LendingTree, Inc. (NASDAQ:TREE) Q1 2023 Earnings Call Transcript

LendingTree, Inc. (NASDAQ:TREE) Q1 2023 Earnings Call Transcript May 2, 2023

Operator: Thank you. Good day and thank you for standing by. Welcome to the LendingTree First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. 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.

Andrew Wessel: Thanks, Amber and good morning to everyone joining us on the call this morning to discuss LendingTree’s first quarter 2023 financial results. On the call today are Doug Lebda, LendingTree’s Chairman and CEO; J.D. Moriarty, President of Marketplace and COO; Trent Ziegler, CFO; and Scott Peyree, President of Insurance. As a reminder to everyone, we posted a detailed letter to shareholders on our Investor Relations website earlier today. And for the purposes of today’s call, we will assume that listeners have 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 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 will 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 GAAP definitions and full reconciliations of non-GAAP measures to GAAP. And with that, Doug, please go ahead.

Doug Lebda: Thanks 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 position the company to serve our customers and partners more efficiently. These were strategic decisions made to simplify our operations and streamline our corporate priorities. We have been reinforcing a start-up 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 project cadence from our previous annual planning sessions. The quarterly corporate priorities are communicated to the entire company with specific employees assigned each initiative and cross-functional teams to improve speed of execution and drive accountability.

The benefits from our leaner organization and improved project-based planning are made clear in our updated financial outlook. Our lower 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 end. 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. However, it’s important to recognize that despite the $180 million reduction in our 2023 revenue forecast at the midpoint, our adjusted EBITDA guidance range has 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.

Moving on to our segment performance. In the first quarter, our Insurance division, again posted impressive results. 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. Although we expect another subdued year of demand from our insurance carrier partners, we have positioned the company to capture market share with exceptional economics once demand returns. 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. Our team is working on improving purchase conversion rates while also helping our partners meet our customers’ strong demand for home equity loans. In Consumer, higher short-term interest rates set by the Fed 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. We expect that this trend will continue as the year progresses. 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 CompareCards brand over to the core LendingTree experience, which will drive material cost savings over time.

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 were consuming capital, time and other resources. We’ve refocused 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.

Q&A Session

Operator: Thank you. At this time, we will conduct the question-and-answer session. Our first question comes from Youssef Squali of Truist Securities.

Youssef Squali: Great. Can you guys hear me?

Doug Lebda: Thanks again.

Youssef Squali: Excellent. Good morning to you all. So two questions. One, maybe can you please talk about, as you guys have closed 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 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.

Trent Ziegler: Yes. Thanks, Youssef. This is Trent. Yes, I think I can kind of hit both of those. If you think about the commentary we gave around the original guide in February across segments, we said we expected Home to be down more than 20% from a top line perspective. Our expectation there is that, that’s a little bit worse today than we thought 2 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. Home equity continues to be really solid, and that’s a good contributor within the Home segment, but refi is obviously compressed and then our outlook on purchase is probably the real driver there. As you think about the insurance segment, we initially said kind of mid-teens type growth for that business this year.

Keeping in mind, 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 I think as we’ve all seen, the operating environment in insurance is getting harder. Obviously, some big players, just announced plans to reduce their marketing spend. And so we’re reflecting that. I think from our perspective, we’re happy that we were not sort of overly optimistic in the recovery in insurance. But certainly, the recent developments do temper our expectations for the year. What I’d point out at insurance is, if we expected it to be up mid-single digits 2 months ago, now we probably expect it to be down 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 of that business over the last 6 to 9 months. And then finally, within consumer, this is probably the biggest swing factor relative to the prior guide. We called 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, we have announced the plans to wind down the Ovation business. That’s about half of the driver within consumer. Obviously, some developments within the broader credit repair space over the last couple of months have led us to that decision. We were actually in a process to sell that business. And with an adverse ruling against one of the bigger players in that space, that will industry has kind of been shaken up.

And so we are obviously going to be missing out on the direct Ovation revenue stream, but there is also a component of our business where we cross-sell to other players in that space and that’s been sort of temporarily impaired and we are looking for other outlets for some of that traffic that goes under monetized through our traditional lending businesses. So I think that covers it in terms of our new outlook and sort of where the declines are coming from.

