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spk06: Good day and thank you for standing by. Welcome to the LendingTree Incorporated fourth quarter 2023 earnings conference call. At this time, all participants are in a 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 11 on your telephone. You will then hear an automated message advising that 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 Wessel, VP of Investor Relations and Corporate Development. Please go ahead.
spk10: Thank you, DeeDee, and good morning to everyone joining us on the call to discuss LendingTree's fourth quarter 2023 financial results. With us 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 will assume that listeners have read that letter and will 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 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 share with the 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.
spk23: Thank you, Andrew, and thank you to all who are with us on the call today. In 2023, we strategically simplified our business, reduced our fixed expense base, strengthened our balance sheet margins. Despite the revenue challenges we continue to navigate, we remain solidly profitable and maintain the ability to strategically invest in the company. All three of our reportable segments have operated through a historic period of disruption, following a rapid move higher in interest rates than its period of elevated inflation. And at the same time, our business model has again proven its durability, as we earned $78.5 million of adjusted EBITDA this year and generated $55 million of free cash flow. As our lender and insurance partners broadly pulled back from new customers because of these external factors last year, we chose to focus on efficiency, causing our operating margins to steadily increase throughout the year. In the fourth quarter, we earned $15.5 million, which is normally a seasonally softer quarter for us. Encouragingly, the much anticipated upturn in our insurance segment began to take hold in December, and has continued to strengthen into the first quarter. The consumer, auto, and home insurance markets have endured a prolonged hard market cycle over the last two years that is in many ways unprecedented, driven by the inflationary impacts to lost costs of the economy after COVID lockdowns. Now that insurers have effectively passed through numerous rounds of price increases, they have returned to a more robust pace of marketing spend. Fortunately, our customers continue to shop for new policies at record levels, with volumes increasing 10% compared to a year ago. During the quarter, we also repurchased $100 million of our 2025 convertible notes at a discount to par value, similar to the transaction we completed earlier in the year. We now have opportunistically paid down half of the original $575 million amount of these notes at about a 20% discount, and we remain committed to retiring the remainder in the most efficient manner possible for our shareholders. Finally, the financial outlook we released this morning assumes continued improvement in the insurance segment compared to last year. We have taken what we believe to be a conservative view for our home and consumer segments, continued dislocations in the housing market, and persistently tighter lending standards than many of our consumer partners. However, due to the extensive work we've done right-sizing our expense base, we're now forecasting our adjusted EBITDA will grow at a healthy pace from last year as we hold fixed costs near current levels. As the revenue picture improves, we would expect this operating leverage to positively impact our bottom line. And now, operator, please open the line for questions.
spk06: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment for our first question. And our first question comes from Jed Kelly of Oppenheimer and Company.
spk13: Hey, great. Just two, if I may. One in the consumer segment. Can you talk about, just on the outlook, how much of the growth is that you control sort of based on, you know, improving conversion, sort of maybe clawing back some of the market share losses versus what's going on in the macro? And then, you know, it looks like the Fed's going to, you know, push out the interest rate cuts. Can you just talk about how that impacts your outlook and and then how you think about potentially refinancing the convert. Thanks.
spk23: Sure. Let me take the second part of that on home. Let me actually take the operational pieces on consumer. But I would say this, high-level Jed, our outlook in terms of controlling it and not controlling it, what I would say is this. When you look at LendingTree as a balance of supply and demand, and all of your advertisers, all your clients are pulling back. Obviously, we right-sized the marketing, right-sized the business to get that right. We believe that every one of those segments is now at its bottom, and now all you're waiting for in consumer is better credit conditions so that we can lean into marketing. So any conversion rate improvements, anything from our initiatives, We have a little bit baked in to our outlook from our TreeQual initiative, for example, that's starting to bear some real fruit and our lenders are really liking it. And a really robust pipeline there. So we baked in a little bit for some of the things that we know that we're pretty certain are going to happen. And we also can still invest in the business. So I feel really, really comfortable about um the guide we're giving i think it's also shown significant growth as soon as the the thing that people miss about our business is that when rates start to fall even a little bit our business in home and refinance moves with the rate of change of interest rates so you don't need You only need a little tick down, call it a quarter, half a point in mortgage rates, and you will have a whole bunch of borrowers today that are coming through our funnel that doesn't make sense for them to refinance, and it will once conditions improve a little bit. Scott, can you add on anything there and try and talk about the refinancing?
spk20: Yeah, thanks, Doug. This is Scott Pree. Hello, John. How are you doing this morning? Just to add on real quick to some of Doug's comments there, I would start to say in the consumer lending side of the businesses, a lot of those items, from a consumer's perspective, they're not quite as rate sensitive. If you're looking at personal loans or small business loans or credit cards, these are more just consumers that need money and are seeking out money. We did, as we've had a lot of focus over the past year in optimizing the business, both from an OpEx perspective, but then also just from a media performance and marketing performance perspective. I'll be honest. I'd say we probably gave up a little bit of market share. We probably let the pendulum swing a little too far to the optimization side. But that said, I think we're in a very, very good position right now where our business is very profitable on a unit economic basis, and we are ready – and are actively leaning into multiple areas of opportunity. I mean, we're already seeing strong sequential growth in our home equity business, really strong sequential growth in our small business area. We're also seeing growth in purchase and refi and auto loans sequentially. So even though they're coming off of lows, we are now pivoting the business back to growth mode. And as those interest rates have leveled, it does change the consumer psychology, even though they remain elevated, that there is a large quantity of consumers coming through and searching for loans on a day-to-day basis.
