LendingTree, Inc. 10-Q

Item 1. Financial Statements LENDINGTREE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited) Three Months Ended March 31, 2021 2020 (in thousands, except per share amounts) Revenue $ 272,750 $ 283,084 Costs and expenses: Cost of revenue (exclusive of depreciation and amortization shown separately below) 13,895 14,252 Selling and marketing expense 197,462 195,538 General and administrative expense 34,989 32,082 Product development 12,468 10,963 Depreciation 3,718 3,378 Amortization of intangibles 11,312 13,757 Change in fair value of contingent consideration 797 ( 8,122 ) Severance — 158 Litigation settlements and contingencies 16 329 Total costs and expenses 274,657 262,335 Operating (loss) income ( 1,907 ) 20,749 Other (expense) income, net: Interest expense, net ( 10,215 ) ( 4,834 ) Other income 40,072 — Income before income taxes 27,950 15,915 Income tax (expense) benefit ( 8,638 ) 3,061 Net income from continuing operations 19,312 18,976 Loss from discontinued operations, net of tax ( 263 ) ( 4,575 ) Net income and comprehensive income $ 19,049 $ 14,401 Weighted average shares outstanding: Basic 13,070 12,957 Diluted 14,119 14,158 Income per share from continuing operations: Basic $ 1.48 $ 1.46 Diluted $ 1.37 $ 1.34 Loss per share from discontinued operations: Basic $ ( 0.02 ) $ ( 0.35 ) Diluted $ ( 0.02 ) $ ( 0.32 ) Net income per share: Basic $ 1.46 $ 1.11 Diluted $ 1.35 $ 1.02 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) March 31, 2021 December 31, 2020 (in thousands, except par value and share amounts) ASSETS: Cash and cash equivalents $ 162,091 $ 169,932 Restricted cash and cash equivalents 79 117 Accounts receivable (net of allowance of $ 1,429 and $ 1,402 , respectively) 123,067 89,841 Prepaid and other current assets 28,638 27,949 Current assets of discontinued operations 8,556 8,570 Total current assets 322,431 296,409 Property and equipment (net of accumulated depreciation of $ 22,368 and $ 20,238 , respectively) 71,572 62,381 Operating lease right-of-use assets 81,622 84,109 Goodwill 420,139 420,139 Intangible assets, net 117,189 128,502 Deferred income tax assets 87,586 96,224 Equity investment 121,253 80,000 Other non-current assets 5,403 5,334 Non-current assets of discontinued operations 15,982 15,892 Total assets $ 1,243,177 $ 1,188,990 LIABILITIES: Accounts payable, trade $ 7,230 $ 10,111 Accrued expenses and other current liabilities 113,442 101,196 Current contingent consideration 9,046 — Current liabilities of discontinued operations 803 536 Total current liabilities 130,521 111,843 Long-term debt 619,502 611,412 Operating lease liabilities 97,352 92,363 Non-current contingent consideration — 8,249 Other non-current liabilities 359 362 Total liabilities 847,734 824,229 Commitments and contingencies (Note 14) SHAREHOLDERS' EQUITY: Preferred stock $ .01 par value; 5,000,000 shares authorized; none issued or outstanding — — Common stock $ .01 par value; 50,000,000 shares authorized; 15,797,177 and 15,766,193 shares issued, respectively, and 13,155,859 and 13,124,875 shares outstanding, respectively 158 158 Additional paid-in capital 1,200,306 1,188,673 Accumulated deficit ( 621,860 ) ( 640,909 ) Treasury stock; 2,641,318 shares ( 183,161 ) ( 183,161 ) Total shareholders' equity 395,443 364,761 Total liabilities and shareholders' equity $ 1,243,177 $ 1,188,990 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, 2020 $ 364,761 15,766 $ 158 $ 1,188,673 $ ( 640,909 ) 2,641 $ ( 183,161 ) Net income and comprehensive income 19,049 — — — 19,049 — — Non-cash compensation 16,436 — — 16,436 — — — Issuance of common stock for stock options, restricted stock awards and restricted stock units, net of withholding taxes ( 4,801 ) 31 — ( 4,801 ) — — — Other ( 2 ) — — ( 2 ) — — — Balance as of March 31, 2021 $ 395,443 15,797 $ 158 $ 1,200,306 $ ( 621,860 ) 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, 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 ) 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) Three Months Ended March 31, 2021 2020 (in thousands) Cash flows from operating activities attributable to continuing operations: Net income and comprehensive income $ 19,049 $ 14,401 Less: Loss from discontinued operations, net of tax 263 4,575 Income from continuing operations 19,312 18,976 Adjustments to reconcile income from continuing operations to net cash provided by operating activities attributable to continuing operations: Loss on disposal of assets 348 530 Amortization of intangibles 11,312 13,757 Depreciation 3,718 3,378 Non-cash compensation expense 16,436 11,917 Deferred income taxes 8,638 ( 3,061 ) Change in fair value of contingent consideration 797 ( 8,122 ) Unrealized gain on investments ( 40,072 ) — Bad debt expense 516 880 Amortization of debt issuance costs 1,275 582 Amortization of convertible debt discount 7,346 3,111 Reduction in carrying amount of ROU asset, offset by change in operating lease liabilities 7,132 ( 196 ) Changes in current assets and liabilities: Accounts receivable ( 33,743 ) ( 6,952 ) Prepaid and other current assets ( 915 ) ( 1,430 ) Accounts payable, accrued expenses and other current liabilities 7,154 ( 3,271 ) Income taxes receivable ( 89 ) 65 Other, net ( 240 ) ( 862 ) Net cash provided by operating activities attributable to continuing operations 8,925 29,302 Cash flows from investing activities attributable to continuing operations: Capital expenditures ( 10,553 ) ( 4,189 ) Equity investment ( 1,180 ) ( 80,000 ) Net cash used in investing activities attributable to continuing operations ( 11,733 ) ( 84,189 ) 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 ( 4,801 ) ( 5,087 ) Net proceeds from revolving credit facility — 55,000 Payment of debt issuance costs ( 168 ) ( 306 ) Contingent consideration payments — ( 3,000 ) Other financing activities ( 31 ) ( 6 ) Net cash (used in) provided by financing activities attributable to continuing operations ( 5,000 ) 46,601 Total cash used in continuing operations ( 7,808 ) ( 8,286 ) Discontinued operations: Net cash used in operating activities attributable to discontinued operations ( 71 ) ( 752 ) Total cash used in discontinued operations ( 71 ) ( 752 ) Net decrease in cash, cash equivalents, restricted cash and restricted cash equivalents ( 7,879 ) ( 9,038 ) Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period 170,049 60,339 Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period $ 162,170 $ 51,301 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 the parent of LT Intermediate Company, LLC, which holds all of the outstanding ownership interests of LendingTree, LLC, and LendingTree, LLC owns several companies (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 17 — Discontinued Operations for additional information. Basis of Presentation The accompanying unaudited interim consolidated financial statements as of March 31, 2021 and for the three months ended March 31, 2021 and 2020, respectively, have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). In the opinion of management, the unaudited interim consolidated financial statements have been prepared on the same basis as the audited financial statements, and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the Company's financial position for the periods presented. The results for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021, or any other period. The accompanying consolidated balance sheet as of December 31, 2020 was derived from audited financial statements included in the Company's annual report on Form 10-K for the year ended December 31, 2020 (the "2020 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 2020 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. 7 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 allowances, reserves and accruals; assumptions related to the determination of stock-based compensation; and the determination of right-of-use assets and lease liabilities. The Company considered the impact of the COVID-19 pandemic on the assumptions and estimates used when preparing its financial statements including, but not limited to, the 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 the COVID-19 pandemic do not recover as currently estimated by management, such future changes may have an adverse impact on the Company's results of operations, financial position and liquidity. Certain Risks and Concentrations LendingTree's business is subject to certain risks and concentrations including dependence on third-party technology providers, exposure to risks associated with online commerce security and credit card fraud. Financial instruments, which potentially subject the Company to concentration of credit risk at March 31, 2021, 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 service. 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 December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 was permitted, including adoption in interim periods. Entities electing early adoption were required to adopt all amendments in the same period. Most amendments require prospective application 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 adopted ASU 2019-12 in the first quarter of 2021. The amendments applicable to the Company required prospective application, and do not have material impacts to its consolidated financial statements. Recently Issued Accounting Pronouncements In August 2020, the FASB issued ASU 2020-06, which simplifies the accounting for convertible instruments, amends the derivatives scope exception guidance for contracts in an entity’s own equity, and amends the related earnings-per-share 8 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) guidance. This ASU is effective for annual and interim reporting periods beginning after December 15, 2021. Early adoption is permitted for fiscal years beginning after December 15, 2020, including adoption in interim periods. An entity should adopt the guidance as of the beginning of its annual fiscal year. An entity may adopt the amendments through either a modified retrospective method of transition or a fully retrospective method of transition. The Company expects the amendments to impact its convertible senior notes and warrants issued and 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 March 31, 2021 2020 Home $ 128,125 $ 79,174 Credit cards 17,637 51,586 Personal loans 14,868 31,509 Other Consumer 25,402 36,829 Total Consumer 57,907 119,924 Insurance 86,614 82,737 Other 104 1,249 Total revenue $ 272,750 $ 283,084 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 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 9 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 in the Company's Consumer business was $ 7.1 million and $ 6.4 million at March 31, 2021 and December 31, 2020, respectively. The contract liability recorded within accrued expenses and other current liabilities on the consolidated balance sheets related to upfront fees paid by consumers in the Company's Consumer business was $ 1.0 million and $ 0.7 million at March 31, 2021 and December 31, 2020, respectively. During the first quarter of 2021, the Company recognized revenue of $ 0.6 million that was included in the contract liability balance at December 31, 2020. During the first quarter of 2020, the Company recognized revenue of $ 0.5 million that was included in the contract liability balance at December 31, 2019. 