LENDINGTREE, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

Cautionary Statement Regarding Forward-Looking Information


This report contains "forward-looking statements" within the meaning of the
Securities Act of 1933 and the Securities Exchange Act of 1934, as amended by
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements include statements related to our anticipated financial performance,
business prospects and strategy; anticipated trends and prospects in the various
industries in which our businesses operate; new products, services and related
strategies; and other similar matters. These forward-looking statements are
based on management's current expectations and assumptions about future events,
which are inherently subject to uncertainties, risks and changes in
circumstances that are difficult to predict. The use of words such as
"anticipates," "estimates," "expects," "projects," "intends," "plans" and
"believes," among others, generally identifies forward-looking statements.

Actual results could differ materially from those contained in the
forward-looking statements. Factors currently known to management that could
cause actual results to differ materially from those in forward-looking
statements include those matters discussed or referenced in Part II, Item 1A.
Risk Factors included elsewhere in this quarterly report and Part I, Item 1A.
Risk Factors of the 2021 Annual Report.

Other unknown or unpredictable factors that could also adversely affect our
business, financial condition and results of operations may arise from time to
time. In light of these risks and uncertainties, the forward-looking statements
discussed in this report may not prove to be accurate. Accordingly, you should
not place undue reliance on these forward-looking statements, which only reflect
the views of LendingTree, Inc.'s management as of the date of this report. We
undertake no obligation to update or revise forward-looking statements to
reflect changed assumptions, the occurrence of unanticipated events or changes
to future operating results or expectations, except as required by law.

Company Overview


LendingTree, Inc. is the parent 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, reverse mortgage loans, auto loans, credit cards, deposit
accounts, personal loans, student loans, small business loans, insurance quotes
and other related offerings. In addition, we offer tools and resources,
including free credit scores, that facilitate comparison shopping for loans,
deposit products, insurance and other offerings. We seek to match consumers with
multiple providers, who can offer them competing quotes for the product, or
products, they are seeking. We also serve as a valued partner to lenders and
other providers seeking an efficient, scalable and flexible source of customer
acquisition with directly measurable benefits, by matching the consumer
inquiries we generate with these Network Partners.

Our My LendingTree platform offers a personalized comparison-shopping experience
by providing free credit scores and credit score analysis. This platform enables
us to monitor consumers' credit profiles and then identify and alert them to
loans and other offerings on our marketplace that may be more favorable than the
terms they may have at a given point in time. This is designed to provide
consumers with measurable savings opportunities over their lifetimes.

We are focused on developing new product offerings and enhancements to improve
the experiences that consumers 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, and
to leverage the widespread recognition of the LendingTree brand, to effect this
strategy.

We believe the consumer and small business financial services industry is still
in the early stages of a fundamental shift to online product offerings, similar
to the shift that started in retail and travel many years ago and is now well
established. We believe that like retail and travel, as consumers continue to
move towards online shopping and transactions for financial services, suppliers
will increasingly shift their product offerings and advertising budgets toward
the online channel. We believe the strength of our brands and of our partner
network place us in a strong position to continue to benefit from this market
shift.

The LendingTree Loans business is presented as discontinued operations in the
accompanying consolidated balance sheets, consolidated statements of operations
and comprehensive income and consolidated statements of cash flows for all
periods
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presented. Except for the discussion under the heading “Discontinued Operations,” the analysis within Management’s Discussion and Analysis of Financial Condition and Results of Operations reflects our continuing operations.

Economic Conditions


During March 2020, a global pandemic was declared by the World Health
Organization related to the rapidly growing outbreak of a novel strain of
coronavirus ("COVID-19"). The pandemic has significantly impacted the economic
conditions in the U.S., as federal, state and local governments react to the
public health crisis, creating significant uncertainties in the U.S. economy.
The downstream impact of various lockdown orders and related economic pullback
are affecting our business and marketplace participants to varying degrees. We
are continuously monitoring the impacts of the current economic conditions
related to the COVID-19 pandemic and the effect on our business, financial
condition and results of operations.

