LendingTree, Inc. Q3 FY2025 Earnings Call

Good day, and thank you for standing by. Welcome to the LendingTree Third 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 first speaker today, Andrew Wessel, Investor Relations and Corporate Development. Please go ahead.

Thank you, Brittany, and hello to everyone joining us on the call to discuss LendingTree's Third Quarter 2025 Financial Results. On with us today are Scott Peyree, CEO; and Jason Bengel, CFO. This morning, we posted a detailed letter to shareholders on our Investor Relations website. For the purposes of today's discussion, we will assume that listeners have read that letter and will focus on Q&A. Before I hand the call over to Scott 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 will also discuss a variety of non-GAAP measures on the call. 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, Scott, please go ahead.

Thank you, Andrew, and thanks to everyone for joining us today as we discuss our third quarter results. First off, all of us here at LendingTree are deeply saddened by our Founder, Doug Lebda's sudden passing a few weeks ago. Doug was a visionary leader who had an impact on every part of our company. He was truly passionate about creating a marketplace where consumers can find the best financial product for them at the most competitive price. He coined our long-standing and well-known marketing tagline, "when banks compete, you win". Personally, I came to know Doug as he explored buying the company I founded, QuoteWizard, back in 2018. At that time, I appreciated his entrepreneurial spirit that we both shared, his deep passion for the business, and the strong and similar culture he had at LendingTree compared to QuoteWizard. After LendingTree ultimately bought my company, I was able to know him more closely, especially in the last two years I served as President and Chief Operating Officer. I viewed him as a great boss, great business partner, and a great friend. I also came to appreciate how much he cared about all of the employees at LendingTree. For example, he insisted that full-time employees receive stock as part of their compensation, so they would think like owners. He was present at all kinds of internal company events, seeing every quarterly all-hands meeting, but also showing up at small internal meetings or celebrations, always offering encouraging words and pushing all of us to achieve more. The outpouring of condolences we have received since his passing from people across the country and within our industry has been truly overwhelming. All of us at LendingTree mourn him and keep his wife, daughters, parents, and family in our thoughts as we carry on with his legacy. I'm honored to become the second CEO in the company's history and carry the mantle of what Doug founded nearly 30 years ago. Doug and I were aligned on driving continuous improvement in the consumer shopping experience, optimizing our business through operational excellence initiatives, which I started to implement two years ago upon being appointed as COO. We also share the belief that improvements in AI technology will greatly benefit the consumer experience when they come to LendingTree shopping for financial products. I'm very excited about how Agentic AI, LLMs, and other AI tools can transform the shopping experience of our products over the next few years. Finally, we both agreed we needed to ensure our balance sheet was equipped not just to survive future periods of economic stress, but to thrive in them, allowing us to go on the offense when competitors are pulling back and our customers need us more than ever. Reflecting on the incredible business Doug created, it seems appropriate that in the third quarter this year, our revenue of $308 million was our second highest in the company's history, barely missing our high point when the Fed rates were essentially 0. Each of our three segments recorded double-digit year-over-year revenue and VMD growth. This is the sixth consecutive quarter we have reported revenue growth from the prior period. The company's diversification across industries is allowing us to lean into areas of high demand, most notably from our insurance carrier partners looking for new auto customers. We have retaken a leadership position in the insurance marketplace. We will continue matching carriers with quality, high-intent consumers to capture an increasing share of those insurance companies' marketing budgets as we move into next year. This is a similar strategy we employed during the downturn in carrier demand in '23, which led us to being well positioned with leading market share in the industry when the industry recovered and then boomed in '24. Importantly, we've begun to see a strong ramp in spend outside of our top three carriers, an important indicator of the health and duration of this cycle. Specifically in Q3, looking at our 4 through 10 largest carriers in our network, so taking out our top 3 carriers, those next 7 spent with us increased by nearly 60% compared to a year ago. Our Consumer segment is also producing fantastic results. Segment VMD grew 26% on the quarter and there was 11% revenue growth. Our small business team has just been spectacular and benefited from our investment in the concierge sales strategy. These high-touch customer service models helped us drive a 30% increase in the number of loans we closed for partners in this quarter versus last year, contributing to an overall 50% year-over-year increase in revenue. It has propelled growth in our high-margin bonus and revenue referral revenue streams as well. The personal loans business continues to grow nicely as lenders are steadily and cautiously widening their credit criteria for borrowers. Notably, close rates for both prime and mid-prime loans for debt consolidation grew by double digits in the quarter compared to the prior year. Record consumer credit card balances and the forecast for lower short-term interest rates should help accelerate the growth of this vertical in the next year. The Home segment is also doing quite well. Despite persistent high mortgage rates and a sluggish housing market, revenue from our home equity product increased 35% in the third quarter as lenders continue to target this product given the lack of demand for first mortgages. Existing home sales remain stuck around the 4 million annual unit level. You'd have to look back to the financial crisis period of '08, '09 to find similarly low activity. Before we take your questions, I want to let the investor community know that we are extremely well positioned to grow our business. Doug created a revolutionary company, the first true online comparison shopping site, and I'm honored to lead it going forward and continue executing on its original vision. I would also like to thank all of the employees at LendingTree for putting up such strong performance and positioning us well for continued growth in 2026. We are happy to open the line to your questions.

