LendingTree, Inc. 10-Q

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 $ 184,326 $ 278,421 $ 467,410 $ 540,811 Costs and expenses: Cost of revenue (exclusive of depreciation and amortization shown separately below) 13,464 16,310 27,716 33,980 Selling and marketing expense 113,921 191,629 309,459 366,520 General and administrative expense 28,489 27,951 60,571 59,068 Product development 10,812 10,175 21,775 20,341 Depreciation 3,550 2,559 6,928 5,041 Amortization of intangibles 13,756 14,280 27,513 27,707 Change in fair value of contingent consideration 9,175 2,790 1,053 17,382 Severance 32 403 190 457 Litigation settlements and contingencies ( 1,325 ) 8 ( 996 ) ( 199 ) Total costs and expenses 191,874 266,105 454,209 530,297 Operating (loss) income ( 7,548 ) 12,316 13,201 10,514 Other (expense) income, net: Interest expense, net ( 4,955 ) ( 5,095 ) ( 9,789 ) ( 10,563 ) Other income 7 71 7 139 (Loss) income before income taxes ( 12,496 ) 7,292 3,419 90 Income tax benefit 3,880 5,689 6,941 13,441 Net (loss) income from continuing operations ( 8,616 ) 12,981 10,360 13,531 Loss from discontinued operations, net of tax ( 21,141 ) ( 763 ) ( 25,716 ) ( 1,825 ) Net (loss) income and comprehensive (loss) income $ ( 29,757 ) $ 12,218 $ ( 15,356 ) $ 11,706 Weighted average shares outstanding: Basic 12,984 12,805 12,971 12,762 Diluted 12,984 14,908 13,954 14,622 (Loss) income per share from continuing operations: Basic $ ( 0.66 ) $ 1.01 $ 0.80 $ 1.06 Diluted $ ( 0.66 ) $ 0.87 $ 0.74 $ 0.93 Loss per share from discontinued operations: Basic $ ( 1.63 ) $ ( 0.06 ) $ ( 1.98 ) $ ( 0.14 ) Diluted $ ( 1.63 ) $ ( 0.05 ) $ ( 1.84 ) $ ( 0.12 ) Net (loss) income per share: Basic $ ( 2.29 ) $ 0.95 $ ( 1.18 ) $ 0.92 Diluted $ ( 2.29 ) $ 0.82 $ ( 1.10 ) $ 0.80 The accompanying notes to consolidated financial statements are an integral part of these statements. 3 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, 2020 December 31, 2019 (in thousands, except par value and share amounts) ASSETS: Cash and cash equivalents $ 101,764 $ 60,243 Restricted cash and cash equivalents 94 96 Accounts receivable (net of allowance of $1,756 and $1,466, respectively) 77,037 113,487 Prepaid and other current assets 25,654 15,516 Current assets of discontinued operations 84 84 Total current assets 204,633 189,426 Property and equipment (net of accumulated depreciation of $20,971 and $17,979, respectively) 34,735 31,363 Operating lease right-of-use assets 87,892 25,519 Goodwill 420,139 420,139 Intangible assets, net 154,067 181,580 Deferred income tax assets 84,160 87,664 Equity investment (Note 7) 80,000 — Other non-current assets 5,192 4,330 Non-current assets of discontinued operations 16,759 7,948 Total assets $ 1,087,577 $ 947,969 LIABILITIES: Revolving credit facility $ 130,000 $ 75,000 Accounts payable, trade 8,792 2,873 Accrued expenses and other current liabilities 88,569 112,755 Current contingent consideration 19,029 9,028 Current liabilities of discontinued operations 63,006 31,050 Total current liabilities 309,396 230,706 Long-term debt 271,378 264,391 Operating lease liabilities 86,649 21,358 Non-current contingent consideration 9,488 24,436 Other non-current liabilities 4,689 4,752 Total liabilities 681,600 545,643 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 157 157 Additional paid-in capital 1,196,990 1,177,984 Accumulated deficit ( 608,009 ) ( 592,654 ) Treasury stock; 2,641,318 shares ( 183,161 ) ( 183,161 ) Total shareholders' equity 405,977 402,326 Total liabilities and shareholders' equity $ 1,087,577 $ 947,969 The accompanying notes to consolidated financial statements are an integral part of these statements. 4 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) Common Stock Treasury Stock Total Number of Shares Amount Additional Paid-in Capital Accumulated Deficit Number of Shares Amount (in thousands) Balance as of December 31, 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 ) Net loss and comprehensive loss ( 29,757 ) — — — ( 29,757 ) — — Non-cash compensation 13,158 — — 13,158 — — — Issuance of common stock for stock options, restricted stock awards and restricted stock units, net of withholding taxes ( 981 ) 27 — ( 981 ) — — — Balance as of June 30, 2020 $ 405,977 15,731 $ 157 $ 1,196,990 $ ( 608,009 ) 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 ) Net income and comprehensive income 12,218 — — — 12,218 — — Non-cash compensation 15,982 — — 15,982 — — — Issuance of common stock for stock options, restricted stock awards and restricted stock units, net of withholding taxes ( 6,501 ) 89 1 ( 6,502 ) — — — Balance as of June 30, 2019 $ 373,887 15,604 $ 156 $ 1,154,174 $ ( 598,776 ) 2,636 $ ( 181,667 ) The accompanying notes to consolidated financial statements are an integral part of these statements. 5 Table of Contents 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 $ ( 15,356 ) $ 11,706 Less: Loss from discontinued operations, net of tax 25,716 1,825 Income from continuing operations 10,360 13,531 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 552 ( 1,729 ) Amortization of intangibles 27,513 27,707 Depreciation 6,928 5,041 Non-cash compensation expense 25,075 30,035 Deferred income taxes ( 7,000 ) ( 13,624 ) Change in fair value of contingent consideration 1,053 17,382 Bad debt expense 949 1,282 Amortization of debt issuance costs 1,158 970 Amortization of convertible debt discount 6,250 5,929 Reduction in carrying amount of ROU asset, offset by change in operating lease liabilities 1,956 184 Changes in current assets and liabilities: Accounts receivable 35,501 ( 48,396 ) Prepaid and other current assets 1,369 ( 190 ) Accounts payable, accrued expenses and other current liabilities ( 19,134 ) 28,105 Current contingent consideration ( 2,670 ) ( 3,000 ) Income taxes receivable 63 4,388 Other, net ( 2,007 ) 260 Net cash provided by operating activities attributable to continuing