LendingTree, Inc.

Good day, and thank you for standing by, and welcome to the LendingTree conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Andrew Wessler, Head of Investor Relations. Please go ahead.

Thanks, Operator. Good morning to everyone joining us on the call to discuss LendingTree's second quarter 2023 financial results. On the call today are Doug Lebda, LendingTree's Chairman and CEO, Scott Puri, COO and President of Marketplace Businesses, and Trent Ziegler, CFO. As a reminder to everyone, we posted a detailed letter to shareholders on our investor relations website earlier today. And for the purposes of today's call, we'll assume that listeners have read that letter and we'll focus on Q&A. Before I hand the call over to Doug for his remarks, I remind everyone that during today's call, we may discuss LendingTree's expectations for future performance. Any forward-looking statements that we make are subject to risks and uncertainties, and LendingTree's actual results could differ materially from the views expressed today. Many, but not all, of the risks we face are described in our periodic reports filed with the SEC. We will also discuss a variety of non-GAAP measures on the call today, and I refer you to today's press release and shareholder letter, both available on our website, for the comparable GAAP definitions and full reconciliations of non-GAAP measures to GAAP. And with that, Doug, please go ahead.

Thank you, Andrew, and thank you, everyone, for joining us today. We earned $27 million of adjusted EBITDA in the second quarter, generating a 15% margin, which was well ahead of our forecast. Our outperformance was due to strong segment margin performance in consumer and insurance, combined with our laser focus on managing operating expenses. Although the revenue environment remains challenging across all three of our segments, our team's work on improving operating efficiency allowed us to meet our VMD forecasts. As the second quarter progressed, credit markets broadly tightened across the banking and lending industries, causing demand for many of our lending partners to decline. In-home, several mortgage originators were forced to reduce their bids as cost per funded loan had reached levels that were no longer sustainable. Personal and small business lenders broadly tightened their criteria lending further, causing approval rates for our customers to decline. The insurance carriers, we work with we're continuing to decrease their marketing budgets as inflationary impacts will require further increases to auto and home premium rates. This revenue degradation continued into July and is baked into our updated financial outlook we're providing this morning. That's the bad news. The good news is that these macroeconomic should prove temporary. We're encouraged that the Fed is signaling it's nearing the end of its campaign to tighten financial conditions with higher interest rates. The pace of inflation continues to slow. We also recognize that a healthy labor market with historically low unemployment is a key component for lenders to expand their relationships with their customers, want capital markets volatility, and short-term economic uncertainty subsides. We have made changes to adapt to the challenges we're facing. We've focused our management team to capture incremental revenue while improving our expense profile. We have improved our product function and have identified key areas for potential additional savings as a result. For example, Scott Topman, our CTO, has taken over personally our data initiative. We've also brought our people back to the office, which has helped us speed decision-making and reinforce the entrepreneurial culture that has made us such a successful company historically. In the third quarter, the management team is focused on maintaining cost discipline and identifying areas of incremental revenue growth despite the various headwinds that we've been facing. We're going to release our reimagined and rebranded MyLendingTree platform and continue working on improving the customer experience to drive more engagement with our customers, higher conversion rates, and thus higher unit economics. Before turning the call over to Scott for his comments, I would like to thank J.D. Moriarty for the impact he has had to his time at LendingTree. He helped lead our diversification strategy, completing seven acquisitions in three years, which have helped us remain solidly profitable despite the financial the very difficult operating environment that we're facing. I could not be more excited for Scott to assume his additional responsibilities of leading our lending marketplace businesses. Our sales and marketing teams will also report directly to him. His performance, the founder and president of Quote Wizard, has been exemplary through multiple cycles, including the current one. He's proven to be an exceptional operator, inspirational leader, and truly embodies the entrepreneurial spirit of LendingTree. We are looking forward to the positive impact he's going to have on our own business moving forward. Scott?

