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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 2023
or
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 001-34063
LendingTree, Inc.
(Exact name of Registrant as specified in its charter)
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Delaware | | 26-2414818 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
1415 Vantage Park Dr., Suite 700, Charlotte, North Carolina 28203
(Address of principal executive offices)(Zip Code)
(704) 541-5351
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, $0.01 par value per share | | TREE | | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☐ | | Accelerated filer | ☒ |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 26, 2023, there were 12,910,742 shares of the registrant's common stock, par value $.01 per share, outstanding, excluding treasury shares.
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
LENDINGTREE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited) | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
| (in thousands, except per share amounts) |
Revenue | $ | 200,508 | | | $ | 283,178 | | | | | |
Costs and expenses: | | | | | | | |
Cost of revenue (exclusive of depreciation and amortization shown separately below) | 13,760 | | | 15,561 | | | | | |
Selling and marketing expense | 137,111 | | | 204,157 | | | | | |
General and administrative expense | 36,683 | | | 35,977 | | | | | |
Product development | 14,655 | | | 14,052 | | | | | |
Depreciation | 4,795 | | | 4,854 | | | | | |
Amortization of intangibles | 2,049 | | | 7,917 | | | | | |
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Restructuring and severance | 4,454 | | | 3,625 | | | | | |
Litigation settlements and contingencies | 12 | | | (27) | | | | | |
Total costs and expenses | 213,519 | | | 286,116 | | | | | |
Operating loss | (13,011) | | | (2,938) | | | | | |
Other income (expense), net: | | | | | | | |
Interest income (expense), net | 25,029 | | | (7,505) | | | | | |
Other income (expense) | 1,834 | | | (1) | | | | | |
Income (loss) before income taxes | 13,852 | | | (10,444) | | | | | |
Income tax expense | (395) | | | (382) | | | | | |
Net income (loss) and comprehensive income (loss) | $ | 13,457 | | | $ | (10,826) | | | | | |
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Weighted average shares outstanding: | | | | | | | |
Basic | 12,846 | | | 12,901 | | | | | |
Diluted | 12,935 | | | 12,901 | | | | | |
Net income (loss) per share: | | | | | | | |
Basic | $ | 1.05 | | | $ | (0.84) | | | | | |
Diluted | $ | 1.04 | | | $ | (0.84) | | | | | |
The accompanying notes to consolidated financial statements are an integral part of these statements.
LENDINGTREE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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| March 31, 2023 | | December 31, 2022 |
| (in thousands, except par value and share amounts) |
ASSETS: | | | |
Cash and cash equivalents | $ | 150,074 | | | $ | 298,845 | |
Restricted cash and cash equivalents | 34 | | | 124 | |
Accounts receivable (net of allowance of $2,688 and $2,317, respectively) | 83,662 | | | 83,060 | |
Prepaid and other current assets | 28,231 | | | 26,250 | |
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Assets held for sale (Note 7) | — | | | 5,689 | |
Total current assets | 262,001 | | | 413,968 | |
Property and equipment (net of accumulated depreciation of $34,925 and $33,851, respectively) | 57,411 | | | 59,160 | |
Operating lease right-of-use assets | 65,578 | | | 67,050 | |
Goodwill | 420,139 | | | 420,139 | |
Intangible assets, net | 56,266 | | | 58,315 | |
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Equity investments | 174,580 | | | 174,580 | |
Other non-current assets | 6,319 | | | 6,101 | |
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Total assets | $ | 1,042,294 | | | $ | 1,199,313 | |
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LIABILITIES: | | | |
Current portion of long-term debt | $ | 2,500 | | | $ | 2,500 | |
Accounts payable, trade | 4,473 | | | 2,030 | |
Accrued expenses and other current liabilities | 84,829 | | | 75,095 | |
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Liabilities held for sale (Note 7) | — | | | 2,909 | |
Total current liabilities | 91,802 | | | 82,534 | |
Long-term debt | 625,356 | | | 813,516 | |
Operating lease liabilities | 86,685 | | | 88,232 | |
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Deferred income tax liabilities | 7,143 | | | 6,783 | |
Other non-current liabilities | 329 | | | 308 | |
Total liabilities | 811,315 | | | 991,373 | |
Commitments and contingencies (Note 13) | | | |
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; 16,265,177 and 16,167,184 shares issued, respectively, and 12,909,711 and 12,811,718 shares outstanding, respectively | 163 | | | 162 | |
Additional paid-in capital | 1,198,836 | | | 1,189,255 | |
Accumulated deficit | (701,842) | | | (715,299) | |
Treasury stock; 3,355,466 and 3,355,466 shares, respectively | (266,178) | | | (266,178) | |
Total shareholders' equity | 230,979 | | | 207,940 | |
Total liabilities and shareholders' equity | $ | 1,042,294 | | | $ | 1,199,313 | |
The accompanying notes to consolidated financial statements are an integral part of these statements.
