LendingTree, Inc. Q1 FY2022 Earnings Call

Good day, and thank you for standing by. Welcome to the LendingTree, Inc. First Quarter 2022 Earnings Conference 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 is being recorded. I would now like to hand the conference over to your speaker today, Andrew Wessel, Head of Investor Relations. Please go ahead.

Thanks, Andrea, and good morning to everyone joining us on the call this morning to discuss LendingTree's first quarter 2022 financial results. On the call today are Doug Lebda, LendingTree's Chairman and CEO; J.D. Moriarty, President of Marketplace and COO; and 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. For purposes of today's call, we will assume that listeners have read that letter and we'll focus on Q&A. Before I hand the call over to Doug to give his remarks, I want to 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.

Thanks, Andrew, and thank you all for joining us today. Our business again performed well in the face of a difficult macro environment. Our lending marketplace grew revenue in DMD year-over-year despite rapidly increasing rates. Improving demand and unit economics across purchase mortgage, home equity, personal and small business loans helped to offset shrinking demand for rate and term mortgage refinance. As expected, our mortgage lender partners have increasingly relied on us to provide them with new customers as the refinance wave recedes. Improving RPLs across our other mortgage offerings proved this business is resilient, helping us to outperform declines in overall origination volumes. The consumer segment of our marketplace has continued strong growth as personal and small business loans performed tremendously well and the credit card business returned to pre-pandemic RPAs. Insurance has begun what we project will be a robust recovery in its financial performance after troughing in the fourth quarter of last year. I'm happy to have Scott join us on the call to explain how we differentiate ourselves from our competition and why we have a more positive outlook for the remainder of the year than others. Our updated guidance for 2022 acknowledges the rapid increase in mortgage rates that we have seen so far this year, as well as continued inflationary pressure our insurance partners are navigating. Lowering our outlook is not something we take lightly, but the economy has been more volatile than we predicted when we first issued guidance at our Investor Day. The underlying strength of our business model and our balance sheet position allows us to continue investing in our growth initiatives as well as our brand. We expect these investments to generate very attractive returns by driving increased value, engagement, loyalty and trust with our customers, positioning LendingTree as the best digital consumer shopping experience for financial products in the market. I founded the company over 25 years ago, and LendingTree has continued to evolve and expand its product offerings to address almost every personal finance need a customer has. Harnessing the unmatched depth of our partner network with an improved digital experience will delight customers, providing access to the broadest array of offerings in the industry and fostering lasting relationships with our customers. Highlighting some of the progress on our strategy, we are now able to present embedded bindable insurance quotes and pre-qualified loan offers to My LendingTree members digitally. We have a solid pipeline of lenders and issuers looking to access our TreeQual platform to acquire new borrowers. The improved conversion rates and unit economics from TreeQual will help drive revenue and margin growth in our consumer segment, and we look forward to further integrating our insurance agency and our mortgage partners as we move forward. The team has rallied around our growth strategy, and we are all excited to begin seeing the early results of all that hard work. I look forward to discussing our progress on this call as well as future ones. Now operator, we're ready for questions.

Thank you. Our first question comes from John Campbell with Stephens Inc.

Hey, guys. Good morning.

Good morning.

Hey. On my math, just within the mortgage revenue, you guys did, I think, as much purchase revenue in 2018 as you did last year and in 2020 combined. So I think you've proven you can get better yield out of purchase. And also in 2018, it looks like you're facing a purchase origination level that's going to be probably lower both from this year and next year. So my question is, do you think you can get that purchase revenue back to kind of those past levels? And what kind of changes do you really need to make in the business to start flipping the mix from refinance to purchase and kind of how long that process takes?

I'll answer in concept and then I'll let others chime in on numbers. John, it's great to talk to you. So first off, as I alluded to in my remarks, and we've talked about, and a lot of shareholders, by the way, missed this, you're picking up on something that is refinance receding and the RPLs of refinance. Obviously, everything works on supply and demand. So lenders obviously always demand refinance volume. That's the demand side. Unfortunately, right now, the supply side of that has pretty much gone away. So then what do you do? You switch your capacity over to both home equity and purchase at the individual lender level and you also start to open up other filters. What that does is it moves the RPL up in purchase, which then enables us to go market against that. What we've seen so far, I would say, is the result of working with our lenders, and J.D. and team have done a great job at that and getting them to expand filters. So we've had some sales wins. But lenders also do this very, very naturally. Then on top of that, one of our initiatives, in particular, one of our strategic initiatives, Marketplace 24 is working to drastically improve the communications with customers post submit when they're actually engaging with our lenders on the marketplace. We're going to start releasing that in pieces early in May, and it's going to proceed through July, but that's one initiative that's aimed directly at that. And then as lenders see higher conversion rates, they will bid up the value of a purchase lead. Ultimately, they're all targeting a cost per funded loan. J.D., anything to add on that?

