Q3 2024 LendingTree Inc Earnings Call
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Speaker Change: Thank you for standing by and welcome to Lending Tree's third quarter, 2024, earnings conference call.
Speaker Change: At this time all participants are in a listen only mode. After the speaker presentation there will be a question and answer session.
To ask a question during the session, you will need to press star 1-1 on your telephone. To remove yourself in the queue, you may press star 1-1 again. I would now like to hand the call over to Andrew Wessel. SCP Investor Relations, please go ahead.
Thank you, Patie. So, hello to everyone joining us on the call to discuss letting treat third quarter, 2012 for financial results.
Andrew Wessel: On with us today, or does Lebda, lending trees chairman in CEO.
Speaker Change: Scapery, CIO and President of the Marketplace Businesses.
Speaker Change: and Jason Bengel, CFL.
As a reminder to everyone, we posted a detailed letter to shareholders on our investor relations website before the start of this call, and for the purposes of today's discussion, we will assume that listeners have read that letter, and we'll focus on Q&A.
Speaker Change: Before I hand the call over to Doug for his remarks, I remind everyone that during this call we may discuss LendingTree's expectations for future performance.
Any forward-looking statements that we make are subject to risks and uncertainties, and LendingTree's actual results could differ materially from the views expressed today.
Many, but not all, of the risks we face are described in our periodic reports filed with the SEC. We also discuss a variety of non-GAAP measures on the call today, and I refer you to today's press release and shareholder letter, both available on our website.
for the Comparable Gap Definitions and Full Reconciliations of Non-Gap Measures to Gap.
Speaker Change: So with that, Doug, please go ahead. Thank you, Andrew, and thank you to everybody for joining us today. We are happy to announce that we generated $27 million of adjusted EBITDA in the third quarter, a 23% increase from last year.
The quarter was highlighted by another standout performance from insurance, along with encouraging signs of growth across our home and consumer verticals.
Speaker Change: We have continued to benefit from very strong consumer demand for auto insurance quotes with segment revenue increasing an impressive 210% from the third quarter of last year.
Insurance earned 41 million dollars of VMD during the period, a record result and we believe there is room for further margin improvement.
A small number of carriers are still driving the bulk of spend on our network this year and some large population states are still seeing limited demand from carriers due to concerns over rate adequacy.
Speaker Change: As more carriers return to historical spend patterns on our network, and insurers begin to target consumers in those lower demand states, we see opportunity for additional upside.
Our consumer business grew 6%, grew revenue 6%, and VMD 4% sequentially. A third straight period of sequential improvement.
Initiatives in our consumer business were the cause.
Speaker Change: First, on our small business product, we enjoyed consistent demand from lenders looking for high-quality borrowers, and this is the consistent highest margin unit on our network.
We grew our concierge sales group to better serve our customers.
And these additions have helped improve our customer satisfaction and loan close rates, which has allowed us to invest more in marketing to capture additional high-intent customers searching for financing.
Second, in March of this year, we also made the decision to lean into our personal loan product, implementing a similar playbook as we had used with insurance during the industry downturn last year.
Speaker Change: At the beginning of 2024, as lender demand in our network had stabilized and we left and we felt confident growing our marketing spend would lead to more closed loans and thus better financial results.
Speaker Change: We're happy to report that this decision has paid off, with both Revenue and VMD growing sequentially again in Q3 for the second quarter anyway.
Conversations with lenders on our network have indicated that credit conditions may loosen as we approach late 2024 and early 2025. We expect the business to produce strong results next year.
Speaker Change: Yeah.
Our home segment has been operating at trough levels due to various macroeconomic factors including higher mortgage rates and a suppressed home sale market. However, home equity now accounts for two-thirds of segment revenue, generating 5% of revenue growth from the prior year.
We believe home equity is well positioned to continue steady growth. Now operate or we're happy to hand it off to questions.
Speaker Change: As a reminder, to ask a question, you will need to press star 11 on your telephone. To remove yourself from the queue, you may press star 11 again. Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Jed Kelly of Oppenheimer and Company. Your question please, Jed.
Hey, great, thanks for taking my question and good quarter, just two, just on insurance.
Seems that everybody in the insurance industry or insurance marketing industry is doing well.
Can you just kind of give us a road map on how we should view the industry?
over the next 18 months.
If investors are comparing your results versus other players, you know, how do we know you're seeing share, better margins? Can you just talk about where you stand on insurance? And then I have a follow-up. Thank you.
