Q3 2022 Lendingtree Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Yeah.
Yeah.
Good day, and thank you for standing by and welcome to the Lendingtree incorporated third quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one one on your telephone and you will then hear an automated message advising yohan is right.
Please be advised that today's conference is being recorded.
And I would now like to hand, the conference over to your Speaker today, Andrew Wessel Andrew. Please go ahead.
Thank you and good morning to everyone joining us on the call. This morning to discuss Lendingtree third quarter 2020 to financial results on the call today are Doug Lebda, Lendingtree as chairman and CEO J D. Moriarty president of marketplace in CLO Trent Ziegler, CFO and Scott <unk> President of insurance.
As a reminder to everyone. We posted a detailed butter to shareholders on our Investor Relations website earlier today and for the purposes of today's call. We will assume that listeners read that letter and we'll focus on Q&A before I hand, the call over to Doug for his remarks, I'll 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 of non-GAAP measures on the call today and I refer you.
Today's press release and shareholder letter both available on our website for the comparable GAAP definitions and full reconciliations of non-GAAP measures to GAAP and with that please go ahead.
Thank you Andrew and thank you to thank you to everybody for joining us on the call today. Our company continues to respond to the multiple headwinds facing us by focusing on what we can control to improve performance and advance our strategy.
The most important item we can control are the projects, we spend time working on our core growth initiatives that will dramatically improve the user experience remains front and center for all of US the product of an improved customer experience is greater loyalty generating organic traffic growth that reduces our reliance on paid search as well as higher conversion rates and <unk>.
<unk> for us and our lender partners, we are working to transform the margin profile of our marketplace by presenting customers with the right offer for our financial product. When it is most relevant to them are.
A key component of that strategy is reinvesting in our brand we returned to TV advertising this quarter with the celebrity driven campaign initial results are very positive showing market improvements in several aspects of brand health and aided customer awareness of lending tree.
As previously communicated we expect to remain on the sidelines during the fourth quarter due to the normal cycle of seasonally more expensive media and weaker customer focus on financial products during the holiday periods.
Another area that is within our control is our operating expense.
Subsequent to quarter end, we took further action to manage our fixed costs that will result in $25 million of annualized savings beginning next year, we have reduced our head count by 20% since the peak in mid 2021 through targeted workforce reductions and limiting hiring hiring to critical roles on growth projects we have.
Well resource to continue this critical work for our strategic initiatives and to support our marketplace business.
On our last call I discussed how we are working alongside our partners to help them navigate difficult market conditions I mentioned, our efforts to assist some of our largest mortgage lenders rollout home equity.
Offerings for homeowners that today are enjoying record levels of asset value that they can efficiently borrow against.
We are happy to report these efforts helped to lead another record lead to another record revenue quarter for our home equity offering.
<unk> our partnerships during the hard times has proven paramount to our success and we will continue to work on improving these relationships.
The consumer segment was again, our best performer this quarter as personal and small business loans grew revenues, 12%, 8% over the prior year respectively.
We also added a new personal loan and credit card partner to our <unk> platform.
We expect to make an existing product introduction soon that is a direct result of our strategic initiatives aimed deepen the relationship with our customers, while helping them improve their personal finances.
The insurance team provided another example on focusing on what is within our control this quarter.
As their business continues to enjoy the impact of inflationary headwinds insurance teams work on improving marketing efficiency generated four six percentage points of margin expansion expansion sequentially from the second quarter hold <unk> flat despite a drop in revenue.
And I am excited about the opportunity ahead of us.
Security on our strategy will help us reinvigorate revenue and margin growth and lead us into the next successful iterations lending tree now operator, I'd love to open the line for questions.
Yes.
And.
At this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced please stand by while we compile the Q&A roster.
Alright, and our first question comes from Ryan Tomasello of K B W. P.
Please proceed with your question.
Hi, everyone. Thanks for taking the question.
Last quarter, you talked about.
Prior to <unk> EBITDA guidance.
15% to 25 million, representing a trough EBITDA capacity for the business.
I guess, how does that commentary change as we flash forward to today with updated macro and also incorporating the expense reductions that you called out.
Hey, good morning, Ryan Thanks.
So youre right. So last quarter, we were sort of alluding to what would what we would.
To be quote unquote normalized kind of trough earnings in that $15 million to $20 million of EBITDA per quarter.
Obviously, we were doing that in the context of the brand spend that was weighing on the Q3 results.
In the fourth quarter look there obviously is typical seasonality that's weighing on the result, and we would expect kind of a seasonal patterns to alleviate as we step into Q1.
