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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 March 31, 2020
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 
 
 
https://cdn.kscope.io/ebc0b1c3e0dffc232ecdc51ec52f0820-ltlogogradient.jpg
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 April 29, 2020, there were 13,063,927 shares of the registrant's common stock, par value $.01 per share, outstanding, excluding treasury shares.
 





TABLE OF CONTENTS



2


PART I—FINANCIAL INFORMATION


Item 1.  Financial Statements 

LENDINGTREE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited) 
 
Three Months Ended
March 31,
 
2020

2019
 
(in thousands, except per share amounts)
Revenue
$
283,084


$
262,390

Costs and expenses:
 


 

Cost of revenue (exclusive of depreciation and amortization shown separately below)
14,252


17,670

Selling and marketing expense
195,538


174,891

General and administrative expense
32,082


31,117

Product development
10,963


10,166

Depreciation
3,378


2,482

Amortization of intangibles
13,757


13,427

Change in fair value of contingent consideration
(8,122
)

14,592

Severance
158


54

Litigation settlements and contingencies
329


(207
)
Total costs and expenses
262,335


264,192

Operating income (loss)
20,749


(1,802
)
Other (expense) income, net:
 


 

Interest expense, net
(4,834
)

(5,468
)
Other income

 
68

Income (loss) before income taxes
15,915


(7,202
)
Income tax benefit
3,061


7,752

Net income from continuing operations
18,976


550

Loss from discontinued operations, net of tax
(4,575
)

(1,062
)
Net income (loss) and comprehensive income (loss)
$
14,401


$
(512
)






Weighted average shares outstanding:





Basic
12,957


12,718

Diluted
14,158


14,186

Income per share from continuing operations:
 


 

Basic
$
1.46


$
0.04

Diluted
$
1.34


$
0.04

Loss per share from discontinued operations:
 


 

Basic
$
(0.35
)

$
(0.08
)
Diluted
$
(0.32
)

$
(0.07
)
Net income (loss) per share:
 


 

Basic
$
1.11


$
(0.04
)
Diluted
$
1.02


$
(0.04
)
 
The accompanying notes to consolidated financial statements are an integral part of these statements.

3


LENDINGTREE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 (Unaudited) 
 
March 31,
2020

December 31,
2019
 
(in thousands, except par value and share amounts)
ASSETS:
 


 

Cash and cash equivalents
$
51,208


$
60,243

Restricted cash and cash equivalents
93


96

Accounts receivable (net of allowance of $2,021 and $1,466, respectively)
119,559


113,487

Prepaid and other current assets
17,375


15,516

Current assets of discontinued operations
84


84

Total current assets
188,319


189,426

Property and equipment (net of accumulated depreciation of $19,294 and $17,979, respectively)
31,473


31,363

Goodwill
420,139


420,139

Intangible assets, net
167,823


181,580

Deferred income tax assets
90,725


87,664

Equity investment (Note 7)
80,000

 

Other non-current assets
28,665


29,849

Non-current assets of discontinued operations
9,476


7,948

Total assets
$
1,016,620


$
947,969


 
 
 
LIABILITIES:
 


 

Revolving credit facility
$
130,000

 
$
75,000

Accounts payable, trade
6,056


2,873

Accrued expenses and other current liabilities
105,647


112,755

Current contingent consideration
14,183


9,028

Current liabilities of discontinued operations
36,400


31,050

Total current liabilities
292,286


230,706

Long-term debt
267,870

 
264,391

Non-current contingent consideration
8,159


24,436

Other non-current liabilities
24,748

 
26,110

Total liabilities
593,063


545,643

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; 15,704,064 and 15,676,819 shares issued, respectively, and 13,062,746 and 13,035,501 shares outstanding, respectively
157


157

Additional paid-in capital
1,184,813


1,177,984

Accumulated deficit
(578,252
)

(592,654
)
Treasury stock; 2,641,318 shares
(183,161
)

(183,161
)
Total shareholders' equity
423,557


402,326

Total liabilities and shareholders' equity
$
1,016,620


$
947,969

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

4


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, 2019
$
402,326

 
15,677

 
$
157

 
$
1,177,984

 
$
(592,654
)
 
2,641

 
$
(183,161
)
Net income and comprehensive income
14,401

 

 

 

 
14,401

 

 

Non-cash compensation
11,917

 

 

 
11,917

 

 

 

Issuance of common stock for stock options, restricted stock awards and restricted stock units, net of withholding taxes
(5,087
)
 
27

 

 
(5,087
)
 

 

 

Other

 

 

 
(1
)
 
1

 

 

Balance as of March 31, 2020
$
423,557

 
15,704

 
$
157

 
$
1,184,813

 
$
(578,252
)
 
2,641

 
$
(183,161
)

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

5


LENDINGTREE, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 
Three Months Ended
March 31,
 
2020
 
2019
 
(in thousands)
Cash flows from operating activities attributable to continuing operations:
 

 
 

Net income (loss) and comprehensive income (loss)
$
14,401

 
$
(512
)
Less: Loss from discontinued operations, net of tax
4,575

 
1,062

Income from continuing operations
18,976

 
550

Adjustments to reconcile income from continuing operations to net cash provided by operating activities attributable to continuing operations:
 
 
 
Loss on impairments and disposal of assets
530

 
468

Amortization of intangibles
13,757

 
13,427

Depreciation
3,378

 
2,482

Non-cash compensation expense
11,917

 
14,053

Deferred income taxes
(3,061
)
 
(7,752
)
Change in fair value of contingent consideration
(8,122
)
 
14,592

Bad debt expense
880

 
510

Amortization of debt issuance costs
582

 
483

Amortization of convertible debt discount
3,111

 
2,951

Reduction in carrying amount of ROU asset, offset by change in operating lease liabilities
(196
)
 
35

Changes in current assets and liabilities:
 
 
 
Accounts receivable
(6,952
)
 
(27,534
)
Prepaid and other current assets
(1,430
)
 
(207
)
Accounts payable, accrued expenses and other current liabilities
(3,271
)
 