Scott, why don't you take that? Yeah, sure, Jed. This is Scott Pari. First off, just at a macro level, as you talk about the next 18 months or so, I mean, I think us...
and all of our competitors will see and expect strong results over the next 18 months.
Speaker Change: is in a very good spot, but it's still...
I don't know if I'd call it an early innings, but still mid innings of the growth cycle here. While, you know, where we're still in a phase of.
Speaker Change: They're all...
They haven't opened up all their states. They haven't opened up all their products to all their geos. And so the lean-in is continuing to happen. Is the hockey stick going to be at the same level it was in Q2 and Q3 this year? Probably not. But I mean, I would still expect growth across the board.
a very high demand for new consumers, and that is going to continue in the indefinite future.
Talking about us specifically, how do we differentiate? I mean, you know, I would say
We have a large local Asian base, so we just have a diversified way to generate revenue and to give shopping options.
Speaker Change: to consumers, you know, based off of how the carriers market their products out there. And that really creates a differentiated position for ourselves, I believe, just both in down times and in good times.
Speaker Change: Thank you very much.
Thank you. And then just as a follow-up, you know, we see in various industries, yours, some of the other affiliate industries, on, you know, some SEO headwinds from Google changes, maybe with AI, you know, maybe pushing Reddit a little more. Can you talk about how that's impacting LendingTree? Thanks.
Speaker Change: I'll hit it at a high level and then anybody else can add in.
Listen, largely this goes back, you know, almost 30 years now.
We really want to be independent of traffic sources, so, you know, Google's SEO ranking algorithms, we are happy to
Speaker Change: benefit from Google free traffic and we also don't want to be dependent on it. So there are some competitors that have, you know, mostly SEO businesses. They'll be, you know,
Mostly free traffic, but they won't be able to flex up and down. That'll be different vis-a-vis us.
Speaker Change: and but we're also working on our SEO stuff as well and improving that you know while we speak so we want to have a very balanced like view of where our customers are coming from and then hopefully own our customers
Speaker Change: and be able to market to them to bring them into whatever service it is.
And this is Scott. I'll just add on to what Doug said on the paid search side. You know, we partner very closely with Google. They've implemented a number of AI-based bidding algorithms that we work very closely with them on.
told us themselves that we work at a more sophisticated level than most of our competitors do and from a traffic standpoint I mean, we're driving more traffic from Google Than we ever have so so we're not
Speaker Change: We're leaning into Google. We're not really seeing traffic headwinds from Google.
Thank you and good quarter.
Speaker Change: Thanks.
Thank you. Our next question comes from the line of Ryan Tomasello of KBW. Please go ahead, Ryan.
Hi everyone, thanks for taking the questions. Maybe just starting with the insurance business, Scott.
You know, you put up a mid-20% variable marketing margin in the quarter.
I mean, it sounds like the interpretation of your comments is that you're viewing that as a trough. I mean, I don't want to put words in your mouth, so maybe you can just put a finer point around your outlook as it stands today for VMMs, and maybe a range of scenarios for next year around what it would take to drive a meaningful improvement and where you think stabilized VMMs could look like for insurance next year.
The only thing I'll say before Scott goes in is I just want everybody to remember that the next, if we're gonna.
pay to drive volume and marketing expenses fuel. The next, you know, leg of volume is always more expensive than the last.
And so as we continue to step up that curve, we would expect to, you know, be leaning into spending and focusing on VMD dollars, not necessarily percentages, but Scott, take it away.
Yeah, and I would just add in, I think, Ryan, you know, Trough and Q3, the fair term to say, we grew our insurance revenue from Q1 to Q3 by $100 million and there was a lot of client demand and we pride ourselves
Speaker Change: on our ability to deliver high quantity of high quality traffic.
And that's exactly what we were doing. Now that the hockey stick is starting to level off a little bit, again, it's still in growth. I mean, we've had a number of carriers open up new states and bring home insurance to new states. We've actually been surprised some of the states where carriers have opened up home insurance in recently. So there's a lot of growth still, but it's not
at the same extreme levels as it's been the past couple quarters. So because of that, it allows us to lean into efficiency a little bit more.
Are our margins going to go from 25% to 35% a quarter of a quarter? No, but they will start going up and our goal is to have our margins up a couple percentage points in Q4 in the insurance segment.
specifically, and continue monetizing that. I think long term for us, you look at it as a business, like low to mid-30s margins in a stable environment in insurance is historically where we've been and where we would still expect to be in the future.
Okay, I appreciate that, Collar. And then, in terms of...