Yes, I’d like to add that we've been focusing on understanding the funnel more effectively over time. From the viewpoint of our lender partners, not all purchase traffic carries the same value, and we've been educating them on this over the past couple of years. We categorize our sales into early funnel, mid-funnel, and late funnel purchases, with late funnel currently being highly valued. The reason early and mid-funnel purchases are not as well-valued relates to the current constraints of housing inventory and the overall tightness of the purchase market, which is widely recognized. However, there are signs that the situation is starting to improve, and as market conditions become more favorable, we expect our compensation for early and mid-funnel purchases to increase due to higher conversion rates. Interestingly, our network has become more efficient over the last few years, resulting in lenders receiving what they need. Still, there is a notable gap in the payments we receive for early and mid versus late funnel purchases. To enhance our purchase revenue, we need better market conditions allowing consumers to find homes and complete transactions.

The only thing I'd add to that is in the parsing, I know we're going to get a question on insurance at some point, and getting the right consumers to the right partner has been a source of value. And the other thing I'd say is RPLs on purchase have moved up considerably because of that switching and what J.D. talked about. So it's moving in the right direction, and it will continue that way.

Okay. That's good to hear. And then one quick follow-up. On the guidance, it looks like you've got revenue growth assumptions are growing faster than MM growth. So it looks like maybe a little bit of pressure on the segment margins here and there, but maybe if you could unpack that. I mean it sounds like mortgage is in a really good spot. Obviously, you grew that 500 bps or so, do all the stuff you just mentioned. And then insurance looks like it's probably going to be pretty heavily weighted in the first half and then get better in the second half. And then, just maybe some thoughts on consumer and then also on the brand spend side as well.

Yes. I'll start by mentioning that we are recognizing marketing margins. In this quarter, we noted that while our revenue per loan is performing well, the customer acquisition cost is still high. Though it remains profitable, we aren't experiencing the typical relief we would expect when rates increase. There are still many competitors influencing pricing, particularly on platforms like Google. We hope for slight improvements, but not as significant as we had anticipated. Trent, do you have anything else to add?

Yes. I mean it's a good point on mortgage, John. I mean, as we've seen in prior cycles, as competition starts to fade just as the market shrinks, we would expect to see some relief on the customer acquisition side. We haven't seen that to Doug's point, to the degree that we expected. And so that's sort of being reflected in the margin expectation for the rest of the year. Going back to your question on just, on the outlook for the rest of the year, if you go back and you look at the segment level guidance that we gave at Investor Day, we're still pretty well in line with that outlook, perhaps trending towards the bottom end on several of those measures. This is the one caveat, just being the outlook for margin and insurance is a bit more flat? I mean obviously, you saw where the margin profile of that business was in the first quarter at 26%. We expect that to obviously improve as we progress throughout the year, but we're going to need that to improve. I think on the margin relative to the guidance that we gave in February, that's a bit more flat.

Okay. That's all very helpful. Thank you, guys.

Thank you.

Our next question comes from Jed Kelly with Oppenheimer.

Great. Thanks for taking my question. Just circling back on insurance. Is this a case of the carriers not calculating the inflationary impacts this time around versus used car prices, I guess, a couple of months ago? And how long will it take for them to get to like to reset the rates? And I guess, just when do you actually think they will be coming back in marketing? And then – then I heard that Scott's on the call. So can you actually discuss some of the differences between where you are and some of your competitors? Thank you.

Yeah. I'll start and then hand it over to Scott. And Scott, thank you for being up at 6:00 in the morning out on the West Coast. Listen, I'm very pleased with how our insurance team is working, and they're doing a really, really good job. The issue that we've talked about before and Scott will address the underlying reasons is that carriers, in general, are not wanting as much – or not demanding, back to supply and demand, are not demanding as much volume, the same prices as they did several years ago. However, it's trending in the right direction. We've had a number of sales wins and we're certainly doing better than competitors. And I'm really, really proud of what the team has done. Scott, why don't you take that question?

