LendingTree, Inc. 10-K

ITEM 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS Page Number LENDINGTREE, INC. AND SUBSIDIARIES: Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) 51 CONSOLIDATED FINANCIAL STATEMENTS: Consolidated Statements of Operations and Comprehensive Income (Loss) 53 Consolidated Balance Sheets 54 Consolidated Statements of Shareholders' Equity 55 Consolidated Statements of Cash Flows 56 Notes to Consolidated Financial Statements 57 50 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of LendingTree, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of LendingTree, Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive income (loss), of shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 51 Table of Contents Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of equity securities - Stash As described in Note 8 to the consolidated financial statements, 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 an additional equity interest for $1.2 million. 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 are carried at cost and subsequently marked to market upon observable market events with any gains or losses recorded in operating income in the consolidated statement of operations. On October 18, 2021, the Company entered into a stock transfer agreement with third parties to sell a portion of its Stash equity securities for $46.3 million. The Company sold $35.3 million in October and closed on an additional $11.0 million in November 2021. The Company recorded a realized gain of $27.9 million based on the sale of Stash equity securities under the stock transfer agreement. In 2021, the Company recorded a net unrealized gain on the investment in Stash of $95.4 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. The principal considerations for our determination that performing procedures relating to the valuation of the Stash equity securities is a critical audit matter are (i) the significant judgment by management to determine the fair value of the Stash equity securities, which included identifying the observable market events utilized in the fair value estimate, and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management's fair value estimate. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s valuation of the Stash equity securities, including controls over the identification of the observable market events. These procedures also included, among others, (i) testing management’s process for determining the fair value of the Stash equity securities, (ii) evaluating the appropriateness of the model and management’s identification of observable market events, and (iii) evaluating the appropriateness of the observable market events used to estimate the fair value of the Stash equity securities. Evaluating the observable market events involved assessing whether the inputs were reasonable considering consistency with recent company and third party executed transactions. /s/ PricewaterhouseCoopers LLP Charlotte, North Carolina February 28, 2022 We have served as the Company’s auditor since 2012. 52 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) Year Ended December 31, 2021 2020 2019 (in thousands, except per share amounts) Revenue $ 1,098,499 $ 909,990 $ 1,106,603 Costs and expenses: Cost of revenue (exclusive of depreciation and amortization shown separately below) 57,297 54,494 68,379 Selling and marketing expense 773,990 617,404 735,180 General and administrative expense 153,472 129,101 116,847 Product development 52,865 43,636 39,953 Depreciation 17,910 14,201 10,998 Amortization of intangibles 42,738 53,078 55,241 Change in fair value of contingent consideration ( 8,249 ) 5,327 28,402 Severance 53 295 1,026 Litigation settlements and contingencies 392 ( 943 ) ( 151 ) Total costs and expenses 1,090,468 916,593 1,055,875 Operating income (loss) 8,031 ( 6,603 ) 50,728 Other (expense) income, net: Interest expense, net ( 46,867 ) ( 36,300 ) ( 20,271 ) Other income 123,272 376 524 Income (loss) before income taxes 84,436 ( 42,527 ) 30,981 Income tax (expense) benefit ( 11,298 ) 19,961 8,479 Net income (loss) from continuing operations 73,138 ( 22,566 ) 39,460 Loss from discontinued operations, net of tax ( 4,023 ) ( 25,689 ) ( 21,632 ) Net income (loss) and comprehensive income (loss) $ 69,115 $ ( 48,255 ) $ 17,828 Weighted average shares outstanding: Basic 13,199 13,007 12,834 Diluted 13,695 13,007 14,619 Income (loss) per share from continuing operations: Basic $ 5.54 $ ( 1.73 ) $ 3.07 Diluted $ 5.34 $ ( 1.73 ) $ 2.70 Loss per share from discontinued operations: Basic $ ( 0.30 ) $ ( 1.98 ) $ ( 1.69 ) Diluted $ ( 0.29 ) $ ( 1.98 ) $ ( 1.48 ) Net income (loss) per share: Basic $ 5.24 $ ( 3.71 ) $ 1.39 Diluted $ 5.05 $ ( 3.71 ) $ 1.22 The accompanying notes to consolidated financial statements are an integral part of these statements. 53 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2021 December 31, 2020 (in thousands, except par value and share amounts) ASSETS: Cash and cash equivalents $ 251,231 $ 169,932 Restricted cash and cash equivalents 111 117 Accounts receivable (net of allowance of $ 1,456 and $ 1,402 , respectively) 97,658 89,841 Prepaid and other current assets 25,379 27,949 Current assets of discontinued operations — 8,570 Total current assets 374,379 296,409 Property and equipment (net of accumulated depreciation of $ 28,315 and $ 20,238 , respectively) 72,477 62,381 Operating lease right-of-use assets 77,346 84,109 Goodwill 420,139 420,139 Intangible assets, net 85,763 128,502 Deferred income tax assets 87,581 96,224 Equity investment (Note 8) 158,140 80,000 Other non-current assets 6,942 5,334 Non-current assets of discontinued operations 16,589 15,892 Total assets $ 1,299,356 $ 1,188,990 LIABILITIES: Current portion of long-term debt $ 166,008 $ — Accounts payable, trade 1,692 10,111 Accrued expenses and other current liabilities 106,731 101,196 Current liabilities of discontinued operations 1 536 Total current liabilities 274,432 111,843 Long-term debt 478,151 611,412 Operating lease liabilities 96,165 92,363 Non-current contingent consideration — 8,249 Deferred income tax liabilities 2,265 — Other non-current liabilities 351 362 Total liabilities 851,364 824,229 Commitments and contingencies (Notes 16 and 17) 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; 16,070,720 and 15,766,193 shares issued, respectively, and 13,095,149 and 13,124,875 shares outstanding, respectively 161 158 Additional paid-in capital 1,242,794 1,188,673 Accumulated deficit ( 571,794 ) ( 640,909 ) Treasury stock; 2,975,571 and 2,641,318 shares, respectively ( 223,169 ) ( 183,161 ) Total shareholders' equity 447,992 364,761 Total liabilities and shareholders' equity $ 1,299,356 $ 1,188,990 The accompanying notes to consolidated financial statements are an integral part of these statements. 54 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Common Stock Treasury Stock Total Number of Shares Amount Additional Paid-in Capital Accumulated Deficit Number of Shares Amount (in thousands) Balance as of December 31, 2018 $ 346,208 15,428 $ 154 $ 1,134,227 $ ( 610,482 ) 2,618 $ ( 177,691 ) Net income and comprehensive income 17,828 — — — 17,828 — — Non-cash compensation 52,167 — — 52,167 — — — Purchase of treasury stock ( 5,470 ) — — — — 23 ( 5,470 ) Issuance of common stock for stock options, restricted stock awards and restricted stock units, net of withholding taxes ( 8,406 ) 249 3 ( 8,409 ) — — — Other ( 1 ) — — ( 1 ) — — — Balance as of December 31, 2019 $ 402,326 15,677 $ 157 $ 1,177,984 $ ( 592,654 ) 2,641 $ ( 183,161 ) Net loss and comprehensive loss ( 48,255 ) — — — ( 48,255 ) — — Non-cash compensation 53,733 — — 53,733 — — — Issuance of common stock for stock options, restricted stock awards and restricted stock units, net of withholding taxes ( 3,910 ) 89 1 ( 3,911 ) — — — Issuance of 0.50 % Convertible Senior Notes, net 116,300 — — 116,300 — — — Repurchase of 0.625 % Convertible Senior Notes, net ( 107,882 ) — — ( 107,882 ) — — — Convertible note hedge transactions ( 14,379 ) — — ( 14,379 ) — — — Warrant transactions ( 33,171 ) — — ( 33,171 ) — — — Other ( 1 ) — — ( 1 ) — — — 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 69,115 — — — 69,115 — — Non-cash compensation 68,555 — — 68,555 — — — Purchase of treasury stock ( 40,008 ) — — — — 335 ( 40,008 ) Issuance of common stock for stock options, employee stock purchase plan, restricted stock awards and restricted stock units, net of withholding taxes ( 14,423 ) 305 3 ( 14,426 ) — — — Other ( 8 ) — — ( 8 ) — — — Balance as of December 31, 2021 $ 447,992 16,071 $ 161 $ 1,242,794 $ ( 571,794 ) 2,976 $ ( 223,169 ) The accompanying notes to consolidated financial statements are an integral part of these statements. 55 Table of Contents LENDINGTREE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2021 2020 2019 (in thousands) Cash flows from operating activities attributable to continuing operations: Net income (loss) and comprehensive income (loss) $ 69,115 $ ( 48,255 ) $ 17,828 Less: Loss from discontinued operations, net of tax 4,023 25,689 21,632 Income (loss) from continuing operations 73,138 ( 22,566 ) 39,460 Adjustments to reconcile income from continuing operations to net cash provided by operating activities attributable to continuing operations: Loss (gain) on impairments and disposal of assets 3,465 1,160 ( 695 ) Amortization of intangibles 42,738 53,078 55,241 Depreciation 17,910 14,201 10,998 Non-cash compensation expense 68,555 53,733 52,167 Deferred income taxes 10,908 ( 9,628 ) ( 8,555 ) Change in fair value of contingent consideration ( 8,249 ) 5,327 28,402 Gain on investments ( 123,272 ) — — Bad debt expense 2,472 1,785 1,697 Amortization of debt issuance costs 5,992 3,474 1,974 Write-off of previously-capitalized debt issuance costs 1,066 — 333 Amortization of debt discount 30,695 19,570 12,016 Loss on extinguishment of debt — 7,768 — Reduction in carrying amount of ROU asset, offset by change in operating lease liabilities 12,807 8,888 213 Changes in current assets and liabilities: Accounts receivable ( 10,289 ) 21,861 ( 22,457 ) Prepaid and other current assets ( 4,902 ) ( 952 ) ( 3,258 ) Accounts payable, accrued expenses and other current liabilities ( 1,537 ) ( 8,013 ) ( 2,322 ) Current contingent consideration — ( 25,787 ) ( 12,500 ) Income taxes receivable 10,680 ( 10,598 ) 4,548 Other, net ( 921 ) ( 2,002 ) ( 88 ) Net cash provided by operating activities attributable to continuing operations 131,256 111,299 157,174 Cash flows from investing activities attributable to continuing operations: Capital expenditures ( 35,065 ) ( 42,149 ) ( 20,041 ) Proceeds from the sale of fixed assets — — 24,077 Purchase of equity investment ( 1,180 ) ( 80,000 ) — Proceeds from the sale of equity investment 46,312 — — Acquisition of ValuePenguin, net of cash acquired — — ( 105,578 ) Acquisition of QuoteWizard, net of cash acquired — — 482 Net cash provided by (used in) investing activities attributable to continuing operations 10,067 ( 122,149 ) ( 101,060 ) 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 ( 14,423 ) ( 3,910 ) ( 8,406 ) Purchase of treasury stock ( 40,008 ) — ( 5,470 ) Proceeds from the issuance of 0.50 % Convertible Senior Notes — 575,000 — Repurchase of 0.625 % Convertible Senior Notes — ( 233,862 ) — Payment of convertible note hedge on the 0.50 % Convertible Senior Notes — ( 124,200 ) — Termination of convertible note hedge on the 0.625 % Convertible Senior Notes — 109,881 — Proceeds from the sale of warrants related to the 0.50 % Convertible Senior Notes — 61,180 — Termination of warrants related to the 0.625 % Convertible Senior Notes — ( 94,292 ) — Net repayment of revolving credit facility — ( 75,000 ) ( 50,000 ) Payment of debt issuance costs ( 6,385 ) ( 16,568 ) ( 2,518 ) Payment of original issue discount on undrawn term loan ( 2,500 ) — — Contingent consideration payments — ( 4,755 ) ( 21,275 ) Other financing activities ( 31 ) ( 184 ) ( 9 ) Net cash (used in) provided by financing activities attributable to continuing operations ( 63,347 ) 193,290 ( 87,678 ) Total cash provided by (used in) continuing operations 77,976 182,440 ( 31,564 ) Discontinued operations: Net cash provided by (used in) operating activities attributable to discontinued operations 3,317 ( 72,730 ) ( 13,255 ) Total cash provided by (used in) discontinued operations 3,317 ( 72,730 ) ( 13,255 ) Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents 81,293 109,710 ( 44,819 ) Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period 170,049 60,339 105,158 Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period $ 251,342 $ 170,049 $ 60,339 Non-cash investing activities: (Decrease) increase in capital expenditures included in accounts payable and accrued expenses $ ( 4,793 ) $ 4,196 $ ( 946 ) Capital additions from tenant improvement allowance — — 1,111 Supplemental cash flow information: Interest paid $ 8,912 $ 4,741 $ 7,005 Income tax payments 186 561 25 Income tax refunds 10,503 60 4,743 The accompanying notes to consolidated financial statements are an integral part of these statements. 56 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, sales of insurance policies 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 (loss) 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 21 — Discontinued Operations for additional information. Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). NOTE 2— SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition 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. In identifying performance obligations, judgment is required around contracts where there was a possibility of bundled services and multiple parties. In applying judgment, the Company considers customer expectations of performance, materiality and the core principles of Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers. The Company's services are generally transferred to the customer at a point in time. Variable consideration is included in revenue if it is probable that a significant future reversal of cumulative revenue under the contract will not occur. 