Speaker Change: The
Outlook, if you can give us some hand-holding for the fourth quarter with respect to each of the segments. Scott, I appreciate the color on...
VMM expectations for insurance, but just generally how we should be thinking about sequential changes in revenue and segment margins for the fourth quarter. And then, in terms of seasonality, obviously 4Q typically has negative seasonality, so I'm just curious.
To what extent you're baking that in this year relative to prior years just given all the variability across
Jason, why don't you take that? Yeah, happy to. So yeah, I mean, I can just walk through segment by segment. And if we start with home.
Douglas Lebda, M.D.: Quarter on quarter, you know, like you said, typically it's down seasonally but but our expectations are the strength and home equity that Doug mentioned is going to offset that normal seasonality. And so we do expect
When we look at home, Q4 versus prior year, that we're going to see growth, and versus Q3, we're not going to see that normal seasonal decline.
When we come to consumer, we expect we're going to hold margin there and, you know, generally see that normal seasonal decline that you're talking about with insurance
And on the expense side, we don't we don't expect a big, you know, a big relative flat quarter on the expense side.
I'll just add in to what Jason said there real quick of just, you know, what we're very positive about right now is there is inevitably seasonality in Q4 when you get Thanksgiving through New Year's.
But October's been a very strong month across the board,
Small business has been strong, home equity has been really strong, personal loans has been really strong, insurance obviously is super hot. So like, there's inevitably seasonality in Q4 that will bring down the numbers a little bit, but just as you look at run rates, you know, we're feeling really good about that.
multiple categories in the business right now.
Speaker Change: Thank you.
Our next question comes from the line of John Campbell of Stephen Zink. Your question, please, John.
Hey guys, good afternoon. Doug, maybe just a big picture question, you just start here. You know, over the last, I guess, two plus years, you guys have seen some
Pretty stiff headwinds across a lot of your products. I know you've had to kind of adjust and adapt. Obviously, you've had the balance sheet.
As we start to move into a little bit brighter outlook, as you guys get to a little bit more
Douglas Wessel, CFP®, Financial Planner & Investment Advisor
Yeah, so the good news is I think right now we are definitely at trough levels and I feel like we're starting to build back. I feel like the business right now is at a
State of rare normalcy where you don't have crazy things going on the lender side you don't have crazy things going on the consumer side and we're just able to
kind of focus and get projects done. And so yeah, going forward, so you asked about spring, and what was your other one in there? Just broadly on the brand spin, I know you've brought that down. Yeah, so I don't expect us,
Speaker Change: The spring stuff will basically continue. I don't have any new stuff to report there on brand spend. I don't also see us right now budgeting anything for brand spend. Nothing in our numbers assumes it.
Speaker Change: and we wouldn't assume that we're doing that until...
The, you know, revenue per lead, revenue per customer is up substantially so that we can justify that in the market on a profitable basis.
Speaker Change: So right now, it's sort of, you know, let's focus on the things we can control and keep steadily improving the business and not looking at a big brand budget.
Okay, that's helpful. And then, I mean, I guess DMM is going to be the big swing factor. It sounds like no big investments coming, no step up in brand spin. I guess on other, just OpEx, just other operating costs, you know, as far as headcount or whatnot, just generally how much you guys expect to increase that next year?
Speaker Change: Um.
Not much, if anything. Go ahead, Jason. Yeah, no, I mean, like I guess I said on the last call, you know, we, you know, as home and consumers start to recover with, you know, rates declining, there's not a dramatic need to add more heads to support that revenue as it comes back. So our expense base is, is
Douglas Lebda, M.D.: Pretty leverageable. So, you know, there will be cost associated with the revenue, but we don't expect it to be a dramatic
Speaker Change: Okay, that's helpful. And then, Scott, I appreciate the comments on kind of month-to-date of October trends across a lot of your products. Sounds like things are continuing to hold up well. Maybe we could double-click on insurance. If you could help maybe just with the phasing, how that kind of looked month-to-month throughout the quarter and then into October if you continue to see an acceleration.
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Speaker Change: Could you just further explain that the Muthu Muthu in Q3?
Yeah, just how insurance progressed, because it feels like it's, you know, you mentioned kind of early to mid innings, it seems like that there's still an acceleration path. I just want to see if that's that's accurate. Yeah, there's, I would say we saw a lot of acceleration and insurance right at the beginning of Q3, like at the end of Q2.