LENDINGTREE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
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| | | 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, 2022 | $ | 207,940 | | | 16,167 | | | $ | 162 | | | $ | 1,189,255 | | | $ | (715,299) | | | 3,355 | | | $ | (266,178) | |
Net income and comprehensive income | 13,457 | | | — | | | — | | | — | | | 13,457 | | | — | | | — | |
Non-cash compensation | 11,274 | | | — | | | — | | | 11,274 | | | — | | | — | | | — | |
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Issuance of common stock for stock options, restricted stock awards and restricted stock units, net of withholding taxes | (1,693) | | | 98 | | | 1 | | | (1,694) | | | — | | | — | | | — | |
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Other | 1 | | | — | | | — | | | 1 | | | — | | | — | | | — | |
Balance as of March 31, 2023 | $ | 230,979 | | | 16,265 | | | $ | 163 | | | $ | 1,198,836 | | | $ | (701,842) | | | 3,355 | | | $ | (266,178) | |
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| | | 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, 2021 | $ | 447,992 | | | 16,071 | | | $ | 161 | | | $ | 1,242,794 | | | $ | (571,794) | | | 2,976 | | | $ | (223,169) | |
Net loss and comprehensive loss | (10,826) | | | — | | | — | | | — | | | (10,826) | | | — | | | — | |
Non-cash compensation | 15,080 | | | — | | | — | | | 15,080 | | | — | | | — | | | — | |
Purchase of treasury stock | (43,009) | | | — | | | — | | | — | | | — | | | 379 | | | (43,009) | |
Issuance of common stock for stock options, restricted stock awards and restricted stock units, net of withholding taxes | (3,086) | | | 49 | | | — | | | (3,086) | | | — | | | — | | | — | |
Cumulative effect adjustment due to ASU 2020-06 | (65,303) | | | — | | | — | | | (109,750) | | | 44,447 | | | — | | | — | |
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Balance as of March 31, 2022 | $ | 340,848 | | | 16,120 | | $ | 161 | | | $ | 1,145,038 | | | $ | (538,173) | | | 3,355 | | $ | (266,178) | |
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The accompanying notes to consolidated financial statements are an integral part of these statements.