A couple of things right we've got the.
The expense reductions were not really getting a great deal of benefit from those in Q4.
The terminations took place.
Effective November one.
We'll get two months of benefit there on salaries, but actually the.
Expenses associated with employee benefits will roll through the month of November and so we're picking up about 1 million and a half of benefit in Q4 that will obviously be a much bigger number as we head into Q1.
So.
Kind of stepping back from it we do feel like as we as we get into next year.
Feel very good about sort of that $15 million to $20 million floor.
Got it thanks and then.
In terms of competition I think in your prepared remarks in the shareholder letter you called out in the consumer segment.
Around competitive dynamics, there I was hoping you can elaborate that on.
That a bit we've seen some <unk>.
Conflicting headlines recently from some of your competitors in that category.
Reportedly a hiring freeze for one.
And then another from another strong quarter and outlook.
Is that competitive pressure coming from the same places it has been historically or are there any other changes in that landscape that you would call out for the consumer segment. Thanks.
Sure Hey, Ryan, it's J D I'll take that one.
When we refer to competitive pressure typically what we're referring to is is paid search so on the cost side of the equation not necessarily going to our partners, but rather.
Competitors in certain of our businesses.
Namely credit card.
Where we are more dependent than we would like to be on paid search.
And so we've been pretty candid about the fact that in card we need to evolve our business.
To reduce that dependence tree qual is part of that right because there we will get the benefit of our my Lendingtree business as well as some of our other funnels, but it takes time to evolve that in the interim.
Not getting as much benefit from increased card spend from card issuers.
Because we're having to pay an awful lot to get traffic to them.
Right and to meet certain volume quota et cetera. So that's that's what we mean when we refer to competitive pressure.
There's a little bit of that in personal loans, obviously thats been a good business for everybody. This year and so there is competitive pressure there, but it's not nearly as acute because we have a more more.
A better marketing mix in that business.
But it's predominantly in credit card, where we're just not benefiting quite as much as a couple of our competitors there.
Okay, Thanks for clarifying and for taking the questions.
Thank you Ryan.
Our next question is going to come from Jed Kelly of Oppenheimer and company.
Jeff. Please proceed with your question.
Okay great.
Thanks for taking my question.
Just two if I may just circling back around credit card.
You did call out the competition in paid search.
But are there any site improvements or something youre doing to drive engagement I'm sure. My Lendingtree is a big component of that and then can you give us an update with credit cards are on how pre qual is trending in some of the larger issuers. Thanks, yes.
Yeah, I'll, just start with that and just I'll highlight <unk> quality and handed off the J D.
<unk> is really.
Is it is a component as J D said of our getting credit card right.
If you think of every one of our business is a two sided marketplace.
<unk> acquisition, then you have monetization on the other side.
The on the monetization side, the B click out model.
Is something that we want to improve over time on both.
For credit card.
Because it gives the consumer a better experience and there is a lot of leakage and approval rates that J D can talk more about so once we are tied more directly with the underwriting of the lenders.
You can you can plug that approval rate leak, Jay do you want to take it from there.
Sure.
In terms of the experience one of our.
And that's the most exciting thing to talk about externally, but one of our platform migrations for next year that'll be in Q1, and Q2 of next year will profoundly impact credit card in a very positive way with respect to site reliability speed and ability to make changes.
And so that should benefit that business now.
Keep in mind in credit card, we go to market as compare cards.
And Thats something Thats under evaluation as well how do we how do we migrate and get the benefit of the Lendingtree brand for the credit card business. So those are two two things beyond pre qual, but stepping back from from it with.
Credit card is probably the business that needs that the most.
But just understanding the strategy behind <unk>.
Because it really resonates across all of our businesses, which is better authenticating, who that can who that consumer is for our partner.
Alright, and then if you look at our personal loan business, whereas somebody fills out a form.
And we are able to better filter that consumer for our personal loan partners.
That is in part an authenticated consumer.
In the case of <unk>, we're going a step further.
<unk>, just a form and filtering too.
<unk> essentially pre qualify somebody so it's a big step forward for our businesses, but the one that will benefit the most will be credit card because.
Because its operating from a base, where we don't really collect very much information on the consumer at all it's just a true look at business.
So just strategically when you hear us talk about <unk> that is what we're talking about we're talking about delivering more value for our partners.
Now as it relates to where we are we now have four partners and card and one in personal loan personal loan rollout will be a little bit.
More deliberate than it will be in card the dialogue with card issuers has expanded quite a bit in the third quarter, we have some who want to.
