LendingTree, Inc.

Good day, and thank you for standing by, and welcome to the LendingTree, Inc. first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You 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 Wessel, VP of Investor Relations and Corporate Development. Please go ahead.

Thank you, Justin, and good morning to everyone joining us on the call to discuss LendingTree's first quarter 2024 financial results. On the call today are Doug Lebda, LendingTree's Chairman and CEO, Scott Puri, COO and President of Marketplace, 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 the 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 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 to all who are with us on the call today. We are very excited to report first quarter adjusted EBITDA increased 48% from last year as our insurance segment produced very strong results with both revenue and VMD up double digits from a year ago. Many products in our consumer business generated strong sequential growth, a trend we expect to continue into the second quarter. The revenue outlook continues to improve into the second quarter, providing us confidence we are finally through the worst part of the cycle for our company. We forecast stable underwriting conditions at our lender partners combined with sizable demand growth from our insurance partners will return our business to revenue and adjusted EBITDA growth for the full year. Jumping into segment performance, our insurance business has generated 11% growth in both revenue and VMD over a difficult comp from last year. Terrier partners steadily increased spending with us to acquire new customers while a record volume of consumers again came to us looking for auto insurance policies following significant premium increases over the past year. The momentum has continued into the second quarter, and we are now forecasting record revenue in this segment. Our consumer segment performance was highlighted by 24% sequential growth in small business revenue. As we mentioned on last quarter's call, we made a strategic decision in 2023 to optimize operating margins given the uncertain demand trends at many of our lenders. We have been encouraged that underwriting conditions that most lender partners have remained stable for some time. And so we are leaning into this increased certainty with additional marketing investments aimed at driving higher revenue in VMD for the segment across multiple product categories. Our home segment continues to perform at trough levels given the backdrop of higher mortgage rates and low supply of homes for sale. Our home equity offering continues to provide most of the opportunity for us and our partners at home, and we expect that the trend will continue for the remainder of the year. Last but certainly not least, at the end of the quarter, we secured a new $175 million loan commitment from Apollo Funds. The proceeds from this financing, in combination with existing cash on our balance sheet and future free cash flow, provide us with ample liquidity to meet our remaining convertible note maturity next year. We would expect leverage of four times or less once we've retired the 2025 convertible notes, and we look to continue optimizing our capital structure thereafter. We are happy to have addressed this financing, which enables us to focus solely on improving our business and our financial results going forward. If we could take any questions.

And 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. Please stand by while we compile the Q&A roster. And one moment for our first question. And our first question comes from Yosef Squally from Truist Securities. Your line is now open.

Great, thank you very much and good morning, guys. I guess on the dot, I was just wondering if you can help us better understand your thinking in terms of the rates environment. So what kind of rates environment is baked into that mid-single-digit revenue growth for the year? I guess we went from expecting six cuts to maybe, maybe one or two, perhaps even a potential hike by year end. Does that, or how much risk does that opposed to that guide. I guess what I'm trying to get to is how much of the guide is really within your control versus just macro. And then in your efforts to lean into marketing again for insurance and consumer, um, what gives you confidence that this is the right time? I guess for insurance, I understand it for consumer. Maybe you can, um, help us better understand, um, kind of the drivers there. Thank you.

Yeah. Let me, uh, this is Doug. I'll start at a high level and then, uh, Trent and Scott can, um, can chime in. We don't have any plans in our guide for macro rate cuts and things like that. And Trent can talk more about that, but I hope that gives you confidence. And in terms of the leaning in on some of the consumer categories, if we see, which we're seeing increasing demand, it pays for us to go spend more money and increase, you know, at a simple level, increase your bids across search and display and other things. Do that at a lower margin profile, VMD margin profile than you've run it in the past when we were really optimizing for very short-term VMD. And that's what we're doing. So it's profitable spend. It just comes at a lower margin.

Yeah, just to add to that, Yusef, you'll recall when we introduced the full-year guide last quarter, you know, we were pretty clear about the fact that we didn't, you know, we weren't making in any, you know, substantial macro improvement, rate cuts or otherwise. You know, we expected mortgage to kind of stay where it is for the remainder of the year. Similar macro backdrop for consumer, and we obviously did expect insurance to get better, and it is, right? And so the increased revenue guide is largely a function of increasing confidence in the insurance business. And we're seeing that play out, you know, four months into the year. And then to a lesser degree, you know, kind of piggybacking on your second question, obviously we are leaning in a bit more aggressively into the marketing side to drive top line and wallet share improvements, particularly in consumer.