Yeah. Sure, Doug. To answer your question about inflationary pressures and loss ratios and underwriting profit with carriers, it is a matter of, I think, the levels of inflation and the cost per incident that the carriers are dealing with is just much higher than anyone expected. The inflation and where it's going, they worked their models, they were just not expecting it to keep running out of control like it's happening. When you submit rate increases to the states, many times you're limited into how much of the rate increase you can submit every six or 12 months. So they're just trying to keep things and they're having a hard time doing it to some level. Now that said, it depends on the carrier with where they're at. A major carrier just came out yesterday and made public comments that they feel they're largely done with all the rate increases and they feel like they're in a good spot. But she also indicated that they're going to wait in a number of states a few months just to check on the profitability of the policies of the new rates before they really start leaning into marketing. All of that said, I do feel like it's a very turbulent market still. Certain carriers are leaning in, certain carriers are leading out, but the overall trend that we're seeing at QuoteWizard is a steady increase in demand. We're seeing growth. We saw growth at Q1 over Q4, and we're expecting more growth in Q2. So we're seeing a general positive trend as far as the majority of our carriers are spending more today than they're spending last month, and we expect them to continue to spend more as the year goes on.

Scott, can you address why – and we talked about that at our Board meeting yesterday, like some of the maybe going to names that the carrier wins and also Jed fleshing and why we seem to be doing better than competition?

Sure. Happy to address that. I would refer back to 2016 when we experienced a similar situation in the insurance industry. We're applying the same approach now. As QuoteWizard, we're very focused on the quality of consumers and what the carriers require. They raised concerns early in the second quarter last year as trends began to decline. We made a proactive decision to align closely with our carriers' needs, recognizing that the industry was facing challenges. Some choices we made impacted our revenue in the latter half of last year, but we believe they were viewed positively by our partners since we didn't cling to revenue they didn't require. This strategy is paying off in the first half of the year as they are returning, and trust has been rebuilt. We've significantly increased our SEM market share, which was one of our main objectives. This growth is due in part to taking market share from competitors and a general rise in consumer shopping behavior. We currently have a strong mix of traffic directed to the carriers, which is why they are increasingly engaging with us.

Great. And then just on a follow-up. I think you've always talked about having probably better paid search conversion better than your competitors. Is that deteriorating just on more of your competitors in Google trying to acquire traffic on people shopping? And how should we think about the arc of the VMM margins sort of returning to those high-30s VMM levels throughout the balance of the year? Thanks.

I would say that we are currently experiencing a less competitive landscape in the Google marketplaces. However, our revenue per lead is still down compared to last year. This decline is largely due to carriers focusing intensely on specific regions and demographics that yield the highest profits during these challenging industry times. As these carriers strive for growth, they will eventually feel more confident about the profitability of their policies and will begin to broaden their target demographics and regions again. This will enable us to enhance our monetization per consumer coming through our funnel, which in turn will provide us with greater leverage to improve our margins. We are already seeing indications that our margins will increase a few points in the second quarter, and we anticipate that this upward trend will continue over the next six to twelve months.

Thank you.

Thank you. Our next question comes from Ryan Tomasello with KBW.

Hi everyone. Thanks for taking my questions. I guess, shifting to capital allocation. Can you give us an update on how you're thinking about the various outlets for deployment for the rest of the year? Obviously, nice to see the share repurchase in the quarter. Do you think you'll continue to be active there? And any updates on your thoughts around M&A and where you think that could fit most nicely into the existing business? Thanks.

I’ll begin. This is Trent. We have been pleased with our stock buybacks over the past couple of quarters, having repurchased about 5% of the float between Q4 and Q1. We are glad to be buying back stock, especially now that it has been trading at favorable levels. Our main focus in capital allocation is to maintain the flexibility we’ve developed to pursue M&A opportunities as they arise, without jeopardizing that flexibility. We are still running a business that generates cash every quarter, which helps us determine how much we’re willing to allocate to the buyback. We will continue to approach it this way. There are some complexities in Q2 regarding the settlement of our convertible notes maturing in late May, so we need to address that before we reassess our buyback strategy. We remain active in the market and will continue to evaluate based on our perspective of the stock. I’ll pass it to J.D. to discuss our M&A strategy further.