Integrate with us before the end of the year, which is great not all of them want to work in the <unk> fashion that we've talked about somewhat to do direct Apis with us, which is which is great. We welcome that as well.
But the receptivity to a more authenticated consumer we're very confident in or we're very happy with I should say.
And while it has been bumpy throughout the year, because we have a lot of third party dependencies and as you would imagine given the shifting.
Shifting budgets of card issuers.
Throughout the year with views on the economy.
Getting partners to spend money on an integration is challenging we feel really good about the momentum with card issuers and that list is long and I think we're having a different conversation. This time next year.
I hope that we haven't been very different credit card business. This time next year, one where we're genuinely delivering the right consumer for the rate card.
Thank you and just one more on just on the brand spend.
How would we see that start to show up in the financials, where youre getting the benefit.
So I'll just.
Got it sorry.
Let me just start more broadly so youll see it in what we call well so whenever you run <unk>.
Vision campaign, you run Whats you are monitoring whats known as your return on AD spend or your ROE <expletive>.
And.
And that is in the numbers, it's obviously not one to one and the revenue comes in over time.
But we're very very pleased with where that is.
With where we turned out there was actually one of our most successful campaigns we've ever run in terms of.
Proven brand metrics.
And then you see it over time as you continue to run you see it in your multi touch attribution as it helps your other channels and we definitely did see data's.
As well and so I'm really pleased with how the brand campaign and the other thing I would say is that it also came along with one of our initiatives with marketplace 24 and came with the <unk>.
Revamp of our forms and customer experience as well.
So.
Feel really good about where the brand with our numbers.
Yes, Doug I think you had a lot of what I was going to get out I was just going to say.
From a financial standpoint.
We've not yet made a determination as to how much or.
Timing of brand investments headed into next year I'm sure that the logical follow on questions are more to come on that front, but as Doug said.
We're pleased with the with the early reads, we've seen tangible signs of improvement in several of the brand health metrics things like awareness consideration.
Impression.
And we're going to continue to unpack kind of the results of it and formulate our plans for next year.
Thank you and the only other thing I would add is is when we're running TV.
We're pretty confident in the health of the underlying business.
That does take a while to pay off and can be fairly risky. However at the same time.
We love that our business model can actually support limited TV spend.
Thank you.
Alright.
Thank you Jed.
First up we are going to have a question from John Campbell of Stephens incorporated.
John go ahead and ask your questions.
Hey, guys good morning.
Good morning, John .
Hi.
Clearly industry refi.
We had a trough for a period of time here I'm just curious about how you guys are thinking about your quarterly or annually. Just however, you want to frame it up but your personal kind of trough level of refi revenue and then separately. If you guys can maybe talk to your lender partners.
Specifically those guys that have been historically.
Like pure refi shops could you talk to how theyre kind of embracing this new norm and whether theyre closing shop or if they're looking to maybe lean on you guys to pivot to the purchase market.
Or.
John I'll take it it's J D.
One historically, you've heard us talk about that shift from refi to purchase and that is absolutely going on the difficulty here in the second half of 'twenty two is obviously with purchase.
You've got two headwinds right first at with purchase inventory.
And time to close purchase as we've talked about for those loan officers is more challenging than refi.
The second headwind is obviously just rising rates until <unk> seen a lot of macro data on declining purchase volumes and if you look at the MBA data. This is always a tricky time of year as we look out to 'twenty three at the MBA data.
Because.
The.
The forecast.
Obviously, just changed quite a bit they just took down their forecast for overall purchase and refi for next year as well. So so thats tricky now what's different this year is that many of our lenders.
Would typically who are refi and the intent would be buying home equity leads and trying to convert.
Those.
Borrowers who are expressing an intense around home equity into cash out refi.
What is a little bit different this year is that we've seen a genuine expansion of the home equity product and so home equity is one of our best performing <unk>.
Products within the home segment.
And it has replaced.
That shift to purchase and it's actually bigger than purchase at this point.
For us so that's great.
So we're mindful of the fact that.
We still don't have.
All of those lenders with a legitimate home equity product right. There are still some trying to convert to cash out refi, but it's a much healthier business than it was.
And then it has been in the past.
And so that's.
That's kind of what's different now.
As it relates to refi, what we struggled with a bit as we look at the stance that you do which talked about the number of Americans, who would benefit from a refinance at this point and that pool is obviously historically small.
But there is still a projected amount of refinance that will occur next year and so from an operating perspective, our goal is to find ways to reduce our cost of acquisition.
