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STOCK-BASED COMPENSATION | 12 Months Ended
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Dec. 31, 2020
Share-based Payment Arrangement [Abstract] |
STOCK-BASED COMPENSATION | STOCK-BASED COMPENSATION The Company currently has two active plans, the Sixth Amended and Restated LendingTree 2008 Stock and Annual Incentive Plan (the "Equity Award Plan") and the LendingTree 2017 Inducement Grant Plan (the "Inducement 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 and the Inducement Plan, the Company is authorized to grant stock options, restricted stock, RSUs and other equity-based awards for up to 6.1 million and 0.5 million shares, respectively, of LendingTree common stock to employees, and, under the Equity Award Plan only, to non-employee consultants and directors. The Equity Award Plan and Inducement Plan each have a stated term of ten years and provide 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 and Inducement Plan do 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,
| 2020 |  | 2019 |  | 2018
Cost of revenue | $ | 1,319 |  |  | $ | 755 |  |  | $ | 378 |
Selling and marketing expense | 6,240 |  |  | 5,785 |  |  | 3,568 |
General and administrative expense | 39,650 |  |  | 39,177 |  |  | 34,325 |
Product development | 6,524 |  |  | 6,450 |  |  | 6,094 |
Total non-cash compensation | $ | 53,733 |  |  | $ | 52,167 |  |  | $ | 44,365 |
For the years ended December 31, 2020, 2019 and 2018, the Company recognized $11.4 million, $12.2 million and $11.2 million of income tax benefit, including state taxes, related to non-cash compensation. Additionally, for the years ended December 31, 2020, 2019 and 2018, the Company recognized $2.5 million, $17.1 million and $77.6 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. 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, 2019 | 777,871 |  |  | $ | 69.87 |  |  |  |  |
Granted | 203,582 |  |  | 290.27 |  |  |  |  |
Exercised | (47,630) |  |  | 161.25 |  |  |  |  |
Forfeited | (5,396) |  |  | 285.56 |  |  |  |  |
Expired | (3,717) |  |  | 221.99 |  |  |  |  |
Outstanding at December 31, 2020 | 924,710 |  |  | $ | 111.82 |  |  | 4.47 |  | $ | 155,411 |
Options exercisable | 663,239 |  |  | $ | 44.49 |  |  | 2.63 |  | $ | 153,243 |
(a)The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company's closing stock price of $273.79 on the last trading day of 2020 and the exercise price, multiplied by the number of shares covered by in-the-money options) that would have been received by the option holder had the option holder exercised these options on December 31, 2020. The intrinsic value changes based on the market value of the Company's common stock. As of December 31, 2020, there was approximately $25.5 million of unrecognized compensation cost related to stock options. These costs are expected to be recognized over a weighted-average period of approximately 4.0 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, 2020, 2019 and 2018, the total intrinsic value of stock options that were exercised was $6.8 million, $50.2 million and $268.3 million, respectively. Cash received from stock option exercises and the related actual tax benefit realized were $7.7 million and $0.7 million, respectively, for the year ended December 31, 2020. During the years ended December 31, 2020, 2019 and 2018, the Company granted stock options with a weighted average grant date fair value per share of $116.08, $167.10 and $150.55, respectively, of which the vesting periods include (a) immediately upon grant, (b) one year from the grant date, (c) 50% over a period of two years from the grant date, (d) 33% over a period of three years from the grant date, (e) 25% over a period of four years from the grant date, and (f) 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,
| 2020 | 2019 | 2018
Expected term (1) | 5.00 - 6.25 years | 5.00 - 6.25 years | 5.00 - 6.71 years
Expected dividend (2) | — |  | — |  | — |
Expected volatility (3) | 52% - 60% | 51% - 55% | 50% - 53%
Risk-free interest rate (4) | 0.33% - 0.96% | 1.46% - 2.55% | 2.33% - 3.06%
(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, 2020, 2019 and 2018, 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 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, 2020, 2019 and 2018, the total fair value of options vested was $5.8 million, $6.9 million and $11.4 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, 2019 | 463,440 |  |  | $ | 204.31 |  |  |  |  |
Granted | 236,769 |  |  | 298.05 |  |  |  |  |
Exercised | — |  |  | — |  |  |  |  |
Forfeited | — |  |  | — |  |  |  |  |
Expired | — |  |  | — |  |  |  |  |
Outstanding at December 31, 2020 | 700,209 |  |  | $ | 236.01 |  |  | 7.75 |  | $ | 36,238 |