Youssef Squali: Okay. That’s helpful. Thank you.

Operator: Our next question comes from Jamie Friedman of Equity Research Analyst. Jamie, your line is open.

Jamie Friedman: Hi. Good morning and thanks, as always for the shareholder letter and during this call. So in the shareholder letter, you commented that the expense structure is back to the 2019 level. So Trent, maybe this is for you. I just wanted to check. Are you thinking about that on a percentage basis or an absolute basis? Or so what is that comment referring to?

Trent Ziegler: Yes. So on an absolute dollars basis, you’re not going to see the full impact of the benefit 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 on an annual basis, pretty close to the $200 million, which is where we were operating in 2019.

Jamie Friedman: Got it. Okay. And then…

Doug Lebda: The only thing I’d add to that is that the fact that it’s at 2019 levels is a reference point, it’s not what we were necessarily going towards. We were taking out costs very deliberately as the unit economics of the business change and then some of your projects and things that you were working on just simply are underwater based on new realities. And so you just got to keep adjusting to the reality of lender demand in the business.

Jamie Friedman: Okay. And then, Doug, just a follow-up there, maybe J.D., in terms of consumer, the component that surprised us a bit, and I wonder if it surprised you was Card down 39% to $18 million. So when we look at the issuers, their originations look like they’re fine. And I realize it’s more complicated than that. But is it possible that you’re losing market share? Are there some specific issuers that have gone elsewhere, what’s going on there to drive that this way?

Doug Lebda: Sure. You kind of have to look Jamie at not just the Q1 contribution in Card, but actually as the quarter progressed. So in Card, I think they certainly started out the year with more of an origination focus that has diminished somewhat. 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 Lightspeed. That’s a whole new platform that is dramatically faster for us, and it offers that speed results in better marketing dollar efficiency for us. What we’ll then be able to do, and we are about one-third of the way there is transition our traffic from the CompareCards experience to LendingTree, that will offer another level of efficiency, okay?

So we’re about 1/3 of the way there. That will creep into Q3, but be done hopefully the beginning of Q3 in terms of that transition to the LendingTree brand. It is possible that in Q1, we probably were not on our front foot with some issuers as a result of these initiatives. Having said that, it’s a reasonably anemic card environment right now to begin with. So in consumer, the desire of issuers, they – keep in mind, we get paid when they get approvals. And we know that they started the year with consumers clicking through applying for cards, and they were well ahead of pace on approvals, many of them in terms of what their internal budgets were. So we’ve seen that abate. And it would be unreasonable for us to make an assumption that that’s just suddenly going to correct itself in the issuer in this credit environment that all of our credit card issuers are going to be changing course and be very aggressive with respect to card issuance.

Now your question 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 is that things like the Lightspeed transition and moving to one brand. Those have opportunity cost. That opportunity cost in Q2 is the lower because of the environment that we’re facing in Card right now. So we’re able to make this transition at a lower opportunity cost. But we’re just focused on getting to the other side and having a more efficient Card business. Within consumer, you have to sort of recognize that not just Card, the other businesses that are in there are personal loans. We get paid mostly on closed loans there, right. And so we’ve seen tighter credit conditions throughout Q1. And obviously, with SVB and the banking crisis that credit tightening accelerated that started in March and continues here in Q2.

That ripples through a bit in SMB, which is a big contributor for us in consumer. And then as Trent points out, Ovation and the other ancillary cross-sell businesses associated with that are in that consumer vertical. So recognize like that all kind of contributes to some of the adjustment in the top line for the guidance.

Jamie Friedman: Okay, thank you for the context.

Operator: Our next question comes from John Campbell of Stephens Inc. John?

John Campbell: Good morning guys, thank you. If we look at the stock, what is indicated this morning and then if I just take the midpoint of your new adjusted EBITDA guidance, I mean, the stock looks like it’s 8x what feels like a 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, I mean you guys mentioned that taking you back to 2019 levels, but revenue is still expected to be about 30% below 2019 at this point. So maybe if you could talk to the degree of cost saves you might see if revenue kind of hangs out around this territory if you guys have visions of incremental cost saves? And then just maybe how much of it is kind of a VMM or cost to acquire situation?