Of our three reportable segments, the Consumer segment was most impacted as
unsecured credit and the flow of capital in certain areas of the market have
contracted. The impact to our Home and Insurance segments was much less
substantial. Most of our selling and marketing expenses are variable costs that
we adjust dynamically in relation to revenue opportunities to profitably meet
demand. Thus, as our revenue was negatively impacted during the recession, our
marketing expenses generally decreased in line with revenue.

Segment Reporting

We have three reportable segments: Home, Consumer and Insurance.

Recent Business Acquisitions


On February 28, 2020, we acquired an equity interest in Stash for $80.0 million.
On January 6, 2021 we acquired an additional equity interest for $1.2 million.
Stash is a consumer investing and banking platform. Stash brings together
banking, investing, and financial services education into one seamless
experience offering a full suite of personal investment accounts, traditional
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.

In January 2022the 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. See Note 7-Equity Investment for additional information on the equity interest in EarnUp.

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 contractually 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. 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.

Recent Mortgage Interest Rate Trends

Interest rate and market risks can be substantial in the mortgage lead generation business. Short-term fluctuations in mortgage interest rates primarily affect consumer demand for mortgage refinancings, while long-term fluctuations in mortgage interest rates, coupled with the US real estate market, affect consumer demand for new mortgages. Consumer demand, in turn, affects lender demand for mortgage leads from third-party sources, as well as our own ability to attract online consumers to our website.


Typically, when interest rates decline, we see increased consumer demand for
mortgage refinancing, which in turn leads to increased traffic to our website
and decreased selling and marketing efforts associated with that traffic. At the
same time, lender
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demand for leads from third-party sources typically decreases, as there are more
consumers in the marketplace seeking refinancings and, accordingly, lenders
receive more organic mortgage lead volume. Due to lower lender demand, our
revenue earned per consumer typically decreases, but with correspondingly lower
selling and marketing costs.

Conversely, when interest rates increase, we typically see decreased consumer
demand for mortgage refinancing, leading to decreased traffic to our website and
higher associated selling and marketing efforts associated with that traffic. At
the same time, lender demand for leads from third-party sources typically
increases, as there are fewer consumers in the marketplace and, accordingly, the
supply of organic mortgage lead volume decreases. Due to high lender demand, we
typically see an increase in the amount lenders will pay per matched lead, which
often leads to higher revenue earned per consumer. However, increases in the
amount lenders will pay per matched lead in this situation is limited by the
overall cost models of our lenders, and our revenue earned per consumer can be
adversely affected by the overall reduced demand for refinancing in a rising
rate environment.

We dynamically adjust selling and marketing expenditures in all interest rate environments to optimize our results against these variables.


According to Freddie Mac, 30-year mortgage interest rates increased from a
monthly average of 3.10% in December 2021 to a monthly average of 4.17% in March
2022. On a quarterly basis, 30-year mortgage interest rates in the first quarter
of 2022 averaged 3.79%, compared to 2.88% in the first quarter of 2021 and 3.08%
in the fourth quarter of 2021.

                    [[Image Removed: tree-20220331_g2.jpg]]

Typically, as mortgage interest rates rise, there are fewer consumers in the
marketplace seeking refinancings and, accordingly, the mix of mortgage
origination dollars will move toward purchase mortgages. According to Mortgage
Bankers Association ("MBA") data, total refinance origination dollars decreased
to 45% of total mortgage origination dollars in the first quarter of 2022
compared to 53% in the fourth quarter of 2021. In the first quarter of 2022,
total refinance origination dollars decreased 34% from the fourth quarter of
2021 and 60% from the first quarter of 2021. Industry-wide mortgage origination
dollars in the first quarter of 2022 decreased 23% from the fourth quarter of
2021 and 37% from first quarter of 2021.

