LendingTree, Inc. Q1 FY2025 Earnings Call

Good day and thank you for standing by. Welcome to the LendingTree Inc. First Quarter 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Andrew Wessel, Senior Vice President of Investor Relations and Corporate Development. Please go ahead.

Thank you, Dede, and hello to everyone joining us on the call to discuss our first quarter 2025 financial results. On with us today are Doug Lebda, LendingTree's Chairman and CEO; Scott Peyree, COO and President of our 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'll assume that listeners have read that letter and will 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'll also discuss a variety of non-GAAP measures on the call and I refer you to today's press release and shareholder letter, both available on our website, for the comparable GAAP definitions and full reconciliations of non-GAAP measures to GAAP. With that, Doug, please go ahead.

Thank you, Andrew, and thank you all for joining us today for our first quarter update. All three of our business segments generated solid revenue growth in the first quarter. Adjusted EBITDA, however, came in just below our forecast driven by temporary regulatory headwinds in our insurance business and one-time expenses related to benefits and legal fees. We are now one month into the second quarter and we are seeing improvements in those areas. As a result, we are still forecasting strong adjusted EBITDA growth of 15% at the midpoint of our annual outlook that we updated today. As we discussed last quarter, our Insurance segment was impacted by the FCC's pending one to one consent rule. An appeals court rescinded that rule and subsequent rulings have eliminated the possibility that it will be resurrected in the future. We expected a sharp recovery once we reverted back to our previous customer experience, but it has taken longer than anticipated. This disruption, combined with a marketing correction in the quarter from one specific carrier, led to a somewhat softer insurance performance than we had forecasted. Despite the challenges, Insurance still grew revenue 71% year-over-year in the first quarter, and we continue to forecast annual revenue and BMD growth for the segment. In lending, the Consumer segment again benefited from growth in our small business and personal loan products. Our investment in the concierge sales team for small business has delivered significant benefits to our unit economics. Conversion rates have increased, and we have captured higher levels of renewal and lender bonus revenue as a result. We expect small business will generate record revenue for us in 2025. Thanks to success in home equity lending, our Home segment continues to produce great results in a difficult environment. Increased demand for home equity loans from both consumers and lenders is driving Home segment performance. Prevailing high mortgage rates continue to suppress demand for new home buyers and refinancing. However, slower growth of home prices and an increase in inventory of homes for sale should be helpful for the housing market going forward. As I mentioned at the beginning of my remarks, we had some one-time items and operating expenses in the first quarter. Going forward, we have offset those unexpected costs with savings identified in the zero-based budgeting process from last year. We remain committed to carefully managing our operating expenses while maintaining the ability to invest in specific growth initiatives, enabling us to produce positive operating leverage on future revenue growth. I know tariffs are on everyone's mind, so I want to address that here quickly. Obviously, we are a fully domestic company and we don't expect tariffs to have any direct impact on our business. Obviously, there could be secondary effects with interest rates or significant inflation that may impact our business. We stayed very close to our insurance and lending clients, and we don't have any immediate concerns. And now operator, we're happy to answer any questions.

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

Hi everyone, thank you for taking the questions. Doug, I wanted to start with your last point. Could you elaborate on what you're hearing from your carrier partners regarding potential profitability challenges from tariffs? Specifically, how might this affect demand for customer acquisition? Given all the uncertainty, how are you approaching your guidance for the second half of the year? Thank you.

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

To answer your question, we've been closely engaging with our major insurance clients. There is some concern about tariffs and their potential effects, but overall, these clients feel optimistic about their current profitability. The efforts they have made over the past few years have positioned them well, and they are likely in a better profitability situation now than they have been in the last three to five years. They are starting from a solid foundation and are monitoring the situation carefully. While some carriers may have begun reducing rates for consumers this year, that trend is likely to be cautious moving forward. Many carriers believe they can proactively address any inflationary impacts from tariffs, allowing them to maintain a strong position. Generally, they feel prepared to manage the effects of tariffs without significantly altering their marketing strategies.

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

Yes, I can address that. First, regarding the macro aspects, we are not projecting any specific changes based on macroeconomic factors. We will continue to monitor delinquencies, carrier combined ratios, and consumer spending to ensure stability in shopping. However, as Scott and Doug mentioned, we currently have no signs of tightening. Therefore, we will keep assessing the situation as we provide guidance. In terms of Home, we anticipate that strong growth in Home equity will persist. The rates have been fluctuating, but we do not expect changes in the rate environment for the Home segment. Consumer activity traditionally strengthens in Q1, Q2, and Q3, so we foresee an improvement from Q1 as we progress into Q2 and Q3 without anticipating any macro shifts in the consumer market, which we will keep monitoring. For the insurance sector, we expect incremental improvement from our current position. As Scott noted, there should be no effects from tariffs, and we are optimistic about enhancing our performance. We've had productive discussions with carriers, leading us to believe budgets will rise. Thus, we expect the latter half of the year to outperform the first half, particularly in insurance. Lastly, while expenses were somewhat elevated in Q1, we anticipate a modest decrease in Q2 and the remaining part of the year, which should provide further support in the latter half.