spk04: Great, have a question?
spk23: Hey, Trent, talk about the refinance. Yeah, Jed, can you repeat the question on the refinancing point? Yeah, let me hit it first. So, Jed, it was how long that would be, Jed. From my perspective, the credit markets have definitely improved a little bit. We continue to have conversations. Trent can add on more, but we're pretty confident that we'll be able to handle that. Why don't you take the add on anything else? And we feel that wherever we would be, we wouldn't be taking on a debt load that we couldn't handle. We think the company's on really sound financial footing.
spk24: Yeah, as it relates to the balance sheet, Jed, I mean, obviously we did a lot of work last year to make that a much more manageable number. We've continued to explore for the last three, four quarters. We've been having a bunch of conversations sort of looking at alternatives across capital structure. Those conversations are getting quite a bit more constructive as the fundamentals are becoming more stable and improving. So we feel pretty good about our ability to – to address that maturity in the first half of this year. Thank you.
spk05: Thank you. One moment for our next question. And our next question comes from Yusef Squally of Tourist Securities.
spk04: Hi, Yusef.
spk17: Good morning. maybe just stepping back a little bit at a high level and kind of following up on the macro question, as you were formulating your 2024 outlook, can you just talk about what you are baking as a base case for? And I guess what I'm really trying to get to is could you hit your guidance of flat revenues across the entire business if rates stay startlingly high? And then can you maybe just talk a little bit about the competitive landscape across the three segments I just talked about. Maybe on the consumer side, you guys pulled back a little bit, lost a bit of share. How did you do across the other two segments, and how are you positioned as you enter 2020?
spk23: Thank you. Yusuf, I understand it is a basic case, assuming for the macro, for our guide and talk about competition. Is that Did I get that right?
spk03: Yeah.
spk23: Okay, good. So our base case assumed the higher for longer of rates, and we're not baking in any, you know, our, nothing in our guidance is baking in Fed rate cuts. or a strong consumer credit conditions at PL lenders or things like that. So everything that we're doing from here on out that you see is managing the business as it is today, baking in initiatives that we know are happening. On competition, let me let Scott drill down. The good news about this space now is we have a defined set of competitors in both insurance and lending in lead generation or comparison shopping. And you can all compare the results with each other. We feel that we are absolutely gaining share and doing well and doing very, very well in insurance. And we think that to the extent that we lost share to competitors, That is simply due to, as Scott, I'll put a finer point on something that Scott said earlier. When we were working on our marketing last year, we reduced a lot of bids and managed our Google stuff very differently, managed our advertising broadly very differently. And now, we can lean back in and regain some of that share simply by marketing into the better unit economics that Scott talked about. Scott, why don't you hit anything else on competition?
spk20: Yeah, just high-level use on the competitive landscape. I'll start in insurance. I think we are positioned extremely well in the insurance space. I believe from everyone that's reported, we're the only company that's looking at growth year-over-year in Q1 in both revenue and VMD and growth on a double-digit percentage basis in both of those categories. And it's pretty wide across the board. Our health insurance business had an all-time high last year in revenue and VMD, both Q4 and the year as a whole. That's a very strong business for us. Our local agent business is very strong for us. January was our all-time high revenue for local agent revenue. with also the highest quantity of of agents buying leads from us that's ever that's ever been our um paid search uh quote requests are nearly triple what they were from 2021 levels so so we are controlling a massive amount of very high intent high quality consumers uh so i believe there we've done a very good job of increasing our piece of the pie uh during the downturn and are positioned well to maintain that piece of the pie we increased as growth comes back. And I'll step back and say this is going to be a broad-based recovery. There's lots of good companies in our business that have good relationships with the clients. Everyone's going to be rewarded during the insurance recovery that's going to happen over the next 24, 36 months, and it's happening very rapidly. So I think we're going to be an outsized winner of that, but I think everyone's going to be a winner of that recovery. Hitting on mortgage quickly, you know, I – I feel we maintain, even though it's in a severe downturn right now, we pretty much maintain a very dominant position in the mortgage space. We've got extremely close relationships with the biggest players in that space, but we also have what I would call the broadest distribution network from a client perspective as well. We have much more clients and broader client distribution in mortgage and purchase refi home equity than our competitive set does. On the consumer side, that's probably the one area where we've struggled more than the other two categories, but it's also an area where I would say I have some of the most optimism because there still remains a lot of consumer demand. There's been just a level of consistency with our clients over the past three months that we have not seen in over a year so now that we've reached that level of consistency it's going to make it much easier for us to lean into growth opportunities and lean into media opportunities so i think we're going to see i think you're going to see over the next year of starting to gain some of that market share back that's helpful thank you both thank you one moment for the next question
spk05: And our next question comes from Ryan Tomasello of KBW.
spk09: Hi, everyone. Thanks for taking the questions. Just to put a finer point around the convert, how committed is the company to avoiding equity link dilution when addressing that maturity? And Trent, just to clarify, in your earlier remarks, did you say you're optimistic you can address that in the first half of this year, or did I hear that wrong?
spk24: No, that's right. Um, good question, Ryan. Uh, yeah, look, I mean, we, we obviously are sensitive to dilution, right. As, as we've been exploring the various alternatives, obviously those, you know, the alternatives are not great when our stock was a tennis share, they're becoming more interesting at, um, you know, 35 a share, but also our, our fundamentals and the, just the cashflow and debt service that we can support make us feel pretty confident that, um, that we don't have to use dilution as a means to addressing, uh, addressing the maturity. You know, that's, you know, that's point one. And then, you know, it has always been our stated goal that we want to address this thing before it goes current in July of this year. And we intend to continue to try to find the best path to doing so.
