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Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q 
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2019
or 
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 
 
 
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=13171976&doc=12
LendingTree, Inc.
(Exact name of Registrant as specified in its charter)
Delaware
 
26-2414818
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 11115 Rushmore Drive, Charlotte, North Carolina 28277
(Address of principal executive offices)(Zip Code)
(704541-5351
(Registrant's telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
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.
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 October 21, 2019, there were 12,999,152 shares of the registrant's common stock, par value $.01 per share, outstanding, excluding treasury shares.
 





TABLE OF CONTENTS


 
 
Page
Number
 
 
 
 
 
 

2

Table of Contents

PART I—FINANCIAL INFORMATION


Item 1.  Financial Statements 

LENDINGTREE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited) 
 
Three Months Ended 
 September 30,

Nine Months Ended 
 September 30,
 
2019

2018

2019

2018
 
(in thousands, except per share amounts)
Revenue
$
310,605


$
197,057


$
851,416


$
562,193

Costs and expenses:
 


 


 


 

Cost of revenue (exclusive of depreciation and amortization shown separately below)
17,671


10,838


51,651


22,577

Selling and marketing expense
200,818


124,400


567,338


374,390

General and administrative expense
30,323


22,980


89,391


70,553

Product development
10,200


6,608


30,541


18,835

Depreciation
2,696


1,895


7,737


5,199

Amortization of intangibles
13,778


5,701


41,485


13,628

Change in fair value of contingent consideration
3,839


2,105


21,221


1,197

Severance
179


2,328


636


2,331

Litigation settlements and contingencies
(92
)

(88
)

(291
)

(280
)
Total costs and expenses
279,412


176,767


809,709


508,430

Operating income
31,193


20,290


41,707


53,763

Other (expense) income, net:
 


 


 


 

Interest expense, net
(4,845
)

(2,393
)

(15,408
)

(8,305
)
Other income (expense)
4


(69
)

143

 
(106
)
Income before income taxes
26,352


17,828


26,442


45,352

Income tax (expense) benefit
(1,889
)

10,534


11,552


63,716

Net income from continuing operations
24,463


28,362


37,994


109,068

Loss from discontinued operations, net of tax
(20,199
)

(2,634
)

(22,024
)

(9,269
)
Net income and comprehensive income
$
4,264


$
25,728


$
15,970


$
99,799













Weighted average shares outstanding:











Basic
12,890


12,799


12,805


12,437

Diluted
14,632


13,850


14,629


14,299

Income per share from continuing operations:
 


 


 


 

Basic
$
1.90


$
2.22


$
2.97


$
8.77

Diluted
$
1.67


$
2.05


$
2.60


$
7.63

Loss per share from discontinued operations:
 


 


 


 

Basic
$
(1.57
)

$
(0.21
)

$
(1.72
)

$
(0.75
)
Diluted
$
(1.38
)

$
(0.19
)

$
(1.51
)

$
(0.65
)
Net income per share:
 


 


 


 

Basic
$
0.33


$
2.01


$
1.25


$
8.02

Diluted
$
0.29


$
1.86


$
1.09


$
6.98

 
The accompanying notes to consolidated financial statements are an integral part of these statements.

3

Table of Contents

LENDINGTREE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 (Unaudited) 
 
September 30,
2019

December 31,
2018
 
(in thousands, except par value and share amounts)
ASSETS:
 


 

Cash and cash equivalents
$
50,497


$
105,102

Restricted cash and cash equivalents
259


56

Accounts receivable (net of allowance of $1,823 and $1,143, respectively)
140,843


91,072

Prepaid and other current assets
12,914


16,428

Assets held for sale (Note 6)

 
21,328

Current assets of discontinued operations (Note 17)


185

Total current assets
204,513


234,171

Property and equipment (net of accumulated depreciation of $16,068 and $13,887, respectively)
31,192


23,175

Goodwill
419,935


348,347

Intangible assets, net
195,337


205,699

Deferred income tax assets
90,983


79,289

Other non-current assets
29,278


2,168

Non-current assets of discontinued operations (Note 17)
7,953


3,266

Total assets
$
979,191


$
896,115







LIABILITIES:
 


 

