LendingTree, Inc. Q2 FY2022 Earnings Call

Good day, and thank you for joining us. Welcome to the LendingTree Second Quarter 2022 Earnings Conference Call. I will now turn the conference over to Andrew Wessel, Vice President of Investor Relations. Please proceed.

Thank you, and good morning to everyone joining us on the call this morning to discuss LendingTree's Second Quarter 2022 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 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 at investors.lendingtree.com for the comparable GAAP definitions and full reconciliations of non-GAAP measures to GAAP. With that, Doug, please go ahead.

Thanks, Andrew, and thank you all for joining us today. The current volatility in the economy has obviously caused pressure on consumer demand for loans and lender demand for new borrowers. Our company has operated through difficult stretches like this in the past and consistently emerged as a stronger and more profitable business. We are in a much better position today than ever before to manage our day-to-day business in this cycle and also be able to make strategic investments that we committed to earlier in the year, including to dramatically improve our customer experience, drive higher brand awareness, and draw new customers to our platform at a time when others are scaling back. Our updated guidance acknowledges the financial impact of a slowdown in borrower, lender, and insurance carrier demand. Despite these headwinds, we are forecasting that segment-level profit ex brand spend will be roughly flat in the third quarter compared to the second quarter, which speaks to the resiliency of our business model. Our leadership team has remained focused on managing expenses, having reduced headcount since the peak of mid-2021 by nearly 15% through a targeted workforce reduction, a restricted hiring plan, and backfilling vacant positions sparingly when they occur. These actions helped limit operating expense growth to 3% over last year despite the current inflationary environment. This is a unique period for us as a company when 2 of our 3 segments are generating trough-like revenue due to significant macroeconomic headwinds. However, we are managing the business with a focus on helping our partners when they need it the most, while taking purposeful steps to position ourselves to win on the other side of this cycle. For example, in our Home segment, we are actively working with our largest mortgage partners to roll out home equity loan products that historically have not been a high priority for them. We know homeowners with historically high levels of equity today are learning to efficiently borrow against it. We see that desire in the 62% increase in consumer volume for quotes in the second quarter. By helping our partners pivot during a challenging point in the cycle, we're improving outcomes for both constituencies. The standout performer again for us during the quarter was the consumer segment as personal and small business loans grew revenues 68% and 81% over the prior year, respectively. Our pipeline of new TreeQual partners continues to grow, and we expect to have a few new partners to announce that are going live with us in the third quarter. The insurance business has been negatively impacted as carrier partners continue chasing inflationary trends with premium increases. While the business performed relatively flat quarter-over-quarter, based on ongoing discussions with our partners, we are dialing back our expectations for material growth through the end of this year. However, when insurance companies finally believe they've repriced their policies appropriately for the economic environment, we expect to see a super cycle of consumer shopping emerge. Historically, in such periods, our business tends to generate returns well above normal for a period of time. We thus remain very optimistic about the future at QuoteWizard. Finally, I'm very excited about our new omnichannel marketing campaign we launched recently. We chose this time to draw attention to the ongoing work of improving the customer experience as we laid out in our Investor Day. Our financial resilience has allowed for this investment, while the steep decline in advertising rates has allowed us to return to brand advertising at a time when it is much more efficient to do so. It is still early, but we're seeing promising signs of engagement driven by the campaign, and we look forward to benefiting from this investment in the months and quarters ahead. Now operator, please open the line for questions.

So your first question comes from Ryan Tomasello from KBW.

Help contextualize the earnings power of the business. And I was hoping to put a finer point around that, specifically when you talk about 4Q being trough earnings capacity, does that comment still hold if the macro backdrop weakens and the implications that that would have for the consumer segment beyond just the current headwinds in mortgage and insurance? And I guess, taking a bigger step back, realizing the company has operated through numerous cycles. But the business in its current form with the added diversification is a bit more untested. So it would be helpful to get your thoughts around the puts and takes of a recession performance for the business in its current form.

I'm going to let Trent and J.D. start on the first one, and we can all sort of comment on a recession posture. And unfortunately, we've lived through that a few times.