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. 57 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. Under ASC Topic 606, the timing of recognizing revenue for closing fees and approval fees is accelerated to the point when a loan request or a credit card consumer is delivered to the customer, as opposed to when the consumer loan is closed by the lender or credit card approval is made by the issuer. 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. The time between satisfaction of the Company's performance obligation and when the Company's right to consideration becomes unconditional varies across products but is generally less than 90 days for auto loans, personal loans, student loans and credit card approvals. The time between satisfaction of the Company's performance obligation and when the Company's right to consideration becomes unconditional for small business loans is generally less than 51 months. Revenue from the Company's Insurance products is primarily generated from upfront match fees and upfront fees for website clicks or fees for calls. Match fees and upfront fees for clicks and call transfers are earned through the delivery of consumer requests that originated through the Company's websites or affiliates. The Company recognizes revenue at the time a consumer request is delivered to the customer, provided that no significant obligations remain. The Company's contractual right to the match fee consideration is contemporaneous with the satisfaction of the performance obligation to deliver a consumer request to the customer. Our payment terms vary by customer and services offered. The term between invoicing and when payment is due is generally 30 days or less. Sales commissions are incremental costs of obtaining contracts with customers. The Company expenses sales commissions when incurred as the duration of contracts with customers is less than one year, based on the right of either party to terminate the contract with less than one year's notice without compensation to either party. These costs are recorded within selling and marketing expense on the consolidated statements of operations and comprehensive income (loss). Cash and Cash Equivalents Cash and cash equivalents include cash and short-term, highly liquid money market investments with original maturities of three months or less. Restricted Cash Cash escrowed or contractually restricted for a specific purpose is designated as restricted cash. Accounts Receivable 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. 58 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A reconciliation of the beginning and ending balances of the allowance for doubtful accounts is as follows (in thousands) : Year Ended December 31, 2021 2020 2019 Balance, beginning of the period $ 1,402 $ 1,466 $ 1,143 Charges to earnings 2,472 1,785 1,697 Write-off of uncollectible accounts receivable ( 2,424 ) ( 1,859 ) ( 1,400 ) Recoveries collected 6 10 26 Balance, end of the period $ 1,456 $ 1,402 $ 1,466 Segment Reporting The Company has three 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, or CODM, for the purpose of assessing performance and allocating resources. Property and Equipment Property and equipment, including internally-developed software and significant improvements, are recorded at cost less accumulated depreciation. Due to the rapid advancements in technology and evolution of company products, all internally-developed software is written off at the end of its useful life. Repairs and maintenance and any gains or losses on dispositions are recognized as incurred in current operations. Depreciation is recorded on a straight-line basis to allocate the cost of depreciable assets to operations over their estimated service lives. The following table presents the estimated useful lives for each asset category: Asset Category Estimated Useful Lives Computer equipment and capitalized software 1 to 5 years Leasehold improvements Lesser of asset life or life of lease Furniture and other equipment 7 years Aircraft and automobile 5 to 10 years Hosting Arrangement that is a Service Contract Subsequent to the adoption of Accounting Standards Update ("ASU") 2018-15 in the first quarter of 2020, as described below, qualifying implementation costs incurred in a hosting arrangement that is a service contract are capitalized and deferred on a straight-line basis over the term of the hosting arrangement, which is typically one to five years . These costs are capitalized to prepaid and other current assets and other non-current assets on the balance sheet, and the associated amortization expense is included within general and administrative expense on the statement of operations and comprehensive income (loss). The majority of such capitalized implementation costs arise from internal and external labor associated with software development , described below. Software Development Costs Software development costs primarily include internal and external labor expenses incurred to develop the software that powers the Company's websites. Certain costs incurred during the application development stage are capitalized, either as property and equipment or as a hosting arrangement that is a service contract, based on specific activities tracked, while costs incurred during the preliminary project stage and post-implementation/operation stage are expensed as incurred. Capitalized software development costs are amortized over an estimated useful life of one to five years . Goodwill and Indefinite-Lived Intangible Assets Goodwill acquired in business combinations is assigned to the reporting units that are expected to benefit from the combination as of the acquisition date. Goodwill and indefinite-lived intangible assets, consisting of certain trade names and 59 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS trademarks, are not amortized. Rather, these assets are tested annually for impairment as of October 1, or more frequently upon the occurrence of certain events or substantive changes in circumstances. As part of its annual impairment testing of goodwill and indefinite-lived intangible assets, in each instance, the Company may elect to assess qualitative factors as a basis for determining whether it is necessary to perform the traditional quantitative impairment testing. If the Company’s assessment of these qualitative factors indicates that it is not more likely than not that the fair value of the reporting unit or indefinite-lived intangible asset is less than its carrying value, then no further testing is required. Otherwise, the goodwill reporting unit or long-lived intangible assets, as applicable, must be quantitatively tested for impairment. The quantitative impairment test for goodwill involves a comparison of the fair value of a reporting unit with its carrying amount, including goodwill. The Company determines the fair value of its reporting units by using a market approach and a discounted cash flow ("DCF") analysis. Determining fair value using a 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 fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired. 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 quantitative impairment test for indefinite-lived intangible assets involves a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the indefinite-lived intangible asset exceeds its estimated fair value, an impairment loss is recognized in an amount equal to that excess. The estimates of fair value of indefinite-lived intangible assets are determined using a DCF valuation analysis that employs a relief-from-royalty methodology in estimating the fair value of trade names and trademarks. Significant judgments inherent in this analysis include the determination of royalty rates, discount rates, perpetual growth rates and the amount and timing of future revenues. Results of the October 1, 2021 and 2020 qualitative annual impairment tests indicated that it is not more likely than not that the fair value of the goodwill and the indefinite-lived intangible assets were each less than their respective carrying values. Accordingly, no further testing was required. At October 1, 2019, the Company performed the first step of the quantitative goodwill impairment test and found that the fair value of each reporting unit exceeded its carrying amount, indicating no goodwill impairment. The Company changed its operating segments in the fourth quarter of 2019 and accordingly changed its reporting units. At December 31, 2019, the Company performed the first step of the quantitative goodwill impairment test and found that the fair value of each reporting unit exceeded its carrying amount, indicating no goodwill impairment. Results of the October 1, 2019 qualitative annual impairment tests for the indefinite-lived intangible assets indicated that it is not more likely than not that the fair value of the assets were each less than their respective carrying values. Accordingly, no further testing was required. Long-Lived Assets and Intangible Assets with Definite Lives Long-lived assets include property and equipment, definite-lived intangible assets and operating lease right-of-use assets. Amortization of definite-lived intangible assets is recorded on a straight-line basis over their estimated lives. Subsequent to the adoption of ASU 2018-15, described below, 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. Long-lived asset groups are tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. The carrying amount of a long-lived asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset group. If the carrying amount is deemed to not be recoverable, an impairment loss is recorded as the amount by which the carrying amount of the long-lived asset group exceeds its fair value. At December 31, 2021 and 2020, the Company performed its review of impairment triggering events for long-lived asset groups and determined that a triggering event had not occurred. Fair Value Measurements The Company categorizes its assets and liabilities measured at fair value into a fair value hierarchy that prioritizes the assumptions used in pricing the asset or liability into the following three levels: • Level 1 : Observable inputs, such as quoted prices for identical assets and liabilities in active markets obtained from independent sources. 60 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS • Level 2 : Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs that are derived principally from or corroborated by observable market data. • Level 3 : Unobservable inputs for which there is little or no market data and which require the Company to develop its own assumptions, based on the best information available under the circumstances, about the assumptions market participants would use in pricing the asset or liability. The Company's non-financial assets, such as goodwill, intangible assets and property and equipment are recorded at fair value upon acquisition. These assets are remeasured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment charge is recognized. Such fair value measurements are based predominantly on Level 3 inputs. Contingent consideration payments related to acquisitions are measured at fair value each reporting period using Level 3 unobservable inputs. The Company's estimates of fair value are based upon assumptions believed to be reasonable but which are uncertain and involve significant judgments by management. Any changes in the fair value of these contingent consideration payments are included in operating income in the consolidated statements of operations and comprehensive income (loss). At December 31, 2021, the Company had no outstanding contingent consideration arrangements. Cost of Revenue Cost of revenue consists primarily of expenses associated with compensation and other employee-related costs (including stock-based compensation) related to internally-operated customer call centers, third-party customer call center fees, credit scoring fees, credit card fees, website network hosting and server fees. 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. Advertising Advertising costs are expensed in the period incurred (except for production costs which are initially capitalized and then recognized as expense when the advertisement first runs) and principally represent offline costs, including television, print and radio advertising, and online advertising costs, including fees paid to search engines and distribution partners. Advertising expense was $ 716.6 million, $ 567.7 million and $ 688.2 million for the years ended December 31, 2021, 2020 and 2019, respectively, and is included in selling and marketing expense on the consolidated statements of operations and comprehensive income (loss). Income Taxes Income taxes are accounted for under the liability method, and deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In estimating future tax consequences, all expected future events are considered. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided on deferred tax assets if it is determined that it is more likely than not that the deferred tax asset will not be realized. Interest is recorded on potential tax contingencies as a component of income tax expense and recorded net of any applicable related income tax benefit. For the years ended December 31, 2021, 2020 and 2019, the Company followed the incremental or "with" and "without" approach to intraperiod tax allocation for determination of the amount of tax benefit to allocate to continuing operations as prescribed in ASC 740-20-45-7. In accordance with the accounting standard for uncertainty in income taxes, liabilities for uncertain tax positions are recognized based on the two-step process prescribed by the accounting standards. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. 