LENDINGTREE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| (in thousands) |
Cash flows from operating activities: | | | |
Net income (loss) and comprehensive income (loss) | $ | 13,457 | | | $ | (10,826) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Loss on impairments and disposal of assets | 5,027 | | | 431 | |
Amortization of intangibles | 2,049 | | | 7,917 | |
Depreciation | 4,795 | | | 4,854 | |
Non-cash compensation expense | 11,274 | | | 15,080 | |
Deferred income taxes | 360 | | | 326 | |
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Bad debt expense | 963 | | | 850 | |
Amortization of debt issuance costs | 1,959 | | | 2,467 | |
Write-off of previously-capitalized debt issuance costs | 2,373 | | | — | |
Amortization of debt discount | — | | | 879 | |
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Reduction in carrying amount of ROU asset, offset by change in operating lease liabilities | (877) | | | (49) | |
Gain on settlement of convertible debt | (34,308) | | | — | |
Changes in current assets and liabilities: | | | |
Accounts receivable | (211) | | | (17,488) | |
Prepaid and other current assets | (1,882) | | | (3,666) | |
Accounts payable, accrued expenses and other current liabilities | 8,559 | | | 9,322 | |
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Income taxes receivable | 42 | | | 48 | |
Other, net | (424) | | | (146) | |
Net cash provided by operating activities | 13,156 | | | 9,999 | |
Cash flows from investing activities: | | | |
Capital expenditures | (2,452) | | | (3,465) | |
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Equity investments | — | | | (15,000) | |
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Net cash used in investing activities | (2,452) | | | (18,465) | |
Cash flows from financing activities: | | | |
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Repayment of term loan | (625) | | | — | |
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Payments related to net-share settlement of stock-based compensation, net of proceeds from exercise of stock options | (1,693) | | | (3,085) | |
Purchase of treasury stock | — | | | (43,009) | |
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Repurchase of 0.50% Convertible Senior Notes | (156,294) | | | — | |
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Payment of debt issuance costs | (953) | | | (4) | |
| | | |
| | | |
| | | |
Net cash used in financing activities | (159,565) | | | (46,098) | |
Net decrease in cash, cash equivalents, restricted cash and restricted cash equivalents | (148,861) | | | (54,564) | |
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period | 298,969 | | | 251,342 | |
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period | $ | 150,108 | | | $ | 196,778 | |
| | | |
| | | |
| | | |
The accompanying notes to consolidated financial statements are an integral part of these statements.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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. Intercompany transactions and accounts have been eliminated.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements as of March 31, 2023 and for the three months ended March 31, 2023 and 2022, respectively, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). In the opinion of management, the unaudited interim consolidated financial statements have been prepared on the same basis as the audited financial statements, and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the Company's financial position for the periods presented. The results for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023, or any other period. The accompanying consolidated balance sheet as of December 31, 2022 was derived from audited financial statements included in the Company's annual report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”). The accompanying consolidated financial statements do not include all of the information and footnotes required by GAAP for annual financial statements. Accordingly, they should be read in conjunction with the audited financial statements and notes thereto included in the 2022 Annual Report. The Company reclassified certain amounts in the prior year consolidated statement of operations and comprehensive income and consolidated statement of cash flows to be consistent with the current year presentation.
NOTE 2—SIGNIFICANT ACCOUNTING POLICIES
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 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; 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 current economic conditions, including interest rates, inflation, and 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 the recoverability of long-lived assets, goodwill and intangible assets. These assumptions and estimates may change as new events occur and additional
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
information is obtained. If economic conditions 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 March 31, 2023, 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.
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.
Litigation Settlements and Contingencies
Litigation settlements and contingencies consists of expenses related to actual or anticipated litigation settlements.
Recently Adopted Accounting Pronouncements
In August 2020, the FASB issued 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. 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 adoption of ASU 2020-06 did not impact our cash flows or compliance with debt covenants.
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 either 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 (Continued)
NOTE 3—REVENUE
Revenue is as follows (in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
Home | $ | 43,675 | | | $ | 101,944 | | | | | |
Credit cards | 18,288 | | | 29,822 | | | | | |
Personal loans | 23,599 | | | 35,210 | | | | | |
Other Consumer | 37,822 | | | 36,036 | | | | | |
Total Consumer | 79,709 | | | 101,068 | | | | | |
Insurance | 77,082 | | | 80,038 | | | | | |
Other | 42 | | | 128 | | | | | |
Total revenue | $ | 200,508 | | | $ | 283,178 | | | | | |
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. The Company's services are generally transferred to the customer at a point in time.
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.
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.