Yes, Ryan. Three months ago, when we revised our initial guidance slightly downward, we still maintained some optimism regarding the macroeconomic outlook. However, our current stance on the outlook for the remainder of the year has shifted, and that optimism has diminished. We believe that both mortgage and insurance sectors are operating at near their lowest levels, while the middle consumer segment has performed well in the first half of the year. Nonetheless, we need to be aware of the present risks as we consider the recessionary outlook for the rest of the year, and we've done our best to factor this into our projections. Regarding the consumer segment, particularly personal loans, it's worth noting that balance sheet lenders in this area are still active with a desire for new originations. However, some lenders who rely more on external capital are beginning to reduce their appetite for credit risk. We're observing these trends and have incorporated the potential for increased difficulty into our current outlook. Unlike what we experienced at the height of the pandemic, where risk appetite vanished almost instantly, we feel we have a clearer understanding of how that appetite will trend over the next six months.

Yes, I think Trent summarized it well. As we mentioned earlier, two out of three sectors are currently facing significant challenges. However, it is important to note that the consumer segment is performing quite well this year. Revenue in personal loans, credit cards, and small business has increased year-on-year by 40%, 22%, and 81% respectively. While these sectors are doing well, we need to adjust our forecast in light of the potential for a recession and the credit tightening that Trent discussed. This adjustment primarily concerns the segment that is not facing as many headwinds. We have revised our expectations accordingly. To clarify, if a personal loan lender raises their APRs, as some have recently done, our close rates will decline because borrowers may be less likely to proceed. Consequently, our economic opportunity may shrink a bit. This is what we are accounting for in our guidance. It doesn’t imply that the personal loan business is unhealthy; as we evaluate the latter half of the year, we believe this adjustment is necessary. Regarding the Home segment, we are pleased with the advancements, especially in home equity; however, it is challenging due to the small pool of eligible refinance opportunities. We are focusing on purchasing, which holds promise, but it's difficult to compensate for the lack of refinancing. In terms of insurance, we are aware that due to ongoing inflation issues, recovery is unlikely for the rest of the year. Therefore, we will execute our plans and aim to position ourselves favorably for when spending rebounds. When we consider Home and insurance, we spend considerable time comparing them to previous periods. The most recent comparable period for Home would be 2018 when lenders were letting go of loan officers, but the rise in rates at that time wasn't as dramatic. Thus, it’s not a perfect comparison. Scott can elaborate on the last time we faced challenges in these areas, but the issues then were more linked to operating performance than inflation.

I would like to add some thoughts on the recession topic, and Scott, if you could share your insights from your experience with cycles and recessions in the insurance sector, I would appreciate it. Generally, in the consumer segment, lenders tend to demand less volume as they tighten their credit requirements and reduce lending. However, much of that adjustment has already occurred in the market, particularly with digital lenders refining their underwriting criteria. Despite this, our performance remains strong. I believe we will perform better than usual during this period. In a recession, the Home sector usually sees a significant increase in consumer demand as interest rates decrease, leading to a substantial refinancing boost. Although our lenders may slightly reduce their demand from us, if our lead costs decrease significantly while our volume through the system increases, our Home business typically thrives. Additionally, as J.D. pointed out regarding conversion rates, our strategic initiatives are crucial. I want to highlight two: scaling TreeQual and enhancing our digital initiatives to connect more effectively with major personal loan and credit card lenders. If these initiatives succeed, we will see a significant improvement in conversion rates and overall unit economics. Regarding mortgages, the Marketplace 24 project, which was introduced earlier this year, is nearing completion and being optimized, enhancing our consumer experience in the mortgage space significantly. I'm proud to mention that our mortgage experience is now quite impressive. I encourage everyone to visit our homepage and see for themselves, as we have made substantial improvements compared to the past.

Yes, to hit on insurance real briefly. The insurance industry is much more resilient against recession than it would be against inflation. You look at the major product lines, whether it's auto, home, or health, the government and/or lenders require consumers to have insurance on all those products. So those keep going even in a recessionary environment. Inflation is just where we're at right now, and that's the top one where the carriers do not have a lot of confidence in the rates that they're charging consumers and whether those rates are profitable or not, which they have not been for quite some time. So the current environment is the trough point for insurance.