5,653

Current contingent consideration

 
(1,000
)
Income taxes receivable
65

 
4,288

Other, net
(862
)
 
270

Net cash provided by operating activities attributable to continuing operations
29,302


23,269

Cash flows from investing activities attributable to continuing operations:
 
 
 
Capital expenditures
(4,189
)
 
(4,960
)
Equity investment
(80,000
)
 

Acquisition of ValuePenguin, net of cash acquired

 
(105,445
)
Net cash used in investing activities attributable to continuing operations
(84,189
)

(110,405
)
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
(5,087
)
 
(3,585
)
Contingent consideration payments
(3,000
)
 
(3,000
)
Net proceeds from revolving credit facility
55,000

 
60,000

Payment of debt issuance costs
(306
)
 
(31
)
Purchase of treasury stock

 
(3,976
)
Other financing activities
(6
)
 

Net cash provided by financing activities attributable to continuing operations
46,601


49,408

Total cash used in continuing operations
(8,286
)
 
(37,728
)
Discontinued operations:
 
 
 
Net cash used in operating activities attributable to discontinued operations
(752
)
 
(2,827
)
Total cash used in discontinued operations
(752
)
 
(2,827
)
Net decrease in cash, cash equivalents, restricted cash and restricted cash equivalents
(9,038
)
 
(40,555
)
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period
60,339

 
105,158

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period
$
51,301

 
$
64,603

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

 
$
852

 

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

6


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




NOTE 1ORGANIZATION
Company Overview
LendingTree, Inc. is currently 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 March 31, 2020 and for the three months ended March 31, 2020 and 2019, respectively, have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). In the opinion of management, the unaudited interim consolidated financial statements have been prepared on the same basis as the audited financial statements, and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the Company's financial position for the periods presented. The results for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020, or any other period. The accompanying consolidated balance sheet as of December 31, 2019 was derived from audited financial statements included in the Company's annual report on Form 10-K for the year ended December 31, 2019 (the "2019 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 2019 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

7


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. 
The Company considered the impact of COVID-19 on the assumptions and estimates used when preparing its quarterly financial statements including, but not limited to, our allowance for doubtful accounts, valuation allowances, contract asset and contingent consideration. These assumptions and estimates may change as new events occur and additional information is obtained. If economic conditions caused by COVID-19 do not recover as currently estimated by management, such future changes may have an adverse impact on the Company's results of operations, financial position and liquidity.
Certain Risks and Concentrations
LendingTree's business is subject to certain risks and concentrations including dependence on third-party technology providers, exposure to risks associated with online commerce security and credit card fraud.
Financial instruments, which potentially subject the Company to concentration of credit risk at March 31, 2020, consist primarily of cash and cash equivalents and accounts receivable, as disclosed in the consolidated balance sheet. Cash and cash equivalents are in excess of Federal Deposit Insurance Corporation insurance limits, but are maintained with quality financial institutions of high credit. The Company requires certain Network Partners to maintain security deposits with the Company, which in the event of non-payment, would be applied against any accounts receivable outstanding.
Due to the nature of the mortgage lending industry, interest rate fluctuations may negatively impact future revenue from the Company's marketplace.
Lenders and lead purchasers participating on the Company's marketplace can offer their products directly to consumers through brokers, mass marketing campaigns or through other traditional methods of credit distribution. These lenders and lead purchasers can also offer their products online, either directly to prospective borrowers, through one or more online competitors, or both. If a significant number of potential consumers are able to obtain loans and other products from Network Partners without utilizing the Company's services, the Company's ability to generate revenue may be limited. Because the Company does not have exclusive relationships with the Network Partners whose loans and other financial products are offered on its online marketplace, consumers may obtain offers from these Network Partners without using its 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.
Recently Adopted 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. The amendments should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company adopted ASU 2018-15 in the first quarter of 2020 using the prospective approach. Subsequent to the adoption of this ASU, capitalizable implementation costs incurred in a hosting arrangement that is a service contract are recorded within prepaid and other current assets and other non-current assets on the consolidated balance sheet. The expense related to these capitalized implementation costs are included within general and administrative expense on the consolidated statement of operations and comprehensive income. The adoption of ASU 2018-15 did not have a material impact on the consolidated financial statements as of March 31, 2020 and for the three months ended March 31, 2020.
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. Certain amendments must be applied prospectively while others are to be applied on a retrospective basis to all periods presented. The Company adopted ASU 2018-13 in the first quarter of 2020. See Note 15—Fair Value Measurements.

8


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


In January 2017, the FASB issued ASU 2017-04, which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge (Step 2 of the goodwill impairment test). Instead, an impairment charge will be based on the excess of the carrying amount over the fair value. This ASU is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019. The Company adopted ASU 2017-04 in the first quarter of 2020.
In June 2016, the FASB issued ASU 2016-13, which requires entities to measure expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU introduces ASC Topic 326, Financial Instruments—Credit Losses, which replaces the existing incurred loss model and is applicable to financial assets measured at amortized cost, including trade receivables and certain other financial assets that have the contractual right to receive cash. ASC Topic 326 is effective for annual and interim reporting periods beginning after December 15, 2019. The guidance must be adopted using a modified retrospective transition. The Company adopted ASC Topic 326 as of January 1, 2020, which did not result in any cumulative effect adjustment to the opening balance of accumulated deficit in the period of adoption.
Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740, Income Taxes, and clarifies certain aspects of the current guidance to improve consistency among reporting entities. This ASU is effective for annual and interim reporting periods beginning after December 15, 2020. Early adoption is permitted, including adoption in interim periods. Entities electing early adoption must adopt all amendments in the same period. Most amendments must be applied prospectively while others are to be applied on a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company is evaluating the impact this ASU will have on its consolidated financial statements and whether to early adopt.
NOTE 3REVENUE
Revenue is as follows (in thousands):
 
