LendingTree, Inc.

Good day and thank you for standing by. Welcome to the LendingTree, Inc. second quarter 2026 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'll 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 today's conference is being recorded. I would now like to hand the conference over to your speaker today, Andrew Wessel. Please go ahead.

Thank you, Kevin, and hello to everyone joining us on the call to discuss LendingTree's second quarter 2026 financial results. On with us today are Scott Peyree, President and CEO, and Jason Bengel, CFO. This afternoon, we posted a detailed letter to shareholders on our investor relations website. We've also posted a new investor presentation that we would encourage everyone to look at. For the purposes of today's discussion, we will assume that listeners have gone through those materials and will focus on Q&A. Before I hand the call over to Scott for his remarks, I remind everyone that during this 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, 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. With that, Scott, please go ahead.

Thank you, Andrew, and thank you, everyone, for joining the call today. We had a good quarter with strong growth led by insurance. Our insurance business revenue was up 25% year-over-year, and our adjusted EBITDA was up 11% year-over-year. Also, I'd like to call out that our adjusted EBITDA as a percentage of VMD was up 225 basis points year-over-year to 40%, steadily moving toward our 45% to 50% long-term goal on that important metric. Stepping back for a second, from 2023 to 2026, we have roughly doubled our revenue in adjusted EBITDA, showing extremely consistent growth and consistency. Our diversity of product lines in this company has supported resilient and consistent growth regardless of certain industries such as mortgage being in a multi-year trough due to high interest rates. Insurance is the standout. Revenue was up 42% and segment profit was up 25% year on year on strong carrier demands.

In our home business, revenue was up 9% year over year and our segment profit was up 13% sequentially.

I feel we are continuing to perform well in what remains near trough earnings power from a macro environment with high interest rates. continuing to provide strong products to a strong client base and position well for long-term growth as that industry comes back. Our OpEx held flat year over year. Both AI driven efficiency and just what I would call this operational efficiency in general is converting growth into earnings. We're sitting on very strong free cash flow, approximately $80 million after interest per year. Our net leverage improved to 1.9 from 3.0 a year ago. Whereas debt pay down does remain a strong focus of the business, we are now in a position in a comfortable level from a debt ratio perspective where we are also looking at other strategic uses of our free cash flow. From a product and AI momentum standpoint, we're continuing to gain momentum on our North Star initiatives. In Q2 alone, we rolled out a chat GPT app called the Home Loan Rate Confidence Tool We're offering six new products to consumers such as pet insurance, commercial insurance, and financial advising. Our homepage and navigation redesign is proving 11% performance increase in sessions and 18% form starts off of our homepage. Voice AI continues to roll out across multiple products. We've added AI overviews within our product offering pages to help consumers more efficiently choose the right offer, which is showing Now heading specifically on our consumer segment and more specifically calling out our SMB lending business and the softness there. Now to start with, SMB has been a major growth engine for us over the past two to three years. We've had 40% year-over-year profit growth on average since early 2024. In Q2, as we alluded to in the last earnings call, we saw some headlines coming in this industry due to Middle East tension, energy price spikes, etc., making small business owners more cautious in general. In all honesty, demand came in softer than we'd forecast, which drove the myths. Softness was initially driven by both merchant sentiment and lender pullback. I will say the lenders have largely come back. and are writing and offering loans at similar levels to early Q1. But merchant sentiment does remain soft. Looking back at the SMB business in general, we've made significant investments into our SMB business over the past few years. We've invested in growing the strongest sales force in the industry, growing our lender network and our internal platforms to make quoting more efficient for our sales team and our merchants, Myriad AI Efficiencies, and Growing Traffic Sources Generating More and More High-Quality Merchants Looking for Loans. Those investments have generated significant profitable growth over the past two to three years, and we expect them to continue to provide profitable growth in the future. If you look at our original internal S&P budget we set at the beginning of the year, which by the way I'll call out in Q1 of this year, we actually outperformed to that budget. If we would have hit that original budget for the entire year, we would be performing at the high end of the previous guidance we set. We feel that merchant sentiment issues are temporary and macro-driven. They're not competitive or structural and fully expect to be back to growth and setting revenue and VMD records in the near future. The long-term macro outlook for the SMB industry remains very strong, in our opinion. We're seeing some encouraging signs already. Improving closing rates, larger loan requests, favorable underwriting shifts, July will be our best sales month since Q1. Performance in July gives us confidence that Q2 was our trough and we have entered the recovery period. Expect stabilization, I'd say, through the second half of the year. SMB to eventually recover and surpass our Q1 record levels. We'll keep monitoring and update investors as that trend develops. Hitting on North Shore strategy, which remains unchanged, to become the number one destination to shop for financial products. We have a massive focus over the next few years on return customers, referred customers, and login user growth. This will create an even stronger and more durable business over the long run for LendingTree. AI is a real structural tailwind to make this happen. Not just efficiency, but consumer-facing, such as the ChatGPT app, the rate confidence tool, AI for communication via voice or text or email, AI offer overviews. all driving increased engagement applications, and we feel there is a laundry list of additional things we can build over the next few years that will create even better customer engagement. Internal AI tools, such as AI agents we've built on our data infrastructure for marketing teams, sales teams, finance teams, is actively compressing what was previously weeks' worth of work into real-time information, which is providing real efficiencies in the business. One of the key reasons OpEx grew less than 1% while our revenue grew by 25% year over year. Our business model is highly cash generative and capital light. Like I said earlier, approximately $80 million in annual free cash flow after interest with minimal CapEx. Our balance sheet is getting more and more flexible with our leverage down to 1.9 times, which gives us capacity for debt pay down, for buybacks, and accretive M&As. Insurance remains a core strength. Again, SMB's softness is temporary and macro, not structural. And bottom line, long-term growth profile is intact. We've got a durable, high margin, capital efficient, increasingly AI-powered business. With that, I'll hand it over to Q&A.

