LendingTree, Inc. Q4 FY2024 Earnings Call

Good day and thank you for standing by. Welcome to the LendingTree, Inc. Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Operator provided instructions. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Andrew Wessel. Please go ahead.

Thank you, Lisa, and hello to everyone joining us on the call to discuss LendingTree's fourth quarter 2024 financial results. On with us today are Doug Lebda, LendingTree's Chairman and CEO; Scott Peyree, COO and President of Marketplace Businesses; and Jason Bengel, our CFO. As a reminder to everyone, we posted a detailed letter to shareholders on our Investor Relations website before the start of this call. And for the purposes of today's discussion, we'll assume that listeners have read that letter and we'll focus on Q&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 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 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, everyone, for joining us today. We are delighted to report the company finished 2024 on a very strong note, generating $32 million of adjusted EBITDA in the fourth quarter which was well ahead of our forecast. Another quarter of terrific performance in our Insurance segment was the primary driver of this result, while our Home and Consumer segments also generated strong year-over-year growth as well. Last year, we benefited from the beginning of a very strong cycle in auto insurance demand from both consumer and carrier perspective. I would like to call out the momentum we are generating in several other parts of our business. In the fourth quarter, year-over-year revenue growth across some of our key product offerings included — homeowners insurance was up 175%. Home equity grew 48%. Small business grew 45%. Personal loans and auto loans both grew by 21%. And mortgage grew 12%. Importantly, we expect double-digit revenue growth will continue in each of these products in the first quarter of this year. The key message I would like to share with our shareholders is that the company has returned to growth after a prolonged period of difficult operating conditions. Our forecast for the year confirms our growth outlook with an adjusted EBITDA outlook calling for 16% annual growth at the midpoint of the range and we expect this result will be driven by revenue growth across all three of our reportable segments which is a testament to the value of the diversification of our business model. We have also maintained a laser focus on our variable marketing and fixed costs. This discipline will help us generate positive operating leverage as we continue to scale our revenue base. Our balance sheet has improved significantly over the last year as well, with net leverage ending the year at 3.5x trailing adjusted EBITDA. We expect leverage will continue to trend lower as earnings growth continues and we reduce our debt balance further with excess cash. We believe the substantial improvement in our credit metrics will allow us to lower our interest expense and our debt and improve free cash flow generation for shareholders. We entered this year with strong momentum exhibited in our fourth quarter results. Our business functions at its best when there is consistent demand from both sides of our marketplace. We expect stable interest rates, a healthy consumer and an outlook for continued economic growth will drive accelerating demand from our customers as well as our lending and insurance carrier partners. We are energized for the year ahead and look forward to continuing to create value for our shareholders from our operating results. And now, operator, we're happy to answer any questions.

And the first question will come from the line of Ryan Tomasello of KBG.

I just wanted to start on insurance. I guess, if I simply annualize your second half revenue performance, that would still imply pretty robust growth in 2025 over 2024. So I'm just trying to tie that back to your comments in your shareholder letter for more modest growth in 2025 which sounds like it's relative to the double-digit growth you're expecting in your other segments. So anything I'm missing there? Or just trying to understand the nuances around what's going on with insurance this year.

Yes. Ryan, hi, this is Scott Peyree. I'm answering your question there. And I would say everything you said is generally right: we are expecting more modest growth as the year goes on. Compared to the first half of last year, I think we're still looking at strong growth. And as the year continues on, there's going to be harder and harder comps against where we're at. But I would caveat that around almost all of our carriers are still in a growth position with us and they've made that pretty clear to us. They are going to be a little more diligent this year as far as being smarter with their marketing dollars and being closer tied to what the most profitable areas for that are. So definitely, we still expect insurance to be a really good story in 2025. As the year goes on, I think you're going to see that growth moderating. But for us as a company, we're also going to be very focused on returning our VMM margins back to more of our historical norms. And so I would say the story in 2025 is more moderate overall growth with our margins starting to get back up to that low to mid-30s range.

Okay. Thanks for clarifying that. And then I was hoping you could elaborate on the opportunity to potentially take more price across the business, particularly in the Insurance segment. And I guess tying that back to TCPA, understanding that that is now being vacated but were there any measures that you had teed up or had already put in place that you still might be benefiting from in 2025, including price increases?