Thanks, Doug. Appreciate it. First off, I'd like to say I'm really excited to take on these expanded responsibilities and looking forward to providing a larger impact to the overall organization. I've spent the last two weeks taking a real deep dive into all the components of the marketplace businesses, and I'm excited to say that both the quality of the people and the number of near-term opportunities that I believe exist in the core business. I will be fully focused on improving the operational efficiency and growing the core business of LendingTree, businesses of LendingTree. First off, I really want to build a more cohesive symmetry between the marketing and sales teams as it's critically important for the people developing the product to be working very closely with the people selling the product. similar to insurance, instead of focusing on clawing every dime of revenue from customers that are already under budget constraints, we'll be focusing on providing the highest quality, highest intent consumers, and then focusing on monetizing efforts around those consumers. You know, Quo Wizard, as we've seen, even due to macro headwinds in the industry, We're currently driving the highest quality traffic at the highest VMN margins in our company history. I fully believe we can do that across the board in all of our business units. In insurance, we're actually doing more VMD year over year over significantly lower revenue, as you can see in the numbers. I'm a big believer in having a maniacal focus on a small number of things that are the most impactful to the business. It's already becoming clear to me what some of those things and those items are, and we are actively focusing our resources towards accomplishing those items to quickly get some wins on the board. Finally, we will have a relentless focus on operational efficiency. Velocity of decision making, turning big projects into small projects, challenging long-held assumptions, focusing on understanding the sizes of opportunities before committing resources, et cetera, et cetera. We will have an aggressive, offensive stance going forward, which will have a big impact on our productivity. Thank you.

And now, operator, I'd be happy to open the call for questions.

Great. Thank you. Thank you. We will now conduct the question and answer session. As a reminder, to ask questions, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, press star 11 again. Please stand by while we compile the Q&A roster. Please stand by. Our first question comes from Ryan from KBW. Please go ahead.

Good morning, everyone. Thanks for taking the questions. The hope is that the revenue environment inevitably improves. But given the importance of navigating the upcoming maturities, maybe you could provide a bit more detail on the different options you're thinking about for addressing the convert that goes current next year. Do you feel like the current free cash flow and EBITDA profile of a business can support that? And I guess on the expense side, are there additional levers you could pull if needed in this scenario that the revenue environment doesn't go your way?

I'll open up broadly and then let Trent give you the details. Obviously, this is something that we are very, very focused on. And we've had a number of conversations internally. We have a number of options that we are exploring. I don't know how much of the details we want to talk about, but to the extent of other levers, the answer is yes. You know, we do have discretionary product investments that I've talked about that if they, you know, things, you know, do not bear fruit, you can certainly make changes there. So yes, there are other cost levers you can do. Right now, we want to maintain a balance between a few focused, a small investment into initiatives around data customer experience because we think they're core of the business. But at the same time, we're incredibly judicious with that. But suffice it to say, we are very, very, very focused on that maturity issue. and I would hope to be refinancing it in some way. Go ahead, Trent.

Yeah, I think Doug covered it well. We're obviously laser-focused on it. We're exploring a bunch of alternative options available to us. I think the good news is we take some solace in the fact that we have four quarters left before that maturity comes current. We've got eight quarters left before it actually matures. And so we're weighing all of our options relative to the performance of the business. Obviously the options available to us get a little bit better should performance improve. And I think we have some reason to believe that as we get a little bit more certainty around the macro, there's good reason to believe that the insurance

backdrop could turn a little bit as we head into next year you know some stability and some of our consumer businesses should provide some upside and so we're weighing we're weighing all those alternatives relative to the performance in the business yeah and the only thing I'd add is in an environment like this where you are union economics on the revenue side you know whether the cover it the price lenders want to pay the call the the amount of volume or the coverage of how wide they're willing to go. As all of that has gone negative and we've gotten sharper and sharper and sharper on the marketing side, particularly in insurance, and Scott just talked about bringing that to the lending side, the business and the margin profile increases When you get any sort of tailwind on the other side, whether it's a conversion rate increase through a product improvement, whether it's lenders expanding demand in some way, that margin tends to stick. So, obviously, sometime in the next many quarters, we're going to have to be improving our financial profile so that people are going to want to lend money to us, but we are laser, laser focused on that, while Trent's also working on his financial options as well.

Thanks. Appreciate all that, Collar. I guess on the guidance side, The revised guide looks like it implies second half EBITDA of around 30 to 40 million by our math round numbers, 60 to 80 million annualized. And it looks like the implied 4Q EBITDA guide is at the low end of that range on an annualized basis. I guess, should we think about that as kind of the run rate EBITDA power as things stand here for the business today? And Are there key variables that could move the needle in the second half relative to the guidance that you'd call out specifically?

