LendingTree Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 1, 2025

There are 9 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the LendingTree, Inc. First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session.

Operator

You will need to press 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. 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, Senior Vice President of Investor Relations and Corporate Development.

Operator

Please go ahead.

Speaker 1

Thank you, Didi, and hello to everyone joining us on the call to discuss our first quarter twenty twenty five financial results. On with us today are Doug Lebda, LendingTree's Chairman and CEO Scott Paree, COO and President of our Marketplace Businesses and Jason Bengal, CFO. 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'll assume that listeners have read that letter and we'll focus on Q and A. 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.

Speaker 1

Any forward looking statements 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'll also discuss a variety of non GAAP measures on the call, 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. Thank you, Andrew,

Speaker 2

and thank you all for joining us today for our first quarter update. All three of our business segments generated solid revenue growth in the first quarter. Adjusted EBITDA, however, came in just below our forecast, driven by temporary regulatory headwinds in our insurance business and one time expenses related to benefits and legal fees. We are now one month into the second quarter and we are seeing improvements in those areas. As a result, we are still forecasting strong adjusted EBITDA growth of 15% at the midpoint of our annual outlook that we updated today.

Speaker 2

As we discussed last quarter, our insurance segment was impacted by the FCC's pending one to one consent rule. An appeals court rescinded that rule and subsequent rulings have eliminated the possibility that it will be resurrected in the future. We expected a sharp recovery once we reverted back to our previous customer experience, but it has taken longer than anticipated. This disruption, combined with a marketing correction in the quarter from one specific carrier, led to a somewhat softer insurance performance than we had forecasted. Despite the challenges, insurance still grew revenue 71% year over year in the first quarter, and we continue to forecast annual revenue and VMD growth for the segment.

Speaker 2

In lending, the consumer segment again benefited from growth in our small business and personal loan products. Our investment in the Concierge sales team for small business has delivered significant benefits to our unit economics. Conversion rates have increased and we have captured higher levels of renewal and lender bonus revenue as a result. We expect small business will generate record revenue for us in 2025. Thanks to success in home equity lending, our home segment continues to produce great results in a difficult environment.

Speaker 2

Increased demand for home equity loans from both consumers and lenders is driving home segment performance. Prevailing high mortgage rates continue to suppress demand for new home buyers and refinancing. However, slower growth of home prices and an increase in inventory of homes for sale should be helpful for the housing market going forward. As I mentioned at the beginning of my remarks, we had some one time items and operating expenses in the first quarter. Going forward, we have offset those unexpected costs with savings identified in the zero based budgeting process from last year.

Speaker 2

We remain committed to carefully managing our operating expenses while maintaining the ability to invest in specific growth initiatives, enabling us to produce positive operating leverage on future revenue growth. I know tariffs are on everyone's mind, so I want to address that here quickly. Obviously, we are a fully domestic company, and we don't expect tariffs to have any direct impact on our business. Obviously, there could be secondary effects with interest rates or significant inflation that may impact our business, But we've stayed very close to our insurance and lending clients, and we don't have any immediate concerns. And now, operator, we're happy to answer any questions.

Operator

Thank And our first question comes from Ryan Tomasello of KBW. Your line is open.

Speaker 3

Hi, everyone. Thanks for taking the questions. Doug, wanted to start on that last point you made. If you could just elaborate generally what you're hearing from your carrier partners on potential headwinds to profitability from tariffs. And obviously, that I think the concern here is how that might impact demand for customer acquisition.

Speaker 3

And just given all that uncertainty, how you're thinking about the guidance here, what you're baking in, especially for the back half of the year? Thanks.

Speaker 2

Yeah, I'm going to let Scott handle that. He's in Seattle and I know he's closer to the insurance clients. So Scott, take it away.

Speaker 4

Yeah, sure, Ryan. To answer your question there, we've been staying pretty close and having conversations with our major clients on the insurance side. There's definitely concern around tariffs and what they might do. But they generally I would say generally all feel pretty good about where they're at today from profitability perspective. All of the work they've done over the past few years to get their rates in a good spot from the inflation work is that they're probably in a better profitability position today than they've been in the past three to five years.

Speaker 4

So they're kind of starting at a good point. They're monitoring closely. I think what you'll see out there is where a number of carriers might have started reducing rates for a lot of consumers this year. That's probably not going to happen as they take a more cautious approach. I feel like a lot of the carriers have told us they feel like they can get out in front of any potential inflationary impacts from tariffs to maintain a good spot.

