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 June 30, 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
(Exact name of Registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
(Address of principal executive offices)(Zip Code)
(704 ) 541-5351
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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.
☒ | 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 July 29, 2020, there were 13,115,157 shares of the registrant's common stock, par value $.01 per share, outstanding, excluding treasury shares.
TABLE OF CONTENTS
Page Number | ||
2
Item 1. Financial Statements
LENDINGTREE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
(in thousands, except per share amounts) | |||||||||||||||
Revenue | $ | $ | $ | $ | |||||||||||
Costs and expenses: | |||||||||||||||
Cost of revenue (exclusive of depreciation and amortization shown separately below) | |||||||||||||||
Selling and marketing expense | |||||||||||||||
General and administrative expense | |||||||||||||||
Product development | |||||||||||||||
Depreciation | |||||||||||||||
Amortization of intangibles | |||||||||||||||
Change in fair value of contingent consideration | |||||||||||||||
Severance | |||||||||||||||
Litigation settlements and contingencies | ( | ) | ( | ) | ( | ) | |||||||||
Total costs and expenses | |||||||||||||||
Operating (loss) income | ( | ) | |||||||||||||
Other (expense) income, net: | |||||||||||||||
Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Other income | |||||||||||||||
(Loss) income before income taxes | ( | ) | |||||||||||||
Income tax benefit | |||||||||||||||
Net (loss) income from continuing operations | ( | ) | |||||||||||||
Loss from discontinued operations, net of tax | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Net (loss) income and comprehensive (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | |||||||
Weighted average shares outstanding: | |||||||||||||||
Basic | |||||||||||||||
Diluted | |||||||||||||||
(Loss) income per share from continuing operations: | |||||||||||||||
Basic | $ | ( | ) | $ | $ | $ | |||||||||
Diluted | $ | ( | ) | $ | $ | $ | |||||||||
Loss per share from discontinued operations: | |||||||||||||||
Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Net (loss) income per share: | |||||||||||||||
Basic | $ | ( | ) | $ | $ | ( | ) | $ | |||||||
Diluted | $ | ( | ) | $ | $ | ( | ) | $ | |||||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
3
LENDINGTREE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, 2020 | December 31, 2019 | ||||||
(in thousands, except par value and share amounts) | |||||||
ASSETS: | |||||||
Cash and cash equivalents | $ | $ | |||||
Restricted cash and cash equivalents | |||||||
Accounts receivable (net of allowance of $1,756 and $1,466, respectively) | |||||||
Prepaid and other current assets | |||||||
Current assets of discontinued operations | |||||||
Total current assets | |||||||
Property and equipment (net of accumulated depreciation of $20,971 and $17,979, respectively) | |||||||
Operating lease right-of-use assets | |||||||
Goodwill | |||||||
Intangible assets, net | |||||||
Deferred income tax assets | |||||||
Equity investment (Note 7) | |||||||
Other non-current assets | |||||||
Non-current assets of discontinued operations | |||||||
Total assets | $ | $ | |||||
LIABILITIES: | |||||||
Revolving credit facility | $ | $ | |||||
Accounts payable, trade | |||||||
Accrued expenses and other current liabilities | |||||||
Current contingent consideration | |||||||
Current liabilities of discontinued operations | |||||||
Total current liabilities | |||||||
Long-term debt | |||||||
Operating lease liabilities | |||||||
Non-current contingent consideration | |||||||
Other non-current liabilities | |||||||
Total liabilities | |||||||
Commitments and contingencies (Note 15) | |||||||
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; 15,730,643 and 15,676,819 shares issued, respectively, and 13,089,325 and 13,035,501 shares outstanding, respectively | |||||||
Additional paid-in capital | |||||||
Accumulated deficit | ( | ) | ( | ) | |||
Treasury stock; 2,641,318 shares | ( | ) | ( | ) | |||
Total shareholders' equity | |||||||
Total liabilities and shareholders' equity | $ | $ | |||||
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 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
Net income and comprehensive income | — | — | — | — | — | ||||||||||||||||||||
Non-cash compensation | — | — | — | — | — | ||||||||||||||||||||
Issuance of common stock for stock options, restricted stock awards and restricted stock units, net of withholding taxes | ( | ) | — | ( | ) | — | — | — | |||||||||||||||||