And deliver for those partners. So we are at the point in the cycle, where our ability to acquire should improve there should be less competition.
We're seeing signs of that happening now.
And what we've got to do is for that base of refi that is projected to occur in the teams to occur every year. Despite.
Despite rising rates, we've got to deliver for our partners. There now the other thing that you would ask us what our lender.
Vendor partners doing one of the things we monitor.
Is reductions in workforce among loan officers right until we monitor that on a regular basis, and we and we've seen a fair amount of that as you might imagine and so.
<unk>.
We have to monitor that and we have to work with our lenders to make sure that.
That the loan officers that they've retained.
Our productive.
And so.
This is kind of a period, where we know that those lenders reduce the number of leads versus that they buy from.
Right there with gets a whole lot shorter and we're happy when were the retained partner.
And then we try to make it as valuable for them as possible.
The only difference relative to previous cycles is home equity is far more substantive and as we look at the business go forward when rates just stabilize.
We think it should be a healthier business, it's not just a function of one product in refi, but three products refi purchase and home equity.
Okay. That's very helpful thorough answer I appreciate that J D.
More on insurance.
Clearly you guys have to go through the planning staff for.
For the guide or from 'twenty three outlook for insurance happy to take anything you want to provide there, but just maybe broadly if you could talk to just the conversations with carriers I mean, I just feel like that business is primed to move as soon as things kind of normalize in the channel however, long that might be.
And then also if you could maybe just talk to the competition out there in the kind of cost to acquire.
Yes, Hi, this is Scott.
I'll take that question, just just starting with the long term outlook.
Yeah at a high level the carriers I mean, there was theres been growing optimism in the second half of the year that that either rates or catching up some carriers feel a bit rates are already bought a number of carriers feel like sort of catching up to the inflation.
Just one or two additional rate increase cycles will get them.
The inflation effort from a number of carriers that they are feeling starting at the beginning of the year.
Auto insurance inflation index that look at things like price of used cars cost to repair cars time to repair cars et cetera.
And.
I feel like a number of them are fueling that.
At the end of this year beginning next year and so then the rate increases are going to quickly start surpassing that to get them back into a good position. So.
Cautiously optimistic.
And what I'd like to say bolt and <unk>. The cautiously word there I think we'll start to see momentum starting at the beginning of next year, but it's not going to be.
Right back to normal the good old days at very beginning.
Beginning, but it will start to build in like you. Even mentioned that question I think it will snowball as it starts to build and competition for consumers.
Everyone expected to be have a lot of.
Tumor shopping and market next year.
And then and then on the on the other side about just the competitors in the cost of acquisition.
I think all of us are taking our own different tax on I can just speak specifically to the insurance side on Lendingtree, our tact with subdued client budget is just.
A focus on margins and <unk> focus on quality and so what we really did working closely with our clients. We're not trying to force too much traffic to them right now, we're just focusing on the highest quality traffic.
Highest intent traffic for example, our search traffic is up 72% year over year Q3, compared to Q3 last year.
And we've been controlling and subduing some of the less high intent traffic, which allows us to monitor.
As monetize as much as possible in today's time, the current traffic, which I feel has put us in a good position.
Get when those budgets start coming back you get a big piece of the pie.
<unk> traffic is going to be the first thing that the carriers one.
It makes a lot of sense. Thanks Scott.
Yes.
Okay. Thank you John and up next for questions, we are going to have.
Rob Wild heck out of autonomous.
Rob.
Hi, guys can you hear me.
Yes.
Yes, great great. Thanks, I wanted to ask you about cash generation and the free cash flow that you generate for you you referenced the shareholders.
Year to date Capex is down about 70% year over year. So can you talk about how in an environment that is difficult as this one from a macro and competitive perspective, you're ensuring that you're investing enough while also balancing.
<unk> that against cash generation and free cash flow.
Yeah, I'll start with that.
Yes in terms of investments.
We have.
What we did last year or this year as we had a very focused set of key strategic growth initiatives, obviously were okay. Our company as well so people have initiatives below that and.
By having that level of focus.
That's enabled us to.
Keep a lid on.
On.
On software a lot of that capitalization is probably software trying to tell me. If that's if that's not the case, but I think it's because we've got a focus list of a few things that we think can move the needle and we're beavering on them this year and hope to.
Still do some beavering next year, but that's really that's really why it's really just staying focused in.
We've never been a company that.
Overspends.
Without <unk>.
Discipline on the on the revenue side, and I think Thats why youre seeing it over this company's history.