I appreciate all that detail. And then on home equity, is there a way to frame how much upside there could be there relative to 2Q levels based on the existing partners that you're mentioning that you're working with to onboard? And I guess for purchase, with mortgage rates trickling down from their near 6% highs in late June, has there been any incremental signs of strength there as home buyers settle into the new environment?

Certainly. We've spent considerable time discussing home equity internally. To provide some context, recent quarters have shown levels that we haven't historically experienced. We've seen a notable increase in this area. When examining our partners, the number purchasing home equity has significantly risen in the last two quarters, which is encouraging. As we've previously mentioned, some lenders that purchase home equity leads—consumers interested in home equity—might try to steer them toward other products, such as cash-out refinancing. This makes it somewhat challenging to gauge the market opportunity size. What differentiates this cycle is the equity homeowners have built up. We're observing lenders in different product lines introducing home equity products or second lien products, which could be beneficial for consumers. However, determining the true market size is difficult. There are traditional home equity lenders and credit unions, which are not our core customers and may not perform as well with our client introductions. We're currently at levels in home equity that two years ago would have seemed unlikely. We're not predicting exponential growth, so we are taking a conservative approach. On the purchase side, the revenue per lead is very strong, which we're excited about. However, we need to increase our volume. Historically, we have done better at achieving volume in purchase. Improving the consumer experience is part of this effort, as Doug mentioned. We've designed the process to be more advisory, guiding consumers through what to expect next. We're intentionally adding some friction to the form-filling process to encourage consumers to reflect and prepare for the upcoming steps, which we believe enhances the consumer experience and will improve purchasing outcomes. A challenge we've faced in the purchase market has been declining inventory. Despite the strength of the purchase market, low inventory affects the conversion rate for our lenders. Signs of increasing inventory in the housing market would likely be beneficial for our purchase business.

I would like to emphasize that as refinance volume decreases, lenders will transition from refinancing to purchasing. We are actively focusing on this area. As the refinancing loan performance increases, there will come a time when we can effectively market for purchases, which will be profitable. Currently, most of our traffic is related to the broader mortgage market. Regarding home equity, as previously mentioned, lenders are re-entering this sector. I remember when home equity was as significant as refinancing in our business, and the refinancing loan performances were considerably higher. This was during the period from 2005 to 2008 when credit was more freely available. Key to that success was the investment in automation, which significantly enhanced conversion rates and, consequently, refinancing loan performances. I anticipate that as this market returns, lenders will benefit from the automation advancements made over the past decade. They simply need to recall how to execute it effectively, as they have done successfully in previous cycles.

And your next question comes from the line of Youssef Squali of Truist Security.

I have a couple of questions. Doug, you mentioned in the letter that the prospects for the consumer segment are becoming increasingly uncertain. That's one of the three business areas that continues to perform well for you. I'm trying to understand if you're noticing any concrete changes in your business so far this quarter, or if this is mainly influenced by the broader macroeconomic concerns we all recognize. Additionally, looking at the various pressures on the home and insurance sectors, could you clarify the differences between macroeconomic pressures and any competitive challenges that might be present? Also, do you have any insights into how market share has shifted over the last six to nine months?

I'm going to focus on the Consumer segment. As we've seen, public personal loan lenders have tightened their criteria in response to previous issues. This isn't unusual; lenders vary, and that's what creates a marketplace. When they become more conservative, they tend to raise interest rates and impose stricter credit requirements. This shift adds negative pressure to the business. If lenders were freely offering low-rate loans to subprime borrowers, the situation would be different. As they refine their underwriting criteria, we notice these changes in the market. Once they stabilize and find their lending channels, they will likely open up again, as they aim to originate loans profitably, and we want to support that. However, as they tighten, we see higher prices and a reduced willingness to lend. That’s the pressure in the market. We’re currently observing these trends, and even in a recession, it’s not surprising if things contract further. In personal loans, the entire capital market can shift, but typically, the business is resilient enough to handle those changes. I don’t foresee any significant disruptions at this moment. J.D.?