Speaker 4

I'd say the general response from carriers has been they feel like they're going to be able to deal with the impacts of tariffs within enough time that it won't really affect their marketing strategies.

Speaker 3

Great. And then I guess maybe just digging deeper into that and maybe expanding broadly, what you're kind of baking into the revised guidance here, you're hair cutting the top line by about three points. It looks like that's being offset by stronger variable margins. So just unpacking the moving pieces there, what you're baking in from a macro standpoint, just across the different pieces of the guidance. Thanks.

Speaker 5

Yeah, it's Jason. I can take that one. Just first of all, on the macro point, we're not baking in anything one way or the other from a macro standpoint. That's just something that we're going to have to monitor. We're going have to monitor delinquencies, combined ratios on the carrier side, consumer spending to make sure shopping remains stable.

Speaker 5

But like Scott said, and Doug said, we don't have any indications today that there is tightening happening. So as far as the guide goes, that's just gonna have to be something that we continue to monitor. And I can talk through each segment a little bit to give some more color around the guide. Just starting with home, we expect strong continued home equity growth to continue that we've seen. On the rate side, rates have been moving around quite a bit.

Speaker 5

We're not expecting any change to the rate environment from where it is today in the home segment. Consumer from where it is in Q1, Q2 and Q3 tend to be a stronger seasonal quarters for consumers. So we do expect some improvement from Q1 moving into Q2 and Q3 in consumer. Not contemplating any macro change on the consumer side. That is something that we're going to watch.

Speaker 5

On the insurance side, we do expect incremental improvement from where we are today. We're not expecting any impact from tariffs, like Scott said, but we do expect to improve better, perform better from where we are. We've had a lot of positive conversations with the carriers and we're pretty optimistic that budgets are going to increase from where we are. So the back half of the second half of the year, the second half of the year should perform better than the first half of the year for insurance in particular. Expenses were a little bit high in Q1.

Speaker 5

We do expect them to modestly come down in Q2 and the rest of the year going forward. So that'll provide a

Speaker 2

little bit more help in the back half as well. And generally speaking, the business model is very resilient with the two sided marketplace. If there's a change in lender or carrier demand, there are marketing offsets to that both up and down as you guys know. So can weather volatility. At the same time, unless there's a shock to the system where either lenders aren't lending or carriers aren't writing policies, the company is generally in good shape.

Speaker 2

And if anything, some of this stuff could cause interest rates to move around. And if they go up, then they'll go down. And if they go down, that's even better. And that'll certainly help the business and even weakening in the economy obviously helps rates. There's lots of different offsets but unless there's a big shock, you know, we can adjust pretty easily.

Speaker 3

Okay, appreciate all the color. Thanks, guys.

Operator

Thank you. And our next question comes from John Campbell of Stephens Inc. Your line is open.

Speaker 6

Hey, guys. Good afternoon.

Speaker 5

Good afternoon, Hey, so

Speaker 6

I just want to touch, I guess starting here on SMB. If my math is right, I think you guys got to about $20,000,000 or so in the quarter. You mentioned the shareholder letter you expect the record SMB rev for the year. If I annualize that, I think it's going to be well above your record. So just remind us again, I guess on seasonality of that business, and maybe just more direct if you feel like you can hold near that quarterly level for the balance of the year.

Speaker 2

I'm seeing puzzled looks here on the faces of our finance geniuses. So let's see who's

Speaker 5

I'll hit it. Scott,

Speaker 2

you hit it generally while we make sure you have the numbers right.

Speaker 4

Yeah. So Jason can maybe hit on the specifics as far as our revenue projections this year compared to our previous all time highs. But hitting on the seasonality, there's definitely seasonality throughout the year on small business as you kind of go into like, for example, heading into the holidays, you'll have a lot of small businesses looking for inventory loans and whatnot. But I would say in general, there's so many different types of small businesses looking for loans for different types of reasons that it will smooth out in general throughout the year. And I would say just our growth we've seen growing our direct sales staff has been very successful.

Speaker 4

As Doug mentioned at the top of the meeting, the unit economics are much better when we write the business directly. We've at the same time been able to grow our consumer lead flow quite a bit. So there's lots of small businesses out there. There's a lot more today coming through our network than we had a year ago, and we plan on that continuing to grow over time. We're adding more lenders onto the network, so that should provide us more options to provide loans to the merchants and businesses as time goes on.