Well, I guess what's worth calling out relative to that would be, you know, obviously we're like the revenue challenges are real and we're seeing those. And that's probably not a surprise to anybody given the headlines around, you know, you know, is the worst mortgage environment in 20 years. We've talked about home equity as a relative source of strength. Within that, that's, you know, starting to be a little bit more challenging as rates continue to go higher. That's becoming less attractive for consumers. And so, you know, there's a lot of reasons why we've had to pull down our revenue outlook for the rest of the year. What I would say is we are forecasting similar seasonal declines in Q4. Q4 is always a seasonally much slower year. period for us, and I think there is a little bit of uncertainty as to how much does that seasonal effect show up in a year where sort of the baseline has already beaten up a little bit, right? And so we're certainly taking a conservative stance with regard to, you know, forecasting those trends through the rest of the year and in the fourth quarter in particular.

Yeah, the way I, just to add on a little bit, I think of, you know, Q2 as a, you know, a solid quarter, not where it historically has been to call it fairly normal. Q3, as we talked about, you're seeing some pullbacks from lenders that we do not believe are institutionalized in the market. It's not like our product doesn't work. It's not like the buyers aren't there. It's literally just that Just like we won't bid on Google search terms, pass the point of profitability, lenders do the same thing with us. We don't see that clearly as permanent. The other thing that we take some comfort in is when we talk to lenders about what they're doing with us vis-a-vis competitors, we feel like we're, generally speaking, one of the last places that they turn off. or that they pull back on. And then Q4, as Trent said, is seasonal, is a seasonal downturn. Typically in our industry, people, you know, consumers in general are not thinking about financial services in Q4, and then they really think about it in Q1. So, no, I wouldn't take this as the ongoing run rate.

Yeah, they don't. Short answer to that question is I think Q3 is probably a better baseline to use as your run rate. Q3 is a better baseline than Q4 as you look at kind of how you model it into next year.

Great. Thanks for taking the questions.

Okay.

Let me queue up the next question.

Our next question comes from Jed Kelly from the Oppenheimer and Company.

Hey, great, great. Thanks for taking my question. Just circling back on the insurance segment, should we expect this margin profile you're seeing to continue as demand from the carriers is depressed? And then just looking at, you know, the insurance marketing segment in general, Scott, You know, there's quite a few of the marketplaces that participate in this business. You know, are all of them going to be able to survive as this continues to get pushed out? Or do you see some type of consolidation, you know, happening in the industry? Just can you touch on how you think these headwinds are going to affect, you know, some of your competitors? Thank you.

Yeah, thanks, Jed. I'll start with the margins. Yeah, in a compressed market, we would expect our margins to remain high because just like I mentioned earlier, we're just focusing on the highest quality, highest intent on consumers for our clients with the limited budgets they have. And honestly, our competitors' advertising is very suppressed. Our direct clients, like they're not spending any money directly with a lot of places they historically do. So the traffic, you know, being that we're focusing, we're not spreading our spend out and our monetization out thin like butter. We're focusing in the right areas, so we would expect our margins to stay good. Now, when the budget started coming back in 24, then margins might start getting compressed a little bit as the marketplaces get more competitive. But that said, we'll be very conscientious about total V&D dollars going up significantly, which we think are really well positioned for that when the budgets start coming back, which I do expect them to start coming back in early 2024. Now, that kind of leads into your final question of the competitors. And, yeah, long story short is there will be a number of players that, don't survive this. There's a number of, you know, I would almost say you start with the smaller marketing affiliates that maybe aren't as well-known out there, but that do go out and kind of clog up the marketplaces a little bit. Those guys have been hit really hard, and some of them have exited the marketplaces, you know, like the SEM marketplaces, for example, and I don't know if they'll ever come back into those marketplaces. You know, some of them will just disappear. Some of them might get consolidated. into some of the bigger players. You know, I don't know if any of the big players, ourselves included, are out looking to actively look to buy any of these guys without getting an absolute screaming deal out of it. But I do think when we get into next year, similar to the 2016 downturn, there's going to be a lot fewer players in the marketplace, which does – create a Goldilocks scenario for a performance marketing company.

And then just as a follow-up, Scott, what is the team looking at? Is it interest rates stabilizing, supply chain stabilizing, that gives you confidence that the carriers are going to get their underwriting profitability under control?