Our first question comes from Jed Kelly with Oppenheimer & Company Inc.

Just digging into the Consumer segment, in the shareholder letter, you said your credit cards are getting back to your historical margins. It looks like consumer VMM is going to be at record annualized margins this year. So can you just talk about how we should think about all the moving parts in that segment and the margin profile and what we should look at going out into next year?

Yes, sure. Thanks, Jed. First off, I would say the consumer VMM being at the highest levels overall is largely driven by our small business segment, just because our small business is generally a high-margin category, and it has grown spectacularly. Small business was our biggest lending business in consumer in the third quarter, and with the concierge sales staff, our lead growth, our positioning in that market, we do expect that to be strong growth for the indefinite future. We are very excited about that business and where it's going. Honestly, I also think we have some other businesses for proprietary reasons. I won't say specifically which ones, but we think we can move that similar concierge sales model into, and we will be actively engaging that in '26, starting to build a direct concierge sales team, which is both great for the customer experience as well as for the monetization of the traffic. To hit on credit cards briefly, yes, we were focusing on rolling out TreeQual and just pulling back the margins in that business had gotten really low. So there was a real focus over the past 12 to 16 months on getting the business back in good, healthy shape and running at solid margins. We have done that, and it's been great. It's a smaller piece of the overall consumer business, but it's much healthier today than it was a year or two ago. I think that positions us for getting back into top level growth mode next year.

Okay. And then obviously, I think the other real good point about the quarter is just where the balance sheet is. Great job on your part, getting it down to 2.5x leverage. Can you just talk about where you're going to prioritize capital returns, buybacks, paying down debt, or investing in the business?

Yes, Jed, this is Jason. I can take that one. Yes, we're very happy with the completed refinancing this quarter. We think that's a great event that's going to allow us much more flexibility going forward, like you said. Our leverage has continued to come down to 2.6x. It was 4.4x a year ago, and it was much higher than that even before that. When it comes to capital allocation, I think our first priority, our default, is going to be paying down debt. That's a risk-free return of north of 8%. Now because we have a cov-lite term loan, we do have the option to start thinking about buying back shares and doing selective M&A. We're certainly going to look at those things. If we see the stock trading at an attractive price, we will consider buying back shares. If we see an acquisition out there that will be beneficial to us, we'll also consider it. But I would say the default is generally going to be paying down debt.

Our next question comes from the line of Ryan Tomasello with KBW.

My sincerest condolences for the loss of Doug. In your insurance business, Scott, if you can just elaborate on what gives you confidence that this cycle has legs into next year? And then just remind us of the typical composition of revenue between the top and low end of the funnel. It sounds like variability in that mix is a main driver of the margin volatility. And just how you're thinking about what a reasonable trajectory is for segment margins in the insurance business from here?

Okay. Yes. Starting with the sustainability of the industry levels, I mean, I would just open with the insurance industry as a whole on a macro level remains in a very, very profitable position. These companies, after the deep downturn, are in a very healthy position to the level where a number of companies are starting to look at rate reductions for their policies, indicating that they are that profitable. So I think we're in a good position where all of the major clients that are spending marketing dollars with us are in very healthy conditions. There's no reason to think that they won't continue to aggressively pursue market share in the upcoming year plus, which is great for us as we're a major place to go if companies are looking to increase their market share. Talking about the product lines within insurance and how it affects margins, that's a very true statement you're making. We've got clicks, leads, and calls as our main product lines in insurance. Clicks generally produce the lowest margin while leads and calls have much larger margins, but they all work together. When our major clients become click buyers, it drives our revenue way up but at a lower margin profile. However, it allows us to secure much more traffic, which means we can sell more leads and calls at the end of the day. So while the overall margin profile may go down, you generate so much revenue and sell more leads and calls that overall VMD goes up significantly. Q3 is very reflective of that strategy, having over $200 million in revenue with just under $50 million of VMD, marking our second biggest VMD quarter of all time, aside from Q4 last year, which was abnormally high as discussed in previous calls. I believe this business is well positioned, especially for the first six months of next year, to see very strong VMD growth in the insurance segment.