The Company recognizes revenue on closing fees and approval fees at the point when a loan request or a credit card consumer is delivered to the customer. 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.
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.
The contract asset recorded within prepaid and other current assets on the consolidated balance sheets related to estimated variable consideration was $13.4 million and $12.2 million at March 31, 2023 and December 31, 2022, respectively.
The contract liability recorded within accrued expenses and other current liabilities on the consolidated balance sheets related to upfront fees paid by consumers was $1.0 million and $0.9 million at March 31, 2023 and December 31, 2022,
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
respectively. During the first three months of 2023, the Company recognized revenue of $0.8 million that was included in the contract liability balance at December 31, 2022. During the first three months of 2022, the Company recognized revenue of $0.7 million that was included in the contract liability balance at December 31, 2021.
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. This increase was $0.2 million in the first quarter of 2023, and $0.2 million in the first quarter of 2022.
NOTE 4—CASH AND RESTRICTED CASH
Total cash, cash equivalents, restricted cash and restricted cash equivalents consist of the following (in thousands):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Cash and cash equivalents | $ | 150,074 | | | $ | 298,845 | |
Restricted cash and cash equivalents | 34 | | | 124 | |
Total cash, cash equivalents, restricted cash and restricted cash equivalents | $ | 150,108 | | | $ | 298,969 | |
NOTE 5—ALLOWANCE FOR DOUBTFUL ACCOUNTS
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.
A reconciliation of the beginning and ending balances of the allowance for doubtful accounts is as follows (in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
Balance, beginning of the period | $ | 2,317 | | | $ | 1,456 | | | | | |
Charges to earnings | 963 | | | 850 | | | | | |
Write-off of uncollectible accounts receivable | (963) | | | (503) | | | | | |
Recoveries collected | — | | | — | | | | | |
Assets held for sale (Note 7) | 371 | | | — | | | | | |
Balance, end of the period | $ | 2,688 | | | $ | 1,803 | | | | | |
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6—GOODWILL AND INTANGIBLE ASSETS
The balance of goodwill, net and intangible assets, net is as follows (in thousands):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Goodwill | $ | 903,227 | | | $ | 903,227 | |
Accumulated impairment losses | (483,088) | | | (483,088) | |
Net goodwill | $ | 420,139 | | | $ | 420,139 | |
| | | |
Intangible assets with indefinite lives | $ | 10,142 | | | $ | 10,142 | |
Intangible assets with definite lives, net | 46,124 | | | 48,173 | |
Total intangible assets, net | $ | 56,266 | | | $ | 58,315 | |
Goodwill and Indefinite-Lived Intangible Assets
The Company's goodwill at each of March 31, 2023 and December 31, 2022 consists of $59.3 million associated with the Home segment, $166.1 million associated with the Consumer segment, and $194.7 million associated with the Insurance segment.
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. The Company will monitor the recovery of the Insurance reporting unit and the Mortgage reporting unit. The property and casualty auto industry is experiencing challenges caused by inflation, supply chain challenges, and 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 unit.
Intangible assets with indefinite lives relate to the Company's trademarks.
Intangible Assets with Definite Lives
Intangible assets with definite lives relate to the following (in thousands):
| | | | | | | | | | | | | | | | | |
| Cost | | Accumulated Amortization | | Net |
| | | | | |
Customer lists | 77,300 | | | (32,303) | | | 44,997 | |
Trademarks and tradenames | 9,100 | | | (7,973) | | | 1,127 | |
| | | | | |
Balance at March 31, 2023 | $ | 86,400 | | | $ | (40,276) | | | $ | 46,124 | |
| | | | | | | | | | | | | | | | | |
| Cost | | Accumulated Amortization | | Net |
| | | | | |
Customer lists | $ | 77,300 | | | $ | (30,775) | | | $ | 46,525 | |
Trademarks and tradenames | 10,100 | | | (8,452) | | | 1,648 | |
| | | | | |
Balance at December 31, 2022 | $ | 87,400 | | | $ | (39,227) | | | $ | 48,173 | |
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Amortization of intangible assets with definite lives is computed on a straight-line basis and, based on balances as of March 31, 2023, future amortization is estimated to be as follows (in thousands):
| | | | | |
| Amortization Expense |
Remainder of current year | $ | 5,646 | |
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 | 18,057 | |
Total intangible assets with definite lives, net | $ | 46,124 | |
See Note 7—Assets and Liabilities Held for Sale for intangible assets with definite lives classified as held for sale.