Insurance is not interest rates as much as it is inflation. That's the insurance company's problem. And so they need an inflation... Because right now, for the past, what, 18 months, they have not been able to keep their rate increases at the pace of how inflation has been going. And inflation, as well publicized in the auto insurance industry for car repairs and whatnot, has been even higher than the overall CPI. And it still is quite a bit higher. But that all said, it is starting to cool down. And there is positive signs. you know, used car prices, cost of car repairs, it's starting to normalize and come down. So that equation where they can't catch up to inflation is now starting to change. Where the rate increases, inflation is starting to stabilize in the car insurance industry and the rate increases keep happening. So sooner or later, those lines will cross and they will get back to a profitable combined ratio scenario. And so then the big hope with a lot of these carriers is that they're feeling in a really good spot by the end of 23 when the budget cycle switched to 24, that they're feeling that all the policies they're bringing on are profitable policies they're bringing on, and they reset their budgets going into 24. And based on their confidence level, they can get aggressive really quick. But the big driving factor is inflation stabilizers.

Yeah, we were talking about this yesterday. We were talking about this yesterday at our board meeting, and Scott hit the point of the combined ratio, but also that it varies state by state and the number of your large states, you know, where, you know, for example, California, that you have state by state things, too, where insurance carriers, if they're not going to make money, You know, they're not going to go market to originate that policy for sure, and that's the same thing you see with the lenders. And so, you know, when rates stabilize and inflation stabilizes, in some ways those are both intertwined, you know, we feel like we're going to be a much sharper company and be ready to roll. Thank you.

Thank you, please stand by.

Our next question comes from Yousef Squally from Truist Securities. Please go ahead.

All right, good morning, guys. Thank you for taking the question. So maybe a quick one for Doug and one for Trent. So Doug, obviously anybody looking at Tree right now, they're looking past the second half of the year. They're looking into 24 and beyond. Knowing what you know today, what kind of segments or what segments, sorry, do you see kind of coming back first? And what are the kind of indicators or gating factors that you're kind of watching for that turnaround? And then Trent, you know, good job on the operating efficiencies that you've shown against a pretty tough top line. But how much of that operating cost efficiency do you think you can maintain maybe into next year as revenues come back?

I'll take the first one. I would say in this order, I think you'll see insurance come back first. I think you'll see probably consumer come back second. And I think you'll see home come back third. And by the way, as you think about it, those are also in order of probably the biggest opportunities as well for revenue and profit contribution. insurance business scott's covered that's that's a fact of simply insurance companies being able to underwrite get their rates higher so they can underwrite appropriately and profitably consumer keep in mind that many of the personal loan lenders or pretty much most of them are you know um either marketplace lenders or correspondent lenders that are selling funds directly into the capital markets. So the capital markets are tighter, which I know what the Fed's doing, that's going to hurt there. But that air hose snaps that, you know, that capital market that stepped on that air hose from time to time with us, but it always bounces back. And then the home business, right now you've got, you know, refinancing obviously doesn't make sense for anybody. And in the purchase market, you know, home buying and selling is not what it would be given high rates and, you know, buyers and sellers really kind of staring at each other in that market. And then I would say underlying all of that is us trying to improve our consumer experience, which improves conversion rates, which makes the whole business profitable, but I think insurance, consumer, and home. And then the other thing that we really monitor, as I said before, is if we're gaining share or maintaining share versus competitors, that's important too. I won't say it's perfect in every one of those, but I do know that I feel really good from the standpoint of our partnerships, the efficacy of the model, and lenders just want to do business with us, and they're telling us, you know, it's an economic thing right now, and, you know, they'll be back.

Yeah, and then, Yusuf, on the operating efficiency point, I mean, I think what we've seen is, you know, we've taken a lot of steps in the last 12, you know, six to 12 months to simplify the business in many respects, As Doug noted earlier, like, candidly, we still have some discretionary investment going on, right, that we could choose to dial back if the situation warranted. But, no, I mean, I think we've seen as a result of leaning out and getting more focused and efficient, we're already operating better and faster and on fewer focused things, right? And so, you know, as the revenue opportunity comes back, looking into next year, that there's not a need to continue to staff up considerably against that revenue backdrop. I don't see our OpEx growing materially at all as we look into next year.

