What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-03-01 compared with 2020-02-27 · 178 added, 125 removed, 244 unchanged (55% of the section changed)

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LendingTree, Inc.

is the parent of LendingTree, LLC and several companies owned by LendingTree, LLC.

is the parent of LT Intermediate Company, LLC, which holds all of the outstanding ownership interests of LendingTree, LLC, and LendingTree, LLC owns several companies.

We operate what we believe to be the leading online consumer platform that connects consumers with the choices they need to be confident in their financial decisions.

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Our My LendingTree platform offers a personalized comparison-shopping experience by providing free credit scores and credit score analysis.

This platform enables us to observe consumers' credit profiles and then identify and alert them to loans and other offerings on our marketplace that may be more favorable than the terms they may have at a given point in time.

This platform enables us to monitor consumers' credit profiles and then identify and alert them to loans and other offerings on our marketplace that may be more favorable than the terms they may have at a given point in time.

This is designed to provide consumers with measurable savings opportunities over their lifetimes.

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We believe the strength of our brands and of our partner network place us in a strong position to continue to benefit from this market shift.

The LendingTree Loans business is presented as discontinued operations in the accompanying consolidated balance sheets, consolidated statements of operations and comprehensive income and consolidated cash flows for all periods presented.

The LendingTree Loans business is presented as discontinued operations in the accompanying consolidated balance sheets, consolidated statements of operations and comprehensive income (loss) and consolidated cash flows for all periods presented.

Except for the discussion under the heading "Discontinued Operations," the analysis within Management's Discussion and Analysis of Financial Condition and Results of Operations reflects our continuing operations.

Economic Conditions

During March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of COVID-19.

The pandemic has significantly impacted the economic conditions in the U.S., as federal, state and local governments react to the public health crisis, creating significant uncertainties in the U.S.

The downstream impact of various lockdown orders and related economic pullback are affecting our business and marketplace participants to varying degrees.

We are continuously monitoring the impacts of the current economic conditions related to the COVID-19 pandemic and the effect on our business, financial condition and results of operations.

Of our three reportable segments, the Consumer segment has been most impacted as unsecured credit and the flow of capital in certain areas of the market have contracted.

The impact to our Home and Insurance segments was much less substantial and these segments recovered by the end of 2020.

While forecasting the timeline of full recovery for the Consumer segment remains challenging, the momentum of recovery has increased in each quarter subsequent to the onset of the COVID-19 pandemic.

We are encouraged by the progress made, and continue to view the Consumer segment with optimism over the medium to long term.

Most of our selling and marketing expenses are variable costs that we adjust dynamically in relation to revenue opportunities to profitably meet demand.

Thus, as our revenue was negatively impacted during the recession, our marketing expenses generally decreased in line with revenue.

Segment Reporting

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Home, Consumer and Insurance.

We changed our reportable segments in the fourth quarter of 2019, and prior period results have been reclassified to conform with this change in reportable segments.

Recent Business Acquisitions

On February 28, 2020, we acquired an equity interest in Stash for $80.0 million.

Stash is a consumer investing and banking platform.

Stash brings together banking, investing, and financial services 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.

On January 10, 2019, we acquired ValuePenguin, a personal finance website that offers consumers objective analysis on a variety of financial topics from insurance to credit cards, for $106.2 million.

Combining ValuePenguin’s high-quality content and search engine optimization capability with proprietary technology and insurance carrier network from QuoteWizard enables us to provide immense value to carriers and agents.

This strategic acquisition positions us to achieve further scale in the insurance space as well as the broader financial services industry.

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This acquisition has established LendingTree as a leading player in the online insurance advertising industry, while continuing our ongoing diversification within the financial services category.

On July 23, 2018 , we acquired Student Loan Hero for $62.7 million in cash, of which $2.3 million was recognized as severance expense in our consolidated statements of operations and comprehensive income.

On July 23, 2018, we acquired Student Loan Hero for $62.7 million in cash, of which $2.3 million was recognized as severance expense in our consolidated statements of operations and comprehensive income (loss).

Student Loan Hero, a personal finance website dedicated to helping student loan borrowers manage their student debt, offers current and former students in-depth financial comparison tools, educational resources, and unbiased, personalized advice.

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On June 11, 2018, we acquired Ovation, a leading provider of credit services with a strong customer service reputation, for $12.1 million in cash and potential contingent consideration payments of up to $8.75 million through June 2020, subject to achieving specified targets.

Ovation utilizes a proprietary software application that facilitates the credit repair process and is integrated directly with certain credit bureaus while educating consumers on credit improvement via ongoing outreach with Ovation case advisors.

Ovation utilizes a proprietary software application that facilitates the credit repair process and is integrated directly with certain credit reporting agencies while educating consumers on credit improvement via ongoing outreach with Ovation case advisors.

The proprietary software application offers consumers a simple, streamlined process to identify, dispute, and correct inaccuracies within their credit reports.

Ovation's experienced management team, strong credit bureau relationships and customized software platform enable us to help more consumers achieve their original financial goals through the LendingTree platform.

On September 19, 2017 , we acquired certain assets of SnapCap for $11.9 million in cash at closing and contingent consideration payments of up to $9.0 million through March 31, 2020, subject to achieving specific targets.

SnapCap is a tech-enabled online platform, which connects business owners with lenders offering small business loans, lines of credit and merchant cash advance products through a concierge-based sales approach.

SnapCap's high-touch, high-conversion sales approach with our brand and performance marketing expertise has enabled growth in our small business offering.

On June 20, 2017 , we acquired MagnifyMoney for $29.6 million cash consideration at the closing of the transaction.

MagnifyMoney is a leading consumer-facing media property that offers editorial content, expert commentary, tools and resources to help consumers compare financial products and make informed financial decisions.

The MagnifyMoney team brings the expertise and infrastructure to expand content creation and distribution across all of our consumer facing brands, improving our presence and efficacy in acquisition channels such as search engine optimization.

On June 14, 2017 , we acquired substantially all of the assets of DepositAccounts for $24.0 million in cash at closing and contingent consideration payments of up to $9.0 million through June 30, 2020, subject to achieving specific targets.