Revolving credit facility
$
85,000

 
$
125,000

Accounts payable, trade
19,492


15,074

Accrued expenses and other current liabilities
109,618


93,190

Current contingent consideration
32,955


11,080

Current liabilities of discontinued operations (Note 17)
31,721


17,609

Total current liabilities
278,786


261,953

Long-term debt
260,973

 
250,943

Non-current contingent consideration
21,103


27,757

Deferred income tax liabilities
711

 
894

Other non-current liabilities
28,354

 
8,360

Total liabilities
589,927


549,907

Commitments and contingencies (Note 14)





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; 15,635,268 and 15,428,351 shares issued, respectively, and 12,998,101 and 12,809,764 shares outstanding, respectively
156


154

Additional paid-in capital
1,165,597


1,134,227

Accumulated deficit
(594,512
)

(610,482
)
Treasury stock; 2,637,167 and 2,618,587 shares, respectively
(181,977
)

(177,691
)
Total shareholders' equity
389,264


346,208

Total liabilities and shareholders' equity
$
979,191


$
896,115

 
The accompanying notes to consolidated financial statements are an integral part of these statements.

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Table of Contents

LENDINGTREE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 (Unaudited)
 
 
 
 
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, 2018
$
346,208

 
15,428

 
$
154

 
$
1,134,227

 
$
(610,482
)
 
2,618

 
$
(177,691
)
Net loss and comprehensive loss
(512
)
 

 

 

 
(512
)
 

 

Non-cash compensation
14,053

 

 

 
14,053

 

 

 

Purchase of treasury stock
(3,976
)
 

 

 

 

 
18

 
(3,976
)
Issuance of common stock for stock options, restricted stock awards and restricted stock units, net of withholding taxes
(3,585
)
 
87

 
1

 
(3,586
)
 

 

 

Balance as of March 31, 2019
$
352,188

 
15,515

 
$
155

 
$
1,144,694

 
$
(610,994
)
 
2,636

 
$
(181,667
)
Net income and comprehensive income
12,218

 

 

 

 
12,218

 

 

Non-cash compensation
15,982

 

 

 
15,982

 

 

 

Issuance of common stock for stock options, restricted stock awards and restricted stock units, net of withholding taxes
(6,501
)
 
89

 
1

 
(6,502
)
 

 

 

Balance as of June 30, 2019
$
373,887

 
15,604

 
$
156

 
$
1,154,174

 
$
(598,776
)
 
2,636

 
$
(181,667
)
Net income and comprehensive income
4,264

 

 

 

 
4,264

 

 

Non-cash compensation
10,797

 

 

 
10,797

 

 

 

Purchase of treasury stock
(310
)
 

 

 

 

 
1

 
(310
)
Issuance of common stock for stock options, restricted stock awards and restricted stock units, net of withholding taxes
626

 
31

 

 
626

 

 

 

Settlement of 0.625% Convertible Senior Notes
(2
)
 

 

 
(2
)
 

 

 

Exercise of Convertible Note Hedge
2

 

 

 
2

 

 

 

Balance as of September 30, 2019
$
389,264

 
15,635


156


1,165,597


(594,512
)

2,637


(181,977
)


5

Table of Contents

 
 
 
Common Stock
 
 
 
 
 
Treasury Stock
 
 
Total
 
Number
of Shares
 
Amount
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Number
of Shares
 
Amount
Noncontrolling Interest
 
(in thousands)
 
Balance as of December 31, 2017
$
294,874

 
14,218

 
$
142

 
$
1,087,582

 
$
(708,354
)
 
2,239

 
$
(85,085
)
$
589

Net income and comprehensive income
31,524

 

 

 

 
31,524

 

 


Non-cash compensation
11,109

 

 

 
11,109

 

 

 


Purchase of treasury stock
(11,000
)
 

 

 

 

 
30

 
(11,000
)

Issuance of common stock for stock options, restricted stock awards and restricted stock units, net of withholding taxes
2,057

 
473

 
5

 
2,052

 

 

 


Cumulative effect adjustment due to ASU 2014-09
1,373

 

 

 

 
1,373

 

 


Noncontrolling interest
(34
)
 

 

 

 

 

 

(34
)
Balance as of March 31, 2018
$
329,903

 
14,691

 
$
147

 
$
1,100,743

 
$
(675,457
)
 
2,269

 
$
(96,085
)
$
555

Net income and comprehensive income
42,547

 

 

 

 
42,547

 