Doug Lebda: So I’ll start that and then hand it over to Trent. So on the last one specifically, we are always going to be looking for cost savings. 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 we can adjust our marketing and improvement 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 more 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. And the second thing we need to see is if one or two of our strategic initiatives hits and then we could have to change the unit economics and be off to the races again. Trent?

Trent Ziegler: Yes. I don’t know that I have a whole lot to that there, John. I mean, I think if you think about the situation we’re in, as Doug said, every one of our businesses is facing pretty real macro headwinds. We’re focused on doing the right things for the business to continue to generate good positive cash flow during this environment. We’ve rightsized our cost structure. 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 a few projects, whether it’s my LendingTree or some of our customer experience-based initiatives that we think can really evolve the business over the next 6, 12, 18 months, that’s where we’re focused. I’m sort of making a call on where the macro goes into ‘24. I mean I think we’re working on the right things, and that’s where we’re focused.

John Campbell: Okay. That’s helpful. And then secondly, just from an industry standpoint, 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 obviously, 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 band of those trigger leads would be a positive development for you guys.

Trent Ziegler: Yes. No, I’m glad you asked. 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, when we – when somebody comes through the LendingTree Home funnel, we do a soft pull of credit, not a hard pull. But the trigger leads create a lot of noise for our partners, right? Because the consumer – let’s say, the consumer goes through the home funnel and gets matched to four LendingTree lenders, and they have given consent to be matched to those lenders, etcetera, 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.

John Campbell: Perfect. Thank you.

Operator: Our next question comes from Jed Kelly of Oppenheimer & Co. Jed, your line is open.

Jed Kelly: Hey. Great. Thanks for taking my question. Just circling back on insurance. Is this going to be another 6 months where the carriers are going to have to readjust their rates and it’s going to have to get through the state board. And we are seeing, I guess, new car inventory improve. So do you have any sense on where we are in terms of the carriers sort of getting any handle on being able to underwrite auto policies profitable again?

Scott Peyree: Yes. Hi, Jed, this is Scott. I’ll answer that question for you. I would start by saying they are heading into the first quarter this year, there was a lot of our carrier partners were telling us at that point that it was going to be third or fourth quarter of this year before they are leaning back in. There was a few carriers that started leaning in pretty heavily in the first quarter, which was great. And some of them continue to lean in a little bit. Our largest client is as well-known as it has pulled back pretty significantly. And they did indicate it would be probably 6 to 9 months as they continue to push through rate increases and they were if anything, just continue to be on their heels a little bit with just the inflation and how inflation is specifically affecting car prices, used parts, repair times and all of these things.

It is still a hard environment for the carriers out there. But at the end of the day, we’ve got a large distributed network. We sell lease clicks calls to a large number of carriers and local agents. And so we are in other certain areas, like Doug mentioned earlier, the local agent network we have. We had an all-time revenue record in Q1 there, and we’re looking to have another all-time revenue record in Q2. So there is definitely areas, large independent brokerages, because premiums being so high, commissions are higher for large brokerages now. And so the – a lot of them are leaning in a little bit. So there is areas of growth, but at the direct carrier level, yes, you’re probably looking through the end of the year continue slowly coming back in the market.

Doug Lebda: The only thing I’d add to that, 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 model. So you have your call click and lead product that’s bought by big major carriers, and then you also can do that. You can – if your carriers aren’t there, then you have your local agents and you have your own in-house agencies. So that can help to keep the unit economics better than they would be otherwise by a huge carrier opponent if you didn’t have that diversification, and that’s enabled the insurance business to still do well despite one big customer, just pulling back.

Jed Kelly: Got it. And then my follow-up question is just you did pay off some of the convert last quarter. Given where the stock price is and the cash you have on hand, how do you think about opportunity paying down that debt, especially if it makes sense to pay down given where the share price is. Thanks.