Sure. From an M&A perspective, we are as busy as ever, largely due to a broader range of opportunities coming our way. We see potential in our traditional customer acquisition business where multiples have significantly decreased compared to public comparables. Additionally, several fintechs that were highly valued in private markets over recent years have also seen their valuations drop considerably. This gives us a wide array of options to consider, and we will be selective as we evaluate these opportunities against our own stock buybacks. On a positive note, we have successfully repurchased a significant amount of our stock for two consecutive quarters while still being able to pursue M&A activities aggressively. We have been very discerning in the past couple of years, especially in a multiple environment that did not align with the actual earnings potential of many companies that were overvalued. As valuations normalize, we anticipate that this will create opportunities for companies like ours that generate real earnings. We are optimistic about what lies ahead. Although the last couple of years have been frustrating from an M&A standpoint, we are noticing an increase in opportunities, especially as the funding market evolves, particularly for startups that were once highly valued. M&A will continue to be a core part of our strategy in the coming years.

Great. Thanks for that.

I would like to add that we still have $97 million available from our Board's authorization. We continue to see very attractive internal rates of return on our stock, and while maintaining flexibility, we believe this is a good way to utilize our cash.

Thanks for that. I know we've spent a lot of time discussing the challenges in the mortgage sector, but could you provide more specific assumptions regarding your perspective on the market outlook this year compared to what you were considering back in February? I understand that there's no exact framework, but if you could outline any limits regarding revenue and earnings sensitivity to better or worse-than-expected conditions in that market, especially if purchase activity starts to decline due to increasing affordability pressures, that would be helpful. Thank you.

Yes. So I'll hit the high notes and then move from there. The interesting thing about mortgage, and I'll return to conversion rates, we have so much traffic even today coming through both purchase and refinance that the magic, as long-term shareholders have known is getting at the conversion rate from us sending a customer to a lender and then converting it. In a 2% conversion environment, whether it's a purchase or refinance, we still have 98 to go. Our Marketplace 24 initiative is, as I said earlier, really aimed at improving that conversion rate. We really don't need to go get more volume. At the end of the day, we're still only closing a couple of points of all the mortgages in the United States. You have 20 to 30 times that on your site already who are shopping there, but just not closing. It presents an enormous opportunity. That's why we're working on fixing the customer experience, because that has a direct impact on our revenue.

Anything else to add? By the way, other than that, we assume the MBA statistics and the market just makes life a little bit harder, and it's more related to lender profitability and lenders being able to profitably convert loans than it is necessarily the size of the market.

Thanks. Appreciate that thorough remarks.

Thanks, Ryan.

Our next question comes from Rob Wildhack from Autonomous Research.

Good morning, guys.

Hey Rob. Good morning.

Doug and Scott, just a follow-up on insurance and the decision you outlined to lean into what carriers need and delivering high-quality consumers, all of those things. When do you expect you'll start to see those investments and decisions come through in market share gains?

Well, I'll start and then let's Scott, I think we're seeing them in market share gains right now. I think that's why we're doing better than competitors and why carriers are increasing buys with us, and I'll let Scott talk more.

Yes, I agree what Doug just said. I think we're already seeing market share gains in this space. We're seeing it as budgets very cautiously come back; we're one of the early winners of getting those budgets. I would also add on some of the products – new product growth we focused on like inbound calls for our clients, direct to click for our publishers. The agencies are growing really rapidly. Our health and home insurance industries had a spectacular Q1. A lot of those internal initiatives are really performing and performing at high levels that we were hoping they would, and that helps as the legacy business has been down over the past couple of quarters. So, I think as that legacy business continues to come back, which it is, it bodes really well for the future.

Yes. And we look forward to talking more about the agency in the future. It's doing better than expected from an economic standpoint, from a customer satisfaction standpoint and the customer experience of being able to give you actually real bindable quotes from multiple carriers online, with a person who can also help you make that decision integrated inside of My LendingTree, like that's the – that's where we're pointing the direction of that ship, and it's going really well.

Okay. Thanks. Just to follow up on that. When you say that the budgets were cautiously coming back and you guys were seeing some early wins, were those coming back throughout the first quarter, or was that something that happened more towards the end of the quarter and into April?

