Q4 2019 Earnings Call
Excuse me, ladies and gentlemen. This is the operator today's conference is scheduled to begin momentarily until that time. Your lives will again be placed on a music hold thank you for your patience.
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If anyone should require assistance during the conference. Please press Star then <unk> on your Touchtone telephone as a reminder, this conference call is being recorded.
And I like to turn the conference over to your host Tritan Sigler head of Investor Relations. Please go ahead.
Thanks, operator.
Thanks, everyone for joining calls wanting to discuss Lendingtree is fourth quarter 2019.
Uh huh.
I'm joined here in the rents morning, My Lendingtree is chairman and CEO, Doug Lebda, and Chief Financial Officer JD Moriarty.
Before I hand, the call over how quickly remind everyone that during today's call. We may discuss lendingtree is expectations for future performance.
These statements are typically preceded by words, such as believes that we believe we anticipate or other similar statements.
Forward looking statements are subject to risks and uncertainties amounting threed actual results could differ materially the views for us today.
Many but not all the rest resale described when increase periodic reports filed with the FCC.
We'll also discuss Friday of non-GAAP measures on the call Tonight, and I refer you to todays press release available on our Investor Relations website investors not lendingtree dotcom comparable GAAP measures stuff messaging and full reconciliations of non-GAAP measures to GAAP.
And with that opens the door.
Thank you track and thanks, everyone for joining the call today I'd like to start the conversation by recapping some of our major accomplishments in 2019. So so you have a sense for what I'm excited about and where we're heading then I'll turn it over to J.D. to walk through the fourth quarter financials, and our guidance for the first quarter.
As I look back on 2019 I'm most proud of the fact that we made incredible progress in improving the financial wellness millions of customers through my lendingtree more than half of our users improve their credit scores within six months of sign up those who saw improvement their credit score improved by more than 50 points. We look at my Lendingtree My Lendingtree through two lenses.
First we adding value to the customer second is that adding value for lendingtree and the answer to both as an unequivocal yes.
During the year, we added more than 3.6 million new users to the platform and the revenue contribution from my Lendingtree was more than $80 million and grew more than 30%.
That is particularly impressive when you consider we have just recently begun to integrate insurance and credit card still represents a small piece of that total despite terrific progress towards better alignment throughout 2019.
Midway through the year, we rolled out a complete redesign of our app, enabling us to promote holistic financial wellness to our user base well beyond the scope of a free credit score in savings on existing ones. The new platform is now capable of providing users with guidance around not only their credit profile and existing liabilities, but also positions us to engage with.
The consumer on their financial future by providing visibility into savings and investments as well as monthly cash flows.
Lendingtree has become an increasingly important component of our business throughout the past year and I firmly believe we're just scratching the surface. We've learned a tremendous amount in 2019 and our user base has has grown and it also has driven significant engagement and I'm excited to share more with you all throughout the year as we continue to launch new features.
As we discussed at our Investor Day in December were also executing on a b to B strategy for distribution, we have six life partner integrations and two other partners active actively integrating as we speak.
These partnerships, but my Lendingtree in the hands a more users and the acquisition card cost you asked are largely risk free we expect that this will continue to be important an important channel for us as my Lendingtree continues to scale.
Additionally, we're now putting real investment behind advertising the my Lendingtree offering in 2020.
As I mentioned on our last call. We ran a series of regional tests in Q3 of last year that promoted my Lendingtree as a standalone offering the results of those tests were very positive and informed our strategy heading into this year, while we're just a month and a half into the new year and it would be premature to offer too much information I'm happy to report that the early.
Read outs on the advertising is encouraging in terms of new apps dolls and engaging the existing base.
Moving on from my Lendingtree I'd also like like to highlight the success of our ongoing diversification strategy our foray into the insurance business has clearly been a successful one as we acquired a terrific business at an opportune time.
While the industry is growing nicely as insurers increasingly find value and online channels. The execution of the core Wizard team has been impeccable and the integration of the valued sanguine team was seamless insurance insurance is now our single biggest business. Unfortunately does not carry the same risks in our other businesses related to interest rates and consumer credit.
While insurance was the big headline some of our other acquired businesses performed extremely well in 2019.
After acquiring snap cap in the fall 2017, and taking some time for integration our small business offering grew 74% in 2019.
This is another terrific example of our ability to acquire high quality assets, and then attractive space and leverage our scale in marketing progress prowess to accelerate growth.
While our diversification strategy has added nicely to the company's gross growth prospects and has also provided for a substantially more durable business model, our diversified dirt diversified portfolio of businesses enable us to whether an extremely difficult environment for mortgage in 2018 and in 2019 it enabled us to.
Navigate some real challenges and personal on space in the most recent quarter, we encountered some unforeseen difficulties the often volatile credit card business, which JD will discuss and despite this we still hit our numbers a diversification helps us to deliver and I'm very very pleased with our execution.
In closing I'm incredibly pleased with all the accomplishments in two in 2019 and I've never been more excited about what the future hasn't store as a marketplace business decide designed to serve both consumers and partners. We are increasingly increasingly focused on engaging in the consumer in a way that's beneficial to both of them.
And our partners, we have laid the rails to expand how we engage with the consumer and we'll continue to look for look for ways to drive a more comprehensive relationship.
This will no doubt benefit our partners overtime as well.
There's been no shortage of interesting M&A activity in the fin Tech space over the last few weeks and I am excited as I've ever been in a long time about our unique positioning in this space, our marketing machine and deep lender network across all categories are second to none, but our journey to becoming a legitimate one stop destination for consumer.
Mers is only just beginning and with that I'll hand, it to JV.
Thanks, Doug I couldn't agree more and the progress I'd like to spend a few minutes walking through the fourth quarter financial results and provide some color on our first quarter guidance before we open up the call for QNX.
I will discuss our Q4 results in the context of are newly introduced segment reporting, which I hope you'll find helpful. In understanding the underlying drivers of performance as a reminder, we introduced this segment framework at our Investor Day in December and provided a restatement of historical results under the new framework via an 8-K.
Filing last week.
Our goal is to give investors more transparency into segment level profitability into isolate discretionary brand spend and its impact on the overall results. The definitions of these new measures and the products encompassed by each segment. Our quick clearly outlined in this mornings press release and you can reach out to trends after the call with.