Other | ( | ) | — | — | |||||||||||||||||||||
Balance as of March 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
Net loss and comprehensive loss | ( | ) | — | — | — | ( | ) | — | — | ||||||||||||||||
Non-cash compensation | — | — | — | — | — | ||||||||||||||||||||
Issuance of common stock for stock options, restricted stock awards and restricted stock units, net of withholding taxes | ( | ) | — | ( | ) | — | — | — | |||||||||||||||||
Balance as of June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
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 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
Net loss and comprehensive loss | ( | ) | — | — | — | ( | ) | — | — | ||||||||||||||||
Non-cash compensation | — | — | — | — | — | ||||||||||||||||||||
Purchase of treasury stock | ( | ) | — | — | — | — | ( | ) | |||||||||||||||||
Issuance of common stock for stock options, restricted stock awards and restricted stock units, net of withholding taxes | ( | ) | ( | ) | — | — | — | ||||||||||||||||||
Balance as of March 31, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
Net income and comprehensive income | — | — | — | — | — | ||||||||||||||||||||
Non-cash compensation | — | — | — | — | — | ||||||||||||||||||||
Issuance of common stock for stock options, restricted stock awards and restricted stock units, net of withholding taxes | ( | ) | ( | ) | — | — | — | ||||||||||||||||||
Balance as of June 30, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
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)
Six Months Ended June 30, | |||||||
2020 | 2019 | ||||||
(in thousands) | |||||||
Cash flows from operating activities attributable to continuing operations: | |||||||
Net (loss) income and comprehensive (loss) income | $ | ( | ) | $ | |||
Less: Loss from discontinued operations, net of tax | |||||||
Income from continuing operations | |||||||
Adjustments to reconcile income from continuing operations to net cash provided by operating activities attributable to continuing operations: | |||||||
Loss (gain) on impairments and disposal of assets | ( | ) | |||||
Amortization of intangibles | |||||||
Depreciation | |||||||
Non-cash compensation expense | |||||||
Deferred income taxes | ( | ) | ( | ) | |||
Change in fair value of contingent consideration | |||||||
Bad debt expense | |||||||
Amortization of debt issuance costs | |||||||
Amortization of convertible debt discount | |||||||
Reduction in carrying amount of ROU asset, offset by change in operating lease liabilities | |||||||
Changes in current assets and liabilities: | |||||||
Accounts receivable | ( | ) | |||||
Prepaid and other current assets | ( | ) | |||||
Accounts payable, accrued expenses and other current liabilities | ( | ) | |||||
Current contingent consideration | ( | ) | ( | ) | |||
Income taxes receivable | |||||||
Other, net | ( | ) | |||||
Net cash provided by operating activities attributable to continuing operations | |||||||
Cash flows from investing activities attributable to continuing operations: | |||||||
Capital expenditures | ( | ) | ( | ) | |||
Proceeds from sale of fixed assets | |||||||
Equity investment | ( | ) | |||||
Acquisition of ValuePenguin, net of cash acquired | ( | ) | |||||
Acquisition of QuoteWizard, net of cash acquired | |||||||
Net cash used in investing activities attributable to continuing operations | ( | ) | ( | ) | |||
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 | ( | ) | ( | ) | |||
Contingent consideration payments | ( | ) | ( | ) | |||
Net proceeds from (repayment of) revolving credit facility | ( | ) | |||||
Payment of debt issuance costs | ( | ) | ( | ) | |||
Purchase of treasury stock | ( | ) | |||||
Other financing activities | ( | ) | |||||
Net cash provided by (used in) financing activities attributable to continuing operations | ( | ) | |||||
Total cash provided by (used in) continuing operations | ( | ) | |||||
Discontinued operations: | |||||||
Net cash used in operating activities attributable to discontinued operations | ( | ) | ( | ) | |||
Total cash used in discontinued operations | ( | ) | ( | ) | |||
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents | ( | ) | |||||
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period | |||||||
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period | $ | $ | |||||
Non-cash investing activities: | |||||||
Capital additions from tenant improvement allowance | $ | $ | |||||
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 1—ORGANIZATION
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 18—Discontinued Operations for additional information.