Great. Thank you both.

Go ahead. And thank you. And one moment for our next question. And our next question comes from Jed Kelly from Oppenheimer & Company. Your line is now open.

Hey, great. Just circling up, can you talk about your comments around a stable lending environment and what's giving you the confidence to lean back in? And then in the insurance segment, how should we view the outlook maybe over, like, the next 12 to 18 months. I know it's been really volatile. And can you talk about, you know, how we should think about periods where you're over-earning?

Scott, do you want to take that?

Yeah, sure, I'll take that. You know, to start on the consumer and kind of answer your question, Jed, and follow up a little bit on Yusuf's question there on just leaning into consumer. And the... The reality is the higher rates, a lot of consumers are just becoming more accepting of those rates. And you do still see from the consumer segment strong demand in home equity has been increasing in demand. Personal loans have strong demand from consumers. Small business loans have strong demand for consumers. So when we see a level of stability with our clients, over the past 12, 18 months, they kept growing. tightening their underwriting standards constantly as rates were going up and there's concerns about delinquency. Well, really over the past three to four months, we've really seen a leveling off of that. So our client partners still have tight underwriting standards, but they're not tightening anymore. So that has given us a level of stability where we do see overall lower RPLs in general, but we still see high consumer demand, and we don't have the chaos of RPLs continuing to lower over time. So that lets us be more consistent with our marketing, be more consistent with our projected, you know, our learning projected revenue models to make our media campaigns more efficient. And as I've talked about, over the past few earnings calls, a real focus on the operational efficiency of more effective cross-selling of products, matching alternative products when consumers can't get the primary product they're seeking, better right pricing with our clients to open up further budgets to make sure they're profitable and everything they're buying with us, and at the end of the day, better revenue attribution models. that our machine learning media algorithms can use to more smartly buy media. All of those things have added up to our ability to profitably lean in and gain market share in the important media marketplaces out there where consumers are shopping for these products. And to be bluntly honest, we're pretty excited with what's been happening the past few months and what we expect to happen through the end of the year, even in this down environment and when And then to answer your big picture question on insurance over the next 18 months, I mean, I would just say insurance is back. It's fully back. I shouldn't say fully back because they're still opening up. We even have a number of our clients are opening up a bunch of new states on May 1st, just a couple days. But we are seeing broad-based, whether it's local agents, whether it's corporates, direct buyers, whether it's writing policies through our agency, everyone is opening up product and geography across the board. We believe that I believe that carriers are ending a very profitable period of time. So I feel we're on the front end of what I call a super cycle in insurance in the next couple of years for carriers to return to profitability. But due to the high rates of insurance policies right now, you're getting high consumer demand. Our consumer demand was up 19% year over year in Q1 of just people shopping for insurance quotes. And that's going to continue for a while. So I think we're on a long runway in insurance right now.

Thank you. And I know Scott was breaking up a little bit there. Did you have any follow-ups on that?

No, everything was clear. Thanks.

Perfect.

And thank you. And one moment for our next question. And our next question comes from Ryan Tomasilo from KBW. Your line is now open.

Hey, everyone. Thanks for taking the questions. I just wanted to start with Trent just on unpacking some of the guideposts for the year for revenue growth and VMMs. baked into the guide by segment, maybe for 2Q in the full year. Overall, how much of the revenue guide increases being driven by insurance versus consumer driven by the increased marketing effort? Sounds like you're alluding to more of it being driven by insurance, but just curious if you can give us some handholding for all the different moving pieces by segment here for the guide. Thanks.

Yeah, happy to. Yeah, I mean, on the full-year revenue guide, the vast majority of that is driven by insurance, and it's based on what we're already seeing a month into the second quarter. As it relates to margin profile, we assume home remains relatively stable compared to where it's been for the last couple of quarters. Insurance, as one would expect, as the revenue opportunity continues to unlock, As both the carriers and our competitors get more aggressive, we do expect margins to contract a little bit there. And so it's been running in the low 40s, high 30s in Q1, and we expect that to trend down a little bit. And then consumer will continue to remain very high and healthy, but based on some of the dynamics we've been talking about, You know, we would argue that in the back half of last year, they were sort of unnaturally high, the margin profile in many of those businesses. And so we would expect those to, you know, tick back down, you know, closer to 50%.