Three Months Ended
March 31,
 
2020
 
2019
Home
$
79,174

 
$
63,437

Credit cards
51,586

 
54,506

Personal loans
31,509

 
32,531

Other Consumer
36,829

 
33,692

Total Consumer
119,924

 
120,729

Insurance
82,737

 
67,092

Other
1,249

 
11,132

Total revenue
$
283,084

 
$
262,390


The Company derives its revenue primarily from match fees and closing fees. Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied and promised services have transferred to the customer. The Company's services are generally transferred to the customer at a point in time.
Revenue from Home products is primarily generated from upfront match fees paid by mortgage Network Partners that receive a loan request, and in some cases upfront fees for clicks or call transfers. Match fees and upfront fees for clicks and call transfers are earned through the delivery of loan requests that originated through the Company's websites or affiliates. The Company recognizes revenue at the time a loan request is delivered to the customer, provided that no significant obligations remain. The Company's contractual right to the match fee consideration is contemporaneous with the satisfaction of the performance obligation to deliver a loan request to the customer.
Revenue from Consumer products is generated by match and other upfront fees for clicks or call transfers, as well as from closing fees, approval fees and upfront service and subscription fees. Closing fees are derived from lenders on certain auto loans, business loans, personal loans and student loans when the lender funds a loan with the consumer. Approval fees are derived from credit card issuers when the credit card consumer receives card approval from the credit card issuer. Upfront service fees and

9


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


subscription fees are derived from consumers in the Company's credit services product. Upfront fees paid by consumers are recognized as revenue over the estimated time the consumer will remain a customer and receive services. Subscription fees are recognized over the period a consumer is receiving services.
The Company recognizes revenue on closing fees and approval fees at the point when a loan request or a credit card consumer is delivered to the customer. The Company's contractual right to closing fees and approval fees is not contemporaneous with the satisfaction of the performance obligation to deliver a loan request or a credit card consumer to the customer. As such, the Company records a contract asset at each reporting period-end related to the estimated variable consideration on closing fees and approval fees for which the Company has satisfied the related performance obligation, but are still pending the loan closing or credit card approval before the Company has a contractual right to payment. This estimate is based on the Company's historical closing rates and historical time between when a consumer request for a loan or credit card is delivered to the lender or card issuer and when the loan is closed by the lender or approved by the card issuer.
Revenue from the Company's Insurance products is primarily generated from upfront match fees, and upfront fees for website clicks or fees for calls. Match fees and upfront fees for clicks and call transfers are earned through the delivery of consumer requests that originated through the Company's websites or affiliates. The Company recognizes revenue at the time a consumer request is delivered to the customer, provided that no significant obligations remain. The Company's contractual right to the match fee consideration is contemporaneous with the satisfaction of the performance obligation to deliver a consumer request to the customer.
The contract asset recorded within prepaid and other current assets on the consolidated balance sheets related to estimated variable consideration was $6.8 million and $6.5 million on March 31, 2020 and December 31, 2019, respectively.
The contract liability recorded within accrued expenses and other current liabilities on the consolidated balance sheets related to upfront fees paid by consumers in the Company's Consumer business was $0.7 million and $0.6 million at March 31, 2020 and December 31, 2019, respectively. During the first quarter of 2020, the Company recognized revenue of $0.5 million that was included in the contract liability balance at December 31, 2019. During the first quarter of 2019, the Company recognized revenue of $0.3 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 increases to such revenue from prior periods of $0.1 million and $0.9 million, respectively, in the first quarters of 2020 and 2019.
NOTE 4CASH AND RESTRICTED CASH
Total cash, cash equivalents, restricted cash and restricted cash equivalents consist of the following (in thousands):
 
March 31,
2020
 
December 31,
2019
Cash and cash equivalents
$
51,208

 
$
60,243

Restricted cash and cash equivalents
93

 
96

Total cash, cash equivalents, restricted cash and restricted cash equivalents
$
51,301

 
$
60,339


NOTE 5ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts.
The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time accounts receivable are past due, previous loss history, current and expected economic conditions and the specific customer's current and expected ability to pay its obligation. Accounts receivable are considered past due when they are outstanding longer than the contractual payment terms. Accounts receivable are written off when management deems them uncollectible.

10


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


A reconciliation of the beginning and ending balances of the allowance for doubtful accounts is as follows (in thousands):
 
Three Months Ended
March 31,
 
2020
 
2019
Balance, beginning of the period
$
1,466

 
$
1,143

Charges to earnings
880

 
510

Write-off of uncollectible accounts receivable
(332
)
 
(288
)
Recoveries collected
7

 
5

Balance, end of the period
$
2,021

 
$
1,370


NOTE 6GOODWILL AND INTANGIBLE ASSETS
The balance of goodwill and intangible assets, net is as follows (in thousands):
 
March 31,
2020
 
December 31,
2019
Goodwill
$
903,227

 
$
903,227

Accumulated impairment losses
(483,088
)
 
(483,088
)
Net goodwill
$
420,139

 
$
420,139

 
 
 
 
Intangible assets with indefinite lives
$
10,142

 
$
10,142

Intangible assets with definite lives, net
157,681

 
171,438

Total intangible assets, net
$
167,823

 
$
181,580


Goodwill and Indefinite-Lived Intangible Assets
The Company's goodwill at each of March 31, 2020 and December 31, 2019 consists of $59.3 million associated with the Home segment, $166.1 million associated with the Consumer segment, and $194.7 million associated with the Insurance segment.
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
$
116,200

 
$
(56,032
)
 
$
60,168

Customer lists
77,300

 
(13,979
)
 
63,321

Trademarks and tradenames
17,200

 
(7,292
)
 
9,908

Website content
51,000

 
(26,717
)
 
24,283

Other
5

 
(4
)
 
1

Balance at March 31, 2020
$
261,705

 
$
(104,024
)
 
$
157,681


11


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


 
Cost
 
Accumulated
Amortization
 
Net
Technology
$
116,200

 
$
(48,938
)
 
$
67,262

Customer lists
77,300

 
(12,452
)
 
64,848

Trademarks and tradenames
17,200

 
(6,407
)
 
10,793

Website content
51,000

 
(22,467
)
 
28,533

Other
5

 
(3
)
 
2

Balance at December 31, 2019
$
261,705

 
$
(90,267
)
 