DepositAccounts is a leading consumer-facing media property in the depository industry and is one of the most comprehensive sources of depository deals and analysis on the Internet, covering all major deposit product categories through editorial content, programmatic rate tables and user-generated content.

This acquisition represented our first offering to address the asset side of the consumer balance sheet.

Ovation's experienced management team, strong credit reporting agency relationships and customized software platform enable us to help more consumers achieve their financial goals through the LendingTree platform.

These acquisitions continue our diversification strategy.

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We dynamically adjust selling and marketing expenditures in all interest rate environments to optimize our results against these variables.

According to Freddie Mac, 30-year mortgage interest rates declined from a monthly average of 4.15% in January 2017 to a monthly average of 3.81% in September 2017, before increasing to 3.95% at the end of 2017.

During 2018, 30-year mortgage interest rates generally increased to a monthly average of 4.87% in November 2018, but declined to 4.64% at the end of 2018.

According to Freddie Mac, 30-year mortgage interest rates increased from 3.95% at the end of 2017 to a monthly average of 4.87% in November 2018, but declined to 4.64% at the end of 2018.

During 2019, 30-year mortgage interest rates steadily decreased from a monthly average of 4.46% in January 2019, ending at a monthly average of 3.72% in December.

On a full-year basis, 30-year mortgage interest rates decreased to an average 3.94% in 2019, as compared to 4.54% and 3.99% in 2018 and 2017, respectively.

The declining trend continued into 2020, largely as a result of stimulus efforts in response to the COVID-19 pandemic, ending at a monthly average of 2.68% in December 2020.

On a full-year basis, 30-year mortgage interest rates decreased to an average 3.11% in 2020, compared to 3.94% and 4.54% in 2019 and 2018, respectively.

Typically, as mortgage interest rates decline, there are more consumers in the marketplace seeking refinancings and, accordingly, the mix of mortgage origination dollars will move towards refinance mortgages.

According to Mortgage Bankers Association ("MBA") data, total refinance origination dollars decreased from 35% of total 2017 mortgage origination dollars to 28% in 2018, then increased to 38% in 2019 as a result of the general trend in average mortgage interest rates.

In 2019, total refinance origination dollars increased by 70% over 2018 and by 29% over 2017.

Looking forward, the MBA is projecting 30-year mortgage interest rates to remain relatively consistent in 2020, at an average 3.7% on 30-year fixed rate mortgages.

According to Mortgage Bankers Association ("MBA") data, total refinance origination dollars increased from 28% of total 2018 mortgage origination dollars to 38% in 2019, then increased further to 60% in 2020 as a result of the general trend in average mortgage interest rates.

Total refinance origination dollars increased by 70% in 2019 over 2018 and by 109% in 2020 over 2019.

Industry-wide mortgage origination dollars increased by 34% in 2019 over 2018 and by 59% in 2020 over 2019.

Looking forward, the MBA is projecting 30-year mortgage interest rates to increase slightly in 2021 to an average 3.4%.

According to MBA projections, the mix of mortgage origination dollars is expected to move back towards purchase mortgages with the refinance share representing just 42% for 2021.

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Conversely, a weaker real estate market will typically lead to an increase in lender demand, as there are fewer consumers in the marketplace seeking mortgages.

According to the National Association of Realtors ("NAR"), nationwide existing home sales in 2017 increased approximately 2% over 2016 due to limited inventory of homes for sale in 2017.

In addition to continued low inventory, rising interest rates contributed to declining home sales in 2018, resulting in nationwide existing home sales in 2018 contracting approximately 3% from 2017.

In 2019, existing home sales remained consistent with 2018 levels.

The NAR expects an increase in home sales in 2020, particularly if interest rates continue to remain low and employment growth is sustained.

According to the National Association of Realtors ("NAR"), nationwide existing home sales in 2018 declined approximately 3% compared to 2017 due to limited inventory of homes for sale and rising interest rates.

Existing home sales in 2019 remained consistent with 2018 levels.

In 2020, existing home sales grew by 6% over 2019, fueled by increased competition for low inventory as well as an increase in first-time home buyers.

The NAR expects a 15% increase in existing home sales in 2021.

Convertible Senior Notes and Hedge and Warrant Transactions

On July 24, 2020, we issued $575.0 million aggregate principal amount of our 0.50% Convertible Senior Notes due July 15, 2025 and, in connection therewith, entered into Convertible Note Hedge and Warrant transactions with respect to our common stock.

On May 31, 2017, we issued $300.0 million aggregate principal amount of our 0.625% Convertible Senior Notes due June 1, 2022 and, in connection therewith, entered into Convertible Note Hedge and Warrant transactions with respect to our common stock.

On July 24, 2020, a portion of the net proceeds from the issuance of the 2025 Notes was used to repurchase approximately $130.3 million principal amount of the 2022 Notes.

A portion of the call spread transactions associated with the 2022 Notes was also terminated on July 24, 2020 in notional amounts corresponding to the principal amount of the 2022 Notes repurchased.

For more information, see Note 15—Debt, in the notes to the consolidated financial statements included elsewhere in this report.

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In May 2019, we sold these buildings to an unrelated third party for a sale price of $24.4 million.

For additional information, see Note 7 —Assets Held for Sale in the notes to the consolidated financial statements included elsewhere in this report.

Our new corporate office is currently in the final stages of construction and will be located on approximately 176,000 square feet of office space in Charlotte, North Carolina under an approximate 15-year lease that is expected to contractually commence in the first quarter of 2021.

With our expansion in North Carolina, in December 2016, we received a grant from the state that provides up to $4.9 million in reimbursements over 12 years beginning in 2017 for investing in real estate and infrastructure in addition to increasing jobs in North Carolina at specific targeted levels through 2020, and maintaining the jobs thereafter.

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Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations for the Years ended December 31, 2019 and 2018 of our Form 10-K for the fiscal year ended December 31, 2019.

Year Ended December 31,

Year Ended December 31, 2020 vs.