And then any color on just top line revenue growth by segment trend that you can give us?

Yeah. Yeah, I mean, stopping short of guiding by segment, you know, the insurance business clearly, as we said, is driving most of that incremental increase. You know, double digit growth in Q1, which is the toughest comp that we face relative to last year. So I would expect that to accelerate, you know, pretty substantially as we continue throughout the year. The other businesses, I would say, there's not a ton of incremental revenue upside. Consumer, modest contributor to that incremental increase on a full-year basis.

The only thing I'd add is for everybody just to keep remembering the core business flywheel, which is we get demand from clients, lenders, insurance companies, then we go fill that. as efficiently as we can. And if demand exceeds supply of customers, then we go out and go get more customers. It's one of the great things about our business models. We can flex up. That incremental spend comes at lower margin, and we do market up to the last profitable dollar. So seeing a higher dollar of vmm and a lower percentages of that margin is generally for me a sign of health of the business because it shows that demand's higher than supply um and uh so i just wanted to make that point to tell people like we literally wake up every day and say from a business standpoint how much vmd can we generate the other thing i'd add is around the different trends common around not guiding at the segment at the uh product level the great thing about this diversification we've put on in the last few years is that at any given time, demand and supply of each of these marketplaces have their own dynamics. And I think we can say like overall, everything that Scott just said is, absolutely right. Like, we're seeing net increased demand from clients. We're also, and I'll give a lot of credit to Scott and his team on this, have done a lot better at operational efficiencies and putting some stuff in that, you know, are short-term things that Scott just hit on. And so, therefore, we can lean in.

And just a one last follow-up here to put a finer point on, you know, the reinvesting some of the margin back into, to marketing, just trying to understand why we're not seeing VMD guide up here. Um, despite the significant revenue guide up, I mean, when should we expect these marketing efforts to start to translate into more VM, uh, VMM dollars? It sounds like, you know, you, you do expect the spend to be profitable. Just trying to understand the puts and takes there.

I would say there's some aspect of it that is certainly conservatism and wanting to give us enough flexibility so that we can do the best we can. And we always try to do better, but we're just beginning this over the last couple months, and we want to make sure that we have the margin for it. margin of safety.

Scott, it's important also. We want to grow our revenue to have higher market share, higher, you know, more significant relationships with our clients, you know, more options for our clients to have, which gives us more opportunities to optimize in the future. You know, at some level, you can you can only optimize the margin percentage to a certain level. At the end of the day, you need to grow revenue, and that's the key to expanding your VMD over the long run. So even though margins might squeeze a little bit in the next few quarters, we're expecting our overall VMD to continue to increase. And the more revenue you do over time, the easier it is to expand your overall VMD. And that's definitely the route we're taking.

Right. That makes sense. Thanks, Scott.

And thank you. And one moment for our next question. And our next question comes from John Campbell from Stevens, Inc. Your line is now open.

Hey, guys. Good morning. This is, I think, the first time in 10 quarters we've talked about a revenue beat. It's also been a long time since you raised the revenue guidance, so that is great. It seems like you guys are making some pretty measured turnarounds, but I wanted to double-click on the insurance business. I mean, it feels like the early stages of the potential super cycle. I think, Scott, you just mentioned that. This time, it does feel a little bit sturdier than past cycles, but As far as the recovery, Scott, I think you also mentioned kind of broad, this largely broad base and not so much driven by one or two customers. I think the last kind of pump fake we have was maybe one large customer. But if you could unpack the results, maybe this quarter across clicks versus leads. And then I don't know if you want to go more broadly of maybe carrier versus the agent channel.

Yeah, the one. Go ahead. I was just going to say real quickly, the Um, the one thing that we're very focused on insurance is, um, and everywhere, but definitely insurance. Cause we, uh, cause we believe we have a very leading position there. It's, uh, gaining share versus competition. And I think we've done a really good job of that. Take it away, Scott.