Basis of Presentation
NOTE 2—SIGNIFICANT ACCOUNTING POLICIES
Accounting Estimates
Management is required to make certain estimates and assumptions during the preparation of the consolidated financial statements in accordance with GAAP. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. They also impact the reported amount of net earnings during any period. Actual results could differ from those estimates.
Significant estimates underlying the accompanying consolidated financial statements, including discontinued operations, include: the recoverability of long-lived assets, goodwill and intangible assets; the determination of income taxes payable and deferred income taxes, including related valuation allowances; fair value of assets acquired in a business combination; contingent consideration related to business combinations; litigation accruals; HLC ownership related claims; contract assets; various other
7
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
allowances, reserves and accruals; assumptions related to the determination of stock-based compensation; and the determination of the right-of-use assets and lease liabilities.
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 June 30, 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 June 30, 2020 and for the three and six months ended June 30, 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 16—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 3—REVENUE
Revenue is as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Home | $ | $ | $ | $ | |||||||||||
Credit cards | |||||||||||||||
Personal loans | |||||||||||||||
Other Consumer | |||||||||||||||
Total Consumer | |||||||||||||||
Insurance | |||||||||||||||
Other | |||||||||||||||
Total revenue | $ | $ | $ | $ | |||||||||||
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 $6.5 million at each of June 30, 2020 and December 31, 2019.
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 $0.9 million and $0.6 million at June 30, 2020 and December 31, 2019, respectively. During the second quarter and first six months of 2020, the Company recognized revenue of $0.1 million and $0.6 million, respectively, that was included in the contract liability balance at December 31, 2019. During the second quarter and first six months of 2019, the Company recognized revenue of $0.1 million and $0.4 million, respectively, 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 $0.3 million and $0.5 million in the second quarters of 2020 and 2019, respectively.
NOTE 4—CASH AND RESTRICTED CASH
Total cash, cash equivalents, restricted cash and restricted cash equivalents consist of the following (in thousands):
June 30, 2020 | December 31, 2019 | ||||||
Cash and cash equivalents | $ | $ | |||||
Restricted cash and cash equivalents | |||||||
Total cash, cash equivalents, restricted cash and restricted cash equivalents | $ | $ | |||||
NOTE 5—ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts.
The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time accounts receivable are past due, previous loss history, current and expected economic conditions and the specific customer's current and expected ability to pay its obligation. Accounts receivable are considered past due when they are outstanding longer than the contractual payment terms. Accounts receivable are written off when management deems them uncollectible.