$
171,438


Amortization of intangible assets with definite lives is computed on a straight-line basis and, based on balances as of March 31, 2020, future amortization is estimated to be as follows (in thousands):
 
Amortization Expense
Remainder of current year
$
39,322

Year ending December 31, 2021
42,738

Year ending December 31, 2022
25,256

Year ending December 31, 2023
8,602

Year ending December 31, 2024
6,747

Thereafter
35,016

Total intangible assets with definite lives, net
$
157,681

 
NOTE 7EQUITY INVESTMENT
On February 28, 2020, the Company acquired an equity interest in Stash Financial, Inc. (“Stash”) for $80.0 million. Stash is a consumer investing and banking platform. Stash brings together banking, investing, and 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.
The Stash equity securities do not have a readily determinable fair value and, upon acquisition, the Company elected the measurement alternative to value its securities. The Stash equity securities will be carried at cost and subsequently marked to market upon observable market events with any gains or losses recorded in operating income in the consolidated statement of operations. As of March 31, 2020, there have been no observable market events that would result in upward or downward adjustments in the fair value and there have been no impairments to the original cost of $80.0 million.
NOTE 8BUSINESS ACQUISITIONS
Changes in Contingent Consideration
In 2018, the Company acquired all of the outstanding equity interests of QuoteWizard.com, LLC (“QuoteWizard”) and Ovation Credit Services, Inc. (“Ovation”).
In 2017, the Company acquired certain assets of Snap Capital LLC, which does business under the name SnapCap (“SnapCap”) and all of the assets of Deposits Online, LLC, which does business under the name DepositAccounts.com (“DepositAccounts”).
The Company will make an earnout payment ranging from zero to $1.0 million based on the achievement of defined milestone targets for DepositAccounts, a payment of $3.0 million based on the achievement of certain defined earnings targets for SnapCap, payments ranging from zero to $4.4 million based on the achievement of certain defined operating metrics for Ovation, and payments ranging from zero to $46.8 million based on the achievement of certain defined performance targets for QuoteWizard.

12


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


Changes in the fair value of contingent consideration is summarized as follows (in thousands):
 
Three Months Ended
March 31,
 
2020
 
2019
QuoteWizard
$
(8,262
)
 
$
14,359

Ovation
141

 
(648
)
SnapCap
(1
)
 
1,592

DepositAccounts

 
(711
)
Total changes in fair value of contingent consideration
$
(8,122
)
 
$
14,592


As of March 31, 2020, the estimated fair value of the contingent consideration for the QuoteWizard acquisition totaled $16.2 million, of which $8.0 million is included in current contingent consideration and $8.2 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.
As of March 31, 2020, the estimated fair value of the contingent consideration for the Ovation acquisition totaled $3.2 million, which is included in 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.
As of March 31, 2020, the estimated fair value of the contingent consideration for the SnapCap acquisition totaled $2.9 million, which is included in current contingent consideration in the accompanying consolidated balance sheet. The estimated fair value of the contingent consideration payments is based on the $3.0 million achieved target discounted from the payment due date to March 31, 2020.
As of March 31, 2020, no liability has been recorded for the DepositAccounts acquisition in the accompanying consolidated balance sheet for the remaining contingent consideration payment based on Federal Funds interest rates. The estimated fair value of the portion of the contingent consideration payments based on increases in interest rates is determined using a scenario approach based on the interest rate forecasts of Federal Open Market Committee participants. 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.
NOTE 9ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following (in thousands):
 
March 31,
2020
 
December 31,
2019
Accrued advertising expense
$
58,165

 
$
65,836

Accrued compensation and benefits
9,265

 
10,540

Accrued professional fees
3,315

 
1,560

Customer deposits and escrows
9,616

 
6,920

Contribution to LendingTree Foundation
3,333

 
3,333

Current lease liabilities
6,470

 
6,885

Other
15,483

 
17,681

Total accrued expenses and other current liabilities
$
105,647

 
$
112,755



13


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


NOTE 10SHAREHOLDERS' EQUITY 
Basic and diluted income per share was determined based on the following share data (in thousands):
 
Three Months Ended
March 31,
 
2020
 
2019
Weighted average basic common shares
12,957

 
12,718

Effect of stock options
628

 
686

Effect of dilutive share awards
104

 
161

Effect of Convertible Senior Notes and warrants
469

 
621

Weighted average diluted common shares
14,158

 
14,186


For the first quarter of 2020, the weighted average shares that were anti-dilutive, and therefore excluded from the calculation of diluted income per share, included options to purchase 0.1 million shares of common stock. For the first quarter of 2019, the weighted average shares that were anti-dilutive included options to purchase 0.4 million shares of common stock.
The 0.625% Convertible Senior Notes due June 1, 2022 and the warrants issued by the Company in 2017 could be converted into the Company’s common stock, subject to certain contingencies. See Note 13—Debt for additional information.
Common Stock Repurchases
In each of February 2018 and February 2019, the board of directors authorized and the Company announced the repurchase of up to $100.0 million and $150.0 million, respectively, of LendingTree's common stock. During the first quarter of 2019, the Company purchased 17,501 shares of its common stock for aggregate consideration of $4.0 million. At March 31, 2020, approximately $179.7 million of the previous authorizations to repurchase common stock remain available.
NOTE 11STOCK-BASED COMPENSATION
Non-cash compensation related to equity awards is included in the following line items in the accompanying consolidated statements of operations and comprehensive income (in thousands):
 
Three Months Ended
March 31,
 
2020
 
2019
Cost of revenue
$
242

 
$
153

Selling and marketing expense
1,156

 
1,749

General and administrative expense
9,123

 
10,221

Product development
1,396

 
1,930

Total non-cash compensation
$
11,917

 
$
14,053



14


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


Stock Options
A summary of changes in outstanding stock options is as follows:
 
Number of Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value(a)
 
 
 
(per option)
 
(in years)
 
(in thousands)
Options outstanding at January 1, 2020
777,871

 
$
69.87

 
 
 
 
