Q1 2023 LendingTree Inc. Earnings Call
Speaker 1: Please be advised that today's conference call is being recorded. I would now like to hand the conference over to our speaker today, Andrew Wessel, head of Investor Relations. Please go ahead. Thanks, Amber. Good morning to everyone joining us from the call this morning to discuss Lennie Tree's first quarter, 2023 financial results. On the call today are Doug Lebdeth, Lennie Tree's chairman and CEO , JD Moriarty, president of Marketplace and CEO , Trenton Ziegler, CFO , and Scott Perrie, president of insurance. As a reminder to everyone, we posted a detailed letter to shareholders on our Investor Relations website earlier today.
Speaker 1: And for the purposes of today's call, we will assume that listeners read that letter and will focus on Q&A. Before I hand the call over to Doug for his remarks, I remind everyone that during today's call we may discuss lending trees expectations for future performance.
Speaker 1: Any forward-looking statements that we make are subject to risks and uncertainties and lending trees actual results could differ materially from the views expressed today. Many, but not all, the risks we face are described in our periodic reports filed with the FCC. We will also discuss a variety of non- GAAP measures on the call today, and I refer you to today's pressure release and shareholder letter.
Speaker 1: Both available on our website for the comparable gap definitions and full reconciliations of non- GAAP measures to gap. With that, Doug, please go ahead. Doug, thank you, Andrew, and thank you to everyone who's joining us today. We took several actions during the first quarter to right-size our expense base and positioned the company to serve our customers and partners more efficiently. Thank you.
Speaker 2: These were strategic decisions made to simplify our operations and streamline our corporate priorities. We've been reinforcing a startup mindset with our team. It's important that we empower our employees to identify and solve issues in real time, harnessing the positive aspects of working in tighter and more cohesive project teams. The centerpiece of this effort has been moving to a quarterly strategic strategy for the future.
Speaker 2: project cadence from a previous annual planning sessions. The quarterly corporate priorities are communicated to the entire company with specific employees assigned to each initiative and cross-functional teams to improve speed of execution and drive accountability.
Speaker 2: The benefits from our leaner organization and improved project-based planning are made clear in our updated financial outlook. Our lowered revenue forecast considers the impact of the businesses we exited this quarter, as well as closing ovation credit services which began in April after quarter of horrend.
Speaker 2: We have also included an expected reduction in insurance revenue as one of our largest partners has paused new policy acquisition across several states for the foreseeable future.
Speaker 2: However, it's important to recognize that it's displayed $189 million reduction in our 2023 revenue forecast at the midpoint.
Speaker 2: Our adjusted EVA DOG guidance range is decreased by just 5 million. We've simplified our business and made it leaner. We will generate substantial operating leverage on our lower fixed cost base when the revenue environment does improve.
Speaker 2: Moving on to our segment performance. In the first quarter, our insurance division again posted impressive results.
Speaker 2: The changes that Scott and his team have implemented in the second half of last year have driven increases in segment operating margins, which rose to 39% from 26% in the first quarter of last year.
Speaker 2: Although we expect another subdued year of demand from our insurance carrier partners.
Speaker 2: We have positioned the company to capture market share with exceptional economics once demand returns.
Speaker 2: We have leaned into specific verticals that are displaying more resiliency, such as health care insurance, our service that pairs local captive agents with our customers looking for new policies, and routing more of our customers into our own P&C agency for fulfillment. Within the home segment, we generated $24 million of revenue from our home equity offering in the quarter, producing modest growth from last year.
Speaker 2: Our team is working on improving purchase conversion rates, also helping our partners meet our customer's strong demand for home equity loans. In consumer, higher short-term interest rates set by the Fed.
Speaker 2: appear to finally be having the intended effect. Close rates have declined across all loan types, with lending partners tightening their underwriting requirements and slowing the pace of loan origination.
Speaker 2: We expect that this trend will continue as the year progresses.
Speaker 2: The implementation of light speed on our platform is performing as expected, making our credit card business more efficient, and enabling us to transition our compare cards brand over the poor lending tree experience, which will drive material cost savings over time.
Speaker 2: The message I would like to leave you with is that we have significantly reshaped the cost to run our company in the first quarter. Our actions have removed low returning businesses that we're consuming capital, time, and other resources.
Speaker 2: focused our team on key priorities that will drive our profitable growth and more efficiently now and in the future. And operator, I'd be happy to open it for questions.