Yes. I would add that if we look for signs of change, we've noticed some tangible indicators, as Trent mentioned, including some behavioral differences among lenders. There appears to be a slight tightening of the credit box with a few key lenders. While they remain active and are looking to grow, they plan to tighten the credit box and increase pricing. It's important to remember that in personal loans, most of our compensation is tied to the closing rate, so we need to prepare for potentially lower closing rates. In the credit card segment, we monitor approval rates, which are less transparent, but we keep an eye on them as well. This is reflected in our guidance. I want to emphasize that late in the second quarter and early in the third, we've observed these trends, and this is just the beginning. As Trent pointed out, it's not at all like the last time the business faced challenges due to capital market issues. This tightening seems to be a rational and healthy adjustment. However, we need to prepare for how this will impact our overall mix. Our consumer business has been positively affecting our mix and is mostly a high-margin venture, so we must stay ready for that.

I don't have specific information on market share, but I can share a few anecdotes. In the mortgage sector, as the market contracts, we expect to capture a larger share of the overall market. However, we prefer not to celebrate this too much. What we appreciate is the evidence that some of our major lenders are exclusively using LendingTree, distinguishing us from other competitive aggregator sources. This indicates that if we provide sufficient volume at competitive prices, and the lenders can successfully convert that volume into profit, they will prioritize us even as they cut back on marketing budgets. This significantly strengthens our competitive position, which is where we anticipate share gains. We are also monitoring how other companies report their performances. Additionally, our brand campaign driving volume through television not only brings in high-quality leads but also enhances our search performance, leading to better conversions for lenders. This brand strength allows us to navigate the landscape where some competitors struggle due to their unit economics, leaving them reliant on affiliate strategies and limited search opportunities.

And Doug, I want to briefly address insurance. We are very confident that, despite a shrinking marketing budget in property and casualty insurance, our share of the market is growing significantly. Our paid search traffic has increased by 78% year-over-year, and our SEO traffic is also up year-over-year. Many of the initiatives I mentioned at Investor Day are contributing to our agency business growing by 140% year-over-year. Our direct-to-click product volumes have risen considerably year-over-year, as have the volumes for our inbound calls product. We firmly believe that we are gaining substantial market share in this environment, and we are well-positioned for when the market starts to grow again. When that happens, we will have a much larger share of the market.

That's great. Maybe just one last one, if I may. In terms of capital allocation, can you speak to the buyback and potential? How much of it can you do at this point? And any interest in even having some insider buying to kind of send the right signal there?

Let Trent handle that one. We're not thrilled with it because we'd love to be buying back stock, but take it away, Trent.

I think we mentioned this briefly last quarter, but we established a new credit agreement last fall that allowed us to issue a term loan and repay the convert maturity in the second quarter. This agreement comes with certain restrictions on buybacks and other investments. We can buy back stock without limits as long as our net leverage is below 4x. At the end of the quarter, we were slightly above that threshold, putting us in a restricted payments category that limits our stock buyback activity. We have already utilized our buyback capacity in the fourth quarter of last year and the first quarter of this year, so we are somewhat constrained in that area. However, we are pleased to report that we have nearly $300 million in cash on our balance sheet and are actively exploring ways to use that cash. While the buyback option isn't currently available, we are considering other possibilities for deploying that cash, such as mergers and acquisitions or reducing debt, so stay tuned for updates.

Your next question comes from the line of Jed Kelly from Oppenheimer.

Can you discuss the strategic decision to invest in brand? The numbers suggest you plan to spend around $25 million, which seems significant given the net leverage with EBITDA. What is the strategy behind this investment? Additionally, when can we expect the TV spending to start positively impacting revenue and margins?

