Consumer demand, in turn, affects lender demand for mortgage leads from third-party sources, as well as our own ability to attract online consumers to our website.
Typically, when interest rates decline, we see increased consumer demand for mortgage refinancings, which in turn leads to increased traffic to our website and decreased selling and marketing efforts associated with that traffic. At the same time, lender demand for leads from third-party sources typically decreases, as there are more consumers in the marketplace seeking refinancing and, accordingly, lenders receive more organic mortgage lead volume. Due to lower lender demand, our revenue earned per consumer typically decreases, but with correspondingly lower selling and marketing costs.
Conversely, when interest rates increase, we typically see decreased consumer demand for mortgage refinancing, leading to decreased traffic to our website and higher associated selling and marketing efforts associated with that traffic. At the same time, lender demand for leads from third-party sources typically increases, as there are fewer consumers in the marketplace and, accordingly, the supply of organic mortgage lead volume decreases. Due to high lender demand, we typically see an increase in the amount lenders will pay per matched lead, which often leads to higher revenue earned per consumer. However, increases in the amount lenders will pay per matched lead in this situation is limited by the overall cost models of our lenders, and our revenue earned per consumer can be adversely affected by the overall reduced demand for refinancing in a rising rate environment.
We dynamically adjust selling and marketing expenditures in all interest rate environments to optimize our results against these variables.
According to Freddie Mac, 30-year mortgage interest rates steadily decreased in 2020, largely as a result of stimulus efforts in response to the COVID-19 pandemic, beginning at a monthly average of 3.62% in January 2020 and ending at a monthly average of 2.68% in December 2020. During 2021, 30-year mortgage interest rates steadily increased from a monthly average of 2.74% in January 2021, ending at a monthly average of 3.10% in December 2021. During 2022, 30-year mortgage interest rates increased significantly from a monthly average of 3.45% in January 2022, ending at a monthly average of 6.36% in December 2022.
On a full-year basis, 30-year mortgage interest rates increased to an average 5.33% in 2022, compared to 2.96% and 3.11% in 2021 and 2020, respectively.
Typically, as mortgage interest rates rise, there are fewer consumers in the marketplace seeking refinancings and, accordingly, the mix of mortgage origination dollars will move toward purchase mortgages. According to Mortgage Bankers Association (“MBA”) data, total refinance origination dollars of total mortgage origination dollars remained relatively consistent in 2020 and 2021, with 60% of total 2020 mortgage origination dollars from refinance and 59% of total 2021 mortgage origination dollars from refinance as a result of the general trend in average mortgage interest rates. Total refinance original dollars decreased to 30% of total mortgage origination dollars in 2022 due to the increase in average mortgage interest rates. Total refinance origination dollars decreased by 11% in 2021 over 2020 and 74% in 2022 over 2021. Industry-wide mortgage origination dollars decreased by 3% in 2021 over 2020 and 49% in 2022 over 2021.
Looking forward, the MBA is projecting 30-year mortgage interest rates to decrease in 2023 to an average 5.2%. According to MBA projections, the mix of mortgage origination dollars is expected to continue to move towards purchase mortgages with the refinance share representing just 24% for 2023.
The U.S. Real Estate Market
The health of the U.S. real estate market and interest rate levels are the primary drivers of consumer demand for new mortgages. Consumer demand, in turn, affects lender demand for purchase mortgage leads from third-party sources. Typically, a strong real estate market will lead to reduced lender demand for leads, as there are more consumers in the marketplace seeking financing and, accordingly, lenders receive more organic lead volume. Conversely, a weaker real estate market will typically lead to an increase in lender demand, as there are fewer consumers in the marketplace seeking mortgages.
According to Fannie Mae data, in 2020, existing home sales grew by 6% over 2019, fueled by increased competition for low inventory as well as an increase in first-time home buyers. This trend continued into 2021 with existing home sales growing 9% over 2020. In 2022, existing home sales decreased by 17% as compared to 2021 due to increased interest rates and limited inventory of homes. Fannie Mae expects a 22% decrease in existing home sales in 2023 compared to 2022.
MyLendingTree
We consider certain metrics related to MyLendingTree set forth below to help us evaluate our business and growth trends and assess operational efficiencies. The calculation of the metrics discussed below may differ from other similarly titled metrics used by other companies, securities analysts or investors.
We continued to grow our user base and added 3.8 million new users in 2022, bringing cumulative sign-ups to 24.8 million at December 31, 2022. We attribute $123.7 million of revenue in 2022 to registered MyLendingTree members across the LendingTree platform.
Our focus on improving the MyLendingTree experience for consumers remains a top priority. Becoming an integrated digital advisor will greatly improve the consumer experience, which we expect to result in higher levels of engagement improved membership growth rates, and ultimately stronger financial results.
Convertible Senior Notes and Hedge and Warrant Transactions
On July 24, 2020, we issued $575.0 million aggregate principal amount of our 0.50% Convertible Senior Notes due July 15, 2025 and, in connection therewith, entered into Convertible Note Hedge and Warrant transactions with respect to our common stock.
On May 31, 2017, we issued $300.0 million aggregate principal amount of our 0.625% Convertible Senior Notes due June 1, 2022 and, in connection therewith, entered into Convertible Note Hedge and Warrant transactions with respect to our common stock. On July 24, 2020, a portion of the net proceeds from the issuance of the 2025 Notes was used to repurchase approximately $130.3 million principal amount of the 2022 Notes. A portion of the call spread transactions associated with the 2022 Notes was also terminated on July 24, 2020 in notional amounts corresponding to the principal amount of the 2022 Notes repurchased.
On May 31, 2022, we drew $250.0 million on the Term Loan Facility. A portion of this was used to pay the outstanding balance of $169.7 million and interest on our 0.625% Convertible Senior Notes that matured on June 1, 2022. The remaining call spread transactions associated with the 2022 Notes terminated in 2022.
For more information, see Note 16—Debt, in the notes to the consolidated financial statements included elsewhere in this report.
North Carolina Office Properties
Our new corporate office is located on approximately 176,000 square feet of office space in Charlotte, North Carolina under an approximate 15-year lease that commenced in the second quarter of 2021.
With our expansion in North Carolina, in December 2016, we received a grant from the state that provides up to $4.9 million in reimbursements through 2029 beginning in 2017 for investing in real estate and infrastructure in addition to increasing jobs in North Carolina at specific targeted levels through 2021, and maintaining the jobs thereafter. We have received approximately $0.7 million related to the December 2016 grants. If we are unable to maintain the specified target levels, our ability to earn further reimbursements could be limited. Additionally, the city of Charlotte and the county of Mecklenburg provided a grant that will be paid over five years and is based on a percentage of new property tax we pay on the development of a corporate headquarters. In December 2018, we received an additional grant from the state that provides an aggregate amount up to $8.4 million in reimbursements through 2032 beginning in 2021 for increasing jobs in North Carolina at specific targeted levels through 2024, and maintaining the jobs thereafter. We have currently not met the specified target levels set forth in the December 2018 grant and may not realize any reimbursements from this grant.
Results of Operations for the Years ended December 31, 2022 and 2021
For information on fiscal 2020 results and similar comparisons, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations for the Years ended December 31, 2021 and 2020 of our Form 10-K for the fiscal year ended December 31, 2021. | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | 2022 vs. 2021 |
| 2022 | | 2021 | | $ Change | % Change |
| (Dollars in thousands) |
Home | $ | 289,383 | | | $ | 441,738 | | | $ | (152,355) | | (34) | % |
Consumer | 396,109 | | | 329,945 | | | 66,164 | | 20 | % |
Insurance | 299,073 | | | 326,153 | | | (27,080) | | (8) | % |
Other | 427 | | | 663 | | | (236) | | (36) | % |
Revenue | 984,992 | | | 1,098,499 | | | (113,507) | | (10) | % |
Costs and expenses: | | | | | | |
Cost of revenue (exclusive of depreciation and amortization shown separately below) | 57,769 | | | 57,297 | | | 472 | | 1 | % |
Selling and marketing expense | 702,238 | | | 773,990 | | | (71,752) | | (9) | % |
General and administrative expense | 152,377 | | | 153,472 | | | (1,095) | | (1) | % |
Product development | 55,553 | | | 52,865 | | | 2,688 | | 5 | % |
Depreciation | 20,095 | | | 17,910 | | | 2,185 | | 12 | % |
Amortization of intangibles | 25,306 | | | 42,738 | | | (17,432) | | (41) | % |
Change in fair value of contingent consideration | — | | | (8,249) | | | 8,249 | | 100 | % |
Restructuring and severance | 4,428 | | | 53 | | | 4,375 | | 8,255 | % |
Litigation settlements and contingencies | (18) | | | 392 | | | (410) | | (105) | % |
Total costs and expenses | 1,017,748 | | | 1,090,468 | | | (72,720) | | (7) | % |
Operating (loss) income | (32,756) | | | 8,031 | | | (40,787) | | (508) | % |
Other (expense) income, net: | | | | | | |
Interest expense, net | (26,014) | | | (46,867) | | | (20,853) | | (44) | % |
Other income | 3,843 | | | 123,272 | | | (119,429) | | (97) | % |
(Loss) income before income taxes | (54,927) | | | 84,436 | | | (139,363) | | (165) | % |
Income tax expense | (133,019) | | | (11,298) | | | 121,721 | | 1,077 | % |
Net (loss) income from continuing operations | (187,946) | | | 73,138 | | | (261,084) | | (357) | % |
Loss from discontinued operations, net of tax | (6) | | | (4,023) | | | (4,017) | | (100) | % |
Net (loss) income and comprehensive (loss) income | $ | (187,952) | | | $ | 69,115 | | | $ | (257,067) | | (372) | % |
Revenue
Revenue decreased in 2022 compared to 2021 due to decreases in our Home and Insurance segments, partially offset by an increase in our Consumer segment.
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 $66.2 million in 2022 from 2021, or 20%, primarily due to increases in our personal loans, small business loans products, credit cards, and deposit accounts, partially offset by a decrease in student loans. Many of our products in the Consumer segment experienced increases in revenue in 2022 from 2021 due to the recovery from the impacts of the COVID-19 pandemic.
Revenue from our personal loans product increased $34.0 million, or 31%, to $144.1 million in 2022 from $110.1 million in 2021 primarily due to an increase in the number of consumers completing request forms.
Revenue from our credit cards product increased $6.8 million, or 7%, to $100.2 million in 2022 from $93.4 million in 2021 primarily due to an increase in revenue earned per click, partially offset by a decrease in the number of clicks.
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 small business loans product increased $19.9 million in 2022 compared to 2021, due to an increase in revenue earned per consumer, partially offset by a decrease in the number of consumers. Revenue from our deposit accounts product increased $6.6 million in 2022 compared to 2021 due to an increase in the number of consumers and an increase in revenue earned per consumer. Student loans decreased $6.4 million in 2022 compared to 2021, due to a decrease in the number of consumers, partially offset by an increase in revenue earned per consumer.
Revenue from our Insurance segment decreased $27.1 million, or 8%, to $299.1 million in 2022 from $326.2 million in 2021 primarily due to a decrease in carrier budgets reducing the number of consumers completing request forms. The decrease in carrier budgets was due primarily to reduced customer acquisition activity for insurance carriers as they attempted to raise premium rates in response to inflationary pressures on claims.
Our Home segment includes the following products: purchase mortgage, refinance mortgage, home equity loans and lines of credit, and real estate. We ceased offering reverse mortgage loans in the fourth quarter of 2022. Revenue from our Home segment decreased $152.4 million, or 34%, in 2022 from 2021 primarily due to a decrease in revenue from our refinance mortgage product, partially offset by increases in our home equity loans and purchase mortgage products.
Revenue from our mortgage products decreased $196.6 million, or 52%, to $179.4 million in 2022 from $376.1 million in 2021. Revenue from our refinance mortgage product decreased $203.7 million in 2022 compared to 2021, primarily due to a decrease in the number of consumers completing request forms and a decrease in revenue earned per consumer, as interest rates rose significantly in 2022. Revenue from our purchase mortgage product increased $7.1 million in 2022 compared to 2021 primarily 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 and lines of credit product increased $43.0 million, or 67% to $105.8 million in 2022 from $62.7 million in 2021 due to an increase in both the number of consumers completing request forms and the revenue earned per consumer.
While we believe our three reportable segments have generally recovered from the impacts of the ongoing COVID-19 pandemic, we are continuously monitoring the impacts of the pandemic on the economy and any potential future impacts to our segment revenue.
Cost of revenue
Cost of revenue consists primarily of costs associated with compensation and other employee-related costs (including stock-based compensation) relating to internally-operated customer call centers, third-party customer call center fees, credit scoring fees, credit card fees, website network hosting, and server fees.
Cost of revenue remained relatively consistent in 2022 compared to 2021.
Cost of revenue as a percentage of revenue increased to 6% in 2022 compared to 5% in 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.
The $71.8 million decrease in selling and marketing expense in 2022 compared to 2021 was primarily due to the decreases in advertising and promotional expense discussed below. Additionally, compensation and benefits decreased $2.4 million in 2022 compared to 2021.
Advertising and promotional expense is the largest component of selling and marketing expense, and is comprised of the following:
| | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | 2022 vs. 2021 |
| 2022 | | 2021 | | $ Change | % Change |
| (Dollars in thousands) |
Online | $ | 614,369 | | | $ | 687,976 | | | $ | (73,607) | | (11) | % |
Broadcast | 16,654 | | | 8,738 | | | 7,916 | | 91 | % |
Other | 16,301 | | | 19,925 | | | (3,624) | | (18) | % |
Total advertising and promotional expense | $ | 647,324 | | | $ | 716,639 | | | $ | (69,315) | | (10) | % |
In the periods presented, advertising and promotional expenses are equivalent to the non-GAAP measure variable marketing expense. See Variable Marketing Expense and Variable Marketing Margin below for additional information.
Revenue is primarily driven by Network Partner demand for our products, which is matched to corresponding consumer requests. We adjust our selling and marketing expenditures dynamically in relation to anticipated revenue opportunities in order to ensure sufficient consumer inquiries to profitably meet such demand. An increase in a product’s revenue is generally met by a corresponding increase in marketing spend, and conversely a decrease in a product’s revenue is generally met by a corresponding decrease in marketing spend. This relationship exists for our Home, Consumer, and Insurance segments.
We adjusted our advertising expenditures in 2022 compared to 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 decreased in 2022 compared to 2021, primarily due to decreases in compensation and benefits, facilities, and professional fees expense of $13.4 million, $1.6 million, and $1.1 million, respectively. This was partially offset by increases in technology, fees and charges, travel and entertainment, and other tax expense of $5.6 million, $2.0 million, $1.5 million, and $1.5 million, respectively. Additionally, losses on the disposal of assets increased $3.1 million in 2022 compared to 2021.
Non-cash compensation expense, included in total compensation and benefits noted above, within general and administrative expense decreased in 2022, which resulted in an increase in net income from continuing operations in 2022 compared to 2021. For additional information, see Note—14-Stock-Based Compensation in the notes to the consolidated financial statements included elsewhere in this report. Non-cash compensation expense is excluded from Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (“Adjusted EBITDA”), as discussed below.
General and administrative expense as a percentage of revenue increased to 15% in 2022 from 14% in 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 2022 compared to 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 and Network Partners.
Depreciation
The increase in depreciation expense in 2022 compared to 2021 was primarily the result of higher investment in internally developed software in recent years, to support the growth of our business in addition to depreciation on new assets related to our principal executive offices which we moved into in mid-2021.
Amortization of Intangibles
The decrease in amortization of intangibles in 2022 compared to 2021 was due to certain intangible assets associated with our recent business acquisitions becoming fully amortized.
Contingent consideration
During 2022, we did not record contingent consideration expense. All earnouts were completed prior to 2022.
During 2021, we recorded aggregate contingent consideration gains of $8.2 million due to adjustments in the estimated fair value of the earnout payment related to the QuoteWizard acquisition for which the earnout period ended in 2021.
Restructuring and severance
During 2022, we completed workforce reductions in each of the first, second, and fourth quarters of approximately 75 employees, 25 employees, and 50 employees, respectively. We incurred total expense of $4.4 million consisting of employee separation costs of $3.3 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 third quarter of 2023.
Interest expense
Interest expense decreased in 2022 compared to 2021 primarily due to the adoption of Accounting Standards Update (“ASU”) 2020-06 on January 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 in the notes to the consolidated financial statements included elsewhere in this report for additional information.
Other Income
Other income for 2022 primarily consists of dividend income. During 2021, we sold a portion of our investment in Stash and realized a gain of $27.9 million. Additionally, we recorded unrealized gains of $95.4 million as a result of an adjustment to the fair value of the Stash equity securities still held by us based on observable market events.
Income tax expense | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | |
| (in thousands, except percentages) |
Income tax expense | $ | (133,019) | | | $ | (11,298) | | |
Effective tax rate | (242.2) | % | | 13.4 | % | |
For 2022, the effective tax rate varied from the federal statutory rate of 21% primarily due to expense of $139.4 million to record a full valuation allowance against our net deferred tax assets. See Note—15 Income Taxes in the notes to the consolidated financial statements included elsewhere in this report for additional information on the valuation allowance.
For 2021, the effective tax rate varied from the federal statutory rate of 21% in part due to the benefit derived from excess tax deductions from exercise of stock options of $11.7 million, including state taxes and from research and experimentation tax credits of $3.2 million, partially offset by expense due to nondeductible executive compensation of $3.1 million and incremental valuation allowance on state net operating losses of $0.6 million, primarily due to state legislative changes.
Discontinued Operations
The results of discontinued operations include the results of the LendingTree Loans business formerly operated by our wholly-owned subsidiary, HLC. The sale of substantially all of the assets of HLC, including the LendingTree Loans business, was completed on June 6, 2012. HLC filed a petition under Chapter 11 of the United States Bankruptcy Code on July 21, 2019, which was converted to Chapter 7 of the United States Bankruptcy Code on September 16, 2019.
As a result of the voluntary bankruptcy petition, as of the initial July 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 and HLC's Chapter 7 bankruptcy estate was fully administered, the HLC bankruptcy case was closed on July 14, 2021.
The results of discontinued operations include litigation settlements and contingencies and legal fees associated with legal proceedings against LendingTree, Inc. or LendingTree, LLC that arose due to the LendingTree Loans business or the HLC bankruptcy filing.
See Note 22—Discontinued Operations in the notes 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.
Segment Profit | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | 2022 vs. 2021 |
| 2022 | 2021 | | $ Change | % Change |
| (Dollars in thousands) |
Home | $ | 103,084 | | $ | 153,352 | | | $ | (50,268) | | (33) | % |
Consumer | 174,578 | | 143,497 | | | 31,081 | | 22 | % |
Insurance | 91,834 | | 113,464 | | | (21,630) | | (19) | % |
Other | (555) | | 53 | | | (608) | | 1,147 | % |
Segment profit | $ | 368,941 | | $ | 410,366 | | | $ | (41,425) | | (10) | % |
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 23—Segment Information in the notes to the consolidated financial statements included elsewhere in this report for additional information on segments and a reconciliation of segment profit to pre-tax income from continuing operations.
HOME
Revenue in the Home segment decreased 34% to $289.4 million in 2022 from 2021, with segment profit of $103.1 million in 2022, a decrease of 33% from 2021. Our Home segment margin (segment profit divided by segment revenue) remained relatively consistent, at 36% in 2022 compared to 35% in 2021.
Within Home, our core mortgage business generated revenue of $179.4 million in 2022, down 52% from 2021, as demand for refinancing transactions diminished throughout the year, with almost no outstanding mortgages later in the year carrying a higher rate than current loan offerings. The 30-year mortgage interest rates increased from a monthly average of 3.1% in December 2021 to a monthly average of 6.36% in December 2022, according to Freddie Mac Near record home prices coupled with higher mortgage rates led to a 17% decrease in existing home sales in 2022 compared to 2021. Our mortgage volume decreased 47% and revenue per lead decreased 10% in 2022 compared to 2021. The volume mix in our mortgage business was close to evenly balanced between refinance at 54% and purchase loans at 46% of total volume in 2022 as compared to refinance at 67% and purchase at 33% of total volume in 2021.
Revenue from our home equity loan product of $105.8 million in 2022 increased 69% from 2021, as homeowners in the U.S. enjoy near record levels of equity to borrow against for other debt repayments and to finance home improvements.
Home equity revenue per lead increased 13% in 2022 compared to 2021 as we were able to capture 49% more volume in 2022 compared to 2021. During the fourth quarter of 2022, we discontinued our reverse mortgage offering to better focus resources on supporting our traditional lending Network Partners going forward.
The outlook for the mortgage industry is a sustained period of lower refinance demand, with the Mortgage Bankers Association forecasting a 37% decline in refinance originations in 2023 after falling 76% in 2022. We have been actively engaged with our Network Partners in mortgage to increase purchase lead conversion rates, and are focusing on this metric internally as a key growth priority for the segment this year. We expect home equity will continue to generate the majority of our Home revenue in 2023, as our Network Partners have leaned on the favorable environment for cash-out transactions to maintain loan officer productivity.