Yes. It kind of depends on the different products we sell in insurance. Our click product, which is our biggest product, is more of a market-based pricing where people are paying to be in a certain ranking in the sort order on the page. As you have more competition, as more carriers get in, that creates those market pricing dynamics. The lead pricing, which would be more around the one-on-one consent TCPA-type leads, we had been communicating to our clients price increases that we were planning to put in place. For the most part, we agreed with our clients that when that issue went away we were not going to charge those price increases because that was no longer an issue we were dealing with.

And our next question will be coming from the line of Jed Kelly of Oppenheimer.

Yes, just on insurance, I mean, I think we've seen strong results across the board from a lot of the marketplaces. Just as we sort of go throughout the balance of the year, can we — can you kind of tell us how we should gauge on what companies are taking the most share and kind of how we should view sustained share gains once this up cycle ends? And then just my follow-up is, we're sort of seeing the new administration sort of targeting lower interest rates. Can you just talk about how we should view rates in regards to your full year guide?

On market share, I would start in general with us and with our competitors. For the most part, you're seeing the big carriers that were really leaning in last year are still the ones that are leaning in. We definitely have a number of other carriers, smaller carriers, that are starting to get in more and growing rapidly. But from a holistic perspective, it's really the top three or four carriers that are driving the market at this point. If I were to guess, it will still be those three or four carriers that will drive the market through 2025.

On interest rates, any lowering of interest rates and I've noticed the treasury bonds and bills have moved downward a little bit. That definitely helps our Home business. It helps all of our businesses. Those businesses are based on consumer interest which is influenced by interest rates. As interest rates fall, there's more consumer interest and the lenders have more flexibility to approve somebody because the payment is lower and therefore they can get it approved with their income. So it's better for everybody. And even if you had a consumer who's not as strong, we would obviously prefer a low interest rate and a low inflation environment. That combination is what hurt us the most over the last four years.

Jed, I'll just add on to that. As it relates to the guide for home, we're not contemplating any material reduction in rates. We're kind of assuming basically the rate environment that we are in today. What we're assuming in the guide is a continuation of the strength in home equity, where that's a product that works really well for consumers and then it works really well for the lenders as well. So we're assuming that strength of monetization in the RPL continues throughout the guide but not benefiting materially from any rate decrease.

And what's cool about that is consumers are managing their balance sheets just like LendingTree is managing our balance sheet. They'll say, 'Okay, I've got equity in my home. It doesn't make sense to refinance the whole thing.'

And the next question will be coming from the line of Youssef Squali of Truist.

Youssef Squali. So maybe a question for Scott and one for Doug. Scott, just doubling on the insurance question. I guess as you look at the business beyond maybe 2025 and maybe because you're an insurance man, having been in the business for a long time, as you look historically at the steady state in a normalized environment of insurance, can you maybe share with us where that steady state historically has been, maybe a range? And any reason why we shouldn't be back to that kind of level? And then, Doug, maybe on the Google algorithm change, some of your competitors did suffer from some of the changes that we saw a couple of times last year. You guys clearly did not. Maybe remind us again about the strategy around SEO versus SEM, organic traffic versus not. How much of your traffic is actually organic? I'm assuming it's a minority but maybe just discuss that as a headwind to competitors but maybe not as much to you guys.

I'll start on the insurance side, Youssef. We're already running at all-time highs. So it's not a matter of getting back to a level; we're running at all-time highs. If I compare it to the last big downturn which was in the 2016 time frame — and first off, that downturn wasn't as severe as this most recent one — after we got out of that downturn in the industry as a whole, there was a significant step-up, almost a doubling of the business from the previous highs before that, before it reached a level where it kind of leveled out for a period of time. It wasn't just us, that was the industry as a whole. When you come out of these downturns and a lot of these carriers reset their marketing budgets, every single time you see more orientation towards online performance marketing because that bottom-line performs better than most other marketing categories. I think you're seeing that same phenomenon happen this time around, where more dollars are coming to companies like ours and our direct competitors. I think it will continue to grow over the next 18 to 24 months because the carriers are in a very profitable position to the point where a number of them are already looking to give rate back in certain areas which will create another shopping cycle when that starts to happen. So I think we've got higher highs in front of us. Then when it reaches that steady state, it's really a matter of whether there's a huge impact like inflation coming out of nowhere, which as long as we can be in a steady state, the business will run in a steady state.