Any specific questions.
Let me first start with our insurance segment, which continued its run of impressive results delivering revenue in the quarter of $70.9 million up 127% over the prior period or 37% on a pro forma basis.
The profitability of the insurance segment remains strong with segment profit of 28 million were 39% of revenue.
Many of the new initiatives, we put in place through 20 throughout 2019 are beginning to materialize in the insurance business is off to a terrific start as we enter 2020.
Second the home segment posted revenue of 65.5 million in the quarter up 3% compared to the prior year.
Within home revenue from our traditional mortgage products purchase and refi continued to accelerate growing 16% year over year. After just returning to positive year on year growth in the third quarter. As a reminder, the home segment includes purchase and refinance mortgage home equity and reverse mortgage the latter two were down significantly.
From Q4, 18, and that's really a reflection of the market environment.
More importantly, the profitability of the home segment has readout is incredibly well with segment profit of 26.9 million, representing 41% margin in year on year growth of 25%.
Well, we've certainly seen some favorability in the macro environment for mortgage the team has executed incredibly well on a number fronts to drive this returning to growth proof profitability.
We spent much of the year discussing our efforts to better segment traffic at the top of the funnel and use those learnings to improve our matching algorithms and optimized pricing. Those efforts have clear we began to pay off and we're encouraged to see continued signs of strength in the mortgage business as we start the new year.
And finally in the consumer segment revenue of 113.4 million grew 15% year on year, while segment profit of 43.3 million declined 9% year over year.
Let's put this drop in segment profitability in context, the challenges in the personal loan space, we're well documented last year and we covered this extensively at our Investor day.
They did persist in the fourth quarter as revenue growth slowed to 5% year on year.
As we've discussed at length personal loans are both incredibly strategic in a very profitable business for us.
Loan growth in that business has a material impact on overall profitability.
On the positive side as we progressed through Q1, we've begun to see some encouraging signs of a turn in that business and we're optimistic that the worst is behind us clearly improvement in that key business will be hugely beneficial beneficial to our full year picture.
The aspect of consumer that we've not discussed in as much detail is the credit card business strategically we were very happy with the topline growth in card in 2019.
As the team posted better than 27% growth in revenue.
But as we scaled to take market share with key issuers the profitability in the credit card business lag the top line performance.
We acknowledge this at Investor day.
And we said that accepting lower card lower margin in card was a strategic decision to take market share with key issuers.
We've often spoken to the potential volatility in the card business and the fact that investors can and will pardon me issuers can and will flex budgets budgets. Many times irrespective of the performance we deliver for them.
That volatility was on display in Q4 as a couple of issuers pullback budget materially towards the end of the quarter.
In addition, we ran some challenges with certain marketing partners in the quarter, which caused our unit costs increase materially in the short run.
Some of those cost challenges have extended into the early part of Q1.
We think we have a handle on these issues on the cost side, but they did impact the business in the first half of the quarter. So this weakness is reflected in our first quarter guidance, which I'll discuss in a moment.
On a much brighter note within consumer our small business offering continues to scale nicely with revenue growth of 61% year on year.
We've highlighted we've highlighted the small business vertical often throughout 2019 and continue to be an incredibly enthusiastic about our prospects in that business.
It is clearly an underserved category for small business borrowers and there's a visible opportunity for us to expand the number and types of lenders we work with.
Very briefly on the other category, which consists of non core revenue streams, primarily the reselling of ads to third parties. We recorded revenue of 5.4 million and a loss of $100000 for context, a year ago. This revenue number was 9.9 million.
Given some of the marketing mix decisions, we're making this year, we anticipate that this revenue will largely go way moving forward.
Summing everything up consolidated revenue of 255.2 million was up 26% versus the prior year.
Layering in brand expense of 4.2 million in the quarter.
To the some of the segment profits variable marketing margin of 93.8 million was up 19% over last year and finally in terms of adjusted EBITDA, We delivered 45.9 million growth of 17% over the same period last year and well within our guidance range provided in October.
On a GAAP basis net income from continuing operations came in at 1.5 million or 10 cents per diluted share. Our GAAP results were were in part affected by $7.2 million charge to write up in fair value the contingent consideration related to the quote Wizard are now.
On a non-GAAP basis, adjusted net income per share was one dollar.
Now moving on to guide.
The trends, we're seeing as we start out the year are encouraging and give us confidence to maintain the full year 2020 outlook. We provided just a couple of months ago at our Investor day.
As a reminder, that outlook calls for approximately 15% growth on both revenue and adjusted EBITDA and for the first time in the last several years does not include the benefit of acquisitions.
Looking more specifically at our first quarter guidance introduced this morning, our overall outlook is inline.
With our internal plan for the year.
Our full year plan contemplated muted EBITDA growth in Q1, given both the Q4 trend in card and the typical step up in Opex that we always experienced in Q1.
We are confident that we've taken the right steps to address the marketing issues in part and do not expect them to persist throughout the remainder of the.
On the positive side, both our insurance and mortgage businesses are trending ahead of the growth the growth trajectories, we provided with our initial 2020 guide at Investor Day outperformance in these two businesses will be far more relevant to our overall 2020 financial performance and we're also hopeful about an improvement in personal loans.
For the first quarter, we expect revenue to fall in the range of $296 million to $306 million, which at the midpoint represents growth of 15% over the first quarter of last year.
Variable marketing margin is expected to be in the range of 97 to 104 million, representing 9% growth at the midpoint and adjusted EBITDA is expected in the range of 43 to 46 million representing growth of 3% at the midpoint.
Before we open the line for questions I'd Echo Doug's prior point about the importance of diversification.
We are bound field volatility in any given business from time to time, but the diversification that we've put in place enables us to whether those flips time and again.
While our marketplace continues to improve what is most exciting it lendingtree is the opportunity to capitalize on our unique ability to engage the consumer across all of their financial needs. We are making big progress there and very excited about where we're headed.
And with that operator, we can open the line for questions.
Ladies and gentlemen, if you have a question at this time. Please press the star and the number one key on your Touchtone telephone. If your question has made answered all you wish to remove yourself from the Q. Please press the pound Keith.
