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LENDINGTREE : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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10/26/2017 | 11:32pm CET
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 also 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 identify 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 2016 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 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 LendingTree, LLC and several companies owned
by LendingTree, LLC.
LendingTree operates what we believe to be the leading online loan marketplace
for consumers seeking loans, deposit accounts and other credit-based offerings.
Our online marketplace provides consumers with access to product offerings from
our Network Lenders, including mortgage loans, home equity loans and lines of
credit, reverse mortgage loans, auto loans, credit cards, deposit accounts,
personal loans, student loans, small business loans and other related offerings.
In addition, we offer tools and resources, including free credit scores, that
facilitate comparison shopping for these loan and other credit-based offerings.
We seek to match consumers with multiple lenders, who can provide them with
competing quotes for the product they are seeking. We also serve as a valued
partner to lenders seeking an efficient, scalable and flexible source of
customer acquisition with directly measurable benefits, by matching the consumer
inquiries we generate with these lenders.
Our My LendingTree platform offers a personalized loan comparison-shopping
experience by providing free credit scores and credit score analysis. This
platform enables us to observe consumers' credit profiles and then identify and
alert them to loan and other credit-based opportunities on our marketplace that
may be more favorable than the loans they may have at a given point in time.
This is designed to provide consumers with measurable savings opportunities over
their lifetimes.
In addition to operating our core mortgage business, we are focused on growing
our non-mortgage lending businesses and developing new product offerings and
enhancements to improve the experiences that consumers and lenders have as they
interact with us. By expanding our portfolio of loan and credit-based 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 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 lender
network place us in a strong position to continue to benefit from this market
shift.
The LendingTree Loans business is presented as discontinued operations in the
accompanying consolidated balance sheets, consolidated statements of operations
and comprehensive income and consolidated cash flows for all periods presented.
Except for the discussion under the heading "Discontinued operations," the
analysis within Management's Discussion and Analysis of Financial Condition and
Results of Operations reflects our continuing operations.

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Convertible Senior Notes and Hedge and Warrant Transactions
On May 31, 2017, we issued $300.0 million aggregate principal amount of our
0.625% Convertible Senior Notes due June 1, 2022 and, in connection therewith,
entered into Convertible Note Hedge and Warrant transactions with respect to our
common stock. For more information, see Note 10-Debt, in the notes to the
consolidated financial statements included elsewhere in this report.
Recent Business Acquisitions
On September 19, 2017, we acquired certain assets of Snap Capital LLC, which
does business under the name SnapCap for $11.9 million in cash at closing and
contingent consideration payments of up to $9.0 million through March 31, 2020.
SnapCap is a tech-enabled online platform, which connects business owners with
lenders offering small business loans, lines of credit and merchant cash advance
products through a concierge-based sales approach.
On June 20, 2017, we acquired the membership interests of Camino Del Avion, LLC,
which does business under the name MagnifyMoney for $29.6 million cash
consideration at the closing of the transaction. MagnifyMoney is a leading
consumer-facing media property that offers unbiased editorial content, expert
commentary, tools and resources to help consumers compare financial products and
make informed financial decisions.
On June 14, 2017, we acquired substantially all of the assets of Deposits
Online, LLC, which does business under the name DepositAccounts.com
("DepositAccounts") for $24.0 million in cash at closing and contingent
consideration payments of up to $9.0 million through June 30, 2020.
DepositAccounts is a leading consumer-facing media property in the depository
industry and is one of the most comprehensive sources of depository deals and
analysis on the Web, covering all major deposit product categories through
editorial content, programmatic rate tables and user-generated content.
On November 16, 2016, we acquired Iron Horse Holdings, LLC, which does business
under the name CompareCards for $80.7 million in cash at closing and contingent
consideration payments of up to $22.5 million for each of 2017 and 2018, subject
to achieving specific growth targets. CompareCards is a leading online source
for side-by-side credit card comparison shopping. CompareCards provides
consumers with one centralized location for pertinent credit card information
needed to find the best card for their needs.
These acquisitions continue our diversification strategy.
Acquisition of North Carolina Office Properties
In December 2016, we completed the acquisition of two office buildings in
Charlotte, North Carolina, for $23.5 million in cash. We intend to utilize one
or both buildings in the future as our principal executive offices, and any
unused space will continue to be occupied by tenants.
Seasonality
Revenue in our lending business is subject to cyclical and seasonal trends. Home
sales (and purchase mortgages) typically rise during the spring and summer
months and decline during the fall and winter months, while refinancing and home
equity activity is principally driven by mortgage interest rates as well as real
estate values.
We anticipate revenue in our newer products to be cyclical as well; however, we
have limited historical data to predict the nature and magnitude of this
cyclicality. Based on industry data, we anticipate as our personal loan product
matures we will experience less consumer demand during the fourth and first
quarters of each year. We also anticipate less consumer demand for credit cards
in the fourth quarter of each year. Other factors affecting our business include
macro factors such as credit availability in the market, interest rates, the
strength of the economy and employment.
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 U.S. real estate
market, affect consumer demand for new mortgages. Consumer demand, in turn,
affects lender demand for mortgage leads from third-party sources. Typically, a
decline in mortgage interest rates will lead to reduced lender demand, as there
are more consumers in the marketplace seeking financing and, accordingly,
lenders receive more organic lead