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 $ 0.1 million in the first quarters of 2021 and 2020, respectively. NOTE 4— CASH AND RESTRICTED CASH Total cash, cash equivalents, restricted cash and restricted cash equivalents consist of the following (in thousands) : March 31, 2021 December 31, 2020 Cash and cash equivalents $ 162,091 $ 169,932 Restricted cash and cash equivalents 79 117 Total cash, cash equivalents, restricted cash and restricted cash equivalents $ 162,170 $ 170,049 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. A reconciliation of the beginning and ending balances of the allowance for doubtful accounts is as follows (in thousands) : Three Months Ended March 31, 2021 2020 Balance, beginning of the period $ 1,402 $ 1,466 Charges to earnings 516 880 Write-off of uncollectible accounts receivable ( 494 ) ( 332 ) Recoveries collected 5 7 Balance, end of the period $ 1,429 $ 2,021 10 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 6— GOODWILL AND INTANGIBLE ASSETS The balance of goodwill, net and intangible assets, net is as follows (in thousands) : March 31, 2021 December 31, 2020 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 107,047 118,360 Total intangible assets, net $ 117,189 $ 128,502 Goodwill and Indefinite-Lived Intangible Assets The Company's goodwill at each of March 31, 2021 and December 31, 2020 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 $ 87,700 $ ( 53,467 ) $ 34,233 Customer lists 77,300 ( 20,087 ) 57,213 Trademarks and tradenames 17,200 ( 10,832 ) 6,368 Website content 43,200 ( 33,967 ) 9,233 Balance at March 31, 2021 $ 225,400 $ ( 118,353 ) $ 107,047 Cost Accumulated Amortization Net Technology $ 87,700 $ ( 48,166 ) $ 39,534 Customer lists 77,300 ( 18,560 ) 58,740 Trademarks and tradenames 17,200 ( 9,947 ) 7,253 Website content 43,200 ( 30,367 ) 12,833 Balance at December 31, 2020 $ 225,400 $ ( 107,040 ) $ 118,360 Amortization of intangible assets with definite lives is computed on a straight-line basis and, based on balances as of March 31, 2021, future amortization is estimated to be as follows (in thousands) : Amortization Expense Remainder of current year $ 31,425 Year ending December 31, 2022 25,256 Year ending December 31, 2023 8,602 Year ending December 31, 2024 6,747 Year ending December 31, 2025 6,259 Thereafter 28,758 Total intangible assets with definite lives, net $ 107,047 11 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 7— EQUITY INVESTMENT On February 28, 2020, the Company acquired an equity interest in Stash Financial, Inc. (“Stash”) for $ 80.0 million. On January 6, 2021, the Company acquired additional equity interest for $ 1.2 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. 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 to the consolidated statement of operations and comprehensive income. During the first quarter of 2021, the Company recorded a gain on the investment in Stash of $ 40.1 million as a result of an adjustment to the fair value of the Stash equity securities based on observable market events, which is included within other income on the consolidated statement of operations and comprehensive income. As of March 31, 2021, there have been no impairments to the acquisition cost of the Stash equity securities. 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”). During 2020, the Company made the final earnout payment related to the achievement of certain defined operating metrics for Ovation. In 2017, the Company acquired certain assets of Snap Capital LLC, which does business under the name SnapCap (“SnapCap”). During 2020, the Company made the final earnout payments related to the achievement of certain defined earnings targets for SnapCap. The Company will make an earnout payment ranging from zero to $ 23.4 million based on the achievement of certain defined performance targets for QuoteWizard. Changes in the fair value of contingent consideration is summarized as follows ( in thousands) : Three Months Ended March 31, 2021 2020 QuoteWizard $ 797 $ ( 8,262 ) Ovation — 141 SnapCap — ( 1 ) Total changes in fair value of contingent consideration $ 797 $ ( 8,122 ) As of March 31, 2021, the estimated fair value of the contingent consideration for the QuoteWizard acquisition totaled $ 9.0 million, which is included in current contingent consideration in the accompanying consolidated balance sheet. The estimated fair value of the contingent consideration payments is determined using an option pricing model. The estimated value of the contingent consideration is based upon available information and certain assumptions, known at the time of this report, which management believes are reasonable. Any differences in the actual contingent consideration payments will be recorded in operating income in the consolidated statements of operations and comprehensive income. 12 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 9— ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following (in thousands) : March 31, 2021 December 31, 2020 Accrued advertising expense $ 66,893 $ 54,045 Accrued compensation and benefits 11,478 14,081 Accrued professional fees 2,084 1,869 Customer deposits and escrows 7,614 8,153 Contribution to LendingTree Foundation 3,333 3,333 Current lease liabilities 5,031 5,375 Other 17,009 14,340 Total accrued expenses and other current liabilities $ 113,442 $ 101,196 NOTE 10— SHAREHOLDERS' EQUITY Basic and diluted income per share was determined based on the following share data (in thousands) : Three Months Ended March 31, 2021 2020 Weighted average basic common shares 13,070 12,957 Effect of stock options 658 628 Effect of dilutive share awards 118 104 Effect of Convertible Senior Notes and warrants 273 469 Weighted average diluted common shares 14,119 14,158 For the first quarters of 2021 and 2020, the weighted average shares that were anti-dilutive, and therefore excluded from the calculation of diluted income per share, included options to purchase 0.3 million and 0.1 million shares of common stock, respectively. 