(Dollars in thousands)

Home $ 320,992 $ 277,935 $ 43,057 15 %

Consumer 253,198 515,037 (261,839) (51) %

Insurance 333,765 284,792 48,973 17 %

Other 2,035 28,839 (26,804) (93) %

Revenue 909,990 1,106,603 (196,613) (18) %

Costs and expenses:

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

54,494 68,379 (13,885) (20) %

Selling and marketing expense 617,404 735,180 (117,776) (16) %

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Product development 43,636 39,953 3,683 9 %

Depreciation 14,201 10,998 3,203 29 %

Amortization of intangibles 53,078 55,241 (2,163) (4) %

Change in fair value of contingent consideration 5,327 28,402 (23,075) (81) %

Severance 295 1,026 (731) (71) %

Litigation settlements and contingencies (943) (151) (792) (525) %

Total costs and expenses 916,593 1,055,875 (139,282) (13) %

Operating income

Operating (loss) income (6,603) 50,728 (57,331) (113) %

Other (expense) income, net:

Interest expense, net (36,300) (20,271) 16,029 79 %

Other income (expense)

Income before income taxes

Other income 376 524 (148) (28) %

(Loss) income before income taxes (42,527) 30,981 (73,508) (237) %

Income tax benefit 19,961 8,479 11,482 135 %

Net income from continuing operations

Net (loss) income from continuing operations (22,566) 39,460 (62,026) (157) %

Loss from discontinued operations, net of tax (25,689) (21,632) 4,057 19 %

Net income and comprehensive income

Revenue increased in 2019 compared to 2018 due to increases in our Consumer and Insurance segments, partially offset by a decrease in our Home segment.

Net (loss) income and comprehensive (loss) income $ (48,255) $ 17,828 $ (66,083) (371) %

Revenue decreased in 2020 compared to 2019 due to decreases in our Consumer segment and Other category, partially offset by increases in our Insurance and Home segments.

Our Consumer segment includes the following products:

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Many of our Consumer segment products are not individually significant to revenue.

Revenue from our Consumer segment increased $119.4 million in 2019 from 2018, or 30% , primarily due to increases in our credit cards, personal loans, small business loans, student loans and credit services products.

Revenue from our credit card product increased $45.5 million to $211.3 million in 2019 from $165.8 million in 2018 , or 28%, due to increases in the number of approvals and an increase in revenue earned per approval.

Revenue from our personal loan product increased $18.5 million to $152.7 million in 2019 from $134.2 million in 2018 , or 14%, due to an increased number of consumers completing request forms, partially offset by a decrease in revenue earned per consumer.

For 2019 and 2018 , no other products in our Consumer segment represented more than 10% of revenue, however certain other Consumer products experienced notable increases.

Revenue from our small business loans product increased $20.5 million in 2019 compared to 2018 , due to increases in the number of consumers seeking business loans, partially offset by a decrease in revenue earned per consumer.

Revenue from our student loans product increased $15.3 million in 2019 compared to 2018 , due to increased consumers, increased lenders on our exchange, and the acquisition of Student Loan Hero in July 2018.

Revenue from our credit services product increased $14.6 million in 2019 compared to 2018 , primarily due to the acquisition of Ovation in June 2018, as well as an increase in revenue earned per consumer.

We believe the market for our Consumer segment remains under-penetrated and we believe long-term growth prospects are positive for the Consumer segment.

While we anticipate growth in the Consumer segment, we do not expect revenue to grow at the rate experienced in 2019.

A significant industry-wide contraction in the availability of capital for products in the Consumer segment would likely adversely affect our Consumer product revenues.

Revenue from our Insurance segment increased $253.4 million to $284.8 million in 2019 from $31.4 million in 2018, or 808% , due to the QuoteWizard acquisition, completed on October 31, 2018.

As a result, we do not expect revenue in our Insurance segment to increase at the rate experienced in 2019.

Revenue from our Consumer segment decreased $261.8 million in 2020 from 2019, or 51%, primarily due to decreases in our credit cards, personal loans, small business loans and student loans products.

Revenue from our credit cards product decreased $133.9 million to $77.4 million in 2020 from $211.3 million in 2019, or 63%, primarily due to the impact of economic conditions related to the COVID-19 pandemic that caused lower issuer demand, resulting in a decrease in the number of approvals and a decrease in revenue earned per approval.

Revenue from our personal loans product decreased $86.2 million to $66.5 million in 2020 from $152.7 million in 2019, or 56%, primarily due to the impact of economic conditions related to the COVID-19 pandemic that caused a contraction in the flow of capital and a decrease in revenue earned per consumer.

For the periods presented, no other products in our Consumer segment represented more than 10% of revenue;

however, certain other Consumer products experienced notable changes primarily due to the impact of economic conditions related to the COVID-19 pandemic.

Revenue from our small business loans product decreased $20.9 million in 2020 compared to 2019, due to a contraction in the flow of capital and a decrease in revenue earned per consumer.

Revenue from our student loans product decreased $18.0 million in 2020 compared to 2019, due to a decrease in the number of consumers on our marketplace seeking student loans and lower demand for student loan refinancing due to the CARES Act providing temporary payment deferral relief.

The ongoing COVID-19 pandemic is anticipated to continue to impact our Consumer product revenues in the near-term due to the significant industry-wide contraction in the availability of capital for products in the Consumer segment, specifically credit cards, small business loans and personal loans, as discussed above.

Revenue from our Insurance segment increased $49.0 million to $333.8 million in 2020 from $284.8 million in 2019, or 17%, due to increases in the number of consumers seeking insurance coverage, partially offset by a decrease in revenue earned per consumer.

Our Home segment includes the following products:

purchase mortgage, refinance mortgage, home equity loans and lines of credit, reverse mortgage loans, and real estate.

Revenue from our Home segment decreased $41.2 million in 2019 from 2018, or 13% , primarily due to decreases in our purchase mortgage, home equity loans and lines of credit and reverse mortgage products, partially offset by an increase in revenue from our refinance mortgage product.

The revenue from our purchase mortgage, home equity loans and lines of credit and reverse mortgage products decreased $33.2 million, $8.8 million and $6.7 million, respectively, in 2019 from 2018 , due to decreases in the number of consumers completing request forms as well as a decrease in revenue earned per consumer.

