Q2 2021 LendingTree Inc Earnings Call

Good day and thank you for standing by welcome to the Lendingtree incorporated second quarter 2021earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation.

And there will be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and I would now like to hand, the conference over to your speaker today, Mr. Trent Ziegler.

Oh. Please go ahead.

Great. Thanks, operator, good morning, everyone and thanks to everybody for joining the call. This morning to discuss lending trees second quarter 2021 financial results.

On the call with me today are Doug Lebda, Lendingtree as chairman and CEO.

And J D Moriarty.

President of Lendingtree next.

As a reminder to everyone. We posted a detailed letter to shareholders on our Investor Relations website earlier today and for the purposes of today's call. We will assume that listeners have I've read that letter and and we will focus on Q&A.

Before I hand, the call over to Doug to give his remarks I.

And I want to remind everyone that during today's call. We may discuss lending trees expectations for future performance any forward looking statements that we make are subject to risks and uncertainties and lendingtree as 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.

<unk> of non-GAAP measures on the call today and I refer you to today's press release and shareholder letter both available on our website at investors thought Lendingtree dot com for the comparable GAAP measures definitions and full reconciliations of non-GAAP measures to GAAP.

And with that I'll go ahead.

Thank you Trent and welcome to your first earnings call as CFO and thank you to everyone else for joining the call and the second quarter results demonstrate the sustained momentum we're seeing across all aspects of our business. We once again substantially exceeded our prior guidance and our prior perspective on the remainder of the year is improving as we.

And against our strategic growth initiatives, and our Covid impact businesses return to health.

And our consumer segment, which has been the most impacted by the pandemic. The recovery is well underway as consumer credit markets begin to normalize and we deliver increasing value for our partners.

Our personal loans.

And <unk>, which is particularly profitable for us due to its alignment with my Lendingtree was especially strong in the quarter. We have cultivated a deep network of lenders that is as strong as it's ever been and as consumer demand for this product returns, we are well positioned to win.

Inquiry volume and personal loans was up 40% sequentially.

Over the first quarter and revenue increased 70%.

And credit cards, where we've been consciously endeavoring to rebuild that business at lower margins than we've historically seen those efforts are paying off and continued revenue growth and expanded margins.

And home.

Business the strength of our market leading position was on full display and Q2 despite.

Despite the fact that refinance activity and the broader market was down considerably relative to Q1, our home segment delivered segment profit that was in line with our first quarter results. The resiliency of our mortgage business is a testament to.

The long standing relationships, we've built with our lenders and the value that we add throughout any cycle.

And our insurance business continues to perform consistently well as a market leader at scale.

And is clearly less susceptible to macroeconomic conditions, such as credit risk or interest rate cycles. We.

1 need to diversify and strengthen our insurance business by expanding into new traffic acquisition channels, and expanding our carrier network and growing into adjacent categories further adding to the durability of our business as a whole.

And finally, we continued to pull all of these business businesses together and toward more.

More holistic consumer centric offering and my Lendingtree.

While new user adoption has remained strong throughout the pandemic. We are encouraged to see an uptick and engagement and usage of the platform as demand for many of our core offerings return.

Our efforts to syndicate, the my Lendingtree platform as.

Continued our core marketplace assets and what we're doubling powered by Lendingtree are also gaining traction we've launched 5 manage marketplace integrations and Q2 and our integrated my Lendingtree partnerships. Okay.

And for more than 50% of new sign ups for the quarter.

And closing.

We're very proud.

Out of this quarter's results and our confidence is only increasing as we enter the back half of the year. Our leadership realignment is helping to crystallize our priorities and we're executing very very well our business continues to become more diversified and more durable and we intend to fully capitalize on those.

As well as having the advantages to drive future growth.

And with that operator, we can open the line for questions.

As a reminder, if you have a question at this time police fire and the number 1 on your telephone.

And for your question and that's been answered or you registered and Luca from the queue. Please press the pound key.

Your first question comes from the line of Jed Kelly from Oppenheimer. Your line is open you may ask your question.

Hey, Thanks, Thanks for taking my questions 2 if I may just 1.

And maybe for you Doug just on the amount of hiring you plan on doing and in the next couple of quarters.

And assign that you actually feel that the business is coming back and.

Youre able and Youre willing right now to and to support more employees at a lower VNS and amount than you were in 2019, and then just can you talk about the dynamic with personal loans and credit card..1 would think credit card would come back first because.

Because people spent and credit card people spend money on their revolving balance and then we will refinance with a personal loans. So can you just talk about some of the dynamics between the growth and personal loans and credit card. Thank you.

Sure Let me take your first point and hiring so we were confident and continuing to hire.

In Q2 and.

And going forward I would say hiring will be probably more selective we were confident and that the business would come back due to macro factors and we're confident and our own initiatives.

Driving our core underlying metrics. So we were able to continue.

And some growth initiatives that are going to set us up for the future.

1 of them for example is continuing to higher insurance agents as we move our insurance product more and more.

And agency model across all products.

So we were very confident.

Ability to hire.

And I would expect that to be tapering off because I think in terms of new costs.

We were able to keep our pedal on the gas with very very smart energy of our metrics and our projects.