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 June 30, | Six Months Ended June 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Balance, beginning of the period | $ | $ | $ | $ | |||||||||||
Charges to earnings | |||||||||||||||
Write-off of uncollectible accounts receivable | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Recoveries collected | |||||||||||||||
Balance, end of the period | $ | $ | $ | $ | |||||||||||
NOTE 6—GOODWILL AND INTANGIBLE ASSETS
The balance of goodwill and intangible assets, net is as follows (in thousands):
June 30, 2020 | December 31, 2019 | ||||||
Goodwill | $ | $ | |||||
Accumulated impairment losses | ( | ) | ( | ) | |||
Net goodwill | $ | $ | |||||
Intangible assets with indefinite lives | $ | $ | |||||
Intangible assets with definite lives, net | |||||||
Total intangible assets, net | $ | $ | |||||
Goodwill and Indefinite-Lived Intangible Assets
The Company's goodwill at each of June 30, 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 | $ | $ | ( | ) | $ | ||||||
Customer lists | ( | ) | |||||||||
Trademarks and tradenames | ( | ) | |||||||||
Website content | ( | ) | |||||||||
Other | ( | ) | |||||||||
Balance at June 30, 2020 | $ | $ | ( | ) | $ | ||||||
11
LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cost | Accumulated Amortization | Net | |||||||||
Technology | $ | $ | ( | ) | $ | ||||||
Customer lists | ( | ) | |||||||||
Trademarks and tradenames | ( | ) | |||||||||
Website content | ( | ) | |||||||||
Other | ( | ) | |||||||||
Balance at December 31, 2019 | $ | $ | ( | ) | $ | ||||||
Amortization of intangible assets with definite lives is computed on a straight-line basis and, based on balances as of June 30, 2020, future amortization is estimated to be as follows (in thousands):
Amortization Expense | |||
Remainder of current year | $ | ||
Year ending December 31, 2021 | |||
Year ending December 31, 2022 | |||
Year ending December 31, 2023 | |||
Year ending December 31, 2024 | |||
Thereafter | |||
Total intangible assets with definite lives, net | $ | ||
NOTE 7—EQUITY 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 June 30, 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 8—BUSINESS 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 of $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. During 2020, the Company made the final earnout payments related to the achievement of certain defined earnings targets for SnapCap.
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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 June 30, | Six Months Ended June 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
QuoteWizard | $ | $ | $ | ( | ) | $ | |||||||||
Ovation | ( | ) | |||||||||||||
SnapCap | ( | ) | |||||||||||||
DepositAccounts | ( | ) | ( | ) | |||||||||||
Total changes in fair value of contingent consideration | $ | $ | $ | $ | |||||||||||
As of June 30, 2020, the estimated fair value of the contingent consideration for the QuoteWizard acquisition totaled $24.2 million, of which $14.7 million is included in current contingent consideration and $9.5 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 June 30, 2020, the estimated fair value of the contingent consideration for the Ovation acquisition totaled $4.3 million, which is included in current contingent consideration in the accompanying consolidated balance sheet. The estimated fair value of the contingent consideration payment is based on the $4.4 million achieved target discounted from the payment due date to June 30, 2020.
As of June 30, 2020, no liability remains outstanding for the DepositAccounts acquisition in the accompanying consolidated balance sheet for the final contingent consideration payment based on Federal Funds interest rates and the earnout is complete.
Any differences in the actual contingent consideration payments will be recorded in operating income in the consolidated statements of operations and comprehensive income.
NOTE 9—ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following (in thousands):
June 30, 2020 | December 31, 2019 | ||||||
Accrued advertising expense | $ | $ | |||||
Accrued compensation and benefits | |||||||
Accrued professional fees | |||||||
Customer deposits and escrows | |||||||
Contribution to LendingTree Foundation | |||||||
Current lease liabilities | |||||||
Other | |||||||
Total accrued expenses and other current liabilities | $ | $ | |||||
NOTE 10—LEASES
The Company is a lessee to leases of corporate offices and certain office equipment. The majority of leases for corporate offices include one or more options to renew, with renewal terms ranging from two to five years . These renewal options have not been included in the calculation of right-of-use assets and lease liabilities, as the Company is not reasonably certain of the exercise of these renewal options. The Company used its incremental borrowing rate to calculate the right-of-use asset and lease liability for each lease.
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LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of June 30, 2020, right-of-use assets totaled $87.9 million and lease liabilities, the current portion of which is included in accrued expenses and other current liabilities in the accompanying balance sheet, totaled $92.6 million. At December 31, 2019, right-of-use assets totaled $25.5 million and lease liabilities totaled $28.2 million. During the second quarter of 2020 the right-of-use assets and lease liabilities increased $65.7 million due to commencement of the lease, as defined under ASC Topic 842, Leases, for the Company’s new principal executive offices currently under construction in Charlotte, North Carolina, occurring during the second quarter.