I will address the first part and then let Trent take over with the second part. I’ll touch briefly on the second part. When we invest in TV advertising, we anticipate a return over time, and we are currently monitoring that. It’s early to draw any conclusions, but we will keep you updated; typically, this period spans around six months as it develops. Regarding the strategic rationale, I've mentioned in previous calls, and often in investor meetings, that when we have a customer experience we are proud of and the economic environment supports it, we will promote it widely. One of our key initiatives this year was called Marketplace 24, which entirely revamped our mortgage experience on the marketplace side. We conducted tests, and consumers responded positively, preferring it significantly over our previous offering. It was intriguing because it incorporated phone calls to help consumers negotiate rather than eliminating them, demonstrating an innovative approach to product design. The product itself is impressive, so we assessed our ability to fund this initiative and found we could, especially given the extraordinarily low ad rates. We collectively felt it was the right moment. Additionally, this effort aligns with other strategic goals, as I previously noted regarding the high-quality volume for lenders. Moreover, as rates increase, comparison shopping becomes increasingly crucial for consumers, making this even more relevant. The media buying was favorable; our ad tests achieved some of the highest scores we've ever recorded. Notably, we tested 50 different taglines, and "when banks compete, you win" ranked the highest, so you will see that in the advertisement. These ads are performing exceptionally well, and we believe this campaign is groundbreaking. As we see improvement in monetization, we see it as a strong foundation for future endeavors. Within that $20 million budget, a significant portion is likely fixed costs incurred as a one-time expense, so I don't anticipate our production costs being as high moving forward. We also have a personal loan advertisement stemming from this campaign at a time when that segment is performing well. The spend isn't enormous, but executing media at a substantial level is necessary to measure effectiveness and achieve impact, which is why we estimated roughly $10 million in media spend as appropriate. If this proves successful, we will continue our efforts. However, as revenue per loan rises, we need to ensure that it becomes profitable. Historically, our exclusive focus on TV advertising generated consistent profits, and achieving that profitability point is essential. Fortunately, while many fintech companies are engaging in TV advertising and experiencing losses, our approach is distinct; we believe this strategy will not only break even but also support our other channels effectively and more profitably than our competitors.

And then just as a follow-up, how much brand should we expect in 4Q?

Yes. So Jed, as Doug mentioned, the impact on Q3 is about $20 million, with nearly half of that being one-time costs related to producing ads, launch expenses, and additional media for the launch. The media campaign is designed to be heavily concentrated in July and August since we anticipate maximizing our return during that period, and then we will reduce spending in Q4. Our approach to media spending is very intentional regarding the timing. Historically, Q4 is light on media campaigns due to higher costs associated with competing for attention during the holiday season. Therefore, our current guidance does not include significant media spending for the fourth quarter.

We currently don't run a lot of TV in Q4 for exactly as Trent said.

And your next question comes from the line of John Campbell from Stephens.

Back to the mortgage business. I think you guys said you grew purchases maybe 6%. That's obviously implying that refi is down pretty sharply. I think we can probably back into this, but I'm hoping maybe you could shortcut it, but what is the overall mix of purchase versus refi today, maybe what that looked like last year? And what you guys expect that mix to look like going forward?

Do you want me to share that information? I have it right here, but I'm not certain about how much we can disclose.

It's a bit challenging to provide that number because I'm hesitant to disclose it, particularly the 6% figure. Yes, what does that 6% mean, John?

The 6% that was the purchase mortgage growth, I think, that you guys called out in the shareholder letter.

Yes, purchase is up 6% year-on-year. I apologize for the confusion around the different 6% figures. We were discussing the 6% related to home equity RPL. However, you're correct that purchase revenue increased even though volumes are down compared to last year, which reflects the home scarcity we've mentioned.

Yes. I mean, John, the declines and the weakness that we're seeing in mortgage are obviously driven by refi, right? The purchase business remains reasonably resilient relative to, obviously, the activity that we're seeing in refi. We think the opportunity going forward is in purchase for obvious reasons, right? The rate environment is not going to do us any favors from a refi standpoint. And so we've got to lean in on purchase and on home equity, and that's what you've heard us talk about so far.

And I'm sorry, we can't be more precise there. If we get a little more precise, you can back into all kinds of fun numbers that we wouldn't want our competitors to do.

Understood. I think there was a discussion at some point, though I can't recall if it was during an Analyst Day or in a filing, but it seemed like the activity was very refi heavy a couple of years ago. The question is, do you believe you can have purchases make up over 50% of the mix moving forward?