And.

And I expect to see that tapering off going forward a lot of our product work has been accomplished and now we still have those people who can go on to do other things.

In terms of the the second question and the relationship between personal loans and credit cards was can you repeat that 1.

Yes, just it would seem.

And like intuitively and credit cards will come back first because people spend on their credit card and then refinance on the personal loans and so just the dynamics and why your personal loans business is coming back quicker than credit card.

I'm going to have J D and sort out.

And it's a great question it does seem intuitive.

I think you have to think about the behavior of the partners in each case.

So in the case of credit card, we definitely are seeing signs of the credit card issuers coming back not just on our network, but really with their own brand and their own spend first they are investing and their own brand.

And before they move more aggressively to the affiliate channel.

1 of the things, we've talked about and personal loans is that the personal loan lenders.

They were back in full.

They were back in full before the end of 2020 and the driver that we needed and personal loans was demand from consumers.

So what youre seeing now.

Panel.

I agree with you and it does seem like you would think okay. The credit card business comes back in terms of balances and in the personal loan business follows.

This is not unlike mortgage where we have a little bit different cycle and the product itself.

So what Youre seeing now is clearly credit card balances built up a bit.

Now more importantly, consumers are being a little bit more aggressive with their spend levels there right. So.

And as we've talked about the number 1 uses credit card debt.

Debt consolidation, but it's also you.

We're planning a vacation and you are planning a wedding youre planning and small home repair 1 of those things for personal loans, so what youre.

Youre definitely seeing and the step up and personal loan activity is consumer demand.

And we're finally seeing that come through the lenders have been there since call. It the third and fourth quarter of last year.

In terms of credit card.

It's a little counterintuitive, but I think we'll see that spend from the credit card issuers in terms of the affiliates.

Total lagged a bit there for their investment and their own brand.

So.

I think the credit card balances and built up but we've just got a different behavior with respect to marketing spend.

Yes that lag I think I would echo what J D. You said and I think youll see.

See the personal loan and refinancing of credit card come along slightly later.

And it is truly lender behavior.

All of them.

Thank you.

Thank you.

Your next question comes from Brian and I will see Youssef Squali comes through with your.

Your line is open.

Great. Thank you very much 2 questions if I may as well so starting with the.

And the investment side of the business I think you guys highlighted Medicare agency is 1 area that you guys are going to be putting some money into and Q3 was wondering if you can maybe flesh out your.

And Youre kind of vision, there come and be quantify the investments required to make it happen and second maybe Doug as you kind of as we all come out of this panic.

And then make it seems like some of the smaller players kind of got herd got hurt in the meantime, and and in the midst of it I was wondering how you guys see.

And here you are positioned coming out of it.

For the quarter was certainly pretty solid so looking around as to what some of your peers have done do you feel that you've gained share that you've lost share just kind of your your and your state of the industry and.

Point thank you.

Yeah.

So first off on Medicare agency, and and trend you can please fill in with some numbers on that and then I'll come back to kind of share.

The Medicare agency as part of a broader trend lendingtree, which.

Is.

Having clicks calls and leads.

Going to providers, whether they'd be a lender current insurance company and how can we move deeper into the funnel to give the customer.

More definitive offers still continue to give them choice and give them a.

And more curated and concierge experience, particularly inside of my Lendingtree, where we can really differentiate our user experience and.

And the Medicare rate and so we're doing that in P&C property, and casualty and homeowners and auto and <unk>.

Expansion into Medicare.

And 2 where you have to hire.

Agents in Q.

Q2, and Q3, who are getting up to speed and getting prepared and then in Q4 when open enrollment season begins for Medicare supplement and Medicare.

Medicare supplement policies and we can come in.

And as 1 and will be fully a ramming speed. So there is definitely and investment.

And of higher ending and getting people up to speed the weaken.

Very definitively predict what those expenses are going to be versus what the revenue is going to be and.

We fully anticipate that debt.

That's going to be and exciting new business for us.

Trent you want to fill and any numbers there in terms of investment dollars or anything.

Yeah happy to.

Yeah, and I think this goes to John's question, a little bit too and just as.

As you look at the trends and opex throughout the year.

About a $2 million increase from the first quarter into.

The second.

A lot of that new hiring to support investments the Medicare agency being a big 1.

It has taken place throughout Q2 and Youre obviously.

Seeing that run rate.

Fully burdening in Q3, where we expect at the midpoint of.

It's the Opex a piece of the P&L to step up about another 5 and a half million dollars.

You know, it's the hiring that has taken place and in the first and second quarters to support the growth initiatives and that should moderate going forward, but a big chunk of that increase from Q2 into Q3 is to support.

The Medicare agency and and so on a full year basis, I mean, we're going to invest.

About 8 or $9 million and building out and that capability.

We're going to and we intend to have 125 licensed agents.

On the phone and productive as we head into the fourth quarter open enrollment period, right and so and so we're bearing the cost of that and the early part of the year and.

Guidance and at the benefit of it and in the fourth quarter would be the expectation.

And then on the market share JD and aren't going to tag team that 1 for you I think vs aggregator competitors are.

Our market share is going to depend loan to loan type by loan type with.

Some lag so we're.