So I'll tell you, just a wonk out on one change that we made internally, which is, you know, most companies, you might set goals and OKRs at the beginning of the year, probably do it in November, and then by January or February, the highly changing environments are pretty much irrelevant. We've moved to a quarterly cycle and to the fewer points comment. Everybody in the company is responsible for three to five things that you're going to make sure that you deliver on in the next three months. I mentioned the last quarter we did that with our how we do product. By the way, we've also brought on a lot of new management and made a lot of changes to make us sharper as well, too. But that quarterly cycle enables us to pivot, enables us to look at each one of our initiatives, say, okay, like, you know, This one's working. That one's not. This one's behind. All right, let's shift personnel over here. The market's changed. Let's double down over there. So it's enabled us to be much more nimble, and we're doing a lot more with individualized, focused teams that are cross-functional and can make all their decisions. So as Scott was alluding to, just getting faster, a lot of that. All goes into it. We're really, really trying to improve the way we do operations at this company.

Great. Thank you, and good luck.

Thank you. Please stand by.

Our next question comes from John Campbell from Steffens Incorporated. Please go ahead. Hey, guys. Good morning.

Good morning, John.

Hey, and, you know, Trent, and I think in the past you've talked to the belief that, you know, you can return the business back to high teens or kind of possibly, you know, 20% type EBITDA margins. You guys are obviously there in the past. You're going to need, you know, a degree of a rebound in the top line, I'm sure, for that better leverage. But, you know, you've taken a lot of steep cost cuts. It sounds like there's going to be a little bit more in that in the back half. And Trent, I think you said that maybe very modest, if any, OpEx growth next year. But maybe if you guys can talk about how you're feeling about that margin target now and maybe what type of top line you think you might need to get back to those past margin levels.

Yeah, no, thanks, John. I mean, look, we hit 15% EBITDA margins in the second quarter. That's a level that we hadn't been at in quite some time, and that's against a pretty bleak revenue backdrop. You know, obviously the the revenue trend continues to work against us in the back half of this year. But I think we have reconfigured the cost structure of the business in such a way that any rebound in the top line should result in us getting back to mid to high themes, even down margins in the not too distant future. I don't think it would take much.

Yeah, I'll just add in there. I mean, just for specific examples, going to insurance is, you know, some of our largest clients, which when they come back and they start spending significant budget again with us, we don't have to hire a bunch of people or anything. We have the same account managers. We have the same marketers. We're just generating more revenue in B&B over the same cost basis. So as Trent alluded to in an earlier question, I believe across all the industries we're in, we can see significant revenue in B&B growth without the need for OpEx growth for quite some time.

Yeah, makes a lot of sense. And then on homes, you know, I saw in the shareholder letter, you guys called out the 11% decline in HELOC and just kind of triangulating that, or at least on my math, I'm showing that mortgage would be down maybe 15, 20% or so sequentially. You know, the industry, it looks like was actually up 40%. That's just with seasonality. I'm guessing you guys maybe just kind of de-emphasize that from the VMM standpoint. So any kind of color you can provide there. And then also, I don't want to put your feet to the fire, but, I mean, is it potentially, do you feel like this could be the trough for homes or maybe just mortgage with the 2Q results?

So, God, picking the trough. Listen, we hope so, and at the same time, mortgage lenders are taking capacity – From an industry standpoint, and in channel checks, et cetera, it feels like purchase is poised to do better and rates are gonna, and the mortgage rates seem to not be rising. The flip side of that would be some lenders are taking, and I think you'll hear from public news, some lenders are doing layoffs and pulling back on capacity. So from the standpoint of the price they're willing to pay, the quantity they want, and the coverage, and the demand equation, their capacity, I want to make sure we're not going to see reductions in capacity. which would reduce the demand equation. Now, that said, flip side of that is one of the things that we're going to do aggressively, particularly with Scott coming in here, is really get out and see our clients, plan with them, and be much more closer to them over this period of time personally, for both Scott and me and the rest of the team. So, you know, I expect some, you know, just operational wins there. Scott, anything to add?

Yeah, I would add in also just, I mean, you look at the refi market. I mean, I would say that's probably, that has fallen off dramatically. And I would say you're probably out of the trough. We might be at the trough for a little bit. But what I would add there is you think about it, every month, there's a lot of consumers out there purchasing homes at very high interest rates. So, I mean, that's happening every month right now this year. And so, if you look into early next year and you could theoretically see maybe some mortgage rates start to drop a little bit, and so you will have this ingrained user base of consumers that bought homes this year that will be actively looking to refi with any drop in interest rates at all. So, that could be... a start of a little bit of a benefit next year from a, from a, you know, compared to a, you know, company like ours.