operations 87,916 67,875 Cash flows from investing activities attributable to continuing operations: Capital expenditures ( 9,108 ) ( 9,769 ) Proceeds from sale of fixed assets — 24,062 Equity investment ( 80,000 ) — Acquisition of ValuePenguin, net of cash acquired — ( 105,578 ) Acquisition of QuoteWizard, net of cash acquired — 447 Net cash used in investing activities attributable to continuing operations ( 89,108 ) ( 90,838 ) 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 ( 6,068 ) ( 7,646 ) Contingent consideration payments ( 3,330 ) ( 3,000 ) Net proceeds from (repayment of) revolving credit facility 55,000 ( 10,000 ) Payment of debt issuance costs ( 306 ) ( 31 ) Purchase of treasury stock — ( 3,976 ) Other financing activities ( 14 ) — Net cash provided by (used in) financing activities attributable to continuing operations 45,282 ( 24,653 ) Total cash provided by (used in) continuing operations 44,090 ( 47,616 ) Discontinued operations: Net cash used in operating activities attributable to discontinued operations ( 2,571 ) ( 6,152 ) Total cash used in discontinued operations ( 2,571 ) ( 6,152 ) Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents 41,519 ( 53,768 ) 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 $ 101,858 $ 51,390 Non-cash investing activities: Capital additions from tenant improvement allowance $ — $ 1,111 The accompanying notes to consolidated financial statements are an integral part of these statements. 6 Table of Contents 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 The accompanying unaudited interim consolidated financial statements as of June 30, 2020 and for the three and six months ended June 30, 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 and six months ended June 30, 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 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 Table of Contents 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 Table of Contents 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 $ 74,123 $ 71,756 $ 153,297 $ 135,193 Credit cards 7,194 56,045 58,780 110,551 Personal loans 8,827 41,109 40,336 73,640 Other Consumer 21,097 31,809 57,926 65,501 Total Consumer 37,118 128,963 157,042 249,692 Insurance 72,919 71,941 155,656 139,033 Other 166 5,761 1,415 16,893 Total revenue $ 184,326 $ 278,421 $ 467,410 $ 540,811 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 Table of Contents 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 $ 101,764 $ 60,243 Restricted cash and cash equivalents 94 96 Total cash, cash equivalents, restricted cash and restricted cash equivalents $ 101,858 $ 60,339 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 Table of Contents 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 $ 2,021 $ 1,370 $ 1,466 $ 1,143 Charges to earnings 69 772 949 1,282 Write-off of uncollectible accounts receivable ( 337 ) ( 473 ) ( 669 ) ( 761 ) Recoveries collected 3 7 10 12 Balance, end of the period $ 1,756 $ 1,676 $ 1,756 $ 1,676 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 $ 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 143,925 171,438 Total intangible assets, net $ 154,067 $ 181,580 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 $ 116,200 $ ( 63,126 ) $ 53,074 Customer lists 77,300 ( 15,506 ) 61,794 Trademarks and tradenames 17,200 ( 8,177 ) 9,023 Website content 51,000 ( 30,967 ) 20,033 Other 5 ( 4 ) 1 Balance at June 30, 2020 $ 261,705 $ ( 117,780 ) $ 143,925 11 Table of Contents 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 June 30, 2020 , future amortization is estimated to be as follows (in thousands) : Amortization Expense Remainder of current year $ 25,565 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 35,017 Total intangible assets with definite lives, net $ 143,925 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. 12 Table of Contents 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 $ 8,058 $ 2,534 $ ( 204 ) $ 16,893 Ovation 1,039 634 1,180 ( 14 ) SnapCap 78 ( 142 ) 77 1,450 DepositAccounts — ( 236 ) — ( 947 ) Total changes in fair value of contingent consideration $ 9,175 $ 2,790 $ 1,053 $ 17,382 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 $ 46,114 $ 65,836 Accrued compensation and benefits 10,068 10,540 Accrued professional fees 2,188 1,560 Customer deposits and escrows 8,768 6,920 Contribution to LendingTree Foundation 3,333 3,333 Current lease liabilities 5,923 6,885 Other 12,175 17,681 Total accrued expenses and other current liabilities $ 88,569 $ 112,755 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. 13 Table of Contents 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 $ 2,140 $ 1,467 $ 3,994 $ 2,730 Short-term lease cost 17 9 38 48 Total lease cost $ 2,157 $ 1,476 $ 4,032 $ 2,778 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 14.0 years 5.0 years Weighted average discount rate 5.0 % 4.7 % 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 $ 4,056 $ 2,581 Right-of-use assets obtained in exchange for new operating lease liabilities $ 65,740 $ 11,398 Maturities of lease liabilities as of June 30, 2020 are as follows (in thousands) : Operating Leases Remainder of current year $ 4,052 Year ending December 31, 2021 8,595 Year ending December 31, 2022 12,530 Year ending December 31, 2023 12,409 Year ending December 31, 2024 10,885 Thereafter 105,398 Total lease payments 153,869 Less: Interest 47,219 Less: Tenant improvement allowances 14,078 Present value of lease liabilities $ 92,572 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. 