Very served and we're gaining share and mortgage as mortgage as we're coming off of.

A season, where we outperformed mortgage and a refi boom for probably the first time and our history.

A lot of that capacity, we've talked about and you're in quarters past us.

And we're going to absolutely kicking and so our mortgage business is.

Feeling very healthy and then and some of the other loan types. There is a bit of a lag effect J D. I already talked about that and card potentially.

Potentially and personal loans, where lenders are going to.

First go.

As loans are there existing customers or are there pent up demand or as people come back and get them for free and then over time those lenders.

Turn to people like us to supplement their volume so I'd say the.

Mortgage companies right now are very focused on X on expansion.

And we see the early.

Gives agents.

Things coming back and some of the other loan types and also insurance J D.

And we've talked about investments in card for instance rate that's all intended to.

To grow market share over time.

And so when we were.

Operating and the last couple of quarters, and we said that the card business.

And was operating at below normal margin.

And that was very deliberate to gain wallet share with those card issuer. So we think that will pay off as the year progresses.

<unk> will be live here and the second half.

Which we're thrilled with that will enable us to gain.

Gain wallet share with card and personal loan lenders and then and insurance the thing that we're most happy about.

Is the diversification and that's nothing short of incredible what's happened there.

2.2 so thats actually where we say okay.

Across the business, we think we are gaining influence and share because.

We're characters and and product offering.

And so.

It's a long term view towards gaining share, but we're pretty confident and each of the major business is we're doing exactly that.

That's helpful. Thank you. Thank you all.

Sure.

Thank you.

Your next question comes from the line of Jamie Friedman of Susquehanna. Your line is open.

Yeah.

Hi, Thanks.

Jamie at Susquehanna and good results here.

I did.

Want to start with a big picture I realized that the.

Medium term guidance from the analyst day may not be.

Germain anymore, but is there any reason structurally.

And that the company can't cannot.

Return to its historic EBITDA margins that were.

In the mid to high teens.

No.

Absolutely no reason, we cant and.

We if you think about Lendingtree, a very simple level is the interplay between what it cost us to get a customer.

And and what our.

<unk> revenue is from those transactions and you look at the efforts that we're doing and so.

It's both increasing conversion rates and Jay you just talked about tree qual, and what we're doing and credit card increasing conversion rates and people, who are coming through and transaction and importantly, getting you to sign up for my Lendingtree.

Our rate, which you can think of as our premium offering.

Or lendingtree plus or Lendingtree prime.

And where we then don't need to continually spend marketing dollars to acquire you back.

It's interesting even a number of people who sign up for my Lendingtree today, and we still.

<unk> got them for a second and third transactions based on paying.

Paying for search and display ads.

As opposed to just being able to alert them and as that is getting better and better.

And we're seeing more propensity to come back to Lendingtree as we continue to differentiate and user.

And then my Lendingtree.

And I will start to break through the active paid marketing as well.

But you also get a lot of natural lift just from.

The fact that we have invested and expenses.

And so we've invested and product and tech and and <unk>.

Continuing to build.

And experience company.

And knowing that that.

And that we were going to recover while loans lenders came back on line.

And so yes, I think we will definitely see returns to increasing margins going forward.

And to be very cognizant of competitive situations et cetera, and that we can still invest when it.

And out there.

Okay. Thanks for that Doug and then.

I didn't see you call out and the shareholder letter.

About student loans, and the Q3 and that historically has been.

Seasonally relevant so how are you thinking about the student loans and set up for next quarter.

Thanks, Mike.

J D.

Yes, no and I didn't take that Jamie.

And that business as you pointed out obviously, it's a big Q3 contributor historically it contributed in a really meaningful way in 2019.

And much less so in.

2020.

Just given what was going on with with quarantine and and otherwise.

And so our expectation for that business this year and.

Is kind of somewhere in the middle between we do expect it to be up from 2020 levels, but not certainly not anywhere near where we were at in 2019, you're you're just.

Yes.

And let's aggressive behavior from many of the lenders in that space. It's more of a niche product. There are only a handful of lenders who compete in that space aggressively and we're just not seeing the.

The same type of behavior that we've seen in prior cycles. Some lenders some of the lenders that play and multiple products.

Seeing less prioritized that that business relative to some of the other businesses like credit card and personal loans throughout the cycle.

And so we expect it to be up a little bit.

From from where it was last year.

But not a massive contributor and another quarter.

Okay.

If I could just sneak in 1 more Doug in your prepared.

<unk> remarks, he talked about launching 5 managed marketplaces in Q2.

I apologize, but what's that about.

So I'm actually going to let J D answer that because powered by Lendingtree and in addition to my Lendingtree sits.

It's under his new per view.

So Jamie we've talked about this a little bit and rate now.

Kind of 2 things, we have partners from a business development perspective.

Some of which we periodically you'll see us put out a press release around those we've talked about H&R block in the past and we talked about other sometimes we don't necessarily put out press releases.

And those partnerships.

And we talked about managed marketplace. These are people, who want to have a financial product shopping experience inside there.

Their client experience.

And so they don't want to build that themselves right. There's a lot involved there.

That is it.

Bumped for us over the last few years.