Yes, refinancing is still about three times that of purchases, primarily because the risk premium load is approximately double. However, as mentioned, the risk premium load for refinancing will decrease since fewer borrowers will qualify. In contrast, the risk premium load for purchases is increasing due to a combination of lenders transitioning and improving conditions. We also hope that our new mortgage experience will enhance this further, but that will be a future development. I would like to focus on the growth of purchases rather than the decline in refinancing. While they operate somewhat independently, advertising can target both. Ultimately, as the risk premium load increases, conversion rates improve, allowing us to advertise effectively, drive greater volume, and pursue profitable opportunities.

John, to give you a sense, though, we're happy that purchase RPLs are where they are. They've increased nicely, which is great. To give you a sense, Q1 refi was approximately 3x purchase, okay? Q2 refi was, call it, 2x purchase overall. Now the one notable thing is that home equity was actually bigger than refi. And so we would love to see purchase move in that direction and become the contributor that home equity is, and that's actually an opportunity, but that scarcity of inventory is a headwind that we've been managing for.

During the pandemic, we improved our management of each specific marketplace for various loan types and subsegments. When discussing home loans, we look at purchase mortgages, refinance mortgages, and home equity, with further distinctions within each category. For example, under purchase, we differentiate between those who have found a home and those who have not. Similarly, in refinancing, there are different subsegments. In volatile conditions, our capability to navigate each of these areas has been crucial. For instance, in the credit card market, which J.D. mentioned, we focus on specific cards. If there's demand for more travel rewards cards, we create a market for those options. Our management strategy involves continuous monitoring and communication, supported by a strong analytics team, allowing us to respond effectively. The insurance sector excels at this, and the discipline in marketing and marketplace management has given us an edge over others, enhancing our earnings. Managing these distinct areas is essential for overall growth. Scott, do you have anything to add?

Yes. In downturns, our priority is to attract as many high-intent consumers as possible who are searching for the products our clients are interested in. We are committed to this approach. One advantage of being part of LendingTree, as opposed to competitors with single-product offerings, is our ability to make decisions that prioritize controlling high-intent traffic, even if it means accepting lower gross margins. This positions us favorably with our clients, as they are looking to invest in areas that drive results. We are focused on investing in and enhancing the products that our clients want to support in the long run, and that is our strength.

Your next question comes from the line of Cristopher Kennedy of William Blair.

This is Mark on for Chris. Just wanted a little more clarity with TreeQual. So during the Analyst Day, it was kind of alluded to that by the end of this year, early 2023, TreeQual is going to be the main form of interaction between LendingTree and lenders. So I just wanted to see what the current progress, if that remains on track? And if not, what would put the company on track to accomplish it?

We currently have three issuers on board and I'm optimistic that by Labor Day, we'll have three more, with two focusing on personal loans. I want to stress that this is just optimism, as it can be unpredictable. We need to navigate through contracts and relationships with issuers. The key point is that we will soon increase our capacity in the personal loan sector, not just in credit cards. We mentioned TreeQual as a way to tap into our LendingTree consumer base, but it should extend beyond that and impact our cross-selling efforts. For example, we are currently testing scenarios where we can offer a consumer, who may not qualify for an attractive personal loan, a credit card through TreeQual as a better option. This is the potential we see. The existing TreeQual solution, which involves collaboration with both issuers and third parties, is one approach. As we progress through 2023, we expect to explore additional methods to better verify consumer identities for issuers. We have several issuers lined up, some of whom prefer working directly with us, which is acceptable and reflects how the product will continue to evolve. Overall, while we are slightly behind our goal regarding the number of issuers, we anticipated this sluggishness as a challenge at the start of the year. This strategy is meant to enhance our consumer identification process over multiple years. A key theme is increasing high-intent traffic, as Scott mentioned. With TreeQual, we aim to enhance that intent by informing consumers that they are preapproved for certain offers. This initiative is about ensuring consumers don't just explore options, as we have already done the work for them. In the long run, this contributes to improving intent and what we can provide our partners. We have plenty of partners seeking higher intent traffic; we just need to collaborate with them effectively.

Great. And then one follow-up with the new experience regarding insurance and the insurance check-up. I just wanted to see how that's driving insurance volumes for the business overall.