Granted (b)
69,319

 
275.82

 
 
 
 
Exercised
(2,462
)
 
67.05

 
 
 
 
Forfeited
(193
)
 
332.65

 
 
 
 
Expired
(1,974
)
 
352.10

 
 
 
 
Options outstanding at March 31, 2020
842,561

 
86.11

 
4.54
 
$
99,017

Options exercisable at March 31, 2020
677,829

 
$
43.56

 
3.49
 
$
98,896

(a)
The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company's closing stock price of $183.39 on the last trading day of the quarter ended March 31, 2020 and the exercise price, multiplied by the number of shares covered by in-the-money options) that would have been received by the option holder had the option holder exercised these options on March 31, 2020. The intrinsic value changes based on the market value of the Company's common stock.
(b)
During the three months ended March 31, 2020, the Company granted stock options to certain employees with a weighted average grant date fair value per share of $138.29, calculated using the Black-Scholes option pricing model, which vesting periods include (a) three years from grant date and (b) four years from grant date.
For purposes of determining stock-based compensation expense, the weighted average grant date fair value per share of the stock options was estimated using the Black-Scholes option pricing model, which requires the use of various key assumptions. The weighted average assumptions used are as follows:
Expected term (1)
6.00 - 6.25 years

Expected dividend (2)

Expected volatility (3)
52 - 53%

Risk-free interest rate (4)
0.96%

(1)
The expected term of stock options granted was calculated using the "Simplified Method," which utilizes the midpoint between the weighted average time of vesting and the end of the contractual term. This method was utilized for the stock options due to a lack of historical exercise behavior by the Company's employees.
(2)
For all stock options granted in 2020, no dividends are expected to be paid over the contractual term of the stock options, resulting in a zero expected dividend rate.
(3)
The expected volatility rate is based on the historical volatility of the Company's common stock.
(4)
The risk-free interest rate is specific to the date of grant. The risk-free interest rate is based on U.S. Treasury yields for notes with comparable expected terms as the awards, in effect at the grant date.

15


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


Stock Options with Market Conditions
A summary of changes in outstanding stock options with market conditions at target is as follows:
 
Number of Options with Market Conditions
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value(a)
 
 
 
(per option)
 
(in years)
 
(in thousands)
Options outstanding at January 1, 2020
463,440

 
$
204.31

 
 
 
 

Granted (b)
19,126

 
275.82

 
 
 
 

Exercised

 

 
 
 
 

Forfeited

 

 
 
 
 

Expired

 

 
 
 
 

Options outstanding at March 31, 2020
482,566

 
207.14

 
7.52
 
$

Options exercisable at March 31, 2020

 
$

 
0.00
 
$

(a)
The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company's closing stock price of $183.39 on the last trading day of the quarter ended March 31, 2020 and the exercise price, multiplied by the number of shares covered by in-the-money options) that would have been received by the option holder had the option holder exercised these options on March 31, 2020. The intrinsic value changes based on the market value of the Company's common stock.
(b)
During the three months ended March 31, 2020, the Company granted stock options with a grant date fair value per share of $196.07, calculated using the Monte Carlo simulation model, which has a vesting date of March 31, 2024.
For purposes of determining stock-based compensation expense, the grant date fair value per share of the stock options was estimated using the Monte Carlo simulation model, which requires the use of various key assumptions. The assumptions used are as follows:
Expected term (1)
7.00 years

Expected dividend (2)

Expected volatility (3)
51%

Risk-free interest rate (4)
1.03%

(1)
The expected term of stock options with a market condition granted was calculated using the midpoint between the time of vesting and the end of the contractual term.
(2)
For all stock options with a market condition granted in 2020, no dividends are expected to be paid over the contractual term of the stock options, resulting in a zero expected dividend rate.
(3)
The expected volatility rate is based on the historical volatility of the Company's common stock.
(4)
The risk-free interest rate is specific to the date of grant. The risk-free interest rate is based on U.S. Treasury yields for notes with comparable expected terms as the awards, in effect at the grant date.
A maximum of 805,885 shares may be earned for achieving superior performance up to 167% of the target number of shares. As of March 31, 2020, performance-based nonqualified stock options with a market condition of 481,669 had been earned, which have a vest date of September 30, 2022.

16


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


Restricted Stock Units
A summary of changes in outstanding nonvested restricted stock units ("RSUs") is as follows:
 
RSUs
 
Number of Units
 
Weighted Average Grant Date Fair Value
 
 
 
(per unit)
Nonvested at January 1, 2020
144,939

 
$
267.85

Granted
97,375

 
276.84

Vested
(40,676
)
 
243.25

Forfeited
(4,181
)
 
265.80

Nonvested at March 31, 2020
197,457

 
$
277.42

 
Restricted Stock Units with Performance Conditions
A summary of changes in outstanding nonvested RSUs with performance conditions is as follows:
 
RSUs with Performance Conditions
 
Number of Units
 
Weighted Average Grant Date Fair Value
 
 
 
(per unit)
Nonvested at January 1, 2020
14,647

 
$
210.55

Granted

 

Vested

 

Forfeited

 

Nonvested at March 31, 2020
14,647

 
$
210.55


Restricted Stock Awards with Performance Conditions
A summary of changes in outstanding nonvested restricted stock awards ("RSAs") with performance conditions is as follows:
 
RSAs with Performance Conditions
 
Number of Awards
 
Weighted Average Grant Date Fair Value
 
 
 
(per unit)
Nonvested at January 1, 2020
47,608

 
$
340.25

Granted

 

Vested
(5,951
)
 
340.25

Forfeited

 

Nonvested at March 31, 2020
41,657

 
$
340.25

 

17


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


Restricted Stock Awards with Market Conditions
A summary of changes in outstanding nonvested RSAs with market conditions at target is as follows:
 
RSAs with Market Conditions
 
Number of Awards
 
Weighted Average Grant Date Fair Value
 
 
 
(per unit)
Nonvested at January 1, 2020
26,674

 
$
340.25

Granted

 

Vested

 

Forfeited

 

Nonvested at March 31, 2020
26,674

 
$
340.25

 