14 Table of Contents 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 12,984 12,805 12,971 12,762 Effect of stock options — 810 592 777 Effect of dilutive share awards — 194 91 191 Effect of Convertible Senior Notes and warrants — 1,099 300 892 Weighted average diluted common shares 12,984 14,908 13,954 14,622 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 $ 333 $ 197 $ 575 $ 350 Selling and marketing expense 1,597 2,283 2,753 4,032 General and administrative expense 9,729 11,686 18,852 21,907 Product development 1,499 1,816 2,895 3,746 Total non-cash compensation $ 13,158 $ 15,982 $ 25,075 $ 30,035 15 Table of Contents 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) 73,737 276.38 Exercised ( 20,141 ) 73.09 Forfeited ( 503 ) 297.63 Expired ( 1,974 ) 352.10 Options outstanding at June 30, 2020 828,990 87.36 4.23 $ 169,184 Options exercisable at June 30, 2020 670,266 $ 45.85 3.16 $ 164,215 (a) The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company's closing stock price of $ 289.53 on the last trading day of the quarter ended June 30, 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 June 30, 2020 . The intrinsic value changes based on the market value of the Company's common stock. (b) During the six months ended June 30, 2020 , the Company granted stock options to certain employees and members of the board of directors with a weighted average grant date fair value per share of $ 138.75 , calculated using the Black-Scholes option pricing model, which vesting periods include (a) immediate vesting on grant date (b) 1 year from grant date (c) three years from grant date and (d) 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) 5.00 - 6.25 years Expected dividend (2) — Expected volatility (3) 52 - 60% Risk-free interest rate (4) 0.33 - 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. 16 Table of Contents 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 June 30, 2020 482,566 207.14 7.27 $ 42,839 Options exercisable at June 30, 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 $ 289.53 on the last trading day of the quarter ended June 30, 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 June 30, 2020 . The intrinsic value changes based on the market value of the Company's common stock. (b) During the six months ended June 30, 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 June 30, 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 . 17 Table of Contents 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 105,178 275.27 Vested ( 56,019 ) 238.08 Forfeited ( 7,637 ) 275.24 Nonvested at June 30, 2020 186,461 $ 280.71 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 ( 1,992 ) 125.75 Forfeited — — Nonvested at June 30, 2020 12,655 $ 223.90 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 ( 11,902 ) 340.25 Forfeited — — Nonvested at June 30, 2020 35,706 $ 340.25 18 Table of Contents 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 June 30, 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 June 30, 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 13 — INCOME TAXES Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 (in thousands, except percentages) Income tax benefit $ 3,880 $ 5,689 $ 6,941 $ 13,441 Effective tax rate 31.0 % ( 78.0 )% ( 203.0 )% N/A For the second quarter and first six months of 2020 , the effective tax rate varied from the federal statutory rate of 21 % in part due to a tax benefit of $ 0.8 million and $ 1.8 million , respectively, 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. The effective tax rate for the first six months of 2020 was also impacted by 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 six months 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 second quarter and first six months of 2019 , the effective tax rate varied from the federal statutory rate of 21 % primarily due to a tax benefit of $ 7.7 million and $ 13.7 million , respectively, 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. 19 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 (in thousands) Income tax benefit (expense) - excluding excess tax benefit on stock compensation and CARES Act $ 3,127 $ ( 2,034 ) $ ( 970 ) $ ( 284 ) Excess tax benefit on stock compensation 753 7,723 1,807 13,725 Income tax benefit from CARES Act — — 6,104 — Income tax benefit $ 3,880 $ 5,689 $ 6,941 $ 13,441 NOTE 14 — DEBT 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 “2022 Notes”) in a private placement. The 2022 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 2022 Notes will mature on June 1, 2022, unless earlier repurchased or converted. The initial conversion rate of the 2022 Notes is 4.8163 shares of Common Stock per $1,000 principal amount of 2022 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 2022 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 2022 Notes in connection with such fundamental change. Upon conversion, the 2022 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 2022 Notes in cash and any conversion premium in shares of its common stock. The 2022 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 2022 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 2022 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 2022 Notes) per $1,000 principal amount of 2022 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 2022 Notes were not entitled to convert the 2022 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 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 2022 Notes on each applicable trading day. Holders of the 2022 Notes are not entitled to convert the 2022 Notes during the calendar quarter ended September 30, 2020 as the last reported sales price of the Company's common stock, for at least 20 trading 20 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) days (whether or not consecutive) during the period of 30 consecutive trading days ending on June 30, 2020, was not greater than or equal to 130% of the conversion price of the 2022 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 2022 Notes, holders of the 2022 Notes may convert all or a portion of their 2022 Notes regardless of the foregoing conditions. The Company may not redeem the 2022 Notes prior to the maturity date and no sinking fund is provided for the 2022 Notes. Upon the