LendingTree, Inc. (NASDAQ:TREE) Q3 2023 Earnings Call Transcript

LendingTree, Inc. (NASDAQ:TREE) Q3 2023 Earnings Call Transcript October 31, 2023

LendingTree, Inc. beats earnings expectations. Reported EPS is $0.61, expectations were $0.39.

Operator: Good day, and thank you for standing by. Welcome to LendingTree Incorporated Third Quarter 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker’s presentation there’ll be a question and answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today. Andrew Wessel, Vice President Investor Relations Please go ahead, sir.

Andrew Wessel: Thank you, Norma and good morning to everyone joining us on the call to discuss LendingTree’s third quarter 2023 financial results. On the call today are Doug Lebda, LendingTree’s Chairman and CEO; Scott Peyree, COO and President of Marketplace Businesses and Trent Ziegler, CFO. As a reminder to everyone we posted a detailed letter to shareholders on our Investor Relations website earlier today. And for the purposes of the call, we will assume that listeners read that letter and will focus on Q&A. Before I hand the call over to Doug for his remarks. I remind everyone that during today’s call, we may discuss 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.

A client signing off on a loan agreement for secured lending.

Many but not all 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. With that, Doug, please go ahead.

Doug Lebda: Thank you, Andrew. And thank you to all of you who are joining us today. We are in $22 million of adjusted EBITDA in the third quarter, generating a 14% operating margin which was at the high end of our forecast. We again generating strong segment margins in both consumer and insurance and continue to benefit from our focus on operating efficiency. We remained soundly profitable with a strong balance sheet, despite the significant revenue challenges we’ve been navigating over the last few quarters. We have made significant changes at the company, most notably including our senior leadership positions. Our operating expenses have decreased by 30% from peak levels, thanks to proactive cost initiatives taken by management, which should generate strong operating leverage and a recovering revenue scenario.

We have redesigned our product function, with dedicated project staffing and clearly defined quarterly goals by group that are tracked and published internally, so that all employees can follow them. Finally, we focused our resources on optimizing our core marketplace business and remove distractions from our employees to accomplish targeted VMD improvements. For example, during the quarter, we identified areas where we can increase monetization of consumer traffic through more effective routing in cross selling. Also, we began recently live testing with six credit card issuers for our redesigned TreeQual platform. It is the first service to offer full credit pre-qualification to unauthenticated consumer traffic, with complete fraud protection, enabled by our partnership with a top credit bureau.

TreeQual has received significant interest from top credit card issuers. In combination with the margin enhancements we’ve seen from our Lightspeed implementation, we are quite optimistic about how our credit card business can improve going forward as we work and grow share in this very large market. Our outlook for insurance has improved significantly over the last quarter. We know from publicly available data that we are taking share from competitors. Over a year ago, our team committed to delivering the highest quality volume in the face of reduced demand from carriers. That focus on quality and meeting each one of our insurance partners where they needed us most drove those market share gains. Recent conversations with the marketing team that large carriers reinforced that we are accounting for an increased portion of their budgets.

Carriers also have indicated that underwriting results are supportive of increased marketing for customer acquisition, which we expect will be in the very near term. We aim to continue increasing our share of their growing budgets, which would provide a material uplift to our earnings profile. We are also acutely aware of the pressure our July 2025 convertible note maturity has on our share price. The management team continues to explore a variety of paths to replace this debt with capital that is extended — that has an extended maturity profile providing us with an additional time for our numerous actions to improve the business to take hold. And now operator, I’d be happy to open it for questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] First question comes from line of Jed Kelly with Oppenheimer and Company. Your line is now open.

Jed Kelly : Great. Thanks for taking my question. Just two if I may. Just digging into the consumer segment, I think personal loans were down. Can you just talk about the competition in that segment? I mean, one of your competitors that reported last week had pretty strong results in that product. So can you talk about the competition? And then just circling back to the convertible. Can you talk about the cash flow profile? I think 4Q is typically your strongest free cash flow profile, how much cash you need to run the business? I think you said $50 million historically in where we are in terms of wanting to, get the debt refinance? Thanks.

Doug Lebda: Scott, if you could take the first one there and then Trent, if you could take the second one.

Scott Peyree: Yes, sure absolutely. Hi, Jed. Good morning. Starting off, on the consumer side with the personal loan categories, or credit card or small business loans. Over the past 18 months, that have quite tightened in our clients, with our clients, monetization has come down, we’ve done a good job of maintaining our traffic levels, and controlling our marketing expenses to make equal to and often greater margins on the traffic. So I would say, you will look at our consumer volume has generally remained fairly steady over that time period. And you’ve seen the drop in revenue tied to the monetization per consumer. So where we’re focusing now, is improving that monetization for consumer, we’ve historically been a very specific product search focused company, right.