The revenue from our refinance mortgage product increased $7.6 million in 2019 from 2018 primarily due to an increase in the number of consumers completing request forms as a result of more consumers seeking refinancing in a period of declining interest rates, partially offset by a decrease in revenue earned per consumer.

We expect growth in revenue in our Home segment.

Revenue from our Home segment increased $43.1 million in 2020 from 2019, or 15%, primarily due to an increase in revenue from our refinance mortgage product, partially offset by decreases in our purchase mortgage and home equity loans and lines of credit products.

Revenue from our refinance mortgage product increased $98.3 million in 2020 compared to 2019, primarily due to an increase in the number of consumers completing request forms resulting from increased refinancing activity in a declining interest rate environment, partially offset by a decrease in revenue earned per consumer.

Revenue from our purchase mortgage product and our home equity loans and lines of credit product decreased $28.8 million and $24.0 million, respectively, in 2020 compared to 2019.

Revenue from our purchase mortgage and home equity loans and lines of credit products decreased due to a shift in lender focus toward refinance products as well as decreases in revenue earned per consumer.

Our Other category includes revenue from the resale of online advertising space to third parties and revenue from home improvement referrals.

Revenue in the Other category increased $10.1 million , primarily from the resale of online advertising space to third parties, partially offset by the decrease in revenue from home improvement referrals.

Revenue from our Other category will decrease significantly in 2020, as effective in the first quarter of 2019, we no longer offer home improvement referrals and effective in the first quarter of 2020, we will no longer resell online advertising space.

Revenue in the Other category decreased $26.8 million in 2020 compared to 2019, as we ceased offering home improvement referrals during the first quarter of 2019 and ceased reselling online advertising space during the first quarter of 2020.

Cost of revenue

Cost of revenue consists primarily of costs associated with compensation and other employee-related costs (including stock-based compensation) relating to internally-operated customer call centers, third-party customer call center fees, costs for online advertising resold to third parties, credit scoring fees, credit card fees, website network hosting and server fees.

Cost of revenue increased in 2019 from 2018 , primarily due to increases of $13.9 million for the cost of resold advertising space, $10.9 million in compensation and benefits as a result of increases in headcount, $3.8 million in website network hosting and server fees, $1.1 million in credit card fees and $1.0 million in call center technology.

We expect a decrease in cost of revenue in 2020 as effective in the first quarter of 2020, we will no longer resell online advertising space.

Cost of revenue as a percentage of revenue increased to 6% in 2019 compared to 5% in 2018 due to the items above.

Cost of revenue decreased in 2020 from 2019, primarily due to a $21.7 million decrease for the cost of resold advertising space, partially offset by increases in compensation and benefits, website network hosting and server fees, and credit card fees of $2.4 million, $2.3 million, and $2.1 million, respectively.

Cost of revenue as a percentage of revenue remained consistent at 6% for each of 2020 and 2019.

Selling and marketing expense

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Advertising production costs are expensed in the period the related ad is first run.

The increases in selling and marketing expense in 2019 compared to 2018 was primarily due to increases in advertising and promotional expense of $218.2 million , as discussed below.

In addition, selling and marketing expense increased in 2019 compared to 2018 due to an increase in compensation and benefits of $16.7 million as a result of increases in headcount.

The decrease in selling and marketing expense in 2020 compared to 2019 was primarily due to decreases in advertising and promotional expense of $120.4 million, as discussed below.

This was partially offset by an increase in compensation and benefits of $2.7 million as a result of increases in headcount.

Advertising and promotional expense is the largest component of selling and marketing expense, and is comprised of the following:

Year Ended December 31,

Year Ended December 31, 2020 vs.

(Dollars in thousands)

Online $ 539,910 $ 653,739 $ (113,829) (17) %

Broadcast 13,415 20,972 (7,557) (36) %

Other 14,423 13,469 954 7 %

Total advertising expense $ 567,748 $ 688,180 $ (120,432) (18) %

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This relationship exists for our Home, Consumer and Insurance segments.

We increased our advertising expenditures in 2019 compared to 2018 in order to generate additional consumer inquiries to meet the increased demand of Network Partners on our marketplace.

We will continue to adjust selling and marketing expenditures dynamically in relation to anticipated revenue opportunities.

We decreased our advertising expenditures in 2020 compared to 2019 in response to changes in Network Partner demand on our marketplace as a result of the ongoing COVID-19 pandemic discussed above.

We will continue to adjust selling and marketing expenditures dynamically in relation to this and in response to anticipated revenue opportunities.

General and administrative expense

General and administrative expense consists primarily of compensation and other employee-related costs (including stock-based compensation) for personnel engaged in finance, legal, tax, corporate information technology, human resources and executive management functions, as well as facilities and infrastructure costs and fees for professional services.

General and administrative expense increased in 2019 compared to 2018 , primarily due to increases in compensation and benefits of $8.7 million as a result of increases in headcount.

General and administrative expense also increased due to increases in facilities expense of $4.4 million and technology expense of $4.3 million, partially offset by a decrease in professional fees of $4.5 million.

General and administrative expense in 2018 includes a charge of $1.6 million due to the write-off of certain fixed assets.

The increase in general and administrative expense in 2019 compared to 2018 is also partially offset by a $2.7 million gain on the sale of two office buildings in Charlotte, North Carolina.

General and administrative expense as a percentage of revenue decreased to 11% in 2019 compared to 13% in 2018 .

General and administrative expense increased in 2020 compared to 2019, primarily due to increases in professional fees, facilities expense, and technology expense of $5.7 million, $4.9 million, and $4.1 million, respectively.

2019 also benefited from a $2.7 million gain on the sale of two office buildings in Charlotte, North Carolina.

This was partially offset by decreases in travel and entertainment expense of $3.8 million and employee morale of $1.7 million.

Non-cash compensation expense within general and administrative expense is expected to increase in 2021, which could result in reductions in net income from continuing operations in 2021 compared to historical periods.