Yes, from our perspective, it began in January. We didn't see as much recovery as we had hoped for at that time, mainly because the carriers didn't rebound as much in terms of profitability. However, we have observed a steady increase each month this year. We experienced an initial improvement in January, followed by growing momentum in February, March, and April. May is currently looking very promising. Overall, while there are fluctuations at the individual client level, the insurance sector has shown consistent growth year-to-date.

Yes, I've been looking at a business here that is running very nicely and is having steady improvements weekly, monthly, and it's nice to see that. The aggregate number is reflected in the guidance, but the momentum is what gives me a lot of excitement.

Okay. Thanks for all the color there.

Thanks, Rob.

Thank you. Our next question comes from Youssef Squali with Truist.

Good morning guys. Sorry about that. Just want to go back to the consumer segment in particular. I guess maybe Trent starting with you, relative to kind of the expectations that you outlined at Analyst Day and whatnot. How has that progressed throughout the quarter and particularly as you look forward to the rest of the year? Has your expectation changed just because of rising rates? And then I have a follow-up.

Yes, Youssef, in relation to our outlook at the beginning of the year, the consumer segment is clearly on track. We've discussed the macro implications on both mortgage and insurance, but consumer remains solidly on course. As we mentioned in the letter, both personal loans and small business are performing exceptionally well. The credit card sector is showing a steady recovery. The overall market conditions, including the strength of the network and our partners, are very positive. The growth outlook for personal loans as an asset class keeps improving. We are having very productive discussions regarding our TreeQual offering in both personal loans and credit cards. Among the three segments, we are optimistic about the consumer outlook.

On the competitive side, I think some competitors have also reported solid numbers for credit cards, personal loans, and small and medium-sized business loans. Have you noticed any significant change, considering that segment remains very healthy, suggesting it is garnering a lot of interest?

Maybe I'll start and J.D. can follow on. I mean, certainly, the card category has been for a long time, very competitive, and we know that. But I don't think there's been any dramatic change from a competitive standpoint as we look at kind of our business and our relationship with our partners in those products.

No, the card business has been a process where the personal loan business started to recover before the card business did. As Trent mentioned, the health of our personal loan network is quite strong. In 2021, we expanded our lender base in that area. There is definitely interest from issuers in the card segment, and we are slowly seeing consumer interest in new cards start to return. It has improved but is not yet back to 2019 levels. Clearly, issuers are showing interest in reward cards related to travel, especially with the easing of mass mandates, which will positively impact us. I would say that the card business is on track with our plans for this year, and it's improving every month. The personal loan business remains very strong, and we are pleased with its performance. The small business sector is also performing exceptionally well, exceeding our expectations, which is encouraging. The only area facing challenges is the student segment, impacted by the ongoing CARES Act, but that is a minor issue in the larger scheme. Overall, the consumer segment remains robust. The competitive landscape in personal loans is tough, but it's not causing us any issues right now. We're genuinely excited about the momentum we are seeing with several of our personal loan and credit card issuers. Our strategy to deepen our partnerships in both credit card and personal loan segments is advancing well as we ensure that the right borrowers are matched with our partners. So, when considering the short-term and long-term outlook for the consumer this year, we are making significant progress on both fronts. In the short term, these sectors have dramatically improved compared to last year, and we are thrilled about the prospects for product innovation in the long term.

That's great. One last one, if I may. My LendingTree, My LT continues to grow very nicely. Can you just give us an update as to kind of the engagement you're seeing there, conversion from that channel? Any kind of KPIs that you can help share there would be really helpful. Thanks.

Absolutely, it's J.D. I'll begin. We're really enthusiastic about the future of My LT, particularly regarding initiatives like TreeQual. As My LT expands, with over 22 million members now, users will notice genuine offers within My LT. Engagement will be viewed differently; it will not just involve checking your credit score but also includes receiving tailored offers, such as for suitable credit cards or personal loans. We're making significant strides in that area, which we believe will foster better engagement and ultimately lead to a more advantageous economic outcome. Over the past year, we've strategically reduced sales traffic to our My LendingTree base, aiming to be more selective about our communications. Engagement has often been measured by whether members open emails, but we've decreased the noise in our messaging and are pleased with the revenue growth from My LendingTree, as it contributes to an enhanced customer experience. We're committed to ensuring we don't inundate our users with unnecessary emails. The quality of interactions with My LendingTree members is improving, and the economic indicators remain steady. In the coming year, you’ll see more behavior-driven offers tied to credit score improvements, such as availability of certain cards. A key focus in our strategy for My LendingTree is providing relevant rewards to consumers through a members-only perspective. It’s not a paid service, but we’re exploring what consumers would pay for and figuring out how to offer it for free. That's our approach.