Speaker 3: Thank you. At this time, we'll conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, press star 11 again. Please stand by as we compile the Q&A roster. Our first question comes from you. You said, squally.
Speaker 3: of Truist Securities. Great. Can you guys hear me?
Speaker 3: of truest securities. Great. Can you guys hear me? Yes, we can.
Speaker 1: Close some of these businesses that you just spoke to maybe the impact on the new guide for Q2 and fiscal 23, just trying to get a more of an apples to apples comparison. And then 2nd, maybe this is a question for Trent as you look at the growth, particularly for 2023. What kind of growth assumptions are you assuming for the different businesses? The 3 main businesses, thank you.
Speaker 1: some of these businesses that you just spoke to, maybe the impact on the new guide for Q2 and fiscal 23, just trying to get a more of an apples to apples comparison. And then second, maybe this is a question for Trent, as you look at the growth, particularly for 2023. What kind of growth assumptions are you assuming for the different businesses? The three main businesses? Thank you. Yeah, thank you. This is Trent.
Speaker 2: Yeah, I think I can kind of hit both of those. If you think about the commentary we gave around the original guide in February , you know, across segments, we said we expected home to be down.
Speaker 2: more than 20% from a top line perspective. Our expectation there is that that's a little bit worse today than we thought two months ago. We reserved at the time some optimism around our ability to grow and purchase. And the market there has proven harder than expected. These trends happen all the timesharing and waiting for many people sophisticated
Speaker 2: Home equity continues to be really solid and that's a good contributor within the home segment. But, you know, refi is obviously compressed and then our outlook on purchase is probably the real driver there.
Speaker 4: to be really solid and that's a good contributor within the home segment, but you know, Re-Fires obviously compressed and then our outlook on purchase, it's probably the real driver there.
Speaker 4: As you think about the insurance segment, we initially said kind of mid-teens type growth for that business this year, keeping in mind, you know, obviously, last year was a tough year. So mid-teens type growth coming into 23, we didn't feel like was much of a stretch. But, you know, I think as we've all seen the operating environment and insurance is getting harder. Obviously, you know, some big players just announced plans to reduce their
Speaker 4: you know, mid single digits. But the contribution margin from that business, we do still expect to be up 10 to 15% year on year. So that's a testament to the work we've done to improve the margin profile that business over the last six to nine months. And so that's a testament to the work we've done to improve the margin profile that business over the last six to nine months.
Speaker 4: And then finally within consumer, this is probably the biggest swing factor relative to the prior guide. We call it out that we expected consumer to be up again mid single digits this year. That's probably down mid teens sitting here today. But within that.
Speaker 4: We have announced the plans to wind down the Ovation business. That's about half of the driver within consumer.
Speaker 4: Obviously, some developments within the broader credit repair space over the last.
Speaker 4: last couple months have led us to that decision. We were actually in a process to sell that business. And, you know, with a adverse ruling against one of the bigger players in that space, that whole industry has kind of been shooken up. And so, you know, we're obviously going to be missing out on the direct ovation.
Speaker 4: revenue stream, but there's also a component of our business where we cross-sell to other players in that space, and that's been you know sort of temporarily impaired and we're looking for other outlets for some of that traffic that goes under monetized through our traditional lending businesses.
Speaker 4: So I think that covers it in terms of our new outlook and sort of where the declines are coming from.
Speaker 5: Okay, that's helpful. Thank you.
Speaker 3: Please hold for our next question. Our next question comes from Jamie Friedman.
Speaker 3: of Equity Research Analyst. Jamie, your line is open.
Speaker 3: Jamie, your line is open.
Speaker 2: Hi, good morning and thanks as always for the shareholder letter and doing this call. So in the shareholder letter,
Speaker 2: You commented the expense structures back to the 2019 level. So Trent made this for you. I just wanted to check. Are you thinking about that on a percentage basis or an absolute basis or?
Speaker 2: comment that the expense structure is back to the 2019 level. So Trent made this for you. I just wanted to check. Are you thinking about that on a percentage basis or an absolute basis or?
Speaker 4: Yeah, so what is that comment referring to? Yeah, so on an absolute dollars basis, you're not going to see the
Speaker 4: The full impact of the benefits of the cost reductions in Q2, but by the time we get to the back half of the year in Q3 and Q4, we'll be run rating.
Speaker 4: on an annual basis pretty close to the 200 million, which is where we were operating in 2019. Got it, okay, and then... So everyone mobile now is in you right now... Now, .... You will see a major
Speaker 2: The only thing I'd add to that is the fact that it's at 2019 levels is a reference point. It's not what we were.