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 $273.79 on the last trading day of 2020 and the exercise price, multiplied by the number of shares covered by in-the-money options) that would have been received by the option holder had the option holder exercised these options on December 31, 2020. The intrinsic value changes based on the market value of the Company's common stock. As of December 31, 2020, there was approximately $58.2 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 2.8 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. During the years ended December 31, 2020, 2019 and 2018, the Company granted stock options with a weighted-average grant date fair value per share of $142.54, $230.81 and $296.80, respectively. The single cliff-vesting stock options granted during the years ended December 31, 2020, 2019 and 2018 have vest dates of March 31, 2024, March 31, 2023, March 31, 2022 and September 30, 2022. 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 | 2018
Expected term (1) | 7.00 years | 7.00 years | 7.00 - 7.15 years
Expected dividend (2) | — |  | — |  | — |
Expected volatility (3) | 51 | % | 51 | % | 50 | %
Risk-free interest rate (4) | 1.03 | % | 2.54% | 2.38% - 2.81%
(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, 2019 and 2018, 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. 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, 2020, 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, 2019 | 144,939 |  |  | $ | 267.85 |
Granted (a) | 138,418 |  |  | 286.42 |
Vested | (70,698) |  |  | 239.15 |
Forfeited | (17,973) |  |  | 285.95 |
Nonvested at December 31, 2020 | 194,686 |  |  | $ | 289.82 |
(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, 2020, there was approximately $35.2 million of unrecognized compensation cost related to RSUs. These costs are expected to be recognized over a weighted-average period of approximately 1.7 years. The total fair value of RSUs that vested during the years ended December 31, 2020, 2019 and 2018 was $22.4 million, $27.2 million and $21.8 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, 2019 | 14,647 |  |  | $ | 210.55 |  |  |  |  |
Granted | — |  |  | — |  |  |  |  |
Vested | (8,319) |  |  | 200.40 |  |  |  |  |
Forfeited | — |  |  | — |  |  |  |  |
Nonvested at December 31, 2020 | 6,328 |  |  | $ | 223.90 |  |  |  |  |
No RSUs with performance conditions were granted in 2020 or 2019. During 2018, the Company granted RSUs with performance conditions to an employee with a 0.5 year vesting period, pending the attainment of certain performance targets set at the time of grant. The grant date fair value per share of the RSUs with performance conditions is calculated as the closing market price of LendingTree's common stock at the time of grant. As of December 31, 2020, there was approximately $1.1 million of unrecognized compensation cost related to RSUs with performance conditions. These costs are expected to be recognized over a weighted-average period of approximately 0.8 years. The total fair value of RSUs with performance conditions that vested during the years ended December 31, 2020, 2019, and 2018 was $2.6 million, $18.8 million, and $7.9 million, respectively. 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, 2019 | 47,608 |  |  | $ | 340.25 |
Granted | — |  |  | — |
Vested | (23,804) |  |  | 340.25 |
Forfeited | — |  |  | — |
Nonvested at December 31, 2020 | 23,804 |  |  | $ | 340.25 |
No RSAs with performance conditions were granted in 2020 or 2019. During 2018, the Company granted time-vested RSAs with a performance condition to its Chairman and Chief Executive Officer, which vest 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, 2020, there was approximately $4.4 million of unrecognized compensation cost related to RSAs with performance conditions. These costs are expected to be recognized over a period of approximately 1.0 year. The total fair value of RSAs with performance conditions that vested during the years ended December 31, 2020, 2019 and 2018 was $6.2 million, $8.2 million and $13.6 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, 2019 | 26,674 |  |  | $ | 340.25 |
Granted | — |  |  | — |
Vested | — |  |  | — |
Forfeited | — |  |  | — |
Nonvested at December 31, 2020 | 26,674 |  |  | $ | 340.25 |
No RSAs with market conditions were granted in 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, 2020, there was approximately $0.7 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 1.8 years. As of December 31, 2020, RSAs with a market condition of 29,601 had been earned, which have a vest date of September 30, 2022.

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