Speaker 4

So I think we've got a lot of tailwinds in the small business world. There's a little bit concern around all of the political stuff going on as far as do small businesses get a little bit more conservative. We're not seeing it that at a real macro level as of yet. Maybe the average loan size is slightly less than we would historically expect over the past thirty to forty five days. But the data is a little bit thin there.

Speaker 4

It's nothing significant enough that we would change any expectations going forward. I think I would say, in general, we're very happy with where we're at and where we're projecting the small business category to be over the next year plus.

Speaker 2

Yeah and my take on it would be we're still very small, we're growing, if you grow the lender network you're going to grow your union economics which means you can go market more and we're growing off such a small base. This is the most probably complicated most complicated and opaque underwriting of all the products, loan products that there are, which means it's kind of the last to come online. It's kind of fun to have a small grower again that's getting big to the 20,000,000 a quarter. You guys want to talk about that numbers?

Speaker 5

Yeah, I mean, in general your math is right. And we do expect continued strength in this. We are leaning in, like Scott said, we are hiring concierge reps as those unit economics work out. So I think the other thing to point out that this is a very profitable vertical of ours. So as it continues to grow, it should provide more and more margin support for us.

Speaker 5

So I think we're optimistic about the rest of the year performance around small business.

Speaker 6

Okay, that's helpful. And then on the mortgage marketplace, obviously that used to be the core business for you guys and it's been largely dormant. Obviously, the macro has been incredibly tough. And a couple of years ago, I think you guys had $376,000,000 in that business. Last year, was $40,000,000 So it feels like that is a growth driver one of these days.

Speaker 6

So I'm just curious about what you guys are thinking about as far as like the level of mortgage rates where you feel like that could start to unlock some values, maybe unlock a little bit of growth for you guys?

Speaker 2

I don't have a specific number, but you're definitely right. It should be a huge growth driver and is largely in many ways stuck from a refinance standpoint. That's why home equity is a great substitution product for lenders and consumers in this type of an environment. So you really need to look at it in total. I don't know what the amount is.

Speaker 2

Scott, I don't know if any of you guys have a specific number, but it's gonna happen someday. And the good news is this time around, I think technology will enable more loans to go through the pipes, which will mean that you won't have lenders shutting down as much as they had to last time. I think the mortgage process become much less manual. Scott?

Speaker 4

Yeah, I'll just add it. Yeah, you're 100% correct when you say the combination of refinance, cash out refinance, new purchase is a massive business for us in the good times that has been dormant over the past few years. Home equity is really the driver of the growth we're seeing right now. Even though our purchase and refinance business is growing, but it's coming off of, as you said, pretty low levels last year. A lot of what I hear in the industry is if you get interest rates to a five handle, if your thirty year starts with a five, you're probably going to see a seismic shift in the industry with dramatic growth returning.

Speaker 4

So in the meantime, growing and doing what we can and working hard with our clients, making sure we have a good distribution network. The demand for our product is very high. It's more of just about the number of consumers that are looking for those products right now.

Operator

And our next question comes from Jed Kelly of Oppenheimer and Company. Your line is open.

Speaker 7

Hey, great. Thanks for taking my questions. Just back on Insurance, can you kind of give us a sense how we should think about the VMM margin as revenue starts to normalize in that segment? And then just again on insurance, how should we view the home segment? I know auto is still the main portion, but it seems like home is an attractive market as well.

Speaker 7

Thanks.

Speaker 4

Yes, Jed, starting on the VMM side, and I'll say today what I've said the past couple of earnings calls is I think as things normalize over time, low to mid-30s is where we want to be on the VMM side. We started we had some good improvements in Q4. I think some of the points that Doug talked about at the top of the call as far as like the SLC headwinds, we had some carrier budget shifts, some new technology bugs that happened in our system. We had a little bit of a setback in Q1, but those were one time events that we were working through and solving. And so we're going back to optimizing that.

Speaker 4

But low to mid-30s is where we would expect to be long term at a normalized rate. And I think we'll be there sooner probably later. And then just answering the question on home insurance, that's absolutely. That's a very popular product. It's a growing product for us.