A maximum of 44,545 shares may be earned for achieving superior performance up to 167% of the target number of shares. As of March 31, 2020, performance-based restricted stock awards with a market condition of 29,601 had been earned, which have a vest date of September 30, 2022.
NOTE 12INCOME TAXES
 
Three Months Ended
March 31,
 
2020
 
2019
 
(in thousands, except percentages)
Income tax benefit
$
3,061

 
$
7,752

Effective tax rate
(19.2
)%
 
107.6
%

For the first quarter of 2020, the effective tax rate varied from the federal statutory rate of 21% in part due to a tax benefit of $1.1 million recognized for excess tax benefits resulting from employee exercises of stock options and vesting of restricted stock in accordance with ASU 2016-09 and the effect of state taxes, as well as a tax benefit of $6.1 million for the impact of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, as described below.
On March 27, 2020, President Trump signed into law the CARES Act. This legislation is an economic relief package in response to the public health and economic impacts of COVID-19 and includes various provisions that impact the Company, including, but not limited to, modifications for net operating losses, accelerated timeframe for refunds associated with prior minimum taxes and modifications of the limitation on business interest.
The Company revalued deferred tax assets related to net operating losses in light of the changes in the CARES Act, and recorded a net tax benefit of $6.1 million during the first quarter of 2020. These deferred tax assets are being revalued, as they will be carried back to 2016 and 2017, which are tax periods prior to the Tax Cuts and Jobs Act ("TCJA") when the federal statutory tax rate was 35% versus the 21% federal statutory tax rate in effect after the enactment of the TCJA.
For the first quarter of 2019, the effective tax rate varied from the federal statutory rate of 21% primarily due to a tax benefit of $6.0 million recognized for excess tax benefits resulting from employee exercises of stock options and vesting of restricted stock in accordance with ASU 2016-09 and the effect of state taxes.

18


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


 
Three Months Ended
March 31,
 
2020
 
2019
 
(in thousands)
Income tax (expense) benefit - excluding excess tax benefit on stock compensation and CARES Act
$
(4,097
)
 
$
1,749

Excess tax benefit on stock compensation
1,054

 
6,003

Income tax benefit from CARES Act
6,104

 

Income tax benefit
$
3,061

 
$
7,752


NOTE 13DEBT
Convertible Senior Notes
On May 31, 2017, the Company issued $300.0 million aggregate principal amount of its 0.625% Convertible Senior Notes due June 1, 2022 (the “Notes”) in a private placement. The Notes bear interest at a rate of 0.625% per year, payable semi-annually on June 1 and December 1 of each year, beginning on December 1, 2017. The Notes will mature on June 1, 2022, unless earlier repurchased or converted.
The initial conversion rate of the Notes is 4.8163 shares of Common Stock per $1,000 principal amount of Notes (which is equivalent to an initial conversion price of approximately $207.63 per share). The conversion rate will be subject to adjustment upon the occurrence of certain specified events but will not be adjusted for accrued and unpaid interest. In addition, upon the occurrence of a fundamental change prior to the maturity of the Notes, the Company will, in certain circumstances, increase the conversion rate by a specified number of additional shares for a holder that elects to convert the Notes in connection with such fundamental change. Upon conversion, the Notes will settle for cash, shares of the Company’s stock, or a combination thereof, at the Company’s option. It is the intent of the Company to settle the principal amount of the Notes in cash and any conversion premium in shares of its common stock.
The Notes are the Company’s senior unsecured obligations and will rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to any of the Company’s unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness, including borrowings under the senior secured revolving credit facility, described below, to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries.
Prior to the close of business on the business day immediately preceding February 1, 2022, the Notes will be convertible at the option of the holders thereof only under the following circumstances:
during any calendar quarter commencing after the calendar quarter ending on September 30, 2017 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on, and including the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
during the five business day period after any five consecutive trading day period in which, for each trading day of that period, the trading price (as defined in the Notes) per $1,000 principal amount of Notes for such trading day was less than 98% of the product of the last reported sale price of the Common Stock and the conversion rate on each such trading day; or
upon the occurrence of specified corporate events including but not limited to a fundamental change.
Holders of the Notes were entitled to convert the Notes during the calendar quarter ended March 31, 2020, based on the last reported sales price of the Company's common stock, for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on December 31, 2019, being greater than or equal to 130% of the conversion price of the Notes on each applicable trading day. Holders of the Notes are not entitled to convert the Notes during the calendar quarter ended June 30, 2020 as the last reported sales price of the Company's common stock, for at least 20 trading days (whether or not

19


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


consecutive) during the period of 30 consecutive trading days ending on March 31, 2020, was not greater than or equal to 130% of the conversion price of the Notes on each applicable trading day.
On or after February 1, 2022, until the close of business on the second scheduled trading day immediately preceding the maturity date of the Notes, holders of the Notes may convert all or a portion of their Notes regardless of the foregoing conditions.
The Company may not redeem the Notes prior to the maturity date and no sinking fund is provided for the Notes. Upon the occurrence of a fundamental change prior to the maturity date of the Notes, holders of the Notes may require the Company to repurchase all or a portion of the Notes for cash at a price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
If the market price per share of the Common Stock, as measured under the terms of the Notes, exceeds the conversion price of the Notes, the Notes could have a dilutive effect, unless the Company elects, subject to certain conditions, to settle the principal amount of the Notes and any conversion premium in cash.
The initial measurement of convertible debt instruments that may be settled in cash is separated into a debt and an equity component whereby the debt component is based on the fair value of a similar instrument that does not contain an equity conversion option. The separate components of debt and equity of the Company’s Notes were determined using an interest rate of 5.36%, which reflects the nonconvertible debt borrowing rate of the Company at the date of issuance. As a result, the initial components of debt and equity were $238.4 million and $61.6 million, respectively.
Financing costs related to the issuance of the Notes were approximately $9.3 million of which $7.4 million were allocated to the liability component and are being amortized to interest expense over the term of the debt and $1.9 million were allocated to the equity component.
In the first three months of 2020, the Company recorded interest expense on the Notes of $4.0 million which consisted of $0.5 million associated with the 0.625% coupon rate, $3.1 million associated with the accretion of the debt discount, and $0.4 million associated with the amortization of the debt issuance costs. In the first three months of 2019, the Company recorded interest expense on the Notes of $3.8 million which consisted of $0.5 million associated with the 0.625% coupon rate, $3.0 million associated with the accretion of the debt discount, and $0.3 million associated with the amortization of the debt issuance costs. The debt discount is being amortized over the term of the debt.
As of March 31, 2020, the fair value of the Notes is estimated to be approximately $337.1 million using the Level 1 observable input of the last quoted market price on March 31, 2020.
A summary of the gross carrying amount, unamortized debt cost, debt issuance costs and net carrying value of the liability component of the Notes are as follows (in thousands):
 
