$TREE LendingTree Q2 2024 Earnings Conference Call

Thank you, Andrew, and thank you to everyone for joining us this evening. Our company generated exceptional revenue growth this quarter, led by the insurance business more than doubling from the second quarter last year. Our overall revenue outlook continues to improve into the third quarter. As you all know, we operate the business on a day-to-day basis with a laser focus on generating positive incremental variable margin dollars. We seek to attract as many high-intent consumers to our marketplace as we can at positive unit economics, while at the same time driving wallet share gains with our insurance and lending clients to both deepen our relationships and expand demand on the network. During the past two years in insurance, we successfully executed our plan to drive high-intent traffic despite limited budgets to grow our share with carriers. Now is the time to execute the same strategy in lending. Ultimately, we expect this gain in share with partners will be rewarded when interest rates decrease or lending conditions begin to loosen. We are also encouraged by the increased consensus forming that the Federal Reserve may be ready to lower its target rate at one of its next two meetings, although we do not assume any rate change in our financial outlook. Looking at segment performance, insurance grew revenue 109% and VMD grew 47% from the same time last year. Demand from carrier partners continued to build throughout the period. At one level, competition for market share has strengthened within the auto insurance category as very good underwriting results have allowed carriers to invest more into customer acquisition, and we expect that trend will continue throughout the rest of the year. But to put our insurance growth into context, two years ago we were the third largest insurance aggregator in the US market. Today, based on comparable results, we are the second largest and believe our continued market share gains will propel us into first. Our partnerships with carriers are stronger than they have ever been. We could not be more excited for the future or more appreciative of those relationships. Our consumer segment grew revenue by 9% sequentially. We are still lapping a period of looser underwriting standards in the first half of last year, which resulted in a decline from a year ago. During the quarter, we leaned into stable lending demand at many of our partners with a particular focus on the personal loan business. Our strategy drove a 44% sequential increase in high-intent consumer traffic, which helped to improve the number of loans we closed for our partners by 34%. The home segment performed as expected, with higher mortgage rates and lower supply of homes for sale limiting the number of consumers shopping for refi and purchase loans. Home equity continues to be the bright spot of the segment, as revenue grew 6% sequentially. Finally, I'd like to extend my sincere gratitude to our CFO, Trent Zigler. He started 12 years ago as an analyst in our finance department. In his time at the company, he's helped build our financial planning and analysis team, build an award-winning investor relations function by himself, and took on the role of treasurer as well. His work the last three years as our CFO helped us to improve our operating efficiency and recapitalize our balance sheet with a loan from Apollo we closed in March. Jason Bengel will be taking over the job from here. Jason is truly one of the most respected people at LendingTree, and last year he partnered with Trent to remove over $60 million of fixed cost from the business. Jason has built out and led a team of professionals tasked with driving ongoing improvements and operating efficiency. He also co-led our internal strategy process, which has resulted in our becoming a much more responsive and agile company. I am excited and thrilled for him to take over this expanded role. With that introduction, Jason would like to say a few words as well.

The only thing I'd add to that is that as you're getting so much more demand coming into the marketplace, whether it's price, quantity, volume, or coverage, you want to go fulfill that because as you're growing your share and growing your revenue per lead, that share that you take from the market makes you that much more competitive in the auction-based advertising markets, particularly search. The ability to drive that high-quality, high-conversion, high-intent volume to customers is really where we differentiate.

This is Doug. Let me start off and echo something that Scott said earlier, which is the entire laser focus of the company has to be maximizing variable margin dollars every single day. If we can make an incremental $100 of margin dollars and it costs us $97 to do it, we're going to do that. When our clients are demanding more customers from us than we actually have, we're going out and trying to get more and more demand. As that demand is building, it enables us to invest in marketing. We don't really... a percentage margin at the end of the day is more of an output than it is a target for us, and marketing expense is fuel rather than an expense. The revenue and the VMD is where we like to focus. With that, I'll hand it over to Jason to talk about the numbers, or Scott.

I think you hit the word right with the word benefit. Structurally in the mortgage business right now, 70% of customers have rates that are 5% below, so the time when there's going to be a large change in consumer benefit is probably a ways off. However, the change in shopping behavior, we think it's always been dramatic, and so we expect to see, or we hope to see when that happens, a decent increase in inflows just due to the market. Then we're going to have to work with our lenders to sop up all of that extra demand or all that extra supply that we're going to have coming in. The other thing I would note is that we're working right now on preparing for that, just because there will be a change in shopping behavior. You call it more of a psychological change than a benefit change, but there will be that psychological change because it'll be everywhere in the news that the Fed cut rates.

After I'll be honest, I have to read the statement. We can confirm that we use Snowflake for our business operations and that we were notified by them that our subsidiary QuoteWizard was impacted by the Snowflake data incident. We immediately began an investigation upon hearing from Snowflake. We take these matters seriously and are currently working to conclude our investigation and address any related legal obligations. Based on our investigation, no consumer Social Security numbers or financial account information was affected, and no LendingTree branded products or services were impacted.

Yeah, we really can't comment on this. It's an ongoing investigation. What I can say is we don't expect this... if it were material, we would have announced its materiality, and we don't believe it is.

The way I like to think of it in a two-sided marketplace is if you've got demand for customers from our clients, you have to go fulfill that. You go take as much of that demand as you can, and then you go try to compete to fulfill that, because not only are you making money on the first transaction, we're also making money in cross-sell and other revenues and transactions afterwards. The added effect of that, even if it's a theoretically 0% margin, that budget is coming from somebody else or it's coming from the market growing overall. To the extent it's coming from somebody else, it's improving our revenue per lead or our RPL, our demand equation, and it's hurting somebody else's, and that's making us more positive in the options. We've always prided ourselves on dominating among that high-intent traffic and working with our clients because they want more efficiency and higher conversions and don't want to bunch the trash. We partner with them, and the only reason we can do that is because we have more demand than others. When you're in a growth mode, you want to capture all of that that you can.

The only thing I'd add is we're definitely committed to the category and see that it is a big financial services category. We can do better there, and we want to be a really valuable partner for the major issuers and the minor issuers. We've got a lot of stuff in the works on the product and tech front to hopefully address that and make it a great business for our partners so we can actually invest in it sometime in the future.

I don't want to get too optimistic, but if you just look at the size of the industry among the public companies, the direct TAM there is probably three to four times bigger than we are. When you look at direct marketing as a percentage of the total ad spend of the Geicos, Progressives, Allstates, I don't think we're even making a dent in their total marketing budget. We can show ROI till the cows come home. Increasingly, we've always believed that marketplaces are going to help these guys really expand their businesses, and that's proven to be the case now that they've gotten the rates right. Just like we don't stop until the last profitable dollar, they don't want to stop until the last profitable policy they're putting on.

Thank you so much, and thank you everybody for your questions. We are very excited about the opportunity ahead of us. Our outlook for continued year-over-year growth in revenue, VMD, and adjusted EBITDA is the end result of many strategic decisions we have made over the last two years. Growth in our market-leading insurance segment remains robust. Our targeted strategy to increase wallet share with our lending partners is performing well and should put us in a great competitive position to grow revenue and VMD as interest rates begin to decline or credit conditions begin to ease. Thank you so much for joining us on this call, and we look forward to connecting again when we report third quarter results.