The only other comment I'd make inside of our product development initiatives and Owen is doing a fantastic job at taking over product. We're focused on purchase conversion rates. Now, as many of you know, that's been an age old, challenge at LendingTree how to crack that code, but we are working on it and hope to see some progress.

Great. Please stand by.

Our next question comes from Melissa from JP Morgan. Please go ahead.

Good morning. Thanks for taking my questions today. First, I wanted to follow up on the revised guidance and just kind of comparing EBITDA margins from the most recent quarter, which, Trent, you noted were in the mid-teens. Just sort of implied in the back half, you're guiding some margins in the low double digits, so a couple hundred bps lower than two key levels. I'm just trying to wrap my head around that. Is it just sort of embedded conservatism and guidance driving that or something else that you're seeing?

No, it's just the magnitude of the kind of compressed revenue in the back half of the year. You know, we assume that we have done most of the work on the cost structure in the first half of this year, kind of the quarterly Offense levels, we expect to remain relatively consistent through the back half of the year to where they were in Q2. But obviously, as your revenue trails off, that's going to impact your EBITDA margin. I mean, in the core gross margins or VMMs, we actually do expect to see a little bit of improvement there in a couple of segments. It's just not quite enough to offset the magnitude of the decline in the revenue guide.

By the way, one thing I'd add on the margin front, we did a little math calculation here for a prior question. How much would you need to get to 20% EBITDA margin? On Q2, it's roughly you need $10 more million of VMD. And if we can do that at a 50% VMM margin, you need $20 million in revenue in the court. That is not a long pot. And I can't tell you when we're going to do it, but I can tell you we're going to get there because we're going to tell you we've been there before. And typically when, you know, the company has come back from the two other, you know, significant financial dislocations, we come back bigger and stronger with more share.

Okay. Got it. Thank you. Follow-up question on a couple of the categories within consumer markets. If we're looking at things right, it looks like there is a little bit of a sequential increase in card, in terms of revenue, in card and personal loan. And just wanted to understand how you attribute that. Is it mostly, do you think, is there some seasonality in that number? Are you starting to see, you know, sort of tree calls, payoffs? What's driving that?

Yeah, on card in particular, we talked last quarter about how we migrated to a sort of a new and improved foundational platform on which we operate that business. That has enabled us to better leverage the LendingTree proper domain, right? You recall we acquired the CompareCards business back in 2016, 2017, and that has been the primary, you know, sort of activity, like most of the activity in the card business for us has run through that domain. There's a lot of value in us migrating some of that activity and some of that traffic over to the lending tree domain to capture emails and repeat business and things like that. And so we're seeing that bear fruit. And so you saw a slight uptick in not only revenue, but a relatively pronounced uptick in the margin profile of that business in Q2. And we expect that to continue to you know, progress forward through the back half of the year. That's probably one of the bright spots within consumer. And that continues to be an end market that is, you know, sort of more healthy relative to some of the other businesses.

Yeah, if I just add on there, yeah, that, you know, Lightspeed was the name of the platform and migrated it too, but that did have a significant impact on funnel throughput, funnel performance, conversion rates of our consumers, which helped have an immediate bump and marketing efficiency. But what I would add on to that, I believe in the next few quarters, it's going to continue because we needed that new platform conversion to happen. And now we're doing a lot of continued testing and increased funnel optimization and throughput and optimizing results for consumers and better matches. And so I think there's a lot of opportunity in the credit card business for us

know in the coming quarters a big part of that was that platform migration that needed to happen yeah I would only add light speeds a great example of us having a team getting product right getting that up and running that helps our existing credit card click out business And you've mentioned tree qual. I would say we've been talking about tree qual and beavering a tree qual for a long time, which I would say is something that we're all very mindful of. The flip side of that is... We've made some pivots in the product and how we're working with lenders. And so we hate to say we expect that to bear fruit shortly or soon in the future, but we're getting more lender receptivity to it. And then the biggest challenge you find is that we need the lenders to work with us too. So a little bit of a catch-22 that you've got to go to major card issuers, get them to work on a tech project with you. when you're also a small business for them, but we're slogging and having some success. Now, when that hits, we expect it to have a big impact, but that will be a one-time event whenever we get it done.