Part of the reorganization and we're putting real effort behind that.

And we want to develop.

Effectively embedded marketplaces and.

The product offering so it's really a <unk> business.

You could see somebody who says I want a personal.

<unk> alone and the credit card marketplace, but for whatever reason I don't want mortgage okay, great. We can provide that.

There are also partners, who want a white labeled my lendingtree offering.

They want to be able to provide.

And the functionality that we do for consumers and my Lendingtree, but have it be personalized for there for there.

Our consumers.

And so we're seeing real traction there and we're going to put resources behind it.

So it's not just taking my Lendingtree, it's actually taking some of the marketplace assets that we have.

And so and the last quarterly announcement and we've talked about the reorganization we talked about the next organization.

And building off of the core assets of Lendingtree right. Those core assets are a marketplace business and and our my Lendingtree platform.

So when we talk about <unk>, it's extending that to various partners.

And it's pretty clear to us that there is a great market opportunity there and we're going to go out and.

And I think about this as the old.

Of Google's syndication, where after they had built out their owned and operated side. They also went and syndicated not only their competitors, but also to other partners and.

Tens of thousands of websites around the web.

Which helped too.

Block and helped to build a moat around their own search business. So there.

All day use cases here, you could imagine and I was going to mortgage lenders with big servicing portfolios and saying, let US help you refinance your customers they improve their credit.

J D mentioned H&R block, we've got relationships with at least with at least 1 major credit.

Credit Bureau.

Theres, many where you can imagine if you've got a free credit report offering you would also love to give people alerts to save the money on loans.

And there are among our lender network among third party providers and other financial services companies, even among stash and we have.

And then we also help that and monetize via personal loans and some other things and there's lots of companies out there where we can.

Do this and it is.

As part of our growth strategy going forward and it also helps too.

To not have to take marketing risk to acquire those customers because they're typically focused.

And that revenue share.

And so I would say.

Thank you.

Yeah.

Thank you.

Your next question comes from the line of Jon Komp now from Stephens, Inc. Your line is open.

Hey, guys. Good morning, Good morning, Hey, Joe and John.

Nice work.

<unk> are managing are weighted to those somewhat choppy waters over the last year. It seems like you guys got the ship firmly pointed and the right direction. So congrats there.

My first question relates to refi I mean, obviously the average kind of 30 years backed up a little bit and then we've got it looks like the announcement and the FHFA on the 50 basis point reduction or the elimination of that fee.

Just kind of and it looks like the volumes from our end.

Perked up a little bit over the last week. So just curious if you guys have seen anything kind of different channel and then <unk>.

Bigger picture kind of how youre thinking about mortgage and maybe just refi volumes or revenue over the next couple of quarters.

Yeah.

Yeah, So refi volume was starting to tail off a little bit and and very very recent.

Recently, it's kind of perk back up but I think the more important trend and.

Is that you see mortgage companies coming off of a.

A period of time, where they had all the volume they could handle and we were trying to keep them.

Keeping.

And our Lendingtree volume on which we were very successful at doing which as I said, we outperformed I think what we would've expected and this last cycle.

And now we're starting to see despite any short term vagaries lenders really wanting to come back and a big way so that will push up the expected value of a.

Keeping the edge Lee and a closed loan.

And then and then we're going to market right into that.

Okay.

Anything else to add.

And we got great Yeah, and then.

Yeah, and 1 more and then staying on homes, if you take out the mortgage revenue and it looks like a $10 million gain year over year.

And so I'm guessing that maybe HELOC or maybe reverse mortgage I think both of those are pretty high margin product for you guys, maybe that helped and the segment profit and the quarter, but just curious about what kind of drove that other revenue jump.

Right, Yes, I can I can take that 1 John.

Yes look we've seen.

Moreover, last quarter, Pat and particularly in Q2, we've seen pretty good strength in both purchase mortgages as well as home equity.

And that's pretty low.

Natural dynamic and we would expect as you and you're going to work through the cycle and refi volume start to fade rate lenders, who have been flushed with refi volume for the last 12 months.

Okay.

<unk> come to the come to the realization that they've got to start paying more attention to purchase and home equity and and so each of those was up meaningfully quarter to quarter.

Okay, and then and HELOC you know I think you guys were running that it maybe a 60 million or so run rate and the past and again, that's a very high margin business for you guys and any sense for kind of where you can take that.

Months, Mike that's recovering and it clearly home equity.

Levels have picked up dramatically. So just curious about the kind of outlook there.

Yes, I mean.

Go ahead, and so that doesn't recur.

No you've ever so I would say more and you could pick up more broadly speaking I think home equity is still.

And it feels very untapped, where we have not yet seen our the correspondent mortgage lenders coming back into home equity and a big way.

And I would hope and expect that it will happen and will typically happen later, it's typically a bank refinance product.

And I think it will lend itself very easily.

Easily for my Lendingtree, but I would say that home equity for us sort of it's the same lag effect that we talked about with credit card and some ways insurance and they.

And lenders will do their own customers first and.

And you're starting to see some recovery there, but it's still.

Dwarfs.

What it was and you have to go.

Back a number of years, but the home equity used to be our highest converting product and the low <unk>.