In April 2022, the MBA projected 30-year mortgage interest rates to increase
during 2022, to an average 4.8% for the year. According to MBA projections, the
mix of mortgage origination dollars is expected to move back towards purchase
mortgages with the refinance share representing approximately 33% for 2022.
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The US 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, existing-home sales decreased 3% in the first
quarter of 2022 compared to the fourth quarter of 2021, and 4% compared to the
first quarter of 2021. Fannie Mae predicts an overall decrease in existing-home
sales of approximately 9% in 2022 compared to 2021.

Results of Operations for the Three Months ended March 31, 2022 and 2021


                                                                        Three Months Ended
                                                                             March 31,
                                                                                                               $             %
                                                                                    2022         2021        Change        Change
                                                                                               (Dollars in thousands)
Home                                                                            $ 101,944    $ 128,125    $ (26,181)           (20) %
Consumer                                                                          101,068       57,907       43,161             75  %
Insurance                                                                          80,038       86,614       (6,576)            (8) %
Other                                                                                 128          104           24             23  %
Revenue                                                                           283,178      272,750       10,428              4  %

Costs and expenses: Cost of revenue (exclusive of depreciation and amortization shown separately below)

                                                            15,561       13,895        1,666             12  %
Selling and marketing expense                                                     204,157      197,462        6,695              3  %
General and administrative expense                                                 35,973       34,989          984              3  %
Product development                                                                14,052       12,468        1,584             13  %
Depreciation                                                                        4,854        3,718        1,136             31  %
Amortization of intangibles                                                         7,917       11,312       (3,395)           (30) %
Change in fair value of contingent consideration                                        -          797         (797)          (100) %
Restructuring and severance                                                         3,625            -        3,625            100  %
Litigation settlements and contingencies                                              (27)          16          (43)          (269) %
Total costs and expenses                                                          286,112      274,657       11,455              4  %
Operating loss                                                                     (2,934)      (1,907)      (1,027)           (54) %
Other (expense) income, net:
Interest expense, net                                                              (7,505)     (10,215)      (2,710)           (27) %
Other (expense) income                                                                 (1)      40,072      (40,073)          (100) %
(Loss) income before income taxes                                           

(10,440) 27,950 (38,390) (137)% Income tax expense

                                                                   (383)      (8,638)      (8,255)           (96) %
Net (loss) income from continuing operations                                

(10,823) 19,312 (30,135) (156)% Loss from discontinued operations, net of tax

                                          (3)        (263)        (260)           (99) %
Net (loss) income and comprehensive (loss) income                               $ (10,826)   $  19,049    $ (29,875)          (157) %


Revenue

Revenue increased in the first quarter of 2022 compared to the first quarter of
2021 due to an increase in our Consumer segment, partially offset by decreases
in our Home and Insurance segments.

Our Consumer segment includes the following products: credit cards, personal
loans, small business loans, student loans, auto loans, deposit accounts, and
other credit products such as credit repair and debt settlement. Many of our
Consumer segment products are not individually significant to revenue. Revenue
from our Consumer segment increased $43.2 million in the first quarter of 2022
from the first quarter of 2021, or 75%, primarily due to increases in our
personal loans, credit cards and small business loans.
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Revenue from our credit cards product increased $12.2 million to $29.8 million
in the first quarter of 2022 from $17.6 million in the first quarter of 2021, or
69%, primarily due to an increase in revenue earned per approval and an increase
in the number of approvals.

Revenue from our personal loans product increased $20.3 million to $35.2 million
in the first quarter of 2022 from $14.9 million in the first quarter of 2021, or
137%, primarily due to an increase in the number of consumers completing request
forms and an increase in revenue earned per consumer.

For the periods presented, no other products in our Consumer segment represented
more than 10% of revenue; however, certain other Consumer products experienced
notable changes primarily due to the impact of economic conditions related to
the COVID-19 pandemic. Revenue from our small business loans product increased
$10.7 million in the first quarter of 2022 compared to the first quarter of
2021, primarily due to increase in revenue earned per consumer and an increase
in the number of consumers completing request forms.