For additional information, see Note 13—Stock-Based Compensation in the notes to the consolidated financial statements included elsewhere in this report.

Non-cash compensation expense is excluded from Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA"), as discussed below.

General and administrative expense as a percentage of revenue increased to 14% in 2020 compared to 11% in 2019.

Product development

Product development expense consists primarily of compensation and other employee-related costs (including stock-based compensation) and third-party labor costs that are not capitalized, for employees and consultants engaged in the design, development, testing and enhancement of technology.

Product development expense increased in 2019 compared to 2018 as we continued to invest in internal development of new and enhanced features, functionality and business opportunities that we believe will enable us to better and more fully serve consumers and lenders.

Product development expense increased in 2020 compared to 2019 as we continued to invest in internal development of new and enhanced features, functionality and business opportunities that we believe will enable us to better and more fully serve consumers and Network Partners.

The increase in depreciation expense in 2020 compared to 2019 was primarily the result of higher investment in internally developed software in recent years, to support the growth of our business.

Amortization of intangibles

The increase in amortization of intangibles in 2019 compared to 2018 was primarily due to intangible assets associated with our business acquisitions in 2019 and 2018 .

Contingent consideration

During 2019 , we recorded an aggregate of $28.4 million of contingent consideration expense due to adjustments in the estimated fair value of the earnout payments related to our recent acquisitions.

During 2020, we recorded aggregate contingent consideration expense of $5.3 million due to adjustments in the estimated fair value of the earnout payments related to our recent acquisitions.

For 2020, the net contingent consideration expense for the QuoteWizard, Ovation and SnapCap acquisitions was $4.0 million, $1.3 million and $0.1 million, respectively.

During 2019, we recorded aggregate contingent consideration expense of $28.4 million due to adjustments in the estimated fair value of the earnout payments related to our recent acquisitions.

For 2019, the contingent consideration expense for the QuoteWizard and SnapCap acquisitions were $27.1 million and $2.2 million, respectively.

This was partially offset by a contingent consideration gain for the DepositAccounts acquisition of $1.0 million.

During 2018 , we recorded an aggregate of $10.8 million of contingent consideration expense due to adjustments in the estimated fair value of the earnout payments related to our recent acquisitions.

For 2018 , the contingent consideration expense for the CompareCards, DepositAccounts, Ovation and QuoteWizard acquisitions were $0.7 million, $2.0 million, $1.6 million and $6.8 million, respectively.

This was partially offset by a contingent consideration gain for the SnapCap acquisition of $0.3 million.

Income tax expense

Interest expense

Interest expense increased in 2020 compared to 2019 due to the issuance of $575.0 million of our 2025 Notes as well as the repurchase of a portion of our existing 2022 Notes in July 2020.

In 2020, interest expense of $11.5 million was recognized on the newly-issued 2025 Notes.

Further, a loss on debt extinguishment of $7.8 million was recognized within interest expense upon the partial repurchase of the 2022 Notes.

These increases to interest expense were partially offset by lower interest expense on the 2022 Notes subsequent to the repurchase of $130.3 million principal amount of the 2022 Notes.

See Note 15—Debt for additional information on the issuance of the 2025 Notes and the partial repurchase of the 2022 Notes.

Income tax benefit

Year Ended December 31,

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Effective tax rate 46.9 % (27.4) %

For 2019 , the effective tax rate varied from the federal statutory rate of 21% primarily due to the benefit derived from excess tax deductions from the vesting of restricted stock and exercise of stock options of $17.1 million, including state taxes and the benefit of the expected 2019 federal research and development tax credit of $3.5 million, offset by expense due to incremental valuation allowance on state net operating losses of $3.9 million, primarily due to state legislative changes.

For 2018 , the effective tax rate varied from the federal statutory rate of 21% primarily due to the benefit derived from excess tax deductions from the vesting of restricted stock and exercise of stock options of $77.6 million, including state taxes.

For 2020, the effective tax rate varied from the federal statutory rate of 21% in part due to the benefit derived from excess tax deductions from the vesting of restricted stock and exercise of stock options of $2.5 million, including state taxes.

The effective tax rate for 2020 was also impacted by a tax benefit of $6.1 million for the impact of the 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 us, 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.

We 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 2020.

These deferred tax assets are being revalued, as they have been carried back to 2016 and 2017, which are tax periods prior to the 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 2019, the effective tax rate varied from the federal statutory rate of 21% primarily due to the benefit derived from excess tax deductions from the vesting of restricted stock and exercise of stock options of $17.1 million, including state taxes and the benefit of an expected 2019 federal research and development tax credit of $3.5 million, offset by expense due to incremental valuation allowance on state net operating losses of $3.9 million, primarily due to state legislative changes.

Discontinued Operations

The results of discontinued operations include the results of the LendingTree Loans business formerly operated by our wholly-owned subsidiary, Home Loan Center, Inc., or HLC.

The results of discontinued operations include the results of the LendingTree Loans business formerly operated by our wholly-owned subsidiary, HLC.

The sale of substantially all of the assets of HLC, including the LendingTree Loans business, was completed on June 6, 2012.

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As a result of the voluntary bankruptcy petition, as of the initial July 21, 2019 bankruptcy petition filing date, HLC and its consolidated subsidiary were deconsolidated from LendingTree’s consolidated financial statements.

The effect of such deconsolidation was the elimination of the consolidated assets and liabilities of HLC (and its consolidated subsidiary) from LendingTree’s consolidated balance sheets and the recognition of a $4.5 million gain upon deconsolidation in the third quarter of 2019.

In addition, LendingTree recognized a loss of $31.0 million in the third quarter of 2019 as a result of a settlement offer to HLC after it filed for bankruptcy related to LendingTree LLC's ownership in HLC.

The effect of such deconsolidation was the elimination of the consolidated assets and liabilities of HLC (and its consolidated subsidiary) from LendingTree’s consolidated balance sheets.

Prior to the bankruptcy filing, losses from the LendingTree Loans business were primarily due to litigation settlements and contingencies and legal fees associated with ongoing legal proceedings.

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Segment Profit

Year Ended December 31,

Year Ended December 31, 2020 vs.