The highest expected value and the highest consumer satisfaction rate.

And after 2008 that kind of change, but I think we will be as lenders get better at underwriting and.

And more technology in terms of and I would expect that a lag a little bit but we.

We remain hopeful and and expected on home equity.

And again.

Yes.

No I get it.

Your next question comes from the line of my Aunts, and then from Needham Your line.

And as open.

This is actually Kyle Peterson on for <unk>.

Hi, Thanks for taking the questions.

Wanted to start and the card market, obviously, good to see things picking back up and there are there any are there any pockets of the card market that have been either leading.

Leading or lagging, whether thats and rewards or balance transfer.

And what have you guys been seeing kind of under the Hood, there and card.

Sure.

Yeah, I mean, I don't know.

If there are any specific pockets to call out I.

I think 1 of the.

And so that has been just a little bit of a limiting factor in terms of that business.

And it accelerating and the same way that personal loans has been and is just.

While it's pretty clear that card issuers.

Appetite for new customers is improving and they are starting to you know.

Stefan and gas from a marketing perspective.

The thing I think there remains some uncertainty as to how profitable this new cohort of cardholders will be from the perspective that.

And we've all seen consumer balance sheets are and much better health.

And then they were 15 months ago rate revolving balances are down.

Savings rates are up rate and so if you think about.

What drives the profitability of every card that gets issued.

There is some uncertainty as to the likelihood of consumers continuing to get out and the economy and spend on our cards travel picking up.

And people getting back to restaurants and bars.

But I think more importantly, our consumer is going to continue to.

Pay down those balances every month or are they going to continue to revolve them and and so.

And that obviously informs.

The unit profitability of cards and get issued and that informs what card issuers are willing to pay someone like us to deliver them, new borrowers and so and just the unit economics and our business are down a little bit relative.

Relative to where they were pre pandemic.

But we're seeing that and get better and better every month every quarter and we.

And we'd expect that trend to continue but that's been 1 of the things that.

And that's held back some acceleration there.

Yes.

Got it that's helpful and then.

And I Wonder if you could provide a little bit of and update.

Updating on the M&A pipeline, specifically and how is it looking right now and are there areas, whether it's to help kind of scale the health insurance vertical or I know you guys talked a little bit about the asset side of the balance sheet and looking for ways to get more penetration and there like how should we think about.

With the acquisition pipeline and kind of build versus buy strategy.

Sure. It's a it's J D I'll answer that.

Listen we we we obviously because we've been an acquisitive company that the benefit that we get is that we see a lot more things.

And so that's been great we're being proof.

Prudent and <unk>.

Pending on that sub sector.

There are some pretty and evaluations out there.

You know we continue to be areas of focus for us because of the scale of our insurance business, we see a lot of and insurance that are adjacencies rate you're seeing.

Yes.

We build the agency internally.

And that's a decision to build versus buy decision.

But we see a lot of and ensure and Thats 1 area, where we will continue to look just because we have such a good business. There that we can bolt things on.

Small things.

And to real benefit.

And we continue to look at small business, because we think that's a great a great business and we will continue to look there.

We see a lot of things that are around in and around mortgage.

Some of those are because of low.

Those are companies that have kind of.

Seeing benefitted from the cycle and so we're very conscious of that were probably less likely to add there.

And then yes, the asset side of the balance sheet as interesting to us.

We've obviously seen.

And in that arena over the last year with Covid.

A real.

Escalate.

And the values and so we're going to be very conscious of that rate.

I think in general we continue to look, but it's not going to be a huge driver for us and the immediate term.

We're going to be prudent and we don't have a great urgency.

To get into.

And theres not theres, not a and the area that were non <unk>.

And we need to address right now.

And as we can generate pretty substantial growth just in our existing verticals through execution.

And so those are the certainly the focus.

Galatia remain the same but.

I wouldn't really.

I wouldn't really expect anything substantial near term.

Got it and that's good color thanks, guys.

Okay.

Your next question comes from the line of Rob <unk> from Autonomous research.

<unk> Your line is open.

Good morning, guys, just a question or 2 on insurance I think this segment this quarter came in and a little lighter than we had thought can you speak to the performance there and if there's been any change and carrier behavior and preferences or any of the other drivers and that business.

Yeah.

Search.

Okay.

Yeah.

Yes, this trend and I'm all set.

That 1.

Yeah look at it and insurance, we acknowledged that we have seen.

A little bit of a headwind and a form of competition and and the search.

And.

We're seeing just.

And have less.

Less traffic less search volume broadly speaking costs are going up moderately and and we're trying to be and a sustained margins there.

But 1 of the things, we're really excited about and insurances is all the diversification that's taking place.

When we got into that business.

The vast majority of it was search driven on the consumer side and the monetization of it was was auto and and particularly.

And now with concentrated and a handful of carriers.

So if you think about the diversification of that business in terms of new channels that we've gotten.

And into whether it's the publisher platform that we've talked a lot about and has been pretty successful or.

It turned out and the network that we've built out.

Or the diversification of the client base and auto.

And Furthermore, the.

The diversification into new categories, whether it's Medicare.

And or the strength that we've seen and home insurance.

