$TREE LendingTree Q4 2024 Earnings Conference Call

Thank you, Andrew, and thank you everyone for joining us today. We are delighted to report the company finished 2024 on a very strong note, generating $32 million of adjusted EBITDA in the fourth quarter, which was well ahead of our forecast. Another quarter of terrific performance in our insurance segment was the primary driver of this result, while our home and consumer segments also generated strong year-over-year growth as well. Last year we benefited from the beginning of a very strong cycle in auto insurance demand from both a consumer and carrier perspective. I would like to call out the momentum we are generating in several other parts of our business in the fourth quarter. Year-over-year revenue growth across some of our key product offerings included homeowners insurance was up 175%, home equity grew 48%, small business grew 45%, personal loans and auto loans both grew by 21%, and mortgage grew 12%. Importantly, we expect double-digit revenue growth will continue in each of these products in the first quarter of this year. The key message I would like to share with our shareholders is that the company has returned to growth after a prolonged period of different difficult operating conditions. Our forecast for the year confirms our growth outlook with an adjusted EBITDA outlook calling for 16% annual growth at the midpoint of the range, and we expect this result will be driven by revenue growth across all three of our reportable segments, which is a testament to the value of the diversification of our business model. We have also maintained a laser focus on our variable marketing and fixed costs. This discipline will help us generate positive operating leverage as we continue to scale our revenue base. Our balance sheet has improved significantly over the last year as well, with net leverage ending the year at 3.5 times trailing adjusted EBITDA. We expect leverage will continue to trend lower as earnings growth continues and we reduce our debt balance further with excess cash. We believe the substantial improvement in our credit metrics will allow us to lower our interest expense and our debt and improve free cash flow generation for shareholders. We enter this year with strong momentum exhibited in our fourth quarter results. Our business functions at its best when there is consistent demand from both sides of our marketplace. We expect stable interest rates, a healthy consumer, and an outlook for continued economic growth will drive accelerating demand from our customers as well as our lending and insurance carrier partners. We are energized for the year ahead and look forward to continually creating value for our shareholders from our operating results. And now, operator, we're happy to answer any questions.

Yeah, Scott, why don't you take the market share on insurance, and then I'll take the interest question.

On interest rates, any lowering of interest rates — and I've noticed the Treasury bills have moved downward a little bit — that definitely helps our home business, and it helps all of our businesses really. Those businesses are based on consumer interest, but that's really based on interest rates. As interest rates fall, there's more consumer interest, and the lenders have more flexibility to approve something because the payment is lower and therefore they can get it approved with the consumer's income. So it's better for everybody. Even if you had a consumer that's not as strong, we would prefer a low interest rate and, from our insurance perspective, a low inflation environment. That was the double whammy over the last four years. To add on to that, as it relates to the guide for home, we're not contemplating any material reduction in rates. We're kind of assuming basically the rate environment that we're in today. What we're basically assuming in the guide is a continuation of the strength in home equity, a product that works really well for consumers and works really well for the lenders as well. So we're assuming that strength of monetization in the RPL continues throughout the guide, but not benefiting materially from any rate decrease. What's cool about that is consumers are managing their balance sheets just like LendingTree is managing their balance sheet, and they're saying, 'I've got equity in my home, it doesn't make sense to refinance the whole thing, but if I can tap this at a lower rate than my credit cards or my auto loan, then let's go for it.'

We'll do. Scott, go ahead.

On the SEO and organic traffic, call it 15% to 20% of our traffic is organic. SEO is a piece of that; the rest would obviously be people hearing us and typing us in, etc. In terms of the Google algorithm change, what I've noticed Google doing, and I frankly agree with it, is they are giving more credit to high-quality unique content that really aids the consumer. So they did things like shutting down the so-called marketplaces of newspaper sites, because they basically were leveraging their credibility on the news to go sell jackhammers and screws or whatever, and mortgages. But we feel really good about it because our business has always been, I would say, LendingTree has always been unabashedly in the paid marketing camp, and I've wanted our SEO side to work since 1999. I would say for the first time, it's really gripping. The team is really working well; we've made a number of changes, and so we're coming from a small base and can grow into it. And we happen to have the place of having really high-quality content. So as we leverage that and use the LendingTree brand, integrate all these acquisitions that we've had, plus get the processes right, there's a lot more traffic to go after. 15% of your volume still produces a lot of EBITDA, and it's free.

I'll let Scott maybe take the consumer segment and I'll take the swing factors with Jason.

In terms of swing factors, I would say one is obviously not discounting the market. If we get raging inflation and insurance companies have to chase premiums again, and high interest rates because the Fed is shutting down the economy or shutting down lending, then that obviously gets a lot harder. And the opposite is true; it gets a little bit easier for us. The second thing, which we really haven't baked into our numbers, is anything from improving products or game-changing technology. We are working on and focused on a number of initiatives, and we just talked with our board last week about our strategy. That would include AI, which we're definitely giving more focus to. And the third one, which is kind of boring, is operational excellence. We realized, as we were looking at ourselves, that we've acquired a bunch of companies, we've got a bunch of people, we now have a different-sized company, and a lot of it is really getting the operating system of the company right. So as we looked at our strategy, it was very boring but it was really around cost containment, exploring a few key things, and then improving our operations and just making them as efficient as we can.

Okay, why don't you take home equity? And then I'll take the first part.

On the single advisor, single entity consent, here's what I'd say. Initially, our expectations — first off, we spent nine months with a good number of people optimizing what we were interpreting as this rule from this law that was passed many years before, getting it right for the consumer and still being able to have a decent business model. We worked with all of our partners, and we were very thrilled to see the court case and then the FCC pulling it back. I would say that our expectations were that initially we would have gotten a lot less revenue from both insurance and lending and specific lead products, and it was also our expectation that that would recover. For example, all of our lenders and insurance partners are bidding for the price of a lead based on their expectation of a conversion rate. If a given lead is going from three lenders to 2.5 on average, their conversion rate is going to go up by the same amount roughly. So we were expecting over time that that was going to offset, but that was going to be a bunch of short-term pain. Obviously, that has gone away. But from a broader sense, what I would say is the focus on — I don't want to say deregulation — but call it common sense is really obviously helped us with that. And I see across industries, people are willing to give something a shot or talk about something they weren't able to talk about before. Our regulatory regime started in 1996, and all of this stuff is interpretations of laws that are made up by these government agencies. So the less of that from my perspective, the better, because we're just trying to do right by consumers, and there's a lot of old and outdated stuff out there.

Yeah, we just want to make it as simple as we can for people to comparison shop for these products, because there are always opportunities to refinance, and as your credit gets better or your situation changes, or an insurance company's view on the market changes, you might be able to save some real money.

Well, you guys were easy on us today. Thank you all very much. We are very happy to share the outstanding fourth quarter results today, and we're energized for the growth opportunity ahead of us in 2025. After achieving 33% adjusted EBITDA growth last year, we expect to grow another 16% at the middle of our forecasted range in 2025. I'm incredibly proud of our team for persevering through a difficult period that began at the onset of the COVID pandemic. None of us would have expected the fallout from both the direct and second-order effects would have lasted as long as they did, but our company has emerged stronger and more focused as a result. I look forward to updating you all on our progress in the quarters ahead. Thank you.