Trent.
Anything else, Rob I'd just add.
Yes, I'd just point out that.
The Capex was down considerably year on year recognize that.
Throughout two.
2020 in 2021 we've got a lot of capex related to.
Our new headquarters build out as I would say sort of reverted back to you.
Great normal levels with the completion of that completion of that project.
But from a cash flow standpoint.
Our adjusted EBITDA to free cash flow.
<unk> is pretty high I mean, thats pretty good measure and then obviously we've got.
About a $20 million annualized interest burden that we're that we're mindful of it but certainly not problematic but.
Or where is it going to the model is one that still continue to generate pretty good cash flow quarter to quarter. Despite what we're dealing with on the macro level.
Okay.
And then.
Just stick with cash you've run the business at times with more cash than the $2 86 that you have now at times with a lot less cash too so how much of the $286 million cash today would you bucket as.
Quote unquote run the business type cash.
Okay.
Conservatively.
<unk>, we need about.
75 million of cash to run the business. So certainly there is.
Excess cash on the balance sheet, we're looking for ways to deploy that obviously, we've got to be mindful of kind of where our leverage levels have gone given the given the current EBITDA profile that we're that we're dealing with.
So we continue to evaluate options, whether it's tuck in M&A or.
Potentially.
Delevering.
But given sort of current.
Macro conditions and uncertainty about near term macro conditions.
Holding on to that cash is.
We feel like it's a pretty good idea to sit on that cash and sort of see ourselves through this near term uncertainty.
Got it if I could just sneak one more in can you just remind us what the leverage covenant is.
So our <unk>.
Credit agreement it is governed by a broader secured net leverage test.
And so it's two five times secured net leverage.
The only portion of our debt security with a term loan that we did last fall that's only $250 million so from a from.
From our secured net leverage test were in a net cash position. So so that's a very little concern.
Very helpful. Thank you guys.
Thanks, Rob.
Thank you Rob. Our next question is going to come from Melissa Waddell from J P. Morgan, Let's say you had the line.
Thanks, very much I appreciate you taking my questions today I was hoping we could go back to your insurance for a moment.
Follow up question for Scott.
I heard what you said about expecting to see a bit of progress early in 'twenty, three but without ramping.
Throughout the year would you expect a similar cadence in margin or something else.
Yes.
Yes, Hi, this is Scott.
I would say for starters, we've already started the margin profile adjustments and we're very focused on.
I think as.
Doug Andrew mentioned earlier in the call. We're up four five points from Q2 to Q3, we're going to be up in <unk>.
Two points from Q3 to Q4.
So we're feeling really good about the trajectory of our margins again as I said in my previous answer just.
Instead of focusing on trying to deliver anything and everything and the clients just focusing on delivering the highest quality, which is what the clients want right now and making the most of monetization out of that limited traffic.
So I'm trying to overwhelm our client with traffic and so I think that puts us.
And a very good margin profile when the growth starts and so then the goal is just to maintain that margin profile as we get the revenue growth.
Okay, that's really helpful.
And then I had a follow up question on a comment I think it was in the shareholder letter about there being sort of record consumer search activity within insurance.
Wanted to thank you for im understanding that correctly.
Looking at that as sort of just a rational consumer response to auto rates that have been increasing or is there something bigger to read into that in terms of sort of like pent up demands for auto.
Yes, I'm not sure if that referenced within our letter or somewhere else, but that is a phenomenon.
Yes, okay.
Yes that is a phenomenon that's happening right now and it is a.
I would say more southern pent up demand I mean auto insurance, it's something that consumers are always shopping for I think it's more of a rational consumer response to raising rates I mean people are getting the renewal notices right now and theres the shock value when you see a 10 or 15% rate increase.
Because all the carriers are putting through rate increases to try to catch up with inflation. So that just drive shopping behavior.
So at the end of the day everyones, putting rate increase them, but it incentivize people to shop.
Which is a good thing for a company like ours.
Alright, thank you.
Alright. Thanks, Melissa our next question is going to come from Christopher Kennedy William Blair Christie.
Christopher you had the length.
Hi, This is mark on for Chris just wanted to ask one question here.
That my Lendingtree users grew during the quarter, but obviously the revenue contribution from my Lendingtree went down 25%.
<unk> you talked about a lot of the revenue from my Lendingtree coming from personal loans. So wanted to see if you could talk about any of that dynamic there between my lendingtree user growth.
Revenue contribution thank you.
Yes, invariably what happens with our.