Speaker 2: necessarily going towards. We were taking out costs very deliberately as the unit economics of the business changed, and then some of your projects and things that you were working on just simply are underwater based on new realities.
Speaker 2: keep adjusting to the reality of when to demand in the business. Okay, and then Doug, just to follow up there, maybe JD, in terms of consumer,
Speaker 2: keep adjusting to the reality of when to demand in the business. Okay. And then Doug, just to follow up there, maybe JD, in terms of consumer, the...
Speaker 5: The component that surprised us a bit, and I wonder if it surprised you, was CART.
Speaker 5: that surprised us a bit and I wonder if it surprised you was card
Speaker 5: down 39% to 18 million. So, you know, when we look at the issuers, their originations look like they're fine.
Speaker 5: And I realize it's more complicated than that, but is it possible that you're losing market share? There's some specific issuers that have gone elsewhere. What's going on there to drive that this way? Sure, you kind of have to look, Jamie, at
Speaker 4: not just the Q1 contribution in CARD, but actually as the quarter progressed. In CARD, I think they certainly started out the year with more of an origination focus that has diminished somewhat.
Speaker 4: Now one of the things we've talked about is from a contribution perspective for us, this is our lowest margin big business. And so we're doing things to try to improve the quality of the two things. One reference in the letter was the move to light speed. That's a whole new new platform that is dramatically faster for us.
Speaker 4: distribution perspective for us. This is our lowest margin, big business. And so we're doing things to try to improve the quality of the two things. One reference in the letter was the move to light speed. That's a whole new platform that is dramatically faster for us and it offers.
Speaker 4: It offers that speed results in better marketing dollar efficiency for us. What we'll then be able to do, and we are about a third of the way there, is transition our traffic from the compare card experience to lending tree that will offer another level of efficiency.
Speaker 4: Okay, so we're about a third away there. That will creep into Q3, but be done, hopefully, the beginning of Q3 in terms of that transition to the Lending Tree brand. It is possible that in Q1,
Speaker 4: We probably.
Speaker 4: We're not on our front foot with some issuers as a result of these initiatives. Having said that
Speaker 4: It's a reasonably anemic card environment right now to begin with. So in consumer, the desire of issuers, keep in mind we get paid when they get approvals, and we know that they started the year with consumers clicking through. We know that there's ainction in consumer and your card economy. We're not Nets DUP led by this third gradient in consumer demand. Not to acted on consumer demand.
Speaker 4: applying for cards and they were well ahead of pace on approval many of them in terms of what their internal budgets were. So we've seen that a bait.
Speaker 4: And it would be unreasonable for us to make an assumption that that's just suddenly going to correct itself and issue in this credit environment that all of our credit card issuers are going to be, you know, changing course and be very aggressive with respect to card issuance. Now your question...
Speaker 4: has to do with just the top line obviously of card in Q1. We're taking the steps to fix it. The good news for us.
Speaker 4: just the top line obviously of card in Q1. We're taking the steps to fix it. The good news for us is that tomorrow I am bringing the data back to non handcuff Maxine you with data that I can
Speaker 1: to make this transition at a lower opportunity cost.
Speaker 4: But we're just focused on getting to the other side and having a more efficient card business.
Speaker 5: within consumer, you have to sort of recognize that
Speaker 4: That just car, the other businesses that are in there are personal loans.
Speaker 4: car, the other businesses that are in there are personal loans. We get paid mostly on
Speaker 4: closed loans there, right? And so we've seen tighter credit conditions throughout Q1. And obviously with SBB and the banking crisis that credit tightening, you know, accelerated that started in March.
Speaker 4: and continues here in Q2.
Speaker 4: that ripples through a bit in SMB which is a big contributor for us in consumer and then as Trent points out
Speaker 4: and the other ancillary cross cell businesses associated with that are in that consumer vertical. So recognize that all kind of contributes.
and the other ancillary cross-sell businesses associated with that are in that consumer vertical. So recognize like
to some of the adjustments in the top line for the guide. Okay, thank you for the context.
top line for the guide. Okay, thank you for the context. Sure.
Please hold for our next question. Our next question comes from John Campbell of Stevens Inc.
Please hold for our next question. Our next question comes from John Campbell of Stevens-Eight. John ?