 


Non-cash compensation
11,178

 

 

 
11,178

 

 

 


Purchase of treasury stock
(35,003
)
 

 

 

 

 
127

 
(35,003
)

Issuance of common stock for stock options, restricted stock awards and restricted stock units, net of withholding taxes
(1,225
)
 
447

 
4

 
(1,229
)
 

 

 


Issuance of 0.625% Convertible Senior Notes, net
(4
)
 

 

 
(4
)
 

 

 


Noncontrolling interest
32

 

 

 

 

 

 

32

Balance as of June 30, 2018
$
347,428

 
15,138

 
$
151

 
$
1,110,688

 
$
(632,910
)
 
2,396

 
$
(131,088
)
$
587

Net income and comprehensive income
25,728

 

 

 

 
25,728

 

 


Non-cash compensation
12,097

 

 

 
12,097

 

 

 


Purchase of treasury stock
(11,180
)
 

 

 

 

 
48

 
(11,180
)

Issuance of common stock for stock options, restricted stock awards and restricted stock units, net of withholding taxes
2,404

 
252

 
3

 
2,401

 

 

 


Issuance of 0.625% Convertible Senior Notes, net
(1
)
 

 

 
(1
)
 

 

 


Noncontrolling interest
(10
)
 

 

 

 

 

 

(10
)
Balance as of September 30, 2018
$
376,466

 
15,390


154


1,125,185


(607,182
)

2,444


(142,268
)
577

 
The accompanying notes to consolidated financial statements are an integral part of these statements.

6

Table of Contents

LENDINGTREE, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 
Nine Months Ended September 30,
 
2019
 
2018
 
(in thousands)
Cash flows from operating activities attributable to continuing operations:
 

 
 

Net income and comprehensive income
$
15,970

 
$
99,799

Less: Loss from discontinued operations, net of tax
22,024

 
9,269

Income from continuing operations
37,994

 
109,068

Adjustments to reconcile income from continuing operations to net cash provided by operating activities attributable to continuing operations:
 

 
 

(Gain) loss on impairments and disposal of assets
(1,119
)
 
1,986

Amortization of intangibles
41,485

 
13,628

Depreciation
7,737

 
5,199

Rental amortization of intangibles and depreciation

 
554

Non-cash compensation expense
40,832

 
34,384

Deferred income taxes
(11,532
)
 
(64,435
)
Change in fair value of contingent consideration
21,221

 
1,197

Bad debt expense
1,865

 
922

Amortization of debt issuance costs
1,463

 
1,308

Amortization of convertible debt discount
8,959

 
8,497

ROU asset amortization, offset by change in operating lease liabilities
302

 

Changes in current assets and liabilities:


 
 
Accounts receivable
(50,030
)
 
(23,387
)
Prepaid and other current assets
(865
)
 
(2,970
)
Accounts payable, accrued expenses and other current liabilities
11,047

 
(7,910
)
Current contingent consideration
(3,000
)
 
(21,900
)
Income taxes receivable
4,513

 
4,223

Other, net
8

 
(137
)
Net cash provided by operating activities attributable to continuing operations
110,880

 
60,227

Cash flows from investing activities attributable to continuing operations:
 

 
 

Capital expenditures
(15,151
)
 
(10,640
)
Proceeds from sale of fixed assets
24,060

 

Acquisition of ValuePenguin, net of cash acquired
(105,578
)
 

Acquisition of QuoteWizard, net of cash acquired
482

 

Acquisition of Student Loan Hero, net of cash acquired

 
(57,448
)
Acquisition of Ovation, net of cash acquired

 
(11,683
)
Acquisition of SnapCap

 
(10
)
Other investing activities

 
(12
)
Net cash used in investing activities attributable to continuing operations
(96,187
)
 
(79,793
)
Cash flows from financing activities attributable to continuing operations:
 

 
 

Payments related to net-share settlement of stock-based compensation, net of proceeds from exercise of stock options
(9,459
)
 
3,236

Contingent consideration payments
(3,000
)
 
(26,600
)
Net repayment of revolving credit facility
(40,000
)
 

Purchase of treasury stock
(4,286
)
 
(57,018
)
Other financing activities
(34
)
 
(100
)
Net cash used in financing activities attributable to continuing operations
(56,779
)
 