Trent Ziegler: Yes, quickly on that one, Jed. I mean 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 million to $75 million is what we need to run the business. So there is some excess cash there, and we will continue to look at kind of the trading levels on the converts and the term loan both. And we will continue to think about it and to kind of monitor where those are trading, and we will think about it opportunistically.

Jed Kelly: Thank you.

Operator: . Our next question comes from Robert Wildhack hat with Autonomous Research. Robert, your line is open.

Robert Wildhack: 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 of the intangibles. 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?

Doug Lebda: I’ll let these guys handle the financial aspect of that, but there is definitely not a lot of CapEx in the business. And 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 plans on doing things like that are in building software and executing on projects with product and tech, and obviously, our new cross-functional teams. And the way we will know how much to invest is based on the expected ROI of those projects. So as the unit economics have gone down, many of the stuff that we are 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 unit economics come back that 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.

But so that’s how you know. As 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 on to 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…

Trent Ziegler: Yes. 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 been how we’ve oriented the business. But what I would say is we made reference to the cost structure getting back to new year 2019 levels earlier, 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 I mean 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 resourcing standpoint, and we will just continue to kind of chip away at those projects.

Robert Wildhack: I appreciate all the color there guys. Just to make sure I’m hearing correctly. It’s safe to assume you’re comfortable that the current level of investment, whether it’s CapEx or runs through the P&L is sufficient to stay competitive even in the context of some pretty deep pockets at your competitors?

Doug Lebda: Yes. Yes. Because the deeper pockets, you’ll generally see that 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, we will as I said, we will start to see improvement there and then you layer in the investments in marketing and advertising to drive more volume.

Trent Ziegler: 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 is the ability to – is 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.

Robert Wildhack: Thanks for all the color guys.

Operator: . Our next question comes from Ryan Tomasello at KBW.

Ryan Tomasello: Hi everyone. Thanks for taking questions.

Doug Lebda: Hi.

Ryan Tomasello: Hi, guys. Onto the consumer engagement side, can you elaborate on the expected rebranding of My LendingTree later this year, specifically, if that will include a media campaign and if that brand is being baked into the forecast. And then on the Win Card, realizing it’s still early days, but any initial data points around uptake and benefits to engagement that you’re willing to provide?

Doug Lebda: So let me start and then J.D 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 LendingTree strategy. Right now, we do not have assumed that we will have an ad campaign to either launch any rebranding of My LendingTree or the Win Card. And the reason for that is that we’re focused heads down on getting the product right and that which will get the monetization right, and then we can lean into advertising to the extent that it’s there.

J.D. Moriarty: Ryan 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 LendingTree 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 we’ve been pretty candid that we don’t love the name My LendingTree. So when we talk about rebranding, we’re talking about a name that we’re comfortable with in terms of the way that we’re trying to align ourselves with the consumer. We’ve talked about being adjacent to and honoring the spirit with which the consumer first came to LendingTree and having products that really serve that need as opposed to a feature factory.

So 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 the Win Card is really just the hub for your My LendingTree account, and we’re trying to encourage repeat engagement. But it’s not – it’s never – it’s not going to be facilitated by some aggressive spending campaign like many people do when they launch a traditional credit card. That’s not really our goal. Our goal is to give somebody really the key to their My LendingTree account and then that all those products will tie into that account. So I wouldn’t – 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.

Ryan Tomasello: Great. And then just a follow-up around the mortgage business more broadly. Do you feel like that business has effectively troughed 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 2 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 refi wave that we’re likely not to get here anytime soon. And then just layering one follow-up around mortgage here just with the bigger picture. Clearly, a lot of market share shifts happening in mortgage land 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 is anything you’re looking to capitalize on there as the environment shifts here. Thanks.