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 13—Debt for additional information. Shares of the Company's common stock associated with the 0.50 % Convertible Senior Notes due July 15, 2025 and the warrants issued by the Company in the third quarter of 2020 were excluded from the calculation of diluted income per share for the first quarter of 2021 as they were anti-dilutive since the conversion price of the notes and the strike price of the warrants were greater than the average market price of the Company’s common stock during the relevant 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. There were no repurchases of the Company's common stock during the first quarters of 2021 and 2020. At March 31, 2021, approximately $ 179.7 million of the previous authorizations to repurchase common stock remain available. 13 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 11— 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 March 31, 2021 2020 Cost of revenue $ 397 $ 242 Selling and marketing expense 1,802 1,156 General and administrative expense 12,171 9,123 Product development 2,066 1,396 Total non-cash compensation $ 16,436 $ 11,917 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, 2021 924,710 $ 111.82 Granted (b) 53,173 253.75 Exercised ( 635 ) 271.96 Forfeited ( 2,280 ) 267.17 Expired ( 35 ) 371.25 Options outstanding at March 31, 2021 974,933 119.09 4.52 $ 114,706 Options exercisable at March 31, 2021 694,184 $ 55.13 2.65 $ 114,701 (a) The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company's closing stock price of $ 213.00 on the last trading day of the quarter ended March 31, 2021 and the exercise price, multiplied by the number of shares covered by in-the-money options) that would have been received by the option holder had the option holder exercised these options on March 31, 2021. The intrinsic value changes based on the market value of the Company's common stock. (b) During the three months ended March 31, 2021, the Company granted stock options to certain employees with a weighted average grant date fair value per share of $ 136.23 , calculated using the Black-Scholes option pricing model, with a vesting period of three years from grant date. For purposes of determining stock-based compensation expense, the weighted average grant date fair value per share of the stock options was estimated using the Black-Scholes option pricing model, which requires the use of various key assumptions. The weighted average assumptions used are as follows: Expected term (1) 6.00 years Expected dividend (2) — Expected volatility (3) 58 % Risk-free interest rate (4) 0.59 - 0.94 % (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. 14 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (2) For all stock options granted in 2021, 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. 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, 2021 700,209 $ 236.01 Granted — — Exercised — — Forfeited — — Expired — — Options outstanding at March 31, 2021 700,209 236.01 7.50 $ 11,759 Options exercisable at March 31, 2021 — $ — 0.00 $ — (a) The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company's closing stock price of $ 213.00 on the last trading day of the quarter ended March 31, 2021 and the exercise price, multiplied by the number of shares covered by in-the-money options) that would have been received by the option holder had the option holder exercised these options on March 31, 2021. The intrinsic value changes based on the market value of the Company's common stock. A maximum of 1,169,349 shares may be earned for achieving superior performance up to 167 % of the target number of shares. As of March 31, 2021, performance-based nonqualified stock options with a market condition of 481,669 had been earned, which have a vest date of September 30, 2022. 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, 2021 194,686 $ 289.82 Granted 120,994 253.98 Vested ( 47,330 ) 291.07 Forfeited ( 7,927 ) 276.18 Nonvested at March 31, 2021 260,423 $ 273.36 15 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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, 2021 6,328 $ 223.90 Granted — — Vested — — Forfeited — — Nonvested at March 31, 2021 6,328 $ 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, 2021 23,804 $ 340.25 Granted — — Vested ( 5,951 ) 340.25 Forfeited — — Nonvested at March 31, 2021 17,853 $ 340.25 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, 2021 26,674 $ 340.25 Granted — — Vested — — Forfeited — — Nonvested at March 31, 2021 26,674 $ 340.25 A maximum of 44,545 shares may be earned for achieving superior performance up to 167 % of the target number of shares. As of March 31, 2021, performance-based restricted stock awards with a market condition of 29,601 had been earned, which have a vest date of September 30, 2022. 16 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 12— INCOME TAXES Three Months Ended March 31, 2021 2020 (in thousands, except percentages) Income tax (expense) benefit $ ( 8,638 ) $ 3,061 Effective tax rate 30.9 % ( 19.2 ) % For the first quarter of 2021, the effective tax rate varied from the federal statutory rate of 21% primarily due to the effect of state taxes. For the first quarter of 2020, the effective tax rate varied from the federal statutory rate of 21 % in part due to a tax benefit of $ 1.1 million recognized for excess tax benefits resulting from employee exercises of stock options and vesting of restricted stock in accordance with ASU 2016-09 and the effect of state taxes. The effective tax rate for the first quarter 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 quarter of 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 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. Three Months Ended March 31, 2021 2020 (in thousands) Income tax expense - excluding excess tax benefit on stock compensation and CARES Act $ ( 8,670 ) $ ( 4,097 ) Excess tax benefit on stock compensation 32 1,054 Income tax benefit from CARES Act — 6,104 Income tax (expense) benefit $ ( 8,638 ) $ 3,061 NOTE 13— DEBT Convertible Senior Notes 2025 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. The issuance included $ 75.0 million aggregate principal amount of 2025 Notes under a 13-day purchase option which was exercised in full. 