Our Home segment includes the following products: purchase mortgage, refinance
mortgage, home equity loans, reverse mortgage loans, and real estate. Revenue
from our Home segment decreased $26.2 million in the first quarter of 2022 from
the first quarter of 2021, or 20%, primarily due to an decrease in revenue from
our refinance mortgage product, partially offset by a increase in our home
equity and purchase mortgage products. Revenue from our refinance mortgage
product decreased $47.6 million in the first quarter of 2022 compared to the
first quarter of 2021, due to a shift in lender focus towards purchase products
as well as a decrease in the number of consumers completing request forms as
interest rates have risen. Revenue from our home equity loans product increased
$12.2 million in the first quarter of 2022 compared to the first quarter of
2021, primarily due to an increase in revenue earned per consumer. Revenue from
our purchase mortgage product increased $9.2 million in the first quarter of
2022 compared to the first quarter of 2021, primarily due to a shift in lender
focus back towards purchase products as well as an increase in revenue earned
per consumer.

Revenue from our Insurance segment decreased $6.6 million to $80.0 million in
the first quarter of 2022 from $86.6 million in the first quarter of 2021, or
8%, due to an decrease in the number of consumers seeking insurance coverage,
partially offset by an increase in revenue earned per consumer.

Cost of revenue


Cost of revenue consists primarily of costs associated with compensation and
other employee-related costs (including stock-based compensation) relating to
internally-operated customer call centers, third-party customer call center
fees, costs for online advertising resold to third parties, credit scoring fees,
credit card fees, website network hosting and server fees.

Cost of revenue increased in the first quarter of 2022 from the first quarter of
2021, primarily due to a $1.4 million increase in website network hosting and
server hosting fees.

Cost of revenue as a percentage of revenue remained consistent at 5% for each of the first quarters of 2022 and 2021.

Selling and marketing expense


Selling and marketing expense consists primarily of advertising and promotional
expenditures and compensation and other employee-related costs (including
stock-based compensation) for personnel engaged in sales or marketing functions.
Advertising and promotional expenditures primarily include online marketing, as
well as television, print and radio spending. Advertising production costs are
expensed in the period the related ad is first run.

Selling and marketing expense increased in the first quarter of 2022 compared to
the first quarter of 2021 primarily due to increases in advertising and
promotional expense discussed below. Additionally, compensation and benefits
increased $1.3 million as a result of an increase in headcount.
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Advertising and promotional expense is the largest component of selling and marketing expense, and is comprised of the following:

                                       Three Months Ended March 31,
                                                                                          $        %
                                                                 2022        2021      Change    Change
                                                                        (Dollars in thousands)
Online                                                        $ 182,473   $ 176,821   $ 5,652       3  %
Broadcast                                                           840       1,167      (327)    (28) %
Other                                                             5,764       5,715        49       1  %
Total advertising expense                                     $ 189,077   $ 183,703   $ 5,374       3  %


Revenue is primarily driven by Network Partner demand for our products, which is
matched to corresponding consumer requests. We adjust our selling and marketing
expenditures dynamically in relation to anticipated revenue opportunities in
order to ensure sufficient consumer inquiries to profitably meet such demand. An
increase in a product's revenue is generally met by a corresponding increase in
marketing spend, and conversely a decrease in a product's revenue is generally
met by a corresponding decrease in marketing spend. This relationship exists for
our Home, Consumer and Insurance segments.

We adjusted our advertising expenditures in the first quarter of 2022 compared
to the first quarter of 2021 in response to changes in Network Partner demand on
our marketplace. We will continue to adjust selling and marketing expenditures
dynamically in response to anticipated revenue opportunities.

General and administrative expense

General and administrative expense consists primarily of compensation and other employee-related costs (including stock-based compensation) for personnel engaged in finance, legal, tax, corporate information technology, human resources and executive management functions, as well as facilities and infrastructure costs and fees for professional services.


General and administrative expense increased in the first quarter of 2022
compared to the first quarter of 2021, primarily due to increases in technology
and other tax expense of $1.5 million and $1.8 million, respectively. This was
partially offset by decreases in compensation and benefits and professional fees
of $2.4 million and $1.2 million, respectively.