Ladies and gentlemen, if you have a question or a comment at this time, please press star 11 on your telephone. If your question has been answered, or you wish to move yourself from the queue, please press star 1-1 again. We will pause for a moment while we compile our Q&A roster. Our first question comes from Ryan Tomsella with KBW. Your line is open.

Ryan Tomsella, KBW, KBW Hi. Thanks, everyone. Apologies. Still juggling a few things with the release here. Maybe just to start off, if you could put some guardrails around what the second half guidance assumes across the various segments from both a revenue and variable margin standpoint. And then as a follow-up to that, regarding the lower variable margin, specifically in the insurance segment, if you could just elaborate on The specific drivers there and what you're baking into the second half on the margin front for insurance. Thanks.

Yeah, right. It's Jason. So I'm happy to talk through the guidance assumptions here. And, you know, like Scott said, if you take a big step back and look at the midpoint of our guidance, that does look at us doubling, almost doubling EBITDA in the last three years and growing 12% this year. And like Scott said, if SMB had performed as expected, according to budget, we would be at the high end of the prior guide. And to be totally transparent, we beat budget by almost 15% in small business in Q1. So the trajectory was very, very strong for small business until the headwinds presented. So just talking a bit about each segment here. Home, rates have been going up. So that's a bit more of a headwind. Margin has been down. I would say it's below what we'd consider normal historically. And that's just a function of home sales being 4 million units. There just aren't that many borrowers out there, and the competition for those borrowers is just very, very high. So with home, I think long term, there's still a lot of upside in home. and I think margins would normalize when the market returns, but we're just not contemplating any real upside in the guide with home. Margins sort of where they are now. Consumer, like we said, you know, SMB, you know, had real headwinds. We talked about that on a call quite a bit and we saw this coming. It was just much worse than what we expected. So Q2 definitely underperformed our expectations. There was just a large drop in lender appetite and merchant demand. Like Scott said, things like loan size, close rate, volume were just far below even our lowered expectations. But we've seen signs of improvement there. So lender demand has started to recover, but on the merchant side, it's still just not where it needs to be. There's a long way to go in merchant sentiment. And so the guide is only really looking at what we have line of sight into. And so we're really only contemplating that return of lender demand that we've seen today. And so that will result in sequential improvement in consumer revenue in VMD, but it's just not back to sort of SMB won't be back to Q1 levels that we were seeing before. This was our growth engine. Like I said, it was growing 40% a year on average, and now for this year, it's looking like we might be flat to down. The good news is that should really be temporary. There's nothing structurally wrong with the business. We operate very, very well in that business and the market opportunity is really strong. So that will recover. Once merchant sentiment returns, that will return to being a very, very strong growth driver for us. We're very optimistic with small business, But with a guide, we're not assuming any real return from what we have direct line of sight into today. With insurance, the backdrop is still very favorable. Carrier profitability is very strong. Competition for policy is very strong. So that helps us on the partner demand, but it does pressure immediate costs. And so that's kind of what you see coming through in margin. So, you know, we do expect, I would say, healthy growth in the second half for insurance. I think we're very happy with how insurance is doing, and we expect that to continue going forward.