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volume. Conversely, an increase in mortgage interest rates will typically lead
to an increase in lender demand, as there are fewer consumers in the marketplace
and, accordingly, the supply of organic mortgage lead volume decreases.
According to Freddie Mac, 30-year mortgage interest rates have fallen to a
monthly average of 3.8% in September 2017. On a quarterly basis, 30-year
mortgage interest rates in the third quarter of 2017 averaged 3.89%, as compared
to 3.45% in the third quarter of 2016 and 3.99% in the second quarter of 2017.
                [[Image Removed: q32017mortgageorigination.jpg]]
Typically, as mortgage interest rates rise, there are fewer consumers in the
marketplace seeking refinancings and, accordingly, the mix of mortgage
origination dollars moves towards purchase mortgages. According to Mortgage
Bankers Association ("MBA") data, total refinance origination dollars remained
at 32% of total mortgage origination dollars, while purchase origination dollars
remained at 68% in the third quarter of 2017 from the second quarter of 2017.
Looking forward, MBA is projecting 30-year mortgage interest rates to increase
slightly through the end of the year. According to MBA projections, the mix of
mortgage origination dollars will move towards refinance mortgages in the fourth
quarter of 2017 with the refinance share representing 36% for 2017.
The U.S. Real Estate Market
The health of the U.S. real estate market and interest rate levels are the
primary drivers of consumer demand for new mortgages. Consumer demand, in turn,
affects lender demand for purchase mortgage leads from third-party sources.
Typically, a strong real estate market will lead to reduced lender demand for
leads, as there are more consumers in the marketplace seeking financing and,
accordingly, lenders receive more organic lead volume. Conversely, a weaker real
estate market will typically lead to an increase in lender demand, as there are
fewer consumers in the marketplace seeking mortgages.
According to the National Association of Realtors ("NAR"), 2017 started with the
fastest pace of existing home sales in almost a decade. However, pending home
sales declined in August for the fifth time in six months due to limited supply.
The NAR expects inventory to remain low for 2017 and forecasts a decrease of
0.2% in existing home sales from 2016.

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Results of Operations for the Three and Nine Months ended September 30, 2017 and 2016