General and administrative expense as a percentage of revenue remained consistent at 13% for each of the first quarters of 2022 and 2021.

Product development

Product development expense consists primarily of compensation and other employee-related costs (including stock-based compensation) and third-party labor costs that are not capitalized, for employees and consultants engaged in the design, development, testing and enhancement of technology.


Product development expense increased in the first quarter of 2022 compared to
the first quarter of 2021 as we continued to invest in internal development of
new and enhanced features, functionality and business opportunities that we
believe will enable us to better and more fully serve consumers and Network
Partners.

Amortization of intangibles

The decrease in amortization of intangibles in the first quarter of 2022 compared to the first quarter of 2021 was due to certain intangible assets associated with our recent business acquisitions becoming fully amortized.

Contingent consideration

During the first quarter of 2022, we did not record contingent consideration expense. All earnouts were completed prior to 2022.


During the first quarter of 2021, we recorded an aggregate gain of $0.8 million
due to adjustments in the estimated fair value of the earnout payments related
to the QuoteWizard acquisition.
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Restructuring and severance


In the first quarter of 2022, we completed a workforce reduction of
approximately 75 employees. The Company incurred total expense of $3.6 million
consisting of employee separation costs of $2.5 million and non-cash
compensation expense of $1.1 million due to the accelerated vesting of certain
equity awards. All employee separation costs are expected to be paid by the
first quarter of 2023.

Interest expense


Interest expense decreased in the first quarter of 2022 compared to the first
quarter of 2021 primarily due to the adoption of ASU 2020-06 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 for additional information.

Other income


For the first quarter of 2021, other income primarily consists of a
$40.1 million gain on our investment in Stash as a result of an adjustment to
the fair value based on observable market events. See Note 7-Equity Investment
for additional information on the equity interest in Stash.

Income tax expense


For the first quarter of 2022, the effective tax rate varied from the federal
statutory rate of 21% primarily due to excess tax expense of $2.5 million and
the effect of state taxes. For the first quarter of 2021, the effective tax rate
varied from the federal statutory rate of 21% primarily due to the effect of
state taxes.

Segment Profit

                            Three Months Ended March 31,
                                                                              $         %
                                                       2022       2021      Change    Change
                                                             (Dollars in thousands)
Home                                                $ 35,909   $ 38,990   $ (3,081)     (8) %
Consumer                                              42,507     24,607     17,900      73  %
Insurance                                             21,103     32,842    (11,739)    (36) %
Other                                                    (55)       (92)        37      40  %
Segment profit                                      $ 99,464   $ 96,347   $  3,117       3  %


Segment profit is our primary segment operating metric. Segment profit is
calculated as segment revenue less segment selling and marketing expenses
attributed to variable costs paid for advertising, direct marketing and related
expenses that are directly attributable to the segments' products. See Note
15-Segment Information in the notes to the consolidated financial statements for
additional information on segments and a reconciliation of segment profit to
pre-tax income from continuing operations.

Home


Revenue in our Home segment was $101.9 million in the first quarter of 2022, a
decrease of 20% from the first quarter of 2021, with segment profit of $35.9
million in the first quarter of 2022, a decrease of 8% from the first quarter of
2021, as we experienced historically high refinance volumes in the first quarter
of 2021. The 30-year mortgage interest rates, according to Freddie Mac,
increased from a quarterly average of 2.88% in the first quarter 2021 to 3.79%
in the first quarter of 2022.

Our leadership position in the mortgage marketplace generated improved unit economics throughout the quarter, even as refinancing activity slowed significantly. Mortgage revenue per consumer increased in the first quarter of 2022 compared to the first quarter of 2021.