Speaker Change: June and then July, there was a very, very significant ramp up from a number of our largest clients in HR. So really ramped up at the beginning in Q3 and then just kind of
held steady, I guess I would say, throughout Q3 at that ramp up. And then it's continued in the Q4. I mean, I would say there's maybe some slight, like I said, it's not the hockey stick that we saw.
going into Q2 and then again going into Q3, it's more of just a sustained, you know, maybe, you know, off the top of my head, maybe single digits growth from where we were in September, but it's definitely a sustained high level of demand.
from the insurance carriers. That's not leveling off at all. And there is continual, I guess I would say the difference now is, for example, you'll have a carrier open up one or two states that are now willing to write
Speaker Change: Douglas Bengel, Andrew Wessel, Douglas Lebda
Andrew Wessel: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Jamie Freedman of Susquehanna International Group. Your question please, Jamie.
Jamie Freedman: Hi, Doug, do I dare to ask if there's any call out on the mortgage front? I know you say in here there's a limited pool of refi borrowers.
But any light at the end of the tunnel?
Speaker Change: Yeah we can all comment on it. So if you think about refinance
It'll happen in a cascade of when consumers...
Speaker Change: actually have a benefit to refinancing. So, if you think about it, if a hundred people come, show up every day and say, hey, can I refinance my mortgage?
Speaker Change: You know, a certain percentage of them will have a benefit as rates go down, that the percentage of them that will have a benefit will improve, therefore our unit economics improve, and therefore, you know, lenders can...
Refinance them. Lenders can continue to have interest in the product.
Speaker Change: And so to consumers, but what we don't see yet or any like large scale just consumer rushes to the product, which is perfectly fine and appropriate.
But I would say it's a healthy sort of coming off the bottoms kind of market as we return to normal interest rates, you know, and just
calling a normal mix of refi next year.
Anybody else?
I would just say, yeah, the client demand is extremely strong for all those products. Like Doug said, it's the consumer shopping behavior on refi with the rates where they're at. But home equity, home equity is a very, very strong product right now, both from client demand and from consumer response to marketing. So that's where we're really going to focus probably for the next six months. But as Doug said, interest rates will reach a point.
Where you probably flip that over to a focus on refinance, which is a more valuable product both to us and to our clients.
and then I got a slide on...
Speaker Change: Sorry, go ahead.
Jason, I guess I was just going to add on, you know, as rates go down like that, that pool of available customers will go up. It's hard to predict what rates are going to do, but some of the data that we're looking at shows in the money refinance population of about 4.7 million people if rates are at about 6%.
That's not hard to imagine, we don't want to predict it, but that definitely opens up the population quite a bit as rates come down. Right now they're pretty high, so hopefully they'll continue to come down next year and open up that population.
Speaker Change: Thank you.
Thanks for that. And then in your prepared remarks, Doug, and I'm kind of doing this from memory, I don't have a transcript, but I think you said something to the effect that the insurance...
Speaker Change: is still particularly concentrated with certain carriers. If I misunderstood that, correct me, but if that's the case, are you anticipating writing more policies for more carriers? How is that going to work?
Speaker Change: yeah what what I said there was that the and Scott can add in more on this
The number of carriers that have really expanded their buys this year has been somewhat limited and, you know, into next year.
And as we talk to clients, we're expecting that, you know, we get broader buying from more carriers in certain states. Scott?
Yeah, the way I would say it is there's a number of carriers that were pretty large spenders with us back pre-inflation era that haven't really come back.
Scott: hugely at this point that we would expect to at some point. I would caveat that with our historical largest clients are generally back and spending a lot of money, but there are definitely a list of carriers that are still spending
at reduced rates compared to what they were four or five years ago.
Speaker Change: Okay, I thought. All right. Thank you all.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Youssef Squally of Truist Securities. Please go ahead, Youssef.
Speaker Change: Hi, this is Robert Zeller on for UCIF. Thanks for taking our questions. I'm just curious, you know, given your guys' reliance on search, as you see, as search is evolving, I'm curious how you think it will impact tree and how you expect to evolve with it, and if you're expecting any changes near-term.
Calls from the P&L. I'm just curious if there was anything to unpack there. Thanks.
On search, here's what I'd say is we work very, very closely with Google on both the SEM and the SEO fronts. And on...
SEO we know where we are and we continue to advance that on SEM
Speaker Change: We work very closely with them and we try to win our fair share of the auctions. Google is by no means...
Speaker Change: The only and it's also the largest source of traffic for people who are, you know, typing in search queries of stuff that they're looking for. The second question was.
Yeah, the technical question...
Sorry, yeah, go ahead. Thank you.