CONSUMER
Growth in our Consumer segment continued, with revenue of $396.1 million in 2022, an increase of 20% from 2021, and segment profit of $174.6 million in 2022, an increase of 22% from 2021. Our Consumer segment margin remained consistent, at 44% in 2022 compared to 43% in 2021.
Revenue from our personal loan product of $144.1 million increased 31% in 2022 compared to 2021 as debt consolidation was attractive with consumer credit card balances continuing to rise. Many of our partners have tightened their underwriting criteria to reduce portfolio risk given recession fears, focusing their customer acquisition activity on consumers with somewhat higher credit quality.
Credit card revenue increased to $100.2 million or 7.3% in 2022 compared to 2021. Revenue per click grew 17% in 2022 compared to 2021 while we experienced an 8% decrease in the number of clicks. Operational improvements are being implemented and improving credit card results is a core priority for the company in 2023.
Small business achieved revenue growth of 41% in 2022 from 2021. In the second half of 2022 we continue to focus on lender performance to grow originations and improve conversion rates. By optimizing our marketing mix, we have aimed to increase the quality of our leads which benefits lenders and increases profitability. Our ability to efficiently steer borrowers to the most appropriate lender on our network with our concierge model continues to positively impact results. Going forward we are implementing technology improvements to automate capture of applicant financial data to enhance the borrower experience and increase lender match rate.
INSURANCE
The auto and home insurance industry in 2022 was impacted by persistent industry headwinds, supply chain issues, rising accident severity and frequency, and hurricane losses in the back half of the year. This difficult operating environment for our carrier partners caused an 8% decrease in revenue in our Insurance segment to $299.1 million in 2022, from 2021. Segment profit of $91.8 million in 2022 decreased 19% from 2021. Our Insurance segment margin decreased to 31% in 2022 compared to 35% in 2021.
Variable Marketing Expense and Variable Marketing Margin
We report variable marketing expense and variable marketing margin as supplemental measures to GAAP. These related measures are the primary metrics by which we measure the effectiveness of our marketing efforts. Variable marketing expense represents the portion of selling and marketing expense attributable to variable costs paid for advertising, direct marketing, and related expenses, and excludes overhead, fixed costs, and personnel-related expenses. Variable marketing margin is a measure of the efficiency of our operating model, measuring revenue after subtracting variable marketing expense. Our operating model is highly sensitive to the amount and efficiency of variable marketing expenditures, and our proprietary systems are able to make rapidly changing decisions concerning the deployment of variable marketing expenditures (primarily but not exclusively online and mobile advertising placement) based on proprietary and sophisticated analytics. We believe that investors should have access to the same set of tools that we use in analyzing our results. This non-GAAP measure should be considered in addition to results prepared in accordance with GAAP but should not be considered a substitute for or superior to GAAP results. We provide and encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measures discussed below.
Variable marketing expense is defined as the expense attributable to variable costs paid for advertising, direct marketing and related expenses, and excluding overhead, fixed costs and personnel-related expenses. The majority of these variable advertising costs are expressly intended to drive traffic to our websites and these variable advertising costs are included in selling and marketing expense on our consolidated statements of operations and comprehensive income (loss). Variable marketing margin is defined as revenue less variable marketing expense.
The following shows the calculation of variable marketing margin:
| | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 |
| (in thousands) |
Revenue | $ | 984,992 | | | $ | 1,098,499 | |
Variable marketing expense | 647,324 | | | 716,639 | |
Variable marketing margin | $ | 337,668 | | | $ | 381,860 | |
Below is a reconciliation of selling and marketing expense, the most directly comparable GAAP measure, to variable marketing expense:
| | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 |
| (in thousands) |
Selling and marketing expense | $ | 702,238 | | | $ | 773,990 | |
Non-variable selling and marketing expense | (54,914) | | | (57,351) | |
Variable marketing expense | $ | 647,324 | | | $ | 716,639 | |
The following is a reconciliation of net (loss) income from continuing operations, the most directly comparable GAAP measure, to variable marketing margin:
| | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 |
| (in thousands) |
Net (loss) income from continuing operations | $ | (187,946) | | | $ | 73,138 | |
| | | |
Adjustments to reconcile to variable marketing margin: | | | |
Cost of revenue | 57,769 | | | 57,297 | |
| | | |
Non-variable selling and marketing expense (1) | 54,914 | | | 57,351 | |
General and administrative expense | 152,377 | | | 153,472 | |
Product development | 55,553 | | | 52,865 | |
Depreciation | 20,095 | | | 17,910 | |
Amortization of intangibles | 25,306 | | | 42,738 | |
Change in fair value of contingent consideration | — | | | (8,249) | |
Restructuring and severance | 4,428 | | | 53 | |
Litigation settlements and contingencies | (18) | | | 392 | |
Interest expense, net | 26,014 | | | 46,867 | |
Other income | (3,843) | | | (123,272) | |
Income tax expense | 133,019 | | | 11,298 | |
Variable marketing margin | $ | 337,668 | | | $ | 381,860 | |
| | | | | |
(1) | | Represents the portion of selling and marketing expense not attributable to variable costs paid for advertising, direct marketing and related expenses. Includes overhead, fixed costs and personnel-related expenses. |
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
We report Adjusted EBITDA as a supplemental measure to GAAP. This measure is the primary metric by which we evaluate the performance of our businesses, on which our marketing expenditures and internal budgets are based and by which, in most years, management and many employees are compensated. We believe that investors should have access to the same set of tools that we use in analyzing our results. This non-GAAP measure should be considered in addition to results prepared in accordance with GAAP but should not be considered a substitute for or superior to GAAP results. We provide and encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measures discussed below.
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), (8) contributions to the LendingTree Foundation, and (9) one-time items. Adjusted EBITDA has certain limitations in that it does not take into account the impact to our statement of operations of certain expenses, including depreciation, non-cash compensation and acquisition-related accounting. We endeavor to compensate for the limitations of the non-GAAP measures presented by also providing the comparable GAAP measures with
equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the non-GAAP measures. These non-GAAP measures may not be comparable to similarly titled measures used by other companies.
One-Time Items
Adjusted EBITDA is adjusted for one-time items, if applicable. Items are considered one-time in nature if they are non-recurring, infrequent or unusual and have not occurred in the past two years or are not expected to recur in the next two years, in accordance with SEC rules. One-time items for the year ended December 31, 2022 consisted of the $1.5 million franchise tax caused by the equity investment gain in Stash. There are no adjustments for one-time items for the year ended December 31, 2021.
Non-Cash Expenses that are Excluded from Adjusted EBITDA
Non-cash compensation expense consists principally of expense associated with grants of restricted stock, restricted stock units and stock options, some of which awards have performance-based vesting conditions. These expenses are not paid in cash, and we include the related shares in our calculations of fully diluted shares outstanding. Upon settlement of restricted stock units, exercise of certain stock options or vesting of restricted stock awards, the awards may be settled, on a net basis, with us remitting the required tax withholding amount from our current funds.
Amortization of intangibles are non-cash expenses relating primarily to intangible assets acquired through acquisitions. At the time of an acquisition, the intangible assets of the acquired company, such as purchase agreements, technology and customer relationships, are valued and amortized over their estimated lives.
The following table is a reconciliation of net (loss) income from continuing operations, the most directly comparable GAAP measure, to Adjusted EBITDA.
| | | | | | | | | | | | |
| Year Ended December 31, | |
| 2022 | | 2021 | |
| (in thousands) | |
Net (loss) income from continuing operations | $ | (187,946) | | | $ | 73,138 | | |
Adjustments to reconcile to Adjusted EBITDA: | | | | |
Amortization of intangibles | 25,306 | | | 42,738 | | |
Depreciation | 20,095 | | | 17,910 | | |
Restructuring and severance | 4,428 | | | 53 | | |
Loss on impairments and disposal of assets | 6,590 | | | 3,465 | | |
Gain on investments | — | | | (123,272) | | |
Non-cash compensation expense | 58,541 | | | 68,555 | | |
Franchise tax caused by equity investment gain | 1,500 | | | — | | |
Contribution to LendingTree Foundation | 500 | | | — | | |
Change in fair value of contingent consideration | — | | | (8,249) | | |
Acquisition expense | 277 | | | 1,796 | | |
Litigation settlements and contingencies | (18) | | | 392 | | |
Interest expense, net | 26,014 | | | 46,867 | | |
Dividend income | (3,842) | | | — | | |
Income tax expense | 133,019 | | | 11,298 | | |
Adjusted EBITDA | $ | 84,464 | | | $ | 134,691 | | |
Financial Position, Liquidity and Capital Resources
For information on fiscal 2020 results and similar comparisons, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Position, Liquidity and Capital Resources of our Form 10-K for the fiscal year ended December 31, 2021.
General
As of December 31, 2022, we had $298.8 million of cash and cash equivalents, compared to $251.2 million of cash and cash equivalents as of December 31, 2021.
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 economic impacts caused by the challenging interest rate environment, high levels of inflation, and lingering effects of the COVID-19 pandemic on our liquidity and capital resources.
Notable transactions affecting cash and cash equivalents during the reported periods are as follows:
2022
In 2022, we repurchased an aggregate of 379,895 shares of our common stock pursuant to a stock repurchase program for $43.0 million.
In the first quarter of 2022, we acquired an equity interest in EarnUp for $15.0 million. See Note 8—Equity Investments in the notes to the consolidated financial statements included elsewhere in this report for additional information on the equity interest.
2021
In 2021, we repurchased an aggregate of 334,253 shares of our common stock pursuant to a stock repurchase program for $40.0 million.
In the first quarter of 2021, we acquired an additional equity interest in Stash for $1.2 million. In the fourth quarter of 2021, we sold a portion of our Stash equity securities to a third party for $46.3 million. See Note 8—Equity Investment in the notes to the consolidated financial statements included elsewhere in this report for additional information on the equity interest in Stash.
Credit Facility
On September 15, 2021, we entered into a credit agreement (the “Credit Agreement”), consisting of a $200.0 million Revolving Facility, which matures on September 15, 2026, and a $250.0 million delayed draw Term Loan Facility, which matures on September 15, 2028. The proceeds of the Revolving Facility can be used to finance working capital, for general corporate purposes, and any other purpose not prohibited by the Credit Agreement. We drew $250.0 million under the Term Loan Facility on May 31, 2022 and used $170.2 million of the proceeds to settle the Company’s 2022 Notes, including interest. The remaining proceeds of $79.8 million may be used for general corporate purposes and any other purposes not prohibited by the Credit Agreement.
As of February 27, 2023, we have outstanding $248.8 million under the Term Loan Facility, a $0.2 million letter of credit under the Revolving Facility, and the remaining borrowing capacity is $199.8 million.
For additional information on the Credit Facility, see Note 16—Debt in the notes to the consolidated financial statements included elsewhere in this report.
Operating Leases
We have operating lease obligations associated with office space in various cities across the country and office equipment. Our principal executive office is located in Charlotte, North Carolina under an approximate 15-year lease that commenced in the second quarter of 2021. We anticipate cash payments under operating lease obligations of $13.1 million in 2023. See Note 12—Leases in the notes to the consolidated financial statements included elsewhere in this report for more information.
Cash Flows from Continuing Operations
Our cash flows attributable to continuing operations are as follows: | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | |
| (in thousands) |
Net cash provided by operating activities | $ | 42,974 | | | $ | 131,256 | | | |
Net cash (used in) provided by investing activities | $ | (27,876) | | | $ | 10,067 | | | |
Net cash provided by (used in) financing activities | $ | 32,536 | | | $ | (63,347) | | | |
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 2022 from 2021 primarily due to a decrease in revenue, partially offset by a corresponding decrease in selling and marketing expense. Additionally, cash from changes in working capital decreased primarily as a result of changes in accounts payable, accrued expenses and other current liabilities, and income taxes receivable, partially offset by favorable changes in accounts receivable.
Cash Flows from Investing Activities
Net cash used in investing activities attributable to continuing operations in 2022 of $27.9 million consisted of the purchase of a $16.4 million equity investment in EarnUp and another small investment, as well as capital expenditures of $11.4 million primarily related to internally-developed software.
Net cash provided by investing activities attributable to continuing operations in 2021 of $10.1 million consisted of $46.3 million in proceeds from a partial sale of our equity interest in Stash partially offset by $1.2 million for the purchase of an additional equity interest in Stash and capital expenditures of $35.1 million primarily related to internally developed software.
Cash Flows from Financing Activities
Net cash provided by financing activities attributable to continuing operations in 2022 of $32.5 million consisted primarily of $250.0 million in proceeds from the term loan and the repayment of $169.7 million to settle our 2022 Notes discussed in the “Credit Facility” section above, $43.0 million for the repurchase of our stock, $3.4 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 $1.3 million repayment of the term loan.
Net cash used in financing activities attributable to continuing operations in 2021 of $63.3 million consisted primarily of $40.0 million for the repurchase of our stock, $14.4 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 $6.4 million for the payment of debt issuance costs and $2.5 million paid for the original issue discount on the Term Loan Facility.
Critical Accounting Policies and Estimates
The following disclosure is provided to supplement the description of our accounting policies contained in Note 2—Significant Accounting Policies in the notes to the consolidated financial statements included elsewhere in this report in regard to significant areas of judgment. This disclosure includes accounting policies related to both continuing operations and discontinued operations. Management is required to make certain estimates and assumptions during the preparation of the consolidated financial statements in accordance with generally accepted accounting principles. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. They also impact the reported amount of net earnings during any period. Actual results could differ from those estimates. Because of the size of the financial statement elements to which they relate, some of our accounting policies and estimates have a more significant impact on our consolidated financial statements than others. A discussion of some of our more significant accounting policies and estimates follows.
Income Taxes
Estimates of current and deferred income taxes and the significant items giving rise to the deferred assets and liabilities are shown in Note 15—Income Taxes in the notes to the consolidated financial statements included elsewhere in this report, and reflect management's assessment of actual future taxes to be paid on items reflected in the consolidated financial statements, giving consideration to both timing and the probability of realization. Actual income taxes could vary from these estimates due to future changes in income tax law, state income tax apportionment or the outcome of any review of our tax returns by the IRS and/or state tax authorities, as well as actual operating results that may vary significantly from anticipated results.
We also recognize liabilities for uncertain tax positions based on the two-step process prescribed by the accounting guidance for uncertainty in income taxes. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. This measurement step is inherently difficult and requires subjective estimations of such amounts to determine the probability of various possible outcomes. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.
A valuation allowance is provided on deferred tax assets if it is determined that it is “more likely than not” that the deferred tax asset will not be realized.
During the third quarter of 2022, we established a full valuation allowance against our net deferred tax assets due to historical cumulative pre-tax losses and continued pre-tax losses in the quarter. We regularly review our deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing taxable temporary differences, and tax planning strategies. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. In determining the amount of the valuation allowance, we considered the scheduled reversal of deferred tax liabilities. We will maintain a full valuation allowance on net deferred tax assets until there is sufficient evidence to support the reversal of some or all of the allowance. Should there be a change in the valuation allowance in the future, the income tax provision would increase or decrease in the period in which the allowance is changed.
The indefinite carryforward period for certain deferred tax assets means that indefinite-lived deferred tax liabilities can be considered as support for realization of such deferred tax assets including post December 31, 2017 net operating loss carryovers, which can affect the need to record or maintain a valuation allowance for deferred tax assets.
During 2022, we incurred income tax expense of $139.4 million related to the valuation allowance. At December 31, 2022, we maintain a valuation allowance of $145.4 million against our net deferred tax assets.
At December 31, 2021 and 2020, we recorded a partial valuation allowance of $6.0 million and $5.8 million, respectively, primarily related to state net operating losses, which we do not expect to be able to utilize prior to expiration.
Stock-Based Compensation
The forms of stock-based awards granted to our employees are principally restricted stock units (“RSUs”), RSUs with performance conditions, stock options, and employee stock purchases related to the Employee Stock Purchase Plan (“Employee Stock Purchase Rights”). Further, stock options with market conditions, restricted stock awards (“RSAs”) with performance conditions and RSAs with market conditions have been granted to our Chairman and Chief Executive Officer. The value of RSUs is measured at their grant dates as the fair value of common stock and amortized ratably as non-cash compensation expense over the vesting term. The value of stock options issued and Employee Stock Purchase Rights are generally estimated using a Black-Scholes option pricing model. The value of performance-based grants is measured at their grant dates and recognized as non-cash compensation expense, considering the probability of the targets being achieved. Performance-based grants with a market condition are generally valued using a Monte Carlo simulation model. If an award is modified, we determine if the modification requires a new calculation of fair value or change in the vesting term of the award. See Note 14—Stock-Based Compensation in the notes to the consolidated financial statements included elsewhere in this report for additional information on assumptions and inputs to the fair value determination of stock-based awards.
Evaluation of Goodwill Impairment
We test goodwill annually for impairment as of October 1, or more frequently upon the occurrence of certain events or substantive changes in circumstances. As part of our annual impairment testing of goodwill, we may elect to assess qualitative factors as a basis for determining whether it is necessary to perform the traditional quantitative impairment testing. If our assessment of these qualitative factors indicates that it is not more likely than not that the fair value of the reporting unit or indefinite-lived intangible asset is less than its carrying value, then no further testing is required. Otherwise, the goodwill reporting unit must be quantitatively tested for impairment.
Performing the quantitative test for goodwill impairment that compares the reporting unit fair value with its carrying value using a discounted cash flow and market analysis requires the exercise of significant judgments, including judgments about appropriate discount rates, perpetual growth rates, including revenue, the amount and timing of expected future cash flows, and market multiples. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
At June 30, 2022, we assessed the qualitative factors in our impairment testing of goodwill and determined that the effects of the challenging interest rate environment, consumer price inflation, and the decline in our market capitalization required a quantitative impairment test be performed. The quantitative goodwill impairment test found that the fair value of each reporting unit exceeded its carrying amount, indicating no goodwill impairment. We will monitor the recovery of the Insurance reporting unit and the Mortgage reporting unit. The property and casualty auto insurance industry is experiencing challenges caused by inflation, supply chain challenges, and the rising severity and frequency of claims. Additionally, the significant increase in mortgage interest rates have had a negative impact on our Mortgage reporting unit. Changes in the timing of the recovery compared to current expectations could cause an impairment to the Insurance or Mortgage reporting units.
The value of goodwill subject to assessment for impairment at December 31, 2022 is $420.1 million.
Recoverability of Long-Lived Assets
We review the carrying value of all long-lived assets, primarily property and equipment, definite-lived intangible assets and operating lease right-of-use assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may be impaired. Impairment is considered to have occurred whenever the carrying value of a long-lived asset cannot be recovered from cash flows that are expected to result from the use and eventual disposition of the asset. This recoverability test requires us to make assumptions and judgments related to factors used in a calculation of undiscounted cash flows, including, but not limited to, management’s expectations for future operations and projected cash flows. The key assumptions used in this calculation include Adjusted EBITDA, the remaining useful lives of the primary cash flow generating asset in the asset group and, to a lesser extent, the deduction of capital expenditures and taxes paid in cash to arrive at net cash flows.
Subsequent to the adoption of ASU 2018-15 in the first quarter of 2020, capitalized implementation costs incurred in a hosting arrangement that is a service contract are also allocated to and included within long-lived asset groups tested for recoverability.
The combined value of long-lived assets and capitalized implementation costs incurred in a hosting arrangement that is a service contract subject to assessment for impairment is $179.4 million at December 31, 2022.
Business Acquisitions
When we acquire businesses, we allocate the purchase price to tangible assets and liabilities and identifiable intangible assets acquired at their acquisition date fair values. Any residual purchase price is recorded as goodwill. We also estimate the fair value of any contingent consideration using Level 3 unobservable inputs. Our estimates of fair value are based upon assumptions believed to be reasonable but which are uncertain and involve significant judgments by management.
We reassess the fair value of contingent consideration quarterly until the contingency is resolved, and changes in the fair value are recorded in operating income in the consolidated statements of operations and comprehensive income (loss).
Equity Investment
Our equity securities do not have a readily determinable fair value and, upon acquisition, we elected the measurement alternative to value these securities. Accordingly, the equity securities will be carried at cost less impairment, if any, and subsequently measured to fair value upon observable price changes in an orderly transaction for the identical or similar investments with any gains or losses recorded to the consolidated statement of operations and comprehensive income.
The carrying value of our equity investment at December 31, 2022 is $174.6 million.
New Accounting Pronouncements
See Note 2—Significant Accounting Policies in the notes to the consolidated financial statements included elsewhere in this report for a description of recent accounting pronouncements.