61 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Stock-Based Compensation The forms of stock-based awards granted to LendingTree employees are principally restricted stock units ("RSUs"), RSUs with performance conditions, stock options, and employee stock purchases related to the Employee Stock Purchase Plan ("Employee Stock Purchase Rights"). Further, stock options with market conditions, restricted stock awards ("RSAs") with performance conditions and RSAs with market conditions have been granted to the Company's Chairman and Chief Executive Officer. RSUs are awards in the form of units, denominated in a hypothetical equivalent number of shares of LendingTree common stock and with the value of each award equal to the fair value of LendingTree common stock at the date of grant. RSUs may be settled in cash, stock or both, as determined by the Company's Compensation Committee at the time of grant. The Company does not have a history of settling these awards in cash. Each stock-based award is subject to service-based vesting, where a specific period of continued employment must pass before an award vests. The Compensation Committee can modify the vesting provisions of an award. Certain awards also include performance-based vesting, where certain performance targets set at the time of grant must be achieved before an award vests. LendingTree recognizes as expense non-cash compensation for all stock-based awards for which vesting is considered probable. Forfeitures are recognized when they occur. For service-based awards, non-cash compensation is measured at fair value on the grant date and expensed ratably over the vesting term. The fair value of stock option awards without a market condition and Employee Stock Purchase Rights are typically estimated using the Black-Scholes option pricing model, while the fair value of an RSU or RSA is measured as the closing common stock price at the time of grant. For performance-based grants, the fair value is measured on the grant date and recognized as non-cash compensation expense, considering the probability of the targets being achieved. Performance-based grants with a market condition are typically valued using a Monte Carlo simulation model. Non-cash compensation expense for single cliff-vesting grants with a market condition are recognized on a straight-line basis, while graded-vesting grants with a market condition use graded vesting expense attribution. Excess tax benefits and deficiencies that arise due to the difference in the measure of stock compensation and the amount deductible for tax purposes are recorded in income tax expense within the consolidated statement of operations and comprehensive income (loss), and are classified as a component of operating cash flows within the consolidated statements of cash flows. Litigation Settlements and Contingencies Litigation settlements and contingencies consists of expenses related to actual or anticipated litigation settlements. The Company is involved in legal proceedings on an ongoing basis. If the Company believes that a loss arising from such matters is probable and can be reasonably estimated, the estimated liability is accrued in the consolidated financial statements. If only a range of estimated losses can be determined, an amount within the range is accrued that, in the Company's judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate than any other amount, the low end of the range is accrued. For those proceedings in which an unfavorable outcome is reasonably possible but not probable, an estimate of the reasonably possible loss or range of losses or a conclusion that an estimate of the reasonably possible loss or range of losses arising directly from the proceeding (i.e., monetary damages or amounts paid in judgment or settlement) are not material is disclosed. Legal expenses associated with these matters are recognized as incurred . Accounting Estimates Management is required to make certain estimates and assumptions during the preparation of the consolidated financial statements in accordance with GAAP. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. They also impact the reported amount of net earnings during any period. Actual results could differ from those estimates. Significant estimates underlying the accompanying consolidated financial statements, including discontinued operations, include: the recoverability of long-lived assets, goodwill and intangible assets; the determination of income taxes payable and deferred income taxes, including related valuation allowances; fair value of assets acquired in a business combination; contingent consideration related to business combinations; litigation accruals; HLC ownership related claims; contract assets; various other 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 62 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 worsen, 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 December 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. For the year ended December 31, 2021, there were no network partners accounting for more than 10% of total revenue. For the years ended December 31, 2020 and 2019, one network partner accounted for 15 % and 12 %, respectively, of total consolidated revenue, all of which was recorded within the Insurance segment. 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. Recently Adopted Accounting Pronouncements In May 2021, the FASB issued ASU 2021-04 to clarify and reduce diversity in accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. The amendments clarify that a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange should be accounted for as an exchange of the original instrument for a new instrument. This ASU is effective for annual and interim reporting periods beginning after December 15, 2021. Early adoption is permitted, including adoption in interim periods. An entity should adopt the guidance as of the beginning of its annual fiscal year. The amendments should be applied prospectively to modifications or exchanges occurring on or after the date of adoption. The Company adopted ASU 2021-04 in the second quarter of 2021. In December 2019, the FASB issued ASU 2019-12, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740, Income Taxes, and clarifies certain aspects of the current guidance to improve consistency among reporting entities. This ASU is effective for annual and interim reporting periods beginning after December 15, 2020. Early adoption is permitted, including adoption in interim periods. Entities electing early adoption must adopt all amendments in the same period. Most amendments must be applied prospectively while others are to be applied on a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company 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. In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-15, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. The amendments should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company adopted ASU 2018-15 in the first quarter of 2020 using the prospective approach. Subsequent 63 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS to the adoption of this ASU, capitalizable implementation costs incurred in a hosting arrangement that is a service contract are recorded within prepaid and other current assets and other non-current assets on the consolidated balance sheet. The amortization expense associated with these capitalized implementation costs is included within general and administrative expense on the consolidated statement of operations and comprehensive income (loss). The adoption of ASU 2018-15 did not have a material impact on the consolidated financial statements as of and for the year ended December 31, 2020. See Note 6—Hosting Arrangements. In August 2018, the FASB issued ASU 2018-13, which removes, modifies and adds certain disclosure requirements in ASC Topic 820, Fair Value Measurement. This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. Certain amendments must be applied prospectively while others are to be applied on a retrospective basis to all periods presented. The Company adopted ASU 2018-13 in the first quarter of 2020. See Note 18—Fair Value Measurements. In January 2017, the FASB issued ASU 2017-04, which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge (Step 2 of the goodwill impairment test). Instead, an impairment charge will be based on the excess of the carrying amount over the fair value. This ASU is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019. The Company adopted ASU 2017-04 in the first quarter of 2020. In June 2016, the FASB issued ASU 2016-13, which requires entities to measure expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU introduces ASC Topic 326, Financial Instruments—Credit Losses, which replaces the existing incurred loss model and is applicable to financial assets measured at amortized cost, including trade receivables and certain other financial assets that have the contractual right to receive cash. ASC Topic 326 is effective for annual and interim reporting periods beginning after December 15, 2019. The guidance must be adopted using a modified retrospective transition. The Company adopted ASC Topic 326 as of January 1, 2020, which did not result in any cumulative effect adjustment to the opening balance of accumulated deficit in the period of adoption. In February 2016, the FASB issued ASU 2016-02 related to lease accounting guidance. This ASU introduces ASC Topic 842, Leases, which supersedes ASC Topic 840, Leases. In 2018 and 2019, the FASB issued final amendments clarifying certain narrow aspects of implementing ASU 2016-02, including clarifications related to the rate implicit in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate, transition disclosures and certain other transition matters. The clarification ASUs also provided an optional transition method that allows entities to initially apply the lease accounting transition requirements at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption without restating comparative prior periods presented. The clarification ASUs must be adopted concurrently with the adoption of ASU 2016-02 (collectively, "ASC Topic 842"). The Company adopted ASC Topic 842 as of January 1, 2019, using the optional transition method to apply the new requirements at the adoption date without restating comparative prior periods presented. The adoption resulted in the increase in total assets and total liabilities of $ 8.8 million as of January 1, 2019, related to operating leases greater than one year in duration for which the Company is the lessee, with no cumulative effect adjustment to the opening balance of accumulated deficit. As part of the transition, the Company elected the package of practical expedients, which allows the Company to not reassess whether expired or existing contracts contain leases, lease classification for expired or existing leases, and initial direct costs for existing leases. Additionally, the Company elected an accounting policy to not record short-term leases, which are leases with an initial term of twelve months or fewer, on the balance sheet. 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 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 plans to adopt the amendments through the modified retrospective method of transition in the first quarter of 2022. As a result, the Company's convertible senior notes will be stated on its consolidated balance sheet at their principal amounts, net of debt issuance costs. The Company will record a cumulative-effect adjustment to retained earnings related to prior interest costs associated with the debt discount initially recorded upon issuance of the notes and will record a decrease to additional paid in capital. The cumulative-effect adjustment is expected to increase retained earnings by approximately $ 61 million. Additionally, ASU 2020-06 will result in 64 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS the reporting of diluted earnings per share, if the effect is dilutive, in our consolidated financial statements, regardless of our settlement intent. NOTE 3— REVENUE Revenue is as follows (in thousands) : Year Ended December 31, 2021 2020 2019 Revenue: Home $ 441,738 $ 320,992 $ 277,935 Credit cards 93,420 77,361 211,294 Personal loans 110,099 66,513 152,729 Other Consumer 126,426 109,324 151,014 Consumer 329,945 253,198 515,037 Insurance 326,153 333,765 284,792 Other 663 2,035 28,839 Total revenue $ 1,098,499 $ 909,990 $ 1,106,603 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 $ 9.1 million and $ 6.4 million on December 31, 2021 and 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 $ 0.8 million and $ 0.7 million at December 31, 2021 and 2020, respectively. During 2021, the Company recognized revenue of $ 0.7 million that was included in the contract liability balance at December 31, 2020. During 2020, the Company recognized revenue of $ 0.6 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 $ 0.7 million, $ 0.3 million and $ 4.4 million in 2021, 2020 and 2019, respectively. NOTE 4— CASH AND RESTRICTED CASH Total cash, cash equivalents, restricted cash and restricted cash equivalents consist of the following (in thousands) : December 31, 2021 December 31, 2020 Cash and cash equivalents $ 251,231 $ 169,932 Restricted cash and cash equivalents 111 117 Total cash, cash equivalents, restricted cash and restricted cash equivalents $ 251,342 $ 170,049 65 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5— PROPERTY AND EQUIPMENT The balance of property and equipment, net is as follows (in thousands) : December 31, 2021 December 31, 2020 Computer equipment and capitalized software $ 46,341 $ 34,777 Leasehold improvements 34,485 5,012 Furniture and other equipment 9,942 3,290 Aircraft and automobile 2,621 2,621 Projects in progress 7,403 36,919 Total gross property and equipment 100,792 82,619 Accumulated depreciation ( 28,315 ) ( 20,238 ) Total property and equipment, net $ 72,477 $ 62,381 Unamortized capitalized software development costs recorded in property and equipment, whether in service or under development, are $ 26.4 million and $ 24.8 million at December 31, 2021 and 2020, respectively. Capitalized software development depreciation expense was $ 13.3 million, $ 11.1 million and $ 8.6 million for the years ended December 31, 2021, 2020 and 2019, respectively. Long-lived assets located outside the United States, the Company's country of domicile, were $ 0.1 million at each of December 31, 2021 and 2020. NOTE 6— HOSTING ARRANGEMENTS The balance of capitalized implementation costs incurred in a hosting arrangement that is a service contract, which are recorded within prepaid and other current assets and other non-current assets, is as follows (in thousands) : December 31, 2021 December 31, 2020 Current portion Non-current portion Current portion Non-current portion Capitalized implementation costs $ 1,771 $ 2,960 $ 530 $ 1,036 Projects in progress 367 810 505 $ 1,154 Total gross 2,138 3,770 1,035 $ 2,190 Accumulated amortization ( 91 ) ( 1,056 ) — $ ( 185 ) Total net $ 2,047 $ 2,714 $ 1,035 $ 2,005 Amortization expense included within general and administrative expense on the consolidated statement of operations and comprehensive income (loss) associated with these capitalized implementation costs was $ 1.1 million and $ 0.2 million for the year ended December 31, 2021 and 2020, respectively. 