NOTE 7—ASSETS AND LIABILITIES HELD FOR SALE
In the fourth quarter of 2022, the Company approved a plan to sell its Ovation credit services business, an asset group associated with the Company's Consumer segment. The asset group was 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.
In the first quarter of 2023, the third party withdrew the letter of intent to purchase the asset group held for sale. The Company made the decision to close the Ovation credit services business. As a result, the Company recorded asset impairment charges of $4.2 million, of which $2.1 million related to intangible assets, $1.7 million related to property and equipment, and $0.4 million related to an operating lease right-of-use asset.
The carrying value of the accounts receivable, prepaid and other assets, and other non-current assets previously held for sale, and the liabilities previously held for sale approximate their fair value and are no longer classified as assets and liabilities held for sale in the consolidated balance sheet as of March 31, 2023.
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 | |
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8—ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following (in thousands):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Accrued advertising expense | $ | 44,222 | | | $ | 37,703 | |
Accrued compensation and benefits | 9,398 | | | 11,444 | |
Accrued professional fees | 1,539 | | | 1,393 | |
Customer deposits and escrows | 7,253 | | | 7,273 | |
Contribution to LendingTree Foundation | — | | | 500 | |
Current lease liabilities | 8,901 | | | 8,513 | |
Accrued restructuring and severance | 4,446 | | | 304 | |
Other | 9,070 | | | 7,965 | |
Total accrued expenses and other current liabilities | $ | 84,829 | | | $ | 75,095 | |
See Note 7—Assets and Liabilities Held for Sale for accrued expenses and other current liabilities classified as held for sale.
NOTE 9—SHAREHOLDERS' EQUITY
Basic and diluted income per share was determined based on the following share data (in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Weighted average basic common shares | 12,846 | | | 12,901 | | | | | |
Effect of stock options | 54 | | | — | | | | | |
Effect of dilutive share awards | 35 | | | — | | | | | |
| | | | | | | |
Weighted average diluted common shares | 12,935 | | | 12,901 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
For the first quarter of 2023, the weighted average shares that were anti-dilutive, and therefore excluded from the calculation of diluted income per share, included options to purchase 1.0 million shares of common stock and 0.4 million restricted stock units.
For the first quarter of 2022, the Company was in a net loss position 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 0.3 million shares related to potentially dilutive securities were excluded from the calculation of diluted loss per share for the first quarter of 2022 because their inclusion would have been anti-dilutive. For the first quarter of 2022, 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 0.2 million restricted stock units.
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 12—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 1.2 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 were excluded from the calculation of diluted loss per share for the first quarter of 2023 because their inclusion would have been anti-dilutive. 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 first quarter of 2022 because their inclusion would have been anti-dilutive. Shares of the Company's stock associated
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
with the warrants issued by the Company in 2020 were excluded from the calculation of diluted loss per share for the first quarter of 2023, and shares of the Company's stock associated with the warrants issued by the Company in 2017 and 2020 were excluded from the calculation of diluted loss per share for the first quarter of 2022 as they were anti-dilutive since the strike price of the warrants was greater than the average market price of the Company's common stock during the relevant periods.
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 first quarter of 2023, the Company did not purchase shares of its common stock. During the first quarter of 2022, the Company purchased 379,895 shares of its common stock pursuant to this stock repurchase program. At March 31, 2023, approximately $96.7 million of the previous authorizations to repurchase common stock remain available.