ITEM 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS | | | | | | | | |
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LENDINGTREE, INC. AND SUBSIDIARIES: |
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CONSOLIDATED FINANCIAL STATEMENTS: | |
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of LendingTree, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of LendingTree, Inc. and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive income (loss), of shareholders’ equity, and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for convertible debt in 2022.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Interim Goodwill Impairment Assessment – Insurance Reporting Unit
As described in Notes 2 and 7 to the consolidated financial statements, the Company’s consolidated goodwill balance was $420.1 million as of December 31, 2022, and total goodwill associated with the Insurance reporting unit was $194.7 million. Goodwill is tested annually for impairment as of October 1, or more frequently upon the occurrence of certain events or substantive changes in circumstances. Management may elect to assess qualitative factors as a basis for determining whether it is necessary to perform the traditional quantitative impairment testing. At June 30, 2022, management determined that the effects of the challenging interest rate environment, consumer price inflation, and the decline in the Company's market capitalization required an interim quantitative impairment test be performed. The quantitative impairment test for goodwill involves a comparison of the fair value of a reporting unit with its carrying amount, including goodwill. The quantitative interim goodwill impairment test found that the fair value of the Insurance reporting unit exceeded its carrying amount, indicating no goodwill impairment. Management determines the fair value of the Company’s reporting units by using a market approach and a discounted cash flow analysis. Determining the fair value using a discounted cash flow analysis and market analysis requires the exercise of significant judgments, including judgments about appropriate discount rates, perpetual growth rates, including revenue, the amount and timing of expected future cash flows, and market multiples.
The principal considerations for our determination that performing procedures relating to the interim goodwill impairment assessment of the Insurance reporting unit is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the Insurance reporting unit; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to revenue growth rates, discount rate, and market multiples; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Company’s Insurance reporting unit. These procedures also included, among others (i) testing management’s process for developing the fair value estimate of the Insurance reporting unit; (ii) evaluating the appropriateness of the discounted cash flow model and market approach; (iii) testing the completeness and accuracy of the underlying data used in the discounted cash flow model and market approach; and (iv) evaluating the reasonableness of significant assumptions used by management related to revenue growth rates, discount rate, and market multiples. Evaluating management’s assumptions related to revenue growth rates involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the Insurance reporting unit; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the Company’s discounted cash flow model and market approach and (ii) the reasonableness of the significant assumptions related to the discount rate and market multiples.
/s/ PricewaterhouseCoopers LLP
Charlotte, North Carolina
February 27, 2023
We have served as the Company’s auditor since 2012.
LENDINGTREE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
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| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| (in thousands, except per share amounts) |
Revenue | $ | 984,992 | | | $ | 1,098,499 | | | $ | 909,990 | |
Costs and expenses: | | | | | |
Cost of revenue (exclusive of depreciation and amortization shown separately below) | 57,769 | | | 57,297 | | | 54,494 | |
Selling and marketing expense | 702,238 | | | 773,990 | | | 617,404 | |
General and administrative expense | 152,377 | | | 153,472 | | | 129,101 | |
Product development | 55,553 | | | 52,865 | | | 43,636 | |
Depreciation | 20,095 | | | 17,910 | | | 14,201 | |
Amortization of intangibles | 25,306 | | | 42,738 | | | 53,078 | |
Change in fair value of contingent consideration | — | | | (8,249) | | | 5,327 | |
Restructuring and severance | 4,428 | | | 53 | | | 295 | |
Litigation settlements and contingencies | (18) | | | 392 | | | (943) | |
Total costs and expenses | 1,017,748 | | | 1,090,468 | | | 916,593 | |
Operating (loss) income | (32,756) | | | 8,031 | | | (6,603) | |
Other (expense) income, net: | | | | | |
Interest expense, net | (26,014) | | | (46,867) | | | (36,300) | |
Other income | 3,843 | | | 123,272 | | | 376 | |
(Loss) income before income taxes | (54,927) | | | 84,436 | | | (42,527) | |
Income tax (expense) benefit | (133,019) | | | (11,298) | | | 19,961 | |
Net (loss) income from continuing operations | (187,946) | | | 73,138 | | | (22,566) | |
Loss from discontinued operations, net of tax | (6) | | | (4,023) | | | (25,689) | |
Net (loss) income and comprehensive (loss) income | $ | (187,952) | | | $ | 69,115 | | | $ | (48,255) | |
| | | | | |
Weighted average shares outstanding: | | | | | |
Basic | 12,793 | | | 13,199 | | | 13,007 | |
Diluted | 12,793 | | | 13,695 | | | 13,007 | |
(Loss) income per share from continuing operations: | | | | | |
Basic | $ | (14.69) | | | $ | 5.54 | | | $ | (1.73) | |
Diluted | $ | (14.69) | | | $ | 5.34 | | | $ | (1.73) | |
Loss per share from discontinued operations: | | | | | |
Basic | $ | — | | | $ | (0.30) | | | $ | (1.98) | |
Diluted | $ | — | | | $ | (0.29) | | | $ | (1.98) | |
Net (loss) income per share: | | | | | |
Basic | $ | (14.69) | | | $ | 5.24 | | | $ | (3.71) | |
Diluted | $ | (14.69) | | | $ | 5.05 | | | $ | (3.71) | |
The accompanying notes to consolidated financial statements are an integral part of these statements.
LENDINGTREE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| (in thousands, except par value and share amounts) |
ASSETS: | | | |
Cash and cash equivalents | $ | 298,845 | | | $ | 251,231 | |
Restricted cash and cash equivalents | 124 | | | 111 | |
Accounts receivable (net of allowance of $2,317 and $1,456, respectively) | 83,060 | | | 97,658 | |
Prepaid and other current assets | 26,250 | | | 25,379 | |
Assets held for sale (Note 9) | 5,689 | | | — | |
| | | |
Total current assets | 413,968 | | | 374,379 | |
Property and equipment (net of accumulated depreciation of $33,851 and $28,315, respectively) | 59,160 | | | 72,477 | |
Operating lease right-of-use assets | 67,050 | | | 77,346 | |
Goodwill | 420,139 | | | 420,139 | |
Intangible assets, net | 58,315 | | | 85,763 | |
Deferred income tax assets | — | | | 87,581 | |
Equity investment (Note 8) | 174,580 | | | 158,140 | |
Other non-current assets | 6,101 | | | 6,942 | |
Non-current assets of discontinued operations | — | | | 16,589 | |
Total assets | $ | 1,199,313 | | | $ | 1,299,356 | |
| | | |
LIABILITIES: | | | |
Current portion of long-term debt | $ | 2,500 | | | $ | 166,008 | |
Accounts payable, trade | 2,030 | | | 1,692 | |
Accrued expenses and other current liabilities | 75,095 | | | 106,731 | |
| | | |
Current liabilities of discontinued operations | — | | | 1 | |
Liabilities held for sale (Note 9) | 2,909 | | | — | |
Total current liabilities | 82,534 | | | 274,432 | |
Long-term debt | 813,516 | | | 478,151 | |
Operating lease liabilities | 88,232 | | | 96,165 | |
| | | |
Deferred income tax liabilities | 6,783 | | | 2,265 | |
Other non-current liabilities | 308 | | | 351 | |
Total liabilities | 991,373 | | | 851,364 | |
Commitments and contingencies (Notes 17 and 18) | | | |
SHAREHOLDERS' EQUITY: | | | |
Preferred stock $.01 par value; 5,000,000 shares authorized; none issued or outstanding | — | | | — | |
Common stock $.01 par value; 50,000,000 shares authorized; 16,167,184 and 16,070,720 shares issued, respectively, and 12,811,718 and 13,095,149 shares outstanding, respectively | 162 | | | 161 | |
Additional paid-in capital | 1,189,255 | | | 1,242,794 | |
Accumulated deficit | (715,299) | | | (571,794) | |
Treasury stock; 3,355,466 and 2,975,571 shares, respectively | (266,178) | | | (223,169) | |
Total shareholders' equity | 207,940 | | | 447,992 | |
Total liabilities and shareholders' equity | $ | 1,199,313 | | | $ | 1,299,356 | |
The accompanying notes to consolidated financial statements are an integral part of these statements.
LENDINGTREE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | | | | | Treasury Stock |
| Total | | Number of Shares | | Amount | | Additional Paid-in Capital | | Accumulated Deficit | | Number of Shares | | Amount |
| (in thousands) |
Balance as of December 31, 2019 | $ | 402,326 | | | 15,677 | | | $ | 157 | | | $ | 1,177,984 | | | $ | (592,654) | | | 2,641 | | | $ | (183,161) | |
Net loss and comprehensive loss | (48,255) | | | — | | | — | | | — | | | (48,255) | | | — | | | — | |
Non-cash compensation | 53,733 | | | — | | | — | | | 53,733 | | | — | | | — | | | — | |
| | | | | | | | | | | | | |
Issuance of common stock for stock options, restricted stock awards and restricted stock units, net of withholding taxes | (3,910) | | | 89 | | | 1 | | | (3,911) | | | — | | | — | | | — | |
Issuance of 0.50% Convertible Senior Notes, net | 116,300 | | | — | | | — | | | 116,300 | | | — | | | — | | | — | |
Repurchase of 0.625% Convertible Senior Notes, net | (107,882) | | | — | | | — | | | (107,882) | | | — | | | — | | | — | |
Convertible note hedge transactions | (14,379) | | | — | | | — | | | (14,379) | | | — | | | — | | | — | |
Warrant transactions | (33,171) | | | — | | | — | | | (33,171) | | | — | | | — | | | — | |
Other | (1) | | | — | | | — | | | (1) | | | — | | | — | | | — | |
Balance as of December 31, 2020 | $ | 364,761 | | | 15,766 | | | $ | 158 | | | $ | 1,188,673 | | | $ | (640,909) | | | 2,641 | | | $ | (183,161) | |
Net income and comprehensive income | 69,115 | | | — | | | — | | | — | | | 69,115 | | | — | | | — | |
Non-cash compensation | 68,555 | | | — | | | — | | | 68,555 | | | — | | | — | | | — | |
| | | | | | | | | | | | | |
Purchase of treasury stock | (40,008) | | | — | | | — | | | — | | | — | | | 335 | | | (40,008) | |
Issuance of common stock for stock options, restricted stock awards and restricted stock units, net of withholding taxes | (14,423) | | | 305 | | | 3 | | | (14,426) | | | — | | | — | | | — | |
Other | (8) | | | — | | | — | | | (8) | | | — | | | — | | | — | |
Balance as of December 31, 2021 | $ | 447,992 | | | 16,071 | | | $ | 161 | | | $ | 1,242,794 | | | $ | (571,794) | | | 2,976 | | | $ | (223,169) | |
Net loss and comprehensive loss | (187,952) | | | — | | | — | | | — | | | (187,952) | | | — | | | — | |
Non-cash compensation | 59,624 | | | — | | | — | | | 59,624 | | | — | | | — | | | — | |
Purchase of treasury stock | (43,009) | | | — | | | — | | | — | | | — | | | 379 | | | (43,009) | |
Issuance of common stock for stock options, employee stock purchase plan, restricted stock awards and restricted stock units, net of withholding taxes | (3,412) | | | 96 | | | 1 | | | (3,413) | | | — | | | — | | | — | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Cumulative effect adjustment due to ASU 2020-06 | (65,303) | | | — | | | — | | | (109,750) | | | 44,447 | | | — | | | — | |
Balance as of December 31, 2022 | $ | 207,940 | | | 16,167 | | | $ | 162 | | | $ | 1,189,255 | | | $ | (715,299) | | | 3,355 | | | $ | (266,178) | |
The accompanying notes to consolidated financial statements are an integral part of these statements.
LENDINGTREE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | 2021 | 2020 |
| (in thousands) |
Cash flows from operating activities attributable to continuing operations: | | | |
Net (loss) income and comprehensive (loss) income | $ | (187,952) | | $ | 69,115 | | $ | (48,255) | |
Less: Loss from discontinued operations, net of tax | 6 | | 4,023 | | 25,689 | |
(Loss) income from continuing operations | (187,946) | | 73,138 | | (22,566) | |
Adjustments to reconcile income from continuing operations to net cash provided by operating activities attributable to continuing operations: | | | |
Loss on impairments and disposal of assets | 6,590 | | 3,465 | | 1,160 | |
| | | |
Amortization of intangibles | 25,306 | | 42,738 | | 53,078 | |
Depreciation | 20,095 | | 17,910 | | 14,201 | |
| | | |
Non-cash compensation expense | 59,624 | | 68,555 | | 53,733 | |
Deferred income taxes | 132,666 | | 10,908 | | (9,628) | |
Change in fair value of contingent consideration | — | | (8,249) | | 5,327 | |
Gain on investments | — | | (123,272) | | — | |
Bad debt expense | 4,101 | | 2,472 | | 1,785 | |
Amortization of debt issuance costs | 6,432 | | 5,992 | | 3,474 | |
Write-off of previously-capitalized debt issuance costs | — | | 1,066 | | — | |
Amortization of debt discount | 1,475 | | 30,695 | | 19,570 | |
Loss on extinguishment of debt | — | | — | | 7,768 | |
Reduction in carrying amount of ROU asset, offset by change in operating lease liabilities | (1,547) | | 12,807 | | 8,888 | |
Changes in current assets and liabilities: | | | |
Accounts receivable | 9,143 | | (10,289) | | 21,861 | |
Prepaid and other current assets | (4,313) | | (4,902) | | (952) | |
Accounts payable, accrued expenses and other current liabilities | (28,417) | | (1,537) | | (8,013) | |
Current contingent consideration | — | | — | | (25,787) | |
Income taxes receivable | 214 | | 10,680 | | (10,598) | |
Other, net | (449) | | (921) | | (2,002) | |
Net cash provided by operating activities attributable to continuing operations | 42,974 | | 131,256 | | 111,299 | |
Cash flows from investing activities attributable to continuing operations: | | | |
Capital expenditures | (11,443) | | (35,065) | | (42,149) | |
| | | |
| | | |
Purchase of equity investment | (16,440) | | (1,180) | | (80,000) | |
Proceeds from the sale of equity investment | — | | 46,312 | | — | |
| | | |
| | | |
Other investing activities | 7 | | — | | — | |
Net cash (used in) provided by investing activities attributable to continuing operations | (27,876) | | 10,067 | | (122,149) | |
Cash flows from financing activities attributable to continuing operations: | | | |
Payments related to net-share settlement of stock-based compensation, net of proceeds from exercise of stock options | (3,411) | | (14,423) | | (3,910) | |
Purchase of treasury stock | (43,009) | | (40,008) | | — | |
Proceeds from term loan | 250,000 | | — | | — | |
Repayment of term loan | (1,250) | | — | | — | |
Proceeds from the issuance of 0.50% Convertible Senior Notes | — | | — | | 575,000 | |
Repayment of 0.625% Convertible Senior Notes | (169,659) | | — | | (233,862) | |
Payment of convertible note hedge on the 0.50% Convertible Senior Notes | — | | — | | (124,200) | |
Termination of convertible note hedge on the 0.625% Convertible Senior Notes | — | | — | | 109,881 | |
Proceeds from the sale of warrants related to the 0.50% Convertible Senior Notes | — | | — | | 61,180 | |
Termination of warrants related to the 0.625% Convertible Senior Notes | — | | — | | (94,292) | |
Net repayment of revolving credit facility | — | | — | | (75,000) | |
| | | |
Payment of debt issuance costs | (135) | | (6,385) | | (16,568) | |
| | | |
Payment of original issue discount on term loan | — | | (2,500) | | — | |
Contingent consideration payments | — | | — | | (4,755) | |
| | | |
Other financing activities | — | | (31) | | (184) | |
Net cash provided by (used in) financing activities attributable to continuing operations | 32,536 | | (63,347) | | 193,290 | |
Total cash provided by continuing operations | 47,634 | | 77,976 | | 182,440 | |
Discontinued operations: | | | |
Net cash (used in) provided by operating activities attributable to discontinued operations | (7) | | 3,317 | | (72,730) | |
Total cash (used in) provided by discontinued operations | (7) | | 3,317 | | (72,730) | |
Net increase in cash, cash equivalents, restricted cash and restricted cash equivalents | 47,627 | | 81,293 | | 109,710 | |
Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period | 251,342 | | 170,049 | | 60,339 | |
Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period | $ | 298,969 | | $ | 251,342 | | $ | 170,049 | |
| | | |
Non-cash investing activities: | | | |
(Decrease) increase in capital expenditures included in accounts payable and accrued expenses | $ | (294) | | $ | (4,793) | | $ | 4,196 | |
| | | |
Supplemental cash flow information: | | | |
Interest paid | $ | 19,017 | | $ | 8,912 | | $ | 4,741 | |
Income tax payments | 404 | | 186 | | 561 | |
Income tax refunds | 287 | | 10,503 | | 60 | |
The accompanying notes to consolidated financial statements are an integral part of these statements.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1—ORGANIZATION
Company Overview
LendingTree, Inc. is the parent of LT Intermediate Company, LLC, which holds all of the outstanding ownership interests of LendingTree, LLC, and LendingTree, LLC owns several companies (collectively, “LendingTree” or the “Company”).
LendingTree operates what it believes to be the leading online consumer platform that connects consumers with the choices they need to be confident in their financial decisions. The Company offers consumers tools and resources, including free credit scores, that facilitate comparison-shopping for mortgage loans, home equity loans and lines of credit, auto loans, credit cards, deposit accounts, personal loans, student loans, small business loans, insurance quotes, sales of insurance policies and other related offerings. The Company primarily seeks to match in-market consumers with multiple providers on its marketplace who can provide them with competing quotes for loans, deposit products, insurance or other related offerings they are seeking. The Company also serves 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 it generates with these providers.
The consolidated financial statements include the accounts of LendingTree and all its wholly-owned entities, except Home Loan Center, Inc. (“HLC”) subsequent to its bankruptcy filing on July 21, 2019 which resulted in the Company's loss of a controlling interest in HLC under applicable accounting standards. Intercompany transactions and accounts have been eliminated. The HLC bankruptcy case was closed on July 14, 2021. The HLC entity was legally dissolved in the first quarter of 2022. See Note 22—Discontinued Operations for additional information.
Discontinued Operations
The LendingTree Loans business, which consisted of originating various consumer mortgage loans through HLC (the “LendingTree Loans Business”), is presented as discontinued operations in the accompanying consolidated balance sheets, consolidated statements of operations and comprehensive income (loss) and consolidated cash flows for all periods presented. The notes accompanying these consolidated financial statements reflect the Company's continuing operations and, unless otherwise noted, exclude information related to the discontinued operations. See Note 22 —Discontinued Operations for additional information.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).
NOTE 2—SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company derives its revenue primarily from match fees and closing fees. Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied and promised services have transferred to the customer. In identifying performance obligations, judgment is required around contracts where there was a possibility of bundled services and multiple parties. In applying judgment, the Company considers customer expectations of performance, materiality and the core principles of Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. The Company's services are generally transferred to the customer at a point in time.
Variable consideration is included in revenue if it is probable that a significant future reversal of cumulative revenue under the contract will not occur.
Revenue from Home products is primarily generated from upfront match fees paid by mortgage Network Partners that receive a loan request, and in some cases upfront fees for clicks or call transfers. Match fees and upfront fees for clicks and call transfers are earned through the delivery of loan requests that originated through the Company's websites or affiliates. The Company recognizes revenue at the time a loan request is delivered to the customer, provided that no significant obligations remain. The Company's contractual right to the match fee consideration is contemporaneous with the satisfaction of the performance obligation to deliver a loan request to the customer.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue from Consumer products is generated by match and other upfront fees for clicks or call transfers, as well as from closing fees, approval fees and upfront service and subscription fees. Closing fees are derived from lenders on certain auto loans, business loans, personal loans and student loans when the lender funds a loan with the consumer. Approval fees are derived from credit card issuers when the credit card consumer receives card approval from the credit card issuer. Upfront service fees and subscription fees are derived from consumers in the Company's credit services product. Upfront fees paid by consumers are recognized as revenue over the estimated time the consumer will remain a customer and receive services. Subscription fees are recognized over the period a consumer is receiving services.
Under ASC Topic 606, the timing of recognizing revenue for closing fees and approval fees is accelerated to the point when a loan request or a credit card consumer is delivered to the customer, as opposed to when the consumer loan is closed by the lender or credit card approval is made by the issuer. The Company's contractual right to closing fees and approval fees is not contemporaneous with the satisfaction of the performance obligation to deliver a loan request or a credit card consumer to the customer. As such, the Company records a contract asset at each reporting period-end related to the estimated variable consideration on closing fees and approval fees for which the Company has satisfied the related performance obligation but are still pending the loan closing or credit card approval before the Company has a contractual right to payment. This estimate is based on the Company's historical closing rates and historical time between when a consumer request for a loan or credit card is delivered to the lender or card issuer and when the loan is closed by the lender or approved by the card issuer. The time between satisfaction of the Company's performance obligation and when the Company's right to consideration becomes unconditional varies across products but is generally less than 90 days for auto loans, personal loans, student loans and credit card approvals. The time between satisfaction of the Company's performance obligation and when the Company's right to consideration becomes unconditional for small business loans is generally less than 5 years.