Speaker 4

And I even feel like the first quarter, there was even more growth there than we expected as the carriers are getting more and more interested in driving growth via home insurance. So yes, that's correct. That's a good industry right now.

Speaker 7

Thank you.

Speaker 5

And then Jed, maybe just to touch on the guide that we do expect, like we said, insurance to improve from where it is today. We do expect margin to improve from where it is today. Not yet in the more normalized levels that Scott mentioned, but we do expect continued improvement.

Speaker 7

Thank you.

Speaker 8

Thank you.

Operator

And our next question comes from Melissa Wedel of JPMorgan. Your line is open.

Speaker 8

Good afternoon. Thanks for taking my questions. Wanted to start on the home segment margin that came in a little bit stronger than we were expecting. And I guess the question would be, is there any reason to think that that would inflect lower or is this sort of the run rate, particularly with home equity demand right now?

Speaker 5

Yeah, I mean, we are generally expecting that to be sustainable going forward and home equity monetization is just really strong. That's a function of, this is a product that works really well for consumers, and it works really well for lenders. On the lender side, true home equity, the loan amounts are lower. So that's a negative for lender economics, but the close rates are just so much higher that the lender economics really work because that's a product that works for the consumer. So a lot of this margin improvement is just a function of the unit economics we've attained building out that network.

Speaker 5

We do expect them generally to be in that range going forward.

Speaker 4

Yeah, would just add no intentional effort to expand margins there. Jason said, we're within a range where we're comfortable with, works for us, works for our clients.

Speaker 2

Yeah. If demand for volume shot up tomorrow so much and we had to like step on the marketing gas, you'd see percentages decrease. But other than that, we feel good.

Speaker 8

Okay, appreciate that. We've touched on this a little bit about the volatility that we've seen post quarter end, but it's been more from the perspective of what are you hearing from network partners? I'm curious if you're seeing anything different in terms of changes in consumer behavior and search on your platform in the last month. Any conclusions you can draw from that? Thanks.

Speaker 4

I would say consumer demand across most of our products has remained pleasantly strong. We have not seen a significant reduction in demand as a byproduct of consumer sentiment, I would say. The one category that we probably have seen a little bit less demand is again getting back to the mortgage, the purchase and refinance traffic. That's a major product for consumers of purchase. And I think there is a little bit of cautionary approach that has affected the amount of consumers searching for those products over recent history.

Speaker 4

As I was talking about earlier, that's already kind of at a low dormant point. So it's one of our lower consumer traffic areas right now. All of our other product lines right now, I would say that the consumer volume is coming right in where we would expect it to be in normal times.

Speaker 2

Yeah, and it's broad based. It's all loan types. Our marketing is working well in all channels. Our content strategy is working well. People are engaging with our content.

Speaker 2

We're appearing well in emerging AI results. So, yeah, we feel good about where we are with the consumer.

Speaker 8

Thank you.

Operator

Thank you. And we have a follow-up from Ryan Tomasello of KBW.

Speaker 3

Hi, everyone. Thanks again. I guess

Speaker 6

just

Speaker 3

entertaining more of the downside risk on macro. You guys have done a good job historically of managing to the bottom line, by pulling some expense levers. I guess, maybe you could just help us understand how much of those levers still remain to help protect earnings power to the extent macro does move against us here? Thanks.

Speaker 2

Yeah, I'll just I'll start then Jason can put a finer point on it. But we made that with everything possibly going against us and, costs high. I think our worst year was $198 that was our trough give or take, so that was its worst. As I think about the puts and takes, the insurance inflation and when the insurance companies could like on the lending side, I don't know what could significantly change there that would make that business change in size downside dramatically. On the insurance side, we had that in the issue of insurance companies chasing inflation.

Speaker 2

I mean, you'd have to have really rampant long term inflation again, to be doing that. And, know, we hopefully we'd see it coming. And then on the cost side, yes, there are always costs you can do because we're always investing. Like right now we're spending, everybody here is working on things that are positive BMD projects to keep the company going, but at lower unit economics if your insurance is unit economics bust or your home bust, then you don't do those projects and you pull back on those. So there are more levers.