(Dollars in thousands)

Home $ 132,123 $ 103,121 $ 29,002 28 %

Consumer 106,890 213,185 (106,295) (50) %

Insurance 131,142 114,639 16,503 14 %

Other (682) 1,373 (2,055) (150) %

Segment profit $ 369,473 $ 432,318 $ (62,845) (15) %

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See Note 22—Segment Information in the notes to the consolidated financial statements for additional information on segments and a reconciliation of segment profit to pre-tax income from continuing operations.

Home segment profit remained relatively consistent, primarily due to a decrease in revenue generally offset by corresponding decreases in selling and marketing expense.

Consumer segment profit increased $25.5 million during 2019, primarily due to an increase in revenue partially offset by a corresponding increase in selling and marketing expense in the current period for online advertising.

Additionally, selling and marketing expenses in our Consumer segment increased as a percentage of revenue in 2019 compared to 2018.

Insurance segment profit increased $103.3 million during 2019, primarily due to the QuoteWizard acquisition completed on October 31, 2018.

Consumer segment profit decreased $106.3 million during 2020, primarily due to decreases in revenue, partially offset by corresponding decreases in selling and marketing expense due to the impact of economic conditions related to the COVID-19 pandemic.

While the Consumer segment was the most impacted by the COVID-19 pandemic, particularly in our credit cards, personal loans and small business loans products, recovery in the segment gained momentum throughout 2020.

We are encouraged by increasing credit card issuer budgets, increasing lender demand, and sustained signs of improved consumer health and spending, while continuing to be aware of challenges in consumer demand for unsecured loans.

While the timeline of full recovery for the Consumer segment remains uncertain, we continue to view the segment with optimism over the medium to long term.

Home segment profit increased $29.0 million during 2020, primarily due to an increase in revenue resulting from increased lender capacity and competition among network lenders, as well as due to margins that have improved as 2020 progressed.

In an environment of historic lows in mortgage rates and nearly historic highs in mortgage originations, lender demand increased in 2020 and persists into the new year.

Lenders adding operational capacity have increasingly turned to LendingTree to help drive growth.

We continue to view our leading position in the mortgage industry as a key point of competitive differentiation, and believe that the mortgage industry is still in the early stages of the shift to digital fulfillment, which has accelerated throughout 2020.

We believe that our reputation, history and lender relationships position us to not only benefit from but also help drive this accelerating shift to price discovery and digital fulfillment.

Insurance segment profit increased $16.5 million during 2020, primarily due to increases in revenue, partially offset by corresponding increases in selling and marketing expense.

We are consistently innovating and identifying opportunities for diversification and growth within the Insurance industry.

The rollout of our new publisher platform during 2020, which enables third-party content producers to monetize traffic through our distribution network, has increasingly contributed to segment results during the year.

The build out in 2020 of our in-house agency serving property and casualty clients, which complements our existing offerings by enabling us to drive volume for insurance carriers who do not write premiums directly, shows promising unit economics and we intend to scale the number of licensed agents and the geographic coverage significantly throughout 2021.

Finally, in addition to the automobile and home categories, our health insurance and Medicare categories continue to scale.

The Medicare category, which we began building out in 2020, showed significant promise during our first open-enrollment period in the fourth quarter of 2020.

We believe there is significant opportunity in this category, and intend to continue investing in its growth over the coming years.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization

We report Adjusted EBITDA as a supplemental measure to GAAP.

This measure is the primary metric by which we evaluate the performance of our businesses, on which our marketing expenditures and internal budgets are based and by which management and many employees are compensated.

This measure is the primary metric by which we evaluate the performance of our businesses, on which our marketing expenditures and internal budgets are based and by which, in most years, management and many employees are compensated.

We believe that investors should have access to the same set of tools that we use in analyzing our results.

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Items are considered one-time in nature if they are non-recurring, infrequent or unusual and have not occurred in the past two years or are not expected to recur in the next two years, in accordance with SEC rules.

For the periods presented below, there are no adjustments for one-time items.

One-time items for the year ended December 31, 2020 consisted of expenses incurred in connection with a secondary public offering of our common stock by our largest shareholder, for which we did not receive any proceeds.

There are no adjustments for one-time items for the year ended December 31, 2019.

Non-Cash Expenses that are Excluded from Adjusted EBITDA

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At the time of an acquisition, the intangible assets of the acquired company, such as purchase agreements, technology and customer relationships, are valued and amortized over their estimated lives.

The following table is a reconciliation of net income from continuing operations to Adjusted EBITDA.

The following table is a reconciliation of net (loss) income from continuing operations to Adjusted EBITDA.

Year Ended December 31,

(in thousands)

Net income from continuing operations

Net (loss) income from continuing operations $ (22,566) $ 39,460

Adjustments to reconcile to Adjusted EBITDA:

Amortization of intangibles 53,078 55,241

(Gain) loss on impairments and disposal of assets

Non-cash compensation

Depreciation 14,201 10,998

Severance 295 1,026

Loss (gain) on impairments and disposal of assets 1,160 (945)

Non-cash compensation expense 53,733 52,167

Costs of secondary public offering 863 —

Change in fair value of contingent consideration 5,327 28,402

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Interest expense, net 36,300 20,271

Rental amortization of intangibles and depreciation

Income tax benefit (19,961) (8,479)

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As of December 31, 2020, we had $169.9 million of cash and cash equivalents, compared to $60.2 million of cash and cash equivalents as of December 31, 2019.

We expect our cash and cash equivalents and cash flows from operations to be sufficient to fund our operating needs for the next twelve months and beyond.

Our revolving credit facility described below is an additional potential source of liquidity.

We will continue to monitor the impact of the ongoing COVID-19 pandemic on our liquidity and capital resources.

We expect our cashflow from operating activities to be negatively impacted by the economic recession.

Notable transactions affecting cash and cash equivalents during the reported periods are as follows:

In July 2020, we made litigation settlement payments of $26.5 million to the ResCap Liquidating Trust ("ResCap") and $36.0 million to the HLC bankruptcy Trustee for the matters noted in Note 21—Discontinued Operations.