                                   Three Months Ended September 30,              Nine Months Ended September 30,
                                                         $         %                                   $         %
                                 2017        2016      Change    Change       2017        2016       Change    Change
                                                               (Dollars in thousands)
Mortgage products             $  73,756$ 53,523$ 20,233      38  %   $ 208,209$ 164,571$ 43,638      27  %
Non-mortgage products            97,738     41,035     56,703     138  %     248,573     118,990    129,583     109  %
Revenue                         171,494     94,558     76,936      81  %     456,782     283,561    173,221      61  %
Costs and expenses:
Cost of revenue (exclusive of
depreciation and amortization
shown separately below)           4,388      3,392        996      29  %      12,143      10,329      1,814      18  %
Selling and marketing expense   118,538     62,819     55,719      89  %     320,930     192,416    128,514      67  %
General and administrative
expense                          17,920      9,008      8,912      99  %      41,561      26,820     14,741      55  %
Product development               4,805      3,718      1,087      29  %      12,492      11,384      1,108      10  %
Depreciation                      1,798      1,286        512      40  %       5,309       3,458      1,851      54  %
Amortization of intangibles       3,817        166      3,651   2,199  %       9,034         263      8,771   3,335  %
Change in fair value of
contingent consideration          2,501          -      2,501     N/A         20,640           -     20,640     N/A
Severance                             -          -          -       -  %         404          72        332     461  %
Litigation settlements and
contingencies                       272         19        253   1,332  %         961         109        852     782  %
Total costs and expenses        154,039     80,408     73,631      92  %     423,474     244,851    178,623      73  %
Operating income                 17,455     14,150      3,305      23  %      33,308      38,710     (5,402 )   (14 )%
Other income (expense), net:
Interest expense, net            (2,804 )     (141 )    2,663   1,889  %      (4,048 )      (424 )    3,624     855  %
Other (expense) income             (228 )        -        228     N/A           (215 )         -        215     N/A
Income before income taxes       14,423     14,009        414       3  %      29,045      38,286     (9,241 )   (24 )%
Income tax expense               (4,292 )   (6,729 )   (2,437 )   (36 )%      (3,109 )   (15,099 )  (11,990 )   (79 )%
Net income from continuing
operations                       10,131      7,280      2,851      39  %      25,936      23,187      2,749      12  %
Loss from discontinued
operations, net of tax           (1,011 )     (664 )      347      52  %      (2,632 )    (3,017 )     (385 )   (13 )%
Net income and comprehensive
income                        $   9,120$  6,616$  2,504      38  %   $  23,304$  20,170$  3,134      16  %


Revenue
Revenue increased in the third quarter and first nine months of 2017 compared to
the third quarter and first nine months of 2016 due to increases in our
non-mortgage products of $56.7 million and $129.6 million, respectively, and in
our mortgage products of $20.2 million and $43.6 million, respectively.
Our non-mortgage products include the following non-mortgage lending products:
personal loans, credit cards, home equity loans and lines of credit, reverse
mortgage loans, auto loans, small business loans and student loans. Our
non-mortgage products also include deposit accounts, home improvement referrals
and other credit products such as credit repair and debt settlement. Many of our
non-mortgage products are not individually significant to revenue. The increase
in revenue from our non-mortgage products in the third quarter and first nine
months of 2017 from the third quarter and first nine months of 2016 is primarily
due to increases in our credit cards, home equity, and personal loans products.
Revenue from our credit cards product increased $32.8 million to $39.4 million
in the third quarter of 2017 from $6.6 million in the third quarter of 2016, or
500%, and increased $86.6 million to $110.1 million in the first nine months of
2017 from $23.5 million in the first nine months of 2016, or 369%, primarily due
to the contribution from the CompareCards acquisition, completed on November 16,
2016.
Revenue from our personal loans product increased $7.8 million to $25.4 million
in the third quarter of 2017 from $17.6 million in the third quarter of 2016, or
44%, primarily due to increases in the number of consumers completing request
forms as a result of increases in lender demand and corresponding increases in
selling and marketing efforts. Revenue from our personal