(80,482
)
Total cash used in continuing operations
(42,086
)
 
(100,048
)
Discontinued operations:
 
 
 
Net cash used in operating activities attributable to discontinued operations
(12,316
)
 
(7,352
)
Total cash used in discontinued operations
(12,316
)
 
(7,352
)
Net decrease in cash, cash equivalents, restricted cash and restricted cash equivalents
(54,402
)
 
(107,400
)
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period
105,158

 
372,641

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period
$
50,756

 
$
265,241

 
 
 
 
Non-cash investing activities:
 
 
 
Capital additions from tenant improvement allowance
$
1,490

 
$

 

The accompanying notes to consolidated financial statements are an integral part of these statements.

7

Table of Contents

LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




NOTE 1—ORGANIZATION
Company Overview
LendingTree, Inc. is the parent of LendingTree, LLC and several companies owned by LendingTree, LLC (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, reverse mortgage loans, auto loans, credit cards, deposit accounts, personal loans, student loans, small business loans, insurance quotes and other related offerings. The Company primarily seeks to match in-market consumers with multiple providers on its marketplace who can provide them with competing quotes for loans, deposit products, insurance or other related offerings they are seeking. The Company also serves as a valued partner to lenders and other providers seeking an efficient, scalable and flexible source of customer acquisition with directly measurable benefits, by matching the consumer inquiries it generates with these providers.

The consolidated financial statements include the accounts of LendingTree and all its wholly-owned entities, except Home Loan Center, Inc. ("HLC") subsequent to its bankruptcy filing on July 21, 2019 which resulted in the Company's loss of a controlling interest in HLC under applicable accounting standards. Intercompany transactions and accounts have been eliminated.
Discontinued Operations
The LendingTree Loans business, which consisted of originating various consumer mortgage loans through HLC (the "LendingTree Loans Business"), is presented as discontinued operations in the accompanying consolidated balance sheets, consolidated statements of operations and comprehensive income and consolidated cash flows for all periods presented. The notes accompanying these consolidated financial statements reflect the Company's continuing operations and, unless otherwise noted, exclude information related to the discontinued operations. See Note 17Discontinued Operations for additional information.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements as of September 30, 2019 and for the three and nine months ended September 30, 2019 and 2018, 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 and nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019, or any other period. The accompanying consolidated balance sheet as of December 31, 2018 was derived from audited financial statements included in the Company's annual report on Form 10-K for the year ended December 31, 2018 (the "2018 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 2018 Annual Report. 
NOTE 2SIGNIFICANT 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, including discontinued operations, include: loan loss obligations; 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

8

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LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


combination; contingent consideration related to business combinations; litigation accruals; HLC ownership related claims; contract assets; various other allowances, reserves and accruals; and assumptions related to the determination of stock-based compensation. 
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 September 30, 2019, 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 generally 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 services.
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.
Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-15, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period. The amendments should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is evaluating the impact this ASU will have on its consolidated financial statements and will adopt ASU 2018-15 in the first quarter of 2020 using the prospective approach.
In August 2018, the FASB issued ASU 2018-13, which removes, modifies and adds certain disclosure requirements in Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurement. This ASU is effective for annual and interim reporting periods beginning after December 15, 2019, with early adoption permitted. Entities are permitted to adopt any removed or modified disclosures and delay adoption of the additional disclosures until the effective date of the ASU. Certain amendments must be applied prospectively while others are to be applied on a retrospective basis to all periods presented. The Company is evaluating the impact this ASU will have on its consolidated financial statements and will adopt ASU 2018-13 in the first quarter of 2020.
In January 2017, the FASB issued ASU 2017-04, which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge (Step 2 of the goodwill impairment test). Instead, an impairment charge will be based on the excess of the carrying amount over the fair value. This ASU is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company is evaluating the impact this ASU will have on its consolidated financial statements and plans to adopt ASU 2017-04 in the first quarter of 2020.