On SEO and organic traffic, call it 15% to 20% of our traffic is organic. SEO is a piece of that. The rest would obviously be people hearing us and typing us in, etc. In terms of the Google algorithm change, what I've noticed Google doing — and I agree with it — is they are giving more credit to high-quality, unique content that really aids the consumer. They did things like shutting down the marketplaces on some news sites because those sites were leveraging their credibility to sell disparate things like mortgages or other unrelated product listings. We feel really good about it because our business has always been focused on paid marketing, and I've wanted our SEO side to work since 1999. For the first time, it's really taking hold. The team is working well. We've made a number of changes, and we are coming from a small base and can grow into it. We happen to have the advantage of high-quality content. So as we leverage that and use the LendingTree brand, integrate acquisitions we've made, and get the processes right, there's a lot more traffic to go after. Fifteen percent of your volume still produces a significant amount of EBITDA to Tree.

And we're very happy with where we're at on SEO. Our SEO revenue in the fourth quarter was actually up 30% year-over-year. So to Doug's point, we're happy where we're at and with the trajectory. Our media practice has been very successful broadly, whether it's paid search, SEO, social, display, or programmatic — all of our categories are performing very well.

Amen.

The next question will be coming from the line of John Campbell of Stephens.

This is Oscar Nieves on for John. Congrats on the strong quarter. So the Consumer segment grew for the first time since 3Q 2022. Do you feel like you're in a position for sustainable growth for at least the near to medium term? And as a follow-up to that, what do you view as the key swing factors determining your pace of growth over the near to medium term?

I'm going to — Scott, maybe take the Consumer segment and I'll take swing factors with Jason.

In the Consumer segment, there's a lot more good than bad. The credit card business is still rough which I think is industry-wide. But our small business channel is on a large growth trajectory. We've been actively ramping our direct sales force and that's been highly successful. We have a very qualified sales force that we've been growing. One of our top partners that we originate loans through actually informed us in January that we were their number one originator of anyone they worked with. We feel like there's a lot of growth from there, both from increasing our direct sales force and the opportunity to drive more traffic from many areas we haven't tapped into yet. Personal loans have been growing well for us, grew 20%, and will be growing double digits in Q1 as well. Many public personal loan lenders have reported they are growing and their financials are improving, which is good since these are big clients of ours. Credit boxes are still relatively tight, but as long as we can find the consumers that meet those credit boxes, our clients are actively telling us 'Bring them on.' They want to originate those loans and they're seeing very profitable growth. Auto loans are another category with a lot of momentum. So the consumer products in general: interest rates are still a little high but there are many consumers looking for lending options. As long as we're good at driving those consumers through our site and matching them to clients in a way that provides solutions, there's a lot of growth for the indefinite future, even without interest rates coming down.

In terms of swing factors, one is obviously macro: if we get raging inflation and insurance companies have to chase premiums again and high interest rates because the Fed is tightening, then that obviously gets a lot harder. The opposite is true as well, it gets easier for us with a better macro environment. The second thing, which we really haven't baked into our numbers, is any game-changing product innovation or technology. We are working on and focused on a number of initiatives, including AI, which we're giving more focus to. The third is operational excellence. We've acquired a number of companies and grown in size; we need to make sure our operating system is right. A lot of our strategy is around cost containment, exploring a few key opportunities, and improving our operations to be as efficient as possible. It's attainable and perhaps not exciting, but it matters.

Our next question will be coming from the line of Mike Grondahl of Northland.

Congrats on a strong finish. Two questions. First, could you talk a little bit about the financial impact and benefit from winning the one-to-one consent? And secondly, the step-up we've seen in home equity, is that primarily driven by just lenders' willingness to engage and want those home equity loans more? Just trying to understand a little better what changed.

Okay. Why don't you take home equity and then I'll take the first part. Do you mind if Scott starts?