Your first question is from yourself squeal with Suntrust Robinson Humphrey.
Okay, great. Thank you very much that she said Scully hey, guys.
Just a couple of questions here I was wondering JD. If you can go back and just go over the two issues related to the profitability credit card I'm not sure I fully understood that in and what exactly are you doing to remedy that and then maybe Doug there was an announcement of the pretty large transaction yesterday.
I was wondering how is that that is likely at least in your mind likely to change the competitive landscape in particular around verticals like credit cards, and whether youre a customer acquisition cost assumptions basically had already taken into account the potential increase.
And competitiveness in that sector. Thank you.
Sure use of let me start with the first one in the card business you have to think about both sides you have to think about the payout environment from issuers and how does Irish they are growing certain card portfolios and we've talked historically about rewards and balance transfers.
But that wasn't really the issue in 2019 the issue in the fourth quarter was essentially issuers reining in their budgets lead in the quarter.
That's the topline side of it on the cost side.
We've got to drive high quality traffic that when it gets to issuers converts and you have good approval ratings.
We had a couple mark marketing partners that simply were not performing for us and we've re cut some of those deals to improve the economics and better reflect the quality traffic that they were driving.
In certain in certain cases, we've cut off those marketing partners and we won't be utilizing.
That those traffic sources any longer so effectively we are constantly trying to optimize the marketing mix to make sure that we're driving traffic that converts for our issuer partners.
Again throughout 2019 into Big picture, we took market share and hard we're confident there we drove revenue growth of 27% we're confident there.
We did make some conscious decisions to operate at lower margins in card throughout the year because that was the right thing for the strategy of the business to game to gain presence with issuers late in the quarter. Some of those cost challenges and actually as I said it carried in through January and those cost challenges.
Became things that we had to address and so we feel very confident we addressed the cost side of the equation.
Issuer behavior. It continues to be very much a month month business and so that's the piece that we have to that we.
That we had to work with issuers on on payouts and approval rates, otherwise, but we feel very confident we've addressed the cost side.
And then this is Doug on the strategy side to answer your specific question on customer acquisition costs.
I don't anticipate anything different there and the reason is lendingtree has so many things that we can market.
Those two credit Karma for building a member base around free credit score.
Lendingtree by having all of our products plus the my Lendingtree out plus having all the brands plus having our great FCO strategy helps us to not just drive app low down app downloads, but also helps us drive first time customers and we think Thats a.
Competitive advantage.
We're continuing to add new features throughout this year and our engagement numbers are actually very very ambitious and to the extent make to the extent of makes sense.
I'm really opened in the future we're going to be talking to you guys about weekly and daily engagement of customers and again to the extent it makes sense in some ways.
For loan products, you actually don't need to engage a lot but for other types of products that we're thinking about.
More frequent engage engagement might actually makes sense as well too, but now we feel great about our strategic positioning.
None of this was a surprise to us and it's a go forward for us and we feel great.
Great. Thank you but.
Your next question is from Eric Wasserstrom with CBS.
Thank you.
Are you.
Couple of questions. Please the first Doug you mentioned the BTB partnerships can you just go back to do that for a moment and help us understand whats occurring there.
Sure.
Essentially what you do as you work with people like Fidelity, HR block et cetera to bring.
Alerts effectively to my Lendingtree alerts for other financial products to their user bases and we think just like Google at a syndication strategy, we think thats, a an interval part to doing that and we've got a lot of plans for that this year.
Okay and.
Maybe just.
Moving to the to the personal loan.
The environment it sounds like.
JT there's some.
Expectation of.
Maybe some improvement there and I just want to understand what what end market dynamics are.
Our changing to that that cause you to fill that way.
Yes, sure. So as we talked about Investor day, you're talking about a marketplace that was growing.
30% in 2018, I think Transunion data suggested it grew 9% last year, so that sort of marketplace deceleration is going to ripple through our business now sure. When we look out on the here, we look at lender, what we call lender wins.
Where we feel really good about our progress in terms of adding unique lender capacity.
And then how that will.
How that will project through the year. So we're obviously monitoring performance we are.
We are encouraged when we look at particularly January and February data on.
The stability of the business.
And how our lenders are performing.
And so thats when I say that we're encouraged we know that our lenders are are seeing good profitability again, that's encouraging that's a good read through or leading indicator for our business.
As we've talked about in many of our marketplaces, we really focus on lender health and lender health leads to stability and durability in each of our market places and so I think we feel on balance better about lender health in personal loans.
I would also say that.
Just purely for us.
Our comparison will get a little bit easier going forward realized that when we're talking about fourth quarter.
We're comparing to fourth quarter of 18, when our growth and margin and personal loans was it was difficult comparison, those comparisons will get a little bit easier as we go through.
Only the thing I'd add on to what Judy said in personal loans were making a lot of product progress as well and it really goes to how we integrate and and work with our lending partners and it's important but it helps drive conversion rates, but it's also at least for me a really important indicator that these lenders are seeing this the as a significant enough channel that.
Really increasingly working on integration with us.
But in terms of this is one of my last question I'll hop off but just in terms of the secular margin because you guys have.
Been very transparent about it it's a very margin rich product for you should we think about there being any any change outside of some of these cyclical dynamics in terms of the secular margin contribution from the product.
A little bit Theres, a little bit of a normalization I would call it Eric but fundamentally that business is a good margin business for us we're very transformative the reason why rate we're benefiting from.
Repeat users and we're benefiting from my Lendingtree. So that is a structural advantage that we have in that business.
I think that our margins in 2018 were probably.
Hi, or than they will be going forward in that business, but we're happy to grow that business at the margins that were having today.
So thats the way that I would think about it it's still a very healthy margin that we'll continue to be able to market and we just want to grow the business and grow the lender.
And the only thing I'd add there is keep is keep in mind that you've got personal loans getting a lot of so called draft traffic for my Lendingtree.
And then in addition to that we're marketing personal loans. However.
The mix of that is obviously more weighted towards a second transaction at Lendingtree.
But increasingly as monetization improves and we can go market that product even more.
Got it got it so in other words I guess it maybe just quickly to summarize it sounds like while there may be some like.