Speaker 2

Jason, you could put a finer point on it if you wanted to. And by the way, we don't think we have to, we feel like right now we've got a workforce that the fixed costs are fixed and the variable ones can float and we know where the fixed costs are and we know where everybody's working on and the zero based budgeting really, really helped with that. And then anything incremental from here is really going to

Speaker 5

be tracked. Jason? Yeah, mean, yeah, like Doug said, I think we've invested in zero based budgeting across the whole management team. And so through that process, we've identified the core of the business that we absolutely need to generate DMD and satisfy legal and regulatory obligations. We are then able to see very clearly above that, where are we spending money?

Speaker 5

And are we happy with what we're getting in return for spending that money? And so should push come to shove, I think we have a pretty detailed understanding of our cost base and we should be able to react. The name of the game is being quick, especially in business like this. So, to the extent that we see an opportunity out there to lean into a marketing channel lean into more concierge reps and small business, we will do that very quickly and monitor it very closely. And then if it doesn't work out, then we'll react to that.

Speaker 5

But should things turn down, I think we should be able to respond well with expense savings. And also, is a significant part of our variable compensation in the cost base that'll naturally decrease with decreasing top line. So overall, I think we feel pretty good about our understanding and ability to execute any savings that we

Speaker 2

might need. And then obviously the ultimate lever, if you don't have demand in one of your products is marketing spend, and then you you're pulling back marketing spend as your unit economics go down. And you know, you could even go farther than that. You could not do any paid marketing if you had to for a period of time and will off your organic and name recognition and SEO like you know, there's, there's a lot of options in a horrible scenario. And, you know, we've been we've been able to navigate those before.

Speaker 2

And each of these individual products can be cyclical, but the two sides of the marketplace you always need to keep in mind and there's always the marketing and they generally work together.

Speaker 3

And then one more for me regarding the quote wizard litigation. How much can you say just how much you have fully reserved for that after the 15,000,000 you took this past quarter? And how confident you are that you're fully covered for the potential outcomes there? Thanks.

Speaker 5

Yeah, it's Jason. I'll take that one. We talked about this previously on other calls. And this is related to Mantha. QuoteWizard has reached a settlement in principle in the Mantha versus QuoteWizard matter, which involves class TCPA claims related to activity from 2019.

Speaker 5

The details of the settlement will be made public in the near term when the appropriate filings are made with the court. To answer your question directly, we a liability on the balance sheet of $19,000,000 in this quarter. It's important to note that this $19,000,000 is payable in three equal installments. The first being in Q4 of this year, the second in Q1 of twenty twenty six, and the final in Q2 of twenty twenty six. So we have reached a settlement with regard to this.

Speaker 5

It has to be confirmed with court, but we have reached a settlement with it. And the payments are due after we are due to repay the convert in July, which I think is important to call out.

Speaker 3

Great. Thanks for the detail.

Operator

Thank you. And we have a follow-up from John Campbell of Stephens. Your line is open.

Speaker 6

Hey, guys. Thanks. Just one more for me. I've noticed in the annual filing some commentary about the student loan business that you guys are potentially looking at options there. So maybe if we can get an update on that.

Speaker 4

Yeah. Mean, we've largely gotten out of the student loan business. That's been a declining business for the past few years. So we are not doing any more direct marketing into that business just based off of client demand.

Speaker 2

Obviously that can change if the student loan refi market comes back, that's easy to start marketing again and doing it. Right now, we're just we're not seeing low demand for.

Speaker 6

Okay. So hold for now, but any rough sense for revenue impact year over year, what you guys put up last year?

Speaker 4

It was very small last year. So, Jason, do you have any details on the revenue?

Speaker 5

Definitely not. Definitely not material.

Speaker 2

Yeah, I would say in the twinkle in my eye is that with the changes in the administration and people paying back their student loans at that business someday returns. It's not like we're not like we can't have our student loan form and turn on the lenders. It's just that we're not actively marketing it.

Speaker 6

Okay, makes sense. Thanks, guys.

Operator

Thank you. I'm showing no further questions at this time. I'd like to turn it back to Doug Lepte for closing remarks.

Speaker 2

Thank you. We are definitely pleased that all three of our segments returned to annual growth in the first quarter. Over the past five years, unexpected economic impacts in the pandemic and inflation have been significant to the company. And yet, we've been able to suppress them, thanks to our diversified business model. We remain optimistic for the remainder of 2025 and look forward to updating you on our second quarter call.

Speaker 2

Thank you for joining us today.

Operator

This concludes today's conference call. Thank you for participating and you may now disconnect.

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