66 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7— GOODWILL AND INTANGIBLE ASSETS The balance of goodwill, net is as follows (in thousands) : Goodwill Accumulated Impairment Loss Net Goodwill Balance at December 31, 2019 $ 903,227 $ ( 483,088 ) $ 420,139 Changes in goodwill — — — Balance at December 31, 2020 $ 903,227 $ ( 483,088 ) $ 420,139 Changes in goodwill — — — Balance at December 31, 2021 $ 903,227 $ ( 483,088 ) $ 420,139 The balance of intangible assets, net is as follows (in thousands) : December 31, 2021 December 31, 2020 Intangible assets with indefinite lives $ 10,142 $ 10,142 Intangible assets with definite lives, net 75,621 118,360 Total intangible assets, net $ 85,763 $ 128,502 Goodwill and Indefinite-Lived Intangible Assets The Company's goodwill at each of December 31, 2021 and 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. Prior to the fourth quarter of 2019, the Company's goodwill was associated with its then one reportable segment. Results of the annual impairment test as of October 1, 2021 indicated that no impairment had occurred. Intangible assets with indefinite lives relate to the Company's trademarks. Results of the annual impairment test as of October 1, 2021 indicated that no impairment had occurred. Intangible Assets with Definite Lives Intangible assets with definite lives relate to the following (dollars in thousands) : Weighted Average Amortization Life Cost Accumulated Amortization Net Technology 4.3 years $ 87,700 $ ( 69,369 ) $ 18,331 Customer lists 13.2 years 77,300 ( 24,668 ) 52,632 Trademarks and tradenames 4.9 years 11,700 ( 7,767 ) 3,933 Website content 3.0 years 26,100 ( 25,375 ) 725 Balance at December 31, 2021 $ 202,800 $ ( 127,179 ) $ 75,621 Weighted Average Amortization Life Cost Accumulated Amortization Net Technology 4.3 years $ 87,700 $ ( 48,166 ) $ 39,534 Customer lists 13.2 years 77,300 ( 18,560 ) 58,740 Trademarks and tradenames 4.9 years 17,200 ( 9,947 ) 7,253 Website content 3.0 years 43,200 ( 30,367 ) 12,833 Balance at December 31, 2020 $ 225,400 $ ( 107,040 ) $ 118,360 67 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Amortization of intangible assets with definite lives is computed on a straight-line basis and, based on balances as of December 31, 2021, future amortization is estimated to be as follows (in thousands) : Amortization Expense 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 Year ending December 31, 2026 5,504 Thereafter 23,253 Total intangible assets with definite lives, net $ 75,621 NOTE 8— 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 an additional equity interest for $ 1.2 million. On October 18, 2021, the Company entered into a stock transfer agreement with third parties to sell a portion of its Stash equity securities for $ 46.3 million. The Company sold $ 35.3 million in October and closed on an additional $ 11.0 million in November 2021. The Company recorded a realized gain of $ 27.9 million based on the sale of Stash equity securities under the stock transfer agreement, which is included within other income on the consolidated statement of operations and comprehensive income. 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 in operating income in the consolidated statement of operations. In 2021, the Company recorded a net unrealized gain on the investment in Stash of $ 95.4 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 December 31, 2021, there have been no impairments to the acquisition cost of the Stash equity securities. NOTE 9— BUSINESS ACQUISITIONS Changes in Contingent Consideration In 2018, the Company acquired all of the outstanding equity interests of QuoteWizard.com, LLC, which does business under the name QuoteWizard (“QuoteWizard”). The Company made no earnout payments related to the QuoteWizard acquisition during 2021, and this earnout is complete. In 2020, the Company paid $ 20.2 million related to the earnout payment for the period of November 1, 2019 through October 31, 2020, which is included within cash flows from operating activities on the consolidated statement of cash flows. In 2019, the Company paid $ 23.4 million related to the earnout payment for the period of November 1, 2018 through October 31, 2019, of which $ 13.9 million is included within cash flows from financing activities and $ 9.5 million is included within cash flows from operating activities on the consolidated statement of cash flows. In 2018, the Company acquired all of the outstanding equity interests of Ovation Credit Services, Inc., which does business under the name Ovation (“Ovation”). The Company made no earnout payments related to the Ovation acquisition during 2021, as this earnout was completed in 2020. In 2020, the Company paid $ 4.4 million related to the earnout payment for the period of July 1, 2019 through June 30, 2020, of which $ 1.4 million is included within cash flows from financing activities and $ 3.0 million is included within cash flows from operating activities on the consolidated statement of cash flows. In 2019, the Company paid $ 4.4 million related to the earnout payment for the period of July 1, 2018 through June 30, 2019, which is included within cash flows from financing activities on the consolidated statement of cash flows. 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 68 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS earnings targets for SnapCap. Of the total earnout payments of $ 6.0 million in 2020, $ 3.3 million is included within cash flows from financing activities and $ 2.7 million is included within cash flows from operating activities on the consolidated statement of cash flows. The earnout payment of $ 3.0 million in 2019 is included within cash flows from financing activities on the consolidated statement of cash flows. In 2017, the Company acquired all of the assets of Deposits Online, LLC, which does business under the name DepositAccounts.com (“DepositAccounts”). The Company made no earnout payments related to the DepositAccounts acquisition during 2020 and 2021, and this earnout is complete. Total earnout payments of $ 3.0 million in 2019 are included within cash flows from operating activities on the consolidated statement of cash flows. Changes in the fair value of contingent consideration is summarized as follows (in thousands) : Year Ended December 31, 2021 2020 2019 QuoteWizard $ ( 8,249 ) $ 3,980 $ 27,103 Ovation — 1,270 26 SnapCap — 77 2,220 DepositAccounts — — ( 947 ) Total changes in fair value of contingent consideration $ ( 8,249 ) $ 5,327 $ 28,402 2019 Acquisition ValuePenguin On January 10, 2019, the Company acquired Value Holding, Inc., the parent company of ValuePenguin Inc. ("ValuePenguin"), a personal finance website that offers consumers objective analysis on a variety of financial topics from insurance to credit cards. The Company made an upfront cash payment of $ 106.1 million at the closing of the transaction, funded through $ 90.0 million drawn on the Company's revolving credit facility and the balance using cash on hand. The purchase price of $ 106.2 million is comprised of the upfront cash payment of $ 106.1 million and a $ 0.1 million post-closing payment for working capital settlement. The acquisition has been accounted for as a business combination. In 2019, the Company completed the determination of the final allocation of purchase price to the assets acquired and liabilities assumed as follows (in thousands) : Fair Value Net working capital $ 2,502 Fixed assets 68 Intangible assets 31,600 Goodwill 71,739 Net noncurrent assets 323 Total purchase price $ 106,232 The Company primarily used the income approach for the valuation as appropriate and used valuation inputs in these models and analyses that were based on market participant assumptions. Market participants are buyers and sellers unrelated to the Company, and fair value is determined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction at the measurement date. 69 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The acquired intangible assets are definite-lived assets consisting of developed technology, content and trademarks and tradenames. The estimated fair values of the developed technology were determined using the cost replacement method, the content was determined using the excess earnings method, and the trademarks and tradenames were determined using the relief from royalty method. The estimated fair value of the intangible assets are based on estimates for content lifecycles, estimates for revenue growth rates, estimates for future cash flows, the probability weighting of scenarios and discount rates, known at the acquisition date, which management believes are reasonable. The fair value of the intangible assets with definite lives is as follows (dollars in thousands) : Fair Value Weighted Average Amortization Life Technology $ 4,200 3 years Content 26,100 3 years Trademarks and tradenames 1,300 5 years Total intangible assets $ 31,600 3.1 years The Company recorded goodwill of $ 71.7 million, which represents the excess of the purchase price over the estimated fair value of tangible and intangible assets acquired, net of the liabilities assumed. The goodwill is primarily attributable to ValuePenguin as a going concern, which represents the ability of the Company to earn a higher return on the collection of assets and business of ValuePenguin than if those assets and business were to be acquired and managed separately. The benefit of access to the workforce is an additional element of goodwill. The goodwill was recorded in the Company’s then one reportable segment. For income tax purposes, the Company accounted for the acquisition as an asset purchase which would indicate the goodwill will be tax deductible. Subsequent to the acquisition date, the Company’s consolidated results of operations include the results of the acquired ValuePenguin business. In 2019, the Company’s consolidated results of operations include revenue of $ 19.8 million attributable to the ValuePenguin business. In the first six months of 2019, net income from continuing operations attributable to the ValuePenguin business was $ 3.1 million. Due to the integration of the ValuePenguin business subsequent to the acquisition, earnings of the acquired ValuePenguin business beginning in the third quarter of 2019 is impracticable to determine with sufficient accuracy. Acquisition-related costs were $ 0.1 million in 2019 and are included in general and administrative expense on the consolidated statement of operations and comprehensive income (loss). Pro forma Financial Results The unaudited pro forma financial results for the year ended December 31, 2019 combine the consolidated results of the Company and ValuePenguin, giving effect to the acquisition as if the acquisition had been completed on January 1, 2018. This unaudited pro forma financial information is presented for informational purposes only and is not indicative of future operations or results had the acquisition been completed as of January 1, 2018, or any other date. The unaudited pro forma financial results include adjustments for additional amortization expense based on the fair value of the intangible assets with definite lives and their estimated useful lives. Interest expense was also adjusted to reflect incremental interest associated with debt issued to finance the ValuePenguin acquisition. 2019 (in thousands) Pro forma revenue $ 1,107,118 Pro forma net income from continuing operations $ 39,173 The unaudited pro forma net income from continuing operations in 2019 includes the aggregate after-tax contingent consideration expense associated with the DepositAccounts, SnapCap, Ovation and QuoteWizard earnouts of $ 21.5 million. Acquisition-related costs of $ 0.1 million incurred by the Company that are directly attributable to the ValuePenguin acquisition, and which will not have an ongoing impact, have been eliminated from the unaudited pro forma net income from continuing operations for 2019. 