Home equity continues to grow as a part of our overall product mix, achieving
record revenue with increases of 112% in the first quarter of 2022 compared to
the first quarter of 2021. Revenue per consumer increased in the first quarter
of 2022 compared to the first quarter of 2021. Purchase revenue increased 90% in
the first quarter of 2022 compared to the first quarter
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of 2021. Persistently low home inventory and higher home prices continue to suppress purchase application volumes nationally, but revenue earned per consumer in this category continues to expand, as lenders are pivoting more towards the product with refinancing activity subsiding.


Our lender partners tend to rely on us even more at this point in the interest
rate cycle to help meet their origination goals. In turn, we focus on optimizing
higher converting products for them such as cash-out refinance and home equity
loans. Despite the recent sharp uptick in interest rates, loans secured with
home equity remain the lowest cost source of financing for most consumers that
own a home.

Consumer

Revenue in our Consumer segment increased 75% to $101.1 million in the first
quarter of 2022 compared to the first quarter of 2021. Segment profit in our
Consumer segment increased 73% to $42.5 million, in the first quarter of 2022
compared to the first quarter of 2021.

Personal loans revenue of $35.2 million increased 137% in the first quarter of
2022 from the first quarter of 2021, as consumer demand continued to increase
throughout the quarter. We expect this positive trend to continue as credit card
balances are increasing at an unprecedented rate and are projected to reach a
record level by the middle of this year. Increased card balances should drive
increased demand for the product as consumers look to consolidate this higher
cost debt with personal loan products.

Our credit card business recovery continues, generating revenue of $29.8 million
in the first quarter of 2022, an increase of 69% from the first quarter of 2021.
Revenue per approval increased in the first quarter of 2022 from the first
quarter of 2021, as issuer partners expanded their marketing budgets. We are
focused on optimizing the increasing demand for travel reward cards as
restrictions continue to lift and mandates expire. Margins in the segment remain
lower than historical levels. We are working to diversify our marketing mix,
actively pursuing more profitable marketing channels and partnerships to expand
our reach and attract more consumers. We expect these actions will lead to
improved unit economics over time.

Small business growth continues at a strong pace, achieving record revenue in
the first quarter, with revenue increasing 138% in the first quarter of 2022
from the first quarter of 2021. Our lender network continues to grow as we
onboard additional partners and diversify our marketplace for borrowers. Our
Premium Marketplace offering, launched last quarter, sorts incoming borrower
traffic into risk tiers. The result is funnel optimization that has driven
increased conversions and revenue per lead.

Insurance


We believe the fourth quarter of 2021 was the trough for the Insurance segment,
as the challenging underwriting environment for carriers begins to ease with
premium rate increases. Our business has begun to recover as a result, with
revenue of $80.0 million in the first quarter of 2022, down 8% from the first
quarter of 2021 but up 22% from the fourth quarter of 2021, and segment profit
of $21.1 million in the first quarter of 2022, down 36% from the first quarter
of 2021 and up 1% from the fourth quarter of 2021.

We are encouraged by conversations we are having with our carrier partners as
they increase marketing budgets. Evidence of returning demand can be seen in our
revenue per consumer, which increased in the first quarter of 2022 compared to
the first quarter of 2021. The costs of those leads, however, increased as we
prioritized quality for our partners, resulting in a 26% margin in the first
quarter of 2021, which is significantly lower than the business has historically
delivered. We expect improving margins in the second half of the year as partner
demand continues to recover and our marketing costs improve.

Auto insurance rate increases from our clients are continuing to be approved in
states across the country, driving improved appetite for new policy acquisition.
Auto revenue in the first quarter of 2022 increased from the fourth quarter of
2021, and we expect growth to continue as the business returns to a normalized
operating environment. We remain committed to capturing additional share of
carrier budgets by focusing on conversion rate and lead quality and moving
quickly to ensure alignment with carrier targets to meet and exceed their goals.
Consumer demand, as measured by traffic to our sites, remains strong, and we
expect this trend to continue as drivers shop for new policies following these
rate increases.

We continue to diversify our Insurance business by entering new markets to expand our growth opportunities and increase market share.