With that base and as we've talked about that base disproportionately benefits, our personal loan business and while that business remains strong recognized in the third quarter. What we saw among our lenders was more tightening of filters.
With concern about the economy right. So they moved.
With respect to up with respect to credit quality.
And they were also increasing pricing to the borrower right. So that's the behavior of the personnel now that that exist in our marketplace business, but recognize that what's happening is.
The.
The my Lendingtree base.
Is being filtered that much more relative to those tightened filters. So you saw a deceleration effectively in.
<unk>.
Yes that engagement because of the because of the tightened filters and the increased pricing from our lenders now the other thing to keep in mind is the number two product.
For the my Lendingtree base in any given quarter has historically been refi.
So youre seeing youre seeing the impact of that as well.
And so it's always an interesting thing to look at alignment between that my Lendingtree base.
And revenue in a given quarter.
Operationally, we tend to focus more on.
Are we growing the base are we diversifying the base.
But there are some read throughs in a given quarter that.
Probably a little bit short term oriented.
So essentially.
We think it's related to the PDL tightening and to refi and not much more not much more of a read through to that.
Got it. Thank you and then I guess kind of following up.
With the <unk> initiative have you guys thought about any additional product types to expand trio qual into our kind of focus right now on where it's at with personal loans and credit cards.
I'm going to let J D pick up on that one but some of our other products.
For example, mortgage you are already tied into pricing.
Pricing engines.
J D you take it from there.
Yes, I think.
As I said before the business that will benefit the most initially will be credit card, we want to get that right first.
Personal loan what we're seeing is a real overlap youre starting to see we've seen real growth in the base of lenders in personal loans. We also see a trend where many of our personal loan lenders are getting into credit cards growing the credit card business.
As well so it's a natural extension, but honestly that.
The focus for <unk> for the next year, we will continue to be on those two products. The thing that pre qual enables us to do that.
And that is really interesting is it's not just going to be dependent on the my Lendingtree base. So you could envision a scenario where a consumer in our personal loan marketplace is looking for a personal loan that is perhaps inefficient maybe its a small dollar size, they're looking for an $8000 personal loan.
And the pricing for that loan is inefficient for them.
And we can offer them a credit card.
In the experience so think of like an interstitial that would show up in that account.
After that.
And so it gives us it gives us the ability to be way more dynamic and responsive to the consumers need.
And Thats, where this will evolve.
We'd rather really get it right in cards and personal loans.
And then we'll figure out whether it can apply to other products, but thats the first leverage point.
Got it. Thank you guys for taking my questions.
Alright, our next question.
Yes.
The next question is not going to come from Youssef Squali.
<unk> Securities.
Hi, Good morning, guys can you hear me, yes, I use of yes.
Good morning, So I apologize I joined late so this question may have been asked but just on the credit card business down 10% maybe can you just.
To expand on what went on there one of your peers that also reported last night.
Sure quite a different.
Picture on that segment of the business just trying to understand kind of maybe the competitive dynamics versus things that you.
I have done that may have caused.
Kind of.
Decline, what's baked into your your kind of outlook for Q4 as far as credit cars concern I have follow up.
Sure. So we've talked about the fact that the thing that we need to improve in our credit card business.
Our marketing mix right, we're very dependent on paid search and so.
In that respect when we get budget from an issuer, we've got to go out and go acquire traffic and so that traffic has been expensive.
And as a strategy for our card business.
We've got to improve that over time, we've got it we've got to improve and find low cost sources of traffic and so when you think about that you typically think about what is organic or near organic so content, which takes a long time right you have to develop content and it takes a long time to get there. So the competitor that you are mentioning.
As a known player their primary strategy is that Theo.
And what we've observed in the quarter of two things one. They obviously you talked about an acquisition, but two they have stacked more what I would call card stored on top of their organic or editorial content. So if you go into a Google search and you see what was previously a.
Sure.
Quote unquote editorial content around card it is way more transactional than it was a quarter ago.
And it has.
Ray of cards that are available to you et cetera. So.
That is a strategy that they are benefiting from in the quarter.
And there are better leveraging their SCO content now.
Now as you know the Ico business is an important business, but one that you have to manage the quality of the content over time.
It is important to us to grow that and have it be part of our marketing mix for sure.
But it is something where our card business simply does not benefit as much from it as we would like it to.
And Thats really the distinction in the quarter in the card business. So while we definitely have payouts that are higher than they were a year ago now keep in mind payouts tend to be peaking in the third quarter. So they were they were healthy a year ago as well. The difference is that we're just having to pay an awful lot to go get that traffic.