spk23: And the only thing I'd add is as we, you know, started down this process, I am as much personally and corporately as we focus on shareholders very closely.
spk09: very very solution on on that and um you know we as Trent said we feel uh good we can do this non-dilutably okay great and then Scott as a follow-up on the insurance business you know I'm just trying to understand if there's how you view as this recovery takes shape if there's any marketing channels in the space that are maybe better positioned to capture more spend or see that recovery sooner than other areas, you know, among SEM, direct-to-click, you know, direct carrier versus agents. Just trying to understand how LendingTree, Quotewizard, is relatively positioned versus the competition. Thanks.
spk20: Yeah, I mean, I think when you look at a recovery in any industry, I mean, insurance included, but, you know, what the clients are going to go after first is the highest quality, highest intent, most profitable product. consumers for them. And I think we have done a very good job over the past two years with a laser focus on increasing our position in the various marketplaces where those highest quality consumers are. And honestly, Ryan, I think that is what's given us some outsized budget in the early days of the recovery. Now, as the recovery broadens, as the year goes on, carriers are going to open up just, you know, the kimono of their budgets more fully to all the competitive landscape. And that's where you transition. And you probably have to, the margins have to come down, you know, a little bit to maintain your positioning. But I think it's a lot easier to maintain positioning than to try to grow positioning. And we've done a lot of growing our positioning over the past two years.
spk23: And Ryan, I'd add to that. What I really have loved about the insurance business is, And I'm so happy that acquisition. And what Scott was leading there was sharpening the marketing pencil and getting ready for the recovery, but still maintaining great client relationships so that when they come back, we hopefully get more of the spend than our competitors. And then we have to be able to deliver to them the number of policies that they want. And as you know, Sounds like you're very up to speed on the insurance businesses here. The carriers, some of them are better with direct to agent. Some are better with calls. Some are better with click. Some are better with lower intent. And the great thing, and some are auto and some focus in homeowners. And the beautiful thing about all of that is we've got a very, very well balanced portfolio of insurance channels. where we didn't help our clients pay the policy they want. And now Scott's leading that on the lending side. And I think we still have those very good relationships. And as it's profitable for our clients to spend, we feel that they'll be spending back into it this year.
spk11: Great. Appreciate all the color.
spk05: Thank you. One moment for our next question.
spk06: And our next question comes from John Campbell of Stevens.
spk08: Hey, guys. Good morning. Good morning. Hey, I wanted to stay on the insurance segment and outlook. Obviously, it was encouraging to see you guys, you know, to see the snapback activity in December. It looks like your 1Q outlook seems like, obviously, a continuation of strength and then share gains as well. But I'm curious about... how you guys are thinking about the sequential lift coming out of 1Q, and then maybe just more broadly how the shape of that curve is going to look. I know the exact timing is going to be difficult to pin down, so maybe if you guys could also talk to whether you think the puzzle pieces are in place to maybe reach new peaks at some point this year in the insurance business.
spk23: Trent, I'm going to let you – when you're talking about the curve, are you talking about everything or are you just talking about insurance?
spk08: Just within insurance for now.
spk23: Okay. Okay.
spk24: Yeah, John, just in terms of the guide, I mean, look, we're obviously monitoring this in real time. We see what we see in Q1, which has been a really strong sign of where things are headed. Kind of like Doug's commentary around our outlook for home and consumer and what we baked in, we've taken a fairly conservative stance here, right? as the year progresses, we're not making in a ton of upside. That said, obviously, we do feel like the recovery could become more broad-based, and I think Scott can add some color commentary to that.
spk20: Yeah, I'll add in there, John. I would say, as Trent said, I think, and especially with whatever, after what happened in Q1 last year, we went from a forecasting perspective. We want to be conservative and tell our clients you know, we bake in some of the guaranteed budgets from our clients. Now, that said, all of our conversations with our clients broad based across the board is they are very happy, very profitable, and are going to continue expanding geos as the year goes on. So, you know, just anecdotally, I would expect continued sequential growth quarter after quarter after the year as the year goes on, unless some major macro event happens. It's a very broad-based recovery and insurance. There's a lot of profitability across the board. We are already getting – I mean, there was a few carriers that were opening geos in March that as of a month or two ago, we thought it would be the end of the year before they opened up any new geos. So I – I think there is a snowball effect that's happening. The snowball is rolling down the hill. And from my standpoint, I am extremely optimistic on continued growth throughout the year.
spk08: Okay, that's very helpful. And then maybe for Doug here, this is kind of a near-term, medium-term question, as well as kind of a bigger picture question, just two-part question. But on the Brand spend, I think you guys closed this year at $8.9 million. That was closer to $30 million the last three years, maybe a little bit higher than that years prior to that. So I'm curious about what you guys have kind of outlined for this year, how much of that is fully committed, and then bigger picture, what you're thinking about as far as brand spend. Is that something you expect to ratchet higher over time, or is this a new kind of normal lower level at this point?
spk23: So the way, really, really great question. And LendingTree benefits from the fact that we started with TV spend in the year 2000 instead of doing an AOL at the time. And it proved out that TV, we could drive consumers profitably through TV. We then got our online act together, and that brand obviously helps our online. We have zero assumption of brand spend this year in here. And the way the advertising works is you only really get to TV spend for us when your unit economics and your demand from your advertisers is so high that it's actually economically viable. So we see TV spend just like we see search spend a tribute um but we're actually working on that too so um we don't plan on tv this year if you see us on tv anytime you see us on tv it means that um we are investing in the most expensive channel to acquire customers because our um client forum at prices that um that makes sense for us to do that so i love it when we can be spending big on tv because that means we're we can't go grab any more volume from online. Okay. Thank you, Doug.