There's a lot of really good things happening, there and and if you kind of isolate some of the headwinds that we're seeing and that 1 channel.

Grass and and insurance has been tremendous.

I think that's another thing.

And it's been holding back growth a little bit.

Yeah, and the only thing I would add to that is.

And on the longer arc of insurance, and we talked about credit card and personal loans.

We're migrating more.

A purely clicks calls and E business too into it.

And as carriers to having a run rate.

Yeah.

Yeah.

Yeah.

We can pick up.

Pardon the interruption and Mr loved and Mr. <unk> Your line is cutting in and out.

Where are we.

Yeah.

And I will repeat that answered.

Sure.

Okay.

Oh.

Operator can you hear me now.

Yes, it's better.

Jay.

And I'll repeat that question. If you look if you think about insurance.

Think of migrating from what we bought with quote Wizard.

And as clicks calls and leads.

Going to individual carriers to migrate and Matt not only and Medicare, but also in our property and casualty 2 and agency business.

And we get 3 effects number 1 because we control the customer experience more deeply we get a higher.

Which and rates number 2 we then and up more deeply and the repeat business stream as people renew and number 3 because its a slick vertical integration.

And we get higher margins and then the last thing I would say is you also get a big uptick and consumer satisfaction.

Let me and Mr. Julien.

Rob I think the only thing I would add is you do have to consider I mean, Doug Doug and trends are speaking to the insurance business as it relates to.

Okay.

And how it's been.

Okay.

Uh huh.

Yeah.

Vs and a year ago was pretty extraordinary because <unk>.

During COVID-19 they were experiencing very consistent premiums and very low claims.

And so we're back to a little bit more normalized environment. The good news for us is.

For our business, we've become we think.

A more diversified and.

And we'll partner across that period of time, but they certainly had a bit of excess profitability a year ago that if you look at the results and most carriers has normalize somewhat and you have to be conscious of that and we're certainly conscious of it as we go forward.

Yeah.

Okay. Thanks, guys and you hit on it a little bit earlier, but I imagine.

And that the Medicare initiatives has a.

Pretty big seasonal component and you just give us some more color there and and maybe some more detail and how you think the Medicare push or how much you think it could contribute for the rest of the year, both on the revenue and on the margin or EBITDA sides.

Yeah, Rob Hey, it's Ron.

And I gave some indication.

Earlier in the call as to the level of investment that we're making there it's going to end up being and internet.

And a $9 million and in terms of cost structure and that we're putting in place to support that business obviously much of the benefit.

Of that investment we expect to Ria.

In in the fourth quarter to.

To give you some sense without getting too specific we sort of expected that investment to be at or around EBITDA breakeven.

<unk>.

This year with obviously benefits as we as we continue to go forward.

Yeah.

And just on the revenue side of that business is very lumpy and in the fourth quarter.

Yeah, we do expect most of most of the revenue to take place and the fourth quarter.

And all with the open enrollment being in the fourth quarter.

Yeah, Okay. Thank you guys.

Yeah.

Your next question comes from the line of Melissa Wedel from Jpmorgan. Your line is open.

Good morning, guys. Thanks for taking my question.

And I wanted to circle back to something you put and shareholder letter about the adoption and user counts and loyalty being a little bit more challenging and nationally.

Nationally.

Hoping you can elaborate on that a little bit.

Triangle I'd take that.

Sure, Yes, I can and and J D can add onto it.

Go ahead Sir.

Yeah, I was just going to say I mean, yes, we've.

Talked a lot about.

And the rollout of that functionality and the benefits that it will ultimately bring and in terms of just the level of insights that it provides.

For us on our users and our ability to make much smarter more targeted recommendations overtime.

We have seen really good adoption.

And flat and in terms of users waking up their bank accounts, but that functionality from.

From new users so as people are signing up and and downloading the app and and signing up and the platform. The adoption of it has been really good.

Where we've lagged a little bit is just in terms of existing users and and providing them a call to action to bring them.

You.

Create that linkage, that's been a little bit harder and and we've got to just continue to focus on that.

Okay, Melissa and it's.

And I'm sorry go ahead.

No no no. It's J D I apologize I didn't quite understand the question at first the.

And I didn't quite.

And your first and I should say the.

Getting the new users to sign up like it and it's certainly proving out I think as we as we.

As we develop a more refined you know over the next year I think youre going to see.

More clear value prop for the my Lendingtree consumer.

Here's the question.

In terms of why they want to be there and it's going to start to feel different than the existing lendingtree experience, meaning you're not going to feel like you're filling out a form.

And we're going to evolve the shopping experience.

And then going to have more of a call to action for somebody to sign up.

And part of it and getting a legacy.

Consumer and my Lendingtree user to link their accounts, there's not a clear value prop for them.

New users are signing up and the good news is that the retention of those people is pretty dramatic.

And so we're thrilled with the behavior of the new user with.

With respect to debt integration.

And just getting the core to get there so I think over the next year.

We've invested and putting that.

Onto the platform and I think it will benefit us as.

As we roll it out across the base.

Yeah.

Okay, Great. That's really helpful. And then just as a follow up there was a reference and the letter.

And to credit services and.