Revenue from the Company's Insurance products is primarily generated from upfront match fees and upfront fees for website clicks or fees for calls. Match fees and upfront fees for clicks and call transfers are earned through the delivery of consumer requests that originated through the Company's websites or affiliates. The Company recognizes revenue at the time a consumer request is delivered to the customer, provided that no significant obligations remain. The Company's contractual right to the match fee consideration is contemporaneous with the satisfaction of the performance obligation to deliver a consumer request to the customer.
Our payment terms vary by customer and services offered. The term between invoicing and when payment is due is generally 30 days or less.
Sales commissions are incremental costs of obtaining contracts with customers. The Company expenses sales commissions when incurred as the duration of contracts with customers is less than one year, based on the right of either party to terminate the contract with less than one year's notice without compensation to either party. These costs are recorded within selling and marketing expense on the consolidated statements of operations and comprehensive income (loss).
Cash and Cash Equivalents
Cash and cash equivalents include cash and short-term, highly liquid money market investments with original maturities of three months or less.
Restricted Cash
Cash escrowed or contractually restricted for a specific purpose is designated as restricted cash.
Accounts Receivable
Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts.
The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time accounts receivable are past due, previous loss history, current and expected economic conditions and the specific customer's current and expected ability to pay its obligation. Accounts receivable are considered past due when they are outstanding longer than the contractual payment terms. Accounts receivable are written off when management deems them uncollectible.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the beginning and ending balances of the allowance for doubtful accounts is as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Balance, beginning of the period | $ | 1,456 | | | $ | 1,402 | | | $ | 1,466 | |
Charges to earnings | 4,101 | | | 2,472 | | | 1,785 | |
Write-off of uncollectible accounts receivable | (2,869) | | | (2,424) | | | (1,859) | |
Recoveries collected | — | | | 6 | | | 10 | |
Assets held for sale (Note 9) | (371) | | | — | | | — | |
Balance, end of the period | $ | 2,317 | | | $ | 1,456 | | | $ | 1,402 | |
Segment Reporting
The Company has three reportable segments: Home, Consumer, and Insurance. Characteristics which were relied upon in making the determination of the reportable segments include the nature of the products, the organization's internal structure, and the information that is regularly reviewed by the chief operating decision maker, or CODM, for the purpose of assessing performance and allocating resources.
Property and Equipment
Property and equipment, including internally-developed software and significant improvements, are recorded at cost less accumulated depreciation. Due to the rapid advancements in technology and evolution of company products, all internally-developed software is written off at the end of its useful life. Repairs and maintenance and any gains or losses on dispositions are recognized as incurred in current operations.
Depreciation is recorded on a straight-line basis to allocate the cost of depreciable assets to operations over their estimated service lives. The following table presents the estimated useful lives for each asset category:
| | | | | |
Asset Category | Estimated Useful Lives |
| |
| |
| |
Computer equipment and capitalized software | 1 to 5 years |
Leasehold improvements | Lesser of asset life or life of lease |
Furniture and other equipment | 7 years |
Aircraft and automobile | 5 to 10 years |
Hosting Arrangement that is a Service Contract
Subsequent to the adoption of ASU 2018-15 in the first quarter of 2020, as described below, qualifying implementation costs incurred in a hosting arrangement that is a service contract are capitalized and deferred on a straight-line basis over the term of the hosting arrangement, which is typically one to five years. These costs are capitalized to prepaid and other current assets and other non-current assets on the balance sheet, and the associated amortization expense is included within general and administrative expense on the statement of operations and comprehensive income (loss). The majority of such capitalized implementation costs arise from internal and external labor associated with software development, described below.
Software Development Costs
Software development costs primarily include internal and external labor expenses incurred to develop the software that powers the Company's websites. Certain costs incurred during the application development stage are capitalized, either as property and equipment or as a hosting arrangement that is a service contract, based on specific activities tracked, while costs incurred during the preliminary project stage and post-implementation/operation stage are expensed as incurred. Capitalized software development costs are amortized over an estimated useful life of one to five years.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill acquired in business combinations is assigned to the reporting units that are expected to benefit from the combination as of the acquisition date. Goodwill and indefinite-lived intangible assets, consisting of certain trade names and
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
trademarks, are not amortized. Rather, these assets are tested annually for impairment as of October 1, or more frequently upon the occurrence of certain events or substantive changes in circumstances.
As part of its annual impairment testing of goodwill and indefinite-lived intangible assets, in each instance, the Company may elect to assess qualitative factors as a basis for determining whether it is necessary to perform the traditional quantitative impairment testing. If the Company’s assessment of these qualitative factors indicates that it is not more likely than not that the fair value of the reporting unit or indefinite-lived intangible asset is less than its carrying value, then no further testing is required. Otherwise, the goodwill reporting unit or long-lived intangible assets, as applicable, must be quantitatively tested for impairment.
The quantitative impairment test for goodwill involves a comparison of the fair value of a reporting unit with its carrying amount, including goodwill. The Company determines the fair value of its reporting units by using a market approach and a discounted cash flow (“DCF”) analysis. Determining fair value using a DCF analysis and market analysis requires the exercise of significant judgments, including judgments about appropriate discount rates, perpetual growth rates, including revenue, the amount and timing of expected future cash flows, and market multiples. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
The quantitative impairment test for indefinite-lived intangible assets involves a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the indefinite-lived intangible asset exceeds its estimated fair value, an impairment loss is recognized in an amount equal to that excess. The estimates of fair value of indefinite-lived intangible assets are determined using a DCF valuation analysis that employs a relief-from-royalty methodology in estimating the fair value of trade names and trademarks. Significant judgments inherent in this analysis include the determination of royalty rates, discount rates, perpetual growth rates and the amount and timing of future revenues.
At June 30, 2022, the Company assessed the qualitative factors in its impairment testing of goodwill and determined that the effects of the challenging interest rate environment, consumer price inflation, and the decline in the Company's market capitalization required a quantitative impairment test be performed. The quantitative goodwill impairment test found that the fair value of each reporting unit exceeded its carrying amount, indicating no goodwill impairment.
Results of the October 1, 2022, 2021 and 2020 qualitative annual impairment tests indicated that it is not more likely than not that the fair value of the goodwill and the indefinite-lived intangible assets were each less than their respective carrying values. Accordingly, no further testing was required.
Long-Lived Assets and Intangible Assets with Definite Lives
Long-lived assets include property and equipment, definite-lived intangible assets and operating lease right-of-use assets. Amortization of definite-lived intangible assets is recorded on a straight-line basis over their estimated lives.
Capitalized implementation costs incurred in a hosting arrangement that is a service contract are also allocated to and included within long-lived asset groups tested for recoverability.
Long-lived asset groups are tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. The carrying amount of a long-lived asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset group. If the carrying amount is deemed to not be recoverable, an impairment loss is recorded as the amount by which the carrying amount of the long-lived asset group exceeds its fair value.
At December 31, 2022 and 2021, the Company performed its review of impairment triggering events for long-lived asset groups and determined that a triggering event had not occurred.
Assets and Liabilities Held for Sale
The Company classifies assets or disposal groups to be sold as held for sale in the period in which all of the following criteria are met:
•Management, having the authority to approve the action, commits to a plan to sell the asset or disposal group;
•The asset or disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets or disposal groups;
•An active program to locate a buyer and other actions required to complete the plan to sell the asset or disposal group have been initiated;
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
•The sale of the asset or disposal group is probable, and transfer of the asset or disposal group is expected to qualify for recognition as a completed sale within one year, except if events or circumstances beyond the Company's control extend the period of time required to sell the asset or disposal group beyond one year;
•The asset or disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and
•Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
A long-lived asset or disposal group that is classified as held for sale is initially measured at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Conversely, gains are not recognized on the sale of a long-lived asset or disposal group until the date of sale. The fair value of a long-lived asset or disposal group, less any costs to sell, is assessed each reporting period it remains classified as held for sale and any subsequent changes are reported as an adjustment to the carrying value of the asset or disposal group, as long as the new carrying value does not exceed the carrying value of the asset at the time it was initially classified as held for sale.
Equity Investments
The equity securities do not have a readily determinable fair value and, upon acquisition, the Company elected the measurement alternative to value its securities. Accordingly, the equity securities will be carried at cost less impairment, if any, and subsequently measured to fair value upon observable price changes in an orderly transaction for the identical or similar investments with any gains or losses recorded to the consolidated statement of operations and comprehensive income.
Fair Value Measurements
The Company categorizes its assets and liabilities measured at fair value into a fair value hierarchy that prioritizes the assumptions used in pricing the asset or liability into the following three levels:
•Level 1: Observable inputs, such as quoted prices for identical assets and liabilities in active markets obtained from independent sources.
•Level 2: Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs that are derived principally from or corroborated by observable market data.
•Level 3: Unobservable inputs for which there is little or no market data and which require the Company to develop its own assumptions, based on the best information available under the circumstances, about the assumptions market participants would use in pricing the asset or liability.
The Company's non-financial assets, such as goodwill, intangible assets and property and equipment are recorded at fair value upon acquisition. These assets are remeasured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment charge is recognized. Such fair value measurements are based predominantly on Level 3 inputs.
Contingent consideration payments related to acquisitions are measured at fair value each reporting period using Level 3 unobservable inputs. The Company's estimates of fair value are based upon assumptions believed to be reasonable but which are uncertain and involve significant judgments by management. Any changes in the fair value of these contingent consideration payments are included in operating income in the consolidated statements of operations and comprehensive income (loss). At December 31, 2022, the Company had no outstanding contingent consideration arrangements.
Cost of Revenue
Cost of revenue consists primarily of expenses associated with compensation and other employee-related costs (including stock-based compensation) related to internally-operated customer call centers, third-party customer call center fees, credit scoring fees, credit card fees, website network hosting and server fees.
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.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Advertising and Promotional Expense
Advertising and promotional costs are expensed in the period incurred (except for production costs which are initially capitalized and then recognized as expense when the advertisement first runs) and principally represent offline costs, including television, print and radio advertising, and online advertising costs, including fees paid to search engines and distribution partners. Advertising and promotional expense was $647.3 million, $716.6 million and $567.7 million for the years ended December 31, 2022, 2021 and 2020, respectively, and is included in selling and marketing expense on the consolidated statements of operations and comprehensive income (loss).
Income Taxes
Income taxes are accounted for under the liability method, and deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In estimating future tax consequences, all expected future events are considered. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided on deferred tax assets if it is determined that it is more likely than not that the deferred tax asset will not be realized. Interest is recorded on potential tax contingencies as a component of income tax expense and recorded net of any applicable related income tax benefit. For the years ended December 31, 2022, 2021 and 2020, the Company followed the incremental or “with” and “without” approach to intraperiod tax allocation for determination of the amount of tax benefit to allocate to continuing operations as prescribed in ASC 740-20-45-7.
In accordance with the accounting standard for uncertainty in income taxes, liabilities for uncertain tax positions are recognized based on the two-step process prescribed by the accounting standards. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.
Stock-Based Compensation
The forms of stock-based awards granted to LendingTree employees are principally restricted stock units (“RSUs”), RSUs with performance conditions, stock options, and employee stock purchases related to the Employee Stock Purchase Plan (“Employee Stock Purchase Rights”). Further, stock options with market conditions, restricted stock awards (“RSAs”) with performance conditions and RSAs with market conditions have been granted to the Company's Chairman and Chief Executive Officer. RSUs are awards in the form of units, denominated in a hypothetical equivalent number of shares of LendingTree common stock and with the value of each award equal to the fair value of LendingTree common stock at the date of grant. RSUs may be settled in cash, stock or both, as determined by the Company's Compensation Committee at the time of grant. The Company does not have a history of settling these awards in cash. Each stock-based award is subject to service-based vesting, where a specific period of continued employment must pass before an award vests. The Compensation Committee can modify the vesting provisions of an award. Certain awards also include performance-based vesting, where certain performance targets set at the time of grant must be achieved before an award vests.
LendingTree recognizes as expense non-cash compensation for all stock-based awards for which vesting is considered probable. Forfeitures are recognized when they occur.
For service-based awards, non-cash compensation is measured at fair value on the grant date and expensed ratably over the vesting term. The fair value of stock option awards without a market condition and Employee Stock Purchase Rights are typically estimated using the Black-Scholes option pricing model, while the fair value of an RSU or RSA is measured as the closing common stock price at the time of grant. For performance-based grants, the fair value is measured on the grant date and recognized as non-cash compensation expense, considering the probability of the targets being achieved. Performance-based grants with a market condition are typically valued using a Monte Carlo simulation model. Non-cash compensation expense for single cliff-vesting grants with a market condition are recognized on a straight-line basis, while graded-vesting grants with a market condition use graded vesting expense attribution.
Excess tax benefits and deficiencies that arise due to the difference in the measure of stock compensation and the amount deductible for tax purposes are recorded in income tax expense within the consolidated statement of operations and comprehensive income (loss), and are classified as a component of operating cash flows within the consolidated statements of cash flows.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Litigation Settlements and Contingencies
Litigation settlements and contingencies consists of expenses related to actual or anticipated litigation settlements.
The Company is involved in legal proceedings on an ongoing basis. If the Company believes that a loss arising from such matters is probable and can be reasonably estimated, the estimated liability is accrued in the consolidated financial statements. If only a range of estimated losses can be determined, an amount within the range is accrued that, in the Company's judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate than any other amount, the low end of the range is accrued. For those proceedings in which an unfavorable outcome is reasonably possible but not probable, an estimate of the reasonably possible loss or range of losses or a conclusion that an estimate of the reasonably possible loss or range of losses arising directly from the proceeding (i.e., monetary damages or amounts paid in judgment or settlement) are not material is disclosed. Legal expenses associated with these matters are recognized as incurred.
Accounting Estimates
Management is required to make certain estimates and assumptions during the preparation of the consolidated financial statements in accordance with GAAP. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. They also impact the reported amount of net earnings during any period. Actual results could differ from those estimates.
Significant estimates underlying the accompanying consolidated financial statements, including discontinued operations, include: the recoverability of long-lived assets, goodwill and intangible assets; the determination of income taxes payable and deferred income taxes, including related valuation allowances; fair value of assets acquired in a business combination; contingent consideration related to business combinations; litigation accruals; contract assets; various other allowances, reserves and accruals; assumptions related to the determination of stock-based compensation; and the determination of right-of-use assets and lease liabilities.
The Company considered the impact of the COVID-19 pandemic on the assumptions and estimates used when preparing its consolidated financial statements including, but not limited to, the allowance for doubtful accounts, valuation allowances, contract asset and contingent consideration. These assumptions and estimates may change as new events occur and additional information is obtained. If economic conditions caused by the COVID-19 pandemic worsen, such future changes may have an adverse impact on the Company's results of operations, financial position and liquidity.
Certain Risks and Concentrations
LendingTree's business is subject to certain risks and concentrations including dependence on third-party technology providers, exposure to risks associated with online commerce security and credit card fraud.
Financial instruments, which potentially subject the Company to concentration of credit risk at December 31, 2022, consist primarily of cash and cash equivalents and accounts receivable, as disclosed in the consolidated balance sheet. Cash and cash equivalents are in excess of Federal Deposit Insurance Corporation insurance limits, but are maintained with quality financial institutions of high credit. The Company requires certain Network Partners to maintain security deposits with the Company, which in the event of non-payment, would be applied against any accounts receivable outstanding.
Due to the nature of the mortgage lending industry, interest rate fluctuations may negatively impact future revenue from the Company's marketplace.
For the years ended December 31, 2022 and December 31, 2021, there were no network partners accounting for more than 10% of total revenue. For the year ended December 31, 2020, one network partner accounted for 15% of total consolidated revenue, all of which was recorded within the Insurance segment.
Lenders and lead purchasers participating on the Company's marketplace can offer their products directly to consumers through brokers, mass marketing campaigns or through other traditional methods of credit distribution. These lenders and lead purchasers can also offer their products online, either directly to prospective borrowers, through one or more online competitors, or both. If a significant number of potential consumers are able to obtain loans and other products from Network Partners without utilizing the Company's services, the Company's ability to generate revenue may be limited. Because the Company does not have exclusive relationships with the Network Partners whose loans and other financial products are offered on its online marketplace, consumers may obtain offers from these Network Partners without using its service.
Other than a support services office in India, the Company's operations are geographically limited to and dependent upon the economic condition of the United States.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recently Adopted Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, which simplifies the accounting for convertible instruments, amends the derivatives scope exception guidance for contracts in an entity’s own equity, and amends the related earnings-per-share guidance. Under the new guidance, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, or that do not result in substantial premiums accounted for as paid-in capital. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. Additionally, the new guidance requires the if-converted method to be applied for all convertible instruments when calculating diluted earnings per share. This ASU is effective for annual and interim reporting periods beginning after December 15, 2021, with early adoption permitted for periods beginning after December 15, 2020. An entity may adopt the amendments through either a modified retrospective method of transition or a fully retrospective method of transition.
The Company adopted ASU 2020-06 on January 1, 2022 using the modified retrospective transition approach and recognized the cumulative effect of initially applying ASU 2020-06 as a $44.4 million adjustment to the opening balance of accumulated deficit, comprised of $60.8 million for the interest adjustment, net of $16.4 million for the related tax impacts. The recombination of the equity conversion component of our convertible debt remaining outstanding caused a reduction in additional paid-in capital and an increase in deferred income tax assets. The removal of the remaining debt discounts recorded for this previous separation had the effect of increasing our net debt balance. ASU 2020-06 also requires the dilutive impact of convertible debt instruments to utilize the if-converted method when calculating diluted earnings per share and the result is more dilutive. The prior period consolidated financial statements have not been retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods. See Note 16—Debt for further information.
The cumulative effect of the changes made to the consolidated January 1, 2022 balance sheet for the adoption of ASU 2020-06 were as follows (in thousands):
| | | | | | | | | | | |
| December 31, 2021 | Adjustments due to ASU 2020-06 | January 1, 2022 |
Assets: | | | |
Deferred income tax assets | $ | 87,581 | | $ | 23,979 | | $ | 111,560 | |
| | | |
Liabilities: | | | |
Current portion of long-term debt | $ | 166,008 | | $ | 3,213 | | $ | 169,221 | |
Long-term debt | 478,151 | | 86,069 | | 564,220 | |
| | | |
Shareholders' equity: | | | |
Additional paid-in capital | $ | 1,242,794 | | $ | (109,750) | | $ | 1,133,044 | |
Accumulated deficit | (571,794) | | 44,447 | | (527,347) | |
The adoption of ASU 2020-06 did not impact our cash flows or compliance with debt covenants.
In May 2021, the FASB issued ASU 2021-04 to clarify and reduce diversity in accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. The amendments clarify that a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange should be accounted for as an exchange of the original instrument for a new instrument. This ASU is effective for annual and interim reporting periods beginning after December 15, 2021. Early adoption is permitted, including adoption in interim periods. An entity should adopt the guidance as of the beginning of its annual fiscal year. The amendments should be applied prospectively to modifications or exchanges occurring on or after the date of adoption. The Company adopted ASU 2021-04 in the second quarter of 2021.
In December 2019, the FASB issued ASU 2019-12, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740, Income Taxes, and clarifies certain aspects of the current guidance to improve consistency among reporting entities. This ASU is effective for annual and interim reporting periods beginning after December 15, 2020. Early adoption is permitted, including adoption in interim periods. Entities electing early adoption must adopt all amendments in the same period. Most amendments must be applied prospectively while others are to be applied on a
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company adopted ASU 2019-12 in the first quarter of 2021. The amendments applicable to the Company required prospective application, and do not have material impacts to its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. The amendments should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company adopted ASU 2018-15 in the first quarter of 2020 using the prospective approach. Subsequent to the adoption of this ASU, capitalizable implementation costs incurred in a hosting arrangement that is a service contract are recorded within prepaid and other current assets and other non-current assets on the consolidated balance sheet. The amortization expense associated with these capitalized implementation costs is included within general and administrative expense on the consolidated statement of operations and comprehensive income (loss). The adoption of ASU 2018-15 did not have a material impact on the consolidated financial statements as of and for the year ended December 31, 2020. See Note 6—Hosting Arrangements.
In August 2018, the FASB issued ASU 2018-13, which removes, modifies and adds certain disclosure requirements in ASC Topic 820, Fair Value Measurement. This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. Certain amendments must be applied prospectively while others are to be applied on a retrospective basis to all periods presented. The Company adopted ASU 2018-13 in the first quarter of 2020. See Note 19—Fair Value Measurements.
In January 2017, the FASB issued ASU 2017-04, which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge (Step 2 of the goodwill impairment test). Instead, an impairment charge will be based on the excess of the carrying amount over the fair value. This ASU is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019. The Company adopted ASU 2017-04 in the first quarter of 2020.