spk05: Thank you. One moment for our next question. And our next question comes from Melissa Waddell of JP Morgan.
spk07: Good morning. Thanks for taking my question. First, I just wanted to clarify, I apologize. I think Scott, did I hear you right? You're looking for double-digit year-over-year growth in the insurance segment in OneQ?
spk25: Yes, in both revenue and BMD.
spk07: Okay, got it. Thanks for clarifying that. Can you talk about what the implications are given on margin? just kind of throughout the year and how you expect that to progress kind of across the various segments. Thanks so much.
spk23: So I'll hit this, and then, Scott, you should go into it in detail. When you look at VMM margin, that's where we focus on VMM dollars, not VMM percentages. So as you spend in, so as clients are upping their bids, We turn around and up our bids to go get customers, and so you do see some decrease in margin. But when we're doing it in insurance, we're seeing that we can come back and drive volume at margins that are still pretty good, that are almost in line with where they were last year. Scott, you want to add on to that?
spk20: Yeah, Melissa, like, you know, you started in insurance. I would, you know, Q1, our margins are still very strong from a historical standpoint, maybe down slightly over Q4, but very, very high. That said, I mean, as the recovery exchanges and revenue growth happens across the board, media will get more expansion. Margin will come down a little bit. But as Doug said, it's about increasing total VMD dollars in revenue. And that's our focus there. And we will lean into, you know, traffic and revenue that's profitable for our clients and makes additional VMD dollars for us. I would say, you know, on the mortgage side, you know, you're probably, until you start seeing a recovery, you're probably just staying at fairly, we're running at pretty good margins right now. you're not really looking to squeeze those margins for traffic until you start seeing more of a broad-based recovery, you know, and refinance and whatnot. Now, that said, like, home equity, there's a lot of growth opportunity, I believe, in home equity in the current and near term. On the consumer side, I do think, you know, honestly, I think we're probably currently leaving some VMD dollars on the table by running very strong margins, which we're running very strong margins right now, but that is something... we're going to actively look into is to see if we can reinvest in certain areas and gain market share and increase our total VMD dollars by running a bit slimmer margins.
spk06: Thank you. Thank you. Again, if you have a question, please press star 1 1 on your touchtone telephone.
spk05: One moment for our next question.
spk06: And our next question comes from Jamie Freedman of Susquehanna International Group.
spk15: Hi. I wanted to ask about student loan repayments. So I was just wondering how, if at all, did the resumption of student loans around October affect, say, the lending partner sentiment towards loan originations or the consumer behavior? Any color on student loans would be helpful. Scott, you want to take it?
spk19: Yeah. Hello, Jamie.
spk20: Yeah, that was a lot of discussion, you know, about six months ago is what was going to happen there. And I think the short answer is a lot of nothing at this point. That came through. Student loan repayments started or semi-started, however you want to define that. From a broad-based perspective from our clients, there was no significant change in defaults or delinquency rates based off of that that they're seeing. It's more of a broad, you know, I think. That's where there's just generally a lot of semi-caution in a lot of the consumer lending businesses right now as defaults were starting to creep back up last year. Where are they going to level off at? I'd say outside of credit cards where we sit right now, most of these businesses, small business, personal loans, they've kind of leveled off at the pre-COVID levels. The clients are cautious there, but they're feeling optimistic about that the fall rates are starting to level off, and I don't think they really saw the impact that they thought might happen from student loan repayments restarting.
spk15: Okay, thanks, Scott. And then for the follow-up, I was just wondering, are you largely done with the restructuring now? And if so, or if not, either way, how would those improvements flow through to potential operating efficiency in 2024?
spk23: Yes, we are done with restructuring, and we have contingency plans if, God forbid, there was another cataclysm in our economy. And so we are largely done. There's something else that came from the process. We now know where every dollar is going and what the return on that dollar is. maybe not quite every dollar yet, but pretty darn close. And so now we can, if we add back staff, it'll be like, hey, if we hire 10 new salespeople, we can go get X more clients and get that much more demand, and those 10 salespeople will have an ROI that will pay off. If we push our AI investments faster, that would and output, or else we wouldn't be investing in it. And can we do some of those things as they come back? And as your unit economics improve, all of a sudden, like the projects that you had before that didn't make sense at those economics, well, now they start making sense. And so there's definitely more work to do as we go to what I would call managed growth. And we can manage our growth from here. Any increase in expenses or I would say 90 plus plus percent of them would be . Perfect.
spk00: Thank you both.
spk06: Thank you. I'm not showing any further questions at this time. I would like to turn it back to Doug Lebda for closing remarks.
spk23: I would like to thank everyone on this call. Like everyone that's called to know, we are passionate about continuing to improve our business. Our team is focused on driving better outcomes for both our partners and our consumers through enhanced routing of inquiries and smarter matching of existing offers. We are encouraged by the growth we are experiencing in our insurance segment and look forward to eventually pairing that with an inflection in our home and consumer businesses to drive significantly improved financial performance. And thank you all for being here, and we look forward to talking to you next quarter.
spk06: This concludes today's conference call. Thank you for participating, and you may now disconnect. you you you
spk12: Thank you. Thank you.