Yeah. You know, just starting at the channel level, which, which I think is even better than clicks versus leads versus calls just because, you know, different carriers buy different things, but, um, you know, the corporate, the direct corporate, uh, uh carrier buyers um have had huge growth and those are largely a lot of a lot of the click buyers but to talk about being broad-based our top seven corporate property casualty buyers all grew over 100 year over year compared to q1 last year so you know to your point of last year maybe being one or two not maybe it was it was just a couple really that were driving the growth is from the corporate Carrier standpoint, it's broad based across the board. And they're all expanding. We're expecting significant expansion from all of them in Q2, sequentially compared to Q1. We're going to do an all-time revenue record. It will probably be the first time we ever do over $100 million in the insurance division. On the local agents, that was an all-time record in Q1. It's more of a big shift that moved slowly, but it was up over in double-digit percentage-wise. Our agency, where we write our business ourselves, our carriers have opened up enough geos and products that as we look at our KPI agency management models, it is telling us our staff should be three times the size it is today. And we're very profitably running a staff three times the size today. So we're diligently in the process of expanding our our agency. So, you know, so the carriers, the right through independent agencies are also expanding dramatically. So it is really just completely across the board. And as I said, it's answered an earlier question. It's the expansion continues. It's not like all of these carriers are fully open at this point. They're continuing to open up States each month.

Great to hear. I appreciate all that color. And then the home segment, you know, that ended up being a, I think a key driver of the beat, at least relative to our model. Um, but if I unpack it just relative to what we had, I mean, I'm thinking mortgage was maybe down 80% or so year over year. I'm just given the strength and HELOC. Is that, is that right?

Yeah.

Down 80%. No. Um, but, but it's, it's, I mean, home equity was more steady, um, in mortgage was down, uh, pretty significantly year over year. And, you know, and that is, and I think as Doug said at the top of the meeting, you know, home equity is probably going to be, you know, the big driver through the end of this year. But we have been, I would say, pleasantly surprised, to your point. Revenue did grow pretty decently sequentially from Q1, from Q4, overall in mortgage. And we are expecting it to grow decently from Q1 to Q2. as well. And a lot of that's just been driven by, I think, consumers are just a little bit more accepting of the high rates. And so you're seeing increased shopping behavior for home equity products mainly. But honestly, we've seen a little bit at a very low level, but an uptick in purchase and refinance as well. But it's still a very low level.

The only thing I'd add on to the Go ahead. So one just highlight on mortgage on that is mortgage and home equity are basically fungible. So it's looking at them separately doesn't necessarily is not I don't think the best way to look at it. You're the mortgage companies will sell a home loan that has the consumer's best fit for them. And so if it doesn't make sense to refinance and you're not purchasing a house, then there are consumers who can get benefit from a second mortgage loan, and they make a lot of sense for people, certainly better than credit card debt, et cetera. And home prices and home values are up. So home equity in this market is a natural product that both consumers are seeking and lenders are doing, but it's basically just – a substitution for, you know, when purchase comes back more aggressively and conversion rates are there, they'll be in purchase, which Scott just said we're starting to see. And certainly when rates fall even a little bit, these high rates for so long have really just made a treasure trove of future refinancers in the home sector. Makes a lot of sense. Thanks, guys.

And thank you. And one moment for our next question. And our next question comes from Melissa Weedle from JP Morgan. Your line is now open.

Good morning. Thanks for taking my questions today. I was hoping to follow up on a couple of the comments from earlier about sequential strength into the second quarter, just based on piecing together comments across the different segments. Certainly hearing the strength in insurance coming through also sounds like increased sequential revenue growth in Q2 for both home and consumer. Within consumer, should we think about that as being driven by small business and noticeably absent from your comments for any sort of card trends? though we did note the reference to Bank of America onboarding to TreeQual in the shareholder letter. I was hoping you could just elaborate on that a little bit and then maybe speak to any seasonality in sort of home equity trends that you've seen historically. Thanks.

And Trent, why don't you start that and then Scott add on.

Yeah, just as it relates to the sequential improvement, Melissa, obviously, you know, a lot of that is driven by insurance for the reasons Scott just detailed. I mean, we continue to see partners opening up budgets, opening up geographies, et cetera, which is encouraging. You know, we do expect some sequential growth in home, again, mostly driven by home equity, which is where the opportunity is right now. And then consumer, I would probably point to mostly personal loans and small business. There's a seasonal component to those businesses, a seasonal trend where we tend to expect things to pick up Q1 to Q2 and then to Q3. The card business, while we're excited about some of the product work that's going on there, particularly around pre-qual, We're not expecting a ton of growth in that business. We're certainly not baking it into our guidance for the rest of the year. But we're going to continue to chip away at the, you know, kind of the blocking and tackling around TreeQual and onboarding new partners there. And we think that's ultimately the future of that business for us. Scott, you want to add to that?