occurrence of a fundamental change prior to the maturity date of the 2022 Notes, holders of the 2022 Notes may require the Company to repurchase all or a portion of the 2022 Notes for cash at a price equal to 100 % of the principal amount of the 2022 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 2022 Notes, exceeds the conversion price of the 2022 Notes, the 2022 Notes could have a dilutive effect, unless the Company elects, subject to certain conditions, to settle the principal amount of the 2022 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 2022 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 2022 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 six months of 2020 , the Company recorded interest expense on the 2022 Notes of $ 7.9 million which consisted of $ 0.9 million associated with the 0.625 % coupon rate, $ 6.3 million associated with the accretion of the debt discount, and $ 0.7 million associated with the amortization of the debt issuance costs. In the first six months of 2019 , the Company recorded interest expense on the 2022 Notes of $ 7.5 million which consisted of $ 0.9 million associated with the 0.625 % coupon rate, $ 5.9 million associated with the accretion of the debt discount, and $ 0.7 million associated with the amortization of the debt issuance costs. The debt discount is being amortized over the term of the debt. As of June 30, 2020 , the fair value of the 2022 Notes is estimated to be approximately $ 430.5 million using the Level 1 observable input of the last quoted market price for the quarter ended June 30, 2020 . A summary of the gross carrying amount, unamortized debt cost, debt issuance costs and net carrying value of the liability component of the 2022 Notes are as follows (in thousands) : June 30, 2020 December 31, 2019 Gross carrying amount $ 299,977 $ 299,991 Unamortized debt discount 25,537 31,789 Debt issuance costs 3,062 3,811 Net carrying amount $ 271,378 $ 264,391 On July 24, 2020, the Company repurchased approximately $ 130.3 million principal amount of the 2022 Notes through separate and individually-negotiated transactions with certain holders of the 2022 Notes. See Note 19 —Subsequent Events for additional information. Convertible Note Hedge and Warrant Transactions On May 31, 2017, in connection with the issuance of the 2022 Notes, the Company entered into Convertible Note Hedge (the “2017 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 2022 Notes to pay for the cost of the 2017 Hedge, after such cost was partially offset by the proceeds from the 2017 Warrants transactions. 21 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) On May 31, 2017, the Company paid $ 61.5 million to the counterparties for the 2017 Hedge transactions. The 2017 Hedge transactions cover approximately 1.4 million shares of the Company’s common stock, the same number of shares initially underlying the 2022 Notes, and are exercisable upon any conversion of the 2022 Notes. The 2017 Hedge transactions are expected generally to reduce the potential dilution to the Common Stock upon conversion of the 2022 Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted 2022 Notes, as the case may be, in the event that the market price per share of Common Stock, as measured under the terms of the 2017 Hedge transactions, is greater than the strike price of the 2017 Hedge transactions, which initially corresponds to the initial conversion price of the 2022 Notes, or approximately $ 207.63 per share of Common Stock. The 2017 Hedge transactions will expire upon the maturity of the Notes. On May 31, 2017, the Company sold to the counterparties, warrants (the “2017 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 2017 Warrants. If the market price per share of the Common Stock, as measured under the terms of the 2017 Warrants, exceeds the strike price of the 2017 Warrants, the 2017 Warrants could have a dilutive effect, unless the Company elects, subject to certain conditions, to settle the 2017 Warrants in cash. The 2017 Hedge and 2017 Warrants 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. To the extent of the repurchases of the 2022 Notes noted above, the Company entered into agreements with the counterparties for the 2017 Hedge and 2017 Warrants transactions to terminate a portion of the existing call spread transactions effective July 24, 2020 in notional amounts corresponding to the principal amount of the 2022 Notes repurchased. See Note 19 —Subsequent Events for additional information. 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 June 30, 2020 , the Company had a $ 130.0 million , 30 -day borrowing outstanding under the Amended Revolving Credit Facility bearing interest at the LIBO rate option of 1.44 % . 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. See Note 19 —Subsequent Events for activity related to the Amended Revolving Credit Facility in July 2020. 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 June 30, 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. 22 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 June 30, 2020 . 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 six months of 2020 , the Company recorded interest expense related to the Amended Revolving Credit Facility of $ 2.1 million which consisted of $ 1.1 million associated with borrowings bearing interest at the LIBO rate, $ 0.5 million in unused commitment fees, and $ 0.5 million associated with the amortization of the debt issuance costs. In the first six months of 2019 , the Company recorded interest expense related to the revolving credit facility of $ 3.8 million which consisted of $ 3.2 million associated with borrowings bearing interest at the LIBO rate, $ 0.3 million in unused commitment fees, and $ 0.3 million associated with the amortization of the debt issuance costs. NOTE 15 — CONTINGENCIES 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 15 , 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 June 30, 2020 , the Company had litigation settlement accruals of $ 0.1 million and $ 62.3 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 18 —Discontinued Operations for additional information. 