NOTE 10—STOCK-BASED COMPENSATION
Non-cash compensation related to equity awards is included in the following line items in the accompanying consolidated statements of operations and comprehensive income (in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
Cost of revenue | $ | 214 | | | $ | 393 | | | | | |
Selling and marketing expense | 1,744 | | | 2,039 | | | | | |
General and administrative expense | 7,343 | | | 9,600 | | | | | |
Product development | 1,902 | | | 1,965 | | | | | |
Restructuring and severance | 71 | | | 1,083 | | | | | |
Total non-cash compensation | $ | 11,274 | | | $ | 15,080 | | | | | |
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) |
Options outstanding at January 1, 2023 | 805,079 | | | $ | 155.10 | | | | | |
Granted | — | | | — | | | | | |
Exercised | — | | | — | | | | | |
Forfeited | — | | | — | | | | | |
Expired | (34,313) | | | 239.93 | | | | | |
Options outstanding at March 31, 2023 | 770,766 | | | 151.32 | | | 5.14 | | $ | 171 | |
Options exercisable at March 31, 2023 | 553,965 | | | $ | 134.08 | | | 3.92 | | $ | 171 | |
(a)The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company's closing stock price of $26.66 on the last trading day of the quarter ended March 31, 2023 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 March 31, 2023. The intrinsic value changes based on the market value of the Company's common stock.
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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) |
Options outstanding at January 1, 2023 | 734,685 | | | $ | 230.79 | | | | | |
Granted | — | | | — | | | | | |
Exercised | — | | | — | | | | | |
Forfeited | — | | | — | | | | | |
Expired | (16,247) | | | 308.96 | | | | | |
Options outstanding at March 31, 2023 | 718,438 | | | 229.02 | | | 5.43 | | $ | — | |
Options exercisable at March 31, 2023 | 481,669 | | | $ | 195.10 | | | 4.35 | | $ | — | |
(a)The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company's closing stock price of $26.66 on the last trading day of the quarter ended March 31, 2023 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 March 31, 2023. The intrinsic value changes based on the market value of the Company's common stock.
As of March 31, 2023, a maximum of 395,404 shares may be earned for achieving superior performance up to 167% of the remaining unvested target number of shares. As of March 31, 2023, no additional performance-based nonqualified stock options with a market condition had been earned.
Restricted Stock Units
A summary of changes in outstanding nonvested restricted stock units (“RSUs”) is as follows:
| | | | | | | | | | | |
| RSUs |
| Number of Units | | Weighted Average Grant Date Fair Value |
| | | (per unit) |
Nonvested at January 1, 2023 | 485,053 | | | $ | 127.46 | |
Granted | 349,399 | | | 33.00 | |
Vested | (150,097) | | | 155.46 | |
Forfeited | (11,427) | | | 95.25 | |
Nonvested at March 31, 2023 | 672,928 | | | $ | 72.68 | |
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 January 1, 2023 | 16,000 | | | $ | 83.25 | |
Granted | — | | | — | |
Vested | — | | | — | |
Forfeited | (16,000) | | | 83.25 | |
Nonvested at March 31, 2023 | — | | | $ | — | |
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Employee Stock Purchase Plan
In 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. As of March 31, 2023, 226,813 shares of common stock were available for issuance under the ESPP. 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 six-month periods ending on June 30 and December 31 of each year. No shares were issued under the ESPP during the three months ended March 31, 2023.
During the three months ended March 31, 2023 and 2022, the Company granted employee stock purchase rights to certain employees with a grant date fair value per share of $8.19 and $35.43, 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:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
Expected term (1) | 0.50 years | | 0.50 years |
Expected dividend (2) | — | | | — | |
Expected volatility (3) | 82 | % | | 49% |
Risk-free interest rate (4) | 4.76 | % | | 0.19% |
(1)The expected term was calculated using the time period between the grant date and the purchase date.