And so thats been the challenge.
And then in terms of whats baked into your Q4 outlook.
We don't.
Q4 outlook, we continue to see the only thing is baked in is the seasonality of Q4, we don't assume that that improves at all.
In card.
Yes.
Is it something that you guys going to lean much more aggressively into because you've always had a little bit but not a lot of it.
By design.
Does this kind of yes, we've actually seen.
It's interesting.
Our business SCO.
And credit to the team.
The results this year are actually quite good in many of our verticals.
Just recognize that we're trying to support many verticals.
With improved SCO performance and.
And not we're not as concentrated alright, we do have.
To support home.
To support personal loan insurance and so.
In that respect you are just not seeing as direct of a benefit as somebody who is more focused on the card business specifically.
Yes, and the only thing I'd add is.
You're targeting your SCO and your content, which we've got teams great teams doing that at your highest.
<unk>.
At your highest value products and stars have been tilting, obviously not as much a credit card and then than our competitor.
The only other thing I'd add is in a paid marketing business, while that sometimes can obviously.
Free traffic is better, but the challenge with free traffic.
It doesn't.
Double and Triple like you can when you can lean into paid marketing and so I think our paid marketing capability is very very good and as J D said.
We need to step up on the content game and the nice thing there is.
Somebody else is as another.
Other trick, we can do it too and we think the Lendingtree brand I'll pull better than pretty much anybody at the end of the day.
That's great that's helpful and maybe just one question on profitability. So I know you've gone through some cost cutting as you look at longer term profitability.
I guess, how do you balance out.
Profitability derived from just top line growth, which arguably is kind of hard to control versus just profitability from better cost containment, which you guys seem to be doing I guess, what I'm asking is it looks like profitability is probably trough in Q3, but as we look beyond Q3 Q4 into next year I mean, how long.
Before we get back to double digit kind of EBITDA margins at least.
Hum.
Uh huh.
Based on what Youre seeing today.
Yes, I mean, we talked about this a little bit earlier as well use of.
Last quarter Alright.
We sort of mentioned a kind of a $15 million to $20 million or trough EBITDA level.
<unk>.
In a quote unquote more normalize environment, obviously, the macro conditions that continue to get worse Q4 is always seasonally a tough quarter.
Q3 was impacted by.
Yes kind of the upfront nature of the brand investment.
As we said earlier, we still feel really good about that 15% to 20% or $15 million to $20 million floor on a quarterly EBITDA basis going into next year, obviously, we're going to continue to push and manage the business to drive to try to do better than that.
I guess.
Two things the enterprises balancing.
Revenue opportunity and cost cutting.
Macro conditions have been tough and we're responding a quarterly accordingly, we're weathering. This this tough environment, where we've got.
<unk>.
For us our mix of business being sort of anchored in home and insurance.
Those two in particular are experiencing tough headwinds that I think we're being disproportionately impacted by those headwinds relative to some of our competitors and.
And so where we.
Navigating through this environment.
We're going to continue to manage the cost structure with discipline, but we are certainly still well enough resource to continue to execute on our strategy and drive growth in the quarters and years ahead.
The only thing used if I'd add to it as Scott alluded to this in terms of his margin profile recognize the insurance business started to see constrained budget call. It in the second half of last year and now Scott and team have done a great job of managing margin in their business DMM right in their business.
By delivering higher quality for.
Air partners at a lower cost.
Driving our margins higher with better quality delivered right and now in the home business, we need to do the same thing when you see that revenue deceleration what you would typically see it our margins would expand a bit because we're not chasing every last bit of traffic because our partners only want the best traffic.
And so we've got to do that in the home business. The only business. We have that is not operating.
Margin that we're happy with right now among the big businesses as cart.
And so we've got to manage it in the business is on a <unk> level and then we've got to manage our Opex, which obviously <unk> mentioned the work that we did in the quarter, which we should all emphasize will be ongoing right.
To reduce that Opex and deliver margin that is absolutely part of our strategy as we move forward in 'twenty three.
That's helpful. Thank you.
Thank you so as a reminder, if you do have a question. Please press star one wanting a telephone and follow the prom.
Next question is going to come from Mike Grondahl of Northland Securities Mike.
Mike Yes.
Guys.
Hi, Mike. So my question is just about mortgage.
Any thought.
On evolving or improving the customer experience kind of with mortgage during this.
Very slow period.
How are you thinking about evolving that.
Customer.
So I referred in my in.
One of the questions to marketplace 24, the first phase of that project was the revamp.
The.
The customer journey.