23 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 16 — FAIR VALUE MEASUREMENTS Other than the convertible notes and warrants, as well as the equity interest in Stash, the carrying amounts of the Company's financial instruments are equal to fair value at June 30, 2020 . See Note 14 —Debt and Note 19 —Subsequent Events for additional information on the convertible notes and warrants, and see Note 7 —Equity Investment for additional information on the equity interest in Stash. 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 are as follows (in thousands) : Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Contingent consideration, beginning of period $ 22,342 $ 49,429 $ 33,464 $ 38,837 Transfers into Level 3 — — — — Transfers out of Level 3 — — — — Total net losses (gains) included in earnings (realized and unrealized) 9,175 2,790 1,053 17,382 Purchases, sales and settlements: Additions — — — — Payments ( 3,000 ) ( 2,000 ) ( 6,000 ) ( 6,000 ) Contingent consideration, end of period $ 28,517 $ 50,219 $ 28,517 $ 50,219 The contingent consideration liability at June 30, 2020 is the estimated fair value of the earnout payments of the Ovation and QuoteWizard acquisitions. 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. 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 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 June 30, 2020 Valuation Technique Unobservable Input Range (Weighted Average) (a) (in thousands) Contingent consideration $ 28,517 Option pricing model Operating results growth rate 20.7% - 28.4% (24.6%) Discount rate 8.1 % (a) Discount rates were weighted by the relative undiscounted value of expected earnout payments. Other unobservable inputs were weighted by the relative maximum potential earnout payments. 24 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 17 — SEGMENT INFORMATION The Company manages its business and reports its financial results through the following three operating and reportable segments: Home, Consumer and Insurance. Characteristics which were relied upon in making the determination of the reportable segments include the nature of the products, the organization's internal structure, and the information that is regularly reviewed by the chief operating decision maker for the purpose of assessing performance and allocating resources. The Company changed its reportable segments in the fourth quarter of 2019 and previously reported segment results have been revised to conform to the Company's reportable segments at June 30, 2020 . The Home segment includes the following products: purchase mortgage, refinance mortgage, home equity loans and lines of credit, reverse mortgage loans, and real estate. The Consumer segment includes the following products: credit cards, personal loans, small business loans, student loans, auto loans, deposit accounts, and other credit products such as credit repair and debt settlement. The Insurance segment consists of insurance quote products. Revenue from the resale of online advertising space to third parties and revenue from home improvement referrals, and the related variable marketing and advertising expenses, are included within the Other category. The following tables are a reconciliation of segment profit, which is the Company's primary segment profitability measure, to income before income taxes and discontinued operations. Segment cost of revenue and marketing expense represents the portion of selling and marketing expense attributable to variable costs paid for advertising, direct marketing and related expenses, that are directly attributable to the segments' products. This measure excludes overhead, fixed costs and personnel-related expenses. For the Other category, segment cost of revenue and marketing expense also includes the portion of cost of revenue attributable to costs paid for advertising re-sold to third parties. The Company ceased reselling online advertising space during the first quarter of 2020. Three Months Ended June 30, 2020 Home Consumer Insurance Other Total (in thousands) Revenue $ 74,123 $ 37,118 $ 72,919 $ 166 $ 184,326 Segment marketing expense 35,397 17,716 42,797 85 95,995 Segment profit (loss) 38,726 19,402 30,122 81 88,331 Cost of revenue 13,464 Brand and other marketing expense 17,926 General and administrative expense 28,489 Product development 10,812 Depreciation 3,550 Amortization of intangibles 13,756 Change in fair value of contingent consideration 9,175 Severance 32 Litigation settlements and contingencies ( 1,325 ) Operating loss ( 7,548 ) Interest expense, net ( 4,955 ) Other income 7 Loss before income taxes and discontinued operations $ ( 12,496 ) 25 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Three Months Ended June 30, 2019 Home Consumer Insurance Other Total (in thousands) Revenue $ 71,756 $ 128,963 $ 71,941 $ 5,761 $ 278,421 Segment cost of revenue and marketing expense 47,546 78,192 43,135 5,416 174,289 Segment profit 24,210 50,771 28,806 345 104,132 Cost of revenue (exclusive of cost of advertising re-sold to third parties included above) 11,257 Brand and other marketing expense 22,393 General and administrative expense 27,951 Product development 10,175 Depreciation 2,559 Amortization of intangibles 14,280 Change in fair value of contingent consideration 2,790 Severance 403 Litigation settlements and contingencies 8 Operating income 12,316 Interest expense, net ( 5,095 ) Other income 71 Income before income taxes and discontinued operations $ 7,292 Six Months Ended June 30, 2020 Home Consumer Insurance Other Total (in thousands) Revenue $ 153,297 $ 157,042 $ 155,656 $ 1,415 $ 467,410 Segment cost of