(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 11—INCOME TAXES
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
| (in thousands, except percentages) | | | | |
Income tax expense | $ | (395) | | | $ | (382) | | | | | |
Effective tax rate | 2.9 | % | | (3.7) | % | | | | |
For the first quarter of 2023, the effective tax rate varied from the federal statutory rate of 21% primarily due to the change in the valuation allowance, net of the current period change in tax effected net indefinite-lived intangibles. For the first quarter of 2022, the effective tax rate varied from the federal statutory rate of 21% primarily due to excess tax expense of $2.5 million, resulting from vesting of restricted stock in accordance with ASU 2016-09 and the effect of state taxes.
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
| (in thousands) | | | | |
Income tax benefit - excluding excess tax expense on stock compensation | $ | (395) | | | $ | 2,086 | | | | | |
| | | | | | | |
Excess tax expense on stock compensation | — | | | (2,468) | | | | | |
| | | | | | | |
Income tax expense | $ | (395) | | | $ | (382) | | | | | |
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12—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 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).
On March 8, 2023, the Company repurchased approximately $190.6 million in principal amount of its 2025 Notes, through individual privately-negotiated transactions with certain holders of the 2025 Notes, for $156.3 million in cash plus accrued and unpaid interest of approximately $0.1 million. In the first quarter of 2023, the Company recognized a gain on the extinguishment of debt of $34.3 million, a loss on the write-off of unamortized debt issuance costs of $2.4 million and incurred debt repayment costs of $1.0 million, all of which are included in interest income/expense, net in the consolidated statement of operations and comprehensive income.
Holders of the 2025 Notes were 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.
In the first three months of 2023, the Company recorded interest expense on the 2025 Notes of $1.4 million which consisted of $0.7 million associated with the 0.50% coupon rate and $0.7 million associated with the amortization of the debt issuance costs. In the first three months of 2022, the Company recorded interest expense on the 2025 Notes of $1.5 million which consisted of $0.7 million associated with the 0.50% coupon rate and $0.8 million associated with the amortization of the debt issuance costs.
As of March 31, 2023, the fair value of the 2025 Notes is estimated to be approximately $286.7 million using the Level 1 observable input of the last quoted market price on March 31, 2023.
A summary of the gross carrying amount, debt issuance costs, and net carrying value of the 2025 Notes, all of which is recorded as a non-current liability in the March 31, 2023 consolidated balance sheet, are as follows (in thousands):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Gross carrying amount | $ | 384,398 | | | $ | 575,000 | |
Debt issuance costs | 4,667 | | | 7,734 | |
Net carrying amount | $ | 379,731 | | | $ | 567,266 | |
2022 Notes
In the first three months of 2022, the Company recorded interest expense on the 2022 Notes of $0.5 million which consisted of $0.3 million associated with the 0.625% coupon rate and $0.2 million associated with the amortization of the debt issuance costs. The 2022 Notes were fully settled in June 2022.
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 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
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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. 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.
In connection with the March 8, 2023 repurchases of the 2025 Notes noted above, the Company entered into agreements with the counterparties for the 2020 Hedge and 2020 Warrants transactions to terminate a portion of these call spread transactions effective March 8, 2023 in notional amounts corresponding to the principal amount of the 2025 Notes repurchased. Subsequent to such termination, the outstanding portion of the 2020 Hedge covers 0.8 million shares of the Company's common stock and 2020 Warrants to acquire 0.8 million shares of the Company's common stock remain outstanding.
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.
As of March 31, 2023, the Company had $248.1 million of borrowings outstanding under the Term Loan Facility bearing interest at the LIBO option rate of 8.6% and had no borrowings under the Revolving Facility. As of December 31, 2022, the Company had $248.8 million of borrowings outstanding under the Credit Facility and no borrowings under the Revolving Facility. As of March 31, 2023, borrowings of $2.5 million under the Term Loan Facility are recorded as current portion of long-term debt on the consolidated balance sheet.