And sort of fully and growing its contribution with them and consumer segment to more than a quarter and profit.

Was hoping you could just remind us what sort of and margin.

And that particular.

Category.

And offers thank you.

Try and you've got that yeah, yeah, sure thing and myself.

As a reminder, we bought a business called ovation credit services.

Back in 2017, and that's a business that offers credit repair for consumers and and the rationale there was.

You know we have a lot of consumers that.

Come through our ecosystem for various products and and you know they're ultimately they they don't get the results that they're looking for because there.

And their their credit score is not where it needs to be and so you know about 30% of our traffic goes unmatched where we.

And you can provide a solution for them and so rather than just saying.

I'm sorry, we can't help you that business fits in really nicely, where we where we actually can help them and put them into a scenario, where we can help them improve their.

And their credit profile.

And.

And and ultimately graduate into the other products that we offer.

Sure.

So the margin profile of that business is pretty high because it.

It is.

It effectively drafts off our other products rate folks are coming to us for a certain solution.

We're dropping them into.

And a different solution that you know the amount.

And as well for us, but also helps the consumer and so the margin profile of that business is well north of 50 per cent.

And basically and it's changing and I said, there's really not a lot and marketing costs dropped to get those customers because the marketing cost is burdened by other loans.

Sure.

And have been able to get match to that and then wait.

It makes it that.

Got it thank you guys.

Thank you.

Once again as a reminder to ask a question you will need to press star 1 on your telephone to withdraw.

And your question press the pound key.

Your next question comes from the line of Mike Grondahl from Northland Securities. Your line is open.

Yeah. Thanks, guys.

Gratulation as on the progress.

And I'm curious.

Is that 20% EBITDA margin possible.

Are likely.

And then you know what.

Wherever your margins fall out in a year.

And what products offer the most upside to margin kind of incrementally kind of from where we're at now.

Yeah, I'll take the first 1 and I'm gonna let.

Give us.

And second 1 because we might actually have different opinions on that.

So the answer to your first question is absolutely yes.

While we don't while we don't percentages don't pay the bills and dollars to do.

And that that operating margin is certainly very very and JM Waller and.

And once you strip out.

Okay.

Well.

This is Bob.

Yeah sure.

Okay.

Marvin and I cant and opportunities actually and the home.

And just because it's the I think the biggest opportunity.

Conversion rate as lenders are increasing.

Located per volume.

And really focused on maintaining it on capacity, but I'd love to hear what J D and and.

And try and think Duke.

Yeah, let me.

And Mike and I, just sort of realize where we've been obviously.

You know we were in and around 20% EBITDA margins in 2019.

And in 2021, COVID-19 hit rate or revenue.

Opportunity.

And consumer.

Contracted by as much as 30% and so youre operating the same business.

In a scenario where your revenue opportunity is temporarily down 30%, obviously that has an impact on your on your EBITDA margins.

And we held firm in.

And not taking any drastic measures throughout last year and in fact, we continue to invest and the business to support key initiatives and and so a lot of.

Margin expansion will come naturally just as the consumer business continues to recover and clearly we're seeing the obvious signs there, but did give you some sense I mean, the the contribution margin from that consumer segment is still at about half of where it was and in 2019 and so there's just a natural runway of.

Incremental profitability, that's not going to require a whole lot of incremental and investment too.

To achieve it and so some of this we'll just take place naturally.

And in terms of operating leverage on our fixed cost structure.

But I think the bigger point will be as we continue to get.

Smarter.

Of smarter around the marketing and building out my Lendingtree and building out and installed base of users, that's where the where the real margin potential is going to come from and and that can lead to EBITDA margin at 20 per cent or substantially north of that.

Yeah, Mike It's J D.

Smarter as Ed I think historically the way that we've looked at.

Answered a question like that and say look at our personal loan business and boy, if we could just get half the traction that we have and personal loans from my Lendingtree benefit my Lendingtree benefits. The other products the structural benefit to our margin profile is pretty obvious rate.

I still think that holds.

Well.

As a way to think about the core marketplace business benefiting from my LT, having said that as we evolve.

The <unk> T platform, I think youre going to see us do some things that in the short run.

4.

In the short run are going to probably.

Monetize but on the my Lendingtree side and not for the marketplace business, but on the my Lendingtree side Youre going to see us invest and some things that are really great consumer experiences and.

So it might suppress and natural margin that I actually think its higher than 20 per cent.

I think 20 per cent is very achievable.

I think and natural margins higher.

And then that and a strategically you should expect us to invest some of that in the business for the long term.

But I think the natural margins higher and I think if you look at personal loans construct for the other businesses. That's the way to think about it.

And the only thing I'd add on top of that and do you think of our comp base and room rapidly.

And just the transaction of loans and insurance this is not something that.

<unk> do every couple of months.

And so the Lendingtree marketplace is spend 70% of your revenue on getting a customer to come in for a fairly infrequent transaction, but as.

And we get more and more members over to my Lendingtree.

We're able to and we get better and interacting with those customers, we will reduce our dependents on paid marketing and if you just.

Reduce that a little bit you're already back to your twenties.

And as Jay said, you'd still and vast as part of and.

And we move that going back because youre building a lifetime value business.