70 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10— ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following (in thousands) : December 31, 2021 December 31, 2020 Accrued advertising expense $ 59,150 $ 54,045 Accrued compensation and benefits 16,330 14,081 Accrued professional fees 1,887 1,869 Customer deposits and escrows 7,546 8,153 Contribution to LendingTree Foundation 3,333 3,333 Current lease liabilities 8,595 5,375 Other 9,890 14,340 Total accrued expenses and other current liabilities $ 106,731 $ 101,196 NOTE 11— LEASES The Company is a lessee to leases of corporate offices and certain office equipment. The majority of leases for corporate offices include one or more options to renew, with renewal terms ranging from two to five years . These renewal options have not been included in the calculation of right-of-use assets and lease liabilities, as the Company is not reasonably certain of the exercise of these renewal options. The Company used its incremental borrowing rate to calculate the right-of-use asset and lease liability for each lease. As of December 31, 2021, right-of-use assets totaled $ 77.3 million and lease liabilities, the current portion of which is included in accrued expenses and other current liabilities in the accompanying balance sheet, totaled $ 104.8 million. At December 31, 2020, right-of-use assets totaled $ 84.1 million and lease liabilities totaled $ 97.7 million. Lease expense, which is included in general and administrative expense on the accompanying consolidated statements of operations and comprehensive income (loss), consists of the following (in thousands) : Year Ended December 31, 2021 2020 2019 Operating lease cost $ 13,160 $ 11,226 $ 6,346 Short-term lease cost 39 59 86 Total lease cost $ 13,199 $ 11,285 $ 6,432 Weighted average remaining lease term and discount rate for operating leases are as follows: December 31, 2021 December 31, 2020 December 31, 2019 Weighted average remaining lease term 12.3 years 13.0 years 5.0 years Weighted average discount rate 5.0 % 5.0 % 4.7 % Supplemental cash flow information related to leases is as follows (in thousands) : Year Ended December 31, 2021 2020 2019 Net cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 329 $ 2,359 $ 6,779 Right-of-use assets obtained in exchange for new operating lease liabilities $ 1,250 $ 66,881 $ 21,969 71 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Maturities of lease liabilities as of December 31, 2021 are as follows (in thousands) : Operating Leases Year ending December 31, 2022 $ 13,716 Year ending December 31, 2023 13,278 Year ending December 31, 2024 11,504 Year ending December 31, 2025 9,473 Year ending December 31, 2026 9,682 Thereafter 88,167 Total lease payments 145,820 Less: Interest 40,807 Less: Tenant improvement allowances 253 Present value of lease liabilities $ 104,760 The Company operated as a lessor in connection with office buildings in Charlotte, North Carolina acquired in December 2016. The properties were sold in 2019 to an unrelated third party. Rental income of $ 0.3 million in 2019 is included in other income on the accompanying consolidated statements of operations and comprehensive income (loss). NOTE 12— SHAREHOLDERS' EQUITY Basic and diluted income (loss) per share was determined based on the following share data (in thousands) : Year Ended December 31, 2021 2020 2019 Weighted average basic common shares 13,199 13,007 12,834 Effect of stock options 407 — 747 Effect of dilutive share awards 89 — 167 Effect of Convertible Senior Notes and warrants — — 871 Weighted average diluted common shares 13,695 13,007 14,619 For the year ended December 31, 2021, the weighted average shares that were anti-dilutive, and therefore excluded from the calculation of diluted income per share, included options to purchase 0.9 million shares of common stock and 0.1 million restricted stock units. For the year ended December 31, 2020, the Company had a loss from continuing operations and, as a result, no potentially dilutive securities were included in the denominator for computing diluted loss per share, because the impact would have been anti-dilutive. Accordingly, the weighted average basic shares outstanding was used to compute loss per share. Approximately 1.1 million shares related to potentially dilutive securities were excluded from the calculation of diluted loss per share for the year ended December 31, 2020 because their inclusion would have been anti-dilutive. For the year ended December 31, 2020 the weighted average shares that were anti-dilutive included options to purchase 0.2 million shares of common stock. For the year ended December 31, 2019, the weighted average shares that were anti-dilutive, and therefore excluded from the calculation of diluted income per share, included options to purchase 0.1 million shares of common stock. 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 15—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 2020 were excluded from the calculation of diluted loss per share for the years ended December 31, 2021 and 2020 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. Shares of the Company's common stock associated with the 0.625 % Convertible Senior Notes due June 1, 2022 and the warrants issued by the Company in 2017 were excluded from the calculation of diluted loss per share for the year ended December 31, 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. 72 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In 2021, the Company implemented an employee stock purchase plan, which did not have a material impact to the calculation of diluted shares. See Note 13—Stock-Based Compensation for a full description of outstanding equity awards. Common Stock Repurchases In each of February 2018 and February 2019, the board of directors authorized and the Company announced the repurchase of up to $ 100.0 million and $ 150.0 million, respectively, of LendingTree's common stock. During the years ended December 31, 2021 and 2019, the Company purchased 334,253 and 22,731 shares, respectively, of its common stock for aggregate consideration of $ 40.0 million and $ 5.5 million, respectively. At December 31, 2021, $ 139.7 million remains authorized for share repurchase. NOTE 13— STOCK-BASED COMPENSATION The Company currently has one active plan, the Seventh Amended and Restated LendingTree 2008 Stock Plan (the "Equity Award Plan"), under which future awards may be granted, which currently covers outstanding stock options to acquire shares of the Company's common stock, restricted stock, restricted stock with performance conditions, RSUs and RSUs with performance conditions, and provides for the future grants of these and other equity awards. Under the Equity Award Plan, the Company is authorized to grant stock options, restricted stock, RSUs and other equity-based awards for up to 6.7 million shares of LendingTree common stock to employees, and to non-employee consultants and directors. The Equity Award Plan has a stated term of ten years and provides that the exercise price of stock options granted will not be less than the market price of the common stock on the grant date. The Equity Award Plan does not specify grant dates or vesting schedules, as those determinations are delegated to the Compensation Committee of the board of directors. Each grant agreement reflects the vesting schedule for that particular grant, as determined by the Compensation Committee. The Compensation Committee has the authority to modify the vesting provisions of an award. Non-cash compensation related to equity awards is included in the following line items in the accompanying consolidated statements of operations and comprehensive income (loss) (in thousands) : Year Ended December 31, 2021 2020 2019 Cost of revenue $ 1,639 $ 1,319 $ 755 Selling and marketing expense 7,480 6,240 5,785 General and administrative expense 50,989 39,650 39,177 Product development 8,447 6,524 6,450 Total non-cash compensation $ 68,555 $ 53,733 $ 52,167 For the years ended December 31, 2021, 2020 and 2019, the Company recognized $ 14.1 million, $ 11.4 million and $ 12.2 million of income tax benefit, including state taxes, related to non-cash compensation. Additionally, for the years ended December 31, 2021, 2020 and 2019, the Company recognized $ 11.7 million, $ 2.5 million and $ 17.1 million, respectively, of excess tax benefit, including state taxes, in income tax expense. See Note 2—Significant Accounting Policies, for additional information regarding excess tax benefits and deficiencies. 73 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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) Outstanding at December 31, 2020 924,710 $ 111.82 Granted 71,397 241.19 Exercised ( 306,113 ) 7.30 Forfeited ( 13,063 ) 261.62 Expired ( 638 ) 304.85 Outstanding at December 31, 2021 676,293 $ 169.71 5.57 $ 25,789 Options exercisable 442,957 $ 113.35 3.98 $ 25,789 (a) The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company's closing stock price of $ 122.60 on the last trading day of 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 December 31, 2021. The intrinsic value changes based on the market value of the Company's common stock. As of December 31, 2021, there was approximately $ 22.2 million of unrecognized compensation cost related to stock options. These costs are expected to be recognized over a weighted-average period of approximately 3.3 years. Upon exercise, the intrinsic value represents the pre-tax difference between the Company's closing stock price on the exercise date and the exercise price, multiplied by the number of stock options exercised. During the years ended December 31, 2021, 2020 and 2019, the total intrinsic value of stock options that were exercised was $ 51.4 million, $ 6.8 million and $ 50.2 million, respectively. Cash received from stock option exercises and the related actual tax benefit realized were $ 2.2 million and $ 13.1 million, respectively, for the year ended December 31, 2021. During the years ended December 31, 2021, 2020 and 2019, the Company granted stock options with a weighted average grant date fair value per share of $ 128.86 , $ 116.08 and $ 167.10 , respectively, of which the vesting periods include (a) immediately upon grant, (b) earlier of one year from grant date and the Company's annual meeting of stockholders for 2022, (c) 33 % over a period of three years from the grant date, (d) 25 % over a period of four years from the grant date, and (e) certain grants to executive officers that vest over periods of up to six years . For purposes of determining stock-based compensation expense, the weighted average grant date fair value per share of the stock options, except the December 2020 grant to the Chairman and Chief Executive Officer described below, 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: Year Ended December 31, 2021 2020 2019 Expected term (1) 5.00 - 6.00 years 5.00 - 6.25 years 5.00 - 6.25 years Expected dividend (2) — — — Expected volatility (3) 53 % - 59 % 52 %- 60 % 51 % - 55 % Risk-free interest rate (4) 0.59 % - 1.15 % 0.33 %- 0.96 % 1.46 % - 2.55 % (1) The expected term of stock options granted was calculated using the 'Simplified Method', which utilizes the midpoint between the weighted average time of vesting and the end of the contractual term. This method was utilized for the stock options due to a lack of historical exercise behavior by the Company's employees. (2) For all stock options granted during the years ended December 31, 2021, 2020 and 2019, 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. 74 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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. In December 2020, the Company granted time-based stock options to its Chairman and Chief Executive Officer at a premium exercise price of $ 300 , representing an approximate 25 % premium over the closing market price of LendingTree's common stock on the date of grant. The net after-tax shares acquired through exercise of these stock options are subject to a two-year post-exercise holding requirement. For purposes of determining stock-based compensation expense, the grant date fair value per share of these time-based stock options was estimated using the Monte Carlo simulation model. The key assumptions used in the valuation are as follows: (1) An average expected term of 6.90 years based on the midpoint between the first day that the stock options are both vested and in-the-money and the end of the contractual term. (2) A zero expected dividend rate as no dividends are expected to be paid over the contractual term of the stock options. (3) An expected volatility rate of 52 % based on the historical volatility of the Company's common stock. (4) A risk-free interest rate of 0.92 % based on U.S. Treasury yields for notes with comparable expected terms as the awards, in effect at the grant date. (5) An 8.8 % discount for the post-exercise holding requirement, calculated using the cost-of-carry method, the Chaffe protective put method, and the Finnerty model. During the years ended December 31, 2021, 2020 and 2019, the total fair value of options vested was $ 10.8 million, $ 5.8 million and $ 6.9 million, respectively. 