Our end market pressure, that's being partially mitigated through some of these strategic actions that you've taken that.
A fair summary.
Yes, I believe so.
Well I thought our first thing, though [laughter].
Hardly but thanks very much.
Your next question is some Jed Kelly with Oppenheimer.
Hey, Gerry.
Hey, Thanks, Thanks for taking my question.
First one just on the margins.
Guidance does imply that that margins start to expand year over year.
Can you talk about the drivers of that is that more of an impact from my lendingtree of the overall environment, improving and then is there anyway to quantify the impact these marketing partnerships add on.
One key went for Q EBITDA.
Sure.
Let me take the second question first.
And I think specifically, what you're referring to is in card.
And the card business. It. So let me give you a range of that impact because some of this is a real time decision that we're making intra quarter as to.
Yes.
Well, we were constantly going after Dol BMD right, and we're making real time trade offs, but the impact had the card business hit its targets in the quarter you would have been looking at an incremental call it $5 million to $8 million BMD.
Okay. So you can factor you could think about that relative to our quarter.
In terms of that impact.
Now some of that obviously, we would have accepted for gains with certain issuers.
And some of it we obviously, we have standards, where we want to operate certain businesses, but had they hit their targets.
Our business it targets that pretty much the impact $5 million.
As it relates to.
Margins go forward throughout the year clear, we as you know well we have certain businesses that will contribute meaningfully in Q3 that will impact margin that will be the most impactful thing.
And.
What we're tracking closely is the health in art in mortgage obviously, we're very happy with that insurance, where we're happy with that margin profile.
You know as we said we think personal loans is stabilizing and then basically.
Getting back to a standard within card.
Reasonable margin, which we think we should be able to do through.
Improved marketing.
Cost side.
Youre going to see that normalization and in the margin profile and the improvement quarter over quarter.
So just a follow up.
I guess, there's nothing that's changed structurally did cards going forward on customer acquisition. This is mostly you think.
Time in nature.
Yes.
Within our control on the cost side for sure yes.
All right and then just one more for me.
The home VM and margins were strong this quarter.
It's 40% the right way to look at it into 2020, just given that the environment improved.
It's interesting.
The mortgage business is the one that we've we've encouraged you all to think about the quarter on quarter progress right. Because it really is the business is influenced by the capacity of our.
Of our lenders and the organic volume that they have and so we're obviously in a very low rate environment.
That has its pluses and minuses, it's a good macro environment for us at the same time, a lot of our of our lenders are going to be getting an awful lot of organic volumes. So that doesn't necessarily always help us our margin improvement here is really driven by improved monetization as we said at the top of the funnel were segmenting the traffic ever.
More intelligently and we're giving lenders. This the thing that I'm really excited about we're giving lenders different products different different solutions that meet their needs as opposed to being one lendingtree mortgage solution. So that's where you're seeing that profitability improvement. So we're in a scenario where the lenders are benefiting because they're getting what they want and were benefit.
Adding because were segmenting the traffic that's it that is a repeatable margin improvement, it's not a zero sum game, where were making margin at the expense of lenders. So I feel very good about the health of that.
And then there's just the sequential how this plays out relative to rates and how much volume they have organically.
That's the part that's harder to call obviously, we're an extreme low rate environment right now.
On balance is helping us we're just we're we're very focused on driving.
Incremental quarterly improvement in the mortgage business and we're doing it through product innovation and that's what we're really happy with.
Anything I'd add is over the years of our business you will see variable marketing margin percentages go sometimes go up and sometimes go down based on the.
Based on the dynamics of that into individual market. However, if you look at variable margin dollars that that is showing the call. It the marketing profitability contribution margin before fixed costs and that number is what we focus on every day every month every week.
Thank you.
Your next question is from John Campbell with Stephens, Inc.
Hey, guys good morning.
Okay.
2020 guidance you looked at in Tech I, just want to check on the inputs JD. It sounds like you've kind of tempered your expectations a bit for credit card, but mortgages incrementally better maybe I can I guess somewhat as offset is that a fair.
Characterization.
Yes, I think the guide the guidance sort of the guide in part contemplated some of the difficulty in card in the fourth quarter.
Well the mortgage is definitively better insurance, we talked about at Investor day, we talked about implied growth rate there that is better.
So some of our bigger businesses are definitely trending better and we feel really good about that as we've said as it relates to guidance.
We.
We're going to amend guidance when we see a material change right. The good news and what I would be focused on if you're thinking about how are your progress is is that those businesses are seeing better trend than they were.
When we spoke at Investor day, So we feel really good about that.
Okay, and then on the other Rev. It sounds like you're not going to really see much of that this year.
Was that a decision that was made earlier this year was that reflect.
Originally in your guidance when you should it back in December.
Yes, I recognize that other category yeah, we knew that that that line item was going to be pretty much going away, it's not as clean as going away December 31, so that other category.
Was never really strategic it was a marketing decision that we.
That we would we would take on certain.
Marketing inventory, if we could utilize it ourselves great. If not we were reselling it and we were trying to be overly transparent in giving you visibility.
Into that line item and now it but at the end of the day, what we're focused on as a marketing mix that drives our core business and if that's not if that is not working for our core business than we're not going to take on that that revenue and in turn resell. It so thats why its going away.
Last one from me on the credit card challenges and I guess some of the broader profit pressure in consumer how much of that do you think is driven by the seasonal accounting changes is there an impact to the pricing.
Just overall in the channel as I don't have the if the ROI just kind of declines a bet for for the larger issuers I don't know how much of an impact that hasn't pricing are you seeing anything there.
No I think.
Its credit card and Q4 as always interesting and card is keep in mind with cards and all of our businesses.
A card issuer may switch from one type of hard to another and that card has a lower conversion rate with customers.
And you're also going up against Q4 noise et cetera. So we continue to think our credit card penetration is going very very well continue to clean up and make changes of user experience and.
And I Wouldnt read anything into much of anything over the long term JD.
Couldn't everywhere.
Okay, great. Thanks, Kai I don't think it's not part of its day.
Thank you.
Your next question is from Mark Mahaney with RBC capital markets.
And mark Okay. Thanks.