On home equity, there are a lot of tailwinds. First, our client base reoriented themselves last year. Many lenders had been focused on refinance, but as interest rates stayed high, they developed more skills around taking home equity leads and focusing on that business. We saw an inflection point in the second half of the year, especially the fourth quarter, where client demand for home equity went through the roof. They went from treating it as a fallback product to actively pursuing it because they now have sales forces capable of working this traffic. From a consumer standpoint, with little home buying and selling activity and homeowners sitting on increased equity, they're likely to do remodels, consolidate debt, or take other actions. Home equity remains one of the best-rate products compared to other lending options. So consumer demand has increased and lenders are positioned to meet it.

On the single-advisor, single-entity consent issue (the TCPA-related matter), our initial expectations were that we would have gotten significantly less revenue from both insurance and lending specific lead products if strict single-contact consent had gone into full effect. We spent nine months working on interpretations of how that rule would apply and optimizing our approach to keep the consumer experience right while maintaining a viable business model. We were very pleased to win the court case and see the FCC step back. Our expectation had been that initially there would be short-term pain because if, for example, a lead was going to three lenders on average and that went to 2.5, conversion rates might go up and that would offset some pricing over time. So we expected a recovery over time, but there would have been short-term revenue loss. That has gone away with the recent developments. Broadly, reducing unnecessary regulatory uncertainty is good because it allows us to focus on serving consumers and working with partners, rather than dealing with legacy interpretations of old laws.

Our next question is coming from the line of Melissa Wedel of JPMorgan.

I wanted to start on consumer and looking at the margin going forward. Obviously there was a nice jump there in 4Q which seems to be pretty seasonal in nature. Given the growth that you're expecting there, it seems like maybe there might be just a little bit of margin contraction in 2025 as you invest and sort of position for wallet share gains. Is that how you guys are thinking about it?

Yes, it's Jason. For Consumer, as we look into 2025, we do expect that margin to normalize a little bit from Q4 historically to the mid- to high-40s going forward in 2025, while still delivering double-digit revenue growth. That growth will be coming from small business, which Scott talked about, as we lean into the concierge experience there — it's very high-margin for us. Other businesses continue to do well. Lender buy boxes haven't materially expanded, but within those buy boxes lenders are driving origination growth. Those things will keep revenue growth moving forward but we do expect the margin to normalize a bit from Q4.

Okay. Great. And then just looking at the Insurance segment. Appreciate that that's been in a huge recovery cycle and it sounds like you're expecting some normalization there at least to begin. I'm curious, given the impact — potential impact of some policies on — the potential impact of a dampening demand for auto just on potentially higher price, what sort of impact would you expect that to have on revenue trends within the Insurance segment specifically?

You mean like tariffs on auto parts that would ripple through the insurance market, or fewer people shopping for cars because of higher costs? Is that what you mean?

Well, if there are just fewer people shopping for cars, car sales go down because of higher costs from tariffs, yes, as a hypothetical.

Car shoppers are part of the group of consumers that come shopping for insurance, but they are a minority of our overall consumer base. The beauty of the property and casualty insurance market is most consumers get a renewal every six months. Everyone gets a bill reminding them they should probably shop and check rates. Many consumers have experienced significant rate increases over the past couple of years, which drives shopping behavior. I don't think that shopping behavior slows down in 2025. Looking to 2026, the next phase of the recovery may be that insurance carriers become profitable enough that they start reducing their rates. A lot of times, they are legally obliged to reduce rates. If carriers become too profitable, that creates another shopping cycle where consumers know they can get better rates by shopping again.

We want to make it as simple as possible for people to comparison shop for these products because there's always an opportunity to refinance or switch insurers as your personal situation or carrier pricing changes. That can lead to real consumer savings.

And this does conclude the Q&A session for today. I would like to go ahead and turn the call back over to Doug Lebda, CEO, for closing remarks.

Well, you guys are easy on us today. Thank you all very much. We are very happy to share the outstanding fourth quarter results today and we're energized by the growth opportunity ahead of us in 2025. After achieving 33% adjusted EBITDA growth last year, we expect to grow another 16% at the midpoint of our forecasted range in 2025. I'm incredibly proud of our team for persevering through a difficult period that began at the onset of the COVID pandemic. None of us would have expected the fallout from both the direct and second-order effects would have lasted as long as they did, but our company has emerged stronger and more focused as a result. I look forward to updating you all on our progress in the quarters ahead. Thank you.

Thank you for joining today's conference call. You may all disconnect.