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loans product increased $11.1 million to $63.0 million in the first nine months
of 2017 from $51.9 million in the first nine months of 2016, or 21%, primarily
due to increases in the number of consumers completing request forms as a result
of increases in lender demand and corresponding increases in selling and
marketing efforts, partially offset by decreases in revenue earned per consumer.
Certain of our online personal loan lenders experienced well-publicized
challenges in 2016, in particular, general unavailability of capital, increased
pricing demanded by investors of personal loans, which in some cases led to
reductions in marketing spend, and tightening in underwriting standards.
For the periods presented, no other non-mortgage product represented more than
10% of revenue, however certain other non-mortgage products experienced notable
increases. Revenue from our home equity product increased by $9.0 million in the
third quarter of 2017 compared to the third quarter of 2016 and increased by
$20.6 million in the first nine months of 2017 compared to the first nine months
of 2016 due to increases in the number of consumers completing request forms as
a result of increases in lender coverage and lender demand, corresponding
increases in selling and marketing efforts, and increased revenue earned per
consumer.
The increase in revenue from our mortgage products in the third quarter and
first nine months of 2017 compared to the third quarter and first nine months of
2016 is primarily due to an increase in revenue from both our purchase and
refinance products. The revenue from our purchase product increased $10.4
million in the third quarter of 2017 from the third quarter of 2016 and
increased $27.5 million in the first nine months of 2017 from the first nine
months of 2016. The revenue from our refinance product increased $9.9 million in
the third quarter of 2017 from the third quarter of 2016 and $16.1 million in
the first nine months of 2017 from the first nine months of 2016. The increase
in revenue from our mortgage product is primarily due to an increase in revenue
earned per consumer. Additionally, the number of consumers completing request
forms increased, due to an increase in lender demand and a corresponding
increase in selling and marketing efforts.
Cost of revenue
Cost of revenue consists primarily of costs associated with compensation and
other employee-related costs (including stock-based compensation) relating to
internally-operated customer call centers, third-party customer call center
fees, credit scoring fees, credit card fees, website network hosting and server
fees.
Cost of revenue increased in the third quarter of 2017 from the third quarter of
2016, primarily due to increases of $0.5 million in compensation and benefits as
a result of increases in headcount.
Cost of revenue as a percentage of revenue decreased from 4% for the third
quarter of 2016 to 3% for the third quarter of 2017.
Cost of revenue increased in the first nine months of 2017 from the first nine
months of 2016, primarily due to increases of $1.4 million in compensation and
benefits as a result of increases in headcount.
Cost of revenue as a percentage of revenue decreased from 4% for the first nine
months of 2016 to 3% for the first nine months of 2017.
Selling and marketing expense
Selling and marketing expense consists primarily of advertising and promotional
expenditures and compensation and other employee-related costs (including
stock-based compensation) for personnel engaged in sales or marketing functions.
Advertising and promotional expenditures primarily include online marketing, as
well as television, print and radio spending. Advertising production costs are
expensed in the period the related ad is first run.
The increases in selling and marketing expense in the third quarter and first
nine months of 2017 compared to the third quarter and first nine months of 2016
were primarily due to increases in advertising and promotional expense of $54.2
million and $126.8 million, respectively, as discussed below.

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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 September 30,                      Nine Months Ended September 30,
                                                       $           %                                        $           %
                         2017            2016        Change     Change        2017          2016         Change      Change
                                                             (Dollars in thousands)
Online              $    98,080$ 48,982$ 49,098       100 %   $  271,531$ 150,075$ 121,456       81 %
Broadcast                12,372          8,251        4,121        50 %       29,776        25,888         3,888       15 %
Other                     1,968          1,003          965        96 %        4,575         3,167         1,408       44 %
Total advertising
expense             $   112,420$ 58,236$ 54,184        93 %   $  305,882$ 179,130$ 126,752       71 %


Revenue is driven by lender demand for our products, which is matched to
corresponding consumer loan 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 lender 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 both mortgage and non-mortgage products.
We increased our advertising expenditures in the third quarter and first nine
months of 2017 compared to the third quarter and first nine months of 2016 in
order to generate additional consumer inquiries to meet the increased demand of
lenders on our marketplace.
We will continue to adjust selling and marketing expenditures dynamically in
relation 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 third quarter of 2017 from
the third quarter of 2016, primarily due to increases in compensation and
benefits of $6.4 million as a result of increases in headcount and long term
equity awards granted to the CEO in the third quarter of 2017, which awards have
both time and significant performance-based vesting conditions. We recently made
additional long-term awards to certain members of our leadership team and expect
additional long-term awards to other members of our leadership team in the
fourth quarter of 2017 or the first quarter of 2018. General and administrative
expense is expected to increase in future periods due to the non-cash
compensation expense related to these grants. This increase in general and
administrative expense is expected to result in material reductions in net
income from continuing operations in future periods compared to historical
periods. The amount and timing of these effects will depend on the nature of the
equity awards that the independent Compensation Committee of the Board of
Directors determines to grant and the assumptions used to determine associated
stock-based compensation expense. For additional information regarding the
awards granted in the third quarter of 2017, see Note 8 -Stock-Based
Compensation included in Part I, Item 1. Financial Statements. Non-cash
compensation expense is excluded from Adjusted EBITDA. See "Adjusted EBITDA"
below.
General and administrative expense as a percentage of revenue remained
consistent at 10% in the third quarter of 2017 and the third quarter of 2016.
General and administrative expense increased in the first nine months of 2017
from the first nine months of 2016, primarily due to increases in compensation
and benefits of $10.7 million as a result of increases in headcount and the long
term equity awards granted to the CEO in the third quarter of 2017 discussed
above.
General and administrative expense as a percentage of revenue remained
consistent at 9% in the first nine months of 2017 and the first nine months of
2016.
Contingent consideration
During the third quarter and first nine months of 2017, we recorded $2.5 million
and $20.6 million, respectively, of contingent consideration expense due to an
adjustment in the estimated fair value of the earnout payments related to the
CompareCards and DepositAccounts acquisitions. The contingent consideration
expense for the CompareCards acquisition was $1.9 million and $20.0 million,
respectively, in the third quarter and first nine months of 2017, primarily due
to an increased probability of achievement