spk06: Good day and thank you for standing by. Welcome to the LendingTree Incorporated fourth quarter 2023 earnings conference call. At this time, all participants are in a 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 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 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 Wessel, VP of Investor Relations and Corporate Development. Please go ahead.
spk10: Thank you, DeeDee, and good morning to everyone joining us on the call to discuss LendingTree's fourth quarter 2023 financial results. With us on the call today are Doug Levda, 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 will assume that listeners have read that letter and will 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 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 share with the 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.
spk23: Thank you, Andrew, and thank you to all who are with us on the call today. In 2023, we strategically simplified our business, reduced our fixed expense base, strengthened our balance, and improved our margins. Despite the revenue challenges we continue to navigate, we remain solidly profitable and maintain the ability to strategically invest in the company. All three of our reportable segments have operated through a historic period of disruption, following a rapid move higher in interest rate than its period of elevated inflation. And at the same time, our business model has again proven its durability as we earned $78.5 million of adjusted EBITDA this year and generated $55 million of free cash flow. As our lender and insurance partners broadly pulled back from new customers because of these external factors last year, we chose to focus on efficiency, causing our operating margins to steadily increase throughout the year. In the fourth quarter, we earned $15.5 million, which is normally a seasonally softer quarter for us. Encouragingly, the much-anticipated upturn in our insurance segment began to take hold in December and has continued to strengthen into the first quarter. The consumer, auto, and home insurance markets have endured a prolonged hard market cycle over the last two years that is in many ways unprecedented, driven by the inflationary impact to loss costs of the economy after COVID lockdown. Now that insurers have effectively passed through numerous rounds of price increases, they have returned to a more robust pace of marketing spend. Fortunately, our customers continue to shop for new policies at record levels, with volumes increasing 10% compared to a year ago. During the quarter, we also repurchased $100 million of our 2025 convertible notes at a discount to par value, similar to the transaction we completed earlier in the year. We now have opportunistically paid down half of the original $575 million amount of these notes at about a 20% discount, and we remain committed to retiring the remainder in the most efficient manner possible for our shareholders. Finally, the financial outlook we released this morning assumes continued improvement in the insurance segment compared to last year. We have taken what we believe to be a conservative view for our home and consumer sector payments, continued dislocations in the housing market, and persistently tighter lending standards than many of our consumer partners. However, due to the extensive work we've done right-sizing our expense base, we're now forecasting our adjusted EBITDA will grow at a healthy pace from last year as we hold fixed costs near current levels. As the revenue picture improves, we would expect this operating leverage to positively impact our bottom line. And now, operator, please open the line for questions.
spk06: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment for our first question. And our first question comes from Jed Kelly of Oppenheimer and Company.
spk13: Hey, great. Just two, if I may. One in the consumer segment. Can you talk about, just on the outlook, how much of the growth is that you control sort of based on, you know, improving conversion, sort of maybe clawing back some of the market share losses versus what's going on in the macro? And then, you know, it looks like the Fed's going to, you know, push out the interest rate cuts. Can you just talk about how that impacts your outlook and and then how you think about potentially refinancing the convert. Thanks.
spk23: Sure. Let me take the second part of that on home. Let me actually take the operational pieces on consumer. But I would say this, high-level Jed, our outlook in terms of controlling it and not controlling it, what I would say is this. When you look at LendingTree as a balance of supply and demand, and all of your advertisers, all your clients are pulling back. Obviously, we right-sized the marketing, right-sized the business to get that right. We believe that every one of those segments is now at its bottom, and now all you're waiting for in consumer is better credit conditions so that we can lean into marketing. So any conversion rate improvements, anything from our initiatives, We have a little bit baked in to our outlook from our TreeQual initiative, for example, that's starting to bear some real fruit and our lenders are really liking it. Really robust pipeline there. So we baked in a little bit for some of the things that we know that we're pretty certain are going to happen. And we also can still invest in the business. So I feel really, really comfortable about um the guide we're giving i think it's also shown significant growth as soon as the the thing that people miss about our business is that when rates start to fall even a little bit our business in home and refinance moves with the rate of change of interest rates so you don't need You only need a little tick down, call it a quarter, half a point in mortgage rates, and you will have a whole bunch of borrowers today that are coming through our funnel that doesn't make sense for them to refinance, and it will once conditions improve a little bit. Scott, can you add on anything there and try and talk about the refinancing?
spk20: Yeah, thanks, Doug. This is Scott Pree. Hello, John. How are you doing this morning? Just to add on real quick to some of Doug's comments there, I would start to say in the consumer lending side of the businesses, a lot of those items, from a consumer's perspective, they're not quite as rate sensitive. If you're looking at personal loans or small business loans or credit cards, these are more just consumers that need money and are seeking out money. We did, as we've had a lot of focus over the past year in optimizing the business, both from an OpEx perspective, but then also just from a media performance and marketing performance perspective. I'll be honest. I'd say we probably gave up a little bit of market share. We probably let the pendulum swing a little too far to the optimization side. But that said, I think we're in a very, very good position right now where our business is very profitable on a unit economic basis, and we are ready – and are actively leaning into multiple areas of opportunity. I mean, we're already seeing strong sequential growth in our home equity business, really strong sequential growth in our small business area. We're also seeing growth in purchase and refi and auto loans sequentially. So even though they're coming off of lows, we are now pivoting the business back to growth mode. And as those interest rates have leveled, it does change the consumer psychology, even though they remain elevated, that there is a large quantity of consumers coming through and searching for loans on a day-to-day basis.