9

Table of Contents

LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


In June 2016, the FASB issued ASU 2016-13, which requires entities to measure expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU introduces ASC Topic 326, Financial Instruments—Credit Losses, which replaces the existing incurred loss model and is applicable to financial assets measured at amortized cost, including trade receivables and certain other financial assets that have the contractual right to receive cash. This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. Early adoption is permitted beginning after December 15, 2018, including adoption in interim periods. The guidance must be adopted using a modified retrospective transition. The Company is evaluating the impact this ASU will have on its consolidated financial statements and will adopt ASU 2016-13 in the first quarter of 2020.
In February 2016, the FASB issued ASU 2016-02 related to lease accounting guidance. This ASU introduces ASC Topic 842, Leases, which supersedes ASC Topic 840, Leases. In 2018 and 2019, the FASB issued final amendments clarifying certain narrow aspects of implementing ASU 2016-02, including clarifications related to the rate implicit in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate, transition disclosures and certain other transition matters. The clarification ASUs also provided an optional transition method that allows entities to initially apply the lease accounting transition requirements at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption without restating comparative prior periods presented. The clarification ASUs must be adopted concurrently with the adoption of ASU 2016-02 (collectively, "ASC Topic 842").
The Company has adopted ASC Topic 842 as of January 1, 2019 using the optional transition method to apply the new requirements at the adoption date without restating comparative prior periods presented. The adoption resulted in the increase in total assets and total liabilities of $8.8 million as of January 1, 2019 related to operating leases greater than one year in duration for which the Company is the lessee, with no cumulative effect adjustment to the opening balance of accumulated deficit. As part of the transition, the Company has elected the package of practical expedients, which allows the Company to not reassess whether expired or existing contracts contain leases, lease classification for expired or existing leases, and initial direct costs for existing leases. Additionally, the Company has elected an accounting policy to not record short-term leases, which are leases with an initial term of twelve months or fewer, on the balance sheet.
NOTE 3REVENUE
Revenue is as follows (in thousands):
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2019
 
2018
 
2019
 
2018
Revenue:
 
 
 
 
 
 
 
Mortgage products
$
62,004

 
$
55,287

 
$
162,606

 
$
195,697

Non-mortgage products
 
 
 
 
 
 
 
Credit cards
54,822

 
42,698

 
165,373

 
127,577

Personal loans
43,873

 
38,569

 
117,513

 
100,744

Insurance
74,849

 
14

 
213,882

 
40

Other
75,057

 
60,489

 
192,042

 
138,135

Total non-mortgage products
248,601

 
141,770

 
688,810

 
366,496

Total revenue
$
310,605

 
$
197,057

 
$
851,416

 
$
562,193


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 within the mortgage product category 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

10

Table of Contents

LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


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.
In addition to match and other upfront fees, revenue within the non-mortgage product category is also generated from closing fees and approval 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. 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 business is primarily generated from match fees, 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.
Upfront fees and subscription fees are derived from consumers in the Company's credit services business. 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 contract asset recorded within prepaid and other current assets on the consolidated balance sheets related to estimated variable consideration was $5.9 million and $4.8 million on September 30, 2019 and December 31, 2018, respectively.
The contract liability recorded within accrued expenses and other current liabilities on the consolidated balance sheets related to upfront fees paid by consumers in the Company's credit services business was $0.7 million and $0.4 million at September 30, 2019 and December 31, 2018, respectively. During the first nine months of 2019, the Company recognized revenue of $0.4 million that was included in the contract liability balance at December 31, 2018.
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 an increase to such revenue from prior periods of $0.9 million in the third quarter of 2019 and a decrease to such revenue from prior periods of $0.1 million in the third quarter of 2018.
NOTE 4CASH AND RESTRICTED CASH
Total cash, cash equivalents, restricted cash and restricted cash equivalents consist of the following (in thousands):
 
September 30,
2019
 
December 31,
2018
Cash and cash equivalents
$
50,497

 
$
105,102

Restricted cash and cash equivalents
259

 
56

Total cash, cash equivalents, restricted cash and restricted cash equivalents
$
50,756

 
$
105,158



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LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


NOTE 5—GOODWILL AND INTANGIBLE ASSETS
The balance of goodwill, net is as follows (in thousands):
 
Goodwill
 
Accumulated Impairment Loss
 
Net Goodwill
Balance at December 31, 2018
$
831,435

 
$
(483,088
)
 
$
348,347

Acquisition of Ovation
20

 

 
20

Acquisition of QuoteWizard
138

 

 
138

Acquisition of ValuePenguin
71,430

 

 
71,430

Balance at September 30, 2019
$
903,023

 
$
(483,088
)
 
$
419,935


The balance of intangible assets, net is as follows (in thousands)
 