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of certain defined earning targets for CompareCards. The contingent
consideration expense for the DepositAccounts acquisition was $0.6 million in
both the third quarter and first nine months of 2017 and was primarily due to an
increased probability of achievement of certain defined revenue targets for
deposits products.
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 third quarter and first nine months
of 2017 compared to the third quarter and first nine months of 2016, 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 lenders. Product development expenses
are comprised primarily of compensation and other employee-related costs.
Income tax expense
For the third quarter and first nine months of 2017, the effective tax rate
varied from the federal statutory rate of 35% primarily due to a tax benefit of
$0.8 million and $8.4 million, respectively, recognized for excess tax benefits
due to employee exercises of stock options and vesting of restricted stock in
accordance with ASU 2016-09. See Note 2 -Significant Accounting Policies in Part
I, Item 1. Financial Statements for additional information.
For the third quarter of 2016, the effective tax rate varied from the federal
statutory rate of 35% primarily due to state taxes, including the impact of a
reduction in the North Carolina state income tax rates which reduced the value
of our deferred tax assets.
For the first nine months of 2016, the effective tax rate varied from the
federal statutory rate of 35% primarily due to the benefit derived from the
federal research tax credit, partially offset by state taxes. The federal
research tax credit benefit was the result of a study completed during the
second quarter of 2016 for the open tax years 2011 through 2015, plus an
estimate of the benefit from 2016 research activities.
There have been no changes to our valuation allowance assessment for the third
quarter of 2017.
Discontinued operations
Losses from discontinued operations are attributable to losses associated with
the LendingTree Loans business, the sale of which was completed on June 6, 2012.
Losses from discontinued operations were primarily due to litigation settlements
and contingencies and legal fees associated with ongoing legal proceedings.
Adjusted EBITDA
We report Adjusted EBITDA as a supplemental measure to GAAP. This measure is the
primary metric by which we evaluate the performance of our businesses, on which
our marketing expenditures and internal budgets are based and by which
management and many employees are compensated. We believe that investors should
have access to the same set of tools that we use in analyzing our results. This
non-GAAP measure should be considered in addition to results prepared in
accordance with GAAP, but should not be considered a substitute for or superior
to GAAP results. We provide and encourage investors to examine the reconciling
adjustments between the GAAP and non-GAAP measures discussed below.
Definition of Adjusted EBITDA
We report Adjusted EBITDA as net income from continuing operations adjusted to
exclude interest, income tax, amortization of intangibles and depreciation, and
to further exclude (1) non-cash compensation expense, (2) non-cash impairment
charges, (3) gain/loss on disposal of assets, (4) restructuring and severance
expenses, (5) litigation settlements and contingencies and legal fees for
certain patent litigation, (6) acquisitions and dispositions income or expense
(including with respect to changes in fair value of contingent consideration)
and (7) one-time items. Adjusted EBITDA has certain limitations in that it does
not take into account the impact to our statement of operations of certain
expenses, including depreciation, non-cash compensation and acquisition-related
accounting. We endeavor to compensate for the limitations of the non-GAAP
measures presented by also providing the comparable GAAP measures with equal or
greater prominence and descriptions of the reconciling items, including