In June 2016, the FASB issued ASU 2016-13, which requires entities to measure expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU introduces ASC Topic 326, Financial Instruments—Credit Losses, which replaces the existing incurred loss model and is applicable to financial assets measured at amortized cost, including trade receivables and certain other financial assets that have the contractual right to receive cash. ASC Topic 326 is effective for annual and interim reporting periods beginning after December 15, 2019. The guidance must be adopted using a modified retrospective transition. The Company adopted ASC Topic 326 as of January 1, 2020, which did not result in any cumulative effect adjustment to the opening balance of accumulated deficit in the period of adoption.
Recently Issued Accounting Pronouncements
The Company has considered the applicability of recently issued accounting pronouncements by the Financial Accounting Standards Board and have determined that they are not applicable or are not expected to have a material impact on our consolidated financial statements.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3—REVENUE
Revenue is as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Revenue: | | | | | |
Home | $ | 289,383 | | | $ | 441,738 | | | $ | 320,992 | |
Credit cards | 100,229 | | | 93,420 | | | 77,361 | |
Personal loans | 144,148 | | | 110,099 | | | 66,513 | |
Other Consumer | 151,732 | | | 126,426 | | | 109,324 | |
Consumer | 396,109 | | | 329,945 | | | 253,198 | |
Insurance | 299,073 | | | 326,153 | | | 333,765 | |
Other | 427 | | | 663 | | | 2,035 | |
Total revenue | $ | 984,992 | | | $ | 1,098,499 | | | $ | 909,990 | |
The contract asset recorded within prepaid and other current assets on the consolidated balance sheets related to estimated variable consideration was $12.2 million and $9.1 million on December 31, 2022 and 2021, respectively.
The contract liability recorded within accrued expenses and other current liabilities on the consolidated balance sheets related to upfront fees paid by consumers in the Company's Consumer business was $0.9 million and $0.8 million at December 31, 2022 and 2021, respectively. During 2022, the Company recognized revenue of $0.8 million that was included in the contract liability balance at December 31, 2021. During 2021, the Company recognized revenue of $0.7 million that was included in the contract liability balance at December 31, 2020.
Revenue recognized in any reporting period includes estimated variable consideration for which the Company has satisfied the related performance obligations but are still pending the occurrence or non-occurrence of a future event outside the Company's control (such as lenders providing loans to consumers or credit card approvals of consumers) before the Company has a contractual right to payment. The Company recognized increases to such revenue from prior periods of $0.5 million, $0.7 million and $0.3 million in 2022, 2021 and 2020, respectively.
NOTE 4—CASH AND RESTRICTED CASH
Total cash, cash equivalents, restricted cash and restricted cash equivalents consist of the following (in thousands):
| | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
Cash and cash equivalents | $ | 298,845 | | | $ | 251,231 | |
Restricted cash and cash equivalents | 124 | | | 111 | |
Total cash, cash equivalents, restricted cash and restricted cash equivalents | $ | 298,969 | | | $ | 251,342 | |
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5—PROPERTY AND EQUIPMENT
The balance of property and equipment, net is as follows (in thousands):
| | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
Computer equipment and capitalized software | $ | 42,710 | | | $ | 46,341 | |
Leasehold improvements | 33,776 | | | 34,485 | |
Furniture and other equipment | 9,635 | | | 9,942 | |
Aircraft and automobile | 2,598 | | | 2,621 | |
Projects in progress | 4,292 | | | 7,403 | |
Total gross property and equipment | 93,011 | | | 100,792 | |
Accumulated depreciation | (33,851) | | | (28,315) | |
Total property and equipment, net | $ | 59,160 | | | $ | 72,477 | |
Unamortized capitalized software development costs recorded in property and equipment, whether in service or under development, are $19.0 million and $26.4 million at December 31, 2022 and 2021, respectively. Capitalized software development depreciation expense was $14.1 million, $13.3 million and $11.1 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Long-lived assets located outside the United States, the Company's country of domicile, were immaterial at December 31, 2022 and $0.1 million at December 31, 2021.
See Note 9—Assets and Liabilities Held for Sale for property and equipment classified as held for sale during 2022.
NOTE 6—HOSTING ARRANGEMENTS
The balance of capitalized implementation costs incurred in a hosting arrangement that is a service contract, which are recorded within prepaid and other current assets and other non-current assets, is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| Current portion | | Non-current portion | | Current portion | | Non-current portion |
Capitalized implementation costs | $ | 2,558 | | | $ | 4,997 | | | $ | 1,771 | | | $ | 2,960 | |
Projects in progress | 247 | | | 560 | | | 367 | | | 810 | |
Total gross | 2,805 | | | 5,557 | | | 2,138 | | | $ | 3,770 | |
Accumulated amortization | (576) | | | (2,754) | | | (91) | | | (1,056) | |
Total net | $ | 2,229 | | | $ | 2,803 | | | $ | 2,047 | | | $ | 2,714 | |
Amortization expense included within general and administrative expense on the consolidated statement of operations and comprehensive income (loss) associated with these capitalized implementation costs was $2.5 million and $1.1 million for the years ended December 31, 2022 and 2021, respectively.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7—GOODWILL AND INTANGIBLE ASSETS
The balance of goodwill, net is as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Goodwill | | Accumulated Impairment Loss | | Net Goodwill |
Balance at December 31, 2020 | $ | 903,227 | | | $ | (483,088) | | | $ | 420,139 | |
Changes in goodwill | — | | | — | | | — | |
Balance at December 31, 2021 | $ | 903,227 | | | $ | (483,088) | | | $ | 420,139 | |
Changes in goodwill | — | | | — | | | — | |
Balance at December 31, 2022 | $ | 903,227 | | | $ | (483,088) | | | $ | 420,139 | |
The balance of intangible assets, net is as follows (in thousands):
| | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| | | |
| | | |
| | | |
| | | |
Intangible assets with indefinite lives | $ | 10,142 | | | $ | 10,142 | |
Intangible assets with definite lives, net | 48,173 | | | 75,621 | |
Total intangible assets, net | $ | 58,315 | | | $ | 85,763 | |
Goodwill and Indefinite-Lived Intangible Assets
The Company's goodwill at each of December 31, 2022 and 2021 consists of $59.3 million associated with the Home reporting unit, $166.1 million associated with the Consumer reporting unit, and $194.7 million associated with the Insurance reporting unit. Results of the annual impairment test as of October 1, 2022 indicated that no impairment had occurred.
At June 30, 2022, the Company assessed the qualitative factors in its impairment testing of goodwill and determined that the effects of the challenging interest rate environment, consumer price inflation, and the decline in our market capitalization required a quantitative impairment test be performed. The quantitative goodwill impairment test found that the fair value of each reporting unit exceeded its carrying amount, indicating no goodwill impairment. The Company will monitor the recovery of the Insurance reporting unit and the Mortgage reporting unit. The property and casualty auto insurance is experiencing challenges caused by inflation, supply chain challenges, and the rising severity and frequency of claims. Additionally, the significant increase in mortgage interest rates have had a negative impact on the Mortgage reporting unit. Changes in the timing of the recovery compared to current expectations could cause an impairment to the Insurance or Mortgage reporting units.
Intangible assets with indefinite lives relate to the Company's trademarks. Results of the annual impairment test as of October 1, 2022 indicated that no impairment had occurred.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible Assets with Definite Lives
Intangible assets with definite lives relate to the following (dollars in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| Weighted Average Amortization Life | | Cost | | Accumulated Amortization | | Net |
| | | | | | | |
Customer lists | 13.2 years | | 77,300 | | | (30,775) | | | 46,525 | |
Trademarks and tradenames | 5.0 years | | 10,100 | | | (8,452) | | | 1,648 | |
| | | | | | | |
Balance at December 31, 2022 | | | $ | 87,400 | | | $ | (39,227) | | | $ | 48,173 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Weighted Average Amortization Life | | Cost | | Accumulated Amortization | | Net |
Technology | 4.3 years | | $ | 87,700 | | | $ | (69,369) | | | $ | 18,331 | |
Customer lists | 13.2 years | | 77,300 | | | (24,668) | | | 52,632 | |
Trademarks and tradenames | 4.9 years | | 11,700 | | | (7,767) | | | 3,933 | |
Website content | 3.0 years | | 26,100 | | | (25,375) | | | 725 | |
Balance at December 31, 2021 | | | $ | 202,800 | | | $ | (127,179) | | | $ | 75,621 | |
The decrease in cost and accumulated amortization in 2022 compared to 2021 is primarily due to certain technology and website content intangible assets becoming fully amortized and written off in 2022.
Amortization of intangible assets with definite lives is computed on a straight-line basis and, based on balances as of December 31, 2022, future amortization is estimated to be as follows (in thousands):
| | | | | |
| Amortization Expense |
Year ending December 31, 2023 | $ | 7,694 | |
Year ending December 31, 2024 | 5,889 | |
Year ending December 31, 2025 | 5,830 | |
Year ending December 31, 2026 | 5,504 | |
Year ending December 31, 2027 | 5,198 | |
Thereafter | 18,058 | |
Total intangible assets with definite lives, net | $ | 48,173 | |
See Note 9—Assets and Liabilities Held for Sale for intangible assets with definite lives classified as held for sale during 2022.
NOTE 8—EQUITY INVESTMENT
In January 2022, the Company acquired an equity interest in EarnUp Inc. (“EarnUp”) for $15.0 million. The company is a consumer-first mortgage payment platform that intelligently automates loan payment scheduling and helps consumers better manage their money and improve their financial well-being.
On February 28, 2020, the Company acquired an equity interest in Stash Financial, Inc. (“Stash”) for $80.0 million. On January 6, 2021, the Company acquired an additional equity interest for $1.2 million. On October 18, 2021, the Company entered into a stock transfer agreement with third parties to sell a portion of its Stash equity securities for $46.3 million. The Company sold $35.3 million in October and closed on an additional $11.0 million in November 2021. The Company recorded a realized gain of $27.9 million based on the sale of Stash equity securities under the stock transfer agreement, which is included within other income on the consolidated statement of operations and comprehensive income. 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 and Roth IRAs, custodial investment accounts, and banking services, including checking accounts and debit cards with a Stock-Back® rewards program.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The equity securities do not have a readily determinable fair value and, upon acquisition, the Company elected the measurement alternative to value its securities. The equity securities will be carried at cost less impairment, if any, and subsequently measured to fair value upon observable price changes in an orderly transaction for the identical or similar investments with any gains or losses recorded to the consolidated statement of operations and comprehensive income. In 2021, the Company recorded a net unrealized gain on the investment in Stash of $95.4 million as a result of an adjustment to the fair value of the Stash equity securities based on observable market events, which is included within other income on the consolidated statement of operations and comprehensive income. As of December 31, 2022, there have been no impairments to the acquisition cost of the equity securities.
NOTE 9—ASSETS AND LIABILITIES HELD FOR SALE
In the fourth quarter of 2022, the Company approved a plan to sell an asset group associated with the Company's Consumer segment. The asset group is expected to be sold in 2023 to an unrelated third party and is classified, at its carrying value, as current assets held for sale and current liabilities held for sale in the consolidated balance sheet as of December 31, 2022.
The following table presents information related to the major classes of assets and liabilities that were classified as held for sale (in thousands):
| | | | | |
| December 31, 2022 |
Accounts receivable, net of allowance | $ | 1,353 | |
Prepaid and other current assets | 79 | |
Property and equipment, net of accumulated depreciation of $1,102 | 1,665 | |
Operating lease right-of-use assets | 436 | |
Intangible assets, net of accumulated amortization of $3,857 | 2,143 | |
Other non-current assets | 13 | |
Total assets held for sale | $ | 5,689 | |
| |
Accounts payable, trade | $ | 253 | |
Accrued expenses and other current liabilities | 2,551 | |
Operating lease liabilities | 105 | |
Total liabilities held for sale | $ | 2,909 | |
NOTE 10—BUSINESS ACQUISITIONS
Changes in Contingent Consideration
In 2018, the Company acquired all of the outstanding equity interests of QuoteWizard.com, LLC, which does business under the name QuoteWizard (“QuoteWizard”). The Company made no earnout payments related to the QuoteWizard acquisition during 2022 or 2021, and this earnout period ended October 31, 2021. In 2020, the Company paid $20.2 million related to the earnout payment for the period of November 1, 2019 through October 31, 2020, which is included within cash flows from operating activities on the consolidated statement of cash flows.
In 2018, the Company acquired all of the outstanding equity interests of Ovation Credit Services, Inc., which does business under the name Ovation (“Ovation”). The Company made no earnout payments related to the Ovation acquisition during 2022 or 2021, as this earnout was completed in 2020. In 2020, the Company paid $4.4 million related to the earnout payment for the period of July 1, 2019 through June 30, 2020, of which $1.4 million is included within cash flows from financing activities and $3.0 million is included within cash flows from operating activities on the consolidated statement of cash flows.
In 2017, the Company acquired certain assets of Snap Capital LLC, which does business under the name SnapCap (“SnapCap”). During 2020, the Company made the final earnout payments related to the achievement of certain defined earnings targets for SnapCap. Of the total earnout payments of $6.0 million in 2020, $3.3 million is included within cash flows from financing activities and $2.7 million is included within cash flows from operating activities on the consolidated statement of cash flows.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in the fair value of contingent consideration is summarized as follows (in thousands):
| | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2021 | | 2020 |
QuoteWizard | | | $ | (8,249) | | | $ | 3,980 | |
Ovation | | | — | | | 1,270 | |
SnapCap | | | — | | | 77 | |
| | | | | |
Total changes in fair value of contingent consideration | | | $ | (8,249) | | | $ | 5,327 | |
NOTE 11—ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following (in thousands):
| | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
Accrued advertising expense | $ | 37,703 | | | $ | 59,150 | |
Accrued compensation and benefits | 11,444 | | | 16,330 | |
Accrued professional fees | 1,393 | | | 1,887 | |
Customer deposits and escrows | 7,273 | | | 7,546 | |
Contribution to LendingTree Foundation | 500 | | | 3,333 | |
Current lease liabilities | 8,513 | | | 8,595 | |
Other | 8,269 | | | 9,890 | |
Total accrued expenses and other current liabilities | $ | 75,095 | | | $ | 106,731 | |
See Note 9—Assets and Liabilities Held for Sale for accrued expenses and other current liabilities classified as held for sale during 2022.
NOTE 12—LEASES
The Company is a lessee to leases of corporate offices and certain office equipment. The majority of leases for corporate offices include one or more options to renew, with renewal terms ranging from two to five years. These renewal options have not been included in the calculation of right-of-use assets and lease liabilities, as the Company is not reasonably certain of the exercise of these renewal options. The Company used its incremental borrowing rate to calculate the right-of-use asset and lease liability for each lease.
As of December 31, 2022, right-of-use assets totaled $67.1 million and lease liabilities, the current portion of which is included in accrued expenses and other current liabilities in the accompanying balance sheet, totaled $96.7 million. At December 31, 2021, right-of-use assets totaled $77.3 million and lease liabilities totaled $104.8 million.
Lease expense, which is included in general and administrative expense on the accompanying consolidated statements of operations and comprehensive income (loss), consists of the following (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Operating lease cost | $ | 11,862 | | | $ | 13,160 | | | $ | 11,226 | |
Short-term lease cost | 45 | | | 39 | | | 59 | |
| | | | | |
Total lease cost | $ | 11,907 | | | $ | 13,199 | | | $ | 11,285 | |
Weighted average remaining lease term and discount rate for operating leases are as follows: | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 | | December 31, 2020 | | |
Weighted average remaining lease term | 12.1 years | | 12.3 years | | 13.0 years | | |
Weighted average discount rate | 5.0 | % | | 5.0 | % | | 5.0 | % | | |
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supplemental cash flow information related to leases is as follows (in thousands): | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2022 | | 2021 | | 2020 | | |
Net cash paid for amounts included in the measurement of lease liabilities: | | | | | | | |
Operating cash flows from operating leases | $ | 13,357 | | | $ | 329 | | | $ | 2,359 | | | |
Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 975 | | | $ | 1,250 | | | $ | 66,881 | | | |
Maturities of lease liabilities as of December 31, 2022 are as follows (in thousands): | | | | | |
| Operating Leases |
Year ending December 31, 2023 | $ | 13,148 | |
Year ending December 31, 2024 | 11,686 | |
Year ending December 31, 2025 | 9,747 | |
Year ending December 31, 2026 | 9,945 | |
Year ending December 31, 2027 | 8,532 | |
Thereafter | 79,498 | |
Total lease payments | 132,556 | |
Less: Interest | 35,811 | |
| |
Present value of lease liabilities | $ | 96,745 | |
See Note 9—Assets and Liabilities Held for Sale for leases classified as held for sale during 2022.
NOTE 13—SHAREHOLDERS' EQUITY
Basic and diluted (loss) income per share was determined based on the following share data (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Weighted average basic common shares | 12,793 | | | 13,199 | | | 13,007 | |
Effect of stock options | — | | | 407 | | | — | |
Effect of dilutive share awards | — | | | 89 | | | — | |
| | | | | |
Weighted average diluted common shares | 12,793 | | | 13,695 | | | 13,007 | |
For the year ended December 31, 2022, the Company had a loss from continuing operations and, as a result, no potentially dilutive securities were included in the denominator for computing diluted loss per share, because the impact would have been anti-dilutive. Accordingly, the weighted average basic shares outstanding was used to compute loss per share. Approximately 0.2 million shares related to potentially dilutive securities were excluded from the calculation of diluted loss per share for the year ended December 31, 2022 because their inclusion would have been anti-dilutive. For the year ended December 31, 2022 the weighted average shares that were anti-dilutive included options to purchase 1.0 million shares of common stock and 0.4 million restricted stock units.
For the year ended December 31, 2021, the weighted average shares that were anti-dilutive, and therefore excluded from the calculation of diluted income per share, included options to purchase 0.9 million shares of common stock and 0.1 million restricted stock units.
For the year ended December 31, 2020, the Company had a loss from continuing operations and, as a result, no potentially dilutive securities were included in the denominator for computing diluted loss per share, because the impact would have been anti-dilutive. Accordingly, the weighted average basic shares outstanding was used to compute loss per share. Approximately 1.1 million shares related to potentially dilutive securities were excluded from the calculation of diluted loss per share for the year ended December 31, 2020 because their inclusion would have been anti-dilutive. For the year ended December 31, 2020 the weighted average shares that were anti-dilutive included options to purchase 0.2 million shares of common stock.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The convertible notes and the warrants issued by the Company could be converted into the Company’s common stock, subject to certain contingencies. See Note 16—Debt for additional information. On January 1, 2022, the Company adopted ASU 2020-06 using the modified retrospective method. Following the adoption, the if-converted method is used for diluted net income per share calculation of our convertible notes. Prior to the adoption of ASU 2020-06 the dilutive impact of the convertible notes was calculated using the treasury stock method. See Note 2—Significant Accounting Policies for additional information.
Approximately 2.1 million shares related to the potentially dilutive shares of the Company's common stock associated with the 0.50% Convertible Senior Notes due July 15, 2025 and the 0.625% Convertible Senior Notes due June 1, 2022 were excluded from the calculation of diluted loss per share for the years ended December 31, 2022 and 2020 because their inclusion would have been anti-dilutive and were excluded from diluted income per share for the year ended December 31, 2021 since the conversion price of the Notes was greater than the average market price of the Company's common stock during the period. Shares of the Company's stock associated with warrants issued by the Company in 2017 and 2020 were excluded from the calculation of diluted (loss) income per share for the years ended December 31, 2022 and 2020 because their inclusion would have been anti-dilutive and were excluded for the year ended December 31, 2021 since the strike price of the warrants was greater than the average market price of the Company's common stock during the relevant periods.
In 2021, the Company implemented an employee stock purchase plan, which did not have a material impact to the calculation of diluted shares.
See Note 14—Stock-Based Compensation for a full description of outstanding equity awards.
Common Stock Repurchases
In each of February 2018 and February 2019, the board of directors authorized and the Company announced the repurchase of up to $100.0 million and $150.0 million, respectively, of LendingTree's common stock. During the years ended December 31, 2022 and 2021, the Company purchased 379,895 and 334,253 shares, respectively, of its common stock for aggregate consideration of $43.0 million and $40.0 million, respectively. The Company did not purchase shares of its common stock during the year ended December 31, 2020. At December 31, 2022, $96.7 million remains authorized for share repurchase.
NOTE 14—STOCK-BASED COMPENSATION
The Company currently has one active plan, the Seventh Amended and Restated LendingTree 2008 Stock Plan (the “Equity Award Plan”), under which future awards may be granted, which currently covers outstanding stock options to acquire shares of the Company's common stock, restricted stock, restricted stock with performance conditions, RSUs and RSUs with performance conditions, and provides for the future grants of these and other equity awards. Under the Equity Award Plan, the Company is authorized to grant stock options, restricted stock, RSUs, and other equity-based awards for up to 6.7 million shares of LendingTree common stock to employees, and to non-employee consultants and directors.