Yeah, I mean, I might just come in and honestly hype it up a little bit more. You're like, I do believe we are seeing, we're going to see sequential revenue improvement, and just in almost every single major industry we operate in, with the exception of maybe credit cards. And so we have small businesses growing, personal loans is growing, you know, deposits, bottle loans, mortgage home equity. I mean, we're seeing growth. across the board. And it's a lot of work and it's hard work in this down lending environment, but we do believe we've done a lot of the proper things to be able to take some market share in the important media marketplaces and drive more traffic and have the distribution with our clients to deliver that traffic. So I'm feeling pretty good about pretty broad-based revenue growth from Q1 to Q2.

Thanks for that. I just asked, too, is there typically anything we should think about in terms of seasonality or consumer behavior around home equity? I certainly understand there's a lot of HPA embedded in housing prices right now, but do you typically see an increase in demand for that type of product in the spring and summer months? Thanks.

We don't normally see a lot of seasonality in home equity. I'd say that's more like one of our normal products, that Q4 would be more seasonally light and the rest of them would be seasonally normal. There's not a lot of seasonality in that product. It's really just based on consumer need.

Got it.

Thank you.

You probably see more seasonality in personal loans. You would see some in home equity, but I think a lot more of the growth in home equity is just more of the fact that buying and purchasing homes has come to a crashing halt. So just a lot of consumers are turning more to home equity, you know, remodeling or whatever versus buying and selling. So we're seeing growth there because of that.

Got it. Thanks so much.

And thank you. At one moment. At one moment for our next question. And our next question comes from Mike Grondel from Northern Securities. Your line is now open.

Hey, thanks, guys. Two questions. One, could you kind of talk about the significance of tree call getting into B of A on the credit card side? Kind of what's your goal for that? And then secondly, did you guys disclose home equity revenues or credit card revenues in the first quarter? Thanks.

I'll take part of the first one and let Scott add in on that. Getting B of A on TreeQual is fantastic from the standpoint that we've landed a significant card issuer and gotten through the integration and that will lead to a better consumer experience. And from a financial standpoint, to get to the point where you can give multiple offers to all consumers, you probably need 20 of those types of issuers of different sizes. So we've got a lot of interest. We've got a good pipeline. We have people live. The product works. Consumers like it. Clients like it. But it's got to get to enough scale that we would be able to supplement and or replace the crazy click walls of the credit card business.

Yeah, and then, Mike, on your second question, we did disclose revenue for home equity. It was in the press release, $20.8 million in the quarter. We did not disclose credit card revenue, and our kind of guidepost is we disclose anything that is 10% or more of total revenue.

Got it. Thanks, guys.

And thank you. And if you would like to ask a question, that is star 11. Again, if you'd like to ask a question that is Star 1-1. One moment for our next question. And our next question comes from Madeline Zhao from Susana International Group. Your line is now open.

Hi. Thanks for taking my question. Can we just walk through the math for the 2025 convertible notes? Because it looks like there's still a significant gap between cash on the balance sheet once you take out about $50 million in cash being necessary to keep on the balance sheet and the remaining balance of $284 million of the July 2025 convertible notes. Thanks.

Yeah, I mean, $175 million of new money. There's more like $60 to $70 million of excess cash flow on the balance sheet that we feel like we could put to work. Yeah, and then we think we can pre-cash flow the remaining balance. over the course of the next 15 months.

And thank you.

And I am showing no further questions. I would now like to turn the call back over to Doug Libda, CEO, for closing remarks.

Thank you, and thank you all for being here. Look, over the last several years, they have not been easy for us and certainly not easy for you as shareholders. The business faced RPLs and demand pulling back from clients, which then forced us to have to obviously right-size the business, and we had a looming debt repayment. However, from that chaotic couple years actually came some real came some very very good things today in operations operational improvement with Scott and his team are gripping and our operators are working much more closely with with finance and other areas the company and really approaching things together on product and tech we are now able to work on discrete Key projects that we hope will have positive financial returns. We've got a new product process and a number of new people there. And I'm excited to be showing you some results from that in the future. And I think that's shown with TreeQual. Our clients are optimistic and strong financially. And I think that bodes well for the future. Our company and all of our employees are fired up to be taking the hill to win. And I want to thank you all. I want to thank you for your stick-to-itiveness with LendingTree. And I look forward to showing you guys some continued growth and continued growth and profitability as this company plays to win in the future. Thank you.

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