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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 in this
report, there are no adjustments for one-time items.
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. These
expenses are not paid in cash, and we include the related shares in our
calculations of fully diluted shares outstanding. Upon settlement of restricted
stock units, exercise of certain stock options or vesting of restricted stock
awards, the awards may be settled, on a net basis, with us remitting the
required tax withholding amount from our current funds.
Amortization of intangibles are non-cash expenses relating primarily to
intangible assets acquired through acquisitions. At the time of an acquisition,
the intangible assets of the acquired company, such as purchase agreements,
technology and customer relationships, are valued and amortized over their
estimated lives.
The following table is a reconciliation of net income from continuing operations
to Adjusted EBITDA (in thousands).
                                                  Three Months Ended             Nine Months Ended
                                                     September 30,                  September 30,
                                                   2017            2016          2017           2016

Net income from continuing operations $ 10,131$ 7,280

  $    25,936$ 23,187
Adjustments to reconcile to Adjusted EBITDA:
Amortization of intangibles                        3,817             166           9,034          263
Depreciation                                       1,798           1,286           5,309        3,458
Severance                                              -               -             404           72
Loss on disposal of assets                           364             121             673          388
Non-cash compensation                              7,938           2,348          13,068        7,410
Change in fair value of contingent
consideration                                      2,501               -          20,640            -
Acquisition expense                                  320             362           1,357          499
Litigation settlements and contingencies             272              19             961          109
Interest expense, net                              2,804             141           4,048          424
Rental depreciation and amortization of
intangibles                                          486               -           1,011            -
Income tax expense                                 4,292           6,729           3,109       15,099
Adjusted EBITDA                              $    34,723$ 18,452$    85,550$ 50,909


Financial Position, Liquidity and Capital Resources
General
As of September 30, 2017, we had $345.2 million of cash and cash equivalents and
$4.1 million of restricted cash and cash equivalents, compared to $91.1 million
of cash and cash equivalents and $4.1 million of restricted cash and cash
equivalents as of December 31, 2016.
In May 2017, we issued $300.0 million of our 0.625% Convertible Senior Notes for
net proceeds of $290.8 million. We used approximately $18.1 million of the net
proceeds to enter into Convertible Note Hedge and Warrant transactions. For
additional information on the Convertible Senior Notes and the Convertible Note
Hedge and Warrant transactions, see Note 10-Debt, in the notes to the
consolidated financial statements included elsewhere in this report.
In September 2017, we acquired certain assets of SnapCap for $11.9 million in
cash at closing and potential future contingent consideration payments of up to
$9.0 million through March 31, 2020, subject to achieving specific targets.

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In June 2017, we acquired the membership interests of MagnifyMoney for $29.6
million cash consideration at the closing of the transaction.
In June 2017, we acquired substantially all of the assets of DepositAccounts for
$24.0 million in cash at closing and potential future contingent consideration
payments of up to $9.0 million through June 30, 2020, subject to achieving
specified targets.
In November 2016, we acquired CompareCards for $80.7 million cash at closing and
potential future contingent consideration payments of up to $22.5 million for
each of 2017 and 2018, subject to achieving specified targets. See Note
5-Business Acquisitions in the notes to the consolidated financial statements
included elsewhere in this report for additional information for these
acquisitions.
We expect our cash and cash equivalents and cash flows from operations to be
sufficient to fund our operating needs for the next twelve months and beyond.
Our revolving credit facility described below is an additional potential source
of liquidity.
Senior Secured Revolving Credit Facility
On October 22, 2015, we established a $125.0 million five-year Senior Secured
Revolving Credit Facility which matures on October 22, 2020 (the "Revolving
Credit Facility"). The proceeds of the Revolving Credit Facility can be used to
finance working capital needs, capital expenditures and general corporate
purposes, including to finance permitted acquisitions. As of October 26, 2017,
we do not have any borrowings outstanding under the Revolving Credit Facility.
For additional information on the Revolving Credit Facility, see Note 10-Debt,
in the notes to the consolidated financial statements included elsewhere in this
report.
Cash Flows from Continuing Operations
Our cash flows attributable to continuing operations are as follows:
                                                              Nine Months Ended September 30,
                                                                 2017                 2016
                                                                      (in thousands)
Net cash provided by operating activities                  $       65,083$       38,885
Net cash used in investing activities                             (72,320 )            (10,067 )
Net cash provided by (used in) financing activities               263,710              (51,648 )