Yes, we're currently implementing various initiatives. It's still in the very early stages. We are actively involved in driving insurance check-ups, which is increasing the volume in both our call centers and our distribution channels, including our internal agency and external client and carrier call centers. The implementation has been relatively smooth, but we are still in the initial stages of this process.

Yes. And J.D. alluded to cross-sell earlier, and this was one where, for better or for worse, I think I had this idea, but it was built on something that we had done years ago in the mortgage space. But basically, when we're thinking about our new experience and thinking about how we can integrate insurance, like wouldn't you just say to ask somebody going through the homeowners or auto flow, would you like a free insurance check-up by the LendingTree Insurance Agency? Even if somebody doesn't end up closing a transaction with us, at least they might get an insurance policy from our agencies. So we move that direction instead of down the integration of rates and that stuff, which will happen as well. But we thought this is a really great flow, but it's honestly so early days. I have nothing to report yet. But it should be cool.

And your next question comes from the line of Melissa Wedel from JPMorgan.

A lot of them have already been asked, but I was hoping to circle back on insurance. And given some of the optimistic comments that you've made about sort of a rebound in that cycle. I'm curious, I guess the question would be for Scott. It would seem that the cycle is a bit different, particularly impacted by persistent inflation and some of the supply chain issues that could take a couple of years to shake out. I guess I'm curious how you think the cycle compares to previous cycles? And does this impact sort of the level of confidence that you could have in the timeline of a significant rebound in this division?

Thank you, Melissa. To compare to previous cycles, the last major downturn was in 2016, which was significant for the insurance industry. I can confidently say that the current situation is much worse than what we experienced in 2016, primarily due to inflation. Back then, specific catastrophic events related to major weather patterns lasted 12 to 18 months, and the industry was able to work through those losses relatively quickly, resulting in a brief pullback in marketing before returning to normal. Now, inflation has been a major shock to the industry. Towards the end of last year, as driving behavior normalized faster than anticipated, rates had to be adjusted back to pre-pandemic levels. The industry was not prepared for the inflation metrics that emerged in the first half of this year. Key metrics such as the costs of used cars, car parts, labor, and repair times have all significantly increased. It’s uncertain if it will take two years for things to stabilize, but it really hinges on the carriers feeling comfortable that their rate increases align with rising repair costs. Current conditions are challenging, and many carriers are being cautious for the remainder of the year, forecasting that it may not be until 2023 before they start increasing their budgets again. Other carriers are monitoring the current storm season and hoping for no catastrophic weather events this summer. If the situation remains stable, they might consider adjusting their plans sooner, possibly in the fourth quarter. While I don't anticipate a two-year recovery, I do believe it will take at least six months before carriers feel assured that the premiums are at profitable levels for the customers we are acquiring. Did that address your question?

All right. And that's all the questions we have. I would now like to turn the conference back to Doug Lebda for closing remarks.

Thank you very much for your time today. And just to close, I just want to say that we really pride ourselves at LendingTree as a company that can both walk and chew gum. Operationally, we are navigating in one heck of a storm. It is not often that you see demand from our partners down across almost all of our products. However, the stuff that we've done operationally and our marketing and brand advantage that helps us win in digital and offline channels enables us to keep making money even as some of our competitors might get more challenged. In addition to that, at the beginning of the year, we were able to lay out a strategy that several key initiatives that we committed to as a team and committed to our shareholders. You heard about Marketplace 24 in the last couple of weeks, and that's a big win for our company. The process at times was contentious, but it got done, and we're going to continue to improve that process as we move into our other major projects. TreeQual, you've heard a lot about today is moving, and J.D. is hosting a 3-hour meeting after this to go even deeper on it. You heard a little bit about the insurance agency from Scott. Those unit economics are solid. It makes sense. Now it's a matter of scaling, which obviously takes time and making sure that the volume is there. My LendingTree and a couple of others; you're going to hear about shortly as we committed to. There's a lot more to come for us. We thank you for your support of LendingTree. Please know that you've got a team of 1,000 people here who are grinding and working hard every single day to operate this business as efficiently as we can and commit to with our promises to you, and we look forward to talking to you in the next quarter.

Thank you, presenters, and thank you, participants, for joining us today. This concludes today's conference call. You may now disconnect.