Generally, the business model is quite resilient with the two-sided marketplace. If there is a change in lender or carrier demand, there are marketing adjustments that can address those changes, both positively and negatively. Therefore, we can manage volatility effectively, unless there is a significant disruption where lenders stop lending or carriers cease to write policies. In that case, the Company remains in a favorable position. Additionally, fluctuations in interest rates can occur; if rates rise, they may fall again, which would be beneficial. This could certainly support the business, and a weakening economy can also positively influence rates. There are various ways to counterbalance these factors, but unless a major disruption occurs, we can adapt quite easily.

Okay. Appreciate all the color. Thanks, guys.

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

Hi, guys. Good afternoon.

Good afternoon.

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

I'm seeing puzzled looks here on the faces of our finance geniuses. So let's see this. Let's talk about it in general, Scott, you hit it generally while we make sure you have the numbers right.

Yes, so Jason can maybe hit on the specifics as far as like our revenue projections this year compared to our previous all-time highs. But hitting on the seasonality, there's definitely seasonality throughout the year on small business. As you kind of go into like, for example, heading into the holidays, you'll have a lot of small businesses looking for inventory loans and whatnot. But I would say in general there's so many different types of small businesses looking for loans for different types of reasons. It will smooth out in general throughout the year. And I would say just our growth we've seen, growing our direct sales staff has been very successful. As Doug mentioned at the top of the meeting, the unit economics are much better when we write the business directly. We've at the same time been able to grow our consumer lead flow quite a bit, so there's lots of small businesses out there. There's a lot more today coming through our network than we had a year ago. And we plan on that continuing to grow over time. We're adding more lenders onto the network, so that should provide us more options to provide loans to the merchants and businesses as time goes on. So, I mean, I think we've got a lot of tailwinds in the small business world. There's a little bit concern around all of the political stuff going on as far as do small businesses kind of get a little bit more conservative. We're not seeing it that at a real macro level as of yet. Maybe the average loan size is slightly less than we would historically expect over the past 30 to 45 days. But the data is a little bit thin there. It's nothing significant enough that we would change any expectations going forward. I think I would say, in general, we're very happy with where we're at and where we're projecting the small business category to be over the next year plus.

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

Yes, I mean, in general, your math is right and we do expect continued strength in this. We are leaning in. Like Scott said, we are hiring concierge reps as those unit economics work out. So, I think the other thing to point out that this is a very profitable vertical of ours. So as it continues to grow, it should provide more and more margin support for us. So, yes, I mean, I think we're optimistic about the rest of the year performance around small business.

That's useful information. Regarding the mortgage marketplace, it used to be a primary focus for your company, but it has been largely inactive recently. The macro environment has been quite challenging. A few years ago, your revenue from this business was $376 million, while last year it dropped to $40 million. It seems like this could become a growth driver in the future. I'm interested to know what mortgage rate levels you believe could trigger some value and potentially lead to some growth for your company.

I don't have a specific number, but you're definitely right. It should be a huge growth driver and is largely, in many ways, stuck from a refinance standpoint. That's why home equity is a great substitution product for lenders and consumers in this type of environment so you really need to look at it in total. You know, I don't know what the amount is, Scott. I don't know if any of you guys have a specific number, but you know, it's going to happen. It's going to happen someday. And the good news is this time around, I think technology will enable more loans to go through the pipes, which will mean that you won't have lenders shutting down as much as they had to last time. I think the mortgage process become much less manual. Scott?

Yes, I’ll just add that you are absolutely right about the combination of cash-out refinancing and new purchases being a significant area for us during good times, which has been inactive for the last few years. Home equity is truly the main factor driving the growth we're currently experiencing. While our purchase and refinance business is indeed growing, it is starting from relatively low levels compared to last year. A lot of what I’m hearing from the industry indicates that if interest rates reach the fives, with 30-year rates starting with a five, we are likely to witness a significant transformation in the industry with robust growth returning. In the meantime, we are focusing on our growth, working diligently with our clients, and ensuring we have a strong distribution network. The demand for our product remains very high; it’s mainly about the number of consumers currently seeking those products.

Okay. Thanks, guys.

Thank you.

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

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

Yes, Jed, starting with the VMM side, as I've mentioned in previous earnings calls, I believe that as things stabilize over time, we aim to be in the low to mid 30s for VMM. We saw some good improvements in the fourth quarter. Regarding the SLC headwinds that Doug talked about, we experienced some shifts in carrier budgets and new technology bugs in our system. We had a slight setback in the first quarter, but those were one-time events that we are addressing and resolving. We are focused on optimizing our performance, and we expect to achieve the low to mid 30s long-term at a normalized rate, likely sooner than later. As for Home Insurance, it is indeed a very popular and growing product for us. In the first quarter, we saw even more growth than anticipated, as carriers are increasingly interested in expanding their offerings in Home Insurance. So, yes, that's accurate and reflects a strong market right now.