Got it. Thank you, everyone. Thank you. Please stand by.

Our next question comes from Chris Kennedy from William Blair.

Good morning. Thanks for taking the questions. Just wanted to follow up on the efforts to improve the conversion rates. Doug, you just mentioned a few of them, but can you just dive a little bit more into the initiatives and how they're going relative to your expectations?

So I'm mindful of competitive things here, so let me hit it overall. Obviously, we talked about tree quality. So if you look at a conversion funnel in a performance marketing company, you have to see where the biggest leak is, and then you go try to plug the leak. And credit cards, it's approval rate. And that's because we don't gather a lot of your information and we click you out and there's a pretty low approval rate on those. You also have in that business, which all the competitors have, the fact that people are seeking for credit, seeking credit. So you have to get more pre-approved data so that you're making offers to consumers that they're going to get. And I just talked about that one. The other series of teams are working on close rates from lead to fund, mostly in the mortgage space. Well, in the mortgage space. And there, what you're doing is, and for those of you who might be new, you think about the act of getting a home loan or getting a small business loan That doesn't happen in one sitting. And we need to enhance our CRM capabilities and be more interactive with the lender so that you're not just getting a one-time offer from LendingTree and then getting barraged with phone calls. The change that we've made in how we're working with lenders is we actually now leverage our lender advisory council to have a smaller group of lenders that works with us on a test basis in a managed marketplace. So it's very, very collaborative and co-creating with them. So I expect that to bear fruit. Now, the good news about these is while we're evaluating every quarter and we're pivoting, the last one I would say is my lending tree, which is important. And there it's about improving engagement and our offers platform so that we can give you much more personalized alerts. And that work is underway. Underlying a lot of this is a technical change that we have in what we call our offers platform. So today, If you're making changes to the pages where you're seeing your offers and interacting with lenders, it's very rigid. We're moving that very shortly to a system that we've been working on for almost about a year, I'd say, that's going to make that much more flexible. And the last thing I'd say about all of this, we don't need them to pay off tomorrow. Any one of these that hits would have a change when it works. And if they don't work, as Trent said, we got a lot of discretionary money that we're spending. And as things like light speed get done, then we can shift those resources to work on something else.

Yeah, very helpful. And then just to follow up to that, what type of timeframe changes are you kind of envisioning in order to make that ultimate decision whether they're working or not? Thanks for taking the question.

Oh, yeah. So in the way we're doing product now, as I said, we've got dedicated cross-functional teams on anything that we deem a tech product initiative. And they have quarterly OKRs against each one of them. And I'll tell you, one of the other things that I – and, you know, they – Not everybody hits them every quarter, but you go through a product review process, and we are making adjustments every quarter. Sometimes it's keep going, you're hitting your marks. Sometimes it's we need you to raise the bar. Sometimes it's we need you to, we're going to shut this thing down. and that's just the way you do it. We need LendingTree to be a great product and tech organization, and with our leadership now of Scott Topman and Owen, I feel like we've really got it.

Yeah, and I'll just throw in one specific, you know, the personal loans offers platform, which is, you know, we've seen the success on credit cards, and we're now all hands on deck. We know there's a lot of opportunity in personal loans on getting that offers platform converted to, over what should happen sooner rather than later. And, you know, honestly, as we look at it, you know, since those are all essentially pre-approved offers that we're putting to the consumers, so having better algorithms for better matches and making sure, like, the top listings have the highest potential for a consumer getting a funded loan, there's a lot of good work we can do there that will have an immediate impact And iterative, constantly, continually improving impact on more revenue for consumer, and at the same time, giving them better matches so they're getting funded loans in an easier method. So, I mean, we're very excited that some of this stuff can have impact sooner rather than later.

Great. Thank you.

Great. Please stand by. Our next question comes from Rob Wildhack.

Please go ahead.

Hi, guys. On home, do you have a number in mind for how far mortgage rates would have to come down? Maybe it's to 5% or 4.5% before there's a healthy refinance opportunity again?