Yes. I'll just tack on to that. Just to Scott's point, if you look sequentially from Q2 to Q3, insurance VMD went up $8 million. $8 million will largely contribute to EBITDA. Our focus is on driving operating leverage, keeping expenses under control, and dropping VMD dollars to EBITDA. We're happy to invest in variable expenses that will drive VMD and focus on efficiency everywhere else so we can really increase operating leverage into 2026.

And then consumer credit has come under more scrutiny of late. I’m curious what the latest is you're hearing from your lending partners on appetite and credit boxes, particularly regarding your personal loans business. Have you noticed any signs of tightening more recently? Or do you think there’s still room to run on the conversion rates, which sound like they improved nicely here in the quarter?

Yes. Overall, at a macro level, I've observed the same trends that you're referring to. However, when it comes to our clients, they aren't expressing the same sentiments. Their credit boxes and delinquency rates are generally well within acceptable ratios for them. We've seen a few of our clients on the deeper subprime side pull back a little, indicating more concern at that level. But overall, I'm noticing more expansion than contraction regarding credit boxes.

Our next question comes from the line of Mike Grondahl with Northland.

Condolences and prayers for Doug's family and the LendingTree family. Two questions. First, could you talk at a high level about the SEO, the GenAI sort of environment and how that's changing and affecting the quality of leads you're seeing overall and the conversion trends? Second, I'd be curious about the overall visibility in the business today compared to a couple of the previous quarters.

Can you be more specific with your second question?

Yes. We debate from time to time about the revenue visibility that you guys have. Can you see out 60 days, 90 days? How do you feel about your revenue visibility today versus prior quarters?

Okay. Starting on the SEO front, along with LLM, our AIO strategy is gaining traction. LLM and AIO type traffic is increasing. From a conversion perspective, it's a dramatic difference when you get traffic from LLMs or AIOs, literally achieving 4 to 5 times the conversion rate. This likely happens because users arrive ready to transact. However, the traffic volume is much lower than SEO for two reasons: there are still significantly more consumers going to traditional search results versus the emerging LLMs, and the placement within LLMs is still developing. SEO has been very turbulent in Q3, with shifts in traffic impacting the entire financial services industry. I wouldn’t want to be a company heavily reliant on legacy SEO traffic. I think it's fair to say that the era of free-ranking high on Google is coming to an end. On the brighter side, paid search traffic, which we excel at, is continuing to perform well and grow. So yes, it's a turbulent market and a transitional period where participation in legacy SEO still matters, but it's critical to focus on developing content and data openness for LLMs and AIOs. Regarding our revenue outlook, starting with insurance, after a turbulent period over the past few years, we’re seeing it become steadier and more predictable following the hyper-growth phase. There should still be growth, but not in the hyper-growth manner. For consumer and mortgage assessments, the situation is trickier because it relies significantly on the inflection point of refinancing. We are looking at mortgage rates around 5.75%. When we reach that level, the ratio of mortgage borrowers in the money significantly increases—nearly tripling compared to rates earlier this year. However, I cannot predict the exact point we will trend down to that level. Once we do reach 5.75% or lower, we could see rapid revenue growth. Consumer trends seem more stable, as our media practices and direct sales force show steady growth predictions.

Yes. It does. Just one quick follow-up. Are you seeing lenders engage more actively and potentially prepare for the refi environment at 5.75%? Are they making moves today to be in a position to capture that?

Yes, I think so. Many lenders are staffing up in our home equity business. It’s not as profitable as refinancing, but they want to be prepared for that refi boom. Additionally, our control over destiny mode includes actively pursuing a small lender growth strategy, ramping up our total distribution network quickly. We’re not just targeting major direct-to-consumer players. When that inflection point occurs, we want to have 1,000-plus clients on our network ready to absorb that demand when it explodes.

I am showing no further questions at this time. I would now like to turn it back to Scott Peyree for closing remarks.

Thank you, operator, and thank you, everyone, for your questions today. I look forward to speaking with you all on follow-up calls and in person at investor conferences in the near future. Have a great day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.