Yes. I would like to add that My LendingTree represents an upgrade from the traditional process where you entered the marketplace, clicked on an ad, filled out a form, and either closed or did not close a deal. Now, we're offering you the chance to set it and forget it, receiving alerts whenever we find ways for you to save money. This relates to the quality of the traffic that J.D. mentioned. The advantage of having a network of lenders is that we can provide real offers through TreeQual. In My LendingTree, our focus is on delivering the best customer experience first, with monetization being secondary. This is why we're integrating the insurance agency, so you receive genuine offers through TreeQual, including for credit cards and personal loans, rather than redirecting to a mortgage click out; we are working on enhancements for that. The primary goal from a business model perspective is to generate recurring revenue whenever a user checks their credit score, allowing us to present the best offers at the right time, without needing to pay for their return to LendingTree. A substantial portion of our repeat traffic still stems from users clicking on ads, which means we're incurring costs twice. Over time, we expect our VMM to improve along with the customer experience.

I want to add that revenue or contribution from My LT users has increased by about 20%, which is positive news. This increase tends to align with personal loans, so as RPLs rise, the My LT figures will improve as well. Additionally, revenue per engagement with My LT members is 1.6 times, which is a great indicator. We've successfully built a user base of 22 million without significant marketing expenditure. Going forward, we plan to diversify this base by bringing in users from our mortgage and insurance funnels into the IT experience. This diversification will greatly benefit our marketplace business. I want to emphasize that this is the core strategy, and these elements must work together. Lastly, during our Investor Day, we mentioned our internal project called Digital Adviser, which is progressing well and on schedule.

Good to hear. Thank you.

Thank you. Our next question comes from Melissa Wedel from JPMorgan.

Good morning. Thank you for taking my question today. I wanted to follow up on some of your comments regarding TreeQual. I'm unclear if the scope has expanded in terms of incorporating more network partners into TreeQual, or if that is stable. If it is stable, are you still on track to implement that across most of the space by year-end?

Let me start by explaining what TreeQual is. This is an internal name for a process in both the personal loan and credit card sectors. For example, in the credit card space, when you visit LendingTree or any credit card comparison site, you enter some basic information and receive a list of credit cards along with potential rates and terms that you may qualify for. After selecting a card, you would proceed to the issuer's website to complete more details. A month later, the issuer informs us whether the application was successful. Now, imagine coming to LendingTree, entering your information, and being presented with two or three real card offers, where selecting one means the card is sent directly to you. The process for personal loans is similar. Lenders appreciate this because it enhances their conversion rates. By presenting actual offers, we ensure that only those truly interested are clicking through. This greatly improves customer experience and satisfaction, while also enhancing our financial metrics since we're able to send 100 potential customers to a lender and receive significantly more approvals in return.

Right now, we have three credit card issuers actively working with us. The metrics we've observed have met or exceeded our expectations based on discussions with our partners during the testing phase. We're seeing better outcomes than we forecasted, which is encouraging. This reflects what's visible to the consumer. We're also preparing to launch our first personal loan partner, which is exciting. We have a pipeline of partners lined up, although there are complexities involved as we need to coordinate with several third parties for onboarding. I expect that in the second quarter, we will add another five or six credit card and personal loan partners, even if some extend into the third quarter. This represents a significant shift in both sectors. As Doug highlighted, it will have a positive impact for us. We believe we can maintain our existing relationships with some personal loan partners while also potentially doubling our business with TreeQual. This demonstrates how we are positioned to gain market share as we offer a more efficient way to connect them with the consumers they desire. We consider this a competitive advantage in both markets. I often emphasize that while implementation can be challenging, these challenges create barriers to entry, which is beneficial. We are focused on enhancing the quality of our revenue in both personal loans and credit cards.

Yes, the capabilities of TreeQual are indeed impressive. One thing that caught my attention in your letter this morning was the significant performance improvements for the partners who have been onboarded so far. I would like to explore that further. What specific metrics are you monitoring, and are you observing an increase in budget allocation to LendingTree compared to other options as a result? How do you see that influencing your strategy?