And this is Scott, just to add on there. As we've always historically been, our first goal on insurance as this growth is like overall VMD growth, and that's what we plan to continue to see through it. It's been very strong the first half of the year. continue to keep growth next year. And also, as we've talked about before, if you look at our consumer segment from a margin perspective, small business is, within the consumer segment, is by far our highest margin business. And so when that's suppressed, it will inevitably affect the overall margins in the consumer business.

I appreciate all that color, guys. Maybe just double-clicking on insurance. Scott, I guess... Several part question here. One, the mid-20s variable margins I think you posted in the quarter, is that a good assumption for kind of a new run rate here in this environment? And then as you look out to what you're seeing with carriers, how confident are you that the insurance business can continue to grow VMD off of what you're assuming for the second half of this year into 2027? and then just given the tenure you have in this space, Scott, if you can just talk about what leading indicators you tend to focus on for signs that the cycle may be peaking and when, you know, we might start to see those signals emerging. Thanks.

Okay, yeah, so just to hit on a few of those, I mean, I would start like, you know, starting with like the leading indicators from the macro level, I mean, you would first start at the top level of just the insurance industry profitability in general. And there's a number of massive public companies out there. So you have a very good outlook into what the general profitability of the business is. And it is a very stable, profitable environment. And then the secondary signals below that, I would say if you're seeing trends of carriers either increasing pricing, giving rate or taking rate, which is essentially either giving pricing, increasing pricing, or reducing pricing. Because from a company like ours, where we're very shopper-dependent, we want shoppers coming through the network, when you have environments where pricing is changing for policies, that drives more shoppers, obviously. So, you know, as I said in earlier calls, the early part of the recovery was all about, are insurance even, willing to offer insurance policies to consumers that that's largely we're down to the point where where insurance is healthy and every you know they're offering insurance policies to everyone so now we'll be looking at indicators of coming up in the next year or two are they gonna are they gonna start giving rate back to the consumers which means they're reducing pricing which will drive another shopping cycle but you know I would say as we look at the environment today it is extremely stable environment from an insurance industry standpoint, and there is strong demand and fighting over market share from some of the top companies in the industry. So I would call it very healthy and stable, and growth is largely dependent on us executing well as a company, driving a lot of active shoppers to our network, which I think we're very good at doing.

Martin, VMM.

Oh, and then the VMM margins. Yeah, I would say, like I said, our first, our primary goal is VMD. Like I said, you know, some of these carriers, just the dollars they're spending are so high and growing so fast. You know, you're starting with overall VMD and you want to make sure you're providing the best highest quality product to them. So I would say as we look at this, since this is just still in such a growth mode, as we're looking through the second half of the year, Yeah, I would expect margins to be probably similar to where they're at in Q2, with BMD hopefully growing a little bit sequentially. And again, I think it's kind of when that super high revenue growth levels out is when you really start leaning into more of the BMN growth. But I think we're going to see strong revenue growth throughout the rest of this year in insurance. Hopefully that answers all your questions.

Great, thank you. One moment for our next question. Our next question comes from Jed Kelly with Oppenheimer. Your line is open.

Hey, great. Thanks for taking my questions. Just circling back to the consumer segment, you know, we're kind of trying to track the health of like your small business product. is it more are they more are they kind of more sensitive to gas prices or is it more interest rates or is it a combination and then just just circling around your personal loans you know some of the bank earnings we've heard and the health of the consumer that seems pretty stable um so can you just talk about where we are with personal loans and then I have a follow-up okay yeah Jed um I'll just start I'll hit on personal loans briefly I would say yes I would I would I would

echo that sentiment. Personal loans is a fairly stable business right now for us. Similar amount of revenue and consumer shopping for personal loans and whatnot. Not a lot of change there year over year. On the small business side, specifically on that, I would say, I think it starts more at a sentiment level than an interest rate sensitivity level. And I think there's a lot of these, I'm pontificating here a little bit, but a lot of these smaller and medium-sized businesses, they're kind of on the front lines of when you're seeing consumer sentiment change and people complaining about gas prices and maybe tightening their wallets on stuff they might spend with a lot of small businesses. And then that translates into a small business, for example, saying like, you know, I was going to hire those four people that maybe I won't or I was going to spend $100,000 on that capital equipment that maybe I won't or at least I shouldn't say won't, just like hold off on. That's why we call it temporary because I think it's just a lot of right now, there's a smaller number of merchants requesting loans and then you look at the average loan size they're requesting is generally smaller. then we historically see and we've been doing this for a long time so we got good history here and then I would say that and then there's a general lower percentage of people then accepting the loan offers they're getting and I don't I don't think that's rate sensitivity as much as just macro sentiment of like maybe I'll just hold off or maybe I'll get a little bit less money or just hold off for another few months before I do this just you know make sure we don't you know aren't in some major war, you know, et cetera, et cetera. So that's where I say it. That's where we have, I mean, and this isn't just us alone. This is like all of our big clients, lenders in the small lending space, you know, some of our competitors slash frenemies. I mean, you know, I think everyone's seen a lot of this office in Q2, but everyone just believes it's going to come roaring back here sooner rather than later. Okay.