The Equity Award Plan has a stated term of ten years and provides that the exercise price of stock options granted will not be less than the market price of the common stock on the grant date. The Equity Award Plan does not specify grant dates or vesting schedules, as those determinations are delegated to the Compensation Committee of the board of directors. Each grant agreement reflects the vesting schedule for that particular grant, as determined by the Compensation Committee. The Compensation Committee has the authority to modify the vesting provisions of an award.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-cash compensation related to equity awards is included in the following line items in the accompanying consolidated statements of operations and comprehensive income (loss) (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Cost of revenue | $ | 1,608 | | | $ | 1,639 | | | $ | 1,319 | |
Selling and marketing expense | 8,282 | | | 7,480 | | | 6,240 | |
General and administrative expense | 40,233 | | | 50,989 | | | 39,650 | |
Product development | 8,418 | | | 8,447 | | | 6,524 | |
Restructuring and severance | 1,083 | | | — | | | — | |
Total non-cash compensation | $ | 59,624 | | | $ | 68,555 | | | $ | 53,733 | |
For the years ended December 31, 2022, 2021, and 2020, the Company recognized $12.0 million, $14.1 million, and $11.4 million, respectively, of income tax benefit, including state taxes, related to non-cash compensation. Additionally, for the year ended December 31, 2022, the Company recognized excess tax expense of $5.1 million, and for the years ended December 31, 2021, and 2020, the Company recognized excess tax benefit of $11.7 million, and $2.5 million, respectively, including state taxes, in income tax expense. See Note 2—Significant Accounting Policies, for additional information regarding excess tax benefits and deficiencies.
Stock Options
A summary of changes in outstanding stock options is as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value(a) |
| | | (per option) | | (in years) | | (in thousands) |
Outstanding at December 31, 2021 | 676,293 | | | $ | 169.71 | | | | | |
Granted | 157,632 | | | 103.54 | | | | | |
Exercised | — | | | — | | | | | |
Forfeited | (22,371) | | | 204.46 | | | | | |
Expired | (6,475) | | | 256.11 | | | | | |
Outstanding at December 31, 2022 | 805,079 | | | $ | 155.10 | | | 5.18 | | $ | — | |
Options exercisable | 512,029 | | | $ | 133.50 | | | 3.3 | | $ | — | |
(a)The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company's closing stock price of $21.33 on the last trading day of 2022 and the exercise price, multiplied by the number of shares covered by in-the-money options) that would have been received by the option holder had the option holder exercised these options on December 31, 2022. The intrinsic value changes based on the market value of the Company's common stock.
As of December 31, 2022, there was approximately $18.1 million of unrecognized compensation cost related to stock options. These costs are expected to be recognized over a weighted-average period of approximately 2.3 years.
Upon exercise, the intrinsic value represents the pre-tax difference between the Company's closing stock price on the exercise date and the exercise price, multiplied by the number of stock options exercised. During the year ended December 31, 2022, there were no stock options exercised. During the years ended December 31, 2021 and 2020, the total intrinsic value of stock options that were exercised was $51.4 million and $6.8 million, respectively. As there were no options exercised for the year ended December 31, 2022, no cash was received from stock option exercises.
During the years ended December 31, 2022, 2021, and 2020, the Company granted stock options with a weighted average grant date fair value per share of $53.21, $128.86, and $116.08, respectively, of which the vesting periods include (a) immediately upon grant, (b) earlier of one year from grant date and the Company's annual meeting of stockholders for 2023, (c) 33% over a period of three years from the grant date, (d) 25% over a period of four years from the grant date, and (e) certain grants to executive officers that vest over periods of up to six years.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For purposes of determining stock-based compensation expense, the weighted average grant date fair value per share of the stock options, except the December 2020 grant to the Chairman and Chief Executive Officer described below, was estimated using the Black-Scholes option pricing model, which requires the use of various key assumptions. The weighted average assumptions used are as follows:
| | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | 2021 | 2020 |
Expected term (1) | 5.00-6.00 years | 5.00 - 6.00 years | 5.00 - 6.25 years |
Expected dividend (2) | — | | — | | — | |
Expected volatility (3) | 53% - 56% | 53%- 59% | 52% - 60% |
Risk-free interest rate (4) | 1.62% - 3.23% | 0.59%- 1.15% | 0.33% - 0.96% |
(1)The expected term of stock options granted was calculated using the 'Simplified Method', which utilizes the midpoint between the weighted average time of vesting and the end of the contractual term. This method was utilized for the stock options due to a lack of historical exercise behavior by the Company's employees.
(2)For all stock options granted during the years ended December 31, 2022, 2021, and 2020, no dividends are expected to be paid over the contractual term of the stock options, resulting in a zero expected dividend rate.
(3)The expected volatility rate is based on the historical volatility of the Company's common stock.
(4)The risk-free interest rate is specific to the date of grant. The risk-free interest rate is based on U.S. Treasury yields for notes with comparable expected terms as the awards, in effect at the grant date.
In December 2020, the Company granted time-based stock options to its Chairman and Chief Executive Officer at a premium exercise price of $300, representing an approximate 25% premium over the closing market price of LendingTree's common stock on the date of grant. The net after-tax shares acquired through exercise of these stock options are subject to a two-year post-exercise holding requirement. For purposes of determining stock-based compensation expense, the grant date fair value per share of these time-based stock options was estimated using the Monte Carlo simulation model. The key assumptions used in the valuation are as follows:
(1)An average expected term of 6.90 years based on the midpoint between the first day that the stock options are both vested and in-the-money and the end of the contractual term.
(2)A zero expected dividend rate as no dividends are expected to be paid over the contractual term of the stock options.
(3)An expected volatility rate of 52% based on the historical volatility of the Company's common stock.
(4)A risk-free interest rate of 0.92% based on U.S. Treasury yields for notes with comparable expected terms as the awards, in effect at the grant date.
(5)An 8.8% discount for the post-exercise holding requirement, calculated using the cost-of-carry method, the Chaffe protective put method, and the Finnerty model.
During the years ended December 31, 2022, 2021 and 2020, the total grant date fair value of options vested was $9.2 million, $10.8 million and $5.8 million, respectively.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Options with Market Conditions
A summary of changes in outstanding stock options with market conditions at target is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Options with Market Conditions | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value(a) |
| | | (per option) | | (in years) | | (in thousands) |
Outstanding at December 31, 2021 | 700,209 | | | $ | 236.01 | | | | | |
Granted | 47,639 | | | 195.10 | | | | | |
Exercised | — | | | — | | | | | |
Forfeited | — | | | — | | | | | |
Expired | (13,163) | | | 378.95 | | | | | |
Outstanding at December 31, 2022 | 734,685 | | | $ | 230.79 | | | 5.68 | | $ | — | |
Options exercisable | 481,669 | | | $ | 195.10 | | | 4.60 | | $ | — | |
(a)The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company's closing stock price of $21.33 on the last trading day of 2022 and the exercise price, multiplied by the number of shares covered by in-the-money options) that would have been received by the option holder had the option holder exercised these options on December 31, 2022. The intrinsic value changes based on the market value of the Company's common stock.
As of December 31, 2022, there was approximately $18.8 million of unrecognized compensation cost related to stock options with market conditions. These costs are expected to be recognized over a weighted-average period of approximately 2.7 years. For single cliff-vesting stock options with market conditions, the fair value will be recognized on a straight-line basis through each grant’s vest date, whether or not any of the total shareholder return targets are met. For graded-vesting stock options with market conditions, the fair value will be recognized using graded vesting expense attribution, whether or not any of the total shareholder return targets are met.
No stock options with market conditions were granted in 2021. During the year ended December 31, 2020, the Company granted stock options with a weighted-average grant date fair value per share of $142.54. The single cliff-vesting stock options granted during the year ended December 31, 2020 have a vest date of March 31, 2024. The graded-vesting stock options granted during the year ended December 31, 2020 have a vesting schedule with vesting dates of December 31, 2024, December 31, 2025 and December 31, 2026.
For purposes of determining stock-based compensation expense, the weighted-average grant date fair value per share of the stock options with a market condition was estimated using the Monte Carlo simulation model, which requires the use of various key assumptions.
The weighted-average assumptions used for single cliff-vesting stock options with a market condition are as follows:
| | | | | |
| Year Ended December 31, 2020 |
Expected term (1) | 7.00 years |
Expected dividend (2) | — | |
Expected volatility (3) | 51 | % |
Risk-free interest rate (4) | 1.03 | % |
(1)The expected term of stock options with a market condition granted was calculated using the midpoint between the weighted average time of vesting and the end of the contractual term.
(2)For all stock options with a market condition granted during the years ended December 31, 2020, no dividends are expected to be paid over the contractual term of the stock options, resulting in a zero expected dividend rate.
(3)The expected volatility rate is based on the historical volatility of the Company's common stock.
(4)The risk-free interest rate is specific to the date of grant. The risk-free interest rate is based on U.S. Treasury yields for notes with comparable expected terms as the awards, in effect at the grant date.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 2020, the Company granted graded-vesting stock options with a market condition to its Chairman and Chief Executive Officer at a premium exercise price of $300, representing an approximate 25% premium over the closing market price of LendingTree's common stock on the date of grant. The net after-tax shares acquired through exercise of these stock options are subject to a two-year post-exercise holding requirement. The key assumptions used in the Monte Carlo simulation model to determine the grant date fair value per share of these graded-vesting stock options with a market condition are as follows:
(1)An average expected term of 7.54 years based on the midpoint between vesting and the end of the contractual term.
(2)A zero expected dividend rate as no dividends are expected to be paid over the contractual term of the stock options.
(3)An expected volatility rate of 52% based on the historical volatility of the Company's common stock.
(4)A risk-free interest rate of 0.92% based on U.S. Treasury yields for notes with comparable expected terms as the awards, in effect at the grant date.
(5)An 8.8% discount for the post-exercise holding requirement, calculated using the cost-of-carry method, the Chaffe protective put method, and the Finnerty model.
The single cliff-vesting stock options with a market condition granted in 2020 have a target number of shares that vest upon achieving a targeted total shareholder return performance of 81% stock price appreciation and a maximum of 31,940 shares for achieving superior performance. No shares will vest unless 41% of the targeted performance is achieved. The performance measurement period ends on March 31, 2024. The graded-vesting stock options with a market condition granted in 2020 have a target number of shares that vest upon achieving a targeted total shareholder return performance of 135% stock price appreciation and a maximum of 363,464 shares for achieving superior performance. No shares will vest unless 81% of the targeted performance is achieved. The performance measurement period ends on March 31, 2025.
The stock options with a market condition granted in 2019 have a target number of shares that vest upon achieving a targeted total shareholder return performance of 81% stock price appreciation and a maximum of 27,132 shares for achieving superior performance. No shares will vest unless 41% of the targeted performance is achieved. The performance measurement period ends on March 31, 2023.
The performance measurement period for the stock options with market conditions granted in conjunction with the 2017 Chairman and Chief Executive Officer grants ended on September 30, 2022. The grants had a target number of shares of 434,030 that would vest upon achieving a targeted total shareholder return performance of 110% stock price appreciation and a maximum of 724,831 shares for achieving superior performance. No shares would vest unless 70% of the targeted performance is achieved. At September 30, 2022, an additional 47,639 shares were granted to reflect the actual total shareholder return performance above the target, as reflected in the table above.
The performance measurement period for stock options with a market condition granted in 2018 ended on March 31, 2022. The grant had a target number of shares of 13,163 that would vest upon achieving a targeted total shareholder return performance of 81% stock price appreciation and a maximum of 21,982 shares for achieving superior performance. No shares would vest unless 41% of the targeted performance was achieved. At March 31, 2022, the target number of shares expired due to the actual total shareholder return performance not meeting the 41% of the targeted performance measure, as reflected in the table above.
For all stock options with market conditions, time-based service vesting conditions would also have to be satisfied in order for shares to become fully vested and no longer subject to forfeiture.
As of December 31, 2022, a maximum of 422,537 may be earned for achieving superior performance up to 167% of the remaining unvested target number of shares. As of December 31, 2022, no additional performance-based nonqualified stock options with a market condition had been earned.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock Units
A summary of changes in outstanding nonvested RSUs is as follows: | | | | | | | | | | | |
| RSUs |
| Number of Units | | Weighted Average Grant Date Fair Value |
| | | (per unit) |
Nonvested at December 31, 2021 | 308,068 | | | $ | 226.55 | |
Granted (a) | 422,820 | | | 97.54 | |
Vested | (139,652) | | | 234.78 | |
Forfeited | (106,183) | | | 154.64 | |
Nonvested at December 31, 2022 | 485,053 | | | $ | 127.46 | |
(a)The grant date fair value per share of the RSUs is calculated as the closing market price of LendingTree's common stock at the time of grant.
As of December 31, 2022, there was approximately $39.0 million of unrecognized compensation cost related to RSUs. These costs are expected to be recognized over a weighted-average period of approximately 1.8 years.
The total fair value of RSUs that vested during the years ended December 31, 2022, 2021, and 2020 was $11.5 million, $21.7 million and $22.4 million, respectively.
Restricted Stock Units with Performance Conditions
A summary of changes in outstanding nonvested RSUs with performance conditions is as follows:
| | | | | | | | | | | | | | | |
| RSUs with Performance Conditions | | |
| Number of Units | | Weighted Average Grant Date Fair Value | | | | |
| | | (per unit) | | | | |
Nonvested at December 31, 2021 | — | | | $ | — | | | | | |
Granted | 16,000 | | | 83.25 | | | | | |
Vested | — | | | — | | | | | |
Forfeited | — | | | — | | | | | |
Nonvested at December 31, 2022 | 16,000 | | | $ | 83.25 | | | | | |
No RSUs with performance conditions were granted in 2021, or 2020.
As of December 31, 2022, there was no unrecognized compensation cost related to RSUs with performance conditions.
The total fair value of RSUs with performance conditions that vested during the years ended December 31, 2021, and 2020 was $0.9 million and $2.6 million, respectively.
Restricted Stock Awards with Performance Conditions
No RSAs with performance conditions were granted in 2022, 2021, or 2020. During 2018, the Company granted time-vested RSAs with a performance condition to its Chairman and Chief Executive Officer, which vested through December 31, 2021. The terms of this award were fixed in compensation agreements in July 2017 with a total grant date fair value of $21.9 million. The performance condition was tied to the Company's operating results during the first six months of 2018, and has been met.
The total fair value of RSAs with performance conditions that vested during the years ended December 31, 2021 and 2020 was $4.1 million and $6.2 million, respectively.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock Awards with Market Conditions
A summary of changes in outstanding nonvested RSAs with market conditions at target is as follows:
| | | | | | | | | | | |
| RSAs with Market Conditions |
| Number of Awards | | Weighted Average Grant Date Fair Value |
| | | (per unit) |
Nonvested at December 31, 2021 | 26,674 | | | $ | 340.25 | |
Granted | 2,927 | | | 340.25 | |
Vested | (29,601) | | | 340.25 | |
Forfeited | — | | | — | |
Nonvested at December 31, 2022 | — | | | $ | — | |
No RSAs with market conditions were granted in 2021 or 2020. During 2018, the Company granted RSAs with market conditions to its Chairman and Chief Executive Officer with a total grant date fair value of $1.9 million. The performance measurement period ended on September 30, 2022, and 29,601 shares were earned.
The performance measurement period for restricted stock awards with market conditions granted in 2018 ended on September 30, 2022. The grant had a target number of shares of 26,674 that would vest upon achieving a targeted total shareholder return performance of 110% stock price appreciation and a maximum of 44,545 shares for achieving superior performance. No shares would vest unless 70% of the targeted performance was achieved. At September 30, 2022, an additional 2,927 were granted to reflect the actual total shareholder return performance above the target, as reflected in the table above.
As of December 31, 2022, there was no unrecognized compensation cost related to RSAs with market conditions.
The total fair value of RSAs with market conditions that vested during the year ended December 31, 2022 was $0.7 million.
Employee Stock Purchase Plan
During 2021, the Company implemented an employee stock purchase plan (“ESPP”), under which a total of 262,731 shares of the Company's common stock were reserved for issuance. The ESPP is a tax-qualified plan under Section 423 of the Internal Revenue Code. Under the terms of the ESPP, eligible employees are granted options to purchase shares of the Company's common stock at 85% of the lesser of (1) the fair market value at time of grant or (2) the fair market value at time of exercise. The offering periods and purchase periods are typically 6-month periods ending on June 30 and December 31 of each year.
During the year ended December 31, 2022, 30,375 shares were purchased under the ESPP at a weighted average purchase price of $27.19 per share, resulting in cash proceeds of $0.8 million. During the year ended December 31, 2021, 5,543 shares were purchased under the ESPP at a weighted average purchase price of $103.62 per share, resulting in cash proceeds of $0.6 million. As of December 31, 2022 and 2021, 226,813 and 257,188 shares, respectively, were available for issuance under the ESPP.
For the years ended December 31, 2022 and 2021, the Company granted Employee Stock Purchase Rights to certain employees with a weighted average grant date fair value per share of $20.96 and $42.39 respectively, calculated using the Black-Scholes option pricing model. For purposes of determining stock-based compensation expense, the grant date fair value per share estimated using the Black-Scholes option pricing model required the use of the following key assumptions:
| | | | | | | | |
| Year Ended December 31, |
| 2022 | 2021 |
Expected term (1) | 0.50 years | 0.33 years |
Expected dividend (2) | — | | — | |
Expected volatility (3) | 49% - 73% | 46% |
Risk-free interest rate (4) | 0.19% - 2.51% | 0.05% |
(1)The expected term was calculated using the time period between the grant date and the purchase date.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2)No dividends are expected to be paid, resulting in a zero expected dividend rate.
(3)The expected volatility rate is based on the historical volatility of the Company's common stock.
(4)The risk-free interest rate is specific to the date of grant. The risk-free interest rate is based on U.S. Treasury yields for notes with comparable expected terms as the Employee Stock Purchase Rights, in effect at the grant date.
NOTE 15—INCOME TAXES
Income Tax Provision
The components of the income tax expense (benefit) are as follows (in thousands): | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Current income tax expense (benefit): | | | | | |
Federal | $ | — | | | $ | 128 | | | $ | (10,705) | |
State | 353 | | | 262 | | | 372 | |
Current income tax expense (benefit) | 353 | | | 390 | | | (10,333) | |
Deferred income tax provision (benefit): | | | | | |
Federal | 98,772 | | | 9,912 | | | (7,495) | |
State | 33,894 | | | 996 | | | (2,133) | |
Deferred income tax provision (benefit) | 132,666 | | | 10,908 | | | (9,628) | |
Income tax expense (benefit) | $ | 133,019 | | | $ | 11,298 | | | $ | (19,961) | |
A reconciliation of the income tax expense (benefit) to the amounts computed by applying the statutory federal income tax rate to income (loss) from continuing operations before income taxes is shown as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Federal statutory income tax | $ | (11,538) | | | $ | 17,731 | | | $ | (8,931) | |
State income taxes, net | 365 | | | 1,269 | | | (3,551) | |
Excess tax deductions on non-cash compensation | 4,117 | | | (9,401) | | | (2,033) | |
Impact of the Coronavirus Aid, Relief, and Economic Security Act | — | | | — | | | (6,104) | |
Research and experimentation tax credit | (2,906) | | | (3,207) | | | (3,800) | |
| | | | | |
Nondeductible executive compensation | 2,692 | | | 3,058 | | | 1,778 | |
Increase (decrease) in valuation allowance | 139,374 | | | 595 | | | 2,100 | |
Uncertain tax positions | 405 | | | 435 | | | 458 | |
Nondeductible meals & entertainment | 267 | | | 239 | | | 99 | |
| | | | | |
Other, net | 243 | | | 579 | | | 23 | |
Income tax expense (benefit) | $ | 133,019 | | | $ | 11,298 | | | $ | (19,961) | |
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred Income Taxes
The tax effects of cumulative temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
Deferred tax assets: | | | |
Provision for accrued expenses | $ | 3,257 | | | $ | 5,405 | |
Leasing | 25,213 | | | 27,419 | |
Net operating loss carryforwards (a) | 59,302 | | | 66,977 | |
Capitalized research and experimentation | 17,843 | | | — | |
Non-cash compensation expense | 30,451 | | | 26,756 | |
Intangible assets | 10,240 | | | 15,222 | |
Interest | 30,054 | | | 8,036 | |
| | | |
| | | |
Tax credits | 16,174 | | | 15,848 | |
Other | 104 | | | 1,079 | |
Total gross deferred tax assets | 192,638 | | | 166,742 | |
Less: valuation allowance (b) | (145,401) | | | (6,039) | |
Total deferred tax assets, net of the valuation allowance | 47,237 | | | 160,703 | |
Deferred tax liabilities: | | | |
Leasing | (21,445) | | | (24,590) | |
Property and equipment | (6,227) | | | (8,156) | |
Equity investment | (25,756) | | | (25,608) | |
| | | |
Other | (592) | | | (444) | |
Total gross deferred tax liabilities | (54,020) | | | (58,798) | |
Net deferred taxes | $ | (6,783) | | | $ | 101,905 | |
(a)At December 31, 2022, the Company had pre-tax consolidated federal net operating losses (“NOLs”) of $187.9 million. The federal NOLs no longer expire under the new TCJA. The Company's NOLs will be available to offset taxable income subject to the Internal Revenue Code Section 382 annual limitation. In addition, the Company has state NOLs of approximately $517.0 million at December 31, 2022 a portion of which will expire at various times between 2023 and 2042.