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 the Company's common stock per $1,000 principal amount of 2025 Notes (which is equivalent to an initial conversion price of approximately $ 461.19 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 make-whole fundamental change prior to the maturity of the 2025 Notes or if the Company issues a notice of redemption for the 2025 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 2025 Notes in connection with such make-whole fundamental change or to convert its 2025 Notes called for redemption, as the case may be. Upon conversion, the 2025 17 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 2025 Notes in cash and any conversion premium in shares of its common stock. The 2025 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 2025 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 March 13, 2025, the 2025 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, 2020 (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 2025 Notes) per $1,000 principal amount of 2025 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; • if the Company calls such 2025 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the notes called for redemption; or • upon the occurrence of specified corporate events including but not limited to a fundamental change. Holders of the 2025 Notes were not entitled to convert the 2025 Notes during the calendar quarter ended March 31, 2021 as the last reported sale price of the Company's common stock, for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on December 31, 2020, was not greater than or equal to 130 % of the conversion price of the 2025 Notes on each applicable trading day. Holders of the 2025 Notes are not entitled to convert the 2025 Notes during the calendar quarter ended June 30, 2021 as the last reported sale 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, 2021, was not greater than or equal to 130 % of the conversion price of the 2025 Notes on each applicable trading day. On or after March 13, 2025, until the close of business on the second scheduled trading day immediately preceding the maturity date of the 2025 Notes, holders of the 2025 Notes may convert all or a portion of their 2025 Notes regardless of the foregoing conditions. The Company may not redeem the 2025 Notes prior to July 20, 2023. On or after July 20, 2023 and before the 41 st scheduled trading day immediately before the maturity date, the Company may redeem for cash all or a portion of the 2025 Notes, at its option, 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 (and including the last trading day of such period) ending on, and including the last trading day immediately preceding the date of notice of redemption is greater than or equal to 130 % of the conversion price on each applicable trading day. The redemption price will be equal to 100 % of the principal amount of the 2025 Notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2025 Notes. Upon the occurrence of a fundamental change prior to the maturity date of the 2025 Notes, holders of the 2025 Notes may require the Company to repurchase all or a portion of the 2025 Notes for cash at a price equal to 100 % of the principal amount of the 2025 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. 18 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) If the market price per share of the common stock, as measured under the terms of the 2025 Notes, exceeds the conversion price of the 2025 Notes, the 2025 Notes could have a dilutive effect, unless the Company elects, subject to certain conditions, to settle the principal amount of the 2025 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 2025 Notes were determined using an interest rate of 5.30 %, 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 $ 455.6 million and $ 119.4 million, respectively. Financing costs related to the issuance of the 2025 Notes were approximately $ 15.1 million, of which $ 12.0 million were allocated to the liability component and are being amortized to interest expense over the term of the debt and $ 3.1 million were allocated to the equity component. In the first quarter of 2021, the Company recorded interest expense on the 2025 Notes of $ 6.8 million which consisted of $ 0.7 million associated with the 0.50 % coupon rate, $ 5.5 million associated with the accretion of the debt discount, and $ 0.6 million associated with the amortization of the debt issuance costs. The debt discount is being amortized over the term of the debt. As of March 31, 2021, the fair value of the 2025 Notes is estimated to be approximately $ 523.5 million using the Level 1 observable input of the last quoted market price on March 31, 2021. A summary of the gross carrying amount, unamortized debt cost, debt issuance costs and net carrying value of the liability component of the 2025 Notes are as follows (in thousands) : March 31, 2021 December 31, 2020 Gross carrying amount $ 575,000 $ 575,000 Unamortized debt discount 104,620 110,110 Debt issuance costs 10,505 11,056 Net carrying amount $ 459,875 $ 453,834 2022 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 the Company's 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 make-whole 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 make-whole 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: 19 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) • 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 March 31, 2021 as the last reported sale price of the Company's common stock, for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on December 31, 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 June 30, 2021 as the last reported sale 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, 2021, 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 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. 