Thanks two questions. Please this.
Your my Lendingtree net adds that roughly 1.1 million ads in the quarter I think that was a record high or is close to it any color on the sources of those on net ads and the the acting similar to the my Lendingtree new customers that you brought on in the past. That's question. One the second one is you talked about.
Trying to take market share with key issuers in the credit card segment in Q4 do you feel like you were able to accomplish that.
Just yet I know that the strategy is become maybe more expensive or less efficient than you thought but did the goal of gaining greater market share with key issuers actually did that actually occur. Thank you.
Got it I'll take the first one and leave the second one for JD. If he can answer it I believe the 1.1 was a record and if it's not we will tell you.
For the most part they were still coming in through the Lendingtree.
Qualification forms and then we're introducing you to my Lendingtree. So I would actually read that that number is very good which is showing we got higher conversion rates. Despite the fact that the the core business of Lendingtree typically doesn't drive a lot of as much volume in Q4, and I would say the newer cohorts.
In general when you get apples to apples are actually performing better than older cohorts and that's because the product continues to improve the monetization continues to improve.
And that should just continue to get better and that's how we're able to market in in Q1 against against actual App downloads.
Mark as it relates to your second question on card market share wins, we look at market share obviously throughout the year not any given quarter.
Because thats right progress from a sales perspective.
And if we're getting issuers, who increasingly trust us to be partner with which they test new products or.
Yes.
Better payouts, because the value the quality of our traffic right. So if I look at that you would look at our revenue gains throughout 2018, 1927 plus percent revenue in the card business and say that thats reflective of gaining market share.
As we grow with issuers keep in mind that when we acquired compare cards in 2000 late 2016, and we've been very open but this.
Greater than 60% of the business was with one issuer. Okay. So this is an ongoing diversify our issuer base initiative.
Let me strategy and so on that for 2019 was a very good year. The fourth quarter is always a little bit challenging in all our businesses because somebody can can cut their budget or pull back their spend.
Materially on short notice and so I don't look at the fourth quarter is being.
Reflective of anything other than that volatility and today, we have delivered full year and what gains we made on in terms of market share with issuers, we're very happy with that.
Okay. Thanks, Judy Thanks, Doug.
Your next question is from Mayank Tandon with Needham and company.
Okay.
Hey, good morning sexually calculation on from Mayank.
Thanks for taking the questions.
Just wanted to dive into the insurance segment.
So the results there have been very strong.
That's still mostly coming from auto or are some of the smaller verticals.
Life and health kind of contributing there too just want to kind of get the puts and takes so whats the strength is there right now.
Sure. So the smaller verticals are doing great, but auto continues to be the horse. So the overall percentage has not changed in it and auto.
Just because the auto strength remains remains.
Very healthy.
So there is no material change there we're happy with the performance in the other verticals.
And we have we have plans for those other verticals that are very ambitious but no the course still.
Okay. That's that's helpful. And then just wanted to see if you guys could touch and a little on M&A.
I was kind of talked about some additional points of interest.
Not at.
Your Investor day, various such as auto our wealth investing.
It's kind of see want to see what like what the pipeline is kind of what you guys are thinking about prioritizing.
That perspective, and as we head into 2020.
Sure, Yes, absolutely I'll take it in Doug can add.
We continue to.
The M&A as a huge opportunity for us.
We spend a lot of time in 2019.
Looking at.
Add a few categories clearly because of our prominence in insurance, we looked at a lot of assets there.
And we will continue to look at that business, but we're very happy with the corpus.
[music].
We spent a lot of them on their real estate.
Thinking that there should be some adjacent the.
To our purchase mortgage business and decided not to do anything there.
We continue to look but I don't see that it's huge focus area going forward.
We mentioned small business small business, we like as a category very much we're thrilled with the formal staff cap. We wouldn't can we would look to continue to add to that business.
Partially because we think it's a category, where we're adding a lot of value for small business borrower, but we think is under served we also noted that small business borrower is a repeat customer. We also know that there is the ability to do more than just loans for small business.
All business credit cards small business insurance overtime. So that is an area that we're interested in and lastly, we talked about wealth and investing and I think this is of particular strategic significance.
As as Doug said at the outset, when we think about my Lendingtree and we think about engagement that we want to drive.
We think about.
Aging the consumer on more than just credit products.
So over time wealth and investing will be critical to that so we continue to look at at.
At assets in that space.
And how we could potentially drive.
It's everything from how do we engaged with the consumer within my Lendingtree to also marketplaces for financial advisors that is a critically important area for us in something that we'll look to look to grow as Doug said.
Our goals for my Lendingtree in terms of engagement are actually more ambitious that credit products and you have to have the asset side of the balance sheet.
So that's that is one key area when we think about M&A.
Yes.
Alright, great. That's helpful color. Thanks, guys.
The only thing I'd add onto that is M&A has worked well for us because we've got a big user base and a brand name and Lendingtree.
That is already very well known and so we can bring these other companies in and by virtue of having the entire platform and all the products being able to surround the customer.
That just gives you a much better marketing edge and better product or consumer so as we look to help consumers make smart decisions health and save money help them get on the path to financial wellness you can imagine all of the areas that we would want to be and then it's a question of whether you build them or whether you do some partnerships or whether you're.
Actually take the leap and do M&A and I would say weve.
We've got a great track record on the latter too.
Okay, Alright, that's helpful color. Thanks, guys.
Thank you.
Your next question is from James Friedman with Susquehanna.
Jamie Hi, Hi, its thanks, Thanks for taking my question I'll just ask the two upfront G.D. in your prepared remarks.
You had referenced the talented speaker you had at the analyst day from Transunion. The quote that she had was steady gone the end market for personal lines have decelerated from 30% growth to 9% growth in terms of your comments about the Q1 I thought she had said that the banks were.
Causing the credit box are you seeing any improvement there is is that it and then I'll just get the second one and quick.
Doug in one of your previously answers you had said that the latest cohorts in my Lendingtree.
Our better monetize them.
Much in the language with some of that effect.
Why is that happening could you kind of elaborate on that so the first one on personal lines of next on.
The cohorts and MLT. Thank you.
Jamie I was more commenting.
[music].