So when I say that, what I mean is, if you’re searching for a personal loan, we’re going to try really hard to give you a personal loan. We’re now shifting to more of a solution based model where, if you’re looking for a personal loan, we’re going try to get you a personal loan, but maybe a home equity loan is a better option. Maybe you can’t get a personal loan, but you can get a credit card, maybe your debt relief candidate. If you own a car, maybe you get a cash out refi on your car, loan et cetera, et cetera. We have a lot of ways to help solve the consumer problems. The problem being seeking money, we have distinct advantages in the industry being that we have direct client relationships and distribution in so many different financial industries.

So we just need to be better as solutioning across the board and cross selling to other products. And that will be a win win win across the board, which will provide, A, better options to consumers, B, more high quality leads to our clients, and C, increased monetization. Most importantly for us, which lets us crank up the marketing flywheel to start increasing the traffic coming through our network of sites. Which is that I think is maybe one of the big key gap is where. There is a lot of consumer demand out there, we just need that marketing flywheel to kick back in to start driving more of those consumers to our site, specifically.

Doug Lebda: Trent?

Trent Ziegler: Yes, I guess on your question around cash flow, I mean, we — yes, obviously, remain solidly profitable, right. In the ZIP Code of $15 million $20 million $25 million of EBITDA every quarter, that EBITDA converts to cash flow at a really healthy clip. I mean, say it for a little bit of capitalization expense, and then obviously, our ongoing interest burden, that EBITDA basically converts one for one, and so we feel really good about our cash flow position and are optimistic that we’re sort of at the bottom here and our position for things to get better as we head into next year.

Jed Kelly : Thank you.

Operator: Thank you one moment for next question, please. And our next question comes from the line of Ryan Tomasello with KBW. Your line is now open.

Ryan Tomasello: Good morning, everyone. Thanks for taking the questions. I was hoping you can put a finer point just elaborating on the comments from your prepared remarks around what you’re seeing from carriers regarding the 2024 growth plans. Obviously a recovery in the insurance business seems like the area you have most visibility around. So I guess, it would just be helpful if you could provide some guardrails around the different scenarios for that business next year, how fast it could inflect, the margin profile, whether that’s sustainable as competition increases for that traffic? And just generally how you feel about the competitive positioning and the ability to take shares as wallets increase?

Doug Lebda: So I’ll just hit the high level and then hand it off to Scott, who really, he and his team have just done a magnificent job. We think the margin profile can — while probably not stay — as your marketing flywheel starts going, you got to spend into demand. But our team has really done a remarkable job there. As I mentioned, we’ve had some carrier meetings that have given us some early indications. Scott, why don’t you to take the rest of that.

Scott Peyree: Yes, sure. Yes, I would say we’ve had a lot of good conversations and there’s definitely the winds are changing in the insurance industry. And really, over the past two or three months, we’ve gotten a lot of positive indications from a lot of our clients, including our historically largest client that we’re currently working on budget planning with for ’24. But, the short of it is they’ve made pretty clear the budgets are going to be increasing significantly, starting in January and will continue, the plan is they will continue to snowball as far as growth throughout the year. Not just them, though. I mean, we’ve had that there’s another big client of ours that two or three months ago, we thought there was going to be no budget until January, and now it looks like we’re going to get a decent amount of budget for November and December this year.

So that just shows the indication that these carriers are just feeling better and better by the day that they’re more consistently profitable. And I would say another four pretty big carriers of ours, have all either increased budget and or reopen states that they’d previously shutdown over the past three months. Nothing crazy significant enough at this point, but it just shows that overall macro trends shifting away from tightening up and shutting things down just to getting back in expansion mode. From a quality and market share perspective, we have gotten specific, very specific feedback from a number of carriers that we are outperforming both from a market share standpoint and a quality perspective as far as the product we’re delivering compared to competitors.

So we’re feeling really good about getting outside pieces of budget as the money comes back.

Ryan Tomasello: Great. Thanks for all that color. And then separate question on just typical seasonality, maybe for Trent. How are you thinking about that heading into the fourth quarter, does the 4Q guidance assume that typical season valley plays out? Or, maybe some different assumptions, variables, you’re assuming given just the nature of the current environment?

Trent Ziegler: Yes, thanks, Ryan. Yes, look, I mean, the guidance assumes kind of typical seasonal patterns that we thinks — that we’ve observed historically. What I’d say is, its baked into the guidance for the rest of the year is kind of a stabilization in fundamentals, but it really is just those seasonal trends that we’ve seen kind of applied over the top. We’ve had a lot of debate internally about that, given where the trends have been, will the seasonality be as pronounced as it has been in prior years? We obviously don’t know the answer to that. Yes. But we’ve taken a pretty conservative stance with regard to what’s baked into the guide for the rest of the quarter.