In personal loans, there usually aren't specific budget allocations. Lenders prefer that, especially when operating electronically, they can often run on capital. A key metric to monitor is the conversion rate from when we direct a consumer elsewhere and the percentage of those who return with a completed transaction. This ties directly to the revenue per customer since most personal loans and credit cards compensate us based on a cost per issue or revenue per issue. If we can significantly improve the conversion rate, we can dramatically enhance the unit economics, which will lead to growth in that business. Additionally, when I started LendingTree, the main idea was to fill out a form and receive multiple genuine offers to compare. This is somewhat less true in personal loans, as it's often just about enabling visibility of real offers. J.D., do you have anything else to add?

Yes, Melissa, in terms of budget for card services, the monthly payouts will likely remain consistent. Our focus on efficiency will predominantly be on the marketing side. As payouts for certain cards increase, we'll be able to deliver more approvals and capture more from our customer base. This is why expanding our My LendingTree base is so important. While this is not solely dependent on My LendingTree, the strategies are closely connected. Regarding the impact on the margin profile of each business, I don't expect significant changes in 2022; rather, I believe we'll start to see ripples of that influence in 2023. We will need to analyze all the data from TreeQual this year to inform our budget for the next year and assess its effect on those two businesses. I am confident that we will increase our market share and customer wallet share in those areas. This aspect is not up for debate; it's clear this is what our partners want from us. However, the question of whether this can grow enough to significantly alter the margin structure of those businesses remains open. It's a matter of achieving sufficient size and volume.

Got it. Very helpful. Thanks so much.

Thank you.

Thank you. Our next question comes from Nat Schindler with Bank of America.

Yes. Hi, Doug and J.D. Can you help me out a little bit, because I saw very different behaviors from some of the public tech players in the personal loan space? Obviously, there's a lot of growth in the demand side from consumers. I know the demand and supply go backwards, I think you called that supply. But the consumer is more interested. They have higher credit card balances and there's less stimulus checks, people are spending money again. But you saw also from at least a couple of the players in the fintech providers that are public two very opposite stances, cutting their credit box dramatically on one side and another one that's dramatically expanding the credit box as we both taking a different take on what's going to happen to the consumer in this changing inflationary environment, potentially recessionary. What would happen to your business? And how would it affect you in either side of those is correct? And where do you see the consumer coming out longer term as we move forward with these rising rates?

I won't make predictions about the direction of the consumer market, but I will emphasize that in personal loans, diversity among lenders creates a true marketplace. The more lenders we have with varying credit criteria, the better deals we can provide consumers on any given day. If lenders are willing to lend and borrowers are seeking loans, we can establish an effective marketplace, especially in personal loans. Challenges arise when lenders face high default rates, leading them to tighten lending criteria, or when they struggle to secure capital, as seen in the personal loan sector a few years ago. In such situations, businesses may need to cut marketing expenses to adapt. J.D., do you have anything to add about the consumer's direction?

Well, I mean that, I guess, it's what's going to happen. There's greater dispersion in pricing for any of our products right now in that environment, right? So think about what our value-add is as a marketplace. In the marketplace based on comparison alternatives for the consumer, if everybody is at the same price, there's not a great deal of value for the consumer. If there's great spread, there's more value. So in some respect, in the interim, that's not a bad thing for us in terms of the call to action to compare. I don't think there's enough data out there yet in terms of where all of our lender partners are going. We're certainly seeing, as we mentioned, in consumer partners who just want to grow. I'm not hearing a ton of credit box tightening discussions when we go out and talk to our partners for the first time in a while in person. There's not a whole lot of credit box tightening discussion going on right now. You're hearing a couple of data points on that, and in a higher rate environment, we actually think that's a good call to action for people to compare.

Great. Thank you.

Thank you.

Thank you. Our next question comes from Jamie Friedman with Susquehanna.

Hi, Doug, J.D., Trent. I was wondering, at least at a high level, can you talk us through your thoughts on VMM and especially the EBITDA margin contemplations at a segment level if you can for the remainder of the year?