Hey, John . Good morning guys. Thank you. Hey, if we look at the stock, what is indicating this morning and then if I just take the midpoint of your new adjusted EBITDA guidance, I mean, the stock looks like it's 8 times what feels like pretty trough level EBITDA. I'm just trying to get a sense for maybe how you guys are thinking about the outlook beyond 2023. Obviously, there's a lot of uncertainty around the market, but
you're showing a willingness to tighten the cost controls along the way. On that 13% headcount reduction, you guys mentioned that's taking you back to 2019 levels, but revenue is still expected to be about 30% below 2019 at this point. Maybe if you could talk to the degree of cost saves you might see if revenue kind of hangs out around this territory.
vision of incremental cost sees and then just maybe how much of it's kind of a million 100 Are you ready, someone?
Now, on the VMD line, one thing that I'm really, really comfortable and pleased to see is the resiliency of the business. So when you have three of your businesses facing significant headwinds and lenders and insurance companies just pulling back and advertising less, the fact that you had three big Appropriations you had in the past two years stop now.
we can adjust our marketing and improve it that quickly so that we don't degrade EBITDA is a breath of fresh air from what we've had to go with in the previous two times we've dealt with this. On next year, I'll let Trent Moore comment on that. I don't comment on that.
Personally, I think we got to wait and see how things shape up in the industry. The second thing we need to see is if one or two of our strategic initiatives hits, and then we could have a change of the unit economics and be off to the races again. Trent.
Yeah, I don't know that I have a whole lot to add there, John . I mean, I think, you know, you think about the situation we're in as Doug said, every one of our businesses is facing, you know, pretty real macro headwinds. We're focused on doing the right things for the business to, you know, continue to generate good positive cash flow during this environment. We've rightsized our cost structure. We've, we've,
gotten out of businesses that were capital intensive and marginally profitable or potentially a little bit money losing. And we still maintain enough resources and human capital to continue to place a few calculated bets, right? So we're within the core business, we're focused on margin preservation.
And we're executing to that end and we still got to, you know, if you project whether it's my lending tree or some of our customer experience based initiatives that we think can, can really evolve the business over the next, you know, six, 12, 18 months. That's where we're focused. I'm sure it will.
of making a call on where the macro goes into 24. I think we're working on the right thing and that's where we're focused. Okay, that's helpful. And then secondly, just from an interview.
I've seen some reports of some new legislation just geared towards the ending of the creation and sale of trigger leads. I know the big credit bureaus are actually selling those trigger leads. I think that's probably happening more so across mortgage and personal loans, maybe to an extent in auto. But maybe if you guys could talk to how competitive those offerings are and whether a ban of those trigger leads would be a positive development for you guys.
Yeah, and I'm glad to ask. You know, it's interesting, John . We do a lender summit. We did a lender summit in November of last year for a number of our partners in home and a lender advisory council. And trigger leads were certainly a big part of that discussion. And interestingly, you know, when we, when somebody comes to the lending tree home funnel, we do a soft poll of credit. Yeah.
Not a hard pull, but the trigger leads create a lot of noise for our partners.
Let's say the consumer goes through the home funnel and gets matched to four lending tree lenders.
and they've given consent to be matched to those lenders, etc., and those lenders are calling, trigger leads create an echo chamber effectively of others calling that same consumer.
Okay, because the awareness is there that that consumer is in market. So absolutely the removal of that would be a very good thing for our business and in turn for our consumers.
and we're happy to see the movement to that being discussed. Anything that removes the noise and results in a more curated and improved consumer experience, we are all for.
Please hold for our next question.
Our next question comes from Jed Kelly of Oppenheimer & Co. Jed, your line is open.
months where the carriers are going to have to readjust their rates and it's going to have to get through the state boards and
You know, we are seeing I guess new car inventory improve. So do you have any sense on where we are in terms of the carriers? You know sort of getting any handle on being able to underwrite auto policies profitable again? Yeah, hi, Jed. This is a God. I'll answer that question for you. You know, I was start by saying you know they're heading into the first quarter that
has pulled back pretty significantly and they did indicate it would be probably six to nine months as they continue to push through rate increases and they were you know if anything just any to be
on their heels a little bit with just the inflation. And in how inflation specifically affecting, you know, use power prices, use parts, you know, repaired times and all of the things. It is still a hard environment for the carriers out there. But, you know, at the end of the day, we've got a large distributed network. We sell least clicks calls to a large number of-
large independent brokerages. Because premium being so high, commissions are higher for large brokerages now. So a lot of them are leaning in a little bit. So there's areas of growth, but at the direct carrier level, yes, you're probably looking through the end of the year, continues slowly coming back into market.