In October 2020, due to the timing of distributions from the HLC bankruptcy estate, we were required to make a further payment of $6.4 million to ResCap.

We anticipate receiving a total $8.6 million reimbursement from the HLC bankruptcy estate related to the ResCap payments by the third quarter of 2021.

In July 2020, we issued $575.0 million of our 2025 Notes for net proceeds of approximately $559.9 million.

We used approximately $63.0 million of the net proceeds to enter into Convertible Note Hedge and Warrant transactions.

Further, we used $234.0 million of the net proceeds to repurchase approximately $130.3 million principal amount of our 2022 Notes.

To the extent of the repurchases of the 2022 Notes, we received approximately $15.6 million as a result of terminating a corresponding portion of the Convertible Note Hedge and Warrant transactions entered into on May 31, 2017.

See Note 15—Debt for additional information.

In February 2020, we acquired an equity interest in Stash for $80.0 million.

The investment was funded through $80.0 million drawn on our Amended Revolving Credit Facility.

See Note 8—Equity Investment to the consolidated financial statements included elsewhere in this report for more information.

During 2020, we made net repayments of $75.0 million on our Amended Revolving Credit Facility.

During 2020, we made contingent consideration payments of $6.0 million, $4.4 million and $20.2 million related to the prior acquisitions of SnapCap, Ovation and QuoteWizard, respectively.

We could make an additional potential contingent consideration payment of up to $23.4 million for QuoteWizard.

In 2019, we purchased an aggregate of 22,731 shares of our common stock pursuant to a stock repurchase program for $5.5 million.

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During 2019, we made contingent consideration payments of $3.0 million, $3.0 million, $4.4 million and $23.4 million related to the prior acquisitions of SnapCap, DepositAccounts, Ovation and QuoteWizard, respectively.

In 2018, we purchased an aggregate of 379,449 shares of our common stock pursuant to a stock repurchase program for $92.6 million.

Additionally, we paid $1.1 million in the first quarter of 2018 related to common stock repurchases in the fourth quarter of 2017.

In October 2018, we acquired QuoteWizard for $299.9 million in cash and potential contingent consideration payments of up to $70.2 million through October 2021, subject to achieving specific targets.

The acquisition was funded through $125.0 million drawn on our 2017 Revolving Credit Facility and the balance using cash on hand.

In July 2018, we acquired Student Loan Hero for $62.7 million in cash.

In June 2018, we acquired Ovation for $12.1 million in cash and could make potential future contingent consideration payments of up to $8.75 million through June 2020, subject to achieving specified targets.

During 2018, we made contingent consideration payments of $45.0 million and $4.0 million related to the prior acquisitions of CompareCards and DepositAccounts, respectively.

Recent Developments

In January 2020, we paid down $25.0 million on our Amended Revolving Credit Facility.

In January 2020, we made a contingent consideration payment of $3.0 million related to the prior acquisition of SnapCap.

We could make additional potential contingent consideration payments of up to $1.0 million for DepositAccounts, $3.0 million for SnapCap, $4.4 million for Ovation, and $46.8 million for QuoteWizard.

We expect our cash and cash equivalents and cash flows from operations to be sufficient to fund our operating needs for the next twelve months and beyond.

Our revolving credit facility described below is an additional potential source of liquidity.

Senior Secured Revolving Credit Facility

On December 10, 2019 , we entered into an amended and restated $500.0 million five -year senior secured revolving credit facility, which matures on December 10, 2024 (the “Amended Revolving Credit Facility”).

On December 10, 2019, we entered into an amended and restated $500.0 million five-year senior secured revolving credit facility, which 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 February 26, 2020 , we have $50.0 million of borrowings and a $0.2 million letter of credit under the Amended Revolving Credit Facility.

In July 2020, we executed a temporary amendment to the Amended Revolving Credit Facility to provide for certain covenant relief, primarily to facilitate the issuance of the 2025 Notes, the repurchase of a portion of the 2022 Notes, and to pay down

existing borrowings under the credit facility.

The amendment applies from the effective date through the fiscal quarter ending June 30, 2021, unless terminated in advance by us.

As of February 26, 2021, we have outstanding a $0.2 million letter of credit under the Amended Revolving Credit Facility.

The remaining borrowing capacity at February 26, 2021 is $499.8 million.

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Net cash used in investing activities $ (122,149) $ (101,060)

Net cash (used in) provided by financing activities

Net cash provided by (used in) financing activities $ 193,290 $ (87,678)

Cash Flows from Operating Activities

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In addition, our uses of cash from operating activities include compensation and other employee-related costs, other general corporate expenditures, litigation settlements and contingencies, certain contingent consideration payments, and income taxes.

Net cash provided by operating activities attributable to continuing operations increased in 2019 from 2018 primarily due to an increase in revenue, partially offset by an increase in selling and marketing expense, and $12.5 million portion of earnout payments made in excess of the contingent consideration liability recognized at the acquisition date.

Additionally, there was a net decrease in cash from changes in working capital primarily driven by changes in accounts payable, accrued expenses and other current liabilities and accounts receivable.

Net cash provided by operating activities attributable to continuing operations decreased in 2020 from 2019 primarily due to a decrease in revenue, partially offset by a corresponding decrease in selling and marketing expense.

This was further partially offset by a net increase in cash from changes in working capital, primarily due to favorable changes in accounts receivable, partially countered by unfavorable changes in income taxes receivable and current contingent consideration.

Cash Flows from Investing Activities

Net cash used in investing activities attributable to continuing operations in 2020 of $122.1 million consisted of the purchase of an $80.0 million equity interest in Stash and capital expenditures of $42.1 million primarily related to internally developed software and leasehold improvements for our new principal corporate offices currently under construction.

Net cash used in investing activities attributable to continuing operations in 2019 of $101.1 million consisted primarily of the acquisition of ValuePenguin for $105.6 million, net of cash acquired, and capital expenditures of $20.0 million primarily related to internally developed software.

This was partially offset by proceeds of $24.1 million on the sale of two office buildings, net of closing expenses.