March 31,
2020
 
December 31,
2019
Gross carrying amount
$
299,985

 
$
299,991

Unamortized debt discount
28,677

 
31,789

Debt issuance costs
3,438

 
3,811

Net carrying amount
$
267,870

 
$
264,391


Convertible Note Hedge and Warrant Transactions
On May 31, 2017, in connection with the issuance of the Notes, the Company entered into Convertible Note Hedge (the “Hedge”) and Warrant transactions with respect to the Company’s common stock. The Company used approximately $18.1 million of the net proceeds from the Notes to pay for the cost of the Hedge, after such cost was partially offset by the proceeds from the Warrant transactions.
On May 31, 2017, the Company paid $61.5 million to the counterparties for the Hedge transactions. The Hedge transactions cover approximately 1.4 million shares of the Company’s common stock, the same number of shares initially underlying the Notes, and are exercisable upon any conversion of the Notes. The Hedge Transactions are expected generally to reduce the potential dilution to the Common Stock upon conversion of the Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted Notes, as the case may be, in the event that the market price per share of Common

20


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


Stock, as measured under the terms of the Hedge transactions, is greater than the strike price of the Hedge transactions, which initially corresponds to the initial conversion price of the Notes, or approximately $207.63 per share of Common Stock. The Hedge transactions will expire upon the maturity of the Notes.
On May 31, 2017, the Company sold to the counterparties, warrants (the "Warrants") to acquire 1.4 million shares of Common Stock at an initial strike price of $266.39 per share, which represents a premium of 70% over the reported sale price of the Common Stock of $156.70 on May 24, 2017. On May 31, 2017, the Company received aggregate proceeds of approximately $43.4 million from the sale of the Warrants.
If the market price per share of the Common Stock, as measured under the terms of the Warrants, exceeds the strike price of the Warrants, the Warrants could have a dilutive effect, unless the Company elects, subject to certain conditions, to settle the Warrants in cash.
The Hedge and Warrant transactions are indexed to, and potentially settled in, the Company's common stock and the net cost of $18.1 million has been recorded as a reduction to additional paid-in capital in the consolidated statement of shareholders’ equity.
Senior Secured Revolving Credit Facility
On December 10, 2019, the Company's wholly-owned subsidiary, LendingTree, LLC, entered into an amended and restated $500.0 million five-year senior secured revolving credit facility (the "Amended Revolving Credit Facility") which amended and restated the Company's previous $350.0 million five-year senior secured revolving credit facility (the “2017 Revolving Credit Facility”). The Amended Revolving Credit Facility matures on December 10, 2024. Borrowings under the Amended Revolving Credit Facility can be used to finance working capital needs, capital expenditures and general corporate purposes, including to finance permitted acquisitions. As of March 31, 2020, the Company had a $130.0 million, 28-day borrowing outstanding under the Amended Revolving Credit Facility bearing interest at the LIBO rate option of 2.21%. As of December 31, 2019, the Company had $75.0 million in borrowings outstanding under the Amended Revolving Credit Facility at the LIBO rate option with a weighted average interest rate of 3.01%, consisting of a $50.0 million 31-day borrowing and a $25.0 million 31-day borrowing.
Up to $10.0 million of the Amended Revolving Credit Facility will be available for short-term loans, referred to as swingline loans. Under certain conditions, the Company will be permitted to add one or more term loans and/or increase revolving commitments under the Amended Revolving Credit Facility by an additional amount equal to the greater of $185.0 million or 100% of Consolidated EBITDA as defined, or a greater amount provided that a total consolidated senior secured debt to EBITDA ratio does not exceed 2.50 to 1.00. Additionally, up to $10.0 million of the Amended Revolving Credit Facility will be available for the issuance of letters of credit. At each of March 31, 2020 and December 31, 2019, the Company had outstanding one letter of credit issued in the amount of $0.2 million.
The Company’s borrowings under the Amended Revolving Credit Facility bear interest at annual rates that, at the Company’s option, will be either:
a base rate generally defined as the sum of (i) the greater of (a) the prime rate of Truist Bank, (b) the federal funds effective rate plus 0.5% and (c) the LIBO rate (defined below) on a daily basis applicable for an interest period of one month plus 1.0% and (ii) an applicable percentage of 0.25% to 1.0% based on a total consolidated debt to EBITDA ratio; or
a LIBO rate generally defined as the sum of (i) the rate for Eurodollar deposits in the applicable currency and (ii) an applicable percentage of 1.25% to 2.0% based on a total consolidated debt to EBITDA ratio.
All swingline loans bear interest at the base rate defined above. Interest on the Company’s borrowings are payable quarterly in arrears for base rate loans and on the last day of each interest rate period (but not less often than three months) for LIBO rate loans.
The Amended Revolving Credit Facility contains a restrictive financial covenant, which initially limits the total consolidated debt to EBITDA ratio to 4.5, with step downs to 4.0 over time, except that this may increase by 0.5 for the four fiscal quarters following a material acquisition. In addition, the Amended Revolving Credit Facility contains customary affirmative and negative covenants in addition to events of default for a transaction of this type that, among other things, restrict additional indebtedness, liens, mergers or certain fundamental changes, asset dispositions, dividends, stock repurchases and other restricted payments, transactions with affiliates, sale-leaseback transactions, hedging transactions, loans and investments and other matters customarily restricted in such agreements. The Company was in compliance with all covenants at March 31, 2020.