The only thing I'd add to that, I just accentuate a little bit of what Scott said and I said before, but the nice thing about insurance is that you're not only diversified by types of insurance, but you're also diversified by business models. So you have your call, click, and lead product that's bought by big major carriers, and then you also can do that.
If your carriers aren't there, then you have your local agents and you have your own in-house agency. So that can help to keep the unit economics better than they would be otherwise by a huge carrier pulling out if you didn't have that diversification. And that's enabled the insurance business to...
to still do well despite one big customer just pulling back.
Got it. And then my follow up question is just, you know, you did pay a pay off some of the convert last quarter. You know, given where the stock price is and you know, the cash you have on hand, you know, how do you think about opportunity paying down that debt?
especially if it makes sense to pay down given the share prices. Thanks. Yeah, quickly on that one, gentlemen. We're happy with the execution of the transaction in March. Obviously, we still maintain a fair amount of excess cash on the balance sheet.
150 million at quarter end. Conservatively, we think 50 to 75 million is what we need to run the business. So there's some excess cash there and we'll continue to look at.
kind of the trading levels on the conversion and the term on both. We'll continue to think about it and to monitor where those are trading.
We'll think about it opportunistically. Thank you. Please hold for our next question.
Our next question comes from Robert Wildhack with Autonomous Research. Robert, your line is open. Good morning, guys. I asked a similar question a couple of quarters ago but wanted to revisit.
In the letter you said you expect to continue generating meaningful free cash flow, which is great, but the current level of CapEx doesn't cover depreciation, let alone the amortization on the intangible. So considering the competition today and the fact that some of the competitors are backed by big parent companies who can spend a lot.
How do you know and make sure you're investing enough? I'll let these guys handle the financial aspect of that, but there's definitely not a lot of CapEx in the business. The way going forward, I alluded to this, but I'll go into it in more depth. The places where we can invest, obviously we're not building plants and doing things like that.
As the Uniteconomics have gone down, many of the stuff that we were working on is now put on the shelf and we're focused on a smaller handful of priorities. And to the extent that either the Uniteconomics come back to justify something, to do something or a new idea comes along or something works, I could see us.
There will be other things to do that will meet the threshold. So that's how you know. You know it by the numbers and the opportunity in the projects that you're looking at. And then now we can adjust accordingly. So if something is working or seems to.
have higher likelihood, we can shift more resources onto that team immediately. If something is not working, we can adjust or pull back or stop doing it and we can make those decisions now in real time.
Anything on CapEx and intangibles? I think our cash flow is fairly equal to EBITDA, but Trent? Yeah, I guess I haven't thought about it from the perspective that CapEx needs to cover depreciation or amortization. That's just, that's not then how we've oriented the business. But what I would say is, you know, we made reference to the cost structure getting back to.
year 2019 levels earlier, you know, interestingly within the makeup of that cost structure, the relative skew toward things like.
engineering and product and data and analytics is much higher today than it was in 2019. And that's offset by lower cost and things like our call center based businesses.
So we feel like we are, we've got a focused list of projects that we're working on. Those projects are not starved from a...
you know, from a resourcing standpoint. And we'll just continue to kind of chip away at those projects.
I appreciate all the color there guys just to make sure I'm here and correctly it's safe to assume you're comfortable that the current level of investment whether it's cat-experts or runs through the PNL.
is sufficient to stay competitive even in the context of some pretty deep pockets at your competitors? Yeah.
Yes, because the deeper pockets you'll generally see that in the in the realm of
TV advertising and that too will come back for us as expected values go up. So I think as we improve our customer experience, improve our product.
As I said, we'll start to see improvement there and then you layer in the investments in marketing and advertising to drive more volume. Rob, if anything, it's interesting, your question focuses on competition from big competitors.
One of the things that we face day to day are those competitors who are quite small. And periods like now actually will cause some of those competitors to go away, right? Or those competitors who are focused on one vertical that goes through a particularly challenging time. And so what we actually look forward to and
is the ability to actually improve margin in certain of our businesses because that competitive landscape changes on the other side, not the big player but the small ones.
improve margin in certain of our businesses because that competitive landscape changes on the other side, not the big player but the small ones.
Thanks for all the color, guys. Sure. Please hold for our next question. Our next question comes from Ryan Tomasello at KBW.
Hi, everyone. Thanks for taking the questions.
Hey guys on the consumer engagement side, can you elaborate on the expected rebranding of my lending tree later this year? Specifically if that will include a media campaign And if that brand spend is being baked into the forecast.