And then I can just, Sorry, I was just going to tack on with PL. In this environment, sequentially, PL performed very well. PL was definitely a strong grower from Q1 to Q2, so it's not like this environment has really held back PL moving sequentially.

Got it. And then just as a follow-up, I've seen some news about Google, this arbitration Google case. Can you give us an update on where you stand and how you kind of view that arbitration process? Thanks.

Yeah. So with Google, you know, we're aware of lawsuits and arbitration claims against Google related to federal court rulings that the company illegally monopolized online search and search advertising. Advertiser customers of Google are you know they're actively joining together for arbitration and other proceedings and you know we've joined one such group we've initiated a request for arbitration this year and we filed you know the group's demand motion on July 17th and you know we we directed about 2.8 billion dollars to Google through the impacted period dating back you know about a decade and we continue to pay Google for advertising today and that timeframe is really what would be used to assess the damages through the arbitration process. And so we believe Google's overcharge accounted for a significant portion of our overall spend during the relevant period, which would be the basis for our right to damages. So we're currently engaged with an expert economist to size out the potential damages. And I think one other important call out is with regard to tax. With tax, there's a lot of moving parts, very complicated, but we do have tax attributes. You can see in the 10-K that we expect that we can use to reduce tax liabilities on any future taxable income, including any possible recovery amount from Google. We have tax-affected NOLs, we have R&D tax credits, interest carry-forwards. You know, when you look at all these attributes together, we expect them to be able to offset a substantial portion of federal income tax, otherwise payable and future taxable income for around $300 million. So, you know, hopefully that gives you an overview.

Thank you. Good luck. One moment for our next question. Our next question comes from Mike Rundahl with Northland. Your line is open.

Hey, guys. Just two questions on small business. That business has grown a ton. It's still within consumer, but can you speak to just like what percent of revenue, what percent of adjusted EBITDA comes from that just so we can size it a little bit better? And secondly, related to that, it sounds like I don't know if the word is collapse, but lender demand was really, really weak. It really wasn't customer demand. It was just the lenders pulled back hard. Am I hearing that right?

Yeah. It was really two factors that happened. It was both on the lender side and on what we call the merchant side. The small businesses looking for cash, we call those merchants. What really happened was lenders pulled back and they tightened their criteria. They would offer a higher rate for the same loan amount or just tighten their buy boxes. That we have seen recover. The other end of that is merchant, call it the merchant demand. And that presents in the form of volume. There's just fewer merchants shopping for loans out there today. and also in the form of close rates. So we call it booking rates. So if you give a merchant an offer, they're just less likely to take it. And so there's just less appetite out there in the form of close rate and volume. And that's the merchant side of it. That's the piece of it that we have yet seen to recover that should provide. And when it does, we fully expect that it will. And when it does, there should be significant upside. We expect small business to return to being a very, very strong growth. We don't disclose the revenue for small business, but that sequential decline is obviously driven by small business, and we had PL performing fairly well sequentially.

Got it. Got it.

Yeah, so just to put a button in that, we could use significant loan growth. and the lenders would be more than happy to write those loans. So the lender demand is there.

That's recovered. Got it. And then, you know, just looking at, you know, profit segment margins kind of by major business as you break them out, you know, they're softer. There's some challenges out there. Is any of that due to investments you're making or would you attribute it to competition and challenges in the marketplace and whatnot? How would you allocate between those two?

I would say, good question, I appreciate it, and I think there's a little bit of both. I would say there is investments. Like we are, I'll start with, you know, business development traffic has been a big focus area of ours and we have, I don't have the exact stats in front of you. We have grown that quite a bit, but our focus in 2026 is really just about growing the relationships and growing the revenue and our business development partnerships. We have not been focused much at all on the VMM or VMD perspective on the business development front. We've had a lot of success on bringing in a lot of good partners and doing a lot of business and and our partners are telling us that we generally out-monetize other partners they were previously using. So we're very excited about that and we think that will be a big part of our business over the next couple years. We'll probably focus more on VMD and margin in 27 and beyond in that area. So that's definitely a big part of it from the overall margin profile. and then the other part of it is yeah there is there's definitely like like insurance for example there's really high competition out that right out there right now and it's not just our competitors it's like the carriers themselves are advertising everywhere so it it there it is reflection lower margins at some level are a reflection of everyone's out there getting in front of consumers and it's like you know are just overall we just want our cost of traffic to grow at a smaller rate than the revenue on our traffic at the end of the day. But yeah, it is fair to say Google marketplaces, for example, are more expensive today than they were a year ago.