Now you tell me it was on the four million litigation charge. Oh the litigation charge so
just accruing for prospective settlements that we might, may or may not, may or may not have with
arbitration and mediation and things like that so I wouldn't put
too much stock in any one number around any one case, what I would do is just, you know, see it as just accruing for normal costs that we have to incur for doing business.
Okay, thank you.
Thank you. Our next question comes from the line of Melissa Wedel of JP Morgan. Your question please, Melissa.
Speaker Change: Thank you very much. Thank you.
Good afternoon. Thanks for taking my questions. I believe it was in the shareholder letter where there was a reference to some initial promising talks with lenders about
maybe expanding loan offerings to different customers. I was curious if you could maybe provide a little more context on that, and my apologies if I missed it earlier. But wondering if you're seeing more, is this more of a general credit box?
reopening across the board that might impact existing products like CARD or something else, or is this a different effort, a new effort, an extension of personal loan? Thank you.
Hey, Scott, you want to take that? Yeah, yeah, yeah, sure. Melissa, what I'll say on that subject is what we've seen...
Speaker Change: from our class. We talk about personal loans or a number of our lending categories. We've been having good conversations around the edges. They've been opening up credit boxes in certain scenarios, not any dramatic anywhere. Where we have
We've seen a number of our clients come in, and again this goes down to us focusing on high quantities of high quality traffic.
for the same type of demographics they've been writing loans to all year. So that's a very positive. Like, hey, we want more of the same. Could you please send us more of that?
Speaker Change: where we do think things are going to change in the next 6 to 12 months.
Speaker Change: is a lot of those lenders are going to start opening up their credit boxes. And so that just means they will take a much wider swath of consumers we're generating every day right now.
Speaker Change: Here's a perfect example. Our personal loan consumer traffic was up 50% year over year in Q3.
Our personal loan revenue was only up 7% and that's just that's because of tight
Douglas Wessel, CFP®, Financial Planner & Investment Advisor
Speaker Change: And so we've got all these and we do feel the lenders are going to get to a spot as interest rates go down, as the spreads that they make get larger between interest rates, they'll open up their credit boxes and accept more consumers. That's what we're referring to in that letter.
Thank you.
Thank you. Our next question comes from the line of Mike Grondahl of Northland. Please go ahead Mike.
Mike Grondahl: Hey guys, a quick question. The $125 million of AR on the balance sheet, I assume that's a couple large insurance companies and what's kind of the cash collection cycle there?
Yeah, this is Jason. I'm happy to take that one. Yeah, so this is primarily related to the significant insurance growth that we've seen this year.
And, you know, if you look at our, you know, change in AR and change in AP and accrued expenses versus the beginning of the year, you'll see those are roughly offsetting.
Mike Grondahl: and so we're generating a significant amount of cash this year. We've done quite a bit of work to manage that working capital so that we're like lining up the inflows and the outflows pretty well just in response to that insurance growth.
got it and then just a follow-up to that how how should we think about sort of free cash conversion from adjusted EBITDA like as a percentage
Yeah, I mean, so, you know, yeah, if you start with EBITDA, the next the next things kind of coming out of EBITDA are really going to be capital expenditures. You know, roughly, that's going to be around $3 million a quarter. And then you have, you know, your interest paid that we that we have for the, you know, primarily the Apollo and the original term loan.
Mike Grondahl: And then you have working capital, and we've done quite a bit to smooth out that working capital over the last few months.
So, that work in capital change really shouldn't be that dramatic going forward. It was significant in Q1 and Q2, and I think we've done quite a bit of work to smooth that out. And so, it's really those couple things that would generate free cash flow from EBITDA.
Got it. Okay. Thank you.
Thank you. I would now like to turn the conference back to Doug Lebda for closing remarks, sir.
All right, well, thank you all. And I am thrilled with our third quarter results and I'm very enthusiastic about the outlook ahead. I'm also grateful to all the people who helped to make these results happen. Our updated financial guidance implies that Just Viva Da this year will grow 19% at the midpoint compared to 2023. Our team is well aligned around our goals and financial targets, and we are optimistic about the outlook for next year.
The company is well positioned to benefit from the current economic environment and I look forward to updating you all on our results in the quarters ahead. Thank you very much.
This concludes today's conference call. Thank you for participating. You may now disconnect.
Mike Grondahl: Thanks.
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Speaker Change: Douglas Lebda Bengel Speaker Paul Marlar Douglas Lebda Bengel Bengel Marketing Annவuary 2012