J.D. Moriarty: Sure. Listen, we obviously watch just as our partners do, we watch to see whether we see signs of troughing and mortgage. We watch loan officer accounts 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 offs or hiring through 2020 and ‘21. And then we watch rates like everybody else. And so most of our partners month-on-month, we see a diminishing number of loan officers. If you think about how they partner with us, they think about thereby with LendingTree and how many leads they provide for their loan officers to optimize their productivity, then you have to think about the products that they are 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 are not chasing refi right now because very few Americans would benefit from a refi. In a normal cycle, they would be chasing purchase as conversion rates are just not there because the home sales are not there. And so they are surviving through this cycle largely on home equity. In some cases, we see partners finding success with refinance where people have to refinance to manage a payment, but there is just not a lot of it out there. Now, the other part of your question is the shift away from banks. That shift has been going on for a long time.

And recognize 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 have got to have first just stability in rates. You don’t have to have a big refi cycle, as you pointed out, you do have to have a little bit of a give in the ever – 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 stability and a little bit of a pullback, you will see a little bit better lender health and our network will improve as a result.

Trent Ziegler: And the only couple of things I would add to that in mortgage, generally speaking, there is except for an environment like today, where J.D. just said there is no benefit as rates have gone up. With stabilization of 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. So, 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 and purchase 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 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 home buying going on, they are not buying as heavily. So therefore, we are not advertising as much. So, the break – the way to break that cycle is to improve your product. And that’s what we are working on.

Ryan Tomasello: Great. Thanks for the color guys.

Operator: Please hold for our next question. Our next question comes from Cris Kennedy at William Blair.

Cris Kennedy: Good morning. Thank you for taking the question. When you think about your cost initiatives and then kind of how your market share has trended over time, how should investors think about the ultimate earnings power of your business?

Trent Ziegler: Yes. This is Trent, Cris. Look, I mean I think for starters by the back half of this year, if you sort of unpack our guidance and you look at how it calendars throughout the year, I mean basically we are assuming the macro backdrop stays relatively flat, right, in this environment. And so the top line progression in terms of both revenue and variable marketing margin kind of up 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, right, which assumes a pretty tepid macro backdrop, there is a scenario where in the back half of the year, we are approaching kind of mid-teens EBITDA margin. And candidly, like 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 again, I think circling back to John’s question earlier, short of making a call on what the macro does next year, like we are focused on rightsizing our cost structure, preserving margins in the core business, right, and placing a few bets that will enable us to grow from here sort of agnostic of what goes on in the macro. So, there is no reason why we can’t get back to a mid-teens, high-teens type EBITDA margin profile.

Doug Lebda: Yes. And the only thing I would add on ultimate earnings power, I think we almost saw that I guess it was I am not sure it was 3 years or 4 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 LendingTree brands, good only I have talked about for years, right. If we can leverage the LendingTree 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 of 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 have heard us talk about – Trent Ziegler has talked about light speed. You have heard us talk about the new projects we have 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 by the way, the parallel of that is, I would say, in insurance. So, if you look at what has happened in insurance over the past several years, there are very specific initiatives to do certain things or to not do certain things and when something is not working to pull the plug and put the resources somewhere else, has been part of that business staying strong and we are following a very similar playbook at LendingTree.

Cris Kennedy: Great. Really appreciate that. And then just a quick update on TreeQual and how your initiatives are going. Thanks for taking my questions.

J.D. Moriarty: Sure. TreeQual, I guess I would say no new news with regard to partners. However, pipeline of partners and what they are telling us and what we are learning, we are encouraged by. So, we have partners in both the 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 TreeQual solution is that it is dependent on kind of the Venn diagram between who is in our My LendingTree 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 prequalified 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 have attained that for a couple of quarters now. And so we are working on solutions that involve APIs between ourselves and certain of our partners, and we are thrilled to be in those conversations. We are more convinced than ever that the future of the card business is something that is more TreeQual in orientation. And so in that respect, we think we are on the right track. I mean to put this in perspective, in the current card experience, 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 into CompareCards, soon that we will be coming into a LendingTree experience. They then click out to a partner and they get approved in the low-teens approval rate environment, right.

And that’s not a great consumer experience. And all of that marketing inefficiency is on us, not on our partners. We want to be in a scenario where we are 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 and something where the approval rates are more like 80%, and that is TreeQual. And so that’s where we are headed. It’s just going to take longer because the current – it’s going to take longer because we are learning and we are actually happy that we have taken a kind of gradual approach with it as opposed to building some big systems around the direct mail opportunity that we identified a couple of years ago. So, there is good news and bad news there.