spk04: Great, Paul, question? Hey, Trent, talk about the refinance.
spk23: Yeah, Jed, can you repeat the question on the refinancing point? Yeah, let me hit it first. So, Jed, it was how long that would be, Jed. From my perspective, the credit markets have definitely improved a little bit. We continue to have conversations. Trent can add on more, but we're pretty confident that we'll be able to handle that. Why don't you take the add on anything else? And we feel that wherever we would be, we wouldn't be taking on a debt load that we couldn't handle. We think the company's on really sound financial footing.
spk24: Yeah, as it relates to the balance sheet, Jed, I mean, obviously we did a lot of work last year to make that a much more manageable number. We've continued to explore for the last three, four quarters. We've been having a bunch of conversations sort of looking at alternatives across capital structure. Those conversations are getting quite a bit more constructive as the fundamentals are becoming more stable and improving. So we feel pretty good about our ability to – to address that maturity in the first half of this year. Thank you.
spk05: Thank you. One moment for our next question. And our next question comes from Yusef Squally of Tourist Securities.
spk04: Hi, Yusef.
spk17: Good morning. So maybe just stepping back a little bit at a high level and kind of following up on the macro question, as you were formulating your 2024 outlook, can you just talk about what you are baking as a base case for a week? And I guess what I'm really trying to get to is could you hit your guidance of flat revenues across the entire business if rates stay startlingly high? And then can you maybe just talk a little bit about the competitive landscape across the three segments I just talked about. Maybe on the consumer side, you guys pulled back a little bit, lost a bit of share. How did you do across the other two segments, and how are you positioned as you enter 2020?
spk23: Thank you. Yusuf, I understand it is the case, assuming for the macro, for our guide and talk about competition. Is that Did I get that right? Yeah. Okay, good. So our base case assumed the higher for longer of rates, and we're not baking in any, you know, nothing in our guidance is baking in Fed rate cuts. or a strong consumer credit conditions at PL lenders or things like that. So everything that we're doing from here on out that you see is managing the business as it is today, baking in initiatives that we know are happening. On competition, let me let Scott drill down. The good news about this space now is we have a defined set of competitors in both insurance and lending, in lead generation or comparison shopping. And you can all compare the results you two. We feel that we are absolutely gaining share and doing well and doing very, very well in insurance. And we think that to the extent that we lost share to competitors, That is simply due to, as Scott, I'll put a finer point on something that Scott said earlier. When we were working on our marketing last year, we reduced a lot of bids and managed our Google stuff very differently, managed our advertising broadly very differently. And now, we can lean back in and regain some of that share simply by marketing into the better unit economics that Scott talked about. Scott, why don't you hit anything else on competition?
spk20: Yeah, just high-level use on the competitive landscape. I'll start in insurance. I think we are positioned extremely well in the insurance space. I believe from everyone that's reported, we're the only company that's looking at growth year over year in Q1 in both revenue and VMD and growth on a double-digit percentage basis in both of those categories. And it's pretty wide across the board. Our health insurance business had an all-time high last year in revenue and VMD, both Q4 and the year as a whole. That's a very strong business for us. Our local agent business is very strong for us. January was our all-time high revenue for local agent revenue. with also the highest quantity of agents buying leads from us that's ever been. Our paid search quote requests are nearly triple what they were from 2021 level. So we are controlling a massive amount of very high intent, high quality consumers. So I believe there we've done a very good job of increasing our piece of the pie during the downturn. and are positioned well to maintain that piece of the pie we increased as growth comes back. And I'll step back and say this is going to be a broad-based recovery. There's lots of good companies in our business that have good relationships with the clients. Everyone's going to be rewarded during the insurance recovery that's going to happen over the next 24, 36 months, and it's happening very rapidly. So I think we're going to be an outsized winner of that, but I think everyone's going to be a winner of that recovery. Hitting on mortgage quickly, you know, I – I feel we maintain, even though it's in a severe downturn right now, we pretty much maintain a very dominant position in the mortgage space. We've got extremely close relationships with the biggest players in that space, but we also have what I would call the broadest distribution network from a client perspective as well. We have much more clients and broader client distribution in mortgage and purchase refi home equity than our competitive set does. On the consumer side, that's probably the one area where we've struggled more than the other two categories, but it's also an area where I would say I have some of the most optimism because there still remains a lot of consumer demand. There's been just a level of consistency with our clients over the past three months that we have not seen in over a year. So now that we've reached that level of consistency, it's going to make it much easier for us to lean into growth opportunities and lean into media opportunities. So I think we're going to see, I think you're going to see over the next year us starting to gain some of that market share back.
spk18: That's helpful. Thank you both.
spk06: Thank you. One moment for the next question.
spk05: And our next question comes from Ryan Tomasello of KBW.
spk09: Hi, everyone. Thanks for taking the questions. Just to put a finer point around the convert, how committed is the company to avoiding equity link dilution when addressing that maturity and trend? Just to clarify, in your earlier remarks, did you say you're optimistic you can address that in the first half of this year, or did I hear that wrong?
spk24: Yeah, that's right. Good question, Ryan. Yeah, look, I mean, we obviously are sensitive to dilution, right, as we've been exploring the various alternatives. Obviously, those, you know, the alternatives are not great when our stock was at 10 a share. They're becoming more interesting at, you know, 35 a share. But also our fundamentals and just the cash flow and debt service that we can support make us feel pretty confident that we don't have to use dilution as a means to addressing the maturity. So that's, you know, that's point one. And then, you know, it has always been our stated goal that we want to address this thing before it goes current in July of this year. And we intend to continue to try to find the best path to doing so.