On the performance of lenders on our network in terms of conversion rate.
Cost per funded loan et cetera, So that's where we're seeing I think improvement.
For them. So it's less about credit box more about kind of how they're performing from a customer acquisition perspective.
And that's that's what's encouraging right now we have not seen a discernible change with respect to the credit box decision divide whether its banks or or.
The.
The more non traditional lenders, we haven't seen a discernible change since since December.
And then on the second question I would say number one our.
The so called brain. If you will lendingtree continues to get smarter of how we can alert customers to actually save money.
Or improve their credit and then save money through refinancing other loans et cetera, and then the other thing I would say is that as we continue to diversify products, we continue to integrate them with.
Within Lendingtree.
All of those products drive more marketing opportunities to save the customer money in contact them via all the methods of contact.
To actually close more transactions.
Perfect. Thanks, guys.
Thanks Jay.
Your next question is from Stephen Feldman with William Blair.
Thanks, Good morning wanted to ask about the credit Karma acquisition again, and you've talked about some but it seems like there they'll they'll be trying to focus on at least some of the same consumer decisions that.
My Lendingtree has help consumers with but just wanted to ask from a a consumer's perspective, how you think about the value proposition of Mylendingtree versus.
Others that may be attempting to provide similar platforms that help with similar types of decisions.
Okay.
Sure. So one thing I would say at the at the outset, you see a lot of crossover in these apps.
So for over half of people, who have a my lendingtree download also have credit Karma and I guess, it's probably not half the other way clearly, but it's a different it's a different product.
It's not mostly focused on credit score as a great way to drive people in which is obviously is a great way to drive people in this JD talked about we're really trying to focus on overall financial health and wellness.
And then you also in our minds, we always focus on dollars not necessary not not necessarily numbers just like the good old days of the Internet where traffic.
Sort of mattered.
To some people we really just focus on how can we profitably continue to go and drive this business.
The consumers love our product to have it.
Saving them lots of money, it's improving their lives and as we just content as we continue to add products, which will improve monetization, what's simply enable us to do more marketing.
We feel honestly, great about our progress and great about where we're going.
Got it that's helpful.
Steve I guess I would just say if you go to the my Lendingtree Avenue.
Profile, you're going to see something that's a little bit somewhat differentiated it's going to say ways to improve ways to improve your financial will your financial well being your holistic approach right. So we're focused on getting our consumers to plan with us on their financial goals.
And you've heard us say for several years, we give them credit Karma all the credit in the world in terms of using a free credit score to drive a membership base.
But we think go forward it needs to be about way more than that and so that's what we've been working on and and and we think we're making great progress.
Got it.
And then within insurance, you talked about auto still being a predominant growth driver, but a bit on the smaller components like.
Home and how much of a focus will it be to scale more and those areas over the next few years and how are you thinking about I guess and investing into those other components.
Yes, we're making investments specifically within.
Within health at the moment organically.
So we're investing in that actually real time.
Building out.
The health.
This is the nice thing about how we can help catalyzed and acquired business right. We can give them the resources to make those investments.
They might not otherwise make when there is money to be made in auto.
And so health specifically, we made an investment in the fourth quarter.
That will continue to back throughout 2020.
And home will continue to try to find ways, where quote wizard will benefit from graph traffic from mortgage that will be the primary quote unquote investment of resources.
The you'll see throughout 2020 that won't really be discernible.
But we think that there's opportunity there over time, but health is the first real true investment.
That were made.
Great. Thank you.
Thank you.
Your next question from Kunal Madhukar with Deutsche Bank.
Hi, Thanks for taking the quick enough I mean.
Hi.
Thank you.
One on there might be side and one on the on this one.
What's the loan side on the my Lendingtree you talked about like how you have six active partners. So six active integrations of the partners in two of them are testing and yet most of the traffic on most of the App download is coming through the my Lendingtree website. So how do you measure the contribution from the partners.
As an app downloads or the revenue contribution how do we kind of look good.
And then on the push them to ones one business side, you have a number of lenders out there.
Like the Lendingclub essentially just mark.
Bank.
Other partners, who operating on active on your side.
Looking at bank charters and what have you so.
What are you going to CODI upside.
Seed that this capital in the future.
And ability to charge.
Interest rates.
And how much they can actually spend on marketing.
On the platform.
Sure.
So on the on the partnership front keep in mind, we did our first partnership in 2020 with HR block. So we've made tremendous progress and the number of those.
And from a revenue standpoint, those are all on revenue share. So obviously, no marketing risk and the reason that most of our traffic comes from Lendingtree is because we're driving people in for mortgages home equity auto personal loans and credit cards, and then introducing them to our to our app that they can then.
They can then downloads. So let me just taken I'll, let me put a finer point on HR block.
HR block actually that partnership started in 2018.
And they were looking for a way to engage with they're going to numerous launch in 2001 and other points in the year.
Right other than tax time.
But.
The sign ups that we have had thus far in 2020 via that partnership have been extraordinary and in fact, thus far in 2020.
It's actually our number one source of downloads for my Lendingtree now that is.
Exceptional we've got a partner that very happy.
Because we're giving them what they want right and and we're still actually hitting revenue events from.
People, who signed up in 2018, which is the cohort behavior that we are.
Now more importantly, as it relates to my Lendingtree, what Weve built is when we talk about these partnerships I wouldn't focus on six what I would focus on is our strategy, which is we built it so that the eyes are easily ingestible by our partners and they can take what they want from it and build business on the back of it so you're going to see partners.
Big brand names like HR block, and then you're going to see smaller partners who.
Who are going to utilize my lendingtree as well and so that's the strategy and that's what we've been building in the background is something where we can really engage with partners.
That's what's been going on for the last 18 months at Lendingtree right is youre not just it's not just the what's the consumer sees as the App. It's the ability to integrate with partners easily. So what took time to integrate with HR block in 2018, the timeline from agreement to.
To the partner being up and running has shortened significantly and so I think what you're going to see as 2020 progress is it simply more partners.
And greater growth through those partnerships, because we're going to be able to onboard them much more quickly.
Great.
You know coming coming from that thanks. Thanks.
Doug.
The.
As you think off Lake.
We are declining crude karma.