Cash Flows from Operating Activities
Our largest source of cash provided by our operating activities is revenues
generated by our mortgage and non-mortgage 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 and income taxes.
Net cash provided by operating activities attributable to continuing operations
increased in the first nine months of 2017 from the first nine months of 2016
primarily due to an increase in revenue, partially offset by an increase in
selling and marketing expense. Additionally, there was a net decrease in cash
from changes in working capital primarily driven by changes in accounts
receivable and income taxes, partially offset by changes in accounts payable,
accrued expenses and other current liabilities.
Cash Flows from Investing Activities
Net cash used in investing activities attributable to continuing operations in
the first nine months of 2017 of $72.3 million consisted primarily of the
acquisition of MagnifyMoney for $29.5 million, the acquisition of
DepositAccounts for $25.0 million, the acquisition of SnapCap for $11.9 million
and capital expenditures of $5.9 million related to internally developed
software.
Net cash used in investing activities attributable to continuing operations in
the first nine months of 2016 of $10.1 million consisted primarily of capital
expenditures of $8.0 million primarily related to internally developed software
and the acquisition of an aircraft and $4.5 million for the acquisition of
SimpleTuition, partially offset by a $2.5 million decrease in restricted cash
due to the release of funds in escrow for the surety bonds due to a reduction in
collateral requirements.

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Cash Flows from Financing Activities
Net cash provided by financing activities attributable to continuing operations
in the first nine months of 2017 of $263.7 million consisted primarily of $300.0
million of gross proceeds from the issuance of convertible senior notes and
$43.4 million of proceeds from the sale of warrants in connection with the
convertible senior notes, partially offset by $61.5 million for the payment of
convertible note hedge transactions, $9.3 million for the payment of convertible
senior note issuance costs and $10.0 million for the repurchase of our stock.
Net cash used in financing activities attributable to continuing operations in
the first nine months of 2016 of $51.6 million consisted primarily of the
repurchase of our stock of $48.5 million and $3.1 million in withholding taxes
paid by us upon surrender of shares to satisfy obligations on equity awards.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements other than our operating lease
obligations and funding commitments pursuant to our surety bonds, none of which
have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
is material to investors.
New Accounting Pronouncements
For information regarding new accounting pronouncements, see Note 2- Significant
Accounting Policies, in Part I, Item 1 Financial Statements.
Item 3.  Quantitative and Qualitative Disclosures about Market Risk
Other than our Revolving Credit Facility, which currently has no borrowings
outstanding, we do not have any financial instruments that are exposed to
significant market risk. We maintain our cash and cash equivalents in bank
deposits and short-term, highly liquid money market investments. A hypothetical
100-basis point increase or decrease in market interest rates would not have a
material impact on the fair value of our cash equivalents securities, or our
earnings on such cash equivalents, but would have an effect on the interest paid
on borrowings under the Revolving Credit Facility, if any. As of October 26,
2017, there were no borrowings under the Revolving Credit Facility.
Fluctuations in interest rates affect consumer demand for new mortgages and the
level of refinancing activity which, in turn, affects lender demand for mortgage
leads. Typically, a decline in mortgage interest rates will lead to reduced
lender demand for leads from third-party sources, as there are more consumers in
the marketplace seeking refinancings and, accordingly, lenders receive more
organic lead volume. Conversely, an increase in mortgage interest rates will
typically lead to an increase in lender demand for third-party leads, as there
are fewer consumers in the marketplace and, accordingly, the supply of organic
mortgage lead volume decreases. See also the risk factor "Adverse conditions in
the primary and secondary mortgage markets, as well as the general economy,
could materially and adversely affect our business, financial condition and
results of operations," in Part I, Item 1A (Risk Factors) in our 2016 Annual
Report.
Item 4.  Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), management, with the participation of our principal
executive officer (our Chief Executive Officer) and principal financial officer
(our Chief Financial Officer), evaluated, as of the end of the period covered by
this report, the effectiveness of our disclosure controls and procedures as
defined in Exchange Act Rule 13a-15(e). Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective, as of September 30, 2017, to reasonably
ensure that information required to be disclosed and filed under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified, and that management will be timely alerted to material information
required to be included in our periodic reports filed with the Securities and
Exchange Commission.

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Changes in Internal Control Over Financial Reporting There was no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2017 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.


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