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, including the payment of accrued and unpaid interest of approximately $ 0.1 million, through separate transactions with certain holders of the 2022 Notes. Of the consideration paid, $ 126.0 million was allocated to the extinguishment of the liability component of the notes, while the remaining $ 107.9 million was allocated to the reacquisition of the equity component and recorded as a reduction to additional paid-in capital in the consolidated statement of shareholders’ equity. The Company recognized a loss on debt extinguishment of $ 7.8 million in the third quarter of 2020. In the first quarter of 2021, the Company recorded interest expense on the 2022 Notes of $ 2.3 million which consisted of $ 0.3 million associated with the 0.625 % coupon rate, $ 1.8 million associated with the accretion of the debt discount, and $ 0.2 million associated with the amortization of the debt issuance costs. In the first quarter of 2020, the Company recorded interest expense on the 2022 Notes of $ 4.0 million which consisted of $ 0.5 million associated with the 0.625 % coupon rate, $ 3.1 million associated with the accretion of the debt discount, and $ 0.4 million associated with the amortization of the debt issuance costs. The debt discount is being amortized over the term of the debt. As of March 31, 2021, the fair value of the 2022 Notes is estimated to be approximately $ 205.7 million using the Level 1 observable input of the last quoted market price on March 31, 2021. 20 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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) : March 31, 2021 December 31, 2020 Gross carrying amount $ 169,659 $ 169,690 Unamortized debt discount 8,958 10,815 Debt issuance costs 1,074 1,297 Net carrying amount $ 159,627 $ 157,578 Convertible Note Hedge and Warrant Transactions 2020 Hedge and Warrants 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 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 warrant transactions. On July 24, 2020, the Company paid $ 124.2 million to the counterparties for the 2020 Hedge transactions. The 2020 Hedge transactions cover 1.2 million shares of the Company’s common stock, the same number of shares initially underlying the 2025 Notes, and are exercisable upon any conversion of the 2025 Notes. The 2020 Hedge transactions are expected generally to reduce the potential dilution to the Company's common stock upon conversion of the 2025 Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted 2025 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 2020 Hedge transactions, is greater than the strike price of the 2020 Hedge transactions, which initially corresponds to the initial conversion price of the 2025 Notes, or approximately $ 461.19 per share of common stock. The 2020 Hedge transactions will expire upon the maturity of the Notes. On July 24, 2020, the Company sold to the counterparties, warrants (the “2020 Warrants”) to acquire 1.2 million shares of the Company's common stock at an initial strike price of $ 709.52 per share, which represents a premium of 100 % over the last reported sale price of the common stock of $ 354.76 on July 21, 2020. On July 24, 2020, the Company received aggregate proceeds of approximately $ 61.2 million from the sale of the 2020 Warrants. If the market price per share of the common stock, as measured under the terms of the 2020 Warrants, exceeds the strike price of the 2020 Warrants, the 2020 Warrants could have a dilutive effect, unless the Company elects, subject to certain conditions, to settle the 2020 Warrants in cash. The 2020 Hedge and 2020 Warrants transactions are indexed to, and potentially settled in, the Company's common stock and the net cost of $ 63.0 million has been recorded as a reduction to additional paid-in capital in the consolidated statement of shareholders’ equity. 2017 Hedge and Warrants 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 warrant transactions. On May 31, 2017, the Company paid $ 61.5 million to the counterparties for the 2017 Hedge transactions. The 2017 Hedge transactions initially covered 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 Company's 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. 21 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) On May 31, 2017, the Company sold to the counterparties, warrants (the “2017 Warrants”) to acquire 1.4 million shares of the Company's common stock at an initial strike price of $ 266.39 per share, which represents a premium of 70 % over the last 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 was 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 these call spread transactions effective July 24, 2020 in notional amounts corresponding to the principal amount of the 2022 Notes repurchased. Subsequent to such termination, the outstanding portion of the 2017 Hedge covers 0.8 million shares of the Company's common stock and 2017 Warrants to acquire 0.8 million shares of the Company's common stock remain outstanding. The Company received $ 109.9 million and paid $ 94.3 million as a result of terminating such portions of the 2017 Hedge and 2017 Warrants, respectively. The net $ 15.6 