And then on the on the wind card, you know, realizing it's still early days, but any initial data points around uptake and benefits to engagement that you're willing to provide.
So let me start and then Jay you can chime in. So on the win card, nothing that I'm ready to report yet. It's too early and so stay tuned. That's also the part of the My Lending Tree strategy. Right now we do not have assumed that we will...
The only thing I would add is.
And we alluded to this last year we did.
a lot of product research as to what consumers would want from My Lending Tree and how we should roll those products out. And so we've got, call it eight products that are in the queue, and it will, that's a multiple year rollout. So when we talk about rebranding, what we're talking about is the
we've been pretty candid that we don't love the name My Lending Tree, so we talk about rebranding we're talking about a name that we're comfortable with
recognize when we talk about rebranding we're just giving you the timing of when that will occur and we're right now going through evaluating names so it would be premature to talk about that and then you know the win card is really just the hub for your my lending
and we're trying to encourage repeat engagement. But it's not, it's never, it's not gonna be facilitated by some aggressive spending campaign, you know, like many people do when they launch a traditional credit card. That's not really our goal. Our goal is to give somebody a,
really the key to their My Lending Tree account, and then that all those products will tie into that account.
So I wouldn't, you know, the early read is encouraging in terms of the type of consumers that are opting into it, but it would be way premature on volume to give you any numbers.
Great. And then I just follow up around the mortgage business more broadly. Do you feel like that business has effectively dropped here in the first quarter given signs of, I guess, what seems to be a broader bottoming in mortgage fundamentals?
And then, I guess, thinking out over the next year or two or more, how much momentum do you think mortgage could ultimately return to in a more normalized purchase environment, but without assuming, I guess, a significant re-vi-wave that we're likely not to get here anytime soon?
I guess thinking out over the next year or two or more, how much momentum do you think mortgage could ultimately return to in a more normalized purchase environment, but without assuming, I guess, a significant revive wave that we're likely not to get here anytime soon?
You know, and then just layering one follow-up around mortgage here just with the bigger picture. You know, clearly a lot of market share ships happening in mortgage lands given what's going on, particularly away from banks and more to non-banks. Curious how you're thinking about that dynamic in the context of your mortgage business if there's anything, you know, you're looking to capitalize on there as the environment shifts here. Thanks.
Sure. Listen, we obviously watch just as our partners do, we watch to see whether we see signs of troffing and mortgage. We watch loan officer counts among our top partners and where they are relative to a year ago, but perhaps more importantly where they are relative to pre-pandemic levels because we saw unprecedented loan officer hiring through 2020 and 21.
And then we watch rates like everybody else. And so most of our...
Partners, you know, month on month, we see a diminishing number of loan officers. If you think about how they partner with us, they think about their buy with LendingTree and how many leads they provide for their loan officers to optimize their productivity, and you have to think about the products that they're engaging in.
Right, and so why have so many of our partners shifted to home equity? Because it adds value for the consumer, but more importantly, for the partner and for their loan officers, it converts. Right. So they're not chasing re-fi right now because very few Americans would benefit from a re-fi. In a normal cycle, they would be chasing purchase. This conversion rates are just not there because the home sales are not there. And so they are surviving through this cycle.
that the partners who power our network are not big banks. They are non-bank mortgage originators.
And so that shift is very much in our favor. In order to get to a trough in mortgage though, I think we've got to have first just stability in rates.
You don't have to have a big refi cycle as you point out. You do have to have a little bit of a give in the ever, it's what seems like an ever increasing.
rate environment. And that's really what our loan officers are contending with. If we just get a little bit of speed and a little bit of pullback, you will see a little bit better lender health.
and our network will improve as a result. And the only couple things I'd add to that mortgage.
Generally speaking, there is, except for an environment like today where JD just said there's no benefit as rates have gone up, with stabilization and rates going down, you will have some amount of refinance business. And our existing business model, the way of execution through handoff to lenders.
and then them contacting you predominantly through the phone, that lends itself very well to a refi transaction. However, it's not enough. All of our product innovation, you guys heard me talk about this before, is geared towards making an engaging experience that is not multi-lender phone call dependent.
after you press submit on our form, and then we give you offers and we need to curate you and carry you through that experience in purchase. It might, it could involve like linking in with realtors, but if you pull way back and just think of the non-bank lenders as effectively.
almost the direct marketing companies and this whole thing and the whole notion from them is acquire customers, acquire leads at a level where the conversion rate hits an acceptable cost per funded loan that still makes the money and right now because conversion rates are low because there is no benefit because there isn't a lot of.
you know, home buying going on. You know, they're not buying as heavily, so therefore we're not advertising as much. So the break, the way to break that cycle is to improve your product. And that's what we're working on.