Got it thanks, guys for the color.

Thank you.

Yes.

Your next question comes from the line of Matt Schindler from Bank of America. Your line is open.

Oh, Yeah, Hi, guys.

And some hey are you guys talked a lot about the.

The lag effect and and Doug you've talked about it many times the lag effect in your particularly your mortgage business on how and when rates change.

Capacity is what really drives your business or less consumer demand.

It looks like this this cycle you really got moving within a corridor of the real rush on mortgages. So just basically 1 quarter off the rest of the industry. The industry is calling for pretty steep declines next year as rates begin to rise there's somebody already above where they were.

Guys and.

How do you think that will play out in your business and then secondly related to that and you talked a little bit about gaining share and the mortgage business spin.

Specifically I wanted to ask more about online gaming and share do you have any data or evidence of.

And yet that shows a real <unk>.

And was there a sea change in this industry like there wasn't so many other industries during the pandemic where people just started looking for their product online instead of using older traditional channels and that has that really changed and do you think that would continue.

Got it.

So.

And just a broader refinancing.

And in mortgage I think what we are seeing has been during COVID-19 because the product improvements that we've made plus a lot of Fintech Tech investment.

And so enders had more capacity and we're able to stay on more than they would have so I would say, while our share declines and a refi environment. We outperformed what we would have normally expected and mortgage definitely helps us through that.

And now.

Well as you sort of pick up a tailwind and mortgage you've now got debt capacity and as volume and the industry drives up.

And then you'll have lenders expanding filters moving from refinanced, adding on purchase adding on other states, where they might not be as profit.

Now ball.

And their loan to value ratios et cetera, and you've also always got a and.

A certain amount of refinance volume.

And as people have adjustable rate mortgages those things sunset.

And you've got credit improvement, so we talked about our credit server.

<unk> business before imagine somebody who's a homeowners got to $6.50 credit score we help them improve then they could refinance and get dramatic credit improvement. So that's so we think our market share is better than it would be coming out of a refi boom our lenders are there.

Servicing very economically strong and.

And now you would expect to see them.

Trying to keep their capacity and as long as possible and then increasingly turning to people like US, which will then increase our expected value and then we would.

Go market into that.

Did that answer your question.

Or is there anything else that.

Could hit.

Well I think they've got there and then you wanted to pivot to another question on consumer.

Obviously things have come back from the bottom there and the world changed during the pandemic, but if I really look at that business. It was doing $130 million a quarter.

Backup.

A couple of years ago or just for the <unk>.

Pandemic.

What would not to guidance of when this will occur, but what would be what would be macro environment will look like for that business to be back at that level.

We'd give similar at about 10, 2 yes, I think it.

Would be I.

I think youll see and.

Or are you seeing some of the in the online lenders too.

And as consumer volume comes back and they've got capacity to land and meaning that if you think about just what happened during COVID-19.

And just any lender season economic shock the sources of their capital everybody wants to freeze and then see what happens and then once they can readjust then theyre going to come back in so as you see the so called secondary and investors on the lending clubs and the prosper.

<unk> and the traditional banks come back into the consumer businesses, then that will naturally flow forward on a slight lag basis, because just like any lender or just like lendingtree rate, we're going to first close the customers who have zero marketing cost and then we're going to venture further afield.

1 so there is some pent up demand.

These lenders are going to do that first but as they continue to expand and they have to come looking for us and we just have to make sure that we're their preferred partner and that.

Great well and I'll, let it go there, but thank you Doug.

Thank you.

Yeah.

I am showing no further questions at this time I would now like to turn the conference back to Mr. Doug Lebda CEO.

Fantastic well. Thank you all for your time today, and and your continued patience encouragement and engagement with our company we recognize that.

The COVID-19 interrupted a.

Our growth trajectory of our company and at the same time I want our shareholders to know that we outperformed that financial crisis like we had outperformed any other financial crisis due to the diversity of our.

Our business. The fact that we know this business so well.

Diversity of lenders.

And obviously, bringing in insurance and when I look at the industry. Today. There is obviously lots going on and what we all want and what we're all calling fintech.

We love the fact that we were.

1 of the first and we're 25 years into this and I want our shareholders to know that we are absolutely not resting.

We are performing very very well.

And the current environment and I feel very encouraged on how we perform this last quarter.

We are extremely disciplined.

About how we're going to get growth, we're extremely focused on unit economics and I believe we're now organized for success and then when I think about the next thing which is how we are positioned for the future. Our brand is very strong our team is strong the monetization of our business is coming back my Lendingtree continues.

To grip and all of the investments debt.

Technology Fintech companies are making to help lenders be more successful a lot of that accrues to our benefit and we've got a very large diversified lender network with lenders who are who.

And we're very focused and succeeding on this so when I add all of that.

So very encouraged about our future and.

And hopefully you're seeing that come home and our numbers and we would.

I would certainly hope to be able to show you more encouraging signs and the future.

And expect.

US to go into next year very very strong.

And we look forward to rolling out our more detailed version of our strategy coming out of Covid and the months ahead and thank you very much for your time and attention today.

This concludes today's conference call. Thank you for.

Separating you may now disconnect.

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Perfect.

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And.

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