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Adjusted EBITDA


We report Adjusted EBITDA as a supplemental measure to GAAP. This measure is the
primary metric by which we evaluate the performance of our businesses, on which
our marketing expenditures and internal budgets are based and by which, in most
years, management and many employees are compensated. We believe that investors
should have access to the same set of tools that we use in analyzing our
results. This non-GAAP measure should be considered in addition to results
prepared in accordance with GAAP but should not be considered a substitute for
or superior to GAAP results. We provide and encourage investors to examine the
reconciling adjustments between the GAAP and non-GAAP measures discussed below.

Definition of Adjusted EBITDA


We report Adjusted EBITDA as net income from continuing operations adjusted to
exclude interest, income tax, amortization of intangibles and depreciation, and
to further exclude (1) non-cash compensation expense, (2) non-cash impairment
charges, (3) gain/loss on disposal of assets, (4) gain/loss on investments, (5)
restructuring and severance expenses, (6) litigation settlements and
contingencies, (7) acquisitions and dispositions income or expense (including
with respect to changes in fair value of contingent consideration), and (8)
one-time items. Adjusted EBITDA has certain limitations in that it does not take
into account the impact to our statement of operations of certain expenses,
including depreciation, non-cash compensation and acquisition-related
accounting. We endeavor to compensate for the limitations of the non-GAAP
measures presented by also providing the comparable GAAP measures with equal or
greater prominence and descriptions of the reconciling items, including
quantifying such items, to derive the non-GAAP measures. These non-GAAP measures
may not be comparable to similarly titled measures used by other companies.

One-Time Items


Adjusted EBITDA is adjusted for one-time items, if applicable. Items are
considered one-time in nature if they are non-recurring, infrequent or unusual
and have not occurred in the past two years or are not expected to recur in the
next two years, in accordance with SEC rules. For the periods presented below,
one-time items consisted of the franchise tax caused by the equity investment
gain in Stash.

Non-Cash Expenses that are Excluded from Adjusted EBITDA


Non-cash compensation expense consists principally of expense associated with
grants of restricted stock, restricted stock units and stock options, some of
which awards have performance-based vesting conditions. Non-cash compensation
expense also includes expense associated with employee stock purchase plans.
These expenses are not paid in cash, and we include the related shares in our
calculations of fully diluted shares outstanding. Upon settlement of restricted
stock units, exercise of certain stock options or vesting of restricted stock
awards, the awards may be settled, on a net basis, with us remitting the
required tax withholding amount from our current funds.

Amortization of intangibles are non-cash expenses relating primarily to intangible assets acquired through acquisitions. At the time of an acquisition, the intangible assets of the acquired company, such as purchase agreements, technology and customer relationships, are valued and amortized over their estimated lives.

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The following table is a reconciliation of net income from continuing operations to Adjusted EBITDA (in thousands).

                                                             Three Months Ended
                                                                 March 31,
                                                                           2022           2021
Net (loss) income from continuing operations                            $ (10,823)     $ 19,312
Adjustments to reconcile to Adjusted EBITDA:
Amortization of intangibles                                                 7,917        11,312
Depreciation                                                                4,854         3,718
Restructuring and severance                                                 3,625             -
Loss on impairments and disposal of assets                                    431           348
Gain on investments                                                             -       (40,072)
Non-cash compensation expense                                              13,997        16,436
Franchise tax caused by equity investment gain                              1,500             -
Change in fair value of contingent consideration                                -           797
Acquisition expense                                                             9            29
Litigation settlements and contingencies                                      (27)           16
Interest expense, net                                                       7,505        10,215
Income tax expense                                                            383         8,638
Adjusted EBITDA                                                         $  29,371      $ 30,749


Financial Position, Liquidity and Capital Resources

General

As of March 31, 2022we had $ 196.7 million of cash and cash equivalents, compared to $ 251.2 million of cash and cash equivalents as of December 31, 2021.

In the first quarter of 2022, we acquired an equity interest in EarnUp Inc.
(“EarnUp”) for $ 15.0 million. See Note 7-Equity Investment to the consolidated financial statements included elsewhere in this report for additional information on the equity interest.