spk23: And the only thing I'd add is as we, you know, started down this process, I am as much personally and corporately as we focus on shareholders very closely.
spk09: very very solution on on that and you know we as Trent said we feel good we can do this non-dilutably okay great and then Scott as a follow-up on the insurance business you know I'm just trying to understand if there's how you view as this recovery takes shape if there's any marketing channels in the space that are maybe better positioned to capture more spend or see that recovery sooner than other areas, you know, among SEM, direct-to-click, you know, direct carrier versus agents. Just trying to understand how LendingTree, Quotewizard, is relatively positioned versus the competition. Thanks.
spk20: Yeah, I mean, I think when you look at a recovery in any industry, I mean, insurance included, but, you know, what the clients are going to go after first is the highest quality, highest intent, most profitable product. consumers for them. And I think we have done a very good job over the past two years with a laser focus on increasing our position in the various marketplaces where those highest quality consumers are. And honestly, Ryan, I think that is what's given us some outsized budget in the early days of the recovery. Now, as the recovery broadens, as the year goes on, it's carriers are going to open up just the kimono of their budgets more fully to all the competitive landscape. And that's where you transition. And you probably have to, the margins have to come down a little bit to maintain your positioning. But I think it's a lot easier to maintain positioning than to try to grow positioning. And we've done a lot of growing our positioning over the past two years.
spk23: And Ryan, I'd add to that. What I really have loved about the insurance business And I'm so happy to be that acquisition. And what Scott was leading there was sharpening the marketing pencil and getting ready for the recovery, but still maintaining great client relationships so that when they come back, we hopefully get more of the spend than our competitors. And then we have to be able to deliver to them the number of policies that they want. And as you know, Sounds like you're very up to speed on the insurance businesses here. The carriers, some of them are better with direct to agent. Some are better with calls. Some are better with click. Some are better with lower intent. And the great thing, and some are auto and some focus in homeowners. And the beautiful thing about all of that is we've got a very, very well balanced portfolio of insurance channels. where we didn't help our clients get the policy they want. And now Scott's leading that on the lending side, and I think we still have those very good relationships. And as it's profitable for our clients to spend, we feel that they'll be spending back into it this year.
spk11: Great. Appreciate all the callers.
spk05: Thank you. One moment for our next question.
spk06: And our next question comes from John Campbell of Stevens.
spk00: Hey, guys. Good morning.
spk08: Good morning. Hey, I wanted to stay on the insurance segment and outlook. Obviously, it was encouraging to see you guys, you know, to see the snapback activity in December. It looks like your 1Q outlook seems like, obviously, a continuation of strength and then share gains as well. But I'm curious about... how you guys are thinking about the sequential lift coming out of 1Q, and then maybe just more broadly how the shape of that curve is going to look. I know the exact timing is going to be difficult to pin down, so maybe if you guys could also talk to whether you think the puzzle pieces are in place to maybe reach new peaks at some point this year in the insurance business.
spk23: Trent, I'm going to let you. When you're talking about the curve, are you talking about everything, or are you just talking about insurance?
spk08: Just within insurance for now.
spk23: Okay.
spk24: Yeah, John, just in terms of the guide, I mean, we're obviously monitoring this in real time. We see what we see in Q1, which has been a really strong sign of where things are headed. Kind of like Doug's commentary around our outlook for home and consumer and what we baked in, we've taken a fairly conservative stance here, right? And so we assume... as the year progresses, we're not making in a ton of upside. That said, obviously, we do feel like the recovery could become more broad-based, and I think Scott can add some color commentary to that.
spk20: Yeah, I'll add in there, John. I would say, as Trent said, I think, and especially with whatever, after what happened in Q1 last year, from a forecasting perspective, we want to be conservative and tell our clients you know, we bake in some of the guaranteed budgets from our clients. Now, that said, all of our conversations with our clients, broad based across the board, is they are very happy, very profitable, and are going to continue expanding geos as the year goes on. So, you know, just anecdotally, I would expect continued sequential growth quarter after quarter after the year as the year goes on, unless some major macro event happens. It's a very broad-based recovery and insurance. There's a lot of profitability across the board. We are already getting – I mean, there was a few carriers that were opening geos in March that as of a month or two ago, we thought it would be the end of the year before they opened up any new geos. So I – I think there is a snowball effect that's happening. The snowball is rolling down the hill. And from my standpoint, I am extremely optimistic on continued growth throughout the year.
spk08: Okay, that's very helpful. And then maybe for Doug here, this is kind of a near-term, medium-term question, as well as kind of a bigger picture question, just two-part question. But on the Brand spend, I think you guys closed this year at $8.9 million. That was, you know, closer to $30 million the last three years, maybe a little bit higher than that, you know, years prior to that. So I'm curious about what you guys have kind of outlined for this year, how much of that is fully committed, and then bigger picture, what you're thinking about, you know, as far as brand spend. Is that something you expect to ratchet higher over time, or is this a new kind of normal lower level at this point?
spk23: So, the way – really, really great question. And LendingTree benefits from the fact that we started with TV spend in the year 2000 instead of doing an AOL at the time. And it proved out that TV – we could drive consumers profitably through TV. We then got our online act together, and that brand obviously helps our online. We have zero assumption of brand spend this year in here. And the way the advertising works is you only really get to TV spend for us when your unit economics and your demand from your advertisers is so high that it's actually economically viable. So we see TV spend just like we see search spend exceedingly a tribute, but we're actually working on that too. So we don't plan on TV this year. If you see us on TV, anytime you see us on TV, it means that we are investing in the most expensive channel to acquire customers because our client forum at prices that make sense for us to do that. So I love it when we can be spending big on TV because that means we're we can't go grab any more volume from online. Okay. Thank you, Doug.