And bad news is it’s not going to contribute much this year. The good news is we think we are on the right track.

Trent Ziegler: And the only other thing I would add is from a resourcing standpoint, that doesn’t consume a ton of tech resources. And if you take the clock back, we might – I have talked to a number of you about Commons LightBox initiative. LightBox is where you host all the underwriting criteria, criteria of credit card issues. So, we knew issuers did not like that approach. So, we tried to take this approach and be able to offer real offers by hitting up their direct mail list. And I think as J.D. said, that has its limitations. And so now you have to work with individual the approach we are taking now is to work with individual card issuers to tie directly into their approval system so you don’t have that leakage of approval rates being 20%, 30% when that click out.

So, that’s the legacy of TreeQual. I think we all issued the original model would have gripped but – and the challenge in this new model is now we – now you got to fit in 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. It’s just taking longer than we would like.

Cris Kennedy: Great. Thanks for taking my questions.

Operator: Please hold for our next question. Our next question comes from Melissa Wedel at JPMorgan.

Melissa Wedel: 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 a number of projects. But I am curious if you are seeing any sort of delayed timeline, even a little bit delayed timeline on rollout of some of these projects because of the cuts you have had to make?

Trent Ziegler: So, thank you, if anything, this is making us faster. So, we have – I have alluded this process a number of times, but basically, imagine instead of somebody trying to execute a new product initiative that they have got an idea, then they hand it off to somebody who designs it, and they hand it off to somebody who builds it and you launch it and say a prayer the hope that works. We have now got cross-functional teams that are basically like little mini start-ups. They have got everybody from an HR person, the finance person, engineering, data, marketing, and I am probably missing a few, and they are with an executive sponsor, and they run like a startup. And they have got clear OKRs laid out by quarter, which then they lay them out by month.

And we have – so we have 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 rift. So, imagine a situation where you got several hundred people working in, I will just use product and tech for an example, 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, I had to let people go. And so that’s the way that works. And I think it will make us faster, not slower definitely. I am encouraged by how fired up and excited people are, particularly as we get them back to the office. And these teams are just are working very, very productively together and very enthusiastically.

The only thing I would say that happened after the rift there was a typical like week of people being pretty sad appropriately. But I would say a week after that, you have got a renewed energy and vigor here that I haven’t seen in a while, partially because we have all been remote. And so I feel really good about that, all that stuff.

Melissa Wedel: I appreciate the context there. And I do acknowledge it’s always a very – these actions are always very tough to go through. So, definitely appreciate that point. I guess as a follow-up question, if I could pivot a little bit to the balance sheet. You guys have been pretty opportunistic in the past about making equity investments and what you see as promising related companies. I am curious as you refine your strategic approach to running this business and rightsizing 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.

J.D. Moriarty: Melissa, it’s J.D. I will take it and I will 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 want to focus on our core business, and we are in the process and actually very gratified by the simplification of our business. So, that is equity investments away from our core are not very high on the list right now. We are 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 core piece of it is don’t expect that to be terribly active in the near-term.

Melissa Wedel: J.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 have already made to redeploy that towards the debt? Thanks.

J.D. Moriarty: Yes. You saw us do that with one of our investments 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 as easy to come by. You have to be conscious of what the company is going through in their own path, so.

Trent Ziegler: Yes. I agree with J.D. And on the existing investments, we don’t have many of them. If somebody had bids for them, if there is particularly if there is not some strategic relationship, we are always open to hearing. And there is at least a big one, which is Stash. That was made in the hopes that we might actually put the two companies together. And obviously, that broke when valuations started to break. So, we will 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.

Melissa Wedel: Thank you.

Operator: I would now like to turn it back to Doug Lebda for closing remarks.

Doug Lebda: Thank you very much and thank you everybody for being here. While 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 in our businesses subside. We are acting fast. We are making very disciplined decisions. We are focusing on fewer high-impact projects. And all of that, we think positions us 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 LendingTree.

Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.