revenue and marketing expense 78,660 94,541 95,001 1,662 269,864 Segment profit (loss) 74,637 62,501 60,655 ( 247 ) 197,546 Cost of revenue (exclusive of cost of advertising re-sold to third parties included above) 26,630 Brand and other marketing expense 40,681 General and administrative expense 60,571 Product development 21,775 Depreciation 6,928 Amortization of intangibles 27,513 Change in fair value of contingent consideration 1,053 Severance 190 Litigation settlements and contingencies ( 996 ) Operating income 13,201 Interest expense, net ( 9,789 ) Other income 7 Income before income taxes and discontinued operations $ 3,419 26 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Six Months Ended June 30, 2019 Home Consumer Insurance Other Total (in thousands) Revenue $ 135,193 $ 249,692 $ 139,033 $ 16,893 $ 540,811 Segment cost of revenue and marketing expense 87,062 144,947 82,363 15,789 330,161 Segment profit 48,131 104,745 56,670 1,104 210,650 Cost of revenue (exclusive of cost of advertising re-sold to third parties included above) 21,591 Brand and other marketing expense 48,748 General and administrative expense 59,068 Product development 20,341 Depreciation 5,041 Amortization of intangibles 27,707 Change in fair value of contingent consideration 17,382 Severance 457 Litigation settlements and contingencies ( 199 ) Operating income 10,514 Interest expense, net ( 10,563 ) Other income 139 Income before income taxes and discontinued operations $ 90 NOTE 18 — DISCONTINUED OPERATIONS The LendingTree Loans Business is presented as discontinued operations in the accompanying financial statements. The LendingTree Loans Business originated various consumer mortgage loans through HLC. On June 6, 2012, the Company sold substantially all of the operating assets of HLC, including the LendingTree Loans Business, for $ 55.9 million in cash to a wholly-owned subsidiary of Discover Financial Services ("Discover"). Discover generally did not assume liabilities of HLC that arose before the closing date, except for certain liabilities directly related to assets Discover acquired. Of the purchase price received, a portion was deposited in escrow in accordance with the purchase agreement with Discover for certain loan loss obligations that remained with HLC following the sale. During 2018, the remaining funds in escrow were released to HLC in accordance with the terms of the purchase agreement with Discover. Upon closing of the sale of substantially all of the operating assets of HLC on June 6, 2012, HLC ceased to originate consumer loans. Certain liability for losses on previously sold loans remains with HLC. Litigation settlements and contingencies and legal fees associated with ongoing related bankruptcy and legal proceedings against the Company are included in discontinued operations in the accompanying financial statements. Home Loan Center, Inc. Bankruptcy Filing On June 21, 2019, the U.S. District Court of Minnesota entered judgment in ResCap Liquidating Trust v. Home Loan Center, Inc. , against HLC for $ 68.5 million , see Litigation Related to Discontinued Operations below. The judgment against HLC exceeded the assets of HLC, which were $ 11.2 million at July 21, 2019, including cash of $ 5.9 million . On July 19, 2019, HLC appealed the judgment to the United States Court of Appeals for the Eighth Circuit. On July 21, 2019, at the direction of the sole independent director of HLC, HLC voluntarily filed a petition under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) with the U.S. Bankruptcy Court in the Northern District of California in San Jose, California (the “Bankruptcy Court”) in order to preserve assets for the benefit of all creditors of HLC. On September 16, 2019, the Bankruptcy Court converted the bankruptcy to Chapter 7 of the Bankruptcy Code and appointed a Trustee to liquidate HLC's assets. HLC’s filing under the Bankruptcy Code creates an automatic stay of enforcement of the judgment entered against HLC by the Minnesota court in ResCap Liquidating Trust v. Home Loan Center, Inc. described above and in Litigation Related to Discontinued Operations below. As a result of the voluntary petition, LendingTree, LLC was, as of the initial July 21, 2019 27 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) bankruptcy petition filing date, no longer deemed to have a controlling interest in HLC under applicable accounting standards. As a result, HLC and its consolidated subsidiary were deconsolidated from the Company’s consolidated financial statements as of July 21, 2019. The effect of such deconsolidation was the elimination of the consolidated assets and liabilities of HLC (and its consolidated subsidiary) from the Company’s consolidated balance sheets. Upon deconsolidation, in the third quarter of 2019 the Company recognized a loss of $ 5.5 million which includes a net gain of $ 4.5 million related to the removal of HLC's (and its consolidated subsidiary's) assets and liabilities and the recognition of a liability of $ 10.0 million related to LendingTree LLC's ownership in HLC. No consideration was received by the Company as a result of the deconsolidation. HLC has indicated that it believes that it has claims against HLC’s sole shareholder, LendingTree, LLC, and certain of its officers and directors, relating to the declaration of a dividend by HLC in January 2016 of $ 40.0 million . The Company is obligated to advance any expenses to the officers and directors related to these claims and to indemnify them to the maximum extent permitted by law. LendingTree, LLC believes the declaration of the dividend was proper, that the amounts paid to LendingTree, LLC following such declaration are not subject to recovery by HLC and that any claims by HLC relating to such dividend declaration are without merit. During the second quarter of 2020, LendingTree, LLC and HLC entered into a settlement agreement, subject