Net cash used in investing activities attributable to continuing operations in 2018 of $383.0 million consisted primarily of the acquisitions, net of cash acquired, of QuoteWizard for $297.1 million, Student Loan Hero for $59.5 million and Ovation for $11.6 million, as well as capital expenditures of $14.9 million.

Cash Flows from Financing Activities

Net cash provided by financing activities attributable to continuing operations in 2020 of $193.3 million consisted primarily of $575.0 million of gross proceeds from the issuance of the 2025 Notes, partially offset by $233.9 million paid to repurchase a portion of the 2022 Notes, a net $47.4 million paid for the related convertible note hedge and warrant transactions outlined above, $75.0 million of net repayments on our Amended Revolving Credit Facility, and $16.6 million for the payment of debt issuance costs.

Net cash used in financing activities attributable to continuing operations in 2019 of $87.7 million consisted primarily of $50.0 million of net repayments on our 2017 Revolving Credit Facility, $21.3 million of aggregate contingent consideration payments for the prior acquisitions of SnapCap, Ovation and QuoteWizard, $5.5 million for the repurchase of our stock, and $8.4 million in withholding taxes paid upon surrender of shares to satisfy obligations on equity awards, net of proceeds from the exercise of stock options.

Net cash provided by financing activities attributable to continuing operations in 2018 of $4.8 million consisted primarily of $125.0 million of net proceeds from our 2017 Revolving Credit Facility, partially offset by $27.6 million of aggregate contingent consideration payments for the prior acquisitions of CompareCards, DepositAccounts and SimpleTuition, and $93.7 million for the repurchase of our stock.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements other than a letter of credit and our funding commitments pursuant to our surety bonds, none of which have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

material to investors.

See Note 16—Commitments to the consolidated financial statements included elsewhere in the report for further details.

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Contractual Obligations (a)

Total Less Than

1 Year 1-3 Years 3-5 Years More Than

Operating lease obligations (b)

$ 150,958 $ 9,147 $ 25,440 $ 20,309 $ 96,062

Long-term contractual obligations (c)

23,146 13,858 8,512 776 —

Convertible debt 744,690 — 169,690 575,000 —

Total contractual obligations $ 918,794 $ 23,005 $ 203,642 $ 596,085 $ 96,062

Excludes potential obligations under surety bonds.

(a) Excludes potential obligations under surety bonds.

Excludes a $2.6 million accrual related to uncertain tax position, as we are unable to determine when, or if, payments for these taxes will ultimately be made.

Our operating lease obligations are associated with office space and office equipment.

Includes a liability of $33.5 million for the estimated fair value of contingent consideration obligations reflected on the balance sheet for the acquisitions of SnapCap, Ovation and QuoteWizard.

Actual contingent consideration payments could range from zero to $1.0 million for DepositAccounts, $3.0 million to $6.0 million for SnapCap, zero to $4.4 million for Ovation, and zero to $46.8 million for QuoteWizard.

(b) Our operating lease obligations are associated with office space and office equipment.

(c) Includes a liability of $8.2 million for the estimated fair value of the contingent consideration obligation reflected on the balance sheet for the QuoteWizard acquisition.

The actual contingent consideration payment could range from zero to $23.4 million for QuoteWizard.

Also includes $14.9 million of certain other commitments.

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Stock-Based Compensation

The forms of stock-based awards granted to our employees are principally restricted stock units ("RSUs"), RSUs with performance conditions, stock options and stock options with performance conditions.

The forms of stock-based awards granted to our employees are principally restricted stock units ("RSUs"), RSUs with performance conditions and stock options.

Further, stock options with market conditions, restricted stock awards ("RSAs") with performance conditions and RSAs with market conditions have been granted to our Chairman and Chief Executive Officer.

The value of RSUs is measured at their grant dates as the fair value of common stock and amortized ratably as non-cash compensation expense over the vesting term.

The value of stock options issued is estimated using a Black-Scholes option pricing model.

The value of stock options issued is generally estimated using a Black-Scholes option pricing model.

The value of performance-based grants is measured at their grant dates and recognized as non-cash compensation expense, considering the probability of the targets being achieved.

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Otherwise, the goodwill reporting unit must be quantitatively tested for impairment.

The quantitative test for goodwill impairment is determined using a two-step process.

Performing the first step to compare reporting unit fair value with its carrying value using a discounted cash flow ("DCF") analysis requires the exercise of significant judgments, including judgments about appropriate discount rates, perpetual growth rates and the amount and timing of expected future cash flows.

If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is required to be performed to measure the amount of impairment, if any.

The second step of the goodwill impairment test compares the implied fair value of the reporting unit's goodwill (determined in the same manner as the amount of goodwill recognized in a business combination) with the carrying amount of that goodwill.

If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

Performing the quantitative test for goodwill impairment that compares the reporting unit fair value with its carrying value using a discounted cash flow analysis requires the exercise of significant judgments, including judgments about appropriate discount rates, perpetual growth rates and the amount and timing of expected future cash flows.

If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

The value of goodwill subject to assessment for impairment at December 31, 2020 is $420.1 million.

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The key assumptions used in this calculation include Adjusted EBITDA, the remaining useful lives of the primary cash flow generating asset in the asset group and, to a lesser extent, the deduction of capital expenditures and taxes paid in cash to arrive at net cash flows.

The value of long-lived assets subject to assessment for impairment is $228.3 million at December 31, 2019 .

Subsequent to the adoption of ASU 2018-15 in the first quarter of 2020, capitalized implementation costs incurred in a hosting arrangement that is a service contract are also allocated to and included within long-lived asset groups tested for recoverability.

The combined value of long-lived assets and capitalized implementation costs incurred in a hosting arrangement that is a service contract subject to assessment for impairment is $267.9 million at December 31, 2020.

Business Acquisitions

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Our estimates of fair value are based upon assumptions believed to be reasonable but which are uncertain and involve significant judgments by management.

We reassess the fair value of contingent consideration quarterly until the contingency is resolved, and changes in the fair value are recorded in operating income in the consolidated statements of operations and comprehensive income.

New Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis