Thank you for joining us for LendingTree's Third Quarter 2024 Earnings Conference Call. All participants are currently in listen-only mode. Following the speaker's presentation, we will have a question-and-answer session. I will now pass the call to Andrew Wessel, Senior Vice President of Investor Relations. Please proceed.

Thank you, Atif, and hello to everyone joining us on the call to discuss LendingTree's third quarter 2024 financial results. On with us today are Doug Lebda, LendingTree's Chairman and CEO; Scott Peyree, COO and President of the Marketplace Businesses; and Jason Bengel, 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 will assume that listeners have read that letter, and we'll focus on Q&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. 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 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.

Thank you, Andrew, and thank you to everybody for joining us today. We are happy to announce that we generated $27 million of adjusted EBITDA in the third quarter, a 23% increase from last year. The quarter was highlighted by another standout performance from insurance, along with encouraging signs of growth across our home and consumer verticals. We have continued to benefit from very strong consumer demand for auto insurance quotes, with segment revenue increasing an impressive 210% from the third quarter of last year. Insurance earned $41 million of VMD during the period, a record result, and we believe there is room for further margin improvement. A small number of carriers are still driving the bulk of spend on our network this year, and some large population states are still seeing limited demand from carriers due to concerns over rate adequacy. As more carriers return to historical spend patterns on our network and insurers begin to target consumers in those lower demand states, we see opportunity for additional upside. Our consumer business grew revenue 6% and VMD 4% sequentially, our third straight period of sequential improvement. Initiatives in our consumer business were the cause. First, on our small business product, we enjoyed consistent demand from lenders looking for high-quality borrowers, and this is the consistent highest margin unit on our network. We grew our concierge sales group to better serve our customers, and these additions have helped improve our customer satisfaction and loan close rates, which have allowed us to invest more in marketing to capture additional high-intent customers searching for financing. Second, in March of this year, we also made the decision to lean into our personal loan product, implementing a similar playbook as we had used with insurance during the industry downturn last year. At the beginning of 2024, as lender demand on our network had stabilized and we felt confident that growing our marketing spend would lead to more closed loans and thus better financial results. We're happy to report that this decision has paid off with both revenue and VMD growing sequentially again in Q3 for the second quarter in a row. Conversations with lenders on our network have indicated that credit conditions may loosen as we approach late 2024 and early 2025. We expect the business to produce strong results next year. Our Home segment has been operating at trough levels due to various macroeconomic factors, including higher mortgage rates and a suppressed home sale market. However, home equity now accounts for two-thirds of segment revenue, generating 5% of revenue growth from the prior year. We believe home equity is well-positioned to continue steady growth. Now operator, we are happy to hand it off to questions.

Our first question comes from Jed Kelly of Oppenheimer & Company. Please go ahead with your question, Jed.

Hey, great. Thanks for taking my question, and good quarter. Just two. Just on insurance, it seems that everybody in the insurance industry or insurance marketing industry is doing well. Can you just kind of give us a roadmap on how we should view the industry over the next 18 months? And if investors are comparing your results versus other players, how do we know you're seeing share, better margins? Can you just talk about where you stand on insurance? And then I have a follow-up. Thank you.

Scott, why don't you take that?

Yeah, sure, Jed. This is Scott Peyree. First off, just at a macro level, as you talk about the next 18 months or so, I think we and all of our competitors will see and expect strong results over the next 18 months. The insurance industry is in a very good spot. It's still, I don’t know if I’d call it an early innings, but still mid-innings of the growth cycle here where carriers haven't opened up all their states or products for all their geos. The lean in is continuing to happen. Is the hockey stick going to be at the same level it was in Q2 and Q3 this year? Probably not. But I would still expect growth across the board, and carriers have a very high demand for new consumers, which will continue in the indefinite future. In about 12 to 18 months from now, you'll probably start to see actual rate reduction cycles when carriers reach a certain level of profitability and begin reducing their insurance rates, which will then create another snowball effect of consumer shopping. Talking about us specifically, how do we differentiate? I mean, I would say for starters, we've built a lot of direct client distribution. We have multiple products: clicks, leads, calls, and our own agency. We're able to work with a much wider breadth of insurance carrier clients than some of our competitors who may only have a single product, like a click product. We have a large local agent base, which creates a differentiated position for ourselves both in downtimes and in good times.

Thank you. And then just as a follow-up, we've seen in various industries, yours and some of the other affiliate industries, some SEO headwinds from Google changes, maybe with AI, maybe pushing Reddit a little more. Can you talk about how that's impacting LendingTree? Thanks.

I'll hit it at a high level and then anybody else can add in. Listen, largely, this goes back almost 30 years now. We really want to be independent of traffic sources. So Google's SEO ranking algorithms, we are happy to benefit from Google’s free traffic, but we also don't want to be dependent on it. Some competitors that have a mostly SEO business rely on free traffic but are not able to flex up and down. We'll be different vis-à-vis them. We're also working on our SEO efforts as well and improving that while we speak, so we want to have a very balanced view of where our customers are coming from and then hopefully own our customers and be able to market to them to bring them into whatever service it is.

And this is Scott. I'll just add on to what Doug said regarding the paid search side. We partner very closely with Google, who has implemented a number of AI-based bidding algorithms that we work very closely with. They have told us themselves that we work at a more sophisticated level than most of our competitors do. From a traffic standpoint, we're driving more traffic from Google than we ever have. So we're not really seeing traffic headwinds from Google.

Thank you. And good quarter.

Thanks.

Thank you. Our next question comes from the line of Ryan Tomasello of KBW. Please go ahead, Ryan.

Hi, everyone. Thanks for taking the questions. Maybe just starting with the insurance business, Scott. You put up a mid-20% variable marketing margin in the quarter. It sounds like the interpretation of your comments is that you're viewing that as a trough. I don’t want to put words in your mouth, so maybe you can just clarify your outlook for VMMs and provide a range of scenarios for next year around what it would take to drive a meaningful improvement and where you think stabilized VMMs could look like for insurance next year.

The only thing I'll say before Scott goes in is I just want everybody to remember that the next - if we're going to pay to drive volume and marketing expenses, the next leg of volume is always more expensive than the last. As we continue to step up that curve, we would expect to be leaning into spending and focusing on VMD dollars, not necessarily percentages. But Scott, take it away.

Yeah. And I would just add in, I think, Ryan, that calling Q3 a trough is a fair term. We grew our insurance revenue from Q1 to Q3 by $100 million, and there was a lot of client demand, and we pride ourselves on our ability to deliver a high quantity of high-quality traffic, and that's exactly what we were doing. Now that the hockey stick is starting to level off a little bit, again, it's still in growth. I mean, we've had a number of carriers open up new states and bring home insurance to new states. We've actually been surprised by some of the states our carriers have opened up home insurance in recently. There’s a lot of growth still, but it's not at the same extreme levels as it's been in the past couple of quarters. This allows us to lean into efficiency a little bit more. So are our margins going to go from 25% to 35% quarter-over-quarter? No, but they will start going up. Our goal is to have our margins up a couple of percentage points in Q4 in the insurance segment specifically and continue monetizing that. Long term, if you look at it as a business, low to mid-30s margins in a stable insurance environment is historically where we've been and where we would still expect to be in the future.

Okay. Appreciate that color. And then in terms of the outlook, if you can give us some guidance for the fourth quarter with respect to each of the segments. Scott, I appreciate the color on VMM expectations for insurance. But just generally, how should we be thinking about sequential changes in revenue and segment margins for the fourth quarter? Also, Q4 typically has negative seasonality. So I'm just curious to what extent you're considering that this year compared to prior years, given the current variability across stands right now?

Jason, why don't you take that?

Yeah, happy to. So yeah, I can just walk through segment by segment. Starting with home quarter-on-quarter, like you said, typically, it's down seasonally. However, our expectations are the strength in home equity that Doug mentioned is going to offset that normal seasonality. We do expect when we look at home Q4 versus prior year that we're going to see growth. And versus Q3, we're not going to see that normal seasonal decline. When we come to consumer, we expect we're going to hold margin there and generally see the normal seasonal decline that you're talking about. Regarding insurance, that also is typically seasonally down Q4 compared to Q3. However, like Scott said, we think the margin has begun to trough, and we're expecting flat to slightly improving margin quarter-on-quarter for insurance. On the expense side, we don't expect any significant changes, so it should remain relatively flat quarter-on-quarter on the expense side.

Great. Thank you for taking the question.

I'll just add in to what Jason said there real quick. What we're very positive about right now is there is inevitably seasonal impact in Q4 when you have Thanksgiving through New Year's. However, October has been a very strong month across the board in all our industries: small business has been strong, home equity has been really strong, personal loans have been really strong, and insurance is obviously very hot. While there will be inevitable seasonal impacts in Q4 that will bring down the numbers a little, just as you look at run rates, we're feeling really good about multiple categories in the business right now.

Thank you. Our next question comes from the line of John Campbell of Stephens Inc. Your question please, John.

Hey, guys. Good afternoon. Doug, maybe just a big picture question here to start. Over the last, I guess, two-plus years, you guys have seen some pretty stiff headwinds across a lot of your products. I know you've had to adjust and adapt. Obviously, you've had the balance sheet weighing on you a little bit as well. But as we start to move into a little bit brighter outlook as you guys get to a better steady-state growth environment, I'm curious about how you're thinking about the areas of your business that you might need to reinject investments into. I'd love to hear whatever is top of mind, but maybe you could start off with how you're thinking about the brand spend and how My LendingTree or Spring is going to fit into the mix?

Yeah. So the good news is, I think right now, we are definitely at trough levels, and I feel like we're starting to build back. I feel like the business is at a state of rare normalcy where you don't have crazy things going on the lender side and on the consumer side, and we're just able to focus and get projects done. So yeah, going forward, you asked about Spring and what was your other question?

Just broadly on the brand spend. I know you brought that down.

Yeah. So I don’t expect us to see a significant increase in brand spend. I don't have any updates to report on Spring. I also don’t see us budgeting anything for brand spend right now. Nothing in our numbers assumes that we need to increase it, and we won't consider it until revenue per lead and revenue per customer are up substantially so that we can justify it on a profitable basis. So right now, it’s about focusing on the things we can control and steadily improving the business without looking at a big brand budget.

Okay. That's helpful. And then, I mean, I guess VMM is going to be the big swing factor. It sounds like no big investments coming and no step-up in brand spend. On other operating costs like headcount and whatnot, how much do you expect to increase that next year?

Not much, if anything. Go ahead, Jason.

Yeah. I mean, as I said on the last call, as home and consumer start to recover with rates declining, there's not a dramatic need to add more heads to support that revenue as it comes back. Our expense base is pretty flexible, so there will be costs associated with the revenue, but we don't expect it to be dramatic.

Okay. That's helpful. And then, Scott, I appreciate the comments on kind of month-to-date of October trends across a lot of your products. It sounds like things are continuing to hold up well. Maybe if we could double-click on insurance. If you could help maybe just with the phasing, how that kind of looked month-to-month throughout the quarter and then into October, if you continue to see an acceleration?

Could you further explain that the month-to-month in Q3?

Yeah. Just how insurance progressed? Because it feels like you mentioned kind of early to mid-innings. It seems like there is still an acceleration path. I just wanted to see if that's accurate.

Yeah, I would say we saw a lot of acceleration in insurance right at the beginning of Q3. Like at the end of Q2, June and July, there was a very significant ramp-up from a number of our largest clients in insurance, which really ramped up at the beginning of Q3 and then just kind of held steady throughout Q3 at that ramp-up level. It has continued into Q4. I would say there’s maybe slight growth—certainly not leveling off at all. The difference now is that carriers are opening up one or two states that they are willing to write business in rather than opening 20 states, which was what we saw heading into Q3. Does that help explain?

Yeah, that's great color. I appreciate that. Thanks, Scott.

Thank you. Our next question comes from the line of Jamie Friedman of Susquehanna International Group. Your question please, Jamie.

Hi. Doug, do I dare to ask if there's any call out on the mortgage front? I know you’re saying here, there's a limited pool of refi borrowers, but any light at the end of the tunnel?

Yeah, we can all comment on it. So if you think about refinance, it will happen in a cascade of when consumers actually have a benefit to refinancing. If 100 people show up every day asking to refinance their mortgage, a certain percentage will have a benefit as rates go down. The percentage of them that will benefit will improve, leading to improved unit economics and lenders can refinance for them. Lenders continue to be interested in the product, as do consumers. But we don’t yet see large-scale consumer rushes to the product, which is perfectly fine and appropriate. It’s a healthy, steady improvement in a normal mix of refinancing for next year.

I would just add—the client demand is extremely strong for all those products. As Doug said, it’s just the consumer shopping behavior on refinancing with rates where they’re at. However, home equity is a very strong product right now, both from client demand and response to marketing. That's where we’re going to focus for the next six months. But as Doug pointed out, interest rates will reach a point where you’ll probably flip that over to a focus on refinance, which is more valuable to both us and our clients.

And then I got a.

Sorry, go ahead.

This is Jason. I guess I was just going to add—As rates go down, the pool of available customers will increase. It’s hard to predict what rates will do. However, some data we're looking at shows there are about 4.7 million potential refinance clients if rates are at around 6%. That pool opens up considerably as rates come down next year.

Thanks for that. And then in your prepared remarks, Doug, I think you mentioned something about insurance being still particularly concentrated with certain carriers. If I misunderstood, please check me on that. If that is the case, are you anticipating writing more policies for more carriers? How is that going to work?

What I said was that a small number of carriers have significantly expanded their spending this year, limiting the overall pool. Going into next year, we expect broader commitment from more carriers in certain states.

Yes. There are several carriers that were once significant spenders with us prior to the inflation era that have yet to return to their previous spending levels. Our historically largest clients are generally back and spending significantly, but there are definitely a list of carriers that are still spending at reduced rates compared to what they were about four or five years ago.

Okay. All right. Thank you all.

Thank you. Our next question comes from the line of Youssef Squali of Truist Securities. Please go ahead, Youssef.

Hi, this is Robert Zeller on for Youssef. Thanks for taking our questions. I'm just curious, given your reliance on search, as you see search evolving, how do you think it will impact LendingTree, and how do you expect to evolve with it? Are you expecting any changes in the near term? Also, I saw there was a $4 million settlement litigation cost on the P&L. I'm just curious if there’s anything to unpack there.

On search, here's what I'd say. We work very, very closely with Google on both the SEM and SEO fronts. We know where we are on SEO and continue to advance that. On SEM, we work closely with them to win our fair share of auctions. Google’s by no means the only source but is the largest for people typing in queries about things they’re looking for. The second question was...

Yes. The second question was on the $4 million litigation charge.

The litigation charge refers to accruing for prospective settlements that we may or may not have in arbitration and mediation. I wouldn't put too much stock in any one number around a specific case. It’s just part of the normal business costs we incur.

Okay. Thank you.

Thank you. Our next question comes from the line of Melissa Wedel of JPMorgan. Your question please, Melissa.

Good afternoon. Thanks for taking my questions. I believe it was in the shareholder letter where there was a reference to initial promising talks with lenders about expanding loan offerings to different customers. Can you provide more context on that? Are you seeing more of a general credit box reopening across the board that might impact existing products like cards or something else? Or is this a different effort, an extension of personal loans?

Scott, do you want to take that?

Yeah, sure. Melissa, on that subject, we've seen good conversations relating to our lending categories. They're opening up credit boxes in certain situations, though there's no dramatic changes yet. A number of our clients are looking for more of the same demographics they’ve been working with, which is exciting. Over the next 6 to 12 months, we expect to see lenders opening their credit boxes, meaning they'll accept a broader range of consumers. Our personal loan consumer traffic was up 50% year-over-year in Q3, but our personal loan revenue was only up 7% due to tight credit boxes. We're excited about the consumers we're adding to our database as they'll come around shopping as interest rates decrease and will be eager to reshop their loans.

Thank you.

Thank you. Our next question comes from the line of Mike Grondahl of Northland. Please go ahead, Mike.

Hey, guys. A quick question about the $125 million in accounts receivable on the balance sheet. I assume that's a couple of large insurance companies. What's kind of the cash collection cycle there?

Yes. This is primarily related to the significant insurance growth that we've seen this year. If you look at our change in AR and change in AP and accrued expenses versus the beginning of the year, you'll see they are roughly offsetting, and we’re generating significant cash this year. We’ve worked a lot to manage that working capital to align inflows and outflows in response to that insurance growth.

Got it. And just a follow-up: How should we think about free cash conversion from adjusted EBITDA, like as a percentage?

Yes, starting with EBITDA, the next deductions will be capital expenditures, which are roughly $3 million a quarter. Then we have interest paid for Apollo and the original term loan, along with working capital. We’ve done quite a bit to smooth out that working capital over the last months, so it shouldn’t be too dramatic going forward. It was significant in Q1 and Q2, but we’ve worked to smooth that out. These will generate free cash flow from EBITDA.

Got it. Okay. Thank you.

Thank you. I would now like to turn the conference back to Doug Lebda for closing remarks. Sir?

All right. Thank you all, and I am thrilled with our third quarter results. I'm very enthusiastic about the outlook ahead. I'm also grateful to all the people who helped to make these results happen. Our updated financial guidance implies adjusted EBITDA this year will grow 19% at the midpoint compared to 2023. Our team is well aligned around our goals and financial targets, and we are optimistic about the outlook for next year. The company is well positioned to benefit from the current economic environment, and I look forward to updating you all on our results in the quarters ahead. Thank you very much.

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