(b)The valuation allowance is related to items for which it is “more likely than not” that the tax benefit will not be realized.
Deferred income taxes are presented in the accompanying consolidated balance sheets as follows (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
Deferred income tax assets | $ | — | | | $ | 87,581 | |
Non-current assets of discontinued operations | — | | | 16,589 | |
Deferred income tax liabilities | (6,783) | | | (2,265) | |
Net deferred taxes | $ | (6,783) | | | $ | 101,905 | |
Valuation Allowance
A valuation allowance is provided on deferred tax assets if it is determined that it is “more likely than not” that the deferred tax asset will not be realized. As of each reporting date, management considers both positive and negative evidence regarding the likelihood of future realization of the deferred tax assets.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 2022, the Company recorded tax expense of $139.4 million to establish a full valuation allowance against its net deferred tax assets due to historical cumulative pre-tax losses and continued pre-tax losses. Management regularly reviews the deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing taxable temporary differences, and tax planning strategies. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. In determining the amount of the valuation allowance, the Company considered the scheduled reversal of deferred tax liabilities. The Company will maintain a full valuation allowance on net deferred tax assets until there is sufficient evidence to support the reversal of some or all of the allowance. Should there be a change in the valuation allowance in the future, the income tax provision would increase or decrease in the period in which the allowance is changed. At December 31, 2021 and 2020, the Company recorded a partial valuation allowance of $6.0 million and $5.8 million, respectively, primarily related to state net operating losses, which the Company does not expect to be able to utilize prior to expiration.
A reconciliation of the beginning and ending balances of the deferred tax valuation allowance is as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Balance, beginning of the period | $ | 6,039 | | | $ | 5,802 | | | $ | 4,102 | |
Charges to earnings | 139,362 | | | 237 | | | 1,700 | |
| | | | | |
Balance, end of the period | $ | 145,401 | | | $ | 6,039 | | | $ | 5,802 | |
Unrecognized Tax Benefits
A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties, is as follows (in thousands):
| | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 |
Balance, beginning of the period | $ | 2,914 | | | $ | 2,613 | |
Additions based on tax positions of the current period | 405 | | | 435 | |
Additions (subtractions) based on tax positions of the prior period | (37) | | | (134) | |
Balance, end of the period | $ | 3,282 | | | $ | 2,914 | |
Interest and, if applicable, penalties are recognized related to unrecognized tax benefits in income tax expense. Interest and penalties on unrecognized tax benefits included in income tax expense for each of the years ended December 31, 2022, 2021 and 2020 is not required to be recorded, as there have been no tax attributes included in income tax returns filed to date to require consideration of interest expense.
As of December 31, 2022 and 2021, the accrual for unrecognized tax benefits, including interest, was $3.3 million and $2.9 million, respectively, which would benefit the effective tax rate if recognized.
Tax Audits
LendingTree is subject to audits by federal, state and local authorities in the area of income tax. These audits include questioning the timing and the amount of deductions and the allocation of income among various tax jurisdictions. Income taxes payable include amounts considered sufficient to pay assessments that may result from examination of prior year returns; however, any amounts paid upon resolution of issues raised may differ from the amount provided. Differences between the reserves for tax contingencies and the amounts owed by the Company are recorded in the period they become known. As of December 31, 2022, the Company is subject to a federal income tax examination for the tax years 2014 through 2021. In addition, the Company is subject to state and local tax examinations for the tax years 2017 through 2022.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16—DEBT
Convertible Senior Notes
2025 Notes
On July 24, 2020, the Company issued $575.0 million aggregate principal amount of its 0.50% Convertible Senior Notes due July 15, 2025 (the “2025 Notes”) in a private placement. The issuance included $75.0 million aggregate principal amount of 2025 Notes under a 13-day purchase option which was exercised in full. The 2025 Notes bear interest at a rate of 0.50% per year, payable semi-annually on January 15 and July 15 of each year, beginning on January 15, 2021. The 2025 Notes will mature on July 15, 2025, unless earlier repurchased, redeemed or converted.
The initial conversion rate of the 2025 Notes is 2.1683 shares of the Company's common stock per $1,000 principal amount of 2025 Notes (which is equivalent to an initial conversion price of approximately $461.19 per share). The conversion rate will be subject to adjustment upon the occurrence of certain specified events but will not be adjusted for accrued and unpaid interest. In addition, upon the occurrence of a make-whole fundamental change prior to the maturity of the 2025 Notes or if the Company issues a notice of redemption for the 2025 Notes, the Company will, in certain circumstances, increase the conversion rate by a specified number of additional shares for a holder that elects to convert the 2025 Notes in connection with such make-whole fundamental change or to convert its 2025 Notes called for redemption, as the case may be. Upon conversion, the 2025 Notes will settle for cash, shares of the Company’s stock, or a combination thereof, at the Company’s option. It is the intent of the Company to settle the principal amount of the 2025 Notes in cash and any conversion premium in shares of its common stock.
The 2025 Notes are the Company’s senior unsecured obligations and will rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the 2025 Notes; equal in right of payment to any of the Company’s unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness, including borrowings under the senior secured credit facility, described below, to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries.
Prior to the close of business on the business day immediately preceding March 13, 2025, the 2025 Notes will be convertible at the option of the holders thereof only under the following circumstances:
•during any calendar quarter commencing after the calendar quarter ending on September 30, 2020 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on, and including the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
•during the five business day period after any five consecutive trading day period in which, for each trading day of that period, the trading price (as defined in the 2025 Notes) per $1,000 principal amount of 2025 Notes for such trading day was less than 98% of the product of the last reported sale price of the common stock and the conversion rate on each such trading day;
•if the Company calls such 2025 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the notes called for redemption; or
•upon the occurrence of specified corporate events including but not limited to a fundamental change.
Holders of the 2025 Notes were not entitled to convert the 2025 Notes during the calendar quarter ended December 31, 2022 as the last reported sale price of the Company's common stock, for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on September 30, 2022, was not greater than or equal to 130% of the conversion price of the 2025 Notes on each applicable trading day. Holders of the 2025 Notes are not entitled to convert the 2025 Notes during the calendar quarter ended March 31, 2023 as the last reported sale price of the Company's common stock, for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on December 31, 2022, was not greater than or equal to 130% of the conversion price of the 2025 Notes on each applicable trading day.
On or after March 13, 2025, until the close of business on the second scheduled trading day immediately preceding the maturity date of the 2025 Notes, holders of the 2025 Notes may convert all or a portion of their 2025 Notes regardless of the foregoing conditions.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company may not redeem the 2025 Notes prior to July 20, 2023. On or after July 20, 2023 and before the 41st scheduled trading day immediately before the maturity date, the Company may redeem for cash all or a portion of the 2025 Notes, at its option, if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period (and including the last trading day of such period) ending on, and including the last trading day immediately preceding the date of notice of redemption is greater than or equal to 130% of the conversion price on each applicable trading day. The redemption price will be equal to 100% of the principal amount of the 2025 Notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2025 Notes.
Upon the occurrence of a fundamental change prior to the maturity date of the 2025 Notes, holders of the 2025 Notes may require the Company to repurchase all or a portion of the 2025 Notes for cash at a price equal to 100% of the principal amount of the 2025 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
If the market price per share of the common stock, as measured under the terms of the 2025 Notes, exceeds the conversion price of the 2025 Notes, the 2025 Notes could have a dilutive effect, unless the Company elects, subject to certain conditions, to settle the principal amount of the 2025 Notes and any conversion premium in cash.
Accounting for the Notes After Adoption of ASU 2020-06
The Company adopted ASU 2020-06 on January 1, 2022 as further described in Note 2—Significant Accounting Policies in the notes to the consolidated financial statements included elsewhere in this report. Following the adoption of ASU 2020-06, the 2025 Notes are recorded as a single unit within liabilities on the consolidated balance sheets as the conversion features within the 2025 Notes are not derivatives that require bifurcation and the 2025 Notes do not involve a substantial premium. Debt issuance costs to issue the 2025 Notes were recorded as a direct deduction from the related liability and amortized to interest expense over the term of Notes. The new guidance also requires the if-converted method to be applied for all convertible instruments when calculating diluted earnings per share. See Note 2—Significant Accounting Policies in the notes to the consolidated financial statements included elsewhere in this report for additional information.
Accounting for the Notes Before Adoption of ASU 2020-06
The initial measurement of convertible debt instruments that may be settled in cash was separated into a debt and an equity component whereby the debt component was based on the fair value of a similar instrument that does not contain an equity conversion option. The separate components of debt and equity of the Company’s 2025 Notes were determined using an interest rate of 5.30%, which reflects the nonconvertible debt borrowing rate of the Company at the date of issuance. As a result, the initial components of debt and equity were $455.6 million and $119.4 million, respectively. Financing costs related to the issuance of the 2025 Notes were approximately $15.1 million, of which $12.0 million were allocated to the liability component and are being amortized to interest expense over the term of the debt and $3.1 million were allocated to the equity component.
During 2022, the Company recorded interest expense on the 2025 Notes of $5.9 million which consisted of $2.9 million associated with the 0.50% coupon rate and $3.0 million associated with the amortization of the debt issuance costs. During 2021, the Company recorded interest expense on the 2025 Notes of $27.2 million which consisted of $2.9 million associated with the 0.50% coupon rate, $22.1 million associated with the accretion of the debt discount, and $2.2 million associated with the amortization of the debt issuance costs. During 2020, the Company recorded interest expense on the 2025 Notes of $11.5 million which consisted of $1.3 million associated with the 0.50% coupon rate, $9.3 million associated with the accretion of the debt discount, and $0.9 million associated with the amortization of the debt issuance costs. The debt discount was being amortized over the term of the debt prior to the adoption of ASU 2020-06.
As of December 31, 2022, the fair value of the 2025 Notes is estimated to be approximately $419.0 million using the Level 1 observable input of the last quoted market price on December 31, 2022.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the gross carrying amount, unamortized debt cost, debt issuance costs and net carrying value of the liability component of the 2025 Notes, all of which is recorded as a non-current liability in the December 31, 2022 consolidated balance sheet, are as follows (in thousands):
| | | | | | | | | | |
| December 31, 2022 | December 31, 2021 | | |
Gross carrying amount | $ | 575,000 | | $ | 575,000 | | | |
Unamortized debt discount | — | | 87,994 | | | |
Debt issuance costs | 7,734 | | 8,855 | | | |
Net carrying amount | $ | 567,266 | | $ | 478,151 | | | |
2022 Notes
On May 31, 2017, the Company issued $300.0 million aggregate principal amount of its 0.625% Convertible Senior Notes due June 1, 2022 (the “2022 Notes”) in a private placement. The Company settled the outstanding balance of the 2022 Notes of $169.7 million in cash on June 1, 2022. The initial conversion rate of the 2022 Notes was 4.8163 shares of the Company's common stock per $1,000 principal amount of 2022 Notes (which is equivalent to an initial conversion price of approximately $207.63 per share).
Accounting for the Notes After Adoption of ASU 2020-06
The Company adopted ASU 2020-06 on January 1, 2022 as further described in Note 2—Significant Accounting Policies in the notes to the consolidated financial statements included elsewhere in this report. Following the adoption of ASU 2020-06, the 2022 Notes are recorded as a single unit within liabilities on the consolidated balance sheets as the conversion features within the 2022 Notes are not derivatives that require bifurcation and the 2022 Notes do not involve a substantial premium. Debt issuance costs to issue the 2022 Notes were recorded as a direct deduction from the related liability and amortized to interest expense over the term of Notes. The new guidance also requires the if-converted method to be applied for all convertible instruments when calculating diluted earnings per share. See Note 2—Significant Accounting Policies in the notes to the consolidated financial statements included elsewhere in this report for additional information.
Accounting for the Notes Before Adoption of ASU 2020-06
The separate components of debt and equity of the Company’s 2022 Notes were determined using an interest rate of 5.36%, which reflects the nonconvertible debt borrowing rate of the Company at the date of issuance. As a result, the initial components of debt and equity were $238.4 million and $61.6 million, respectively. Financing costs related to the issuance of the 2022 Notes were approximately $9.3 million, of which $7.4 million were allocated to the liability component and were being amortized to interest expense over the term of the debt and $1.9 million were allocated to the equity component.
On July 24, 2020, the Company used approximately $234.0 million of the net proceeds from the issuance of the 2025 Notes to repurchase approximately $130.3 million principal amount of the 2022 Notes, including the payment of accrued and unpaid interest of approximately $0.1 million, through separate transactions with certain holders of the 2022 Notes. Of the consideration paid, $126.0 million was allocated to the extinguishment of the liability component of the notes, while the remaining $107.9 million was allocated to the reacquisition of the equity component and recorded as a reduction to additional paid-in capital in the consolidated statement of shareholders’ equity. The Company recognized a loss on debt extinguishment of $7.8 million in the third quarter of 2020, which is included in interest expense, net in the consolidated statements of operations and comprehensive income.
During 2022, the Company recorded interest expense on the 2022 Notes of $0.8 million which consisted of $0.4 million associated with the 0.625% coupon rate and $0.4 million associated with the amortization of the debt issuance costs. During 2021, the Company recorded interest expense on the 2022 Notes of $9.5 million which consisted of $1.1 million associated with the 0.625% coupon rate, $7.5 million associated with the accretion of the debt discount, and $0.9 million associated with the amortization of the debt issuance costs. During 2020, the Company recorded interest expense on the 2022 Notes of $13.0 million which consisted of $1.5 million associated with the 0.625% coupon rate, $10.3 million associated with the accretion of the debt discount, and $1.2 million associated with the amortization of the debt issuance costs.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the gross carrying amount, unamortized debt cost, debt issuance costs and net carrying value of the liability component of the 2022 Notes, all of which was recorded as a current liability in the December 31, 2021 consolidated balance sheet, are as follows (in thousands):
| | | | | |
| December 31, 2021 |
Gross carrying amount | $ | 169,659 | |
Unamortized debt discount | 3,260 | |
Debt issuance costs | 391 | |
Net carrying amount | $ | 166,008 | |
Convertible Note Hedge and Warrant Transactions
2020 Hedge and Warrants
On July 24, 2020, in connection with the issuance of the 2025 Notes, the Company entered into Convertible Note Hedge (the “2020 Hedge”) and warrant transactions with respect to the Company’s common stock. The Company used approximately $63.0 million of the net proceeds from the 2025 Notes to pay for the cost of the 2020 Hedge, after such cost was partially offset by the proceeds from the warrant transactions.
On July 24, 2020, the Company paid $124.2 million to the counterparties for the 2020 Hedge transactions. The 2020 Hedge transactions cover 1.2 million shares of the Company’s common stock, the same number of shares initially underlying the 2025 Notes, and are exercisable upon any conversion of the 2025 Notes. The 2020 Hedge transactions are expected generally to reduce the potential dilution to the Company's common stock upon conversion of the 2025 Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted 2025 Notes, as the case may be, in the event that the market price per share of common stock, as measured under the terms of the 2020 Hedge transactions, is greater than the strike price of the 2020 Hedge transactions, which initially corresponds to the initial conversion price of the 2025 Notes, or approximately $461.19 per share of common stock. The 2020 Hedge transactions will expire upon the maturity of the Notes.
On July 24, 2020, the Company sold to the counterparties, warrants (the “2020 Warrants”) to acquire 1.2 million shares of the Company's common stock at an initial strike price of $709.52 per share, which represents a premium of 100% over the last reported sale price of the common stock of $354.76 on July 21, 2020. On July 24, 2020, the Company received aggregate proceeds of approximately $61.2 million from the sale of the 2020 Warrants. If the market price per share of the common stock, as measured under the terms of the 2020 Warrants, exceeds the strike price of the 2020 Warrants, the 2020 Warrants could have a dilutive effect, unless the Company elects, subject to certain conditions, to settle the 2020 Warrants in cash.
The 2020 Hedge and 2020 Warrants transactions are indexed to, and potentially settled in, the Company's common stock and the net cost of $63.0 million has been recorded as a reduction to additional paid-in capital in the consolidated statement of shareholders’ equity.
2017 Hedge and Warrants
On May 31, 2017, in connection with the issuance of the 2022 Notes, the Company entered into Convertible Note Hedge (the “2017 Hedge”) and warrant transactions with respect to the Company’s common stock. The Company used approximately $18.1 million of the net proceeds from the 2022 Notes to pay for the cost of the 2017 Hedge, after such cost was partially offset by the proceeds from the warrant transactions.
On May 31, 2017, the Company paid $61.5 million to the counterparties for the 2017 Hedge transactions. The 2017 Hedge transactions initially covered 1.4 million shares of the Company’s common stock, the same number of shares initially underlying the 2022 Notes, and were exercisable upon any conversion of the 2022 Notes. The 2017 Hedge transactions expired on June 1, 2022 upon the maturity of the Notes.
On May 31, 2017, the Company sold to the counterparties, warrants (the “2017 Warrants”) to acquire 1.4 million shares of the Company's common stock at an initial strike price of $266.39 per share, which represented a premium of 70% over the last reported sale price of the common stock of $156.70 on May 24, 2017 receiving proceeds of approximately $43.4 million. The warrants expired on December 12, 2022.
To the extent of the repurchases of the 2022 Notes noted above, the Company entered into agreements with the counterparties for the 2017 Hedge and 2017 Warrants transactions to terminate a portion of these call spread transactions
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
effective July 24, 2020 in notional amounts corresponding to the principal amount of the 2022 Notes repurchased. The Company received $109.9 million and paid $94.3 million as a result of terminating such portions of the 2017 Hedge and 2017 Warrants, respectively. The net $15.6 million has been recorded as an increase to additional paid-in capital in the consolidated statement of shareholders’ equity.
Credit Facility
On September 15, 2021, the Company entered into a credit agreement (the “Credit Agreement”), consisting of a $200.0 million revolving credit facility (the “Revolving Facility”), which matures on September 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 on September 15, 2028. The proceeds of the Revolving Facility can be used to finance working capital, for general corporate purposes and any other purpose not prohibited by the Credit Agreement. On May 31, 2022 the Company received proceeds of $250.0 million from the Term Loan Facility and on June 1, 2022, used $170.2 million of the proceeds to settle the Company's 2022 Notes, including interest. The remaining proceeds of $79.8 million may be used for general corporate purposes not prohibited by the Credit Agreement. The Credit Facility replaces the Company's $500.0 million five-year senior secured revolving credit facility (the “Amended Revolving Credit Facility”) which was entered into on December 10, 2019. As of December 31, 2022, the Company had $248.8 million borrowings outstanding under the Term Loan Facility bearing interest at the LIBO option rate of 8.14% and had no borrowings under the Revolving Facility. As of December 31, 2021, the Company had no borrowings outstanding under the Credit Facility. As of December 31, 2022, borrowings of $2.5 million under the Term Loan Facility are recorded as current portion of long-term debt on the consolidated balance sheet.
The full amount of the Revolving Facility will be available on a same-day basis, with respect to base rate loans and upon advance notice with respect to LIBO rate loans, subject to customary terms and conditions. Under certain conditions, the Company will be permitted to add one or more term loans and/or increase revolving or term loan commitments under the Credit Facility by an amount set at the greater of $116.0 million and 100% of consolidated EBITDA (subject to adjustments for certain prepayments), plus an unlimited amount provided that the first lien net leverage ratio does not exceed 3.00 to 1.00. Additionally, up to $20.0 million of the Revolving Facility will be available for the issuance of letters of credit. At each of December 31, 2022 and December 31, 2021, the Company had outstanding one letter of credit issued in the amount of $0.2 million.
The Company’s borrowings under the Credit Facility bear interest at annual rates that, at the Company’s option, will be either:
•a base rate generally defined as the sum of (i) the greater of (a) the prime rate of Truist Bank, (b) the federal funds effective rate plus 0.5% and (c) the LIBO rate (defined below) on a daily basis applicable for an interest period of one month plus 1.0% and (ii) an applicable percentage of 1.25% to 1.75% for loans under the Revolving Facility and 2.75% to 3.00% for loans under the Term Loan Facility, in each case, based on a first lien net leverage ratio; or
•a LIBO rate generally defined as the sum of (i) the rate for Eurodollar dollar deposits for the applicable interest period and (ii) an applicable percentage of 2.25% to 2.75% for loans under the Revolving Facility and 3.75% and 4.00% for loans under the Term Loan Facility, in each case, based on a first lien net leverage ratio.
Interest on the Company’s borrowings is payable quarterly in arrears for base rate loans and on the last day of each interest rate period (but not less often than three months) for LIBO rate loans.