Please hold for our next question. Our next question comes from Chris Kennedy at William Blair.
Good morning. Thank you for taking the question. When you think about your cost initiatives and then kind of how your market share is trended over time, how should investors think about the ultimate earnings power of your business? Yeah, this is Trent Chris. Look, I think for starters.
By the back half of this year, if you unpack our guidance and you look at how it calendars throughout the year, basically we're assuming the...
the macro backdrop stays relatively flat, right, in this environment. And so the top line progression in terms of both revenue and verbal marketing margin kind of bump along relatively flat throughout the rest of the year with a little bit of seasonality. When you get down to the cost structure line.,
Even in that environment, which assumes a pretty tepid macro backdrop, there's a scenario where in the back half of the year, we're approaching mid-teens EBITDA margin. Candidly, that's probably where this business belongs with the opportunity to expand from there in a more favorable revenue environment.
That's kind of step one. And so.
You know, again, I think circling back to John's question earlier, sort of making a call on what the macro does next year. We're focused on right-tizing our cost structure, preserving margins in the core business, and placing a few bets that will enable us to grow from here, sort of, agnostic of what goes on in the macro.nes
So there's no reason why we can't get back to a mid-teens, high-teens type EBITDA margin profile. Yeah, and the only thing I'd add on ultimate earnings power, I think we almost saw that, I guess it was, I'm not sure, it was three or four years ago now when our stock was around $300 a share and we were building, and our EBITDA was certainly twice as high, and we were building towards a much bigger company.
That's because the unit economics were all working and we were able to leverage the lending tree brand. It's good to apply what I've talked about for years, right? If we can leverage the lending tree brand and online and offline marketing at acceptable returns, then you can continue to grow the business. But when lenders and insurance companies pull back, you have to pull back as well.
And the nice thing though, I would say that the future earnings power is it is really, really dependent on us for the ultimate earnings power. We have to make a step change leap in our conversion rates of our core products. You've heard us talk about Treeclaw, you've heard us talk about Lightspeed, you've heard us talk about the new projects we have. And, um,
and those things, that needs to get done, and if it's done, we control our destiny.
Because I think we can build a great product experience that will convert like crazy make our lenders much happier And then by the way the parallel of that is I would say in insurance So if you look at what has happened insurance over the past You know several years. They're very specific initiatives to do certain things or to
I'm Tree Qualum, how your initiatives are going. Thanks for taking the questions.
Sure. Triquil, I guess I would say no new news with regard to partners. However,
pipeline of partners and what they're telling us and what we're learning we are encouraged by. So we have partners in both the you know, subprime world and then big bank partners who have actually shown a desire to work with us in a more direct way.
One of the limitations of our current tree quality solution is that it is dependent on kind of the Venn diagram between who's in our my lending tree base and who our issuers are sending direct mail to. And as direct mail,
diminishes throughout the year.
and those budgets diminish, obviously the opportunities for us to send a pre-qualified notification to a consumer go along with that. And so the current solution that we have works for some partners, but it will not be the only solution. We're saying that for a couple quarters now. And so we're working on solutions that involve...
APIs between ourselves and certain of our partners, and we're thrilled to be in those conversations. We are more convinced than ever that the future of the card business is something that is more pre-qual in orientation. And so, you know, in that respect, we think we're on the right track. I mean, to put this in perspective, in the current card experience, we're going to have to be more conscious of the future of the card business.
You know, this is our frustration with it. This is why it carries the margins that it does. We spend a bunch of marketing dollars, consumers come in to compare cards, soon that will be coming into, you know, a Lending Tree experience. They then click out to a partner and they get approved in a low teens.
approval rate environment, right? And that's not a great consumer experience. And all that marketing inefficiency is on us, not on our partners. We want to be in a scenario where we're driving conversion rates in all of our businesses. The way to do that in card is to send the right consumer to the right partner in something where the approval rates are more like 80%.
some big system around the direct mail opportunity that we identified a couple years ago. So there's good news in bad news. There's bad news. It's not gonna contribute much this year. The good news is we think we're on the right track. And the only other thing I would add is from a resourcing stamp.
criteria, or the approval criteria of credit card issues. So we, we knew issues did not like that approach, so we tried to take this axiom approach and be able to offer real offers by hitting up their direct mail list. And I think as JD said, that has its limitations. And so now you have to work with individual approach work.
legacy of Trequal. I think we all wish it had the original model would have gripped, but the chat and the challenge in this new model is now we now you got to fit in with the with the tech side of major financial institutions as well. So that makes it a little slower, but it's something that we still hold out hope for.