to the approval of the bankruptcy court in the HLC Bankruptcy, in the amount of $ 36.0 million for the release of any and all claims against the Company defendants by HLC, including the dividend claim. The bankruptcy court held a hearing on July 16, 2020 on the motion to approve the settlement to which no objections were made, and approved the settlement the same day. A liability of $ 36.0 million is included in the accompanying consolidated balance sheet as of June 30, 2020 related to LendingTree LLC's ownership in HLC. The $ 36.0 million settlement payment was made in July 2020. HLC’s voluntary petition under the Bankruptcy Code does not represent an event of default under LendingTree, LLC’s Second Amended and Restated Credit Agreement dated as of December 10, 2019 or the Company’s indenture dated May 31, 2017 with respect to the Company’s 0.625 % Convertible Senior Notes due 2022. Litigation Related to Discontinued Operations Residential Funding Company ResCap Liquidating Trust v. Home Loan Center, Inc., Case No. 14-cv-1716 (U.S. Dist. Ct., Minn.), successor to Residential Funding Company, LLC v Home Loan Center, Inc., No. 13-cv-3451 (U.S. Dist. Ct., Minn.). On or about December 16, 2013, Home Loan Center, Inc. was served in the original captioned matter, which involves claims of Residential Funding Company, LLC ("RFC") for damages for breach of contract and indemnification for certain residential mortgage loans as well as residential mortgage-backed securitizations ("RMBS") containing mortgage loans. RFC asserted that, beginning in 2008, RFC faced massive repurchase demands and lawsuits from purchasers or insurers of the loans and RMBS that RFC had sold. RFC filed for bankruptcy protection in May 2012. Plaintiff alleged that, after RFC filed for Chapter 11 protection, hundreds of proofs of claim were filed, many of which mirrored the litigation filed against RFC prior to its bankruptcy. In December 2013, the United States Bankruptcy Court for the Southern District of New York entered an Order confirming the Second Amended Joint Chapter 11 Plan Proposed by Residential Capital, LLC et al. and the Official Committee of Unsecured Creditors. Plaintiff then began filing substantially similar complaints against approximately 80 of the loan originators from whom RFC had purchased loans, including HLC, in federal and state courts in Minnesota and New York. In each case, plaintiff claimed that the defendant is liable for a portion of the global settlement in RFC’s bankruptcy. Plaintiff asserted two claims against HLC: (1) breach of contract based on HLC’s alleged breach of representations and warranties concerning the quality and characteristics of the mortgage loans it sold to RFC; and (2) contractual indemnification for alleged liabilities, losses, and damages incurred by RFC arising out of purported defects in loans that RFC purchased from HLC and sold to third parties. Plaintiff alleged that the “types of defects” contained in the loans it purchased from HLC included “income misrepresentation, employment misrepresentation, appraisal misrepresentations or inaccuracies, undisclosed debt, and missing or inaccurate documents.” Plaintiff sought damages of up to $ 61.0 million plus attorney's fees and prejudgment interest. HLC denied the material allegations of the complaint and asserted numerous defenses thereto. The matter went to trial in the fourth quarter of 2018 and the jury returned a verdict of $ 28.7 million in favor of plaintiff. On June 21, 2019, the U.S. District Court in Minnesota entered judgment against HLC for $ 68.5 million . The judgment is comprised of: (i) $ 28.7 million in damages awarded by the jury; (ii) $ 14.1 million in pre-verdict interest; (iii) $ 23.1 million in attorneys' fees and costs, and (iv) $ 2.6 million in post-verdict, prejudgment interest. 28 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) HLC’s filing under the Bankruptcy Code discussed above in Home Loan Center, Inc. Bankruptcy Filing creates an automatic stay of enforcement of the judgment entered against HLC by the U.S. District Court in Minnesota. On August 27, 2019, plaintiff filed a lawsuit captioned ResCap Liquidating Trust v. LendingTree, LLC, et al., Case No. 19-cv-2360 (U.S. Dist. Ct., Minn.) , seeking to hold the Company liable for the judgment against HLC, under assumption of liability, agency and alter ego theories. The Company believes that these claims lack merit. On October 17, 2019, the Company filed a motion to dismiss the liability and agency claims, and oral arguments with respect to such motion were held on January 10, 2020. On March 20, 2020, the court denied the Company's motion to dismiss, or in the alternative, to compel arbitration, and on April 3, 2020, the Company appealed the court's findings with respect to the Company's request to compel arbitration of the first count of the lawsuit. On June 17, 2020, the Company entered into a settlement agreement with ResCap, pursuant to which, the Company agreed to, among other things, pay ResCap $ 58.5 million , less any amounts ResCap receives in the HLC bankruptcy, in exchange for, among other things, ResCap releasing any and all claims against the Company, and the Company’s directors and officers, including any claims asserted in ResCap v. LendingTree. Pursuant to the settlement agreement, the Company will be responsible for the difference of $ 58.5 million minus the amount that ResCap receives through the HLC Bankruptcy. In July 2020, the Company made a $ 26.5 million payment to the ResCap Liquidating Trust. Lehman Brothers Holdings, Inc. Lehman Brothers Holdings Inc. v. 1st Advantage Mortgage, LLC et al., Case No. 08-13555 (SCC), Adversary Proceeding No. 16-01342 (SCC) (Bankr. S.D.N.Y.). In February 2016, Lehman Brothers Holdings, Inc. (“LBHI”) filed an Adversary Complaint against HLC and approximately 149 other defendants (the "Complaint"). In December 