No, I don't, and I'd tell you to go look at the NBA forecast, but in almost 30 years of doing this, Yeah, they're directionally right and sometimes hard to be precise. So the good news about what I will say, though, about refinance is there's actually – I would say almost always, except at times like this, you do have a decent level of refinance activity. You have people who have adjustable rate mortgages coming due. Uh, you have, uh, people whose credit scores improve. Um, you have people whose values go up and they want, uh, cash out to go do something or pay off other debts. So, um, all we're in right now, it's just that, um, the borrower benefit to a refinance isn't there. But like, if you go get a mortgage at 7%, or you get it at 9%, because your credit's not great, you know, when that gets to six and a half, you know, there's savings in it for you. And so I think, you know, you just need to start seeing a tick down, but even really a stabilization, I think would, um, would see more refinance business. But what I will tell you is, man, oh man, we are like storing mortgages, um, that, you know, as rates do come down, um, it, uh, you've got a lot of refinance business stacked up and you, and the industry in general has gotten more efficient. So I'd expect throughput to be better because technology improvements are happening in the background as everybody's trying to be as efficient as they can. And those efficiencies are going to stick when the market starts to grow. Thanks, Doug. Some of the top mortgage economists right now are looking for a pretty healthy mortgage industry next year.

Got it. Thanks, Doug. And maybe one more for Scott. You mentioned earlier insurance carriers getting profitable towards year end, resetting budgets into 24. Can we interpret that as a base case kind of outlook here? It takes carriers another three to six months before they can start thinking about growth again?

Yeah, I would say that's a base case scenario. I think, if I'm being completely honest, a lot of the carriers have pretty much written off 23, and they're in survival mode 23. I mean, I feel like there has been stabilization. I want to be very cautious about, you know, saying it's completely stable at this point, but I mean, where I sit today, I feel like kind of June was a low point. We've even had July, you know, we're running better than June, which is positive, and there are a number of carriers and big consumer name brands that have increased budgets with us in July. Not dramatically, but that's just a good sign that they're not continuing to cut. They feel like there's a stabilization. But I think when you're talking about significant major increases in marketing budget, it's probably going to happen at the turn of the year when their annual budget cycles shift to a new calendar year.

Makes sense. Thanks.

Great. Please stand by.

And our final question comes from Mike Grondahl from Northland. Please go ahead.

Hey, thanks, guys. Doug, you mentioned some lenders pulled back in 3Q, or that's what you're seeing. Which verticals did they pull back the most? Which ones did they pull back the least?

So first off, we weren't talking 3Q. We were talking about the end of Q2. And in Trent, you want to take most and least, I would say in mortgage, you had a select number of lenders who quote, pulled back by reducing the price they're willing to pay. So remember, lenders set bids and lending as we set them in Google. And that obviously impacts the revenue profile. And in personal loans, the quote, unquote, pullback isn't like, I don't want less volume. It's I need...

a tighter credit box um to be able to sell those loans in terms of relative size frank any yeah order of magnitude i'd say um some of the price concessions or or you know bid reductions that we've seen in home are probably the most pronounced we've seen a handful of smaller ones in personal loans um onesie twosies and um in small business got it and then trent

Have you disclosed or kind of put brackets around what the discretionary spend bucket is in 23?

No, not yet.

I mean, it's, you know, in the zip code of 5% to 10% of the cost structure.

Got it. Okay. Thanks, guys.

Thanks, Mike.

Go ahead. I'm showing no further questions at this time. I'd now like to turn the conference back to Doug LaBalle, CEO. Please go ahead.

Thank you all very much, again, for being here today. Thank you very much for your questions. I just want to reassure shareholders that while I know this has been a long process, dark winter during the COVID season, I want you to know that we get the situation and we are on it and we are making changes at all levels, as hopefully you can see, to address it. Our company is now smaller, we're leaner, we're faster, and we're more in person that's making us operate more effectively. We are incredibly mindful of our balance sheet. not only as a management team, but I can also tell you as all of us being shareholders and me being a significant shareholder, we are in that boat with you and we are going to manage that and improve our financial profile and make sure that that can be handled. We believe our market position is very solid. As one of the leaders in this space, it is much harder on smaller marketplaces than it is on us, and so we continue to improve our market position, hopefully consolidate share, be sharper and higher margin with a better margin profile so that we can capture any incremental revenue improvement with much more of it falling to the bottom line. We're going to focus this quarter on just continuing to provide great value for our clients, as Scott hit on, across all of our segments. That is the key on one side of the marketplace. And on the other, we talked about the initiatives underway to improve the relationship with our customers. Those are hard problems to solve, but we are making progress. Thank you very much for your belief in our company, and we look forward to talking to you next quarter.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.