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) Outstanding at December 31, 2020 700,209 $ 236.01 Granted — — Exercised — — Forfeited — — Expired — — Outstanding at December 31, 2021 700,209 $ 236.01 6.75 $ — Options exercisable — $ — 0 $ — (a) The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company's closing stock price of $ 122.60 on the last trading day of 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 December 31, 2021. The intrinsic value changes based on the market value of the Company's common stock. As of December 31, 2021, there was approximately $ 36.5 million of unrecognized compensation cost related to stock options with market conditions. These costs are expected to be recognized over a weighted-average period of approximately 1.8 years. For single cliff-vesting stock options with market conditions, the fair value will be recognized on a straight-line basis through each grant’s vest date, whether or not any of the total shareholder return targets are met. For graded-vesting stock options with market conditions, the fair value will be recognized using graded vesting expense attribution, whether or not any of the total shareholder return targets are met. No stock options with market conditions were granted in 2021. During the years ended December 31, 2020 and 2019, the Company granted stock options with a weighted-average grant date fair value per share of $ 142.54 and $ 230.81 , respectively. The single cliff-vesting stock options granted during the years ended December 31, 2020 and 2019 have vest dates of March 31, 75 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2024 and March 31, 2023, respectively. The graded-vesting stock options granted during the year ended December 31, 2020 have a vesting schedule with vesting dates of December 31, 2024, December 31, 2025 and December 31, 2026. For purposes of determining stock-based compensation expense, the weighted-average grant date fair value per share of the stock options with a market condition was estimated using the Monte Carlo simulation model, which requires the use of various key assumptions. The weighted-average assumptions used for single cliff-vesting stock options with a market condition are as follows: Year Ended December 31, 2020 2019 Expected term (1) 7.00 years 7.00 years Expected dividend (2) — — Expected volatility (3) 51 % 51 % Risk-free interest rate (4) 1.03 % 2.54 % (1) The expected term of stock options with a market condition granted was calculated using the midpoint between the weighted average time of vesting and the end of the contractual term. (2) For all stock options with a market condition granted during the years ended December 31, 2020 and 2019, 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. In December 2020, the Company granted graded-vesting stock options with a market condition to its Chairman and Chief Executive Officer at a premium exercise price of $ 300 , representing an approximate 25 % premium over the closing market price of LendingTree's common stock on the date of grant. The net after-tax shares acquired through exercise of these stock options are subject to a two-year post-exercise holding requirement. The key assumptions used in the Monte Carlo simulation model to determine the grant date fair value per share of these graded-vesting stock options with a market condition are as follows: (1) An average expected term of 7.54 years based on the midpoint between vesting and the end of the contractual term. (2) A zero expected dividend rate as no dividends are expected to be paid over the contractual term of the stock options. (3) An expected volatility rate of 52 % based on the historical volatility of the Company's common stock. (4) A risk-free interest rate of 0.92 % based on U.S. Treasury yields for notes with comparable expected terms as the awards, in effect at the grant date. (5) An 8.8 % discount for the post-exercise holding requirement, calculated using the cost-of-carry method, the Chaffe protective put method, and the Finnerty model. The single cliff-vesting stock options with a market condition granted in 2020 have a target number of shares that vest upon achieving a targeted total shareholder return performance of 81 % stock price appreciation and a maximum of 31,940 shares for achieving superior performance. No shares will vest unless 41 % of the targeted performance is achieved. The performance measurement period ends on March 31, 2024. The graded-vesting stock options with a market condition granted in 2020 have a target number of shares that vest upon achieving a targeted total shareholder return performance of 135 % stock price appreciation and a maximum of 363,464 shares for achieving superior performance. No shares will vest unless 81 % of the targeted performance is achieved. The performance measurement period ends on March 31, 2025. The stock options with a market condition granted in 2019 have a target number of shares that vest upon achieving a targeted total shareholder return performance of 81 % stock price appreciation and a maximum of 27,132 shares for achieving superior performance. No shares will vest unless 41 % of the targeted performance is achieved. The performance measurement period ends on March 31, 2023. 76 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Certain of the stock options with a market condition granted in 2018 have a target number of shares that vest upon achieving a targeted total shareholder return performance of 110 % stock price appreciation and a maximum of 52,332 shares for achieving superior performance. No shares will vest unless 70 % of the targeted performance is achieved. The performance measurement period ends on September 30, 2022. The remaining stock options with a market condition granted in 2018 have a target number of shares that vest upon achieving a targeted total shareholder return performance of 81 % stock price appreciation and a maximum of 21,982 shares for achieving superior performance. No shares will vest unless 41 % of the targeted performance is achieved. The performance measurement period ends on March 31, 2022. For all stock options with market conditions, time-based service vesting conditions would also have to be satisfied in order for shares to become fully vested and no longer subject to forfeiture. As of December 31, 2021, 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 RSUs is as follows: RSUs Number of Units Weighted Average Grant Date Fair Value (per unit) Nonvested at December 31, 2020 194,686 $ 289.82 Granted (a) 263,779 209.25 Vested ( 91,670 ) 289.63 Forfeited ( 58,727 ) 260.13 Nonvested at December 31, 2021 308,068 $ 226.55 (a) The grant date fair value per share of the RSUs is calculated as the closing market price of LendingTree's common stock at the time of grant. As of December 31, 2021, there was approximately $ 45.3 million of unrecognized compensation cost related to RSUs. These costs are expected to be recognized over a weighted-average period of approximately 1.8 years. The total fair value of RSUs that vested during the years ended December 31, 2021, 2020 and 2019 was $ 21.7 million, $ 22.4 million and $ 27.2 million, respectively. 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 December 31, 2020 6,328 $ 223.90 Granted — — Vested ( 6,328 ) 223.90 Forfeited — — Nonvested at December 31, 2021 — $ — No RSUs with performance conditions were granted in 2021, 2020, or 2019. As of December 31, 2021, there was no unrecognized compensation cost related to RSUs with performance conditions. The total fair value of RSUs with performance conditions that vested during the years ended December 31, 2021, 2020, and 2019 was $ 0.9 million, $ 2.6 million, and $ 18.8 million, respectively. 77 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Restricted Stock Awards with Performance Conditions A summary of changes in outstanding nonvested RSAs with performance conditions is as follows: RSAs with Performance Conditions Number of Awards Weighted Average Grant Date Fair Value (per unit) Nonvested at December 31, 2020 23,804 $ 340.25 Granted — — Vested ( 23,804 ) 340.25 Forfeited — — Nonvested at December 31, 2021 — $ — No RSAs with performance conditions were granted in 2021, 2020, or 2019. During 2018, the Company granted time-vested RSAs with a performance condition to its Chairman and Chief Executive Officer, which vested through December 31, 2021. The terms of this award were fixed in compensation agreements in July 2017 with a total grant date fair value of $ 21.9 million. The performance condition was tied to the Company's operating results during the first six months of 2018, and has been met. As of December 31, 2021, there was no unrecognized compensation cost related to RSAs with performance conditions. The total fair value of RSAs with performance conditions that vested during the years ended December 31, 2021, 2020 and 2019 was $ 4.1 million, $ 6.2 million and $ 8.2 million, respectively. 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 December 31, 2020 26,674 $ 340.25 Granted — — Vested — — Forfeited — — Nonvested at December 31, 2021 26,674 $ 340.25 No RSAs with market conditions were granted in 2021, 2020 or 2019. During 2018, the Company granted RSAs with market conditions to its Chairman and Chief Executive Officer with a total grant date fair value of $ 1.9 million. These RSAs with a market condition have a target number of shares that vest upon achieving a targeted total shareholder return performance of 110 % stock price appreciation and a maximum of 44,545 shares for achieving superior performance. No shares will vest unless 70 % of the targeted performance is achieved. The performance measurement period ends on September 30, 2022. Time-based service vesting conditions would also have to be satisfied in order for shares to become fully vested and no longer subject to forfeiture. As of December 31, 2021, there was approximately $ 0.3 million of unrecognized compensation cost related to RSAs with market conditions. These costs are expected to be recognized over a weighted-average period of approximately 0.8 years. As of December 31, 2021, RSAs with a market condition of 29,601 had been earned, which have a vest date of September 30, 2022. 78 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Employee Stock Purchase Plan During 2021, the Company implemented an employee stock purchase plan ("ESPP"), under which a total of 262,731 shares of the Company's common stock were reserved for issuance. The ESPP is a tax-qualified plan under Section 423 of the Internal Revenue Code. Under the terms of the ESPP, eligible employees are granted options to purchase shares of the Company's common stock at 85 % of the lesser of (1) the fair market value at time of grant or (2) the fair market value at time of exercise. The offering periods and purchase periods are typically 6-month periods ending on June 30 and December 31 of each year. During the year ended December 31, 2021, 5,543 shares were purchased under the ESPP at a weighted average purchase price of $ 103.62 per share, resulting in cash proceeds of $ 0.6 million. As of December 31, 2021, 257,188 shares were available for issuance under the ESPP. For the year ended December 31, 2021, the Company granted Employee Stock Purchase Rights to certain employees with a grant date fair value per share of $ 42.39 , calculated using the Black-Scholes option pricing model. For purposes of determining stock-based compensation expense, the grant date fair value per share estimated using the Black-Scholes option pricing model required the use of the following key assumptions: Expected term (1) 0.33 years Expected dividend (2) — Expected volatility (3) 46 % Risk-free interest rate (4) 0.05 % (1) The expected term was calculated using the time period between the grant date and the purchase date. (2) No dividends are expected to be paid, 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 Employee Stock Purchase Rights, in effect at the grant date. 79 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14— INCOME TAXES Income Tax Provision The components of the income tax benefit are as follows (in thousands) : Year Ended December 31, 2021 2020 2019 Current income tax expense (benefit): Federal $ 128 $ ( 10,705 ) $ 201 State 262 372 ( 125 ) Current income tax expense (benefit) 390 ( 10,333 ) 76 Deferred income tax provision (benefit): Federal 9,912 ( 7,495 ) ( 10,857 ) State 996 ( 2,133 ) 2,302 Deferred income tax provision (benefit) 10,908 ( 9,628 ) ( 8,555 ) Income tax expense (benefit) $ 11,298 $ ( 19,961 ) $ ( 8,479 ) A reconciliation of the income tax benefit to the amounts computed by applying the statutory federal income tax rate to income (loss) from continuing operations before income taxes is shown as follows (in thousands) : Year Ended December 31, 2021 2020 2019 Federal statutory income tax $ 17,731 $ ( 8,931 ) $ 6,506 State income taxes, net 1,269 ( 3,551 ) ( 1,832 ) Excess tax deductions on non-cash compensation ( 9,401 ) ( 2,033 ) ( 13,971 ) Impact of the Coronavirus Aid, Relief, and Economic Security Act — ( 6,104 ) — Research and experimentation tax credit ( 3,207 ) ( 3,800 ) ( 5,794 ) Impact of certain state legislation, net — — 3,932 Nondeductible executive compensation 3,058 1,778 988 Increase (decrease) in valuation allowance 595 2,100 954 Uncertain tax positions 435 458 922 Nondeductible meals & entertainment 239 99 428 Other, net 579 23 ( 612 ) Income tax expense (benefit) $ 11,298 $ ( 19,961 ) $ ( 8,479 ) 80 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred Income Taxes The tax effects of cumulative temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows (in thousands) : December 31, 2021 2020 Deferred tax assets: Provision for accrued expenses $ 5,405 $ 4,907 Leasing 27,419 24,864 Net operating loss carryforwards (a) 66,977 56,190 Non-cash compensation expense 26,756 20,746 Intangible assets 15,222 12,684 Interest limitation 8,036 4,059 Contingent liabilities — 4,507 Tax credits 15,848 13,656 Other 1,079 3,605 Total gross deferred tax assets 166,742 145,218 Less: valuation allowance (b) ( 6,039 ) ( 5,802 ) Total deferred tax assets, net of the valuation allowance 160,703 139,416 Deferred tax liabilities: Leasing ( 24,590 ) ( 21,632 ) Property and equipment ( 8,156 ) ( 5,015 ) Equity investment ( 25,608 ) — Other ( 444 ) ( 653 ) Total gross deferred tax liabilities ( 58,798 ) ( 27,300 ) Net deferred taxes $ 101,905 $ 112,116 (a) At December 31, 2021, the Company had pre-tax consolidated federal net operating losses ("NOLs") of $ 220.1 million. The federal NOLs no longer expire under the new TCJA. The Company's NOLs will be available to offset taxable income subject to the Internal Revenue Code Section 382 annual limitation. In addition, the Company has state NOLs of approximately $ 542.7 million at December 31, 2021 that will expire at various times between 2022 and 2041. (b) The valuation allowance is related to items for which it is "more likely than not" that the tax benefit will not be realized. Deferred income taxes are presented in the accompanying consolidated balance sheets as follows (in thousands) : December 31, 2021 2020 Deferred income tax assets $ 87,581 $ 96,224 Non-current assets of discontinued operations 16,589 15,892 Deferred income tax liabilities ( 2,265 ) — Net deferred taxes $ 101,905 $ 112,116 Valuation Allowance A valuation allowance is provided on deferred tax assets if it is determined that it is "more likely than not" that the deferred tax asset will not be realized. As of each reporting date, management considers both positive and negative evidence regarding the likelihood of future realization of the deferred tax assets. 