2018, LBHI amended its complaint against HLC. The amended complaint references approximately 370 allegedly defective mortgage loans sold by HLC with purported "Claim Amounts" totaling $ 40.2 million . LBHI alleges it settled all such claims and is seeking indemnification from HLC for LBHI’s purported losses and liabilities associated with such settlements, plus prejudgment interest, attorneys’ fees, litigation costs and other expenses. The amended complaint does not specify the amount of LBHI’s purported damages. On December 4, 2019, LBHI filed a $ 44.7 million proof of claim in HLC’s bankruptcy seeking recovery for the claims asserted in the lawsuit. The Company believes that these claims lack merit and understands that HLC intends to defend this action vigorously. HLC’s filing under the Bankruptcy Code discussed above in Home Loan Center, Inc. Bankruptcy Filing creates an automatic stay of this proceeding. On June 11, 2020, LBHI filed a lawsuit captioned Lehman Brothers Holdings Inc. v. LendingTree, LLC, et al., Case No. 20-cv-01351 (U.S. Dist. Ct., Minn.) , seeking to hold the Company liable for their allowed bankruptcy claim of $ 13.3 million , under assumption of liability, agency and alter ego theories. The Company believes that these claims lack merit and intends to defend this action vigorously. Financial Information of Discontinued Operations The components of net loss reported as discontinued operations in the accompanying consolidated statements of operations and comprehensive income are as follows (in thousands) : Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Revenue $ — $ — $ — $ — Loss before income taxes ( 28,424 ) ( 966 ) ( 34,526 ) ( 2,310 ) Income tax benefit 7,283 203 8,810 485 Net loss $ ( 21,141 ) $ ( 763 ) $ ( 25,716 ) $ ( 1,825 ) Losses from discontinued operations included all activity of HLC prior to bankruptcy, including litigation settlements, contingencies and legal fees associated with legal proceedings. The results of discontinued operations also include litigation settlements and contingencies and legal fees associated with ongoing legal proceedings against LendingTree Inc. or LendingTree LLC that arose due to the LendingTree Loans Business or the HLC bankruptcy filing. 29 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 19 — SUBSEQUENT EVENTS Senior Secured Revolving Credit Facility On July 21, 2020, the Company executed a temporary amendment to its Amended Revolving Credit Facility to provide for certain covenant relief, primarily to facilitate the issuance of convertible notes outlined below, the repurchase of a portion of the 2022 Notes, and to pay down existing borrowings under the credit facility. The amendment amends the existing credit agreement to, among other things: (i) temporarily replace the total consolidated debt to EBITDA ratio covenant with a consolidated liquidity covenant requiring the Company to maintain unrestricted cash and cash equivalents in the United States plus amounts available and permitted to be drawn under the Amended Revolving Credit Facility to be no less than $ 200.0 million ; (ii) impose additional limitations on certain restricted payments during such temporary period; and (iii) increase the applicable margins to (x) 2.25 % for loans based on the LIBO rate and (y) 1.25 % for loans based on the base rate, subject to a 0.75 % floor, and unused commitment fees to 0.50 % under the Amended Revolving Credit Facility during the temporary period. These amendments shall apply from the effective date through the fiscal quarter ending June 30, 2021, unless terminated in advance by the Company. During July 2020, the Company made net repayments of $ 130.0 million on its Amended Revolving Credit Facility, which represented the outstanding balance. Convertible Senior Notes On July 24, 2020, the Company issued $ 575.0 million aggregate principal amount of its 0.50 % Convertible Senior Notes due July 15, 2025 (the “2025 Notes”) in a private placement, for estimated net proceeds of approximately $ 559.8 million . The 2025 Notes bear interest at a rate of 0.50 % per year, payable semi-annually on January 15 and July 15 of each year, beginning on January 15, 2021. The 2025 Notes will mature on July 15, 2025, unless earlier repurchased, redeemed or converted. The initial conversion rate of the 2025 Notes is 2.1683 shares of Common Stock per $1,000 principal amount of 2025 Notes (which is equivalent to an initial conversion price of approximately $ 461.19 per share). On July 24, 2020, the Company used approximately $ 234.0 million of the net proceeds from the issuance of the 2025 Notes to repurchase approximately $ 130.3 million principal amount of the 2022 Notes through separate and individually-negotiated transactions with certain holders of the 2022 Notes. On July 24, 2020, in connection with the issuance of the 2025 Notes, the Company entered into Convertible Note Hedge (the “2020 Hedge”) and Warrant (the “2020 Warrants”) transactions with respect to the Company’s common stock. The Company used approximately $ 63.0 million of the net proceeds from the 2025 Notes to pay for the cost of the 2020 Hedge, after such cost was partially offset by the proceeds from the 2020 Warrants transactions. The 2020 Warrants have a strike price of $ 709.52 per share, which represents a premium of 100 % over the reported sale price of the Common Stock of $ 354.76 on July 21, 2020. To the extent of the repurchases of the 2022 Notes noted above, the Company entered into agreements with the counterparties for the 2017 Hedge and 2017 Warrants transactions to terminate a portion of the existing call spread transactions effective July 24, 2020 in notional amounts corresponding to the principal amount of the 2022 Notes repurchased. The Company received approximately $ 15.6 million as a result of terminating such portions of the 2017 Hedge and 2017 Warrants. 30 Table of Contents