At each of March 31, 2023 and December 31, 2022, the Company had outstanding one letter of credit issued in the amount of $0.2 million.
The Company was in compliance with all covenants at March 31, 2023.
In the first three months of 2023, the Company recorded interest expense related to its Revolving Facility of $0.4 million which consisted of $0.2 million in unused commitment fees, and $0.2 million associated with the amortization of the debt issuance costs. In the first three months of 2023, the Company recorded interest expense related to the Term Loan Facility of $5.2 million associated with borrowings bearing interest at the LIBO rate.
In the first three months of 2022, the Company recorded interest expense related to its revolving credit facilities of $0.4 million which consisted of $0.2 million in unused commitment fees, and $0.2 million associated with the amortization of the debt issuance costs. In the first three months of 2022, the Company recorded interest expense related to the Term Loan Facility of $5.1 million which consisted of $3.0 million in unused commitment fees, $1.2 million associated with the amortization of the debt issuance costs, and $0.9 million associated with the amortization of the original issue discount.
NOTE 13—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 13,
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 March 31, 2023 and December 31, 2022, the Company had litigation settlement accruals of $0.2 million and $0.1 million, respectively. 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.
NOTE 14—FAIR VALUE MEASUREMENTS
Other than the convertible notes and warrants, as well as the equity interests, the carrying amounts of the Company's financial instruments are equal to fair value at March 31, 2023. See Note 12—Debt for additional information on the convertible notes and warrants.
NOTE 15—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 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 for the purpose of assessing performance and allocating resources.
The Home segment includes the following products: purchase mortgage, refinance mortgage, and home equity loans and lines of credit. The Company 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 the agency businesses.
The following tables are a reconciliation of segment profit, which is the Company's primary segment profitability measure, to income before income taxes. Segment 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.
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 |
| Home | Consumer | Insurance | Other | Total |
| (in thousands) |
Revenue | $ | 43,675 | | $ | 79,709 | | $ | 77,082 | | $ | 42 | | $ | 200,508 | |
Segment marketing expense | 28,567 | | 44,833 | | 46,930 | | 221 | | 120,551 | |
Segment profit (loss) | 15,108 | | 34,876 | | 30,152 | | (179) | | 79,957 | |
Cost of revenue | | | | | 13,760 | |
Brand and other marketing expense | | | | | 16,560 | |
General and administrative expense | | | | | 36,683 | |
Product development | | | | | 14,655 | |
Depreciation | | | | | 4,795 | |
Amortization of intangibles | | | | | 2,049 | |
| | | | | |
Restructuring and severance | | | | | 4,454 | |
Litigation settlements and contingencies | | | | | 12 | |
Operating loss | | | | | (13,011) | |
Interest income, net | | | | | 25,029 | |
Other income | | | | | 1,834 | |
Income before income taxes | | | | | $ | 13,852 | |
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
| Home | Consumer | Insurance | Other | Total |
| (in thousands) |
Revenue | $ | 101,944 | | $ | 101,068 | | $ | 80,038 | | $ | 128 | | $ | 283,178 | |
Segment marketing expense | 66,035 | | 58,561 | | 58,935 | | 183 | | 183,714 | |
Segment profit (loss) | 35,909 | | 42,507 | | 21,103 | | (55) | | 99,464 | |
Cost of revenue | | | | | 15,561 | |
Brand and other marketing expense | | | | | 20,443 | |
General and administrative expense | | | | | 35,977 | |
Product development | | | | | 14,052 | |
Depreciation | | | | | 4,854 | |
Amortization of intangibles | | | | | 7,917 | |
| | | | | |
Restructuring and severance | | | | | 3,625 | |
Litigation settlements and contingencies | | | | | (27) | |
Operating loss | | | | | (2,938) | |
Interest expense, net | | | | | (7,505) | |
Other income | | | | | (1) | |
Loss before income taxes | | | | | $ | ( |