And.
Potentially building, maybe a similar kind of a comprehensive financial suite of.
Products quote for consumers.
How do you think the competitive landscape.
Is going to change for you.
So.
This is interesting overt giving you a short terminal long term answer I think over 25 years.
We've seen Microsoft come in in the mortgage and real estate.
Google is tried twice into it this is there a third or fourth shots, depending on how you account meant.
And we just keep chugging, along and I think.
It was going to be competitors, but but this is a big space.
And when you think of all the financial products that are surging through.
Consumers and your ability to.
Add value to them, we think that we will have a product that is every bit as competitive that is more it is as or more compelling to consumers.
That monetize as well and that we can work with partners and we can drive it ourselves.
And.
And I feel great about our positioning.
Okay. Thanks.
If anything it makes me more confident to see that.
Did that some of the big boys or are ready to play ball again and.
And which I think is going to get.
Theres a lot of activity in this space and a lot of focus and that means that lenders are going to start getting more automated it means marketing partners will understand this more and lendingtree is his position.
Everywhere across the board.
Thanks, Doug and one last one of the second question if I had initially.
It was.
As more and more of your or does it some of your financial partners.
She that are becoming banks or trying to get bank charters, how does that change that risk appetite and speed of agility and did ability to spend on the platform.
I think it will help at the margin.
Just because it will clean up for them for lenders.
Some reporting and regulatory issues, it's not.
It's not a game changer, and we but we think as I talked about for example, with personal loans that just improving the user experience and conversion rates.
But that will that will has way more juice, if you will and people have bank charters, but the bank charters certainly do help their business, yes, I mean, no I guess, one way to look at it I don't it's an interesting it's an interesting to see isolated decisions to go down that path and clearly there are benefits associates are there.
Down there are cost in their benefits associated with that decision why somebody doing it they're doing it have greater stability and knowledge of what their costs capital is.
And so if that's more stable and for them. They can make more consistent marketing decisions with respect to acquiring customers and so in some respects it could actually make them a better partner for us.
But I don't think thats going to play out overnight now and as I said I don't think it's going be a major game changer.
But it's certainly a health.
Great. Thank you.
Your next question is from Chris Gamaitoni with Compass point.
Hi, good morning.
Just one follow up on partnership.
Revenue given given it to revenue split how does the accounting work is that contra revenue item or is or is that.
Split nvme.
<unk> expense.
Off the top of my head I believe you booked a revenue and then you book It is a marketing cost of probably tracks.
Pretty closely to.
Probably a little lower than normal VMM percentages, but also keep in mind.
Great thing about that is when you're marketing.
A lifetime value product like a my lendingtree in your marketing that alone that's going to have that's going to take a while till that first cohort makes money when you're doing on a rev share your obviously, making money from day, one as well.
Right. So just to be clear the revenue share is whenever product is purchased and there's an actual item you there's no.
Initial customer acquisition cost for the down mode or the customer no whenever whenever we make money, we give them a percentage alright perfect. Thank you so much.
Sure. Thank you.
Your next question is from the line of Hamid course side with the BW as financial.
Good morning, So just first off just wanted to ask just to changes in the traffic with your partners. This Q1 for credit cards does that have any impact from seasonality lift that you see in the segment.
[music].
The.
I'm just trying to dissect the question I apologize with respect to carts seasonality, yes, correct, Greg Q1's, usually very strong quarter for credit cards.
Yes, so right now we've got to listen if we're if we're not happy with the performance of and given channel, we simply invest in another channel and replace that traffic.
And so as we look at as I mentioned some of that weakness persisted in January.
And we've taken action to correct and we replace those traffic sources with other alternative.
So it's really a marketing mix issue.
So.
The.
No I don't think it's going to really play out other than we're going to fixed cost side the equation.
For heart.
And then is it purely the advertising spend that you're doing for my lendingtree that caused the subscriber numbers too.
Increased from the analyst day to what you ended the.
The year end number with that trend going to continue in Q1.
No. The if you believe JD references that we did some testing in Q3, then we're doing actual spending in Q1, So Q4 was.
It was us doing good work I think it.
So we think about it right we re relaunched the product middle of the year I think we're benefiting from a better products as well.
Okay. Thank you.
Let me ask questions.
Thank you haven't.
Your next question is from Rothweiler Heck with autonomous research.
Hi, how.
How are you.
Good how are you good you talked about the macro environment and mortgage a bit and we obviously see the rate piece, but just wanted to see where we stand today and what you're seeing in terms of lender capacity in the eligible rifai population.
Anecdotally.
And then JV can get more specific I'm hearing just leave just channel checks and things that we're talking about hearing very good things and that our biggest lenders.
Our in particular, and obviously, our smallest are asking for more volume and I think.
While capacity is constrained.
My gut is telling me that every time, we hit these things capacity gets a little bit better and I think thats happening through automation.
JD as any specific numbers on that but it just seems like.
Our lenders in.
In re Fi boom lets can handle more than they could have let's say in the past and then in the and when that goes away that there is that they can but they are even hungrier.
You know not surprisingly the focus the lender focus entirely on read by I don't have a current number for you in terms of those who would benefit from a refinance we can certainly get that but that's going to be a lagging lagging number given the movement in rates.
But no lender helped fuel cells, so very very good in mortgage for sure and yes, there will be increases in lend a bit we call that sort of lend ability and if you're getting somehow home price appreciation.
Obviously reduction in rates.
And and through my Lendingtree improvements in your credit score that definitely improve the lend ability.
Great and then just quick on the marketing partners and credit card that were underperforming.
Any similarities between the partners there was that related to any specific channel or was it broadbased.
Sure, it's mostly in display in some of the partnerships we've had there so.
That's not working we're not going to continue to support it so thats where weve.
I made some.
Very conscious decision.
Great. Thank you.
Thank you.
Your next question from Melissa Wedel with JP Morgan.
Good morning, guys say Orient thanks for taking good thanks for taking my question.
As we look at the new categories, where you provided a little bit more transparency and thank you for that is there anything that you think we should be keeping in mind in terms of seasonality at the category level.
Out there in terms of revenue growth.
You know the biggest thing when we look at when I look at like People's quarterly progression. Despite all of our efforts for communication people.