spk06: Thank you.
spk05: One moment for our next question. And our next question comes from Melissa Waddell of JP Morgan.
spk07: Good morning. Thanks for taking my questions. First, I just wanted to clarify, I apologize. I think Scott, did I hear you right? You're looking for double-digit year-over-year growth in the insurance segment in OneQ?
spk25: Yes, in both revenue and VMD.
spk07: Okay, got it. Thanks for clarifying that. Can you talk about what the implications are given on margin? just kind of throughout the year and how you expect that to progress kind of across the various segments. Thanks so much.
spk23: So I'll hit this, and then, Scott, you should go into it in detail. When you look at VMM margin, that's where we focus on VMM dollars, not VMM percentages. So as you spend in, so as clients are upping their bids, we turn around and up our bids to go get customers. And so you do see some decrease in margin. But when we're doing it in insurance, we're seeing that we can come back and drive volume at margins that are still pretty good, that are almost in line with where they were last year. Scott, you want to add on to that?
spk20: Yeah, Melissa, like, you know, you started in insurance. I would, you know, Q1, our margins are still very strong from a historical standpoint, maybe down slightly over Q4, but very, very high. That said, I mean, as the recovery exchanges and revenue growth happens across the board, media will get more expensive, margin will come down a little bit. But as Doug said, it's about increasing total VMD dollars in revenue. And that's our focus there. And we will lean into, you know, traffic and revenue that's profitable for our clients and makes additional VMD dollars for us. I would say, you know, on the mortgage side, you know, you're probably, until you start seeing a recovery, you're probably just staying at fairly, we're running at pretty good margins right now. you're not really looking to squeeze those margins for traffic until you start seeing more of a broad-based recovery and refinance and whatnot. Now, that said, home equity, there's a lot of growth opportunity, I believe, in home equity in the current and near term. On the consumer side, I do think, honestly, I think we're probably currently leaving some VMD dollars on the table by running very strong margins, which we're running very strong margins right now, but that is something... we're going to actively look into is to see if we can reinvest in certain areas and gain market share and increase our total VMD dollars by running a bit slimmer margins.
spk06: Thank you. Thank you. Again, if you have a question, please press star 1 1 on your touchtone telephone.
spk05: One moment for our next question.
spk06: And our next question comes from Jamie Freedman of Susquehanna International Group.
spk15: Hi. I wanted to ask about student loan repayments. So I was just wondering how, if at all, did the resumption of student loans around October affect, say, the lending partner sentiment towards loan originations or the consumer behavior? Any color on student loan would be helpful. Scott, you want to take?
spk19: Uh, yeah.
spk20: Um, hello, Jamie. Yeah, that was, that was a lot of discussion, you know, about six months ago is what was going to happen there. And, um, I think the short answer is a lot of nothing at this point, uh, that came through student loan repayments started or, or semi started, however you want to define that. Uh, From a broad-based perspective from our clients, there was no significant change in defaults or delinquency rates based off of that that they're seeing. It's more of a broad, you know, I think. That's where there's just generally a lot of semi-caution in a lot of the consumer lending businesses right now as defaults were, you know, starting to creep back up last year is where are they going to level off at? I'd say outside of credit cards where we sit right now, most of these businesses, small business, personal loans, they've kind of leveled off at the pre-COVID levels. So it's not really – people are – the clients are cautious there, but they're feeling optimistic about that the fall rates are starting to level off, and I don't think they really saw the impact that they thought might happen from student loan repayments restarting.
spk15: Okay. Thanks, Scott. And then for the follow-up, I was just wondering, are you largely done with the restructuring now? And if so, or if not, either way, how would those improvements flow through to potential operating efficiency in 2024?
spk23: Yes, we are done with restructuring, and we have contingency plans if, God forbid, there was another cataclysm in our economy. And so we are largely done. There's something else that came from the process. We now know where every dollar is going and what the return on that dollar is. Maybe not quite every dollar yet, but pretty darn close. And so now we can, if we add back staff, it'll be like, hey, if we hire 10 new salespeople, we can go get X more clients and get that much more demand. And those 10 salespeople will have an ROI that will pay off. If we push our AI investments faster, that would and output, or else we wouldn't be investing in it. And can we do some of those things as they come back? And as your unit economics improve, all of a sudden, like the projects that you had before that didn't make sense at those economics, well, now they start making sense. And so there's definitely more work to do as we go to what I would call managed growth. And we can manage our growth from here. Any increase in expenses or I would say 90 plus plus percent of them would be . Perfect.
spk00: Thank you both.
spk06: Thank you. I'm not showing any further questions at this time. I would like to turn it back to Doug Levda for closing remarks.
spk23: I would like to thank everyone on this call. Just like everyone on this call to know, we are passionate about continuing to improve our business. Our team is focused on driving better outcomes for both our partners and our customers through enhanced routing of inquiries and smarter matching of existing offers. We are encouraged by the growth we are experiencing in our insurance segment and look forward to eventually pairing that with an inflection in our home and consumer businesses to drive significantly improved financial performance. And thank you all for being here, and we look forward to talking to you next quarter.
spk06: This concludes today's conference call. Thank you for participating, and you may now disconnect.
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