81 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 2021, 2020 and 2019, the Company recorded a partial valuation allowance of $ 6.0 million, $ 5.8 million and $ 4.1 million, respectively, primarily related to state net operating losses, which the Company does not expect to be able to utilize prior to expiration. A reconciliation of the beginning and ending balances of the deferred tax valuation allowance is as follows (in thousands) : Year Ended December 31, 2021 2020 2019 Balance, beginning of the period $ 5,802 $ 4,102 $ 2,229 Charges to earnings 237 1,700 1,873 Balance, end of the period $ 6,039 $ 5,802 $ 4,102 Unrecognized Tax Benefits A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties, is as follows (in thousands) : Year Ended December 31, 2021 2020 Balance, beginning of the period $ 2,613 $ 1,996 Additions based on tax positions of the current period 435 570 Additions (subtractions) based on tax positions of the prior period ( 134 ) 47 Balance, end of the period $ 2,914 $ 2,613 Interest and, if applicable, penalties are recognized related to unrecognized tax benefits in income tax expense. Interest and penalties on unrecognized tax benefits included in income tax expense for each of the years ended December 31, 2021, 2020 and 2019 is immaterial. As of December 31, 2021 and 2020, the accrual for unrecognized tax benefits, including interest, was $ 2.9 million and $ 2.6 million, respectively, which would benefit the effective tax rate if recognized. Tax Audits LendingTree is subject to audits by federal, state and local authorities in the area of income tax. These audits include questioning the timing and the amount of deductions and the allocation of income among various tax jurisdictions. Income taxes payable include amounts considered sufficient to pay assessments that may result from examination of prior year returns; however, any amounts paid upon resolution of issues raised may differ from the amount provided. Differences between the reserves for tax contingencies and the amounts owed by the Company are recorded in the period they become known. As of December 31, 2021, the Company is subject to a federal income tax examination for the tax years 2014 through 2020. In addition, the Company is subject to state and local tax examinations for the tax years 2017 through 2021. NOTE 15— 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 82 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 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 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 December 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 September 30, 2021, 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 March 31, 2022 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, 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 41st 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. 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. 83 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. During 2021, the Company recorded interest expense on the 2025 Notes of $ 27.2 million which consisted of $ 2.9 million associated with the 0.50 % coupon rate, $ 22.1 million associated with the accretion of the debt discount, and $ 2.2 million associated with the amortization of the debt issuance costs. During 2020, the Company recorded interest expense on the 2025 Notes of $ 11.5 million which consisted of $ 1.3 million associated with the 0.50 % coupon rate, $ 9.3 million associated with the accretion of the debt discount, and $ 0.9 million associated with the amortization of the debt issuance costs. The debt discount is being amortized over the term of the debt. As of December 31, 2021, the fair value of the 2025 Notes is estimated to be approximately $ 475.1 million using the Level 1 observable input of the last quoted market price on December 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, all of which is recorded as a non-current liability in the December 31, 2021 consolidated balance sheet, are as follows (in thousands) : December 31, 2021 December 31, 2020 Gross carrying amount $ 575,000 $ 575,000 Unamortized debt discount 87,994 110,110 Debt issuance costs 8,855 11,056 Net carrying amount $ 478,151 $ 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 credit facility, described below, to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries. Prior to the close of business on the business day immediately preceding February 1, 2022, the 2022 Notes will be convertible at the option of the holders thereof only under the following circumstances: • during any calendar quarter commencing after the calendar quarter ending on September 30, 2017 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on, and including the last trading day of the 84 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 December 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 September 30, 2021, 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 March 31, 2022 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, 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, which is included in interest expense, net in the consolidated statements of operations and comprehensive income (loss). During 2021, the Company recorded interest expense on the 2022 Notes of $ 9.5 million which consisted of $ 1.1 million associated with the 0.625 % coupon rate, $ 7.5 million associated with the accretion of the debt discount, and $ 0.9 million associated with the amortization of the debt issuance costs. During 2020, the Company recorded interest expense on the 2022 Notes of $ 13.0 million which consisted of $ 1.5 million associated with the 0.625 % coupon rate, $ 10.3 million associated with the accretion of the debt discount, and $ 1.2 million associated with the amortization of the debt issuance costs. During 2019, the Company recorded interest expense on the 2022 Notes of $ 15.3 million which consisted of $ 1.9 million associated with the 0.625 % coupon rate, $ 12.0 million associated with the accretion of the debt discount, and $ 1.4 million associated with the amortization of the debt issuance costs. The debt discount is being amortized over the term of the debt. As of December 31, 2021, the fair value of the 2022 Notes is estimated to be approximately $ 167.3 million using the Level 1 observable input of the last quoted market price on December 31, 2021. 85 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, all of which is recorded as a current liability in the December 31, 2021 consolidated balance sheet, are as follows (in thousands) : December 31, 2021 December 31, 2020 Gross carrying amount $ 169,659 $ 169,690 Unamortized debt discount 3,260 10,815 Debt issuance costs 391 1,297 Net carrying amount $ 166,008 $ 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. 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 86 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. Credit Facility On September 15, 2021, the Company entered into a credit agreement (the “Credit Agreement”), consisting of a $ 200.0 million revolving credit facility (the "Revolving Facility"), which matures on September 15, 2026, and a $ 250.0 million delayed draw term loan facility (the "Term Loan Facility" and together with the Revolving Facility, the “Credit Facility”), which matures on September 15, 2028 to the extent the loans thereunder will be drawn. The delayed draw commitments under the Term Loan Facility will be available until June 1, 2022. The proceeds of the Revolving Facility can be used to finance working capital, for general corporate purposes and any other purpose not prohibited by the Credit Agreement. The proceeds of the Term Loan Facility can be used to settle the Company’s 2022 Notes, including related fees, costs and expenses, and up to $ 80.0 million may be used for general corporate purposes and any other purposes not prohibited by the Credit Agreement. The Credit Facility replaces the Company's $ 500.0 million five-year senior secured revolving credit facility (the "Amended Revolving Credit Facility") which was entered into on December 10, 2019. As of December 31, 2021, the Company had no borrowings outstanding under the Credit Facility and at December 31, 2020, the Company had no borrowings outstanding under the Amended Revolving Credit Facility. The full amount of the Revolving Facility will be available on a same-day basis, with respect to base rate loans and upon advance notice with respect to LIBO rate loans, subject to customary terms and conditions. Under certain conditions, the Company will be permitted to add one or more term loans and/or increase revolving or term loan commitments under the Credit Facility by an amount set at the greater of $ 116.0 million and 100% of consolidated EBITDA (subject to adjustments for certain prepayments), plus an unlimited amount provided that the first lien net leverage ratio does not exceed 3.00 to 1.00. Additionally, up to $ 20.0 million of the Revolving Facility will be available for the issuance of letters of credit. At each of December 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 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 1.25 % to 1.75 % for loans under the Revolving Facility and 2.75 % to 3.00 % for loans under the Term Loan Facility, in each case, based on a first lien net leverage ratio; or • a LIBO rate generally defined as the sum of (i) the rate for Eurodollar dollar deposits for the applicable interest period and (ii) an applicable percentage of 2.25 % to 2.75 % for loans under the Revolving Facility and 3.75 % and 4.00 % for loans under the Term Loan Facility, in each case, based on a first lien net leverage ratio. Interest on the Company’s borrowings is 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 Credit Facility contains a restrictive financial covenant, which is set at a first lien net leverage ratio of 2.50 to 1.00, except that this may increase by 0.50 :1.00 for the four fiscal quarters following a material acquisition. The financial covenant will be tested only if the loans and certain other obligations under the Revolving Facility exceed $ 20.0 million as of the last date 87 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS of any fiscal quarter (starting with the fiscal quarter ending on December 31, 2021). In addition, the Credit Facility contains mandatory prepayment events, affirmative and negative covenants and events of default customary for a transaction of this type. The covenants, among other things, restrict additional indebtedness, liens, mergers or certain fundamental changes, asset dispositions, dividends and other restricted payments, transactions with affiliates, loans and investments and other matters customarily restricted in credit agreements of this type. The Company is required to make mandatory prepayments of the outstanding principal amount of loans under the Term Loan Facility with the net cash proceeds from certain disposition of assets and the receipt of insurance proceeds upon certain casualty and condemnation events, in each case, to the extent not reinvested within a specified time period, from excess cash flow beyond stated threshold amounts, and from the incurrence of certain indebtedness. The Company has the right to prepay its term loans under the Credit Agreement, in whole or in part, at any time without premium or penalty, subject to certain limitations and a 1.0 % soft call premium applicable during the first six months following the closing date. The Company was in compliance with all covenants at December 31, 2021. The Credit Facility requires the Company and certain of its subsidiaries to pledge as collateral, subject to certain customary exclusions, substantially all of its assets, including 100 % of the equity in certain domestic subsidiaries and 65 % of the voting equity, and 100 % of the non-voting equity, in certain foreign subsidiaries. The obligations under the Credit Facility are unconditionally guaranteed on a senior basis by the Company's material domestic subsidiaries, which guaranties are secured by the collateral. With respect to the Revolving Facility, 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 Revolving Facility equal to an applicable percentage of 0.25 % to 0.50 % per annum based on a first lien net leverage 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 2.25 % to 2.75 % based on a first lien net leverage ratio. The letter of credit fronting fee is 0 .125 % per annum on the face amount of each letter of credit. With respect to the Term Loan Facility, 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 Term Loan Facility equal to an applicable LIBO rate plus an applicable percentage of 3.75 % to 4.00 % per annum based on a first lien net leverage ratio. The Company recognized $ 1.1 million in additional interest expense in the third quarter of 2021 due to the write-off of certain unamortized debt issuance costs associated with the Amended Revolving Credit Facility. In addition to the remaining unamortized debt issuance costs associated with the Amended Revolving Credit Facility, debt issuance costs of $ 2.8 million related to the Revolving Facility are being amortized to interest expense over the life of the Revolving Facility. Debt issuance costs of $ 3.5 million related to the Term Loan Facility and the original issue discount $ 2.5 million paid on the undrawn term loan facility are being amortized to interest expense over the delayed draw access period, until such time that the loans thereunder are drawn. These deferred costs are included in prepaid and other current assets and other non-current assets in the Company's consolidated balance sheet. During 2021, the Company recorded interest expense related to its revolving credit facilities of $ 3.4 million which consisted of $ 2.0 million in unused commitment fees and $ 1.4 million associated with the amortization of the debt issuance costs. During 2021, the Company recorded interest expense related to the Term Loan Facility of $ 5.9 million which consisted of $ 3.5 million in unused commitment fees, $ 1.4 million associated with the amortization of the debt issuance costs, and $ 1.0 million associated with the amortization of the original issue discount. During 2020, the Company recorded interest expense related to the Amended Revolving Credit Facility of $ 4.3 million which consisted of $ 1.3 million associated with borrowings bearing interest at the LIBO rate, $ 1.7 million in unused commitment fees, and $ 1.3 million associated with the amortization of the debt issuance costs. During 2019, the Company recorded interest expense related to the Amended Revolving Credit Facility of $ 6.1 million which consisted of $ 4.9 million associated with borrowings bearing interest at the base rate and the LIBO rate, $ 0.6 million in unused commitment fees, and $ 0.6 million associated with the amortization of the debt issuance costs. 