Question comes from Melissa Wettel at J.P. Morgan.
Good morning. Thanks for taking my questions. First, given the cuts that you announced on the workforce side a few weeks ago, it sounds like that's probably balanced somewhat against a narrower focus on number of projects, but I'm curious if you're seeing any sort of
delayed timeline, even a little bit delayed timeline on rollout of some of these projects because of the cuts you've had to make. So, if any, thank you if anything, this is gonna this is making us faster. So we've alluded this process a number of times, but basically imagine instead of.
somebody trying to execute a new product initiative that they've got an idea then they hand it off to somebody who designs it and they hand it off to somebody who builds it then you launch it and say a prayer of the hope it works. We've now got cross-functional teams that are basically like little many startups they've got everybody from an HR person the finance person.
And so we made a lot of advancements in the way that we do things because we weren't satisfied with the pace of change or the pace of delivery based on...
the way we were doing it. So as part of, so we did that all as part of the RIF. So imagine a situation where you got several hundred people working in, I'll just use product and tech for an example, you, we first staffed and dedicated teams, the people that we needed on those teams.
And then for everybody else, we looked for a home or unfortunately had to let people go. And so that's the way that worked. I think it'll make us faster, not slower. I'm definitely, I'm encouraged by how fired up and excited people are.
particularly as we get them back to the office and these teams are just, you know, are working very, very productively together and very enthusiastically. The only thing I would say that happened after the RIF, there was a typical like week of, you know, people, you know, being pretty sad appropriately. But I would say a week after that, you've got a renewed energy and vigor here that
I guess it was a follow-up question, if I could pivot a little bit to the balance sheet. You know, you guys have been pretty opportunistic in the past about making equity investments in what you see as, you know, promising related companies. I'm curious as you refine your strategic.
approach to running this business and right sizing it, how do those investments fit into your sort of longer term strategic goals? Do they still play a role or might there be another way to use that capital? Thanks. Melissa, it's JD, I'll take it and I'll let Trent speak to the capital allocation piece, but suffice it to say in this environment, we keep looking at things just to remain.
in the flow as to what's going on around us and what people are trying to raise money for, but the bar is incredibly high. We wanna focus on our core business and we're in the process and actually very gratified by the simplification of our business. So, you know, that is...
Equity investments away from our core are not very high on the list right now. We're spending time talking to people, but that's about it. Right now, we are focused on.
simplifying our business, improving our margins, improving our cash flow, and repaying our debt. So, Trent can speak to the capital allocation piece of it, but the Corp Dev piece of it is don't expect that to be terribly active in the near term. Amen. G.D. I should apologize.
Could I clarify my question? I apologize. I wasn't referring to new investments going forward. I meant more what you have already done. Is there an opportunity potentially to monetize some of the investments you've already made and redeploy that towards the debt thing?
Yeah, you saw us do that with one of our investments, you know, a year ago. We did monetize some of our stash investment. If there were the opportunity to do that, we would certainly consider it relative to everything I just said. Those opportunities are not always, you know.
It's easy to come by you have to be conscious of what the company's going through in their own in their own path So yeah, I agree with JD and on the existing investment. We don't have many of them If somebody had bids for them if there's particularly if there's not some strategic relationship, we're always open to hearing
And, you know, those, at least the big one, which is stash, you know, that was made in the hopes that, you know, we might actually put the two companies together and obviously that broke when valuation started to break. So we'll always look for ways to monetize things.
if we can, but right now, the venture markets and others are such that people are pulling their horns into.
But right now, the venture markets and others are such that people are pulling their horns into. Thank you.
I would now like to turn it back to Doug Leba for closing remarks. Thank you very much and thank you everybody for being here. Wow this is a frustrating quarter for us. Our focus every day is to position ourselves.
to be in a much better place for when the headwinds and our businesses subside. We're acting fast. We're making very disciplined decisions. We're focusing on fewer high impact projects. And all of that, we think positions is very well for the future. And we look forward to reporting to you next quarter. And thank you all for your willingness to be shareholders in London, Tric.
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
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