million has been recorded as an increase to additional paid-in capital in the consolidated statement of shareholders’ equity. Senior Secured Revolving Credit Facility On December 10, 2019, the Company's wholly-owned subsidiary, LendingTree, LLC, entered into an amended and restated $ 500.0 million five-year senior secured revolving credit facility (the "Amended Revolving Credit Facility") which amended and restated the Company's previous $ 350.0 million five-year senior secured revolving credit facility (the “2017 Revolving Credit Facility”). The Amended Revolving Credit Facility matures on December 10, 2024. Borrowings under the Amended Revolving Credit Facility can be used to finance working capital needs, capital expenditures and general corporate purposes, including to finance permitted acquisitions. As of March 31, 2021 and December 31, 2020, the Company had no borrowings outstanding under the Amended Revolving Credit Facility. Up to $ 10.0 million of the Amended Revolving Credit Facility will be available for short-term loans, referred to as swingline loans. Under certain conditions, the Company will be permitted to add one or more term loans and/or increase revolving commitments under the Amended Revolving Credit Facility by an additional amount equal to the greater of $ 185.0 million or 100% of Consolidated EBITDA as defined, or a greater amount provided that a total consolidated senior secured debt to EBITDA ratio does not exceed 2.50 to 1.00. Additionally, up to $ 10.0 million of the Amended Revolving Credit Facility will be available for the issuance of letters of credit. At each of March 31, 2021 and December 31, 2020, the Company had outstanding one letter of credit issued in the amount of $ 0.2 million. The Company’s borrowings under the Amended Revolving Credit Facility bear interest at annual rates that, at the Company’s option, will be either: • a base rate generally defined as the sum of (i) the greater of (a) the prime rate of Truist Bank, (b) the federal funds effective rate plus 0.5 % and (c) the LIBO rate (defined below) on a daily basis applicable for an interest period of one month plus 1.0 % and (ii) an applicable percentage of 0.25 % to 1.0 % based on a total consolidated debt to EBITDA ratio; or • a LIBO rate generally defined as the sum of (i) the rate for Eurodollar deposits in the applicable currency and (ii) an applicable percentage of 1.25 % to 2.0 % based on a total consolidated debt to EBITDA ratio. All swingline loans bear interest at the base rate defined above. Interest on the Company’s borrowings are payable quarterly in arrears for base rate loans and on the last day of each interest rate period (but not less often than three months) for LIBO rate loans. The Amended Revolving Credit Facility contains a restrictive financial covenant, which initially limits the total consolidated debt to EBITDA ratio to 4.5 , with step downs to 4.0 over time, except that this may increase by 0.5 for the four fiscal quarters following a material acquisition. In addition, the Amended Revolving Credit Facility contains customary affirmative and negative covenants in addition to events of default for a transaction of this type that, among other things, restrict 22 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. 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 the 2025 Notes, 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. The Company was in compliance with all covenants at March 31, 2021. 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). Except as noted in the covenant relief discussion above, 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. Debt issuance costs of $ 1.1 million related to the July 21, 2020 temporary amendment are being amortized to interest expense through June 30, 2021, unless the temporary amendment is terminated in advance by the Company. Unamortized debt issuance costs are included in prepaid and other current assets and other non-current assets in the Company's consolidated balance sheet. In the first quarter of 2021, the Company recorded interest expense related to the Amended Revolving Credit Facility of $ 1.1 million which consisted of $ 0.6 million in unused commitment fees, and $ 0.5 million associated with the amortization of the debt issuance costs. In the first quarter of 2020, the Company recorded interest expense related to the Amended Revolving Credit Facility of $ 1.1 million which consisted of $ 0.6 million associated with borrowings bearing interest at the LIBO rate, $ 0.3 million in unused commitment fees, and $ 0.2 million associated with the amortization of the debt issuance costs. NOTE 14— 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 14, 23 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) unless otherwise indicated, the Company is unable to estimate the possible loss or range of losses that could potentially result from the application of such non-monetary remedies. As of March 31, 2021, the Company had litigation settlement accruals of $ 0.1 million and $ 0.8 million in continuing operations and discontinued operations, respectively. As of December 31, 2020, the Company had litigation settlement accruals of $ 0.1 million and $ 0.5 million in continuing operations and discontinued operations, respectively. The litigation settlement accruals relate to litigation matters that were either settled or a firm offer for settlement was extended, thereby establishing an accrual amount that is both probable and reasonably estimable. See Note 17—Discontinued Operations for additional information. NOTE 15— 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 March 31, 2021. See Note 13—Debt 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 March 31, 2021 2020 Contingent consideration, beginning of period $ 8,249 $ 33,464 