88 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16— COMMITMENTS Bonds The Company has funding commitments that could potentially require performance in the event of demands by third parties or contingent events, as follows (in thousands) : Commitments Due By Period Total Less Than 1 year 1-3 years 3-5 years More Than 5 years Surety bonds (a) $ 5,177 $ 5,152 $ 25 $ — $ — (a) State laws and regulations generally require businesses which engage in mortgage brokering activity to maintain a mortgage broker or similar license. Mortgage brokering activity is generally defined to include, among other things, receiving valuable consideration for offering assistance to a buyer in obtaining a residential mortgage or soliciting financial and mortgage information from the public and providing that information to an originator of residential mortgage loans. All states require that the Company maintain surety bonds for potential claims. Other Commitments The Company has certain other commitments through 2025, where the aggregate commitments for these contracts range from $ 0.2 million to $ 5.2 million each year throughout the remaining life of the contract. NOTE 17— 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 17, 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 December 31, 2021, the Company had litigation settlement accruals of $ 0.1 million in continuing operations. 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 21—Discontinued Operations for additional information. NOTE 18— 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 December 31, 2021. See Note 15—Debt for additional information on the convertible notes and warrants, and see Note 8—Equity Investment for additional information on the equity interest in Stash. 89 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Contingent consideration payments related to acquisitions are measured at fair value each reporting period using Level 3 unobservable inputs. The changes in the fair value of the Company's Level 3 liabilities during the years ended December 31, 2021, 2020 and 2019 are as follows (in thousands) : Year Ended December 31, 2021 2020 2019 Contingent consideration, beginning of period $ 8,249 $ 33,464 $ 38,837 Transfers into Level 3 — — — Transfers out of Level 3 — — — Total net losses included in earnings (realized and unrealized) ( 8,249 ) 5,327 28,402 Purchases, sales and settlements: Additions — — — Payments — ( 30,542 ) ( 33,775 ) Contingent consideration, end of period $ — $ 8,249 $ 33,464 There was no contingent consideration liability at December 31, 2021 because the final earnout period for the QuoteWizard acquisition ended on October 31, 2021. The contingent consideration liability at December 31, 2020 consisted of the estimated fair value of the remaining earnout payment for the QuoteWizard acquisition. The contingent consideration liability at December 31, 2019 consisted of the estimated fair value of the earnout payments of the DepositAccounts, SnapCap, Ovation, and QuoteWizard acquisitions. NOTE 19— RELATED PARTY TRANSACTIONS In 2017, the Company's Board of Directors approved a $ 10.0 million contribution to fund the newly formed LendingTree Foundation. In each of 2020 and 2019, the Company paid $ 3.3 million of the $ 10.0 million contribution, and paid the final installment in 2022. Officers of the Company serve as officers of the LendingTree Foundation. NOTE 20— BENEFIT PLANS The Company operates a retirement savings plan for its employees in the United States that is qualified under Section 401(k) of the Internal Revenue Code. Employees are eligible to enroll in the plan upon date of hire. Participating employees may contribute up to 50 % of their pre-tax earnings, but not more than statutory limits ($ 19,500 for 2021, $ 19,500 for 2020, and $ 19,000 for 2019). The company match contribution is fifty cents for each dollar a participant contributes to the plan, with a maximum contribution of 6 % of a participant's eligible earnings. Matching contributions are invested in the same manner as each participant's voluntary contributions in the investment options provided under the plan. LendingTree stock is not included in the available investment options or the plan assets. Funds contributed to the plan vest according to the participant's years of service, with one year of service vesting at 33 %, two years of service vesting at 66 %, and three years or more of service vesting at 100 %. Matching contributions were approximately $ 2.9 million, $ 2.4 million and $ 2.0 million for the years ended December 31, 2021, 2020 and 2019, respectively. NOTE 21— 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, 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. 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 remained with HLC. Litigation settlements and contingencies and legal fees associated with related bankruptcy and legal proceedings against the Company are included in discontinued operations in the accompanying financial statements. 90 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED 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 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 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. The derecognition of HLC’s cash of $ 5.9 million removed from the consolidated balance sheet on the deconsolidation date of July 21, 2019 is included within cash flows from operating activities attributable to discontinued operations in the accompanying consolidated statement of cash flows. During its bankruptcy, HLC indicated that it believed that it had 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. 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 approved the settlement on July 16, 2020. The $ 36.0 million settlement payment was made in the third quarter of 2020. During the HLC bankruptcy, a bar date for claims against HLC was set, establishing a deadline for all HLC’s creditors to assert any claim they may have had against HLC. Distributions were made to holders of allowed claims deemed timely filed. After all distributions to creditors were made and HLC’s Chapter 7 bankruptcy estate was fully administered, the HLC bankruptcy case was closed on July 14, 2021. 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. Plaintiff then 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. It filed substantially similar complaints against approximately 80 of the loan originators from whom RFC had purchased loans, including HLC. Judgment was entered against HLC, see Home Loan Center, Inc. Bankruptcy Filing above. HLC’s filing under the Bankruptcy Code discussed above in Home Loan Center, Inc. Bankruptcy Filing created an automatic stay of enforcement of the judgment entered against HLC. 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. In June 2020, the Company entered into a settlement with ResCap, pursuant to which, the Company agreed to, among other things, pay ResCap $ 58.5 million, less any amounts ResCap receives in the HLC bankruptcy. In 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 and the ResCap Liquidating Trust, in turn, assigned its allowed claims against HLC to the Company. In the second quarter of 2021, the Company received $ 8.6 million related to these amounts, from the final distributions in the HLC bankruptcy on account of the allowed claims that the ResCap Liquidating Trust had assigned to the Company. 91 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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"). HLC’s filing under the Bankruptcy Code discussed above in Home Loan Center, Inc. Bankruptcy Filing created an automatic stay of this proceeding. On June 11, 2020, LBHI filed a lawsuit captioned Lehman Brothers Holdings Inc. v. LendingTree, LLC, et al., Case No. 20-cv-01351 (U.S. Dist. Ct., Minn.) , seeking to hold the Company liable for their allowed bankruptcy claim of $ 13.3 million. In July 2021, the Company entered into a settlement with LBHI, which payment was made in the third quarter of 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 (loss) are as follows (in thousands) : Year Ended December 31, 2021 2020 2019 Revenue $ — $ — $ — Gain from removal of HLC's assets and liabilities — — 4,515 Other operating expenses ( 4,719 ) ( 33,308 ) ( 35,002 ) Loss before income taxes ( 4,719 ) ( 33,308 ) ( 30,487 ) Income tax benefit 696 7,619 8,855 Net loss $ ( 4,023 ) $ ( 25,689 ) $ ( 21,632 ) Losses from discontinued operations included all activity of HLC prior to bankruptcy, including litigation settlements, contingencies and legal fees associated with legal proceedings, as well as a gain upon deconsolidation due to the accounting effect of HLC’s bankruptcy filing on the consolidated financial statements. The results of discontinued operations also include litigation settlements and contingencies and legal fees associated with legal proceedings against LendingTree, Inc. or LendingTree, LLC that arose due to the LendingTree Loans Business or the HLC bankruptcy filing. NOTE 22— 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 CODM 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 and insurance policies in our agency businesses. Revenue from the resale of online advertising space to third parties and revenue from home improvement referrals, and the related variable marketing and advertising expenses, are included within the Other category. The following tables are a reconciliation of segment profit, which is the Company's primary segment profitability measure, to income before income taxes and discontinued operations. Segment cost of revenue and marketing expense represents the portion of selling and marketing expense attributable to variable costs paid for advertising, direct marketing and related expenses, that are directly attributable to the segments' products. This measure excludes overhead, fixed costs and personnel-related expenses. For the Other category, segment cost of revenue and marketing expense also includes the portion of cost of revenue attributable to costs paid for advertising re-sold to third parties. The Company ceased reselling online advertising space during the first quarter of 2020. 92 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2021 Home Consumer Insurance Other Total (in thousands) Revenue $ 441,738 $ 329,945 $ 326,153 $ 663 $ 1,098,499 Segment cost of revenue and marketing expense 288,386 186,448 212,689 610 688,133 Segment profit 153,352 143,497 113,464 53 410,366 Cost of revenue 57,297 Brand and other marketing expense 85,857 General and administrative expense 153,472 Product development 52,865 Depreciation 17,910 Amortization of intangibles 42,738 Change in fair value of contingent consideration ( 8,249 ) Severance 53 Litigation settlements and contingencies 392 Operating income 8,031 Interest expense, net ( 46,867 ) Other income 123,272 Income before income taxes and discontinued operations $ 84,436 Year Ended December 31, 2020 Home Consumer Insurance Other Total (in thousands) Revenue $ 320,992 $ 253,198 $ 333,765 $ 2,035 $ 909,990 Segment cost of revenue and marketing expense 188,869 146,308 202,623 2,717 540,517 Segment profit (loss) 132,123 106,890 131,142 ( 682 ) 369,473 Cost of revenue (exclusive of cost of advertising re-sold to third parties included above) 53,408 Brand and other marketing expense 77,973 General and administrative expense 129,101 Product development 43,636 Depreciation 14,201 Amortization of intangibles 53,078 Change in fair value of contingent consideration 5,327 Severance 295 Litigation settlements and contingencies ( 943 ) Operating (loss) ( 6,603 ) Interest expense, net ( 36,300 ) Other income 376 Loss before income taxes and discontinued operations $ ( 42,527 ) 93 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2019 Home Consumer Insurance Other Total (in thousands) Revenue $ 277,935 $ 515,037 $ 284,792 $ 28,839 $ 1,106,603 Segment cost of revenue and marketing expense 174,814 301,852 170,153 27,466 674,285 Segment profit 103,121 213,185 114,639 1,373 432,318 Cost of revenue (exclusive of cost of advertising re-sold to third parties included above) 45,624 Brand and other marketing expense 83,650 General and administrative expense 116,847 Product development 39,953 Depreciation 10,998 Amortization of intangibles 55,241 Change in fair value of contingent consideration 28,402 Severance 1,026 Litigation settlements and contingencies ( 151 ) Operating income 50,728 Interest expense, net ( 20,271 ) Other expense 524 Income before income taxes and discontinued operations $ 30,981 The CODM does not review information on segment assets and as such, no segment asset information is reported herein. 94 LENDINGTREE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 23— SUBSEQUENT EVENT In January 2022, the Company acquired an equity interest in another company for $ 15.0 million. This company is a consumer-first payment platform that intelligently automates loan payment scheduling and helps consumers better manage their money and improve their financial well-being. 95 Table of Contents ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Not applicable.