The Credit Facility contains a restrictive financial covenant, which is set at a first lien net leverage ratio of 2.50 to 1.00, except that this may increase by 0.50:1.00 for the four fiscal quarters following a material acquisition. The financial covenant will be tested only if the loans and certain other obligations under the Revolving Facility exceed $20.0 million as of the last date of any fiscal quarter (starting with the fiscal quarter ending on December 31, 2021). In addition, the Credit Facility contains mandatory prepayment events, affirmative and negative covenants and events of default customary for a transaction of this type. The covenants, among other things, restrict additional indebtedness, liens, mergers or certain fundamental changes, asset dispositions, dividends and other restricted payments, transactions with affiliates, loans and investments and other matters customarily restricted in credit agreements of this type. The Company is required to make mandatory prepayments of the outstanding principal amount of loans under the Term Loan Facility with the net cash proceeds from certain disposition of assets and the receipt of insurance proceeds upon certain casualty and condemnation events, in each case, to the extent not reinvested within a specified time period, from excess cash flow beyond stated threshold amounts, and from the incurrence of certain indebtedness. The Company has the right to prepay its term loans under the Credit Agreement, in whole or in part, at any time without premium or penalty, subject to certain limitations and a 1.0% soft call premium applicable during the first six months following the closing date.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company was in compliance with all covenants at December 31, 2022.
The Credit Facility requires the Company and certain of its subsidiaries to pledge as collateral, subject to certain customary exclusions, substantially all of its assets, including 100% of the equity in certain domestic subsidiaries and 65% of the voting equity, and 100% of the non-voting equity, in certain foreign subsidiaries. The obligations under the Credit Facility are unconditionally guaranteed on a senior basis by the Company's material domestic subsidiaries, which guaranties are secured by the collateral.
With respect to the Revolving Facility, the Company is required to pay an unused commitment fee quarterly in arrears on the difference between committed amounts and amounts actually borrowed under the Revolving Facility equal to an applicable percentage of 0.25% to 0.50% per annum based on a first lien net leverage ratio. The Company is required to pay a letter of credit participation fee and a letter of credit fronting fee quarterly in arrears. The letter of credit participation fee is based upon the aggregate face amount of outstanding letters of credit at an applicable percentage of 2.25% to 2.75% based on a first lien net leverage ratio. The letter of credit fronting fee is 0.125% per annum on the face amount of each letter of credit.
With respect to the Term Loan Facility, the Company is required to pay an unused commitment fee quarterly in arrears on the difference between committed amounts and amounts actually borrowed under the Term Loan Facility equal to an applicable LIBO rate plus an applicable percentage of 3.75% to 4.00% per annum based on a first lien net leverage ratio.
The Company recognized $1.1 million in additional interest expense in the third quarter of 2021 due to the write-off of certain unamortized debt issuance costs associated with the Amended Revolving Credit Facility. In addition to the remaining unamortized debt issuance costs associated with the Amended Revolving Credit Facility, debt issuance costs of $2.8 million related to the Revolving Facility are being amortized to interest expense over the life of the Revolving Facility. Debt issuance costs of $3.5 million related to the Term Loan Facility and the original issue discount $2.5 million paid on the undrawn term loan facility were amortized to interest expense over the delayed draw access period. These deferred costs are included in prepaid and other current assets and other non-current assets in the Company's consolidated balance sheet.
During 2022, the Company recorded interest expense related to its Revolving Facility of $1.5 million which consisted of $0.6 million in unused commitment fees and $0.9 million associated with the amortization of the debt issuance costs. During 2022, the Company recorded interest expense related to the Term Loan Facility of $18.2 million which consisted of $9.6 million associated with borrowings bearing interest at the LIBO rate, $5.1 million in unused commitment fees, $2.0 million associated with the amortization of the debt issuance costs, and $1.5 million associated with the amortization of the original issue discount.
During 2021, the Company recorded interest expense related to its revolving credit facilities of $3.4 million which consisted of $2.0 million in unused commitment fees and $1.4 million associated with the amortization of the debt issuance costs. During 2021, the Company recorded interest expense related to the Term Loan Facility of $5.9 million which consisted of $3.5 million in unused commitment fees, $1.4 million associated with the amortization of the debt issuance costs, and $1.0 million associated with the amortization of the original issue discount. During 2020, the Company recorded interest expense related to the Amended Revolving Credit Facility of $4.3 million which consisted of $1.3 million associated with borrowings bearing interest at the base rate and the LIBO rate, $1.7 million in unused commitment fees, and $1.3 million associated with the amortization of the debt issuance costs.
NOTE 17—COMMITMENTS
Bonds
The Company has funding commitments that could potentially require performance in the event of demands by third parties or contingent events, as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commitments Due By Period |
| Total | | Less Than 1 year | | 1-3 years | | 3-5 years | | More Than 5 years |
Surety bonds (a) | $ | 5,108 | | | $ | 4,983 | | | $ | 125 | | | $ | — | | | $ | — | |
(a) State laws and regulations generally require businesses which engage in mortgage brokering activity to maintain a mortgage broker or similar license. Mortgage brokering activity is generally defined to include, among other things, receiving valuable consideration for offering assistance to a buyer in obtaining a residential mortgage or soliciting financial and mortgage information from the public and providing that information to an originator of residential mortgage loans. All states require that the Company maintain surety bonds for potential claims.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other Commitments
The Company has certain other commitments through 2023, where the aggregate commitments for these contracts range from $0.2 million to $2.4 million throughout the remaining life of the contract.
NOTE 18—CONTINGENCIES
Overview
LendingTree is involved in legal proceedings on an ongoing basis. In assessing the materiality of a legal proceeding, the Company evaluates, among other factors, the amount of monetary damages claimed, as well as the potential impact of non-monetary remedies sought by plaintiffs (e.g., injunctive relief) that may require it to change its business practices in a manner that could have a material and adverse impact on the Company's business. With respect to the matters disclosed in this Note 18, unless otherwise indicated, the Company is unable to estimate the possible loss or range of losses that could potentially result from the application of such non-monetary remedies.
As of December 31, 2022 and 2021, the Company had litigation settlement accruals of $0.1 million in continuing operations. The litigation settlement accruals relate to litigation matters that were either settled or a firm offer for settlement was extended, thereby establishing an accrual amount that is both probable and reasonably estimable. See Note 22—Discontinued Operations in the notes to the consolidated financial statements included elsewhere in this report for additional information.
NOTE 19—FAIR VALUE MEASUREMENTS
Other than the convertible notes and warrants, as well as the equity interest in Stash and EarnUp, the carrying amounts of the Company's financial instruments are equal to fair value at December 31, 2022. See Note 16—Debt for additional information on the convertible notes and warrants, and see Note 8—Equity Investment in the notes to the consolidated financial statements included elsewhere in this report for additional information on the equity interest in Stash and EarnUp.
Contingent consideration payments related to acquisitions are measured at fair value each reporting period using Level 3 unobservable inputs. There were no changes in the fair value of the Company's Level 3 liabilities during the year ended December 31, 2022 and the changes for the years ended December 31, 2021 and 2020 are as follows (in thousands):
| | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | | 2021 | | 2020 |
Contingent consideration, beginning of period | | | $ | 8,249 | | | $ | 33,464 | |
Transfers into Level 3 | | | — | | | — | |
Transfers out of Level 3 | | | — | | | — | |
Total net losses included in earnings (realized and unrealized) | | | (8,249) | | | 5,327 | |
Purchases, sales and settlements: | | | | | |
Additions | | | — | | | — | |
Payments | | | — | | | (30,542) | |
Contingent consideration, end of period | | | $ | — | | | $ | 8,249 | |
There was no contingent consideration liability at December 31, 2022 or 2021 because the final earnout period for the QuoteWizard acquisition ended on October 31, 2021. The contingent consideration liability at December 31, 2020 consisted of the estimated fair value of the remaining earnout payment for the QuoteWizard acquisition.
NOTE 20—RELATED PARTY TRANSACTIONS
In 2017, the Company's Board of Directors approved a $10.0 million contribution to fund the newly formed LendingTree Foundation. In each of 2020 and 2019, the Company paid $3.3 million of the $10.0 million contribution, and paid the final installment in 2022. In the fourth quarter of 2022, the Company's Board of Directors approved an additional $0.5 million contribution to the LendingTree Foundation that the Company paid in 2023. Officers of the Company serve as officers of the LendingTree Foundation.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21—BENEFIT PLANS
The Company operates a retirement savings plan for its employees in the United States that is qualified under Section 401(k) of the Internal Revenue Code. Employees are eligible to enroll in the plan upon date of hire. Participating employees may contribute up to 50% of their pre-tax earnings, but not more than statutory limits ($20,500 for 2022, $19,500 for 2021, and $19,500 for 2020). The company match contribution is fifty cents for each dollar a participant contributes to the plan, with a maximum contribution of 6% of a participant's eligible earnings. Matching contributions are invested in the same manner as each participant's voluntary contributions in the investment options provided under the plan. LendingTree stock is not included in the available investment options or the plan assets. Funds contributed to the plan vest according to the participant's years of service, with one year of service vesting at 33%, two years of service vesting at 66%, and three years or more of service vesting at 100%. Matching contributions were approximately $2.8 million, $2.9 million and $2.4 million for the years ended December 31, 2022, 2021 and 2020, respectively.
NOTE 22—DISCONTINUED OPERATIONS
The LendingTree Loans Business is presented as discontinued operations in the accompanying consolidated financial statements. The LendingTree Loans Business originated various consumer mortgage loans through HLC. On June 6, 2012, the Company sold substantially all of the operating assets of HLC, including the LendingTree Loans Business, to a wholly-owned subsidiary of Discover Financial Services (“Discover”). Discover generally did not assume liabilities of HLC that arose before the closing date, except for certain liabilities directly related to assets Discover acquired.
Upon closing of the sale of substantially all of the operating assets of HLC on June 6, 2012, HLC ceased to originate consumer loans. Certain liability for losses on previously sold loans remained with HLC.
Litigation settlements and contingencies and legal fees associated with related bankruptcy and legal proceedings against the Company are included in discontinued operations in the accompanying consolidated financial statements.
Home Loan Center, Inc. Bankruptcy Filing
On June 21, 2019, the U.S. District Court of Minnesota entered judgment in ResCap Liquidating Trust v. Home Loan Center, Inc., against HLC for $68.5 million, see Litigation Related to Discontinued Operations below. The judgment against HLC exceeded the assets of HLC, which were $11.2 million at July 21, 2019, including cash of $5.9 million.
On July 21, 2019, at the direction of the sole independent director of HLC, HLC voluntarily filed a petition under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) with the U.S. Bankruptcy Court in the Northern District of California in San Jose, California (the “Bankruptcy Court”) in order to preserve assets for the benefit of all creditors of HLC. On September 16, 2019, the Bankruptcy Court converted the bankruptcy to Chapter 7 of the Bankruptcy Code and appointed a Trustee to liquidate HLC's assets.
As a result of the voluntary petition, LendingTree, LLC was, as of the initial July 21, 2019 bankruptcy petition filing date, no longer deemed to have a controlling interest in HLC under applicable accounting standards. As a result, HLC and its consolidated subsidiary were deconsolidated from the Company’s consolidated financial statements as of July 21, 2019. The effect of such deconsolidation was the elimination of the consolidated assets and liabilities of HLC (and its consolidated subsidiary) from the Company’s consolidated balance sheets.
During its bankruptcy, HLC indicated that it believed that it had claims against HLC’s sole shareholder, LendingTree, LLC, and certain of its officers and directors, relating to the declaration of a dividend by HLC in January 2016 of $40.0 million. During the second quarter of 2020, LendingTree, LLC and HLC entered into a settlement agreement in the amount of $36.0 million for the release of any and all claims against the Company defendants by HLC, including the dividend claim. The Bankruptcy Court approved the settlement on July 16, 2020. The $36.0 million settlement payment was made in the third quarter of 2020.
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 and HLC’s Chapter 7 bankruptcy estate was fully administered, the HLC bankruptcy case was closed on July 14, 2021.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Litigation Related to Discontinued Operations
Residential Funding Company
ResCap Liquidating Trust v. Home Loan Center, Inc., Case No. 14-cv-1716 (U.S. Dist. Ct., Minn.), successor to Residential Funding Company, LLC v Home Loan Center, Inc., No. 13-cv-3451 (U.S. Dist. Ct., Minn.). On or about December 16, 2013, Home Loan Center, Inc. was served in the original captioned matter, which involves claims of Residential Funding Company, LLC (“RFC”) for damages for breach of contract and indemnification for certain residential mortgage loans as well as residential mortgage-backed securitizations (“RMBS”) containing mortgage loans. Plaintiff then alleged that, after RFC filed for Chapter 11 protection, hundreds of proofs of claim were filed, many of which mirrored the litigation filed against RFC prior to its bankruptcy. It filed substantially similar complaints against approximately 80 of the loan originators from whom RFC had purchased loans, including HLC. Judgment was entered against HLC, see Home Loan Center, Inc. Bankruptcy Filing above.
HLC’s filing under the Bankruptcy Code discussed above in Home Loan Center, Inc. Bankruptcy Filing created an automatic stay of enforcement of the judgment entered against HLC. On August 27, 2019, plaintiff filed a lawsuit captioned ResCap Liquidating Trust v. LendingTree, LLC, et al., Case No. 19-cv-2360 (U.S. Dist. Ct., Minn.), seeking to hold the Company liable for the judgment against HLC. In June 2020, the Company entered into a settlement with ResCap, pursuant to which, the Company agreed to, among other things, pay ResCap $58.5 million, less any amounts ResCap receives in the HLC bankruptcy. In the third and fourth quarters of 2020, the Company made payments of $26.5 million and $6.4 million, respectively, to the ResCap Liquidating Trust and the ResCap Liquidating Trust, in turn, assigned its allowed claims against HLC to the Company. In the second quarter of 2021, the Company received $8.6 million related to these amounts, from the final distributions in the HLC bankruptcy on account of the allowed claims that the ResCap Liquidating Trust had assigned to the Company.
Lehman Brothers Holdings, Inc.
Lehman Brothers Holdings Inc. v. 1st Advantage Mortgage, LLC et al., Case No. 08-13555 (SCC), Adversary Proceeding No. 16-01342 (SCC) (Bankr. S.D.N.Y.). In February 2016, Lehman Brothers Holdings, Inc. (“LBHI”) filed an Adversary Complaint against HLC and approximately 149 other defendants (the “Complaint”).
HLC’s filing under the Bankruptcy Code discussed above in Home Loan Center, Inc. Bankruptcy Filing created an automatic stay of this proceeding. On June 11, 2020, LBHI filed a lawsuit captioned Lehman Brothers Holdings Inc. v. LendingTree, LLC, et al., Case No. 20-cv-01351 (U.S. Dist. Ct., Minn.), seeking to hold the Company liable for their allowed bankruptcy claim of $13.3 million. In July 2021, the Company entered into a settlement with LBHI, which payment was made in the third quarter of 2021.
Financial Information of Discontinued Operations
The components of net loss reported as discontinued operations in the accompanying consolidated statements of operations and comprehensive income (loss) are as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Revenue | $ | — | | | $ | — | | | $ | — | |
| | | | | |
| | | | | |
Other operating expenses | (6) | | | (4,719) | | | (33,308) | |
Loss before income taxes | (6) | | | (4,719) | | | (33,308) | |
Income tax benefit | — | | | 696 | | | 7,619 | |
Net loss | $ | (6) | | | $ | (4,023) | | | $ | (25,689) | |
The results of discontinued operations include litigation settlements and contingencies and legal fees associated with legal proceedings against LendingTree, Inc. or LendingTree, LLC that arose due to the LendingTree Loans Business or the HLC bankruptcy filing.
NOTE 23—SEGMENT INFORMATION
The Company manages its business and reports its financial results through the following three operating and reportable segments: Home, Consumer, and Insurance. Characteristics which were relied upon in making the determination of the
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
reportable segments include the nature of the products, the organization's internal structure, and the information that is regularly reviewed by the CODM for the purpose of assessing performance and allocating resources.
The Home segment includes the following products: purchase mortgage, refinance mortgage, home equity loans and lines of credit, and real estate. We ceased offering reverse mortgage loans in the fourth quarter of 2022. The 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. The Insurance segment consists of insurance quote products and sales of insurance policies in our agency businesses. Revenue from the resale of online advertising space to third parties, and the related variable marketing and advertising expenses, are included within the Other category.
The following tables are a reconciliation of segment profit, which is the Company's primary segment profitability measure, to income before income taxes and discontinued operations. Segment cost of revenue and marketing expense represents the portion of selling and marketing expense attributable to variable costs paid for advertising, direct marketing and related expenses, that are directly attributable to the segments' products. This measure excludes overhead, fixed costs and personnel-related expenses. For the Other category, segment cost of revenue and marketing expense also includes the portion of cost of revenue attributable to costs paid for advertising re-sold to third parties. The Company ceased reselling online advertising space during the first quarter of 2020.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| Home | Consumer | Insurance | Other | Total |
| (in thousands) |
Revenue | $ | 289,383 | | $ | 396,109 | | $ | 299,073 | | $ | 427 | | $ | 984,992 | |
Segment cost of revenue and marketing expense | 186,299 | | 221,531 | | 207,239 | | 982 | | 616,051 | |
Segment profit (loss) | 103,084 | | 174,578 | | 91,834 | | (555) | | 368,941 | |
Cost of revenue | | | | | 57,769 | |
Brand and other marketing expense | | | | | 86,187 | |
General and administrative expense | | | | | 152,377 | |
Product development | | | | | 55,553 | |
Depreciation | | | | | 20,095 | |
Amortization of intangibles | | | | | 25,306 | |
| | | | | |
Restructuring and severance | | | | | 4,428 | |
Litigation settlements and contingencies | | | | | (18) | |
Operating loss | | | | | (32,756) | |
Interest expense, net | | | | | (26,014) | |
Other income | | | | | 3,843 | |
Loss before income taxes and discontinued operations | | | | | $ | (54,927) | |
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Home | Consumer | Insurance | Other | Total |
| (in thousands) |
Revenue | $ | 441,738 | | $ | 329,945 | | $ | 326,153 | | $ | 663 | | $ | 1,098,499 | |
Segment cost of revenue and marketing expense | 288,386 | | 186,448 | | 212,689 | | 610 | | 688,133 | |
Segment profit | 153,352 | | 143,497 | | 113,464 | | 53 | | 410,366 | |
Cost of revenue | | | | | 57,297 | |
Brand and other marketing expense | | | | | 85,857 | |
General and administrative expense | | | | | 153,472 | |
Product development | | | | | 52,865 | |
Depreciation | | | | | 17,910 | |
Amortization of intangibles | | | | | 42,738 | |
Change in fair value of contingent consideration | | | | | (8,249) | |
Restructuring and severance | | | | | 53 | |
Litigation settlements and contingencies | | | | | 392 | |
Operating income | | | | | 8,031 | |
Interest expense, net | | | | | (46,867) | |
Other income | | | | | 123,272 | |
Income before income taxes and discontinued operations | | | | | $ | 84,436 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| Home | Consumer | Insurance | Other | Total |
| (in thousands) |
Revenue | $ | 320,992 | | $ | 253,198 | | $ | 333,765 | | $ | 2,035 | | $ | 909,990 | |
Segment cost of revenue and marketing expense | 188,869 | | 146,308 | | 202,623 | | 2,717 | | 540,517 | |
Segment profit (loss) | 132,123 | | 106,890 | | 131,142 | | (682) | | 369,473 | |
Cost of revenue (exclusive of cost of advertising re-sold to third parties included above) | | | | | 53,408 | |
Brand and other marketing expense | | | | | 77,973 | |
General and administrative expense | | | | | 129,101 | |
Product development | | | | | 43,636 | |
Depreciation | | | | | 14,201 | |
Amortization of intangibles | | | | | 53,078 | |
Change in fair value of contingent consideration | | | | | 5,327 | |
Restructuring and severance | | | | | 295 | |
Litigation settlements and contingencies | | | | | (943) | |
Operating loss | | | | | (6,603) | |
Interest expense, net | | | | | (36,300) | |
Other expense | | | | | 376 | |
Loss before income taxes and discontinued operations | | | | | $ | (42,527) | |
The CODM does not review information on segment assets and as such, no segment asset information is reported herein.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 24—RESTRUCTURING ACTIVITIES
During 2022, the Company completed workforce reductions in each of the first, second, and fourth quarters of approximately 75 employees, 25 employees, and 50 employees, respectively. The Company incurred total expense of $4.4 million consisting of employee separation costs of $3.3 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 third quarter of 2023.
| | | | | | | | | | | | | | | | | |
| Accrued Balance at December 31, 2021 | Income Statement Impact | Payments | Non-Cash | Accrued Balance at December 31, 2022 |
2022 actions | | | | | |
Employee separation payments | $ | — | | $ | 3,345 | | $ | (3,041) | | $ | — | | $ | 304 | |
Non-cash compensation | — | | 1,083 | | — | | (1,083) | | — | |
| $ | — | | $ | 4,428 | | $ | (3,041) | | $ | (1,083) | | $ | 304 | |