Transfers into Level 3 — — Transfers out of Level 3 — — Total net losses (gains) included in earnings (realized and unrealized) 797 ( 8,122 ) Purchases, sales and settlements: Additions — — Payments — ( 3,000 ) Contingent consideration, end of period $ 9,046 $ 22,342 The contingent consideration liability at March 31, 2021 is the estimated fair value of the remaining earnout payment for the QuoteWizard acquisition. The Company will make an earnout payment ranging from zero to $ 23.4 million based on the achievement of certain defined performance targets for QuoteWizard. See Note 8—Business Acquisitions for additional information. The significant unobservable inputs used to calculate the fair value of the contingent consideration for QuoteWizard are the operating results growth rate 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 consideration. Additionally, as the liability is stated at present value, the passage of time alone will increase the estimated fair value of the liability each reporting period. Any changes in fair value will be recorded in operating income in the consolidated statements of operations and comprehensive income. The following table provides quantitative information about Level 3 fair value measurements. Fair Value at March 31, 2021 Valuation Technique Unobservable Input Range (Weighted Average) (a) (in thousands) Contingent consideration $ 9,046 Option pricing model Operating results growth rate 3.2 % Discount rate 5.7 % (a) Discount rates are weighted by the relative undiscounted value of expected earnout payments. Other unobservable inputs are weighted by the relative maximum potential earnout payments. 24 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 16— 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 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 in the first quarter of 2020 is included within the Other category. The Company ceased reselling online advertising space during the first quarter of 2020. 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 in the first quarter of 2020 also includes the portion of cost of revenue attributable to costs paid for advertising re-sold to third parties. Three Months Ended March 31, 2021 Home Consumer Insurance Other Total (in thousands) Revenue $ 128,125 $ 57,907 $ 86,614 $ 104 $ 272,750 Segment marketing expense 89,135 33,300 53,772 196 176,403 Segment profit (loss) 38,990 24,607 32,842 ( 92 ) 96,347 Cost of revenue 13,895 Brand and other marketing expense 21,059 General and administrative expense 34,989 Product development 12,468 Depreciation 3,718 Amortization of intangibles 11,312 Change in fair value of contingent consideration 797 Litigation settlements and contingencies 16 Operating loss ( 1,907 ) Interest expense, net ( 10,215 ) Other income 40,072 Income before income taxes and discontinued operations $ 27,950 25 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Three Months Ended March 31, 2020 Home Consumer Insurance Other Total (in thousands) Revenue $ 79,174 $ 119,924 $ 82,737 $ 1,249 $ 283,084 Segment cost of revenue and marketing expense 43,263 76,825 52,204 1,577 173,869 Segment profit 35,911 43,099 30,533 ( 328 ) 109,215 Cost of revenue (exclusive of cost of advertising re-sold to third parties included above) 13,166 Brand and other marketing expense 22,755 General and administrative expense 32,082 Product development 10,963 Depreciation 3,378 Amortization of intangibles 13,757 Change in fair value of contingent consideration ( 8,122 ) Severance 158 Litigation settlements and contingencies 329 Operating income 20,749 Interest expense, net ( 4,834 ) Income before income taxes and discontinued operations $ 15,915 NOTE 17— 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. A portion of the purchase price received 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. As a result of the voluntary petition, LendingTree, LLC was, as of the initial July 21, 2019 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 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 26 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. 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 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. The $ 36.0 million settlement payment was made in the third quarter of 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, the Company’s indenture dated May 31, 2017 with respect to the Company’s 0.625 % Convertible Senior Notes due 2022, or the Company’s indenture dated July 24, 2020 with respect to the Company’s 0.50 % Convertible Senior Notes due 2025. 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. 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 27 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 the third and fourth quarters of 2020, the Company made payments of $ 26.5 million and $ 6.4 million, respectively, to the ResCap Liquidating Trust. The Company expects to be refunded $ 8.6 million of these amounts, subsequent to the final distributions in the HLC Bankruptcy. This $ 8.6 million is recorded within current assets of discontinued operations on the accompanying consolidated balance sheet as of March 31, 2021. 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.), transferred to Case No. 08-13555 (SCC), Adversary Proceeding No. 21-01107 (SCC) (Bankr. S.D.N.Y.) , 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. In April 2021, the Company made a settlement offer to LBHI for $ 0.8 million, which is included as a liability on the accompanying consolidated balance sheet as of March 31, 2021. 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 March 31, 2021 2020 Revenue $ — $ — Loss before income taxes ( 353 ) ( 6,102 ) Income tax benefit 90 1,527 Net loss $ ( 263 ) $ ( 4,575 ) 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. 28 Table of Contents