Got it. Lastly, any learnings on the AI side over the last 90 days that you want to share?

Could you be a little more specific with that question? I'm just asking because there's all sorts of routes we can go with AI.

I guess what's most meaningful for you over the last 90 days? You've got a bunch of slides on it. Educate us a little bit.

Yeah, I would say kind of the two ways that I look at AI is you've got operational efficiency and you've got consumer-facing AI. And so From operational efficiency, I don't know if I would say learnings. It's becoming more and more effective for us. We've learned a lot. One of our learnings, for example, which was a big focus for the first six months of the year, is for AI to be really effective for internal operations, your data really has to be structured in a really good way. and your naming commissions have to be right you need to really train the ai agents to understand all the vernacular like a business and business people use on a day-to-day operations of a specific business and so we have spent a lot of time building and structuring our data in the right way committing a lot of energy and effort to doing that right and now we're starting to see really significant benefits out of making sure we structured our data in the right way for the use of AI agents. That's been one big learning there. Another big learning, and you probably have heard this on a macro level, is just the cost of AI, the cost of token usage is going up and up. And we're a type of company where we want anyone and everyone within the company that has useful use for AI to be able to use it. We've probably used four or five different AI platforms that people have access to. One of the learnings, though, I think we've learned use the right model for the right thing. And that's where we track use and cost and expense. And we found there's a lot of things that maybe you're using an expensive frontier model on that you could be using a much cheaper model for. Like my head of technology, we were talking about it. theoretically like 90 plus percent of internal operational efficiency. So you could be using a much cheaper like AI model that you don't need the really expensive frontier models on. So, you know, that's a learning and we've got good dashboards where we track it. And like if someone's, you know, spending a lot of money on tokens, I mean, it throws a flag up to like at least have the conversation of like what's the business case of this usage and and if it's a good case, like let's keep doing it. If it's not a good case, it's like let's either find a cheaper model or not do it. On the consumer side, you know, there's been lots of learnings we've had. Like for example, we've learned that like LLM chat tools as far as a way to like have the consumer shop. Consumers, you know, often don't like engaging with that just as more as a simple funnel. We've learned that AI overviews, like I talked about earlier, are highly effective of like, okay, you fill out your form, maybe you're sitting on 30 or 40 personal loan offers, but let me just give you a paragraph at the top that just gives you the high level of like, okay, this company has the lowest interest rate, this company will offer you the most money, this company will give you the lowest monthly payment because they'll give you the longest term loan. And that makes it just easier for the consumer to have more confidence of the type of companies they want to apply for. And then the final thing I'd hit on, I don't want to drag this on forever, but like, you know, I think using AI as a communication tool with the consumer is very exciting. So, for example, like, we develop a lead, instead of sending that lead out five times and having five different brokers call a consumer bunch, it's like, first have that, whether it's voice or text or email, have that AI agent engage and communicate with the consumer a little bit first to get a little further detail on, okay, what exactly are you fitting for? What's the right fit for you? And then directing that person to the one or two companies that are the best fit. And that's a dramatically better consumer experience. And it's a really useful way to use AI from a consumer-facing perspective.

Well, thanks, Tate. Those are all helpful. Thank you. Yeah, all right.

I'm not showing any further questions at this time. I'll turn the call back over to Scott for any further remarks.

All right. Just in closing, we're very excited where we're at for the business, both just operations on our current core business and also our North Star strategy. We put that North Star together at the end of last year, did a lot of organizational shifting in the first quarter to make sure that our teams were oriented around being able to produce along the North Star. I think Q2 was really the first quarter where we really saw the velocity of long-term strategic initiatives, AI initiatives getting rolled out. We fully expect the velocity of that to keep increasing throughout the second half of the year. So we're really excited about transforming this business over the next few years and having much higher return customers, referred customers, and active login users. With that, thank you. Talk to you all next quarter.

Thank you, ladies and gentlemen. So, that concludes today's presentation. We thank you for your participation. You may now disconnect and have a wonderful day.