Continue to underestimate the impact of student in the third quarter.
So that is the most obvious one.
When you look at our third quarter and we we always get the question of feeling late fourth quarter is kind of falling off a cliff relative to the third and that's really just.
Predominantly it's also the strongest quarter for a number of other businesses.
That's the most obvious in the new segments.
I think most of it will be somewhat muted that student continues to live in consulting in that consumer area.
Oh really see a ton otherwise in terms specific businesses with great great seasonality.
The one that really impacted the quarter.
Okay, and then I guess a follow up on that within students do you see that most of the revenue from that category is driven by in school origination are you also participating in the Rifai.
Yes, we certainly participate in both.
Our the in school was the third quarter impact.
We we acquired student loan hero in 2018.
In an effort to round out our our business to have more rifai presence throughout year. It. It has increased our present, obviously with our with our lender partners.
But but no. It so we're in both aspects for sure.
Okay and then my final question would be around share repurchase that's something you guys have done pretty opportunistically in the past and I guess I'm I'm trying to understand how you guys think about.
Your willingness to repurchase shares offset by any.
M&A transactions you may be contemplating, but then also I'm wondering if your assessment of the value.
Added through share repurchases impacted at all by the transaction levels that we've seen recently.
Eric.
Sure. So I guess, it's a comp it's it's a good question.
We we obviously have a view on our stock is.
But our decisions around share repurchase or not solely influenced by that because we're cognizant of.
Of what we want to do on the M&A front now if you look back we've we're a company that has acquired.
We acquired nine businesses 2016, most of those have been smaller acquisitions.
And we can really move the needle with some of the smaller acquisitions, a snap cap being the most prominent example of that.
But obviously as we become bigger.
Those acquisitions will become larger and we'll be very conscious of having a balance.
We did expand our revolver in the fourth quarter.
And that was.
Probably the greatest acknowledgement of of.
The.
What probably some of our goals are with respect to M&A and recognizing that that's a strategic decision and make sure. We have access to capital, we're generating cash and paying down the revolver. The revolver has served us very well it enabled us to do well the revolver combined with the capital that we raised convert 2017 enable.
With us to do the quote was or transaction.
And in the value pain, England transaction, and and we're now at point, where we've paid down.
That's the majority of that revolver. So the revolver has served us very very very well.
But as we go forward is bigger MC obviously larger acquisitions will be part of it and that will influence the way that we think about repurchasing stock we have been opportunistic we bought or stock back very well, we have a volatile stock and it served us it served as well. So we'll continue with the same strategy, we have our internal and.
View on value.
That's not the only way that we think about it we have to think about what what our alternatives are.
And what our alternatives might become now part of your question is also.
Transactions away from us and and I think the size of those acquisitions, we have to be mindful of that but we're going to look at those opportunities in isolation not just you know the markets paying this and so we've got to.
Not the way that we're going to look that we're going to look at what it does for Lendingtree and we've got a pretty good track record on yes.
That's really helpful. Thanks, guys.
Thank you.
Your next question is from match Sandler with Bank of America.
Yes, hi, guys.
Two quick questions. One on the acquisition you guys alluded to credit Karma buy into it.
The information on the relative size of credit quality comma relative to you at this point across our businesses.
No there, particularly big credit card, but how would they fared in other parts of the business or at least how do you believe they have.
Second question your quote Wizard businesses run very consistently.
Great.
Very solid growth rates.
Yes, we see from a competitor up in Boston Evercore is less consistent but right now is showing much higher growth rates. As you know is your 36% they did 86% this quarter.
In the largely the same businesses.
You know.
Do you see much would this change anything changing in the market or have you seen any.
Direct movement.
Advertising dollars from one.
Okay.
NAND its Judy let me take the first during the second question first and then we'll get to the Karma.
Second.
Wasn't what we look at when we looked at Evercore its results.
It's not the growth rate because candidly they if you're comparing their fourth quarter to their fourth quarter of 18 that was a pretty easy comp for them. So that percentage growth is a reflection of a weaker fourth quarter of 18.
I look at the relative scale and relative profitability and that's what we're focused on at the end of the day, we acquired a profitable business and while ever quits had good performance I look at how are we doing in terms of market share and how we're doing in terms of profitability. So thats what were focused on when we look at our insurance Division.
And at the end of the day, you got now with our new segments the ability to have full transparency on our insurance business.
And so we're we're really happy with their results I wouldn't.
Growth rates, because there's just audit noise there.
The second question was around Carmel, let Doug Doug address that.
And JD can chime in as well I, we are understanding which first obviously said before their numbers that came out we're not a surprise to us.
We.
I believe were roughly comparable.
But what I focus on most is the number of products the customer experience and the amount of money, we're saving people when how and how much were improving and.
And that is going very very well anything else on untreated no isn't net I guess I've been piecing together data points on Karma for the last couple of years.
And.
And when I say data points at a conference will reveal how much revenue they've got et cetera. So yesterday, there wasn't a whole lot in the into it release other than $1 billion in revenue and 20% growth.
My understanding is that the vast majority of that in credit card and personal loan again, that's not terribly surprising there wasn't a whole new it.
So our point of differentiation is obviously great diversification.
In terms of where our revenue.
Sits right. We've obviously built a very diversified business that we think leads to a more durable revenue model over time.
And we were about a billion one and so as Doug said very comparable wouldn't expect revenue.
There wasn't anything in the release with respect to profitability.
And obviously, we're proud of our consistency there.
Great. Thank you.
Okay.
I'm showing no further questions at this time I would now like to turn the conference back to Doug Lebda CEO.
Thank you all and thank you all for joining us.
We had a wonderful 2019, as I said and I'm really really thrilled with how we're hitting in 2020.
We've got such deep penetration across all of our loan products and insurance products and we're continuing to not only make product improvements in those areas, but also on the lifetime value product through my Lendingtree expect to see us make a lot more progress at a lot of new things that we can surround the customer with everything that we can do to help the mix.
Our decisions at most critical times in our lives and just watch us and it's going to be quite exciting. This year. Thank you all and we'll talk to you next quarter.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation have a wonderful day you may now disconnect.
Good bye.