September 30,
2019
 
December 31,
2018
Intangible assets with indefinite lives
$
10,142

 
$
10,142

Intangible assets with definite lives, net
185,195

 
195,557

Total intangible assets, net
$
195,337

 
$
205,699


Goodwill and Indefinite-Lived Intangible Assets
The Company's goodwill is associated with its one reportable segment. 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
Technology
$
116,600

 
$
(42,244
)
 
$
74,356

Customer lists
79,200

 
(12,825
)
 
66,375

Trademarks and tradenames
18,042

 
(6,364
)
 
11,678

Website content
51,000

 
(18,217
)
 
32,783

Other
161

 
(158
)
 
3

Balance at September 30, 2019
$
265,003

 
$
(79,808
)
 
$
185,195

 
Cost
 
Accumulated
Amortization
 
Net
Technology
$
112,400

 
$
(21,022
)
 
$
91,378

Customer lists
80,200

 
(7,746
)
 
72,454

Trademarks and tradenames
16,742

 
(3,730
)
 
13,012

Website content
24,900

 
(6,192
)
 
18,708

Other
256

 
(251
)
 
5

Balance at December 31, 2018
$
234,498

 
$
(38,941
)
 
$
195,557



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LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


See Note 6—Assets Held for Sale for tenant leases classified as held for sale during 2018, which were sold to an unrelated third party in the second quarter of 2019.
Amortization of intangible assets with definite lives is computed on a straight-line basis and, based on balances as of September 30, 2019, future amortization is estimated to be as follows (in thousands):
 
Amortization Expense
Remainder of current year
$
13,757

Year ending December 31, 2020
53,078

Year ending December 31, 2021
42,738

Year ending December 31, 2022
25,256

Year ending December 31, 2023
8,602

Thereafter
41,764

Total intangible assets with definite lives, net
$
185,195

 
NOTE 6ASSETS HELD FOR SALE
In December 2016, the Company acquired two office buildings in Charlotte, North Carolina for $23.5 million in cash, which included $0.1 million in acquisition-related costs which were capitalized. The buildings were acquired with the intent to use such buildings as the Company's corporate headquarters and rent any unused space.
In November 2018, the Company's Board of Directors approved a plan to sell the two office buildings. The properties were classified as current assets held for sale in the consolidated balance sheet for December 31, 2018. In February 2019, the Company agreed to sell these buildings to an unrelated third party, which agreement was amended in March 2019. The sale was finalized in the second quarter of 2019 for a sale price of $24.4 million, and the Company incurred closing fees of $0.3 million. The Company recognized a gain of $2.7 million on the sale within general and administrative expense in the consolidated statement of operations and comprehensive income. The properties were associated with the Company's one reportable segment.
Property and equipment classified as held for sale at December 31, 2018 is as follows (in thousands):
 
Amount
Land
$
5,818

Building
14,984

Site improvements
950

Computer equipment and capitalized software
166

Furniture and other equipment
145

Total gross property and equipment
22,063

Accumulated depreciation
(1,278
)
Total property and equipment, net
$
20,785

Intangible assets classified as held for sale at December 31, 2018 is as follows (in thousands):
 
Amount
Tenant leases
$
961

Total gross intangible assets
961

Accumulated amortization
(468
)
Total intangible assets, net
$
493



13

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LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


NOTE 7BUSINESS ACQUISITIONS
2019 Acquisition
ValuePenguin
On January 10, 2019, the Company acquired Value Holding, Inc., the parent company of ValuePenguin Inc. ("ValuePenguin"), a personal finance website that offers consumers objective analysis on a variety of financial topics from insurance to credit cards. The Company made an upfront cash payment of $106.1 million at the closing of the transaction, funded through $90.0 million drawn on the Company's Revolving Credit Facility and the balance using cash on hand. The purchase price of $106.2 million is comprised of the upfront cash payment of $106.1 million and a $0.1 million post-closing payment for working capital settlement.
The acquisition has been accounted for as a business combination. The preliminary allocation of purchase price to the assets acquired and liabilities assumed is as follows (in thousands):
 