Yeah, Jamie, it's Trent. I want to refer everyone back to the segment level guidance we provided during Investor Day. We projected that the home segment would likely decline by 15% to 25% in revenue due to anticipated higher rates and reduced refinance volumes. We believe that the lower end of that range is still achievable. We are targeting a margin profile of 35% to 40%, which we feel confident about maintaining. Looking at the consumer segment, our outlook is still solid. We projected growth of 45% to 55%, which is completely attainable, and trends from Q1 into Q2 support that. We are also aiming for a margin in the mid-40s. However, for the insurance segment, we anticipated it would grow by 10% to 20% this year, but now we are cautiously optimistic that growth will be more in the range of 5% to 10%. The margin profile for this segment seems to be trending slightly below our initial guidance based on Q1 results, but we hope to see improvement as the year goes on. Regarding EBITDA margins, I want to highlight that we have been disciplined with our operating expenses. We have successfully managed the growth rate of our fixed costs, which have remained relatively stable over the past three quarters, and we are working hard to maintain that.

Got it. If I could ask about the reference in the shareholder letter regarding consumer credit cards, where you mentioned that revenue per approval increased by 47%, is that because the revenue per approval grew at a slower rate than the card business? I apologize if I'm unclear, but is this due to increased volume, or are the origination dollars smaller, or what is driving this change?

Yes. I mean revenue per approval is a function of a number of approvals that we deliver for our issuers in aggregate and what we get paid for that. The increasing revenue per approval is a function of increased demand from the issuers for new originations for new issuance, as J.D. talked about earlier, and we're clearly seeing a healthy backdrop there in terms of issuers wanting to spend marketing dollars wanting to put on new issuance, where we've been a little bit more challenged is on our ability to drive new consumers and new approvals to them. The marketing backdrop there has been more difficult. It is competitive and remains competitive. So our focus in that business is obviously to get more efficient through TreeQual, onboard more partners, but also to look for other marketing outlets, other sources of traffic, and that's where we're focused in the card business.

Got it. So – but why would the revenue in the segment grow faster than the approval? I'm sorry, Doug, if I'm being exceptionally…

The number of approvals that we're delivering for our partners is up and the amount we're getting paid per approval is also up.

So – but why would the revenue in the segment grow faster than the revenue per approval? I'm sorry, Doug, if I'm being exceptionally...

The revenue per approval is determined by the issuers in our network, who incentivize us to deliver volume. We are able to provide them with more volume, which goes beyond just a higher rate or price, as everything has been inflated over the past year. This creates a situation where two metrics are working together, leading to a higher percentage. We benefit from a multiplier effect of increased volume and a higher base price.

Got it. Okay. All right. Thank you. That's fixed in my questions.

Thank you. I'm showing no further questions at this time. I'd now like to turn the conference back to Doug Lebda, CEO.

Thank you very much, and thank you all for listening and your great questions. I'd just close with this. 25 years ago, when I started this company, I first spent a little bit of money on advertising and with a simple website and had hundreds of customers filling out the first QFs on the Internet, applying for loans. When I turned to the lender side, with my co-founder and ready to build interfaces to every financial institution. My first lender said, can you fax it to me? So we had to build a system that we could fax customers to the lenders who would then input that data back several days later. As we sit here, I never thought it would take 25 years to get to the place that we are in 2022, where I believe that we are at the cusp of finally having fully digitized loans and fully digitized insurance. We have a marketplace right now where you've got public companies in each of those areas who are lending as one of our questioners referred to in personal loans. We've got fully digitized at-scale mortgage companies who are on the Internet. Every single bank in the country is working towards the same goal of acquiring more customers over the Internet. We think that we are perfectly positioned in that future. And here's why? One, we have a loan and an insurance marketplace machine that works every single day to produce substantial cash flows. We are one of the only companies that I know of that doesn't have a customer acquisition cost problem. Our marketing is very, very profitable. Two, we have a brand that's very, very well known. And with our customer experience improving, it's going to get even better. Three, we have every significant financial services company in every single category plugged into our exchange and as a client of ours and as a real partner of ours, and those partnerships are getting stronger, particularly now post COVID, where we can actually go see each other again and work together again. Fourth, we have our strategy in all of our key initiatives to revolutionize our customer experience. With that comes direct economic improvement. Fifth, and most importantly, we have what I believe is the best team we've ever assembled at LendingTree that is perfectly ready. It's been digging in during COVID, making changes, building the company in the future, and it's a fantastic team to work with, and we are fired up and excited to see where we can take this company from here. Thank you all very much.

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