21


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


The Amended Revolving Credit Facility requires LendingTree, LLC to pledge as collateral, subject to certain customary exclusions, substantially all of its assets, including 100% of its equity in all of its domestic subsidiaries and 66% of the voting equity, and 100% of the non-voting equity, in all of its material foreign subsidiaries (of which there are currently none). The obligations under this facility are unconditionally guaranteed on a senior basis by LendingTree, Inc. and material domestic subsidiaries of LendingTree, LLC, which guaranties are secured by a pledge as collateral, subject to certain customary exclusions, of 100% of each such guarantor's assets, including 100% of each such guarantor’s equity in all of its domestic subsidiaries and 66% of the voting equity, and 100% of the non-voting equity, in all of its material foreign subsidiaries (of which there are currently none).
The Company is required to pay an unused commitment fee quarterly in arrears on the difference between committed amounts and amounts actually borrowed under the Amended Revolving Credit Facility equal to an applicable percentage of 0.25% to 0.45% per annum based on a total consolidated debt to EBITDA ratio. The Company is required to pay a letter of credit participation fee and a letter of credit fronting fee quarterly in arrears. The letter of credit participation fee is based upon the aggregate face amount of outstanding letters of credit at an applicable percentage of 1.25% to 2.0% based on a total consolidated debt to EBITDA ratio. The letter of credit fronting fee is 0.125% per annum on the face amount of each letter of credit.
In addition to the remaining unamortized debt issuance costs associated with the original revolving credit facility and the Revolving Credit Facility, debt issuance costs of $2.8 million related to the Amended Revolving Credit Facility entered into on December 10, 2019 are being amortized to interest expense over the life of the Amended Revolving Credit Facility, and are included in prepaid and other current assets and other non-current assets in the Company's consolidated balance sheet.
In the first three months of 2020, the Company recorded interest expense related to the Amended Revolving Credit Facility of $1.1 million which consisted of $0.6 million associated with borrowings bearing interest at the LIBO rate, $0.3 million in unused commitment fees, and $0.2 million associated with the amortization of the debt issuance costs. In the first three months of 2019, the Company recorded interest expense related to the revolving credit facility of $2.1 million which consisted of $1.9 million associated with borrowing bearing interest at the LIBO rate, $0.1 million in unused commitment fees, and $0.1 million associated with the amortization of the debt issuance costs.
NOTE 14CONTINGENCIES
Overview
LendingTree is involved in legal proceedings on an ongoing basis. In assessing the materiality of a legal proceeding, the Company evaluates, among other factors, the amount of monetary damages claimed, as well as the potential impact of non-monetary remedies sought by plaintiffs (e.g., injunctive relief) that may require it to change its business practices in a manner that could have a material and adverse impact on the Company's business. With respect to the matters disclosed in this Note 14, unless otherwise indicated, the Company is unable to estimate the possible loss or range of losses that could potentially result from the application of such non-monetary remedies.
As of March 31, 2020, the Company had litigation settlement accruals of $0.6 million and $36.0 million in continuing operations and discontinued operations, respectively. As of December 31, 2019, the Company had litigation settlement accruals of $0.2 million and $31.0 million in continuing operations and discontinued operations, respectively. The litigation settlement accruals relate to litigation matters that were either settled or a firm offer for settlement was extended, thereby establishing an accrual amount that is both probable and reasonably estimable. See Note 17—Discontinued Operations for additional information.
NOTE 15FAIR VALUE MEASUREMENTS
Other than the 0.625% Convertible Senior Notes and the Warrants, as well as the equity interest in Stash, the carrying amounts of the Company's financial instruments are equal to fair value at March 31, 2020. See Note 13—Debt for additional information on the 0.625% Convertible Senior Notes and the Warrants, and see Note 7—Equity Investment for additional information on the equity interest in Stash.

22


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


Contingent consideration payments related to acquisitions are measured at fair value each reporting period using Level 3 unobservable inputs. The changes in the fair value of the Company's Level 3 liabilities during the first quarters of 2020 and 2019 are as follows (in thousands):
 
Three Months Ended
March 31,
 
2020
 
2019
Contingent consideration, beginning of period
$
33,464

 
$
38,837

Transfers into Level 3

 

Transfers out of Level 3

 

Total net losses (gains) included in earnings (realized and unrealized)
(8,122
)
 
14,592

Purchases, sales and settlements:
 
 
 
Additions

 

Payments
(3,000
)
 
(4,000
)
Contingent consideration, end of period
$
22,342

 
$
49,429


The contingent consideration liability at March 31, 2020 is the estimated fair value of the earnout payments of the DepositAccounts, SnapCap, Ovation and QuoteWizard acquisitions.
The Company will make earnout payments ranging from zero to $1.0 million based on the achievement of defined milestone targets for DepositAccounts, a payment of $3.0 million based on the achievement of certain defined earnings targets for SnapCap, payments ranging from zero to $4.4 million based on the achievement of certain defined operating metrics for Ovation, and payments ranging from zero to $46.8 million based on the achievement of certain defined performance targets for QuoteWizard. See Note 8—Business Acquisitions for additional information on the contingent consideration for each of these respective acquisitions.
The significant unobservable inputs used to calculate the fair value of the contingent consideration are estimated future cash flows for the acquisitions, estimated customer growth rates, estimated date and likelihood of an increase in interest rates and the discount rate. Actual results will differ from the projected results and could have a significant impact on the estimated fair value of the contingent considerations. Additionally, as the liability is stated at present value, the passage of time alone will increase the estimated fair value of the liability each reporting period. Any changes in fair value will be recorded in operating income in the consolidated statements of operations and comprehensive income.
The following table provides quantitative information about Level 3 fair value measurements.
 
Fair Value at
March 31, 2020
Valuation Technique(s)
Unobservable Input
Range (Weighted Average)(a)
 
(in thousands)
 
 
 
Contingent consideration
$