Preliminary Fair Value
Net working capital
$
2,811

Fixed assets
68

Intangible assets
31,600

Goodwill
71,430

Net noncurrent assets
323

Total purchase price
$
106,232


The Company primarily used the income approach for the valuation as appropriate, and used valuation inputs in these models and analyses that were based on market participant assumptions. Market participants are buyers and sellers unrelated to the Company and fair value is determined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction at the measurement date.
The acquired intangible assets are definite-lived assets consisting of developed technology, content and trademarks and tradenames. The estimated fair values of the developed technology were determined using cost replacement analysis, the content was determined using excess earnings analysis, and the trademarks and tradenames were determined using relief from royalty analysis. The fair value of the intangible assets with definite lives is as follows (dollars in thousands):
 
Preliminary Fair Value
Weighted Average
Amortization Life
Technology
$
4,200

3 years
Content
26,100

3 years
Trademarks and tradenames
1,300

5 years
Total intangible assets
$
31,600

3.1 years

As of September 30, 2019, the Company has not completed its determination of the final allocation of the purchase price to the assets and liabilities of the acquisition. The final allocation of purchase price is expected to be finalized in 2019. Any adjustment to the assets and liabilities assumed with the acquisition will adjust goodwill.
The Company recorded preliminary goodwill of $71.4 million, which represents the excess of the purchase price over the estimated fair value of tangible and intangible assets acquired, net of the liabilities assumed. The goodwill is primarily attributable to ValuePenguin as a going concern, which represents the ability of the Company to earn a higher return on the collection of assets and business of ValuePenguin than if those assets and business were to be acquired and managed separately. The benefit of access to the workforce is an additional element of goodwill. The goodwill is recorded in the Company’s one reportable segment. For income tax purposes, the Company accounted for the acquisition as an asset purchase which would indicate the goodwill will be tax deductible.

14

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LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Subsequent to the acquisition date, the Company’s consolidated results of operations include the results of the acquired ValuePenguin business. In the third quarter and first nine months of 2019, the Company’s consolidated results of operations include revenue of $5.3 million and $16.2 million, respectively. In the first six months of 2019, net income from continuing operations attributable to the ValuePenguin business was $3.1 million. Due to the integration of the ValuePenguin business subsequent to the acquisition, earnings of the acquired ValuePenguin business beginning in the third quarter of 2019 is impracticable to determine with sufficient accuracy. Acquisition-related costs were $0.1 million in the first nine months of 2019 and are included in general and administrative expense on the consolidated statement of operations and comprehensive income.
2018 Acquisitions
QuoteWizard
On October 31, 2018, the Company acquired QuoteWizard.com, LLC ("QuoteWizard"), one of the largest insurance comparison marketplaces in the growing online insurance advertising market. QuoteWizard services clients by driving consumers to insurance companies’ websites, providing leads to agents and carriers, as well as phone transfers of consumers into carrier call centers.
The Company paid $299.9 million in initial cash consideration, funded through $174.9 million of cash on hand and $125.0 million drawn on the Revolving Credit Facility, and could make up to three additional earnout payments, each ranging from zero to $23.4 million, based on certain defined operating results during the earnout periods November 1, 2018 through October 31, 2019, November 1, 2019 through October 31, 2020, and November 1, 2020 through October 31, 2021. These additional payments, to the extent earned, will be payable in cash. The purchase price of $313.4 million is comprised of the upfront cash payment of $299.9 million$13.9 million for the estimated fair value of the earnout payments, and a $0.4 million post-closing receipt for working capital settlement.
As of September 30, 2019, the estimated fair value of the contingent consideration totaled $41.9 million, of which $23.0 million is included in current contingent consideration and $18.9 million is included in non-current contingent consideration in the accompanying consolidated balance sheet. The estimated fair value of the contingent consideration payments is determined using an option pricing model. The estimated value of the contingent consideration is based upon available information and certain assumptions, known at the time of this report, which management believes are reasonable. Any differences in the actual contingent consideration payments will be recorded in operating income in the consolidated statements of operations and comprehensive income. During the third quarter and first nine months of 2019, the Company recorded $4.3 million and $21.2 million, respectively, of contingent consideration expense in the consolidated statements of operations and comprehensive income due to the change in estimated fair value of the contingent consideration.
The acquisition has been accounted for as a business combination. The preliminary allocation of purchase price to the assets acquired and liabilities assumed is as follows (in thousands):
 
Preliminary Fair Value
Net working capital
$
8,416

Fixed assets
1,509