On June 1, 2022 the outstanding balance of $ 169.7 million of our 0.625% Convertible Senior Notes will mature. It is our intention to use proceeds from the Term Loan Facility to settle the notes. See Note 12-Debt for additional information.


We expect our cash and cash equivalents and cash flows from operations to be
sufficient to fund our operating needs for the next twelve months and beyond.
Our credit facility described below is an additional potential source of
liquidity. We will continue to monitor the impact of the ongoing COVID-19
pandemic on our liquidity and capital resources.

Credit Facility


On September 15, 2021, we entered into a credit agreement (the "Credit
Agreement"), consisting of a $200.0 million revolving credit facility (the
"Revolving Facility"), which matures 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
to the extent the loans thereunder will be drawn. The delayed draw commitments
under the Term Loan Facility will be available until June 1, 2022. The proceeds
of the Revolving Facility can be used to finance working capital, for general
corporate purposes and any other purpose not prohibited by the Credit Agreement.
The proceeds of the Term Loan Facility can be used to settle the Company's 2022
Notes, including related fees, costs and expenses, and up to $80.0 million may
be used for general corporate purposes and any other purposes not prohibited by
the Credit Agreement. See Note 12-Debt for additional information.

As of May 5, 2022, we have outstanding a $0.2 million letter of credit under the
Revolving Facility and the remaining borrowing capacity under the Revolving
Facility is $199.8 million. No term loans have been drawn under the Term Loan
Facility as of May 5, 2022.
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Cash Flows from Continuing Operations

Our cash flows attributable to continuing operations are as follows:


                                                Three Months Ended
                                                     March 31,
                                                2022            2021
                                                  (in thousands)

Net cash provided by operating activities $ 10,000 $ 8,925
Net cash used in investing activities

           (18,465)      (11,733)
Net cash used in financing activities           (46,098)       (5,000)


Cash Flows from Operating Activities


Our largest source of cash provided by our operating activities is revenues
generated by our products. Our primary uses of cash from our operating
activities include advertising and promotional payments. In addition, our uses
of cash from operating activities include compensation and other
employee-related costs, other general corporate expenditures, litigation
settlements and contingencies, certain contingent consideration payments, and
income taxes.

Net cash provided by operating activities attributable to continuing operations
increased in the first three months of 2022 from the first three months of 2021
primarily due to favorable changes in accounts receivable and accounts payable,
accrued expenses and other current liabilities, partially offset by unfavorable
changes in prepaid and other current assets.

Cash Flows from Investing Activities


Net cash used in investing activities attributable to continuing operations in
the first three months of 2022 of $18.5 million consisted of capital
expenditures of $3.5 million primarily related to internally developed software,
as well as the purchase of a $15.0 million equity interest in EarnUp.

Net cash used in investing activities attributable to continuing operations in
the first three months of 2021 of $11.7 million consisted of capital
expenditures of $10.6 million primarily related to internally developed software
and leasehold improvements for our new principal corporate offices, as well as
the purchase of an additional $1.2 million equity interest in Stash.

Cash Flows from Financing Activities


Net cash used in financing activities attributable to continuing operations in
the first three months of 2022 of $46.1 million consisted primarily of
$43.0 million for the repurchase of our stock and $3.1 million in withholding
taxes paid upon surrender of shares to satisfy obligations on equity awards, net
of proceeds from the exercise of stock options.

Net cash used in financing activities attributable to continuing operations in
the first three months of 2021 of $5.0 million consisted primarily of $ $4.8
million in withholding taxes paid upon surrender of shares to satisfy
obligations on equity awards, net of proceeds from the exercise of stock
options.

Off-Balance Sheet Arrangements


We have no off-balance sheet arrangements other than a letter of credit and our
funding commitments pursuant to our surety bonds, none of which have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that is material to
investors.

New Accounting Pronouncements

For information regarding new accounting pronouncements, see Note 2-Significant Accounting Policies, in Part I, Item 1 Financial Statements.

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