Thank you.

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

Thank you.

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

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

Yes, we generally anticipate that to remain sustainable moving forward. Home equity monetization is performing exceptionally well, benefiting both consumers and lenders. Although true home equity loans feature lower amounts, which negatively impacts lender unit economics, the significantly higher close rates make the economics favorable for lenders, as the product meets consumer needs effectively. Much of the margin improvement stems from the unit economics we've achieved by developing that network, and we expect these results to continue within that range in the future.

Okay, thanks for that.

Yes. And I would just add to that. There's been no intentional effort to expand margins there. As Jason said, we're within a range we're comfortable with, works for us, works for our clients.

Okay.

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

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

Consumer demand across most of our products has remained strong. We have not noticed a significant decline in demand due to consumer sentiment. However, we have experienced a slight reduction in demand related to mortgages, specifically in purchase and refinance traffic. This is a key product for consumers, and a cautious approach has impacted the number of consumers searching for these options in recent times. As I mentioned earlier, this area is currently at a low dormant point, making it one of our lower traffic segments. For our other product lines, I would say consumer volume is aligning with our expectations for normal times.

Yes. And it's broad-based. It's all loan types. Our marketing is working well in all channels. Our content strategy is working well. People are engaging with our content. We're appearing well in merging AI results. So, yes, we feel good about where we are with the consumer.

Thank you.

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

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

Yes, I'll begin, and then Jason can elaborate. Despite facing numerous challenges and high costs, I believe our worst year was around 198, marking our lowest point. Considering the various factors at play, including insurance inflation, I am uncertain about what could significantly alter the lending side of our business. On the insurance front, we see companies grappling with inflation, and it would take a prolonged period of severe inflation for that to affect us substantially. We hope to foresee such changes. On the cost side, we are consistently investing, which allows us to manage expenses. Currently, everyone is focused on positive BMD projects to sustain the company, albeit with lower unit economics. If our insurance or housing sectors struggle, we would scale back on those projects. There are still options available for us to manage costs effectively. Jason, feel free to add more details. We believe our current workforce structure—where fixed costs are known and variable costs can adjust—is working well for us. Our implementation of zero-based budgeting has been beneficial, and any additional expenses will be closely monitored. Jason?

Yes. I mean, yes, like Doug said, I think we've invested in zero-based budgeting, I mean across the whole management team. And so through that process we've identified the core of the business that we absolutely need to generate BMD and satisfy legal and regulatory obligations. And we are then able to see very clearly above that where are we spending money and are we happy with what we're getting in return for spending that money? And so should push come to show, I think we have a pretty detailed understanding of our cost base and we should be able to react. The name of the game is being quick, especially in a business like this. So, to the extent that we see an opportunity out there to lean into a marketing channel or lean into more concierge reps and small business, we will do that very quickly and monitor it very closely. And then if it doesn't work out, then we'll react to that. But should things turn down, I think we should be able to respond well with expense savings. And also there is a significant part of our variable compensation in the cost base that will naturally decrease with decreasing top line. So overall, I think we feel pretty good about our understanding and ability to execute any savings that we might need.

And then obviously the ultimate lever if you don't have demand in one of your products is marketing spend, and then you're pulling back marketing spend as your unit economics go down and you can even go farther than that. You could not do any paid marketing if you had to for a period of time and live off your organic and name recognition and SEO. There's a lot of options in a horrible scenario, and we've been able to navigate those before. And each of these individual products can be cyclical, but the two sides of the marketplace you always need to keep in mind, and there's always the marketing and they generally work together.

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

Yes, it's Jason. I'll address that. We have previously discussed this on other calls, and it pertains to Mantha. QuoteWizard has reached a settlement in principle regarding the Mantha versus QuoteWizard case, which involves class TCPA claims from 2019. The specifics of the settlement will be disclosed soon after appropriate court filings are submitted. To directly respond to your question, we recorded a liability of $19 million on the balance sheet for this quarter. It is essential to highlight that this $19 million will be paid in three equal installments: the first in the fourth quarter of this year, the second in the first quarter of 2026, and the last in the second quarter of 2026. We have reached a settlement on this matter that requires court confirmation, and the payments are scheduled to begin after we repay the convertible notes in July, which is important to mention.

Great. Thanks for the detail.

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

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

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

And obviously, that can change if the student loan refinancing market comes back and it becomes easy to start marketing again. But right now, we are not seeing low demand for it.

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

It was very small last year, so I don't know, Jason, do you have any details on the revenue there?

Definitely not. Definitely not material.

Yes. I believe that with the changes in the administration and people starting to repay their student loans, that business may eventually return. It's not that we can't pursue a student loan program and engage with lenders; it's just that we are not currently marketing it.

Okay. Makes sense. Thanks, guys.

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

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

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