Lease expense, which is included in general and administrative expense on the accompanying consolidated statements of operations and comprehensive income, consists of the following (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Operating lease cost | $ | $ | $ | $ | |||||||||||
Short-term lease cost | |||||||||||||||
Total lease cost | $ | $ | $ | $ | |||||||||||
Weighted average remaining lease term and discount rate for operating leases are as follows:
June 30, 2020 | December 31, 2019 | ||||
Weighted average remaining lease term | |||||
Weighted average discount rate | % | % | |||
Supplemental cash flow information related to leases is as follows (in thousands):
Six Months Ended June 30, | |||||||
2020 | 2019 | ||||||
Cash paid for amounts included in the measurement of lease liabilities: | |||||||
Operating cash flows from operating leases | $ | $ | |||||
Right-of-use assets obtained in exchange for new operating lease liabilities | $ | $ | |||||
Maturities of lease liabilities as of June 30, 2020 are as follows (in thousands):
Operating Leases | |||
Remainder of current year | $ | ||
Year ending December 31, 2021 | |||
Year ending December 31, 2022 | |||
Year ending December 31, 2023 | |||
Year ending December 31, 2024 | |||
Thereafter | |||
Total lease payments | |||
Less: Interest | |||
Less: Tenant improvement allowances | |||
Present value of lease liabilities | $ | ||
Rental income of $0.1 million and $0.3 million in the second quarter and first six months of 2019, respectively, is included in other income on the accompanying consolidated statements of operations and comprehensive income.
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LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 11—SHAREHOLDERS' EQUITY
Basic and diluted income per share was determined based on the following share data (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||
Weighted average basic common shares | |||||||||||
Effect of stock options | |||||||||||
Effect of dilutive share awards | |||||||||||
Effect of Convertible Senior Notes and warrants | |||||||||||
Weighted average diluted common shares | |||||||||||
For the three months ended June 30, 2020, the Company had a loss from continuing operations and, as a result, no potentially dilutive securities were included in the denominator for computing diluted loss per share, because the impact would have been anti-dilutive. Accordingly, the weighted average basic shares outstanding was used to compute loss per share. Approximately 0.8 million shares related to potentially dilutive securities were excluded from the calculation of diluted loss per share for the three months ended June 30, 2020, because their inclusion would have been anti-dilutive. For the three months ended June 30, 2020, the weighted average shares that were anti-dilutive included options to purchase 0.7 million shares of common stock and 0.1 million restricted stock units. For the six months ended June 30, 2020, the weighted average shares that were anti-dilutive included options to purchase 0.2 million shares of common stock.
For each of the three and six months ended June 30, 2019, the weighted average shares that were anti-dilutive included options to purchase 0.1 million shares of common stock.
The convertible notes and the warrants issued by the Company could be converted into the Company’s common stock, subject to certain contingencies. See Note 14—Debt and Note 19—Subsequent Events for additional information. Shares of the Company's common stock associated with the warrants were excluded from the calculation of diluted income per share for the six months ended June 30, 2020 as they were anti-dilutive since the strike price of the warrants was greater than the average market price of the Company's common stock during the period.
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 six months of 2019, the Company purchased 17,501 shares of its common stock for aggregate consideration of $4.0 million. At June 30, 2020, approximately $179.7 million of the previous authorizations to repurchase common stock remain available.
NOTE 12—STOCK-BASED COMPENSATION
Non-cash compensation related to equity awards is included in the following line items in the accompanying consolidated statements of operations and comprehensive income (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Cost of revenue | $ | $ | $ | $ | |||||||||||
Selling and marketing expense | |||||||||||||||
General and administrative expense | |||||||||||||||
Product development | |||||||||||||||
Total non-cash compensation | $ | $ | $ | $ | |||||||||||
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LENDINGTREE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock Options