Through the point of submitting a form on the marketplace. The second version of that we're working on right now which is to improve the CRM.
If you will between the time that a customer click submit and the time that they close.
We think that will do is move up the lenders close rates as their close rates go up their cost per funded loan goes down and then they increase their bids and we're working on some really interesting ways of sharing data back and forth between us and lenders, but we can use that data over.
The long purchase cycle over the long purchase cycle of a mortgage when you think about a mortgage it's a highly considered purchase it's not something that you buy in one click on our website right away you want to go talk to your spouse do you want to go shop around and you need to manage that customer and we need to give them confidence all the way through the <unk>.
Assess of selecting a lender.
And locking in and Thats the focus.
Of that.
And we're just kicking that off.
But.
That's a really big focus there.
Okay. Thanks.
Thanks for that color.
Thank you, Mike and last call question comes from Jamie Friedman of.
Susquehanna International Group.
Hi, So just to revisit some of the prior comments. So I'm hearing you right with regard to the margin.
I don't want to mess this up but I think you said.
You said in a previous answer that you were still comfortable that the.
Margin same mid cycle can return to the say mid to high teens that they've been historically I don't want to put words in your mouth, but is that about right.
Yes, Im not sure I'd say.
Specifically I think what we said was.
Sort of continuing some commentary from last quarter.
As we get into next year, despite any improvement in the macro and perhaps even allowing for some degradation in the macro.
We still feel pretty comfortable that we can deliver kind of a $15 million to $20 million floor with regard to.
<unk>.
Quarterly EBITDA.
Yes, okay.
And.
Historically.
That's been significantly influenced by the relative margin characteristics of the different business segments. So.
Is there.
Any underlying assumption there or is that just because of kind of cost improvements.
In the overall corporate structure.
Both.
As we've said.
Very focused on both preserving the kind of the gross margin within each business.
In an environment, where the revenue opportunity is challenged are limited or.
We're maniacally focused on preserving as much margin within that as we can and then.
The opex piece are different.
Different animal, but we're obviously very intently focused on that as we head into next year I mean, clearly we've taken some steps throughout this year.
Workforce reduction in January we've done another one here just last week and we will continue to kind of evaluate that as we as we head into next year.
Yes, let me John .
They make a clarification to win win.
Trent expresses confidence in.
Normalized EBITDA. The reason, we can do that as a company is that the.
Basically always balancing supply and demand in our in the core of the business model. So if insurance companies for example are demanding.
Fewer customers fewer leads we go turned down the marketing spigot and view still make EBITDA you still make Vms you just make less of it.
The flipside is when people increase their demand for personal loans as bids go up or if the conversion rates go up your monetization goes up and then you can go market into that and increase the supply of leads into the market. So as you in either one of them because the marketing costs and the revenue are joined at the hip.
<unk>.
The margin percentage roughly goes up and down.
And as long as there is enough demand in the system for insurance companies for mortgage companies and banks to actually work with us.
Then you go then that you have enough <unk>.
Then you go look at your fixed cost structure and except for your growth initiatives.
<unk>.
Hugh you Beaver away at that as <unk> has already talked about.
Got it thanks for that Doug.
Sure.
Great. Thank you James and thank you everyone for your questions at this time I would like to turn it back to the speakers for any closing remarks.
Thank you very much and thank you again all for being here.
I sort of alluded this in my last answer but.
Given the diversification of the model.
The way the marketplace works.
We are absolutely thrilled that we've been able to execute the past several years and a really really really choppy market and when we talk about supply and demand keeping in that context demand for all of our leads if you will across segments have been have been down.
And we've been able to not only the business model is resilient, but our team has been fantastic and seeking out opportunities J D referred earlier to the fact that when lenders do pull back as they reduced demand we love. The fact that in most instances, where the last where the last place standing as of <unk>.
Marketing partner.
The next thing I just want to highlight is managing cost trend already hit on this thats really important to do as a company. It is not lost on us and we're going to country.
Every dollar we spend is going.
And to the right place.
And then after that what we do is I believe very very strongly in our core set of growth initiatives and what theyre going to do for our company and they won't all work.
But I bet, we're going to have a couple of hits in there I want to thank you all our shareholders for being with us.
We're giving great transparency and stay tuned because you haven't hurt you theres a lot more to hear from Lendingtree coming up thank you.
Thank you everyone for your participation today's conference. This does conclude the program and you may now disconnect.
You are muted you can mute on mute yourself by pressing star The conference will begin shortly to raise Johan during Q&A you can dial one one.
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